Once the IMF has determined the balance of payments need of a member and its eligibility to draw on resources under one or more facilities, the IMF must be satisfied that the member can meet its repayment obligations to the IMF.³⁰ It therefore provides financial resources to members on certain conditions designed to encourage appropriate economic adjustment and ensure that the member's use of IMF credit is temporary and that it will have the capacity to repay the IMF on time. These conditions are meant to reduce a member's balance of payments deficit to a manageable size while fostering economic growth, employment, and financial stability and eliminating restrictions on international trade and payments.

Consequently, policy benchmarks and performance criteria, often referred to as conditionality, represent a crucial element in the use of IMF resources by members. Conditionality seeks to ensure that the member's policies are adequate to achieve a viable balance of payments position and sustainable economic growth over a reasonable period; that steps are taken toward structural adjustment, as necessary; and that, in addressing balance of payments and structural problems, financing and adjustment work in tandem.

The IMF’s guidelines on conditionality, which are reviewed periodically, stipulate that the IMF, in designing adjustment programs, is required to pay due regard to the domestic social and political objectives of member countries and to their economic priorities and circumstances. In its most recent review in July 1994 of the experience with conditionality in IMF-supported adjustment programs, the Executive Board concluded that the guidelines on conditionality adopted in 1979 continued in general to provide an appropriate basis for IMF policies on the use of its resources.

Conditionality may vary with individual programs, as well as with the types of policies or facilities used; it is not a rigid and inflexible set of operational rules. For example, a lower degree of conditionality is associated with the financing of strictly temporary shortfalls in members' export receipts under the Compensatory Contingency Financing Facility than under upper credit tranche arrangements (see section on "Financial Policies and Facilities"). The guidelines also provide for the incorporation of review and consultation clauses, the inclusion of performance clauses, and the phasing of purchases in Stand-By Arrangements that go beyond the first credit tranche and in Extended Arrangements.

Performance during the period of a Stand-By or Extended Arrangement in support of a member's adjustment program is monitored by means of performance criteria. The conditionality guidelines specify that performance criteria should be limited to those economic variables necessary to ensure that the objectives of IMF-supported programs are met. Performance criteria are normally confined to macroeconomic variables and to those necessary to implement specific provisions of the IMF's Articles or policies adopted under them. Performance criteria may also relate to other (microeconomic) variables when these have a bearing on the effectiveness of the member’s adjustment program because of their macroeconomic impact.

The broad objective of balance of payments adjustment policies as embodied in IMF-supported programs is to achieve a current account position that can be sustained by normal capital flows, without resort to restrictions on trade and payments or payments arrears. In response to the substantial changes in the nature and magnitude of economic disequilibria facing members, IMF-supported programs have for several years placed more emphasis on structural reform and the achievement of sustainable economic growth. More recently, the financial crises of 1994-95 and 1997-98 have resulted in an increased focus on (1) the soundness of countries' financial sectors and the need for strengthening banking supervision, prudential norms, and/or regulation, and (2) the role of the globalization of financial markets in external crises and the need for IMF involvement in supervision and management of orderly capital account liberalization.