Fit for Purpose—Adapting IMF Advice to a New Economic Landscape

IMF Blog, May 24, 2021

Source details

Canonical URL

Fit for Purpose—Adapting IMF Advice to a New Economic Landscape

Other formats

• Markdown version
• Structured JSON version
• Bundle manifest

Bibliographic details

• Authors: Fabian Bornhorst, Ceyla Pazarbasioglu
• Published: May 24, 2021

Overview and context

• Authors: Fabian Bornhorst, Ceyla Pazarbasioglu
• Publication date: May 24, 2021
• Core message: The IMF is modernizing its surveillance—its regular policy advice to members—by evolving both the substance of advice and how it engages with member countries, in response to a fast-changing global economy and the COVID-19 crisis.
• Continuity: The Article IV consultations will continue to cover fiscal, monetary, exchange rate and financial issues.
• Institutional milestone: The 2021 Comprehensive Surveillance Review (CSR) was recently approved by the Fund’s Executive Board; it is the first Review since 2014.

Major challenges motivating change

• COVID-19: Described as a watershed moment that exposed new risks and spillovers and created significant uncertainties about the recovery.
• Pre-existing transformational pressures: Increasing interconnectedness, accelerating digitalization, rising inequality, and the priority of addressing climate change.
• Policy dilemmas highlighted:
  • How to calibrate policies to maintain adequate support while ensuring stability and sustained growth.
  • How to respond when conventional macroeconomic tools have limited room for maneuver due to prior extensive use (e.g., since the Global Financial Crisis).
  • How to manage asynchronous and divergent recoveries so countries still grappling with the pandemic do not fall further behind.

The 2021 Comprehensive Surveillance Review: four priorities

• Confronting risks and uncertainties
  • Policy advice will better assess a range of possible outcomes to prepare for worse-than-expected scenarios and to exploit positive surprises.
  • Emphasis on improved understanding of risk-reward trade-offs, contingency planning, and risk management.
  • Advice can include quantitative considerations (for example, how much insurance to buy against natural disasters) and qualitative aspects (for example, how to take advantage of a growth windfall).
• Preempting and mitigating spillovers
  • Recognizes the scale of global interconnectedness and that events in one country can have sizable effects globally.
  • Addresses divergent recoveries and new sources of spillovers, including from health policies, climate change, and digitalization.
  • Calls for identifying and assessing economic and policy spillovers and providing advice to mitigate and pre-empt them.
  • Stresses international economic cooperation and better dialogue between spillover producers and spillover receivers.
• Fostering economic sustainability
  • Advocates a broader understanding of economic sustainability beyond short-term stability.
  • Systematic discussion of trends in demographics, inequality, socio-political developments, and climate change when they are macro-critical.
  • Notes that not all trends are equally pressing for all countries—country-specific circumstances determine macro-criticality.
• A unified approach to policy advice
  • Balancing competing priorities with limited room for maneuver is the key challenge.
  • During the pandemic, countries simultaneously deployed various policy tools that required careful calibration and understanding of complementarities and conflicting objectives.
  • Highlights the need for coordination of fiscal and structural policies where relevant, and deeper integration of macro-financial analysis where financial risks are building.
  • For countries dealing with capital flows and external shocks, the Integrated Policy Framework (IPF) provides an analytical approach to selecting an appropriate policy mix.
  • Unified policy advice helps decision makers discuss trade-offs and identify synergies.

Practical implications for IMF surveillance and Article IV consultations

• Reporting and coverage
  • The Article IV consultations will continue to provide a comprehensive assessment covering fiscal, monetary, external, financial and structural policies.
  • Reports will be more focused and will better integrate macrofinancial aspects, risk assessment and contingency planning, spillovers, and capacity development.
• Use of technology and data
  • New technologies and enhanced data availability will modernize business practices and enhance the relevance of surveillance.
• Granularity and country specificity
  • Policy advice will become more granular and country-specific, particularly for pressing new questions (examples: limiting economic scarring, providing targeted support to firms).
  • Increased emphasis on peer-learning and ensuring IMF advice is informed by early identification of cross-cutting policy issues and lessons from country experiences.
• Implementation outlook
  • The Comprehensive Surveillance Review is an important milestone, but implementation will be gradual.
  • The IMF positions itself as a learning institution—ready to adapt, experiment, and revise—to deliver agile and effective advice amid uncertain future events and unforeseen shocks.

Engagement and feedback

• The page invites stakeholder input and notes a "3-question survey" on IMFBlog for readers to provide feedback.

Source: IMF blog page "Fit for Purpose—Adapting IMF Advice to a New Economic Landscape", May 24, 2021.

References

• عربي
• Español,
• 日本語
• surveillance
• 2021 Comprehensive Surveillance Review
• Confronting risks and uncertainties
• Preempting and mitigating spillovers
• Fostering economic sustainability
• climate change
• deeper integration of macro-financial analysis
• Integrated Policy Framework
• What it means in practice
• CSR website