African ministers of finance, planning and economic development have called for reforms of the International Monetary Fund (IMF)’s Special Drawing Rights (SDR) system to strengthen the global financial safety net and make more liquidity available to developing countries.
The call for reforms was made during a meeting of the Africa High-level Working Group on the Global Financial Architecture on the margins of the 2023 Annual Meetings of the African Development Bank Group held in Sharm El-Sheikh, Egypt, the UN Economic Commission for Africa (UNECA) said in a statement late Monday.
Coordinated by the UNECA, the high-level working group comprises African ministers of finance, planning and economic development, the African Union (AU), the African Development Bank (AfDB), African Export-Import Bank (Afreximbank), and the World Bank, and includes the participation of IMF staff and executive directors.
The UNECA said the group serves as a forum to develop reform proposals for the global financial architecture and strengthen the African voice on the global stage.
During the meeting, Hanan Morsy, UNECA’s Deputy Executive Secretary and Chief Economist, delivered a presentation on reforming the SDR allocation and re-channeling mechanism.
Morsy emphasized that when SDRs are allocated, they tend to disproportionately benefit countries that are less in need of them.
“This is because SDRs are distributed in proportion to existing IMF quotas, which are primarily a function of an economy’s size and relative position in the world economy,” she said.
She said during the 2021 general SDR allocation of 650 billion U.S. dollars, high-income countries, which are least likely to require or utilize SDRs, received approximately 450 billion U.S. dollars, constituting almost 70 percent of the total allocation.
Africa, with a population exceeding 1.4 billion, received fewer SDRs than Germany, a country with a population of only 83 million, according to Morsy.
The ministers emphasized the need for SDR allocation decisions to be made in a rule-based analytical manner to reduce the discretionary and political nature of the allocation process.
They underscored the importance of ensuring that SDRs are directed to countries that require them most. They advocated for the re-channeling of SDRs to multilateral development banks, such as the African Development Bank, as a means to achieve this goal.
The ministers further called for reforming the SDR re-channeling mechanism to promote greater utilization. Suggestions were made to reform the SDR intermediation system. The ministers also recommended that the IMF Executive Board could consider updating the SDR’s reserve asset characteristic to align with the wide-ranging and unconditional contemporary use of reserve assets.
They called for increased measures by the IMF to promote transparency in the SDR market. They also urged for a reform of the SDR allocation formula to take into account countries’ liquidity needs in addition to IMF quotas.