Four Points about Special Drawing Rights (SDRs)
- SDRs are an international reserve asset created by the IMF to supplement member countries’ official reserves;
- Their value is based on a basket of five currencies;
- They cannot be held by private entities or individuals;
- An SDRs allocation provides each recipient country with a costless asset which countries can use as they want, with no conditionality.
*with some constraints: they are not a currency and they are tied to how IMF operates.
How can SDRs issuance enable countries to address the multi-faceted Covid-19 crisis?
A new issuance of SDRs by the IMF would build up the level of foreign currency reserves in the central banks, so making it possible for developing countries to:
- Borrow at lower interest rates and engage in more affordable way;
- Address any BoP imbalance/pay for imports;
- Increase fiscal space for public spending in Covid-19 response and recovery, including vaccines and strengthen healthcare system.
- Though SDRs issuance is not the only option to support African countries rise above the current debt crisis, it is one of the viable financing options to fight against COVID-19 and boost African economic recovery.
While SDRs are an additional source of finance they are not a replacement nor the silver bullet to the structural problems associated with the debt crisis. They provide an additional instrument of fiscal space and liquidity to deal with the immediate to short term impacts of the debt crisis. AFRODAD supports the issuance to this extent but calls for more fundamental changes and reforms to the global debt and finance architecture that provides a fair and transparent mechanism for the interaction between debtor and creditor. This mechanism is underpinned by the principles of equality, equity, and fairness.
Read here the call for SDRs issuance by AFRODAD together with global civil society.