IMF's SDR cash will still leave poorest nations short, S&P says

By Tom Arnold

LONDON (Reuters) -The world's poorest countries will still require nearly $200 billion to restock depleted reserves after an imminent injection of new money from the International Monetary Fund, credit rating agency S&P Global has estimated.

The IMF is putting the finishing touches on a record $650 billion allocation of its Special Drawing Right quasi-reserve asset as part of efforts to help low-income countries hard hit by the COVID-19 crisis.

Because the IMF's cash gets divided between all its countries, including rich ones, only 7% or $42 billion will go to the 44 poorer nations with the lowest S&P sovereign credit rating scores.

It would still be enough to restore the financial reserves of Zambia, Jordan, El Salvador, Benin and Togo to adequate levels - roughly defined as enough to cover three months of imports, all short-term external debt payments or 20% of the money circulating in the economy, S&P said.

An additional two of the 44 - Democratic Republic of Congo and Suriname - would see at least one of three reserve adequacy measures restored.

Nevertheless, another $189 billion would be required to bring the reserves of all remaining 'B+' rated countries up to adequate levels, although that did include the likes of Turkey too.

There is a potential solution. The United States and other Group of Seven nations are considering redistributing $100 billion of the $280 billion they will get from the new SDR handout. [nL2N2NV0GR] If all richer countries are included, it goes up to nearly $440 billion.

"We calculate a reallocation of an estimated 42% of wealthy country SDR allocations to low-income countries (LIC).. would be what it would take to bring the reserve levels in all rated LIC up to complete reserve adequacy," S&P said.

Seven countries - Burkina Faso, Mozambique, Kenya, Bolivia, Congo Republic, Belize, and Suriname - would need less than $1 billion each to shore up their reserves.

Fund managers see the SDR overhaul as a boost for low-income economies without relieving financial pressures altogether.

Many of these countries' borrowing costs have come down sharply since last year's initial COVID-19 panic, meaning there was less room for positive catalysts, said Aaron Grehan, deputy head of emerging market debt at Aviva Investors.

"By far the most important factor for us ... is the IMF, not with regards to SDRs but with specific programmes for specific countries - that's where we're likely to see the drivers of better investment opportunities," he said.

(Additional reporting by Marc Jones and Karin Strohecker and , Editing by William Maclean and Paul Simao)