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

39 Pages Posted: 13 Feb 2019

See all articles by Hippolyte Balima

Hippolyte Balima

International Monetary Fund (IMF)

Amadou Nicolas Racine Sy

International Monetary Fund (IMF) - International Capital Markets Department; Brookings Institution

Date Written: January 2019

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: 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

Balima, Hippolyte and Sy, Amadou Nicolas Racine, The Impact of Bailouts on the Probability of Sovereign Debt Crises: Evidence from IMF-Supported Programs (January 2019). IMF Working Paper No. 19/2, Available at SSRN: https://ssrn.com/abstract=3333743

Hippolyte Balima (Contact Author)

International Monetary Fund (IMF) ( email )

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Washington, DC 20431
United States

Amadou Nicolas Racine Sy

International Monetary Fund (IMF) - International Capital Markets Department ( email )

700 19th Street NW
Room 9-548
Washington, DC 20431
United States
202-623-8651 (Phone)
202-589-8561 (Fax)

Brookings Institution ( email )

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Washington, DC 20036
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