Do IMF-Supported Programs Work? A Survey of the Cross-Country Empirical Evidence
.Do IMF-Supported Programs Work?
A Survey of the Cross-Country Empirical Evidence.
Prepared by Nadeem Ul Haque and Mohsin S. Khan
An important question often raised in connection with IMF-supported adjustment
programs is whether such programs .work. in terms of improving the current
account balance, increasing international reserves, lowering inflation, and
raising the growth rate. The answer requires evaluating the effects of past
programs on the variables of interest. Over the past twenty years or so there
have been a number of empirical studies on the subject, both inside and outside
the IMF; this paper reviews the evidence provided by these studies.
The survey of the literature on the cross-country empirical evidence on the
macroeconomic effects of IMF-supported adjustment programs points to two broad
conclusions. First, the empirical analyses have been conducted using different
methodologies, the relative merits of which deserve careful examination. This
paper argues that the proper standard for measuring program effects is to
compare the macroeconomic outcomes under a program with the outcomes that would
have emerged in the absence of a program. Several recent studies attempt to
apply this .counterfactual. criteria to evaluating program performance through
the estimation of policy reaction functions for program and non-program
Second, the results of most of the cross-country empirical studies indicate
that IMF-supported programs lead to an improvement in the current account
balance and the overall balance of payments. Several recent studies indicate
that the rate of inflation falls, but this change is generally not found to be
statistically significant. In the case of growth, the consensus seems to be
that output will be depressed in the short run, but over time growth begins to
rise. These newer empirical results indicate that, on average, IMF-supported
adjustment programs have been more effective in achieving their objectives than
earlier analyses suggest.