IMF Executive Board Concludes 2022 Review of the Safeguards Assessments Policy
IMF News, December 16, 2022
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- Published: December 16, 2022
Overview and Context
- Press Release No. 22/440; Washington, DC; December 16, 2022.
- The Executive Board concluded a periodic review of the safeguards assessments policy on December 7, 2022.
- The review covered experience since the last review in 2015 and drew on:
- Staff paper: Safeguards Assessments – 2022 Review of Experience.
- Independent external panel report: Safeguards Assessments – 2022 External Expert Panel’s Advisory Report.
- Main objective of the safeguards assessments policy: to minimize the possibility of misreporting of information under IMF lending arrangements and misuse of IMF resources.
Scope, Objectives, and Key Coverage Areas
- Safeguards assessments provide reasonable assurance that central banks using IMF resources have adequate governance and control frameworks to manage their resources and IMF purchases or disbursements.
- 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,
- the system of internal controls.
- Change: assessments will now cover the governance arrangements at the central bank as a separate pillar in the safeguards framework to facilitate broader coverage and discussion of board oversight role and division of responsibilities.
- Policy requirement retained: central banks must publish their financial statements that have been independently audited by external auditors in accordance with internationally accepted auditing standards.
External Expert Panel
- External panel members:
- Mr. Mohammed Nyaoga (Chair), Chairman of the Central Bank of Kenya Board of Directors and Senior Counsel and Senior Partner of Mohammed/Muigai LLP Advocates.
- Professor Blanaid Clarke, the McCann FitzGerald Chair in Corporate Law, Trinity College Dublin and former member of the Irish Central Bank Commission.
- Dr. Maher Sheikh Hasan, Counsellor and Chief Economist of the Arab Monetary Fund, and former Deputy Governor of the Central Bank of Jordan.
- Mr. Brian Wynter, former Governor of Bank of Jamaica and past founding CEO of Jamaica’s Financial Services Commission.
Executive Board Assessment — Findings and Judgments
- Directors welcomed the opportunity to review experience since 2015 and affirmed the policy as an important and integral part of the Fund’s overall risk management framework.
- Directors appreciated the external panel’s independent appraisal, conclusions, and recommendations to enhance the safeguards framework.
- Positive empirical observation: in cases where central banks have been subject to more than one assessment, there has broadly been an improvement in governance and control frameworks, notwithstanding challenges.
- Directors judged the existing framework for assessment and monitoring of central banks’ governance and control mechanisms to be broadly appropriate.
- Directors welcomed proposals for enhancements to keep pace with developments, including:
- establishing a separate governance pillar in the safeguards assessments framework,
- facilitating broader coverage and discussion of board oversight and division of responsibilities,
- supporting broader coverage of financial risks in risk management functions, taking into account the technical capacity of each central bank.
- Directors noted 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 to ensure appropriate oversight and technical and operational arrangements.
Fiscal Safeguards Reviews (FSRs) — Modalities and Thresholds
- Directors noted staff’s experience with FSRs conducted to date and welcomed proposals to strengthen modalities, including:
- in-person or hybrid engagement,
- review processes with management approvals,
- a formal mechanism for staff to follow up on recommendations.
- Directors welcomed the proposal to require FSRs for High Combined Credit Exposure (HCCE) cases with at least 25 percent of resources directed to budget financing.
- Directors judged the existing threshold for FSRs to remain appropriate given scope and resource challenges and to have covered a significant proportion of Fund resources disbursed for budget financing during the review period.
- Several Directors suggested value in increasing the number of FSRs and encouraged staff to explore alternative thresholds at the next review of the safeguards policy.
Application to Resilience and Sustainability Facility / Trust (RSF/RST)
- 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).
- Noted that the safeguards framework is sufficiently flexible to take into account country-specific circumstances, including small states that seek access to the RST and have limited capacity.
Exceptional Event Clause — Proposal and Board Views
- Staff proposed introducing an exceptional event clause to be activated in the event of a future global crisis that leads to unprecedented demands for Fund financing (as during the pandemic).
- Many Directors were willing or open to support the proposal, subject to:
- management approval, followed by a staff paper to the Board for a decision to activate the clause for a pre-defined period.
- Reservations and alternative views among Directors included:
- concerns that delaying safeguards assessments is not to be undertaken lightly because timely assessments are crucial to identifying vulnerabilities,
- difficulty defining ex ante criteria for such a clause,
- suggestions for a risk-based approach allowing extended flexibility only for lower-risk cases,
- some Directors argued any use of such flexibility should be based on an assessment of workload rather than on global economic developments.
- Consensus emphasis: allocating appropriate resources for safeguards assessments is crucial.
Implementation, Outreach, and Capacity Development
- Directors welcomed staff plans to expand outreach to central banks through regional governance events and by disseminating operational guidelines to build awareness of the safeguards process, leading practices, and international standards.
- Directors emphasized the importance of monitoring and capacity development in improving implementation of safeguards recommendations.
- Directors urged staff to carefully monitor resource needs for safeguards assessments and noted structural resource requirements should be considered in the context of budget discussions.
IMF Communications Department — Press Release No. 22/440; MEDIA RELATIONS, PRESS OFFICER: Jose Luis de Haro, Phone: +1 202 623-7100 Email: MEDIA@IMF.org