The Dynamics of Interest Rates and Their Role in Shaping the Structural Reforms of the IMF

Abstract

This study explores the dynamics of IMF loan interest rates and their role in shaping economic and social outcomes in borrowing countries, while also assessing implications for the Fund’s liquidity and long-term sustainability. Drawing on IMF and World Bank annual data for 2010–2025, we employ an econometric framework to evaluate how changes in lending rates influence GDP growth, poverty, unemployment, and repayment performance. Results show a consistent pattern: lower rates are associated with faster growth, reduced poverty and unemployment, and stronger IMF liquidity via improved repayment discipline and higher program uptake. Even amid global disruptions (e.g., COVID-19), the long-run relationship between lower borrowing costs and macroeconomic stability remains evident. Interestrate policy is therefore a strategic design lever not a mere technical parameter capable of balancing the IMF’s financial sustainability with members’ developmental needs.