The International Monetary Fund (IMF) has announced plans to allocate $650 billion worth of reserve funds to support a global economic recovery from COVID-19. Distributed in the form of reserve assets called Special Drawing Rights (SDRs), this financing source could help countries purchase COVID-19 vaccines, invest in an equitable economic recovery, and access lifesaving health care treatments.
The problem is that the current process of distributing SDRs benefits wealthy nations the most, making it possible for low- and lower middle-income countries to slide further into poverty if funds are not distributed equitably.
Created by the IMF in 1969, SDR allocations help nations around the world during times of economic stress. Countries receive their allocations of SDRs based on their shareholdings, with advanced economies — such as most of the G20, including the United States, France, and Japan — having the largest stake. This means that the world’s 44 poorest countries, which would benefit the most from these international reserve assets, will receive only 7% of the total allocation to IMF member countries.
The COVID-19 pandemic has impacted every country, but low- and lower-middle income countries have been hit particularly hard. In addition to reporting high case counts and deaths because of a lack of testing and treatment services, the economic burden of the pandemic has pushed these nations deeper into debt. It has also made it difficult for them to purchase lifesaving COVID-19 vaccines, particularly as wealthy countries bought more doses than necessary.
To correct this inequity, world leaders and humanitarians have called on governments to donate dollars and doses to help the world’s poorest countries combat the pandemic, including by funding COVAX — the vaccine pillar of the ACT-Accelerator — and supporting the temporary suspension of COVID-19 vaccine intellectual property rights to unleash global vaccine production. SDRs will be another crucial lifeline to ensure equitable access.
Through the IMF’s process of allocating SDR holdings, G20 nations, which already have ample financial resources and borrowing space to support their economic recoveries, will receive 68% of the new SDRs, or $442.8 billion.
That’s why G20 finance ministers should commit to collectively on-lend at least half of their new SDR allocation to support the economic recovery in low- and lower middle-income countries this year.
To ensure these allocations are distributed effectively and equitably, Global Citizen has compiled a list of criteria that nations should follow when directing their SDR holdings.
Here are five key principles for effective SDR reallocation.
1. Prioritize the global fight against COVID-19.
A portion of SDRs must go toward purchasing COVID-19 tests, treatments, and vaccines by closing the ACT-Accelerator’s funding gap, which is estimated to be $18.5 billion. These allocations can also be used to provide additional funding needed to achieve extensive global immunization and prevent the next pandemic.
2. Support an inclusive and green recovery.
Countries should prioritize initiatives that contribute to an inclusive and green economic recovery. These include targeting assistance to social priorities, such as education, health, social protection, job creation, and green climate investments.
3. Distribute SDR holdings in an efficient and timely manner.
While there are many innovative proposals for new funding mechanisms to reallocate SDRs, Global Citizen urges the IMF and donor countries to prioritize mechanisms that allow for money to reach countries quickly. This will ensure that the countries that need the most support to end the pandemic for their populations can access financial reserves immediately.
New mechanisms, which could take up to a year to operationalize, will only delay support to low- and lower middle-income countries that need resources now. Mechanisms such as the Poverty Reduction and Growth Trust (PRGT) and the Catastrophe Containment and Relief Trust (CCRT) are two existing options for ensuring timely, targeted support.
4. Ensure that SDR on-lending mechanisms are concessional and in addition to existing aid commitments.
The financial support offered through new SDRs should be as debt-free and concessional as possible to provide the best means of support for struggling poor countries without adding to their debt burden. Similarly, donated SDRs must be new, additional aid and not a substitute for foreign aid that wealthy countries were already planning to give.
5. Include lower middle-income countries when considering SDR reallocations.
The World Bank estimates that the global pandemic will push 150 million more people into extreme poverty around the world, with 82% of those people in lower middle-income countries. Despite this, these nations have largely been left out of economic support and debt relief efforts to date.
Including lower middle-income countries, in addition to low-income countries, in any new SDR mechanism will be critical for targeting support to the countries with the highest extreme poverty rates.
While every country has been affected by the pandemic, researchers say that the global economy will suffer if COVID-19 resources and vaccines are not distributed equitably. The IMF’s decision to initiate a new wave of SDR allocations will help struggling nations access COVID-19 resources and jumpstart economic initiatives to lift themselves out of poverty.
World leaders can ensure that nations struggling the most are able to access lifesaving resources by donating a portion of their SDR holdings. By targeting their support, these initiatives can end the pandemic for everyone, everywhere and benefit the future of low- and lower middle-income countries.
You can join the Global Citizen Live campaign to defeat poverty and defend the planet by taking action here, and become part of a movement powered by citizens around the world who are taking action together with governments, corporations, and philanthropists to make change.
