Do IMF Programs Stimulate Private Sector Investment?

This paper investigates the dynamic aggregate response of firm investments to the approval of an IMF arrangement. Using a local projection methodology, we find that distinguishing between General Resource Account (GRA) and Poverty Reduction and Growth Trust (PRGT) financing matters for the path of investment. Following a GRA arrangement, investments start to increase after two years, while the effect is quite limited after a PRGT. Adopting a stacked difference-in-differences estimator and exploiting firm-level characteristics, we find that firms having domestic ownership, rely more on external finance, or are more subject to uncertainty, will invest more following a GRA agreement.