IMF’s Surcharges as a Threat to the Right to Development

Abstract

This article focuses on the implications of the IMF’s surcharges policies, jointly with its de facto preferred creditor status, on the right to sustainable development of sovereign borrowers. The article argues that, while surcharges are not effective in limiting access to IMF credit, they inequitably distribute the IMF’s operating costs, are disproportionate, pro-cyclical, very costly for developing countries, and non-transparent. Furthermore, if surcharges are theoretically a way to protect the IMF from potential risks of default, the article questions the IMF’s de facto preferred creditor status, as it precisely denies the possibility of granting debt relief in case of insolvency, ultimately affecting the right to development of —mainly— middle-income borrowing countries.

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“…With surcharges, countries in greater need ultimately end up paying more to borrow from the Fund. Together with the standard headline borrowing rate, when one incorporates surcharges, the borrowing costs constitute a severe and punitive cost for borrowing countries (Arauz et al, 2021;Bohoslavsky et al, 2022;Stiglitz and Gallagher, 2022). The precise application of surcharge fees is opaque, yet recent estimates suggest that surcharges constitute close to half of non-principal debt service to the Fund by its five largest, outstanding borrowers (Argentina, Ecuador, Egypt, Pakistan and Ukraine) (Arauz et al, 2021).…”