Abstract
The International Monetary Fund (IMF) has been controversial since its inception; proponents hold that it serves an essential purpose in global economic governance and preventing crises, while critics maintain that it worsens economic conditions and the quality of life for those who bear its effects. In this paper, we seek to analyze a subset of these claims by focusing on the effect of IMF Loans on the financial sector in South Asian countries. We choose the financial sector as many consider it to be the driving force of our economy, and South Asia due to its status as one of the fastest-developing economic regions. To perform this investigation, we collected data from the World Bank and performed individual regressions, and constructed line graphs comparing time and disbursements vs. total non-performing loans to total gross loans, the real interest rate, and foreign exchange rate. The results showed a statistically insignificant but weakly positive correlation between IMF involvement and total non-performing loans to total gross loans (implying IMF involvement leads to an increase in non-performing loans) and no significant correlation between IMF involvement and the real interest rate or foreign exchange rate. This study implies that countries should reconsider IMF loans in light of minimal or even negative effectiveness.
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