Leveraging Special Drawing Rights (SDRs) for Sustaining Economic Recovery in Kenya

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Chemnyongoi, Hellen
Omanyo, Daniel
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African Economic Research Consortium
Kenya, like most countries in Sub-Saharan Africa, has faced and coped with multiple shocks amid reduced fiscal headroom and increasing public debt vulnerabilities. Other than the COVID-19 global health crisis and the resulting economic effects, Kenya faced the desert locust invasion in 2020, prolonged droughts in 2021 and 2022, and the accompanying high cost of living exacerbated by the spill-over effects of the Russian-Ukraine war. These developments came when the economy had inadequate domestic resources to sustain the post-COVID-19 recovery momentum, and the mounting debt levels constrained the ability to raise new funding.Following a series of recurrent shocks, the International Monetary Fund (IMF) supported member countries substantially. This support took multiple forms, including the Rapid Credit Facility (RCF), the Rapid Financing Instrument (RFI) and Resilience and Sustainability Trust (RST), which provided emergency loans to low-income and middle-income countries facing urgent balance of payments needs. Most importantly, the IMF approved issuing $650 billion in special drawing rights (SDRs) in August 2021 to help member countries supplement their foreign exchange reserves and finance their balance of payments needs during the pandemic. However, data from IMF shows that about two-thirds (US$420 billion) of the allocation went to developed economies. Further, statistics show that developing economies have a greater dependence on SDRs than developed economies, with net SDR positions showing significant differentiation in utilization rates between the two. CEPAL and ECA (2022) noted that developing economies have an SDR utilization rate of 42.9%, while developed economies have a utilization rate of 5.9%. In addition, low voting rights in developing countries limit their participation in the decision-making process where voting power counts. As a result, the low-income countries that need more resources and SDR allocations to address their liquidity challenges are disadvantaged.