By Nishel Fernando 

Sri Lanka is set to be removed from the International Monetary Fund’s (IMF) surcharge list of countries, once the multilateral lender’s latest lending reforms come into effect from November 1 of this year. 

The IMF membership recently reached a consensus on a comprehensive package that substantially reduces the cost of borrowing, while safeguarding the IMF’s financial capacity to support the countries in need. The IMF announced that its Executive Board concluded the Review of Charges and Surcharge Policy.

Sri Lanka last year joined the list of 22 heavily indebted countries facing controversial surcharges imposed by the IMF.

The IMF announced that Sri Lanka would be among eight countries that would no longer be subjected to Level-based surcharges.

“Out of 52 member countries currently borrowing from the General Resources Account, 19 are subject to surcharges. Once the reform becomes effective on November 1, 2024, the number of countries paying surcharges will fall from 19 to 11. 

Eight countries will not be subject to surcharges because their credit outstanding will be below the new threshold (300 percent of quota): Benin, Côte d’Ivoire, Gabon, Georgia, Moldova, Senegal, Sri Lanka and Suriname,” the IMF elaborated. 

Surcharges are fees levied by the IMF on loans to countries whose outstanding credit to the IMF exceeds certain time-based and/or level-based thresholds. The fees add two to three percentage points to the lending rates, on top of the regular interest rates and service fees. These additional payments are aimed at countries whose outstanding credit to the IMF’s main account exceeds 187.5 percent of their quota. However, with the latest reforms, this threshold will be raised to 300 percent of a member’s quota.

Prior to the reforms, Sri Lanka was expected to pay US $ 308 million in surcharges to the IMF over the next decade (2024-2033), in constituting to 15.8 percent of the total “charges and interests” over the period, according to the United States-based think tank Centre for Economic and Policy Research.

So far during the year, Sri Lanka has paid US $ 1,458,478 in surcharges to the IMF. This was on top of US $ 73,237,425 worth of various other charges. 

As per the IMF quarterly report for the quarter ended July 31, 2024, Sri Lanka’s credit outstanding from the IMF’s main account stood at 331.3 percent. 

For the fiscal year 2026, the IMF staff projected that 20 countries would have been subject to surcharges, prior to this review. With the approved reforms, the IMF noted that the number of countries paying surcharges is expected to fall to 13, without divulging into specifics.