Britain and allies must not use new IMF Special Drawing Rights to add to poor countries’ debt


In 2008, the IMF created Special Drawing Rights (SDRs) – an international reserve asset used to supplement official reserves of member countries – in response to the global financial crisis. This week, he did it again with a new target in mind: the coronavirus.

The IMF estimates that the end of the pandemic could inject $ 9 billion into the global economy by 2025. At the international development agency CAFOD, we know that our partners in southern countries are doing all they can to respond to pandemic, but it’s overwhelming, expensive and exhausting.

The IMF calls its new issue of $ 650 billion in special drawing rights a “punch in the arm” to fight Covid-19. But his proposals for G7 countries to lend their SDRs to the poorest countries through the IMF could potentially include conditions to reduce health spending in the future, increase the overall debt burden and, ultimately. of account, will be too slow to fight against the pandemic.

There is, of course, a role for concessional financing through the IMF – and we will continue to push for this to be implemented in the most effective way possible.

But for decades, the IMF forced countries in Asia, Africa and Latin America to cut vital social spending. This in turn decimated their already weak health systems, meaning they were almost defenseless against a pandemic of this magnitude. If the SDRs are reissued in the form of loans with conditions, this would undermine longer-term debt sustainability. This is not just a complaint from an NGO, it is also the belief of a credit rating agency S&P.

The UK received its share of SDRs on Monday. About £ 20bn has been added to reserves – which had already grown from £ 52bn in July 2009 to around £ 126bn in April 2021. To make the most of this truly historic opportunity to bring the pandemic under control , countries like the UK must find ways to use its SDRs that will immediately make a difference – or risk prolonging the pandemic and the global path to economic recovery.

“We need to make sure that SDRs are not simply loaned to the poorest countries, even at zero interest. We can maximize our aid by maximizing the value of the SDRs that we convert into grants, ”Labor MP Liam Byrne recently said. It is a political decision as much as an economic one. Byrne’s suggestion was eloquent and bears repeating in its entirety: “It’s perfectly possible… it all depends on how countries like the UK choose to use foreign currency and SDRs in our reserves. When the new SDRs arrive this fall, we could substitute them for some of our dollar stocks, sell the dollars for pounds, and redirect that windfall to aid.

Rishi Sunak could decide to do so now and it would be in line with UK law. As stated in Section 2 of the Foreign Exchange Equalization Account Act: “If at any time the Treasury is of the opinion that the sterling assets of the account exceed for the time being what is required for the purposes of the account, the Treasury may order that the excess be paid into the National Loan Fund. From the National Loan Fund the Treasury could transfer Sterling to central funds, then make billions of pounds in donations to entities such as the COVAX international vaccine pooling initiative – and make significant progress in the fight against Covid-19 and international efforts to vaccination.

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Several billion pounds is a significant amount of money, but to put it in context, the Chancellor’s 2021-2022 package is around 407 billion pounds. With just 3% of the new $ 650 billion SDRs going to low-income countries under the IMF’s quota system, the urgent priority is for G7 countries to use their influx of funds to make vital donations to bring Covid under control. , end the loss of life and limit the ongoing economic damage.

Choosing not to do so could lead to financial and social disaster.

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