IMF’s liquidity support

Pakistan can expect to get $2.8b from IMF’s recently announced $650b general allocation to boost global liquidity.

Pakistan can expect to get about $2.8 billion from IMF’s recently announced $650 billion general allocation to boost global liquidity. This is because the new general allocation of Special Drawing Rights (SDR), which will become effective on August 23, 2021, will be credited to member countries in proportion to their existing quotas. The IMF says the new allocation is intended to help member countries tackle the challenges presented by the continuing Covid-19 pandemic.

General allocations are relatively uncommon — there have only been three since the IMF opened shop in 1945. The most recent was in 2009, during the Global Financial Crisis, when the IMF allocated the equivalent of $250 billion in new SDRs to its membership. It is widely seen as having contributed to stabilising financial conditions around the world. About 42 per cent of the total new allocation has been set aside for emerging and developing nations, including Pakistan.

Also notable is that SDRs are not loans. An SDR allocation is cost-free, which is just about the only price Pakistan can afford to pay at the moment. Since SDRs don’t add to any country’s public debt burden, they can be spent on various causes, including paying off debt or investing in infrastructure. The IMF itself is suggesting that governments use the money to acquire vaccines. Interestingly, the amount is large enough to vaccinate all of Pakistan and still have some cash to spare.

However, unnamed Finance Ministry officials, quoted in several news outlets, say the money should be received before the end of the month and that the funds will be set aside to cover debt repayment. This illustrates the part of the problem with Pakistan’s policymaking. Instead of using windfall income to invest in people or the country, economic planners would instead use the money to pay down debt. The only reason for this is the optics of taking the SBP’s foreign exchange reserves past $20 billion for the first time in history. It won’t save lives, grow the economy, or educate our children. But it will give the government a pointless achievement to show off as new, more resistant strains of the virus continue to be detected in the country.

Published in The Express Tribune, August 5^th, 2021.

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