Examining the Effect of IMF Conditionality on Natural Resource Policy
Can IMF lending improve natural resource governance in borrowing countries? While most IMF agreements mandate policy reforms in exchange for financial support, compliance with these reforms is often mixed at best. Since resource windfalls enable short-term increases in discretionary spending, office-seeking politicians are often unwilling to forgo this discretion by reforming the oil, gas, or mining sector. Given these expectations, I investigate how and when borrowing governments go against their political interests and comply with IMF conditions requiring natural resource policy reform. Using global data on IMF lending and natural resource policy between 1980 and 2019, I show that borrowers are more likely to reform the natural resource sector when they are under an IMF agreement, though less so if the agreement includes general fiscal conditions that are not specifically related to natural resources. However, the effectiveness of these agreements is highly dependent on context. Reforms are more likely when the IMF can credibly threaten to suspend loan payments or when leaders in the borrowing country have the institutional capacity to implement such reforms.
São Tomé and Príncipe’s 2000 Oil Law