One Campaign, a global movement campaigning to end extreme poverty and preventable disease by 2030, has called on the International Monetary Fund (IMF) to prevail on the G20 and other richer countries to reallocate their share of the newly issued Special Drawing Rights (SDRs) to poorer countries who need them the most.
The IMF had last week announced a general allocation of SDRs equivalent to $650 billion (about SDR 456 billion) of which African countries would only get about five per cent of the SDRs amounting to $33 billion. Nigeria is billed to get $3.5 billion from the new SDR issuance.
Growth distribution of the new $650 billion SDRs allocation which will become effective from August 23, 2021 showed that the G20 countries will receive 68.12 per cent amounting to $442.8 billion; while the G7 countries will 43.50 per cent amounting to $282.8 billion; African countries are to get 5.12 per cent which is $33.3 billion. The Debt Service Suspension Initiative DSSI-eligible countries are getting 4.21 per cent or $27.3 billion.
According to the group, “Wealthier countries don’t actually need the additional SDRs, since they have access to a broader range of monetary tools and reserve cash. That’s why a re-allocation is required.
Gayle Smith, president/chief executive officer of the ONE Campaign said: “The news out of the IMF meeting signals a critical but only the first step. Now G20 countries and the IMF members must agree on an ambitious reallocation package to ensure that SDRs help vulnerable countries withstand the economic shock of the pandemic.”
“To undertake a general allocation now will help to provide the liquidity urgently needed by the world’s poorest countries. SDRs that are reallocated by the Fund’s wealthiest members can provide the capital needed to respond to the pandemic, fund vaccine rollout and stabilise and revitalise national economies,” Smith said.
The ONE Campaign noted that while this $33 billion would be a helpful boost to African countries, it is less than 10 per cent of the US$345 billion financing gap needed to reposition the continent from the effect of the Coronavirus pandemic by 2023.
The IMF issuing a new allocation of SDRs is the closest it comes to printing new money. In order to maintain stable global reserves, SDRs have been fairly level since they were first created in 1969.
Any new allocation of SDRs is divided up between countries based on their IMF quota size, which is essentially based on the size of countries’ economies.
According to the group, this means that wealthier countries will get the majority of SDRs while poorer countries will only get a small share. In the case of a new US$650 billion allocation, the G20 would get 68 per cent of the SDRs (about US$443 billion), while African countries would only get about five per cent of the SDRs (US$33 billion).
“We are asking IMF member countries—including G20 countries— to quickly agree on a new SDR allocation and to vote to approve the allocation. We want countries to agree on a reallocation mechanism, and a target for the proportion of new SDRs to be reallocated that is commensurate with the financial need of developing countries.
“Richer nations must share all their new SDRs with poorer nations. Because of the way they are allocated, just five per cent will flow to poorer nations. Of the new SDR issue, $620bn is set to flow to richer nations which do not need it.
Second, for the SDR to make an impact, we need to ensure it is not simply loaned to poorer nations even at zero per cent interest but should be converted to grants.
Justifying the call, the group said that no one is safe until everyone is safe, we can’t move forward unless we all do it together.