IMF approves $650 bn to aid corona fight

ISLAMABAD: The International Monetary Fund (IMF) Tuesday approved the biggest resource injection in the Fund’s history, with $650 billion meant to help countries deal with mounting debt and the fallout from the COVID-19 pandemic, foreign media reported.

The creation of the reserve assets -- known as special drawing rights -- is the first since the $250 billion issued just after the global financial crisis in 2009, with Managing Director Kristalina Georgieva billing it as “a shot in the arm for the world” that will help boost global economic stability. The SDR allocation will be effective on Aug 23, the IMF said in a statement.

(Mehtab Haider adds: Special Assistant to Prime Minister on Finance and Revenues Dr Waqar Masood on Tuesday said it was yet unknown if this funding facility of over $2 billion would be allowed to utilise for budgetary purposes or not as details were still being worked out.

Out of this massive liquidity injection, Pakistan has decided to avail its share so Islamabad will be able to draw its share equivalent to over $2 billion, within the ongoing month.

“Yes, Pakistan will avail this facility in accordance with its share in SDR, equivalent to over $2 billion. This facility is altogether different from the ongoing Extended Fund Facility (EFF) and will be provided to Islamabad by the end of the ongoing month,” he added.)

Commenting on this development, IMF Managing Director (MD) Kristalina Georgieva said, “This is a historic decision – the largest SDR allocation in the history of the IMF and a shot in the arm for the global economy at a time of unprecedented crisis”. She said the SDR allocation would benefit all members, address the long-term global need for reserves, build confidence, and foster the resilience and stability of the global economy. “It will particularly help our most vulnerable countries struggling to cope with the impact of the Covid-19 crisis,” Georgieva added.

About US$275 billion (about SDR 193 billion) of the new allocation will go to emerging markets and developing countries, including low-income countries.

One key option is for members that have strong external positions to voluntarily channel part of their SDRs to scale up lending for low-income countries through the IMF’s Poverty Reduction and Growth Trust.

“The SDR allocation will benefit all members, address the long-term global need for reserves, build confidence, and foster the resilience and stability of the global economy,” Georgieva said. “It will particularly help our most vulnerable countries struggling to cope with the impact of the COVID-19 crisis.”

The guardians of the global economy have wrestled with the plan for more than a year. It was initially delayed when the US -- the IMF’s biggest shareholder -- blocked it in early 2020.

Reserves are allocated to all 190 members of the IMF in proportion to their quota, and some 70% will go to the Group of 20 largest economies, with just 3% for low-income nations. Overall, 58% of the new SDRs go to advanced economies, with 42% for emerging and developing economies. So of the $650 billion, about $21 billion go to low-income countries and $212 billion to other emerging markets and developing countries, according to US Treasury Department calculations.