The International Monetary Fund is to admit that it has made serious mistakes in the handling of the sovereign debt crisis in Greece, according to internal reports due to be published later on Wednesday.

Documents presented to the Fund's board last Friday will reveal that the Washington-based organisation underestimated the damage austerity would cause to the eurozone country, which has required two bailouts in the past three years.

The Wall Street Journal reported that the papers would say that financial support from the Fund, the European Central Bank and the European Commission had bought time for Greece but had only been made possible because the IMF had bent its own rules to make the country's debt look more sustainable than it was. According to the WSJ report, Greece failed to meet three of the Fund's four tests to qualify for help.

A Fund spokeswoman said: "We will be publishing a number of papers on Greece later today. The board met last Friday to discuss several documents on Greece including the review of its programme and its annual economic assessment."

Greece became the first eurozone nation to require a bailout by the international community in 2010, but needed a second round of financial assistance in early 2012 when a deep recession and high interest payments threatened to send its debts spiralling out of control.

The so-called troika of the IMF, ECB and EC forced private sector bondholders to write down the value of their Greek bonds in an attempt to bring the country's debts down to sustainable levels of 120% of national income by 2020.

Christine Lagarde, the managing director of the Fund, has said many times over the past year that Greece should now be in a position to pay off its debts, but the WSJ reports that IMF staff believe this cannot be said with any certainty.

In Athens, officials reacted with barely disguised glee to the news.

The report confirms what Greek officials have long said: that the first bailout of uncompromising budget cuts and tax increases, the price of 110 bn euro in emergency funds in May 2010, was the wrong prescription for a country not only batting a monumental debt load but rampant tax evasion and a flourishing black economy.

Under the weight of such measures – applied across the board and hitting the poorest hardest – the economy, they said, was always bound to dive into an economic death spiral. "For too long they [troika officials] refused to accept that the programme was simply off-target by hiding behind our failure to implement structural reforms," said one insider. "Now that reforms are being applied they've had to accept the bitter truth."

The Greek media recently quoted IMF managing director Christine Lagarde describing 2011 as a "lost year" partly because of miscalculations by the EU and IMF. The authoritative Kathimerini newspaper said the report identified a number of "mistakes" including the failure of creditors to agree to a restructuring of Greece's debt burden earlier – a failure that had had a disastrous effect on its macro-economic assumptions.

"From what we understand the IMF singles out the EU for criticism in its handling of the problem more than anything else," said one well-placed official at the Greek finance ministry. "But acknowledgement of these mistakes will help us. It has already helped cut some slack and it will help us get what we really need which is a haircut on our debt next year.