The Arab region yesterday received $37.3 billion from the new allocation by the International Monetary Fund (IMF) of special drawing rights (SDRs), which amounted to $650 billion in total and is the largest in the institution’s history. Governments in the region should adopt a bold approach to maximize the benefits of this unprecedented financing opportunity, recommends the United Nations Economic and Social Commission for Western Asia (ESCWA) in its new policy brief entitled “Special Drawing Rights and Arab Countries: Financing for Development in the Era of COVID-19 and Beyond”.
Through granting new SDRs in proportion to member countries’ quota shares at the Fund, the IMF is providing additional means to boost COVID-19 recovery and resilience to new shocks. The ESCWA brief underlines that, except for Palestine which is still not an IMF member, all Arab countries benefited from the new allocation. Saudi Arabia received the highest share, worth $13.7 billion. Together with the United Arab Emirates, they would accrue the same amount of rights as all remaining Arab countries combined.
“The decision on how to use SDRs ultimately rests with recipient countries,” said ESCWA Executive Secretary Rola Dashti. “However, bold proposals on rechannelling SDRs should be considered with a sense of urgency to end the vicious debt and underdevelopment cycle,” she stressed.
The brief mentions the financial needs of Arab countries undergoing economic crises and conflicts. It underlines that, despite political and economic turmoil, Lebanon would accrue $865 million through the new SDR allocation, a meagre 2% of its rapidly depleting reserves. However, this may provide a much-needed lifeline to the country’s battered economy.
For its part, Syria, where 80% of the population now lives in poverty, received $390 million. Yemen, with more than 20 million people in need of some form of humanitarian and protection assistance, received $660 million, which could bridge 20% of the total funding requirements of the country’s Humanitarian Response Strategy.
The brief explains that countries may swap SDRs for hard currencies and use the liquidity generated from such exchange to meet short-term import bills, settle outstanding financial obligations, or service or pay off debt. High-income Arab countries can use the new SDR allocations to relax fiscal policy, while middle-income ones may use them to cover recurrent fiscal imbalances that hamper recovery efforts and growth.
“Countries with sufficient international reserves may channel unused SDRs at no cost (donating them so to speak) to low- and middle-income countries, especially in the Arab region which is home to 37% of the world’s displaced persons and half the world’s refugee population,” Dashti added, reiterating her call to resort to the Solidarity Fund as a means to support the pooling of both new and unused SDRs allocations and their use to tackle the many development challenges faced by the Arab region.