Do IMF-Supported Programs Catalyze Donor Assistance to Low-Income Countries?

Abstract

This study explores whether IMF-supported programs in low-income countries (LICs) catalyze Official Development Assistance (ODA). Based on a comprehensive set of ODA measures and using Propensity Score Matching approach to address selection bias, we show that programs addressing policy or exogenous shocks have a significant catalytic impact on both the size and the modality of ODA. Moreover, the impact is greatest when LICs are faced with substantial macroeconomic imbalances or large shocks. Nevertheless, when countries attracting similar donor assistance before shocks are matched results for bilateral ODA turn insignificant, suggesting that the catalytic impact is attributed primarily to multilateral ODA.

Introduction and overview: the purposes and operations of the IMF

“…But this may not be because of a catalytic effect in the conventional sense but more a reflection of a coordinated approach between aid donors and the IMF, with aid and IMF programs being essentially joint products. Similar findings concerning the relationship between IMF programs and foreign aid have been reported more recently by Bal Gunduz and Crystallin (2014).…”

IMF-Supported Programs and Income Convergence in Low-Income Countries

“…Al-Sadiq (2015) finds empirical evidence to indicate that countries with IMF-supported programs attract more FDI than those without such programs. Bal Gündüz and Crystallin (2014) show that IMFsupported programs addressing policy or exogenous shocks have a significant catalytic impact on both the size and the modality of official development assistance. However, countries experiencing sizeable initial macroeconomic imbalances or large exogenous shocks (high propensity scores) primarily drive the results and the catalytic impact is not significant for countries with low propensity scores.…”

“…From a theoretical perspective, IMF's concessional assistance to eligible low-income countries (LICs), which is provided through the Poverty Reduction and Growth Trust (PRGT), 2 could promote growth through several channels: managing aggregate demand, raising aggregate supply, and a catalytic effect by facilitating additional private capital inflows and donor assistance. Recent empirical work supports these viewpoints (see Bird andRowlands, 2017 andCrystallin, 2014). However, while a positive impact of IMF-supported programs on economic growth may be a necessary condition to ascertain program effectiveness, it is insufficient to ensure that the growth effect of such programs is pro-poor in a macroeconomic sense.…”