October 22, Colombo (LNW): Sri Lanka is set to be removed from the International Monetary Fund’s (IMF) list of countries facing additional borrowing costs, as the IMF introduces significant reforms to its lending policies.
These changes, which come into effect on November 01, 2024, will relieve Sri Lanka and seven other nations from the burden of surcharges.
The IMF recently reached an agreement among its member states on a comprehensive reform package aimed at reducing the financial strain on borrowing nations while ensuring the institution’s capacity to continue supporting countries in need.
The changes are part of the IMF’s Review of Charges and Surcharge Policy, which the Executive Board concluded earlier this year.
Sri Lanka, alongside 21 other heavily indebted countries, had been subject to the IMF’s surcharge policy since 2023.
These surcharges are imposed on nations whose borrowing exceeds certain thresholds, adding additional costs to their loans. Previously, Sri Lanka was facing surcharges that could have totalled approximately $308 million over the next decade, as projected by the Centre for Economic and Policy Research.
These fees, which make up around 15.8 per cent of the country’s total IMF charges and interest payments, were seen as a significant financial burden.
As of this year, Sri Lanka had already paid over $1.4 million in surcharges, in addition to other charges totalling $73 million.
However, with the upcoming reforms, the threshold for surcharges will be raised, from 187.5 per cent to 300 per cent of a country’s IMF quota.
This means that Sri Lanka, along with nations such as Georgia, Côte d’Ivoire, and Suriname, will no longer be required to pay these additional fees, as their outstanding credit will fall below the new threshold.
The IMF explained that of the 52 countries currently borrowing from its General Resources Account, 19 had been subject to surcharges. After the reforms take effect, this number is expected to drop to 11, providing relief to eight countries, including Sri Lanka.
The adjustments are part of a broader effort by the IMF to ease the financial pressure on indebted nations, allowing them to focus more on economic recovery and development.
Sri Lanka’s credit standing with the IMF, which stood at 331.3 per cent of its quota by the end of July 2024, had placed the country firmly in the surcharge bracket.
However, with the new reforms in place, Sri Lanka is expected to benefit significantly from the removal of these surcharges, allowing for greater fiscal flexibility in managing its economic recovery.
For fiscal year 2026, the IMF had previously estimated that 20 nations would be subject to surcharges, but following the reforms, this number is expected to decrease to just 13.
