## _042415 - EXECUTIVE SUMMARY

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---

### INTRODUCTION
- Report provides an update on initial steps to operationalize the Managing Director’s November 2014 Action Plan for Strengthening Surveillance, a five-year plan to support the goals of the 2014 Triennial Surveillance Review (TSR).
- Executive Directors requested an early update; this report focuses on initial steps taken and initiatives underway rather than an assessment of how TSR recommendations are reflected in surveillance.
- Date on document: April 24, 2015.

### BUILDING THE BASIS FOR STRONGER SURVEILLANCE
- Two complementary tracks in the initial phase:
  - Overarching follow-up to the TSR to raise awareness and guide surveillance practices:
    - Updated Guidance Note for Surveillance under Article IV Consultations circulated to the Board in March.
    - TSR team met with departments to discuss findings and recommendations.
    - Staff began regularly assessing and identifying examples of good practices in Article IV staff reports across 10 areas to be made available to country teams.
  - Investing in analytical tools and revamping work practices:
    - ICD, with MCM, scaling up in-house training and designing targeted curricula in areas such as macrofinancial analysis and data and knowledge management.
    - Work practices reoriented to leverage interdepartmental collaboration, enhanced review, and knowledge sharing.

### EARLY PROGRESS TOWARD STRONGER SURVEILLANCE
- Staff has launched initiatives to mainstream macrofinancial analysis and build a stronger basis for macrostructural analysis.
- Some areas start from a higher base (e.g., fiscal advice, risk and spillovers due to post-2011 TSR investments); macro-structural work is at an earlier stage.
- Institutional priorities include addressing perceptions of evenhandedness and improving knowledge management.
- Medium-term budget streamlining supports a shift toward a more risk-based approach and reallocation of resources to higher priority tasks, including TSR implementation.

### A. INTEGRATE AND DEEPEN RISK & SPILLOVERS ANALYSIS
- Objective: strengthen risk and spillover analysis and better integrate bilateral and multilateral surveillance by exploiting synergies across initiatives and fostering interdepartmental collaboration.

- Mainstreaming Macrofinancial Analysis
  - Pilot program to operationalize macrofinancial surveillance:
    - Area departments redirected resources to support macrofinancial work in 23 pilot Article IV consultations across all regions and income levels.
    - Functional departments provide technical support and more focused review.
    - Most of these Article IV consultations slated for the first half of 2015, with around 15 likely to be discussed by the Board before the summer recess.
  - Cross-cutting themes across pilots:
    - Teams examine diverse themes including: the macroeconomic implications of the financial cycle, financial deepening, macroprudential policy, and macro-shocks and financial stress.
  - Capacity building:
    - ICD, with MCM support, developed a macrofinancial curriculum of 5 short courses and has begun intensive training for area department staff.
  - Tools and analytical development:
    - MCM revamped the Financial Toolbox website to improve access to macrofinancial risk assessment tools.
    - Tools from FSAP (e.g., stress tests), GFSR (e.g., network analysis), and vulnerability exercises are being adapted for Article IV use.
    - RES developed a tool to assess consistency between macroeconomic outlook and credit conditions.
    - Longer-term goal: extend macro-frameworks to incorporate more detailed financial sectors, potentially linking banking system balance sheets to the real economy.
  - Macroprudential policy support:
    - New Guidance Note on macroprudential policy issued in December 2014, with additional notes on instruments and considerations for low-income countries.

- Deeper Risk Analysis
  - Balance sheet analysis revival:
    - A forthcoming paper scheduled for Board discussion in June will examine experience with balance sheet analysis and present tools such as the balance sheet matrix.
    - 10 of the macrofinancial pilots are exploring the role of balance sheets in macrofinancial analysis.
    - STA preparing prototype balance sheet matrices for these pilot countries to assess indicators, distribution of risk across sectors, and run stress scenarios.
    - Specialized tools in development, including one to assess nonfinancial corporate sector vulnerability to shocks.
  - Alternative quantified risk scenarios:
    - Departments plan a first wave of 20 countries to experiment with design and implementation of alternative scenarios (domestic or global).
    - WEO team will begin producing alternative assumptions for key global variables (such as growth in major economies, interest rates, commodity prices) for selected risks in the G-RAM to help teams incorporate consistent external risk scenarios.
  - External sector analysis:
    - EBA methodology extended with the launch of EBA-lite in fall 2014 as an additional tool for external sector assessment.
    - New operational guidance reflected in the updated Surveillance Guidance Note.
    - Staff preparing an EBA-lite methodology paper expected by the end of the year and assessing scope for an EBA-lite type methodology for LICs.
    - The 2015 ESR and spillover report will analyze global imbalances, spillovers, and policy implications from exchange rate movements among major currencies for integration into relevant Article IV consultations.

### B. MORE TAILORED AND EXPERT ADVICE
- Groundwork laid for more detailed and tailored macro-structural analysis and ensuring fiscal advice remains “state of the art.”
- Efforts underway to leverage cross-country experience and integrate TA in surveillance.
- Key elements:
  - Structural issues are rising in Fund surveillance and have greater prominence in many recent Article IV consultations.
  - Area departments (e.g., AFR, MCD, EUR) coordinating work on inclusive growth and structural policy advice and collaborating with World Bank, OECD, and regional agencies to avoid duplication.
  - Updated Surveillance Guidance Note supports post-TSR approach to surveillance of structural issues.

- Key analytical initiatives:
  - Staff developing an analytical framework for identifying structural reforms with the largest productivity payoffs across different country groups; initial findings reflected in the spring 2015 GPA with a Board briefing planned for fall 2015.
  - Ongoing analytical work emphasizes labor and product market reforms for the near-term research agenda across functional and area departments.
  - Region-specific analysis examples include the Staff Discussion Note: "Islamic Finance: Opportunities, Challenges, and Policy Options; SDN/15/05; April 6, 2015."
  - Staff exploring macroeconomic aspects of inequality, energy and gender issues in selected country cases; several recent Article IV consultation reports examined gender (e.g., India) and inequality (e.g., Mauritania and Nigeria).
  - Staff systematically cataloguing coverage of structural issues in recent Article IV reports to provide a more granular picture of country structural issues.

- Fiscal advice enhancements:
  - Updated Surveillance Guidance Note includes a dedicated section on fiscal policy surveillance, emphasizing fiscal risks, fiscal anchors, and balancing cyclical and sustainability considerations.
  - Country review process gives greater attention to fiscal anchors.
  - Targeted research includes upcoming Board papers on fiscal anchors, and fiscal policy and long-term growth, and technical work on methodologies for estimating structural fiscal balance adjustment (including correcting for financial and asset-price cycles).
  - Spring 2015 WEO addresses methodological issues related to estimating potential output.
  - Spring 2015 Fiscal Monitor examines the role and size of automatic budget stabilizers and their contribution to growth.

- Cohesive advice and knowledge sharing:
  - Departments plan more thematic Article IV staff reports where appropriate to facilitate deeper discussion of policy interactions.
  - Functional departments will strengthen participation in review process for highly vulnerable countries; MCM agreed new country review lists with each area department covering the most vulnerable countries.
  - Departments considering country desk participation in technical assistance missions related to macrofinancial pilots.

### KNOWLEDGE MANAGEMENT (KM) INITIATIVES
- KM Working Group presented its final report with a KM strategy and program; Management intends to establish a small KM Unit supported by robust governance.
- Some departments incorporate KM program goals in FY2016 accountability frameworks.
- Departments strengthening intranet-based thematic sites and establishing new thematic knowledge sites (e.g., small states, fragile states, Islamic finance, gender, inequality) and revamping others (capital flows) to share cross-country resources.
- Sharing information and cross-country lessons has become a core operating principle in cross-cutting projects, including macrofinancial analysis.

### C. ACHIEVING GREATER IMPACT
- Focus areas:
  - Client-focused communication and dialogue:
    - Staff promoting more client-focused communication, exploring more effective two-way dialogue with member countries, and promoting greater clarity in multilateral messages.
    - Immediate focus on aligning and coordinating multilateral messages, particularly across the spring flagships.
    - Plans to streamline multilateral surveillance products: analysis in the 2015 Spillover and External Sector Reports will be more focused and targeted; analysis from the Spillover Report to be folded into WEO from 2016.
    - Regional trends chapter of the WEO will be abolished to avoid duplication with REOs; the GFSR will be streamlined; the full Fiscal Monitor (including conjunctural analysis) will move to a once a year schedule and will not be produced in the fall 2015.
    - Management and COM coordinating key events and communications milestones, planning regional and global outreach including major conferences, and tracking the impact of outreach events.
    - Departments (APD, EUR, MCD, WHD) in consultation with COM revisiting communication strategies in light of the TSR.
    - MCD plans to roll out a targeted annual survey in FY2016 to monitor quality of engagement and policy dialogue. APD exploring new approaches to informal engagement (video conferencing, group engagement for similar countries, margins of high-level conferences).
    - Departments working to ensure Article IV staff reports include holistic assessments of past policy advice and highlight changes in staff advice.
  - Evenhandedness:
    - Updated Surveillance Guidance Note outlines the concept of evenhandedness based on risk-adjusted “inputs” to surveillance, per the TSR.
    - Cross-departmental work developing principles to form a shared understanding of evenhandedness and to guide assessments of concerns.
    - Staff begun discussing the assessment mechanism through which country authorities would raise concerns via their Executive Directors.
    - A dedicated mailbox for reporting concerns is expected later this year.

### LOOKING AHEAD
- Many initiatives will take time to be fully embedded in surveillance products and day-to-day dialogue.
- Ongoing engagement among staff and active managerial implementation of changed work practices will be critical.
- The new leadership framework will support managers in implementing changes.
- Judgment and selectivity in applying TSR initiatives in surveillance are fundamental.
- Staff will continue implementing initiatives in the Managing Director’s Action Plan and report progress to the Board via topic-specific updates or cross-cutting work program briefings.
- In 2017, staff will undertake an assessment of the impact of these initiatives on surveillance for Board consideration in the context of the interim implementation assessment.
- Managers will play a vital role implementing changed work practices under the new leadership framework.

### ANNEX I — Selected Action items and numeric commitments from the TSR Action Plan scorecard
- G-RAM: staff will issue the G-RAM to the Board for information on a quarterly basis.
- Article IV alternative quantified risk scenarios: prepare alternative scenarios for a first wave of 20 countries.
- Balance sheet analysis: identify and implement 5 pilot cases for balance sheet analysis in Article IV consultations, one for each area department.
- Fund staff will work with G20 members to develop plans for a second phase of the G-20 Data Gaps Initiative starting in 2016.
- Over the medium term, intensify efforts to develop a global flow of funds at least for the largest global economies.
- External Sector Assessment: a paper describing the EBA-lite methodology plus dataset and programs will be made publicly available by end-2015.
- Knowledge Management: establish a small KM Unit; interdepartmental working group to identify 5-10 priority policy areas for documenting country experience; establish a repository of cross-country materials with a good start planned for FY16.
- Implementation and monitoring: identify and disseminate best practices in Article IV staff reports on 10 TSR priority areas; report on interim assessment of TSR implementation (due early 2017).

*Prepared by an SPR team led by Karen Ongley, comprising Zsofia Arvai, R. Sean Craig, and Michael Perks, under the general guidance of Taline Koranchelian; Approved By Siddharth Tiwari.*

### EXECUTIVE SUMMARY

### _042415 - EXECUTIVE SUMMARY

### INTRODUCTION
- Report provides an update on initial steps to operationalize the Managing Director’s November 2014 Action Plan for Strengthening Surveillance, a five-year plan to support the goals of the 2014 Triennial Surveillance Review (TSR).
- Executive Directors requested an early update; this report focuses on initial steps taken and initiatives underway rather than an assessment of how TSR recommendations are reflected in surveillance.
- Date on document: April 24, 2015.

### BUILDING THE BASIS FOR STRONGER SURVEILLANCE
- Two complementary tracks in the initial phase:
  - Overarching follow-up to the TSR to raise awareness and guide surveillance practices:
    - Updated Guidance Note for Surveillance under Article IV Consultations circulated to the Board in March.
    - TSR team met with departments to discuss findings and recommendations.
    - Staff began regularly assessing and identifying examples of good practices in Article IV staff reports across 10 areas to be made available to country teams.
  - Investing in analytical tools and revamping work practices:
    - ICD, with MCM, scaling up in-house training and designing targeted curricula in areas such as macrofinancial analysis and data and knowledge management.
    - Work practices reoriented to leverage interdepartmental collaboration, enhanced review, and knowledge sharing.

### EARLY PROGRESS TOWARD STRONGER SURVEILLANCE
- Staff has launched initiatives to mainstream macrofinancial analysis and build a stronger basis for macrostructural analysis.
- Some areas start from a higher base (e.g., fiscal advice, risk and spillovers due to post-2011 TSR investments); macro-structural work is at an earlier stage.
- Institutional priorities include addressing perceptions of evenhandedness and improving knowledge management.
- Medium-term budget streamlining supports a shift toward a more risk-based approach and reallocation of resources to higher priority tasks, including TSR implementation.

### A. INTEGRATE AND DEEPEN RISK & SPILLOVERS ANALYSIS
- Objective: strengthen risk and spillover analysis and better integrate bilateral and multilateral surveillance by exploiting synergies across initiatives and fostering interdepartmental collaboration.

Mainstreaming Macrofinancial Analysis
- Pilot program to operationalize macrofinancial surveillance:
  - Area departments redirected resources to support macrofinancial work in 23 pilot Article IV consultations across all regions and income levels.
  - Functional departments provide technical support and more focused review.
  - Most of these Article IV consultations slated for the first half of 2015, with around 15 likely to be discussed by the Board before the summer recess.
- Cross-cutting themes across pilots:
  - Teams examine diverse themes including: the macroeconomic implications of the financial cycle, financial deepening, macroprudential policy, and macro-shocks and financial stress.
- Capacity building:
  - ICD, with MCM support, developed a macrofinancial curriculum of 5 short courses and has begun intensive training for area department staff.
- Tools and analytical development:
  - MCM revamped the Financial Toolbox website to improve access to macrofinancial risk assessment tools.
  - Tools from FSAP (e.g., stress tests), GFSR (e.g., network analysis), and vulnerability exercises are being adapted for Article IV use.
  - RES developed a tool to assess consistency between macroeconomic outlook and credit conditions.
  - Longer-term goal: extend macro-frameworks to incorporate more detailed financial sectors, potentially linking banking system balance sheets to the real economy.
- Macroprudential policy support:
  - New Guidance Note on macroprudential policy issued in December 2014, with additional notes on instruments and considerations for low-income countries.

Deeper Risk Analysis
- Balance sheet analysis revival:
  - A forthcoming paper scheduled for Board discussion in June will examine experience with balance sheet analysis and present tools such as the balance sheet matrix.
  - 10 of the macrofinancial pilots are exploring the role of balance sheets in macrofinancial analysis.
  - STA preparing prototype balance sheet matrices for these pilot countries to assess indicators, distribution of risk across sectors, and run stress scenarios.
  - Specialized tools in development, including one to assess nonfinancial corporate sector vulnerability to shocks.
- Alternative quantified risk scenarios:
  - Departments plan a first wave of 20 countries to experiment with design and implementation of alternative scenarios (domestic or global).
  - WEO team will begin producing alternative assumptions for key global variables (such as growth in major economies, interest rates, commodity prices) for selected risks in the G-RAM to help teams incorporate consistent external risk scenarios.
- External sector analysis:
  - EBA methodology extended with the launch of EBA-lite in fall 2014 as an additional tool for external sector assessment.
  - New operational guidance reflected in the updated Surveillance Guidance Note.
  - Staff preparing an EBA-lite methodology paper expected by the end of the year and assessing scope for an EBA-lite type methodology for LICs.
  - The 2015 ESR and spillover report will analyze global imbalances, spillovers, and policy implications from exchange rate movements among major currencies for integration into relevant Article IV consultations.

### B. MORE TAILORED AND EXPERT ADVICE
- (Summary of actions underway to better adapt advice to member needs, strengthen fiscal advice, and leverage cross-country experience based on the report’s stated priorities and initiatives.)
- Groundwork laid for more detailed and tailored macro-structural analysis and ensuring fiscal advice remains “state of the art.”
- Efforts underway to leverage cross-country experience and integrate TA in surveillance.

### C. ACHIEVING GREATER IMPACT
- Client-focused communication and dialogue:
  - Staff promoting more client-focused communication, exploring more effective two-way dialogue with member countries, and promoting greater clarity in multilateral messages.
- Evenhandedness:
  - Staff developing principles to better understand and address perceptions of evenhandedness.

### LOOKING AHEAD
- Many initiatives will take time to be fully embedded in surveillance products and day-to-day dialogue.
- Ongoing engagement among staff and active managerial implementation of changed work practices will be critical.
- The new leadership framework will support managers in implementing changes.
- Judgment and selectivity in applying TSR initiatives in surveillance are fundamental.

*Prepared by an SPR team led by Karen Ongley, comprising Zsofia Arvai, R. Sean Craig, and Michael Perks, under the general guidance of Taline Koranchelian; Approved By Siddharth Tiwari.*

### 12.      Efforts to facilitate deeper integration center on promoting an effective two-way flow

### 12.      Efforts to facilitate deeper integration center on promoting an effective two-way flow of ideas between multilateral surveillance and country/regional analysis

### Integration of multilateral and country/regional analysis
- Flagship analytical chapters reflect early and broad consultation, including with area departments.  
- Flagship authoring departments are providing more granular, country or regional information to area departments through tailored presentations or notes.  
- The Global Risk Assessment Matrix (G-RAM) began being circulated to the Board in January 2015 and has facilitated a more consistent treatment of global risks across Article IV reports; major risks are now summarized in the WEO.  
- Spring 2015 Global Policy Agenda (GPA) summarizes main Fund views on the global outlook, risks and policy actions.

### More tailored and expert advice — overview
- Staff is laying groundwork for more focused structural analysis (an operational priority) and ensuring core fiscal advice remains “state of the art.”  
- Early indications show greater sharing of expertise and cross-country experiences across staff.

### More tailored macrostructural analysis — findings and actions
- Structural issues are rising in Fund surveillance and have greater prominence in many recent Article IV consultations.  
- Area departments (e.g., AFR, MCD, EUR) are coordinating work on inclusive growth and structural policy advice and collaborating with World Bank, OECD, and regional agencies to avoid duplication.  
- Updated Surveillance Guidance Note supports post-TSR approach to surveillance of structural issues.

Key analytical initiatives:
- Staff is developing an analytical framework for identifying structural reforms with the largest productivity payoffs across different country groups; initial findings reflected in the spring 2015 GPA with a Board briefing planned for fall 2015.  
- Ongoing analytical work emphasizes labor and product market reforms for the near-term research agenda across functional and area departments.  
- Region-specific analysis examples include the Staff Discussion Note: "Islamic Finance: Opportunities, Challenges, and Policy Options; SDN/15/05; April 6, 2015."  
- Staff across departments are exploring macroeconomic aspects of inequality, energy and gender issues in selected country cases; several recent Article IV consultation reports examined gender (e.g., India) and inequality (e.g., Mauritania and Nigeria).  
- Staff is systematically cataloguing coverage of structural issues in recent Article IV reports to provide a more granular picture of country structural issues.

### More tailored and adaptable fiscal advice — findings and actions
- Updated Surveillance Guidance Note includes a dedicated section on fiscal policy surveillance, emphasizing fiscal risks, fiscal anchors, and balancing cyclical and sustainability considerations.  
- Country review process gives greater attention to fiscal anchors.  
- Targeted research to strengthen analytical basis for fiscal advice includes upcoming Board papers on fiscal anchors, and fiscal policy and long-term growth, and technical work on methodologies for estimating structural fiscal balance adjustment (including correcting for financial and asset-price cycles).  
- Spring 2015 WEO addresses methodological issues related to estimating potential output.  
- Spring 2015 Fiscal Monitor examines the role and size of automatic budget stabilizers and their contribution to growth.

### Cohesive advice and knowledge sharing — actions and tools
- Departments plan more thematic Article IV staff reports where appropriate to facilitate deeper discussion of policy interactions.  
- Functional departments will strengthen participation in review process for highly vulnerable countries; MCM agreed new country review lists with each area department covering the most vulnerable countries.  
- Departments are considering country desk participation in technical assistance missions related to macrofinancial pilots.

Knowledge Management (KM) initiatives:
- KM Working Group presented its final report with a KM strategy and program; Management intends to establish a small KM Unit supported by robust governance.  
- Some departments incorporate KM program goals in FY2016 accountability frameworks.  
- Departments are strengthening intranet-based thematic sites and establishing new thematic knowledge sites (e.g., small states, fragile states, Islamic finance, gender, inequality) and revamping others (capital flows) to share cross-country resources.  
- Sharing information and cross-country lessons has become a core operating principle in cross-cutting projects, including macrofinancial analysis.

### Achieving greater impact — focus areas
- Staff is working to better understand and address perceptions of evenhandedness, promote clearer multilateral messaging, and facilitate more effective two-way dialogue with member countries.

Evenhandedness:
- Updated Surveillance Guidance Note outlines the concept of evenhandedness based on risk-adjusted “inputs” to surveillance, per the TSR.  
- Cross-departmental work is developing principles to form a shared understanding of evenhandedness and to guide assessments of concerns.  
- Staff has begun discussing the assessment mechanism through which country authorities would raise concerns via their Executive Directors.  
- A dedicated mailbox for reporting concerns is expected later this year.

Client-focused communication and dialogue:
- Immediate focus on aligning and coordinating multilateral messages, particularly across the spring flagships.  
- Plans to streamline multilateral surveillance products: analysis in the 2015 Spillover and External Sector Reports will be more focused and targeted; analysis from the Spillover Report to be folded into WEO from 2016.  
- Regional trends chapter of the WEO will be abolished to avoid duplication with REOs; the GFSR will be streamlined; the full Fiscal Monitor (including conjunctural analysis) will move to a once a year schedule and will not be produced in the fall 2015.  
- Management and COM are coordinating key events and communications milestones, planning regional and global outreach including major conferences, and tracking the impact of outreach events.  
- Departments (APD, EUR, MCD, WHD) in consultation with COM are revisiting communication strategies in light of the TSR.  
- MCD plans to roll out a targeted annual survey in FY2016 to monitor quality of engagement and policy dialogue. APD exploring new approaches to informal engagement (video conferencing, group engagement for similar countries, margins of high-level conferences).  
- Departments are working to ensure Article IV staff reports include holistic assessments of past policy advice and highlight changes in staff advice.

### Looking ahead and monitoring
- Staff will continue implementing initiatives in the Managing Director’s Action Plan and report progress to the Board via topic-specific updates or cross-cutting work program briefings.  
- In 2017, staff will undertake an assessment of the impact of these initiatives on surveillance for Board consideration in the context of the interim implementation assessment.  
- Managers will play a vital role implementing changed work practices under the new leadership framework.

### Annex I — Selected Action items and numeric commitments from the TSR Action Plan scorecard
- G-RAM: staff will issue the G-RAM to the Board for information on a quarterly basis.  
- Article IV alternative quantified risk scenarios: prepare alternative scenarios for a first wave of 20 countries.  
- Balance sheet analysis: identify and implement 5 pilot cases for balance sheet analysis in Article IV consultations, one for each area department.  
- Fund staff will work with G20 members to develop plans for a second phase of the G-20 Data Gaps Initiative starting in 2016.  
- Over the medium term, intensify efforts to develop a global flow of funds at least for the largest global economies.  
- External Sector Assessment: a paper describing the EBA-lite methodology plus dataset and programs will be made publicly available by end-2015.  
- Knowledge Management: establish a small KM Unit; interdepartmental working group to identify 5-10 priority policy areas for documenting country experience; establish a repository of cross-country materials with a good start planned for FY16.  
- Implementation and monitoring: identify and disseminate best practices in Article IV staff reports on 10 TSR priority areas; report on interim assessment of TSR implementation (due early 2017).

*Source: IMF staff report — "Initial Steps in Implementing the MD’s TSR Action Plan" (excerpts).*

---


_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/np/pp/eng/2015/_042415.pdf_