At the Paris Summit on Financing African Economies held last May, the IMF announced the availability of US$33 billion in new SDRs for African countries (out of an overall issuance of US$650 billion in new SDRs for all its members). While this amount will help these countries overcome the consequences of a worsening health and economic crisis on the continent, it is not enough. Many have called on rich countries to consider reallocating part of their new SDRs to the poorest and most vulnerable countries. At the Summit, the Head of States also committed to increase considerably the amount of SDR allocation finally reaching African countries.
This idea, if implemented, requires consideration of three issues: 1. Through which channel should these SDRs be distributed? 2. What should they finance? 3. On what criteria would the reallocations be made?
Co-hosted by the Center for Global Development and the Foundation for Studies and Research on International Development, this panel discussion focused on financing African economies through the issuance and allocation of IMF’s SDRs (Special Drawing Rights) and examined opportunities and challenges ahead for an effective reallocation of SDRs to help vulnerable countries. The event featured subject expert economists and policymakers with experience on IMF financing tools and SDRs.
The presentation by the IMF representative highlighted the advantages of creating a new facility dedicated to the resilience of poor countries (alongside and similar to the PRGT) and funded by voluntary SDR reallocations. In particular, this solution would allow coordination between the reallocations of the countries that agree to do so and their coherent insertion into the multilateral development finance system. As SDRs are issued to constitute foreign exchange reserves for recipient countries, it is natural that their final allocation takes into account the vulnerability of these countries to exogenous shocks, which may affect their balance of payments.
The meeting also highlighted a strong demand to channel the reallocation of SDRs through the (multilateral) development banks. If this request has to be heard, it is legitimate to make it conditional on a commitment by these banks to carry out the reallocation taking into account the vulnerability of the recipient countries.
Another strong conclusion of the meeting was that the implementation of a new fund dedicated to the resilience of vulnerable countries, which would be the recipient of voluntary reallocations, should be seen as an important element of reform of the international development finance system, but that this will take time. It is therefore not from this implementation that an immediate response to the urgent financing needs of poor and vulnerable countries can be expected.
We can hope that this maturation time will allow for the broad reflection undertaken within the framework of the United Nations to have a multidimensional vulnerability indicator that can be used for the allocation of concessional international financing, as well as for the eligibility of countries to receive it. It would be logical to reach an international consensus on a formula for the allocation or reallocation of new SDR emissions that explicitly takes into account this multidimensional vulnerability, as well as the capacity or performance of countries to reduce their vulnerability.