## _073014 - EXECUTIVE SUMMARY ## Source details **Canonical URL:** [_073014 - EXECUTIVE SUMMARY](https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/np/pp/eng/2014/_073014.pdf) ## Other formats - [Markdown version](/-/media/websites/imf/imported-full-text-pdf/external/np/pp/eng/2014/_073014.pdf.md) - [Structured JSON version](/-/media/websites/imf/imported-full-text-pdf/external/np/pp/eng/2014/_073014.pdf.json) --- ### Context and overarching findings - The 2014 Triennial Surveillance Review (TSR) occurs "at a pivotal time." The crisis may have abated, but countries continue to face "large debts, high unemployment and lackluster recoveries." - Common policy objectives and constraints: - Common goal: securing "resilient and job-rich growth." - Common constraint: "limited policy space," prompting greater reliance on "non-traditional macroeconomic and financial policies, or difficult structural reforms." - "Global interconnections continue to shape domestic policy choices" through spillovers and opportunities from globalization. - The crisis "raised the bar for Fund surveillance." The Fund has overhauled its surveillance toolkit and updated its legal framework, prompting the question of next steps for surveillance. ### Three core priorities for surveillance reform (high level) - Embed recent innovations into surveillance practice while refining them from early lessons. - Deliver "smarter" surveillance: analysis and expert advice tailored to country circumstances and enriched through continuous dialogue with members. - Focus of the review: integrate and deepen risk and spillover analysis; provide more tailored and expert policy advice; achieve greater impact. ### Integrating and deepening risk and spillovers analysis - Risks and spillovers: "first-order issues for the world economy" and central to Fund surveillance. - Progress to date: - Surveillance has become "more risk-based" and better captures global interconnections. - New processes and products introduced (e.g., Integrated Surveillance Decision (ISD), Spillover Report, Pilot External Sector Report). - Internal mechanisms: internal risk group and Global Risk Assessment Matrix (G-RAM) to inform bilateral surveillance; internal vulnerability exercises for bottom-up evidence; External Balance Assessment (EBA) methodology. - Remaining scope and priorities: - "Significant scope to exploit more effectively the synergies between bilateral and multilateral surveillance." - Need to build "a deeper understanding of how risks map across countries, and how spillovers can quickly spread across sectors to expose domestic vulnerabilities." - Recommended steps (preserved language): - Reviving and adapting balance sheet analysis. - "Fully embedding macro-financial analysis in Article IV surveillance." - Specific recommendations: - Continue integration of bilateral and multilateral surveillance. Bridge remaining gaps through REOs and cluster reports. Strengthen ISD implementation, with more systematic analysis of outward spillovers and spillbacks in systemic countries; greater quantification of the impact of spillovers on recipient countries, drawing on global risk scenarios; and discussion of policy implications. - Strengthen external sector assessment. Gradually replace CGER with EBA for a broader set of countries, subject to data availability. Undertake a comprehensive assessment of the external position using a broader set of indicators than just the exchange rate. In countries where the EBA methodology is applied, discuss the contribution of domestic policies to external imbalances, and use these results in relevant policy discussions. ### Embedding External Sector Analysis - EBA and Pilot ESR provide a more robust framework including a wider range of indicators; EBA methodology has been tested and refined. - Shortcomings in practice: - Article IV reports often express assessments narrowly (i.e., in terms of the exchange rate) rather than in terms of the broader external position and often fail to justify the bottom line assessment or relate it to different quantitative results and other indicators. - For countries with external imbalances, assessments are often not used to inform policy discussions. - Country pages in the Pilot ESR provide a model of integrated analysis of all relevant external sector indicators. ### Deepening analysis and data gaps - Country authorities want deeper analysis of transmission channels of shocks, greater quantification of risk assessments, and in-depth discussion of the impact of systemic countries’ policies on the rest of the world. - Surveillance products show uneven coverage of intersectoral (particularly macro-financial) linkages and limited usage of quantitative analysis. - Revive and modernize balance sheet analyses; develop a GFF; and extend external debt sustainability analyses to cover external flows. - Address data gaps. Implement the G-20 Data Gap Initiative. - Specific data-related finding: more than five years after the collapse of Lehman Brothers, the Fund still lacks even aggregated information on global systemically important banks (GSIBs), and access to aggregated cross-border banking data is restricted. ### The Balance Sheet Approach 2.0 - Rationale: - The Balance Sheet Approach is critical for identifying sources of vulnerability and the transmission of shocks; it was initially applied to emerging markets but has since fallen into abeyance. - Reviving and adapting the balance sheet approach will better capture risks from gross flows and domestic vulnerabilities (leverage, currency or liquidity mismatches). - Tools and elements (verbatim emphasis preserved): - Matrices showing assets and liabilities, their maturity, and currency composition, for each sector are a powerful tool to support this analysis. - Two tools to build on national balance sheet analysis: - Developing a global flow of funds (GFF) to provide a more granular picture of potential spillover channels, linking a country’s liabilities to asset holders in other countries; work is at an early stage to develop a GFF that would supplement existing matrices with external linkages—in terms of geography and type of asset or liability. - Extending the external debt sustainability analysis (DSA) to cover external liquidity risks derived from how gross balance of payments flows are likely to respond in downside scenarios. - Box 2 tools (summary): - The Fund’s workhorse is a matrix of asset and liability positions across government, financial, non-financial and external sectors with maturity and currency breakdowns. - Uses include generating indicators of maturity and currency mismatches; providing the national balance sheet vis-à-vis the rest of the world; illustrating bilateral linkages between sectors to show shock propagation and feedback effects. - Matrix can be disaggregated and supplemented with bilateral bank, portfolio and FDI exposures, and IMF non-financial balance sheet data combined with national data for household and corporate balance sheets. ### Mainstreaming macro-financial surveillance - Findings: - Financial surveillance strengthened but not yet sufficiently incorporated into core macroeconomic analysis. - FSAPs are better integrated in Article IV consultations but financial and macroeconomic analyses remain fragmented. - Fragmentation reflects separation between "generalist" macroeconomic perspective and "specialist" financial perspective and absence of a unified model linking macro and financial variables. - FSAP-derived analysis skewed toward institutional and microprudential issues and is not frequent enough in non-systemic countries. - Macro-financial priorities: - Baseline: form view on relationship between output and financial variables, especially credit, to assess projection credibility and risks that could build up. - Risks around the baseline: examine risks, including tail risks, to identify underlying vulnerabilities and inform policy mix. - Implementation actions: - Provide better portable tools for financial sector risk assessment, stress testing, and incorporation of financial sector variables into standard macro analysis. - Gradually shift profile of Fund economists to ensure macro-financial skills through training and personnel policies. - Change work practices to incentivize staff acquisition and use of needed skills. - Address gaps in financial sector data, such as on GSIBs. ### More tailored and expert policy advice - Rationale: - Policymaking complexity requires surveillance to tailor advice to country circumstances rather than "cover all bases in all countries." - The Fund should "continue to build its understanding of macroprudential policy and its interactions with other policies." - Structural issues are increasingly important for "macroeconomic stability and growth." - Recommendations for Fund focus and approach: - Surveillance should "highlight the implications of macro-critical structural reforms for the economy" but be "more selective in where it offers policy advice." - The Fund adds greatest value by providing "a cohesive package of analysis and advice" and leveraging its "institutional knowledge of cross-country policy experiences." - Stakeholder perspectives (excerpted): - Country authorities view IMF surveillance as improved since 2011. - IMF adds most value in the "financial, fiscal and external sectors, as well as on risk assessments." - Macro-financial and spillover analysis "lag behind." - The Fund's approach has evolved, "tailoring advice to country specificities: more so on the pace of fiscal adjustment and less so on capital flow management." - Going forward, countries want "more expert advice, backed by cross-country policy experiences." ### Macroprudential policy and the IMF’s evolving policy compass - Macroprudential policies: - Gained prominence to ensure financial stability and address macro-financial fault lines exposed by the crisis. - Can be deployed against both internal and external threats and thus are useful in all economies. - The Fund’s thinking on deployment and interactions with other policies is still evolving and "is not yet well embedded in bilateral surveillance, even for advanced and emerging market economies." - Quoted guidance preserved: “The Fund’s focus should be on macroprudential policy as a means of guarding against major threats to stability rather than as a tool for trying to fine-tune the credit cycle.” — Li & Tucker - IMF’s Policy Compass (major areas preserved verbatim): - Fiscal policy: evolution from limited short-term role pre-crisis to coordinated/front-loaded stimulus in crisis, then pivot to exit and consolidation; research suggests fiscal multipliers can be much larger in severe downturns. - Monetary policy: support for unconventional monetary policies (UMP) in several advanced markets; focus on risks, adverse spillovers, and "exit". - Macroprudential policy: crisis revealed gap; advanced and emerging economies developed macroprudential policies rapidly; evidence on effectiveness is mixed; more research needed on costs/benefits and interactions. - Capital flows: new institutional view on trade-offs; liberalization needs to be well-planned, timed and sequenced; capital flow management measures can be useful in certain circumstances but are not substitutes for warranted macroeconomic adjustment. - References preserved as listed in source: 1/ Rethinking Macroeconomic Policy I (February 2010) and II (April 2013); 2/ Reassessing the Role and Modalities of Fiscal Policies in Advanced Economies (September 2013); 3/ Global Impact and Challenges of Unconventional Monetary Policies (September 2013); 4/ Key Aspects of Macroprudential Policy (June 2013); 5/ Institutional View on the Liberalization and Management of Capital Flows (November 2012). ### Fiscal policy advice - Findings: - Fiscal policy advice remains the ‘bread and butter’ of surveillance; country authorities see greatest value-added from the Fund’s work on fiscal developments and policy. - Stakeholders view the Fund’s propensity to recommend more gradual fiscal adjustment attuned to recovery pace and financing constraints as positive. - Fund fiscal advice now better accounts for growth and sustainability implications, with stronger cyclical components early in the crisis and grounded in structural balances where feasible. - Many reports do not clearly identify or quantify a country-specific medium-term anchor for fiscal policy. - Staff background study recommendations: - Fund-wide analytical work to strengthen basis for estimating structural balances. - A clear, well-justified—and country-specific—anchor could help articulate how fiscal advice reflects both short-term cyclical and medium-term sustainability objectives. - Continued progress toward a more comprehensive assessment of fiscal risks, including contingent liabilities, intersectoral risks, and long-term challenges. - Fund’s standards and codes provide the basis for strengthening public balance sheet analysis over time. - Note on fiscal anchor (footnote): A fiscal anchor could be specified either in terms of levels (e.g., fiscal balance, debt stock) or changes (e.g., a recommended amount of adjustment). ### Structural policies: scope and principles for Fund engagement - Views divided on Fund role in structural issues: country authorities want more engagement; Executive Directors are more skeptical. - Proposed filters/principles for engagement: - Macro-criticality: always identify macro-critical structural issues and discuss macroeconomic implications. - In-house expertise: where Fund has expertise (fiscal and financial reforms), leverage technical assistance and cross-country knowledge; where not, decide whether to borrow or build expertise. - Consider building staff expertise where a ‘critical mass’ of member countries have macroeconomic interest (e.g., financial deepening, labor market reforms). - Recommendations (verbatim): - Strengthen surveillance of macroprudential policies as a complement to other macroeconomic policies in advanced countries and integrated emerging markets. - Continue accounting for growth and sustainability implications in fiscal advice. Undertake institutional analysis to strengthen the basis for structural fiscal balances; present fiscal advice in terms of a clear and well-justified anchor. - Be selective in advising on structural policies. Recognize all macro-critical structural issues and their implications on an economy; follow principles to determine where to provide advice: macro-criticality, and Fund expertise or interest from ‘critical mass’ of the membership (e.g., financial deepening and labor market issues); in other areas, leverage advice from other international organizations. ### Value-added policy advice and leveraging expertise - Findings: - Surveillance must provide concrete, actionable advice based on cross-country and expert knowledge, with attention to on-the-ground conditions and interconnections. - Analytical advances exist but are often confined within sectors and not fully used to inform policy advice. - Risk analysis is not used extensively in policy advice in as many as half of the Article IV reports reviewed. - Around half the reports sampled did not include an in-depth discussion of the policy mix; as many as one third of reports did not discuss the policy mix at all. - Recommendations: - Provide more cohesive policy advice in Article IVs either by discussing the policy mix explicitly or structuring Article IV reports around economic goals or themes to better capture policy interactions. - Better leverage expert analysis and advice: - Concerted efforts to draw on cross-country policy experiences; - Strengthen TA integration in surveillance; - Enhance collaboration with other organizations in specific areas. ### Achieving greater impact — Communication, evenhandedness, cooperation - Two-way candid and clear communication: - Analytical improvements need pairing with client-focused, candid communication and deeper dialogue. - Strengthen the policy dialogue: expand “follow-up” on past policy advice beyond implementation to include reporting on changes in Fund advice; monitor quality of engagement via targeted periodic surveys. - Deliver candid advice, especially for systemic economies; ensure candor of surveillance on risks and spillovers is beyond doubt. - Convey clear and coherent messages: synthesize key surveillance messages; integrate Spillover Report and Pilot ESR into WEO and GFSR; consider a single product to synthesize key messages and use the Global Policy Agenda (GPA) to pull together surveillance messages. - Evenhandedness: - Evenhandedness underpins legitimacy and credibility. A significant minority of members believe the Fund is not evenhanded, particularly regarding large advanced economies. - Proposal: assess evenhandedness based on equal risk-adjusted inputs to surveillance (resources, depth of analysis) rather than uniform outputs. - Recommendation: Establish a clearer understanding of how to gauge “evenhandedness of surveillance” by using equal risk-adjusted ‘inputs’ to bilateral surveillance; establish a mechanism for country authorities to report concerns, and deal with identified issues transparently. - Global cooperation: - Effective surveillance needs multilateral traction to influence policymakers across countries. - ISD allows the Fund to hold, and be part of, the conversation between members; Fund supports the G-20 Mutual Assessment Process (MAP). - Questions about whether Fund mandate is adequate to support a stronger Fund role in global cooperation. - Recommendation: Appoint an expert group to explore how to strengthen the Fund’s role in global cooperation, including the adequacy of its mandate for ensuring global economic and financial stability. ### Surveillance review cycle, resources, and implementation - Surveillance review cycle adjustments: - Staff recommends moving to a five year cycle for comprehensive reviews (a quinquennial or five-yearly surveillance review), in line with the standard five-year cycle of policy papers. - Complement with an "interim progress report after 2½–3 years." - The next comprehensive review is "due in 2019." - Resource implications: - Taken together, the recommendations would not be budget neutral. - Most recommendations could be implemented within the existing budget envelope by changing how surveillance is conducted; some proposals will require additional resources, particularly if the Fund were to revive national balance sheet analysis; mainstream macro-financial surveillance; make progress on cross-country policy experiences; or cover labor market issues in more depth. - Following Board discussion, staff will present fully-costed proposals in the context of budget discussions. - Implementation commitments: - The Managing Director will prepare an action plan to take proposals forward. - Support by a revised surveillance guidance note. - Embedding innovations in day-to-day surveillance is the central near-term task; continue adapting surveillance to emerging challenges without layering on excessive new innovations. ### Operational priorities for 2014–19 (as listed) - Risks and Spillovers: - Integrate bilateral and multilateral surveillance; - include alternative risk scenarios in Article IV consultations as relevant; - revive national balance sheet analyses. - Macro-Financial Surveillance: - Make macro-financial analysis an integral part of Article IVs; - step up advice on macro-prudential policy to address financial risks, particularly in integrated economies. - Structural Policy Advice: - Recognize all macro-critical structural issues and their macroeconomic implications; - follow principles for advice: macro-criticality, and Fund expertise or interest in a ‘critical mass’ of the membership. - Cohesive and expert policy advice: - Move towards thematic Article IV staff reports; - build advice on cross-country policy experiences; - strengthen TA integration in surveillance; - enhance collaboration with other international organizations in specific areas. - Client-focused approach: - Monitor engagement; - expand the coverage of follow-up on past policy advice in Article IV staff reports. ### Issues for Discussion (questions posed to Directors) - Do Directors agree with the main findings and key themes emerging from this TSR? - Do Directors endorse the operational priorities set out in this report? - Do Directors consider that the specific recommendations would effectively support the broader priorities? - Do Directors have other suggestions to enhance the effectiveness of surveillance? - Recognizing that a number of staff’s recommendations would have resource implications, do Directors see scope to do less in some areas of surveillance and, if so, which ones? - Do Directors agree to extend the cycle of the surveillance review to five years, complemented by an interim assessment of implementation? *Executive Summary, 2014 Triennial Surveillance Review—July 30, 2014.* ### EXECUTIVE SUMMARY ### _073014 - EXECUTIVE SUMMARY ### Context and overarching findings - The 2014 Triennial Surveillance Review (TSR) occurs "at a pivotal time." The crisis may have abated, but countries continue to face "large debts, high unemployment and lackluster recoveries." - Common policy objectives and constraints: - Common goal: securing "resilient and job-rich growth." - Common constraint: "limited policy space," prompting greater reliance on "non-traditional macroeconomic and financial policies, or difficult structural reforms." - "Global interconnections continue to shape domestic policy choices" through spillovers and opportunities from globalization. - The crisis "raised the bar for Fund surveillance." The Fund has overhauled its surveillance toolkit and updated its legal framework, prompting the question of next steps for surveillance. ### Three core priorities for surveillance reform (high level) - Embed recent innovations into surveillance practice while refining them from early lessons. - Deliver "smarter" surveillance: analysis and expert advice tailored to country circumstances and enriched through continuous dialogue with members. - Focus of the review: integrate and deepen risk and spillover analysis; provide more tailored and expert policy advice; achieve greater impact. ### 1) Integrating and deepening risk and spillovers analysis - Risks and spillovers: "first-order issues for the world economy" and central to Fund surveillance. - Progress to date: - Surveillance has become "more risk-based" and better captures global interconnections. - New processes and products introduced (e.g., Integrated Surveillance Decision (ISD), Spillover Report, Pilot External Sector Report). - Internal mechanisms: internal risk group and Global Risk Assessment Matrix (G-RAM) to inform bilateral surveillance; internal vulnerability exercises for bottom-up evidence; External Balance Assessment (EBA) methodology. - Remaining scope and priorities: - "Significant scope to exploit more effectively the synergies between bilateral and multilateral surveillance." - Need to build "a deeper understanding of how risks map across countries, and how spillovers can quickly spread across sectors to expose domestic vulnerabilities." - Important steps recommended: - Reviving and adapting balance sheet analysis. - "Fully embedding macro-financial analysis in Article IV surveillance." ### 2) More tailored and expert policy advice - Rationale: - Policymaking complexity requires surveillance to tailor advice to country circumstances rather than "cover all bases in all countries." - The Fund should "continue to build its understanding of macroprudential policy and its interactions with other policies." - Structural issues are increasingly important for "macroeconomic stability and growth." - Recommendations for Fund focus and approach: - Surveillance should "highlight the implications of macro-critical structural reforms for the economy" but be "more selective in where it offers policy advice." - The Fund adds greatest value by providing "a cohesive package of analysis and advice" and leveraging its "institutional knowledge of cross-country policy experiences." - Stakeholder perspectives excerpt (Box 1): - Country authorities view IMF surveillance as improved since 2011. - IMF adds most value in the "financial, fiscal and external sectors, as well as on risk assessments." - Macro-financial and spillover analysis "lag behind." - The Fund's approach has evolved, "tailoring advice to country specificities: more so on the pace of fiscal adjustment and less so on capital flow management." - Going forward, countries want "more expert advice, backed by cross-country policy experiences." ### 3) Achieving greater impact (communication, legitimacy, cooperation) - Analytical improvements need to be paired with changes in how surveillance is conducted to increase effectiveness. - Key elements: - "Client-focused, yet candid, communication" to build a reinforcing cycle of tailored and influential analysis and advice. - At the multilateral level, "a clear and streamlined set of key messages" to strengthen the Fund's influence on global policy dialogue. - Legitimacy of advice depends on "evenhandedness," especially where countries have stakes in advice to others. - In a highly interconnected world, achieving traction requires not only encouragement but "convincing global policymakers to work together." - This raises questions about whether the Fund's mandate is adequate to support a "stronger Fund role in global cooperation." ### Implementation and operational recommendations - Develop a detailed implementation plan following Board consideration: - The Managing Director will prepare an action plan to take proposals forward. - Support by a revised surveillance guidance note. - Surveillance review cycle adjustments: - Move comprehensive surveillance reviews to a five year cycle; the next review "due in 2019." - Complement with an "interim progress report after 2½–3 years." - Operational priorities and capacity: - Embedding innovations in day-to-day surveillance is the central near-term task. - Continue adapting surveillance to emerging challenges without layering on excessive new innovations. ### Process inputs and evidence base - The review drew on a wide range of inputs: - Stakeholder surveys (country authorities, Executive Directors, Mission Chiefs). - Review of recent surveillance products and staff background studies. - External analytical studies and commentaries (including Montek S. Ahluwalia, Paul Krugman, and Martin Wolf). - Interviews with stakeholders and consultations with Civil Society Organizations (CSOs). - Independent review by an External Advisory Group. *Executive Summary, 2014 Triennial Surveillance Review—July 30, 2014.* ### 8. This agenda is even more relevant ### 8. This agenda is even more relevant ### Relevance and context - Debt levels are still high, despite some deleveraging, and cross-border trade and financial linkages continue to deepen. - Interconnectedness offers opportunities to boost growth and improve resource allocation, and also means financial market shocks, such as the 2013 “taper tantrum,” will continue to have significant spillovers via both capital flows and shifts in risk positions. - Over time more countries will enter this sphere as they grow, converge and become more financially integrated with the global economy; frontier low-income countries (LICs) exemplify this trend. - Some financial regulatory reforms and macroprudential policies have the potential to generate adverse spillovers in the short run even if their long-term goal is to support global stability. ### Continuing on the Path of Integrated Surveillance - Staff and external studies found that surveillance messages are broadly consistent across bilateral and multilateral products, but multilateral surveillance could be used more systematically to inform country work. - Regional economic outlooks (REOs) and cluster reports can help bridge remaining gaps between bilateral and multilateral surveillance. - Further effort is needed to implement the Integrated Surveillance Decision (ISD) more systematically: - Outward spillover analysis—which draws heavily on recently developed spillover models—is discussed in Article IV reports for large systemic economies, but reports vary in depth and integration into policy discussions. - Examining “spillbacks”—the risk of adverse feedback effects that systemic countries experience from their own outward spillovers—will enrich analysis and policy discussions; the most powerful spillbacks—often those from tail risks—will not be captured by models and are best assessed through expert judgment. - Analysis of inward spillovers should be strengthened: - Many Article IV reports discuss implications of global risks, although they vary in the extent of supporting detailed or quantified analysis. - To improve rigor, reports could more systematically include alternative, quantified scenarios that spell out the implications of a global adverse scenario and support qualitative discussions and policy responses. - More attention to inward spillovers from other countries’ policies would enrich policy discussions in both source and recipient countries. - The Fund could explore spillovers among groups of countries that share similar characteristics or are exposed to common shocks; cluster reports and REOs have helped draw attention to spillovers and the potential gains from policy cooperation. Recommendations: - Continue integration of bilateral and multilateral surveillance. Bridge remaining gaps through REOs and cluster reports. Strengthen ISD implementation, with more systematic analysis of outward spillovers and spillbacks in systemic countries; greater quantification of the impact of spillovers on recipient countries, drawing on global risk scenarios; and discussion of policy implications. - Strengthen external sector assessment. Gradually replace CGER with EBA for a broader set of countries, subject to data availability. Undertake a comprehensive assessment of the external position using a broader set of indicators than just the exchange rate. In countries where the EBA methodology is applied, discuss the contribution of domestic policies to external imbalances, and use these results in relevant policy discussions. ### Embedding External Sector Analysis - The EBA and Pilot ESR are facilitating a more robust framework that includes a wider range of indicators to judge developments in the external sector; the EBA methodology has been tested and refined. - External assessments should be embedded more fully in surveillance: - Article IV reports still regularly express the assessment narrowly (i.e., in terms of the exchange rate) rather than in terms of the broader external position and often fail to justify the bottom line assessment or relate it to different quantitative results and other indicators. - For countries with external imbalances, assessments are often not used to inform policy discussions. - Country pages in the Pilot ESR provide a good model of integrated analysis of all relevant external sector indicators. ### Deepening Analysis - Country authorities appreciate improvements but want deeper analysis of how risks and spillovers are transmitted across borders and sectors, including: - More analysis of transmission channels of shocks. - Greater quantification of risk assessments. - More in-depth discussion of the impact of systemic countries’ policies on the rest of the world. - Surveillance products show uneven coverage of intersectoral (particularly macro-financial) linkages and limited usage of quantitative analysis. - A more holistic view requires an eclectic analytic approach combining the revamped analytical toolkit, judgment, and in-depth country knowledge. - Revive and adapt analysis of balance sheets to enhance mapping of risks and spillovers and identify corresponding vulnerabilities; national balance sheet analysis is important in detecting risks and understanding propagation of shocks. - Progress requires improved data provision from the membership; more than five years after the collapse of Lehman Brothers, the Fund still lacks even aggregated information on global systemically important banks (GSIBs), and access to aggregated cross-border banking data is restricted. Recommendations: - Integrated analysis of risks and spillovers to understand how vulnerable a country is to shocks and how they will be transmitted. Revive and modernize the balance sheet analyses; develop a GFF; and extend external debt sustainability analyses to cover external flows. - Mainstream macro-financial surveillance. This could be achieved through better tools and new practices, as well as a shift in the profile of Fund economists. - Address data gaps. Implement the G-20 Data Gap Initiative. ### The Balance Sheet Approach 2.0 - The Balance Sheet Approach, developed after the Asian crisis, is critical for identifying sources of vulnerability and the transmission of shocks; it was initially applied to emerging markets but has since fallen into abeyance. - Reviving and adapting the balance sheet approach will allow surveillance to better capture risks from gross flows and domestic vulnerabilities (leverage, currency or liquidity mismatches), and provide a stronger basis for understanding how shocks affect economies and propagate across sectors. - Matrices showing assets and liabilities, their maturity, and currency composition, for each sector are a powerful tool to support this analysis. - Two tools to build on national balance sheet analysis: - Developing a global flow of funds (GFF) to provide a more granular picture of potential spillover channels, linking a country’s liabilities to asset holders in other countries; work is at an early stage to develop a GFF that would supplement existing matrices with external linkages—in terms of geography and type of asset or liability. - Extending the external debt sustainability analysis (DSA) to cover external liquidity risks derived from how gross balance of payments flows are likely to respond in downside scenarios. - Pressing ahead requires addressing data gaps; comprehensive data are available only for a subset of countries, but progress can be made by analyzing partial data sets and working with national authorities to fill household and corporate balance sheet gaps. - Fully understanding balance sheets requires judgment as tools may not capture derivative positions, shadow banking liabilities, or vulnerabilities in non-financial assets. Box 2. Tools to Support Balance Sheet Analysis - The Fund’s workhorse tool is a matrix showing asset and liability positions in and between key sectors—government, financial, non-financial and external—with breakdowns by maturity and currency. Uses include: - Generating indicators of maturity and currency mismatches for the three domestic sectors. - Providing the national balance sheet, a country’s position vis-à-vis the rest of the world, showing aggregate vulnerability to changes in exchange rates, foreign interest rates, and external financing. - Illustrating bilateral linkages between sectors to show how shocks might propagate across sectors, including potential feedback effects that magnify initial impact. - The matrix is a starting point; government and financial balance sheets can be disaggregated (e.g., bank and non-bank sectors) and the external balance sheet supplemented with more granular bilateral bank, portfolio and FDI exposures; IMF non-financial balance sheet data can be combined with national source data on household and corporate balance sheets for deeper analysis. ### It’s Mostly Macro-Financial - The Fund has strengthened financial surveillance, but financial work is not yet sufficiently incorporated into core macroeconomic analysis. - The Financial Surveillance Strategy upgraded instruments to enable an integrated assessment of financial risks; FSAPs are better integrated in Article IV consultations but financial and macroeconomic analyses remain fragmented. - Fragmentation reflects a tendency for the “generalist” macroeconomic perspective to be divorced from the "specialist" financial perspective and the absence of a unified model linking macro and financial variables. - FSAP-derived analysis has been skewed toward institutional and microprudential issues and is not conducted frequently enough—especially in non-systemic countries—to support higher-frequency surveillance of macroeconomic issues. - Deeper macro-financial analysis is necessary because the financial sector is often the fastest and most powerful transmitter of both external and domestic shocks, with feedback effects magnifying initial impacts. - Macro-financial analysis should focus on: - Baseline: forming a view on the relationship between output and financial variables, especially credit, in the baseline scenario to assess projection credibility and risks that could build up over time. - Risks around the baseline: examining risks, including tail risks, to identify underlying sources of vulnerability and inform the choice/mix of macroeconomic, macroprudential, microprudential, and structural policies. - Advancing the agenda requires cultural and organizational changes, better tools, and steps to address data gaps: - Provide better tools (portable tools for financial sector risk assessment, stress testing, and incorporation of financial sector variables into standard macro analysis). - Gradually shift the profile of Fund economists to ensure adequate macro-financial skills through training and personnel policies. - Change work practices to generate incentives and opportunities for staff to acquire and use needed skills. - Address gaps in financial sector data, such as on GSIBs. ### Supporting Resilience and Sustainable Growth - Policymakers face lingering effects of the crisis—how to build resilience against shocks and ensure more durable and job-rich growth with less policy space. - Fund surveillance should be tailored to country circumstances, focusing where fine-tuning of surveillance can better support country-specific policy advice. - Analysis and policy mix should be internally consistent and draw effectively on institutional knowledge of cross-country policy experiences. *Source: _073014 - 8. This agenda is even more relevant* ### 26. The efficacy of orthodox policy frameworks has been hotly debated since the crisis. In ### 26. The efficacy of orthodox policy frameworks has been hotly debated since the crisis. In ### Debate and evolving Fund role - The debate reflects crisis conditions plus legacies: heavy public debt burdens, weaker growth potential, high unemployment, and latent financial vulnerabilities. - Intensifying cross-border and intersectoral ties increase the need to look beyond simple policy solutions. - The Fund has been an active player and has adapted its policy advice (Box 3). Multilateral surveillance and policy research have been instrumental in reorienting policy frameworks, particularly in the areas of fiscal policy, capital flow management and macroprudential policies. - Fund-wide efforts have helped new thinking gain ground and better supported bilateral policy advice, but relevance and implementation differ across countries. ### Macroprudential policy: “Taking the Macroprudential Policy Plunge” - Macroprudential policies have gained prominence as a vehicle to help ensure financial stability, plugging an important gap in the policy toolkit. - Crisis experience underscored macro-financial fault lines and the macroeconomic costs of system-wide financial risks. - Recognition that monetary and fiscal policies are not always the best instruments to preserve financial stability has led policymakers to develop macroprudential measures to promote resilience to financial system risks. - Macroprudential policies can be deployed in response to both internally generated and external threats to stability, and thus can be a useful tool in all economies. - The Fund’s thinking on when and how to deploy macroprudential policies and their interactions with other policies is still evolving. - The Fund’s evolving thinking on macroprudential policy is not yet well embedded in bilateral surveillance, even for advanced and emerging market economies. - Discussion of macroprudential policies is often not linked to other policies and the wider macroeconomic implications. - Differing coverage across income groups suggests some country tailoring. - To move forward, the Fund is developing operational guidance and positioning to offer more expert support to strengthen practices, regimes and institutions. - Exact quote preserved: “The Fund’s focus should be on macroprudential policy as a means of guarding against major threats to stability rather than as a tool for trying to fine-tune the credit cycle.” — Li & Tucker ### The IMF’s Policy Compass (Box 3) — major areas of evolving advice - Fiscal policy - Pre-crisis view: fiscal policy had a limited role as a short-term stabilization tool. - Crisis practice: almost all advanced economies deployed some fiscal stimulus. - Subsequent research suggests fiscal multipliers can be much larger in severe downturns, leading to debate about the pace of fiscal adjustment and safe debt levels. - Fund advice evolved: called for coordinated and front-loaded fiscal stimulus in the depths of the crisis; pivoted to exit and medium-term consolidation with recovery signs. - In retrospect, the shift back to consolidation may, in some cases, have come too soon. - Advice has become more pragmatic and flexible, with more attention on pace and composition of adjustment and institutional frameworks. - Monetary policy - Crisis challenged that price stability alone suffices for macroeconomic stability. - Central banks used unconventional monetary policies (UMP) at the zero lower bound to restore market functioning and support activity. - The Fund has analyzed UMPs and generally been supportive of UMP in a number of advanced markets, while increasingly focusing on risks, adverse spillovers, and “exit”. - The Fund is engaged in discussions on the “new normal” of monetary policy, including reducing zero lower bound risks and merits of using unconventional tools in normal times. - Macroprudential policy - Crisis revealed a gap: traditional macroeconomic policies and microprudential measures could not address systemic financial risks. - Advanced and emerging economies have rapidly developed macroprudential policy; evidence on effectiveness is mixed. - The Fund has synthesized lessons and developed preliminary institutional framework elements: definition and scope, measurement of systemic risk, interactions with other policies, operational and institutional arrangements, and multilateral perspectives. - More research is needed on costs/benefits and interactions with other policies, especially relative roles/effects of macroprudential and monetary policies and institutional governance questions. - Capital flows - Capital flows to emerging economies accelerated post-crisis due to push-pull factors. - Some countries complemented macroeconomic policies with capital flow management and prudential measures. - The Fund developed a new institutional view explaining trade-offs between benefits of capital mobility and risks (sudden reversals, sharp currency depreciation, balance sheet dislocations). - Institutional view: liberalization needs to be well-planned, timed and sequenced; not appropriate for all countries at all times. Capital flow management measures can be useful in certain circumstances but are not substitutes for warranted macroeconomic adjustment. - Policymakers in all countries need to account for how their policies affect global economic and financial stability. - References in Box 3 preserved as given: 1/ Rethinking Macroeconomic Policy I (February 2010) and II (April 2013); 2/ Reassessing the Role and Modalities of Fiscal Policies in Advanced Economies (September 2013); 3/ Global Impact and Challenges of Unconventional Monetary Policies (September 2013); 4/ Key Aspects of Macroprudential Policy (June 2013); 5/ Institutional View on the Liberalization and Management of Capital Flows (November 2012). ### Fiscal policy advice: “through a new lens” - Fiscal policy advice remains the ‘bread and butter’ of surveillance; country authorities see greatest value-added from the Fund’s work on fiscal developments and policy. - Stakeholders view the Fund’s propensity to recommend more gradual fiscal adjustment attuned to recovery pace and financing constraints as positive. - Fund fiscal advice now better accounts for growth and sustainability implications, with stronger cyclical components early in the crisis and grounded in structural balances where feasible. - More attention to pace of adjustment and composition of measures; however, many reports do not clearly identify or quantify a country-specific medium-term anchor for fiscal policy. - With extended low growth and high debt in many countries, Fund fiscal advice will need to continue balancing short-term cyclical and medium-term sustainability objectives. - Staff background study recommends: - Fund-wide analytical work to strengthen basis for estimating structural balances. - A clear, well-justified—and country-specific—anchor could help articulate how fiscal advice reflects both short-term cyclical and medium-term sustainability objectives. - Continued progress toward a more comprehensive assessment of fiscal risks, including contingent liabilities, intersectoral risks, and long-term challenges. - Fund’s standards and codes provide the basis for strengthening public balance sheet analysis over time. - Note on fiscal anchor (footnote): A fiscal anchor could be specified either in terms of levels (e.g., fiscal balance, debt stock) or changes (e.g., a recommended amount of adjustment). ### Structural policies: the possibility frontier and principles for Fund engagement - Views are divided on the Fund’s role in structural issues: country authorities want more engagement; Executive Directors are more skeptical. - Priorities differ by country: labor market and fiscal reforms top advanced economies’ lists; public expenditure management and financial deepening are priorities for LICs. - The Fund will need to grapple with structural issues to ensure stability and sustain growth; many structural policies are macro-critical even under a narrow interpretation of the Fund’s mandate. - External study recommends the Fund cautiously take on new areas using three criteria: - Macro-criticality; - Underemphasis by others; - Reasonable proximity to Fund expertise. - Staff has reservations about using the ‘underemphasis’ criterion because it could imply withdrawing from areas of core competence (e.g., public expenditure management). - The study recommends focusing on areas such as utility regulation and rent seeking, while noting limited Fund expertise beyond fiscal/financial aspects of rent-seeking. - Fund surveillance already covers a wide range of structural issues most often focusing on fiscal and financial reforms, followed by labor market reforms, and to a lesser extent investment and productivity issues (e.g., infrastructure investment or regulatory frameworks). - Surveillance of investment/productivity often lacks depth, reflecting possible lack of expertise or engagement with other agencies. - Proposed filters/principles to guide Fund involvement: - Macro-critical: always identify macro-critical structural issues and discuss their macroeconomic implications; necessary but not sufficient for providing detailed policy advice. - In-house expertise: where Fund has expertise (fiscal and financial reforms), leverage technical assistance and cross-country knowledge; where not, decide whether to borrow or build expertise. - Where other agencies have expertise, typically ‘borrow’ expertise via stronger partnerships rather than ‘reinvent the wheel’ (modelled on Fund–World Bank collaboration). - Where a ‘critical mass’ of member countries have macroeconomic interest (e.g., financial deepening, labor market reforms), consider building further staff expertise to supplement dialogue with other agencies. ### Recommendations (preserved verbatim) - Strengthen surveillance of macroprudential policies as a complement to other macroeconomic policies in advanced countries and integrated emerging markets. - Continue accounting for growth and sustainability implications in fiscal advice. Undertake institutional analysis to strengthen the basis for structural fiscal balances; present fiscal advice in terms of a clear and well-justified anchor. - Be selective in advising on structural policies. Recognize all macro-critical structural issues and their implications on an economy; follow principles to determine where to provide advice: macro-criticality, and Fund expertise or interest from ‘critical mass’ of the membership (e.g., financial deepening and labor market issues); in other areas, leverage advice from other international organizations. *Source: 2014 TSR—Overview Paper (International Monetary Fund).* ### 38. Value-added surveillance requires more than top-notch analysis in discrete policy ### 38. Value-added surveillance requires more than top-notch analysis in discrete policy areas ### Putting the ‘Policy Advice’ Puzzle Together - Surveillance must provide concrete, actionable advice based on cross-country and expert knowledge, with attention to on-the-ground conditions and interconnections between countries, sectors, and policies. - Newer policy tools require time to understand practical application and interactions: - Limited experience exists with the effectiveness of macroprudential policies, the interactions between the various tools, or their interactions with monetary and microprudential policies. - Analytical advances have been made (risk and spillover analysis, external sector assessments, financial stability analysis), but these analyses are often confined within sectors and are not fully used to inform policy advice: - Risk analysis is not used extensively in policy advice in as many as half of the Article IV reports reviewed for the TSR. - Reports for EBA countries do not yet effectively use resulting policy gaps in providing policy advice. - Coverage of the policy mix and policy interactions is limited: - Around half the reports sampled for this TSR did not include an in-depth discussion of the policy mix. - As many as one third of reports did not discuss the policy mix at all. - Surveillance should digest and pull together analysis to deliver cohesive policy packages: - The driving principle: ensure the whole is more than the sum of the parts. - Article IV reports structured around economic goals or themes, rather than sector-by-sector, may better capture policy interactions. - In systemic countries, a cohesive approach would help identify alternative policy combinations to mitigate adverse spillovers. ### Better Leveraging Expert Analysis and Advice - Countries increasingly seek Fund expert advice in embryonic policy areas; as domestic capacity rises, demand shifts away from general macroeconomic advice toward specialized expertise. - Participation of experts in bilateral surveillance has diminished in some regions; staff teams are now more tilted toward macroeconomists without specialty knowledge. - The Fund can better leverage in-house expertise for surveillance: - Capacity development represents around one quarter of the Fund’s activities. - Countries using Fund technical assistance (TA) feel subsequent Article IV advice is more persuasive; this is reflected in the experience of the Fund’s top ten users of TA. - For LICs, the Fund deploys significant resources to strengthen institutional capacity; surveillance could better inform TA priorities (practices in Africa and the Middle East leading). - Cross-country policy knowledge is an underused resource: - Most Article IV reports include some cross-country analysis, typically benchmarking against common indicators for peer countries. - There is much less use of in-depth analysis of policy experiences. - Drawing systematically on cross-country policy insights could add depth to country-specific advice and ensure greater consistency across countries. - Cross-departmental work on natural resource management is a cited example for embedding this practice Fund-wide. - Achieving change requires better knowledge management, adequate incentives, and enhanced interdepartmental collaboration. - The Fund should build more effective partnerships with other organizations in a budget-neutral environment to access external expertise (e.g., ILO, OECD, World Bank on labor market issues and structural policies), including cross-agency task forces. Recommendations: - Provide more cohesive policy advice in Article IVs either by discussing the policy mix explicitly or structuring Article IV reports around economic goals or themes to better capture policy interactions. - Better leverage expert analysis and advice: - Concerted efforts to draw on cross-country policy experiences; - Strengthen TA integration in surveillance; - Enhance collaboration with other organizations in specific areas. ### Achieving Greater Impact — A. Two-Way Candid and Clear Communication - Analytical improvements alone are insufficient; impact requires a client-focused approach with deeper dialogue and clear, candid communication. - Communication should be a two-way dialogue throughout the surveillance process, including candid policy dialogue to understand members’ views, needs, and constraints. - Strengthen the policy dialogue: - Fund engagement has improved; many members view the Fund as a key external advisor and see staff as more open and responsive. - Country authorities value the Fund as an informal “sounding board” and want earlier engagement and more informal discussions. - More regular feedback from countries would help track the quality of the policy dialogue and engagement. - Country authorities appreciate follow-up on implementation of past policy advice and would value an expanded two-way accountability tool that also reports on changes in Fund advice. - Deliver candid advice: - The Fund must balance being a “trusted advisor” and a “ruthless truth-teller”; enhanced engagement should make it easier to convey difficult messages privately and publicly. - Evidence suggests surveillance needs to be more candid for systemic economies; key messages, including on spillovers, are sometimes buried deep in reports. - The Fund must ensure candor of surveillance for systemic economies, particularly on risks and spillovers, is beyond doubt. - Convey clear and coherent messages: - Multilateral flagship products are highly valued; newer products (Spillover Report, Pilot ESR) have mixed opinions but broad support for their purpose. - The expanded suite of multilateral products presents communication challenges: stakeholders find it difficult to digest key messages and the volume is “overloading” policymakers’ bandwidth; technical language inhibits understanding. - Staff view merging products as premature; Pilot ESR and Spillover Report play important roles and are timed to inform Article IV consultations of large systemic economies. - Significant scope exists to streamline key surveillance messages: - A single product is needed to synthesize key surveillance messages into a consistent whole. - The Global Policy Agenda (GPA) could add a dedicated section that pulls together surveillance messages from the full range of products. - Messages from the Spillover Report and Pilot ESR should be reflected substantively in the WEO and GFSR. - Complement with more targeted outreach to relevant officials to improve absorption of Fund products and analyses. Recommendations: - Strengthen the policy dialogue: - Expand “follow-up” on past policy advice beyond implementation to include reporting on changes in Fund advice; - Monitor quality of engagement and policy dialogue through targeted periodic surveys. - Ensure clear and candid surveillance messages, particularly on spillovers from systemic economies; - Integrate key messages from the Spillover Report and the Pilot ESR into the WEO and GFSR; - Synthesize key Fund policy messages in the GPA; - Undertake more targeted communications with relevant stakeholders on the underlying analysis. ### Achieving Greater Impact — B. Evenhandedness - Evenhandedness underpins the legitimacy and credibility of Fund surveillance; perceived or actual lack of evenhandedness can undermine effectiveness. - A significant minority of members believe the Fund is not evenhanded in its advice, particularly regarding large advanced economies. - The external study on Evenhandedness finds little evidence of systematic bias, although instances of differences exist and can reinforce perceptions. - Lack of clarity about what “evenhandedness” means is an impediment: - Concerns are often framed in terms of surveillance “outputs” (policy advice and presentation), but differing outputs may be appropriate if tailored to country circumstances. - The external study proposes assessing evenhandedness based on “inputs” to surveillance (how surveillance is conducted), which would provide an objective basis for judging whether different outputs are appropriately calibrated. Box 4: An Input-Based Approach to Evenhandedness (excerpt) - Inputs to surveillance should be based on the principle of “uniformity of treatment.” These include: - Resources: Decisions on the number and experience of staff working on surveillance should be well founded and free of bias; staff allocation could vary based on issues to be covered (needs-based) and judgments about risk level or systemic importance. - Depth of analysis: Each country should receive the same sound, objective, analytical input into every decision regarding the conduct of surveillance and the policy advice provided. *Source: 38. Value-added surveillance requires more than top-notch analysis in discrete policy areas.* ### 59. Establishing a clearer understanding of how to gauge the“evenhandedness of Fund ### Establishing a clearer understanding of how to gauge the“evenhandedness of Fund surveillance” ### Evenhandedness of Surveillance — Findings and Rationale - Establishing a clearer understanding of how to gauge the“evenhandedness of Fund surveillance” would be an important step forward in tackling the problem. - Evenhandedness is embedded in the Fund’s principle of uniformity of treatment. - Respecting this principle does not imply a one-size fits all approach to surveillance. - Decisions about surveillance “inputs” should be: - well founded and free of bias; - reflective of the need for the Fund to take a wider risk-management approach. - Examples of inputs and allocation considerations: - allocation of resources and expertise; - choice of analytical tools; - judgments should be based on domestic and systemic risks. - Equal risk-adjusted inputs to surveillance are proposed as the barometer for assessing evenhandedness. - The Fund should establish a mechanism for country authorities to report concerns (either unequal inputs or unjustified differences in output), and deal with identified issues transparently. ### Evenhandedness — Recommendations - Establish a clearer understanding of how to gauge “evenhandedness of surveillance” by using equal risk-adjusted ‘inputs’ to bilateral surveillance (in keeping with the Fund’s principle of uniformity of treatment), where ‘inputs’ are calibrated to country circumstances based on domestic and cross-country risks. - Establish a mechanism for country authorities to report concerns, and deal with identified issues transparently. ### Global Cooperation — Findings - For surveillance to be effective, it needs to have an impact across countries. - Given the depth and range of connections among countries, even effective, well-communicated and evenhanded analysis may not be enough to deliver better global outcomes. - Effective, risk-based surveillance on a global scale means the Fund increasingly needs to generate multilateral traction that influences and persuades policymakers across multiple countries. - Cooperation is even more important today, yet it may be harder to achieve: - benefits of cooperation are less apparent during the “good times” than during the “bad times”; - policymakers are less focused on crisis management and more accountable to domestic constituencies for their policy actions. - The Fund should play a central role in fostering global cooperation; the ISD allows the Fund to hold, and be part of, the conversation between members. - Through support to the G-20 Mutual Assessment Process (MAP), the Fund has an additional channel to use its analysis and advice to facilitate and influence global policy discussions. - Questions remain about whether the Fund’s role needs to be strengthened: - The ISD can only take the Fund so far without a formal obligation for members to take account of spillovers to other countries, and the world as a whole, when formulating their own policies. - Background studies suggest signs that confidence in the G-20 MAP, and cooperation more generally, have declined in recent years. - The external study on Multilateral Surveillance: Ensuring a Focus on Key Risks to Global Stability encourages the Fund to explore whether changes to its structures and mandate could be made as a clear commitment on the part of Fund members to support a more cooperative approach to global growth and risk management. ### Global Cooperation — Recommendation - Appoint an expert group to explore how to strengthen the Fund’s role in global cooperation, including the adequacy of its mandate for ensuring global economic and financial stability. ### Other Issues — Surveillance Review Cycle - Moving to a longer cycle would allow for a comprehensive, but cost-effective, surveillance review. - Embedding reforms and reflecting on implementation takes time; periodic holistic assessment is important given the evolving nature of the global economy, member countries and their macroeconomic policy priorities. - Staff recommends moving to a five year cycle for a comprehensive review of surveillance (a quinquennial or five-yearly surveillance review), in line with the standard five-year cycle of policy papers. - Complement this with a smaller scale interim report after 2½-3 years that would assess implementation, identify any emerging pressure points, and help shape the subsequent review. ### Other Issues — Resource Implications - Taken together, the recommendations of this review would not be budget neutral. - Most recommendations require changing the way surveillance is conducted and thus could be implemented within the existing budget envelope. - Some proposals will require additional resources, particularly if the Fund were to: - revive national balance sheet analysis; - mainstream macro-financial surveillance; - make progress on cross-country policy experiences; - cover labor market issues in more depth. - Following the Board discussion, staff will follow up on those recommendations endorsed by Directors and present fully-costed proposals in the context of budget discussions. ### Operational Priorities for 2014–19 - Risks and Spillovers: - Integrate bilateral and multilateral surveillance; - include alternative risk scenarios in Article IV consultations as relevant; - revive national balance sheet analyses. - Macro-Financial Surveillance: - Make macro-financial analysis an integral part of Article IVs; - step up advice on macro-prudential policy to address financial risks, particularly in integrated economies. - Structural Policy Advice: - Recognize all macro-critical structural issues and their macroeconomic implications; - follow principles for advice: macro-criticality, and Fund expertise or interest in a ‘critical mass’ of the membership. - Cohesive and expert policy advice: - Move towards thematic Article IV staff reports; - build advice on cross-country policy experiences; - strengthen TA integration in surveillance; - enhance collaboration with other international organizations in specific areas. - Client-focused approach: - Monitor engagement; - expand the coverage of follow-up on past policy advice in Article IV staff reports. ### Issues for Discussion (questions posed to Directors) - Do Directors agree with the main findings and key themes emerging from this TSR? - Do Directors endorse the operational priorities set out in this report? - Do Directors consider that the specific recommendations would effectively support the broader priorities? - Do Directors have other suggestions to enhance the effectiveness of surveillance? - Recognizing that a number of staff’s recommendations would have resource implications, do Directors see scope to do less in some areas of surveillance and, if so, which ones? - Do Directors agree to extend the cycle of the surveillance review to five years, complemented by an interim assessment of implementation? ### Annex — Selected Recommendations (excerpt) - Further Integrating Risk and Spillover Analysis: - Continue integration of bilateral and multilateral surveillance. Bridge remaining gaps through REOs and cluster reports. Strengthen ISD implementation, with more systematic analysis of outward spillovers and spillbacks in systemic countries; greater quantification of the impact of spillovers on recipient countries, drawing on global risk scenarios; and discussion of policy implications. - Strengthen external sector assessment. Gradually replace CGER with EBA for a broader set of countries, subject to data availability. Undertake a comprehensive assessment of the external position using a broader set of indicators than just the exchange rate. In countries where the EBA methodology is applied, discuss the contribution of domestic policies to external imbalances, and use these results in relevant policy discussions. - Deepening Risk and Spillover Analysis: - Integrated analysis of risks and spillovers to understand how vulnerable a country is to shocks and how they will be transmitted. Revive and modernize the balance sheet analyses; develop a GFF; and extend external debt sustainability analyses to cover external flows. - Mainstream macro-financial surveillance. This could be achieved through better tools and new practices, as well as a shift in the profile of Fund economists. - Address data gaps. Implement the G-20 Data Gap Initiative. - More Tailored Policy Advice: - Strengthen surveillance of macroprudential policies as a complement to other macroeconomic policies in advanced countries and integrated emerging markets. - Continue accounting for growth and sustainability implications in fiscal advice. Undertake institutional analysis to strengthen the basis for structural fiscal balances; present fiscal advice in terms of a clear and well-justified anchor. - Be selective in advising on structural policies. Recognize all macro-critical structural issues and their implications on an economy; follow principles to determine where to provide advice: macro-criticality, and Fund expertise or interest from ‘critical mass’ of the membership (e.g., financial deepening and labor market issues); in other areas, leverage advice from other international organizations. - Value-Added Policy Advice: - Provide more cohesive policy advice in Article IVs either by discussing the policy mix explicitly or structuring Article IVs reports around economic goals or themes to better capture policy interactions. - Better leverage expert analysis and advice. Concerted efforts to draw on cross-country policy experiences; strengthen TA integration in surveillance; enhance collaboration with other organizations in specific areas. - Two-way Candid and Clear Communication: - Strengthen the policy dialogue. Expand “follow-up“ on past policy advice beyond implementation to include a reporting on changes in Fund advice; monitor the quality of engagement and policy dialogue through targeted periodic surveys. - Ensure clear and candid surveillance messages, particularly on spillovers from systemic economies; integrate key messages from the Spillover Report and the Pilot ESR into the WEO and GFSR; synthesize key Fund policy messages in the GPA; undertake more targeted communications with relevant stakeholders on the underlying analysis. - Evenhandedness: - Establish a clearer understanding of how to gauge “evenhandedness of surveillance” by using equal risk-adjusted ‘inputs’ to bilateral surveillance (in keeping with the Fund’s principle of uniformity of treatment), where ‘inputs’ are calibrated to country circumstances based on domestic and cross-country risks. - Establish a mechanism for country authorities to report concerns, and deal with identified issues transparently. - Global Cooperation: - Appoint an expert group to explore how to strengthen the Fund’s role in global cooperation, including the adequacy of its mandate for ensuring global economic and financial stability. *2014 TSR—OVERVIEW PAPER, INTERNATIONAL MONETARY FUND.* --- _Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/np/pp/eng/2014/_073014.pdf_