World Bank and International Monetary Fund Conditionality Lending: A Supply-Side Inquiry into Economic Growth for Sub-Saharan Africa

This thesis presents an examination of conditional lending by international financial institutions (IFI(s)), viz. the International Monetary Fund (‘IMF’) and The World Bank (‘World Bank’, or ‘Bank’), to nations of Sub-Saharan Africa through the theoretical lens of supply-side economics. Funding from the two international lenders is given to poor countries subject to sets of ‘conditions’, which according to the IMF, are intended as macroeconomic and structural policies used to stabilise the balance of payments and other imbalances without harming national or international prosperity. Structural benchmarks underlying the conditions attached to loans vary across programmes: some examples cited include the build-up of financial sector operations, a fortifying of social safety nets, or the strengthening of public financial management. Sub-Saharan Africa was chosen for a number of reasons, the most salient being that it might represent the purest test for validation of IFI conditions given the region’s vulnerability with respect to outside influences, both economic and otherwise. As such, it is important to continuously re-assess whether the conditions imposed by the IMF and World Bank really help resolve the problems faced by borrowing countries. The aim of this thesis is to contribute to this debate. Adopting models for panel data in both (1) first differences and (2) fixed effects formats to deal with unobserved heterogeneity, data were tested using both levels and log-levels. Sampled were Fund and Bank conditional loans for 32 Sub-Saharan African nations during a test period 1971-2013. A dummy variable was used to indicate years ‘not under’ versus ‘under’ IFI agreement. Working through various issues surrounding the available data, results were mixed in terms of signs of parameter estimates compared with those expected under supply-side theory. The results of estimates suggested that IFI conditional lending should be discontinued.