The impact of IMF loans on economic growth in Ukraine

Abstract

Solving problems with the state budget deficit and the balance of payments deficit is an important task for Ukraine. In both of these tasks, Ukraine uses international loans, the placement of external government bonds and domestic government bonds. The purpose of the study is to determine the impact of IMF loans on economic growth in Ukraine. In order to determine the impact on the economic growth of IMF financing, a model has been developed whereby GDP is a function of: government debt, national gold and foreign exchange reserves, and IMF loans. The results showed that the amount of public debt, the amount of national gold and foreign exchange reserves and the IMF loans are statistically significant. IMF loans are expected to have a negative impact on economic growth: a 1% increase in loans leads to a 1.07% decrease in GDP. IMF loans are not intended to stimulate economic growth, their purpose is to solve the balance of payments deficit. On the other hand, IMF loans can have a positive impact on economic growth through two other channels. The first channel is a fact of cooperation with the IMF, which signals to other creditors and international investors the predictability of economic policy in the country. This can help attract investment from abroad. The second channel – IMF loans, reducing the balance of payments deficit and reducing the burden on central bank reserves, that could accelerate the economic recovery phase in future periods. The presented study has several limitations. The time series of observations consists of 17 observations (annual observations since 2002). As a result, the sample size is quite small. Data on NBU gold and foreign exchange reserves up to 2002 are not available in NBU open sources. In addition, data on borrowings from the IMF have been used in aggregate form, that is, the total amount of borrowings. Future research plans to highlight IMF loan origination periods and investigate their impact on GDP as an individual event. Also, to improve the accuracy of calculations, it has been planned to use quarterly data, not annual, which will increase the number of observations in the sample.