This SDR allocation must be different

Central advisory: Bank of Botswana governor, Moses Pelaelo will play a key role in advising government on the SDR allocation PIC: MORERI SEJAKGOMO
Central advisory: Bank of Botswana governor, Moses Pelaelo will play a key role in advising government on the SDR allocation PIC: MORERI SEJAKGOMO

When the International Monetary Fund announced last month a new $650 billion allocation of special drawing rights, the hope was that high-income countries would transfer their SDRs to developing countries in need. With the Fund’s annual meetings coming in October, it’s time for all parties to step up. BARRY EICHENGREEN* writes

BERKELEY – In August, the International Monetary Fund announced, to much fanfare, that its members had reached a historic agreement to issue $650 billion of special drawing rights (SDRs, the Fund’s unit of account) to meet the COVID-19 emergency. SDRs are bookkeeping claims that governments, through the IMF’s good offices, can convert into dollars and other hard currencies to pay for essential imports, such as vaccines. And $650 billion isn’t peanuts: it’s nearly 1% of global GDP. This could make a big difference for poor countries impacted by the virus.

The problem is that SDRs are allocated according to countries’ quotas, or automatic borrowing rights, within the IMF, and the quota formula depends heavily on countries’ aggregate GDP. As a result, barely 3% of the $650 billion total went to low-income countries, and only 30% went to middle-income emerging markets. Nearly 60% was allocated to high-income countries with no shortage of foreign-currency reserves and no difficulty borrowing to finance budget deficits. More than 17% went to the United States, which can print dollars at will.

Editor's Comment
Happy Independence!

We are 56 years old and what do we have to show for it? Looking at where Botswana started and where it is today, there are a lot of developments, but whether the developments match the number of years we have enjoyed as a country is a topic for another day.The fact that cannot be denied is we have seen major developments, but we are still lacking in several pertinent areas.Our beautiful country imports almost everything. We import fuel, food,...

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