The International Monetary Fund approved (IMF), has allocated $3.4 billion in emergency funding to Nigeria, the single biggest disbursement for any country yet with the coronavirus pandemic.
The $3.4 billion okayed for the country by the board of governors of the IMF, is part of a historic general allocation of Special Drawing Rights (SDRs) of the International Multilateral Institution.
It came as a result of the approval of a general allocation of about SDR456 billion, an equivalent of $650 billion, by the IMF Board of Governors on Monday.
In a statement issued by the IMF on Tuesday, the organisation said Nigeria will be allocated $3.4 billion out of the funds, being part of the measures out in place to boost global liquidity at a time when the world is grappling with the coronavirus pandemic.
When the approval for the allocation of the funds was earlier given in April 2020, the IMF Deputy Managing Director Mitsuhiro Furusawa, in a statement, noted that the pandemic and the plunge in oil prices are severely impacting Nigeria, and that the funds will provide much-needed liquidity to respond to urgent balance of payments needs. He also called for the country to expedite the unification of its exchange rate.
Hit by crashing oil prices and lockdowns to curb the spread of the virus, the Buhari-Osinabjo had requested the amount under the Rapid Financing Instrument, which offers funding without the strings of a full programme.
Nigeria, the continent’s biggest crude producer requested the $3.5 billion in total from the World Bank and the African Development Bank.
The IMF will mobilize more than $18 billion to respond to more than 40 African countries who have requested assistance to battle the pandemic, Managing Director Kristalina Georgieva said April 17. The lender could get funds to Nigeria by the end of the month, she said Monday.
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The lender has now approved more than $7 billion in emergency financing to help nations on the continent battle the pandemic, which has almost halted global trade and triggered massive capital outflows. South Africa, which vies with Nigeria to be the region’s biggest economy, is counting on receiving $4.2 billion from the IMF that it’s eligible for and will meet with the lender this week.
Why Countries are getting the IMF intervention in SDR
The SDR allocation is the largest in the IMF’s history for the containment of COVID-19 pandemic.
“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,’’ said IMF Managing Director Kristalina Georgieva in a statement.
He noted that the SDR allocation would benefit all IMF members, address the long-term global need for reserves, build confidence, and foster the resilience and stability of the global economy.
Georgieva said that this would particularly help the most vulnerable countries struggling to cope with the impact of the COVID-19 crisis.
About 275 billion dollars (about SDR 193 billion) of the new allocation would go to emerging markets and developing countries, including low-income countries, according to the multilateral lender.
“SDRs are a welcome finance mechanism for Zimbabwe and the rest of Africa.
“They are not conditional, a country can utilise the funds as according to their own blueprints,’’ Gorden Moyo, founder of Public Policy and Research Institute of Zimbabwe, was quoted by the Sunday Mail as saying.
According to the recently released update to the IMF’s World Economic Outlook (WEO), many countries entered this crisis with high debt levels and limited resources to ramp up health and social spending.
The report stressed that access to international liquidity was vital to help them combat the crisis.
“At a time when many of these countries face difficult choices between meeting essential health and social spending needs, supporting their economies more broadly, and fulfilling obligations on external borrowing is key.
“The SDR allocation is set to ease some of the constraints and help them better manage the trade-offs,’’ the report said.
The SDR allocation would also add to existing IMF and broader multilateral efforts, such as the Group of 20 (G20) Debt Service Suspension Initiative, directed toward cushioning the impact of the pandemic on financially constrained economies.
Moreover, the IMF noted that the new SDR allocation would address a long-term global need to supplement existing reserve assets.
While subject to uncertainty, IMF staff estimates the long-term global need for reserve assets in the range of 1.1 to 1.9 trillion U.S. dollars (about SDR 0.8 to 1.3 trillion) over the next five years.
An SDR allocation of 650 billion U.S. dollars (about SDR 453 billion) would cover about 30-60 per cent of the estimated global reserve need.
The SDR allocation proposal was delayed for more than a year, as the U.S., the IMF’s biggest shareholder with a unique veto power, blocked it in early 2020 under the Trump administration.
The Biden administration quickly reversed the position and voiced its support for the plan.
The proposal gained wide support during the virtual spring meetings of the IMF and the World Bank held in April, as G20 finance ministers and central bank governors, as well as officials from other IMF members, backed the plan.
The final approval by the IMF board of governors, which requires an 85-per cent majority of the total voting power of all IMF members, came just weeks after the IMF executive board approved the proposal.
The new general allocation of SDRs would become effective on Aug. 23, according to the IMF.
The SDR, an international reserve asset created by the IMF in 1969 to supplement its member countries’ official reserves, could be exchanged among governments for freely usable currencies in times of need.
So far, SDR 204.2 billion (equivalent to about 293 billion U.S. dollars) had been allocated to members, including SDR 182.6 billion allocated in 2009 in the wake of the global financial crisis, IMF data showed.
The Chinese currency, renminbi, formally became the fifth currency in the SDR basket on Oct. 1, 2016, joining the U.S. dollar, the euro, the Japanese yen, and the British pound.
Georgieva said the IMF would also continue to engage actively with its membership to identify “viable’’ options for voluntary channeling of SDRs from wealthier to poorer and more vulnerable member countries to support their pandemic recovery and achieve resilient and sustainable growth.
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 (PRGT), the statement noted.
It added that concessional support through the PRGT was currently interest-free.
