The International Monetary Fund’s (IMF) largest-ever grant of $650 billion in Special Drawing Rights (SDR) went effective on Monday, potentially bringing an additional $2.7 billion to Pakistan.
“The highest allocation in history… represents a huge shot in the arm for the world,” said IMF Managing Director Kristalina Georgieva in a statement released in Washington. “If used correctly, (this) represents a once-in-a-lifetime chance to fight this extraordinary crisis.”
The whole sum of $650 billion will be divided among member countries in line with their Special Drawing Rights quotas (SDRs). According to diplomatic sources, the breakup may earn Pakistan $2.7 billion.
The IMF developed the SDR as an interest-bearing international reserve asset. Its value is told by a basket of currencies.
The increased money, authorized on Monday, is intended to alleviate the problem created by the Covid-19 epidemic, which has already killed 4.44 million people and infected over 212 million others worldwide.
The IMF will disburse SDRs under a country’s IMF quota allocation. This equates to around $275 billion flowing to emerging and developing nations, with low-income countries receiving approximately US$21 billion – comparable to up to 6% of GDP in some situations.
“SDRs are a valuable resource, and it is up to our member nations to decide how to best use them. According to the IMF head, for SDRs to be spent to the greatest benefit of member nations and the global economy, choices must be sensible and well-informed.
Ms. Georgieva also stated that the IMF was in discussions with its member nations about establishing a new Resilience and Sustainability Trust, which would utilize channeled SDRs to assist the most vulnerable countries with structural change, including dealing with climate-related problems. She also mentioned that SDRs might be channeled to assist financing by multilateral development banks.
She stated that this SDR allocation was a critical component of the IMF’s broader effort to assist countries in dealing with the pandemic, which included $117 billion in new financing for 85 countries, debt 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.
According to the IMF, members can swap SDRs for freely useable currencies among themselves and with designated holders. Such exchange can occur either voluntarily or through an obligatory designation plan on members with sufficiently strong foreign positions, which acts as the ultimate backup for the SDR market.