IMF ALLOCATED $650 MILLION AMID INLINE GLOBAL RECOVERY PROGRESS AT 6%

The global recovery is progressing broadly in line with the IMF’s April projections of 6 percent growth this year. After a crisis like no other, it’s been observed in some countries a recovery like no other, propelled by a combination of strong fiscal and monetary policy support and rapid vaccinations.

For the United States growth projected 7 percent this year, the highest since 1984. The recovery is similarly gaining momentum in China, the euro area, and a handful of other advanced and emerging economies. But incoming data also confirm a deepening divergence in economic fortunes, with a large number of countries falling further behind. The world is facing a worsening two-track recovery, driven by dramatic differences in vaccine availability, infection rates, and the ability to provide policy support. It is a critical moment that calls for urgent action by the G20 and policymakers across the globe.

The International Monetary Fund said on Friday its executive board has backed a $650 billion allocation of IMF Special Drawing Rights, advancing the distribution of currency reserves to the IMF’s 190 member countries towards a targeted completion by the end of August.

IMF also acknowledged that low-income countries have to deploy some $200 billion over five years just to fight the pandemic. And then another $250 billion to have the fiscal space for transformative reforms, so they can return to the path of catching up to higher income levels. They can cover only a portion of that on their own. It is therefore vital that wealthier nations redouble their efforts, especially on concessional financing and dealing with debt. The G20 Debt Service Suspension Initiative has provided fiscal breathing space. But given the need to provide permanent debt relief, the new Common Framework should be made fully operational. Chad, for example, received financing assurances from its G20 bilateral creditors, and need speedy commitments, on comparable terms, by private creditors.

IMF Managing Director Kristalina Georgieva said she will now present the SDR allocation proposal, the largest in the Fund’s 77-year history, to its Board of Governors, with representatives from every IMF country.“This is a shot in the arm for the world,” Georgieva said in a statement released ahead of a G20 finance ministers and central bank governors meeting in Venice. “The SDR allocation will boost the liquidity and reserves of all our member countries, build confidence, and foster the resilience and stability of the global economy.”

The IMF in 2009 distributed $250 billion in SDR reserves to member countries to help ease a global financial crisis. The SDR is the IMF’s unit of exchange and is made up of a basket of currencies -- dollars, euros, yen, sterling and yuan.

To spend their SDRs, countries would first have to exchange them for underlying hard currencies, requiring them to find a willing exchange partner country. Georgieva said the new SDR allocation, initially backed by the G20 major economies in April, would have a positive effect on every IMF member country and will particularly help vulnerable countries to strengthen their response to the COVID-19 crisis. She said the Fund would actively engage with member countries in the months ahead to “identify viable options for voluntary channeling of SDRs from wealthier members to support our poorer and more vulnerable countries.”

G20 finance officials are expected to discuss potential SDR contribution mechanisms over the next two days, to low-income countries as well as to some vulnerable middle-income countries and small island states.