Regional economies received $3.17 billion from the International Monetary Fund as part of the newly issued — and largest-ever — general allocation of the $650 billion Special Drawing Rights (SDRs), which the Fund pledged earlier this month.
The SDRs, issued on August 23, are not loans, and their usage will be solely decided by the receiving countries without any conditions. The money is expected to provide temporary financial relief to countries hard hit by the coronavirus pandemic.
According to members’ quotas in the IMF, as of August, Kenya topped the region, receiving $740 million, followed by Tanzania at $540 million. Uganda got $490 million, while Ethiopia received $410 million. South Sudan received $340 million, while Rwanda and Somalia got $220 million each. Burundi got $210 million. These funds will come in handy for the beneficiaries as they seek to prop up their economies against the biting effects of the Covid-19 pandemic.
On August 2, the IMF approved the $650 billion SDR to countries as “a shot in the arm for the global economy at a time of unprecedented crisis.” IMF managing director Kristalina Georgieva then said the general allocation of SDRs will become effective on August 23, and would be credited to IMF member countries in proportion to their existing quotas in the Fund.
“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,” Ms Georgieva said.
About $275 billion of the new allocation will go to emerging markets and developing countries, including low-income economies. Sub-Saharan Africa has received $23.61 billion.
“We will continue to actively engage with our membership to identify viable options for voluntary channelling of SDRs from wealthier to poorer and more vulnerable member countries to support their pandemic recovery and achieve resilient and sustainable growth,” Ms Georgieva said.
“Members do not have to meet any requirements to receive their share of SDRs in a general allocation. They have the right to use SDRs in transactions or in operations authorised by the Fund (including, payments of financial obligations, loans, swaps, and forward transactions,” she added.
But, in a note, the Fund urged countries to prioritise addressing policy challenges related to the pandemic to prevent extended scarring, including an increase in poverty, while being mindful of containing external financing needs and managing debt vulnerabilities.
“The policy space provided by the allocation could be thus used to confront the unprecedented health and economic crisis and accelerate the global recovery. Countries that need to prioritise the policy response to the Covid-19 crisis should act flexibly and swiftly,” the note said.
“Using resources, including SDRs, to help mitigate the impact of the pandemic can yield considerable benefits in the near and long term that can, in many cases, exceed the costs of using policy space.”
In a statement, international charity Oxfam said the “receiving countries have a historic and unique opportunity to use this significant debt-free financing to ramp up their pandemic response and pave the way for a fair and just recovery that reduces inequalities.”
On August 24, South Sudan’s Central Bank Governor Dier Tong confirmed that Juba had received $334 million to improve its ailing economy.
“The resources have come when South Sudan is implementing essential economic reforms, including monetary and far-reaching foreign exchange market reforms which involve refraining financing of the deficit. The funds will improve South Sudan’s foreign reserves and help build external resilience and sustain current reforms in the exchange market,” Mr Tong said in a statement.
Africa urgently needs an economic relief package that includes loan restructuring, debt relief and a reallocation of SDRs from rich countries to navigate the challenge of a health and economic crisis.
In April, Rwanda’s President Paul Kagame said a new issuance of SDR would enhance liquidity for regional economies but called for a system of accountability for how SDRs are used, as well as a method of allocating them according to need rather than quota.
“Recovery from the Covid-19 pandemic depends on adequate fiscal space and liquidity. However, there is a sharp dividing line in today’s world. Some countries can finance their own recovery through quantitative easing. The rest must borrow from private or public creditors, much as individuals do. Without corrective action, this divergence will entrench a profoundly unequal global order, in which the poor have no chance of ever catching up with the prosperous,” President Kagame said at a virtual meeting on international debt architecture and liquidity.