Poorest countries to restock depleted reserves

TOM ARNOLDThe world's poorest countries will still require nearly US$200 billion to restock depleted reserves after an imminent injection of new money from the International Monetary Fund, credit rating agency S&P Global has estimated.The IMF is putting the finishing touches on a record US$650 billion allocation of its Special Drawing Right quasi-reserve asset as part of efforts to help low-income countries hard hit by the Covid-19 crisis.Because the IMF's cash gets divided between all its countries, including rich ones, only 7% or US$42 billion will go to the 44 poorer nations with the lowest S&P sovereign credit rating scores.It would still be enough to restore the financial reserves of Zambia, Jordan, El Salvador, Benin and Togo to adequate levels roughly defined as enough to cover three months of imports, all short-term external debt payments or 20% of the money circulating in the economy, S&P said.An additional two of the 44, Democratic Republic of Congo and Suriname would see at least one of three reserve adequacy measures restored.Nevertheless, another US$189 billion would be required to bring the reserves of all remaining 'B+' rated countries up to adequate levels, although that did include the likes of Turkey too.Solution There is a potential solution. The United States and other Group of Seven nations are considering redistributing US$100 billion of the US$280 billion they will get from the new SDR handout. If all richer countries are included, it goes up to nearly US$440 billion."We calculate a reallocation of an estimated 42% of wealthy country SDR allocations to low-income countries (LIC) would be what it would take to bring the reserve levels in all rated LIC up to complete reserve adequacy," S&P said.Burkina Faso, Mozambique, Kenya, Bolivia, Congo Republic, Belize, and Suriname would need less than US$1 billion each to shore up their reserves.Fund managers see the SDR overhaul as a boost for low-income economies without relieving financial pressures altogether.Many of these countries' borrowing costs have come down sharply since last year's initial Covid-19 panic, meaning there was less room for positive catalysts, said Aaron Grehan, deputy head of emerging market debt at Aviva Investors."By far the most important factor for us is the IMF, not with regards to SDRs but with specific programmes for specific countries that's where we're likely to see the drivers of better investment opportunities," he said. - Nampa/AFP

Poorest countries to restock depleted reserves

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