The International Monetary Fund (IMF) has admitted “notable failures” in the first Greek bailout including a deeper-than-expected recession, a run on the country’s banking system and exceptionally high unemployment.

The IMF’s Review of Program Design and Conditionality provides a deep look into the design of 133 IMF-supported lending programs in operation between September 2011 and December 2017.

The IMF research paper said the multi-billion rescue package for Greece failed to restore market confidence, that the fiscal adjustment proramme had notable failures, wrong projections and overlook. It also admitted that delays in debt restructuring saved the foreign banks but it was of little help for Greece. The PSI of March 2012 did not help either.

The review also identified several factors that potentially inhibited programs from fully reaching their objectives. Overoptimistic economic forecasts reduced a program’s chances of success; accordingly, the review recommends using a more conservative approach to economic forecasts and providing deeper analyses of the impact that policies under the program could have on economic growth. More extensive contingency planning should also be included when designing programs.

Public debt is a case in point. Debt sustainability improved in most cases where debt vulnerabilities started out high. In some programs, however, debt exceeded the Fund’s initial projection by considerable margins. Fund policies are already in place to deal with unsustainable debt in Fund-supported programs. While any debt restructuring needs to be considered on a case-by-case basis, more careful diagnosis is essential—this means sharper tools for the IMF’s debt sustainability analysis are needed to reduce any bias in judgement when assessing debt.

The review finds many programs applied fiscal adjustments that were less growth-friendly than initially envisaged. Fiscal adjustment tended to be achieved by cutting public investment, possibly curtailing future growth, rather than by lowering current spending or raising revenue. To be a more useful guide for the government’s fiscal policy, an IMF program could set more granular targets, like a floor for critical public investments.

The IMF said the 2010 Greek programme gave the euro area time to build a ‘firewall’ around other vulnerable members, but said not tackling the country’s public debt problem decisively at the start created uncertainty about the bloc’s ability to resolve the crisis.

The IMF pledged about €30bn to Greece at the time, out of a total package of €110bn.

“Market confidence was not restored, the banking system lost 30pc of its deposits, and the economy encountered a much deeper-than-expected recession with exceptionally high unemployment,” the IMF report said.