IMF’s EFF programme: some reflections

As another of many years come to close during the last four decades or so, when Pakistan finds itself in yet another International Monetary Fund programme, not to mention that the country has been in around more than two dozen IMF programmes, a very important analysis from the (2023) published book ‘A thousand cuts: social protection in the age of austerity’ pointed out that during 1980-2019, among all the countries availing IMF programmes during this time, Pakistan faced the most conditionalities at 1,303!

The book ran a number of regression analyses, and it reached the conclusion that increase in IMF conditionalities on average led to decrease in health-related spending– both as a share of GDP, and in per capita terms– while it increased income inequality on average within a country. Given that the highest number of conditionalities were imposed by the IMF, as indicated above, it is likely that this produced a significantly deep impact on both health spending, and income inequality.

The book, while analysing 195 countries during 1995-2017, pointed out with regard to the impact of increasing conditionalities on health spending of programme countries, on average: ‘There is a modest negative association between average annual government health spending as a share of GDP and total number of conditions. They correlate at -0.32. The association is stronger for the natural log of health spending per capita, correlating at -0.49. Overall, the two figures suggest that the more conditions a country has, the less it spends on health.’

With regard to the impact of the increasing number of conditionalities on income inequality, the same book indicated ‘We begin by examining the aggregate impact of all types of conditions on the income Gini between 1980 and 2017. …We find an effect for the total number of Gini coefficient of disposable income, and we are at least 95 percent sure that this relationship actually exists and is not an error caused by random chance. On average, each additional binding IMF condition increases the income Gini by 0.013 percentage points, all other variables held equal.’

These conditionalities, including the ones being prescribed under the ongoing extended fund facility (EFF) programme with IMF, are basically neoliberal, and austerity-based in nature. For instance, fiscal consolidation related conditionalities, like achieving primary surplus in the current EFF programme, are more often than not placed under quantitative performance criteria (QPC), which are those conditionalities that are ‘binding’. Moreover, structural conditionalities of the IMF programme support shock-doctrine-natured policies that reduce the role of government, and enhance market fundamentalism, like the current EFF programme calling for deep privatization of state-owned enterprises (SOEs), deregulation of agricultural markets, and price, and trade liberalization.

In doing so, the authorities– which mutually, or in collaboration of the IMF prepare important programme documents like the Letter of Intent (LOI), and the memorandum of economic and financial policies (MEFP)– and the IMF have in no significant way learnt from either the misgivings of the neoliberal, and austerity policies, nor from the significant positive impact of gradual reform strategy, for instance by China, where instead of shock therapy, and outright privatization, the country successfully adopted price control policy of the nature of ‘dual-track’ pricing mechanism, and applying mixed-ownership enterprise model.

In doing so, the authorities– which mutually, or in collaboration of the IMF prepare important programme documents like the Letter of Intent (LOI), and the memorandum of economic and financial policies (MEFP)– and the IMF have in no significant way learnt from either the misgivings of the neoliberal, and austerity policies, nor from the significant positive impact of gradual reform strategy, for instance by China, where instead of shock therapy, and outright privatization, the country successfully adopted price control policy of the nature of ‘dual-track’ pricing mechanism, and applying mixed-ownership enterprise model.

Here, an important example of the lopsided nature of IMF programmes in general, and the ongoing EFF programme comes across in the shape of their over-emphasis on countries meeting fiscal consolidation (or austerity) targets, since they place them under ‘binding’ conditionalities, and even ‘floors’ or minimum levels of social spending related spending target – for instance, with regard to health, and education– under ‘non-binding’ indicative targets (IT). In the current programme, for instance, this continues to be followed whereby even after a country missing multiple times over meeting ‘Cumulative floor on general government budgetary health and education spending (billions of Pakistani rupees)’ it is still placed as a ‘non-binding’ constraint in the EFF programme.

This sort of sub-optimal emphasis of IMF programmes on social spending related targets, as against over-emphasis on programme countries meeting targets related to fiscal consolidation is quite a norm, and not an exception. The same book pointed out in this regard by analysing West African programme countries during 2010-2017, shows these targets are frequently unmet. ‘Of the 313 social spending floors for which we could identify implementation data, only 155 were implemented, about 49.5 percent.’ Moreover, it was indicated ‘…budget balance conditions were consistently adhered to and often were far exceeded, while at the same time social spending floors remained unmet. [For instance]… authorities in Benin – a country that met only 13 of its 51 [almost one-fourth of the total] social spending floors– cut poverty reduction spending (including health) in 2005 to “ensure achievement of the main fiscal objectives”…’