Barclays Counts Benefits for EM of $500 Billion IMF Reserve Plan

(Bloomberg) --

Barclays Plc economists expect several developing nations to see “some tangible benefits” of the International Monetary Fund’s proposal to allocate $500 billion in reserve assets known as special drawing rights.

The IMF’s chief said earlier this month that the institution is proceeding with work on the plan after the Group of 20 urged it to propose a fresh allocation of the fund’s reserve assets.

Read more: IMF Says It Has ‘Green Light’ to Start $500 Billion Reserve Plan

Emerging-market countries will probably account for “no more than” $206 billion of the new SDR allocations, Barclays economists including Ercan Erguzel said in a report to clients.

• Bahrain could exchange its SDR holdings with Saudi Arabia to boost reserves, according to Barclays
• The distribution may also benefit Turkey, “where the central bank aims to reverse the downtrend in reserves”
• Barclays estimates that Zambia’s additional allocation could reach around $1.1 billion, or some 6% of gross domestic product, “thus placing the country in a less fragile position as it embarks on its debt restructuring talks”
• Countries including Egypt and South Africa also stand to gain from the increase in reserves
  • For South Africa, Barclays estimates that its foreign-exchange holdings may be boosted by the equivalent of some $3.2 billion
  • The government “could in fact come to some arrangement” with the South African Reserve Bank where the central bank “keeps the SDRs but Treasury liquidates an equivalent amount from its excess reserves at the SARB to fund its external borrowing commitments for the year”

Momentum has been building for the injection of funds after U.S. Treasury Secretary Janet Yellen leaned toward supporting the action, reversing opposition last year under President Donald Trump. Her predecessor, Steven Mnuchin, blocked the move in 2020, saying that because reserves are allocated to all 190 members of the IMF in proportion to their quota, some 70% would go to the G-20, with just 3% for the poorest developing nations.

“The Covid-19 pandemic has morphed into a global health crisis, necessitating closer global policy coordination to rein in infection spread,” the Barclays economists said in the note. “This has brought the IMF’s role as global ‘firefighter’ back to the centre stage.”

©2021 Bloomberg L.P.