IMF approves US$650bn in SDRs for world economy. How does Zimbabwe plan to use its share?

IMF Zimbabwe drought
Fin Min. Mthuli Ncube meets IMF MD Kristalina Georgieva in Davos, January 2020

The International Monetary Fund has approved a US$650 billion allocation of Special Drawing Rights (SDRs), to help economies around the world recover from the impact of COVID-19.

 “The SDR allocation will benefit all members, address the long-term global need for reserves, build confidence, and foster the resilience and stability of the global economy. It will particularly help our most vulnerable countries struggling to cope with the impact of the COVID-19 crisis,” IMF Managing Director Kristalina Georgieva said in a statement on Monday.

The general allocation of SDRs will become effective on August 23, 2021.

About US$275 billion will go to emerging markets and developing countries, including low-income countries.

All IMF member countries, Zimbabwe included, will get an allocation of SDRs – which are the IMF’s special currency that can be exchanged for dollars and other currencies – depending on their existing shareholdings in the IMF.

Based on Zimbabwe’s current quota of 0,15%, the country stands to receive US$975 million. 

EXPLAINER: Zimbabwe expects a US$1bn IMF windfall. Here’s what you need to know

How does the country plan to use this money?

Finance Minister Mthuli Ncube has said the SDR allocation will be used based on a guide he expects from the IMF. He says Zimbabwe will “invest the money in future growth”.

In Parliament on Thursday, asked whether he had factored in the SDR allocation in his budgeting, Ncube said:

“Have we factored it into the equation? Not yet. Legally, we can only factor it in once we get a note from the IMF that we have been awarded and the amount is known. That is when we will factor it in and I will come back to Parliament to seek permission on how to use that windfall.”

Where will the money go?

Ncube said: “Indeed, it is promising to a very handsome windfall but let us not waste it on useless consumption. It should go towards I would say production, investment, stabilising our currency and infrastructure but also not forget our socio-economic sector, health and education. We will still need to do more.”

The money should not be spent all at once, he added.

“So, I will come back here with a very clear plan Mr. Speaker Sir to seek your permission on how we should make use of this US$1 billion. Also, it should not be used in one year. We have to spread it and I would say a minimum of two years, better still three years. Do not spend windfalls like this in one year.”

Social safety nets

According to Ncube: “On social safety nets, we will always allocate more budget here. I did mention the use of SDRs, so one of the areas will be in this area. That socio-economic, social sector area, we will allocate more budget and protect our vulnerable.”

More vaccine procurement

Some of the money may be used for vaccines. Zimbabwe had a budget of US$100 million for vaccines, but needs more to buy the 20 million doses to meet the target of reaching 10 million Zimbabweans.

“When we think we have run out of money, surely we will come to the House and I can say already, as we consider how to spend some of the SDR’s, we may want to make an allocation out of further vaccine acquisition. So, we could cover that through a portion of SDR’s but we all have to agree through this august House,” Ncube said.

Zimbabwe plans to use SDRs to boost its US$100m vaccine budget

What about paying our debts?

The last time Zimbabwe got such an allocation, in 2009, the money was used to pay off IMF debts.

Tapiwa Mashakada of the opposition MDC-T said this may not be a good idea.

“We paid IMF through the SDRs…and we anticipated that that was going to unlock new capital from Paris Club, European Investment Bank, IMF, World Bank but no new capital came; instead they put new conditions,” said Mashakada.

“We must be very diligent and prudent in servicing our debts but also see that we do not necessarily waste that money when nothing is coming by way of relief.”

Ncube did not say the SDRs would be used for paying debts, but said it was important for Zimbabwe to pay what it owes.

“As a country Mr. Speaker Sir, we do not want to be known as people who do not pay their debts. If we owe people money, let us start paying, no matter how small,” he said.

A ‘supplementary budget’

Last week, Ncube did not ask for more money from Parliament. Instead, he said after his speech, the SDRs may fund additional spending, if Parliament okays it.

“However, I must say that when we get SDR allocations, as I said earlier on, the 1 billion USD, I need to come back to Parliament to seek permission on how we should spend that. That really would constitute a supplementary budget. Let us wait until we get there before I come back to Parliament.”