Protecting IMF Resources-Safeguards Assessments of Central Banks
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- Protecting IMF Resources-Safeguards Assessments of Central Banks
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Bibliographic details
- Published: March 21, 2023
Overview
- IMF safeguards assessments are a due diligence exercise to seek assurances that a country’s central bank can manage IMF disbursements and provide reliable information.
- The IMF’s Articles of Agreement require “adequate safeguards” for the use of its resources to ensure loans are repaid as they fall due, making those funds available to other members in need.
- Safeguards measures include limits on borrowing, conditions on loans, measures to deal with misreporting and arrears, and safeguards assessments of central banks.
- The last update was in March 2023.
What safeguards assessments entail (GELRIC)
- A safeguards assessment is a diagnostic review of a central bank’s governance and control framework across six key areas denoted by the acronym GELRIC:
- Governance arrangements
- Examines whether governance bodies provide appropriate structures and systems for independent oversight.
- Reviews composition and appointment of bodies such as the board, audit committee, governor and deputies, and their capacity to discharge fiduciary duties.
- External audit mechanism
- Assesses whether annual financial statements are published and independently audited in accordance with international standards.
- Reviews auditor selection and rotation, audit quality processes, and auditor communication with oversight bodies.
- Legal structure and autonomy
- Evaluates whether the legal framework provides appropriate autonomy and supports other GELRIC areas.
- Checks for internal and external checks and balances and protection from government interference or override.
- Financial reporting
- Reviews adherence to international good practices for accounting and financial reporting, timeliness of published financial statements, and consistency of monetary data reported under IMF programs with published financial information.
- Internal audit mechanism
- Assesses compliance with international standards, capacity and organizational independence of the internal audit function, and effectiveness of monitoring and reporting mechanisms.
- Internal controls
- Examines the robustness of the control environment, management of operational and financial risks, and controls for foreign reserves management, lending, currency and banking operations, cybersecurity, and business continuity.
- Evaluates whether internal processes support accurate and timely reporting of monetary program data to the IMF.
How the IMF conducts safeguards assessments
- Central banks provide information on the GELRIC areas to IMF staff, including financial statements, internal and external audit reports, relevant legislation, and reports or summaries of internal controls.
- IMF staff review submitted materials and typically conduct visits to the central bank to complete the assessment.
- Meetings are held with the bank’s staff, governance bodies, and external auditors.
- A safeguards assessment report is produced with prioritized recommendations to address identified vulnerabilities; recommendations may become part of program benchmarks.
Confidentiality, monitoring, and information sharing
- Country authorities provide official comments on safeguards reports before finalization.
- Safeguards reports are confidential and are not shared with the IMF’s Executive Board; the Board receives a summary of key findings and recommendations in country staff reports and thematic safeguards activity reports every two years.
- With the central bank’s consent, safeguards reports may be shared on a confidential basis with the World Bank or, where relevant, the European Central Bank (ECB).
- With consent from the central bank, the IMF can provide confidential briefings to donors who request information on the assessment findings.
- IMF staff monitor implementation of recommendations until the member’s credit outstanding falls below the post-program monitoring threshold; thereafter, monitoring is normally limited to a review of central banks’ annual external audit results.
Exceptions, special arrangements, and thresholds
- Flexible Credit Line (FCL) and Short-term Liquidity Line (SLL) arrangements are exempt from full safeguards assessments; these arrangements are limited to a review of the most recent external audit of the central bank.
- Safeguards assessments are not required for augmentations of existing arrangements or for successor arrangements within 18 months of a prior assessment.
- Assessments are not required for central banks that have a strong track record and that completed an assessment within the past four years.
- When IMF lending is provided as direct budget support to the government, an agreement between the central bank and the government must be reached on respective roles and obligations for repayments to the IMF.
- A fiscal safeguards review of state treasuries is required where a member requests exceptional access and at least 25 percent of IMF financing is expected to be used for direct budget support to the government.
History and policy review
- The safeguards assessments policy was introduced in March 2000 following instances of misreporting and allegations of misuse of IMF resources.
- Safeguards assessments are now an integral part of the IMF’s lending activities and are normally reviewed every five years.
References