IMF supports $650bn to help worldwide economy


The IMF board of governors met in Washington on Monday and approved this historic allocation, referred to as Special Drawing Rights (SDR). Pakistan, which has thus far had 23 financial arrangements with the IMF, also will enjoy the boost.

The general allocation of SDRs will become effective from Aug 23 this year.

In December 2019, the IMF approved a 39-month Extended Arrangement under the Extended Fund Facility (EFF) for Pakistan within the amount of SDR 4,268 billion, which is about $6bn. this is often like 210 percent of Pakistan’s quota of SDR 2031 million. The SDR maybe a basket of mixed currencies made available to member countries.

“This may be a historic decision — the most important SDR allocation within the history of the IMF and an attempt within the arm for the worldwide economy at a time of unprecedented crisis,” IMF director Kristalina Georgieva said during a statement announcing the choice.

“The SDR allocation will benefit all members, address the long-term global need for reserves, build confidence, and foster the resilience and stability of the worldwide economy,” she said. “It will particularly help our most vulnerable countries struggling to deal with the impact of the Covid-19 crisis.”

The IMF, the most global institution of monetary cooperation for 75 years, has total resources of about $790bn but its resources are often enhanced by the international reserves of its members. The IMF created the SDR in 1969 to supplement other assets of member countries. The SDR currency basket includes the US dollar, Japanese yen, euro, British pound, and Chinese renminbi.

SDRs are both assets and liabilities of the IMF. they’re allocated to members in proportion to their shares of IMF quotas. A member can transfer SDR to a different member and receive credit during a convertible or cash.

The current rate of interest on this credit is at its minimum of 0.050 percent. An SDR allocation allows members to scale back their reliance on their limited reserves at a time of crisis at a coffee rate of interest.

Under the IMF’s rules, the SDRs must meet a worldwide need for more long-term assets and can’t fuel inflation. Some nations use it to buy vaccines and medical equipment. Others may use it for meeting their debt obligations. But some can also hold onto the reserves.

The newly created SDRs are going to be credited to IMF member countries in proportion to their existing quotas within the Fund. About $275bn of the new allocation will attend emerging markets and developing countries, including low-income countries.

“We also will still engage actively with our membership to spot 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,” Ms. Georgieva said.

One key option is for members that have strong external positions to voluntarily channel a part of their SDRs to proportion lending for low-income countries through the IMF’s Poverty Reduction and Growth Trust (PRGT).

Concessional support through the PRGT is currently interest-free. The IMF said it had been also exploring other options to assist poorer and more vulnerable countries in their recovery efforts. a replacement Resilience and Sustainability Trust might be considered to facilitate more resilient and sustainable growth within the medium term, the statement added.

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