By Wezzie Gausi:
The International Monetary Fund (IMF) has said it is exploring other options for voluntarily channeling Special Drawing Rights (SDRs) from members with strong external positions to support poorer and more vulnerable countries to help their recovery from the Covid pandemic.
An SDR allocation is a way of supplementing IMF member countries’ foreign exchange reserves, allowing members to reduce their reliance on more expensive domestic or external debt for building reserves.
In an interview, new IMF Resident Representative Nelnan Koumtingue said another possibility could be to channel SDRs to support lending by multilateral development banks.
He said under the current decisions of the IMF Executive Board, SDR department participants and prescribed SDR holders are permitted to buy and sell SDRs both spot and forward, borrow, lend or pledge SDRs, use SDRs in swaps, or use or receive SDRs in donations.
“SDR department participants with strong external external positions have historically used some of their SDR holding to help countries in need.
“For instance, during the COVID crisis, several countries have used part of their SDR Holdings to expand the IMF’s concessional financing by scaling up the IMF’s Poverty Reduction and Growth Trust’s (PRGT) loan resources,” Koumtingue said.
Malawi University of Business and Applied Sciences Associate Professor of Economics Betchani Tchereni said poor countries are in serious distress, they need every way possible for them to get foreign exchange to meet their foreign obligations, especially loan repayments.
He said where other countries are able to help by voluntarily selling their SDR allocations to the poor countries, it will help to improve the foreign reserve position.
“The modus operandi though will need to be understood. Will it be a loan, what will be the conditions etc. Otherwise the poorer nations may get some relief in the short term and create a much deeper problem in the long run,” Tchereni said.
Recently the Reserve Bank of Malawi (RBM) said since Malawi joined the IMF in 1965, the total SDRs allocated to the country amounts to SDR199.4 million, which is equivalent to $265.3 million.
