The International Monetary Fund (IMF) announced that its largest allocation of Special Drawing Rights (SDRs) in history, worth about $650 billion, will come into effect as of Monday 23 August.
On 3 August, the IMF’s board of governors approved the allocation with the aim of boosting global liquidity amid the ongoing COVID-19 crisis and helping the recovery process in the IMF’s member countries.
“The allocation is a significant shot in the arm for the world and, if used wisely, a unique opportunity to combat this unprecedented crisis,” said IMF’s Managing Director Kristalina Georgieva.
Georgieva noted that the SDR allocation will provide additional liquidity to the global economic system, supplementing countries’ foreign exchange reserves and reducing their reliance on more expensive local or external debt.
She also noted that countries can benefit from the allocation sum to support their economies and step up their fight against the ongoing crisis.
“SDRs are being distributed to countries in proportion to their quota shares in the IMF. This means about $275 billion is going to emerging and developing countries, of which low-income countries will receive about $21 billion — which is equivalent to as much as 6 percent of their GDP in some cases,” Georgieva illustrated.
“SDRs are a precious resource and the decision on how best to use them rests with our member countries.”
In this respect, Georgieva clarified that the IMF is providing a framework for assessing the macroeconomic implications of this allocation, its statistical treatment and governance, and how it might affect debt sustainability in order to support countries and help ensure transparency and accountability.
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, according to Georgieva.
“To magnify the benefits of this allocation, the IMF is encouraging voluntary channeling of some SDRs from countries with strong external positions to countries most in need,” she explained.
“Over the past 16 months, some members have already pledged to lend $24 billion — including $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.”
She added that the IMF is also engaging with its member countries on the possibility of establishing a new Resilience and Sustainability Trust, which could use channeled 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, according to Georgieva.
“This SDR allocation is a critical component of the IMF’s broader effort to support countries through the pandemic, which includes $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,” Georgieva further elaborated.