Thabiso Scotch Mufambi
Harare – The African Forum and Network on Debt Development (Afrodad) has called for a change in the allocation formula used by the IMF to distribute Special Drawing Rights as it currently favours advanced economies over developing countries.
The IMF recently paved way for issuance of SDRs totalling US$650 billion to assist countries navigate the economic downturn caused by COVID-19. Prior to the announcement, Afrodad and other debt campaigners had urged the IMF to not only make a significant SDR issuance, but to also remodel its allocation formula.
The formula used by the IMF means already-rich countries get more money than developing ones. SDRs are debt-free monetary allocations by the IMF to its members that come with zero conditionalities and go directly to national treasuries for use as the recipient pleases.
The US$650 allocation awaits approval of the IMF Board of Governors and distribution could start from August 2021.
Afrodad senior policy officer Mr Tirivangani Mutazu told The Southern Times Business that while the issuance was welcome, the amount was insufficient to meet the needs of developing countries.
“The amount of US$650 billion is a drop in an ocean. UNCTAD in March 2020 estimated that the fight against COVID-19, economic, social and health impacts require estimated amount of between US$2.5 to US$3 trillion,” he said.
“The IMF-approved US$650 billion will see developing countries receiving around US$200 billion while more than US$400 billion of these funds will go to wealthy countries. The SDRs are distributed in proportion to IMF members’ quotas regardless of an amount agreed on. Around 60 percent would go to global north, close to 40 percent to emerging markets and developing economies, while only three percent will go to developing countries.
“This is very unfair and the IMF Articles of Formation need to be changed to reflect economic contributions from the global south. The rich countries will get around US$400 billion which they do not need.”
Mr Mutazu said low-income countries urgently required substantial and concessional resources such as the IMF SDRs to finance economic stimulus packages and to procure COVID-19 vaccines.
“The IMF allows (members) to re-allocate their SDRs either to the IMF or established funds or to donate them to developing countries. There are progressive rich countries which should donate their SDRs to the developing countries to fund economic recovery and vaccination programmes,” he said.
Mr Mutazu urged African governments to empower their legislative systems to effectively monitor use of SDRs.
“Perennial issues of non-compliance to public finance management legislation (ie governments spending outside Parliament’s approval) is well-documented in Auditor-Generals’ reports across Africa. Moreover, weak and politically compromised Parliaments cannot effectively oversee the executive and the budget process. Political whipping is a challenge faced by Parliamentarians in most African countries.
“Parliamentarians should approve the disbursement of SDRs to specific government programmes and projects. They should also ensure that disbursed resources are used for their intended purposes. Parliamentary Portfolio Committees should rigorously follow-up on the utilization of public funds while Public Accounts Committees should be given sanctioning powers to apprehend officials that misappropriate SDRs.”
Mr Mutazu suggested that governments should prioritise health spending, social protections and water, sanitation and hygiene programmes when spending SDRs.