## IMF Conditionality and Country Ownership of Programs

_IMF Working Papers, September 1, 2001_

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## Bibliographic details
- Authors: Mohsin S. Khan, Sunil Sharma
- Published: September 1, 2001
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781451856255.001

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### Main propositions
- The paper uses finance and agency theory to establish two main propositions:
  - The conditionality attached to adjustment programs supported by the IMF is justified.
  - Ownership of programs by the borrowing country is crucial for their success.
- Because both IMF conditionality and country ownership are necessary, the task is designing conditionality to maximize program ownership while providing adequate safeguards for IMF lending.

### Key findings and analysis
- Conditionality is justified as a safeguard for IMF lending (moral hazard and principal-agent concerns are central to the analysis).
- Country ownership is crucial for program success; lack of ownership undermines implementation and outcomes.
- The interaction between conditionality and ownership is the core policy design challenge: conditionality must be crafted to preserve necessary safeguards without destroying ownership incentives.

### Policy recommendations and design implications
- Design conditionality with the explicit objective of maximizing country ownership subject to adequate IMF safeguards.
- Incorporate mechanisms that align incentives between the IMF (principal) and borrowing authorities (agents) to mitigate moral hazard while preserving country-led commitment to reforms.

### Specific proposals discussed
- The paper discusses recent proposals for enhancing ownership and, in particular, makes a case for:
  - Incorporating floating tranches in IMF-supported adjustment programs.
  - Incorporating outcomes-based conditionality in IMF-supported adjustment programs.

### Thematic coverage (subjects and keywords from the source)
- Subjects: Central banks, Collateral, Financial institutions, Financial sector policy and analysis, International reserves, Loans, Macrostructural analysis, Moral hazard, Structural reforms.
- Keywords: adjustment program, Africa, borrowing country, borrowing government, Collateral, conditionality, country authorities, country ownership, country preference, country undertaking, democratized country environment, government's responsibility, IMF lending, IMF resource, IMF staff, IMF-supported programs, International reserves, Loans, Moral hazard, moral-hazard, negotiating position, ownership, ownership of program, principal-agent, Structural reforms, venture capitalist, WP.

*Mohsin S. Khan; Sunil Sharma. September 1, 2001. https://www.imf.org/en/publications/wp/issues/2016/12/30/imf-conditionality-and-country-ownership-of-programs-15374*

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_Source: https://www.imf.org/en/publications/wp/issues/2016/12/30/imf-conditionality-and-country-ownership-of-programs-15374_