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IMF Special Drawing Rights offer a breath of fresh air to Egypt, Morocco and Tunisia




IMF Special Drawing Rights offer a breath of fresh air to Egypt, Morocco and Tunisia
EGYPT / MOROCCO / TUNISIA. Three Mediterranean countries, Egypt, Morocco and Tunisia, will receive $2.9bn (€2.47bn), $1.3bn (€1.11bn) and $775.8m (€661.4m) respectively in Special Drawing Rights (SDR) from the International Monetary Fund (IMF).

On 2 August 2021, the IMF's Board of Governors approved a general allocation of SDR 456 billion ($650 billion) to increase global liquidity with effect from Monday 23 August 2021. "This is a historic decision: the largest SDR allocation in the IMF's history and a shot in the arm for the global economy at a time of unprecedented crisis," commented IMF Managing Director Kristalina Georgieva. In 2009, during the financial crisis, the previous drawdown only involved SDR 161 billion (or $182 billion).

This type of allocation is still very rare as it is only the fifth since the IMF was created in 1969 (see box below) for a total amount allocated of SDR 660.7 billion, the equivalent of $943 billion.

 

Responding to urgent needs and the recovery of foreign exchange reserves

Only five SDR allocations have taken place since 1969 (source: IMF)
Only five SDR allocations have taken place since 1969 (source: IMF)
These SDRs are allocated to member countries in proportion to their IMF quota. Thus, the United States ($118 billion) and China ($43 billion) will be the main beneficiaries of this issue. Only $33bn of the $456bn will land on the African continent, including $4.3bn in South Africa and $3.5bn in Nigeria. Egypt with $2.9bn (45.6 billion Egyptian pounds) is third in this region. Fifth with $1.2bn (10.8bn dirhams), Morocco is ahead of the DRC ($1.5bn). Tunisia ($775.8m - 2.16 billion Tunisian dinars) is eighth.

"This allocation of SDRs, which will be allocated to the level of the Central Bank's assets, will allow the Central Bank to strengthen its reserves, to arbitrate them against foreign currencies, or to use them to finance its expenditure," indicated Abdellatif Jouahri, Governor of Bank Al-Maghrib, at the last quarterly meeting of the Moroccan Central Bank's board in June 2021. The Kingdom's reserves could thus be increased to 328.5 billion dirhams by the end of 2021.

Kristalina Georgieva "recommends that the authorities use (the SDRs) to meet urgent needs and the recovery of foreign exchange reserves". The sums collected via these SDRs must also be used to finance specific projects, either to support post-pandemic recovery or green growth.

The IMF Managing Director said she was "also actively engaged with (her) member countries to identify viable options for a voluntary transfer of SDRs from richer to poorer and more vulnerable countries to help them recover from the pandemic and achieve resilient and sustainable growth. The idea was first mooted by Tunisian President Kaïs Saied at the May 2021 Summit on Financing African Economies in Paris.

 

The SDR, a basket of five currencies

Created in 1969 by the International Monetary Fund (IMF), Special Drawing Rights, or SDRs, are international reserve assets. They are used to provide countries with foreign currency without creating additional debt. The amount of SDRs allocated is recorded as a liability on the balance sheet of the central banks concerned as a commitment to the IMF.

SDRs are also the unit of account of the IMF and other international organisations.

Originally set at 0.888671 grams of fine gold (equivalent to $1), the value of an SDR is now based on a basket of five currencies (the composition of which is reviewed every five years - the next review has been postponed to 31 July 2022). It includes the US dollar, the euro, the Japanese yen, the pound sterling and, since November 2015, the Chinese renminbi (yuan) (see below for the proportion of each currency).

As of 20 August 2021, the SDR exchange rate is 0.706,104 SDRs per $1. This amount is determined daily on the basis of spot exchange rates observed around noon London time. The SDR interest rate is set weekly (0.050% as of 20 August 2021), "based on the weighted average of representative short-term government money market interest rates of the SDR basket currencies, with a floor of five basis points", as stated by the IMF.


Frédéric Dubessy


Monday, August 23rd 2021



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