Repeated Use of IMF-Supported Programs: Determinants and Forecasting

Abstract

This paper studies the determinants of repeated use of Fund-supported programs in a large sample covering virtually all General Resources Account (GRA) arrangements that were approved between 1952 and 2012. Generally, the revolving nature of the IMF's resources calls for the temporary sup-port of member countries to address balance of payments problems while repeated use has often been viewed as program failure. First, using probit models we show that a small number of country-specific variables such as growth, the current account balance, the international reserves position, and the institutional framework play a significant role in explaining repeated use. Second, we discuss the role of IMF-specific and program-specific variables and find evidence that a country's track record with the Fund is a good predictor of repeated use. Finally, we conduct an out-of-sample forecasting exercise. While our approach has predictive power for repeated use, exact forecasting remains challenging. From a policy perspective, the results could prove useful to assess the risk IMF programs pose to the revolving nature of the Fund's financial resources.

Keywords: Nominal effective exchange rate, Economic policy, Economic theory, International reserves, Exchange rate regimes, IMF lending, Fund resources, GRA arrangements, WP, repeated use, probit, program-specific, explanatory variable, Cerutti

JEL Classification: F33, F34, F42, E01, O24, F3, G21, E5