Addis Ababa, 21 December 2022 (ECA) - There is a need for the re-channeling of Special Drawing Rights (SDR) to help crisis-hit African countries access sustainable financing to boost economic stability and growth.
In opening remarks at the Policy Dialogue on Special Drawing Rights (SDRs), Economic Commission for Africa (ECA) Director for the Macroeconomics and Governance Division, Mr. Adam Elhiraika, noted that African countries need affordable financing for development after being hit by a combination of crises. He said SDRs were critical in helping African countries recover from the crises.
SDRs are an interest-bearing international reserve asset created by the IMF in 1969 to augment the official reserves of member countries. While not currency, SDRs are a claim on the freely usable currencies of the International Monetary Fund (IMF) members. SDRs are based on a basket of international currencies which include the US dollar, the Japanese Yen, the European Euro, the Pound Sterling and the Chinese Renminbi.
To date nearly $1 trillion has been allocated by the IMF, including the $456 billion SDR equivalent to $650 billion approved in August 2021 to help low and middle income countries cope with the impact of COVID-19.
Lamenting that external shocks that have hit the world in the last two years have reversed socio-economic gains and efforts to protect vulnerable communities in Africa, Mr. Elhiraika said the COVID-19 pandemic and the Ukraine war have spiked food, fertilizer and energy prices putting many African countries in a difficult economic situation.
Furthermore, the import costs for essential commodities such as wheat, maize and crude oil have doubled for several countries with the Western countries having increased borrowing costs for African governments and the private sector.
“These crises are not the product of poor macroeconomic policies by African countries but rather African countries continue to have sound macroeconomic policies that helped them to weather the storm during the past two years but African countries need liquidity now to address the many stresses on the livelihoods,” Mr. Elhiraika urged.
The ECA in collaboration with African ministries has advocated for and mobilized support for new issuance and re-allocation of SDRs to countries in need. The ECA has also pushed for the reform of the international financial architecture to facilitate easy access to financial resources by African countries.
“There is also need for the re-channeling of SDRs which will rise in pledges and in the acceleration of the distribution of current commitments in the Poverty Reduction and Growth Trust (PRGT) and the new Resilience and Sustainability Trust (RST), he said adding that this will help guarantee that these trust funds are adequately funded to help African governments respond the shocks.
The ECA has developed a SDR guide to help policy makers and other stakeholders understand and make informed decisions on the access and utilization of the IMF-issued SDRs.
Making a presentation on the SDR Guide, Mr. Daouda Sembene, ECA Consultant, said since the creation of the SDRs, the IMF has made four general allocations and one special allocation of the SDRs. Currently the IMF has two options of on-lending SDRs to low income countries through the PRGT and SRT.
Mr. Sembene said in theory SDRs could be channeled to IMF prescribed holders through the Multilateral Development Banks to increase their lending capacity.
“The potential for using SDRs is huge but unfortunately this cannot be reached because of the old framework that is applicable to SDRs and so the push for reforms is the way to go,” said Mr. Sembene, admitting that the distribution of SDRs was uneven hence the need to modernize the SDR system for the benefit of low and middle income countries.
“The convening power of the ECA can ensure economic and finance ministries get together and raise awareness on the issue of SDRs. This is one small step but an important step to ensure policy makers are aware of SDRs and this requires a coalition of all stakeholders,” he said.
Ms. Hanan Morsy, ECA Deputy Executive Secretary and Chief Economist emphasized the urgency of re-channelling SDRs and that Africa must make a collective request as one voice.
“The High Level Working Group on Global Financial Architecture has called for IMF reforms on the global financial architecture looking particularly at SDRs,” Ms. Morsy said.
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