African ministers of finance, planning and economic development meeting in Sharm El-Sheikh, Egypt, have called for reforms of the International Monetary Fund’s (IMF) 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 in Sharm El-Sheikh.
Coordinated by the Economic Commission for Africa (ECA), the group comprises African ministers of finance, planning and economic development, the African Union, the African Development Bank, Afreximbank and the World Bank. It includes the participation of IMF staff and executive directors.
The group serves as a forum to develop reform proposals for global financial architecture and strengthen the African voice on the global stage.
During the meeting, ECA deputy executive secretary and chief economist Hanan Morsy delivered a presentation on reforming the SDR allocation and rechannelling mechanism.
The IMF’s articles of agreement stipulate that SDR allocations are to be considered every five years.
Morsy emphasised 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 US$650 billion, high-income countries, which are least likely to require or utilise SDRs, received approximately US$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.
The ministers underscored the importance of ensuring that SDRs are directed to countries that require them most. They advocated the rechannelling of SDRs to multilateral development banks, such as the African Development Bank, as a means to achieve this goal. – ECA