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IMF hikes interest rate on SDR to 2.9%; Ghana to pay more for IMF related loans

3 years ago
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IMF hikes interest rate on SDR to 2.9%; Ghana to pay more for IMF related loans

Bretton Wood Institution the International Monetary Fund (IMF), has increased interest rate on its Special Drawing Rights (SDR) by some 210 basis points (2.1%).

This compares to the interest rate of 0.89% on SDR lending in July 2022.

A check on the multilateral institution’s website by norvanreports, reveals that interest rates charged on SDR lending to member countries now stands at  2.99%.

The increase in interest rate in SDR lending could be the result of the high interest rate environment witnessed in 2022 in the back of rising inflation rate as Central Banks aggressively hiked policy rates to rein in inflation.

The increment in interest rates on SDR lending implies higher interest payments for IMF related loans.

Ghana is currently seeking a three-year $3bn (SDR 2.25bn)  ECF credit facility from the IMF.

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In the event that Ghana secures the loan facility, Ghana would have paid a total interest rate of $26.7m (SDR 20m).

However, on the back of the increment in the interest rate, Ghana would now be paying  $89.7m (SDR 67.2m).

Ghana, will hence be borrowing from the IMF at a costly interest rate. Already, the country has challenges in trying to make interest payments as its tax revenues are inadequate to service its debts.

Currently, Ghana is indebted to the Fund by some SDR 1.34bn ($1.01bn).

Special Drawing Rights (SDRs) can be described as an international reserve asset created by the IMF to supplement the official reserves of its member countries.

SDR allocations play a role in providing liquidity and supplementing member countries’ official reserves, as was the case with the 2009 allocations due to the global financial crises and is also the case amid the Covid-19 pandemic when the Fund made a historic allocation of 456 billion SDR ($650 billion).

The value of the SDR is based on a basket of five currencies—the Chinese renminbi, the Euro, the Japanese yen, the Pound sterling, and the U.S. dollar.

SDR allocation is a form of concessional loan provided by the IMF to member countries below market interest rate at 2.99 percent and long-dated loan repayment periods.

 

 

 

Source: norvanreports
Tags: IMFIMF hikes interest rate on SDR to 2.9%; Ghana to pay more for IMF related loansSDR
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