The International Monetary Fund (IMF) gives loans to countries in economic trouble. In exchange, countries must implement a programme of painful policy reforms. Countries rarely complete these programmes.
We set out to uncover why.
IMF programmes usually last one to three years. Countries must meet policy conditions in regular reviews – typically every three to six months – to gain access to tranches of funding. Failure to implement them interrupts the programme. Of 763 programmes between 1980 and 2015, 512 were interrupted, of which 291 did not resume – as our data from the IMF Monitor Database shows. This is a very high failure rate given that the IMF enters into every agreement on the basis that it wants to see it completed.We argue that reform programmes may be unimplementable by design. We show that they simply entail too many policy conditions. Even reform-minded governments struggle to implement them.
Our research also investigated financial market responses to programme interruptions. We found that programme failure has serious repercussions for economic development. Failure sends a negative signal to markets, causing them to lose confidence in the ability of governments to stabilise the economy and undertake reforms. The result very often is a rise in inflation and increases in capital flight that deprive countries of much-needed capital for investment in public goods and services.
*The views of the above article are those of the author and do not necessarily reflect the views of Africa Speaks 4 Africa or its editorial team.