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Document Type

Case Study

JEL Codes

G01,G28

Abstract

The official response to the COVID-19 pandemic was costly for governments, particularly those in developing economies with significant existing external debt. On August 2, 2021, the International Monetary Fund (IMF) announced in a press release the allocation of SDR 456 billion (USD 650 billion) in Special Drawing Rights (SDRs) to “address the long-term global need for reserves, build confidence, and foster the resilience and stability of the global economy.” The COVID-19 allocation was a form of unconditional (or “concessional”) liquidity to IMF member nations, similar to a capital injection or grant. It was the fourth-ever general allocation and the largest to date. Developing countries, excluding China, received USD 209.3 billion in SDRs and retained about half of that amount to cushion their international reserves, according to independent research estimates. They used the remainder mostly for fiscal purposes—spending on COVID-19 relief, capital expenditures, or covering deficits. Forty-two developing countries also sold USD 17 billion of their SDRs for hard currencies, particularly the US dollar, euro, renminbi, yen, or pound sterling, which are the largest reserve currencies and are used to set the value of SDRs. Some critics have argued that the SDR allocation was insufficient to address the needs of developing countries. Most of the SDRs went to developed countries and efforts to persuade them to on-lend their SDRs to developing countries were viewed by many experts as insufficient.

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