A Review of IMF-Supported Lending Programs

IMF Blog, May 20, 2019

Source details

Authors: Petya Koeva Brooks, Martin Mühleisen, Chad Steinberg
Date: May 20, 2019
Scope: Review of 133 IMF-supported lending programs in operation between September 2011 and December 2017.
Context: First major stocktaking of IMF programs since the Global Financial Crisis, a period of unexpectedly slow economic growth.

Primary role: Enable countries to meet immediate financial needs and cushion economic distress.
Catalytic effect: Programs help catalyze additional financing from markets, other official lenders, and donors, protecting economies from greater disruption.
Performance:
- Three-quarters of IMF programs were successful or partially successful in achieving their objectives (examples: resolving balance of payment problems, fostering economic growth).
- Social spending was generally protected as a share of GDP.
- Over a third of IMF programs, mostly in low-income countries, targeted fiscal expansion to support growth and poverty reduction.

Forecasting and contingency planning:
- Overoptimistic economic forecasts reduced a program’s chances of success.
- Recommendation: Use a more conservative approach to economic forecasts and provide deeper analyses of the impact that policies under the program could have on economic growth.
- Recommendation: Include more extensive contingency planning when designing programs.
Public debt and debt sustainability:
- Debt sustainability improved in most cases where debt vulnerabilities started out high.
- In some programs, debt exceeded the Fund’s initial projection by considerable margins.
- Recommendation: Apply more careful diagnosis and develop sharper tools for the IMF’s debt sustainability analysis to reduce any bias in judgement when assessing debt.
- Note: Fund policies are already in place to deal with unsustainable debt in Fund-supported programs; debt restructuring should be considered on a case-by-case basis.
Fiscal composition and growth:
- Many programs applied fiscal adjustments that were less growth-friendly than initially envisaged.
- Fiscal adjustment tended to be achieved by cutting public investment rather than by lowering current spending or raising revenue.
- Recommendation: Set more granular fiscal targets in programs (for example, a floor for critical public investments) to better guide government fiscal policy.

Conditionality focus:
- Programs generally kept closer to reforms within the Fund’s traditional areas of expertise.
- Conditionality in fragile and small states should be better tailored to these countries’ specific challenges.
Expanding scope and expertise:
- Where critical for achieving program goals, conditionality may need to go beyond traditional domains such as fiscal and monetary policy (examples: labor and product market reforms).
- Recommendation: Build more expertise in these areas and continue collaboration with partner institutions where the Fund lacks expertise.
Program duration consideration:
- Some reforms may take longer to implement and yield results.
- Recommendation: Consider extending the program duration of arrangements under the Extended Fund Facility in exceptional cases to five years, alongside appropriate safeguards.

Ownership and success:
- Programs tended to be most successful when country authorities had strong ownership of the specified course of action.
Recommendations to strengthen ownership:
- IMF should better understand domestic institutional and political capacities to avoid unrealistic targets.
- Tie programs to national reform plans to facilitate sustained commitment by authorities and citizens.
- Improve public information and engagement—effective communication is underappreciated but important for program implementation.
- If a program goes off-track, the Fund should strive to remain involved (for instance, by encouraging countries to use Staff-Monitored Programs to help maintain the country’s track record with the Fund).

Institutional response:
- In line with its commitment to be a learning institution, the Fund will draw on the lessons of the review to improve program design in the future.
- The Fund will continue to conduct regular reviews of its conditionality.

Source: A Review of IMF-Supported Lending Programs (IMF blog page, May 20, 2019).