BY TATIRA ZWINOIRA
THE International Monetary Fund (IMF) will soon meet to decide the exact amount Zimbabwe will receive from the US$33 billion in Special Drawing Rights (SDR) allocated to Africa but Zimbabwe could face difficulties in liquidating it due to restrictions imposed by the United States.
The US$33 billion allocated to the African continent is drawn from a larger IMF SDR package worth US$650 billion which will be disbursed globally.
The proposal that was made nearly two months ago to alleviate global recovery from the economic crisis caused by Covid-19, build reserves, smoothen adjustments and mitigate economic risks.
On May 18, at the French-led summit titled “Summit on Financing African Economies”, involving African institutions, their leaders, key international partners and heads of international and national financial institutions, the IMF announced Africa would get US$33 billion.
The Bretton Woods institution’s representative to Zimbabwe, Patrick Imam said the IMF board would meet to decide how much Zimbabwe would get from the SDR.
“The exact amount allocated to countries, in line with the country’s quota with the IMF, will be decided by the IMF executive board in the period ahead,” Imam said.
“Zimbabwe has been a fund member in good standing since it cleared its outstanding arrears to the IMF in late 2016. The fund is precluded from providing financial support due to an unsustainable debt and official external arrears. However, IMF staff continues to actively engage with the authorities, including through policy dialogue, data updates, and provision of capacity development.”
He said the SDR allocation is different from other types of support such as IMF loans.
An SDR allocation is a way of supplementing fund member countries’ foreign exchange reserves, allowing members to reduce their reliance on more expensive domestic or external debt for building reserves.
“The IMF has the authority under its Articles of Agreement to create unconditional liquidity through ‘general allocations’ of SDRs to participants in its SDR Department (currently, all members of the IMF) in proportion to their quotas in the IMF,” Imam said.
He said SDRs are interest-bearing international reserve assets created by the IMF in 1969 to supplement other reserve assets of member countries.
Imam said the SDR allocation will go either to the government’s fiscal agent or to the central bank, depending on existing internal mechanisms
However the country could find it difficult to liquidate its SDR as a result of revelations by the United States Treasury that it could refuse to purchase SDRs from countries on which they have imposed sanctions adding that they would encourage other countries to follow suit.
In a fact sheet published a few days after the IMF’s initial US$650 billion SDR announcement, on April 1, the United States Treasury issued a statement making it clear it would not support members where it has placed a sanctions regime.
The United States holds 16,52% of total voting power in the IMF, the largest compared to any other country, and as such holds unique veto powers over major policy decisions.
This is because the United States contributes US$117 billion to the IMF quota (17,46%) annually, the largest contribution compared to other countries.
“The United States retains the right to refuse to purchase SDRs from any countries that we choose, including those under US sanction regimes, and we are working to coordinate with other countries to do the same. Because all IMF members receive an SDR allocation proportionate to their quota share, some countries whose policies the United States opposes will receive an SDR allocation,” the United States Treasury said.
“However, these countries will not necessarily be able to exchange their SDRs for hard currencies. First, the country’s authorities must be recognised by the IMF membership. Then, the country would need to find a willing country to provide them with hard currency in exchange for their SDRs. We are working to increase transparency around SDR exchanges.”
Zimbabwe has been under US sanctions since 2001 for human rights violations.