By Prosper Chitambara
On August 2, 2021, the Board of Governors of the International Monetary Fund (IMF) approved a general allocation of Special Drawing Rights (SDRs) equivalent to US$650 billion to address the long-term global need for reserves, and help countries cope with the impact of the Covid-19 pandemic.
This is the largest-ever allocation. To date, a total of SDR 660.7 billion (equivalent to about US$943 billion) have been allocated.
SDRs are an international reserve asset, created by the IMF in 1969 to supplement its member countries’ official reserves. The SDR serves as the unit of account of the IMF and other international organisations. 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. The SDR is neither a currency nor a claim on the IMF, but rather it is a potential claim on the freely usable currencies of IMF members. SDRs can be exchanged for these five currencies.
Zimbabwe has already received its SDR allocation of SDR 677,4 million (US$961 million) from the IMF. This represents about 20% of the country’s total exports and about 10% of the country’s external public debt.
This is a significant boost for the Zimbabwean economy which is recovering from the Covid-19 pandemic and is expected to rebound by 7,8% this year. This SDR allocation has increased Zimbabwe’s depleted foreign currency reserves position by US$961 million and should provide temporary relief to the exchange rate. This is an important and positive development indeed especially given the fact that this is not a loan. There is a need however to prioritise and allocate resources towards sectors that are productive and welfare enhancing.
Some of the key sectors that must be prioritised for sustainable recovery include: water and sanitation, irrigation infrastructure and clean energy. These sectors are especially critical to ensure that the Zimbabwean economy recovers stronger and better from the Covid-19 pandemic.
Even before the Covid-19 pandemic, Zimbabwe was already facing underlying structural challenges on account of years of gross under investment in these sectors and this allocation can help to correct this anomaly.
In particular, water and sanitation are essential for the realisation of other socio-economic rights such as health, education and food security. They are also a critical determinant of sustainable development. Poor and inadequate water and sanitation is a leading cause of poverty, morbidity and mortality in a number of countries including in Zimbabwe.
Providing water and sanitation especially in schools is key to keeping children, particularly girls, in school. Results from the 2019 LFCLS show that 77,1% of households have access to improved sources of drinking water. This figure however hides a wide disparity in access to safe drinking water between urban areas and rural areas and also even within urban areas. This SDR allocation can help to actualise the imperative of guaranteeing universal access to water and sanitation.
This SDR allocation can provide a strong impetus towards sustainable financing of landmark projects such as the Matabeleland Zambezi Water Project, the Kunzvi Dam Project, as well as the Nyamandlovu Aquifer water project.
Inadequate and unreliable access to electricity remains one of the biggest binding constraints to sustainable development in the country. Tackling the energy challenge can help to improve the doing business/investment climate, given the fact that energy is one of the biggest enablers to doing business. Indeed, ensuring energy self-sufficiency is critical to enhancing productivity and competitiveness in the Zimbabwean economy.
The country has a huge energy deficit, with the proportion of households in Zimbabwe that have access to electricity currently standing at 55,3% as at 2019, and only 33,7% of the households in Zimbabwe have access to clean energy for cooking.
The SDR allocation can also help to expedite the establishment of the Green Energy Fund of Zimbabwe in line with the renewable energy policy.
This Fund will be used in promoting, developing and extending financial assistance for setting up of projects relating to new and renewable sources of energy and off-grid sources.
Given the high concentration of employment in agriculture, transforming the agricultural sector from low to high productivity will go a long way in transforming the Zimbabwean economy and significantly reducing poverty and unemployment.
In particular, irrigation plays an important role in agriculture because it reduces farmers’ vulnerability to weather and climate shocks and risks. Zimbabwe has potential to irrigate more than 2 million ha of land and yet, less than 206 000 ha are currently under irrigation. The utilisation of existing water bodies, underground water and transboundary water bodies such as Zambezi River and Limpopo River can make a significant contribution to food security and agricultural growth in the country, especially in drought periods.
However, the available water bodies are currently under-utilised, mainly due to lack of investment in irrigation development, rehabilitation and modernisation. There is therefore a need to allocate part of the SDRs towards strengthening our irrigation capacity.
Companies in the productive sector can also benefit from part of this allocation. However, in line with global best practice, it is vital to ensure that any support to private businesses is based on a clear quid-pro-quo basis and is tied to the attainment of clear benchmarks and deliverables by the companies. Finally, it will be important to ensure transparency and accountability in the utilisation of this SDR allocation. This is critical to strengthening the social contract between the government and the citizens, who are the beneficiaries of the State-led development.
- Chitambara is an development economist. This weekly column – New Horizon is published in the Zimbabwe Independent and co-ordinated by Lovemore Kadenge, an independent consultant, past president of the Zimbabwe Economics Society (ZES) and past president of the Institute of Chartered Secretaries & Administrators in Zimbabwe (ICSAZ). Emailemail@example.com and mobile No. +263 772 382 852.