IMF Allocation- The Nation

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With the pandemic now well into its second year, the world’s economies have started to adjust to the coronavirus and are now rebuilding. Like always, it is the developed countries that bounce back the easiest, and the developing countries who are hit the hardest and may find it impossible to recover the losses delivered by the pandemic. While rich countries were able to reinvigorate their economy and counter unemployment by injecting more than $11.5 trillion as stimulus, developing countries have been pleading to get their loan payments deferred from international organisations.

 

The US is estimated to show its strongest growth since 1984, with their government considering removing mask mandates; contrastingly, developing countries are plagued with problems of vaccine shortages.

This severe discrepancy has been pointed out to the IMF, with Pakistan especially making the case for debt relief for developing countries in the time of the pandemic which had savaged economies. The IMF has seemed to respond now with the largest allocation in history—an allocation of $650 billion in Special Drawing Rights (SDR) became effective on Monday. The total amount of $650 billion will be distributed among member states in accordance with their quota of the SDR. The amount distributed to Pakistan can amount even to $2.7 billion.

This is a large sum that will provide some breathing space to the economy. The government has not yet announced what it will use the funding for. There are options—IMF members can exchange SDRs for freely usable currencies among themselves and with prescribed holders. The government can use the funding to shore up foreign reserves or allow for fiscal manoeuvring—Pakistani currency depreciated to over a 10-month low this month. Another option the government has is to invest the funding into government spending projects in a smart way that is bound to see returns for public benefit. What the government must not do however, is waste the money on debt servicing—this will only propel a vicious debt cycle.