April 15, 2022
Around the world, everyone from economic justice organizations, to Nobel Prize-winning economists, to members of Congress are calling for the elimination of a once little-known practice of the International Monetary Fund (IMF): the imposition of punitive, hidden fees on countries with high levels of outstanding IMF debt. In a report published last year, my coauthors and I called these surcharges “counterproductive and unfair.” As the movement to reverse this senseless policy gains steam, and in advance of the upcoming 2022 IMF Spring Meetings, I address some of the false rationale behind surcharges, and then take a look at one of their understudied impacts: their disproportionately harmful effects on women and girls.
What are IMF surcharges?
The IMF provides financial assistance to countries with balance of payment problems, often subject to conditionalities of macroeconomic austerity, which can lead to a host of well-known, devastating impacts. Surcharges are additional costs, on top of normal interest payments and other fees, that the IMF levies on its regular lending. Currently, there are two types of surcharges: those that relate to the size of the loan (200 basis points), and those that relate to length of time that the loan is still outstanding (100 basis points).
Large loans are typically needed by countries in a deep crisis, so countries in a prolonged, significant downturn end up paying more when they borrow from the Fund. As the surcharges are over and above the IMF’s headline lending rate, and when all borrowing costs are put together, they constitute a severe punitive cost for borrowing countries. The details regarding the surcharges incurred are opaque and not published by the Fund, but our report estimated that 45 percent of all non-principal debt service owed to the IMF by the five largest borrowers (Argentina, Ecuador, Egypt, Pakistan, and Ukraine) are surcharges. In 2021, the five largest borrowers account for 95 percent of surcharge income, which makes up approximately half of the Fund’s operating income. As an example, Argentina will have spent $3.3 billion on surcharges from 2018 to 2023 — nine times the amount needed to fully vaccinate everyone in the country against COVID-19.
Why does the Fund apply surcharges?
The main rationales for surcharges, according to the Fund, are to:
Disincentivize large or prolonged use of Fund credit
Encourage early repayment
Manage its own credit risk
Build up precautionary balances for the Fund
Let’s examine these one by one.
First, in almost all cases, countries in crisis that borrow from the Fund have no other place to go; by going to the Fund, they lose control over policy and often institute a procyclical, contractionary austerity program. A country does not need surcharges to be disincentivized from borrowing from the Fund: the economic reform plan, stigma, and domestic political and socioeconomic costs are bad enough.
Second, there is little evidence that surcharges disincentivize prolonged use and encourage early repayment of Fund credit, not least because “prolonged use” is arbitrarily defined as a cutoff in the middle of loan durations. Surcharges are not the main reason that countries have repaid the Fund early. Of the few cases where early repayment has occurred (only eight since 2009), it was primarily done to avoid IMF program stigma and the costs of conditionality. The IMF does not depend on early repayment for its available lending firepower, which is orders of magnitude larger than surcharge income and is composed of quotas, new arrangements to borrow, and bilateral borrowing agreements. Countries should be rewarded for paying early, and not be penalized with surcharges for paying according to the original schedule.
Third, the argument that surcharges are needed to help manage the Fund’s credit risk ignores its status as preferred creditor, ranking primus inter pares in any debt repayment difficulty that a sovereign borrower may experience. The tight noose around its borrowers, in the context of a dysfunctional sovereign debt architecture, means that IMF loans are always repaid.
Fourth, the rationale that surcharges are an income generator to accumulate precautionary balances is problematic. Relying on those in deep crisis to fund itself is unethical, and goes against the IMF’s mission. The IMF’s own projections show that regular lending charges can cover all of its operating expenses, and it does not need surcharges to operate. For example, for 2023, the IMF projects that precautionary balances from all its revenue sources will grow from SDR 20.8 to 24.9 billion — a SDR 4.1 billion difference. However, the IMF will receive SDR 1.53 billion in surcharge revenue over the same period.
The impact of surcharges on women and girls
IMF surcharges are problematic not only because they fail to do what they say on the tin. They are actively harmful, and conflict with other IMF goals and policies — particularly the goal of ensuring that IMF policies do not harm the rights and well-being of women and girls.
In an effort to mainstream gender across the Fund, the IMF recently launched its first-ever gender strategy to create a gender lens across all lending, surveillance, and technical assistance operations. The reasons for doing this are obvious: women are significantly disadvantaged in the labor market, and, in a crisis, are more likely to lose jobs, face lower wages, deal with worse working conditions, and endure increased domestic care work. Furthermore, there is ample evidence that IMF policies have a disproportionate, negative impact on women and girls. For example, in 2014–15, 165,000 civil service jobs were cut in Ukraine, 75 percent of which had been held by women, primarily in nonmanagerial positions.
Surcharges only make this worse, because they are punitive and procyclical, making an economic downturn or crisis even worse for affected countries, and exacerbating the devastating effects on women and girls. Women are more likely to be informal workers, without the benefits of social and legal protections. For example, the IMF praised Egypt’s decision to enact public sector layoffs in 2015 despite the fact that it “disproportionately disadvantages women, who will be forced to compete in a discriminatory unregulated private sector where they earn 35-40 per cent less than their male counterparts,” as Mahinour el-Badrawi and Allison Corkery of the Center for Economic and Social Rights noted.
Women and girls perform the bulk of unpaid household care work. When cuts affect child care or raise the price of basic amenities, unpaid female household labor expands significantly. IMF policies targeting public expenditure have an impact on unpaid labor and women’s “time poverty.” These harmful conditions undermine the provision of public services such as access to clean water, sanitation, education, and child care — directly impacting child and maternal mortality rates.
Surcharges are not gender-neutral, because they further siphon away valuable budget resources from countries in crisis. For example, according to a number of gender justice NGOs, in Pakistan, where women perform nine times more unpaid work than men: “in December 2019… spending on cash transfers, health and education each fell short of their targets, while all performance criteria that cut or froze public sector jobs providing crucial services were observed.” From 2021 to 2023, Ukraine will pay roughly $423 million in surcharges — nearly a quarter of its entire health-sector fiscal effort during the pandemic. By funneling off much-needed cash, surcharges redirect scarce resources away from providing social protection to those who need it.
The gendered impacts of the IMF’s surcharge policy result not only from the redirecting of resources needed elsewhere; extracting surcharges from debt-burdened countries actually reduces the borrowers’ ability to repay their debts. Debt crises constrain development prospects, undermining the capacity to create conditions for the realization of human rights — especially economic, social, and cultural rights, and the right to development — and surcharges only add to this debt burden. Despite there being a principle of primacy of human rights over debt payments, debt repayment is regularly carried out at the expense of human rights. By draining extra resources away from countries with severe debt repayment problems, surcharges leave less funds available for debt service, and have a negative impact on growth. Squeezing too much out of a country leaves it with unsustainable debts, meaning it will likely need to reschedule again in a short amount of time. This ultimately leaves creditors worse off too.
The IMF’s launch of its much-publicized new gender strategy, while its surcharge policy remains intact, should be seen for what it is: hypocrisy. The social costs of debt crises are disproportionately borne by women, who step in to compensate for falling domestic incomes and for failing public provision of basic services. Women’s increased marginalization and impoverishment deepens gender inequality and the feminization of poverty. The surcharge policy is evidence of how incapable the Fund is in translating its attempt to mainstream gender into clear operational guidance, and what steps are needed to uphold women’s rights.
The IMF’s refusal to eliminate its surcharge policy is indicative of a stubborn unwillingness to acknowledge or address the negative impacts of its policies. Along with the long-voiced need for the Fund to critically assess the gendered impact of its conventional fiscal, monetary, structural, and labor market policies is the need to eliminate surcharges, in order to fulfill the promise of developing truly gender-sensitive policies and strategies.