The Guardian is reporting that the UK Chancellor of the Exchequer, Rishi Sunak, is highly likely to recycle some of the US$27.4 billion of its allocation of the International Monetary Fund's (IMF) special drawing rights (SDRs) to low-and middle-income countries (LMICs) by counting the funds as official development assistance (ODA).
This move could result in US$4.0 - 5.0 billion of the UK’s ODA budget funneling to the IMF over the coming years, reducing the amount of funding available for other life-saving ODA programs.
The IMF agreed to release US$650.0 billion of its SDRs as a global fighting fund to help countries with the economic and social fallout from the COVID-19 pandemic.
SDRs are an international reserve asset belonging to the IMF that can be exchanged for one of five international currencies (USD, Euro, Japanese Yen, Chinese Yuan, and British pound). The share of SDRs a country receives is based on its contributions to the IMF, which is ultimately determined by the country’s economic size. As a result, high-income countries receive the largest portion of SDRs. The UK’s share of the fund amounts to US$27.4 billion and the UK is likely to recycle around 75% of its allocation, passing it to LMICs who are most vulnerable using IMF concessional financing.
Under the Organisation for Economic Co-operation and Development's (OECD) rules, 30% of IMF concessional lending is permitted to count toward ODA; it is reported that the UK will count the maximum of 30% of the lending as ODA this year. According to ONE UK, the development NGO, the recycled funding could amount to as much as US$4.0 - 5.0 billion in UK ODA in the coming years. Former Conservative Development Minister Andrew Mitchel is highly critical of the potential move, noting that many other IMF member states will provide these finances to low-income countries in addition to their ODA budgets.
Given the significant cuts to the UK's ODA in 2021 as a result of the government’s decision to reduce the budget to 0.5% from 0.7% of the UK’s gross national income (GNI), the move could further reduce discretionary ODA spending.
News article - The Guardian