IMF to allocate SDRs on August 23, Sri Lanka expects around US$ 800mn
COLOMBO – The International Monetary Fund (IMF) said its Board of Governors had approved a general allocation of Special Drawing Rights (SDRs) 456 billion, equivalent to US$650 billion on Monday (2), to boost global liquidity.
The general allocation of SDRs is set to become effective on August 23. The IMF said the newly created SDRs will be credited to member countries in proportion to their existing quotas in the Fund.
Deeming the decision ‘historic’ and the allocation ‘the largest in the history of the IMF’ and ‘a shot in the arm for the global economy at a time of unprecedented crisis’, IMF Managing Director Kristalina Georgieva said the SDR allocation will benefit all members, address the long-term global need for reserves, build confidence, and foster the resilience and stability of the global economy. It will particularly help our most vulnerable countries struggling to cope with the impact of the COVID-19 crisis.
“It will particularly help our most vulnerable countries struggling to cope with the impact of the COVID-19 crisis,” she said.
SDRs are a paper asset that can be exchanged for currencies such as the US dollar by selling to other central banks that are willing to part with their reserves.
However, as long as they are held, under IMF mandated foreign reserve calculations, the recipient countries can count them as forex reserves, boosting confidence.
Sri Lanka, which has lost about a third of its US$ 4,000 million forex reserves in July after printing money and a billion US dollar bond, has been expecting around US$ 780-800 million equivalent SDRs allocation. Analysts say the SDRs the allocation would give a much-needed boost.
About US$275 billion (about SDRs 193 billion) of the new allocation will go to emerging markets and developing countries, including low-income countries, the IMF said.
The agency also expects ‘wealthy’ or countries with more monetary stability to give reserves to poorer countries.
“We will also continue to engage actively with our membership to identify viable options for voluntary channeling of SDRs from wealthier to poorer and more vulnerable member countries to support their pandemic recovery and achieve resilient and sustainable growth,” Georgieva said.
One key option is for members that have strong external positions to voluntarily channel part of their SDRs to scale up lending for low-income countries through the IMF’s Poverty Reduction and Growth Trust (PRGT). Concessional support through the PRGT is currently interest-free.
The IMF said it was also exploring other options to help poorer and more vulnerable countries in their recovery efforts. A new Resilience and Sustainability Trust could be considered to facilitate more resilient and sustainable growth in the medium term, it explained.
-ENCL/economynext.com