The International Monetary Fund’s (IMF) general allocation of special drawing rights (SDRs) became effective on August 23, 2021. SDRs are an IMF reserve asset designed to bolster government reserves and help ease liquidity crunches during crises. The impetus for the most recent allocation was to support low- and middle-income countries dealing with the economic fallout of the coronavirus pandemic. SDRs are not cash, but they can be used to pay debts, strengthen countries’ financial positions, or make exchanges for hard currency.
The general allocation created $650 billion in SDRs—a number chosen because this is equivalent to the maximum allowable amount without requiring the approval of the U.S. Congress, which would have been unlikely given congressional dynamics. Decisions at the IMF regarding SDR allocations require an 85 percent majority by voting power, and given that the United States holds 16.5 percent of the votes, Washington has de facto veto power.
SDRs are allocated to IMF members based on their quota shares, which reflect their relative positions in the global economy. G7 countries, most of which have no need for additional liquidity, received 43 percent of the allocation. Members of the G20 received 68 percent. Africa, the continent with the greatest need, received 5 percent or $33 billion.
As a result of this imbalance, the G7 and G20 committed to channel $100 billion of their SDR allocations to vulnerable countries. This channelling is set to occur through the IMF’s Poverty Reduction and Growth Trust, which supports low-income countries, and a new IMF Resilience and Sustainability Trust, which will also be open to low-income and select middle-income countries and will focus on tackling structural challenges including climate change and pandemic preparedness. Campaigners are also advocating for SDRs to be channelled through multilateral development banks, though this proposal has been challenged by the European Central Bank, which has argued a conservative position on the need to preserve the “reserve asset status” of SDRs—meaning that they are used for safeguarding financial stability, not for emergency spending.
The $100 billion target has yet to be achieved. China committed about 24 percent of its allocation to the effort; the UK, France, Italy, and Spain committed 20 percent, and Japan committed 10 percent. The United States, which requires congressional authorization for the channelling of SDRs (if not the initial general allocation) failed to include this in the recent omnibus bill, a move that makes achieving the target more challenging.
But African countries did receive $33 billion from the general allocation, more than the continent garnered in 2020 in bilateral official development aid. Many African countries have disclosed how they plan to use their SDRs, with plans ranging from plugging budget shortfalls or settling debt payments to supporting pandemic response measures and recovery efforts. Most African countries saw their SDR holdings decrease between August 2021 and February 2022; they exchanged roughly $4.9 billion or 14.8 percent of the $33 billion they received to pay debts and meet other expenditures.
With all the challenges African countries continue to face, these SDRs are needed more than ever. About 40 percent of African countries are in debt distress or at high risk of becoming so, 85 percent of the continent’s population has yet to be fully vaccinated against COVID-19, and there have been dramatic increases in food and energy import costs in the wake of Russian President Vladimir Putin’s invasion of Ukraine.
Yet the risk that political attention turns away from Africa’s needs is high. The IMF has already agreed to establish a new vehicle for Ukraine, to which G7 countries may channel SDRs. While this support is certainly needed, African countries also continue to require assistance as they struggle with the compound crises of the pandemic, climate change, and the ripple effects of the Ukraine conflict.