(Ecofin Agency) - Since 1997, the IMF has imposed surcharges on countries that borrow more than allowed or take longer to repay their loans. Economists and developing nations have often criticized this system for increasing their debt burden.

The International Monetary Fund (IMF) announced on October 11, that it will no longer charge additional fees, known as surcharges, on loans for four African countries—Benin, Côte d'Ivoire, Senegal, and Gabon. This change will take effect in November 2024 and is part of a broader reform to ease the financial burden on several nations.

The IMF typically charges extra fees when countries borrow more than a set limit or take longer than expected to repay their loans. These surcharges kick in when a country’s borrowing exceeds 187.5% of its quota, or if loan repayments are delayed past 36 or 51 months, depending on the type of loan. While these fees are meant to encourage quicker repayment, they can add to a country's debt load.

On top of that, the IMF also applies commitment fees at the start of each 12-month period. These fees range from 15 to 60 basis points, depending on how much of the loan remains unused. The fees are refunded if the country draws on the loan during that period, but if not, they remain an extra cost.

The new reforms bring significant changes. For starters, the interest rate on IMF loans tied to special drawing rights (SDRs) will drop from 100 to 60 basis points. The threshold for triggering surcharge fees will rise from 187.5% to 300% of a country’s quota. The surcharges for late repayment will drop from 100 to 75 basis points. Commitment fee thresholds will also rise, applying to loans above 200% of the annual quota and 600% of the cumulative quota, up from the previous limits of 115% and 575%.

I'm pleased to announce that the Executive Board has reached consensus on a reform of IMF charges and surcharges. This will lower borrowing costs for our members by 36 percent, while preserving the IMF's financial capacity to support countries in a challenging global environment. pic.twitter.com/cc7cqEQiY7

— Kristalina Georgieva (@KGeorgieva) October 11, 2024

Out of the 52 countries currently accessing the IMF’s General Resources Account (GRA), 19 are subject to surcharges. Once the reforms take effect on November 1, the number of countries paying these additional fees will fall to 11. The eight countries that will no longer face surcharges include Benin, Côte d'Ivoire, Gabon, Senegal, Georgia, Moldova, Sri Lanka, and Suriname, as their outstanding credit will drop below the new 300% threshold.

Looking ahead, the IMF had expected 20 countries to be subject to surcharges by 2026 under the old rules. With these changes, that number is projected to fall to 13.

IMF Managing Director Kristalina Georgieva praised the reforms in a statement, noting the positive impact they will have. “In a challenging global environment and at a time of high interest rates, our membership has reached consensus on a comprehensive package that substantially reduces the cost of borrowing, while safeguarding the IMF's financial capacity to support countries in need. The approved measures will lower IMF borrowing costs for members by 36 percent, or about US$1.2 billion annually (…)While substantially lowered, charges and surcharges remain an essential part of the IMF’s cooperative lending and risk management framework, where all members contribute and all can benefit from support when needed”.