The Incidence and Effectiveness of Prior Actions in IMF-supported Programs
IMF Working Papers, September 1, 2006
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Bibliographic details
- Authors: Uma Ramakrishnan, Alun H. Thomas
- Published: September 1, 2006
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781451864731.001
Purpose and scope
- Prior actions are measures that need to be implemented prior to Board approval of an IMF-supported program.
- The paper examines whether prior actions can signal a willingness to implement reforms, especially when the member's track record is weak.
- Focus includes programs supported by the General Resources Account (GRA) and assessment of signaling, screening, macroeconomic target strengthening, and medium-term growth effects.
Main findings
- There is some support for a signaling role of prior actions, particularly for programs supported by the General Resources Account (GRA).
- Controlling for the member's previous track record, prior actions are associated with greater compliance with other structural conditions, suggesting possible use as a screening device.
- Prior actions set at program approval serve as a useful screening device and strengthen the macroeconomic targets set out in the IMF-supported program.
- The growth impact analysis shows a demonstrable screening effect on growth over the medium term:
- The growth impact of the ratio of prior actions at the outset versus the rest of the program is significantly positive.
- The total number of prior actions is not statistically significant for growth.
Policy implications and interpretation
- Prior actions can be used to screen program applicants and identify governments more likely to comply with program conditions.
- Setting prior actions at program approval may strengthen credibility of macroeconomic targets in IMF-supported programs.
- Emphasis on the ratio of front-loaded prior actions (at the outset) as a relevant metric for medium-term growth outcomes, rather than the total count of prior actions.
Subjects and keywords
- Subjects: Budget planning and preparation; Fiscal stance; Inflation; Public expenditure review; Real exchange rates
- Keywords: government; IMF effort; IMF's program conditionality; program; program implementation; WP