As governments worldwide explore options to increase liquidity and insulate against the worst consequences of COVID-19, Special Drawing Rights (SDRs) are one means of achieving both goals. In August, the IMF announced the largest allocation of SDRs in history—$650 billion—as a critical step to support countries through the pandemic and promote a sustainable recovery. Now the focus is on the mechanics of how governments, especially lower-income countries most in need of outside support but without automatic access to large SDR allocations, can access these reserves. But far less discussion has centered on how funds should be spent once they’re accessed by governments. This blog grapples with that question, particularly how to ensure that funds are allocated in a way to promote inclusion in COVID-19 recovery and longer-term development.
In their 2021 communiqué, G20 finance ministers and central bank governors stated:
“To significantly magnify the impact of the [SDR] allocation, we call on the IMF to quickly present actionable options for countries to voluntarily channel a share of their allocated SDRs to help vulnerable countries finance more resilient, inclusive and sustainable economic recoveries.”
How can policymakers ensure SDRs promote an inclusive recovery and longer-term equity and equality? Which actors are best positioned to drive this agenda? Ultimately, spending decisions will (and should) be in the hands of lower-income country governments, so it will be up to citizens and their civil society representatives in these countries to push for funds to be allocated in ways that promote inclusion. That said, international financial institutions and higher-income governments offering SDRs can complement and reinforce efforts by citizens and civil society in lower-income countries.
The COVID-19 pandemic is a gendered crisis with disproportionate impacts for women and girls, and donors and governments have not sufficiently centered this reality in their response efforts to date. Considering the reallocation of SDRs through a gender lens, and being purposeful about how accessed funds are spent, can contribute to maximizing their impact and promoting a more inclusive recovery from COVID-19. Below is a set of options based on potential SDR reallocation channels.
1. If funds are made accessible through the IMF’s Poverty Reduction and Growth Trust (PRGT)
The PRGT provides concessional (currently interest-free) finance to low-income countries through three lending facilities. The Rapid Credit Facility (RCF) can mobilize quickly to provide support for countries facing urgent balance of payment needs, whereas the Extended Credit Facility (ECF) provides medium- to long-term support, and the Standby Credit Facility (SCF) provides funds on a precautionary basis during times of increased risk and uncertainty.
For funds accessed through the ECF, as well as SCF arrangements longer than two years in duration, countries must develop poverty reduction and growth strategies, as programs are reviewed at the two year-mark and thereafter. These strategies, developed by country governments in collaboration with the IMF, help to link accessed funds to the achievement of specific development objectives. Increasing the number of countries prioritizing gender equality as a development objective would help ensure that any SDR reallocation funds accessed through the PRGT would be used to promote inclusion. An increased emphasis on gender equality, reflected through poverty reduction and growth strategies, would increase alignment between the Fund’s financial support to governments and its own research identifying gender equality as macro-critical.
2. If funds are made accessible through a new fund, such as the proposed Resilience and Sustainability Trust (RST)
The IMF has also proposed the establishment of the RST, intended to complement the PRGT and mobilize additional support for governments recovering from the COVID-19 crisis and addressing future economic challenges, including those brought on by other pandemics or climate change.
Establishing a new fund of this sort is no easy feat. As CGD colleagues Mark Plant and David Andrews have noted, 85 percent of the IMF’s Executive Board would need to vote to designate a special purpose fund to receive SDRs as capital, with their use seen as consistent with the Fund’s Articles of Agreement.
But if a new fund is established, then integrating a gender lens into its operations will maximize its impact on populations hit hardest by health, economic, and environmental crises. Just as funds accessed through PRGT facilities should be informed by gender-focused objectives, so too could funds accessed by lower-income countries through a new RST. Whether a new RST or similarly framed fund ultimately centers on pandemic preparedness, climate change mitigation and resilience, social security for informal workers (all of which have been proposed as areas of focus), or another development priority, tying accessed funds to the achievement of gender-related objectives will help ensure that government spending is used to promote inclusion.
3. If funds are made accessible through multilateral development banks (MDBs)
Funds could be made accessible to lower-income countries through their transfer to MDBs, such as the World Bank or the African Development Bank. From research I’ve done through CGD’s COVID-19 Gender and Development Initiative, it’s clear that MDBs have already made efforts to ensure that women and girls are reached and benefit from their COVID response efforts through the inclusion of gender-specific indicators and targets in the design of recent operations. For example, in my team’s initial review of social protection projects supported by the World Bank, African Development Bank, and Asian Development Bank, over 80 percent of projects had at least one indicator focused on reaching or benefiting women and girls, and nearly 75 percent of projects included at least one gender-specific target.
That said, the MDBs still have room for improvement. Less than half of social protection projects set a target aiming for women’s inclusion at or above parity with men, and in other areas—particularly health projects focused on addressing the direct and indirect health effects of COVID-19—gender-focused indicators and targets appeared less often. It is also unclear at this stage whether the gender-focused indicators and targets reflected on paper through MDB project documents will ultimately translate into equitable impacts on women and girls.
To ensure that funds flowing through the MDBs promote inclusion in COVID-19 recovery and longer-term development, it is critical that operations teams measure projects’ gendered impacts, disaggregating results data by gender, age, and other relevant demographic characteristics. At the outside of designing projects, MDB operations teams should rely on in-house resources at their disposal—like findings of rigorous evaluations conducted by the World Bank’s Gender Innovation Labs—as well as the broader literature on “what works” to promote gender equality in particular countries, and align projects’ design with evidence-based interventions. MDBs can also convene policy dialogues to encourage investments in underinvested areas proven to promote gender equality, such as those aimed at strengthening the care economy.
Finally, across all channels, the IMF and MDBs should consult and ensure alignment with the gender equality (and broader) priorities of local actors who know their contexts best and will be most directly impacted by investments, whether through reallocated SDRs or through other sources of development finance. Gender-related priorities, whether reflected through IMF client countries’ poverty reduction strategies or MDB operations, should only be identified through a reliance on context-specific, rigorous evidence and meaningful consultations with local actors.
With thanks to Mark Plant, Lisa Kolovich, Uma Ramakrishnan, Christan Mumssen, and Ratna Sahay for comments.