Understanding the consequences of IMF surcharges: the need for reform

The International Monetary Fund (IMF) provides a global public good when it lends emergency balance-of-payments support to countries that otherwise could not access such financing at comparable terms. No country borrows from the IMF lightly, and only does so as a last resort in the face of an economic crisis. In exchange for IMF lending, governments surrender some sovereignty, self-determination of their economic policies, and implicitly admit that the government, on its own, could not manage the travails through which it is going. A lesser-known but also costly trade-off is that the IMF imposes significant surcharges – akin to the penalty rates imposed by banks – on countries with large borrowings from the IMF that are not paid back within a relatively short time. Indeed, IMF surcharges are pro-cyclical financial penalties imposed on countries precisely at a time when they can least afford them. This brief note examines the economic implications of the surcharges from a global distributive perspective. In so doing, the authors stress the need to eliminate excessive surcharges in the COVID-19 era and call for a more fundamental reform of IMF financing.