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Revisiting Special Drawing Rights (SDR’s)

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This stimulus comes at a time investor confidence in Government policies is not necessarily high because of the volatile political environment but also gaining ground as demonstrated by a strong performance by the Zimbabwe Stock Exchange (ZSE).

The SDR is an international reserve asset created by the International Monetary Fund (IMF) in 1969 to supplement its member countries’ official reserves. So far since then, SDR204,2 billion (equivalent to about US$293 billion) have been allocated to members, including SDR182,6 billion allocated in 2009 in the wake of the global financial crisis. 

The SDR serves as the unit of account of the IMF and some other international organizations. The SDR is neither a currency nor a claim on the IMF. Rather, it is a potential claim on the freely usable currencies of IMF members. SDRs can be exchanged for these currencies.

Zimbabwe used about $140 million to pay down part of the IMF debt. 

Information from the ZSE shows that the All Share Index surged 261,28 points (5,05 percent) to close last Friday’s trade at 5,436.39 points, marking its best day since January 2021. 

Major gains were spurred by British American Tobacco which jumped $51 up to $800 while Meikles Limited and Innscor Africa finished the week on a bullish trend at just over $78 and $90 after gaining just over $6 and $5 respectively. 

Other listed companies that gained were Proplastics and Axia Limited, although marginal losses were recorded in FBC Holdings, NMB Bank, General Beltings Holdings, Nampak and Unifreight.

The market capitalisation is about $16,5 billion.

The stock market primarily acts to discount the future, where if the market feels the future is bright, the stock market rallies and vice versa, and analysts feel that investors are happy with the economy’s future prospects. 

We now have macroeconomic stability and monetary policy has been tightened with the result that inflation has declined to 1 percent a month and we have a stable exchange rate based on the weekly auction. 

The SDR was initially defined as equivalent to 0.888671 grams of fine gold which, at the time, was also equivalent to one U.S. dollar.

SDR was represented as an asset that could be used to offset balance of payment deficits in the same manner as gold or reserve currencies and hence it is called as paper gold.

An analyst said “However, we have to continue to liberalise our exchange rates to reflect real market conditions and to secure investor rights. 

“We must be very careful not to become uncompetitive by unrealistic wage and salaries policy,” meaning the country is not yet out of the woods and political dialogue is needed to restore total confidence in the ecinimy.A case in point is the unity government of 2009-2013 it delivered results and Zimbabwe will need to work across the political isle to put sdr’s to complete use and better our nation.

Economist, Mr Persistence Gwanyanya said: “The performance of the Zimbabwe stock exchange is a vote of confidence in the current polices to rebuild the economy.

“Remember stock market investors are more informed and sophisticated than the ordinary economic man on the street and their behaviour is something we can rely on to gauge the progress on the economy.

“There has been tremendous progress in the economy especially currency and price stability itself driven by fiscal and monetary responsibility. The new economic management team seems to be more determined and serious about addressing the economic challenges.”

Mr Gwanyanya said while the economy has not arrived where “we want to be”, the direction being taken is “inspiring”. 

“It seems we have now gotten the basics correctly. The RBZ has since indicated its commitment to dealing with blocked funds and going forward, the proper functionality and efficiency of the auction system seems to be providing the reason to believe again,” said Mr Gwanyanya.

Already, the RBZ has started dealing with auction settlement backlogs and the target is to reduce the settlement period to standard 14 days from allocation. 

In addition, there has been a “remarkable improvement” on electricity and the fuel situation, said Mr Gwanyanya, adding that progress on infrastructure development, especially road construction, is “quite encouraging”.

SDRs are a potential claim of IMF members on freely usable currencies. When SDRs are initially allocated to an IMF member country, the member is given two positions.When a country trades SDRs for freely usable currencies, their holdings decrease and their foreign exchange reserves increase.

“Importantly our Government is now leaving within means. Fiscal deficits were reduced from more than 10 percent of GDP to SADC benchmark of 3 percent of GDP. 

“Overdraft on RBZ has been reduced from more than 60 percent of budget to nil. Wage bill has been reduced from more than 90 percent of revenue to around 50 percent. All these point to improved economic management and hence, the vote of confidence by the ZSE,” said Mr Gwanyanya.

In light of the fact In order to address the issueSDR was created by the IMF. SDR is often regarded as a ‘basket of national currencies’ comprising four major currencies of the world – US dollar, Euro, British Pound and Yen (Japan).

It is therefore of utmost importance as the SDR’s are revisited that government must take responsibility of the volatile political environment join hands and work with the international community to get access to financial and product markets

Ross Moyo

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