A planned US$650 billion increase in the International Monetary Fund’s (IMF) Special Drawing Rights (SDR) will restore complete reserve adequacy in five emerging market economies, S&P Global said on Tuesday.
Zambia, Jordan, El Salvador, Benin and Togo would all receive the biggest boost to their financial position from the IMF’s plan to raise SDRs this year to help low-income countries hit by the coronavirus pandemic, the ratings agency said.
The five are among 44 emerging market countries rated ‘B+’ or below by S&P that were analysed by the rating agency to see what impact the allocation would have on their reserve adequacy.
An additional two of the 44 — Democratic Republic of Congo and Suriname — would see at least one of three reserve adequacy measures restored, but would still fail on at least one of the benchmarks, S&P said.
The United States and other Group of Seven nations are considering reallocating US$100 billion from the IMF’s reserve asset to help countries struggling to cope with the COVID-19 crisis, the White House said earlier this month.
It would take a reallocation of an estimated 42% of wealthy country SDR allocations to lower-income countries, both rated and unrated, to bring the reserve levels in all rated lower-income countries up to complete reserve adequacy, S&P said.
Following the initial SDR allocation, S&P estimated a total of $189 billion would still be required to bring all remaining ‘B+’ or lower rated sovereigns up to adequate levels.
However, around US$95 billion of the gap will accrue to Turkey and Bahrain, two middle-income countries that arguably would not receive support from richer countries.
In contrast, seven countries – Burkina Faso, Mozambique, Kenya, Bolivia, Congo Republic, Belize, and Suriname – would need less than US$1 billion each to shore up reserves to levels deemed adequate by all three benchmarks, S&P estimated.
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