IMF Executive Board Discusses Approaches to Macrofinancial Issues in Article IV Surveillance

March 28, 2017

On March 6, 2017, the Executive Board of the International Monetary Fund (IMF) discussed progress in incorporating macrofinancial analysis and policy advice into Article IV surveillance, drawing on the findings of the staff paper on “ Approaches to Macrofinancial Surveillance in Article IV Reports.

The 2008 global financial crisis and its aftermath underscored the importance of financial sector surveillance and the need to better understand macrofinancial linkages to help avoid crises in the future. While the global financial system is now significantly stronger and more resilient than prior to the crisis, macrofinancial linkages remain critical for all IMF members.

To improve the traction and usefulness of IMF surveillance, the 2014 Triennial Surveillance Review (TSR) recommended that macrofinancial analysis become an integral part of Article IV consultations and that steps be taken to strengthen the IMF’s focus on macroprudential policies and how they complement other economic policies. The Managing Director’s subsequent Action Plan for strengthening surveillance laid out specific steps to achieve these goals.

In line with the Action Plan, the IMF has undertaken dedicated efforts to strengthen macrofinancial surveillance. Staff has developed new analytical tools and the IMF has boosted staff training. In addition, more than 60 Article IV consultations have sought to strengthen macrofinancial coverage in the corresponding staff reports. In doing so, staff have focused on developing a fuller understanding of macrofinancial linkages and using this to inform their policy advice.

To take stock of initial progress under this initiative, the staff paper examined: (i) the conceptual underpinnings of the IMF’s macrofinancial surveillance, (ii) how macrofinancial links have been integrated more systematically into staff reports’ baseline economic projections and risk assessments, (iii) how strengthening analytical foundations for this work can help staff provide advice on financial, fiscal, monetary, and other policies to promote growth and build resilience, and (iv) steps that could be taken to further strengthen macrofinancial surveillance. The lessons learned are intended to guide staff in progressively extending this work across the IMF’s membership.

Executive Board Assessment  [1]

Executive Directors welcomed the opportunity to discuss the approaches to integrating macrofinancial surveillance in Article IV reports. They commended the progress made by the staff in mainstreaming macrofinancial analysis in line with the recommendations of the 2014 Triennial Surveillance Review and the Managing Director’s Action Plan. Directors agreed that financial sector issues are crucial to countries’ growth and stability and a well‑integrated analysis of these issues would be vital for effective Article IV Surveillance. They appreciated the wide range of macrofinancial issues covered in the Article IV consultations of the diverse group of countries chosen initially for this initiative. Directors supported the Fund’s macrofinancial surveillance initiative and agreed that it is appropriate to progressively mainstream macrofinancial surveillance across the membership.

Directors supported the staff’s focus on integrating macrofinancial analysis, given its significance to the Fund’s core mandate, into baseline projections, risk assessments, and policy advice in Article IV staff reports. Going forward, they underscored that surveillance should include a two‑way assessment of macrofinancial risks and macroeconomic stability, and that financial sector recommendations should be appropriately integrated with the Fund’s advice on fiscal, monetary, and structural policies.

Directors considered that the efforts to integrate macrofinancial analysis are strengthening the traction of Fund surveillance by fostering a more effective dialogue with country authorities. Directors urged the staff to continue being flexible and pragmatic in their approach as they extend this work, taking into account country‑specific circumstances. They underscored the importance of a deep understanding of a country’s institutions, policy frameworks, economic structures, and policy challenges. In addition, macrofinancial analysis should ensure consistent high quality and evenhanded surveillance across the membership. Directors emphasized that staff should continue to engage with country authorities to identify those macrofinancial issues of greatest relevance to a country’s economy. A number of Directors emphasized that country surveillance should take due account of the circumstances of members participating in economic or monetary unions.

While recognizing the overall progress, Directors noted that gaps remain and should be addressed, with due account to legal constraints on the provision of confidential supervisory data. These include giving greater attention to how the financial sector would condition the outlook for credit and output, deepening the analysis of the macroeconomic effects of financial shocks, incorporating quantitative approaches to assess financial risks, and improving the availability of financial data. Directors also supported efforts to explore the contribution of the financial sector to long‑run growth and financial inclusion. Staff should consider how to integrate macrofinancial perspectives more fully into advice on the overall policy mix and anchor advice on micro‑ and macroprudential policies on a solid risk assessment informed by a view about systemic risk.

Directors recognized the considerable efforts involved to develop staff’s capacity and experience in undertaking macrofinancial analysis work. Taking into account the Fund’s mandate and existing resource constraints, they encouraged the staff to continue to focus on efficient ways to support knowledge‑sharing, with a number of Directors emphasizing that this initiative be advanced within the Fund’s existing budgetary envelope. Directors called on staff to strengthen cooperation and share expertise of other multilateral institutions as appropriate. They looked forward to discussing progress at the time of the Comprehensive Surveillance Review in 2019.

1 At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country's authorities. An explanation of any qualifiers used in summings up can be found here: .

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