Historic $650 Billion Liquidity Boost Continues to Benefit the Global Economy

IMF Blog, August 29, 2023

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The IMF’s largest-ever allocation of special drawing rights (SDRs) in August 2021 injected $650 billion of liquidity into countries to help turn the pandemic crisis toward recovery.
SDRs are unconditional reserve assets issued to member countries at times of stress to safeguard global stability; they can be saved as international reserves, exchanged for other currencies, and spent (including on vaccines or social assistance).

The allocation met its objectives by giving member countries a boost and helping the global economy avoid worse outcomes.
More than $100 billion of SDRs in pledges announced by the G20 are being channeled from stronger members to vulnerable low-and middle-income countries.
Advanced economies received the bulk of the allocation: $376 billion.
Low-income countries received on average almost double the allocation compared to advanced economies when measured in relation to the size of their economies.
International reserves of low-income countries were bolstered by 23 percent on average (up to 40 percent for sub-Saharan African countries).
The allocation provided fiscal space equivalent to about 2.4 percent of annual economic output on average for low-income countries.

Countries generally used SDRs to increase reserve buffers, which led to lower borrowing costs.
Emerging market economies and low-income countries used SDRs to finance pressing fiscal needs related to the pandemic.
Country examples of SDR-supported spending:
- The Gambia: funding for a new ultra-cold storage facility for COVID-19 vaccines.
- Senegal: support for domestic vaccine production and hospital investments.
- North Macedonia: used its entire allocation to provide subsidies to vulnerable households, boost spending on health and vaccines, and finance capital projects.
- Paraguay: funded its pandemic emergency plan.
While countries that spent SDRs now face higher interest costs, these costs remain lower than alternative market financing.
With higher global interest rates, the total long-term expected costs of using SDRs have more than tripled for the median country since August 2021; nonetheless, interest costs due on the SDR allocation remain significantly below alternative market financing and should be manageable with sound macroeconomic policies.

Countries with strong balance of payments positions have pledged part of their allocation to support more vulnerable members and to provide currencies in exchange for SDRs through voluntary trading operations.
Pledges mobilized as part of broader channeling efforts:
- $45 billion for the IMF’s Poverty Reduction and Growth Trust.
- $42 billion for the Resilience and Sustainability Trust.
Efforts are underway to further channel SDRs through multilateral development banks for the benefit of low- and middle-income countries.

With close to $1 trillion in SDRs allocated to date, the international community has a collective responsibility to evaluate any future decisions to issue SDRs carefully and ensure transparency in their use.
Members need to consider the environment of higher interest and inflation rates, which makes the use of SDRs more costly.
Stronger economies should translate pledges into actual contributions and, as feasible, increase the ambition of voluntary SDR channeling to adequately resource the global financial safety net and support vulnerable countries.
SDR allocations are an important mechanism to build confidence and strengthen resilience but are not a silver bullet; they should be part of a broader range of support measures, including IMF policy advice, financial support (including contingency facilities), and technical assistance.

Source: Historic $650 Billion Liquidity Boost Continues to Benefit the Global Economy (IMF blog, August 29, 2023).

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