February 15, 2024
Surcharges are additional fees that the International Monetary Fund (IMF) charges countries with relatively large and long-term loans. They significantly increase the debt payments that these countries must make to the Fund, siphoning away scarce foreign exchange and budget resources.
Despite the fact that surcharges are not mentioned in the IMF’s Articles of Agreement, the IMF has argued that surpluses driven by surcharges, paid by debt-ridden countries, are important to build up the Fund’s precautionary balances ― its capital base.
The IMF Board has a floor of XDR 15 billion ($19.8 billion) and a target of XDR 25 billion ($33 billion) for its precautionary balances.1
The IMF is a quota-financed international organization and is not subject to minimum bank capital requirements. Furthermore, the IMF diverges from mark-to-market accounting standards regarding its gold holdings; this undervalues its assets ― and thus its precautionary balances ― by over XDR 130 billion ($172 billion). The IMF also excludes XDR 4.4 billion ($5.8 billion) in profits from past gold sales from its precautionary balances as they are currently accounted for in its “Special Reserve” (different from the reserves in the precautionary balances). If the IMF were to follow the statistical accounting standards it recommends to its member countries, its precautionary balances would immediately increase by XDR 134.4 billion ($177.6 billion).
As of October 2023, the Fund’s precautionary balances were XDR 23.5 billion ($31.1 billion). The IMF projects “the indicative medium-term target for precautionary balances of SDR 25 billion is expected to be reached by late [Fiscal Year (FY)] 2024 or early FY 2025.” The IMF’s FY 2024 ends on April 30, 2024.
Source: IMF (2023).
The IMF had projected gross lending income for FY 2024 at XDR 2.7 billion ($3.6 billion), with XDR 1.5 billion ($2.0 billion) from surcharges. However, as of October 2023, gross lending income has already accrued XDR 3.2 billion ($4.2 billion), with XDR 0.7 billion ($0.9 billion) due to surcharges. We can thus confidently estimate that by April 2024, the precautionary balances target will be reached.
Going forward, with an unchanged surcharge policy, the IMF projects that by April 2029 its precautionary balances will reach XDR 35.3 billion ($46.6 billion), 41 percent above the target. As CEPR research has previously shown, surcharges are unnecessary to continue building up precautionary balances, as the IMF projects positive net income even if surcharges are completely removed. In fact, if surcharges are removed starting FY 2025, by April 2029, the precautionary balances will reach XDR 30.7 billion ($49.5 billion) — 23 percent above target.
The IMF’s Global Sustainable Development Roundtable and its Spring Meetings, both coming up, present timely opportunities for the IMF Board of Governors to direct the Fund’s staff and Executive Board to comply with the letter and the spirit of the IMF Articles of Agreement and permanently remove surcharges.
- XDR is the International Organization for Standardization (ISO) 4217 standardized currency code for the IMF’s unit of account: the Special Drawing Right. We are using this code instead of the acronym “SDR” to refer to amounts in the unit of account, so as to avoid confusion with the actual transactional use of SDR assets. XDR amounts will be followed by the equivalent dollar ($) amount in parenthesis.
