Insights into the new IMF SDR allocation – What that means for Kenya – By Eva Wanjiku Otieno, Principal, Africa Strategy, Standard Chartered Bank

The IMF has proposed a USD 650bn increase to its existing Special Drawing Rights (SDR) reserves. This could triple existing SDR reserves, boosting the IMF’s international reserve assets for member countries around the world. This initiative seeks to provide additional liquidity support to member countries (without adding to their debt burden) and to the global economic system to help deal with the coronavirus shocks to member countries’ economies. The tripling of the IMF’s reserves will require approval from the IMF Executive Board, that we expect to meet in June, and the IMF Board of Governors. The member countries could receive the new SDR allocations as early as Q3-2021.

The Special Drawing Right is an interest-bearing reserve asset (interest of 0.05%) created by the IMF in 1969. It is based on a basket of five currencies – the USD, EUR, CNY, JPY and GBP. SDRs can be freely exchanged for these currencies. One SDR was worth USD 1.44 as of 26 May 2021. IMF financing is normally priced in SDRs, with the recent IMF ECF/EFF arrangements for Kenya (approved on 2 April) at SDR 1.655bn (USD 2.34bn).

The current SDR developments are important, as IMF member countries will benefit from the USD 650bn new SDR allocations. The increase will be distributed proportionately (according to the IMF quota or how much a country has contributed to the IMF). Kenya is a member of the IMF, and according to its quota, it may receive c.USD 740mn once the new SDR allocation is approved.

For African economies, the size of the new SDR allocations would amount to c.USD 33bn – close to the RCF and RFI lines extended in 2020. But a large proportion, c.USD 500bn of the USD 650bn would be for the top 25 countries by IMF quota share. France (a G20 economy), the IMF and the African Union (AU) are lobbying for a reallocation of SDRs by wealthier countries that do not need them to countries that do need more financing support.

This narrative was backed at the Africa Financing summit which was held in the week of 18 May 2021. At the summit, France called for Africa’s new SDR allocation share to triple and the IMF managing director suggested that this additional reallocation could be done through the Fund’s Poverty Reduction and Growth Trust (PRGT). The PRGT includes three concessional facilities, including the Extended Credit Facility (ECF), the Rapid Credit Facility (RCF) and Standby Credit Facility (SCF) – all of which have been extended to Kenya at some point (ECF/Extended Fund Facility in 2021), (RCF in 2020) and (SCF/Stand By Arrangement in 2016).

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