By: MUHAMMAD RAYYAN POLANI

The IMF is an international organisation which lends money to member states in times of economic crisis. According to the official website of the IMF, the goal of the organisation is as stated, “The IMF works to achieve sustainable growth and prosperity for all of its 191 member countries. It does so by supporting economic policies that promote financial stability and monetary cooperation, which are essential to increase productivity, job creation, and economic well-being. The IMF is governed by and accountable to its member countries” (IMF, 2024). A debt trap occurs when an entity acquires loans at extreme interest rates and is unable to pay back the interest, hence they find themselves in debt (Karlan, Mullainathan and Roth, 2018). However, whether the IMF is a debt trap has two perspectives, with one saying the bailouts of the IMF actually help countries rather than harm them and the other saying the IMF causes loss of economic sovereignty. We can look at these perspectives through the lens of different themes also. IMF loans have economic, social and political motives behind them and one can try to analyze the effects of these loans on these themes. Through analyzing several examples of different countries like Kenya, Argentina, Egypt and Ukraine we can determine which perspective is more prevalent today. 

One argument for the IMF being a debt trap is that it leads to extreme austerity measures which destabilizes the economy of several countries. Kenya is a modern day example of having to deal with severe austerity measures caused through loans given by the IMF. According to the Britannica, austerity is, “a set of economic policies, usually consisting of tax increases, spending cuts, or a combination of the two, used by governments to reduce budget deficits.” (Bondarenko, 2023). In 2024, over several days peaceful protests took place in Kenya due to a bill that would lead to increasing austerity measures in the country. In the previous year, a rise in VAT taxes, petrol and food prices took place. In 2024, the IMF proposed to increase the levels of taxation even further, leading to popular protests to take place. The Guardian says regarding the loans that this is exactly what the IMF required of Kenya under the 2021 loan agreement for a 38-month program that unlocks $3.9 billion, subject to periodic reviews meant to confirm that Nairobi is fulfilling the IMF’s demands to raise taxes, cut government waste (a code word for privatizing stateowned enterprises), and reduce subsidies. Kenya has been following the IMF policy for several years and still faces a “debt trap situation” which shows that either IMF policy is a failure or its causing “intentional economic entrapment”. The author says that he believes the “latter” argument is more true (Kaboub, 2024). This source can be considered extremely reliable as the Guardian is a globally reputable news organisation known for its in depth research and fact checking. The author, Fadhel Kaboub is also an economics professor at Denison University portraying that his opinion can be considered reliable due to his expertise in the field. He also regularly publishes in other outlets like Substack and the Bretton Woods Project where he criticizes international financial institutes. 

Al Jazeera and Jacobin support the argument made in the Guardian. Al Jazeera states “The IMF conditioned the loans on hiking taxes, reducing subsidies and cutting government waste – measures it said would increase government revenue while reducing spending.” (Lawal, 2024). The Jacobin also reports that the IMF urges countries to implement harsh “austerity measures” to redevelop their economy towards being more export based. As a result of this, the price of basic commodities “shot up”. In 2023, the VAT percentage was also doubled from “8 percent to a massive 16 percent, another policy recommendation set out by the IMF. This led to new record highs for fuel costs in 2023, when prices crossed 200 KSh.” (Ford, 2024).

Another argument is that the IMF entraps countries in a vicious debt cycle which makes countries extremely dependent and leads to lack of long term growth. Argentina is a strong example today to support this argument. A news article published by HR News at the Medium says Argentina’s long term understanding with the IMF can be marked by a “cycle of debt”, problems in the economy, “and controversial policy prescriptions that many argue have trapped the country in a perpetual state of financial instability.” The article also states that since the 1990’s, this vicious cycle of debt has been ongoing. Initially these loans brought the economy back to normal but it eventually led to Argentina defaulting on a 95 billion dollar loan. Analysts say that  IMF interference in the economy has led to the prioritization of “short term stabilization” rather than identifying the actual “structural problems” within the economy. In 2018, after receiving a “record breaking” $57 billion loan from the IMF which was intended to heal the economy actually led to further issues and led to a rise in Argentinas external debt “significantly”. The article provides “Debt trap stats” to portray the magnitude of the effect on Argentina due to IMF loans. The government debt as of December 2023 is $368 billion, equal to almost “154% of the GDP”. The Inflation rate is 211.4%, the highest in the world. Unemployment rate stood at 6.2% in the third fiscal quarter. All these stats portray how a vicious cycle of debt has completely destabilized Argentina’s economy. Due to these loans, the economy is heavily reliant on exports of agricultural products as there is a lack of structural economic growth in the country(HR NEWS, 2024).  

This source’s claims and data can be considered reliable as the time of publication is relevant. This article was published shortly after Argentina got its loan from the IMF. Corresponding sources like Reuters, show the long history of the IMF bailing out Argentina out of their economic crisis through multiple loans, portraying a cycle of debt borrowing and repayment. Argentina has had a total of 23 IMF deals over the course of 70 years. Reuters says, the entities have a difficult history, especially after “a $57-billion deal in 2018 and a $44-billion program in 2022 to help roll over payments from the previous program that failed to halt an economic slide.” (Elliott, 2025). This shows that Argentina is stuck in a cycle of debt where they pay back the previously owed debt through financing news loans.

However this view of the IMF being a debt trap can be challenged. An argument can be made that the IMF provides emergency lifelines during times of crisis for member states. These loans help stabilize the economic and social troubles the country faces in times of crisis. Ukraine is a prime example of the IMF helping a country in need. The IMF approved a $15.6 billion loan program for Ukraine to help uplift the Ukrainian economy amidst the war against Russia. The IMF says “The decision clears the way for an immediate disbursement of about $2.7 billion to Kyiv, and requires Ukraine to carry out ambitious reforms, especially in the energy sector.” These loans are aimed to stabilize the economic situation back to pre-war times. The IMF deputy managing director Gita Gopinath says “Russia’s invasion of Ukraine continues to have a devastating economic and social impact” (Shalal and Lawder, 2023). War has made Ukraines energy sector extremely vulnerable. The International Energy Agency reports that by spring of 2024 “two-thirds of Ukraine’s dispatchable electricity capacity had been damaged or occupied—all before winter approached” (International Energy Agency, 2024). The loans provided to Ukraine are aimed to restore the macro and fiscal performance of the country alongside to help restore its previous levels of energy production. This shows that the IMF is an organisation which helps member countries in times of crisis.

The authors published the article in Reuters which is one of the world’s largest and most respected news agencies, operating under the Thomson Reuters Trust Principles, which prioritize accuracy, integrity, and independence. Cross referencing with The Kyiv Independant, a Ukrainian news agency, they also mention how the war with Russia has a “devastating” toll on Ukraine. The source also talks about how the 4 year $15.6 billion plan from the IMF will help the country with its post war recovery (Dmytro Basmat, 2025). 

Betliy also says at the Carnegie Endowment For International Peace also says that “the IMF is not currently demanding that Ukraine raise energy tariffs, despite requiring it to do so in previous programs. The IMF is also attuned to the country’s rising poverty rates and the fragility of its social safety net during wartime, and the changes the fund is proposing to the country’s social welfare system will allow it to better protect vulnerable households.” (Betliy, 2023). Hence the argument made by Shalal and Lawder that the IMF is actually trying to help Ukraine in crisis is supported. 

Another argument is that IMF loans encourage investor confidence and market access. This argument supports the theme of economic and social stability, as investor confidence in countries leads to more employment as new businesses open up. A prime example of this is Egypt. In 2016, the IMF program made changes in business administration with the intention of trying to “attract foreign investment and helping smaller firms scale up. Before this, starting a business in Egypt was complicated, involving lots of regulations and administrative red tape.” Apart from this the program also aimed to improve Egypts “low growth and high unemployment” by using fund money to sponsor supply side policies like specialization. Another proof of investor confidence being regained is when Investor hesitancy began to decrease. Egypt sold more Eurobonds ($3 billion) to North America and Europe in May 2017 than it had planned to, and at lower interest rates than it had obtained a few months before, indicating that foreign investors are becoming less concerned. (Bessma Momani, 2018).

The Brookings Institution is a nonpartisan, nonprofit research group that has a long history of doing high-quality policy analysis in areas like economics, foreign policy, and governance. The report is based on interviews with key stakeholders and detailed qualitative assessment, demonstrating transparency in sources and methodology. Cross referencing Momani’s claims to Al Jazeera’s article where it also mentions that Egypt needs to make structural changes to its economy, like simplifying rules for new companies and enacting labor and insolvency reforms.(Jazeera, 2016). Hence this proves IMF loans can reinforce investor confidence. 

Reflecting on the research done on this project and living in a country which is indebted to the IMF, I have come to the conclusion that the organisation is actually not a debt trap. After deeper research into the topic, I came to realise that it was the government inefficiency and a lack of long term investment made by states in their economies which led to the outcome of them borrowing from the IMF. The reason why I believe that it is not a debt trap is that the IMF gives loans to countries with the aim that they sufficiently develop their economy to the extent that they do not require any external help. As the opening paragraph says, the IMF aims for sustainable growth of member states, not to trap them in a debt cycle. 

Before my research I had the opposite viewpoint. I believed that the IMF was an organisation with predatory financial practices, indebting countries in a vicious cycle of loans and repayments as I saw many countries like Sri Lanka and Argentina default on IMF loans. My own country was on the verge of bankruptcy which led to severe austerity measures in the country, increasing poverty and unrest in the country. If I could research even in depth, I would look at how the IMF pushes the political motives of countries who provide the largest funds to them. I would also further research on the solution to get out of the vicious cycle of debt countries get stuck in. 

Bibliography

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