The United States Congress is reportedly set to approve more than $650 billion worth of Special Drawing Rights or global reserves held by the IMF (International Monetary Fund) to help low-income nations that have been severely impacted by the Covid-19 crisis.
According to reports, the proposed funds would be providing temporary financial respite to a number of low-income nations, particularly in Africa, who have been hit hard by the ongoing coronavirus pandemic.
Africa urgently needs an immediate and extensive economic relief package, which includes debt relief, loan restructuring, and reallocation of SDRs from high-income countries to effectively navigate the challenges created by the economic and health crisis.
The President of Rwanda, Paul Kagame, stated last week that a novel SDR issuance would greatly enhance liquidity. But he also called for a comprehensive system of accountability for the way SDRs are utilized and a method of allocating the SDRs according to the need rather than a quota.
Kagame further added that recovery from the pandemic greatly depends on an adequate amount of fiscal space as well as liquidity. However, today, there is a well-defined dividing line in world. While some nations can finance their recovery with the help of quantitative easing, the rest are forced to borrow from public or private creditors, similar to the way individuals do.
Consequently, without appropriate corrective action, the divergence created by this scenario will further entrench a significantly unequal global order. Wherein the poor do not have any chance of catching up to the well-off.
For the record, as part of the (SDR) Special Drawing Rights Act, the U.S. Congress has authorized support for an SDR allocation from the Secretary of Treasury without any additional legislation. It is to be noted that the total amount allocated to U.S. would not exceed the existing U.S. quota within the IMF over the applicable period of five years.
According to IMF estimates, low-income nations would need to deploy approximately $200 billion through the next five-year period to just fight the pandemic. Moreover, they also need to deploy an additional sum of $250 billion if they are to return the process of catching up with other advanced economies.