IMF Growth Forecasts Seen Too Optimistic in Large-Loan Countries

Sandrine Rastello in Washington at

The International Monetary Fund tends to be too upbeat when projecting the economic growth of countries that receive large loans, an internal audit found.

In a report that looks at IMF loan programs between 2002 and 2011, the auditor found that “the forecast bias at program inception was optimistic and significant” for nations that could borrow more than their size at the fund would allow under the “exceptional access” rule.

Such nations include Ukraine in 2008 and 2010, Greece in 2010 and Iceland in 2008, according to the report, which found no bias in the case of smaller loans.

“This fact may explain the generalized public perception of the optimistic bias: exceptional access arrangements have, over the years, received considerable media attention,” the Independent Evaluation Office said in its report dated Feb. 12 and released today.

The fund in recent years said that it miscalculated the impact austerity policies would have in euro-area countries and has since eased its conditions, for instance, by giving Portugal more time to meet its budget-deficit targets.

The report also looks at the IMF’s global forecasts, or World Economic Outlook, which are published twice a year for all member countries.

“By and large, country officials have confidence in their integrity,” the auditor said of IMF forecasts.

GDP Forecasts

Over the 1990-2011 period, on average the IMF tended to overpredict gross domestic product expansion and undepredicted inflation because of regional or global depressions. Overall the forecasts’ accuracy were comparable to that of private-sector economists, the IEO found.

“Macroeconomic forecasts are critical inputs not only for the IMF’s bilateral and multilateral surveillance, but also for our program negotiations and the assessment of global risks, vulnerabilities, and spillovers,” IMF Managing Director Christine Lagarde said in a statement.

“I agree with the IEO that we should further strengthen the learning culture in the fund, including by enhancing our learning from past forecast errors, keeping up with advances in forecasting approaches and implementing the recommendations of external evaluations of IMF forecasts,” she said.