## An IMF for Tomorrow

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**Canonical URL:** [An IMF for Tomorrow](https://www.imf.org/-/media/files/publications/fandd/article/2024/06/pazarbasioglu.pdf)

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### Surveillance history and past pivots
- 1978: Changes to the IMF’s Articles of Agreement expanded the mandate beyond exchange rate policies to include monetary, fiscal, and financial policies.
- 1990s–early 2000s: Capital account crises (Mexico 1994; East Asia 1997–98; Russia 1998; Brazil 1999; Türkiye 2001; Argentina 2002; Uruguay 2003) led the IMF to sharpen exchange rate and financial sector surveillance, develop early-warning models, and focus on debt sustainability and sectoral balance sheet analysis.
- 2001: Introduction of the Vulnerability Exercise to identify a country’s near-term macroeconomic risks; regularly updated and covering the majority of member countries across different income levels.
- 2000s: Sharpened analytical tools for exchange rate surveillance, including a model to analyze currency valuations in an explicitly multilateral context.
- 2008–09 global financial crisis: Revealed that “surveillance significantly underestimated the combined risk across sectors, and the importance of financial sector feedback and spillovers.”
  - Introduced spillover reports for systemic five economies (China, euro area, Japan, United Kingdom, United States), later shifting to a more thematic approach.
  - Required explicit discussion of risks in Article IV consultations.
  - Integrated financial stability analysis more systematically into surveillance.
  - 2010: Regular assessments under the Financial Sector Assessment Program became mandatory for countries with systemically important financial sectors.
- 2020: Introduction of the Integrated Policy Framework to jointly consider monetary, exchange rate, macroprudential, and capital flow management policies and their interactions.

### Current priorities and challenges for surveillance
- Immediate surveillance priorities:
  - Achieve sustained disinflation.
  - Implement adequate fiscal consolidation.
  - Safeguard monetary stability.
  - Address postpandemic debt overhangs and financial sector vulnerabilities.
- Recent shocks confronting surveillance:
  - A once-in-a-century pandemic.
  - Rise of geopolitical tensions, new wars, and geoeconomic fragmentation.
  - A surge in inflation and interest rates.
  - Slower medium-term growth outlook, especially for emerging market and developing economies.
- Resilience:
  - Most emerging market economies have shown much greater resilience to recent turmoil than to the global financial crisis.
  - Sound macroeconomic and financial policies and strong institutions, consistent with IMF policy advice, are important contributors to this resilience.

### New structural transformations and surveillance adaptation
- Structural shifts requiring renewed surveillance focus:
  - Artificial intelligence: Presents opportunities and risks; global principles for responsible use could maximize benefits and manage risks. IMF surveillance can anticipate macroeconomic impacts, identify spillovers, and foster prudent policy responses.
  - Climate change: IMF adopted a strategy in 2021 and has integrated climate issues into multilateral analysis and bilateral surveillance.
  - Demographic shifts and proliferation of industrial policies: Surveillance has assessed economic effects and cross-border spillovers of industrial policies; such policies “often do more economic harm than good, trigger tit-for-tat retaliation that reduces net benefits, and can be captured by special interests.”
- Need for coordination:
  - Effective navigation of emerging transitions requires focused macroeconomic analysis and policy advice in close coordination with other relevant international institutions.

### Policy guidance, analytical tools, and tailoring advice
- Emphasis on tailored, granular recommendations in bilateral analysis, underpinned by country-specific circumstances.
- Multilateral flagship reports provide differentiated analysis and recommendations for countries in different income groups; regional economic outlooks offer targeted advice for geographic regions.
- Integrated approaches:
  - Integrated Policy Framework (2020) for joint consideration of interacting policies.
  - Financial stability analysis and spillover assessment are integrated into surveillance.
- Structural reform sequencing:
  - Proposed framework for prioritizing and sequencing macrostructural reforms to accelerate growth, alleviate policy trade-offs, and support the green transition in emerging market and developing economies.
  - Finding: Prioritizing the removal of the most binding constraints on economic activity could boost global output effects by about 4 percent in just two years.
- Gender integration:
  - Work integrating gender into surveillance shows that narrowing gender gaps in labor markets and access to finance pays large dividends for growth and stability.

### Core messages and normative stance
- Surveillance must stay ahead of the curve to anticipate problems that threaten domestic or external stability, including spillovers from policies of systemically important countries.
- The essence of surveillance is agility and responsiveness to the IMF’s diverse membership.
- The IMF must continue to play the role of “ruthless truth teller,” particularly in areas like industrial policy where risks of capture and retaliation exist.
- Surveillance is not only about safeguarding the economy but “uniting us all in the pursuit of a prosperous future in a dynamic yet stable global economy.”
- The past 80 years of IMF surveillance provide valuable insights; surveillance remains “an essential and valued global public good.”

*Source: Ceyla Pazarbasioglu, "An IMF for Tomorrow" (June 2024).*

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_Source: https://www.imf.org/-/media/files/publications/fandd/article/2024/06/pazarbasioglu.pdf_