Macro-Financial Policies and Vulnerabilities in IMF-Supported Programs

IMF Working Papers, May 23, 2025

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Authors: Yazan Al-Karablieh, José Marzluf, Hector Perez-Saiz, Azzam Santosa, Fabian Valencia
Published: May 23, 2025
Series: IMF Working Papers
DOI: https://doi.org/10.5089/9798229008945.001

Constructed a unique dataset by collecting macro-financial commitments data using textual analysis of the Memorandum of Economic and Financial Policies (MEFPs).
Combined MEFP-derived macro-financial commitments data with information on structural conditionality.
Empirical approach: staggered difference-in-differences methodology.

IMF-supported programs with macro-financial policy commitments are followed by periods of lower non-performing loans relative to IMF-supported programs without macro-financial commitments, mostly for the post global financial crisis (GFC) period before the COVID-19 pandemic.
In some cases, programs with macro-financial commitments are followed by lower credit-to-GDP ratios relative to programs without such commitments.
The NPL-to-loans ratio does not seem to decrease as a result of credit expansion.
Stronger and more abrupt declines in credit-to-GDP are observed following ex-post macro-financial policies (those implemented after a crisis occurs, e.g., restructuring).
Milder and more gradual declines in credit-to-GDP are observed following ex-ante macro-financial policies (those implemented before risks materialize, e.g., regulatory requirements).
Policy responses are larger when countries have positive credit gaps at the start of the program than when credit gaps are negative.
Macro-financial policies targeting financial inclusion tend to increase credit-to-GDP ratios in low credit-to-GDP program countries.

The results emphasize the importance of considering a country’s position in the credit cycle in program design.
Addressing vulnerabilities preemptively (ex-ante policies) can reduce the need for abrupt corrections when risks materialize (ex-post policies).
Financial-inclusion–oriented macro-financial policies can expand credit in contexts with low credit-to-GDP.