The approval of $650 billion general allocation of Special Drawing Rights (SDRs) by the Board of Governors of the International Monetary Fund (IMF) to boost global liquidity is highly welcome. The allocation of the SDRs takes effect from August 23, 2021. Nigeria, one of the beneficiaries of the facility, will get $3.5billion from the total allocation. The lifeline will enable the recipient countries tackle the effects of the COVID-19 pandemic, now in its third wave. For Nigeria, the facility will hopefully go a long way to grow the economy if adequately deployed. The amount will be credited to member countries in proportion to their existing quota in the global financial agency.
Created in 1969, the Special Drawing Rights are supplementary foreign exchange reserve assets defined and maintained by the IMF. They are also units of accounts for the global financial institution and not a currency per se. In real terms, SDRs represent a claim for currency held by IMF member countries for which they may be exchanged. The facility coming at this time that many countries’ economies have been upended by the pandemic, should be seen as a good opportunity for countries to reset their economies. Therefore, prudent management of the fund is of great essence.
Announcing the SDRs allocation, IMF Managing Director, Ms. Kristalina Georgieva, said the interest-free loan was the largest allocation in the history of the organisation. She described it as a “short in the arm for the global economy at a time of unprecedented crises.” Underscoring its significance, the IMF boss said, 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”. Beyond that, the facility will help most vulnerable countries struggling with the impact of COVID-19 induced crisis.
We also commend IMF for specifically allocating $275billion of the amount to emerging markets and developing countries, including low-income nations. Nigeria is categorised among emerging markets and, only recently, had fallen into the low-income status, as a result of its high poverty level. It is heartwarming that the IMF boss has given assurance that the agency will engage actively with member countries to identify viable options for voluntary channelling of SDRs from wealthier to poorer and more vulnerable member countries to support their pandemic recovery and achieve resilient and sustainable growth.
This lifeline is significant to Nigeria where the wealth inequity has widened terribly, and efforts to contain the surging pandemic have yielded little results. It is also heartening that a key option by the agency is to persuade member countries with strong external positions to voluntarily channel part of their SDRs and scale up lending to low-income countries through the Fund’s Poverty Reduction and Growth Trust (PRGT).
Concessional support through the PRGT is currently interest-free, just as the IMF is exploring other options to assist poor and vulnerable member nations such as Nigeria to ensure the economy pulls out of the present negative territory through a possible new economic plan. This is where the Federal Government should do more through its various recovery plans such as the Economic Sustainability Plan and Economic Growth Plan. All of these are still work in progress.
We call on the policymakers to design economic recovery plans that will stimulate growth rather than always looking for lifeline from financial institutions such as IMF and the World Bank. For instance, in April last year, Nigeria collected $3.4 billion, equivalent of its quota under the IMF’s Rapid Financial Instrument (RFI) to tackle the funding gaps created by COVID-19 pandemic following the drastic drop in the prices of crude oil in the international market. Government can use the lifeline to revamp the comatose healthcare sector, education and further development of Small and Medium Enterprises (SMEs).
Also last year, Nigeria benefited from the IMF $1billion fund raising exercise under what it called “Catasrophe Containment Relief Trust (CCRF). The World Bank President, David Malpass, also formulated a debt relief, and urged the G-20 developed nations to suspend all repayments of official bilateral credit due to the pandemic. For Nigeria, that was a great relief.
It also helped her to resolve some of the country’s national debt, currently put at over N34 trillion. Over N3.5 trillion is budgeted for debt servicing in the 2021 budget. It is worth reminding the government that the SDR is an opportunity to calibrate the economy and set it on the path of recovery and sustainable development.
Therefore, the SDR should be channelled to areas of greatest need that will boost economic growth and development. The money, which should not be seen as a windfall, must be judiciously utilised.