- New IMF Framework Puts Country Ownership and Political Risks at Centre of Programme Design
The International Monetary Fund has approved reforms intended to make its lending programmes more realistic, adaptable and responsive to political and economic shocks, following a review that found several countries struggled to restore durable external stability despite receiving Fund support.
The reforms seek to improve the design of programmes financed through the IMF’s General Resources Account and Poverty Reduction and Growth Trust, the two principal channels through which the Fund lends to advanced, emerging and low-income economies.
The IMF Executive Board concluded the 2026 Review of Program Design and Conditionality on September 14 after assessing programmes implemented between January 2018 and December 2024.
That period covered the Covid-19 pandemic, geopolitical conflicts, supply-chain disruptions, sharp increases in food and energy prices and tighter global financial conditions.
The review found that the Fund generally responded quickly to successive crises, helping countries address urgent balance-of-payments pressures and avoid excessively severe procyclical adjustment.
Countries that implemented timely and sustained reforms were able to rebuild economic buffers and strengthen their macroeconomic fundamentals.
In other cases, however, new shocks, persistent vulnerabilities and implementation failures prevented IMF-supported programmes from restoring medium-term external viability.
Executive Directors said the objective was to ensure that IMF programmes were “stronger, more coherent, and better able to play a catalytic role” in mobilising financing from other creditors and investors.
The reforms retain the Fund’s 2002 Guidelines on Conditionality but introduce changes to programme assumptions, fiscal-adjustment sequencing, structural reforms, contingency planning and assessments of longer-term IMF engagement.
One of the review’s central findings is that IMF programmes must be built on more credible macroeconomic and financing assumptions.
Overly optimistic forecasts for growth, government revenue, market access or external financing can create programmes that appear viable at approval but quickly fall off course.
The IMF will place greater emphasis on whether governments possess the technical, administrative and political capacity to implement agreed reforms.
Executive Directors stressed the importance of “ensuring evenhandedness and tailoring to country circumstances to strengthen program ownership and success”.
This represents an acknowledgement that identical policy prescriptions can produce different outcomes depending on the structure of an economy, the quality of its institutions and the social and political environment in which reforms are implemented.
The Fund plans to introduce more systematic risk-informed baselines, supported by sensitivity and scenario analyses in countries facing elevated uncertainty.
These scenarios should help programme teams assess how an arrangement would perform if growth disappoints, financing costs increase, commodity prices change or another external shock materialises.
The review also called for more candid contingency planning so that governments and IMF staff can respond more quickly when the original economic assumptions no longer hold.
Fiscal consolidation will remain a central element of IMF programmes. Most Executive Directors agreed that adjustment should be front-loaded where it is critical to resolving a country’s balance-of-payments difficulties and where implementation is feasible.
However, they said such adjustment must be supported by “realistic, high quality, and growth friendly measures” and should account for social and distributional consequences, particularly in low-income countries and fragile or conflict-affected states.
Front-loading requires governments to implement a large proportion of fiscal tightening early in a programme. The strategy can rapidly restore confidence and reduce financing requirements, but it may also weaken economic activity and intensify social pressures if the measures are poorly designed.
Many Directors consequently cautioned against treating early and aggressive consolidation as a general prescription for all countries.
Their reservations highlight a long-standing debate over whether IMF-supported adjustment restores stability quickly or imposes excessive costs on economies already confronting recession, unemployment and declining household incomes.
The review proposes closer alignment between the pace at which the IMF releases financing and the speed and depth of reforms undertaken by the borrowing country.
It also calls for a more balanced policy mix, combining fiscal policy with appropriate monetary, exchange-rate and macro-financial measures.
The IMF will pay greater attention to electoral cycles, political-economy constraints and the risk that a change in government could disrupt programme implementation.
Political assurances may continue to be required where necessary, although they will be considered individually rather than applied automatically.
Executive Directors supported stronger guidance on how such assurances should be obtained and monitored.
The Fund will also use its Enterprise Risk Assessments more actively in programmes that pose significant financial, operational or reputational risks.
These assessments could inform decisions on contingency measures and determine whether an arrangement should be recalibrated when circumstances change.
The approach reflects the reality that programme failure is not always caused by incorrect economic analysis. Reforms may also falter because governments lack legislative support, administrative capacity or sufficient public trust to implement politically difficult measures.
Recognising these constraints at the programme-design stage could reduce the likelihood that unrealistic commitments are included simply to secure approval and financing.
The Fund will pilot a Medium-Term Structural Reform Strategy designed to improve the prioritisation and sequencing of reforms.
The strategy will focus on measures considered essential to addressing the country’s balance-of-payments problems, preferably building on existing national development plans.
This is intended to address concerns about “programme overload”, where governments are required to implement numerous reforms across several sectors simultaneously.
Executive Directors supported “avoiding program overload by prioritizing measures critical to program objectives”, while acknowledging that deeper structural reforms require careful sequencing and sustained implementation.
The revised framework could result in fewer but more strategically targeted conditions.
It may also improve country ownership if governments can align IMF requirements more closely with domestic reform strategies rather than treating them as a separate set of externally imposed obligations.
The review gives increased attention to the IMF’s catalytic role—the expectation that a Fund programme should help unlock additional financing from bilateral creditors, multilateral institutions and private investors.
Directors said a credible financing strategy, supported by transparent debt management, was essential to programme success.
External and domestic financing assumptions must be realistic and consistent, while financing plans should be revised as market conditions change.
Project financing should also be incorporated conservatively into macroeconomic frameworks to avoid overstating the resources available to governments.
The Fund will adopt a more risk-based approach to monitoring senior debt exposures in countries with elevated debt vulnerabilities.
This could become increasingly important where new loans carry preferential repayment terms or where multiple creditors compete for priority over limited government revenues and foreign-exchange resources.
The review reaffirmed that IMF financing should support economic adjustment and reform rather than replace them.
Each programme must be justified independently, without assuming that another arrangement will automatically follow when the current one ends.
“Fund financing should support, not substitute for, necessary adjustment and reform,” Executive Directors said.
That principle addresses concerns about countries remaining under IMF-supported arrangements for prolonged periods without fully resolving the weaknesses that repeatedly generate financing needs.
The Fund will introduce more systematic end-programme assessments to evaluate whether an arrangement achieved its objectives and what lessons should guide future engagement.
Coverage under the longer-term programme engagement framework will be expanded to identify repeated or prolonged Fund involvement earlier.
Peer Reviewed Assessments will also be refocused as Longer-Term Assessments to examine past engagement while reducing duplication with other reviews.
Some Directors cautioned against stigmatising countries that require follow-on arrangements because of recurring external shocks or deep structural challenges beyond the government’s immediate control.
The new approach will be introduced gradually. The first stage will involve revising the IMF’s Operational Guidance Note and developing analytical tools and templates for country teams. Selected measures will be piloted before a wider rollout.
Executive Directors called for implementation to be phased, proportionate and risk-based, particularly to avoid imposing excessive administrative burdens on countries with weak institutional capacity.
They also asked IMF staff to monitor implementation closely and report regularly to the Board.
The reforms do not represent a rejection of the Fund’s existing lending model. Rather, they acknowledge that programmes designed for a more predictable world may struggle in an era of pandemics, wars, climate shocks and volatile capital flows.
The test will be whether the IMF can translate its recognition of uncertainty, political constraints and limited implementation capacity into programmes that countries can realistically execute.
For borrowing countries, the central message remains unchanged: IMF financing can create breathing space, but it cannot permanently substitute for credible domestic policies, durable reforms and the political ownership needed to carry them through.
