The Impact of Bailouts on the Probability of Sovereign Debt Crises: Evidence from IMF-Supported Programs

January 11, 2019

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Hippolyte W. Balima, and Amadou N Sy. The Impact of Bailouts on the Probability of Sovereign Debt Crises: Evidence from IMF-Supported Programs, (USA: International Monetary Fund, 2019) accessed December 26, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

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.

Subject: Credit ratings, Debt default, Econometric analysis, Estimation techniques, External debt, Financial crises, Money, Public debt

Keywords: Adjustment effort, Banking crisis dummy, Baseline control variables, Borrowing government effort, Covariate moment, Credit rating, Credit ratings, Debt crisis, Debt default, Entropy balancing., Estimation techniques, Fund program, Global, Government adjustment effort, IMF intervention, IMF involvement, IMF's presence, IMF-supported program, IMF-supported programs, Impact of bailout, Parliamentary democracy, Probability of sovereign debt crisis, Program country, Program participation, Sovereign debt crisis, Sovereign debt defaults, WP

Publication Details

Pages:

38
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2019/002
Stock No:

WPIEA2019002
ISBN:

9781484393413
ISSN:

1018-5941

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