EU countries are set to be among the main beneficiaries next week, when international leaders are set to authorise up to $650bn of new ‘Special Drawing Rights’ to help countries badly hit by the COVID pandemic at the International Monetary Fund’s spring meeting on 5 April.
The move, which follows months of wrangling and a change of mind by United States President Joe Biden’s administration, is primarily aimed at helping developing countries whose economies have also faced recession and lost growth but have had less fiscal space than wealthy nations to introduce stimulus programmes.
SDRs represent a basket of five currencies—the US dollar, the euro, the Chinese renminbi, the Japanese yen, and the British pound sterling—used by IMF member countries to supplement their official reserves.
In February, EU finance ministers backed the use of SDRs and the extension of the G20’s debt service suspension initiative for the world’s poorest countries.
The total sum of the SDR allocation is likely to be decided next week. Italy, which holds the presidency of the G20 this year, has backed a $500 billion allocation,
Meanwhile, US treasury secretary Janet Yellen has also given her backing to an SDR allocation, reversing the position of former President Donald Trump’s government, although she has said that international leaders need to agree on “a set of shared parameters for greater transparency and accountability in how SDRs are exchanged and used.”
Under existing rules, the bulk of the SDRs will be allocated to wealthy countries. African countries would receive a total of 6.4% compared to the 25.72% of IMF quotas held by EU members that could potentially give them access to more than $167 billion.
That $167 billion would be in addition to national stimulus measures and the EU’s Recovery and Resilience Facility which will pay out €672.5 billion in loans and grants.
It is unclear whether the conditions and distribution of this SDR allocation will be changed, although development activists are urging G20 countries to reallocate their share to benefit low-income countries, either through donations or via the IMF’s Poverty Reduction and Growth Trust.
Neither the EU nor wealthy nations have so far indicated whether they will reallocate or donate their share of the SDRs.
Critics say that SDRs are neither transparent nor targeted, and will reward governments with poor records on economic management.
The IMF has dispersed $107 billion to poor and middle-income countries since the pandemic struck, while the G20’s debt service suspension initiative has been worth just $5 billion to 40 countries since its launch last year.
[Edited by Zoran Radosavljevic]