IMF slashes borrowing costs by 36%, lowers countries’ exposure by $1.2b yearly

International Monetary Fund (IMF) has announced it is reducing the costs for countries that borrow money from it by up to 36 per cent.

In a statement from the global lender on the review of the charge and surcharge policy, the fund noted the challenging global environment coupled with high interest rates necessitated the reduction.

According to the statement, changes are made to how much they charge on loans, which will lower the borrowing cost by 36 per cent, saving countries about $1.2 billion each year.

This reduction will mainly affect fewer countries, from 20 currently to 13 by 2026.

The fund noted that the changes include reducing extra charges on loans and raising the threshold for when these charges apply.

It, however, said some charges would remain to ensure the IMF had enough money to help countries in need and manage risks.

The Managing Director of IMF, Ms Kristalina Georgieva, said of the review: “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 per cent, or about US$1.2 billion annually. The expected number of countries subject to surcharges in fiscal year 2026 will fall from 20 to 13.

“This is achieved by reducing the margin over the SDR interest rate, raising the threshold for level-based surcharges, lowering the rate for time-based surcharges, and increasing the thresholds for commitment fees. The approved package will take effect on November 1, 2024.”

She added: “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. Together, charges and surcharges cover lending intermediation expenses, help accumulate reserves to protect against financial risks and provide incentives for prudent borrowing. This provides a strong financial foundation that allows the IMF to extend vital balance of payments support on affordable terms to member countries when they need it most.”