IEO’s fiscal policy evaluation highlights serious flaws in IMF surveillance
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Article summary
- IEO released its fiscal policy evaluation in December 2025 to feed into the Fund’s ongoing comprehensive surveillance review.
- Report confirms many findings from CSO research on the shortcomings of IMF surveillance.
The IMF’s Independent Evaluation Office (IEO) released its evaluation of the Fund’s fiscal policy advice in December 2025, in the context of several crucial ongoing IMF policy reviews. The evaluation will feed into the Comprehensive Surveillance Review (CSR), due to be completed this year (see Observer Autumn 2025, Summer 2025, Spring 2025).
The IEO’s recommendations focussed on the articulation of fiscal stance and overall policy mix, making better use of data and analytical tools, improving specific advice on debt and fiscal risks, and “strengthening the articulation of trade-offs between long-term spending needs and fiscal sustainability, including their effects on long-term growth and distributional impact.” This echoes civil society research findings on the Fund’s bilateral surveillance in the areas of climate and inequality (see Briefing, Brace for impact: Social and gender inequalities in IMF surveillance). The report also identified that advanced economies are generally provided with a policy mix that “addresses the trade-off between fiscal sustainability and output stabilization,” whereas for emerging markets and developing economies (EMDEs) and low-income countries (LICs) a policy mix including “alternate pathways” is often subordinated to fiscal consolidation (see Observer Winter 2023).
Economic sustainability and distributional aspects
According to the evaluation, the Fund has not consistently applied the proposals from the latest CSR in 2021, which highlighted the importance of economic sustainability, including establishing that gender, climate and social inequality are macrocritical. Instead, it found that staff did not consider how “adjustment strategies disproportionately burdening low-income households could backfire politically,” despite the Fund’s own research demonstrating that “the negative impact on economic growth and income distribution of fiscal consolidations – the likely outcome in the short run compared to the pre-consolidation period – needs to be mitigated to avoid political backlash against reforms.” As Federico Sibaja of international civil society organisation (CSO) Recourse states, “While the IMF recognises that there’s no macroeconomic stability without climate action, the institution’s fiscal policy advice ignores this and continues to push for austerity. IMF policy advice must rely on climate and distributional impact assessments and ensure governments have enough fiscal space to support the economic transformation needed to achieve the Paris Agreement goals.”
The report argues that despite the fact that “development CSOs and think tanks noted that the Fund’s advice on social spending was not fully aligned with the SDGs [Sustainable Development Goals],” and that “the World Bank and other United Nations agencies increasingly supported universal social protection systems consistent with the SDG agenda”, the “Fund has continued to emphasize targeted (means-tested) approaches, which, in practice, resulted in significant exclusions in social spending policies particularly in countries where large populations live in poverty.” This confirms the findings of Oxfam International’s 2023 report on IMF social spending floors and new research that demonstrates the affordability of universal social protection (see Observer Spring 2026).
Civil society has long called for distributional impact assessments to address these issues. While the report acknowledges some progress has been made, and that the Fund has already developed “from the start of the assessment period…the relevant tools and internal capacity,” it notes impact assessments “were underutilized and not systematically integrated into operations.” Nabil Abdo of Oxfam International explains, “The IMF has struggled for so long to secure national ownership and social acceptability for the reforms it proposes to countries; however, the solution is in plain sight. It needs to conduct systematic distributional impact assessments of its policy recommendations and propose alternative policy mixes that would help to tackle rather than exacerbate inequalities.”
