“Keep the Receipts”: The Political Economy of IMF Austerity During and After the Crisis Years of 2009 and 2020

In 2009, the International Monetary Fund (IMF) approved reforms to make short-term operations available to low-income countries and reform lending to higher-income countries. Many scholars have noted that the 2008 Global Financial Crisis appeared to loosen austerity measures in favor of more counter-cyclical approaches. However, it remains an open question whether the IMF followed through on its commitments to alter the overall level of austerity required by its arrangements

In 2020, the COVID-19 pandemic engulfed the world and brought financial and debt crises in its wake. In response, IMF Managing Director Kristalina Georgieva used the opening press conference of the Fund’s Annual Meetings in October to convey a simple message to developing countries: “Spend as much as you can, but keep the receipts.” In doing so, she made clear that the IMF was prepared to support immediate operations to save lives and livelihoods, but that in the medium- to long-term, the IMF had not changed its fundamental approach.

A new journal article in the Journal of Globalization and Development by Rebecca Ray, Kevin P. Gallagher and William Kring  analyzes the extent to which the 2009 and 2020 reforms resulted in changes to the overall austerity required by IMF agreements. The authors create a new variable measuring the level of fiscal consolidation required in each IMF program from 2001-2021, the IMF Fiscal Adjustment Indicator (IMF FAI). They explore whether IMF austerity eased after the financial crisis and the later COVID-19 pandemic, as well as estimate the economic and political determinants that help explain varying levels of IMF austerity across IMF programs during this period.

Despite significant research at the IMF showing that fiscal consolidation may not be an optimal path to economic recovery, the authors found no significant change in the level of fiscal consolidation required by the IMF since the Global Financial Crisis of 2008. While IMF conditions were less austere in 2009 and 2020, they quickly returned to their previous levels, echoing Georgieva’s advice to “keep the receipts” during crises. These temporary relaxations were also not statistically significant, pointing to overarching continuity. 

What is more, the authors found that countries that were granted relatively more lenient conditionality were found to be those with closer relations with major shareholders of the IMF: Western Europe and the United States. In contrast, countries with close diplomatic relations with China faced higher IMF austerity.

This journal article was originally published as a working paper in November 2020.