Special Drawing Rights (sdrs), A Lifeline For The Global South And A Boost To The Global Economy

Multiple ongoing crises highlight the need for a reform of the financial architecture. Developing countries must have access to more resources on better terms, particularly in the case of countries in the midst of a climate emergency with the greatest need for support. One factor that stands out is limited access to concessional financing for low- and middle-income countries. Such countries are facing fiscal problems due to the COVID-19 pandemic and its fallout and must deal with high levels of debt, as well as large increases in interest payments due to the US Federal Reserve rate hikes since March 2022. Recent issuances of special drawing rights (SDRs) have demonstrated that SDRs are effective in addressing global emergencies and primarily benefit developing countries. As one of the most important alternative financing mechanisms for countries in the Global South, SDR issuances play a crucial role in the international monetary system, allowing countries to access resources without increasing their debt levels or being subject to the imposition of regressive conditionalities (Cashman et al, 2022). Many developing countries – mostly in sub-Saharan Africa and Latin America and the Caribbean – have benefited from using SDRs, mainly for fiscal support but also to raise foreign exchange and make payments to the International Monetary Fund (IMF). The active use of SDRs for fiscal purposes can boost economic growth, contribute to the guarantee ofrights, and reduce inequalities. Such use can also help to reduce the lingering effects of the pandemic and address the need for mitigation and adaptation to the climate crisis. Advanced economies also benefit from developing countries actively using their recently allocated SDRs. As SDRs are converted into hard currencies, they are predominantly used for importing goods and services, thus benefiting the exports of advanced economies (Cashman, 2021). They can also free up other liquid international reserves for spending on imports. Various multilateral and regional forums and spaces, such as the United Nations, African Union, Economic Commission for Latin America and the Caribbean (ECLAC), G-24, and G-77, have been raising the need for new SDR issuances for countries to access liquidity and meet the objectives of financial development (ECLAC and ECA, 2022) The 2024 G20 summit in Brazil presents an opportunity for this forum to voice its support for a proposal for a new $650 billion allocation of SDRs at the IMF, which will immediately help countries in the Global South invest in achieving the Sustainable Development Goals (SDGs) and addressing the climate emergency. The G20 should also call for the IMF to revert to the previous version of its statistical recommendations (explained below) on SDR allocation accounting to undo the artificial increases in debt levels and facilitate the fiscal use of SDRs in the Global South and donations of SDRs by advanced economies as an additional source of development financing. To promote new SDR issuances and changes in SDR accounting, the potential role of the G20 is fundamental, given that its members have significant weight with the IMF (with over 60 percent of quotas and voting power) and any decision made by the IMF is subject to the will of these countries.