A Constrained Choice? Impact of Concessionality Requirements on Borrowing Behavior

IMF Working Papers, September 24, 2014

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Using a propensity matching score approach, the paper assesses the impact of the IMF’s debt limits policy (DLP) on borrowing behavior in countries eligible to borrow from its concessional lending window.
Countries under the DLP borrow significantly higher amounts of concessional resources.
There is no evidence that the DLP significantly impacts the level of non-concessional borrowing nor the terms of such borrowing.
Heterogeneity analysis indicates that the level of development, rather than concessionality requirements, is the key driver of non-concessional borrowing.

Empirical approach: propensity matching score approach applied to countries eligible for IMF concessional lending.
Purpose: isolate the effect of the IMF’s debt limits policy (DLP) on concessional and non-concessional borrowing behavior.

Finding: The heterogeneity analysis confirms the main result that concessionality requirements (DLP) do not significantly alter non-concessional borrowing behavior.
Interpretation: Differences in the level of development across countries, not the concessionality requirements imposed by the DLP, drive variation in non-concessional borrowing.

Policy implication: Concessionality requirements under the IMF’s DLP appear effective at increasing concessional borrowing without displacing non-concessional borrowing or altering its terms.
Consideration for policymakers: Efforts to influence non-concessional borrowing should focus on factors related to countries’ level of development rather than on concessionality requirements alone.

Summary drawn from the IMF working paper landing page for "A Constrained Choice? Impact of Concessionality Requirements on Borrowing Behavior."