IMF review calls for 'fewer but deeper' reforms in design of loan programs

The International Monetary Fund (IMF) has called for a shift towards fewer, but more substantial, reforms in its loan programs to address the challenges posed by an increasingly volatile global economy. The review, the third since 2002, evaluated the performance of IMF-supported programs from January 2018 to December 2024, encompassing events such as the US-China trade war, the COVID-19 pandemic, and Russia's invasion of Ukraine.

Civil society groups have expressed concerns that the review could result in more stringent austerity measures for developing countries, which are already grappling with rising public debt, higher borrowing costs, diminished official development assistance, and successive shocks. According to the IMF, the recommendations advocate for front-loaded and sustained fiscal adjustments, or budget cuts, as they have been linked to higher chances of program success.

However, the IMF emphasized that such front-loading should be feasible and accompanied by realistic steps to stimulate growth, alongside adequate social spending to safeguard the vulnerable.

Rishi Goyal, deputy director of the IMF’s strategy, policy, and review department, stated that the framework is sound, but the changing context and social strains in several member countries necessitate tailored reforms. He highlighted the focus on fewer but deeper reforms. The World Bank and IMF have also backed modifications to debt frameworks for poor countries, introducing new tools to enhance program design and conditionality. These tools aim to improve implementation and outcomes, rather than lower standards.

The IMF’s review occurred shortly after changes in the joint IMF-World Bank debt framework for low-income countries and a forthcoming review of the IMF’s process for evaluating economies. While the IMF demonstrated responsiveness and flexibility during the reviewed period, helping several nations stabilize, not all countries successfully restored medium-term stability.

This underscores the need for adjustments in program design. The IMF is also introducing a new medium-term structural reform tool to identify and sequence key reforms, ensuring countries can maximize the impact of their interventions.

Critics argue that the IMF has sometimes faltered in enforcing its policies, allowing some countries, such as Egypt, Pakistan, and Argentina, to transition between lending programs. While the IMF’s policies have benefited certain countries, they have also adversely affected public goods like healthcare, depriving the poorest people of essential resources.

Eric LeCompte, executive director of the Jubilee USA Network, emphasized that the primary challenge lies in countries falling back into debt due to inadequate financial policies and conditionality reviews, which fail to prevent crises. Martin Muehleisen, a former IMF strategy chief, questioned whether the IMF had sufficiently insisted on program conditions being met and held up disbursements if they were not.

Muehleisen suggested that the IMF should reflect on what has changed materially, where things went wrong, and what actions could be taken to meet outcomes despite global challenges.