IMF Un-Credibility Watch: Ukraine Edition

Tyler Durden's picture

The IMF has lied (about 'not' proposing a 71% income tax) and has been shown as a serial over-optimistic forecaster (world growth disappointments and hockey sticks) but the simply incredible hope that Christine Lagarde's PhDs created in their growth expectations for Ukraine make their Greece "Oops" moment look like nothing. As CFR rebukes, we see the IMF’s growth forecasts for Ukraine and Greece not as forecasts at all, but rather as assumptions necessary to justify the IMF’s interventions. Credibility -> 0.

As we noted before: The topic of the IMF's idiocy - unquestioned here following years and years and years of absolutely horrific forecasts, not to mention charts like this one courtesy of the Troika, of whom the IMF is a proud member ...

... has been widely covered in the past.

 

And now CFR takes on the idiocy that is the IMF's Ukraine forecasts...

The IMF approved a $17 billion 24-month stand-by lending arrangement with Ukraine at the end of April.  The Fund sees the Ukrainian economy contracting 5% this year, but is enormously confident that its program will quickly set things right, projecting 2% growth next year and 4%+ growth in subsequent years.

We’ve seen this storyline before – in Greece, just a few short years ago.  As the graphic above shows, the recovery projected for Ukraine is a more optimistic version of that envisioned for Greece in 2010, which turned out to be way too optimistic.  The IMF saw Greece returning to growth within two years; instead, if it is lucky, Greece may just avoid yet another year of contraction in year 4.  In its ex-post evaluation of the program, the IMF acknowledges that its assumptions about the Greek economy were overly sanguine; in particular, its estimated fiscal multipliers were too low and structural reform was expected to contribute too much to private growth too soon.

Ukraine’s macro-fundamentals today are generally better than Greece’s in 2010: a debt-to-GDP of 57% (vs. 133% for Greece in 2010); a budget deficit (including Naftogaz) of 8.5% (vs. 8.1% for Greece); and a current-account deficit of 4.4% (vs. 8.4% for Greece).  But Ukraine is also on the verge of war, or civil war – unlike Greece in 2010.

In short, we see the IMF’s growth forecasts for Ukraine and Greece not as forecasts at all, but rather as assumptions necessary to justify the IMF’s interventions.

There are no doubt compelling geopolitical reasons for foreign financial assistance in both cases, yet we would assert that the IMF is the wrong institution to be intervening for such reasons.  If and when the losses start materializing for these interventions, we suspect that the historical European claim on the Fund managing directorship will be among the first casualties.