The International Monetary Fund’s record US$650-billion resource injection came into effect Monday, with Managing Director Kristalina Georgieva urging wealthy states to direct some of their allocation to countries lacking the means to cope with the Covid crisis and future challenges.
The creation of the reserve assets – known as special drawing rights (SDRs) – is the first since 2009, just after the global financial crisis. The IMF is setting up special vehicles to assist in channelling reserves to developing countries and already has the Poverty Reduction and Growth Trust that provides concessional loans, it said in a statement Monday.
The Fund is discussing with members 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,” Georgieva said in a statement. “Another possibility could be to channel SDRs to support lending by multilateral development banks.”
The record allocation aims to address the long-term need for reserves and to build confidence and foster resilience and stability in the global economy. It comes at a critical time as the highly contagious delta variant of coronavirus wreaks havoc in some countries and threatens to set back the world’s recovery.
The reserves are allocated to all 190 fund members in proportion to their quota. Some 70 percent will go to the Group of 20 largest economies, against just three percent for low-income nations.
As a result, of the US$650 billion, about US$21 billion will go to low-income countries and US$212 billion to other emerging market and developing countries, without counting China, according to US Treasury Department calculations.
“Countries can use the space provided by the SDR allocation to support their economies and step up their fight against the crisis,” Georgieva said.
The Group of Seven advanced economies in June endorsed a plan to reallocate US$100 billion of new SDRs to poorer countries.
Reallocation will be crucial to help countries in Africa, for which only about US$33 billion is earmarked in the SDR issuance. France has committed to reallocating part of its SDRs for countries on the continent.
To support countries and help ensure transparency and accountability, the IMF is providing a framework for assessing the macroeconomic implications of the new allocation and how it might affect debt sustainability, according to the IMF statement. The international lender will provide regular updates on all SDR holdings, transactions, and trading, including a follow-up report on the use of SDRs in two years.