(Ecofin Agency) - The mechanism created in 1997 increases the debt payment burden. It is heavily criticized by economists and developing countries.

The International Monetary Fund (IMF) is preparing to ease the surcharges it imposes on countries that exceed borrowing limits or repayment timeframes, Bloomberg recently, citing sources close to the matter.

The IMF currently applies two types of surcharges. One is quota-based, triggered when a country's borrowing surpasses 187.5% of its quota with the IMF. The second is time-based and kicks in when loans exceeding this threshold are not repaid within 36 or 51 months, depending on the loan type. These time-based surcharges are added on top of the quota-based ones when a country remains in debt for over three years or, in some cases, more than four years and three months.

This system increases the debt burden for affected countries. Instead of using funds to support their populations through social services, these countries end up paying higher interest and penalties, leaving less room for critical spending.

According to Bloomberg's sources, the IMF's executive board recently met to discuss three possible changes to the surcharge system. The first option is to raise the borrowing threshold that triggers the surcharges. The second option is to reduce the surcharge amounts. The third option involves lowering the interest rate applied to IMF loans.

These discussions come just weeks before the IMF and World Bank hold their annual fall meetings in October. The changes, if adopted, could be implemented individually or together.

American economist Joseph Stiglitz, a Nobel laureate, noted that the number of countries paying surcharges to the IMF has more than doubled, rising from 10 in 2020 to 22 in 2023. Among these countries are Egypt, Angola, Gabon, Tunisia, and the Seychelles.