IMF approves billions for possible lending

NAMIBIA can secure more loans from the International Monetary Fund (IMF), following the recent approval of N$9,4 trillion worth of special drawing rights (SDR) for fund members.

This is equivalent to US$650 billion.

Namibia this year received N$3,9 billion from the fund, almost depleting its rights, which were at an SDR of 191 million.

The country’s rights now stand at SDR of 200 000 dollars.

These rights are allocated to countries to boost their foreign exchange reserves, and allow IMF members to reduce their reliance on more expensive domestic or external debt for building reserves.

Announcing the trillion-dollar approval, the fund’s managing director, Kristalina Georgieva, said the approval was a rather historic decision, “and the largest SDR allocation in the history of the IMF, and a shot in the arm for the global economy at a time of unprecedented crisis”.

To date the IMF has allocated US$209 billion worth of SDRs.

“It will particularly help our most vulnerable countries that are struggling to cope with the impact of the Covid-19 crisis,” Georgieva said.

The allocation will become effective on 23 August, the fund said, and will be credited to IMF member countries in proportion to their existing quotas in the fund.

Namibia has a 0,04% quota with the fund.

If the SDR allocation rules are not revised, Namibia is expected to receive about US$18,2 million worth of SDRs.

Translated to US$ at the date of the announcement, this would boost Namibia’s liquidity potential by US$26 million, or N$377 million.

The IMF said at least US$275 billion of the new allocation will go to emerging markets and developing countries, including low-income countries.

“We will also continue to engage actively with our membership to identify viable options for voluntary channeling of SDRs from wealthier to poorer and more vulnerable member countries to support their pandemic recovery and achieve resilient and sustainable growth,” Georgieva said.

One key option is for members that have strong external positions to voluntarily channel part of their SDRs to scale up lending for low-income countries through the IMF’s Poverty Reduction and Growth Trust (PRGT).

Concessional support through the PRGT is currently interest free.

This means there is potential for Namibia to obtain a loan of up to N$377 million interest free from the Washington-based fund.

Namibia has not yet borrowed under the PRGT.

“The IMF is also exploring other options to help poorer and more vulnerable countries in their recovery efforts. A new Resilience and Sustainability Trust could be considered to facilitate more resilient and sustainable growth in the medium term,” said the fund.

Early this year, reported that minister of finance Iipumbu Shiimi and his team at treasury managed to plug the current fiscal year’s budget deficit by 25% after the IMF approved its N$3,9 billion loan request.

Debt levels, however, still remain elevated, and a skyrocketing interest bill continues to reduce governments’ ability to spend elsewhere.

On the SDR of 191 million borrowed this year, Namibia has paid SDR 137 435 in interest.

Analysts and civil societies have welcomed the IMF’s decision, citing it is good news for struggling economies.

The “new SDRs will bring much-needed liquidity to struggling developing countries without adding to their unsustainable debt burdens,” Nadia Daar, head of the Washington-based NGO, Oxfam, said.

It is “unfathomable that wealthy nations would fail to reallocate a substantial portion of their SDRs — at least $100 billion as agreed by the G7” at a mid-June summit, she said.

It is also necessary for governments to “work transparently and together with civil society” so that SDRs are used wisely, Daar added.

Twitter: @Lasarus_A

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