What is conditionality?

Among its various activities (including data collection, research, and training policy elites), International Monetary Fund (IMF) lending programmes to countries in economic trouble have attracted most attention. In exchange for financial support, borrowing countries agree to implement a package of obligatory policy reforms, or ‘conditionality’, phased over one or more years. The implementation of conditionality is then assessed on a quarterly or bi-annual basis determining the disbursement of IMF funds.

As a general principle, loans come with conditions attached, such as repayment in an agreed-upon timeframe at a specified interest rate. This practice is consistent with the motives of private financial institutions interested in making a profit using their capital. However, such conditionality does not necessarily reflect the motivations of loan-granting intergovernmental institutions, which typically have politically-determined priorities that go beyond profit-making, including economic development, poverty reduction, infrastructure financing, education expansion, and other such objectives.​

Over the years, the IMF’s conditional lending practices have changed significantly. Until the 1980s, conditionality primarily required reforms to fiscal and monetary policy, as well as exchange rate adjustments, with the aim of reaching sustainable balance of payments. In the mid-1980s, the IMF expanded conditionality to bring about ‘structural adjustment’. This new approach advanced four main types of reforms: stabilization, liberalization, deregulation, and privatization. These policy conditions had a substantial impact on the underlying economic architecture of borrowing countries.

Conditionality has been linked to several detrimental economic, social, and political outcomes. On the economic side, IMF conditionality has been linked to reductions in economic growth and increases in inequality. On the social side, studies have found detrimental impacts to health systems in Africa and Europe, and identified adverse effects on population health. On the political side, research has linked conditionality to decreases in unionization and greater incidence of civil war.​

 

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Conditionality evolution

​The number of conditions the IMF applies on average each year has increased dramatically since 1980. In 2014 alone, the IMF mandated over 1,356 conditions across 35 countries.

 

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Conditionality policy areas

We assigned each condition under one of 13 policy areas.

external debt issues

16,571 external debt conditions recorded since 1980
Includes conditions on:

• Debt management
• External arrears
• Public debt, guarantees, and contingent liabilities

Examples:

• Ensure that all external payments arrears are cleared, in particular, those pertaining to two government-guaranteed loans from two German banks [Tajikistan 2002]
• Initiate discussions with Turkmenistan on reconciling and, if necessary, rescheduling mutual indebtedness [Tajikistan 1996]
• Adopt resolution on foreign borrowing/lending [Tajikistan 1996]
• External debt (medium/long-term; subceiling on medium/long-term; short-term) [various countries and years]
• External arrears [various countries and years]

Financial sector, monetary policy & central bank issues

15,229 financial sector, monetary policy, and Central Bank conditions recorded since 1980
Includes conditions on:

• Financial institutions
  • Legal reforms, regulation, and supervision
  • Corrective actions in problem banks
  • Privatization of financial institutions
  • Bankruptcy proceedings of financial institutions
  • Audits of financial institutions
  • Policies related to insurance companies
• Treasury bill issuance and auctions
• Government securities
• Monetary policy
  • Reserve money
  • Interest rates
  • Base money
• Central Bank
  • Legal reforms, regulation, supervision
  • Auditing, transparency, financial controls

Examples:

• Issue new prudential regulations for banks [Vietnam 1996]
• Government approval of the terms and conditions of bank recapitalization bonds that are fiscally sustainable and recapitalize the banks in stages as planned [Vietnam 2002]
• Present new central bank law to Parliament to strengthen central bank independence and limit central bank credit to Government [Cambodia 1994]
• Complete first stage of recapitalization of the Bank of Uganda through transfer of interest bearing securities [Uganda 1996]
• Invite bids through merchant bank to sell the Uganda Commercial Bank [Uganda 1996]
• Broad money, base money, and reserve money [various countries and years]

fiscal issues

9,700 fiscal conditions recorded since 1980
Includes conditions on:

• Expenditure policy and administration (includes single treasury account)
• Expenditure audits, accounting, and financial controls
• Fiscal transparency (publication, parliamentary oversight, posting data online)
• Audits of ministries
• Budget-related issues (preparation, submission to parliament, or approval)
• Domestic government borrowing or debt
• Public investment decisions
• Public sector arrears (includes to state-owned enterprises)
• Wage and non-wage arrears

Examples:

• Submit to parliament a draft budget for 2003 [Tajikistan 2002]
• Complete implementation of the pilot project to enhance expenditure commitment control [Tajikistan 2001]
• All privatization receipts accruing to the central governments of the RS and the Federation, and to the Cantons in the Federation will be placed in escrow accounts alongside all succession monies pending a comprehensive strategy to clear arrears [Bosnia and Herzegovina 2004]
• Expenditure (government; budget; total; etc.) [various countries and years]
• Balance (government; budget; fiscal; total; primary; etc.) [various countries and years]
• Treasury float, floating debt, budget float, and government float [various countries and years]

external sector (trade and exchange system)

5,142 external sector conditions recorded since 1980
Includes conditions on:

• Trade-related issues
  • Trade liberalization
  • Tariffs / quotas changes
  • Custom duties changes
• Exchange system
  • Foreign exchange rate regime
  • Exchange rate policy
• Capital account liberalisation
• Foreign direct investment
• Surrender requirements
• Excludes: customs administration reforms (see revenues and tax issues)

Examples:

• Reduction in import permits to five commodities [Vietnam 1996]
• Simplification of customs tariff regime [Bosnia and Herzegovina 1998]
• Adopt a uniform import duty of 5 percent with minimum exemptions [Tajikistan 1997]
• Removal of import ban on cigarettes [Uganda 1999]

revenues and tax issues

4,252 revenue and tax conditions recorded since 1980
Includes conditions on:

• Revenue issues
• Audits of private enterprises
• Tax policy, legislation and administration
• Customs administration
• User fees (excludes those falling under social policy)
• Excludes: trade-related tax (see external sector)

Examples:

• Adopt specific excise taxes based on volume for tobacco, alcohol and petroleum products [Tajikistan 1998]
• Increase the power and authority of the Large Taxpayer Unit over local tax authorities [Tajikistan 1999]
• Government to adopt and implement measures addressing key sources of tax evasion [Bosnia and Herzegovina 2000]
• Adopt the value-added tax (VAT) legislation [Uganda 1995]
• Cabinet approval of draft Income Tax Law and tabling it in Parliament [Uganda 1997]
• Revenue (government; budget; total; etc.) [various countries and years]

state-owned enterprise reform and pricing

2,310 state-owned enterprise reform and pricing conditions recorded since 1980
Includes conditions on:

• Restructuring of public enterprises, pricing policies and subsidies
• Transference of state-owned enterprise management to the private sector
• Regulatory reforms in utilities, price controls and marketing restrictions
• Audits of state-owned enterprises
• Marketing board-related conditions
• Corporatization, rationalization, etc.
• Clearance of arrears to the public sector, other state-owned enterprises, or elsewhere
• Excludes: financial sector (see financial sector, monetary policy, and Central Bank issues)

Examples:

• Transform Al Watwan, Radio Comores, the SNI, the public works teams, and the secondary airports into financially autonomous entities [Comoros 1994]
• Publish a roadmap indicating annual targets on SOE reform by type of reform action through 2004 [Vietnam 2002]
• Adopt state enterprise action plan [Vietnam 1996]
• Introduce new accounting rules for state enterprises [Vietnam 1996]
• Reform of export crop marketing boards, especially to discontinue purchasing crops and act solely as auction administrators [Tanzania 1990]
• Corporatization of at least 100 additional (i.e. cumulatively 150 during 1998) medium and large-scale companies [Tajikistan 1998]
• Pricing of domestic fuels [Venezuela 1997]
• Liberalization of the wholesale price for crude oil [Uzbekistan 1996]

labour issues (public and private sector)

1,991 labour conditions recorded since 1980
Includes conditions on:

• Wage and employment limits
• Pensions
• Social security institutions
• Excludes: conditions that are beneficial to labour (e.g. payments of wage arrears, see fiscal issues)
• Excludes: measures related to personnel in social sectors (if concerning reductions in numbers, see social policy; if concerning increases in numbers, see redistributive policies)
• Excludes: Salary, wage and income taxes (see revenues and tax issues)

Examples:

• Reach understandings with staff of the World Bank pension reform [Tajikistan 1996]
• Reduce number of civil servants through attrition [Panama 1996]
• Demobilise 10,000 soldiers [Uganda 1994]
• The size of the "number-limited" civil service on the payroll (excluding new primary school teachers) will be 62,100 [Uganda 1996]
• Formulate a medium-term strategy and reform program for the civil service end-June 2000 entailing annual phasing for downsizing [Cambodia 2000]
• Wage bill [various countries and years]

state-owned enterprise privatiSation

1,026 state-owned enterprise privatisation conditions recorded since 1980
Includes conditions on:

• All activities related to the privatisation of non-financial state-owned enterprises (includes joint stock companies, tenders, etc.)
  
• Liquidation of state-owned enterprises (under the rationale that government is relinquishing ownership)
  
• Bankruptcy proceedings of state-owned enterprises
  
• Excludes: financial sector (see financial sector, monetary policy, and Central Bank issues)

Examples:

• Reach understandings with staff of the World Bank on privatization [Tajikistan 1996]
  
• Eliminate the minimum sale price for enterprises with fewer than 5 employees [Tajikistan 1998]
  
• Privatization of at least 25 medium or large-scale companies [Tajikistan 1998]
  
• Divestiture of 23 enterprises in 1997/98, including at least 7 with asset values of U.Sh. 5 billion or more [Uganda 1998]
  
• Prepare a list for cash privatization of public enterprises and a timetable for their sale, with the intention of yielding at least Tug 2 billion for the 1995 budget [Mongolia 1994]
  
• Agree with the World Bank and Fund on annual targets for a three-year state-owned enterprise reform program for equitization, divestiture, and liquidation, covering 10 percent of SOEs’ debt [Vietnam 2001]

redistributive policies

825 redistributive policy conditions recorded since 1980
Includes conditions on:

• Poverty reduction measures
• Increases in social sector spending
• Poverty Reduction Strategy Paper development and implementation
• Minimum employment in health and education sectors, social safety nets, etc.
• Excludes: changes in any social policy that contain both restrictive and redistributive measures or are ambiguous, i.e. that could be either restrictive or redistributive (see social policy)
• Excludes: conditions that refer to collection on spending data for monitoring ‘priority sectors’ (see fiscal policy)

Examples:

• Develop and implement an effective compensation mechanism for mitigating the effects of energy sector reforms on poor households [Tajikistan 2003]
  
• Submit a PRSP preparation status report to the Bank and the Fund [Cambodia 2001]
  
• Minimum nonwage budgetary Priority Program Areas expenditures on health and education: USH 28 billion [Uganda 1997]
  
• Completion of output-oriented work plans for all districts for absorption of the Poverty Action Fund conditional grants for 2000/01 [Uganda 2000]
  
• Development of a strategic communication plan to disseminate information on the respective roles and responsibilities of communities, local government authorities, and the central government in accounting for and monitoring the Poverty Action Fund resources [Uganda 2000]

institutional reforms

706 institutional reform conditions recorded since 1980
Includes conditions on:

• Legal reforms (e.g. new civil code, bankruptcy laws, judicial system reforms)
  
• General anti-corruption measures (e.g. declarations of income sources for politicians, publishing tenders online)
  
• Combating economic crimes (e.g. anti-money laundering laws, reforms against the financing of terrorism)
  
• Enhancing competition (e.g. granting new licenses for telephone companies, abolishing monopoly sectors)
  
• Private sector development (e.g. reducing barriers to entry, procedures to register business, governance/regulation of private sector enterprise, business registry)
  
• Devolution, decentralisation, or restructuring of ministries
  
• Sectoral policies

Examples:

• Establishment of a new settlements system for electricity that discourages barter [Ukraine 1997]
  
• Adopt a time-table for reform of the Apparat of the Cabinet of Ministers, in line with recommendations provided by the World Bank staff [Ukraine 1999]
  
• Establishment of two separate entities for post and telecommunications, respectively, under the supervision of the Ministry for Post and Telecommunications (PTT) [Guinea 1992]
  
• Establishment of a commercial chamber in the High Court [Gambia 1998]
  
• Submission of new bankruptcy legislation to Parliament by April 30, 1996 [Latvia 1996]
  
• Congressional approval of modifications to the General Electricity Law, to include, inter-alia, provisions to criminalize electricity fraud and theft [Dominican Republic 2007]

social policy

317 social policy conditions recorded since 1980
Includes conditions on:

• Changes in any social policy (health, housing, education, etc.) as long they are restrictive (e.g., introduction of user fees, closures of hospitals or schools, etc.) or neutral (e.g. agree with the World Bank on X plan)
• Increases in prices or removal of consumer subsidies for food, water, public transport, or other basic needs goods (includes electricity and gas only in cases where they explicitly target households)
• Restructuring of health, education, or housing (etc.) ministries
• Changes in any social policy that contain both restrictive and redistributive measures or are ambiguous

Examples:

• Matching policies on invalid and survivor benefits to available revenues [Bosnia and Herzegovina 1998]
• Maize-meal to be sold at a controlled retail price no lower than Z$393 per 50 kilo bag [Zimbabwe 1999]
• Agreement with the European Union on the specific measures for the reform of the ministries of education and health [Haiti 1998]
• Increase bread/flour prices to cost-recovery levels [Tajikistan 1996]
• Set households' electricity tariffs to at least 25 percent of the full cost recovery level [Tajikistan 1999]

land and environment

173 land and environment conditions recorded since 1980
Includes conditions on:

• Land issues (includes privatisation of land, land registries, granting property rights; excludes taxation, see revenues and tax issues)
  
• Environmental issues (includes environmental regulations, access to the commons)

Examples:

• Passage by Parliament of amendments to Land Reform Law [Estonia 1996]
  
• Issue a decree making land certificates marketable through the Land Reform Committee [Tajikistan 1998]
  
• Transfer of 2,000 hectares of arable land from the Government to the World Bank diversification project for rehabilitation and redistribution [Equatorial Guinea 1993]
  
• Collection of fines levied on fishing violators and increasing the collection to 80 percent of the amount of fines recorded during 1995 [Mauritania 1996]
  
• Start land reform (with technical assistance from IDB/DFID) [Guyana 1998]

residual category

164 residual category conditions recorded since 1980
Includes conditions on:

• Statistical or national accounts issues (e.g. national accounts framework, balance of payments measuring / reporting, consumer price index, establishing statistical authorities, household surveys)

Examples:

• Carry out the Population Census [Mozambique 1997]
  
• Provide the Fund staff with summary information on the methodology used to compile national accounts [Ghana 1999]
  
• Proposal of an action plan for statistical improvements that will permit Brazil’s subscription to the Special Data Dissemination Standard (SDDS) [Brazil 1999]