Title Page
IEO
Independent Evaluation Office
of the International Monetary Fund
GROWTH AND ADJUSTMENT IN IMF-SUPPORTED PROGRAMS
EVALUATION REPORT 2021
About the IEO
Established in 2001, the Independent Evaluation Office (IEO) conducts independent and objective evaluations of the IMF’s policies, activities, and products. In accordance with its terms of reference, it pursues three interrelated objectives.
▸ To support the Executive Board’s institutional governance and oversight responsibilities, thus contributing to accountability.
▸ To enhance the learning culture within the Fund by increasing the ability to draw lessons from experience.
▸ To strengthen the Fund’s external credibility by enhancing transparency and improving understanding of the work of the IMF.
Independence is the fundamental anchor of the IEO’s work. It is completely independent of the IMF’s management team and staff, and operates at arm’s length from the Executive Board. Its budget is separate from the Fund’s (it accounts for about 0.5 percent of the institution’s total budget), but subject to the same control procedures. The IEO is entitled to access any internal information and documents and does with very limited exceptions. The office’s work is evaluated periodically by external experts.
For further information on the IEO and its ongoing and completed evaluations, please see our website IEO.IMF.org or contact the IEO at +(1) 202.623.8623 or at IEO@IMF.org.
Title Page
IEO
Independent Evaluation Office
of the International Monetary Fund
GROWTH AND ADJUSTMENT IN IMF-SUPPORTED PROGRAMS
EVALUATION REPORT 2021
Copyright Page
©2021 International Monetary Fund
CATALOGING-IN-PUBLICATION DATA IMF LIBRARY
Names: International Monetary Fund. Independent Evaluation Office, issuing body. | International Monetary Fund, publisher.
Title: Growth and adjustment in IMF-supported programs
Other titles: Growth and adjustment in International Monetary Fund-supported programs. | Evaluation report (International Monetary Fund. Independent Evaluation Office); 2021.
Description: Washington, DC : International Monetary Fund, 2021. | “This report was prepared by an IEO team led by Jun Il Kim, and including Jung Yeon Kim, Reginald Darius, Yasemin Bal Gündüz, Joshua Wojnilower, Jean-Marc Bedhat Atsebi, Kwang Yeon Lee, Jiakun Li, and Hasan Toprak.” | Evaluation report (International Monetary Fund. Independent Evaluation Office). | Includes bibliographical references.
Identifiers: ISBN 9781513594477 (paper)
Subjects: LCSH: International Monetary Fund—Evaluation. | Economic development. | Economic stabilization.
Classification: LCC HG3881.5.I58 I58 2021
Publication orders may be placed online, by fax, or through the mail:
International Monetary Fund, Publication Services
P.O. Box 92780, Washington, DC 20090, U.S.A.
Tel: +(1) 202.623.7430 | Fax: +(1) 202.623.7201
E-mail: publications@imf.org
Contents
FOREWORD
CONTRIBUTORS
ABBREVIATIONS
EXECUTIVE SUMMARY
1. INTRODUCTION
2. ATTENTION TO GROWTH IN IMF POLICIES ON LENDING AND PROGRAM DESIGN
3. GROWTH AND ADJUSTMENT OUTCOMES OF IMF-SUPPORTED PROGRAMS
Time Pattern of Growth and Adjustment Outcomes
Growth and Adjustment Outcomes Relative to Projections
Growth Outcomes Relative to Benchmark
Sources of Growth Optimism
Assessment
4. ASSESSING THE GROWTH IMPACT OF IMF-SUPPORTED PROGRAMS
Growth Impact During the Program
Post-Program Growth Impact
Sustained Growth Surges and IMF-Supported Programs
Assessment
5. GROWTH ASPECTS OF MACROECONOMIC PROGRAM DESIGN
Attention to Growth and Sustainability in Program Design
Lessons from Country Experience
Assessment
6. FISCAL ADJUSTMENT, FISCAL REFORMS, AND GROWTH
Fiscal Multipliers in Program Design and Outcomes
Attention to Growth-Friendly Fiscal Adjustment
Attention to Growth in Fiscal Reforms
Lessons from Country Experience
Assessment
7. STRUCTURAL CONDITIONS, STRUCTURAL REFORMS, AND GROWTH
Composition, Implementation, and Depth of Structural Conditions
Structural Conditions and IMF Capacity Development
Collaboration with Partner Institutions
Structural Conditions and Structural Reforms
Lessons from Country Experience
Assessment
8. EXCHANGE RATE POLICY, EXTERNAL ADJUSTMENT, AND GROWTH
Exchange Rate Regime Transition
Developments in Nominal and Real Exchange Rates
Real Exchange Rates, External Adjustment, and Growth
Lessons from Country Experience
Assessment
9. MARKET DEBT OPERATIONS AND GROWTH
Market Debt Operations in IMF-Supported Programs
Experience with Debt Operations
Adjustment and Growth Outcomes in Programs with Debt Operations
Lessons from Country Experience
Assessment
10. FINDINGS, LESSONS, AND RECOMMENDATIONS
Findings
Lessons
Recommendations
BOX
1. Background Papers
FIGURES
1. Composition of Program Objectives: 2008–19
2. Growth and Adjustment Trajectories: GRA and PRGT Programs
3. Growth and Adjustment Trajectories: GRA Crisis and Other GRA Programs
4. Growth: Program Projections and Outcomes
5. Distribution of Growth Outcomes Relative to Initial Projections
6. External Adjustment: Program Projections and Outcomes
7. Phasing of External Adjustment: Initial Projections and Outcomes
8. Fiscal Adjustment: Program Projections and Outcomes
9. Phasing of Fiscal Adjustment: Initial Projections and Outcomes
10. Distribution of Change in Debt
11. Distribution of Growth Outcomes Relative to Benchmark
12. Short-Run Growth Impact of IMF-Supported Programs
13. Short-Run Growth Benefits by Implementation and Quality of SCs
14. Post-Program Potential Growth Regression Coefficients
15. Selected Countries with Growth Surges and IMF-Supported Programs
16. Growth Surges and Their Association with IMF-Supported Programs
17. Fiscal Reactions in Initial Program Design
18. Linear Fiscal Reaction Coefficients: Initial Program Design
19. Fiscal Reaction Coefficients: Program Adaptation
20. Share and Depth of Fiscal SC
21. Distribution of Tax-Related SCs in IMF-Supported Programs
22. Implementation of Fiscal SC by Area
23. Share of Programs with Growth-Friendly Fiscal Outcomes
24. Fiscal SCs, Public Investment, and Social Spending
25. Volume of SCs Per Program: 2009–19
26. Composition of Structural Conditions by Depth and Sector
27. Implementation, Depth, and Content of SCs: 2009–16
28. Volume of SCs and SC Implementation
29. Volume of SCs and TA Delivery
30. Country Capacity, IMF TA, and SC Implementation
31. IMF TA and SC Implementation by Sector
32. Program Outcomes by Exchange Rate Regime
33. Developments in the Bilateral Nominal Exchange Rate
34. Developments in NEER and REER
35. Bivariate Relationship Between Changes in the NEER and REER
36. Cross-Country Distribution of Cumulative REER Changes During Programs
37. Cross-Country Distribution of Changes in REER and NER: First Year of the Program
38. Percentage Deviation from Trend REER
39. REER Reaction to Pre-Program Overvaluation
40. External Adjustment and Change in REER
41. Growth Outcomes by Change in the REER: Completed Programs
42. Programs in Case Studies with REER Depreciation of 5 Percent or More
43. Adjustment and Growth Trajectories: Programs With and Without Debt Operations
44. Debt Outcomes of Programs with Debt Operations
45. Growth Outcomes of Programs with Debt Operations
TABLES
1. Distribution of Growth Deviations by Program Type
2. Fiscal Multipliers in Program Design
3. Tax and Expenditure Trends Associated with IMF-Supported Programs
4. Trends in Health and Education Spending in IMF-Supported Programs
5. Structural Conditions by Depth, Content and Sector
6. Implementation Status, Depth and Content of SCs
7. Average SC Scores: Core vs. Shared/Non-Core Areas of IMF Expertise
8. Exchange Rate Regime Transition Probability
ANNEX
Table A1. IMF Lending Arrangements: September 2008–March 2020
Figure A1. Distribution of Program Approvals: 2008–16
Table A2. Composition of the Evaluation Sample
REFERENCES
STATEMENT BY THE MANAGING DIRECTOR
THE ACTING CHAIR’S SUMMING UP
The following Background Papers are available on the IEO website at IEO.IMF.org:
BP/21-01/01. Cross-Country Analysis of Program Design and Growth Outcomes: 2008–19
BP/21-01/02. Initiating Growth Surges: The Role of IMF-Supported Programs
BP/21-01/03. Fiscal Adjustment and Growth in IMF-Supported Programs
BP/21-01/04. Structural Conditionality, Structural Reforms and Growth in IMF-Supported Programs
BP/21-01/05. Exchange Rate Adjustment and Growth in IMF-Supported Programs
BP/21-01/06. Market Debt Operations and Growth in IMF-Supported Programs
BP/21-01/07. Growth and Adjustment in IMF-Supported Programs for Africa
BP/21-01/08. Growth and Adjustment in IMF-Supported Programs for Asia and Pacifc
BP/21-01/09. Growth and Adjustment in IMF-Supported Programs for Europe
BP/21-01/10. Growth and Adjustment in IMF-Supported Programs for Middle East and Central Asia
BP/21-01/11. Growth and Adjustment in IMF-Supported Programs for Western Hemisphere
The following conventions are used in this publication:
▸ An en-dash (–) between years or months (e.g., 2021–22 or January–June) indicates the years or months covered, including the beginning or ending years or months.
▸ A slash (/) between years or months (e.g., 2021/22) indicates a fiscal or financial year, as does the abbreviation FY (e.g., FY2021).
▸ “Billion” means a thousand million; “trillion” means a thousand billion.
Some of the documents cited and referenced in this report were not available to the public at the time of publication of this report. Under the current policy on public access to the IMF’s archives, some of these will become available three or five years after their issuance. They may be referenced as EBS/YY/NN and SM/YY/NN, where EBS and SM indicate the series and YY indicates the year of issue. Certain other types of documents may become available 20 years after their issuance. For further information, see IMF.org/external/np/arc/eng/archive.htm.
Foreword
This evaluation examines a critical and long-standing issue for IMF lending: how well have IMF-supported programs been able to sustain economic activity while delivering adjustment needed for external viability? Lessons from this evaluation are particularly relevant as many countries seeking IMF support in response to the COVID-19 pandemic face strong headwinds to growth.
After careful empirical analysis of IMF financing arrangements over the period 2008–19, the evaluation does not find evidence of a consistent bias towards excessive austerity in IMF-supported programs. Indeed, it finds that IMF-supported programs have yielded growth benefits during the program relative to a counterfactual of no Fund engagement and have boosted post-program growth outcomes.
Notwithstanding these positive findings, program growth outcomes consistently fell short of program projections. Greater scrutiny of the realism of program projections would certainly help to mitigate growth optimism, but even more important would be to achieve stronger and better growth outcomes by paying greater attention in program design and implementation to growth-friendly policies, including social and distributional consequences.
To shed light on how to meet this challenge, the evaluation assesses the extent to which different policy instruments were used to support program growth objectives. It finds that growth‐ friendly fiscal policies typically had only mixed success, including in protecting low‐income and vulnerable groups. Structural conditionalities were of low depth and their potential growth benefits were not fully realized, suggesting a need to promote deeper, more growth-oriented reforms supported by more effective capacity development and stronger collaboration with the World Bank and other relevant partners. Use of the exchange rate instrument was relatively limited, while market debt operations were sometimes too little and too late.
Based on these findings, the report proposes three recommendations aimed at strengthening attention to growth implications of IMF-supported programs, including the social and distributional consequences. I am pleased that all three were endorsed broadly by the Managing Director and by the Executive Board during the Board discussion of the report. I look forward to more detailed decisions to move this agenda forward.
Charles Collyns
Director, Independent Evaluation Office
Contributors
This report was prepared by an IEO team led by Jun Il Kim, and including Jung Yeon Kim, Reginald Darius, Yasemin Bal Gündüz, Joshua Wojnilower, Jean-Marc Bedhat Atsebi, Kwang Yeon Lee, Jiakun Li, and Hasan Toprak.
The external consultants were Peter Allum, Ajai Chopra, Russell Kincaid, Mauro Mecagni, and Marco Pinon-Farah for the country case studies, and Aitor Erce and Sanjeev Gupta for the thematic papers.
The team is grateful to Annette Canizares, Arun Bhatnagar, Andrea Nicole Tumbaco, and Amy Gamulo for administrative assistance.
The evaluation benefited from discussions with participants at several workshops and many interviews with country officials and Fund staff. However, the final judgments are the responsibility of the IEO alone.
The report was approved by Charles Collyns.
Abbreviations
| AREAER | Annual Report on Exchange Arrangements and Exchange Restrictions |
| ASCD | Average Depth Score of Structural Conditions |
| ASCG | Average Growth-Orientation Score of Structural Conditions |
| ASCI | Average Implementation Score of Structural Conditions |
| ASCID | Average Composite of Implementation and Depth Scores of Structural Conditions |
| ATE | Average Treatment Effect |
| BOP | Balance of Payments |
| CA | Current Account |
| CD | Capacity Development |
| CEMAC | Central African Economic and Monetary Community |
| DLP | Debt Limits Policy |
| DSA | Debt Sustainability Analysis |
| DSF | Debt Sustainability Framework |
| EA | Exceptional Access Arrangement |
| ECF | Extended Credit Facility |
| EDY | External Debt-to-GDP Ratio |
| EFF | Extended Fund Facility |
| ERPT | Exchange Rate Pass-Through |
| ERR | Exchange Rate Regime |
| ESAF | Enhanced Structural Adjustment Facility |
| ESF | Exogenous Shocks Facility |
| FAFE | Fiscal Adjustment Forecast Error |
| FSCI | Aggregate Implementation Score of Fiscal SCs |
| FSCID | Aggregate Implementation and Depth Score of Fiscal SCs |
| FSCIDG | Aggregate Implementation, Depth, and Growth-Orientation Score of Fiscal SCs |
| FSL | Fiscal Stability Law |
| FTE | Full-Time Equivalent |
| GFE | Growth Forecast Error |
| GEI | Government Effectiveness Index |
| GFC | Global Financial Crisis |
| GRA | General Resources Account |
| IDI | International Development Institution |
| LIA | Lending into Arrears |
| LIC | Low-Income Country |
| LIC-DSF | Low-Income Country Debt Sustainability Framework |
| LIOA | Lending into Official Arrears |
| MAC | Market Access Country |
| MAC DSA | Market Access Country Debt Sustainability Analysis |
| MONA | Monitoring of Fund Arrangements |
| NEER | Nominal Effective Exchange Rate |
| NER | Nominal Exchange Rate |
| NPL | Non-Performing Loan |
| NPV | Net Present Value |
| OGNC | Operational Guidance Note on Conditionality |
| PBY | Fiscal Primary Balance (as a share of GDP) |
| PDY | Public Debt-to-GDP Ratio |
| PFM | Public Financial Management |
| PRGF | Poverty Reduction and Growth Facility |
| PRGT | Poverty Reduction and Growth Trust |
| PSI | Policy Support Instrument |
| PUBINVY | Public Investment (as a share of GDP) |
| REER | Real Effective Exchange Rate |
| ROC | Review of Program Design and Conditionality |
| SBA | Stand-By Arrangement |
| SC | Structural Condition |
| SCF | Stand-By Credit Facility |
| SCI | Aggregate Implementation Score of SCs |
| SCID | Aggregate Implementation and Depth Score of SCs |
| SCIDG | Aggregate Implementation, Depth, and Growth-Orientation Score of SCs |
| SOCIALY | Social Spending (as a share of GDP) |
| SRI | Structural Reform Index |
| TA | Technical Assistance |
| VAT | Value-Added Tax |
| WAEMU | West African Economic and Monetary Union |
| WEO | World Economic Outlook |
| YGAP | Output Gap (in percent of trend GDP) |