IMF should scrap system of loan surcharges which penalises Ukraine
Photo Credit: IMF.
The US and its allies are in talks to give up to $50 billion in aid to Ukraine, to be funded from profits on frozen Russian assets in Europe, according to a report from Bloomberg News.
That aid would be more effective if the IMF stopped levying surcharges on Ukraine to borrow money from its General Resource Account (GRA). Ukraine is expected to pay the IMF about $2.9 billion in surcharges in the coming decade, according to forecasts from the Center for Economic Policy and Research (CEPR) in Washington.
The charges are determined by the ratio of a country’s borrowing from the GRA to a defined IMF quota. The payments are triggered if the ratio reaches 187.5%. Surcharges make up 28% of the non-principal payments that the liable countries will make to the IMF over the next five years, according to the CEPR.
The IMF says that the surcharge system is designed to prevent countries from borrowing from it over a long period. In fact, it's much easier to start paying the surcharges than to stop.
Argentina, the CEPR calculates, has the highest GRA/Quota ratio of 1018%. The next highest ratios are Ecuador on 841% and Egypt on 539%. Ukraine is in fourth place with 445%.
There is no prospect of these countries escaping surcharges unless the system is radically overhauled or scrapped.
Twenty-two countries are subject to the surcharge system, according to CEPR analysis. That’s an increase of six since 2023, while only Albania has dropped off the list. Colombia, Suriname and Morocco are at high risk of having to start surcharges in the future, the CEPR says.
The IMF says it’s reviewing the surcharge system. Draft legislation introduced in the US House of Representatives by Jesús García and Pramila Jayapal, if passed, would help to hasten the system’s demise.
The legislation, which is supported by the CEPR, calls for surcharges to be halted pending a review of the system which would be completed within 12 months.