Interview: The International Monetary Fund
#61: With Masood Ahmed
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Masood Ahmed is president of the Center for Global Development, a leading international development think tank. He previously worked at the UK Department for International Development, the World Bank, and the International Monetary Fund, where he served for eight years as director of the Middle East and Central Asia Department. Our questions are in bold, his answers in block quotes.
What is the IMF and what role does it play in global development?
The IMF is an international organization that works to achieve sustainable growth and prosperity for its 190 member countries by promoting international financial stability through policy advice, financial assistance in the form of loans, and support for national capacity development. The IMF supports economic policies that advance financial stability and monetary cooperation which are essential to increasing productivity, job creation, and economic well-being – and global development. The IMF’s three critical missions are to further international monetary cooperation, encourage the expansion of economic growth and trade, and discourage harmful policies.
How is the IMF perceived in developing countries?
The IMF is respected for its technical expertise by developing countries, but these countries often criticize it for the policy conditions which are attached to IMF loans. Some of this reflects the fact that developing countries generally ask for the IMF’s financial help when their economies are in distress, often because they have run up unsustainable fiscal or current account deficits. The IMF asks these countries to cut back spending, sometimes devalue their currencies and make other policy changes that will help to rectify the fiscal and current account problems, and it provides funding to make the process less painful. Sometimes it is easier for the governments concerned to blame the IMF for the ‘austerity’ being imposed rather than taking responsibility for the policy mismanagement that caused the problem in the first place.
How has the IMF's approach to crises changed over time and how does it respond differently to different countries? Why?
The IMF’s approach to helping countries deal with crisis has changed over the decades in three important ways. First, the IMF now recognizes that macroeconomic stabilization can and should be done in a way that places the least burden on the most vulnerable people in the country. This is often reflected in the design of the stabilization programs it supports. Second, the IMF has become much more open and proactive in reaching out to civil society both in the country of operation and internationally; this gives them a different and often very useful complementary perspective on the situation in the country and how their policy conditionality is impacting different communities. Finally, the IMF is becoming more aware of the interlinkages and common challenges faced by many countries in a world economy that is becoming more prone to shocks like Covid, high food and energy prices, climate related extreme weather events and wars. It is in the process of designing lending instruments that will help countries deal with such exogenous shocks, but this remains a work in progress.
Can you explain Zambia's recent "historic" debt deal and what it meant for the IMF?
Given Zambia was the first African country to default on its debt during the COVID-19 pandemic in 2020, its restructuring process shows both the potential and the limitations of the current approach to dealing with unsustainable debt in developing countries. Negotiated through the G20’s Common Framework for debt treatments over three years, Zambia reached a deal in October to restructure $6.3 billion of its debt owed to official creditors. However, the process suffered a major setback in November when official creditors rejected the country’s subsequent deal with bondholders to rework $3 billion over on the grounds that private credits received a more favorable arrangement. The bottom line is that the sovereign debt restructuring architecture is not sufficient – and likely will not see substantial improvements anytime soon – and more and more countries will face increased fiscal pressure from debt servicing and stagnating economic prospects.
Why was the recently announced IMF bailout package so important for Pakistan?
The recently agreed IMF package came at a time when heightened political and economic uncertainty in Pakistan was making financial markets very nervous and there was a real risk of a financial crisis in the country. Having an agreed program with the IMF provided investors and markets with some assurance that appropriate macro policies would be followed and shored up confidence at a critical time. However, this program is now coming to an end and political uncertainty has increased in the country. This makes it all the more important for Pakistan to reach agreement with the IMF on a successor program, so as to assure markets and maintain financial stability.
What is the IMF's role in climate change?
Climate change presents a serious threat to growth and prosperity, with a direct impact on the economic welfare of all countries. In recognition of this, the IMF has stepped up its work on climate change by analyzing the impact of climate change on the global economy, by promoting economic policies that will help to address climate change (such as pricing carbon at appropriate levels and eliminating the huge subsidies that many countries provide for the production and use of hydrocarbons), and by providing financial support to countries as they embark on the reforms needed to improve their resilience in the face of climate change and other environmental challenges. The IMF’s climate change related work has been the subject of some controversy with some policymakers arguing that the IMF is straying from its core functions of macroeconomic and financial stability and others asking the IMF to go even further given the existential threat that climate change poses to all economies.
How will the changing global environment affect the IMF?
The world is becoming more prone to shocks and climate change will impact almost every economy in ways that are still being worked out. Developing countries are also facing an extended period of tight international financial markets, slow growth and, for many of them, high levels of debt and debt service. The IMF will need to adjust its operations to help countries deal with the macroeconomic and financial consequences of these global shocks and this will probably require new financing tools and different analytical frameworks. In addition, geopolitics and great power rivalry are making it harder for international institutions to operate smoothly. One of the IMF’s strengths is that it brings together 190 countries to deal with common challenges; it will need to work adroitly to maintain that universal membership in a more fractured world.
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