– Central Bank says allocation to fight pandemic, aid infrastructural development
Guyana has benefited from a whopping US$248 million from the International Monetary Fund (IMF) Special Drawing Rights (SDRs) that will be used in its fight against the ongoing COVID-19 pandemic as well as for the country’s infrastructural development.
The IMF has earmarked a total of US$650 billion – the largest allocation of SDRs in its history – for distribution to Member States. SDRs are 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 and as such, can provide a country with liquidity.
The allocation to Guyana is approximately SDR174.2 million. This US$248 million is not a loan and therefore does not carry any conditionality of the IMF’s Structural Adjustment Programmes.
In a statement on Thursday, Bank of Guyana Governor General, Dr Gobind Ganga welcomed the allocation, which he explained is in proportion to Guyana’s quota with the IMF.
“The allocation is expected to aid in the fight against the coronavirus pandemic as well boost productivity and growth of the Guyanese economy through its capital spending that focuses on the infrastructural transformation of the country,” Dr Ganga said.
According to the Central Bank Governor, the allocation has buffered the country’s net international reserves to reach well over US$800 million, from US$601 million at end-July 2021. He added that this external position of the Central Bank was also supported by the commercial banks’ net international reserves of US$477 million and the Natural Resource Fund balance of US$436 million.
The Caribbean region is expected to receive a total of approximately SDR2 billion or US$3 billion from the total SDR set aside.
According to IMF Managing Director Kristalina Georgieva, this allocation is a significant shot in the arm for the world and, if used wisely, presents a unique opportunity to combat this unprecedented crisis.
“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,” Georgieva said in a missive dated August 23, when the SDR allocation took effect.
With the SDRs being distributed to countries in proportion to their quota shares in the IMF, Managing Director Georgieva revealed that 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 their Gross Domestic Product (GDP) in some cases.
“SDRs are a precious resource and the decision on how best to use them rests with our member countries. For SDRs to be deployed for the maximum benefit of member countries and the global economy, those decisions should be prudent and well-informed,” the IMF Head stated.
However, in order to support countries and help ensure transparency and accountability, Georgieva noted that 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 added that the IMF would 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.
On the other hand, the IMF Managing Director is encouraging countries with strong external positions to voluntarily channel of some SDRs to countries most in need so as to magnify the benefits of the allocation.
It was noted that 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 members to build on this effort.
“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,” Georgieva stated in the missive from IMF.
The US$650 billion in 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.
This is the second time the Fund has made such an allocation in the recent past. In 2009, the IMF made allocations with the aim of ameliorating the adverse impact of the Global Financial Crisis of 2008. The developing economies, such as Guyana and the Caribbean, were able to withstand the global financial crisis favourably. It is hoped that the current allocation has the same impact.