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Special Drawing Rights not a magic bullet: World Bank

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THE World Bank says Special Drawing Rights recently allocated to African countries, including Zimbabwe, are not enough to shore up their economies as the nation continues facing climate change-related risks, as well as aftershocks of the Covid-19 pandemic.

BERNARD MPOFU

 On 2 August 2021, the board of governors of the International Monetary Fund (IMF) approved a general allocation of SDR 456 billion (US$650 billion) to boost global liquidity. Zimbabwe received SDR677.4 (US$961 million) which the authorities said would ease the liquidity situation in the economy.

According to the latest World Bank report titled Africa Pulse (October 2021 Volume 24): An Analysis of Issues Shaping Africa’s Future in 2021, although sub-Saharan Africa emerged from the recession, its recovery is still timid and fragile.

The region, the report shows, is projected to grow at a rate of 3.3% — a weaker pace of recovery than that of advanced and emerging market economies. In 2022–23, the region is projected to grow at rates below 4%; however, growth above 5% is attainable with rapid vaccine deployment in the region and thereby withdrawal of Covid-19 containment measures.

“The recent allocation of Special Drawing Rights (SDRs) to African countries is a good shot in the arm, but it might not be sufficient,” the report states.

 “Of the US$650 billion in SDRs issued by the International Monetary Fund (IMF), about 3.6% is allocated across sub-Saharan African countries — that is, the equivalent of their IMF quota share. These additional resources are aimed at boosting liquidity and combatting the pandemic. SDR allocations are part of the solution, intended to complement rather than substitute other financing channels. The international community needs to continue exploring different options that would enable rich countries to share their surplus SDRs voluntarily with the poor countries in the region with the greatest financing needs. An extension of the Debt Service Suspension Initiative (DSSI) may help participating countries redirect their limited resources to the recovery effort.”

The multilateral lender said tackling debt problems at their root would require accelerating the process of countries seeking relief from the Common Framework for Debt Treatments beyond the DSSI.

“Meeting the region’s development goals will require contributions from all potential sources — including international financial institutions and the private sector,” the report reads.

“The international community needs to help African countries expand their fiscal space by alleviating some of their debt burden.”

 Official figures show that out of the SDR 456 billion (US$650 billion), nearly SDR 17 billion (3.7% of the global amount) was allocated to sub-Saharan African countries. The top six countries in sub-Saharan Africa (South Africa, Nigeria, the Democratic Republic of Congo, Zambia, Angola, and Ghana) claim about half the amount of SDRs allocated to the region. The amounts distributed to South Africa and Nigeria are about SDR 2.9 billion and SDR 2.4 billion, respectively.

“As a percentage of their general government gross debt, the amount of SDRs allocated to five countries in the region exceeds 10%, namely, Burundi, South Sudan, the Central African Republic, Liberia, and the Democratic Republic of Congo. Although this is a large amount for some countries, the SDR allocation is not a panacea,” the report further states.

“It is a good start, but it will not be sufficient. As the pandemic lingers, it cannot remain as a permanent solution and, thus, it cannot substitute other financing channels. The international community needs to continue exploring different options that would enable rich countries to share their surplus SDRs voluntarily with the poor countries in the region with the greatest financing needs.”

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