Global Governance called to action to ensure low-income countries benefit more from SDRs
At the confines of the 2022 Annual Meetings of the International Monetary Fund (IMF) and the World Bank Group (WBG), which takes place in person from Monday, October 10, through Sunday, October 16 in the IMF and World Bank Group headquarters, in Washington DC, Budget Advocacy Network and Christian Aid came strong in articulating the unequitable distribution of the IMF’s quota system, which is not helping low-income countries in Africa.
“This system of global governance that privileges rich countries must change to prevent more African people from falling into destitution, and to ensure that such kind of support in future benefit those who need it most", the campaign message in a video documentary aired during the Civil Society Policy Forum session, held on Thursday, October 13th, 2022, on the transparent and accountable use of the SDRs calls out.
This is speaking to the fact that the SDRs, which is meant to cushion countries foreign reserves in the aftermath of the COVID-19, did boost low-income countries with only a marginal 3.3 percentage point. Put into perspective, the least developing countries received US$33 billion (5%) of the total share.
The world’s richest economies, on the other hand, received up to US$ 400 billion, due to the IMF’s quota system, with middle-income countries scooping US$ 230 billion and low-income countries got US$ 21 billion.
Now, the Special Drawing Rights (SDRs) allocations being a way of supplementing member countries’ foreign exchange reserves, allows members to reduce reliance on domestic or external debts for building reserves.
African countries with deluge of problems would surely look forward to manners falling to save the lot.The recent allocation of $650 billion of Special Drawing Rights (SDRs) by the IMF to the world’s economies is a major achievement of international action to bridge the financing gap of many countries in the aftermath of the COVID-19 crisis. To complement it, the Summit on the Financing of African Economies, held in Paris on May 18, 2021, highlighted the possibility to magnify this allocation through SDRs channeling for the benefit of countries most in need. In October 2021, the G20 committed to channeling $100 billion of SDRs to the benefit of low-income countries, including in the African continent, small island developing states, and vulnerable middle-income countries.
General allocations are distributed across the IMF membership in proportion to IMF’s quota shares. On this basis, the share of emerging market and developing countries is about 42.3 percent which is about USD 275 billion, of which 3.3 percent (equivalent to USD 21 billion) is for low-income countries.
Ever since its creation in 1969, a total of SDRs 660.7 billion (equivalent to about US$943 billion) have been allocated. The largest-ever allocation in history was approved in August 2021 – about SDRs 456 billion the equivalent of US$650 billion
This general allocation, by far the largest to date, is a prime example of an international cooperative response to the COVID-19 pandemic.
Only about 61% of the SDR allocation, or roughly $275 billion, went to emerging and developing countries. Low-income countries received just $21 billion, or 5% of the total SDRs allocation. African countries received $33 billion in total, but the allocation is unevenly distributed. South Africa and Nigeria received more of the SDR allocation than 23 of Africa’s lowest-income countries.
Figure 5: SDRs allocation by country and region
Although the share of SDRs to total reserves are low on average for developing countries as a group, they vary greatly across countries. For example, according to the ECA and ECLAC Analysis Report (April, 2022), the new allocation is estimated to have increased the reserves of nine African countries by close to 100% or more, with Zimbabwe alone having the highest share of over 500%.
Now countries face a plethora of barriers to putting the allocation at the service of people and in a way that contributes to inclusive and green recoveries. These barriers include varying levels of central bank independence, legal restrictions on reserves financing budget support, and borrowing fees for doing so, as well as limitations of IMF guidance. The complexities and capacity surrounding the use of SDRs also hinders public dialogue on what should be a democratically accountable and transparent decision-making process, while efforts to channel unused SDRs by advanced economies are not grounded on the needs of the global South. Critically, these barriers are unique in every country.
