EFSD researchers studied factors determining countries' choice between external support and international reserves in times of crisis

26 December 2023

Moscow, 26.12.2023. EFSD researchers assessed factors affecting the decision of developing economies on the source of anti-crisis support. In times of crisis, in case of need to support the economy, states have to choose between using international reserves and attracting external stabilisation financing from such institutions as the International Monetary Fund, the RFM, swap agreements with foreign central banks and other elements of the Global Financial Safety Net (GFSN).

As a result of the study, factors that significantly influence the choice to use international reserves have been specified.

The calculations are based on data from developing economies covering two periods: 1998–2010 and 2011–2021. The method of determining the significance of various factors in declining reserves was used for the analysis.

The research showed that international reserves are the most sought-after instrument among all the elements of the GFSN. It also showed that the set of factors determining the choice in favour of international reserve assets has varied before and after 2010. In the first period, sudden suspension of capital inflows and banking crises influenced the decline in reserves. In the second period, GDP per capita and the exchange rate regime became significant variables. At the same time, terms of trade and reserve volatility remained common important factors for both periods.