The International Monetary Fund is set to discuss reviewing the fees it charges its biggest borrowers, with some countries raising concerns that the costs are getting out of control due to rising global interest rates.
The IMF’s board of directors, which includes an administrative official and 24 members representing the fund’s 190 member countries, will study options to ease the additional fees, according to people familiar with the plans, according to Bloomberg.
Additional fees
The IMF has long imposed additional fees on countries that borrow more than their allocated quota, or that take longer to repay loans under IMF programs.
The fees, which have been a major contributor to the IMF’s funding, are aimed at discouraging over-reliance on borrowing, Bloomberg said.
However, critics say it adds billions of dollars in costs to countries already struggling financially.
According to data reported by Bloomberg from the Center for Economic and Policy Research, rising global interest rates, especially from the US Federal Reserve and the European Central Bank, pushed the total interest rate on some IMF loans to more than 8%, which doubled pre-pandemic levels.
Countries such as Argentina, Egypt and Ukraine are bearing the brunt of these rising costs, with collective additional duty payments exceeding $6 billion, according to the same source.
Fee Structure
The IMF charges an interest rate of 200 basis points (two percentage points) on outstanding loans exceeding 187.5% of a country’s quota to finance its activities.
If the loan remains above this limit for more than 3 years, the rate rises to 300 basis points, in addition to the IMF’s base rate, which is currently around 500 basis points.
Possible changes and implications
In April, the IMF indicated that its Executive Board would begin studying the issue of additional fees, and would likely present options for change that would take into account the impact on borrowers and the Fund’s risk management.
Bloomberg indicated that any amendment to the current lending policy requires the approval of 70% of the voting power of the board of directors.
While no final decision is expected this week, the meeting will address initial considerations for a tariff review. The discussion comes just two weeks before Brazil hosts a meeting of G20 finance ministers and central bank governors in Rio de Janeiro.
Brazilian President Luiz Inacio Lula da Silva has pledged to prioritize the issue of additional tariffs as part of his broader call for reform of the international financial system.
Reactions
The United States, the largest contributor to the IMF, has signaled its willingness to reconsider the fees, and Treasury Secretary Janet Yellen is expected to address the issue when she testifies before a House committee on the state of the international financial system.
Several Democratic representatives, including Joyce Beatty, Ayanna Pressley and Rashida Tlaib, have introduced a bill supporting a review of the fees and pausing them during the review.
Borrowers and their advocates say the extra fees eat into resources needed for basic services like food and health care, and become increasingly punitive in light of rising inflation and interest rates.
“The tariffs drain resources that these countries need to meet basic needs,” commented a representative of one affected country.
