Zimbabwe to  get US$1bn from the IMF for free

How will the funds be distributed?

Once approved, the IMF will distribute the US$650 billion in the form of Special Drawing Rights (SDRs), the Fund’s accounting unit or, put very loosely, the IMF’s “currency.”

Although the SDR is not money in the strictest sense, it is considered a stable international reserve asset that is freely exchangeable for usable currencies.

To use SDRs, a country must find an IMF member willing to provide a usable currency (USD, euros, pound, yen etc) in exchange for SDRs.

Once allocated SDRs, many countries, including Zimbabwe, will immediately seek to cash them in for US dollars.

Not all countries will be selling. Some with solid reserve assets, such as the United States, will buy up SDRs from countries looking to convert the SDRs.

There are 32 countries, including the US, which have voluntary SDR purchasing agreements with the IMF.

Distribution of the SDRs will be done according to each member state’s IMF quota.

Based on Zimbabwe’s current quota of 0.15%, the country stands to receive US$975 million. The US, which has the largest quota, is in line for US$113 billion.

How are quotas assigned?

Each IMF member is assigned a quota, reflecting its standing in the global economy. A member country’s quota determines its maximum financial commitment to the IMF, its voting power, and has a bearing on its access to IMF financing.

The quotas are determined by GDP (which carries a 50 percent weight), openness (30 percent), economic variability (15 percent), and international reserves (5 percent).

Zimbabwe’s current quota is 706.8 million SDRs, or 0.15% of the total.

The United States has the biggest quota allocation, SDR82.99 billion, or 17.44%, while Oceanian island Tuvalu has the least, with SDR2.5 million, or 0.001%.

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