Extra fees for IMF

The International Monetary Fund (IMF) is charging Government millions of dollars in fees being collected whenever Barbados repays money it borrowed from the institution.

These controversial “surcharges” are in addition to the regular interest rates and service fees this country sends to the fund when repaying loans and Minister in the Ministry of Finance Ryan Straughn said Government was in discussions with the IMF regarding the issue.

Published IMF data revealed that Barbados paid the IMF about US$25 million last year, including about US$4.23 million in surcharges. The fund estimates that it will receive US$67.6 million in payments from Government this year. About US$4.55 million of this is expected to be in surcharges.

Earlier this month, the IMF’s executive board announced that “a review of the surcharges policy is scheduled to take place during the course of 2024”, a decision Straughn confirmed.

“We have been in discussions with the IMF on this matter. There is an expectation of this being addressed by the IMF Board by [the] Annual Meetings later this year,” he said.

The Centre For Economic And Policy Research (CEPR), a United States economic think tank, believes Barbados and other countries now shelling out millions of dollars in surcharges are likely to end up paying more of these fees than the IMF is calculating.

It said this was because the fund “appears to only project surcharge payments on existing loans that were effectively disbursed [and] does not include surcharge payments derived from commitments – loans under existing arrangements that have yet to be disbursed; also referred to as “prospective credit”.

In the recent report A Broader Impact Than Ever Before: An Updated Estimate Of The IMF’s Surcharges, CEPR researchers Ivana Vasic-Lalovic, Michael Galant and Francisco Amsler estimated that Barbados will pay the IMF US$43 million in surcharges between this year and 2033.

This would be 14.9 per cent of the overall US$291 million in charges and interest the IMF says Barbados will pay it in that period.

The IMF said that up to the end of October last year, there was US$472.6 million in credit outstanding from Barbados. This included US$18.7 million from the IMF’s Resilience and Sustainable Trust, which is excluded from surcharge payments.

CEPR experts explained that IMF surcharges “are a fee levied by the IMF on loans to countries whose outstanding credit to the IMF exceeds certain time-based and/or level-based thresholds”.

The surcharge “adds two to three percentage points to lending rates, on top of regular interest rates and service fees”.

The IMF said its surcharges “are designed to discourage large and prolonged use of IMF resources”.

“They are an important part of the Fund’s risk management and help the Fund to continue to play its central role as the global lender of last resort in times of crisis – something we have seen in full display since the onset of the COVID-19 pandemic,” it stated.

“Surcharges help strengthen the IMF’s balance sheet to the benefit of all members. They are critical to allowing the IMF to continue providing financing at affordable rates to members in need of financial support, often when they are locked out of private debt markets or when interest rates are unsustainably high.”

However, the CEPR team said surcharges “have been widely criticised for their procyclical nature, effectively punishing countries that are facing severe liquidity constraints, increasing the risk of debt distress and diverting scarce resources that could otherwise be used to boost struggling economies, fund health care, or support climate action, among other essential measures”.

“The IMF has provided no evidence that surcharges achieve their stated aim of its incentivising reliance on the Fund, nor does the IMF currently require the income generated from the policy,” the CEPR report argued.

It also noted that “on average, surcharges make up 28 per cent of the non-principal payments that surcharge-paying countries will make to the IMF over the next five years”.

Vasic-Lalovic, Galant and Amsler said their analysis confirmed “widespread concerns that the IMF’s surcharge policy presents a significant burden on heavily indebted countries”.

“Furthermore, the net increase of six surcharge-paying countries since our previous update less than one year ago demonstrates that this burden is affecting an increasing number of countries and strongly suggests that surcharges are not effective in achieving their purported goal of disincentivising reliance on IMF lending,” they concluded.

“In effect the IMF is profiting from the fact that countries have been forced to turn to the Fund as a result of the COVID-19 crisis, subsequent monetary tightening, and other exogenous shocks,” the researchers asserted.

In addition to Barbados, countries which CEPR said previously paid surcharges and continue to do so include Angola, Argentina, Armenia, Costa Rica, Ecuador, Egypt, Gabon, Georgia, Jordan, Mongolia, Pakistan, Seychelles and Ukraine.

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