IMF-Supported Programs and Sovereign Debt Crises

Hippolyte Balima and Amadou Sy

IMF Economic Review, 2021, vol. 69, issue 2, No 5, 427-465

Abstract: Abstract This paper studies the role of IMF-supported programs in mitigating the likelihood of subsequent sovereign defaults in borrowing countries. Using a panel of 106 developing countries from 1970 to 2016 and an entropy balancing methodology, we find that IMF-supported programs significantly reduce the likelihood of subsequent sovereign defaults. This finding is robust to different specifications of the entropy balancing and alternative identification strategies. Our results suggest that a country that signs a program with the IMF typically experiences a slight improvement in its sovereign credit rating and a decrease in both government debt-to-GDP and fiscal deficit-to-GDP during the program period compared to the period before.

Date: 2021
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DOI: 10.1057/s41308-021-00135-7

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