Economic Impact of IMF Programs in Low-Income Countries

1. Economic Impact of IMF Programs in Low-Income Countries Presented by Chris Lane and Yasemin Bal-Gunduz CSO Forum Annual Meetings October 10, 2013

2. Outline • Evolution of programs and IMF engagement • Economic Impact of Fund programs • Lessons for the future

3. Low Income Countries, 2012

4. IMF Concessional Facilities from 2010 Medium-term support Short-term support Non-financial support Extended Credit Facility (ECF) Rapid Credit Facility (RCF) Standby Credit Facility (SCF) Policy Support Instrument (PSI)

5. Low-Income Countries: No. of Years of IMF-Supported Program Engagement, 1986-2011

6. No. of Low-Income Countries with an IMF Facility in Place, and New Concessional Commitments (Left axis)

7. Outline • Evolution of programs and IMF engagement • Economic Impact of Fund programs • Lessons for the future

8. Economic Performance of Low-Income Countries, 1980-2013

9. Economic Performance of Low-Income Countries, 1980-2013, Continued

10. Changes in Average Decadal GDP Per Capita Growth and Poverty Gaps, 1986-2010

11. How to estimate the Impact? Identify two different types of IMF-supported programs (and what factors are important predictors): • Longer-term engagement: Capacity and institution building while maintaining macro-economic stability • Short-term (episodic) engagement: Financing and policy advice to restore macro-economic stability Construct the control group: • Match program and non-program countries using similarity of initial economic and structural conditions Impact: • The mean difference in a range of macroeconomic outcomes across these two groups

12. Results: Longer-term Engagement Longer term support helps LICs gradually build macroeconomic buffers: • Significantly higher long-term real per capita GDP • Higher reductions in growth volatility and inflation • Significantly larger improvements in the government balance • Significantly greater reductions in income inequality • Higher social spending, in particular significantly higher education spending • Significantly larger increases in FDI

13. Results: Short-term Engagement Changes in Macroeconomic Outcomes

14. Results: Short-term Engagement Short-term support addressing external shocks and policy slippages mitigates the impact of shocks and restores macroeconomic stability • Change in growth positive but significant only for countries experiencing substantial prior macroeconomic imbalances or large external shocks • Significantly higher improvements in current account balances and reserve coverage • Larger reductions in inflation and significant declines in fiscal deficits • Improvements in all outcome variables increases with prior macroeconomic imbalances or large external shocks

15. Channels supporting better performance under IMF-supported programs

16. Country Example: Georgia(GNI per capita in current U.S. dollars)

17. Outline • Evolution of programs and IMF engagement • Economic Impact of Fund programs • Lessons for the future

18. Graduation from IMF Concessional Financing

19. The Projected Number of Countries Eligible for Concessional IMF Financing is Expected To Shrink

20. Financing needs of LICs likely to evolve Declining reliance on continuous IMF Financing • Many countries will graduate from using the Extended Credit Facility as their balance of payments strengthens • Demand for non-financial instruments should increase • Shocks financing likely to continue (RCF, SCF) • But, fragile states may still require repeated IMF support (RCF and ECF) while they strengthen their macroeconomic positions.

21. Poverty Reduction and Growth Trust Average Annual Lending Commitments, 1988-2035(In billions of Special Drawing Rights)

22. Strategic priority: achieving higher sustainable growth Managing natural resources Scaling-up investment Recognizing fragile, small states’ needs Creating broad-based inclusive growth 22

23. Comments and questions?