Why is IMF surveillance important?

In today's globalized economy, where the policies of one country typically affect many other countries, international cooperation is essential. The IMF, with its near-universal membership of 188 countries, facilitates this cooperation. There are two main aspects to the IMF’s surveillance work: bilateral surveillance, or the appraisal of and advice on the policies of each member country; and multilateral surveillance, or oversight of the world economy.

Consulting with member states

IMF economists continually monitor members’ economies. They visit member countries—usually annually—to exchange views with the government and the central bank and consider whether there are risks to domestic and global stability that argue for adjustments in economic or financial policies. Discussions mainly focus on exchange rate, monetary, fiscal, and financial policies. During their missions, IMF staff also typically meets with other stakeholders, such as parliamentarians and representatives of business, labor unions, and civil society to help evaluate the country’s economic policies and direction. On return to headquarters, the staff presents a report to the IMF’s Executive Board for discussion. The Board’s views are subsequently transmitted to the country’s authorities, concluding a process known as an Article IV consultation. In recent years, surveillance has become increasingly transparent. Almost all member countries now agree to publish a Public Information Notice summarizing the views of the Board, as well as the staff report and accompanying analysis. Many countries also publish a statement by staff at the conclusion of an IMF mission.

Overseeing the bigger world picture

The IMF also monitors global and regional economic trends. Its key instruments of multilateral surveillance are the regular publications: World Economic Outlook (WEO), Global Financial Stability Report (GFSR), and Fiscal Monitor. The WEO provides detailed analysis of the state of the world economy, addressing issues of pressing interest, such as the current global financial turmoil and economic downturn. The GFSR provides an up-to-date assessment of global financial markets and prospects, and highlights imbalances and vulnerabilities that could pose risks to financial market stability. The Fiscal Monitor updates medium-term fiscal projections and assesses developments in public finances.

The IMF also publishes Regional Economic Outlook reports, providing more detailed analysis for the five major regions of the world, and cooperates closely with other groups such as the Group of Twenty (G-20) industrialized and emerging market economies. In particular, since 2009, the IMF has been supporting the G-20’s efforts to sustain international economic cooperation through their mutual assessment process, launched at the G-20 Summit in Pittsburgh. The IMF provides analysis of whether policies pursued by member countries are consistent with sustained and balanced global growth.

Since 2011, the IMF has prepared, on a pilot basis, spillovers reports analyzing the impact of economic policies in the world’s five largest economies—China, the euro area, Japan, the United States, and the United Kingdom—on partner economies. Twice a year, the IMF also prepares a Global Policy Agenda that pulls together the key findings and policy advice from multilateral reports and defines a future agenda for the Fund and its members.

Keeping surveillance relevant

Surveillance in its present form was established by Article IV of the IMF’s Articles of Agreement, as revised in the late 1970s following the collapse of the Bretton Woods system of fixed exchange rates. Under Article IV, member countries undertake to collaborate with the IMF and with one another to promote stability. For its part, the IMF is charged with (i) overseeing the international monetary system to ensure its effective operation, and (ii) monitoring each member's compliance with its policy obligations.

In 2010, the IMF undertook a review of its surveillance mandate. This resulted in measures to integrate all dimensions of IMF surveillance—multilateral, bilateral and financial—and make it more effective. These measures helped address weaknesses identified in pre-crisis surveillance that were set out in a report by the IMF’s Independent Evaluation Office.

In October 2011, the latest major review of the effectiveness of its surveillance, or Triennial Surveillance Review, was completed. The review—covering both bilateral and multilateral surveillance—drew extensively on feedback from all major stakeholders, analysis by IMF staff, as well as from studies and commentaries by external experts. The review highlighted progress since the beginning of the global financial crisis but also found gaps. In particular, IMF surveillance was seen as too fragmented, with risk assessments lacking depth and insufficient focus on interconnections and transmission of shocks. Surveillance was also found to have less impact for larger member countries. The subsequent recommendations focus on improvements in six key areas: interconnectedness, risk assessments, external stability, financial stability, traction and the legal framework. The Managing Director’s action plan was endorsed by the Board, and a progress report has been issued. 

As part of broader efforts to make progress on this action plan, on July 18, 2012, the Executive Board met on two important topics. It adopted a new Decision on Bilateral and Multilateral Surveillance (Integrated Surveillance Decision) to strengthen the underlying legal framework for surveillance. It also discussed a Pilot External Stability Report presenting a broad and multilaterally consistent analysis of the external sector for the world’s largest economies. In September 2012, the Executive Board endorsed a new Financial Surveillance Strategy that proposes concrete and prioritized steps to further strengthen financial surveillance. These actions will help ensure that the Fund is in a better position to address the possible effects of spillovers from members’ policies on global stability; monitor the stability of members’ external sectors in a more comprehensive manner; and engage members in constructive dialogue safeguard the effective operation of the international monetary system and support global economic and financial stability.