October 6, 2020

As the IMF Responds to the Pandemic, Recent Research Examines Its Role and Impact

International Monetary Fund headquarters in Washington, DC.

COVID-19 has thrust the International Monetary Fund (IMF) to center stage as the world struggles to deal with the global economic consequences of the pandemic.

That wasn’t always the case.

“Just fifteen years ago some powerful and influential people were writing off the Fund as irrelevant, ineffective, and obsolete,” said Graham Bird, an economics professor, co-director of the university’s Claremont Institute for Economic Policy Studies (CIEPS), and a widely-acknowledged leading expert on the IMF. “The world economy was doing pretty well overall and the question was being raised as to why the world needed an international troubleshooter when there didn’t appear to be much trouble.”

That period of apparent tranquility was shattered by the 2008-09 global economic and financial crisis and now by the COVID-19 crisis. By mid-September, the IMF was lending to more than 80 countries, with another 30 negotiating IMF programs.

The IMF’s crucial role in the global pandemic has silenced the dismissive voices of some critics.

But what are the effects of IMF programs, particularly on economic growth, poverty, and income inequality? Do they help or hinder economic development?

The conventional wisdom has been that “austerity programs” from the IMF retard economic growth in poor countries.

Work conducted by Bird, in collaboration with CIEPS research associate Dane Rowlands, and published in the Journal of Development Studies, has challenged that assertion. They have showed that IMF programs often helped to achieve growth, or at least did not adversely affect it.

Other recent research undertaken by Bird and Rowlands, in collaboration with doctoral student and Fulbright Scholar Faryal Qayam (now Assistant Professor of Economics at the University of Science and Technology in Islamabad, Pakistan), has been published in the Journal of Economic Policy Reform. It uses a propensity score matching technique to deal with the problem of selection bias that often affects attempts to estimate the impact of IMF programs.

That recent research shows that, when allowance is made for other contingent factors, IMF programs in low-income countries have not had the adverse effects on poverty, inequality, and social expenditure that have often been claimed.

Their results were presented last summer during a meeting of the Fund’s Independent Evaluation Office in Washington, DC.

“Our results piqued quite a lot of interest,” Bird said. He added that it was “good to see collaborative research with our excellent doctoral students leading to publications in respected international journals and having an impact on the design of policy that affects many millions of people worldwide.”