(CMC) CARIBBEAN countries could benefit from the decision of the International Monetary Fund (IMF) to put into effect on Monday the largest allocation of Special Drawing Rights (SDRs) in its history. The SDR is an international reserve asset created by the IMF to supplement the official reserves of its member countries. It 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.
IMF managing director, Kristalina Georgieva, said that the US$650 billion SDR allocation is a significant shot in the arm for the world and if used wisely, is a unique opportunity to combat this unprecedented crisis.
“SDRs are being distributed to countries in proportion to their quota shares in the IMF. This means about US$275 billion is going to emerging and developing countries, of which low-income countries will receive about US$21 billion, equivalent to as much as six per cent of gross domestic product (GDP) in some cases,” she said.

The IMF official said that the SDR allocation will provide additional liquidity to the global economic system, supplementing countries’ foreign exchange reserves and reducing their reliance on more expensive domestic or external debt.
“Countries can use the space provided by the SDR allocation to support their economies and step up their fight against the crisis,” she added.
Georgieva said to support countries and help ensure transparency and accountability, the IMF is providing a framework for assessing the macroeconomic implications of the new allocation, its statistical treatment and governance, and how it might affect debt sustainability.
She said the IMF will also provide regular updates on all SDR holdings, transactions, and trading – including a follow-up report on the use of SDRs in two years’ time.
“To magnify the benefits of this allocation, the IMF is encouraging voluntary channelling of some SDRs from countries with strong external positions to countries most in need. Over the past 16 months, some members have already pledged to lend US$24 billion, including US$15 billion from their existing SDRs, to the IMF’s Poverty

Reduction and Growth Trust, which provides concessional loans to low-income countries. This is just a start, and the IMF will continue to work with our members to build on this effort.” Georgieva said the IMF is also engaging with its member countries on the possibility of a new Resilience and Sustainability Trust, which could use channelled SDRs to help the most vulnerable countries with structural transformation, including confronting climate-related challenges. Another possibility could be to channel SDRs to support lending by multilateral development banks.
“This SDR allocation is a critical component of the IMF’s broader effort to support countries through the pandemic, which includes: US$117 billion in new financing for 85 countries; debt service relief for 29 low-income countries; and policy advice and capacity development support to over 175 countries to help secure a strong and more sustainable recovery,” she added.