. Stresses focus on COVID-19 eradication
Clara Nwachukwu
Following the execution of the historic $650 billion Special Drawing Rights (SDRs), the International Monetary Fund (IMF), has charged countries on prudent and transparent use of their share of the funds.
Of particular interest to the Fund is to deploy the SDRs into eradicating the COVID-19 pandemic to return the global economy on the path of sustainable growth.
The charge follows a growing concern on the transparency of government spending in low-income countries and especially in the use of SDRs, which are allocated based on member countries’ share of equity in the Fund.
Consequently, the IMF said it will enforce the fund safeguards assessment policy and fiscal transparency.
“We also assess governance and anti-corruption frameworks in the context of our surveillance work, as well as our work of use of fund resources. And staff will leverage these frameworks to encourage transparency and accountability in the use of SDRs,” said Ceyla Pazarbasioglu, Director, Strategy, Policy, and Review Department at the IMF.
Pazarbasioglu, who spoke in a podcast Tuesday, accessed by Sustainable Economy, also assured that the Fund will publish the board paper annual update on SDR trading operations. “And two years after the allocation, we will prepare an exposed report on the use of SDRs.”
IMF Managing Director, Ms. Kristalina Georgieva, on Monday, had announced the execution of the historic $650 billion-worth SDRs, which was approved by the Board on August 2.
“The largest allocation of Special Drawing Rights (SDRs) in history—about US$650 billion—comes into effect today. The allocation is a significant shot in the arm for the world and, if used wisely, a unique opportunity to combat this unprecedented crisis.
“The SDR allocation will provide additional liquidity to the global economic system – supplementing countries’ foreign exchange reserves and 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,” Georgieva was quoted in a statement.
And if the authorities do use the policy space provided by the allocation, the overall impact on debt sustainability will depend on how the allocation is used.
Clarifying, What $650bn in SDRs Means for the Global Recovery, in the podcast, Pazarbasioglu said the SDRs, allocated in proportion to member countries quota shares at the Fund, is meant to supplement member countries’ existing official reserve assets to help meet a long-term global reserve need especially in crisis period such as the COVID-19.
Specifically, she said: “The SDR allocation helps member countries to boost their buffers and strengthens economic resilience. It also reduces the need to rely on more expensive domestic or external debt to build reserves.”
She equally noted that “By itself, the SDR allocation does not negatively impact members’ debt sustainability; it could even enhance it by strengthening reserve buffers and resilience. And if the authorities do use the policy space provided by the allocation, the overall impact on debt sustainability will depend on how the allocation is used.”
Nigeria’s Plan
For Nigeria, there is no word yet from either the Federal Ministry of Finance or the Central Bank of Nigeria (CBN) on how the government plans to utilise its share of the SDRs estimated at around $3.35 billion. The SDR is an additional 10% boost to the country’s foreign reserves put at $34 billion as at the end of last week, according to the CBN.
The Federal Government’s rising debt profile and continuous borrowing has remained a source of worry for Nigerians. The Debt Management Office (DMO), had put the country’s total debt stock from local and international sources at over N33.10 trillion or $87.239billion as at March end, thereby raising concerns on its ability to pay back.
Irrespective of what Nigeria’s plans are, the IMF has reiterated that “The most urgent priority, at this time, is to end the COVID-19 pandemic everywhere. Given the exceptional nature of the COVID-19 shock, countries need to prioritize policies to end the crisis, and this includes potentially using the policy space provided by the SDR allocation to fight the pandemic.”
The World Health Organisation (WHO) reported 212,357,898 confirmed cases of COVID-19, including 4,439,843 deaths as at yesterday (Tuesday). Of this total, the Nigeria Centre for Disease Control (NCDC), confirmed 188,243 cases with 2,281 deaths in the country.
To allay concerns on transparency in the use of the SDRs, Pazarbasioglu said the Fund is providing guidance to countries for prudent use of the SDRs allocated to them. “We just published a guidance note for fund staff on the treatment and use of SDR allocation. And here, the IMF staff are working with member countries advising them to use the SDRs consistent with macroeconomic sustainability and in a transparent manner.”
Strong nations support vulnerable countries
Beyond advising member countries on the use of the SDR, the IMF, following decisions from the G20 Finance Ministers’ Meeting last month, is urging strong nations to support the vulnerable low-income countries like Nigeria, with some parts of their share of the SDRs.
Expatiating, Pazarbasioglu said: “We are now working on options for members with strong external positions to voluntarily reallocate part of their SDRs to support vulnerable countries.”
She identified three potential options, including scaling the Poverty Reduction and Growth Trust (PRGT); setting up a Resilience and Sustainability Trust (RST); and channelling SDRs to multilateral development banks.
The PRGT will enable the IMF to provide concessional financing to low-income countries, while the RST will help to address longer term structural challenges and support a better recovery from the pandemic for member countries. The third option is to channel the SDRs to development banks such as the World Bank, the African Development Bank, and others, or to other prescribed holders.
Pazarbasioglu said the IMF is working on these options and will discuss them with its board over the coming months.
