10/08/2021
TO RECEIVE UP TO US$1.3 BILLION FROM THE
The Zambian Government is pleased with the approval by the IMF Board of Directors of a general allocation of Special Drawing Rights (SDRs) equivalent to US$ 650 billion, for eligible member countries. In Zambia’s case, this translates to approximately US $1.3 billion and doubles the country’s foreign exchange reserves.
The decision to increase the general allocation was made by the IMF Board on 2nd August, 2021.
Yesterday, Zambia attended a virtual meeting between the IMF African department and several African countries. The virtual meeting was Chaired by ABEBE AEMRO SELASSIE, Director of the IMF African department. Zambia was represented by Secretary to the Treasury FREDSON YAMBA, Bank of Zambia Governor CHRISTOPHER MVUNGA and other Senior Government Officials.
During the meeting, modalities for disbursement and use were discussed. The will be credited to all member countries in proportion to their existing quotas. In the case of Zambia, this will translate to approximately US $1.3 billion. The amount will substantially boost the country’s foreign exchange reserves. The increase in reserves will help to build external resilience and support the current relative stability in the foreign exchange market. This in turn is expected to facilitate foreign and domestic investment flows, going forward.
Commenting on the development, the Secretary to the
has reiterated the Government’s commitment to utilizing the funds in accordance with prudent management principles through the consultative Medium-Term Expenditure Framework ( ) and the national budget. To ensure effective checks and balances, special accounting and reports on the utilization of the proceeds will also be undertaken.
Expenditure focus for the allocation will be on areas that will directly address the health and economic impacts of the pandemic. Elevated attention will also be directed at helping to restore livelihoods of vulnerable Zambians and limiting the negative impact of the pandemic on the .
The resources from the IMF will definitely assist the country to attain the aspirations of the Economic Recovery Programme and lead to economic stabilisation and positive growth. The decision of the Fund will become effective on 23rd August, 2021.
END.
SPECIAL DRAWING RIGHTS (SDR)
The SDR is an international reserve asset, created by the IMF in 1969 to supplement its member countries’ official reserves. To date, a total of SDR 660.7 billion (equivalent to about US$943 billion) have been allocated. This includes the largest-ever allocation of about SDR 456 billion approved on August 2, 2021 (effective on August 23, 2021). This most recent allocation was to address the long-term global need for reserves, and help countries cope with the impact of the COVID-19 pandemic. The value of the SDR is based on a basket of five currencies - the U.S. dollar, the euro, the Chinese renminbi, the Japanese yen, and the British pound sterling.
THE ROLE OF THE SDR: The SDR was created as a supplementary international reserve asset in the context of the Bretton Woods fixed exchange rate system. The collapse of the Bretton Woods system in 1973 and the shift of major currencies to floating exchange rate regimes lessened the reliance on the SDR as a global reserve asset. Nonetheless, SDR allocations can play a role in providing liquidity and supplementing member countries’ official reserves, as was the case amid the global financial crisis.
The SDR serves as the unit of account of the IMF and other international organizations.
The SDR is neither a currency nor a claim on the IMF. Rather, it is a potential claim on the freely usable currencies of IMF members. SDRs can be exchanged for these currencies.
A BASKET OF CURRENCIES DETERMINES THE VALUE OF THE SDR: The SDR value in terms of the U.S. dollar is determined daily based on the spot exchange rates observed at around noon London time, and is posted on the IMF website.
The SDR was initially defined as equivalent to 0.888671 grams of fine gold—which, at the time, was also equivalent to one U.S. dollar. After the collapse of the Bretton Woods system, the SDR was redefined as a basket of currencies.
Currencies included in the SDR basket have to meet two criteria: the export criterion and the freely usable criterion. A currency meets the export criterion if its issuer is an IMF member or a monetary union that includes IMF members, and is also one of the top five world exporters. For a currency to be determined “freely usable” by the IMF, it has to be widely used to make payments for international transactions and widely traded in the principal exchange markets. Freely usable currencies can be used in Fund financial transactions.
The SDR basket is reviewed every five years, or earlier if warranted, to ensure that the basket reflects the relative importance of currencies in the world’s trading and financial systems. The reviews cover the key elements of the SDR method of valuation, including criteria and indicators used in selecting SDR basket currencies and the initial currency weights used in determining the amounts (number of units) of each currency in the SDR basket.
These currency amounts remain fixed over the five-year SDR valuation period but the actual weights of currencies in the basket fluctuate as cross-exchange rates among the basket currencies move. The value of the SDR is determined daily based on market exchange rates.source M*F
