New SDR allocation to increase PH foreign reserve

The Philippines is expected to have more foreign reserves once the $650-billion special drawings rights (SDR) of the International Monetary Fund (IMF) would be approved.

A sign is seen outside the headquarters of the International Monetary Fund (IMF) as the IMF and World Bank hold their Spring Meetings virtually due to the outbreak of COVID-19, known as coronavirus, in Washington, DC, April 15, 2020. / AFP / SAUL LOEB

In an email to The Manila Times, IMF Resident Representative to the Philippines Yongzheng Yang said the SDR allocation means that the Philippines, along with all other IMF member-countries, would receive a proportion of the $650 billion in line with the size of its quota in the IMF.

“The newly allocated SDRs, like the Philippines’ current holdings of SDRs, would be counted as the country’s gross international reserves, and can be exchanged for any hard currencies with another member country,” said Yang.

IMF Managing Director Kristalina Georgieva earlier said the new SDR allocation would benefit the fund’s member-countries and support the global recovery from the pandemic.

Georgieva said this would also be a “powerful signal of the IMF membership’s determination to do everything possible to overcome the worst recession since the Great Depression.”

“If approved, a new allocation of SDRs would add a substantial, direct liquidity boost to countries, without adding to debt burdens. It would also free up badly needed resources for member countries to help fight the pandemic, including to support vaccination programs and other urgent measures. And it would complement the range of tools deployed by the IMF to support our membership in this time of crisis,” said Georgieva.

The proposal for the new SDR will be submitted to the IMF Board in June. Once approved, this would be the first SDR increase since 2009.

SDR, which was created by the IMF in 1969, is an international reserve asset to supplement its member-countries’ official reserves.

According to the IMF, the SDR is neither a currency nor a claim on the IMF but a potential claim on the freely usable currencies of IMF members. SDRs can be exchanged for these currencies.

The IMF said the value of the SDR is based on a basket of five currencies—the US dollar, euro, Chinese renminbi, Japanese yen, and British pound sterling.

“So the bottom line is that the Philippines would have more foreign reserves to strengthen its external buffers against shocks,” said Yang.

Latest data from the Bangko Sentral ng Pilipinas (BSP) showed the country’s foreign exchange reserves hit more than $109 billion as of end-February.