Public Information Notice: IMF Executive Board Reviews Progress Implementing the Priorities of the 2011 Triennial Surveillance Review
December 11, 2012
Public Information Notices (PINs) form part of the IMF's efforts to promote transparency of the IMF's views and analysis of economic developments and policies. With the consent of the country (or countries) concerned, PINs are issued after Executive Board discussions of Article IV consultations with member countries, of its surveillance of developments at the regional level, of post-program monitoring, and of ex post assessments of member countries with longer-term program engagements. PINs are also issued after Executive Board discussions of general policy matters, unless otherwise decided by the Executive Board in a particular case.
December 11, 2012
Making IMF Surveillance as Interconnected as the Global Economy
The Executive Board of the International Monetary Fund (IMF) considered on November 27, 2012 the staff report “One Year After the 2011 Triennial Surveillance Review―Progress Report.”
The Progress Report provides a short update on the Fund’s actions in implementing the operational priorities identified by last year’s Triennial Surveillance Review (TSR) as laid out in the Managing Director’s Statement on Strengthening Surveillance. The TSR highlighted the following priorities:
• Interconnectedness. The propagation of the crisis and subsequent tensions underscored the case for the IMF to analyze the web of economic and financial connections between economies so that policy spillovers can be identified. Therefore, a key priority was for greater analysis of linkages and spillovers across countries and to make this systematic in Article IV consultations.
• Risk assessments. To help ensure that building vulnerabilities are captured at an early stage, another priority was to bring about a more in-depth assessment of risks, their transmission channels and possible policy responses in Article IV consultations.
• Financial Stability. Given the potential and speed with which developments in the financial sector can propagate and ignite crises, ensuring effective financial sector surveillance was seen as essential. While financial stability had advanced, there was scope to further strengthen the integration of financial stability analysis in Article IV consultations and multilateral surveillance.
• External Stability. A broader assessment of external stability, better integrated into the analysis and policy discussions in staff reports, was called for; and the publication of a multilaterally-consistent assessment of external balances was recommended.
• Traction. High quality analysis, as well as candid and evenhanded advice tailored to country circumstances, could help improve communication and traction with stakeholders. Delivering on the priorities above could help. Another recommendation was to have more systematic follow up on past policy advice and greater attention to issues such as unemployment and inclusive growth that could have large macroeconomic effects.
• Legal Framework. Gaps in the legal framework were to be addressed which would support better integrated bilateral and multilateral surveillance and provide for more systematic coverage of spillovers.
The Progress Report highlights key areas of progress on each of these priorities as well as areas where further efforts are needed to ensure effective delivery of IMF surveillance. Findings are based on a review of a small sample of staff reports, regional and multilateral surveillance products, as well as feedback gained from roundtable discussions with staff.
Executive Board Assessment
Directors welcomed the progress made on the priorities set at the time of the 2011 Triennial Surveillance Review and broadly agreed with the main findings of the report. They noted that many of the initiatives undertaken in the last year have already brought significant improvements in the focus of surveillance on interconnections, risks, external stability, and financial stability. Directors viewed the implementation of the Integrated Surveillance Decision as providing the basis for more effective and relevant surveillance in a highly-interconnected world economy and fostering better integration of all surveillance activities. Directors agreed that the emphasis should now be on fully implementing the surveillance priorities in Article IV consultations and multilateral and regional reports.
Interconnections. Directors welcomed the progress achieved on the analysis of interconnections, which has helped to shed light on linkages across countries and sectors. Directors agreed that further strengthening of this work is necessary to improve the identification of risk transmission channels, and to further leverage spillover analysis and cross-country work in surveillance. A number of Directors pointed at the practical difficulties of clustering Article IV consultations for interconnected countries, but saw potential value in this approach.
Risks. Directors agreed that the focus of surveillance on risks has sharpened, and that the use of risk assessment matrices in staff reports has contributed to this effect, helping to ensure consistency of messages across various surveillance products. However, they stressed that the quality of risk analysis can be improved further and noted that risk assessment matrices are most effective when they are well tailored to country circumstances and include advice on potential policy responses. A few Directors cautioned against implementing these new tools in a mechanical fashion. A few others expressed concerns about communication issues, particularly in regard to the publication of risk assessment matrices and the discussion of tail risks. Directors agreed that a candid discussion of risks should be included in all country reports. Most Directors supported further progress on the quantification of global risks, which would provide a basis for country teams to identify the impact of global risks on individual economies.
Financial stability. Directors stressed the need to continue efforts to integrate financial surveillance into Article IV consultations and multilateral surveillance—as highlighted in the Financial Surveillance Strategy. They noted the progress on following up on FSAP recommendations in Article IV staff reports, but suggested more could be done to integrate assessments of macro-financial linkages in surveillance. The Financial Surveillance Strategy provides a solid basis for further progress, including on developing a more systematic approach to macro-financial issues; deepening understanding of financial interconnections and the implications for policy; improving financial sector expertise; and closing data gaps.
External stability. Directors supported efforts to broaden the analysis of the external sector. They noted that the pilot External Balances Assessment and the Pilot External Sector Report may have contributed to a stronger focus on external stability for a limited number of countries, and recommended that the new approaches be extended to the wider membership. In order to strengthen the credibility of these efforts, assessment methods should be refined further, including by taking full account of country-specific factors, and the external assessment for countries not covered under the new methodology should also be improved.
Traction. While recognizing that it is too early to fully gauge progress, Directors welcomed the evidence that Fund advice is having more traction and has generated more public debate, including in advanced economies. They emphasized the importance of the relevance and quality of Fund surveillance in generating traction. Going forward, they called for systematic follow-up on issues raised in previous Article IV consultations, and noted that enhanced communication to policymakers on key messages and risks, including through the Global Policy Agenda, could help.
Resources. Directors noted that implementing staff’s proposed recommendations is unlikely to be cost neutral. A few Directors stressed the importance of ensuring that the necessary resources are provided while a number of others urged staff to consider areas for potential savings, including by consolidating the various surveillance outputs. Many Directors stressed the importance of a closer cooperation across departments to enhance both efficiency and quality of surveillance.