The International Monetary Fund (IMF) has announced the take-off of its $650 billion set aside under its special drawing right (SDR) to provide liquidity to countries with foreign exchange reserves challenges.
The fund, which IMF accompanies with governance framework support, is expected to help countries to plug external reserves holes and reduce reliance on both domestic and external facilities.
Nigeria is expected to secure $3.35 billion liquidity support to boost wobbly external reserves. The Guardian reported yesterday, that the reserves have been on a downtrend since August 11 after what appeared like a rally in the second half of July turned out to be a breather.
Last week, the gross reserves closed at $33.52 billion while the liquid (or available) form was $33.24 billion, bringing the average figure to $33.38 billion.
Managing Director of IMF, Kristalina Georgieva, noted yesterday, that the largest SDR in the history of the scheme “is a significant shot in the arm of the world and, if used wisely, a unique opportunity to combat this unprecedented crisis”.
She said the SDR allocation would provide additional liquidity to the global economic system, helping to supplement countries’ foreign exchange reserves while “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. SDRs are being distributed to countries in proportion to their quota shares in the IMF,” he said.
According to the IMF boss, about $275 billion would go to emerging and developing countries out of which low-income countries will receive about $21 billion, which is as much as six percent of GDP of the befitting countries in some cases.
Georgieva continued: “SDRs are a precious resource and the decision on how best to use them rests with our member countries. For SDRs to be deployed for the maximum benefit of member countries and the global economy, those decisions should be prudent and well informed.
“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. 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 added that the Fund was engaging with its member countries on the possibility of 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.
The SDR is an international reserve asset created by the IMF in 1969 to supplement its member countries’ official reserves. To date, about $943 billion has been allocated.
The newly approved allocation is to address the long-term global need for reserves and help countries cope with the impact of the COVID-19 pandemic. The value of the SDR is based on a basket of five currencies – dollar, euro, renminbi, yen, and pound sterling.