IMF Conditionality and Private Credit Development in Developing Countries: The Role of Program Intensity and Composition

Abstract

IMF lending programs are controversial because they combine emergency financing with policy conditions that can reshape domestic markets. Despite extensive research on their effects on macroeconomic adjustment and public spending, their consequences for domestic financial development remain comparatively underexplored. This paper examines private credit by banks in 115 developing countries from 1990 to 2019 and asks whether the type of binding conditions in IMF programs matters more than its aggregate intensity. Rather than treating IMF programs as a single package, we separate binding conditions into prior actions, quantitative performance criteria, and structural performance criteria. Prior actions are front-loaded requirements that governments must complete before the IMF approves financing or allows a review to proceed. The central finding is that aggregate condition counts hide a robust negative relationship between prior actions and private credit. The evidence suggests that IMF program design matters for credit markets through the timing and form of conditions, indicating the importance of program composition in measuring these effects and not simply how many conditions there are.