The toll of structural adjustments on the global south and a case for accountability

Why in the News?

A new paper published in BMJ Global Health (March 2026) has revived scrutiny of IMF and World Bank Structural Adjustment Programmes (SAPs), arguing that these institutions owe reparations to Global South countries for long-term socio-economic damage.

What are Structural Adjustment Programmes (SAPs)?

They are a set of economic mandates imposed by international financial institutions, principally the International Monetary Fund (IMF) and the World Bank, on developing nations. They are imposed as a strict prerequisite for securing new loans, refinancing existing debt, or avoiding sovereign default. 

How did Structural Adjustment Programmes emerge in the Global South?

1. Debt Crisis: Developing countries borrowed heavily during the 1970s for industrialization and imports. Rising interest rates by the U.S. Federal Reserve in the late 1970s sharply increased repayment burdens.
2. Dollar-Denominated Loans: Countries borrowing in U.S. dollars faced rising repayment obligations due to currency depreciation beyond domestic control.
3. IMF-World Bank Intervention: Financial assistance became conditional upon implementing structural economic reforms aimed at restoring macroeconomic stability.
4. Debt Leverage: Creditor institutions used debt obligations to push policy reforms in exchange for access to loans and refinancing.
5. Historical Context: SAPs coincided with the rise of market-oriented neoliberal economic policies globally.

What were the major components of Structural Adjustment Programmes?

1. Fiscal Austerity: Reduced public expenditure on healthcare, education, subsidies, and social security to reduce fiscal deficits.
2. Privatization: Transferred state-owned enterprises and public services to private ownership.
3. Trade Liberalization: Removed trade barriers and opened domestic markets to global competition.
4. Deregulation: Reduced industrial regulations, labour protections, and capital controls.
5. Currency Devaluation: Encouraged export competitiveness through exchange-rate reforms.
6. Conditional Financing: Linked access to international loans with compliance to reform packages.

How did SAPs affect economic growth in the Global South?

1. Growth Slowdown: Economic growth reportedly declined sharply during adjustment periods. The Global South’s average growth rate fell from nearly 3.2% before SAPs to 0.7% during the 1980s-1990s.
2. Income Loss: Developing countries collectively lost an estimated $480 billion annually in potential national income.
3. Latin America: Real per capita income reportedly declined by 15% after 1980, recovering to previous levels only by 2006.
4. Sub-Saharan Africa: Income levels reportedly fell sharply before eventual recovery decades later.
5. Industrial Weakening: Liberalization exposed domestic industries to global competition before adequate institutional preparedness.
6. Developmental Sovereignty: Reduced state capacity to pursue independent industrial policy.

What social consequences emerged from Structural Adjustment Programmes?

1. Healthcare Retrenchment: Public health expenditure cuts weakened medical infrastructure and service delivery.
2. Education Cuts: Reduced state spending constrained human capital development.
3. Child Mortality: SAP-linked effects reportedly contributed to 56.62 additional child deaths per 1,000 births in Sub-Saharan Africa.
4. Maternal Mortality: Around 360 additional maternal deaths per 1,00,000 births were associated with SAP-linked reforms.
5. Excess Mortality: Nearly 3,05,000 excess infant deaths reportedly occurred between 1986-2010 relative to pre-adjustment trends.
6. User Fees: Privatization and reduced welfare spending increased costs of essential services.
7. Food Inflation: Currency depreciation increased food prices and reduced affordability.

Did SAPs reinforce historical patterns of economic dependency?

1. Neo-Colonial Continuity: Critics argue SAPs reopened developing economies to exploitative global market structures.
2. Labour Cost Compression: Reduced labour protections lowered production costs for multinational firms.
3. Capital Flight: Liberalized financial systems facilitated outflows of profits.
4. Profit Repatriation: Private capital reportedly extracted profits exceeding $250 billion annually.
5. Trade Deregulation: Wealth transfers through tax avoidance reportedly exceeded $1 trillion annually.
6. Domestic Reinvestment Loss: Economic surpluses were diverted away from national development priorities.

Why is there a growing demand for accountability and reparations?

1. Institutional Responsibility: IMF and World Bank are viewed as principal architects of adjustment policies.
2. Public Service Losses: Compensation demands focus on healthcare, education, and welfare spending losses.
3. Counterfactual Justice: Proposals estimate damages by comparing actual outcomes with hypothetical development without SAPs.
4. Mortality Compensation: Reparative justice arguments extend to health and mortality impacts.
5. Governance Imbalance: The Global North controls a disproportionate share of voting power within Bretton Woods institutions.
6. Sovereign Immunity: Legal protections restrict lawsuits against international financial institutions.

What reforms are suggested for global financial governance?

1. Conditionality Reform: Eliminates rigid structural adjustment requirements tied to financial assistance.
2. Institutional Democratization: Expands policy voice of developing countries within IMF and World Bank governance.
3. Policy Sovereignty: Ensures aid recipients retain flexibility over domestic development choices.
4. Alternative Financing: Expands access to institutions such as the New Development Bank (BRICS Bank) and the Asian Infrastructure Investment Bank (AIIB).
5. Inclusive Development: Balances macroeconomic stability with social welfare investments.

Conclusion

The structural adjustment debate reflects a larger tension between macroeconomic stabilization and social justice. While fiscal discipline and market reforms can support economic efficiency, externally imposed conditionalities without domestic context risk undermining welfare and developmental autonomy. Future global financial governance requires balancing economic reform with equity, democratic participation, and sovereign policy space.

PYQ Relevance

[UPSC 2024] Examine the pattern and trend of public expenditure on social services in the post-reforms period in India. To what extent this has been in consonance with achieving the objective of inclusive growth?

Linkage: The PYQ examines whether post-reform economic policies balanced fiscal reforms with social sector expenditure to ensure inclusive growth. IMF-World Bank structural adjustment policies are critiqued for reducing public spending on health, education and welfare. This highlights how austerity can undermine inclusive development outcomes.