August 4, 2021/CSL Research

Coming as one more effort to support global economic recovery, the International Monetary Fund (IMF) has approved its largest allocation of Special Drawing Rights at US$650bn, as a means of supporting the long-term global need for reserves, building confidence, and fostering the resilience and stability of the global economy following the devastating effect of the pandemic. This development was revealed in a recent publication by the organization on 2 August 2021, with an effective disbursement date of 23 August 2021. The fund would be applied to participating countries based on their existing quotas in the fund, earning emerging market economies US$275bn of the sum, of which Nigeria can access US$3.35bn.

According to official sources, the IMF had previously allocated SDR 204.2bn (equivalent to c.US$318bn) to members, including SDR 182.6bn allocated in 2009 in the wake of the global financial crisis. The IMF, following the economic shock that trailed the pandemic in 2020, leading to a break down in the global supply chain, supported Nigeria by meeting the country’s request for US$3.4bn to support its Balance of Payment (BoP) position at the time.

The dip in crude-oil (a significant export commodity) price to an all-time low of US$19.33 per barrel led to a significant decline in the country’s revenue. Despite the price recovery seen so far, Nigeria has yet to even-out the effect of the pandemic on its FX reserve. The proposed increased SDR allocation by the IMF would likely provide support for Nigeria’s external reserve accretion this year as it could prompt the government to approach the IMF for further RCF-type financing when the allocations are concluded. Furthermore, we see a strong likelihood of a Eurobond issuance in either late Q3 or early Q4.