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The International Monetary Fund building in Washington, DC, USA (File photo)

US$500-m boost: IMF approves COVID-19 funding for Jamaica

The International Monetary Fund building in Washington, DC, USA (File photo)

Jamaica’s reserves are set to be boosted by more than US$500 million in the next few weeks, as member nations of the International Monetary Fund (IMF) on Monday approved a US$650-billion fund aimed at helping countries deal with mounting debt and the fallout from the novel coronavirus pandemic. The financing will come through 456 billion of Special Drawing Rights (SDR), the fund’s unit of exchange.

Jamaica’s Finance Minister Dr Nigel Clarke called the development “significant for the world economy”, adding that it came at “a critical time”. The US$650 billion is the biggest resource injection in IMF history.

“About US$275 billion (about SDR 193 billion) of the new allocation will go to emerging markets and developing countries, including low-income countries,” the IMF said in a release.

This is the first creation of the reserve assets since the $250 billion issued just after the global financial crisis in 2009. IMF Managing Director Kristalina Georgieva billed it as “a shot in the arm for the world” that will help boost global economic stability.

International Monetary Fund (IMF) Managing Director Kristalina Georgieva speaks at a press conference at the IMF headquarters on September 25, 2019, in Washington. (Photo: Eric BARADAT/AFP)

The SDR allocation will be effective on August 23.

“The SDR allocation will benefit all members, address the long-term global need for reserves, build confidence, and foster the resilience and stability of the global economy. It will particularly help our most vulnerable countries struggling to cope with the impact of the COVID-19 crisis,” Georgieva said.

The newly created SDRs will be credited to IMF member countries in proportion to their existing quotas in the fund.

“Given Jamaica’s quota share in the IMF, our allocation will be approximately US$520 million worth of SDRs at prevailing conversion rates,” added Clarke. “As at June 30, 2021, Jamaica’s gross foreign exchange reserves were US$4.3 billion, the highest month-end gross foreign exchange reserves balance in our entire history,” he continued.

Minister of Finance and the Public Service, Dr Nigel Clarke speaks during a COVID-19 digital media briefing, at the Office of the Prime Minister Media Centre. (Photo: JIS)

He added that given Jamaica’s strong position with reserves, the country may not need to convert the SDRs into US$ immediately. “However, whether we convert or not, it is still our asset that will increase our gross foreign exchange reserves to new record levels of just under US$5 billion by the end of August. If we convert it’s held in US$, if we keep as is it is held in SDRs. The BOJ will make that technical decision whether to convert into US$ and when, based on many technical factors. The good news is that Jamaica is stronger, safer and more secure with this fresh global issue of SDRs.”

Jamaica does not have to repay this money as long as it remains a member of the IMF, giving the country a further boost.

US Dollar notes (Photo: Daily Express)

The IMF has been trying to get the plan approved for more than a year. It was initially delayed when the US, the IMF’s biggest shareholder, blocked it in early 2020. The former US Treasury Secretary Steven Mnuchin said then, that the funds wouldn’t get to the nations that most need it. That country’s position, however, changed with the arrival of Joe Biden as president and former Federal Reserve Chairperson Janet Yellin as treasury secretary.

The Biden Administration and the fund have been exploring options for members with strong financial positions to reallocate the reserves to support vulnerable and low-income countries. The $650 billion allocation was the maximum that the US could support without needing to get approval from Congress.