The Catalytic Impact of IMF Lending on Official Development Assistance

By Bangyu He, Phil Johnston, Agustin Velasquez

June 28, 2024

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Bangyu He, Phil Johnston, and Agustin Velasquez. The Catalytic Impact of IMF Lending on Official Development Assistance, (USA: International Monetary Fund, 2024) accessed November 21, 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 explores the catalytic impact of IMF lending to Low-Income Countries on Official Development Assistance (ODA) during 1990-2019. It disentangles the effect on the amounts of ODA on countries’ participation in IMF programs (“extensive margin”) and the size of the IMF-supported program (“intensive margin”). To address selection biases, we rely on the interaction of past IMF program participation and IMF liquidity as an instrument for program participation and employ the review of access limits as an instrument for the size of disbursements. We document that a one percentage point (pp) of GDP increase in IMF disbursements catalyzes additional ODA of 2.7 pp of GDP. In addition, we find that IMF disbursements catalyze ODA mostly from multilateral donors (1.3 pp of GDP) and to lesser extent from traditional bilateral donors (0.6 pp of GDP). Among multilateral donors, the strongest effect is on World Bank disbursements, followed by the EU. Finally, we document that catalytic effects on ODA have decreasing returns to large IMF disbursement amounts.

Subject: Balance of payments, Capital account, Concessional external borrowing, Current account balance, Econometric analysis, External debt, Foreign aid, Official development assistance, Sensitivity analysis

Keywords: Capital account, Catalysis, Catalytic effect, Concessional external borrowing, Current account balance, Global, IMF disbursement, IMF program participation, IMF quota, International Monetary Fund (IMF), ODA flow, Official development assistance, Official development assistance (ODA), Sensitivity analysis

Publication Details

Pages:

44
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2024/134
Stock No:

WPIEA2024134
ISBN:

9798400279188
ISSN:

1018-5941

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