In the wake of the global financial crisis of 2008-9, the research department and flagship reports of the International Monetary Fund (IMF) suggested tight fiscal consolidation was inappropriate for developing nations undergoing economic stress. In this new working paper, Dr. Rebecca Ray, Dr. Kevin P. Gallagher, and Dr. William Kring evaluate the extent to which the IMF began to shift away from conditioning fiscal consolidation in its programs.

To do this the authors first created a new dataset that measures the level of fiscal consolidation required in each IMF program from 2008-2018, referred to as the IMF Fiscal Adjustment Indicator (IMF FAI). Second, they analyzed the extent to which IMF austerity lessened in the wake of the financial crisis. Third, the authors estimated the economic and political determinants that help explain the difference in levels of IMF austerity across IMF programs during the same period.

They found that IMF austerity did not significantly change in the wake of the financial crisis. Those countries that were granted relatively more relaxed fiscal conditionality were found to be countries with larger voting rights in the IMF, with more overseas development assistance from non-traditional sources, and with strong export and United Nations voting alignments with Western Europe. Higher levels of austerity are associated with inflation and higher levels of foreign direct investment from Western Europe.