At the heart of the ongoing consultations on the 2024 – 2025 national budget have been discussions on solutions aimed at promoting economic recovery and growth in the country.
Such talks have not only centered on local economic policies as deliberations have also focused on international programs with direct impact on Malawi’s economy.
One such international policy being the Special Drawing Rights (SDR) established by the International Monetary Fund (IMF) in 1969.
The SDR is an interest bearing international reserve asset aimed at supplementing member countries with foreign exchange reserves, which member states can use their reserve assets to stabilize international exchange rates when faced with balance of payment issues.
This allocation of SDRs to members states is done thorough a quota system determined by the nations contribution to the IMF based on the size of its economy and financial stability.
Since joining the IMF in 1965 – Malawi has received a total allocation of SDR 199.4, equivalent to $265.3 million, a figure lower in comparison to neighboring countries like Tanzania ($769.1 billion), Zambia ($1.9 billion) and Mozambique ($439.3 billion).
However, a local economics watchdog, Malawi Economic Justice Network has faulted the quota system for allocating SDRs, arguing it prevents low income countries like Malawi from reaping substantial benefits from the funds over their inferior contributions to the IMF.
The observation from MEJN comes amidst a joint project by the economic watchdog and the African Forum on Debt and Development aimed at promoting economic governance which is being implemented with funding from the Bill and Melinda Gates foundation.
Speaking to MIJ Online – Mike Marvin Banda, Southern Region coordinator for the network said there was need for alternative rechanneling mechanism of SDRs such as using Multilateral Development Banks and the Liquidity Sustainability Facility recently created by the United Nations Economic Commission for Africa.
According to him, this has great potential to assist African countries facing temporally balance of payments difficulties to stabilize their economies and avoid a financial crisis.
“The disparity that comes with the allocation of SDR’s particularly to low income countries pushes for rechanneling of SDR’s from countries that do not need them.
“Rechanneling allocation of SDRs through Multilateral Development Banks and the Liquidity Sustainability Facility is particularly important for countries that may not have access to international capital markets and may face high borrowing due to market perceptions of their credit worthiness.
“This can enable African countries to pursue their own economic policies and address their specific economic challenges. Banda explained.
In august 2021, the IMF approved the largest allocation of Special Drawing Rights equivalent to $650 billion, from which Africa only received $33 billion, about 5% of the total allocation.
This was intended to foster resilience and stability particularly for vulnerable countries that were struggling to cope with impacts of the Covid – 19 pandemic.
From this allocation, Malawi received SDR133 equivalent to $190 million to assist the nation to ease pressure on foreign exchange and economic problems arising from the Covid- 19 crisis.
Also, a 2023 report by the African Climate Foundation titled Priorities for an Equitable Reform of the Global Financial System has proposed a comprehensive overhaul of the IMF’s quota system.
“SDRs are used by IMF member countries as part of their foreign exchange reserves , given Africa’s marginal share , stakeholders are demanding that the IMF reallocates US$100 billion to ease liquidity pressure post covid-19” reads part of the report.
A similar call was made last year by African ministers of finance, planning and economic development during an annual general meeting of the Africa High – Level Working Group on the Global Financial Architecture , organized by the African Development Bank in Sharm El Sheihk – Egypt.
Speaking during the conference, Hanan Morsy, Deputy Executive Secretary and Chief Economist for Economic Commission for Africa faulted the number of SDRs approved by the IMF, arguing macroeconomic conditions demanded more allocations.
“The IMF’s Articles of Agreement stipulates that SDR allocations are meant to be considered every five years. The article also allows for allocations in response to unexpected major developments , however, so far only four allocations have been made in spite of global macroeconomic conditions warranting more frequent allocations” Morsy said.
Nonetheless, Fadhel Kaboub, associate professor of economics at Denison University in America and President of the Global Institute for Sustainable Prosperity has told MIJ Online that it is not the issuance of SDRs that matters but the purpose and use of the funds.
Besides, Kaboub observed that whilst SDRs can play a transformative role in the Global South, it can also be an instrument for entrapment.
He noted that challenges arise when funds are used to support food and fuel imports, cash crop exports, extractive economic activities and manufacturing low value – added products that continue to lock the Global South at the bottom of the value chain.
“SDR allocations should be targeted, transformative and at scale. Escaping the external debt trap requires strategic investments in food sovereignty, agroecology, renewable energy sovereignty and high value added industrialization that prioritizes clean transportation infrastructure for deployment in the Global South rather than for export. Anything short of that is nothing but a neocolonial entrapment mechanism”. Kaboub explained.
Meanwhile, Bond Mtembezeka, a local economic expert says SDR allocations to Malawi reflect the nation’s failure to register significant economic growth.
“Malawi is to blame because we are not doing enough to boost economic growth. The SDR allocations to Malawi speaks to the strength of our economy. As long as the economy is stagnant we cannot grow our quota in the IMF” Mtembezeka explained.
To date the IMF has approved a total of SDR 660 billion (equivalent to about $935.7 billion), including four general allocations and one-time special allocation.
An amount of SDR 9.3 billion was allocated in yearly installments in 1970 -1972 and SDR 12.1 billion was disbursed in yearly installments in 1979-1981.
A special one-time allocation of SDR 21.5 billion took effect on September 9, 2009 to correct for the fact that some members that had joined the IMF after 1981 had never received the funds.
In August 2021, the IMF approved the largest allocation to date amounting SDR 456.5 billion (equivalent to $650 billion) aimed at stabilizing the global macro-economic turbulence arising from the covid-19 pandemic.