The end of conditionality? An analysis of conditionality and governance safeguards in International Monetary Fund lending during the COVID-19 pandemic

In light of the COVID-19 pandemic and the deep global economic crisis it has caused, the International Monetary Fund (IMF) has since the start of 2020 provided financial assistance to more than eighty countries. The IMF rapidly doubled the amount of emergency liquidity available to countries with pressing balance of payments needs through instruments that previously were intended for small amounts with limited need for conditionality. The use and effectiveness of IMF conditionality has been subject to an active academic debate since the Global Financial Crisis, but recent developments in lending instruments have yet to be explored. The objective of the present study is to examine the treatment of conditionality amid the COVID-19 pandemic, as the source of the crisis is a health-related lockdown, rather than structural problems in the economies. The study targets all new lending of the IMF in 2020. In order to assess conditionality, data is gathered from the Monitoring of Fund Arrangements (MONA) Database, as well as on governance commitments in letters of intent for COVID19-related emergency lending. The qualitative document analysis is followed up by interviews with IMF staff. The study points out that most of IMF disbursements in 2020 have been made in the form of emergency lending arrangements (Rapid Credit Facility and Rapid Financing Instrument) or precautionary arrangements (Flexible Credit Line or the Precautionary and Liquidity Line) with weaker or non-existing conditionality demands. With fewer traditional IMF programs, creditor protection has been ensured with governance safeguards in the form of governments’ letters of intent. In the case of precautionary arrangements, this has been ensured through ex-ante conditionality. While conditionality in IMF lending continues to ensure creditor protection, the role of the IMF as a catalyst for structural reforms has been discontinued by virtue of most new lending taking place without ex-post conditionality.