The International Monetary Fund (IMF) has approved the largest-ever distribution of monetary reserves of $650 billion to boost the global economy and help to emerge and low-income nations deal with the mounting debt and Covid-19 crises.
The IMF’s board met in Washington on Monday to approve the Special Drawing Rights (SDR) of $650bn. So far, Pakistan has reached 23 financial agreements with the International Monetary Fund and will also benefit from this boost. The general allocation of special drawing rights will take effect on August 23 of this year.
The International Monetary Fund is the world’s leading monetary cooperation agency for 75 years, has a total resource of approximately US$790 billion, but its resources can be achieved through its members. International reserves will increase.
The International Monetary Fund created special drawing rights in 1969 to supplement other reserve assets of member countries. The SDR basket of currencies includes the US dollar, the yen, the euro, the British pound, and the renminbi.
Special Drawing Rights are the assets and liabilities of the IMF. They are allocated to member countries in proportion to their share of the IMF quota. A member can transfer the SDR to another member and obtain credit in convertible or hard currency.
The IMF approves the biggest resource injection in its history: $650 billion meant to help nations deal with the Covid-19 pandemic https://t.co/JpEkEJcyWk
The current interest rate on the loan is at least 0.050%. The allocation of special drawing rights allows members to reduce their reliance on limited reserves at low-interest rates in times of crisis.
According to the rules of the International Monetary Fund, special drawing rights must meet the global demand for more long-term reserve assets and cannot contribute to inflation. Some countries use it to pay for vaccines and medical equipment. Others can use it to pay off debts. But some may also keep reserves.
Newly established special drawing rights will be included in IMF member countries in proportion to their current participation in the IMF. Approximately $ 275 billion in new grants will flow to emerging markets and developing countries, including low-income countries.
“We will also continue to actively engage with our members to determine viable options for the voluntary transfer of special drawing rights from the richest member states to the poorest and most vulnerable member states to support the recovery and realization of the pandemic. Resilient growth and sustainability, “said Ms. Georgieva said.
A key option is for members with strong external positions to voluntarily use part of their special drawing rights to extend loans to low-income countries through the Poverty Reduction and Growth Trust Fund (PRGT).
Preferential support provided through PRGT is currently interest-free. The International Monetary Fund said it is also exploring other options to help the poorest and most vulnerable countries recover. The statement added that a new reliance on resilience and sustainability could be considered to promote more resilient and sustainable growth in the medium term.
“This is a historic decision: the largest allocation of special drawing rights in the history of the IMF is a boost to the world economy during an unprecedented crisis,” IMF Managing Director Kristalina said Georgieva announced the decision in a statement. “SDR allocation will benefit all members, address the global demand for long-term reserves, build confidence and promote the resilience and stability of the global economy,” he said. “This will particularly help our most vulnerable countries to cope with the impact of the Covid19 crisis.”
In December 2019, the International Monetary Fund approved a 39-month expansion agreement under the Pakistan Expansion Fund Facility (EFF) for 4.268 million special drawing rights, or approximately $ 6 billion. Americans. This equates to 210% of Pakistan’s SDR quota of 2,031 million. Special drawing rights are a basket of mixed currencies that can be used by member states.
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