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International Monetary Fund: Helping Nations Recover or Regress

Avni Sethi - Shiv Nadar School, Faridabad

International Monetary Fund: Helping Nations Recover or Regress


By: Avni Sethi, Shiv Nadar School, Faridabad


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Abstract


The International Monetary Fund (IMF) was formed to aid nations economically and financially during crises. However, its aid and loans have come under increased scrutiny lately for their long-term effects on the development of the countries involved. This paper examines whether the IMF’s programs and interventions are truly aiding development and recovery or hindering progress by enforcing restrictive policy conditions, specifically in Africa. Using data from case studies and comparative economic reviews, this paper assesses the outcomes of the IMF’s aid, primarily focusing on countries such as Ghana, Rwanda, and Zambia. Certain themes are reiterated and discussed in more detail when discussing the impact of the IMF, such as imposed austerity, loss of political autonomy, neo-imperialism, and the social consequences. Recommendations are made for context-sensitive loaning practices and a re-evaluation of certain conditionalities in the loans extended.


IMF Involvement Background


The IMF was founded in 1944 with the aim of promoting international monetary cooperation, facilitating the expansion and balanced growth of international trade, and maintaining exchange arrangements among its members. Additionally, it works to help all member states achieve sustainable economic growth and prosperity through various means. They monitor economic and financial developments in countries and provide policy advice when required, offer technical assistance and training to help governments implement stronger and more beneficial policies, and most often, in the cases of underdeveloped or developing countries, provide conditional loans and financial aid when countries face crises to allow for the easier implementation of adjustment policies. These loans often come with Structural Adjustment Programs (Conditionalities), which are reforms or changes a government must make in exchange for the loans. While these conditions are aimed at removing underlying problems in the domestic policies of countries and, in low-income countries, also have the additional objective of reducing poverty, critics have pointed out that they often result in the opposite.


Historical Context and Present-Day Policy


The International Monetary Fund’s presence in Africa can be traced back to the 1960s when African countries began to gain independence from colonialism. However, major intervention only started in the 1980s and 90s. Some examples of these interventions are the Structural Adjustment Facility Commitment, Enhanced Structural Adjustment Facility, and the Rapid Financing Instrument. The legacy of the structural adjustment policies implemented at the time is debatable, with some saying they laid the groundwork for recovery while others have criticized their impacts on long-term development and for worsening poverty and the quality of life for lower- and middle-class citizens.

However, as of late, the IMF has been implementing policies that often safeguard spending on healthcare and education to try and reduce the impact on the poor. There has also been a relative decrease in austerity, and they have started offering a wider range of programs for different sorts of crises, such as the Rapid Credit Facility (RCF) and the Extended Credit Facility (ECF). The RCF provides immediate low-access financial assistance to qualifying Low-Income Countries (LICs) facing an urgent balance of payments need from a wide variety of circumstances, including external shocks. The ECF, on the other hand, assists LICs in implementing policies that steadily move toward a secure and sustainable macroeconomic position. While the RCF provides immediate financial assistance often with no additional conditionality, the ECF provides financial assistance over many years, often with many conditionalities and associated policies that must be worked on and implemented. These programs, although more structured to different needs, also have drawbacks. The main ones being: the RCF's probability of increasing the dependency of countries and the difficulties countries might face in the future when asking for immediate help if they already have pending debts. Whereas, the ECF raises concerns about the limited participation of civil society in the implementation of these programs and rigid austerity measures that disproportionately affect the poor in these countries.


Case Study 1: Rwanda


Intervention in Rwanda first started after the Rwandan genocide and economic crisis post-1994. The genocide resulted in the loss of about 1 million lives, an increase in orphans and poverty, and a contraction of GDP by 50%. This left them at an alarmingly low per capita GDP of $146, while the poverty rate skyrocketed to 78%. Since then, the GDP has tripled, and poverty has been reduced to 38%. In the post-conflict period, Rwanda has placed a high priority on maintaining macroeconomic stability, even in the face of various external shocks. Most of these policies are aimed at improving the handling of state-owned enterprises, domestic revenue mobilization, and public finance management digitization. The country has sought almost continuous intensive program engagement with the IMF since 1995, despite scarce access to IMF financing in the first decade of the 21st Century (Figure 1).


Figure 1. Rwanda: IMF Net Disbursements



Figure 1. Rwanda: IMF Net Disbursements

Source: IMF Finance Department Database


These close engagements with the IMF over the years have allowed for careful planning of domestic and monetary policy in Rwanda. An example of this is the withdrawal of donor support in 2012, which increased technical advice to boost domestic revenues and reduce reliance on aid inflow for development.

The outcomes of these policies can be analyzed by looking at the GDP growth, social indicators, and debt sustainability. In the early 1980s, IMF involvement wasn’t extensive, but external loans started growing. Real GDP growth at the time was -3.6 percent. This went further down, especially from 1991–93 during the Rwandan genocide, where real GDP growth dropped further to a shocking -41.9 percent (Figure 2). By 1995, this had increased by nearly 25% because of immediate IMF action and policies that focused on recovery in food production, commercial services, and some manufacturing activities. From 1995 to 2025, the mean real GDP growth has been 8.37 percent. This is a stark difference from before IMF involvement and wouldn’t have been possible without intervention in 1995 and subsequent loans.


Figure 2. Rwanda: Real GDP Growth



Source: IMF Real GDP Growth datamapper


Although many steps have been taken by Rwanda to reduce poverty, the rate is still higher than other African countries with similar income levels. Using the international poverty line of $2.15 2017 PPP, the incidence of poverty fell from 66 percent in 2005-06 to 52 percent in 2016-17 and was projected to fall further to 48.1 percent in 2019 on the back of strong growth in GDP and private consumption. However, there has been a gradual weakening of the relationship between economic growth and poverty reduction. While each percentage point increase in GDP per capita corresponded to a 0.36 percentage point decline in poverty between 2005/06 and 2010/11, it fell to 0.24 between 2010/11 and 2016/17. The results of poverty decline are also more concentrated in urban settings compared to rural areas, where it continues to be a pressing issue. After the onset of the Covid-19 pandemic, some of these gains were reversed, and poverty rose again. However, future reductions are expected to be modest, hardly enough to offset population growth. On top of this, inequality remains high.


This weakening relationship between economic growth and poverty reduction is due to multiple reasons, such as the uneven distribution of economic growth, due to which the poorest sectors of Rwandan society, particularly in rural areas, may see little to no improvement in living conditions. Additionally, the conditionalities imposed on some of these loans may often prompt the government to cut social spending to focus more on sustainable growth, clean energy, and macroeconomic management. This adversely affects the poor, as many people who would rely on state programs for basic necessities may now not be able to access them. Rwanda also has a noticeable dependency on foreign aid due to its lack of infrastructure for exporting and relatively less foreign direct investment compared to other African countries. While there has been a recent increase in efforts to reduce dependency, IMF aid still accounts for over 40% of its national budget.


Case Study 2: Ghana


Ghana gained independence in 1957 and by 1960 became a republic under Kwame Nkrumah, who had ambitions to turn Ghana into an industrial power. However, heavy spending, falling cocoa prices, and rising debt led to economic strain. Nkrumah was overthrown in 1966, and successive governments failed to halt the decline. The country faced inflation, low productivity, and a mismanaged currency in the 1970s. The 1980s became the boiling point for Ghana’s troubles, with inflation reaching over 100%, peaking at 122.2%, and real GDP falling to its lowest point (see Figure 3).


Figure 3. Ghana’s Inflation (Right Scale) and Real GDP (Left Scale)


Source: IMF International Financial Statistics


This marked the first major instance of IMF intervention. Under Jerry Rawlings, the Economic Recovery Program (ERP) was initiated in 1983 and lasted until 1986 in collaboration with the IMF and the World Bank. Under this program, efforts at liberalization and modernization of the external sector were made by shifting to a more market-oriented approach, meaning that government intervention was minimized. This made significant progress in reducing macroeconomic imbalances. Although inflation decreased and there was an appreciation in real per capita incomes, inflation was still volatile, which discouraged private investment and hindered economic growth. Export growth in particular remained disappointing, and Ghana remained dependent on foreign aid.


1986 was the start of the implementation of Structural Adjustment Programs (SAPs). It aimed to open up Ghana's economy to international trade by reducing tariffs and other trade barriers. This was done with the intent of improving efficiency in domestic industries and promoting economic growth. There were efforts to increase the privatization of previously state-owned industries in order to take the load off the government and huge amounts of public reforms and fiscal discipline. There is often scrutiny over the fact that some of these policies may have only been accepted as a condition in exchange for future loans.


In 2015, Ghana faced a huge economic crisis fueled by various factors, such as a depreciating currency, rising inflation, and most importantly, a massive power crisis known as ‘Dumsor.’ After a brief ‘boom’ in the economy in 2011 and 2012, the economy gradually slowed down, and in 2014, Ghana’s national currency, the Cedi, lost approximately 40% of its value. Perhaps the most notable period of this crisis was in 2014, when Ghana spent about 159 days in blackout in 2014 alone. To add to that, equipment failures sometimes caused unscheduled power outages. This was caused by low rainfall, affecting the operations of hydro-electric plants, and issues with contract obligations to external partners. The government’s response to this was to take a credit loan from the IMF of $918 million on the conditions of public spending cuts, freezing wages, and making further structural reforms.


All of these crises and their management by the government and the IMF display a common trend of a high focus on fiscal discipline, debt management, inflation control, and imposed austerity and cuts that sideline public care. Visibly, all the way from 1986 until even the 2015 power crisis, although GDP increased and macroeconomic growth did happen, core underlying issues such as poverty worsened. With cuts in public spending, the already prevalent income gap worsened. Additionally, strict fiscal discipline and austerity in exchange for loans meant an increased reduction of spending on public healthcare and education, raising concerns. The events in the 2015 crisis led to a decrease in the value and benefits of pensions and an overall decrease in purchasing power for pensioners. This would have had an adverse effect on retired pensioners, particularly those from lower-income backgrounds, making them much more prone to hardship.


Additionally, Ghana as a country is heavily reliant on its exports, particularly cocoa, petroleum products, and gold. It was noted that in 2024, gold, petroleum, and cocoa collectively accounted for 78.2% of Ghana’s total export revenue. While this provides a good source of income, it makes them even more prone to external shocks and price volatility. Due to the repeated economic crises faced by Ghana, the democratic structure has been tested numerous times and has exposed weaknesses and lacking points within the government in times of need. This has led to public dissatisfaction, particularly in the lower sections of society. This state of public affairs could potentially lead to a higher proneness of the government to future shocks or even civil unrest if not worked on. The reason for the lack of action concerning these matters may be traced back to the fact that most interactions between Ghana and the IMF have been to target short-term economic and GDP growth and crisis management instead of sustainable development. Ghana has also often sought out loan bailouts from the IMF. These practices, if prolonged, may unintentionally lead to a cycle of dependency. Underlying issues are often not addressed or worked on, making it highly likely that a crisis repeats itself because the root cause is not being fixed.


Case Study 3: Zambia


The IMF’s intervention in Zambia was a result of failed measures taken by Kenneth Kaunda’s government in the 1970s after the 1973 oil crisis and falling copper prices. Zambia’s economy at the time was heavily reliant on copper exports, with copper accounting for more than 90% of exports, and was deeply affected by the decrease in prices (see Table 1). It caused fiscal deficits and balance of payment problems. To deal with this, Kaunda’s government tried to centralize major industries and industrialize rapidly; however, the increase in public spending, borrowing, and subsidies caused a huge amount of external debt to mount up.


Table 1: Contributions of copper to GDP, government revenue and exports, 1970–1980



Source: Burdett 1984:209


With pressure and debt mounting up, Zambia turned to the IMF and World Bank for help first in 1973. It then entered a Structural Adjustment Program, with multiple other subsequent programs being implemented through the 1970s. The primary aim of these programs was to control the budget deficit, improve export competitiveness, and reduce reliance on copper exports. To achieve these goals, the SAP pushed for various structural changes such as limiting government spending, restricting wage increases, lowering the value of the Zambian Kwacha, and encouraging the development of other sectors. In its 1976 second standby arrangement with the IMF, stricter adjustments were imposed on Zambia, most notably some being: a 20% devaluation of the currency and ceilings on the money supply and government credit. However, the programs failed to successfully aid recovery, and Zambia continued to face balance-of-payment difficulties. There were also social consequences of these programs. Cuts in public spending led to a decrease in access to healthcare and education, widespread job loss left many people without an income and few future prospective jobs, and there was also a noticeable erosion in economic security. Additionally, existing inequality and conditions for vulnerable populations worsened.


Between the late 1970s and the early 1990s, Zambia’s economy was gripped by a series of crises that stemmed from structural weaknesses and external shocks. Over-reliance on copper exports left the country highly vulnerable to fluctuations in global commodity prices; when copper prices plummeted, national revenues collapsed, driving GDP growth into prolonged stagnation. From 1975 to 1991, per capita income fell by 2.6% annually (see Table 2), reflecting a steady decline in living standards despite sporadic periods of recovery. Inflation worsened these problems, rising from moderate levels of around 15% in the early 1980s to hyperinflation rates nearing 190% in the early 1990s, eroding purchasing power and devastating household savings. Meanwhile, growing fiscal deficits, averaging 13.8% of GDP during the 1980s, forced Zambia to rely on heavy external borrowing, doubling its foreign debt to over 200% of GDP by 1990. Servicing this debt often consumed more than the country’s entire export revenue, leaving little room for public investment in essential services.


Table 2: Zambian GDP Growth Since Independence



Source: World Bank: World Development Indicators, 2012


In response, Zambia turned to the International Monetary Fund (IMF) and the World Bank for support, entering a series of structural adjustment programs aimed at stabilizing the economy and restoring growth. These programs implemented sweeping reforms, including currency devaluation, trade liberalization, the removal of subsidies, and the privatization of state-owned enterprises. While intended to reduce deficits and curb inflation, these policies came at significant social and economic costs. Public spending cuts undermined healthcare and education, wage freezes weakened household incomes, and rising prices sparked widespread discontent and protests. Although some fiscal stabilization was achieved, living standards deteriorated sharply, and debt dependence deepened as Zambia repeatedly rescheduled payments under IMF oversight. By the early 1990s, the combined effects of economic contraction, hyperinflation, and unpopular austerity measures culminated in political change, as President Kenneth Kaunda’s socialist government was replaced by Frederick Chiluba’s reformist administration, which pushed for further liberalization. Zambia’s experience during this period illustrates how commodity dependence, poor fiscal management, and externally driven adjustment policies intersected to create a cycle of economic collapse and social hardship that reshaped the nation’s political and economic trajectory.


In 2020, Zambia defaulted on its piling debts and entered negotiations with the IMF for debt relief. The situation was further exacerbated by the Covid-19 pandemic, and as a result, it was granted a loan worth $1.3 billion. However, the negotiations were a far more complicated matter than anticipated as, to restructure debts, the IMF needed assurances from all major creditors (France, UK, and China) promising that they would help restructure in a sustainable manner. Additionally, approximately 46% of their debt is owed to private lenders, who often charged much higher interest rates. This caused large delays and complications during negotiations as China wanted to restructure on its own terms and private lenders were unwilling to give up more than China (comparability clause). On top of this, private lenders were unwilling to accept ‘haircuts’—the reduction in a loan amount compared to an asset's value—as a result of which, it took all the way until 2022 for Zambia and the IMF to finally secure a relief deal. This, too, came with conditions, mostly entailing stringent austerity measures and large cuts in public spending. There was an expected ‘nudge’ in inflation, and with the removal of subsidies on fuel and the expected increase in electricity tariffs, there would have been an adverse effect on poor households. Despite an increase in public spending on healthcare, problems such as the increasing prices of medicine and socio-economic factors may be hindering equitable access to and the distribution of healthcare.


Comparative Analysis


All three case studies display similar trends of intervention during peak inflation and economic crisis post-independence, followed by the introduction of Structural Adjustment Programs in the name of intervention. These programs result in erratic growth and inflation rates preceding gradual macroeconomic growth at the expense of social welfare, sustainable growth, and living standards. There is a noticeable increase in poverty and marginalization visible across all three case studies, along with an increasing frequency of dependency on loans and crises through the years. However, the extent of macroeconomic growth has been different in all three case studies, with Rwanda showing the most development due to continuous engagement with the IMF over the years, with a strong focus on state-owned industries as compared to case studies 2 and 3, where primary interactions with the IMF have been for the purpose of crisis management and there has been a push towards the privatization of state-owned enterprises instead.

The countries’ responses to IMF policies all had common features, though they differed in some aspects. All countries showed a worsening income gap between the rich and poor and a growing divide in the relationship between economic development and poverty reduction, implying unsustainable growth policies. Additionally, development came to a standstill or even regressed as a result of Covid-19 in 2020. In terms of economic growth, Rwanda evidently showed the most growth, with a real GDP of 7.1% in 2025, while Ghana and Zambia displayed a real GDP growth of 4% and 6.2% respectively. While there is some economic growth visible, in terms of poverty in Rwanda, Ghana, and Zambia, 63.84%, 39.03%, and 71.66% of the populations live below the international $3 poverty line. As for debt levels, all three countries showed a cycle of dependency on IMF aid, with these loans accounting for large amounts of their national budget.


Key Critiques and Alternative Perspectives


The policies implemented by the IMF in each of these countries have come under scrutiny over the years for various reasons. Some of the main concerns focus on how these policies enable neo-colonialism, strict austerity, and follow one-size-fits-all solutions. Through IMF conditional loans and a growing cycle of dependency, powerful nations practicing neo-colonialism use conditional loans, cultural influence, and economic dominance to shape another country’s foreign policy, often under the guise of offering economic help. While the power imbalance is less direct than in traditional colonialism, these nations maintain control by keeping other countries financially dependent or under significant political sway. Within the IMF, much of this influence rests in the hands of wealthier member states. This concern can also be seen being voiced out by other African leaders, such as Ibrahim Traoré, who raised the issue of puppet rulers in his speech at the AES summit. Another major concern is the forced austerity imposed as a result of the conditionalities. Large cuts in public spending have resulted in the crippling of public healthcare and education and further disproportionately affect low-income households and increase social inequalities.


However, there has indeed been macroeconomic development under the IMF policies, with the guidance of experts, efforts at long-term planning, and stabilization. Debt relief and cancellation from the IMF allowed for more expenditure towards other areas of the government and a reduction in external debt in Ghana and Zambia. Rapid GDP growth was noticed in Rwanda from the 2000s and onwards, generally averaging between 7%-8%. Additionally, it also allowed renewed investor confidence in Zambia and Rwanda, which helped in improving GDP growth. The IMF also worked to improve inflation rates in all three countries and was able to achieve this to a certain extent. However, the domestic policies of governments in power also affected the development of these countries in the context of implemented policies. The difference in the results of these policies in Rwanda, and Ghana and Zambia lies here. The government in Rwanda was much less corrupt and aligned domestic policy with the goals of IMF programs. This meant that funds provided were more likely to be well-targeted, increasing the overall efficiency of the programs. While, in Ghana and Zambia, political leadership was not as effective in meeting the targeted goals. In Ghana, program goals aiming at fiscal deficits were often hindered due to excess spending before elections. Additionally, due to their struggles with public debt transparency, there have been repeated engagements with the IMF for the same. Similarly, in Zambia, IMF sustainability goals were repeatedly undercut due to high borrowing without adequate revenue growth, and due to the unpopularity of the IMF among the public, it would often delay agreements so as to not anger public opinion close to elections.


Recommendations


To correct these gaps in the aid provided, it is not only the IMF that is liable to take steps but also the respective governments. The IMF would be able to aid recovery better if it added reforms to its conditionality clauses by ensuring the protection of key areas of public spending—such as healthcare and education—and focused on more context-specific fiscal strategies by taking into account various factors such as realistic revenue projections, avoiding excessive lending, ensuring sustainable debt levels are maintained, flexibility towards unexpected shocks, and standby counter-cyclical measures in case of sudden shocks or recessions. A less crisis-triggered intervention would also be much more helpful in helping nations recover rather than waiting for a crisis to occur before intervention or aid is provided, and gradual implementations of programs would be better so as to prevent civil unrest at immediate radical changes. It is also important to ensure that local experts will also be involved in the program designs, as it allows for a better understanding of the social and political evolving situations in a country.


As for the governments of these countries, it would be beneficial if before entering negotiations with the IMF they strengthened their bargaining positions by forming strong alliances among countries and ensuring that the deals agreed upon align with the national development plans of the governments rather than approaching these loans as donations or a vital part of their national income. Along with this, a strong focus on reducing the illicit flow of money would further aid the development of these nations by preventing the loss of valuable income. The setting up of a contingency fund would also aid these countries in future crises by not leaving them completely dependent on foreign aid when faced with unforeseen shocks or circumstances.


Conclusion


Circling back to the main question of whether or not the International Monetary Fund is helping nations recover or regress, we can conclude that the answer to this is multifaceted, as while some areas show some development, other aspects of the countries are further regressing. This is particularly displayed through the common trend of growing macroeconomy but regressing situations of the poor in the studied countries (Rwanda, Ghana, and Zambia). The impact the IMF has had and the role played by it is quite nuanced, supporting trade and development but at the expense of austerity, strict fiscal policy, and enabling neo-colonialism of these developing countries. And while this has had a negative social, political, and long-term economic impact, it has also managed to aid recovery through some of the worst economic crises faced. Moving forward, recovery/development aid provided by the IMF would prove to be more beneficial if there is also a focus on the protection of public spending on healthcare and education, involving local economists, and having a proactive approach to providing aid in Africa. Additionally, African countries are urged to take a stronger stance on loan negotiations and safeguarding national self-interest. The creation of contingency funds would also further aid these governments in times of crisis, making them less dependent on loans.


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