Special drawing rights and the coronavirus disease crisis

Abstract

The coronavirus disease (COVID-19) pandemic is the worst global crisis since the Second World War, with developing countries suffering more devastating economic and social effects than developed countries. These effects are not limited to the short term but will also be experienced in the medium and long term. The increased pandemic-related expenditure (on health facilities, cash transfers and income support to businesses and individuals, especially informal workers) by Governments, combined with the drastic fall in tax revenues, has increased their fiscal deficits and heightened their debt vulnerabilities. Four modalities are proposed for the reallocation of SDRs. The first involves bolstering the Poverty Reduction and Growth Trust of the IMF. The second is a proposal to create a fund for middle-income countries to finance investment projects related to the Sustainable Development Goals. The third involves the allocation of SDRs to fund the Liquidity and Sustainability Facility proposed by the Economic Commission for Africa (ECA) and the Pacific Investment Management Company. The fourth modality is to use SDRs to enhance the lending capacity of development banks and bolster regional financing institutions.