2021 Comprehensive Surveillance Review— Background Paper on The Surveillance Priority Ensuring Economic Sustainability

Policy Papers, May 18, 2021

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Ensuring economic sustainability is key to achieving the IMF’s surveillance mandate of maintaining present and prospective balance of payments and domestic stability, assuring orderly exchange arrangements, and promoting a stable system of exchange rates.
A broad perspective and a long time horizon are required to understand issues related to economic sustainability for effective IMF surveillance and policy advice.
The principle of macro-criticality, which guides the IMF’s engagement with its members, is sufficiently flexible and broad to allow coverage of issues related to economic sustainability.
Given the wide range of issues related to economic sustainability, IMF surveillance needs to be selective and focused; choices of issues should be made on a case-by-case basis, considering country circumstances.
IMF surveillance should leverage the expertise of other institutions when necessary.
The IMF and other institutions have advanced work to enhance analytical frameworks and indicators related to economic sustainability, and this work should continue.

Macro-criticality as the guiding principle:
- Permits the IMF to cover diverse economic sustainability issues within its surveillance mandate.
- Requires country-specific judgement to determine which sustainability issues are macro-critical.
Scope and selectivity in surveillance:
- Surveillance cannot cover all sustainability-related issues for every member; prioritization is necessary.
- Prioritization should be guided by country circumstances and the macro-criticality assessment.
Need for broader perspectives and longer horizons:
- Effective assessment of sustainability issues demands looking beyond short-term cycles to structural and long-term risks.
Collaboration and leveraging external expertise:
- Where specialized knowledge is required, the IMF should coordinate with other institutions to strengthen analysis and policy advice.
Continued methodological development:
- Ongoing enhancement of analytical frameworks and indicators for economic sustainability is necessary and supported.

Apply the macro-criticality principle flexibly to include economic sustainability issues that materially affect external and domestic stability.
Make selective, country-specific choices on which sustainability issues to prioritize in surveillance.
Incorporate long-horizon analysis and a broad perspective into surveillance products where sustainability risks are identified as macro-critical.
Leverage external expertise and collaboration with other institutions to supplement IMF analysis and address technical gaps.
Continue advancing analytical frameworks and indicators related to economic sustainability to improve the evidence base for surveillance and policy advice.

2021 Comprehensive Surveillance Review— Background Paper on The Surveillance Priority Ensuring Economic Sustainability, May 18, 2021