IMF Executive Board Concludes 2022 Review of the Safeguards Assessments Policy

December 16, 2022

Washington, DC: On December 7, 2022, the Executive Board of the International Monetary Fund (IMF) concluded a periodic review of the safeguards assessments policy.

The review covered experience with the policy since the last review in 2015, and included a staff paper, Safeguards Assessments – 2022 Review of Experience, and an independent report by an external panel of experts, Safeguards Assessments – 2022 External Expert Panel’s Advisory Report. The safeguards assessments policy’s main objective is to minimize the possibility of misreporting of information under IMF lending arrangements and misuse of IMF resources.

Safeguards assessments seek to provide reasonable assurance to the IMF that central banks of member countries using IMF resources have adequate governance and control frameworks to manage their resources and IMF purchases or disbursements. The assessments cover the following key areas of central bank operations: the external audit mechanism, the legal structure and autonomy, the financial reporting framework, the internal audit mechanism, and the system of internal controls. In addition, the assessments will now cover the governance arrangements at the central bank as a separate pillar in the safeguards framework. The policy continues to require that central banks publish their financial statements that have been independently audited by external auditors in accordance with internationally accepted auditing standards.

The external panel of experts comprised: Mr. Mohammed Nyaoga (Chair), Chairman of the Central Bank of Kenya Board of Directors and a Senior Counsel and Senior Partner of Mohammed/Muigai LLP Advocates; Professor Blanaid Clarke, the McCann FitzGerald Chair in Corporate Law, Trinity College Dublin and a former member of the Irish Central Bank Commission; Dr. Maher Sheikh Hasan, the Counsellor and Chief Economist of the Arab Monetary Fund, and a former Deputy Governor of the Central Bank of Jordan; and Mr. Brian Wynter, a former Governor of Bank of Jamaica, and the past founding CEO of Jamaica’s Financial Services Commission.

Executive Board Assessment [1]

Executive Directors welcomed the opportunity to review the experience with the safeguards assessments policy since the last review in 2015. They noted that the policy remains an important and integral part of the Fund’s overall risk management framework. Directors expressed their appreciation to the external panel of experts for their independent appraisal of the safeguards assessments policy and their conclusions and recommendations to enhance the safeguards framework.

Directors recognized the importance of the safeguards assessments policy to help mitigate the risks of misreporting and misuse of Fund resources. They welcomed the findings that the policy continues to play an important role to meet these objectives and to maintain the Fund’s reputation as a prudent lender. Directors noted positively that in cases where central banks have been subject to more than one assessment, there has broadly been an improvement in the governance and control frameworks, notwithstanding challenges.

Directors agreed that the existing framework for the assessment and monitoring of central banks’ governance and control mechanisms remains broadly appropriate. They welcomed the proposals for further enhancements to keep pace with evolving developments, including establishment of a separate pillar on governance in the safeguards assessments framework to facilitate broader coverage and discussion of the board oversight role and the division of responsibilities among key decision-making bodies to preserve accountability. Directors also recognized the continuing importance of integrated risk management in strengthening central banks’ control frameworks and supported the broader coverage of financial risks in risk management functions, taking into account the technical capacity of each central bank.

Directors noted the developments in issuance of central bank digital currencies in some member countries and broadly supported safeguards coverage of these activities in a systematic and consistent approach. This would help ensure that appropriate oversight and technical and operational aspects are in place to manage the specific risks arising from these activities. Directors also welcomed staff’s plans to expand its outreach to central banks through regional governance events and by disseminating operational guidelines to central banks to help build awareness of the safeguards process and leading practices and international standards. Directors emphasized the importance of monitoring and capacity development in improving implementation of safeguards recommendations.

Directors noted staff’s experience with the fiscal safeguards reviews (FSRs) conducted to date and welcomed the proposals to strengthen the modalities for the reviews, including in-person or hybrid engagement, review processes with management approvals, and a formal mechanism for staff to follow up on recommendations. Directors also welcomed the proposal to require FSRs for High Combined Credit Exposure (HCCE) cases with at least 25 percent of resources directed to budget financing. Given the scope and resource challenges, Directors broadly agreed that the existing threshold for FSRs remains appropriate and covered a significant proportion of Fund resources disbursed for budget financing during the review period. A number of Directors, however, felt that there is value to increasing the number of FSRs, and encouraged staff to explore alternative thresholds at the next review of the safeguards policy.

Directors generally agreed that the safeguards assessments policy would apply to new requests for Resilience and Sustainability Facility (RSF) arrangements by members that seek access to the Resilience and Sustainability Trust (RST) resources through a concurrent program supported by the Policy Coordination Instrument (PCI) or the Policy Support Instrument (PSI). It was noted that the safeguards framework is sufficiently flexible and would continue to take into account country-specific circumstances, including for small states that seek access to the RST and have limited capacity.

Many Directors were willing or open to support the staff’s proposal to introduce an exceptional event clause in the safeguards policy in the event of a future global crisis that leads to similar unprecedented demands for Fund financing (as during the pandemic, which resulted in a large pipeline of safeguards assessments), noting that in such an event, management approval, followed by a staff paper to the Board for a decision to activate the clause for a pre-defined period would be required. Many other Directors, however, expressed reservations or disagreed with the proposal and cautioned that delaying safeguards assessments is not to be undertaken lightly, given that timely assessments are crucial to identifying vulnerabilities, and that defining criteria for such a clause ex ante is difficult. Some Directors argued for a risk-based approach to the exceptional event clause, allowing the extended flexibility only for lower-risk cases. A few Directors also suggested that utilizing any such flexibility should be based on an assessment of the workload, and not on global economic developments. In the end, Directors underscored that allocating appropriate resources for safeguards assessments is crucial.

Directors urged staff to carefully monitor the resource needs for the work on safeguards assessments. They noted that structural resource requirements would need to be considered in the context of the budget discussions.

[1] At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors. An explanation of any qualifiers used in summings up can be found here: .

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