“There is an urgent need to find new creative solutions for financing emerging countries”

Lhe International Monetary Fund (IMF) made an allocation of Special Drawing Rights (SDRs) equivalent to 650 billion dollars (about 590 billion euros) in August 2021 to help governments cope with the economic consequences of the Covid-19 pandemic.

These are reserve assets that can be exchanged for their equivalent in currencies (dollar, yen, euro, pound, renminbi), which countries are free to use as they see fit. Many of the most vulnerable countries have mobilized their entire allocation to compensate for a lack of funding and repay external debt.

However, since these allocations are made in proportion to the quotas of the countries contributing to the IMF, the SDRs have been distributed disproportionately to the richest countries – the United States and the countries of the euro zone thus hold the equivalent of $362 billion. The vast majority of SDRs therefore remained unused.

Two funds administered by the IMF

Aware of this situation, the G20 countries are committed to “reallocate” the equivalent of $100 billion in SDRs to the most vulnerable countries. France, in particular, has pledged to reallocate 30% of its allocation, or $7.8 billion, one of the largest commitments in the world.

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The only way to mobilize these SDRs today is through two funds administered by the IMF: the Poverty Reduction and Growth Trust Fund (PRGF), and the Resilience and Sustainability Trust Fund. (FRD), newly created. But these two funds combined can only absorb, according to the forecasts of the IMF itself, 63 billion dollars in the short term.

This means that almost a third of the SDRs promised by the G20 could not be mobilized. Given the funding challenges that vulnerable countries are currently facing, the G20 should revise these pledges upwards, as it struggles today to simply deliver on its original pledges!

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There is therefore an urgent need to find other channels to use the excess DTS. Multilateral development banks, like the World Bank, seem perfectly positioned to assume this role, given their experience of the challenges faced by the countries concerned. Eighteen European and African leaders had also called, in May 2021, for a reallocation of SDRs via development banks during the Paris summit on the financing of African economies. But this call was not followed up…

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