IMF Programs and Growth: Is Optimism Defensible?

2004

IMF supported programs include key objectives (such as growth, inflation, and current account adjustment) and the intermediate policy targets (such as monetary and fiscal policies) needed to achieve these objectives. In this paper, we use a new, large dataset, with information on 94 programs between 1989 and 2002, to compare programmed objectives and policy targets to actual outturns, and report

In theory, the IMF could influence economic growth via several channels, among them being advice to policy makers, money disbursed under its programs, and its conditionality. This paper tries to separate those effects empirically. Using panel data for 98 countries over the period 1970-2000, it analyzes whether IMF involvement influences economic growth in program countries. Consistent with the results of previous studies, it is shown that IMF programs reduce growth rates when their endogeneity is accounted for. There is also evidence that compliance with conditionality mitigates this negative effect, while the overall impact, however, remains negative. IMF loans have no robust statistically significant impact.

Journal of Development Economics, 2000

Using a bivariate, dynamic version of the Heckman selection model, we estimate the Ž . effect of participation in International Monetary Fund IMF programs on economic growth. We find evidence that governments enter into agreements with the IMF under the pressures of a foreign reserves crisis but they also bring in the Fund to shield themselves from the political costs of adjustment policies. Program participation lowers growth rates for as long as countries remain under a program. Once countries leave the program, they grow faster than if they had remained, but not faster than they would have without participation. q

IMF Working Papers, 2001

Program numbers" from a sample of IMF-supported programs are studied as if they were forecasts, through statistical analyses of the relationship between projections and outcomes for growth, inflation, and three balance of payments concepts. Statistical bias is found only for projections of inflation and official reserves. Statistical efficiency can be rejected for all variables except growth, suggesting that some program projections were less accurate than they might have been. Nevertheless, most projections are found to have some predictive value. Since several findings are shown to be sample dependent, the full-sample results should be interpreted cautiously.

In the process of designing of IMF-supported programs, IMF staff members prepare projections of the evolution of key macroeconomic variables for the participating country. These projections are based on countries' initial situations, and are conditioned on the implementation of reforms and policy measures agreed in the context of programs. In this paper, we examine the accuracy of projections in 291 programs approved in the period 1993-2009. We focus on the projections of two macroeconomic aggregates (the ratios of the fiscal surplus to GDP and of external current account surplus to GDP) during the years immediately following the initiation of an IMF-supported program. We identify five potential reasons for divergence of projected from actual values: (i) mismeasured data on initial conditions; (ii) country-specific differences in forming projections, (iii) projections that do not reflect the dynamic time-series process of the actual data; (iv) policy forecast error; and (v) rand...

2005

The views expressed in this Background Paper are those of the author(s) and do not necessarily represent those of the IMF, IMF policy or the IEO. Background Papers report analyses related to the work of the IEO and are published to elicit comments and to further debate. 1 A version of this paper was presented at Yale University Conference on the Role of the World Bank and the IMF in the Global Economy, 25-27 April 2003. An abbreviated version will be published in a volume of conference proceedings. 2 Rouben Atoian and Patrick Conway are at the University of Carolina at Chapel Hill; Marcelo Selowsky and Tsidi Tsikata are at the Independent Evaluation Office of the IMF. This paper examines the accuracy of IMF projections in 175 programs approved in the period 1993-2001, focusing specifically on ratios of the fiscal surplus to GDP and external current account surplus to GDP. Four potential reasons for divergence of projected from actual values are identified: (i) mismeasured data on initial conditions; (ii) differences between the "model" underlying the IMF projections and the "model" suggested by the data on outturns; (iii) differences between reforms/measures underlying the projections and those actually undertaken; and (iv) random errors in the actual data. Our analysis suggests that while all are important, incomplete information on initial conditions is the largest contributor to projection inaccuracy. We also investigate the role of revisions over time in projection error, and find that they improve projections for fiscal account data, while the current account continues to indicate a great deal of variability in the revision process.

2003

The average impact of the International Monetary Fund (IMF) programmes on the economic growth of the borrowing countries is analysed from a methodological approach not previously applied in this context: the method of matching and difference-in-differences matching. The special feature of this approach is that it controls for ‘selection on observables ’ in addition to ‘selection on unobservables’. This second source of selection is what previous studies have tried to model. The data covers the period 1970–1990 and includes all non-major oil-producing developing countries that are members of the IMF. Due to data attrition I run parallel analyses for different data sets that vary with regards to the covariates included in the estimations, and thus the number of observations. Results indicate no positive effects of IMF programmes on per capita GDP growth for three consecutive years after programme participation. * I am particularly grateful to Karl Ove Moene for his support and advice ...

The average impact of IMF programmes on the economic growth of the borrowing countries is analysed from a methodological approach not previously applied in this context: the method of matching and difference-in-differences matching. The special feature of this approach is that it controls for 'selection on observables', in addition to 'selection on unobservables'. This second source of selection is what previous studies have tried to model. The data covers the period 1970-1990 and includes all non-major oil-producing developing countries that are members of the IMF. Due to data attrition we run parallel analyses for different data sets that vary with regards to the covariates included in the estimations, and thus the number of observations. Results show no statistically significant effects of IMF programmes on growth, one, two and three years after programme participation.

IMF Working Papers, 2004

This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate. Numerous reports have noted that the IMF's medium-term growth projections are overly optimistic, raising questions as to how these can be improved. To this end, we estimate a growth model and examine its out-of-sample forecasting properties relative to those of IMF projections. The model's projections outperform those of the IMF in all regions and among most income groups-projections are less biased (one-quarter of the IMF bias) and have smaller standard errors (20 percent lower root mean squared errors) even after controlling for the IMF's macroeconomic assumptions. The paper does not attempt to address the criticisms that have been leveled against the empirical growth literature, but the results suggest that benefits can be derived from bringing systematic analysis to bear on crosscountry information.

Over the last two decades a number of cross-country empirical studies have been undertaken to assess whether IMF-supported adjustment programs have led to an improved balance of payments and current account balance, lower inflation, and higher growth. These studies use a variety of methodologies and cover different country samples and time periods. This paper critically surveys the evidence yielded by the cross-country studies, paying special attention to the pros and cons of the respective empirical methodologies employed. These studies, particularly the more recent ones, conclude that IMF-supported programs have generally been successful in stabilizing the economy. JEL Classification Numbers: E63, F34, F41, 019