The International Monetary Fund (IMF) tended to offer overly rosy growth scenarios for countries that were lining up for big loans from the organization, independent auditors said on Tuesday.
Optimistic forecasts could allow the IMF to lend billions of dollars to countries such as Greece and Ukraine while still letting the organization comply with its strict standards for debt sustainability, or targets for the ratio of debt to gross domestic product, reports The Daily Star.
“Short-term forecasts of GDP growth and inflation … tended to be optimistic in high-profile cases characterized by exceptional access to IMF resources,” the IMF’s Independent Evaluation Office said in a report. The office analyzed the fund’s economic forecasts from 2002 to 2011.
Under so-called exceptional access programs, the IMF amends its rules to allow a country to borrow more than double its quota, or stake in the IMF, in a single year. These cases accounted for more than 85 percent of the total amount of money the IMF lent at that time, the report found.
The IMF uses its economic forecasts to calculate a country’s sustainable debt levels, decide how much money it can get and what fiscal austerity is required.
During the period studied by the auditors, the IMF provided a $15 billion bailout to Ukraine and a $40 billion rescue for Greece, among other big loans.
In a report last year on the Greek bailout, the IMF said that it lowered its normal standards for debt sustainability to bail out the euro zone country, and that its projections for the Greek economy may have been overly optimistic.
The evaluation office also found that the IMF over-predicted growth and under-predicted inflation during regional or global recessions, or during crises in individual countries – although the private sector made the same mistakes, the evaluation found.
But in other cases, the report found that IMF forecasts were generally not biased and government officials trusted their predictions.
The auditors recommended the IMF do a better job of learning from past experience in forecasting, and also promote transparency by better describing exactly how its calculates its forecasts