## Statement by the Managing Director on the Independent Evaluation Office Report on the IMF Financial Surveillance, Executive Board Meeting, January 14, 2019 ## Source details **Canonical URL:** [Statement by the Managing Director on the Independent Evaluation Office Report on the IMF Financial Surveillance, Executive Board Meeting, January 14, 2019](https://www.imf.org/-/media/files/publications/pp/2019/pp011419mdstatement-ieo-report-imffinancialsurveillance.pdf) ## Other formats - [Markdown version](/-/media/files/publications/pp/2019/pp011419mdstatement-ieo-report-imffinancialsurveillance.pdf.md) - [Structured JSON version](/-/media/files/publications/pp/2019/pp011419mdstatement-ieo-report-imffinancialsurveillance.pdf.json) --- ### Overview and MD’s judgment - The MD welcomes the IEO report and "broadly support[s] the IEO’s recommendations to make IMF financial surveillance more effective." - The report recognizes a "substantial upgrade" in IMF financial surveillance since the Global Financial Crisis (GFC), citing the 2012 Integrated Surveillance Decision and the 2012 Financial Surveillance Strategy as key references. - The MD highlights the IMF’s comparative strengths: "macroeconomic and financial expertise, global membership and governance" and its capacity to advise members on tailored policies. - The MD notes the GFSR and Early Warning Exercise (EWE) are "leading sources of insights" and that the IMF is "better prepared to detect financial vulnerabilities and risks." - The MD acknowledges remaining room for improvement and emphasizes the 2020 Comprehensive Surveillance Review and the FSAP Review as opportunities to consider key recommendations, while noting a "constrained resource environment." ### Response to IEO recommendations (detailed) - Recommendation 1 — Strengthening financial and macrofinancial analysis in Article IV surveillance: - MD agrees with the objective to deepen financial and macrofinancial analysis, particularly in Article IV consultations. - Supports further integration of FSAP analysis into Article IV consultations; the upcoming FSAP and Comprehensive Surveillance Reviews will consider this. - Notes that major strides will require "further developing the skillset of country teams" and could entail "substantial additional resource costs" (see recommendations 5 and 6). - Recommendation 2 — Refocusing FSAP country selection and scope: - MD "broadly concur[s]" with reviewing the number of mandatory Financial Stability Assessments (FSAs). - Any revised approach must balance: evenhandedness and transparency in selection; the "current voluntary nature of FSAs for most member countries"; and "market signaling risks" from vulnerability-based selection. - MD does not concur with cutting back Fund stress testing where authorities conduct detailed stress tests, arguing authority-conducted tests vary in quality and the Fund’s independent stress tests "have continued to add value" and are "integral to the Fund’s bilateral surveillance." - Recommendation 3 — Increasing traction of multilateral surveillance: - MD welcomes that multilateral financial surveillance is "generally well regarded." - Supports making more GFSR material available online, "subject to copyright constraints," to improve analytical and empirical backing of Chapter 1 narratives. - "Broadly support[s]" deepening collaboration with international partners; cites improved IMF–FSB cooperation on the EWE as successful. - Intends to continue deepening cooperation but believes "further dissemination of the EWE would weaken its effectiveness." - Will continue assessments of reform impacts, some jointly with Standard Setting Bodies (SSBs), "subject to resource availability," while recognizing challenges when regulatory agencies’ views diverge from IMF members not represented in them. - Recommendation 4 — Enhancing the IMF analytical tools: - MD affirms enhancing the analytical toolkit and priority on understanding macrofinancial linkages for multilateral and bilateral surveillance. - Encourages exchange of views with major central banks and development of simplified tools and internal outreach to disseminate existing tools. - Staff is "currently working on deepening and broadening the application of the Growth-at-risk framework" and "developing models to study specific issues related to the intersection of macroeconomics and finance." - Finds the proposal to conduct global stress tests in partnership with the BIS and FSB "interesting" but is "not convinced that it is feasible" given acknowledged data constraints. - On fintech, the Fund is "gaining expertise" and building international support; staff is conducting analytical work including on "central bank digital currencies," focusing on the Fund’s comparative advantages. - Recommendation 5 — Building financial skills and expertise: - MD agrees the IMF has made "significant efforts to upgrade the macrofinancial skills of its economists" and that work is ongoing. - Targeted HR strategy enhancements (including a talent inventory and a potential expert track) are expected to help combine macroeconomist and expert expertise for effective macrofinancial surveillance. - Talent management and recruitment challenges will be considered in the forthcoming comprehensive compensation and benefits review. - Recommendation 6 — Increasing budgetary resources: - MD acknowledges that strengthening financial surveillance "requires adequate resources" and notes the recommendation to "significantly increase the resource envelope for financial surveillance." - Budgetary issues will be considered in IMF budget discussions and must reflect "the areas of the Fund’s comparative advantages, medium-term trade-offs, and strategic objectives defined by the Executive Board." - Emphasizes "the importance of making sure that we assist our members in the most cost-effective way possible." ### Key summary positions (Table of MD’s position on IEO recommendations) - (i) Strengthening financial and macrofinancial analysis in Article IV surveillance: Support - (ii) Refocusing FSAP Country Selection and Scope: Qualified Support - (iii) Increasing Multilateral Surveillance: Qualified Support - (iv) Enhancing the IMF Analytical Tools: Support - (v) Building Financial Skills and Expertise: Support - (vi) Increasing Budgetary Resources: Qualified Support *Statement by the Managing Director on the Independent Evaluation Office Report on the IMF Financial Surveillance — Executive Board Meeting, January 14, 2019* --- _Source: https://www.imf.org/-/media/files/publications/pp/2019/pp011419mdstatement-ieo-report-imffinancialsurveillance.pdf_