IMF—Doubling the Dose of Austerity

In a barely noticed development, the International Monetary Fund (IMF) has “reformed” and extended the conditions it imposes in return for emergency balance of payments support to less developed countries with stressed external accounts. The evidence of that shift comes from Ghana, the West African nation that moved from external debt stress to default in December 2022. The process is likely to be repeated in Sri Lanka. The change is the decision to require restructuring of both internal and external public debt, and not just the latter, as a condition for IMF support.

Ghana is, of course, still to get IMF Board clearance for the $3 billion loan it has been promised as a basis for restructuring its external debt. But that does not mean it has not begun implementing IMF conditionality. In another recent worldwide change in conditions for IMF support, the Bretton Woods Institution, tasked by Western powers to manage the debt crisis in the less developed world in which their banks and financial institutions are embroiled, has been demanding that potential recipients of bridge finance must show evidence of implementing IMF-designed economic policy reforms before their financing programme is put through the protracted process of clearance. As evidence from Sri Lanka, Pakistan and elsewhere demonstrates, reforms involving some combination of measures such as tax adjustments, subsidy reduction, public sector price increases and devaluation, besides financing assurances from bilateral creditors required to participate in a debt restructuring exercise, precede final clearance of an IMF programme.