Macro Analysis /

New SDR allocation gets closer to reality

  • IMF directors yesterday signalled broad support for a US$650bn allocation

  • Managing Director Kristalina Georgieva intends to present a formal proposal to the Executive Board by June

  • IMF meeting follows last week's agreement on an SDR allocation within the G7

New SDR allocation gets closer to reality
Stuart Culverhouse
Stuart Culverhouse

Head of Sovereign & Fixed Income Research

Tellimer Research
24 March 2021
Published byTellimer Research

Prospects for a new SDR allocation have taken a major step forward after IMF Executive Directors held an informal discussion on the topic yesterday. The IMF meeting follows last week's agreement on an SDR allocation within the G7.

In a statement, IMF Managing Director Kristalina Georgieva said "I am very encouraged by initial discussions on a possible SDR allocation of US$650bn." She noted that Executive Directors had conveyed "broad support" among Fund members for staff to formulate a proposal for a new SDR allocation.

The size of the allocation, US$650bn, is about the maximum that the US is able to support without needing Congressional approval. While the size may disappoint some, who had sought much more (US$1trn or even US$2trn), it probably exceeds most expectations of around US$500bn, which is based proportionately on the last exercise in 2009.

The MD intends to present a formal proposal to the Executive Board by June. If approved, it would then need to be submitted to the Board of Governors for approval, which requires an 85% majority of the total voting power.

IMF staff are tasked to develop new measures to enhance transparency and accountability in the use of SDRs and to explore options for members to reallocate SDRs to vulnerable and low income countries. This may placate some of the critics of an SDR allocation. Whether there will also be a mechanism to prevent certain rogue government's from benefiting from an SDR allocation, as some that have opposed it have called for, is unclear, but seems unlikely given the references in the IMF statement to all its members.

International support for an SDR allocation has gathered momentum this year. Yesterday, UK Chancellor Rishi Sunak, on a webinar with the Italian finance minister (G7 and G20 chairs respectively), hosted by Bloomberg, confirmed the G7 finance meeting on Friday agreed to support a "new and sizeable" allocation of SDRs, an agreement he heralded as an "important milestone". This follows the shift in the US position by the Biden administration, as signalled by Secretary Yellen ahead of last month's G20 Finance Leaders' meeting, with support endorsed by the G20 itself in its official communique of the 26 February meeting of Finance Ministers and Central Bank Governors.

We expect to hear more at the forthcoming IMF/WB Spring meetings (5-11 April).

For more background, and our assessment of the main beneficiaries of an SDR allocation, see Revisiting the IMF SDR allocation — The time is right, dated 13 November 2020.

Top 10 beneficiaries of SDR allocation among EM and frontier markets