Special Drawing Rights

A Shot in the Arm

While the Weekend Read was on hiatus, something big happened.

On August 23 the IMF’s largest allocation of Special Drawing Rights (SDRs) in history came into effect. 

The allocation of the international reserve assets is equivalent to roughly $650 billion in much needed liquidity to global economic system amid an unprecedented crisis. About $275 billion is going to emerging and developing countries, of which low-income countries will receive about $21 billion–equivalent to as much as 6 percent of GDP in some cases.

“SDRs can help countries with weak reserves reduce their reliance on more expensive domestic or external debt. And for states hard pressed to increase social spending, invest in recovery and deal with climate threats, they offer a precious additional resource,” IMF Managing Director Kristalina Georgieva wrote in a Financial Times op-ed.

How Does it Work?

In one basic example, a country can exchange its SDRs with another country and receive foreign currency reserves. Those foreign currency reserves could then be used to purchase vaccines. 

Making the Most of It

The IMF is encouraging countries with stronger economies to voluntarily “channel” SDRs to the poorest and most vulnerable nations. The IMF is also engaging members on a possible new Resilience and Sustainability Trust that could use SDRs to help poor and vulnerable countries with structural transformations, such as coping with climate-related challenges. Another possibility could be channeling SDRs to support lending by multilateral development banks.

📚 READ

Read the Blog

Read Managing Director Kristalina Georgieva’s Op-Ed

🎧 LISTEN

IMF Director of Strategy, Policy and Review Ceyla Pazarbasioglu explains the significance of the SDR allocation in this podcast

Macroeconomics

How Long is Transitory?

IMF Chief Economist Gita Gopinath recently explained the outlook on inflation. So what does it mean when current inflation trends are expected to be transitory?

“I don’t mean we’re talking about a month or two. This goes on, especially in the US, into next year. Towards the end of next year the last data point there is about 2.6 percent in the fourth quarter,” she said at the Bruegel Annual Meetings.

She cautioned that the inflation debate doesn’t follow one storyline, even for advanced economies. However, one important goal should be anchoring inflation expectations.

Maintaining Credibility

“It’s very important to signal that agility to move quickly, of course to track all these indicators, and to credibly communicate what will trigger movements and then to follow through and act on it,” she said. “This is hard-won credibility and in these times, which are unique in terms of the recovery, it’s important to follow through and preserve that.”

The Takeaway

Gopinath hit on similar themes in her presentation late last month to the Jackson Hole Economic Symposium. Unprecedented fiscal and monetary support made the pandemic-driven economic crisis less severe but has triggered inflation and debt concerns.

“Monetary & fiscal support are both essential for macroeconomic recovery + central bank independence and the taboo against monetary financing has served countries well,” she tweeted.

📚 READ

Read Gita Gopinath’s Bruegel Presentation

Read Gita Gopinath’s Presentation to the Jackson Hole Symposium

📺 WATCH

View the Full Bruegel Event

Finance & Development

F&D: The Climate Issue

Our Fall 2021 issue of F&D, produced in partnership with COP26, was just published. In this edition, we focus on the urgent need for climate action that can usher in a new era of sustainable development with expanded opportunities for people across the world.

“No transition is easy. It will require compensating the workers and businesses that bear the cost of a green transition. It means breaking down political economy impediments to rapid progress. It depends on collaboration by citizens, governments, corporations, financial institutions, philanthropists, and the scientific community. Perhaps most important, it will require that world leaders expand their ambition and action, including mobilizing finance to help developing economies adapt to climate shocks,” writes F&D editor-in-chief Gita Bhatt.

A note of the stunning cover for this issue: Malaysian artist Nor Tijan Firdaus created an image of a young girl composed of discarded electronic components. The jarring composition creates a forceful reality of the consequences of human activity on the environment and climate.

📚 READ

Read the Full Issue

A Persistent Vaccine Gap

The global rollout of COVID-19 vaccines is progressing at two alarmingly different speeds. Less than 2% of adults are fully vaccinated in most low-income countries compared to almost 50% in high income countries.

—Joint Statement of the Multilateral Leaders Taskforce on Scaling COVID-19 Tools.

WEEKLY ROUND-UP

01. Tracking the Pandemic Response

The IMF and World Health Organization have developed a new tool to track the number of vaccine doses secured by countries and areas through different channels, including bilateral agreements with manufacturers, donations from other countries, multilateral agreements through the COVAX Facility, World Bank Group, Asian Development Bank or other institutions/sources. The database builds on a broader effort by the leaders of the IMF, WHO, World Bank and World Trade Organization who established a task force on COVID-19 vaccines, therapeutics, and diagnostics to help developing countries. Check out the task force’s data dashboard on vaccine delivery and administration.

02. Input Needed for Strategy for Fragile and Conflict-affected States

The IMF wants your input and views on a forthcoming strategy to strengthen its engagement with Fragile and Conflict-affected States (FCS). The objective of the FCS Strategy is to enhance the IMF’s role in helping these states achieve macroeconomic stability to help them exit from fragility, strengthen their resilience, and promote sustainable and inclusive economic growth. The IMF aims to ensure that the FCS Strategy is informed by a wide range of perspectives, recognizing the value stakeholder consultations to help shape our policies and programs. If interested, please visit the FCS Strategy Consultation website to provide input by September 24, 2021. Please feel free to share the link with your networks. The FCS Strategy will be submitted to the IMF’s Executive Board for its consideration and approval in December 2021.

03. Podcast Rewind

Catch up on the latest IMF podcasts you may have missed in recent weeks. Listen to IMF Economist Divya Kirti discuss the opportunities and challenges of sustainable investing as a way to mitigate climate change. Ruchir Agarwal, an IMF senior economist, asks whether humans have evolved enough to escape “chimpanzee politics” and confront the greatest risk our species is facing—climate change. His podcast is tied to his recent F&D article looking at the subject. Finally Andrew Steer, head of the Bezos Earth Fund, discusses his recent F&D article looking at the importance of innovation in the fight against climate change.

04. Strengthening the Climate Information Architecture

Information is power when it comes to the fight against climate change. In a new staff climate note the IMF’s Caio Ferreira, David L Rozumek, Ranjit Singh, and Felix Suntheim explain why a decisive, globally coordinated effort is needed to move forward on the three buildings blocks of a climate information architecture: (1) high-quality, reliable, and comparable data; (2) a globally harmonized and consistent set of climate disclosure standards; and (3) globally agreed upon principles for climate finance taxonomies and other classification approaches to align investments with climate goals.