BENGALURU: Countries, mostly middle and lower-income, have been burdened by surcharges on top of interest payments on their borrowings from the International Monetary Fund, widening global inequities, according to a report by US think tanks. 

WHY IT’S IMPORTANT 

Indebted member countries paid about $6.4 billion in surcharges between 2020-2023, the report from Boston University’s Global Development Policy Center and Columbia University’s Initiative for Policy Dialogue released on Tuesday showed. 

And the number of countries paying these surcharges has more than doubled in the last four years. 

The IMF is expected to charge an estimated $9.8 billion in surcharges in the next five years, according to an earlier report by the Center for Economic and Policy Research. 

Critics of the policy argue that surcharges do not hasten repayment and instead punish countries already struggling with liquidity constraints, increase the risk of debt distress and divert scarce resources that could be used to boost the struggling economies. 

BY THE NUMBERS 

Countries such as Ukraine, Egypt, Argentina, Barbados and Pakistan pay the most in surcharges, the report showed, accounting for 90 percent of the IMF’s surcharge revenues. 

These surcharges, levied on top of the fund’s increasingly steeper basic rate, are IMF’s single largest source of revenue, accounting for 50 percent of total revenue in 2023. 

KEY QUOTES 

“IMF surcharges are inherently pro-cyclical as they increase debt service payments when a borrowing country is most need of emergency financing," Global Development Policy Center’s Director Kevin Gallagher said. 

“Increasing surcharges and global shocks are compounding the economic pressure on vulnerable countries.” 

CONTEXT 

Data published by the Institute of International Finance earlier this year showed global debt levels hit a record of $313 trillion in 2023, while the debt-to-GDP ratio — a reading indicating a country’s ability to pay back debts — across emerging economies also scaled fresh peaks. 

IMF shareholders agreed last week on the importance of addressing challenges faced by low-income countries, Managing Director Kristalina Georgieva said on Friday.

SINGAPORE: Oil prices steadied on Thursday after settling lower in the previous day, as signs of retreating fuel demand in the US, the world’s biggest oil user, contended with widening conflict risks in the key Middle East producing region, according to Reuters.

Brent crude futures inched up 18 cents, or 0.2 percent, to $88.20 a barrel at 9:30 a.m. Saudi time, while US West Texas Intermediate crude futures gained 13 cents, or 0.2 percent, to $82.94 a barrel.

Data from the US Energy Information Administration on Wednesday showed that gasoline stockpiles fell less than forecast while distillate stockpiles rose against expectations of a decline, reflecting signs of slowing demand.

The falling fuel demand is occurring amid signs of cooling US business activity in April and as stronger-than-expected inflation and employment data means the US Federal Reserve is more likely to delay expected interest rate cuts, weighing on economic sentiment.

“The current weakness in benchmark prices, after testing above $90 (a barrel) levels, is due to market sentiment refocusing on global economic headwinds over geopolitical tensions,” said Emril Jamil, senior oil analyst at LSEG Oil Research.

Geopolitics aside, prices this quarter will be driven by factors including major producer supply cuts, economic data out of China and Eurozone, on top of incremental demand expectations as the Northern Hemisphere heads into summer amid expected tighter supply, said Jamil.

A better indication of the Fed’s rate intentions will be seen after US gross domestic product and March personal consumption expenditure data is released on Thursday and Friday.

Meanwhile, fighting in the Gaza Strip between Israel and Hamas is expected to expand as Israel may start an assault on Rafah, in the enclave’s south, which may increase the risk of a wider war that could potentially disrupt oil supplies.

However, there have been no other signs of direct conflict between Israel and Hamas-backer Iran, a major oil producer, since last week.

“Tensions between Iran and Israel have eased, but Israeli attacks on Gaza are expected to worsen, and the risk of conflicts spreading to neighboring countries is underpinning oil prices,” said Toshitaka Tazawa, an analyst at Fujitomi Securities Co. Ltd.

Other EIA data on Wednesday showed that crude stocks slumped by 6.4 million barrels to 453.6 million barrels, compared with expectations in a Reuters poll for an 825,000-barrel rise.