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The IMF made the unusually frank admission in an evaluation of how it handled Greece's debt crisis, which triggered financial turmoil across the Euro zone.
The Greek economy has been kept afloat for the past three years by rescue loans from Europe and the IMF in exchange for harsh austerity measures that have worsened the recession, currently in its sixth year. It has so far received about $258.8 billion in loans from a rescue program totalling $310.5 billion.
While the measures have reduced Greece's budget deficit, they have left the country mired in a much deeper recession than what the IMF and its European partners in the bailout forecast three years ago. Unemployment is 27 per cent.
The report said the IMF and its partners in the bailout had significantly underestimated how much austerity measures, such as spending cuts and tax increases, would impact the economy. However, the fund insisted that it could not have slowed the pace of belt-tightening.
In another misstep, it said Greece missed three of the IMF's four main criteria required to qualify for such bailouts. On one of the criteria, debt sustainability, the IMF has asserted repeatedly that Greek government should be able to fully repay its debt burden on time.
However, the report said there was much uncertainty surrounding this assertion. The IMF said there were notable successes in the bailout as well.
Greece remained in the eurozone and the spillover effect on the global economy was relatively contained. "However, there were also notable failures," it said. It described the first two years of the rescue program as a "holding operation" while the other 16 European Union countries that use the euro currency grappled with the enormity of the unfolding crisis and built "firewalls" to try to stave off a contagion effect.
The report said rescue lenders had allowed Greek debt to remain too high until private bonds were eventually restructured last year.
Some of the failure was blamed on Greece itself, with the IMF saying it had stalled on structural reforms of its economy such as privatizations and improving tax collection.
The document said the lending agency and its partners had been too optimistic about the political conditions for pushing forward with such reforms.
