Gita Gopinath, who served as the IMF’s First Deputy Managing Director from 2022 to 2025 and is now a professor of economics at Harvard University, said something at a Bloomberg podcast interview on May 29 that every Sri Lankan policymaker and citizen should hear. She said: “I do think there has been a regime shift – a change in the underlying dynamics that kept interest rates low.
According to her comments, for nearly two decades before the pandemic, the world enjoyed unusually cheap money. The IMF, the Asian Development Bank, and other multilateral lenders all lent at very low rates.
Now, that era is over.
The Island Financial Review asked an independent analyst what he thought about Gopinath’s comments and how they would matter to Sri Lanka right now.
The following are excerpts from his comments:
“Even though Sri Lanka cannot borrow from international capital markets because of its default, we still borrow from the IMF and ADB. Many people assume those loans are always cheap. They are cheaper than private banks and that is true. But they are no longer as cheap as they used to be.”
“The IMF’s interest rate is tied directly to global short-term rates, mainly the US dollar rate. When the US Federal Reserve raises rates, the IMF’s rate rises automatically. There is no escape. The ADB is in a similar position. It raises money by selling bonds in global markets. When those markets demand higher interest, the ADB must pay more. It then passes that cost to borrowers like Sri Lanka. So even our ‘concessional’ loans are now more expensive than they were five years ago. And because the shift is permanent – not temporary – we cannot wait for rates to fall back to the old normal. That normal is gone.”
At the interview, Gopinath gave three reasons for this shift: large government deficits in rich countries, the huge appetite for capital from the artificial intelligence boom, and a change in who buys government debt. None of those factors are going away soon. Her warning to the world was clear: adjust to higher rates, because they are here to stay.
For Sri Lanka, this means three things, the analyst said.
“First, every new IMF or ADB loan will carry a higher interest cost than the last one. Second, the 2% surcharge we currently pay to the IMF – because our borrowing exceeds 300% of our quota – becomes even more painful when the base rate is also high. Third, our path to returning to international capital markets is now steeper. If we try to go back to borrow privately, the rates waiting for us will be far higher. Probably as high as 8-10%.”
“None of this is a reason for panic. But it is a reason for realism. The cheap IMF and ADB loans of the past are gone. Gita Gopinath said so herself. The only sensible response is to borrow less, export more, and rebuild our economy so that one day we no longer depend on any lender– cheap or expensive. That day is still far away. But knowing the truth about interest rates is the first step toward reaching it.”
Notably, referring to a missing number in all the IMF news here in Sri Lanka, he said: “There is one more thing worth noting. On May 29, Sri Lanka received a double tranche of USD 695 million from the IMF after the successful completion of the fifth and sixth reviews. Every news channel carried the story. The Central Bank issued a statement. The Finance Ministry welcomed the funds. And so did the Ceylon Chamber of Commerce. But not one official source told the Sri Lankan people a simple fact: at what interest rate did we receive this money?
“Here is the answer that nobody gave. The IMF’s current basic interest rate – called the rate of charge – is tied to the SDR interest rate, which stood at 2.729% as of mid-May 2026. On top of that, the IMF adds a fixed margin. In May 2026, the IMF Executive Board confirmed that the margin would remain at 60 basis points for the coming financial year. That brings the base rate to approximately 3.33%
“But Sri Lanka does not pay only the base rate. Because our borrowing from the IMF exceeds 300% of our quota, we also pay a level-based surcharge of 200 basis points, or 2 percentage points. This surcharge was introduced to discourage countries from borrowing heavily from the Fund. For a country in default, however, there is little alternative.
“So the current borrowing cost can be estimated as follows: 2.73% SDR interest rate, plus 0.60% IMF margin, plus 2.00% surcharge. That comes to approximately 5.33% per annum. “There is also a separate service charge of 0.50% levied on each disbursement. However, this is a one-time fee rather than an annual interest charge. For the latest USD 695 million tranche, that service charge would amount to roughly USD 3.5 million. “Before the pandemic, the IMF’s basic rate of charge was often below 2%. Sri Lanka’s total borrowing from the IMF under the Extended Fund Facility now stands at approximately USD 2.4 billion. By the time we finish repaying these loans – with repayment periods of 5 to 10 years in semi-annual installments – the total interest and related charges paid will run into hundreds of millions of dollars.
“None of this is a secret. The IMF publishes its rate formulas openly. Sri Lanka’s projected payments, including principal and interest, are available on the IMF website. For May 2026 alone, Sri Lanka’s scheduled payments to the IMF totaled more than USD 47 million, comprising USD 29.7 million in principal and USD 17.3 million in interest and charges.
“But somehow, when the good news of a disbursement is announced, the interest rate is never mentioned. Perhaps that is because 5.33% does not sound as heroic as USD 695 million. Perhaps it is because nobody wants to remind a suffering public that even IMF financing carries a significant cost. Whatever the reason, the people of Sri Lanka deserve to know the full cost of the money their government is borrowing. “Gita Gopinath warned us that the era of cheap loans is gone. The latest IMF disbursement shows exactly what that new era looks like,” he said in conclusion.
When the good news is announced, no one has the heart to mention the cost.
According to her comments, for nearly two decades before the pandemic, the world enjoyed unusually cheap money. The IMF, the Asian Development Bank, and other multilateral lenders all lent at very low rates.
Now, that era is over.
The Island Financial Review asked an independent analyst what he thought about Gopinath’s comments and how they would matter to Sri Lanka right now.
The following are excerpts from his comments:
“Even though Sri Lanka cannot borrow from international capital markets because of its default, we still borrow from the IMF and ADB. Many people assume those loans are always cheap. They are cheaper than private banks and that is true. But they are no longer as cheap as they used to be.”
“The IMF’s interest rate is tied directly to global short-term rates, mainly the US dollar rate. When the US Federal Reserve raises rates, the IMF’s rate rises automatically. There is no escape. The ADB is in a similar position. It raises money by selling bonds in global markets. When those markets demand higher interest, the ADB must pay more. It then passes that cost to borrowers like Sri Lanka. So even our ‘concessional’ loans are now more expensive than they were five years ago. And because the shift is permanent – not temporary – we cannot wait for rates to fall back to the old normal. That normal is gone.”
At the interview, Gopinath gave three reasons for this shift: large government deficits in rich countries, the huge appetite for capital from the artificial intelligence boom, and a change in who buys government debt. None of those factors are going away soon. Her warning to the world was clear: adjust to higher rates, because they are here to stay.
For Sri Lanka, this means three things, the analyst said.
“First, every new IMF or ADB loan will carry a higher interest cost than the last one. Second, the 2% surcharge we currently pay to the IMF – because our borrowing exceeds 300% of our quota – becomes even more painful when the base rate is also high. Third, our path to returning to international capital markets is now steeper. If we try to go back to borrow privately, the rates waiting for us will be far higher. Probably as high as 8-10%.”
“None of this is a reason for panic. But it is a reason for realism. The cheap IMF and ADB loans of the past are gone. Gita Gopinath said so herself. The only sensible response is to borrow less, export more, and rebuild our economy so that one day we no longer depend on any lender– cheap or expensive. That day is still far away. But knowing the truth about interest rates is the first step toward reaching it.”
Notably, referring to a missing number in all the IMF news here in Sri Lanka, he said: “There is one more thing worth noting. On May 29, Sri Lanka received a double tranche of USD 695 million from the IMF after the successful completion of the fifth and sixth reviews. Every news channel carried the story. The Central Bank issued a statement. The Finance Ministry welcomed the funds. And so did the Ceylon Chamber of Commerce. But not one official source told the Sri Lankan people a simple fact: at what interest rate did we receive this money?
“Here is the answer that nobody gave. The IMF’s current basic interest rate – called the rate of charge – is tied to the SDR interest rate, which stood at 2.729% as of mid-May 2026. On top of that, the IMF adds a fixed margin. In May 2026, the IMF Executive Board confirmed that the margin would remain at 60 basis points for the coming financial year. That brings the base rate to approximately 3.33%
“But Sri Lanka does not pay only the base rate. Because our borrowing from the IMF exceeds 300% of our quota, we also pay a level-based surcharge of 200 basis points, or 2 percentage points. This surcharge was introduced to discourage countries from borrowing heavily from the Fund. For a country in default, however, there is little alternative.
“So the current borrowing cost can be estimated as follows: 2.73% SDR interest rate, plus 0.60% IMF margin, plus 2.00% surcharge. That comes to approximately 5.33% per annum. “There is also a separate service charge of 0.50% levied on each disbursement. However, this is a one-time fee rather than an annual interest charge. For the latest USD 695 million tranche, that service charge would amount to roughly USD 3.5 million. “Before the pandemic, the IMF’s basic rate of charge was often below 2%. Sri Lanka’s total borrowing from the IMF under the Extended Fund Facility now stands at approximately USD 2.4 billion. By the time we finish repaying these loans – with repayment periods of 5 to 10 years in semi-annual installments – the total interest and related charges paid will run into hundreds of millions of dollars.
“None of this is a secret. The IMF publishes its rate formulas openly. Sri Lanka’s projected payments, including principal and interest, are available on the IMF website. For May 2026 alone, Sri Lanka’s scheduled payments to the IMF totaled more than USD 47 million, comprising USD 29.7 million in principal and USD 17.3 million in interest and charges.
“But somehow, when the good news of a disbursement is announced, the interest rate is never mentioned. Perhaps that is because 5.33% does not sound as heroic as USD 695 million. Perhaps it is because nobody wants to remind a suffering public that even IMF financing carries a significant cost. Whatever the reason, the people of Sri Lanka deserve to know the full cost of the money their government is borrowing. “Gita Gopinath warned us that the era of cheap loans is gone. The latest IMF disbursement shows exactly what that new era looks like,” he said in conclusion.
When the good news is announced, no one has the heart to mention the cost.
