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International Monetary Fund. Independent Evaluation Office

Abstract

This evaluation assesses how well IMF-supported programs helped to sustain economic growth while delivering adjustment needed for external viability over the period 2008–19. The evaluation finds that the Fund’s increasing attention to growth in the programs has delivered some positive results. Specifically, it does not find evidence of a consistent bias towards excessive austerity in IMF-supported programs. Indeed, programs have yielded growth benefits relative to a counterfactual of no Fund engagement and boosted post-program growth performance. Notwithstanding these positive findings, program growth outcomes consistently fell short of program projections. Such shortfalls imply less protection of incomes than intended, fuel adjustment fatigue and public opposition to reforms, and jeopardize progress towards external viability. The evaluation examines how different policy instruments were applied to support better growth outcomes while achieving needed adjustment. Fiscal policies typically incorporated growth-friendly measures but with mixed success. Despite some success in promoting reforms and growth, structural conditionalities were of relatively low depth and their potential growth benefits were not fully realized. Use of the exchange rate as a policy tool to support growth and external adjustment during programs was quite limited. Lastly, market debt operations were useful in some cases to restore debt sustainability and renew market access, yet sometimes were too little and too late to deliver the intended benefits. The evaluation concludes that the IMF should seek to further enhance program countries’ capacity to sustain activity while undertaking needed adjustment during the program and to enhance growth prospects beyond the program. Following this conclusion, the report sets out three recommendations aimed at strengthening attention to growth implications of IMF-supported programs, including the social and distributional consequences.

International Monetary Fund. Independent Evaluation Office

discussion of fiscal multiplier assumptions, especially where available country-specific modeling is limited, which should be further fine-tuned to country circumstances based on available evidence and informed judgement. ▸ Program design should pay more consistent attention to contingencies for growth shortfalls, based on scenario analysis, which should help fend of negative perceptions of the Fund’s austerity bias. ▸ Efforts to pay greater attention to distributional aspects may require more granular approaches to conditionality and monitoring. Subject to data

International Monetary Fund. Independent Evaluation Office

lackluster growth outcomes under IMF-supported programs have often been criticized as indicative of an excessive austerity bias and continued lack of attention to growth consequences of IMF-supported programs. 1 In addition to raising questions about the benefits and costs of Fund support for the recipient countries, such concerns have resulted in a perceived stigma more broadly, potentially discouraging use of IMF financing and challenging the Fund’s reputation. Concerns about the growth impact of IMF-supported programs have fostered an extensive academic literature

International Monetary Fund. Independent Evaluation Office

during program reviews, particularly on how to respond to unexpected growth shortfalls. This early attention will help to not only guide subsequent program adaptation in a timely way but also promote country ownership and alleviate negative perception of the Fund’s austerity bias. The evaluation also provides lessons for how a broad spectrum of policy tools—fiscal policy, structural reforms, exchange rate policy, and debt operations—can be used to foster stronger growth outcomes in the program context. In the area of fiscal policy, greater attention is warranted to