Historic IMF financing takes effect, $ 2.7 billion for Pakistan
WASHINGTON: The International Monetary Fund’s (IMF) largest allocation of $ 650 billion in Special Drawing Rights (SDRs) went into effect on Monday and may also bring about $ 2.7 billion in additional funding to Pakistan.
“The biggest allocation in history (…) is a big blow to the world,” IMF Managing Director Kristalina Georgieva said in a statement issued in Washington. “If used wisely, (it is) a unique opportunity to fight this unprecedented crisis. “
The total amount of $ 650 billion will be distributed among member states in accordance with their quota for Special Drawing Rights (SDRs). The breakup can bring in around $ 2.7 billion in Pakistan, diplomatic sources say.
The SDR is an international interest-bearing reserve asset created by the IMF. A basket of currencies determines its value. The value of SDR in US dollars is determined daily. SDRs can be owned and used by member countries.
In December 2019, the IMF approved a 39-month $ 6 billion Extended Financing Facility (EFF) for Pakistan.
The increased funding, approved on Monday, aims to alleviate the crisis caused by the Covid-19 pandemic, which has already killed 4.44 million people and infected more than 212 million across the world.
“The SDR allocation will provide additional liquidity to the global economic system – supplementing countries’ foreign exchange reserves and reducing their dependence on more expensive domestic or foreign debt,” IMF Managing Director said . “Countries can use the space offered by the SDR allocation to support their economies and step up their fight against the crisis.
The IMF will distribute the SDRs in proportion to a country’s quotas in the IMF. This means that about $ 275 billion goes to emerging and developing countries, of which low-income countries will receive about $ 21 billion, or the equivalent of 6% of GDP in some cases.
“SDRs are a valuable resource and the decision on how best to use them rests with our member countries. For SDRs to be deployed for the benefit of member countries and the global economy, these decisions must be prudent and well-informed, ”said the IMF chief.
The IMF provides a framework to assess the macroeconomic implications of the new allocation, its statistical treatment and governance, and how it might affect debt sustainability. The IMF will also provide regular updates on all SDR holdings, transactions and exchanges, including a follow-up report on the use of SDRs in two years.
“To amplify the benefits of this allocation, the IMF is encouraging the voluntary flow of certain SDRs from countries with strong external positions to countries most in need,” said Georgieva.
Over the past 16 months, some member states have already pledged $ 24 billion, including $ 15 billion from their existing SDRs, to the IMF’s Poverty Reduction and Growth Fund, which provides loans concessional to low-income countries. The IMF is committed to continuing to work with other members to build on this effort.
Georgieva said the IMF is also engaging with its member countries on the possibility of a new Resilience and Sustainability Trust, which could use channeled SDRs to help the most vulnerable countries achieve structural transformation, including to face climate-related challenges. Another possibility could be to channel SDRs to support lending from multilateral development banks, she added.
She said this SDR allocation was a critical part of the IMF’s larger effort to support countries during the pandemic, which included: $ 117 billion in new financing for 85 countries; debt service relief for 29 low-income countries; and policy advice and capacity development support to more than 175 countries to help ensure a strong and more sustainable recovery.
According to the IMF, members can exchange SDRs for currencies freely usable among themselves and with prescribed holders. Such an exchange can take place as part of a voluntary agreement or as part of a mandatory designation scheme on members with sufficiently strong external positions, which serves as the ultimate safety net for the SDR market.
Since 1987, the SDR market has operated on the basis of voluntary arrangements without the need to activate the designation plan. Members of the IMF may also use SDRs in a range of other transactions permitted among themselves (loans, payment of bonds, collateral) and in operations and transactions involving the IMF, such as payment of interest and repayment of bonds. loans, or the payment of quota increases. .
India, which initially opposed the idea of a general SDR allocation but softened its stance at the last minute, will receive an additional SDR 17.94 billion.
Posted in Dawn, le 24 August 2021