## _110512 ## Source details **Canonical URL:** [_110512](https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/np/pp/eng/2012/_110512.pdf) ## Other formats - [Markdown version](/-/media/websites/imf/imported-full-text-pdf/external/np/pp/eng/2012/_110512.pdf.md) - [Structured JSON version](/-/media/websites/imf/imported-full-text-pdf/external/np/pp/eng/2012/_110512.pdf.json) --- ### Context and purpose - Report assesses progress implementing recommendations of the 2011 Triennial Surveillance Review (TSR) and the Managing Director’s Statement on Strengthening Surveillance. - Purpose: establish early whether the new operational priorities are being implemented; set out key areas of progress; discuss implementation challenges; identify areas where further efforts are needed—particularly following the change to the legal framework. - Basis: feedback from internal IMF roundtables and a selective sample review of 15 Article IV staff reports for 2012 (the sample review). - Sample composition: latest 3 reports from each area department concluded by the Executive Board before August 2012 for Botswana, Brazil, Cameroon, China, Republic of Congo, Grenada, Japan, Kazakhstan, Russia, Saudi Arabia, Singapore, Spain, Tunisia, United Kingdom, and United States. - Note: review is not comprehensive; the comprehensive review will be the 2014 TSR. ### Key operational priorities (from the TSR) - Interconnectedness - Risk assessment - Financial stability - External stability - Traction ### Major initiatives taken - The Updated Legal Framework - Integrated Surveillance Decision (ISD) adopted in July 2012; comes into effect on January 18, 2013. - ISD allows more systematic coverage of spillovers in Article IV consultations and better integration of bilateral and multilateral surveillance without changing the scope of members’ obligations. - Guidance and Outreach - Bilateral Surveillance Guidance Note (BSGN) revamped and published in July 2012; updated to a Guidance Note for Surveillance Under Article IV Consultations in October 2012. - Revised internal website launched to provide links to guidance, key tools, and best practice examples. - Extensive outreach undertaken to communicate TSR priorities and gather feedback. ### Progress thus far — high-level assessment - Tangible improvement in focus on risks, coverage of interconnectedness, and external stability. - Financial stability coverage has increased to a lesser extent. - More time required to gauge progress on traction. - Analytical base on interconnectedness strengthened; systematic coverage of spillovers in Regional Economic Outlooks (REO) and in Chapter 2 of the WEO since the April 2012 WEO. ### Strengthened analytical outputs and themes - Spillover Reports - 2012 Spillover Report focused on spillovers from: the Euro area crisis, uncertain US fiscal policy, loose monetary policy in advanced countries, a possible slowdown in China or Japan, and complications from financial reforms. - Report provides specific policy recommendations for each scenario and notes coordinated policy action can be more effective at mitigating downside risks than individual action alone. - Multilateral surveillance papers and cluster/network analysis - Papers examined macroeconomic and financial interlinkages and applied lessons across countries. - Cluster analysis mapped key financial and trading links and examined channels for propagation of financial shocks; analyses are preliminary and focus on networks. - Regional Economic Outlooks (REOs) - Spring 2012 REOs examined spillovers from the world to regions and within regions. Examples: - Africa: Impact of global financial stress on African banks - Asia: Impact of bank deleveraging on Asian banks; Impact of equity markets spillovers; Impact of regional integration on Asian LICs and Pacific island nations - Western Hemisphere: US exposure to Europe; Latin American countries’ exposure to foreign banks; Regional spillovers from Brazil and Mexico - Capital Flows and Global Liquidity - Work underway on an approach to managing capital flows, including a paper on The Liberalization and Management of Capital Flows: An Institutional View discussed by the Executive Board later in November 2012. - Work on monitoring global liquidity underway in the context of vulnerability exercises and external sector analyses. ### Findings on Article IV coverage of spillovers and cross-country analysis - Spillovers in Article IV reports - Coverage of spillovers appears to have increased in the sample review, but results are uneven and few reports have in-depth discussion of policy implications. - Most of the 15 reports reviewed had at least some analysis of inward spillovers, including via risk assessment matrices. - Most reports for systemic or gatekeeper economies in the sample (Brazil, Russia, Saudi Arabia, United Kingdom, United States) included some analysis of outward spillovers. - In some reports inward spillovers were only referenced and could have been covered in more depth, including policy response advice. - Feedback indicated member countries, particularly LICs, would appreciate deeper analysis of inward spillovers. - Cross-country analysis - Cross-country analysis has gained less ground in analytical depth. - Research proceeded on cross-cutting issues (capital flows, financial interconnectedness), and initiatives were taken to improve information-sharing, but the sample review suggests cross-country analysis in Article IVs is often limited to peer-group indicator comparisons (e.g., fiscal deficits or credit growth). - Only a few reports made extensive use of cross-country findings and cross-country policy experiences to support analysis. ### Internal feedback and identified needs - Departments called for further research and stronger coordination to improve discussion of spillovers, including: - Better understanding of spillover channels - Identification of the range of countries affected - Quantification of the magnitude of likely effects - Dissemination of information on potential inward spillovers and global economic and financial risk scenarios would help deepen analysis. - Stronger coordination among country teams on sources and recipients of spillovers is needed. - Financial Surveillance Strategy emphasizes need for additional research on financial spillovers and real financial linkages. - Demand for more information on cross-country experiences of thematic policy issues going beyond regions. ### Selected supporting analytical outputs - April 2012 WEO special feature on cross-border spillovers from Euro area bank deleveraging. - April 2012 GFSR on how derivatives markets link US banks and European counterparties. - April 2012 Fiscal Monitor on the appropriate pace of fiscal adjustment around the world. - Enhancing Financial Sector Surveillance in Low-income Countries: Financial Deepening and Macro-Stability (April 2012). - Enhancing Surveillance: Interconnectedness and Clusters (March 2012) using network analysis to identify global core, clusters, and gatekeepers. - Multilateral Aspects of Policies Affecting Capital Flows (October 2011) and Liberalizing Capital Flows and Managing Outflows (March 2012). - Cross-Cutting Themes in Advanced Economies with Emerging Market Banking Links (November 2011). - The Challenge of Public Pension Reform in Advanced and Emerging Economies (December 2011). - Global Liquidity Management—Possible Indicators to Monitor Global Liquidity (November 2011). --- ### Coordination of Article IV consultations and cross-country clustering - Main challenge: logistical—mission timing must account for different budget cycles and preferences of authorities; coordination becomes more difficult when countries are covered by different departments. - To date, teams have not overcome these coordination difficulties. - Recommendation/observation: Greater clustering would help to promote and facilitate greater cross-country analysis by drawing together analysis on common themes across similarly-placed countries. - Figure referenced: "Figure 3. Types of Cross-Country Analysis in Article IV Reports (Number of reports out of 15 that include: Peer indicators, Global trends, Regional trends, Lessons from peers)." ### B. Risk Assessment — developments and findings - Objective of TSR: bring about in-depth assessment of risks and possible mitigating policy responses; recommendations included stepping up risk discussions in Article IV reports, encouraging use of a risk assessment matrix (RAM), and using vulnerabilities and early warning exercises. - Trend: Risk analysis appears to have strengthened both in staff reports and in multilateral surveillance. - RAMs in Article IV reports: - In the sample review, 12 out of 15 reports included RAMs. - All RAMs covered likelihood and impact; almost all included a brief description of transmission channels. - Potential policy responses were not always covered; in some cases responses were reported in RAMs, in others discussed in the main text (examples: staff reports for the US and Kazakhstan). - Box 2 summary (RAMs usage and characteristics): - RAMs included in over half of all staff reports concluded by the Executive Board during the first seven months of the year, and in around 70 percent of cases in April–July. - RAMs generally covered baseline risks but fewer reports included tail risks. - RAMs typically covered 4–5 risks and examined: (i) global risks (e.g. the Euro area crisis, oil price shocks), (ii) regional risks (e.g., stalled transitions in MENA countries), and (iii) country-specific shocks (e.g., sovereign defaults, political risks). - Tail risks were mentioned in less than half of the RAMs. - Staff feedback: - RAMs have helped to improve discussion of risks with country authorities in most cases. - Difficulties: transitional costs, lack of supporting quantitative analyses, publication sensitivities. - Departments see a danger that RAMs could become a mechanical exercise and discourage country-specific analysis. - Interdepartmental initiatives: - Early Warning Exercise and vulnerabilities exercises are being better leveraged in bilateral surveillance. - An interdepartmental working group has begun to assess key global/regional risks and their probabilities to promote more consistent treatment of global risks across reports. - Multilateral and regional surveillance: - Major risks flagged across products include intensification of the euro area crisis, large deficits and high debt levels in advanced markets, and credit booms and busts in emerging markets. - Inconsistencies noted across publications in the appearance of certain risks. - Risk scenarios could be presented more clearly and more systematically across publications. ### C. Financial Stability — progress, coverage, and gaps - TSR recommendations: develop strategic plan for financial surveillance; mobilize financial expertise for Article IV teams for systemically important financial sectors and vulnerable economies; step up training and disseminate vetted tools and good practices; prepare cross-country thematic studies; review data provision for surveillance. - Implementation to date: - Financial Surveillance Work Agenda published in April 2012; Financial Surveillance Strategy published in September 2012. - Strategy aims: (i) strengthen underpinnings of macro-financial risk assessments and policy advice; (ii) upgrade financial surveillance instruments and products to foster integrated response to risks; (iii) engage more actively with stakeholders to promote early diagnosis of systemic risk. - Financial expertise added to Article IV teams for systemic financial sectors; more frequent FSAPs considered for vulnerable economies. - Cross-cutting lessons from FSAPs reviewed; review of data provision proposes measures to better report financial sector data shortcomings in Article IV reports. - Work on financial stability and development in LICs, including a policy paper on Enhancing Financial Sector Surveillance in Low-Income Countries. - Coverage findings from sample (15 reports): - All reports describe the structure of the financial system, including the banking sector. - Increased reporting on markets and nonbank financial institutions (NBFIs). - Regulation and supervision issues covered in nearly all reports. - Key vulnerabilities identified, but discussion of macroprudential policy options contained in only 4 of 15 reports. - Six reports did not discuss the financial soundness indicators tables (FSIs) in the staff report. - Follow up on FSAP recommendations: - More consistent follow-up in the sample review compared to the 2011 TSR—possibly due to high proportion of recent FSAPs in the sample. - In eight cases where FSAPs were conducted in the past three years, FSAP recommendations were covered in the reports and drawn upon in the discussion. - Follow-up accompanied by concrete policy recommendations—particularly relating to regulation and supervision. - Analysis of macro-financial linkages: - Depth of analysis varied considerably across reports. - 8 out of 15 Article IV reports contained substantive discussion at least on macro-financial link; two other reports contained a short explanation of the linkages. - Few reports appeared to use analysis available in multilateral surveillance products (exception: the Spillover Report). - Departments’ feedback and needs: - Need to deepen understanding of macro-financial linkages and policy transmission channels. - More work needed on the effectiveness of macroprudential policies and coordination with monetary policy. - Availability of expertise for financial surveillance seen as stretched, inhibiting in-depth analysis, particularly of cross-border spillovers. - Financial deepening and growth considered important for future Article IV consultations. ### D. External Sector — innovations, coverage, and integration - TSR recommendations: broaden assessment of external stability; ensure better integration of analysis and policy advice in staff reports; publish multilaterally-consistent assessment of external balance with each WEO cycle; take broad view of external stability including balance sheets, exchange rates, capital flows, and reserve policies; discuss overall policy mix rather than external sector separately. - New initiatives: - Pilot External Sector Report (ESR) developed; draws upon the Pilot External Balances Assessment (EBA). - Pilot ESR aims to broaden coverage, provide multilaterally consistent analysis for 28 large economies and the Euro Area, and analyze policy gaps and potential responses. - Pilot EBA methodology deepened quantitative analysis for a wider group of 50 economies. - Staff engaged in outreach on the new report and pilot methodology. - Pilot ESR carried over innovations into Article IV reports for the ESR countries. - Explicit date noted: "Pilot External Sector Report (ESR). This Report, issued July 2, 2012..." - Coverage gaps: - Less progress extending innovations to economies not in the EBA. - Non-EBA economies still use CGER-like methods; rely more on basic indicators and less on coverage of external vulnerabilities. - Sample finding: 75 percent of reports for EBA countries discussed external vulnerabilities but only 21 percent of reports for other countries. - Data constraints remain a challenge, particularly for LICs. - Integration shortfall: - More could be done to consistently integrate discussion of external sector with other policies (fiscal, monetary, structural); in many reports, external sector is treated separately. ### E. Traction — engagement and early indicators - TSR view: high quality analysis and candid, evenhanded advice tailored to country circumstances can improve traction and communication with stakeholders. - Managing Director’s Statement recommendations: maintain practice of discussing the Global Policy Agenda at the IMFC; better coverage of unemployment, inequality, and inclusive growth in Article IV reports when macro-critical; exchange views with country authorities on key issues prior to Article IV missions; report on implementation of past advice in Article IV reports. - Early implementation and examples: - 2012 Spring Meetings: IMFC discussed the April 2012 CMSR. - 2012 Annual Meetings: IMFC discussed the October 2012 Global Policy Agenda. - These reports helped communicate the Fund’s key surveillance messages to ministers and senior policymakers. - Macro-social issues: - Guidance suggests discussing macro-social issues (e.g., employment and income distribution) that are critical to macroeconomic stability and drawing on expertise of other institutions (e.g. ILO, OECD, World Bank). - Sample review found that over half provided some in depth analysis of labor and employment issues as these were macro-critical. --- ### Follow-up of past Fund advice — findings - Only half of the reports reviewed included follow-up to past Fund advice. - Of those reports that included follow-up, none indicated whether the authorities considered the advice inappropriate or not valued. - When advice was not implemented, legal, technical, or capacity issues were highlighted as reasons. - Follow-up was weaker for advanced countries, with only one report commenting on the effectiveness of past surveillance. ### Public debate and media traction — key statistics - 2012 Annual meetings recorded 11,597 participants. - 2012 Annual meetings recorded 1,667 press attendance. - Views on iMFDirect blog registered by 35 percent in 2012. - Radio interviews on the US Article IV consultations reached 16.5 million listeners in 2012, compared to 15 million in 2011. - The Fund’s communications on Europe generated large coverage, especially regarding Spain and Greece. ### Staff feedback and perceived needs - Fund staff suggested more needs to be done to improve traction and to monitor progress. - Roundtable discussions suggested Fund advice is taken into account particularly in countries where vulnerabilities are emerging. - Staff believed more cross-country policy notes on lessons from other countries could help strengthen traction. ### Implementation challenges — teething problems delaying TSR priorities - Understanding of interconnections and cross-border linkages is in its infancy; analytical base built but not fully channeled into Article IV consultations. - Data gaps remain an impediment to macro-financial and spillover analysis. - No structured approach to cross-country analysis; much relies on informal networks and individual experience. - Lack of quantified risk scenarios; coherent quantified risk scenarios generally not available for integration in Article IV reports. - Adequate macro-financial analytical frameworks yet to be fully developed; single-model approaches unlikely to capture complex linkages and feedback. - Limited depth of financial surveillance; availability of expertise and support from functional departments viewed as too stretched. - Questions on new methodologies for external assessments and limited use for countries not covered by the EBA. - Resource constraints; balancing implementation of the 2011 TSR and attention to country-specific issues, including LICs, is challenging within current resource envelope. ### Remaining measures and next steps — priorities and recommendations Interconnectedness - Understand transmission channels: develop analysis beyond mapping to inform policy debates. - Leverage spillover analysis in Article IV consultations: ensure significant outward spillovers are adequately covered, informed by staff judgment and inputs from functional departments and multilateral products. - Cluster country consultations: pilot clustering Article IV consultations based on common selected issues papers to assess costs and benefits. - Greater use of cross-country policy lessons: adopt a more structured approach to deepen cross-country analysis and set new standards for knowledge management. Risk Assessments - Continue to deepen risk analyses in Article IV consultations, including tail risks. - Quantify global risks: translate global risks into quantitative scenarios to help teams gauge implications for individual economies and facilitate greater coherence across products. Financial Stability - Fully implement the Financial Surveillance Strategy to deepen macro-financial linkages analysis, better integrate financial surveillance in Article IVs, encourage systematic risk analysis, and support more effective communication. - Enhance analysis of global financial hubs by engaging authorities in key financial centers to deepen understanding of global financial intermediation, shock propagation, and policy implications. - Continue to address data gaps, including via the G-20 Data Gaps Initiative and SDDS; follow-up on quality of financial sector data for surveillance. External Sector Assessments - Fully embed Pilot ESR and EBA results in Article IV consultations; use public consultation on the pilot to refine future reports and the EBA methodology; deepen analysis to focus on contribution of policy gaps to imbalances. - Improve external assessments for economies not covered in the Pilot ESR and EBA by extending technical innovations to a wider set of economies and accounting for country-specific characteristics; strengthen data availability for LICs. Traction - Enhance communication to policymakers on key messages and risks; the Consolidated Multilateral Surveillance Report was expanded to form the Global Policy Agenda in fall 2012 and could strengthen its focus on risks and appropriate policy actions. - Focus on follow up in the review process: ensure the review process adequately follows up on issues raised during previous Article IV consultations. ### Issues for discussion (as posed in the source) - Do Directors agree with the staff’s assessment of the progress made on the TSR operational priorities? - Do Directors view the next steps as appropriate; do they see other areas of the priorities as requiring special emphasis? - Do Directors have any additional insights on how the Fund could improve its traction with member countries? *Source: Excerpts from the IMF progress report on one year after the 2011 Triennial Surveillance Review (sample review and initiatives through Spring–Autumn 2012).* ### 1. Spillovers included in Regional Economic Outlooks _____________________________________________ 8 ### 1. Spillovers included in Regional Economic Outlooks ### Context and purpose - The Report assesses progress implementing the recommendations of the 2011 Triennial Surveillance Review (TSR) and the Managing Director’s Statement on Strengthening Surveillance, and makes recommendations to address remaining gaps. - Purpose: establish early whether the new operational priorities are being implemented, set out key areas of progress, discuss implementation challenges, and identify areas where further efforts are needed—particularly following the change to the legal framework. - Basis: feedback from internal IMF roundtables and a selective sample review of 15 Article IV staff reports for 2012 (referred to as the sample review). - The sample review included the latest 3 reports from each area department concluded by the Executive Board before August 2012 for: Botswana, Brazil, Cameroon, China, Republic of Congo, Grenada, Japan, Kazakhstan, Russia, Saudi Arabia, Singapore, Spain, Tunisia, United Kingdom, and United States. - The review is not comprehensive; the comprehensive review will be the 2014 TSR. ### Key operational priorities (from the TSR) - Interconnectedness - Risk assessment - Financial stability - External stability - Traction ### Major initiatives taken - The Updated Legal Framework - A key change—the Integrated Surveillance Decision (ISD)—was adopted in July 2012 and will come into effect on January 18, 2013. - The ISD allows more systematic coverage of spillovers from members’ economic and financial policies in Article IV consultations and better integration of bilateral and multilateral surveillance. - The ISD does not change the scope of member countries’ obligations; it allows the Fund to advise members on how their policies affect global economic and financial stability as well as domestic and balance of payments stability. - Guidance and Outreach - The Bilateral Surveillance Guidance Note (BSGN) was revamped and published in July 2012, and updated to a Guidance Note for Surveillance Under Article IV Consultations in October 2012 to reflect changes to the legal framework. - A revised internal website was launched to provide links to guidance, key tools, and best practice examples. - Extensive outreach was undertaken to communicate TSR priorities and gather feedback for implementation. ### Progress thus far — high-level assessment - Tangible improvement in focus on risks, coverage of interconnectedness, and external stability; financial stability coverage has increased to a lesser extent. - More time is required to gauge progress on traction. - The analytical base on interconnectedness has been strengthened, with systematic coverage of spillovers in Regional Economic Outlooks (REO) and in Chapter 2 of the WEO since the April 2012 WEO. ### Strengthened analytical outputs and themes (examples) - Spillover Reports - The 2012 Spillover Report focused on spillovers from: the Euro area crisis, uncertain US fiscal policy, loose monetary policy in advanced countries, a possible slowdown in China or Japan, and complications from financial reforms. - The report provides specific policy recommendations for each scenario and notes that coordinated policy action can be more effective at mitigating downside risks than individual action alone. - Multilateral surveillance papers and cluster/network analysis - Papers examined macroeconomic and financial interlinkages and applied lessons across countries. - Cluster analysis mapped key financial and trading links and examined channels for propagation of financial shocks; these analyses are preliminary and focus on networks. - Regional Economic Outlooks (REOs) - REOs examined spillovers from the world to regions and within regions. Spring 2012 REOs included the following spillovers (Table 1): - Africa: Impact of global financial stress on African banks - Asia: Impact of bank deleveraging on Asian banks; Impact of equity markets spillovers; Impact of regional integration on Asian LICs and Pacific island nations - Western Hemisphere: US exposure to Europe; Latin American countries’ exposure to foreign banks; Regional spillovers from Brazil and Mexico - Capital Flows and Global Liquidity - Work underway on an approach to managing capital flows, including a paper on The Liberalization and Management of Capital Flows: An Institutional View discussed by the Executive Board later in November 2012. - Work on monitoring global liquidity is underway in the context of vulnerability exercises and external sector analyses. ### Findings on Article IV coverage of spillovers and cross-country analysis - Spillovers in Article IV reports - Coverage of spillovers appears to have increased in the sample review, but results are uneven and few reports have in-depth discussion of policy implications. - Most of the 15 reports reviewed had at least some analysis of inward spillovers, including via risk assessment matrices. - Most reports for systemic or gatekeeper economies in the sample (Brazil, Russia, Saudi Arabia, United Kingdom, United States) included some analysis of outward spillovers. - In some reports inward spillovers were only referenced and could have been covered in more depth, including policy response advice. - Feedback indicated member countries, particularly LICs, would appreciate deeper analysis of inward spillovers. - Cross-country analysis - Cross-country analysis has gained less ground in analytical depth. - Research proceeded on cross-cutting issues (capital flows, financial interconnectedness), and initiatives were taken to improve information-sharing (Appendix II), but the sample review suggests cross-country analysis in Article IVs is often limited to peer-group indicator comparisons (e.g., fiscal deficits or credit growth). - Only a few reports made extensive use of cross-country findings and cross-country policy experiences to support analysis. ### Internal feedback and identified needs - Departments called for further research and stronger coordination to improve discussion of spillovers, including: - Better understanding of spillover channels - Identification of the range of countries affected - Quantification of the magnitude of likely effects - Dissemination of information on potential inward spillovers and global economic and financial risk scenarios would help deepen analysis. - Stronger coordination among country teams on sources and recipients of spillovers is needed. - The Financial Surveillance Strategy emphasizes the need for additional research on financial spillovers and real financial linkages. - Departments saw scope to strengthen the analytical base and share cross-country experiences beyond regional boundaries; there is demand for more information on cross-country experiences of thematic policy issues going beyond regions. ### Boxes and supporting analytical outputs (selected) - Box 1: Strengthening Analytical Capacity on Spillovers and Cross-Cutting Issues - April 2012 WEO special feature on cross-border spillovers from Euro area bank deleveraging. - April 2012 GFSR on how derivatives markets link US banks and European counterparties, noting direct and indirect effects and feedback loops. - April 2012 Fiscal Monitor on the appropriate pace of fiscal adjustment around the world. - Enhancing Financial Sector Surveillance in Low-income Countries: Financial Deepening and Macro-Stability (April 2012). - Enhancing Surveillance: Interconnectedness and Clusters (March 2012) using network analysis to identify global core, clusters, and gatekeepers and examine channels (trade, bank wholesale funding). - Multilateral Aspects of Policies Affecting Capital Flows (October 2011) and Liberalizing Capital Flows and Managing Outflows (March 2012). - Cross-Cutting Themes in Advanced Economies with Emerging Market Banking Links (November 2011). - The Challenge of Public Pension Reform in Advanced and Emerging Economies (December 2011). - Global Liquidity Management—Possible Indicators to Monitor Global Liquidity (November 2011), including indicators distinguishing core and noncore liabilities and new measures of the price of core and noncore liquidity. *Source: Excerpts from the IMF progress report on one year after the 2011 Triennial Surveillance Review (sample review and initiatives through Spring–Autumn 2012).* ### 11. Finally, the goal of discussing Article IV consultations together for interconnected ### _110512 - 11. Finally, the goal of discussing Article IV consultations together for interconnected ### Coordination of Article IV consultations and cross-country clustering - Main challenge: logistical—mission timing must account for different budget cycles and preferences of authorities; coordination becomes more difficult when countries are covered by different departments. - To date, teams have not overcome these coordination difficulties. - Recommendation/observation: Greater clustering would help to promote and facilitate greater cross-country analysis by drawing together analysis on common themes across similarly-placed countries. - Figure referenced: "Figure 3. Types of Cross-Country Analysis in Article IV Reports (Number of reports out of 15 that include: Peer indicators, Global trends, Regional trends, Lessons from peers)." ### B. Risk Assessment — developments and findings - Objective of TSR: bring about in-depth assessment of risks and possible mitigating policy responses; recommendations included stepping up risk discussions in Article IV reports, encouraging use of a risk assessment matrix (RAM), paying greater attention to risks in multilateral surveillance products, and using vulnerabilities and early warning exercises in policy discussions with authorities. - Trend: Risk analysis appears to have strengthened both in staff reports and in multilateral surveillance—"This is expected in the current crisis environment." - RAMs in Article IV reports: - In the sample review, 12 out of 15 reports included RAMs. - All RAMs covered likelihood and impact; almost all included a brief description of transmission channels (see "Figure 5"). - Potential policy responses were not always covered; in some cases responses were reported in RAMs, in others discussed in the main text (examples: staff reports for the US and Kazakhstan). - Box 2 summary (RAMs usage and characteristics): - RAMs included in over half of all staff reports concluded by the Executive Board during the first seven months of the year, and in around 70 percent of cases in April–July. - RAMs generally covered baseline risks but fewer reports included tail risks. - RAMs typically covered 4–5 risks and examined: (i) global risks (e.g. the Euro area crisis, oil price shocks), (ii) regional risks (e.g., stalled transitions in MENA countries), and (iii) country-specific shocks (e.g., sovereign defaults, political risks). - Tail risks were mentioned in less than half of the RAMs. - Staff feedback: - In most cases, RAMs have helped to improve discussion of risks with country authorities. - Difficulties: transitional costs, lack of supporting quantitative analyses, publication sensitivities. - Departments see a danger that RAMs could become a mechanical exercise and discourage country-specific analysis. - Interdepartmental initiatives: - Early Warning Exercise and vulnerabilities exercises are being better leveraged in bilateral surveillance. - An interdepartmental working group has begun to assess key global/regional risks and their probabilities to promote more consistent treatment of global risks across reports (see "Table 2"). - Multilateral and regional surveillance: - Risk analysis has become more prominent; major risks flagged across products include intensification of the euro area crisis, large deficits and high debt levels in advanced markets, and credit booms and busts in emerging markets (see "Table 3"). - Inconsistencies noted: some risks appeared in one publication but not in another (example: risk that market participants shift their concerns to the US or Japan appeared in the WEO but not in the GFSR or CMSR). - Risk scenarios could be presented more clearly and more systematically across publications. ### C. Financial Stability — progress, coverage, and gaps - TSR recommendations: develop strategic plan for financial surveillance; mobilize financial expertise for Article IV teams for systemically important financial sectors and vulnerable economies; step up training and disseminate vetted tools and good practices; prepare cross-country thematic studies; review data provision for surveillance. - Implementation to date: - Financial Surveillance Work Agenda published in April 2012; Financial Surveillance Strategy published in September 2012. - Strategy aims: (i) strengthen underpinnings of macro-financial risk assessments and policy advice; (ii) upgrade financial surveillance instruments and products to foster integrated response to risks; (iii) engage more actively with stakeholders to promote early diagnosis of systemic risk. - Financial expertise added to Article IV teams for systemic financial sectors; more frequent FSAPs considered for vulnerable economies. - Cross-cutting lessons from FSAPs reviewed; review of data provision proposes measures to better report financial sector data shortcomings in Article IV reports. - Work on financial stability and development in LICs, including a policy paper on Enhancing Financial Sector Surveillance in Low-Income Countries. - Coverage findings from sample (15 reports): - All reports describe the structure of the financial system, including the banking sector. - Increased reporting on markets and nonbank financial institutions (NBFIs). - Regulation and supervision issues covered in nearly all reports (same as in 2011). - Key vulnerabilities identified, but discussion of macroprudential policy options contained in only 4 of 15 reports. - Six reports did not discuss the financial soundness indicators tables (FSIs) in the staff report. - Follow up on FSAP recommendations: - More consistent follow-up in the sample review compared to the 2011 TSR—possibly due to high proportion of recent FSAPs in the sample. - In eight cases where FSAPs were conducted in the past three years, FSAP recommendations were covered in the reports and drawn upon in the discussion. - Follow-up accompanied by concrete policy recommendations—particularly relating to regulation and supervision. - Analysis of macro-financial linkages: - Depth of analysis varied considerably across reports. - In 8 out of 15 Article IV reports contained substantive discussion at least on macro-financial link; two other reports contained a short explanation of the linkages. - Few reports appeared to use analysis available in multilateral surveillance products (exception: the Spillover Report). - Departments’ feedback and needs: - Need to deepen understanding of macro-financial linkages and policy transmission channels. - More work needed on the effectiveness of macroprudential policies and coordination with monetary policy. - Availability of expertise for financial surveillance seen as stretched, inhibiting in-depth analysis, particularly of cross-border spillovers. - Financial deepening and growth considered important for future Article IV consultations. - Figure referenced: "Figure 6. Financial Surveillance: Coverage and Issues Raised (Number out of 15 reports)" listing items including Macroprudential policy, Cross-Border, FSAP follow up, Regulation/Supervision, Vulnerabilities, FSIs, NBFIs, Markets, Banks. ### D. External Sector — innovations, coverage, and integration - TSR recommendations: broaden assessment of external stability; ensure better integration of analysis and policy advice in staff reports; publish multilaterally-consistent assessment of external balance with each WEO cycle; take broad view of external stability including balance sheets, exchange rates, capital flows, and reserve policies; discuss overall policy mix rather than external sector separately. - New initiatives: - Pilot External Sector Report (ESR) developed; draws upon the Pilot External Balances Assessment (EBA) (see Box 3). - Pilot ESR aims to broaden coverage, provide multilaterally consistent analysis for 28 large economies and the Euro Area, and analyze policy gaps and potential responses. - Pilot EBA methodology deepened quantitative analysis for a wider group of 50 economies. - Staff engaged in outreach on the new report and pilot methodology to enhance methods and future reports. - Pilot ESR carried over innovations into Article IV reports for the ESR countries. - Explicit date: "Pilot External Sector Report (ESR). This Report, issued July 2, 2012..." - Coverage gaps: - Less progress extending innovations to economies not in the EBA. - Non-EBA economies still use CGER-like methods; rely more on basic indicators (e.g., PPP exchange rates, export shares) and less on coverage of external vulnerabilities (capital flows, changes in reserves, external assets/liabilities). - Sample finding: 75 percent of reports for EBA countries discussed external vulnerabilities but only 21 percent of reports for other countries. - Data constraints remain a challenge for assessments in some countries, particularly LICs. - Integration shortfall: - More could be done to consistently integrate discussion of external sector with other policies (fiscal, monetary, structural); in many reports, external sector is treated separately. - Figures referenced: "Figure 7. Article IV Review: Improvements in External Sector Assessments since the 2011 TSR (Percent of reports that have adequate: Overall Assessments; Quantitative Indicators)" and "Figure 8. Article IV Review: Quality of External Assessments (Percent of countries including adequate: Overall Assessments; Quantitative Indicators)." - Box 3 highlights: - Pilot ESR covers 28 large economies and the Euro Area. - Pilot EBA used as input in Pilot ESR; EBA strips out cyclical factors and identifies impact of policy distortions in fiscal policy, social protection, capital controls, and reserve accumulation; covers 50 economies in the Pilot EBA sample. ### E. Traction — engagement and early indicators - TSR view: high quality analysis and candid, evenhanded advice tailored to country circumstances can improve traction and communication with stakeholders. - Managing Director’s Statement recommendations: maintain practice of discussing the Global Policy Agenda at the IMFC; better coverage of unemployment, inequality, and inclusive growth in Article IV reports when macro-critical; exchange views with country authorities on key issues prior to Article IV missions; report on implementation of past advice in Article IV reports. - Early implementation and examples: - During the 2012 Spring Meetings, the IMFC discussed the April 2012 CMSR. - During the 2012 Annual Meetings the IMFC discussed the October 2012 Global Policy Agenda (an expanded report addressing the work agenda). - These reports helped communicate the Fund’s key surveillance messages to ministers and senior policymakers. - Macro-social issues: - Guidance suggests discussing macro-social issues (e.g., employment and income distribution) that are critical to macroeconomic stability and drawing on expertise of other institutions (e.g. ILO, OECD, World Bank). - Sample review found that over half provided some in depth analysis of labor and employment issues as these were macro-critical. *Italic: Source: Excerpt from "ONE YEAR AFTER THE 2011 TRIENNIAL SURVEILLANCE REVIEW", INTERNATIONAL MONETARY FUND (from the provided PDF content).* ### 29. Follow-up of past policy advice in Article IV reports seems to have remained uneven. ### 29. Follow-up of past policy advice in Article IV reports seems to have remained uneven. ### Follow-up of past Fund advice — findings - Only half of the reports reviewed included follow-up to past Fund advice. - Of those reports that included follow-up, none indicated whether the authorities considered the advice inappropriate or not valued. - When advice was not implemented, legal, technical, or capacity issues were highlighted as reasons. - Follow-up was weaker for advanced countries, with only one report commenting on the effectiveness of past surveillance. - Coverage/traction charts referenced in the source note indicate differential coverage by topic and by EBA/Non-EBA country groupings (figures and axes shown in the source). ### Public debate and media traction — key statistics - 2012 Annual meetings recorded 11,597 participants. - 2012 Annual meetings recorded 1,667 press attendance. - Views on iMFDirect blog registered by 35 percent in 2012. - Radio interviews on the US Article IV consultations reached 16.5 million listeners in 2012, compared to 15 million in 2011. - The Fund’s communications on Europe generated large coverage, especially regarding Spain and Greece. ### Staff feedback and perceived needs - Fund staff suggested more needs to be done to improve traction and to monitor progress. - Roundtable discussions suggested Fund advice is taken into account particularly in countries where vulnerabilities are emerging. - Staff believed more cross-country policy notes on lessons from other countries could help strengthen traction. ### Implementation challenges — teething problems delaying TSR priorities - Understanding of interconnections and cross-border linkages is in its infancy; analytical base built but not fully channeled into Article IV consultations; further research and in-depth quantitative analysis on transmission channels for spillovers needed. - Data gaps remain an impediment to macro-financial and spillover analysis. - No structured approach to cross-country analysis; much relies on informal networks and individual experience despite initiatives to improve knowledge management. - Lack of quantified risk scenarios; coherent quantified risk scenarios generally not available for integration in Article IV reports. - Adequate macro-financial analytical frameworks yet to be fully developed; single-model approaches unlikely to capture complex linkages and feedback; need to develop analytical frameworks and different approaches to identify systemic risks; dissemination of tools remains a challenge. - Limited depth of financial surveillance; availability of expertise and support from functional departments viewed as too stretched; scope to draw on GFSR/WEO and Spillover Reports exists. - Questions on new methodologies for external assessments and limited use for countries not covered by the EBA; extending EBA requires additional data and quantitative techniques better suited for country-specific factors. - Resource constraints; balancing implementation of the 2011 TSR and attention to country-specific issues, including LICs, is challenging within current resource envelope; implementation of the ISD and financial surveillance strategy will put further strains on resources. ### Remaining measures and next steps — priorities and recommendations Interconnectedness - Understand transmission channels: develop analysis beyond mapping to inform policy debates. - Leverage spillover analysis in Article IV consultations: ensure significant outward spillovers are adequately covered, informed by staff judgment and inputs from functional departments and multilateral products. - Cluster country consultations: pilot clustering Article IV consultations based on common selected issues papers to assess costs and benefits. - Greater use of cross-country policy lessons: adopt a more structured approach to deepen cross-country analysis and set new standards for knowledge management. Risk Assessments - Continue to deepen risk analyses in Article IV consultations, including tail risks; RAMs have improved focus on risks though tradeoffs of publication are still being evaluated. - Quantify global risks: translate global risks into quantitative scenarios to help teams gauge implications for individual economies and facilitate greater coherence across products. Financial Stability - Fully implement the Financial Surveillance Strategy to deepen macro-financial linkages analysis, better integrate financial surveillance in Article IVs, bridge gaps, encourage systematic risk analysis, and support more effective communication. - Enhance analysis of global financial hubs by engaging authorities in key financial centers to deepen understanding of global financial intermediation, shock propagation, and policy implications. - Continue to address data gaps, including via the G-20 Data Gaps Initiative and SDDS; follow-up on quality of financial sector data for surveillance. External Sector Assessments - Fully embed Pilot ESR and EBA results in Article IV consultations; use public consultation on the pilot to refine future reports and the EBA methodology; deepen analysis to focus on contribution of policy gaps to imbalances. - Improve external assessments for economies not covered in the Pilot ESR and EBA by extending technical innovations to a wider set of economies and accounting for country-specific characteristics; strengthen data availability for LICs. Traction - Enhance communication to policymakers on key messages and risks; the Consolidated Multilateral Surveillance Report was expanded to form the Global Policy Agenda in fall 2012 and could strengthen its focus on risks and appropriate policy actions. - Focus on follow up in the review process: ensure the review process adequately follows up on issues raised during previous Article IV consultations. ### Issues for discussion (as posed in the source) - Do Directors agree with the staff’s assessment of the progress made on the TSR operational priorities? - Do Directors view the next steps as appropriate; do they see other areas of the priorities as requiring special emphasis? - Do Directors have any additional insights on how the Fund could improve its traction with member countries? *Source: "29. Follow-up of past policy advice in Article IV reports seems to have remained uneven." (ONE YEAR AFTER THE 2011 TRIENNIAL SURVEILLANCE REVIEW), INTERNATIONAL MONETARY FUND* --- _Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/np/pp/eng/2012/_110512.pdf_