Portugal joins the IMF’s efforts to support more vulnerable countries
Portugal has joined global efforts to support more vulnerable countries by voluntarily channelling part of its Special Drawing Rights (SDRs) through a Banco de Portugal investment in the Deposit and Investment Account of the Poverty Reduction and Growth Trust’s (PRGT), the main structure of the International Monetary Fund (IMF) for financial support to low-income countries.
The investment, of SDR 264 million (around 330 million euros, as of today), should make it possible to reinforce the PRGT Subsidy Accounts by approximately SDR 11 million (around 14 million euros) over a ten-year period. Portugal will thereby support the IMF in providing loans with more favourable conditions to low-income countries.
This voluntary channelling of SDRs is a response to the IMF’s call to its members with stronger external positions following the SDR general allocation and is particularly relevant in view of the increased challenges that the most vulnerable economies currently face.
Find out more about the IMF’s SDR allocation and the voluntary channelling process
Special Drawing Rights (SDRs) are an international reserve asset created to supplement the official reserves of International Monetary Fund (IMF) members and to provide liquidity to the global economy. The value of the SDRs is defined on the basis of a basket of currencies composed of the US dollar, the euro, the Chinese renminbi, the Japanese yen and the pound sterling.
In August 2021, following broad international consensus, a general SDR allocation by the IMF was approved for an amount equivalent to USD 650 billion (around SDR 456 billion) – the largest ever allocation. It was a quick and complementary response to efforts to tackle the pandemic crisis and mitigate structural impacts, with a view to strengthening trust and cooperation worldwide and to support countries with liquidity needs.
The allocation was distributed to IMF members in proportion to their quota shares. Portugal received SDR 1,974.5 million, bringing its cumulative allocation to approximately SDR 2,781 million.
The SDR general allocation is particularly important for emerging and developing economies, in particular for low-income countries in two ways: an immediate impact on its reserves; and through voluntary channelling by members with stronger external positions.
As a result of the increase in reserves, the general allocation resulted in a strengthening of the external positions of IMF members. In addition, as an alternative to holding them as a reserve, SDRs may be used to make payments to the IMF or be exchanged for freely usable currencies, primarily on the basis of voluntary SDR trading arrangements signed by several members and central banks. The IMF has encouraged the extension and revision of existing arrangements with the aim of amplifying this effect.
Voluntary channelling can be materialised by strengthening two instruments (Trusts): the Poverty Reduction and Growth Trust (PRGT) – the IMF’s main structure for concessional financial support, i.e. on more favourable terms, to low-income countries – and the Resilience and Sustainability Trust (RST) – an instrument aimed at addressing longer-term challenges and involving significant macroeconomic risks.
Portugal has joined global efforts to support low-income and more vulnerable countries following the SDR general allocation. The Banco de Portugal, as financial agent for Portugal with the IMF, participates in the market for voluntary transactions of SDRs and has channelled part of its SDRs through an investment in the PRGT’s Deposit and Investment Account.