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<p>This paper investigates the dynamic effects of International Monetary Fund (IMF) credit on economic growth in low- and lower-middle-income countries, focusing on how institutional quality moderates these effects. Using System GMM with forward lags and a Bayesian Panel VAR, we analyze short- and medium-term responses to IMF lending. Total IMF disbursements proxy for the Fund’s economic influence, while institutional heterogeneity is captured using the Index of Economic Freedom (IEF), the Economic Freedom of the World (EFW) index, and the Worldwide Governance Indicators (WGI). The results show that IMF lending has, on average, no statistically significant effect on growth. Countries with stronger economic freedom or governance display somewhat more favorable responses, but these positive effects are modest and not consistently robust. In contrast, weak-institution environments often show negligible or negative predicted outcomes. Overall, the findings indicate that IMF credit does not reliably stimulate growth and that any potential gains are context-dependent, reinforcing the importance of institutional quality in shaping the effectiveness of IMF-supported programs.</p>

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IMF credit and growth dynamics: the moderating role of economic freedom and governance

  • 期刊论文

  • 发表日期：

    2026年4月15日

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  • Fouzia Awan

摘要

This paper investigates the dynamic effects of International Monetary Fund (IMF) credit on economic growth in low- and lower-middle-income countries, focusing on how institutional quality moderates these effects. Using System GMM with forward lags and a Bayesian Panel VAR, we analyze short- and medium-term responses to IMF lending. Total IMF disbursements proxy for the Fund’s economic influence, while institutional heterogeneity is captured using the Index of Economic Freedom (IEF), the Economic Freedom of the World (EFW) index, and the Worldwide Governance Indicators (WGI). The results show that IMF lending has, on average, no statistically significant effect on growth. Countries with stronger economic freedom or governance display somewhat more favorable responses, but these positive effects are modest and not consistently robust. In contrast, weak-institution environments often show negligible or negative predicted outcomes. Overall, the findings indicate that IMF credit does not reliably stimulate growth and that any potential gains are context-dependent, reinforcing the importance of institutional quality in shaping the effectiveness of IMF-supported programs.