IMF Working Papers

The Catalytic Impact of IMF Lending on Official Development Assistance

Author/Editor:

Bangyu He ; Phil Johnston ; Agustin Velasquez

Publication Date:

June 28, 2024

Electronic Access:

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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.

Series:

Working Paper No. 2024/134

Subject:

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

Frequency:

regular