The Sunday Mail
Online News Editor
Tawanda Musarurwa
PLANNING is a key component for the success of any economy. However, there are times when events happen that are beyond the scope of many set frameworks.
In modern times, Covid-19 has been one such event.
The highly infectious virus was first detected circa December 2019, but the full impact of the pandemic hit home around the end of the first quarter last year, as countries globally were forced to impose hard lockdowns to limit its spread.
The extensive supply disruptions that resulted from these lockdowns have resulted in the negative economic outlooks for most, if not all, economies in the short-to-medium term.
And due to the unpredictability of most global shocks — the 2008 global financial crisis not too far ago, and the Covid-19 pandemic presently as case in points — extensive interventions tend to be required.
This is where the International Monetary Fund (IMF)’s Special Drawing Rights (SDRs) come in. This week, the IMF issued a new allocation of SDRs amounting to US$650 billion to its member countries as, “a shot in the arm for the global economy at a time of unprecedented crisis.”
“It will particularly help our most vulnerable countries struggling to cope with the impact of the Covid-19 crisis,” said IMF managing director Kristalina Georgieva.
So, at least from the IMF’s perspective, the SDR allocations should directly address the negative impacts of the Covid-19 pandemic, although not exclusively.
But what are SDRs?
The SDR is an interest-bearing international reserve asset created by the IMF in 1969 to supplement other reserve assets of member countries, and works as a way of supplementing IMF member countries’ foreign exchange reserves, allowing members to reduce their reliance on more expensive domestic or external debt for building reserves.
In essence, they are supposed to ensure that whatever shocks countries are suffering from, they can experience a V-shape recovery — or in simpler terms, a quick economic rebound — as opposed to an L-shape, for example, which is characterised by a slow recovery.
Zimbabwe is already projecting a 7, 8 percent gross domestic product (GDP) growth this year, and the SDRs will help to ensure that it transpires.
While countries have some flexibility in how they utilise their SDR allocations, the funds cannot be used directly in transactions with the private sector.
Zimbabwe received US$961 million in respect of its current quota of SDR 677, 4 million.
Serving the real need
The impact of shocks tends to be broad, at times permeating all aspects of life. Therefore, it only makes sense for SDRs to address social vulnerabilities, whether they were already in existence or they emerged as a direct result of the specific shock in question. Finance and Economic Development Minister Professor Mthuli Ncube has confirmed that a significant part of Zimbabwe’s US$961 million allocation will go towards the social sectors.
“There are four areas where these funds will be allocated. Social sector, the productive sector, infrastructure and then support for reserves. For the social sectors, part of the SDRs will go to three sub sectors, namely health, education and support for the vulnerable.
“With regards to the health sector there are also three things, first we will allocate it towards procuring more vaccines, second is to keep upgrading our central hospitals and other health infrastructure which is being developed, and the third thing is to equip these hospitals,” said Prof Ncube.
“For education, we want to build, for a start, one boarding high school per province. In areas such as Matabeleland South there aren’t many boarding schools there. Mashonaland Central the same. We are targeting boarding schools because we have seen that kids are walking long distances.
“And in terms of protection of the vulnerable, we want to make sure there is allocation to support them in terms of a social security net.”
To emphasise that Zimbabwe will not use its allocation for transactional purposes, Prof Ncube said the “these SDRs are definitely not being used for salaries.”
However, other uses are deployment towards productive sectors (industry, agriculture and mining), infrastructure investment (roads and housing). This is critical in-so-far as the funding of high impact capital projects is vital as a means to restore the GDP level to, at least, pre-pandemic levels.
Part of it will work as foreign currency reserves and a contingency fund, to “support the domestic currency and macro-economic stability.”
With respect to the latter, the SDRs will work to ensure that the country has external stability and longer-term credibility.
Transparency concerns?
The Treasury boss has addressed concerns over possible misuse of these funds.
“The Second Republic has a history of transparency and prudent us of public funds that is why we have been running a balanced budget year after year despite three different shocks (the Cholera, Cyclone Idai and the Covid-19 pandemic).
“Government is already releasing information quarterly through the 100-day programme on how we have been using resources, and progress on projects. And we will do the same with SDRs,” he said.
And what is clear is that the authorities are simply allocating the new funds to support robust socio-economic policies aimed at a macro-economic recovery process that has long been in place.
