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Outside the Box: Russia’s invasion has been very profitable for the IMF, which is gouging Ukraine and other countries in crisis


It has now been six months since Russia, in an outrageous act of aggression, launched its brutal and unprovoked full-scale invasion of my country. In that period, while much of the world rallied to provide us with economic assistance, we have had to pay nearly $1.37 billion to the world’s crisis lender: the International Monetary Fund (IMF).

Some of this payment was the normal cost of servicing loans, including new emergency loans made to ensure stability in response to the Russian invasion. But over $147 million are extra charges—the result of an onerous and opaque IMF policy that targets countries in crisis with additional fees, even when loans are paid on time.

Add to unsustainable debt burdens

The IMF imposes these “surcharges” on countries with a debt to the Fund greater than 187.5% of their assigned quota at the organization or when the loan lasts more than 36 or 51 months (depending on the type of program).

These surcharges come on top of regular interest and service fees, and are, in theory, intended to discourage overreliance on the Fund. The reality, however, is that they add to unsustainable debt burdens, siphoning valuable resources from countries facing acute challenges and hampering their ability to manage shocks and return to stable, sustainable economic conditions.

Also read: As Ukraine claws back territory, the IMF is crucial to gaining more financial support from Kyiv’s allies, says National Bank chief

Surcharges make poor economic sense at any time, but all the more so during a moment like the present, when the emergency conditions facing many countries—COVID-19, rising food and fuel prices and, in the case of Ukraine, even all-out war—are exogenous to domestic-policy decisions.

Big money maker

Why would the IMF maintain such a blatantly counterproductive policy? Perhaps because it’s become a big money maker for the Fund. From 2018 to 2029, the IMF will have drawn in more than $7 billion in income from surcharges.

In a perfect reversal of the Fund’s raison d’être, surcharges draw resources from countries experiencing economic instability in order to supplement the IMF’s profits. In theory these profits are needed in order to finance the organization’s precautionary balances, designed to protect the Fund against potential future losses. Precautionary balances is a term the IMF uses to name their accumulated profits.

In actual fact, the IMF’s own projections indicate that, in the coming years, surcharges are not necessary for maintaining the Fund’s precautionary balances well above the established floor. Almost paradoxically, the consequences of the war will mean more countries in crisis will resort to the IMF and generate regular interest income for its finances, decreasing even further the need for surcharges.

The absurdity of the Fund’s policy of imposing these extra fees on countries in crisis is particularly blatant when it comes to Ukraine. In April, the World Bank predicted that the war would shrink Ukraine’s economy by 45%. Since the start of the year, the hryvnia

has dropped 7.4% against the dollar, and last month the central bank drastically raised its key interest rate from 10% to 25% in an attempt to prevent it from depreciating further. 

Estimates made last fall suggest that, between 2021 and 2023, amid this double tragedy of full-scale war and its economic fallout, Ukraine will have to pay the IMF $483 million in surcharges. As a result of the new financial burdens brought on by the war, that’s an underestimate.

Egypt paying $1. 2 billion

Ukraine is not the only country being made to pay surcharges despite—or because of—its crisis conditions. Egypt, the second most heavily surcharged country in the world, was among the top 10 importers of wheat from Ukraine and Russia prior to the war, dependent on these countries for 85% of its wheat and 73% of its sunflower oil. As rising food prices contribute to a “perfect storm” of hunger, Egypt will be expected to pay the IMF $1.2 billion in surcharges between 2022 and 2025. 

Currently, 16 countries are paying surcharges to the IMF. By the IMF’s own estimates, that number will likely reach 38 by 2025—and that prediction was made even before the war threw the global economy deeper into turmoil.

The U.N. Global Crisis Response Group on Food, Energy, and Finance recently recommended that “given the global nature of the present crisis, IMF interest rate surcharges should be suspended for at least two years.” U.N. Secretary-General António Guterres similarly called for the suspension of surcharge payments for a period of two to five years. Leading economists and Ukrainian civil society organizations are among those who have demanded their elimination entirely.

Recently, the U.S. House of Representatives passed an amendment to the National Defense Authorization Act led by Reps. Jesús García and Jim Himes that would direct the Treasury Department to support a comprehensive review of the IMF’s surcharge policy, and the suspension of all surcharge payments until the review is completed.

Such a measure should be neither controversial nor partisan. The IMF should not be generating its profits from countries already in severe economic distress, particularly during an unprecedented confluence of global crises. At the very least, such a policy should be subjected to intense scrutiny.

We are under no illusions that eliminating surcharges will solve our country’s considerable economic woes. But as the old refrain goes—one that has taken on new and profound urgency as our country struggles to repel the Russian invasion and eventually rebuild—every dollar counts.

For the sake of Ukraine, and every country enduring the global economic and hunger crises, it is time to end the IMF’s surcharges.

Yurii Romashko is co-founder and executive director of Ukraine’s Institute for Analysis and Advocacy.

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