## ppea2022029

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### Overview and purpose
- Provides guidance to country teams for surveillance under Article IV consultations, superseding the 2015 Guidance Note and its supplement.
- Builds on the 2021 Comprehensive Surveillance Review (CSR) priorities.
- Date of the document: May 31, 2022.
- Article IV consultations are the vehicle for both bilateral and multilateral surveillance, assessing whether a member’s policies promote its balance of payments (BOP) and domestic stability as well as global economic and financial stability.

### What is new in the 2022 Guidance Note
- Retains legal foundations from the 2015 Guidance Note (Annex 1).
- Updates and expands guidance on fiscal, monetary, external, financial, and macrostructural policies (Sections IV.A–IV.E).
- Updated references and guidance on analytical frameworks and tools including the Debt Sustainability Analysis (Box 10) and External Sector Assessment (Box 12).
- More specific guidance on integrating FSAP findings and recommendations and a new process to facilitate it.
- New requirement: include a well-articulated view about systemic risk (Section IV.B; ¶62).
- Reflects CSR surveillance priorities and explains how they inform surveillance (Section III.A).
- Specifies guidance on coverage of climate change (Section V.B), gender (Section V.C), inclusion (Box 7), governance (Box 13).
- Adds coverage of multi-policy interactions (Integrated Policy Framework, Section V.A).
- Focused guidance on coverage and assessing macrocriticality (Box 2).
- Updates processes and procedures including treatment of confidential information (Sections VI.A–VI.E; Section VI.D).

### CSR priorities and operational focus
- Surveillance Priorities:
  - Confronting risks and uncertainties: consider range of outcomes and provide proactive mitigation advice.
  - Preempting and mitigating spillovers: consistent coverage across members, strengthen outward spillovers analysis, link bilateral and multilateral surveillance.
  - Ensuring economic sustainability: cover salient trends affecting longer-term stability (demographics, technological change, inequality, socio-political/geopolitical developments, climate change).
  - Adopting a more unified approach to policy advice: better integrate advice across policy areas and tools.
- Operational Priorities:
  - Enhancing traction: improve engagement and relevance of Fund analysis and advice.
  - Modernizing modalities: make advice more timely, topical, targeted, interconnected and informed; make Article IVs more focused while meeting formal requirements; integrate surveillance with capacity development (CD); improve access to data.

### Scope, tailoring, and macrocriticality
- ISD requires Article IVs always cover exchange rate policies and monetary, fiscal, and financial sector policies (macro and macroeconomically relevant structural aspects).
- Other policies (growth, job creation, income distribution, digitalization, climate, gender) are covered only if macrocritical for present or prospective BOP or domestic stability (macrocriticality criterion; Box 2).
- Macrocriticality determination is country-specific and case-by-case; coverage depends on macrocriticality and whether the Fund has expertise.
- Box 2 — Required treatment rules (condensed):
  - Macrocritical + Fund expertise: staff analysis and policy advice required.
  - Macrocritical + no Fund expertise: staff should analyze and collaborate with external partners; staff not expected to provide specific policy advice.
  - Not macrocritical + Fund expertise: staff may provide analysis and advice if requested.
  - Not macrocritical + no Fund expertise: no analysis or policy advice.
- Tailoring considerations: income level, fragility/vulnerability, institutional capacity, data adequacy, membership in currency unions (Figure 1, Annex II, Annex III).

### Requirements for Article IV staff reports (Box 3 condensed)
- Main elements:
  - Recent economic and macrofinancial developments and policies.
  - Outlook and risks with a baseline medium-term projection consistent across sectors and Fund-wide assumptions.
  - Reporting on policy discussions with authorities and the authorities’ views.
  - Staff appraisal summarizing staff’s views and policy advice (covers issues discussed with authorities and in the main report; ¶129-130).
- Required analytical frameworks/tools and annexes:
  - External Sector Assessment (ESA) and Debt Sustainability Assessment (DSA), each with a bottom-line assessment, a Risk Assessment Matrix (RAM), and a well-articulated view on systemic risks (¶62).
  - Statistical Issues Appendix and Table of Common Indicators Required for Surveillance (¶14).
  - Table of Financial Soundness Indicators; SEI, fiscal, monetary, and BOP tables with recent developments and medium-term projections (¶12).
  - Description of de jure and de facto exchange rate regime (¶91) and reference to Article VIII/XIV status and MCPs (¶93).
  - Brief assessment of authorities’ response to key policy recommendations from previous Article IV consultations (¶23) and summary of FSAP recommendation implementation (¶73).
- Reports should be self-contained but may judiciously reference previous staff reports and Selected Issues Papers (SIPs).

### Data adequacy and classification
- Data adequacy categories:
  - category A: data provision is adequate for surveillance
  - category B: data provision has some shortcomings but broadly adequate for surveillance
  - category C: data provision has some shortcomings that somewhat hamper surveillance
  - category D: data provision has serious shortcomings that significantly hamper surveillance
- For category C or D, staff should discuss data adequacy in the main text and consider CD; category D deficiencies must be discussed in the staff appraisal.

### Integration of Capacity Development (CD) with surveillance (paragraph 16)
- Where institutional and capacity weaknesses constrain policy adoption, teams should cover constraints in surveillance and, if the Fund has technical expertise, provide CD targeted to address them.
- Country teams should develop a coherent CD strategy in collaboration with CD departments when capacity constraints prevent achieving surveillance objectives.
- Reporting expectations:
  - Article IV staff reports should cover the CD strategy when capacity constraints are linked to macrocritical issues and the Fund has technical expertise.
  - Heavy CD recipients should report on their CD Country Strategy Note.5
  - Article IV reports should report on discussions with authorities regarding implementation of CD-supported reforms when relevant.
- Footnotes preserved:
  - 4 A CD strategy review was conducted in 2018 and internal guidelines have been developed.
  - 5 Country teams for major recipients of CD prepare a CD Country Strategy Note (CD-CSN).

### Traction, engagement, and evenhandedness
- Traction defined as the relevance and value-added of the Fund’s analysis and advice influencing policymaking and broader stakeholders’ understanding.
- Determinants of traction:
  - (i) constructive two-way dialogue with members;
  - (ii) extent to which Fund advice influences policymaking.
- Policy advice quality: candid, concrete, granular, actionable, mindful of country constraints, selective and focused, and integrated with CD and cross-country lessons.
- Staff expected to record in staff reports:
  - (i) substantive policy discussion reflecting staff and authorities’ views,
  - (ii) authorities’ response to past Article IV or FSAP recommendations,
  - (iii) significant changes in Fund advice,
  - (iv) instances where members implemented policies differing from Fund advice.
- Evenhandedness: treat members in similar circumstances similarly while tailoring surveillance to country circumstances; internal review processes and a formal mechanism exist to report perceived lack of evenhandedness.
- Best practices (Box 4 highlights): collaboration, candor, evenhandedness, data and analysis integrity, practicality and granularity, consistent forecasts and risk analysis, cross-country perspectives, selectivity and timeliness.

### Risk assessments and RAMs (Surveillance Priority 1)
- Surveillance should confront risks and uncertainties and consider a range of potential outcomes.
- Risk assessment approach:
  - Select key risks around the baseline by likelihood and impact; analyze transmission channels and possible correlations/compounding effects.
  - Cover downside and upside risks; use quantified scenarios or fan charts where feasible (Box 5).
  - Consider high-impact but plausible tail risks.
- Tools and frameworks:
  - Growth-at-Risk (GaR) model.
  - Vulnerability Exercise (VE): bottom-up, multi-sectoral assessment of likelihood of economic stress events 1-2 years ahead.
- RAM guidance (Box 6):
  - RAM must be included in Article IV staff reports (optional in program request/review documents).
  - RAM should list key global, regional, and country-specific risks, relative likelihoods, and economic impact assessments.
  - Strong presumption staff will share and discuss RAM with authorities.
  - Global/systemic risks should be drawn from the Global Risk Assessment Matrix (G-RAM), updated semi-annually and taking effect when approved by management (teams may select relevant G-RAM items and align descriptions/likelihoods).
  - Footnote: 1/ FSSAs also include a RAM focusing on financial sector risks.

### Spillovers (paragraphs 34–48)
- Article IV consultations should cover inward spillovers, outward spillovers, and spillbacks where appropriate and per the ISD.
- Inward spillovers: from external shocks or policy actions elsewhere; channels include trade, financial links, FDI, commodity prices; staff should quantify impacts when possible.
- Outward spillovers: assessed if a member’s policies do not promote its own stability or could nevertheless significantly affect global stability; Fund may recommend alternatives but cannot compel members to change policies that promote their own stability.
- Spillbacks: feedback effects on source country from its outward spillovers; often underestimated; analyzing spillbacks can strengthen traction.
- Analytical tools supporting spillover analysis: coordinated forecasting (WEO/GFSR), EBA/EBA-lite, Institutional View on Capital Flows, Integrated Policy Framework, G-RAM, VE, Early Warning Exercise (EWE), Spillover Task Force; model-based scenario analysis encouraged.

### Ensuring economic sustainability (Surveillance Priority 3)
- Economic sustainability: conditions supporting sustained, balanced, inclusive growth over time without disruptive adjustments to the BOP or domestic or global stability.
- Trends with first-order macrocritical impact: demographics, technological change/digitalization, inequality, socio-political/geopolitical developments, climate change.
- Sources/channels to sustainability (examples):
  - Demographics: aging affects labor supply, pension/health expenditures, public debt, natural rate of interest, saving-investment.
  - Technological change: affects productivity, income distribution, capital composition, financial sector risks.
  - Inequality: weakens aggregate demand, hampers human capital formation, reduces productivity and stability.
  - Socio-political/geopolitical: can weaken governance, stall reforms, increase imbalances.
  - Climate change: increases natural disasters, damages capital, health, productivity, raises fiscal/financial instability, migration flows.
- Coverage may require longer horizons than the typical five-year surveillance horizon; data availability is critical and the Fund is improving tools (Climate Change Indicator Dashboard; Third Party Indicators policy for external data use).

### Integrated Policy Framework (IPF) and policy mixes
- IPF: systematic approach to consider appropriate policy mixes when countries experience shocks; jointly considers monetary, exchange rate, macroprudential, capital flow management, and fiscal policies and their interactions.
- Optimal policy mix depends on country characteristics, shock type, and initial conditions.
- Examples of policy mixes: combinations of monetary, exchange rate, macroprudential, and capital flow measures; fiscal-monetary coordination in low policy space environments (Box 8).
- Analytic tools: IPF, macrofinancial analysis, ESA, DSA, RAM, Consistent Policy Assessment (CPA); integrate FSAP findings where relevant.

### Fiscal policy guidance and DSA (Box 10)
- Fiscal assessment elements: broad government definition, quasi-fiscal operations, contingent liabilities, structural balance measures, expenditure/revenue composition, sovereign assets/liabilities, financing needs, fiscal risks, feedback loops, fiscal space assessment (Box 11).
- MAC DSA / MAC SRDSF:
  - Renamed Sovereign Risk and Debt Sustainability Framework for Market Access Countries (MAC SRDSF) after 2021 review.
  - New features: General Government debt default coverage; longer projection horizon; tools for sovereign risks at three horizons; support for probabilistic assessments.
  - Requirement: For non-program countries, a sovereign risk analysis is needed at Article IV; publishing a DSA is optional. For countries with Fund arrangements involving GRA resources, both sovereign risk and a DSA are required at program approval and annually thereafter (exceptions apply); exceptional access requires updated DSA with three-zone sustainability analysis in every program review.
- LIC DSF:
  - Joint IMF-World Bank framework; full LIC DSA generally produced at least once every calendar year and should accompany the Article IV.
  - Presentation: self-contained written analysis with standard tables and charts; includes authorities’ views.

### Macrofinancial analysis and systemic risk (Section IV.B, ¶57–66; Systemic Risk Analysis)
- Macrofinancial analysis integral to baseline projections and risk assessments; identify macrofinancial linkages and ensure consistency between financial conditions and macro outlook.
- Baseline analysis objectives:
  - Identify key macrofinancial linkages; ensure real-financial consistency; assess financial system’s contribution to macro stability; assess current policy stance effects on financial conditions.
- Financial cycle assessment: use indicators (credit, asset prices, spreads) to gauge position and inform corrective policies.
- Systemic risk analysis:
  - Present a well-articulated, evidence-based view on systemic risk grounded in vulnerabilities assessment (time-varying/structural; broad-based/sectoral).
  - Steps: assess vulnerabilities (credit growth, sectoral risks, maturity/currency mismatches), forward-looking analysis beyond banking sector, support with data/tools (FSIs, stress tests, CVaR, BSA, network analysis, Systemic Risk Tracker, GaR), and state resilience to aggregate shocks with quantification where feasible.
  - FSAP and FSSA findings should inform Article IV systemic risk analysis when available; Article IV view should be consistent with FSSA if both discussed at/around same Board time.
  - Acknowledge analytic limitations in areas like fintech, cyber, climate; flag macrocritical risks qualitatively when quantification is work in progress.

### Digital money and crypto-assets (¶67–69)
- “Digital money” includes public and private digital forms of money (CBDC, e-money, stablecoins, crypto-assets); surveillance coverage tailored to macrocriticality.
- Surveillance topics:
  - CBDCs: objectives, design, implications for monetary policy and financial stability, operational/reputational/legal/AML/cyber risks; cross-border use can have spillovers.
  - Digitalization and financial inclusion: digital payments, regulatory/supervisory challenges, consumer protection, financial integrity, operational resilience.
  - Crypto assets and stablecoins: risks to monetary sovereignty, capital flows, effectiveness of CFMs, potential systemic concerns if widely used; global stablecoins could affect global stability.
- Cross-border implications: risks of fragmentation, digital divide, regulatory arbitrage; international cooperation and data initiatives (Draft Workplan for a New Data Gaps Initiative) to develop common data collection frameworks on digital money.

### External sector policies and ESA
- Every Article IV should assess the member’s external position and its implications for member and global stability.
- ESA should cover five areas: (i) position/trajectory of foreign assets/liabilities; (ii) current accounts; (iii) real exchange rates; (iv) capital flows and policy measures; (v) FX intervention and reserves.
- Use EBA/EBA-lite where applicable; report bottom-line external assessment in staff appraisal.
- Guidance on reserves, capital flows, intervention, and exchange rate regime assessment (de jure and de facto) and limits on intervention (avoid manipulation, use to counter DMCs, consider reserve adequacy).

### Climate change (Section V.B)
- Climate change: existential threat with macroeconomic and financial implications; mitigation, adaptation, and transition policies may be macrocritical.
- Policy challenges depend on country circumstances:
  - Transition to low-carbon economy (mitigation).
  - Managing implications from global transition (vulnerabilities for fossil fuel exporters, exporters of certain commodities, tourism/remittances exposures).
  - Adaptation and resilience building (especially for lower-income and small states).
- Coverage guided by macrocriticality:
  - For the 20 largest GHG emitters, discussion of contribution to global mitigation effort is strongly encouraged with coverage cycles no longer than three years (voluntary if authorities refuse).
  - Assess mitigation gap (BAU vs target), estimate carbon price aligning policies with targets (noting uncertainty), assess financing needs and impacts on financial stability and stranded assets.
  - Adaptation: assess exposure, financing gaps, options (re-prioritizing expenditures, PFM, accessing concessional finance), factor into DSA and consider institutional arrangements.

### Gender (Section V.C; ¶119)
- Gender issues included in surveillance when macrocritical.
- Benchmarking areas:
  - female labor force participation; gaps in education, health, financial services; representation in leadership; legal barriers; violence against women.
- Once macrocriticality established, surveillance should cover policies affecting gender outcomes beyond fiscal/monetary/financial policies.
- Policy advice: granular, consider incidence across sectors, analyze macroeconomic impacts and feed into macroframework.
- Collaboration with authorities and external partners (World Bank, UN Women) and use of Fund/external resources and tools recommended.

### Surveillance timing, process, and publication (Sections VI.A–VI.C)
- Standard cycles:
  - Generally 12-month consultation cycle with a 3-month grace period for members without a Fund arrangement.
  - Members with other Fund arrangements (PCI, PSI, etc.) are on a 24-month cycle.
  - Some members may consent to longer cycles up to 24 months if conditions met; members should not have outstanding credit to the Fund above 145 percent of quota to qualify for longer cycles without consent.
- Excessive delays: if delayed by more than 12 months beyond expected completion (including grace), deemed excessively delayed; Fund may notify member and publish lists at six-month intervals for consultations not concluded within 18 months.
- Typical process:
  - Early engagement on focus and topics; preparation of Policy Note; Article IV mission (in-person or virtual) with authorities and stakeholders; staff report preparation and departmental review; Board meeting and Chairman’s Summing Up; publication process.
- Drafting and publication rules:
  - Staff reports are not to be negotiated with authorities; staff should not share draft reports with authorities or Executive Directors.
  - Staff may share factual elements, mission concluding statements, drafts of press releases, and factual SIPs with authorities.
  - Publication of Article IV staff reports requires authorities’ consent; publication is voluntary but presumed under Transparency Policy.
  - Timeliness norms: PRGT eligible Board meetings within 90 days of end of staff discussions; other cases within 65 days.

### Treatment of confidential information (Section VI.D; Box 14)
- Fund framework protects confidential information; staff and management may not disclose information provided in confidence without consent and consistent with Fund rules.
- Information provided to the Executive Board that is required under Articles or Board policy must be reported despite confidentiality vis-à-vis the public.
- Classifications: Public, For Official Use, Confidential, Strictly Confidential; restrict internal and external sharing accordingly.
- Confidential information provided to the Board via secure encrypted platforms; Executive Directors bound by Code of Conduct to protect confidentiality.
- Appendix IX of the Transparency Policy Guidance Note provides further detail.

### Special surveillance contexts
- Low-Income Countries (LICs) and Fragile and Conflict-Affected States (FCS):
  - LIC focus: BOP/domestic stability, debt sustainability, fiscal space, PFM, revenue mobilization, job creation, inclusion, governance; integration with CD emphasized.
  - FCS focus: roots/drivers of fragility, macro-fiscal issues, inclusive growth, institution building, AML/CFT, governance and corruption; Article IVs may be less frequent and tailored; leverage external partners.
- Small Developing States (SDSs):
  - Vulnerabilities: limited scale, narrow export bases, exposure to natural disasters and climate change, thin financial sectors; focus on resilience, debt sustainability, growth, and financial sector development.
- Members of currency unions (Annex III):
  - Assess policies at union and member levels; consult with regional institutions responsible for devolved policies; prepare annual staff report on regional discussions as part of Article IV consultations.

### Selectivity and focused presentation of staff reports
- Given resource constraints and expanded surveillance topics, staff should prioritize selectivity and focus while meeting formal requirements.
- Operational options for focused coverage:
  - Selective in-depth coverage: reference prior analyses where unchanged.
  - Thematic lens: organize around an overarching topic (e.g., demographics) when cross-cutting challenges exist.
  - Concise coverage of formal requirements: shorten presentation for straightforward analyses while preserving clear staff views and authorities’ views.
  - Tailor minimum requirements to country circumstances (income, fragility, capacity, data adequacy).
- Illustrative concise coverage example provided for Recent Developments and Policy Discussion sections (placeholders for country-specific figures and years).

*Guidance Note for Surveillance under Article IV Consultations — EXECUTIVE SUMMARY and excerpts (May 31, 2022).*

### EXECUTIVE SUMMARY

### ppea2022029 - EXECUTIVE SUMMARY

### Overview
- Fund surveillance continuously adapts to the evolving economic and financial landscape.
- The 2021 Comprehensive Surveillance Review (CSR) laid out priorities for Fund surveillance in content and modalities.
- This note provides guidance to country teams for surveillance under Article IV consultations, superseding the 2015 Guidance Note and its supplement.
- Date of the document: May 31, 2022.

### Scope and requirements
- Article IV consultations are the vehicle for both bilateral and multilateral surveillance, assessing whether a member’s policies promote its balance of payments (BOP) and domestic stability as well as global economic and financial stability.
- The note:
  - Lays out the coverage of, and formal requirements for, Article IV consultations and staff reports.
  - Outlines best practices aimed at enhancing the traction of Fund analysis and policy advice.
- Country teams are expected to exercise judgment in tailoring surveillance to country circumstances while adhering to formal requirements laid out in Executive Board decisions.

### What is new in the 2022 Guidance Note
- Maintains relevant content from the 2015 Guidance Note, in particular legal foundations (Annex 1), and presents a summary of requirements (Section II.B, Box 3).
- Updates guidance on policies covered in the 2015 Guidance Note (fiscal, monetary, external, financial, and macrostructural policies, in Sections IV.A, IV.B, IV.C, IV.D and IV.E).
- Provides updated references and guidance on analytical frameworks and tools such as the Debt Sustainability Analysis (Box 10) and External Sector Assessment (Box 12).
- Specifies more specificity on integrating FSAP findings and recommendations in Article IV staff reports and a new process to facilitate it, and a new requirement on including a well-articulated view about systemic risk (Section IV.B).
- Reflects the CSR surveillance priorities and provides guidance on how these priorities inform surveillance (Section III.A).
- Specifies guidance on coverage of climate change (Section V.B), gender issues (Section V.C), inclusion (Box 7), governance (Box 13), and other topics not extensively covered in the 2015 Guidance Note.
- Adds a section on topics involving the interaction of multiple policy levers, such as the Integrated Policy Framework (Section V.A).
- Contains focused discussion of coverage of Article IV consultations and staff reports (Section II.A), including how to assess macrocriticality (Box 2).
- Offers guidance on how to make Article IV staff reports more focused on some policies while meeting formal requirements (Section III.B).
- Updates guidance on processes and procedures of surveillance (Sections VI.A–VI.E), including treatment of confidential information (Section VI.D).

### Priorities and focus (from the 2021 CSR)
- Surveillance Priorities:
  - Confronting risks and uncertainties. Consider the range of potential outcomes and provide more proactive advice on mitigating and managing risks.
  - Preempting and mitigating spillovers. Ensure consistent coverage across members, enhance coverage of outward spillovers, strengthen the link between bilateral and multilateral surveillance, use the Fund’s convening power to encourage discussion among members, and engage on new types of spillovers.
  - Ensuring economic sustainability. Cover salient trends and policies that may impact longer-term stability and sustainability, including those related to demographics, technological changes, inequality, socio-political and geopolitical developments, and climate change.
  - Adopting a more unified approach to policy advice. Better integrate advice across policy areas and policy tools.
- Operational Priorities:
  - Enhancing traction. Improve the extent to which the Fund and its members engage in a constructive dialogue. Understand country-specific challenges and constraints, while ensuring evenhandedness and bringing in cross-country perspectives. Enhance the quality of staff analysis and policy advice.
  - Modernizing modalities. Make policy advice more timely, topical, targeted, interconnected and informed. Make Article IV consultations more focused, while continuing to cover the required elements for Fund surveillance. Integrate surveillance with capacity development (CD). Improve access to data.

### Policies and applications covered
- The note provides guidance on surveillance content across:
  - Fiscal policy (Section IV.A).
  - Macrofinancial analysis and financial policies, including systemic risk views (Section IV.B).
  - Monetary policy (Section IV.C).
  - External sector policies (Section IV.D).
  - Macro-structural policies (Section IV.E).
- Applications discussed include:
  - Integrated Policy Framework (Section V.A).
  - Climate change (Section V.B).
  - Gender (Section V.C).
- The note also discusses analytical frameworks and tools such as Debt Sustainability Analysis (Box 10), External Sector Assessment (Box 12), FSAP integration, and macrocriticality assessment (Box 2).

### Process and procedures
- The note describes:
  - The Article IV consultation cycle and process.
  - Drafting and publication guidelines for staff reports.
  - Treatment of confidential information (Section VI.D).
- Emphasis on continuous engagement and effective communication with members and other stakeholders to enhance traction, including dialogue beyond producing the Article IV staff report, integration with capacity development, and engagement with non-governmental stakeholders.
- Policy advice should be specific, practical, granular, timely, and communicated with candor, while avoiding politically charged language.

### Key guidance points for staff
- Focus Article IV consultations on issues relevant for BOP, domestic stability, and global stability, with clear advice on the appropriate mix of policies.
- Avoid a checklist approach; prioritize selectivity informed by country circumstances.
- Analyze intersectoral connections, policy interactions, and tradeoffs to provide unified policy advice.
- Build trust and perceived evenhandedness through direct, two-way dialogue and country-specific understanding.
- Learn from other countries’ experiences and collaborate closely with external partners to enrich advice.

*Source: Guidance Note for Surveillance under Article IV Consultations — EXECUTIVE SUMMARY (May 31, 2022).*

### 7.      The CSR’s surveillance priority of ensuring economic sustainability is closely related to

### 7.      The CSR’s surveillance priority of ensuring economic sustainability is closely related to

### Definition and mandate link
- Economic sustainability is defined as the set of conditions that will support sustained, balanced, and inclusive growth over time, without requiring disruptive adjustments to the BOP or domestic stability, or to global stability.
- Ensuring economic sustainability falls within the IMF’s stability mandate (Section III.A).

### Bilateral surveillance: Article IV consultations and macrocriticality
- Article IV consultations should cover economic and financial policies that affect the member’s present or prospective BOP or domestic stability.
- The ISD clarifies:
  - Domestic stability means “orderly economic growth with reasonable price stability”.
  - BOP stability means “orderly underlying economic and financial conditions and a monetary system that does not tend to produce erratic disruptions.”
- The ISD establishes that Article IV consultations should always cover exchange rate policies, as well as monetary, fiscal, and financial sector policies—both their macroeconomic aspects and macroeconomically relevant structural aspects.
- Other policies (growth, job creation, income distribution, digitalization, climate, gender) should be examined only to the extent that they significantly affect present or prospective BOP or domestic stability (the “macrocriticality” criterion).
- Whether an issue or policy meets the macrocriticality threshold can only be determined on a case-by-case basis, reflecting country circumstances.
- Coverage of other policies in surveillance depends on:
  - Their macrocriticality, and
  - Whether the Fund has expertise in the area (see Box 2).
- Coverage typically consists of analysis, discussion, an assessment of policies and policy advice by staff, and, if offered, the authorities’ views.

### Box 2 — Macrocriticality and coverage rules (summary of required treatment)
- Policies other than those indicated in the ISD will be covered only to the extent that they are macrocritical; discussions are expected to be selective, focused, and limited to areas where the Fund has expertise.
- Determining macrocriticality is country-specific and depends on members’ income level, structural characteristics, institutional capacity, and may vary over time.
- Rules on analysis and advice depending on macrocriticality and Fund expertise:
  - For issues that are macrocritical and where the Fund has expertise, staff analysis and policy advice are required.
  - For issues that are macrocritical but where the Fund does not have expertise, staff should analyze the issue, drawing on and collaborating with external partners as needed, but staff is not expected to provide specific policy advice.
  - For issues that are not macrocritical but for which the Fund has expertise, staff may provide analysis and policy advice if requested by the member.
  - For issues that are not macrocritical and where the Fund does not have expertise, analysis and policy advice should not be provided.
- Depth of coverage of macrocritical issues will depend on relevance, severity, and urgency relative to other issues.
- Example—social spending:
  - Social spending can be macrocritical through channels: fiscal sustainability, spending adequacy, and spending efficiency.
  - Staff should close analytical gaps, develop advice in consultation with authorities, and collaborate with development institutions on program design.
  - Where the Fund lacks expertise, specific policy advice on implementation and delivery is left to other institutions.

### Multilateral surveillance: spillovers and global stability
- Article IV consultations should discuss policies conducive to the effective operation of the international monetary system (IMS).
- These include spillovers from members’ economic and financial policies that may significantly influence the effective operation of the IMS (e.g., by undermining global economic and financial stability).
- Global economic and financial stability examples include malfunctioning of the international monetary system, global recessions, and global financial crises.

### Tailoring surveillance to country circumstances
- Surveillance obligations and requirements apply uniformly, but Article IV consultations are expected to be tailored to country circumstances and still be evenhanded if members in similar circumstances are treated similarly (Section II.C).
- Relevant country circumstances include: income level, fragility and vulnerability, institutional capacity, data adequacy, and membership in currency or other economic unions (Figure 1).
- Illustrative tailoring by income group:
  - Low-income countries (LICs) (Annex II):
    - Characteristics: shallow financial markets, lower financial integration, restricted access to global financial markets, lack of fiscal space, limited access to financing, higher risk of debt distress, weaker institutions, greater capacity development needs.
    - Surveillance emphasis: fiscal policies, quality of public spending, debt management, structural policies (institutional and governance issues), integrated capacity development, accounting for data limitations.
  - Advanced economies (AEs):
    - In members with strong institutions and high capacity, rebalancing analysis towards fiscal and monetary policy normalization, external policies, and macrofinancial analysis is needed.
    - Outward spillovers from large, systemic economies are more prevalent.
  - Emerging market economies (EMs):
    - Heterogeneous group; surveillance may consider exposure to inward spillovers (especially capital flows), exchange rate policies, and policies to strengthen policy frameworks (fiscal, monetary, financial).
- Other tailoring considerations:
  - Fragility and vulnerability (Annex II): for fragile and conflict-affected states (FCS), focus on roots/drivers of fragility, macro-fiscal issues, inclusive growth, institution building, governance, and corruption; for small developing states (SDSs), focus on resilience, thin financial sectors, debt sustainability, growth and job creation.
  - Members with Fund-supported programs: Article IV consultations can step back from program specifics to assess medium-term implications of program policies; combined reports must meet Article IV requirements.
  - Members of currency unions (Annex III): obligations unaffected by devolution of authority; discussions with supranational entities and regional institutions are required where appropriate.
  - Globally or regionally systemic events: Article IV focus may shift (e.g., post-COVID-19 emphasis on saving lives and livelihoods and crisis management).

### Requirements for Article IV staff reports
- Article IV consultations and staff reports must meet requirements from: Articles of Agreement, Board Decisions, Board-approved policy papers and frameworks, and guidance from management; the Executive Board can modify requirements.
- Main elements of Article IV reports:
  - Discussion of recent economic and macrofinancial developments and policies.
  - Discussion of the outlook and of risks.
  - Reporting on policy discussions with the authorities and the authorities’ views.
  - A staff appraisal summarizing staff’s views and policy advice.
- Reports are built on a set of macroeconomic medium-term projections forming the baseline scenario, consistent across sectors, reflecting staff assumptions about authorities’ policies and current Fund-wide assumptions about global economic developments.
- Application of common frameworks/tools is required, including the debt sustainability analysis and the external sector assessment.
- Article IV staff reports should be self-contained but may reference previous staff reports and background documentation judiciously. Selected Issues Papers (SIPs) can explore important topics but do not generally include policy advice on their own.

### Box 3 — Formal requirements for Article IV staff reports (condensed list)
- Recent developments and policies (economic, financial, and political/social where applicable).
- A clear and candid assessment of the outlook and risks, with a baseline medium-term projection and analysis of risks, vulnerabilities, and spillovers; incorporate a multilateral framework and Fund-wide projections.
- Include an external sector assessment (ESA) and a debt sustainability assessment (DSA), each with a bottom-line assessment, a risk assessment matrix (RAM), and a well-articulated view on systemic risks (¶62).
- A substantive and candid discussion on policies affecting BOP and domestic stability and those that may significantly impact global stability; policy recommendations should be concrete and actionable; include and clearly identify authorities’ views on main issues and staff recommendations.
- Coverage of areas as required by Board-approved frameworks (e.g., climate change, gender issues, governance, fiscal space, and AML/CFT).
- A staff appraisal summarizing analysis and policy advice; it will only cover issues discussed with the authorities and in the main report (¶129-130).
- An assessment and classification of data adequacy for surveillance (¶14).
- A Statistical Issues Appendix, including a Table of Common Indicators Required for Surveillance (¶14).
- A brief assessment of authorities’ response to key policy recommendations in previous Article IV consultations, highlighting where authorities implemented policies that differed from staff advice (¶23).
- A brief summary of implementation of previous FSAP recommendations in the main text and a table in the Annex (¶73).
- A description of the de jure and de facto exchange rate regime (¶91).
- A reference to the proposed consultation cycle (Section VI.A).
- A reference to Article VIII and XIV status and description of any multiple currency practices and exchange restrictions (¶93).
- Fund Relations and relations with the World Bank and other IFIs where appropriate.
- A set of tables, including SEI, fiscal, monetary, and BOP tables with recent developments and medium-term projections, and a table of Financial Soundness Indicators (¶12).
- Items marked with an asterisk (*) can be included as annexes; some are often combined into the Informational Annex.

### Data adequacy requirements
- Article IV staff reports must assess whether data provided by members are adequate for surveillance.
- Article VIII Section 5 and Annex A to the 2004 Decision specify data categories members are obliged to provide to the Fund, except when capacity is a binding constraint.
- Data adequacy classification categories:
  - category A: data provision is adequate for surveillance
  - category B: data provision has some shortcomings but broadly adequate for surveillance
  - category C: data provision has some shortcomings that somewhat hamper surveillance
  - category D: data provision has serious shortcomings that significantly hamper surveillance
- For members in category C or category D, staff should discuss data adequacy issues in the main text and discuss with authorities how to strengthen data provision, including possible CD.
- Major deficiencies (category D) need to be discussed in the staff appraisal to ensure readers can appreciate how data weaknesses might undermine the robustness of staff analysis and policy advice.
- Staff reports should include an up-to-date Statistical Issues Appendix and Table of Common Indicators for Surveillance.

### Financial relations to be summarized in staff reports
- Article IV staff reports should summarize the member’s financial relations with the Fund, including:
  - (i) information on a member’s quota,
  - (ii) information on a member’s holding of SDRs and the cumulative SDR allocation to the member,
  - (iii) information on total credit outstanding to the Fund, the latest year of and nature of any arrangement with the Fund or receipt of other Fund financing, scheduled repayments and repurchases, and the presence of protracted arrears to the Fund, if any.

*Source: Guidance Note for Surveillance under Article IV Consultations (paragraphs 7–15, Boxes 2 and 3).*

### 16.      Capacity development (CD) should be integrated with surveillance. When institutional

### ppea2022029 - 16.      Capacity development (CD) should be integrated with surveillance. When institutional

### Integration of Capacity Development (CD) with Surveillance
- When institutional and capacity weaknesses constrain the adoption of recommended policies, these constraints should be covered in surveillance, and, if the Fund has technical expertise, CD targeted to address them.
- Where capacity constraints prevent achieving surveillance objectives, country teams are expected to develop a coherent CD strategy, in collaboration with CD departments, and discuss it with the authorities.
- Integration objectives:
  - Facilitate integration of CD with surveillance and ensure that CD resources are directed to areas of greatest impact.
  - Ensure Article IV policy advice takes into account institutional and capacity constraints of the authorities in implementing policies and reforms.
- Reporting expectations:
  - Article IV staff reports should cover the CD strategy when capacity constraints are linked to macrocritical issues and the Fund has technical expertise to address them.
  - Heavy CD recipients should report on their CD Country Strategy Note.5
  - Article IV staff reports should report on discussions with the authorities regarding the implementation of CD-supported reforms, if relevant to macrocritical areas or the country is a significant CD recipient.
- Collaboration and process:
  - Regular and close dialogue between the country team and CD departments is essential.
  - The nature of capacity gaps and the adequacy of CD plans should be assessed jointly with CD departments and discussed at an early stage of Article IV consultations to inform policy dialogue.
- Footnotes preserved:
  - 4 A CD strategy review was conducted in 2018 and internal guidelines have been developed.
  - 5 Country teams for major recipients of CD prepare a CD Country Strategy Note (CD-CSN). The CD-CSN would take into account the authorities’ reform priorities, traction, risks facing the country, and the activities of other CD providers.

### Traction: relevance, uptake, and design of policy advice
- Objective:
  - The goal of surveillance is to promote stability of individual members’ economies and global economic and financial stability through thorough independent analysis, candid discussions, and peer review—achieved by offering policy advice that is valued and implemented by members and understood by a broader stakeholder community.
- Definition:
  - Traction of Fund surveillance is the relevance and value-added of the Fund’s analysis and advice in support of Fund members’ stability as well as global stability.
- Determinants of traction:
  - (i) The extent to which the Fund and its members engage in a constructive dialogue.
  - (ii) The extent to which Fund advice influences policy making.
- Quality of policy advice:
  - Policy advice should be candid, concrete, granular, and actionable.
  - Advice should be formulated while being mindful of the broader country context and constraints, without compromising substance, integrity, or independence.
  - Selectivity and focus are key to provide specific, actionable recommendations tailored to circumstances.
  - Messages on risks and spillovers should be candid, but without undermining confidence.
  - For systemic economies, messages should reflect systemic implications.
  - Quality and timeliness of analysis are key to achieving traction.
- Cross-country and CD integration:
  - Surveillance informed by cross-country experiences and perspectives and integrated with CD helps improve traction.
  - Staff encouraged to leverage peer country lessons, synthesize them, and formulate timely and topical advice.
  - Integration with CD helps tailor policy advice to members’ implementation capacity, resulting in more concrete and actionable advice.
- Engagement and relationship building:
  - An open, responsive, and collaborative approach helps develop a continuous, two-way policy dialogue with authorities.
  - Staff encouraged to engage with members well ahead of Article IVs and maintain continuous dialogue, including through staff visits, seminars, workshops, and new technologies.
- Two-way accountability and reporting expectations:
  - Members are responsible for meeting surveillance obligations and being accountable for their response to Fund recommendations.
  - Staff expected to take ownership of the Fund’s analysis and record in the staff report:
    - (i) a substantive policy discussion, reflecting the views of staff and the authorities (especially where there is disagreement),
    - (ii) the authorities’ response to past Article IV or FSAP recommendations,
    - (iii) significant changes in Fund advice, including retiring advice that is no longer relevant,
    - (iv) instances where members have successfully implemented policies that departed from Fund advice.
- Engagement with broader community:
  - Staff encouraged to routinely request meetings with political leaders (e.g., parliamentarians), trade unions, business representatives, and civil society organizations (CSOs).
  - Staff reports can reflect non-government actors’ views where appropriate.
  - Such engagement enriches staff’s understanding and communicates Fund analysis to opinion formers.6

### Evenhandedness and Best Practices
- Evenhandedness:
  - Evenhandedness means treating members in similar circumstances in a similar way.
  - Lack of evenhandedness can undermine legitimacy and credibility of Fund analysis and advice.
  - Surveillance should be evenhanded, paying due regard to country circumstances, whether economies are large or small, advanced or developing.
  - The approach in IMF (2016) provides an objective basis reflecting both “outcomes” and underlying “inputs” to surveillance.
  - The internal review process helps ensure evenhandedness; the Fund has a formal mechanism for members to report concerns about evenhandedness.
- Tailoring surveillance:
  - Evenhandedness does not imply one-size-fits-all; surveillance should be tailored to country circumstances and risk-adjusted.
  - Judgments about surveillance inputs may reflect domestic and/or systemic risks and could include choices about:
    - (i) the focus of resources;
    - (ii) the depth of risk and spillovers analysis;
    - (iii) the analytical approaches and tools;
    - (iv) the selection of policy themes;
    - (v) the approach to contentious issues.
  - Staff encouraged to articulate and clarify approaches when they differ from those for members in similar circumstances to address perceptions of lack of evenhandedness.
- Best Practices in Surveillance (Box 4 highlights):
  - Collaboration: continuous direct dialogue with authorities and stakeholders; effective use of persuasion; seek authorities’ opinions before Article IV consultations; draw on expertise of other international institutions.
  - Candor: candor in discussions with authorities and in staff reports, including about risks.
  - Evenhandedness: treat countries in similar circumstances similarly.
  - Data and analysis integrity: safeguard expert, independent, and technical analysis.
  - Practicality and granularity: advice should be specific, consider country-specific circumstances and implementation capacity, and leverage Fund CD where appropriate.
  - Consistency of forecasts and risk analysis: staff reports should be based on realistic projections and discuss short- and medium-term objectives and policies and contingency responses.
  - Cross-country experiences and multilateral perspective: draw from other countries’ experiences and discuss actual or potential spillovers where relevant.
  - Selectivity and focus: staff reports should be focused and selective, exercising judgment in selecting in-depth coverage.
  - Timeliness: minimize time between end of discussions with authorities and the Board meeting to keep staff reports up to date.

### Data and Analysis Integrity
- Importance:
  - Integrity of data and staff’s analysis is critical for accurate, well-tailored, and evenhanded policy advice.
- Practices:
  - Staff rely on a variety of data sources, quantitative tools, frameworks, and informed judgement to arrive at policy recommendations.
  - Processes and practices supporting staff’s analysis are governed by evolving frameworks and policies that are periodically reviewed.
  - Application of these processes is carefully examined, including through the interdepartmental review process.7

### Collaboration with Other International Financial Institutions (IFIs)
- Rationale:
  - Collaboration, in particular with the World Bank, can maximize synergies between each institution’s comparative advantage.
- Frameworks and guidance:
  - The 1989 Concordat on Bank-Fund Collaboration and subsequent refinements such as the Joint Management Action Plan (JMAP) provide the umbrella framework for collaboration.
  - Each institution should rely as much as possible on the analysis and monitoring of the other in their areas of primary responsibility, while safeguarding independence of institutional decisions.
- Areas for close collaboration:
  - Macro-structural issues where the Fund can leverage external expertise (Box 2).
  - Climate change including climate-related risks and policies (Section V.B).
  - Governance issues such as identification and prioritization of key governance and corruption issues (Box 12).
  - Gender issues such as identification of potential macrocritical issues (Section V.C).
  - Issues related to LICs and Fragile and Conflict-affected States (Annex II).
- Information sharing:
  - Information sharing between the two institutions can support effective surveillance while adhering to each institution’s existing policies and legal frameworks governing information sharing.8

### Surveillance Priority 1: Confronting Risks and Uncertainties
- Context:
  - Members operate in an uncertain environment shaped by long-term trends (e.g., climate change, technological innovation, demographic transition).
- Requirements for surveillance:
  - Be adaptable and analyze interactions between long-term trends and domestic vulnerabilities.
  - Develop policy advice robust to a range of potential outcomes to help members seize upside opportunities, manage downside risks, and prepare for adverse scenarios.
- Risk assessment approach:
  - Select key risks around the baseline considering likelihood and impact (e.g., on growth, inflation, fiscal and external accounts).
  - Thoroughly analyze transmission channels and consider correlation and/or compounding of risks.
  - Risk assessments should cover downside and upside risks.
  - Use quantified scenarios or fan charts (or other predictive density representations) to illustrate impacts under various risk management policies (Box 5).
  - Consider high-impact (but plausible) tail risks and longer-term uncertainties.
  - Where data are limited, embed risks in policy advice through conceptual or qualitative exercises.
- Tools and frameworks (Box 5):
  - Growth-at-Risk (GaR) model: links macrofinancial conditions to distribution of future GDP growth and helps quantify downside macroeconomic risks in terms of growth.
  - Vulnerability Exercise (VE): interdepartmental process providing a comprehensive bottom-up, multi-sectoral assessment of likelihood of economic stress events 1-2 years ahead; informed by cross-country quantitative models and country-specific contexts.
- Risk Assessment Matrix (RAM) guidance (Box 6):
  - A RAM provides a structured framework for guiding risk discussions with authorities and must be included in Article IV staff reports (optional in program request/review documents).
  - A RAM should include: (i) key global, regional, and country-specific risks that could deviate from baseline; (ii) the relative likelihood of each risk; (iii) assessments of economic impact should risks materialize.
  - Strong presumption that staff will share and discuss the RAM with authorities during Article IV consultations.
  - Global and systemic regional risks should be drawn from the latest Global Risk Assessment Matrix (G-RAM) to ensure consistency across Fund products; the G-RAM is updated semi-annually (or as needed) and takes effect once approved by management.
  - Teams may select which global and systemic regional risks from the G-RAM are relevant to feature in a country RAM; descriptions and likelihood should fully align with the G-RAM (minimal editing allowed to shorten but not add details).
  - Teams have discretion to assess the impact of each global and systemic regional risk on their countries and full discretion on domestic and non-systemic regional risks.
  - Footnote: 1/ FSSAs also include a RAM, which should be consistent with but not identical to Article IV RAMs; RAMs in FSSAs are expected to focus on the financial sector and may also include tail risks that would have large impact on financial stability.
- Trade-offs and communication (paras 32–33):
  - Staff encouraged to discuss trade-offs, aiming for policies robust to a range of possible outcomes, using a range of quantified scenarios rather than over-focus on the baseline.
  - Policy discussions should cover downside and upside risks, balance intra-temporal and inter-temporal trade-offs, uncertain opportunity costs, and policy implementation capacity.
  - A customized RAM is required for Article IV policy notes and staff reports and should guide discussion of robust risk mitigation policies.
  - Clear communication regarding risk and uncertainty is essential; contingent policy advice should be discussed only for selected critical risks and care must be taken to avoid diluting baseline advice.

*International Monetary Fund — Guidance Note for Surveillance under Article IV Consultations (excerpt).*

### 34. The sources and channels of spillovers have increased and expanded, sometimes

### 34. The sources and channels of spillovers have increased and expanded, sometimes

### Spillovers: scope and guidance
- The sources and channels of spillovers have increased and expanded, sometimes beyond traditional areas of Fund expertise, including climate change (CSR overview paper and CSR background paper on spillovers).
- Article IV consultations should cover inward spillovers, outward spillovers, and spillbacks where appropriate and guided by the ISD, as outlined in Section II.A and Annex I.
- Staff is encouraged to assess sources and channels of inward spillovers that affect a member’s BOP or domestic stability.  
  - Inward spillovers can arise from external shocks or policy actions in other countries.  
  - There can be actual spillovers from policies already adopted or shocks materialized or potential spillovers from prospective policies or shocks not yet materialized.  
  - The channels may include trade, links through the financial system and markets, FDI, and commodity prices.  
  - Staff should evaluate the channels and quantify their impact to the extent possible, while noting that inward spillovers often interact with pre-existing domestic vulnerabilities.  
- Staff should examine outward spillovers from a member’s economic policies if (i) the member’s policies are not promoting its own domestic or external stability or (ii) the member’s policies are promoting its own stability, but they could nevertheless significantly affect global stability.
  - The Fund cannot require members to change policies that promote their own stability even if they adversely affect global stability, but may recommend alternative policies that would improve global stability.  
  - Members are only obliged to change their policies for the promotion of their own stability; thus, when there is a conflict, the member’s own stability takes precedence.
- When Article IV consultations cover outward spillovers, the analysis should be integrated into staff’s assessment of the current conjuncture, policy discussions, and staff appraisal; staff may also discuss positive spillovers.
- Outward spillovers can have “spillback” effects: spillbacks arise when one country’s outward spillovers affect other countries and trigger adverse feedback effects on the source country.  
  - Spillbacks are often underestimated because they tend to occur through channels not adequately captured in existing frameworks or models due to their complexity.  
  - Discussing actual and potential spillbacks can strengthen traction of policy advice on outward spillovers, particularly when policies generating the initial outward spillovers are not promoting the source country’s own stability.  
  - When analyzing spillbacks, staff can consider alternative policies that could reduce outward spillovers and spillbacks.

### Analytical tools, forecasting, and identification of spillovers
- The Fund’s flagship publications, policy frameworks, and analytical tools help identify and analyze spillovers and allow for consistent and evenhanded coverage in Article IV consultations.
  - The coordinated forecasting process ensures projections across the membership are consistent and in line with global economic and financial trends as laid out in the World Economic Outlook (WEO) and the Global Financial Stability Report (GFSR).
  - Policy frameworks and analytical tools supporting spillover analysis include: the External Balance Assessment (EBA) and EBA-lite methodologies, the Institutional View on the Liberalization and Management of Capital Flows, and the Integrated Policy Framework.
  - Additional tools and activities: the G-RAM, the VE, the Early Warning Exercise (EWE) on tails risks, and activities of the interdepartmental Spillover Task Force.
  - Recent efforts aim at improving discussion of spillovers reflected in the Fund’s baseline projection to help teams with a consistent analysis of the main global spillovers at the country level.
- Model-based scenario analysis can help sharpen spillover analysis.

### Surveillance Priority 3 — Ensuring Economic Sustainability: definition and drivers
- Economic sustainability is defined as a set of conditions that, under realistic assumptions, will support sustained, balanced, and inclusive growth, without requiring large or disruptive adjustments to the BOP or domestic stability.
  - While sustainability implies stability, stability over the short- and medium-term does not necessarily ensure sustainability: short-term stability could harm “prospective” stability.
  - Sustainability depends on factors including distribution and inclusiveness, health and education, environment and climate, pandemic preparedness, and socio-political and geopolitical factors.
- Trends with first-order macrocritical impact on economic sustainability include demographics, technological change and digitalization, inequality, socio-political and geopolitical developments, and climate change (as explained in the CSR background paper on economic sustainability).
  - The COVID crisis has exacerbated pre-existing trends, such as rising inequality.
  - Staff can pay attention to interactions among these trends (e.g., between technological change and inequality).

### Sources and channels to economic sustainability (examples)
- Coverage may require broader perspective and longer time horizon than typical Fund surveillance; issues can go beyond the standard surveillance horizon of five years.
- Examples of sources and channels (non-exhaustive; relevance differs across countries):
  - Demographics (e.g., aging and declining population growth): impact through changing labor force size; weakening incentives for capital accumulation; increasing pension and health expenditures and public debt; reducing the natural rate of interest and thus monetary policy space; impacting saving-investment and external balances; affecting cross-border labor and capital flows including immigration.
  - Technological change (digitalization, automation): impact through enhancing productivity growth; reducing the labor share of income and raising income inequality; increasing corporate market power; inducing shift from tangible to intangible capital; increasing efficiency but also risks in the financial sector; changing macro policy effectiveness.
  - Inequality in income and opportunities (including gender): detrimental through weakening aggregate demand; hampering human capital accumulation; worsening allocative efficiency and aggregate productivity; reducing social and political stability; widening external imbalances.
  - Socio-political and geopolitical factors: declining social capital and trust in government, political polarization and fragmentation, cross-country tensions can weaken macroeconomic management and governance; stall reforms; increase fiscal and external imbalances; limit gains from trade, technological spillovers, and financial integration.
  - Climate change: threats through more frequent and severe natural disasters; destruction of physical capital; deterioration in human health; loss in productivity and output; increase in inequality and social instability; rise in fiscal and financial instability; climate migration and cross-border capital flows (Section V.B).

### Inclusion (Box 7): macrocritical engagement areas and collaboration
- Inclusion issues and policies can be critical to preserve macroeconomic and financial stability and support sustained and inclusive growth.
- Staff engages on inclusion when issues are macrocritical, focusing on: economic inequality, social spending and taxation, financial inclusion, and gender disparities.
  - Inequality: engagement covers inequality of opportunities and outcomes; guidance includes the 2018 note on How to Operationalize Inequality Issues in Country Work and more recent work on distributional impacts of macro policies and economic transformation.
  - Social spending: guided by A Strategy on IMF Engagement on Social Spending (2019) and supporting technical notes (pensions; forthcoming notes on social safety nets, education and health).
  - Taxation: guidance from a 2020 note on “Tax Policy for an Inclusive Recovery” and the “Gendered Taxes: The Interaction of Tax Policy with Gender Equality” paper.
  - Financial inclusion: analytical work on measurement and macro implications, and policy options including Fintech; referenced departmental paper “The Promise of Fintech: Financial Inclusion in the Post COVID-19 Era” (2020).
  - Gender disparities: treated as a special form of inequality (Section V.C).
- Collaboration with external partners (World Bank, multilateral development banks, ILO, WFP, U.N. Women, OECD, CSOs, bilateral and private donors, academia) is important to leverage sectoral expertise for implementation.

### Policy responses and reporting guidance
- Two types of policy responses to address trends/issues:
  - Policies addressing the source (e.g., climate mitigation to reduce CO2 emissions).
  - Policies reducing consequences (e.g., climate adaptation to build resilience against disasters).
- After identifying sources and channels to economic sustainability, staff can use these to develop specific policy advice. Coverage of policies in staff reports is guided by their macrocriticality (Box 2).
- Data availability is critical for identifying macrocritical trends and understanding channels to economic sustainability.
  - The CSR background paper notes indicators related to demographics, technology, inequality, and climate change available from internal and external sources, including Sustainable Development Goal (SDG) indicators.
  - The Fund is improving data availability, including through its Climate Change Indicator Dashboard.
  - Use of external data in Fund surveillance is guided by the Fund’s policy on the Third Party Indicators (TPI) (Section VI.E).
  - When appropriate, staff are encouraged to include a table on SDGs in staff reports.

### Surveillance Priority 4 — Adopting a unified approach to policy advice
- Staff is encouraged to take a holistic and coherent view on the overall policy mix, considering effectiveness, synergies, and trade-offs among policy tools.
  - Article IV consultations should consider whether a member’s economic and financial policies, taken as a whole, are conducive to the member’s BOP and domestic stability.
  - Simultaneous activation of multiple policy tools has become more common amid more complex shocks and limited policy space.
- Examples of policy mixes:
  - (i) Combination of monetary, exchange rate, macroprudential, and capital flow management policies to guard against external shocks.
  - (ii) Relationship between monetary and macroprudential policies in achieving inflation and financial stability objectives.
  - (iii) Fiscal-structural policy coordination and fiscal-monetary policy interactions in an environment of subdued growth and limited policy space (Box 8).
- Analytical frameworks to understand synergies and tradeoffs include the Integrated Policy Framework (IPF), macrofinancial analysis, ESA, DSA, RAM, and the Consistent Policy Assessment (CPA).
  - Integrating FSAP findings and recommendations, when available and relevant, supports this objective (Section IV.B).
  - Analyses using these frameworks are expected to be conducted at an early stage of preparing the macroeconomic framework underpinning the Article IV consultation.

### Fiscal-monetary interactions (Box 8)
- Policy advice may consider interactions between fiscal and monetary policies where relevant.
  - Traditional roles: fiscal policy—aggregate demand management, debt sustainability, structural objectives; central banks—price stability (and sometimes financial stability and full employment).
  - Where interest rates are close to or at the effective lower bound, greater interactions between fiscal and monetary policies could be considered to provide adequate support to the economy.
  - When constraints on policies are binding, the benefits of greater policy interactions tend to be larger: one instrument can create additional space or improve effectiveness of others (examples provided in Box 8).
  - Conversely, when monetary policy rates are already at a very high level, fiscal tightening may play a larger role in macroeconomic management.

*Source: GUIDANCE NOTE FOR SURVEILLANCE UNDER ARTICLE IV CONSULTATIONS (excerpts, sections 34–48).*

### 49.      For effective surveillance in an evolving economic landscape and increased

### 49.      For effective surveillance in an evolving economic landscape and increased

### Selectivity and focus in Article IV surveillance
- Surveillance requirements and Fund expertise have grown, expanding topics and areas for Article IV consultations.
- Staff must balance selectivity and comprehensiveness given limited Fund resources and restricted length of surveillance documents.
- Selectivity and focus are key to provide targeted and granular policy advice that adds value.
- Country-specific circumstances will determine areas and degree of focus; in some members Article IV staff reports provide a unique source of information and regular, comprehensive coverage may be desirable.

### Operational options for focused coverage and staff report presentation
- Options below are not mutually exclusive:
  - Selective in-depth coverage
    - For policy areas where issues, advice, and authorities’ views have not changed materially since the last consultation, staff can briefly discuss the issue with authorities and staff reports can reference judiciously discussions and policy advice from previous reports.
    - Macrocritical policy areas other than those specifically identified in the ISD (exchange rate, fiscal, monetary, and financial policies) are more likely suitable for such treatment.
    - Staff can consider covering identified policy areas or parts thereof in a streamlined manner, when appropriate.
  - Thematic lens
    - Article IV consultations could be framed around overarching topics (e.g., demographic developments).
    - Key policy areas such as fiscal and external policies could be covered through a thematic lens (e.g., how public debt or the current account balance can be viewed in view of an aging population).
    - Organizing staff reports around a topic is likely more effective when pressing, cross-cutting policy challenges exist or repeated in-depth coverage of ISD policies adds limited value.
  - Provide concise coverage of other topics
    - When a report is focused on a theme or in-depth coverage of a certain policy area is extensive, discussion and presentation of some formal requirements can be significantly shortened and presented in a concise form.
    - This concise presentation should provide clear and unambiguous statements reflecting staff views, policy recommendations, and the authorities’ views.
    - Appropriate when analysis is straightforward and assessment and recommendations are shared with authorities; allows focus on selected policy areas for extensive, granular discussions.
  - Tailor minimum requirements to country circumstances
    - Staff reports are expected to reflect income level, degree of fragility and vulnerability, institutional capacity, and data adequacy to tailor surveillance focus on macrocritical dimensions.
    - Limited data availability may make application of frameworks and methodologies (e.g., EBA-lite model, DSA, the Fund’s reserve adequacy assessment) difficult; assessments may rely on more basic information and be more descriptive and qualitative.
    - Coverage of macrofinancial issues is required, but in members with underdeveloped financial sectors such coverage may be brief (Annex II).

### Concise Coverage: Illustrative example (selected required sections)
- Recent Developments (concise example text contains placeholders as in source)
  - Real GDP grew by—percent in 20—(accelerating from—percent in 20—), driven by a rebound in fixed investment and private consumption.
  - The output gap is gradually narrowing but remains slightly negative this year, at around —percent.
  - Inflation, at—percent, was only slightly below the central bank’s target rate (of—percent).
  - Labor market policies contributed to a further decline in unemployment.
  - The monetary policy stance remains accommodative.
  - The financial system is sound and the tightening of a variety of macroprudential measures was effective in slowing lending to households and house price increases.
  - The current account deficit widened marginally from—percent of GDP in 20— to —percent of GDP in 20—, reflecting an increase in imports of capital goods, which more than compensated for a rise in exports.
  - In line with the budget, fiscal policy continues to be slightly expansionary.
  - Public debt remains sustainable(Annex DSA).
  - The government made steady progress in the implementation Public Financial Management (PFM) reforms (see last year’s Article IV).
  - The 20—external position was assessed to be broadly in line with medium-term fundamentals and desirable policies (Annex ESA).
  - The authorities have implemented policies along the line of past policy advice (Annex—).
  - The authorities are taking steps to implement the 20—FSAP recommendations (Box).

- Policy discussion (staff assessment and recommendations in required policy areas)
  - Monetary
    - Given the slightly negative output gap, the currently accommodative monetary stance remains appropriate as long as inflation and inflation expectations remain well anchored.
    - Staff recommends maintaining monetary accommodation and exchange rate flexibility.
    - Considering upside risks to inflation, the authorities should stand ready to assume a tighter monetary stance, if necessary.
  - Fiscal
    - Country_x has some fiscal space.
    - The 20—budget provides adequate support to the ongoing economic recovery.
    - Staff advised to reduce the primary deficit to its new medium-term target of—percent of GDP, over—years, staring next year, which is needed to ensure public debt sustainability.
    - Staff recommends a reallocation of resources to strengthen the social safety net.
  - Macrofinancial
    - Staff’s empirical analysis shows that the banking system is resilient to severe negative shocks stemming from high household indebtedness due to the rapid buildup of mortgage debt over the past years.
    - The recent tightening of the macroprudential stance is effectively containing risks to the housing sector and remains appropriate.
  - External
    - Exchange rate flexibility should continue to serve as the main defense against external shocks and capital flow volatility.
  - Macro-structural
    - Staff welcomes progress in PFM reforms but encourages the authorities to redouble efforts on the remaining priority reform areas highlighted in the previous Article IV consultation report (No.—), thus unlocking new drivers of growth and employment.
  - Authorities’ Views
    - Authorities agreed with staff views on monetary and fiscal policies, reiterating that monetary policy remains data dependent and that the central bank would consider tightening monetary policy if inflationary pressures materialize.
    - They agreed that there is no need to adjust macroprudential policies at this stage but the authorities should remain alert to vulnerabilities from housing prices.
    - They agreed with the recommended path of fiscal consolidation towards the new medium-term fiscal target, as well as the importance of strengthening the safety net and increasing efforts on the structural reforms areas highlighted by staff.
    - They agreed that the flexible exchange rate serves as the main defense against external shocks.

### Section I V. Policies — Overview
- This section provides guidance on fiscal, macrofinancial, monetary, external, and macro-structural policies.
- Staff should exercise judgement on which aspects are most relevant for a particular Fund member at a point in time.

### Fiscal policy: role and assessment requirements
- Fiscal policy is vital to maintaining external and domestic stability and possibly global stability.
- Fiscal imbalances are often key drivers of internal and external imbalances; fiscal policy addresses structural challenges such as subdued growth and high inequality, and offers tools to address challenges such as climate change.
- Staff reports should include a clear bottom-line assessment of public finances and fiscal policies and provide concrete policy advice integrated into an overall policy mix.
- Policy advice should take account of trade-offs (e.g., between debt sustainability and supporting growth, and between efficiency and equity).

- Assessment elements to consider (where relevant)
  - Use the broadest definition of government available; focus on general government or a broader public sector perimeter where feasible.
  - Include quasi-fiscal operations’ fiscal costs in deficit measures where significant.
  - Consider contingent liabilities as relevant.
  - Fiscal policy stance along the cycle, using measures that remove cyclical and one-off factors (e.g., structural balance) in addition to overall fiscal balance.
  - Composition of fiscal expenditure and revenue, including efficiency of public expenditure and design of tax policy.
  - Sovereign assets and liabilities, identifying and mitigating sovereign risk exposures, presenting data on sovereign assets and liabilities for comprehensive understanding.
  - Financing needs and financing sources, and possible economic and financial implications; monitor arrears and their impact.
  - Fiscal sustainability using the debt sustainability analysis (Box 10); where data allow use balance sheet analysis; in resource-rich economies analyze commodity price impacts.
  - Fiscal risks associated with macroeconomic outlook, policy implementation, contingent liabilities (public and publicly-guaranteed loans, PPPs), SOEs, natural disasters, and pandemics; consider feedback loops between public, private, and financial sectors.
  - Fiscal space assessment based on the Fund’s fiscal space framework with a bottom-line assessment in the staff report (Box 11).

### Debt Sustainability Analysis (Box 10) — operational guidance
- MAC DSA / MAC SRDSF
  - The MAC DSA was reviewed in 2021 and renamed Sovereign Risk and Debt Sustainability Framework for Market Access Countries (MAC SRDSF).
  - New features include: (i) General Government debt as default expected coverage; (ii) longer projection horizon with tools to assess sovereign risks at three horizons (short, medium, long term); (iii) support for probabilistic debt sustainability assessments to account for full range of uncertainty.
  - Requirement: For non-program countries, a sovereign risk analysis is needed at the time of the Article IV consultation; undertaking and publishing a DSA is optional. For countries with Fund arrangements involving GRA resources, both a sovereign risk and a DSA are required at program approval and subsequently once a year (unless developments warrant more frequent analysis); exceptional access cases require an updated DSA with three-zone sustainability analysis in every program review.
  - Presentation: Write-up should follow the format indicated in the 2021 Review Policy Paper (especially Box 6).
- LIC DSF
  - LIC DSF was developed by IMF and World Bank staff; last review conducted in 2017 with guidance published in 2018.
  - Aims: (i) guide fiscal policy and borrowing decisions of low-income countries to match need with ability to service debt; (ii) improve World Bank and IMF assessments and policy advice; (iii) provide guidance for creditors’ lending; (iv) serve as input to IMF debt limit policy (DLP) and World Bank sustainable development finance policy (SDFP).
  - Requirement: A full LIC DSA should generally be produced at least once every calendar year. The Article IV consultation should be accompanied by a DSA. For non-program countries on longer surveillance cycles, frequency matches the surveillance cycle. A new DSA should be produced in certain situations for program countries (see Section II.C).
  - Presentation: Follow guidance in the guidance note (especially Section II.D and Appendix II). LIC DSF comprises a self-contained written analysis with standard tables and charts. The DSA write-up must include the authorities’ views, including any disagreement with staff’s main findings. The DSA write-up may be streamlined in limited circumstances when more than one DSA is required in a calendar year and circumstances have not changed significantly (not applicable for new programs); in such cases the write-up can focus on main changes in assumptions and summarize their impact on debt indicators.

### Fiscal policy advice: expected characteristics and elements
- Advice should be concrete, specific, and reflect country circumstances.
- Elements to consider (as relevant):
  - Policy anchor: specified in terms of levels (e.g., fiscal balance, debt stock) or changes (e.g., size of fiscal adjustment); cyclically-adjusted indicators could be used where useful.
  - Size and pace of proposed fiscal measures: depend on initial conditions including state and composition of public finances, available fiscal space, fiscal risks, inter-temporal tradeoffs, and size of fiscal multipliers.
  - Role of automatic stabilizers and composition of discretionary measures: whether automatic stabilizers are allowed to operate freely or modified; balance between revenue and expenditure measures; mix of temporary and permanent measures.
  - Consistency with overall policy mix: consider complementarity and tradeoffs with other policies (e.g., pace to withdraw fiscal support given monetary stance and conditions such as inflation and debt sustainability risks).
  - Institutions, political economy, and implementation constraints: advice should be practical and implementable; appropriate timing and sequencing and mitigating measures can reduce negative impacts of reforms and build public support.
  - Strengthening fiscal institutions and frameworks can enhance credibility and transparency; advice can build on TA findings where relevant.

*International Monetary Fund — Guidance Note for Surveillance Under Article IV Consultations (excerpts).*

### 56.      Policy advice can reflect the role of fiscal policies in achieving broader public policy

### 56.      Policy advice can reflect the role of fiscal policies in achieving broader public policy

### Fiscal policy scope and areas for staff advice
- Fiscal policy advice can reflect the role of fiscal policies in achieving broader public policy objectives, including the SDGs, environmental, social and governance (ESG) ambitions in public investment decisions; climate objectives (e.g., net-zero emissions) in designing carbon taxation and revenue mobilization for green investments; and designing the tax system to enhance gender equality and boost female labor force participation (e.g., eliminating tax-induced disincentives for spousal work).
- Staff could provide granular fiscal policy advice in areas of the Fund’s expertise, building on CD activities where appropriate, including:
  - public financial management,
  - tax policy and revenue administration,
  - natural resource management,
  - energy reforms,
  - pension reforms,
  - public health care.

*Source: IMF staff guidance note (paragraph 56).*

### B.   Macrofinancial Analysis and Financial Policies

### Role and integration of macrofinancial analysis
- Macrofinancial analysis is an integral part of Article IV consultations, both in the baseline projections and the assessment of risks.
- The analysis involves:
  - an integrated analysis of macrofinancial linkages and systemic risk,
  - conducting macrofinancial linkages and systemic risk assessment jointly, as they represent different sides of a dynamic feedback loop that links the financial system and the macroeconomy (Figure 3).
- Analysis should consider how the overall policy mix affects macrofinancial developments through different transmission channels (“macrofinancial linkages”), and how the assessment of systemic vulnerabilities and financial sector resilience (“systemic risk assessment”) anchors policy advice.

### Approach and country-specific flexibility
- The Fund policy and operational guidance emphasize a flexible and pragmatic approach reflecting:
  - diversity and evolution of financial systems across countries,
  - uneven data availability (IMF 2014, IMF 2017).
- Analytical approaches:
  - Simplified analytical approaches preferred in data constrained environments (e.g., low-income countries).
  - Greater need for a combination of approaches in data-rich environments where the financial system is large, interconnected, or concentrated.

### Macrofinancial Analysis in the Baseline

### Objectives of baseline macrofinancial analysis
- Article IV consultations should:
  - identify key macrofinancial linkages,
  - ensure consistency between financial conditions and the baseline macroeconomic outlook.
- The analysis evaluates how the financial system (financial markets and financial institutions—banks and non-banks) facilitates channeling of funds between borrowers, lenders, and investors and supports economic growth.
- It assesses whether disruptions in intermediation or excess credit provision could cause negative consequences for the baseline outlook.
- Where possible, consider balance sheet health of households, corporate, and government sectors.
- When macrocritical, consider how financial deepening or other structural changes impact growth over a longer horizon (particularly relevant for EMDEs and LICs with shallow financial markets, lower financial integration, and restricted access to global financial markets).

### Guiding questions for baseline analysis
- Recent developments:
  - What are key macro and financial trends (e.g., evolution of key asset prices, sectoral leverage indicators, lending standards) and how are these related to the baseline?
  - To what extent do financial conditions drive macroeconomic developments?
  - Do financial conditions influence the effects of macroeconomic policy?
  - To what extent do macroeconomic developments and policies drive financial conditions and financial decisions (e.g., leverage, liability composition)?
- Real-financial sector consistency:
  - Is the baseline outlook for the real and financial sectors internally consistent in the short run and over the medium term?
  - Are credit projections consistent with growth projections?
  - Are financing needs of corporates, households, and the public sector in line with the financial sector’s capacity to provide credit or with access to external financing?
- Financial system contribution to macroeconomic stability:
  - What are the key financial factors affecting macroeconomic stability?
  - Does the financial system function normally or contribute to macroeconomic instability (e.g., credit/asset price booms and busts)?
  - Are trends in financial inclusion and any financial stability trade-offs properly considered in the baseline projections?
- Assessment of current policy stance:
  - How does the current policy mix affect financial conditions, availability of credit, health of balance sheets, and economic growth?
  - Are there structural policies expected to lead to improved financial deepening?

### Financial cycle and implications for projections
- Staff’s baseline projections can be informed by assessment of the country’s position in the ‘financial cycle’ and the risks it entails.
- “Financial cycle” signifies the level and evolution of slack or excess in the financial sector.
- Importance:
  - Indicators for liquidity and solvency risk (e.g., debt-to -income and debt-to -equity ratios) are typically procyclical, making some risks in the build-up phase difficult to detect (Iossifov and Schmid, 2021).
  - Knowing current position and direction in the financial cycle helps inform advice on corrective policies (e.g., macroprudential) and understand implications of financial factors for economic activity.
- Gauging financial cycle position:
  - Comparing credit to its expected structural level,
  - Examining developments in asset prices, risk spreads, and lending standards,
  - Jointly estimating position in the financial cycle with the business cycle (Krznar and Matheson, 2017).
- Use: to examine consistency of economic growth with financial stability or detect risks leading to buildup of systemic risk and potential severe credit crunch.

*Source: IMF staff guidance note (paragraphs 57–61).*

### Systemic Risk Analysis

### Definition and nature of systemic risk
- Systemic risk: risk of disruption in the provision of financial services caused by an impairment of the financial system with serious negative effects for the real economy (IMF-BIS-FSB, 2009).
- Emerges from financial distortions that lead to buildup of vulnerabilities over time and/or structural vulnerabilities within the financial system.
- Vulnerabilities increase financial stability risks and could amplify negative aggregate shocks via two-way negative feedback loops.
- Systemic risk is multi-dimensional: it can be rising in one dimension while falling in another.

### Objectives and steps for Article IV systemic risk analysis
- Article IV consultations should present a systemic risk analysis that identifies and quantifies risks to the stability and functioning of the financial system.
- Staff reports should provide a well-articulated view about systemic risk, grounded in rigorous analysis of financial vulnerabilities (IMF 2021a).
- Suggested steps (Figure 4):
  - Assess relevant vulnerabilities (time-varying or structural; broad-based or sectoral).
    - Consider economy-wide vulnerabilities from excessive credit growth, sectoral vulnerabilities, potential for macrofinancial feedback loops, vulnerabilities from excessive maturity and currency mismatches.
    - Assess structural vulnerabilities via domestic and cross-border linkages within/across financial intermediaries, markets, and infrastructures.
    - Discuss risks surrounding financial integrity (AML/CFT) as necessary because of material implications on financial stability and broader economy.
      - Threats include destabilizing inflows/outflows, FATF “grey listing”, and pressures on correspondent banking relationships.
      - Staff should address money laundering, terrorism financing, or related predicate crimes in Article IV reports when they: (i) undermine the member’s domestic or balance of payments stability, or (ii) give rise to spillovers that may significantly influence the effective operation of the IMS, including by undermining global economic and financial stability (“global stability”).
  - Provide forward-looking analysis beyond the banking sector where relevant (e.g., misalignment of asset valuations, insurers, financing companies, investment funds, non-financial corporate sector, households).
  - Support analysis with data and, where feasible, appropriate tools (e.g., financial soundness indicators, econometric analysis, stress tests, SWIFT data; Conditional Value-at-Risk, Balance Sheet Analysis (BSA), network analysis, the Systemic Risk Tracker, the Growth-at -risk (GaR) framework, the Global Bank Stress Test tool).
  - Anchored on analysis, present an explicit statement or view on the resilience (or lack thereof) of the financial system to aggregate shocks, based on identified vulnerabilities and strength of macrofinancial feedback effects; support this view with data and quantification where feasible, informed by judgment.

### Use of FSAP and analytical limitations
- The FSAP risk analysis can inform Article IV systemic risk analysis when available.
  - FSAP conclusions can serve as reference for country teams’ analysis.
  - Simple stress testing tools can support Article IV teams’ efforts to update FSAP risk analysis, acknowledging lower granularity than FSAP.
  - Article IV staff report’s “well-articulated view” should be informed by and fully consistent with FSSA analysis if both are discussed at the Executive Board at or around the same time.
- Systemic risk may arise in areas where quantification remains work in progress (e.g., fintech, cyber security, climate change).
  - Toolkit and expertise will need to adapt; country teams may need to exercise judgment and flag macrocritical risks qualitatively.
- Guidance is not a checklist; country teams can focus on issues relevant to each country.
  - In countries with financial activity concentrated in few systemically critical institutions, particular attention to those institutions’ balance sheets is warranted.
  - Country teams can state assessments and refer to previous Article IV analysis if conditions remain broadly similar; replication of entire analysis is not required.

*Source: IMF staff guidance note (paragraphs 62–66).*

### Digital Money

### Concerns and surveillance topics
- New forms of digital money are fast-evolving in reach and complexity (IMF 2021).
- “Digital money” generally encompasses both public and private digital forms of money that serve as a new means of payments, store of value, or unit of account.
- Private forms can enable financial and payment services outside the traditional bank-centered financial system, with significant network externalities and first mover advantages (e.g., in design and regulation).
- Underlying technologies enable synergies between infrastructures, big data, digital money, payments and financial activities, impacting market contestability.
- Coverage in surveillance needs to be tailored to country circumstances and assessments of macrocriticality.

### Topics for Article IV surveillance
- Central Bank Digital Currencies (CBDC):
  - Monitor objectives behind CBDC introductions or issuances, design options and features, implications for monetary policy and financial stability (domestic and international), and potential risks (central bank operational and reputational risks, financial integrity risks, data privacy and legal risks, and cybersecurity).
  - Issuance and cross-border use of CBDCs could have significant spillover effects across the membership.
- Digitalization and financial inclusion:
  - Digital payments, including through e-money, are often central to wider digitalization strategies and may relate to financial inclusion or structural reforms (e.g., benefit and cost of doing business, innovation, competition, market integration).
  - Risks may stem from legal, regulatory and supervisory challenges relating to consumer protection, financial integrity, legal and governance, operational resilience and cybersecurity.
- Crypto assets/stablecoin activity:
  - Wide adoption of crypto assets including stablecoins (including for remittances) can pose risks to monetary sovereignty, capital outflows, or the effectiveness of CFMs.
  - They could suffer from loss of confidence and, if widely used, could present systemic concerns domestically.
  - Global stablecoins could have potential impact on global financial stability if widely adopted across borders.
  - Discussion could focus on monetary policy, financial stability and integrity, and external stability.
  - Consumer data protection needs to balance protecting privacy and enticing private sector participation with preventing market manipulation and ensuring financial integrity in line with FATF standards.
- Spillovers:
  - Countries may experience spillovers from digital money adoption in other countries.
  - Availability of a foreign CBDC or stablecoin could facilitate currency substitution, leading to a loss of policy effectiveness or emergence of crypto tax havens, risking financial stability and integrity.

*Source: IMF staff guidance note (paragraphs 67–68).*

*Italic line: Guidance Note for Surveillance under Article IV Consultations (IMF).*

### 69.      Monitoring, as relevant, the cross-border implications of digital money adoption in

### Monitoring, as relevant, the cross-border implications of digital money adoption in

### Digital money: cross-border risks and international cooperation
- Digital money adoption can have significant cross-border implications, including risks of fragmentation and of a global digital divide.
- International cooperation is essential to:
  - ensure interoperability of digital moneys;
  - promote common setting of standards to facilitate cross-border trade and financial flows; and
  - close opportunities for regulatory arbitrage.
- Ongoing international efforts include setting common high-level principles for CBDC issuance (for example, the G7 Public Policy Principles for Retail Central Bank Digital Currencies).
- The IMF, jointly with other international bodies, needs to play a key role to promote international coordination in areas pertaining to digital money.

### Surveillance guidance and data initiatives
- Guidance for surveillance is evolving; in 2021 the Fund adopted a Strategic Plan to develop knowledge and expertise to help members reap benefits and manage risks associated with digital money.
- Policy discussions on digital money may involve:
  - domestic dimensions: legal and regulatory frameworks; cyber and other operational risks; monetary policy and financial stability implications; financial inclusion; structural policies (competition, innovation); fiscal implications;
  - international dimensions: financial integration; capital flows (including effectiveness of capital flow management measures); spillovers; reserve currency configurations; backstops; and the stability of the IMS.
- The Draft Workplan for a New Data Gaps Initiative led by the IMF (in close cooperation with the Inter-Agency Group on Economic and Financial Statistics and the Financial Stability Board) includes a recommendation on Digital Money:
  - objective: develop a common data collection framework on new forms of digital money and crypto assets used as a means of payment, including CBDCs and global stable coins;
  - intended improvements: measurement of money and liquidity aggregates and cross-border transactions using digital money.

### Financial sector policies and risk assessment
- A sound risk assessment anchors financial sector policy recommendations.
- Financial sector policies may include prudential and AML/CFT regulation and supervision, crisis management, and resolution.
- Country teams should identify where financial and macrofinancial risks and vulnerabilities are rising, elevated, and/or concentrated to inform policy advice.
- Macroprudential policy guidance (IMF, 2014) highlights key elements for staff advice:
  - assessment of existing macroprudential tools (costs and benefits, effectiveness, and leakages);
  - mapping from systemic vulnerabilities to specific policy tools;
  - calibration (deployment, tightening or relaxing);
  - an appropriate policy mix and communication; and
  - the institutional framework.
- For low-income countries, limitations (limited data availability, volatile economic conditions, weak institutional capacity) may imply simple approaches are preferable over active recalibration.
- Country teams can draw from international standard-setting bodies: Basel Core Principles, IOSCO Principles of Securities Regulation, and the FSB Key Attributes of Effective Resolution Regimes.
- Country teams should leverage FSAP recommendations through adequate follow-up in Article IV consultations:
  - many FSAP recommendations are structural and often remain valid for many years;
  - early engagement of country teams and FSAP teams facilitates follow-up (IMF 2021a);
  - when Article IV follows or coincides with an FSAP, country teams should cross-reference FSAP/FSSA recommendations in the Article IV staff report.

### Monetary policy: integration with macrofinancial analysis and spillovers
- Monetary policy should be discussed as part of the overall policy mix, including relations with external and macroprudential policies.
  - Relation with external policies:
    - For countries with flexible exchange rate regimes, monetary policy usually focuses on internal balance (inflation close to target and output gap close to zero) and whether real interest rates are consistent with the economy’s cyclical position.
    - Using monetary policy to counter exchange rate pressures can be justified if pass-through from exchange rate movements hinders achievement of the inflation target (IMF 2020).
    - In fixed exchange rate regimes with open capital accounts, room for independent monetary policy is limited.
  - Relation with macroprudential policies:
    - The costs of tightening monetary policy to guard against financial stability risks are generally perceived to outweigh the benefits in most circumstances (IMF, 2015).
    - There can be a case for “leaning against the wind” when macroprudential coverage is inadequate and leakages contribute to buildup of financial vulnerabilities, but staff advice would typically seek to address those limitations.
- Staff should align monetary policy advice with macrofinancial analysis:
  - focus on the policy rate (typically the short-term rate) when interest rates are not close to the effective lower bound;
  - consider unconventional monetary policy (UMP), including central bank asset purchases, when the effective lower bound binds;
  - in UMP contexts, analyze balance sheet linkages, financial conditions, and the institutional and operational framework of the central bank.
- Monetary policy discussions should attend to spillovers:
  - tightening or exit from UMP by systemic countries may generate outward spillovers via capital flows and asset prices, posing challenges for other countries’ macroeconomic management;
  - staff should examine outward spillovers when a member’s policies either (i) are not promoting its own domestic or external stability or (ii) promote its own stability but could nevertheless significantly affect global stability;
  - spillback effects may be relevant in some monetary policy discussions.

### External sector policies and External Sector Assessment (ESA)
- Global stability depends substantially on the balance of payments (BOP) stability of individual countries; the IMF has a mandate to promote a stable system of exchange rates, exercise surveillance over exchange rate policies, and help correct maladjustments in members’ BOP.
- Every Article IV report should assess the member’s external position and its impact on the stability of the member and, where relevant, global stability.
- Staff should provide a clear bottom-line assessment of the member’s external position, drawing from a broad range of perspectives and acknowledging uncertainties.
- The external sector assessment (ESA) should assess and discuss recent developments of five key areas:
  - (i) the position and trajectory of foreign assets and liabilities;
  - (ii) current accounts;
  - (iii) real exchange rates;
  - (iv) capital flows and policy measures; and
  - (v) foreign exchange intervention and reserve levels.
- Quantitative estimates from the Fund’s External Balance Assessment (EBA) or EBA-lite methodologies should underpin the assessment where applicable.
- ESA insights should be integrated into staff advice on the overall policy mix and discussed in the main text of the staff report; the bottom-line external sector assessment should be included in the staff appraisal.

### External assets/liabilities, current account, and capital flows guidance
- Foreign assets and liabilities:
  - staff should assess whether stocks of gross external assets and liabilities are consistent with a sustainable external position;
  - analyze both gross and net positions, gross debt obligations, composition (debt vs. non-debt), and currency/liquidity/maturity mismatches;
  - apply the External Sustainability model for countries with large, negative net international investment positions or other sustainability indicators.
- Current account and real exchange rate:
  - staff should assess whether current account and real exchange rate are broadly consistent with EBA/EBA-lite benchmarks;
  - EBA/EBA-lite produce multilaterally consistent estimates for current account and REER norms;
  - staff can estimate gaps by comparing actual values (stripped of temporary components) with IMF staff–assessed norms, using analytically grounded judgment;
  - staff should assess the REER level irrespective of the member’s exchange rate regime, and in currency unions assess both union-level and individual-member vulnerabilities.
  - model results should not be averaged; staff should identify the most plausible estimate and anchor the assessment on it.
  - to promote transparency and evenhandedness, staff should report methods and key assumptions used in assessments; any adjustments should be quantified and justified.
- Capital and financial accounts:
  - staff should assess developments in gross and net capital flows, their size, composition, sustainability, the risk of inflow surges or disruptive outflows, and impacts/challenges for macroeconomic and financial stability;
  - assess how authorities have adjusted policies in response (macroeconomic policies, macroprudential policy measures (MPMs), capital flow management measures (CFMs));
  - discussions on capital flows should be based on the Fund’s Institutional View (IV) on the Liberalization and Management of Capital Flows, accurately distinguishing CFMs, MPMs, and CFM/MPMs and assessing appropriateness under the IV;
  - highlight potential or actual outward spillovers when they may have significant implications for global stability.
- Reserve adequacy and foreign exchange intervention:
  - Article IV reports should discuss reserve adequacy and provide a bottom line on adequacy for precautionary purposes, reflecting country circumstances, authorities’ objectives, and the cost of holding reserves;
  - adequacy metrics (e.g., months of imports, reserves to short-term debt, or the Fund’s metric) can be supplemented by scenario analysis;
  - potential short-term drains to reserves (including derivative transactions from central bank FX liabilities to residents) should be covered when they could significantly affect available buffers;
  - exclude from reserve assets those that are pledged, collateralized, or otherwise encumbered;
  - non-reserve buffers (contingent financing, use of Fund resources, derivative transactions) can be taken into consideration.

*Source: Guidance Note for Surveillance under Article IV Consultations (IMF).*

### 89.      Foreign exchange intervention can also be relevant to a member’s BOP and global

### 89.      Foreign exchange intervention can also be relevant to a member’s BOP and global

### Foreign exchange intervention and disorderly market conditions (DMCs)
- Intervention should be used, if necessary, to counter disorderly market conditions (DMCs), which may be characterized inter alia by disruptive short-term movements in the exchange rate. 39
- Staff should document the DMCs, ideally with objective market measures.
- Intervention could also be an appropriate part of a member’s policy toolkit outside of narrowly defined DMCs.
- Analysis and advice on intervention policies should be tailored to:
  - country characteristics (extent of balance sheet exposures and currency mismatches; depth of the FX market; degree of central bank credibility; whether the currency is over- or under-valued; effective lower bound on monetary policy),
  - the nature of shocks,
  - possible domestic side effects,
  - cross-border spillovers,
  - interaction with other policies (Section V.A, IPF). 40
- Staff would support measures to foster market development and reduce balance sheet vulnerabilities to avoid persistent use of intervention.

### Limits and surveillance of intervention
- Intervention should not be used to manipulate the exchange rate to prevent effective balance of payments adjustment, to gain an unfair competitive advantage, or in a way that gives rise to BOP instability. 41
- The ESA can be used to judge whether countries are using intervention to pursue competitive advantage.
- Staff should discuss with authorities protracted large-scale one-sided interventions and excessive and prolonged official or quasi-official accumulation of foreign assets for balance of payments purposes.
- The Fund’s assessment of reserve adequacy should be used to analyze whether there are sufficient reserves to allow intervention or if reserve accumulation is warranted during inflow episodes. 42

### Exchange rate regimes
- Staff should identify both de facto and de jure exchange rate regimes.
  - The de facto exchange regime refers to the actual conduct of exchange rate policies, 43 which may differ from the de jure regime.
  - Both the de jure and de facto regimes must be specified in the Fund Relations appendix. 44
- Where applicable, staff reports should discuss changes in the authorities’ future policy intentions.
- The Monetary and Capital Markets Department (MCM) provides the Article IV team with the most up-to-date classification of the de facto regime.
- Reports should assess the adequacy of the de facto regime for maintaining stability.
- Staff should examine the consistency of the exchange rate regime with the policy mix, considering fiscal stance, monetary objectives, and the financial sector regulatory framework.
- Discussion of alternative regimes should take into account the authorities’ views and their readiness and capacity to implement changes.

### Exchange restrictions and multiple currency practices (MCPs)
- Staff must determine whether a member has introduced or is continuing to maintain exchange restrictions or MCPs that require Fund approval. 45
- Any exchange restrictions or MCPs subject to Article VIII or maintained under the transitional arrangements of Article XIV, Section 2 should be identified in staff reports. 46
- For newly introduced or modified exchange restrictions or MCPs subject to Article VIII, Sections 2 (a) and 3, the staff appraisal should make a recommendation concerning Board approval. 47, 48
- If staff recommends Board approval, the staff report should explain whether the approval criteria are met.
- Staff should inform members that failure to notify and seek Fund approval would be a breach of their obligations.
- When a member is found to be in breach of Article VIII, Section 2(a) or Section 3, staff should always seek an explicit view from the authorities for inclusion in the staff report.
- For members that continue maintaining transitional arrangements under Article XIV, Section 2, the staff report and informational Annex should mention these measures and propose a decision on concluding the annual Article XIV consultation.
- Members must notify the Fund if they impose exchange restrictions for security reasons. 49

### Trade policy in surveillance
- Executive Board guidance calls for robust attention to trade policy in Fund surveillance, with emphasis on:
  - global effects of trade policies in systemically important countries,
  - bilateral surveillance addressing macrocritical trade policy issues while ensuring evenhanded advice.
- Key aspects from the Reference Note on Trade Policy include:
  - Strongly discouraging resorting to trade taxes for revenue purposes as they are inefficient and spill over negatively to trade partners.
  - The Fund opposes import surcharges on economic grounds in the vast majority of cases; when used, they should be phased out rapidly according to a pre-announced timetable.
  - Policy reversals should be avoided because even relatively minor backtracking promotes policy uncertainty and encourages rent-seeking.
- The 2015 Review emphasized tailoring coverage of trade policy issues to country needs:
  - Advanced economies: focus on new trade policy areas such as services, regulations, and investment.
  - Emerging market economies: further reforms in traditional trade policy areas to better anchor into global value chains.
  - LIDCs: reduce trade costs, upgrade trade-related infrastructure, and improve national and regional economic institutions. 51

### Macro-structural policies and structural reforms
- Structural reforms are central to promoting domestic and global stability and ensuring economic and fiscal sustainability.
- Article IVs should cover structural policies that are macrocritical, focusing on areas where the Fund has expertise (Box 2).
- Staff have developed conceptual frameworks and analytical tools to provide more granular policy advice; a pilot exercise was launched in 2017 to enhance focus on structural reforms. 52
- Identification of key bottlenecks to inclusive growth helps determine where structural policies have the greatest impact on stability and growth.
- The overall policy mix and outlook should be considered when determining a structural reform agenda:
  - Assess impact of structural reforms on the economy and integrate reform agenda in the outlook and fiscal discussions.
  - Consider prioritization and sequencing of reforms given country circumstances, cyclical position, available policy space, and synergies with demand policies (IMF 2015).
  - In a negative output gap with limited policy space, consider structural reforms that support short-term growth and can be budget neutral; e.g., product market reforms reducing barriers to entry in services.
  - Consider policy packages to mitigate negative short-term impacts of structural reforms (e.g., combine employment protection reform with active labor market policies). (IMF, 2017)
- Policy advice should consider synergies and complementarities between fiscal and structural policies:
  - Structural reforms can improve output and fiscal positions over the medium term, potentially paying for themselves. 53
  - Targeted fiscal support may facilitate reforms by alleviating transition and social costs under weak cyclical conditions.
  - Assessments can be based on empirical analysis where possible.

### Structural topics staff may cover
- Jobs and growth:
  - Assess whether domestic policies keep the economy operating at capacity.
  - Identify binding constraints for growth.
  - Provide advice on labor market policies and integrate policy advice to create jobs and boost labor force participation.
- Infrastructure:
  - Investment can raise output, especially in economic slack when returns are high and borrowing costs are low.
  - Discuss growth and fiscal impact, quality and expected returns, risks from private-sector partnerships, and quality of public institutions.
  - Consider public infrastructure related to climate change when appropriate, drawing on climate PIMA. 54
- Labor markets:
  - Address skill mismatches, high social security contributions, and high minimum wages.
  - Explore policies on worker training, education, and other labor market reforms, drawing on ILO and OECD expertise.
- Social spending:
  - Defined as social protection, health, and education spending.
  - Key for inclusive growth, addressing inequality, protecting vulnerable groups during structural change, and stabilizing demand after shocks.
- Public pensions:
  - Provide income replacement and poverty alleviation for old-age and disability.
  - Public pension spending is already a large part of fiscal spending in some countries and is projected to increase owing to demographics.
- Public sector enterprises:
  - Can imply significant fiscal risks when inefficient and carry significant liabilities.
  - Staff may consider improving productivity and management or privatization. 55

### Governance and corruption in Article IVs
- Article IV staff reports should discuss governance vulnerabilities and corruption issues when they are macrocritical.
- The IMF’s Framework for Enhanced Fund Engagement on Governance (adopted 2018) promotes systematic, deeper, candid, and evenhanded engagement on macrocritical governance vulnerabilities, including corruption.
- The interdepartmental Governance Working Group (GWG) forms a consensus on main areas of weakness and overall severity of corruption, approved by management.
- Coverage expectations:
  - Main governance weaknesses identified by the GWG are expected to be covered in depth at some point during a medium-term surveillance cycle (normally three years, starting from adoption in April 2018).
  - A stocktaking of the 2018 Framework experience is planned in the context of the formal review scheduled for early 2023.
- Content expectations:
  - Staff reports should suggest specific, concrete, and actionable policy measures to reduce identified governance vulnerabilities.
  - Where corruption risks are high and no well-defined governance reform agenda exists, teams are encouraged to request a governance brainstorming session with experts from functional departments and the World Bank.
- Capacity development:
  - Surveillance can draw on capacity development and help identify needs.
  - Governance diagnostic missions can be provided at authorities’ request, subject to resources, typically led by FAD/LEG with multiple functional departments, producing prioritized reform recommendations and promoting country ownership. These reports are published in most cases.

*Source: ppea2022029 - 89.      Foreign exchange intervention can also be relevant to a member’s BOP and global*

### Box 13. Governance (Concluded)

### Box 13. Governance (Concluded)

### Follow-up on governance in Article IV reports
- Where all governance issues have been adequately covered in previous Article IV reports, remaining reports in the surveillance cycle should at least:
  - (i) briefly note key governance issues identified (this could be done by cross-referencing the previous report(s) for details, though more discussion could be added if there have been major developments since the last report); and
  - (ii) provide a candid discussion of any progress (or lack thereof) in implementing key recommendations on governance and anti-corruption issues from past reports, which could be done in the standard annex on implementation of past Article IV advice.
- The depth of follow-up discussions should be proportional to the severity of governance weaknesses.

### Transnational aspects of corruption
- The Fund encourages all members—regardless of whether they experience severe corruption themselves—to volunteer to have the Fund assess whether their legal and institutional frameworks:
  - (i) criminalize and prosecute bribery of foreign public officials; and
  - (ii) have effective AML systems that prevent foreign officials from concealing corrupt proceeds in their countries.
- Expectation: each consultation systemically assesses progress in at least one, and ideally both, area(s).
- To avoid duplication, these assessments draw heavily on existing analysis by the FATF, OECD Working Group on Bribery, and/or the UNODC, as relevant.

### SECTION V. APPLICATIONS — Overview
- Paragraph 105 introduces applications where different policies are combined to address economic and financial issues; staff are encouraged to exercise judgment on coverage in Article IV consultations.

### A. Integrated Policy Framework (IPF)
- Purpose: provide a systematic analytical approach to consider an appropriate policy mix for macroeconomic and financial stability when countries experience shocks; jointly considers monetary, exchange rate, macroprudential, capital flow management, and fiscal policies and their interactions.
- Key insight: the optimal policy mix depends on country characteristics, type of shocks, and initial conditions; it does not default to complete reliance on exchange rate flexibility nor to indiscriminate use of policy tools.
- Key country characteristics considered: balance sheet mismatches, depth of FX markets, monetary policy credibility, currency of trade invoicing; other factors may be relevant.
- In Article IV consultations, relevant questions include:
  - What are country characteristics relevant for the IPF and the country’s policy frameworks (e.g., exchange rate regime, monetary policy framework)?
  - What were initial conditions prior to shocks (e.g., reserve adequacy, external sector assessment, cyclical conditions)?
  - What was the type of shock experienced (real or financial, transitory or persistent)? What were related economic and financial developments (exchange rate, capital flows, domestic activity including inflation and inflation expectations, other indicators relevant for IPF such as deviations from the uncovered interest parity condition)?
- Staff should be mindful of authorities’ additional considerations (e.g., reputational concerns) and data limitations when applying IPF insights.

### B. Climate Change — High-level framing
- Climate change poses an existential threat to global prosperity with significant macroeconomic and financial implications.
- Without meaningful action towards mitigation, adaptation, and transition to low-carbon economies, climate change would weaken growth prospects and increase fiscal sustainability and financial stability risks.
- Policies often need to be taken within the next few years to address such risks effectively, even if the full impact materializes over years or decades.

### B. Climate Change — Policy challenges
- Climate-related macroeconomic policy challenges depend on country circumstances and include:
  - Transitioning to a low-carbon economy, including achieving domestic mitigation targets (many countries need to sharply reduce GHG emissions to meet Paris Agreement commitments/NDCs; reaching targets can require far-reaching fiscal, financial, and regulatory policy changes and accompanying social and labor market policies).
  - Managing implications from the global transition to a low-carbon economy (especially for countries heavily dependent on production and export of fossil fuels; tourism-reliant economies or economies reliant on remittances from fuel-exporting countries are also affected; exposure of financial institutions to potentially stranded assets; some countries may benefit—e.g., exporters of lithium and cobalt).
  - Adaptation and resilience building (a challenge for almost all countries, especially lower-income countries and small states in hot regions or subject to natural disasters; adaptation often requires generating fiscal space via re-prioritizing expenditures, raising revenues, and attracting concessional financing).
- Only achieving domestic mitigation targets is purely domestic; the other two involve inward spillovers (global transition and effects of climate change itself).
- All these policy challenges fall under the IMF’s bilateral surveillance mandate to the extent they are macrocritical for a given country (Section II.A and Annex I).

### B. Climate Change — Coverage in Article IV consultations
- Mandatory coverage is guided by an assessment of macrocriticality:
  - Achieving domestic mitigation targets: macrocriticality depends on the ambitiousness of a country’s NDC or other domestic mitigation targets (e.g., net zero by a certain date) and the difference between a country’s baseline emissions path (BAU) and the path implied by the target.
  - Managing implications from the global transition: assessment starts with an economy’s vulnerability to the global transition; useful statistics for fossil fuel exporters include the share of fossil fuel exports or fiscal revenues in GDP.
  - Adaptation and resilience building: macrocriticality is primarily a function of exposure to climate risk and the economic and financial impact should such risks materialize.
- Coverage should be selective; climate change does not need to be covered in every consultation. Frequency of engagement depends on severity and pace of the policy challenge.
- For the 20 largest GHG emitters, discussion of their contribution to global mitigation effort in Article IV consultations is strongly encouraged; coverage cycles for mitigation should be no longer than three years. “Strongly encouraged” remains voluntary: if authorities refuse to engage, staff reports would not cover it.
- Other aspects of climate change (e.g., policies to achieve domestic mitigation targets) should be discussed under the bilateral surveillance mandate if staff assesses they are macrocritical.
- A list of 64 particularly climate vulnerable countries is referenced (IMF, 2019).

### B. Climate Change — Topics for Article IV consultations
- Possible discussion topics include:
  - Assessment of macrocriticality: analyze exposure to climate change and the global transition, impact, and ambitiousness of domestic mitigation targets; time horizon may exceed typical 3-5 years for Fund surveillance.
  - Achieving domestic climate mitigation targets: start from the country’s NDC or domestic target, assess deviation of BAU emissions from the target to identify a mitigation gap, estimate a carbon price that would align mitigation policies with the domestic target (noting uncertainty), take stock of existing mitigation policies, describe authorities’ mitigation plans, propose additional or alternative policies where appropriate, and discuss complementary public investment and social and labor market policies. For EMDEs, assess financing needs to manage the transition, including extent to which needs could be covered from domestic sources (such as carbon pricing revenue). Consider potential impacts on financial stability, including stranded assets.
  - Managing implications from the global transition: for fossil fuel exporters, assess vulnerability to a permanent price decline from fiscal, BOP, and financial angles, including extraction cost and margins; analyze exposure of the financial system to potentially stranded assets; discuss authorities’ plans to manage the transition, such as diversifying financial exposure (e.g., sovereign wealth fund investment policies), diversifying economic exposure (e.g., energy supply), and protecting the financial system. For economies affected via tourism or remittances, assess sensitivity of external and fiscal revenues to lower fossil-fuel driven activity and cover policy options for sustainable finance where appropriate.
  - Adaptation and resilience building: begin with assessment of exposure and possible impact, discuss policies to strengthen resilience, identify financing gaps (varying by type of adaptation challenge), discuss options to cover gaps (re-prioritizing expenditures, strengthening public investment management, strengthening revenue collection, and accessing more financing), anchor discussion by the DSA and factor in policy implementation capacity (especially for fragile states) and development context, explore enhancing financial resilience (fiscal buffers, insurance, contingency finance), and address needed institutional arrangements (PFM, rules, regulations). In some cases, cover potential impact on financial stability and issues such as migration and economic costs.
  - Contribution to global mitigation effort: include elements under achieving domestic mitigation targets plus a multilateral component: (i) analysis of country’s contribution to global GHG emissions and expected emissions path; (ii) comparison of a country’s NDC with peers (while avoiding a direct assessment of the country’s target); (iii) discussion of participation in global mitigation initiatives; provide context on the Paris process as needed. Multilateral component discussion is voluntary but strongly encouraged.

### C. Gender
- Fund policy advice on gender issues in Article IV consultations should be included when such issues are considered macrocritical (Box 2).
- Macrocriticality in bilateral surveillance relates to issues and policies that can significantly influence present or prospective balance of payments and domestic stability.
- Empirical and IMF staff analytical work indicates that narrowing gender gaps and promoting women’s economic empowerment can increase economic growth and influence BOP and domestic stability through lower inequality, increased productivity, better financial sector outcomes, and greater financial stability.
- Conversely, economic disempowerment of women, gaps in access to education, health, and financial services, and legal barriers to women’s economic participation can negatively impact macroeconomic and financial stability and countries’ ability to achieve strong and sustainable growth—implying gender gaps can be macrocritical and relevant under Article IV, Section 1.
- Macrocriticality assessment will vary by country circumstances. Once macrocriticality is established, bilateral surveillance should cover policies beyond fiscal, monetary, and financial sector that affect gender outcomes, including policies directly aimed at narrowing gender gaps and promoting women’s economic empowerment.
- The COVID-19 pandemic has exacerbated pre-crisis gender gaps and highlighted safety net weaknesses, increasing the urgency of applying a gender lens to IMF surveillance.

*Source: ppea2022029 - Box 13. Governance (Concluded)*

### 119.      Staff can assess existing gender gaps in Article IV consultations through benchmarking

### 119.      Staff can assess existing gender gaps in Article IV consultations through benchmarking

### Assessing gender gaps
- Relevant areas to benchmark:
  - female labor force participation
  - gender gaps in access to education, health care, and financial services
  - female representation in managerial and leadership roles
  - legal barriers
  - violence against women
- Cross-country comparisons are useful for assessing whether these gaps are large in any given country.

### Determining macrocriticality
- Once gender gaps are identified, staff should assess whether gaps are macrocritical.
- Evidence and implications:
  - Studies have repeatedly shown how improving women’s access to opportunities and decision-making roles can raise economic growth, lower inequality, and enhance macroeconomic and financial stability.
  - Gender issues are not macrocritical for all Fund members at all times.
- Assessment inputs:
  - Available data
  - Existing literature
  - Past country engagements

### Policy advice and analysis
- Fund policy advice should be tailored to reducing macrocritical gender gaps.
- Key considerations:
  - All measures, not just gender-targeted ones, can disproportionately affect women if they impact sectors where women are more represented (e.g., informal, part-time, and low-paying jobs).
  - Policy advice should be as granular as possible and consider incidence across sectors and the nature of existing gender gaps.
  - When gender-sensitive policies are considered, their macroeconomic impact should be analyzed and fed into the macroframework.
  - Links between gender and other issues (e.g., climate change, digital money, fragile and conflict states) should be analyzed when pertinent to exploit synergies and provide comprehensive, tailored advice.

### Collaboration and resources
- Close collaboration with authorities and external stakeholders helps advance gender policies and improve traction.
- Engagement guidance:
  - Early engagement with authorities on potential macrocritical issues is beneficial.
  - Collaboration with external stakeholders (e.g., World Bank Group and UN Women) can leverage expertise and resources.
  - Staff can make use of work by other reputable institutions and sources for analysis.
- Support and tools:
  - Significant resources within and outside the Fund are available, including databases, templates, toolkits, and models.
  - Support for application of analytical tools and capacity development are being developed.

### Consultation cycles and delays (Section VI.A)
- Standard cycles and exceptions:
  - Article IV consultations are generally expected to take place on a 12-month consultation cycle, with some exceptions.
  - For members without a Fund arrangement, the standard consultation cycle is 12 months, with an additional 3-month grace period.
  - Members granted a Flexible Credit Line or a Precautionary Liquidity Line are on the standard consultation cycle.
  - Members with other Fund arrangements (including a Policy Coordination Instrument or a Policy Support Instrument) are placed on a 24-month cycle.
  - Some members can be put on a longer cycle, up to 24 months, only upon their consent and provided they meet specified conditions.
  - Members should not have outstanding credit to the Fund above 145 percent of quota to qualify for longer cycles without consent.
- Excessive delays:
  - An Article IV consultation is considered delayed when it is not concluded by the Executive Board within the relevant timeframe (including any grace period).
  - If delayed by more than 12 months beyond its expected date of completion (including the grace period), it is deemed excessively delayed and the Fund will initiate formal steps.
  - The Managing Director may notify the member in writing of the delay; subsequent notifications are sent at 12-month intervals while the consultation remains inconcluded and staff discussions are incomplete.
  - The Fund publishes, at intervals of six months, a list of members whose Article IV consultation has not been concluded within 18 months of the expected deadline for conclusion.
  - Whenever an Article IV consultation has not been concluded within 18 months of the expected deadline, staff is required, except in certain circumstances, to informally brief the Executive Directors on the member’s economic developments and policies.

### Consultation process (Section VI.B)
- Typical process steps:
  - Early engagement with authorities on focus and topics; consultations should be consistent with Fund policy frameworks and country strategies, including CD, FCS, and climate change.
  - Preparation of a Policy Note: internal document laying out issues and policy advice; undergoes internal review and management clearance.
  - Article IV mission: in-person or virtual meetings with authorities, private sector, CSOs, external partners, and other stakeholders; mission prepares a concluding statement and discusses it with interlocutors; publication of concluding statement or press release requires authorities’ consent (see Section VI.C).
  - Preparation of the staff report: reviewed by departments; includes succinct assessment of policies and authorities’ views; after management clearance, issued to the Executive Board.
  - Board meeting: Executive Director’s office issues a statement (BUFF statement); Board meeting constitutes formal surveillance and concludes the Article IV consultation; Executive Directors’ views reflected in the Chairman’s Summing Up. If criteria for a Lapse of Time (LOT) consideration are met, the report may be discussed on a LOT basis.
  - Publication of a post-Board press release and of the staff report (Section VI.C).
- Timeliness norms:
  - Staff should minimize the time between the end of discussions and the Board meeting.
  - Norms: Article IV consultation Board meetings for PRGT eligible cases should take place within 90 days of the end of staff discussions and within 65 days for other cases.
  - Staff report should be up to date when issued to the Board; significant information arriving after issuance should be issued as a staff statement if it does not affect the staff appraisal, or a staff supplement—including revised projections as needed—if there are significant changes.
- Continuation and reopening:
  - Discussions can be continued or re-opened if new economic or policy developments or other wide-ranging information arise.
  - Staff can update and revise the concluding statement and solicit authorities’ reactions.
  - Management may delay Board consideration and/or require a new staff report if further discussions are appropriate.
  - Conversely, staff may present the report to the Board even if authorities prefer to continue discussions, but coordination with authorities is encouraged.

### Drafting and publication (Section VI.C)
- Drafting guidelines:
  - Article IV outputs should clearly articulate central messages and be concise and accessible.
  - Staff reports must not be negotiated with member authorities.
  - Staff should not share draft staff reports, annexes, or portions thereof, with country authorities or Executive Directors; staff can confirm in writing their understanding of the authorities’ views.
  - Staff may share factual elements (tables, charts, Risk Assessment Matrix), mission concluding statements, drafts of press releases, and factual Selected Issues Papers with authorities to facilitate discussion and ensure accuracy.
  - Staff should ensure there are no surprises: all issues covered in staff reports and accompanying documentation should have been discussed with authorities.
  - Staff reports should be candid and comprehensive regardless of authorities’ publication intentions.
  - Counterparts’ views should be accurately characterized and identified as views of the authorities, institutions, or personal views.
  - Avoid politically charged language while maintaining candid assessments of political economy issues.
  - Publication intentions should be addressed only in the cover page issued by SEC for internal circulation.
- Publication principles (Transparency Policy):
  - Publication is voluntary but presumed.
  - Publication of Article IV staff reports requires consent from country authorities.
  - Post-mission concluding statement and press release: missions are expected to issue either a concluding statement or a press release, but normally not both; concluding statements require authorities’ consent for publication; end-of-mission press releases do not require authorities’ consent.
  - Post-Board press release: includes a background section with factual information and the final version of the Summing-Up with specified deletions; authorities’ consent is required for publication of a press release following the Board meeting.
  - Requests for deletions and corrections should be communicated no later than two days before the Board meeting (or LOT decision date); later requests will be considered but stricter rules apply to corrections after the Board meeting.
  - The Updated Guidance Note on Transparency Policy outlines acceptable corrections and deletions and timelines for publication; post-publication modifications are generally not permitted.

### Treatment of confidential information (Section VI.D and Box 14)
- Framework:
  - The Fund has a fully developed framework for handling confidential information.
  - Staff should ensure common understanding of what should remain confidential and whether information may be shared with staff/management, the Board, and/or the public.
  - Staff are encouraged to share relevant aspects of the Fund’s framework for treatment of confidential information with authorities.
- Key points from Box 14:
  - The Fund’s Executive Board, management, and staff may not disclose information provided in confidence unless the party consents and disclosure is consistent with Fund rules.
  - Information and documents provided by members form part of the Fund’s archives which are inviolable.
  - Non-public information generated within or received by the Fund from members or other parties is protected by the Fund’s immunities and would only be disclosed with the approval of that member or other party and in accordance with the Fund’s policies.
  - Staff is prohibited from making unauthorized disclosures to third parties of confidential information obtained in the course of their service to the Fund.
  - Appendix IX of the Transparency Policy Guidance Note provides further detail on the framework.

### Use of third-party indicators (Section VI.E)
- Definition and guidance:
  - A TPI is an indicator compiled by organizations other than the Fund or member country authorities.
  - Use of TPIs should follow the TPI guidance note and best-practice principles.
  - Staff should ensure transparency on the selection of TPIs and how they feed into analysis and policy advice.
  - TPIs should supplement, not replace, open, candid, robust, and well-documented discussion with the authorities.
  - Staff should discuss findings informed by TPIs with authorities and other relevant stakeholders.
  - The Fund’s TPI Digest can be used to understand statistical characteristics, strengths, and weaknesses of commonly used TPIs and how to use and present TPIs in staff reports.
  - The TPI Digest assessment is not a validation exercise nor an ex-ante positive/negative list; staff should not refer to the TPI Digest in external publications, as it is intended for internal use.

*pp ea2022029 - 119.      Staff can assess existing gender gaps in Article IV consultations through benchmarking*

### Box 14. Treatment of Confidential Information (Concluded)

### Box 14. Treatment of Confidential Information (Concluded)

### Treatment of confidential information within the Fund
- Staff and information providers should reach common understandings on how specific information should be classified: Public, For Official Use, Confidential, or Strictly Confidential. These classifications will limit sharing even within the Fund.
- Management and staff cannot agree to withhold information from the Fund’s Executive Board that is required to be reported under the Articles of Agreement or a Board-established policy or that is critical for the Board to exercise its responsibility in a meaningful way.
- Information that must be reported to the Executive Board includes the authorities’ policy positions and plans in areas that are relevant for Fund surveillance or financial assistance but generally excludes information on hypothetical courses of actions that have been informally discussed with the authorities.
- In drafting Board documents, Fund staff exercises caution not to inadvertently include confidential information, unless it is of the type that must be reported to the Executive Board. Paragraphs 40-44 and Appendix IX of the Transparency Policy Guidance Note provide more detail on when disclosure to the Board is required.
- Even where information must be provided to the Board, confidentiality vis-à-vis the public remains.
- The Fund—including the Board, individual Executive Directors, management, and staff—may not publish non-public information provided by a member unless that member consents.
- Confidential information is provided to the Executive Board via a secure platform that allows access by each Executive Director and individually authorized member country officials. All such confidential information made available in this manner is encrypted to prevent further distribution to non-designated individuals.
- Executive Directors are governed by a Code of Conduct requiring them to protect the security of any confidential information provided to, or generated by, the Fund.
- Authorities are obliged to ensure that the applicable Fund restrictions on access to these documents and information are respected, including limitations on internal access in accordance with the material’s classification as well as no public disclosure or citation of any confidential information.
- For the most sensitive information, Executive Directors are provided access via uniquely identifiable encrypted documents that may not be copied or shared.

*GUIDANCE NOTE FOR SURVEILLANCE UNDER ARTICLE IV CONSULTATIONS — Annex I excerpt*

### Legal framework for Fund surveillance (Article IV and ISD)
- Article IV of the IMF’s Articles of Agreement provides the legal basis for the conduct of bilateral and multilateral surveillance by the Fund.
- The Decision on Bilateral and Multilateral Surveillance (or Integrated Surveillance Decision (ISD)), adopted by the Fund’s Executive Board in 2012, establishes a comprehensive framework for integrating bilateral and multilateral surveillance and provides guidance for the Fund and the members in the conduct of surveillance.

Key elements:
- Bilateral Surveillance:
  - Article IV, Section 3(a) and (b) requires the Fund to oversee members’ compliance with the obligations specified under Article IV, Section 1 and to exercise firm surveillance over members’ exchange rate policies (“bilateral surveillance”).
  - Article IV, Section 1 establishes a general obligation for each member to collaborate with the Fund and other members to assure orderly exchange arrangements and to promote a stable system of exchange rates.
  - Article IV, Section 1 distinguishes obligations of “soft nature” (Article IV, Sections 1 (i)–(ii)) where members are only required to exercise “best efforts,” and “hard nature” obligations (Article IV, Sections 1 (iii)–(iv)) where members are required to achieve results.
  - Members have procedural obligations to consult with the Fund, and to provide certain information deemed necessary by the Fund for carrying out its bilateral surveillance mandate.
- Multilateral Surveillance:
  - Article IV, Section 3(a) requires the Fund to oversee the international monetary system to ensure its effective operation (“multilateral surveillance”).
  - The Articles do not establish substantive policy obligations of members for multilateral surveillance; members are encouraged (but not obliged) to implement policies conducive to the effective operation of the international monetary system.
  - Members have a procedural obligation to consult with the Fund and to provide relevant data so the Fund can exercise its multilateral surveillance responsibilities.

### Principles and guidance for members’ policies
- Article IV Section 3(b) requires the Fund to adopt specific principles designed to give guidance to members in the conduct of their exchange rate policies in accordance with their obligations under Article IV, Section 1. The ISD provides guidance with respect to exchange rate policies (Principles A to D) and domestic policies (Principle E).

Summary of obligations vs. recommendations:
- Only Principle A sets forth an obligation of members as it repeats Article IV, Section 1(iii).
- Principles B through E constitute recommendations rather than obligations.
- A member that follows all Principles would be deemed to be in compliance with its obligations under Article IV, Section 1—observance of the Principles constitutes a “safe harbor”.
- The Fund must apply these Principles evenhandedly and pay due regard to the circumstances of members, giving the member the benefit of any reasonable doubt.
- When advising policy adjustments, the Fund is required to consider the disruptive impact that excessively rapid adjustment would have on the member’s economy.

List of Principles:
- A. A member shall avoid manipulating exchange rates or the international monetary system in order to prevent effective balance of payments adjustment or to gain an unfair competitive advantage over other members.
- B. A member should intervene in the exchange market if necessary to counter disorderly conditions, which may be characterized inter alia by disruptive short-term movements in the exchange rate of its currency.
- C. Members should take into account in their intervention policies the interests of other members, including those of the countries in whose currencies they intervene.
- D. A member should avoid exchange rate policies that result in balance of payments instability.
- E. A member should seek to avoid domestic economic and financial policies that give rise to domestic instability.

Indicators that require thorough review (ISD “filter”):
- (i) protracted large-scale intervention in one direction in the exchange market;
- (ii) official or quasi-official borrowing that either is unsustainable or brings unduly high liquidity risks, or excessive and prolonged official or quasi-official accumulation of foreign assets, for balance of payments purposes;
- (iii) (a) the introduction, substantial intensification, or prolonged maintenance, for balance of payments purposes, of restrictions on, or incentives for, current transactions or payments, or (b) the introduction or substantial modification for balance of payments purposes of restrictions on, or incentives for, the inflow or outflow of capital;
- (iv) the pursuit, for balance of payments purposes, of monetary and other financial policies that provide abnormal encouragement or discouragement to capital flows;
- (v) fundamental exchange rate misalignment;
- (vi) large and prolonged current account deficits or surpluses; and
- (vii) large external sector vulnerabilities, including liquidity risks, arising from private capital flows.

### Surveillance in Low-Income Countries (LICs), Fragile and Conflict-Affected States (FCS)
- LIC surveillance emphasis:
  - Because of high vulnerability to external shocks and high levels of debt, as well as relatively limited outward spillovers, surveillance in Low-Income Countries (LICs) is normally geared towards promoting BOP and domestic stability, rather than global stability.
  - The focus and range of issues in Article IV consultations reflect LICs’ specific circumstances: narrow export bases, low productivity growth, limited fiscal space and access to financing, heavy reliance on foreign aid, and absorption capacity constraints that limit the feasibility of scaling up investment spending.
- Areas of focus in LIC surveillance:
  - Job creation and growth, with particular focus on sectoral policies to alleviate structural bottlenecks that can lead to weak and even negative total factor productivity growth.
  - Debt sustainability, with in-depth discussion of policies and debt management for highly indebted LICs; debt sustainability constraints often limit budget financing through new borrowing.
  - Financial markets: macrofinancial surveillance can focus on deepening financial markets and strengthening supervisory and regulatory capacity (including for AML/CFT), and filling information gaps that impede proper macrofinancial analysis.
  - Poverty reduction, economic inclusion, human capital development, and governance issues.
  - Fiscal policies aimed at preserving or rebuilding buffers while supporting potential growth, ensuring resources for poverty-reducing spending and productive investment; improving spending quality and efficiency, budget execution and PFM; improving revenue collection (notably by broadening the tax base); and managing financing constraints (notably making sure that public financing needs do not crowd out private sector needs).
- Integration with capacity development:
  - Article IVs should discuss capacity constraints, and surveillance is expected to be well integrated with capacity development.
  - Fund policy advice should take account of institutional and administrative capacity constraints and discuss progress with capacity development; staff can leverage the expertise of the World Bank and other development agencies as necessary.
- Fragile and Conflict-affected States (FCS):
  - Article IV consultations are the main mode of engagement with FCS when they do not have a Fund-supported program.
  - Fragility and conflict can hamper macroeconomic management and deteriorate countries’ internal and external balances.
  - Surveillance in FCS is expected to be well aligned with the overall objective of the FCS strategy: to support FCS achieve macroeconomic stability, strengthen their resilience, promote sustainable and inclusive economic growth, and help them exit from fragility.
  - The IMF has a comprehensive Strategy to strengthen IMF support to FCS in accordance with the Fund’s mandate and comparative advantage.

*Source: Box 14 (concluded) and Annex extracts from Guidance Note for Surveillance under Article IV Consultations (selected pages).*

### 4.      Surveillance for FCS needs to be well tailored to their needs and integrated with

### 4.      Surveillance for FCS needs to be well tailored to their needs and integrated with

### Surveillance design and diagnostic approach for FCS
- Surveillance in FCS could build on a clear diagnosis of the roots and drivers of fragility, and policies to address macroeconomic implications and restore stability.
- The diagnostic could draw on the teams’ Country Engagement Strategies (CES), updated to reflect recent developments and dialogue with key stakeholders.
- For FCS, there is a premium on providing granular advice on how reforms can be implemented and integrating policy advice with capacity development.
- Policy advice should take into account capacity constraints and limited data availability.
- Surveillance can inform capacity development (CD) priorities and future program engagement.

### Article IV consultations and priorities in FCS
- Article IV consultations for FCS generally focus on:
  - macro-fiscal issues,
  - inclusive growth,
  - institution building,
  - financial integrity,
  - governance and corruption.
- Debt sustainability is usually a key issue in FCS.
- Financial sectors in FCS are often not developed, and financial sector issues are closely related to fiscal issues.
- In FCS, most impactful risks tend to be domestic rather than global risks.
- Advice on macroeconomic policy and reforms should:
  - include how to implement policies and reforms under weak institutions,
  - take into account the drivers of fragility and conflict,
  - address governance and institutional issues, including AML/CFT and anti-corruption frameworks.
- Note on Article IV frequency and coverage:
  - Most IMF members have annual Article IVs, but many FCS are on a 24-month cycle either because they have programs or they are non-systemic countries.
  - A number of FCS have not had Article IVs for several years due to political or security reasons.
  - Even in the absence of Article IVs, staff continues analytical work on such countries, where feasible, and regularly informs the Board through informal sessions.
- Where relevant, surveillance may require an in-depth analysis on corruption and governance issues, drawing on governance diagnostics where available.
- The key findings of the Fund’s strategy on social spending are relevant for most FCS.

### Leveraging external partners and communication
- Surveillance in FCS can leverage the work of external partners, including the World Bank and other development partners (including CSOs).
- Close engagement with partners can inform Fund surveillance while the Fund must remain a trusted advisor in line with its mandate.
- To enhance traction of Fund advice, staff can explore dissemination options:
  - blogs,
  - publication in local language,
  - communication through external partners such as CSOs.

### Small Developing States (SDS): characteristics and vulnerabilities
- Small developing states (SDS) have limited economies of scale, are vulnerable to external shocks, and tend to experience high macroeconomic volatility.
- Consequences of limited economies of scale:
  - hampers provision of public goods and services, including key public infrastructure.
- Common SDS features:
  - lack competitiveness,
  - narrow export bases,
  - heavy reliance on imports and trade tax revenues,
  - large emigration and brain drain,
  - exposure to natural disasters and climate change (extreme weather and slower-motion shocks such as rising sea levels).
- About a third of SDS are characterized as “fragile,” according to the Fund’s institutional definition.
- SDS often have limited policy tools to respond to shocks, partly due to pegged or heavily managed exchange rates.
- Financial sector vulnerabilities in SDS:
  - non-bank financial sector (NBFS) or under-regulated financial intermediaries (e.g., microfinance) can play a significant role,
  - banking system typically thin and vulnerable, with high NPLs, poor asset quality, heavy lending to the public sector, and weak supervisory and regulatory institutions including for AML/CFT,
  - some SDS present vulnerabilities related to financial centers with non-resident deposits and creation of opaque legal entities and arrangements by gatekeepers that are poorly regulated and supervised for AML/CFT purposes, which may pose cross-border spillover issues.

### Surveillance focus areas in SDS (Article IV emphasis)
- Growth and job creation:
  - Article IV discussions may focus on policies to generate robust growth that facilitates achievement of the SDGs.
  - Staff could discuss effects of macroeconomic policies, migration, and remittances on GDP growth and employment.
  - Other issues: sectoral policies (including health), private sector contribution, labor market issues (including gains from gender equity where relevant).
  - Drivers of growth could be identified and discussed, particularly if key sectors are foreign-owned and gross national income (GNI) and GDP provide different information.
- Resilience to shocks:
  - Staff should be ready to discuss risks from shocks such as supply-chain disruptions, terms of trade shocks, and climate change, as well as transmission channels and buffers.
  - Buffers include natural disaster preparedness and investments in resilience-building infrastructure, insurance mechanisms (self-insurance and fiscal and external buffers).
  - Preferably through formal disaster resilience strategies.
- Workable fiscal and debt sustainability options:
  - Advice may focus on debt sustainability through sustained fiscal consolidation in tandem with supporting policies and structural reforms (e.g., strengthening fiscal frameworks).
  - When fiscal adjustment needed to restore debt sustainability is not feasible or adequate, or when financing is not available, staff may discuss debt restructuring options.
- Thin financial sectors:
  - Discussions may focus on deepening and developing the financial sector and improving access to finance.
  - Cover roles of the public sector and the NBFS, AML/CFT to prevent pressure on correspondent banking relationships, regulation and AML/CFT-based supervision/monitoring of enablers to prevent misuse of entities and making beneficial ownership available, and digital developments where relevant.
  - Country teams may assess progress in developing capacity to properly regulate and supervise the financial sector.

### Tailoring surveillance to country circumstances
- Surveillance and policy advice should be tailored to country circumstances.
- Example: Pacific Island SDSs are less prone to public debt sustainability issues than Caribbean SDSs, but usually have lower growth and income and rely more heavily on aid.
- Staff is encouraged to provide granular policy advice to tackle challenges and integrate surveillance with capacity development.

### Annex III — Consultations with members of currency unions: framework and procedures
- The obligations under the Articles of Agreement of members of currency unions are unaffected by devolution of authority over a subset of economic and financial policies to the currency union.
- Surveillance in currency unions requires discussions with the regional institutions responsible for devolved policies to provide context for bilateral discussions with individual members.
- Staff assessment requirements:
  - Assess policies at the level of the currency union and at the level of the individual member and consider interactions.
  - At the union level, assess whether policies promote stability of the union and global stability.
  - At the member level, assess whether the member’s policies promote its BOP and domestic stability and contribute to union stability.
- Consultations for members of currency unions comprise:
  - Discussions with individual members (frequency of Article IV consultations determined by country circumstances, e.g., Fund-supported program, PCI, PSI).
  - Discussions with regional institutions (staff should hold discussions at least annually with regional institutions responsible for common policies in the currency unions).
  - Reports and summing ups at the union level: an annual staff report on discussions with regional institutions is prepared and followed by a Board discussion; these are an integral part of Article IV consultations for each member.
  - Informal reports at the union level: a second round of staff discussion with regional institutions and an informal report to the Board may be needed when consultations with individual members do not coincide with the annual Board discussion on currency unions.
- External sector assessments for members of currency unions should include:
  - For a member: assess whether the member’s policies promote BOP stability for the member and the union as a whole; analyze current account, capital and financial account, real exchange rate, and external balance sheet. Nominal exchange rate, intervention, and reserve adequacy assessed at the union level. If a member’s real exchange rate is over- or under-valued, staff should indicate whether the union exchange rate is over-or under-valued; if misalignment at member level mirrors one at union level, recommend policy adjustment at the union level, otherwise recommend adjustment by the member. Significant vulnerabilities of a member should be indicated in reports of both the individual member and the currency union.
  - For a currency union: assess the five key areas and adequacy of policy frameworks, and whether the union’s exchange rate and other policies (e.g., monetary, fiscal, and financial policies) contribute to the union’s stability; provide policy advice to address any external gaps.
- Reporting note: Staff reports for members of a currency union should not suggest that the nominal exchange rate is over- or undervalued, unless this is the case at the union level.

*Source: Guidance Note for Surveillance under Article IV Consultations (excerpts).*

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_Source: https://www.imf.org/-/media/files/publications/pp/2022/english/ppea2022029.pdf_