WASHINGTON, DC, 9 April 2021 – The U.S. Congress is set to approve $650 billion in the global reserve of Special Drawing Rights (SDR) held by the International Monetary Fund (IMF).
SDF provides temporary financial relief to low-income countries, especially African countries, and the approval will support efforts by the global lender to help put African economies back on the path to recovery after being badly hit by the coronavirus pandemic.
Low-income countries need to deploy around $200 billion over the next five years to fight the pandemic and an additional $250 billion to return to the path of catching up with advanced economies, according to IMF experts.
Issuance of additional SDRs would allow countries to access global reserves at the IMF to boost their depleted international reserves during over 12 months of COVID-19 induced economic and financial crises.
Last week, Rwanda’s President Paul Kagame reaffirmed support for a new issuance of SDR, explaining that it would enhance liquidity.
He, however, called for a system of accountability for how SDRs are used, as well as a method of allocating them according to need rather than according to quota.
The latter tends to punish countries with smaller populations like Rwanda.
No matter the size of the country and its quota at the IMF, “recovery from the COVID-19 pandemic depends on adequate fiscal space and liquidity,” Kagame said.
The Rwandan leader has called for “corrective action” to prevent the emergence of “a profoundly unequal global order, in which the poor have no chance of ever catching up with the prosperous.”
Under the Special Drawing Rights Act, Congress has authorized the Secretary of the Treasury to support an SDR allocation without additional legislation where the amount allocated to the U.S. does not exceed the current U.S. quota in the IMF in the applicable five-year period.
Based on the $650 billion allocation, the U.S. with 16.5 percent of the votes, will receive about $113 billion in SDRs.
What is not in doubt is that African countries need a massive economic cocktail that should, at a minimum, include loan restructuring, debt relief, and some reallocation of SDRs.
Once the U.S. Congress approves the request from the Treasury, an estimated $224 billion will immediately become available to low-income and middle-income countries in the creation of $650 billion SDRs.
The US Treasury has called for the remaining amount to be donated to support vulnerable countries.
SDRs were last created following the 2008 financial crisis.
If approved, the U.S. allocation of SDRs “would add a substantial, direct liquidity boost to countries, without adding to debt burdens,” freeing up “badly needed resources for member countries to help fight the pandemic, including to support vaccination programs and other urgent measures,” said Kirstalina Georgieva, Managing Director of the IMF in a statement issued last March 23.
The statement followed the conclusion of informal discussions of IMF Executive Directors on the technical case for a SDR general allocation.
Africa’s current shareholding of the IMF is a miserable seven percent and, even then, African countries would have to find countries that are willing to provide them with hard currency in exchange for their SDRs.