Roundtable on the IMF Lending Rate Policy
October 14, 2023
IMF/World Bank Meeting Marrakech, Morocco
Columbia University’s Initiative for Policy Dialogue (IPD), Columbia University’s Institute of Global Politics (IGP), Boston University’s Global Development Policy Center, and Suramericana Visión Roundtable on IMF Lending Rate Policy hosted in Marrakech during the IMF/World Bank Meetings at the official conference center.
The International Monetary Fund’s (IMF) mandate is to promote international monetary cooperation and exchange rate stability, facilitate the balanced growth of international trade, and provide resources to support members in balance of payments difficulties. The determination of the IMF lending rate policy must be framed within this mandate. The IMF lending rate is set by its Executive Board, and today it is at an exceedingly high level, a level which may seem inconsistent with its mandate. It’s equal to 100 basis points, plus the SDR interest rate, plus/minus a burden sharing adjustment, plus surcharges that include a level-based and a time-based component for loans that exceed certain thresholds. The SDR rate is a weighted average of benchmark annual yields of government bonds issued by the US, China, the European Union, the UK, and Japan.
The SDR rate is increasing with the increases in the interest rates of the SDR basket currencies. Moreover, several countries have been forced by circumstances to borrow sufficiently large amounts for sufficiently long such that they have become subject to both level-based and time-based surcharges. As a result, some countries may be paying the IMF an annual interest rate of up to 8 percent today. The current global context, including the changing nature of shocks, demands looking more closely at the IMF’s interest rate policy, assess whether the criteria are appropriate for today’s circumstances, or whether they should be revised in ways that are consistent with the Fund’s mandate. This entails examining the IMF basic lending rate, as well as its surcharge policy.