IMF Working Papers

Predicting IMF-Supported Programs: A Machine Learning Approach

Author/Editor:

Tsendsuren Batsuuri ; Shan He ; Ruofei Hu ; Jonathan Leslie ; Flora Lutz

Publication Date:

March 8, 2024

Electronic Access:

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Summary:

This study applies state-of-the-art machine learning (ML) techniques to forecast IMF-supported programs, analyzes the ML prediction results relative to traditional econometric approaches, explores non-linear relationships among predictors indicative of IMF-supported programs, and evaluates model robustness with regard to different feature sets and time periods. ML models consistently outperform traditional methods in out-of-sample prediction of new IMF-supported arrangements with key predictors that align well with the literature and show consensus across different algorithms. The analysis underscores the importance of incorporating a variety of external, fiscal, real, and financial features as well as institutional factors like membership in regional financing arrangements. The findings also highlight the varying influence of data processing choices such as feature selection, sampling techniques, and missing data imputation on the performance of different ML models and therefore indicate the usefulness of a flexible, algorithm-tailored approach. Additionally, the results reveal that models that are most effective in near and medium-term predictions may tend to underperform over the long term, thus illustrating the need for regular updates or more stable – albeit potentially near-term suboptimal – models when frequent updates are impractical.

Series:

Working Paper No. 2024/054

Subject:

Data processing Early warning systems Economic and financial statistics Emergency assistance Financial crises Foreign aid Global financial crisis of 2008-2009 Machine learning Technology

Frequency:

regular