When the proverbial poop hits the proverbial fan on a global scale, the International Monetary Fund (a major financial agency of the UN — think of it as a bank that does good in this scenario) dusts off one of its dormant bailout levers known as Special Drawing Rights (SDRs) to ease the fallout. In other words, it starts handing out umbrellas.
To put it simply, SDRs are basically coupons that countries can then buy or sell with other countries for hard currency such as dollars, pounds, or euros, when they need immediate funds to acquire essential supplies and support their economies.
But a strange thing happens when SDRs are allocated — the wealthiest countries get the most, while the poorest countries get the least.
Why’s that? The IMF distributes these reserve assets to its 190 member countries in proportion to their IMF share and relative economic standing in the world economy. So richer countries get more SDRs, while poorer countries receive fewer.
The IMF's largest member is the US with SDRs worth about $118 billion, and the smallest member is Tuvalu, one of the smallest and poorest nations in the world, with an SDR quota of around $3.5 million. But Tuvalu is literally sinking in the fight against climate change and needs urgent support, now.
In other words, the countries that most need assistance get the least support from the IMF.
The last time SDRs were handed out was in August 2021, when the IMF released $650 billion to support the global economic recovery from the COVID-19 pandemic.
Of that $650 billion disbursed, G20 countries received a whopping $442.8 billion (68% of the total), while the poorest 44 countries received just $45.5 billion (7%) of the total.
Fortunately, there’s a way to remedy this inequity: wealthy countries are able to channel their SDRs to poorer ones. So richer countries that don’t need access to that financing can give them to countries that desperately do.
In the face of the immense impacts of the pandemic, organizations and campaigners are calling on wealthy countries to do exactly this, which is a form of aid that costs donating countries only a small annual interest rate. In fact, the global ambition set at the G20 in 2021 was to disperse $100 billion through the voluntary channeling of special drawing rights.
But that $100 billion target has not yet been met. As of February 2023, the total of reported combined pledges was around $87 billion.
While the COVID-19 pandemic had a colossal impact on economies worldwide, the ongoing economic and social impacts combined with the climate crisis have the potential to end the global economy. Full stop.
Urgent global financial reform is necessary and the reallocation of SDRs is an important part of that. You can support the call to ensure lower-income countries have the support they need to protect those most impacted by poverty and climate change by urging key governments to step up and reallocate their SDRs.