It’s nearly impossible to accurately price sovereign risk using data provided by organizations like the International Monetary Fund (IMF), Eurostat and the World Bank. That’s the conclusion delegates took away from the keynote presentation by Dev Kar, a former IMF economist who is now the lead economist at Global Financial Integrity.
To make his point, Kar presented the case of Greece, who as late as April 2009 reported that its deficit to GDP stood at just 5% – only a few months later, in November, Greece revised that number to 7.7%. According to Kar, that huge revision indicates serious weaknesses in Greece’s statistics and, more importantly, it points to big problems with organizations like Eurostat who are responsible for ensuring that reported statistics are accurate.
Moreover, said Kar Greece’s inability to provide accurate statistics was well known by policymakers and in the run up to 2004, the country had misstated its economic statistics no fewer than 11 times.
Unsurprisingly, organizations like the IMF did not see the global financial crisis coming.
Greece is only one case among many. Kar questioned statistics coming from countries like China and India, where double-digit growth doesn’t address key social and systemic problems that could unfold in the coming years. “It’s anyone’s guess what China’s growth markers are,” he says, who notes that the 10% rate reported by that country is “suspect.” In the next 10 years, he sees that leading to significant risks which won’t necessarily be captured in statistical data generated by major sources like the World Bank.
His final message to investors – do your own research.