Structural Reform, IMF Conditionality and the ‘Goldilocks Problem’

Graham Bird

Published: September 2020

Recent empirical research suggests that structural reform has a significant positive effect on future economic growth. Following the proliferation of structural conditionality in IMF programmes in the 1980s and 1990s, the ‘streamlining’ initiative begun in the early 2000s envisaged a more parsimonious approach designed to increase ‘ownership’ and improve programme implementation. However, there is a potential ‘Goldilocks problem’. While structural conditionality can be too ‘hard’, it can also be too ‘soft’. When is it just right? Empirical evidence on the political economy of structural reform may provide clues to how IMF conditionality could be designed to strengthen its impact on economic growth.