The Impact of Bailouts on the Probability of Sovereign Debt Crises: Evidence from IMF-Supported Programs
39 Pages Posted: 13 Feb 2019
Date Written: January 2019
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: Sovereign debt defaults, Bank bailouts, Developing countries, IMF-supported programs, entropy balancing, International Lending and Debt Problems, International Monetary Arrangements and Institutions
JEL Classification: F34, F33
Suggested Citation: Suggested Citation