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IMF close to deciding on $650b SDR boost to global recovery

Dubai - Kristalina Georgieva to present a formal SDR proposal in June.

The International Monetary Fund (IMF) said on Tuesday it is close to making a final call on allocating $650 billion in new special drawing rights (SDR) to address the long-term global need for reserve assets.

The IMF Kristalina Georgieva said she would present a formal SDR proposal in June, including measures to enhance transparency and accountability.

Addressing a meeting of heads of state and government on “The international debt architecture and liquidity,” the IMF head said the global economic outlook is improving on the back of “incredible efforts” on vaccines, and unprecedented actions by governments and the international community, but “prospects for recovery are diverging dangerously.”

Georgieva said the new SDR allocation would support the global recovery, by providing a substantial direct liquidity boost for all IMF members without adding to debt burdens—and freeing up resources for countries under pressure to do what is right: to take care of people and businesses.

She said the DSSI (Debt Service Suspension Initiative), launched by G20 in May 2020 as per the directive of the IMF and the World Bank provided valuable relief to eligible countries of around $5.7 billion in 2020 and it was rightly extended to June 2021.

“We strongly support a further extension until the end of 2021, which is currently under consideration by G20 members. In parallel, we are exploring options for members with strong financial positions to reallocate SDRs to support vulnerable countries,” said the IMF head.

“Emerging and developing countries are at risk of languishing with weaker growth. Relative to pre-crisis projections and excluding China, this group is projected by 2022 to have cumulative per capita income losses as high as 20 per cent versus 11 percent in advanced economies,” she said.

Geoffrey Okamoto, first deputy managing director, IMF, observed that the global recovery has been “incomplete and unequal”, but said prospects of a stronger recovery are emerging – because of additional fiscal stimulus, especially the $1.9 trillion US fiscal support and hopes of broader vaccination. In January 2021, the IMF projected 2021 global growth at 5.5 per cent.

The OECD’s recently issued interim Economic Outlook shows a clear improvement in growth prospects for 2021 and 2022. Global output is forecast to be 2.5 per cent higher in the last quarter of 2022 than was expected as recently as last December. The single most important reason for this, after the miracle of the vaccines, is the unprecedented US fiscal support package.

According to economists, this is forecast to raise US gross domestic product by 3.8 percentage points in its first full year. Its effects are also forecast to spill over to the rest of the world.

On top of this, the Biden administration is already talking of a further $3 trillion spending package on infrastructure, clean energy and education. Together, these packages amount to nearly a quarter of US GDP.

The United Nations says the world has entered a "turning point" in the Covid-19 crisis, with financing for vaccinations in least-developing countries delaying the global recovery. "The least-developed countries have spent 580 times less in per capita terms on their Covid-19 response than advanced economies," Secretary-General Antonio Guterres said. "This division is starkly reflected in global access to vaccines, further delaying a global recovery."

The vaccine rollout is uneven and, relative to the challenges, too slow. So far, just fewer than six doses have been given per 100 people worldwide. Among large countries, this rate goes from 45 in the UK and 38 in the US, to 13 in the EU, six in Brazil, three in India and near zero in Nigeria.

“If we assume global herd immunity requires two doses of vaccine for 75 per cent of the world’s six billion adults, some nine billion doses need to be delivered. Only about 450 million doses have been delivered so far. The chances of nine billion jabs being administered by the end of 2022, therefore, look small. At the same time, if the virus remains rife, the risk of dangerous variants emerging is high,” analysts said. issacjohn@khaleejtiems.com