The bailout – the biggest SDR package in history – will
boost liquidity for struggling countries, without adding to debt burdens.
Zimbabwe badly needs that.
IMF managing director Kristalina Georgieva is set to table
the fresh US$650 billion proposal before the fund’s executive board meeting in
June for final approval. Member states have already approved the package,
making the board meeting a mere formality.
A detailed plan will then be developed before
disbursements, which could start in August.
An IMF source in Harare told The NewsHawks this week that
Zimbabwe, which has not received normal funding from the lender since 1999,
will get a lifeline from this huge windfall.
“The IMF managing director has been clear on this issue:
US$650 billion will be availed soon to all 191 member states of the fund. This
is different from the US$250 billion provided for Covid-19 and economic
stabilisation last year from which poor nations in arrears like Zimbabwe were
not eligible,” the source said.
“In this case, all member countries who are part of the IMF
SDR arrangement, including Zimbabwe, will benefit. Zimbabwe will get 800
million in SDRs and at the current exchange rate of SDR1: US$1.43, this means
it will receive US$1.1 billion. The money is expected to come after the June
board meeting that will give final approval to the package.”
The SDR is an international reserve asset, created by the
IMF in 1969 to supplement its member countries’ official reserves. So far, SDR
204.2 billion (equivalent to about US$293 billion) have been allocated to
members, including SDR 182.6 billion (US$250 billion) allocated in 2009 in the
wake of the global financial crisis.
The value of the SDR is based on a basket of five
currencies — the US dollar, the euro, the Chinese renminbi, the Japanese yen
and the British pound sterling.
US$1.1 billion will be a huge bonanza for Zimbabwe which
has been struggling for years to pay off arrears to international financial
institutions (IFIs) – the IMF, World Bank and African Development Bank (AfDB) –
to secure US$2 billion in new funding.
The doomed Lima Plan was about that, but Zimbabwe only
managed to pay the IMF US$107.9 million in arrears, although IFIs demand that
their arrears be paid simultaneously – the pari passu rule.
Ditched by IFIs for defaulting on arrears since 1999,
Zimbabwe still owes US$7.66 billion to various creditors, including the World
Bank, European Investment Bank, the Paris Club and AfDB. The US$1.1 billion
bailout will thus come in handy for the broke Zimbabwean government.
However, there are concerns governance and accountability
could take a back seat during the Covid-19 crisis, especially in corrupt states
like Zimbabwe which have been rocked by serious Covid-19-related corruption
scandals. Guidelines on the utilisation of SDRs are being developed.
The global lender-of-last-resort still wants to release
huge funding to help Africa cope with the coronavirus pandemic. Unemployment,
poverty and national debt have risen dramatically in many countries on the continent,
including Zimbabwe. This will not be the first time Zimbabwe is getting a
windfall from the IMF. In 2009, it got US$500 million, which was part of a
US$250 billion bailout, in SDRs in the aftermath of the global financial crisis
which triggered an economic meltdown in vast swathes of the world economy.
Georgieva and her board are the last step in the process
before money is released. Members states have already approved the package,
making the board meeting a formality.
An IMF source in Harare told The NewsHawks this week Georgieva
was keen to push through the process to ensure a US$650 billion increase in
reserves, the largest in the fund’s history.
The move will provide badly needed reserves for poor
countries struggling with economic turbulence and deep recessions fuelled by
the Covid-19 pandemic. The money is also needed to buy millions of doses of
vaccines to fight the virus.
By comparison, to combat the global recession that followed
the 2008 financial crisis, the IMF shelled out US$250 billion in SDRs.
Last year, the IMF provided US$250 billion, a quarter of
its US$1 trillion lending capacity, available to member countries. As part of
the Covid-19-related rapid arrangements, borrowing countries committed to
undertake governance measures to promote accountable and transparent use of
these resources.
United States Treasury secretary Janet Yellen told the IMF
panel recently that the SDR increase would provide a “much-needed boost to
global reserves”. She said it would be important for rich countries who do not
need the increase in resources to supply that extra support to poorer nations.
The idea of increasing IMF reserves gained support when US
President Joe Biden’s administration endorsed the plan in February, marking a
reversal from the Donald Trump government’s position which had opposed the
effort.
Republican lawmakers in Congress have raised objections to
the increase in IMF resources, saying the hike would benefit countries seen as
US adversaries such as China, Russia and Iran, among others.
Zimbabwe, which is under US financial restrictions, is
considered a pariah state in America. It was previously branded an “outpost of
tyranny” by former president George Bush.
Georgieva, a Harvard-trained Bulgarian economist, recently
issued a statement after an informal meeting of the IMF board.
“I am very encouraged by initial discussions on a possible
SDR allocation of US$650 billion. By addressing the long-term global need for
reserve assets, a new SDR allocation would benefit all our member countries and
support the global recovery from the Covid-19 crisis. It would also be a
powerful signal of the IMF membership’s determination to do everything possible
to overcome the worst recession since the Great Depression,” the IMF said.
“To this end, executive directors conveyed broad support
among fund members for IMF staff to formulate a proposal for a new SDR
allocation equivalent to US$650 billion to provide additional liquidity to the
global economic system by supplementing the reserve assets of the fund’s 190
member countries.
“I intend to present by June a formal proposal to the
executive board to consider a new allocation of US$650 billion, based on an
assessment of IMF member countries’ long-term global reserve needs, and
consistent with the Articles of Agreement and the IMF’s mandate. IMF staff will
develop new measures to enhance transparency and accountability in the use of
SDRs, while preserving the reserve asset characteristic of the SDR. In
parallel, staff would also explore options for members with strong financial positions
to reallocate SDRs to support vulnerable and low-income countries.
“If approved, a new allocation of SDRs would add a
substantial, direct liquidity boost to countries, without adding to debt
burdens. It would also free up badly needed resources for member countries to
help fight the pandemic, including to support vaccination programs and other
urgent measures. And it would complement the range of tools deployed by the IMF
to support our membership in this time of crisis.” NewsHawks
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