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Recently a group of youth led by Obedgiu Samuel (Deputy National Youths Coordinator and Regional Liaison Officer National Unity Platform Northern Uganda) petitioned the speaker to look into this printed IMF money called special drawing rights (SDRs) yet to be allocated by August owing to the fact that when this money was last allocated to Uganda in 2009, bank of Uganda and government have been misusing it, yet countries like Ghana have released recent data showing that they have utilized it less and with more transparently.

It now appears very likely that the executive board of the IMF will approve a special drawing rights (SDR) allocation equivalent to as much as $675 billion. This is good news. It will provide some immediate relief to countries that are liquidity constrained because of the health and economic crises resulting from the COVID-19 pandemic.

The Executive Secretary of the Economic Commission for Africa (ECA), Vera Songwe, on Friday 5 February 2021 met with African Ministers in charge of finance and the Managing Director of the International Monetary Fund (IMF), Kristalina Georgieva, to discuss immediate economic response to the COVID-19 pandemic. IMF managing director Kristalina Georgieva said last month that a new $650bn allocation of SDRs would give a cash injection to poorer countries without adding to their debt burdens and “also free up badly needed resources for member countries to help fight the pandemic”.

During the virtual meeting, which was convened by the ECA and IMF, the ministers were unanimous in their call for additional liquidity of $500 billion in Special Drawing Rights (SDR). Issuing SDRs is akin to a central bank printing new money. It’s at this point that I would love to breakdown what an “allocation of new special drawing rights” is.

The special drawing rights, in my view, are world money backed by nothing but printed at will. Once the IMF issues an SDR, it sits comfortably in the reserve accounts of the recipient country, just like the dollars in our foreign exchange reserves. Unlike, IMF loans, this printed SDR money doesn’t have any conditions attached to it, so without public awareness it can be misused.

SDRs were created in 1969 to supplement a shortfall of preferred foreign exchange reserve assets, namely gold and US dollars. In the IMF’s own definition, SDRs are units of account for the IMF, and not a currency per se. According to the IMF, they just represent a claim to currency held by IMF member countries for which they may be exchanged.

Some Experts object to referring to SDRs as money owing to the fact that individuals can’t own them. However, these SDRs do satisfy the traditional definition of money in many respects; they are a store of value because nations keep a portion of their reserves in SDR-denominated assets.
They are a medium of exchange owing to the fact that nations that run trade deficits or surpluses can settle their local currency trade imbalances with other nations in SDR-denominated instruments and finally they are a unit of account because the IMF keeps its books and records, assets and liabilities in SDR units.

A new issuance of SDRs by the IMF would build up the level of foreign currency reserves in the central banks, so making it possible for developing countries;-
Borrow at lower interest rates and engage in more affordable way.
Address any BoP imbalance/ pay for imports.
Increase fiscal space for public spending in Covid-19 response and recovery including vaccines and strengthen health care systems.

If the process of allocation of new SDRs goes smoothly, Uganda should expect new IMF special drawing rights SDRs in the reserves of bank of Uganda by August. What is rather interesting is that as I was reading through the bank of Uganda statistics Abstract for the year 2019, I took keen interest in the assets that form part of our reserves, with particular interest in our SDR holding. It’s rather interesting that our SDR holdings have been going down consistently, from $71 million in 2014 to $61 million in 2019. This happened over the years without parliament oversight.

It’s possible that bank of Uganda exchanged these reserve SDRs for hard currencies to be used for imports and budgetary financing or even converted them into hard currency through a system of swaps managed by the IMF (called a designation mechanism), without reporting or explaining to parliament.

I attended a special zoom conference where the bank of Uganda head of statics official called Ssemambo was in attendance. He indeed admitted after someone asked him a question that Uganda is currently below is allocated IMF quota. The implication of this is we have to pay interest on being below this quota. hen SDR holdings fall below an SDR allocation quota, the country pays interest to the IMF. Conversely, when a country holds SDRs over and above their allocation quota, it earns interest on them. I doubt any members of parliament have even probed this fact because it is a cost on the county’s coffers.

The last SDR allocation in 2009 went largely unreported by Ugandan media. This was done as a response to the 2008 financial crisis, when the west wrenched its financial system that faced liquidity shortages from losses incurred in the 2008 financial crash and subsequent deleveraging of balance sheets. Resultantly, the IMF printed SDRs equivalent to $280 billion at the April 2011 exchange rate. However, as we prepare for this new allocation, public awareness to avoid misuse will be very key.

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