African Ministers call for reforms of the IMF’s Special Drawing Rights system

African Ministers of Finance, Planning and Economic Development have called for reforms of the 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.
Coordinated by the Economic Commission for Africa (ECA), the High-level Working Group comprises African Ministers of Finance, Planning and Economic Development, the African Union, the African Development Bank, Afreximbank, and the World Bank, and includes the participation of IMF staff and Executive Directors. The Group serves as a forum to develop reform proposals for the global financial architecture and strengthen the African voice on the global stage.
SDRs’ Original Design and SDRs in Practice
During the meeting, Hanan Morsy, ECA’s Deputy Executive Secretary and Chief Economist, delivered a presentation on reforming the SDR allocation and rechanneling mechanism. The SDR system came into existence in 1968 with the aim of supplementing official reserves and facilitating global liquidity. The IMF’s Articles of Agreement stipulate that SDR allocations are meant to be considered every five years, referred to as “basic period”. The Articles also allow for SDR allocations in response to “unexpected major developments”. Throughout the 12 “basic periods” since the inception of the SDR system, there have been merely four general allocations and one special allocation (with two notable ones in 2009 and 2021). This is despite the fact that global macroeconomic conditions would have warranted more frequent allocations during this time.
Morsy also 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. For instance, during the 2021 general SDR allocation of $650 billion, high-income countries, which are least likely to require or utilize SDRs, received approximately $450 billion, constituting almost 70% 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.
Making SDR allocation decisions more rule-based and analytical
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. The “Unexpected Major Developments” provision needs to be clarified and operationalized to include the following triggers: force-majeure exogenous shocks, such as pandemics or natural disasters, global recessions, and significant capital flow reversals from emerging and developing economies.