IMF’s $650 Billion Hike In SDRs to Support Low-Income Emerging Markets

IMF’s $650 Billion Hike In SDRs to Support Low-Income Emerging Markets

"Our analysis of the reserve adequacy of sovereigns we rate at 'B+' or below, with average per capita GDP of $4,714, found that the creation of these new SDR would fully restore reserve adequacy for five of the 44 emerging market sovereigns in this category--Zambia, Jordan, El Salvador, Benin, and Togo," said S&P Global Ratings analyst Sam Tilleray.

However, if high-income IMF member states were to redirect 42% of their share of the $650 billion SDR allocation this would fully restore reserve adequacy of all 44 low-income countries included in our survey, with significant positive second-round benefits for global growth, said the titled, "An SDR Is Born: The IMF Creates A Reserve Asset For Low-Income Countries".

"Under this scenario of a reallocation of wealthy countries' SDR to low-income countries, external positions would become more resilient, leading to potential upward pressure on sovereign ratings," said Tilleray. "Even so, in the 'B+' and lower ratings category, the key ratings constraint is generally an institutional one, dimming the prospect for outright upgrades on the back of SDR reallocations."