Managing Director of the International Monetary Fund (IMF), Ms. Kristalina Georgieva in a statement has disclosed that the disbursement of the $ 650 billion of Special Drawing Rights (SDRs) allocation has begun.
According to Ms. Kristalina, when used prudently, the SDR allocation will help the economies involved address the current economic issues. She further disclosed that this is the largest allocation in the Fund’s history.
“The largest allocation of Special Drawing Rights (SDRs) in history about US$650 billion comes into effect. The allocation is a significant shot in the arm for the world and, if used wisely, a unique opportunity to combat this unprecedented crisis.
“The SDR allocation will provide additional liquidity to the global economic system – supplementing countries’ foreign exchange reserves and reducing their reliance on more expensive domestic or external debt. Countries can use the space provided by the SDR allocation to support their economies and step up their fight against the crisis.”
Ms. Kristalina Georgieva
She further indicated $ 275 billion which represents 42.31% of the total allocation of $ 650 billion will be disbursed to emerging and developing countries. Ms. Kristalina further noted that $ 21 billion which represents about 3.23% of the total allocation will be channelled to low-income countries.
Also, Ms. Kristalina disclosed that the IMF will provide a regulatory framework to access the macroeconomic implication of the new allocation, its statistical treatment and governance and how it might affect debt sustainability.
“SDRs are being distributed to countries in proportion to their quota shares in the IMF. This means about US$275 billion is going to emerging and developing countries, of which low-income countries will receive about US$21 billion equivalent to as much as 6 percent of GDP in some cases.
“To support countries, and help ensure transparency and accountability, the IMF is providing a framework for assessing the macroeconomic implications of the new allocation, its statistical treatment and governance, and how it might affect debt sustainability. The IMF will also provide regular updates on all SDR holdings, transactions, and trading including a follow-up report on the use of SDRs in two years’ time.”
Ms. Kristalina Georgieva
Meanwhile, Ms. Kristalina, further disclosed there have been calls to countries with strong external positions to voluntarily channel funds to countries who most needs it. Some countries have already pledged to this effect.
“To magnify the benefits of this allocation, the IMF is encouraging voluntary channelling of some SDRs from countries with strong external positions to countries most in need. Over the past 16 months, some members have already pledged to lend US$24bn, including US$15 billion from their existing SDRs, to the IMF’s Poverty Reduction and Growth Trust, which provides concessional loans to low-income countries. This is just a start, and the IMF will continue to work with our members to build on this effort.
“The IMF is also engaging with its member countries on the possibility of a new Resilience and Sustainability Trust, which could use channelled SDRs to help the most vulnerable countries with structural transformation, including confronting climate-related challenges. Another possibility could be to channel SDRs to support lending by multilateral development banks.
Ms. Kristalina Georgieva
Furthermore, Ms. Kristalina revealed that the SDR allocation is a significant component of the IMF’s broader effort to support countries through the pandemic.
This, Ms. Kristalina disclosed, includes: US$117 billion in new financing for 85 countries; debt service relief for 29 low-income countries; and policy advice and capacity development support to over 175 countries to help secure a strong and more sustainable recovery.
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