Pressure is mounting to reform IMF’s Special Drawing Rights (SDRs; see Inside the Institutions, What are Special Drawing Rights (SDRs)?) as African finance ministers called for a review of the SDRs rechannelling mechanism (see Observer Autumn 2021) and their reserve asset characteristic during the Annual Meetings of the African Development Bank held in May in Sharm El-Sheikh, Egypt. The ministers emphasised “the need for SDR allocation decisions to be made in a rule-based analytical manner to reduce the discretionary and political nature of the allocation process”, and to ensure that SDRs are directed to countries that need them the most.
Demands for a comprehensive SDRs reform are increasing. An April report by the UN’s High-Level Advisory Board on Effective Multilateralism published in April called for the “immediate, and thereafter regular” annual issuance of additional SDRs to aid countries facing foreign-exchange shortages. The report also suggests an amendment to the IMF’s Articles of Agreement to permit “selective SDRs allocation” in order to facilitate a more targeted and effective distribution that prioritises the most vulnerable countries over the world’s largest economies.
Following the insufficient and uneven allocation of $650 billion SDRs in 2021, which allocated 64 per cent of the SDRs to advanced countries instead of low-income and climate vulnerable countries, civil society organisations called for a reform of the criteria for distributing SDRs, currently based on an inequitable quota system (see Inside the Institutions, IMF and World Bank decision making and governance). They and others such as UNCTAD have also called for an additional $2.5 trillion in SDRs to ensure the international community has a global financial safety net, enabling countries to close the climate finance gap and achieve their Sustainable Development Goals (see Observer Spring 2021).