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On the Determinants and Outcomes of IMF Loans in Low- and Middle-Income Countries: Do Politics Matter?

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  • Jala Youssef
  • Chahir Zaki

Abstract

The objective of this paper is to analyze the economic and political determinants of IMF loans in low- and middle-income countries and their impact on economic growth. Our contribution is threefold. First, we use the IMF Monitoring of Fund Agreements database along with international political economy factors to analyze IMF lending determinants through a Heckman two-stage selection procedure. Second, we use the predicted values of determinants of IMF lending to explain the consequences of this lending on growth. We also investigate how the domestic political regime of the recipient country would affect the outcomes of these loans. Third, we study the dynamic effects of IMF loans on economic growth using the local projection method. Our main findings show that economic and political proximity to the IMF major shareholders matter for the likelihood of obtaining an IMF non-concessional loan. Furthermore, most of the loans exert a negative effect on the trend component of GDP, confirming that such loans can stabilize the economies in the short term without improving the long-run steady growth. The analysis of the dynamic effects of loans also confirmed these findings. Finally, democratic regimes compared to autocratic ones improve the effects of these loans on economic growth.

Suggested Citation

  • Jala Youssef & Chahir Zaki, 2023. "On the Determinants and Outcomes of IMF Loans in Low- and Middle-Income Countries: Do Politics Matter?," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 59(9), pages 2834-2850, July.
    • Handle: RePEc:mes:emfitr:v:59:y:2023:i:9:p:2834-2850
    DOI: 10.1080/1540496X.2023.2199116
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