“We need a long overdue expansion in quota allocations,” Prime Minister John Briceño told world leaders convened at the 77th United Nationals General Assembly.
All members of the International Monetary Fund (IMF), according to a pre-determined quota, hold a certain amount of a supplementary “international reserve asset” known as the Special Drawing Rights (SDR). The SDR—while is neither currency nor a claim on the IMF—is an asset that can be “exchanged” among IMF member countries for any of the currencies that make up the SDR basket (i.e. the US dollar, the Japanese Yen, the Euro, the Pound, and the Chinese Yuan).
Given that it can be exchanged, the SDR serves as a means to bolster the country’s reserve-asset positions, even though in recent times, it tends to account for a relatively small portion of reserve-asset holdings.
Last August, the IMF issued US$ 650 billion (or SDR 456.5 billion) in new SDRs in an effort to help countries combat the effects of the COVID-19 pandemic. As readers may recall, the newly issued SDRs were allocated according to the country’s SDR quotas, which are related to economic size. Consequently, almost 60 percent of the new allocation went to larger economies, with just above US$274 million (out of the total US$650 billion) going to emerging and developing countries.
Belize, for its part and in accordance with the quota of SDR 26.7 million, received an additional BZD $73 million (or USD $36.5 million) in SDRs. While the figure undoubtedly assisted in augmenting Belize’s reserve position as a percentage of total approved external assets (AEA), the new SDRs only accounted for approximately nine percent.
Total SDRs, which prior to the new IMF allocation accounted for about eight to nine percent of AEA, now account for about 16 percent.
However, for small island developing states (SIDS) like Belize that suffered significant economic downturns and that lost most of the tourism sector’s foreign exchange inflows, the economic opinion among many analysts was the allocation was insufficient to truly aid SIDS.
The prime minister’s speech to the United Nations General Assembly echoed that position. The fact is that during the heights of the COVID pandemic, the tourism sector, which contributes roughly 60 percent of Belize’s foreign exchange earnings, was effectively shuttered due to closed land borders and on account of the Center for Disease Control (CDC)’s “no-sail” orders for cruise lines. To preserve foreign currency, commercial banks also instituted various measures to curtail the use of their foreign asset holdings. This included policies such as limits on credit card spending.
During the economic nadir of 2020/21, a mere increase in SDRs of $73 million—while welcome—was a far cry from bridging the foreign exchange shortfalls.
Instead, Belize employed a mix of strategies, which included the use of bilateral and multilateral grants and loans, as well as support for key export (foreign exchange-earning) sectors, to shore up FOREX.
Belize’s foreign asset position has since improved, with the country’s external asset ratio (EAR)—measured as AEA divided by total money in circulation in the Belizean economy—having increased from 51 percent in May 2020 to just over 60 percent as of June this year. Given the EAR’s central role in preserving the country’s currency peg, the Central Bank of Belize Act mandates that the EAR remains above 40 percent.
Consequently, the call for increased allocation is to have been expected. The prime minister also reiterated the call for other reforms, including the overhaul of the debt architecture, which tends to exclude developing countries like Belize from being able to access needed concessionary financing.