The International Monetary Fund (IMF)’s board approved its largest-ever disbursement (FT) of $650 billion in Special Drawing Rights (SDRs) for member countries to boost their economic recoveries from the pandemic. The special reserves, which countries can choose to exchange for currency (Reuters) and are not required to repay, are set to be available on August 23.
The allocation was first proposed in 2020, but the Donald Trump administration blocked it. It comes as the IMF recently cut its 2021 growth forecast for emerging and developing economies by 0.4 percent in light of lagging vaccine access. Those countries are set to receive around $275 billion of the SDRs under an allocation system roughly based on each country’s share of the global economy. Some observers have called on richer countries to donate their SDRs, and the IMF said it is studying (AP) how such donations could occur.
Analysis
“The SDR is an insurance policy that, even if not activated, still provides peace of mind – simply because it can be activated in case of need. Countries facing actual or perceived external constraints on their economic policies because of their limited access to foreign credit will become more confident in adopting bolder policies to speed economic recovery at home and abroad,” the Peterson Institute for International Economics’ Maurice Obstfeld and Harvard University’s Edwin M. Truman write.
“Rich countries could find creative means to recycle at least $100 billion of the resulting liquidity from high- to low-income countries to fill the pandemic-response funding gap, including vaccines, and to meet other economic recovery needs,” the Rockefeller Foundation’s Rajiv J. Shah writes for Foreign Affairs.
This Backgrounder explains the IMF.
