The Role of IMF Arrangements in Restoring Access to International Capital Markets

The Role of IMF Arrangements in Restoring Access to International Capital Markets
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Volume/Issue: Volume 2024 Issue 173
Publication date: August 2024
ISBN: 9798400284021
$20.00
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Topics covered in this book

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Exports and Imports , Finance , Money and Monetary Policy , Public Finance , International capital markets , market access , IMF , debt crisis , debt rescheduling , default , sovereign debt , sovereign debt restructuring , sovereign bonds , Eurobonds , IMF arrangement , IMF review , IMF working paper 2024/173 , capital markets department , IMF effect , Credit ratings , Bonds , Current account balance , Global

Summary

Using a database of emerging market fundamentals and bond index spreads across 56 frontier and emerging market countries rated below investment grade during the period 2002-22, we assess whether IMF arrangements can restore access to international capital markets (ICM) for countries in distress through liquidity and conditionality channels. We find that global financial conditions and debt/GDP are the most important determinants of access to ICM within the horizon of a typical IMF arrangement. Using an event study methodology, we show that spreads increase prior to the start of an IMF arrangement and then decrease gradually. By exploiting different characteristics of IMF arrangements, we find evidence that the reforms implemented under the IMF arrangement, as measured by rounds of successful IMF reviews, matter more in the medium term than the IMF’s role as a liquidity provider. These results are consistent with our analysis of 55 credit rating upgrades to ICM access levels, which suggests that debt reduction plays the largest role and that IMF arrangements lend credibility to reforms.