Evaluating the impact of IMF bailouts on policy rate and bank credit dynamics in Sub-Saharan Africa

Abstract

Over the past five decades, the International Monetary Fund which was set up in 1944 in New Hampshire as part of the Bretton Woods institution has become and international lender of last resort. This portfolio allows member countries to apply for support in the event of a balance of payment deficit. These loans or support programmes come with conditionalities where there is enforced discipline in the monetary and fiscal framework of the lendee country. Countries in Sub-Saharan Africa over the past decades have dealt with the IMF over a number of programmes from Structural Adjustments to Extended Credit facility programmes. Many have questioned the short and long run results of such programmes due to the conditionalities attached. This study primarily focused on assessing the impact of IMF bailouts on monetary policy rates, foreign direct investment and domestic credit to the private sector. The study in using panel data with fixed effects and random effects of African countries from 2004 to 2018 found out that IMF bailouts had a positive relationship with monetary policy rate and was negatively correlated with foreign direct investments and domestic credit to the private sector. The recommendations made were that, the independence of the central bank must be maintained such that the setting of the monetary policy rate is not influenced by IMF agreements. Again it was recommended that governments should set up special institutions that will provide affordable credit with easy access to the private sector. This special institution should not be influenced by any economic reform or condition that is imposed by the IMF so as to keep a thriving private sector.