November 19, 2021
On August 23, 2021, the International Monetary Fund (IMF) allocated $650 billion worth of Special Drawing Rights (SDRs) to its members to add liquidity to the global economy during the unprecedented health and economic crises caused by COVID-19. SDRs, which are an international reserve asset, can be exchanged for hard currency or donated among member countries, meaning the injection by the IMF can be used by governments to stabilize their currencies and shore up their reserves, or for a number of social or health policies — the latter being an especially important use for SDRs during the pandemic, as IMF Managing Director Kristalina Georgieva has said.
In September, we reported on the use of SDRs by countries during the first week following the $650 billion allocation of these IMF reserve assets. On this occasion, we analyze SDR holdings as reported by the IMF at the end of September and compare them to previous months’ reports. It is important to note that not all uses of SDRs involve operations at the SDR Department that modify member countries’ SDR holdings; some are domestic operations leveraged on SDR holdings. For example, a recent report by Latindadd discusses domestic SDR operations in Paraguay, Colombia and Mexico. Argentina has also conducted domestic SDR operations that enhanced the impact of its SDRs. These operations are noteworthy but will not appear as changes in the IMF’s accounting.
Here are some key takeaways from the IMF’s September data and other recent SDR news:
Lebanon, Ecuador, Malawi, Tunisia, Ethiopia, Guyana and Jordan exchanged all, or virtually all, of their SDRs for hard currency.
Armenia, South Sudan, Ukraine and Haiti exchanged over half of their SDRs for hard currency.
Many countries are transferring or onlending the SDR equivalent amounts to government budgets.
Argentina’s SDR holdings declined by over 43 percent. The country’s president decreed that the SDRs belong to the government, sold them for pesos to the Central Bank, then borrowed them back from the Central Bank and used them to make a significant payment to the IMF. Along with Paraguay, Colombia, and Mexico, more countries are conducting domestic SDR operations to increase the impact of the allocation.
The Republic of Congo deposited its remaining amount of SDRs at the Bank of Central African States.
Several richer countries, including some with Voluntary Trading Agreements with the IMF, exchanged hard currencies for SDRs. Fifteen countries saw increases in their holdings of SDRs in excess of $100 million, with China leading the way with a nearly $1 billion increase.
In September, there was a net total of $8.2 billion SDRs exchanged, representing about a $6.6 billion increase compared to the previous month.
Since the allocation, about $9.8 billion worth of transactions involving SDRs have taken place, according to the IMF data.
The September data further strengthens the case that the $650 billion allocation of SDRs in August was a success. In addition to the calls and Congressional legislation in support of an additional allocation of SDRs (which has already passed the US House of Representatives) the Prime Minister of Barbados, Mia Amor Mottley, called for annual $500 billion allocations of SDRs to developing countries at COP26.
In addition to the October 4th event Making the Most of Special Drawing Rights: Approaches to Maximize Impact and Create a Sustainable and Just Recovery, another event on October 5, IMF Surcharges: A Necessary Tool or Counter-productive Obstacle To a Just and Green Recovery, was hosted by the IMF as part of its annual meetings and was co-sponsored by CEPR and many other groups.
IMF Data: SDR accounts with large decreases
While reductions in countries’ SDR holdings usually imply an exchange of SDRs for hard currency, decreases in SDR holdings may also result from a payment in SDRs to the IMF for a loan or a transaction (such as a deposit) with a prescribed holder of SDRs. Countries may also lend SDRs to each other. Countries that exchange SDRs for hard currencies usually cite liquidity problems, dwindling foreign exchange reserves and a need for more imports, as well as a desire to implement measures to address the pandemic.
There was a net total of $8.193 billion worth of SDRs exchanged in September.
$1128 million decline (representing a 132 percent reduction of its new recent allocation)
Lebanon exchanged not only all of its 2021 allocation, but also exchanged its SDRs from previous allocations. The new Lebanese government initially said SDRs were reserved for transfers to the disadvantaged via ration cards (funded “via the World Bank and the Special Drawing Rights (SDR) of the IMF.”) More recent reporting suggests this is still the case. Lebanon is currently negotiating with the IMF for a separate program due to its severe economic crisis which included a precipitous drop in the value of its currency.
$944.3 million decline (100 percent reduction of its recent allocation)
Ecuador exchanged all of its SDRs. The SDRs were allocated directly to the 2021 government budget and were used to cover financing shortfalls of its capital expenditures while the IMF program in force was under review by IMF staff. The Ecuadorian parliament objected to the fact that the (unexchanged) SDRs were recorded as a liability considering the fact that there is no mandate to repay the principal. The Ecuadorian government said, “[p]roceeds from the SDR distribution will go to investment and social services.”
$736 million decline (100 percent reduction of its recent allocation)
On September 14, a Presidential decree established that 100 percent of the SDRs allocated to Tunisia would be retroactively transferred from the Central Bank of Tunisia to the government’s budget. An initial quantity corresponding to 26 percent of the allocation was transferred immediately. According to press reports, most of the amount went to paying government employee wages.
$187.4 million decline (100 percent reduction of its recent allocation)
Malawi is considered a country with a high probability of imminent default on its external debt and Malawi has taken several IMF loans last year. Malawi has stated that SDRs “bolster confidence and strengthen the resilience of the country’s economy.” Given the pressure on its currency, Malawi may be using SDRs to stabilize its exchange rate or import necessities. Malawi received two loan disbursements from the Rapid Credit Facility in 2020.
Republic of Congo
$219 million decrease (representing a 100 percent of new SDR allocations)
The Republic of Congo had a significant decrease in holdings that exactly matches an increase in holdings of the regional central bank, the Bank of Central African States (BEAC, its acronym in French). The IMF can qualify supranational monetary or financial institutions as “prescribed holders,” which are entities that can also have accounts at the SDR Department and engage in SDR transactions. BEAC is a prescribed holder.
In August the Republic of Congo delivered 27.9 percent of its new $221 million SDR holdings to the BEAC; in September it delivered the remaining amount to the BEAC. The government has said the resources from the IMF will be used to support the 2022 budget.
$245.1 million decline (99.9 percent reduction of its recent allocation)
In August, Bank of Guyana Governor General, Gobind Ganga said, “The allocation is expected to aid in the fight against the coronavirus pandemic as well boost productivity and growth of the Guyanese economy through its capital spending that focuses on the infrastructural transformation of the country.” The drawdown of SDRs together with the central bank governor’s comments suggest full fiscal use of the SDRs.
$405.8 million decline (99.9 percent reduction of its recent allocation)
There is little information on how the SDRs are being used, although the allocation was seen as a boost to the economy and reserves. The IMF is engaging with the Ethiopian government due to worsening economic conditions, but not discussing a separate loan program due to the political situation. Ethiopia received a $411 million loan from the IMF in 2020 via the Rapid Financing Instrument.
$455.1 million decline (98.2 percent reduction of its recent allocation)
There is no publicly available information on how Jordan used its SDRs. Jordan received a $396 million loan in 2020 under the Rapid Financing Instrument due to the effects of the pandemic.
$113.9 million decline (65.5 percent reduction of its recent allocation)
There is no publicly available information on how Armenia used its SDRs. In the context of meeting with the IMF, the Armenian government emphasized its commitment to building out education infrastructure.
$211.3 million decline (63.6 percent reduction of its recent allocation)
South Sudan has said that SDRs “will address budget support and the economic impacts of the COVID-19 pandemic” in the context of “implementing essential economic reforms, including monetary and far-reaching foreign exchange market reforms, which involves refraining from monetary financing of the deficit.” South Sudan received two loans disbursements from the Rapid Credit Facility in 2020 and 2021, respectively.
$1408.9 million decline (51.9 percent reduction of its recent allocation)
SDRs “provide more financing space to meet higher budget needs in the remainder of 2021…” according to ratings agency Fitch. Ukraine has said SDRs could be used for the current budget period or future period. Ukraine entered into a new stand-by agreement in June 2020 due to the effects of the pandemic.
$110.6 million decline (50 percent reduction of its recent allocation)
The Haitian central bank will gradually onlend the domestic currency equivalent of the SDR amount to the government budget in exchange for long-term debt. According to the central bank “the [SDR] allocation represents a very positive element for the Haitian economy because it will ease pressure on the central bank’s foreign exchange reserves and it will allow the creation of some fiscal space to face the challenges of the health crisis and the peoples’ hardship after the August 14, 2021 earthquake and the tropical storm Grace.”
$1869.2 million decline (43.4 percent reduction of its recent allocation)
The Argentine government used the SDRs for a complex set of operations that helped alleviate its external position marked by its existing IMF debt. It was decreed the SDRs belong to the government’s current budget, not the central bank. Then, the government sold the SDRs to the central bank, for pesos. The government used the pesos to prepay previous central bank financing. The government then borrowed the SDRs from the central bank to pay part of its 2021 obligations to the IMF. The Argentine Minister of Finance has announced it will pay its December obligations with the SDRs recently allocated: “Argentina’s Central Bank paid the maturity with special drawing rights (SDRs) received by the country last month, two sources told the Bloomberg news agency.”
Other notable accounts:
$51.6 million decline (23.3 percent reduction of its recent allocation)
$70.4 million decline (7.4 percent reduction of its recent allocation)
IMF Data: SDR accounts with large increases
These countries likely exchanged or issued hard currencies for SDRs. Alternatively, they could have accepted SDRs as payment for previous loans.
In September, countries with Voluntary Trading Arrangements collectively purchased $5.8 billion in SDRs.
$995 million increase
$976 million increase
$706 million increase
$596 million increase
$579 million increase
$322 million increase
$293 million increase
$282 million increase
$227 million increase
$211 million increase
$211 million increase
$154 million increase
$141 million increase
$70 million increase
$52 million increase
The participating countries’ total holdings of SDRs was worth $348 billion. They increased their total SDR holdings by 1.7 percent.
In addition, the European Central Bank increased its SDR holdings by $282 million, a major increase in its SDR holdings. The ECB is a prescribed holder; it did not receive a direct allocation from the IMF.
IMF General Resources Account
$1875.4 million increase in its SDR holdings in September
The IMF received a significant payment from Argentina (see above). The IMF’s SDR holdings increased slightly over the amount that Argentina’s decreased. It is important to remember that no SDRs are allocated to the IMF; its holdings increase primarily due to loan repayments.
Countries to Watch
Apart from the IMF data, reporting on — or statements from — countries may give information on the use, or future use, of SDRs. It may also highlight the domestic use of SDRs, which would not appear as transactions in the IMF data. These are countries to watch in future months.
Domestic SDR operations: “Paraguay resorted to this orientation to increase fiscal spending”; “With the arrival of SDRs in Paraguay, the country has USD 250 million freely available for its use and the Central Bank of Paraguay (BCP) has already made progress to be able to use these resources in the execution of programs to mitigate the effects of the COVID-19 pandemic, thanks to the Economic Consolidation Law sanctioned on August 25, which gives the BCP free rein to use these resources from the SDRs and other sources of financing to execute the programs within the consolidation plan for a total amount of USD 365 million.”
Domestic SDR operations: The Colombian government swapped government bonds for dollars equivalent to the $2.8 billion SDR allocation. “Finance Minister Jose Manuel Restrepo told lawmakers last week that the government will use the proceeds [from SDRs] to finance the 2022 budget”; “Colombia, for its part, made an accounting movement to have more liquidity, but not new resources…”; “The USD 2.79 billion equivalent in SDRs assigned to Colombia did have a fiscal use and were not used to increase international reserves. However, the issuance did not mean additional resources but liquidity. In other words, the operation carried out by the Banco de la República with the Ministry of Finance and Public Credit was an exchange of debt that already existed between the institutions, but with an extension of maturities.”
Domestic SDR operations: Not without controversy, Banxico leveraged the $12 billion SDR allocation to sell $7 billion in hard currency to the Mexican government, which is reportedly being used to buy back foreign debt issued by Pemex, the Mexican national oil company. “Banxico had warned that it would keep the SDR as international reserves, but sold the Mexican government reserves in dollars for USD 7021 million in mid-September 2021, which reduced its level by 3.4%. It is presumed that these dollars will be used to pay the debt of the state oil company Pemex. The SDRs were paid in Mexican pesos, but the origin of the resources is not yet known.”