Sharing the Recovery: SDR Channeling and a New Trust

IMF Blog, October 8, 2021

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Since the onset of the COVID-19 pandemic, the IMF has lent nearly $117 billion to 87 countries.
The IMF reshaped its lending policies and reformed its concessional lending policy framework under the Poverty Reduction and Growth Trust (PRGT) to expand lending to low-income countries.
The IMF joined other international organizations to help accelerate the global vaccine rollout, and improve access to non-vaccine therapeutics and diagnostics.
The historic SDR allocation in August was equivalent to $650 billion and boosted liquidity and reserves around the world.
- About $275 billion of that $650 billion went to emerging and developing countries.
- Low-income countries received about $21 billion, equivalent to as much as 6 percent of GDP in some cases.

The task now is to redirect the SDRs to their greatest effect; the International Monetary and Financial Committee, G7, and G20 called on the IMF to explore ways countries with strong external positions could voluntarily channel some of their SDRs to poorer and more vulnerable countries.
The IMF is exploring three (non-mutually exclusive) options:
- Increase the size of the PRGT.
- Pledges of $24 billion in loan resources have already been received in the last 16 months, including $15 billion from existing SDRs.
- Additional resources of around $28–50 billion are still needed to allow the IMF to better respond to the financing needs of low-income members over the coming years.
- Grant contributions of SDR 2.3 billion are needed for the subsidy account to continue lending through the PRGT at zero interest rates; fundraising efforts are ongoing.
- Create a new IMF-administered Resilience and Sustainability Trust, or RST.
- Channel SDRs to other prescribed SDR holders, comprising 15 organizations including the World Bank, some regional central banks, and multilateral development banks.

Purpose and scope:
- Support policy reforms to build economic resilience and sustainability, especially in low-income countries and small states, as well as vulnerable middle-income countries.
- Aim to support access to more affordable financing by lending at cheaper rates and with longer maturities than the IMF’s traditional lending terms.
- Financing would be focused on balance of payments stability, consistent with the IMF’s mandate.
- Purposes of the funding would be reached by consensus across the membership; climate might be one purpose, with other global public policy goals such as pandemic preparedness also considered.
Creditor requirements and reserve asset status:
- For most creditors, channeled SDRs must maintain their reserve asset status, requiring the trust to provide liquidity, the ability to encash quickly for balance of payments needs, and adequate credit risk protection for donors.
Credit risk protection and program linkages:
- Proposal to develop a multi-layered credit risk protection framework that includes policy safeguards, financial buffers, and a diversified creditor and borrower base to ensure loans to the trust are sufficiently safe and liquid so channeled SDRs can maintain reserve asset status.
- RST lending would likely “top up” a regular IMF-supported program and would benefit from accompanying strong policy safeguards to ensure macroeconomic stability.

The IMF is working on several additional design features such as size of the trust, eligibility perimeter, conditionality, lending terms, and the financial architecture.
Continued engagement with membership and stakeholders is under way to ensure full buy-in.
Coordination with other international financial institutions, especially the World Bank, is planned to ensure the RST is part of a broader strategy for international country assistance, leveraging respective mandates.

Opportunity:
- The world has an historic opportunity to use the recently allocated $650 billion SDRs to help poorer countries in a way that promotes the global public policy agenda.
Timeline and outlook:
- The IMF is confident that with international community support, the RST is one innovative solution which could become operational in just over a year.
- The IMF is hopeful of further progress at the upcoming Annual Meetings.
Political and practical note:
- Building consensus takes time and creative solutions are needed to bridge differences.
- The pandemic has emphasized the importance of working collectively to tackle global challenges for a better future for everyone.

Sharing the Recovery: SDR Channeling and a New Trust — Ceyla Pazarbasioglu, Uma Ramakrishnan; October 8, 2021.