The International Monetary Fund (IMF) has said it had advised the Federal Government not to use the $3.4 billion Special Drawing Rights (SDRs) allocated to the country for unsustainable policies.
The global monetary fund said there are no conditionalities attached to the $3.4 billion SDRs Nigeria accessed from the fund.
Since Nigeria drew down the facility in August 2021, the IMF has been insisting that the Federal Government should withdraw subsidy on fuel, further devalue the currency, and that electricity tariff should be market-determined, among other demands.
But the IMF said it had advised the Nigerian government to adopt the transparent “accounting of the use of allocated SDRs and not use it to support unsustainable policies”.
Though not a loan, countries like Nigeria that drew down on the SDRs will be expected to repay the facility with interest costs, “if a country uses SDRs, that is, it reduces its SDR holdings vis-à-vis its cumulative SDR allocation”.
The $3.4 billion is Nigeria’s holdings in the IMF, but having drawn down this entire money through the SDRs, if Nigeria decides to refund less than the $3.4 billion, it will be required to pay interest.
IMF said: “Countries that exchange their SDRs for currency will incur net charges on the difference between their cumulative SDR allocations and their SDR holdings. The SDR interest rate (as of August 20) is 0.05 per cent.”
The general allocation of SDRs became effective on August 23, 2021 and was credited to IMF member-countries in proportion to their existing quotas in the fund.
The SDR is like the popular Nigerian cooperative where members are allowed to access money to address immediate needs based on the amount they have contributed in the cooperative.
At an agreed due date, the cooperative member would be expected to repay what was “withdrawn” from the cooperative with a little interest. This is how the SDR works.
The $3.4 billion of SDR allocated to Nigeria in 2021 was done as part of IMF’s general allocation of SDRs ($650 billion) to all its member-countries.
It is considered the largest SDR allocation in the history of the IMF and a shot in the arm for the global economy at a time of unprecedented crisis.