The Impact of Bailouts on the Probability of Sovereign Debt Crises: Evidence from IMF-Supported Programs

Hippolyte Balima and Amadou Sy

No 2019/002, IMF Working Papers from International Monetary Fund

Abstract: This paper studies the role of IMF-supported programs in mitigating the likelihood of subsequent sovereign defaults in borrowing countries. Using a panel of 106 developing countries from 1970 to 2016 and an entropy balancing methodology, we find that IMF-supported programs significantly reduce the likelihood of subsequent sovereign defaults. This finding is robust to different specifications of the entropy balancing and alternative identification strategies. Our results suggest that a country that signs a program with the IMF, typically experiences a slight improvement in its sovereign credit rating and a decrease in both government debt-to-GDP and fiscal deficit-to-GDP.

Keywords: WP; IMF-supported program; debt crisis; credit rating; IMF intervention; IMF involvement; IMF-supported programs; sovereign debt defaults; entropy balancing.; program country; parliamentary democracy; sovereign debt crisis; government adjustment effort; fund program; covariate moment; program participation; baseline control variables; banking crisis dummy; borrowing government effort; Debt default; Estimation techniques; Credit ratings; Global; impact of bailout; IMF's presence; adjustment effort; probability of sovereign debt crisis (search for similar items in EconPapers)
Pages: 38
Date: 2019-01-11
New Economics Papers: this item is included in nep-mac
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