To boost global liquidity and facilitate a quick turnaround of the global economy in the post-COVID-19 pandemic era, the Board of Governors of the International Monetary Fund (IMF) on Tuesday approved a general allocation of Special Drawing Rights (SDRs) equivalent of $650 billion (about SDR 456 billion) for Nigeria and other members of the Fund.
IMF Managing Director, Kristalina Georgieva described the approval as “historic decision”, being the largest such SDR allocation in the history of the IMF and a shot in the arm for the global economy at a time of unprecedented crisis.
The SDR is an international reserve asset established by the IMF to supplement its member countries’ official reserves asset in the context of the Bretton Woods fixed exchange rate system, to support the recovery of their economies from the vagaries of global financial crisis.
The value of the SDR is based on a basket of five currencies—the U.S. dollar, the euro, the Chinese renminbi, the Japanese yen, and the British pound sterling. The SDR exchange rate of reference is 0.702283 SDR per USD as of July 1, 2021.
Georgieva said the SDR allocation would benefit all member countries, to help them 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,” Georgieva said.
The general allocation of SDRs, she said, would become effective on August 23, 2021 when the newly created SDRs would be credited to IMF member countries in proportion to their existing quotas in the Fund.
Details of the allocation showed about $275 billion (about SDR 193 billion) of the new allocation would go to emerging markets and developing countries, including low-income countries like Nigeria still struggling to overcome the pressures to get her economy back on its footing post-COVID-19 pandemic.
“We will also continue to engage actively with our membership to identify viable options for voluntary channeling of SDRs from wealthier to poorer and more vulnerable member countries to support their pandemic recovery and achieve resilient and sustainable growth”, Georgieva said.
Although the Nigeria’s economy managed to recover from the recession the pandemic plunged it into in the third quarter of last year, the pace of the recovery is too slow, as most of the sectors of the economy are yet to fully return to business.
Crude oil prices have recovered from the decline experienced in the first quarter of 2020, but the quantum of revenue available for the government to balance its budget and carry out other developmental obligations is hardly sufficient.
Georgieva said for members with strong external positions one key option is for them to voluntarily channel part of their SDRs to scale up lending for low-income countries through the IMF’s Poverty Reduction and Growth Trust (PRGT).
Concessional support through the PRGT, she said, is currently interest free, with the IMF also exploring other options to help poorer and more vulnerable countries in their recovery efforts.
“A new Resilience and Sustainability Trust could be considered to facilitate more resilient and sustainable growth in the medium term,” she said.