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IMF starts disbursements of $650b record SDRs allocation

By Javad M Goraya
August 26, 2021

ISLAMABAD: To boost global liquidity in face of corona impact, International Monetary Fund (IMF) has started disbursements from a record allocation of $650 billion from Special Drawing Rights (SDRs) of member states.

This allocation is more than double the size of SDR allocations of $250 billion to recover from 2009 global financial crisis. The gravity of the global crisis can be judged from the fact that IMF has already provided about $117 billion in new IMF financing to 85 countries and debt service relief to 29 low income nations. The new SDRs allocation is part of a broader programme of collective action by countries and international institutions to meet the pandemic challenge.

Keeping in view the severity of corona induced global financial crisis, Pakistan GDP growth of 4% during last financial year is highly commendable. IMF projection for Pakistan’s GDP was only 1.5% during this period. The positive momentum in Pakistan economy will be further helped with transfer of $2.75 billion on Thursday (Aug 24) from IMF as Pakistan’s share from the record SDR allocation of $650 billion. The IMF transfer of $2.75 billion is confirmed by State Bank of Pakistan by a tweet.

All countries will receive allocation from SDRs in proportion to their quota shares in the IMF. SDRs serve as an international reserves asset and are a claim on the freely usable currencies of IMF members. The member states can exchange them for hard currency from a basket of six currencies.

To date IMF has allocated total SDRs equivalent to about $935.7 billion since 1969 to member states to meet different crisis including the latest record allocation of $650 billion. As there is no conditionality attached, IMF members are free to use the new record SDR allocation to acquire vaccines, pay back external debt, support their economy or stem exchange rate depreciation. As happened in 2009 crisis, countries with strong reserves do not use their SDR allocation to exchange for hard currency but present crisis may see a higher conversion level especially among developing and low income countries. There is an ongoing debate and demand for a higher allocation of these SDRs to developing and low income countries as high income countries do not use their allocation.

Ms. Kristalina Georgieva, Managing Director of IMF in her latest statement and media article on the occasion, shared that about $275 billion is going to emerging and developing countries, of which low-income countries will receive about $21 billion equivalent to as much as 6 percent of GDP in some cases.

This allocation to emerging and developing countries is, however, only 42% of new SDR allocation. She stated that SDRs can help countries with weak reserves reduce their reliance on more expensive domestic or external debt. She added that the record SDR will help vaccinating at least 40 percent of the global population in by the end of 2021, and at least 60 percent by the first half of 2022.

Ms. Georgieva added that to ensure transparency and accountability and to help the countries, IMF is providing a framework for assessing the macroeconomic implications of the new allocations, its statistical treatment and governance, and how it might affect debt sustainability.

She said that 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. She noted with satisfaction that some better off member countries have pledged to lend a total of $24 billion, including $15 billion from existing SDRs, to the IMF’s Poverty Reduction and Growth Trust.