The Board of Governors of the IMF has approved a general allocation of Special Drawing Rights (SDRs) equivalent to US$650 billion (about SDR 456 billion) on August 2, 2021, to boost global liquidity.
The primary purpose of this is to boost liquidity in the cash-strapped emerging and low-income countries, which have been hit hard by the ongoing pandemic.
According to reports, Pakistan is also, highly likely to benefit from this SDR as it will help improve the country’s balance of payments position and replenish the foreign reserves of the country.
IMF’s website mentioned the SDR is an international reserve asset created by the IMF to supplement the official reserves of its member countries.
The SDR is not a currency. It is a potential claim on the freely usable currencies of IMF members. As such, SDRs can provide a country with liquidity, the IMF’s website read.
Commenting on this development IMF Managing Director Kristalina Georgieva said, “This is a historic decision – the largest SDR allocation in the history of the IMF and a shot in the arm for the global economy at a time of unprecedented crisis. The SDR allocation will benefit all members, address the long-term global need for reserves, build confidence, and foster the resilience and stability of the global economy. It will particularly help our most vulnerable countries struggling to cope with the impact of the COVID-19 crisis.”
According to the IMF press release, “the general allocation of SDRs will become effective on August 23, 2021. The newly created SDRs will be credited to IMF member countries in proportion to their existing quotas in the Fund.”
About US$275 billion (about SDR 193 billion) of the new allocation will go to emerging markets and developing countries, including low-income countries, the statement read.
It must be mentioned that Governor State Bank Dr. Raza Baqir said while announcing the monetary policy on 28th July, “In August, Pakistan’s reserve buffers are expected to rise by another $2.8bn through the IMF’s planned new global SDR allocation.”
The hard currency inflows from the SDR allocations will result in a buildup of foreign exchange reserves and if there are no outflows related to debt repayments, the central bank’s reserves are estimated to surpass $20 billion.
In December 2019, the IMF approved a 39-month Extended Arrangement under the Extended Fund Facility (EFF) for Pakistan in the amount of SDR 4,268 billion, which is about $6bn. This is equivalent to 210 per cent of Pakistan’s quota of SDR 2031 million.