Vera Songwe commends G7 Finance Ministers decision to back SDRs for developing and COVID vulnerable countries

Addis Ababa, Ethiopia, March 19, 2021 (ECA) – The meeting of the committee of experts of the Conference of African Ministers ended Friday ahead of the African Finance Ministers Meeting next week and saw experts pledge to do more to accelerate the implementation of the AfCFTA, improve domestic resource mobilization, deepen digitalization and accelerate implementation of the global Agenda 2030 and Africa’s Agenda 2063.

The Executive Secretary of the Economic Commission for Africa (ECA), Vera Songwe, welcomed the move by the G7 Finance Ministers to support issuance of new Special Drawing Rights which will help developing countries better respond to the COVID 19 crisis.

The Ministers agreed to support a new Special Drawing Rights (SDR) allocation to assist vulnerable countries respond adequately to the health and economic crisis triggered by the pandemic.

Speaking following the G7 Finance Ministers meeting, the United Kingdom’s Chancellor of the Exchequer, Rishi Sunak, said: “Today’s milestone agreement among the G7 paves the way for crucial and concerted action to support the world’s low-income countries, ensuring that no country is left behind in the global economic recovery from coronavirus.”

The UK currently holds the Presidency of the G7.

“This is a very important and strategic step on the road to a new issuance of Special Drawing Rights by the G7 Finance Ministers today. The SDRs are our chance to do something transformational for a large number of frontier economies. We are grateful for the leadership shown by the G7 Ministers,” said Ms. Songwe, who has been at the forefront advocating for international financial institutions and others to provide more liquidity to allow African countries to build forward better post-COVID-19.

“Now we need to work on mechanisms for on-lending so we can stretch the SDRs for countries that need them most. Additional funding for the IMF PRGT from the SDRs of course is critical for low-income countries. We need to get vaccines to countries and also support the recovery with market access instruments that crowd in the private sector such as the Liquidity and Sustainability Facility.”

She added: “SDRs allow us to think out of the box and bigger. There is now real momentum for collective action at the IMF and World Bank spring meetings and also for the African Finance Ministers meeting next week organized by ECA.”

As part of the SDR discussions, it was agreed that the G7 would work with the IMF to make progress on enhancing transparency and accountability around the usage of SDRs and explore how countries could voluntarily recycle their SDR holdings to further support low-income countries. The G7 agreed that the IMF should separately work up some options for how this might be done, without delaying agreement to a new general allocation, according to a statement issues by the UK Chancellor of the Exchequer.

Created by the IMF in 1969, SDRs play an influential role in global finance and help governments protect their financial reserves against global currency fluctuations. It is also used as the basis of loans from the IMF’s crucial crisis-lending facilities with the institution using it to calculate its loans to needy countries, and to set the interest rates on the loans.

ECA has also been advocating for the extension of the Debt Servicing Suspension Initiative (DSSI) to end of 2021 to ensure countries have enough liquidity to respond and kick-start the recovery by freeing up resources to pay for much-need vaccines and improve buffers of low-income countries. The liquidity and sustainability facility is another important vehicle to assist African countries increase liquidity.

In 2009, $240 billion in SDRs were approved to IMF member countries in response to the global financial crisis to inject liquidity into the market.

The G7 Finance Ministers met virtually Friday.

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