## SDR Allocation Ex-Post Report (ppea2023035)

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### Executive summary — overview and key takeaways
- In August 2021, the IMF’s Board of Governors (BoG) approved a general allocation of Special Drawing Rights (SDR) equivalent to USD 650 billion.
- Report scope:
  - Reviews impact of the allocation for the global economy.
  - Documents members’ use of the allocation.
  - Assesses economic implications at the country level.
  - Discusses voluntary channeling of SDRs from economically strong members to vulnerable ones.
- Report prepared by the Strategy, Policy and Review (SPR) and Finance (FIN) Departments in collaboration with the Statistics Department; approved by Ceyla Pazarbasioglu (SPR) and Bernard Lauwers (FIN).
- Date: August 7, 2023.

### Impact on the global economy
- Main benefits identified:
  - Helped meet the long-term global need for reserves.
  - Supported confidence by reducing sovereign risk premia in EMDCs.
  - Contributed to global financial stability by limiting spillovers.
- Reserve need and coverage:
  - Staff estimated long-term global need for reserve assets to be around USD 1.1–1.9 trillion; the 2021 allocation covered a significant share of the estimated residual long-term global reserve need.
- Members’ views (surveys, mission chiefs):
  - Allocation did not systematically exacerbate fiscal dominance or impact central bank independence for the majority of EMDCs.
  - Allocation did not delay needed macroeconomic adjustment and reforms in a majority of EMDCs, though some exceptions existed—particularly among LICs where some delays were reported.

### Impact on reserves, reserve adequacy, and macro effects
- Aggregate and group reserve outcomes (end-June 2023 vs end-July 2021 context):
  - Aggregate holdings-to-allocation ratio rose to about 104 percent at end-June 2023 from 98 percent in July 2021 (overall).
  - EMs: 88 percent as of end-June 2023 (compared to 74 percent right before the allocation).
  - LICs: 54 percent as of end-June 2023 (compared to 70 percent right before the allocation).
- Concentration and near-exhaustion:
  - 33 EMDCs (of which 19 LICs) have SDR holdings-to-allocation ratios below 5 percent.
  - 9 EMDCs (of which 4 LICs) have ratios in the range of 5–20 percent.
- Table snapshot (SDR billions, end-June 2023; end-July 2021 context included):
  - Participants Allocations: 204.2; Holdings: 180.3 (end-July 2021).
  - AEs Allocations: 123.8; Holdings: 121.0 (end-July 2021); Allocations: 387.4; Holdings: 401.7 (end-June 2023).
  - EMs Allocations: 73.1; Holdings: 54.1 (end-July 2021); Allocations: 251.0; Holdings: 219.9 (end-June 2023).
  - LICs Allocations: 7.4; Holdings: 5.1 (end-July 2021); Allocations: 22.3; Holdings: 12.0 (end-June 2023).
  - GRA Allocations: 0.0; Holdings: 21.6 (end-July 2021); Allocations: 0.0; Holdings: 23.5 (end-June 2023).
  - Prescribed holders Allocations: 0.0; Holdings: 0.2 (end-July 2021); Allocations: 0.0; Holdings: 0.3 (end-June 2023).
  - Total Allocations: 204.2; Holdings: 204.2 (end-July 2021); Total Allocations: 660.7; Holdings: 660.7 (end-June 2023).
- Inflation and macro considerations:
  - Allocation represented less than 0.5 percent of total global broad money in 2021.
  - Only about 5 percent of the total allocation was exchanged into freely usable currencies (via VTAs).
  - Monthly SDR sales via VTAs averaged USD 850 million.
  - AE central bank balance sheet expansion was about USD 210 billion per month during March 2020–April 2023.
  - August 2021 SDR allocation was worth less than 3 percent of total AE central bank balance sheets at the time of its effectiveness.
  - Conclusion: allocation does not appear to have been a material contributor to increased global inflation.

### Impact on borrowing costs and sovereign spreads
- Event and regression evidence:
  - EM sovereign risk premia (CDS) declined by around 3–4 percent in the week following the allocation.
  - Event study (49 AE and EM members, daily data August 23–31, 2021):
    - Average decline of 2.97 basis points or 2.88 percent one week after the allocation.
    - Regression results: β coefficient between 0.03–0.04 and statistically significant in linear specifications, implying CDS spreads about 3–4 percent (around 3–4 basis points) lower post-allocation.
  - Heterogeneity by pre-existing vulnerability:
    - Top quartile of pre-allocation CDS levels saw a decrease of 6.7 basis points; other quartiles saw a decrease of 1.8 basis points.
    - Non-linear specification: additional reductions of 0.6 percent for 2nd quartile; 1.2 percent for 3rd quartile; 1.8 percent for top quartile relative to bottom quartile.

### SDR holdings, conversions, and VTA activity
- Aggregate VTA activity (August 2021–June 2023):
  - SDR 26 billion of sales (5.7 percent of the total 2021 SDR allocation).
  - 139 sales requests by 64 members (about one third of the Fund’s membership).
  - Number of transactions higher than sale requests due to multi-counterparty/currency matches.
- LICs’ conversions:
  - LICs accounted for SDR 8.3 billion of sales (one third of total sales; equivalent to 56 percent of total SDRs allocated to them in 2021).
  - After a spike in September 2021 (SDR 4.3 billion), monthly sales declined to an average of about SDR 1 billion more recently.
- VTA market capacity and participation (end-June 2023):
  - Buying capacity of VTAs: about SDR 210 billion.
  - Selling capacity of VTAs: about SDR 163 billion.
  - Number of VTA members increased from 32 to 40 since the 2021 allocation.
  - As of end-June 2023, only five of the twenty prescribed holders held SDRs.

### Uses of SDRs and Fund obligations
- Common uses documented:
  - Reserve buffer, GRA repurchases and charges, PRGT repayments, contributions to concessional trusts, VTA conversions, other financial operations.
- Specific Fund-related uses:
  - SDR allocation helped 42 countries make PRGT repayments totaling SDR 1.2 billion.
  - Total GRA repurchases in SDRs totaled SDR 26.3 billion.
- Financing pressure context:
  - Sub-Saharan Africa: aid budgets declined from about 4 percent of regional GDP in 2006 to about 2.5 percent in 2022; Eurobond issuances declined amid tightening global financial conditions.

### Country-level empirical patterns and converters’ vulnerabilities
- SDR converters characteristics (Box 3 correlation analysis):
  - Pairwise correlation coefficients between conversion dummy and macro indicators (LIC / EM):
    - GDP growth: LIC 0.00, EM -0.19
    - Reserves: LIC -0.46, EM -0.23
    - Current account balance: LIC -0.16, EM -0.13
    - Public debt: LIC -0.04, EM 0.16
    - External debt: LIC -0.01, EM 0.11
    - Sovereign spreads: LIC (blank), EM 0.07
  - Interpretation: converters tend to exhibit higher vulnerabilities (lower reserves, larger current account deficits; EM converters show lower GDP growth and higher public and external debt).
- Program vs. non-program conversion behavior:
  - 33 countries with IMF-supported programs at time of allocation converted, on average, 48 percent of their allocated SDRs to freely usable currencies, compared to an average of 25 percent in 157 countries without IMF programs.
  - Including program countries through end-2022: 49 program countries converted on average 54 percent of allocated SDRs compared to 21 percent in non-program countries.
- DSGE model insights (Box 4):
  - Model shows trade-off: retention as reserves lowers sovereign risk premia and preserves future policy space; conversion boosts domestic demand now but reduces future SDR availability.
  - Higher sensitivity of spreads to reserves (higher φ_r) makes retention more attractive.
  - Model predicts EMs should maintain a larger share of allocated SDRs as reserves than LICs.

### Illustrative country-level uses (selected)
- Fiscal uses and health spending examples:
  - Gambia: used 25 percent of allocation to mitigate pandemic impact, including vaccination efforts.
  - Guinea-Bissau, São Tomé and Príncipe, Senegal, Zimbabwe: used parts of allocation for vaccination, health services, hospital renovations, medicines/equipment, and domestic vaccine production.
  - Bosnia and Herzegovina: used entire allocation for pandemic-related spending.
- Debt repayment and liquidity management examples:
  - Sri Lanka and Ukraine: used SDRs to repay debt.
  - Colombia: central bank sold FX to Finance Ministry (amount equivalent to SDR allocation) in exchange for local currency treasury bonds at market prices, boosting liquidity without debt issuance.
  - Liberia: used allocation to retire T-bills.
  - Papua New Guinea: used allocation as source of inexpensive financing.
  - Gabon: used entire 2009 and 15 percent of 2021 allocation to repay domestic debt and improve domestic financing composition.
- Fungibility caveat: tracking specific fiscal use of SDR exchange proceeds is difficult because proceeds are fungible.

### Effects on Fund-supported programs and program design
- Usage patterns in program countries:
  - 54 percent of LICs and 22 percent of EMs with a Fund program used SDRs for fiscal support, compared to 31 percent and 11 percent of non-program LICs and EMs, respectively.
  - 75 percent of non-program EMs and 43 percent of LICs maintained allocated SDRs as foreign reserves, compared with 58 percent and 35 percent, respectively, among those with Fund-supported programs.
- Program target adjustments (MONA database, 23 programs analyzed):
  - 11 programs loosened fiscal targets.
  - 4 programs unchanged fiscal targets.
  - 3 programs tightened fiscal targets.
  - Reserve targets increased in 10 programs; unchanged in 3; lowered in 1.
  - Where fiscal targets were relaxed, projected primary balance after the allocation envisaged a modest deterioration of around 0.2 percent of GDP per year in 2021–23.
  - For countries that raised reserves targets, post-allocation data indicate an average increase in reserves coverage of about 0.4 months of imports in 2021, declining to 0.3 in 2022 and 0.1 in 2023.

### Effects on demand for Fund financing
- Allocation’s buffering effect:
  - Additional substantial external buffers created by the SDR allocation may have reduced or slowed demand for Fund financing in non-program countries with modest reserves coverage during the initial period following the allocation.
  - A full empirical analysis is beyond the scope of the report.

### Interest costs, capacity to service SDR obligations, and distributional impacts
- SDR interest rate developments:
  - Since August 2021, the SDR interest rate has risen by over 390 basis points.
  - Market-based SDR forward curves indicate the expected path of SDR interest rates shifted upward by about 230 basis points on average from August 2021 to June 2023 across the forward curve.
  - Long-run market-implied SDR interest rate increased from about 1.4 percent in August 2021 to about 3.2 percent in June 2023.
- Concessionality and grant element:
  - By convention, financing terms are concessional if grant element > 35 percent.
  - Staff estimates the grant element of SDR conversions to be 34 percent (end-June 2023 interest rates), just below the concessionality threshold.
  - For comparison, the grant element of the IMF’s Extended Credit Facility (ECF) under the PRGT is about 36 percent.
- Estimated nominal costs for members with negative net SDR positions:
  - One-year ahead payments of net SDR charges for the median country increased from USD 0.1 million to USD 7.8 million during August 2021—June 2023.
  - The (infinite horizon) expected cost based on the present value (PV) of net payments to the SDR Department increased from USD 37 million to USD 134 million for the median country.
  - For the top quartile country:
    - one-year-ahead cost: USD 19 million,
    - PV cost: USD 333 million.
  - For the member with the largest negative SDR Department position in nominal terms:
    - one-year-ahead cost: USD 259 million,
    - PV cost: USD 4.5 billion.
- Distributional assessment (members with negative net SDR positions):
  - For 90 percent of members with negative net SDR positions:
    - SDR Department’s annual payments represent less than 0.1 percent of GDP,
    - SDR Department’s annual payments represent less than 1 percent of reserves.
  - PV of SDR obligations amounts to:
    - less than 1 percent of GDP in 69 percent of this group,
    - between 1–2 percent of GDP in 23 percent of members,
    - 2–9 percent of GDP in 8 percent of EMDCs.
  - Among LICs, São Tomé and Principe, Yemen, and Zimbabwe have a PV of SDR obligations greater than 2 percent of GDP and external debt greater than 40 percent.
  - Three EMs with PV of SDR Department exposures greater than 2 percent of GDP and external debt greater than 60 percent: Jamaica, Suriname, and Venezuela.
- Stress scenario (methodology summary in Box 6):
  - Stress: long-term SDR interest rate increased by one standard deviation (forward rates from year 30 onward higher by 2.9 percentage points; years 0–30 rates rise linearly to this new steady state).
  - Under stress:
    - Average PV of SDR Department obligations for all LICs: 1.60 percent of GDP.
    - Average PV for all EMs: 0.89 percent of GDP.
    - 21 members (18 percent of total) would have PV obligations > 2 percent of GDP (compared to 9 under baseline).
    - 17 countries (16 percent) would have PV obligations > 20 percent of total reserves (compared to 9 under baseline).
  - Near-term one-year-ahead debt service indicators similar in baseline and stress due to stress test assumptions.
- Policy implications:
  - Some members will need to carefully manage rise in interest costs; IMF staff stand ready to assist through policy advice and technical assistance.
  - Staff will monitor SDR holdings closely and encourage early purchases of SDRs for members with low holdings to meet payments and reduce risk of technical arrears (noting potential operational cost implications).

### Transparency, accountability, and statistical recording
- Holders and reporting:
  - For most members, domestic legislation treats SDRs as an international reserve asset and specifies SDRs are held and controlled by the central bank; central bank financially responsible for corresponding liability vis-à-vis IMF.
  - Distribution of holders:
    - Central bank, 82%
    - Joint, 7%
    - Fiscal authority, 5%
    - No information available, 6%
- Transfer modalities from central banks to governments (typical mechanisms):
  1) Transfer of assets and liabilities (legal instrument; central bank derecognizes asset and liability; government assumes control/liability).
  2) On-lending of SDRs or FX equivalent (loan agreement between central bank and government).
  3) Sale of SDRs or FX equivalent (government purchases SDRs/FX from central bank against local currency or bonds; should be at “arm’s length”).
  4) Cession-Retrocession (cession of SDR holdings to government with government assuming IMF liability; government sells SDRs back to central bank to fund expenditures).
- Risks to central bank autonomy and financial performance:
  - Transfers sometimes harmful: FX converted from SDRs "on-lent" by central bank to government without concordance between SDR charges and interest charged on loan—subsidizing state and harming central bank performance.
  - Currency unions: regional central banks may face interest rate risk if repayment terms do not compensate for SDR Department obligations.
- Transparency and accountability findings:
  - Central bank-held SDRs: broadly robust transparency and accountability; almost all SDR-holding central banks publish annual financial statements, independently audited in most cases.
  - Government-held SDRs: generally lower transparency and accountability; of 94 reviewed countries, only a minority (two) of five that hold SDRs through MoF issue annual financial statements; only one externally audited by State Audit body.
  - SDR-related disclosures scarce once SDRs shift from central bank to fiscal authorities.
- Statistical recording and STA engagement:
  - STA guidance provided, including a compendium of FAQs and GFS recording guidance; country-specific guidance provided in over 30 instances.
  - External sector reporting: as of June 2023, 164 out of 190 Fund members reported 2021 balance of payments to STA; SDR allocation transaction (liability) missing in 21 cases. Remaining 26 members had not reported 2021 BOP as of June 2023.
  - Monetary and fiscal coverage:
    - Of 173 economies reporting monthly MFS in SRF 1SR as of June 2023, central bank balance sheets for 146 reporters reflect full or partial SDR allocation.
    - Only twelve of 121 countries that reported 2021 data to the IMF’s GFS database report data on government holdings of SDRs.
- IMF publication enhancements:
  - Annual update on SDR trading operations published October 2021 and October 2022.
  - New quarterly financial report published December 15, 2021 providing net changes in members’ SDR holdings split into IMF operations vs SDR trading and other uses; continued quarterly publication and monthly reporting on IMF Finances webpage.

### Voluntary channeling of SDRs (pledges, delivery, and Fund trusts)
- G20 pledge and aggregate pledges:
  - G20 pledged to channel USD100 billion (20 percent of their SDR allocations) on a voluntary basis to support vulnerable countries.
  - As of June 23, 2023, pledges by 29 members amount to USD 103.4 billion (SDR 73 billion).
  - Proportionally largest channeling: France and Japan, 40 percent of their allocations; Australia, 38 percent; China, 34 percent; Saudi Arabia, 29 percent.
- PRGT and RST fundraising status (end-May reporting points):
  - PRGT:
    - Pledges for loan resources still short of first-stage fundraising targets by about SDR 1 billion.
    - Subsidy pledges short by about SDR 0.9 billion.
    - PRGT self-sustaining annual lending capacity referenced as SDR 1.65 billion.
    - Higher lending commitments and faster-than-expected rise in SDR interest rate increased subsidy costs by an additional SDR 2.3 billion (April 2023 review).
  - RST:
    - Total RST resources envisaged SDR 33 billion.
    - As of end May 2023, pledges to the RST, including loan resources, totaled SDR 25.5 billion (of which SDR 22 billion were delivered), leaving a loan resource gap of SDR 6.5 billion.
    - A further SDR 5.1 billion in standalone contributions support RST reserves.
    - Fund has ambition to raise its RST funding target.
- Operational and legal challenges:
  - Delays or preclusions when parliamentary approval required, members had to join VTA market first, or domestic legal frameworks precluded contributions.
  - In eurozone, ECB needed to confirm reserve asset status and EU law consistency for RST contributions.
  - OECD ODA classification considerations affected some contributors.
- MDB engagement:
  - IMF staff provided technical advice to interested MDBs (e.g., African Development Bank, Inter-American Development Bank) on SDR channeling options; legal procedures and SDR market implications still under discussion.

### Membership views and mission chief assessments
- Survey of member authorities (101 responses of 190 members surveyed; 26 AEs, 53 EMs, 22 LICs):
  - All AE and EM respondents and about 95 percent of LIC respondents agreed the SDR allocation was helpful for the global economy.
  - Large majority across income groups agreed the allocation was timely and necessary.
  - Majority considered the allocation’s size sufficient for the global economy, though:
    - 35 percent of EM respondents and 50 percent of LIC respondents considered it insufficient to meet membership financing needs.
    - Some respondents preferred allocating a greater proportion to EMs and LICs rather than to AEs.
- Mission chief assessments and staff views:
  - Member policies related to the allocation broadly consistent with Guidance Note on the Treatment and Use of SDR Allocations for most countries.
  - For 24 members with limited staff contact, mission chiefs could not assess consistency with Fund advice.
  - For 20 percent of LICs and 13 percent of EM countries, mission chiefs considered the SDR allocation led to material delays in needed policy adjustment and reforms.
  - In 12 cases, mission chiefs think the SDR allocation may have delayed a needed debt restructuring.
  - In 3 EMs and 9 LICs, mission chiefs reported the allocation exacerbated fiscal dominance.
  - In 4 EMs and 8 LICs, the allocation appears to have adversely impacted central bank independence.

### Conclusions and policy implications (selected)
- Overall assessment:
  - The 2021 SDR allocation was broadly effective in supplementing reserves, supporting confidence, and limiting financial spillovers.
  - The allocation supported EMDCs’ fiscal and external needs and provided policy space for some members.
  - No evidence the allocation materially contributed to global inflation.
- Policy recommendations and ongoing priorities:
  - Continue monitoring the use of SDRs and provide policy advice to ensure SDRs are used to pursue sustainable policies, particularly in LICs where some delays in adjustment were reported.
  - Support members facing increased SDR interest costs with policy advice and technical assistance where needed.
  - Enhance transparency and accountability, especially for SDRs held by or transferred to governments, including through continued safeguards assessments and improved statistical reporting.
  - Intensify efforts to deliver on voluntary channeling pledges and close fundraising gaps for the PRGT and RST to maximize the allocation’s benefits for vulnerable members.
  - Continue staff engagement with MDBs and VTA participants to address operational, legal, and market-functioning issues.

*International Monetary Fund — SDR Allocation Ex-Post Report (ppea2023035).*

### EXECUTIVE SUMMARY

### EXECUTIVE SUMMARY

### Overview
- In August 2021, the IMF’s Board of Governors (BoG) approved a general allocation of Special Drawing Rights (SDR) equivalent to USD 650 billion.
- The report reviews the impact of the allocation for the global economy, documents members’ use of the allocation, assesses economic implications at the country level, and discusses voluntary channeling of SDRs from economically strong members to the most vulnerable ones.
- The report was prepared by the Strategy, Policy and Review (SPR) and Finance (FIN) Departments in collaboration with the Statistics Department and approved by Ceyla Pazarbasioglu (SPR) and Bernard Lauwers (FIN).
- Date: August 7, 2023

### Impact on the Global Economy
- The allocation was found to be beneficial for the global economy:
  - Helped meet the long-term global need for reserves.
  - Supported confidence by reducing sovereign risk premia in emerging markets and developing countries (EMDCs).
  - Contributed to global financial stability by limiting spillovers.
- At the time of the allocation, staff estimated the long-term global need for reserve assets to be around USD 1.1–1.9 trillion; the 2021 allocation covered a significant share of the estimated residual long-term global reserve need.
- Members’ views:
  - Surveys (including of mission chiefs) indicate the allocation did not systematically exacerbate fiscal dominance or impact central bank independence for the majority of EMDCs.
  - The allocation did not delay needed macroeconomic adjustment and reforms in a majority of EMDCs, though some exceptions existed—particularly among LICs where some delays were reported.

### Economic Implications at the Country Level
- Uses and effects:
  - Some EMDCs used the allocation to meet fiscal and external needs, including pandemic-related needs.
  - Many IMF program countries exchanged a larger share of their SDR allocation into freely usable currencies.
  - For program countries, targets were often modified: fiscal targets were modestly relaxed to accommodate additional fiscal spending, while reserve targets were increased to rebuild external reserves.
  - For some countries, the allocation may have temporarily reduced demand for Fund financing by bolstering policy space.
- Holdings and conversions:
  - The report documents changes in SDR holdings and conversions after the allocation and analyzes converters’ characteristics (see Box 3 and the SDR Tracker referenced in the report).
  - To date, a total of SDR 660.7 billion (equivalent to about USD 943 billion) have been allocated historically; four general SDR allocations have been approved (including the 2021 allocation).
- Program vs. non-program differences:
  - Program countries tended to exchange a larger share of SDRs to freely usable currencies and adjust program targets (relax fiscal, increase reserves).

### Interest Costs and Capacity to Service SDR Obligations
- SDR interest costs have increased:
  - The expected interest costs (in net present value terms) for members with negative net SDR positions are estimated to have more than tripled since the allocation.
- Capacity to service:
  - The capacity to service SDR obligations remains generally adequate for most members with negative net SDR positions.
  - A few members will need to carefully manage the rise in interest costs; IMF staff stand ready to assist them through policy advice and technical assistance.
- The SDR interest rate is determined weekly based on a weighted average of short-term financial instruments of SDR basket currencies; participants earn interest on SDR holdings and pay charges on cumulative allocations at the SDR interest rate.

### Transparency and Accountability
- Transparency and accountability of SDR holdings and use has been generally adequate, with remaining gaps:
  - Central bank holdings of SDRs are generally subject to a high degree of transparency and accountability.
  - Transparent reporting of SDRs held by or transferred to governments often faced shortcomings.
- Staff engagement continues, including through safeguards assessments, to help authorities address transparency and accountability issues.
- The report draws on safeguard assessment reports, IMF surveys, and the SDR Tracker to assess quality of reporting and statistical recording.

### Voluntary Channeling of SDRs
- Progress and gaps:
  - Considerable progress has been made with voluntary channeling of SDRs but more efforts are needed to deliver pledges and close remaining fundraising gaps.
  - As of June 23, 2023, twenty-nine members have pledged to voluntarily channel a total of USD 103.4 billion (SDR 73 billion).
  - Voluntary channeling has been instrumental in supporting the IMF’s Poverty Reduction and Growth Trust (PRGT) and the Resilience and Sustainability Trust (RST), but remaining fundraising gaps for both trusts need to be closed to maximize impact on vulnerable members.

### Conclusions and Policy Implications
- Overall assessment:
  - The 2021 SDR allocation was broadly effective in supplementing reserves, supporting confidence, and limiting financial spillovers.
  - The allocation supported EMDCs’ fiscal and external needs and provided policy space for some members.
- Policy recommendations and ongoing priorities:
  - Continue monitoring the use of SDRs and provide policy advice to ensure SDRs are used to pursue sustainable policies, particularly in LICs where some delays in adjustment were reported.
  - Support members facing increased SDR interest costs with policy advice and technical assistance where needed.
  - Enhance transparency and accountability, especially for SDRs held by or transferred to governments, including through continued safeguards assessments and improved statistical reporting.
  - Intensify efforts to deliver on voluntary channeling pledges and close fundraising gaps for the PRGT and RST to maximize the allocation’s benefits for vulnerable members.

*International Monetary Fund, SDR Allocation Ex-Post Report — Executive Summary, August 7, 2023.*

### 5. The allocation boosted reserves at a time of unusual uncertainty and stress in the

### 5. The allocation boosted reserves at a time of unusual uncertainty and stress in the global economy.

### Impact on Reserves and Reserve Adequacy
- Members’ gross, and in most cases net, international reserves increased once the allocation became effective.
- Although the bulk of the allocation went to AEs, the allocation as a share of GDP and reserves was larger in LICs than EMs and AEs.
- Aggregate holdings-to-allocation ratio:
  - rose to about 104 percent at end-June 2023 from 98 percent in July 2021 (overall).
  - EMs: 88 percent as of end-June 2023 (compared to 74 percent right before the allocation).
  - LICs: 54 percent as of end-June 2023 (compared to 70 percent right before the allocation).
- Many EMDCs nearly exhausted holdings:
  - 33 EMDCs (of which 19 LICs) have SDR holdings-to-allocation ratios below 5 percent.
  - 9 EMDCs (of which 4 LICs) have ratios in the range of 5–20 percent.
- Table snapshot (SDR billions, end-June 2023):
  - Participants Allocations: 204.2; Holdings: 180.3 (end-July 2021 shown as context).
  - AEs Allocations: 123.8; Holdings: 121.0 (end-July 2021); Allocations: 387.4; Holdings: 401.7 (end-June 2023).
  - EMs Allocations: 73.1; Holdings: 54.1 (end-July 2021); Allocations: 251.0; Holdings: 219.9 (end-June 2023).
  - LICs Allocations: 7.4; Holdings: 5.1 (end-July 2021); Allocations: 22.3; Holdings: 12.0 (end-June 2023).
  - GRA Allocations: 0.0; Holdings: 21.6 (end-July 2021); Allocations: 0.0; Holdings: 23.5 (end-June 2023).
  - Prescribed holders Allocations: 0.0; Holdings: 0.2 (end-July 2021); Allocations: 0.0; Holdings: 0.3 (end-June 2023).
  - Total Allocations: 204.2; Holdings: 204.2 (end-July 2021); Total Allocations: 660.7; Holdings: 660.7 (end-June 2023).

### Impact on Borrowing Costs and Sovereign Spreads
- The allocation helped bolster confidence and lower borrowing costs, particularly for credit-constrained EMDCs.
- Staff analysis: EM sovereign risk premia (CDS) declined by around 3–4 percent in the week following the allocation.
- Event study (49 AE and EM members, daily data August 23–31, 2021):
  - Average decline of 2.97 basis points or 2.88 percent one week after the allocation.
  - Regression results: 훽 coefficient between 0.03–0.04 and statistically significant in linear specifications, implying CDS spreads about 3–4 percent (around 3–4 basis points) lower post-allocation.
- Heterogeneity by pre-existing vulnerability:
  - Top quartile of pre-allocation CDS levels saw a decrease of 6.7 basis points.
  - Other quartiles saw a decrease of 1.8 basis points.
  - Non-linear specification indicates additional reductions: 0.6 percent for 2nd quartile; 1.2 percent for 3rd quartile; 1.8 percent for top quartile relative to bottom quartile.

### Inflation and Macro Effects
- The allocation does not appear to have been a material contributor to increased global inflation.
- Key quantitative points:
  - Allocation represented less than 0.5 percent of total global broad money in 2021.
  - Only about 5 percent of the total allocation was exchanged into freely usable currencies (via VTAs).
  - Monthly SDR sales via VTAs averaged USD 850 million.
  - AE central bank balance sheet expansion was about USD 210 billion per month during March 2020–April 2023.
  - August 2021 SDR allocation was worth less than 3 percent of total AE central bank balance sheets at the time of its effectiveness.
- Additional considerations:
  - SDR sales by EMDCs were not identified as a key factor in global inflation surge since 2020.
  - SDR conversions often reflected reserve management operations or were sterilized, which could mute inflationary impact.

### SDR Holdings, Conversions, and VTA Activity
- SDR holdings uses: reserve buffer, GRA repurchases and charges, PRGT repayments, contributions to concessional trusts, VTA conversions, and other financial operations.
- VTA (voluntary trading arrangements) sales August 2021–June 2023:
  - SDR 26 billion of sales (5.7 percent of the total 2021 SDR allocation).
  - 139 sales requests by 64 members (about one third of the Fund’s membership).
  - Number of transactions higher than sale requests due to multi-counterparty/currency matches.
- LICs’ conversions:
  - LICs accounted for SDR 8.3 billion of sales (one third of total sales; equivalent to 56 percent of total SDRs allocated to them in 2021).
  - After a spike in September 2021 (SDR 4.3 billion), monthly sales declined to an average of about SDR 1 billion more recently.
- VTA market capacity and participation:
  - Buying capacity of VTAs as of end-June 2023: about SDR 210 billion.
  - Selling capacity of VTAs as of end-June 2023: about SDR 163 billion.
  - Number of VTA members increased from 32 to 40 since the 2021 allocation.
  - As of end-June 2023, only five of the twenty prescribed holders held SDRs.

### Uses of SDRs and Fund Obligations
- SDRs used to settle Fund obligations:
  - SDR allocation helped 42 countries make PRGT repayments totaling SDR 1.2 billion.
  - Total GRA repurchases in SDRs totaled SDR 26.3 billion (members met obligations in SDRs).
- Contextual financing pressures:
  - Sub-Saharan Africa faced a decline in aid budgets from about 4 percent of regional GDP in 2006 to about 2.5 percent in 2022, and declining Eurobond issuances amid tightening global financial conditions.

### Membership Views
- Survey of member authorities (101 responses of 190 members surveyed; 26 AEs, 53 EMs, 22 LICs):
  - All AE and EM respondents and about 95 percent of LIC respondents agreed the SDR allocation was helpful for the global economy.
  - Large majority across income groups agreed the allocation was timely and necessary.
  - Majority considered the allocation’s size sufficient for the global economy, though:
    - 35 percent of EM respondents and 50 percent of LIC respondents considered it insufficient to meet membership financing needs.
    - Some respondents preferred allocating a greater proportion to EMs and LICs rather than to AEs.

*SDR ALLOCATION EX-POST REPORT, INTERNATIONAL MONETARY FUND*

### 12. SDR converters tended to exhibit higher vulnerabilities (Box 3). Staff analysis suggests

### ppea2023035 - 12. SDR converters tended to exhibit higher vulnerabilities (Box 3). Staff analysis suggests

### Key empirical findings on SDR conversion behavior
- Both LIC and EM converters tend to have lower reserves and larger current account deficits than non-converters.
- EM converters also tend to have lower GDP growth and higher public and external debt levels.
- Countries with small SDR holdings (relative to their cumulative allocation) before the 2021 allocation tended to convert the newly allocated SDRs more than others.
- Program countries converted a larger share of their allocated SDRs into freely usable currencies than non-program countries:
  - 33 countries with IMF-supported programs at the time of SDR allocation converted, on average, 48 percent of their allocated SDRs to freely usable currencies, compared to an average of 25 percent in the 157 countries without IMF programs.
  - Including program countries through end-2022: 49 program countries converted on average 54 percent of the allocated SDRs compared to 21 percent in non-program countries.
- The greater conversion by program countries likely reflects higher vulnerabilities and financing needs in program countries, necessitating larger conversions of SDRs.

### Box 3 — Correlation analysis of SDR converters
- Method:
  - Pairwise correlation coefficients computed between a binary conversion dummy (value 1 if country had at least one SDR sale transaction in the VTA market between August 23, 2021 and end of June 2023) and selected macroeconomic indicators.
  - Sample included 69 LICs and 94 EMs; final sample varied by data availability.
  - For sovereign spreads, averages of daily data points for the J.P. Morgan Emerging Market Bond Index (EMBI) between July 20 and August 20, 2021 were used.
  - For all variables except sovereign spreads, data were based on the July 2021 vintage of the IMF’s WEO database. Robustness check used averages over April 2021–July 2022; results were similar.
- Correlations between SDR Conversion and Selected Macroeconomic Characteristics:
  - GDP growth: LIC 0.00, EM -0.19
  - Reserves: LIC -0.46, EM -0.23
  - Current account balance: LIC -0.16, EM -0.13
  - Public debt: LIC -0.04, EM 0.16
  - External debt: LIC -0.01, EM 0.11
  - Sovereign spreads: LIC (blank), EM 0.07
- Interpretation: Overall, the estimates suggest SDR converters tend to exhibit relatively higher vulnerabilities (negative correlations with reserves and current account; negative GDP growth correlation for EMs; positive correlations with public and external debt for EMs).

### Box 4 — DSGE modeling of policy tradeoffs for SDR use
- Model features:
  - Small open economy DSGE with explicit central bank balance sheet where allocated SDRs are both an asset and a liability.
  - Country risk premium (Φ_t) is endogenous and an inverse function of international reserves (R_t):
    - Φ_t = φ_a − φ_r R_t + ε_t, with φ_r > 0 (sensitivity to reserves).
  - Central bank identity: M_t + S_t = B_t + F_t + S_t, where S is the exogenous SDR allocation and choices B (domestic bonds), F (foreign currency assets), S (SDRs) determine reserves R = F + S.
  - SDR access limited to allocation size (0 ≤ S_t ≤ S̄).
- Trade-offs captured:
  - Holding SDRs as reserves lowers sovereign risk premia and preserves future policy space.
  - Converting SDRs boosts domestic demand and allows consumption smoothing, but reduces future SDR availability.
  - Inter-temporal choice: convert now vs. retain for later use.
- Simulation insights:
  - Two calibrated economy types and two conversion patterns analyzed: “full conversion” and “full retention.”
  - Conversion yields higher initial utility (boosts domestic demand); retention yields higher utility in outer years.
  - Higher sensitivity of spreads to reserves (higher φ_r) makes retention more attractive to lower borrowing costs.
  - Model predicts EMs (more integrated in international financial markets, spreads more sensitive to reserve fluctuations) should maintain a larger share of allocated SDRs as reserves than LICs.

### Uses of the SDR allocation — empirical patterns (SDR Tracker and staff analysis)
- Prevalent uses:
  - Holding as reserves: 115 countries (out of 142 covered) at least partly held allocations as reserves.
  - Fiscal support: 46 countries at least partly used allocations for fiscal support.
- By country group:
  - AEs:
    - All 17 AEs covered by the Tracker increased foreign reserves using the SDR allocation.
    - One AE (Greece) used part of the SDR allocation to finalize repayment of obligations to the IMF early.
    - No AE reported using SDRs for fiscal support.
  - EMs:
    - 61 EMs (out of 72 covered) used some or all the SDR allocation to boost foreign exchange reserves.
    - 13 EMs used at least part of the allocation for fiscal support.
    - 6 EMs used the allocation for debt repayment.
    - 3 EMs used it for external financing needs.
    - 2 EMs used it for clearing arrears.
  - LICs:
    - 33 LICs (out of 53 covered) at least partly used the allocation for fiscal support, including explicitly for pandemic-related spending (examples cited: Gambia, Guinea Bissau, São Tomé and Principe, Senegal, and Zimbabwe).
    - 38 LICs held at least part of the allocation in reserves.
    - 9 LICs used the allocation for debt repayment.
    - 6 LICs used it to cover external financing needs.
    - 3 LICs used it to clear arrears.
- Illustrative country uses mentioned:
  - Gambia: used 25 percent of allocation to mitigate pandemic impact, including facility to bolster vaccination rates.
  - Guinea-Bissau: used part to fund vaccination and health services.
  - São Tomé and Príncipe: used about half to finance hospital renovations and medicines/equipment.
  - Senegal: used part for health sector and domestic vaccine production.
  - North Macedonia: used SDRs for pandemic-related subsidies, vaccines, and health expenditures.
  - Bosnia and Herzegovina: used entire allocation for pandemic-related spending.
  - Paraguay: financed expenditures related to COVID-19 emergency plan.
  - Sri Lanka and Ukraine: used SDRs to repay debt.
  - Colombia: central bank sold FX to Finance Ministry (amount equivalent to SDR allocation) in exchange for local currency treasury bonds at market prices, boosting liquidity without debt issuance.
  - Liberia: used allocation to retire T-bills.
  - Papua New Guinea: used allocation as source of inexpensive financing.
  - Gabon: used entire 2009 and 15 percent of 2021 allocation to repay domestic debt and improve domestic financing composition.
- Fungibility caveat: Tracking specific fiscal use of SDR exchange proceeds is difficult because proceeds of SDR exchanges are fungible.

### Implications for Fund-supported programs and program design
- Program countries used a substantially larger share of SDRs for fiscal support:
  - SDR Tracker data: 54 percent of LICs and 22 percent of EMs with a Fund program used SDRs for fiscal support, compared to 31 percent and 11 percent of non-program LICs and EMs, respectively.
  - By contrast, 75 percent of non-program EMs and 43 percent of LICs maintained allocated SDRs as foreign reserves, compared with 58 percent and 35 percent, respectively, among those with Fund-supported programs.
- Program target adjustments after the allocation (MONA database):
  - Among 23 programs at the time of SDR allocation analyzed:
    - 11 programs loosened fiscal targets (primary balance target lowered or NDA/NDF targets raised).
    - Fiscal targets were unchanged in 4 programs.
    - Fiscal targets were tightened in 3 programs.
    - Reserve targets (NIR, GIR, or NFA) were increased in 10 programs.
    - Reserve targets stayed unchanged in 3 programs and were lowered in 1 program.
    - In several cases, changes included both relaxing the fiscal stance and increasing reserves.
- Macroeconomic projection changes (WEO April 2021 vs. October 2021):
  - For countries that relaxed program fiscal targets, projected primary balance after the allocation envisaged, on average, a modest deterioration of around 0.2 percent of GDP per year in 2021–23.
  - For countries that raised program reserves targets, post-allocation data indicate an average increase in reserves coverage (in months of imports) of about 0.4 in 2021, declining to 0.3 in 2022 and 0.1 in 2023.
  - For non-program converters, projections show a tighter fiscal balance post-allocation and relatively higher upward adjustments in reserves paths compared with program countries.
- Notes on program sample and data:
  - Precautionary arrangements and programs without completed reviews after the SDR allocation were excluded from the 33 programs at the time of SDR allocation used in one analysis.
  - Changes in program targets indicate changes in Quantitative Performance Criteria (QPCs) for December 2021 and June 2022; MONA data were complemented by staff reports.
  - In some cases reserves target adjustment was not necessary because the target was set on NFA or NIR definitions netted reserve-related liabilities; in such cases the SDR allocation increased both reserve-related assets and liabilities equally and had no impact on the reserves target.

*Source: IMF staff analysis as presented in the SDR ALLOCATION EX-POST REPORT (excerpts provided).*

### 19. The SDR allocation appears to have temporarily reduced demand for Fund financing as

### 19. The SDR allocation appears to have temporarily reduced demand for Fund financing as

### Effects on demand for Fund financing
- The initial surge in emergency lending after the pandemic likely explains the slower pace of new upper-credit tranche (UCT) program requests following the pandemic compared to that observed during the global financial crisis.
- While the pace of emergency lending slowed, approvals of new UCT arrangements plateaued from July 2021—to November 2021, when SDR sales by members reached record highs.
- Data for non-program countries with relatively modest reserves coverage suggests that the additional substantial external buffers created by the SDR allocation may have reduced or slowed demand for Fund financing during that period (Figure 11).
- A full-fledged empirical analysis is beyond the scope of this report.

### Implications of higher interest rates for members with negative net SDR positions
- Since August 2021, the SDR interest rate has risen by over 390 basis points, leading to higher interest payments for members with negative net SDR positions (i.e., SDR holdings below their cumulative allocation).
- Market-based SDR forward curves indicate the expected path of SDR interest rates shifted upward by about 230 basis points on average from August 2021 to June 2023 across the forward curve.
- The long-run market-implied SDR interest rate increased from about 1.4 percent in August 2021 to about 3.2 percent in June 2023.

### Concessionality and grant element
- By convention, financing terms are considered concessional if the grant element is greater than 35 percent.
- Given current interest rates and baseline projections, staff estimates the grant element of SDR conversions to be 34 percent, just below the concessionality threshold.
- For comparison, the grant element of the IMF’s Extended Credit Facility (ECF) under the PRGT is about 36 percent.
- The grant element of SDR use would decline further if:
  - interest rates increase further,
  - a discount rate lower than 5 percent is applied, or
  - the SDR allocation were to be cancelled after 30 years or sooner.
- The grant element numbers for SDRs are calculated based on end-June 2023 interest rates. The numbers for ECF and IDA are based on illustrative estimates discussed in International Monetary Fund (2023c) based on January 2023 interest rates.

### Estimated nominal costs for members with negative net SDR positions
- One-year ahead payments of net SDR charges for the median country increased from USD 0.1 million to USD 7.8 million during August 2021—June 2023.
- The (infinite horizon) expected cost based on the present value (PV) of net payments to the SDR Department increased from USD 37 million to USD 134 million for the median country.
- For the top quartile country:
  - one-year-ahead cost: USD 19 million,
  - PV cost: USD 333 million.
- For the member with the largest negative SDR Department position in nominal terms:
  - one-year-ahead cost: USD 259 million,
  - PV cost: USD 4.5 billion.

### Distributional assessment of capacity to service SDR obligations
- For 90 percent of members with negative net SDR positions:
  - SDR Department’s annual payments represent less than 0.1 percent of GDP,
  - SDR Department’s annual payments represent less than 1 percent of reserves.
- The PV of SDR obligations amounts to:
  - less than 1 percent of GDP in 69 percent of this group,
  - between 1–2 percent of GDP in 23 percent of members,
  - 2–9 percent of GDP in 8 percent of EMDCs.
- Among LICs, São Tomé and Principe, Yemen, and Zimbabwe have a PV of SDR obligations greater than 2 percent of GDP and external debt greater than 40 percent.
- Three EMs with PV of SDR Department exposures greater than 2 percent of GDP also have external debt levels greater than 60 percent of GDP: Jamaica, Suriname, and Venezuela.
- For several members, SDR Department obligations are a significant part of their external debt stock.
- Policy implications:
  - These members will need to take SDR Department obligations into account when setting macroeconomic and financial policies to ensure an adequate capacity to service them over time.
  - For members with low levels of SDR holdings, staff will need to monitor SDR holdings closely and encourage early purchases of SDRs to meet payments of charges to the SDR Department and the GRA to reduce the risk of technical arrears (though this may increase operational costs of the SDR Department).
  - Staff stands ready to assist members through policy advice and technical assistance on broader external debt management issues.

### Projecting the expected cost of reducing SDR holdings (Box 6: methodological summary)
- The expected cost of reducing SDR holdings is the present value (PV) of all future net interest payments to the SDR Department.
- Key components of the projection:
  - PV of interest payments in quarter q is determined by the prevailing SDR interest rate for that quarter (SDR_i_q), expected future SDR interest rates (E_t(SDR_i_q)), the difference between a member’s SDR allocation and holdings in that quarter (SDR_G_q − SDR_h_q), and the discount rate (r).
  - The second term captures the “face value” redemption of the member’s net open position in the SDR Department.
- Main assumptions used in staff estimates:
  - Basket weights of SDR basket currencies fixed at the initial 2015 weights through July 2022, after which they follow the August 2022 basket weights for the rest of the projection period.
  - Basket instruments are fixed.
  - Infinite projection horizon (no cancellation assumed).
  - Discount rate of 5 percent.
- Staff estimated expected SDR interest rates in each future quarter based on available market data by creating zero-coupon bond yield curves for the SDR basket currencies and deriving 3-month forward rates using no arbitrage conditions.

### Stress scenario and resilience of outcomes
- A stress scenario was developed with the long-term SDR interest rate increased by one standard deviation relative to the baseline (more specifically, forward rates from year 30 onward are assumed higher by 2.9 percentage points; from years 0 to 30 rates rise linearly to this new steady state).
- Even under the stress scenario:
  - Average PV of SDR Department obligations:
    - for all LICs: 1.60 percent of GDP,
    - for all EMs: 0.89 percent of GDP.
  - 21 members (18 percent of the total) would have a PV of SDR Department obligations greater than 2 percent of GDP (compared to 9 members under the baseline).
  - 17 countries (16 percent of the total) would have a PV of SDR Department obligations greater than 20 percent of total reserves (compared to 9 countries under the baseline).
- Near-term one-year-ahead debt service indicators are almost the same in both baseline and stress scenarios due to the stress test assumptions.

### Impact on debt sustainability risk ratings
- Out of 39 LICs with negative SDR positions:
  - 31 (80 percent) experienced no change in their LIC-DSF risk rating during July 2021–June 2023,
  - 3 (8 percent) observed an improvement,
  - 6 (16 percent) experienced a deterioration.
- Of the six deteriorations:
  - Four (Djibouti, Lao PDR, Malawi, and Zambia) entered debt distress due to a combination of factors not related to the SDR allocation (Malawi stands out as having relatively higher SDR Department payments).
  - Comoros and Tanzania saw increases in their risk rating reflecting country-specific vulnerabilities.
- Some members were already experiencing significant debt vulnerabilities or outright debt distress prior to the allocation and thus did not experience a change in their ratings following conversion of their holdings (São Tomé and Principe and Suriname are examples).

### Members’ and staff’s views
- Recipient country survey results:
  - Almost all EM and LIC authorities agreed that the allocation was helpful given their respective country circumstances.
  - About 95 percent of LIC respondents agreed that the allocation was both necessary and timely for their country.
  - For EMs, affirmative responses were 72 percent (necessary) and 85 percent (timely).
  - About 80 percent of EMs agreed that the allocation was sufficient for their country; only 47 percent of LICs agreed.
- Mission chief assessments:
  - Member policies related to the allocation were broadly consistent with the principles in the Guidance Note on the Treatment and Use of SDR Allocations for most countries.
  - For 24 members where staff had limited contact with authorities, mission chiefs were not able to assess consistency with Fund advice.
  - For 20 percent of LICs and 13 percent of EM countries, mission chiefs considered that the SDR allocation led to material delays in needed policy adjustment and reforms.
  - Evidence corroborating delays: implementation of structural benchmarks deteriorated between 2021 and 2022 for program countries where mission chiefs noted delays, while in other program countries implementation improved slightly (by 2 percentage points).
  - In 12 cases (7 EMs and 5 LICs), mission chiefs think the SDR allocation may have delayed a needed debt restructuring.
  - In 3 EMs and 9 LICs, mission chiefs reported that the allocation exacerbated fiscal dominance.
  - In 4 EMs and 8 LICs, the allocation appears to have adversely impacted central bank independence.
- Implication: continued tailored and granular staff advice is important to ensure SDRs are used to pursue sustainable policies.

*Source: SDR ALLOCATION EX-POST REPORT, INTERNATIONAL MONETARY FUND*

### 29. IMF members typically hold SDRs at their central banks.

### ppea2023035 - 29. IMF members typically hold SDRs at their central banks.

### Who holds SDRs and balance-sheet implications
- For most members, domestic legislation treats SDRs as an international reserve asset and specifies that SDRs are held and controlled by the central bank, which is financially responsible for the corresponding liability vis-à-vis the IMF.  
- Distribution from Figure 20 (SDR holders):  
  - Central bank, 82%  
  - Joint, 7%  
  - Fiscal authority, 5%  
  - No information available, 6%  
- Where SDRs are held by the central bank, SDR holdings and allocation are booked on the central bank balance sheet.  
- Some members hold SDRs at the government level—sometimes via specific holding structures (e.g., “exchange stabilization fund”) under the Ministry of Finance (MoF). A few countries hold SDRs through both the central bank and the MoF.

### Transfer modalities from central banks to governments (including Box 7)
- Transfers of SDRs from central banks to governments were often challenging and required complex mechanisms; legislative amendments were sometimes necessary to preserve central bank financial autonomy.
- Typical mechanisms used to transfer SDRs originally held by central banks to governments:  
  1) Transfer of assets and liabilities: SDR holdings (asset) and SDR allocation (liability) are transferred pursuant to a legal instrument (e.g., law, agreement). Central bank derecognizes the SDR-related asset and liability; government assumes control and liability. Requires discussions with external auditors on financial reporting implications.  
  2) On-lending of SDRs or FX equivalent: If allowed by legislation, a loan agreement between the central bank and the government; ideally mirrors features of the central bank’s SDR-related obligations (SDR conversions trigger quarterly interest obligations based on the floating SDR rate; section V).  
  3) Sale of SDRs or FX equivalent: Government purchases SDRs (or FX if converted) from the central bank against local currency or bonds; transactions should be at “arm’s length.” Raises complex financial and accounting issues, external auditor validation, and potential IFRS valuation concerns.  
  4) Cession-Retrocession: Transfer (cession) of SDR holdings from central bank to government with government assuming the central bank’s corresponding IMF liability (SDR allocation); to fund budgetary expenditures, government subsequently sells SDRs back to the central bank (retrocession).
- Implementation of these mechanisms typically required legal instruments such as loan agreements or memoranda of understanding (MoU) to clarify financial responsibility and to avoid central banks carrying government IMF liabilities.

### Risks to central bank autonomy and financial performance
- Transfer modalities are key to safeguard central bank financial autonomy but were not always respected; MoUs have proven necessary where central banks act as paying agent for SDR charges to the Fund.  
- Examples of adverse outcomes: foreign exchange converted from SDRs was “on-lent” by the central bank to the government without concordance between SDR charges and the interest charged on the central bank loan—effectively subsidizing the State and harming central bank financial performance.  
- Currency unions: regional central banks in Sub-Saharan Africa provided local currency loans (monetary financing) in proportion to, but unlinked to, the SDR allocation received by member countries. Higher SDR interest rates would translate into interest rate risk for these regional central banks if repayment terms do not compensate for interest obligations to the SDR Department.

### Transparency and accountability in holding and use of SDRs
- Central bank-held SDRs: broadly robust transparency and accountability mechanisms. Almost all SDR-holding central banks publish annual financial statements independently audited by external firms or State Audit bodies; most have appropriate disclosures and accounting treatment, though staff encountered cases of nonspecific accounting treatment or initial recording errors.  
- Government-held SDRs: generally lower transparency and accountability. Of the 94 reviewed countries, only a minority (two) of the five that hold SDRs through the MoF issue annual financial statements; only one of these statements is externally audited by the State Audit body. Notable exceptions exist for well-developed “exchange stabilization fund” frameworks.  
- Fiscal use reporting: Information on occurrence and modalities of transfer from central bank to fiscal authorities was available in only one third (26) of the cases where central banks originally held the SDRs (78). SDR-related disclosures, including on fiscal use, are very scarce once SDRs shift from central bank to fiscal authorities. IMF staff has emphasized developing MoF holding structures and balance sheet reporting; traction has been limited.

### Quality of statistical recording
- Since the allocation, the IMF Statistics Department (STA) provided guidance on statistical treatment of SDR allocations, including a compendium of FAQs (in line with IMF 2009c; IMF 2016) and a guidance note on recording in government finance statistics (GFS) in line with IMF (2014a). STA provided country-specific guidance in over 30 instances.  
- External sector statistics reporting on the 2021 SDR allocation: as of June 2023, 164 out of 190 Fund member countries reported their 2021 balance of payments to STA. The SDR allocation transaction (liability) is missing in 21 cases. Some of these countries are not BPM6 reporters; others deviate from BPM6 recommendations. The remaining 26 members had not yet reported their 2021 balance of payments statistics to STA as of June 2023.  
- Monetary and fiscal coverage: Of the 173 economies reporting monthly MFS in SRF 1SR to STA as of June 2023, the central bank balance sheets for 146 reporters reflect full or partial SDR allocation. Regarding GFS, only twelve of the 121 countries that reported 2021 data to the IMF’s GFS database report data on government holdings of SDRs.

### IMF publication of SDR operations
- The Fund increased publication of SDR holdings and transactions information: annual update on SDR trading operations published in October 2021 (2022 update published in October 2022).  
- On December 15, 2021, the Fund published a new quarterly financial report providing net changes in member’s SDR holdings split into (i) those related to IMF operations; and (ii) SDR trading and other uses. The Fund continues to publish this report quarterly and provides monthly reporting on the IMF Finances webpage on SDR holdings and allocations.

### Voluntary channeling of SDRs (2021 allocation follow-up)
- G20 pledge: In October 2021, the G20 pledged to channel USD100 billion, or 20 percent of their SDR allocations, on a voluntary basis for the benefit of vulnerable countries.  
- Pledges: As of June 23, 2023, pledges by both G20 and non-G20 countries reached the target. Pledges were made by 29 countries and amount to USD 103.4 billion (SDR 73 billion); proportionally largest channeling: France and Japan, 40 percent of their allocations; Australia, 38 percent; China, 34 percent; Saudi Arabia, 29 percent.  
- Operational and legal challenges: Contributions were delayed or precluded when parliamentary approval was required, when members had to first join the VTA market, or when domestic legal frameworks precluded SDR contributions. In the eurozone, the ECB had to confirm reserve asset status and EU law consistency for RST contributions. OECD ODA classification considerations affected some contributors.  
- VTA market: Smooth functioning of the voluntary trading arrangements (VTA) market is critical for effective SDR channeling; increased SDR transactions and exchanged amounts were observed. VTA participants channeling SDRs should be prepared to participate more often as holdings-to-allocation ratios drop and holdings of SDR-denominated assets rise.  
- Fund fundraising progress (as of end-May / end May 2023 reporting points):  
  - Poverty Reduction and Growth Trust (PRGT): As of end-May, pledges for loan resources are still falling short of the first stage fundraising targets by about SDR 1 billion, and those for subsidies by about SDR 0.9 billion. PRGT self-sustaining annual lending capacity referenced as SDR 1.65 billion; higher lending commitments and faster-than-expected rise in SDR interest rate increased subsidy costs by an additional SDR 2.3 billion (April 2023 review).  
  - Resilience and Sustainability Trust (RST): Total RST resources envisaged SDR 33 billion. As of end May 2023, pledges to the RST, including loan resources, totaled SDR 25.5 billion (of which SDR 22 billion were delivered), leaving a loan resource gap of SDR 6.5 billion. A further SDR 5.1 billion in standalone contributions support RST reserves. Fund has ambition to raise its RST funding target.  
- Staff engagement with MDBs: IMF staff provided technical advice to interested MDBs (e.g., African Development Bank, Inter-American Development Bank) on SDR channeling options; legal procedures and implications for the SDR market are still under discussion.

### Conclusions (selected)
- The ex-post report assesses the impact of the 2021 SDR allocation at global and country levels, reviews alignment with Fund policy advice and transparency/accountability principles, and documents voluntary channeling efforts.  
- The 2021 SDR allocation provided needed liquidity during exceptional uncertainty, helped meet long-term global reserve needs, and supported market confidence. For many EMDCs, especially LICs, the allocation represented a significant share of GDP that supported reserve adequacy and alleviated external and fiscal financing constraints, contributing to global financial stability. There is no evidence that the allocation materially contributed to global inflation.

*Source: IMF — SDR ALLOCATION EX-POST REPORT (ppea2023035 - 29. IMF members typically hold SDRs at their central banks).*

### 48. The allocation has been largely used by members to increase international reserve

### 48. The allocation has been largely used by members to increase international reserve

### Use of SDR allocation by members
- Most members retained at least part of their SDR holdings as international reserves.
- Some countries used SDRs to:
  - meet obligations with the Fund;
  - convert them into freely usable currencies to increase fiscal spending;
  - amortize more costly debt.
- About half of LICs used at least part of the SDR allocation for fiscal support, including to address immediate needs due to the COVID-19 pandemic.
- In many Fund-supported programs:
  - fiscal targets were relaxed to accommodate the use of SDRs for fiscal spending;
  - in many others reserve targets were increased to boost reserve buffers.

### Interest costs and members with negative net SDR positions
- SDRs generate net interest expense when holdings fall below the cumulative allocation.
- With rising interest rates, expected interest costs (in net present value terms) are estimated to have more than tripled.
- Most members’ capacity to service SDR obligations remains broadly adequate.
- Some members need to manage SDR-related interest obligations carefully.
- IMF staff stand ready to assist through policy advice and technical assistance on broader external debt management issues.

### Alignment with Fund advice and macroeconomic effects
- Members’ use of the allocation has been broadly in line with Fund advice, with some exceptions.
- IMF mission chiefs generally report that the allocation:
  - did not delay needed macroeconomic adjustment and reforms or debt restructurings;
  - did not exacerbate fiscal dominance or impact central bank independence.
- For some EMDCs, particularly LICs, mission chiefs believe the allocation may have led to delays.
- This underscores the importance of close monitoring and continued tailored and granular staff advice to ensure SDRs are used to pursue sustainable policies.

### Transparency and accountability
- Central bank holdings of SDRs are generally subject to a high degree of transparency and accountability.
- Transparent reporting of SDRs transferred to governments has faced challenges, especially where SDRs are held by the fiscal authority.
- IMF staff will continue to support authorities to improve transparency and accountability, including by enhancing fiscal reporting.

### Rechanneling pledges and support for vulnerable members
- The G20 target of re-channeling USD 100 billion from economically strong members to vulnerable members has been reached in terms of pledges.
- This has helped scale up IMF lending to the membership, both through the PRGT and the more recently established RST.
- Current efforts focus on translating the pledges into contributions and increasing the ambition of voluntary channeling for the benefit of vulnerable countries.

*International Monetary Fund — SDR Allocation Ex-Post Report (excerpt).*

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_Source: https://www.imf.org/-/media/files/publications/pp/2023/english/ppea2023035.pdf_