IMF Working Papers

IMF’s Precautionary Lending Instruments: Have They Worked?

By Giulio Lisi

December 16, 2022

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Format: Chicago

Giulio Lisi. IMF’s Precautionary Lending Instruments: Have They Worked?, (USA: International Monetary Fund, 2022) accessed December 30, 2024

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Summary

The paper documents the benefits provided by IMF’s precautionary instruments (FCL and PLL) to countries in accessing international financial markets. It builds on multiple methods to show that the announcement of new FCL or PLL generally leads to a significant decline in sovereign spreads. Next, it evaluates the role of the FCL and PLL in mitigating external financial pressures, focusing on the COVID-19 pandemic as a case study. Economies which had a PLL or FCL arrangement in place during the pandemic experienced a lower increase in spreads relative to other emerging markets, even after controlling for country-specific effects and other covariates, suggesting that these arrangements help cushion external shocks. Finally, the study asks whether FCL/PLL drawdowns have an impact on financial perceptions; the analysis finds—albeit on the basis of a very small sample— no evidence of downside effects from countries drawing down on these arrangements .

Keywords: Event studies, IMF, Precautionary instruments, Synthetic control.

Publication Details

  • Pages:

    48

  • Volume:

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  • DOI:

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  • Issue:

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  • Series:

    Working Paper No. 2022/256

  • Stock No:

    WPIEA2022256

  • ISBN:

    9798400228667

  • ISSN:

    1018-5941