Does International Monetary Fund Favor Certain Countries During the Fiscal Forecasting – Evidence of the Institutional Biases?

The process of forecasting in international institutions, such as the International Monetary Fund (IMF), is unlikely to be completely independent from the fund’s policy recommendations and political agenda. Therefore, we aim to discover if institutional characteristics of a country can influence their forecasts errors. We analyzed the squared errors of the IMF’s government net lending and borrowing forecasts that were presented in the World Economic Outlook report in the years 2011 to 2018. Based on a panel of 143 countries; which includes both advanced, emerging, and developing economies; we attempt to answer whether a fund’s analysis was positively biased towards some characteristics of debtors. IMF analysts were overly pessimistic in the cases of low-income and middle-income economies. Our fixed effects panel models show that a better assessment of institutional quality has not led to improvement of economic predictability. On the contrary, forecasts’ errors were bigger for countries with more established regulations. There is no consistent evidence that suggests that IMF is more favorable to democratic countries than to autocracies.