## IMF Executive Board Discussed Use of Third-Party Indicators in Fund Reports

_IMF News, November 22, 2017_

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## Bibliographic details
- Published: November 22, 2017

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### Summary of the Board discussion
- On November 10, 2017, the Executive Board of the International Monetary Fund (IMF) discussed a staff paper on “Use of Third-Party Indicators in Fund Reports.”
- Press Release No. 17/456
- Publication date on the page: November 22, 2017
- MEDIA RELATIONS PRESS OFFICER: Raphael Anspach; Phone: +1 202 623-7100; Email: MEDIA@IMF.org
- The use of comparative indicators developed by other organizations (third‑party indicators, TPIs) is widespread in core areas of Fund surveillance and is increasing in emerging macro‑critical areas.

### Rationale for using TPIs
- Staff rely on TPIs to measure concepts such as:
  - business environment
  - competitiveness
  - quality of governance
  - progress toward social development goals
- TPIs support evidence‑based work in priority areas such as:
  - risks and spillovers
  - macro‑financial surveillance
  - structural issues
  - emerging macro‑critical areas like inequality, gender, and climate change
  - program work
- Staff are expected to continue drawing on other institutions’ expertise and estimates, consistent with Executive Board guidance to leverage outside expertise where internal expertise is limited or lacking.

### Framework proposed by staff
- The paper outlines a three‑element framework to promote best practice in TPI use:
  - (i) a principles‑based Guidance Note for staff (forthcoming);
  - (ii) an “Indicators Digest” (a database for internal use only) compiling selected indicators’ characteristics to inform staff’s judgment, based on the adapted Data Quality Assessment Framework (DQAF);
  - (iii) the review process to ensure best practice in Fund reports.
- Scope of application:
  - The framework will apply to all country documents, policy documents, and multi‑country documents that are subject to the Fund’s Transparency Policy.
  - Staff are encouraged to follow similar guidelines for other Fund documents not subject to the Transparency Policy (e.g., Regional Economic Outlooks and Staff Discussion Notes).

### Executive Board assessment — key observations and concerns
- Directors welcomed discussion of TPIs and noted TPIs’ usefulness for:
  - facilitating cross‑country comparisons
  - identifying evidence to inform analysis
  - complementing assessments where the institution may not gather primary data
- Concerns and challenges highlighted:
  - Varied qualities of TPIs present challenges and risks to the Fund’s credibility.
  - Some TPIs are based on hard data; others are based on qualitative assessment by experts, experience, perception, or composites.
  - Opacity of some TPIs’ sources and methodologies is a concern.
  - Quality and reliability concerns for TPIs based on perception or value judgment and those produced by private entities.
  - Lack of transparency in staff’s choice of some TPIs or their components.
- Directors welcomed a more structured approach to promote best practice, consistency, and evenhandedness.

### Endorsed principles and recommended practices
- Directors endorsed three complementary principles for best practice:
  - transparency in the selection and interpretation of the indicators;
  - robustness checks;
  - presentation of the views of stakeholders.
- Specific recommendations and emphases from Directors:
  - Provide clear justification whenever TPIs are used; a few Directors suggested including an appropriate disclaimer.
  - Discuss key characteristics and limitations of indicators and how results inform the overall assessment.
  - Use indicators as one of many inputs, complementing qualitative discussion that draws on multiple indicators and sources measuring similar concepts to promote robustness.
  - Caution that indicators derived from the same underlying data might be correlated and biased in the same direction.
  - Present staff’s independent and candid views while including views of authorities and other key stakeholders when interpretations differ or additional context exists.
  - Prefer data‑based TPIs over perception‑based ones, though some Directors noted potential value of perception‑based indicators.
  - Ensure evenhanded use based on macro‑criticality and country‑specific context.
  - Many Directors considered it important that the Board be able to access TPI data used by staff.
  - In emerging macro‑critical areas relevant to the Fund’s mandate, many Directors favored developing in‑house expertise; others cautioned about resource implications.
  - Directors underlined the importance of collaboration with other international organizations.

### Indicators Digest — role and characteristics
- Directors appreciated staff efforts to assemble the Indicators Digest, applying an adapted version of the Board‑endorsed Data Quality Assessment Framework.
- Clarifications about the Indicators Digest:
  - It is an internal, centralized quality assessment database.
  - It is not an ex‑ante positive or negative list of acceptable indicators for use in staff analysis and Fund work.
  - It is not an exhaustive compilation of all possible TPIs staff may employ nor a validation of those TPIs.
  - It is a living database; future expansion should be demand‑driven.
- Suggestions from Directors for Digest improvement:
  - Include greater detail on the nature of data, methodology used for compiling each indicator, and specific components that are actionable for governments.

### Next steps and engagement
- Directors’ views will provide inputs into the forthcoming Guidance Note for staff.
- Directors look forward to a further opportunity to engage with staff before the Guidance Note’s finalization.

*International Monetary Fund — Executive Board discussion summary as presented on the IMF web page.*

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## References

- [Use of Third-Party Indicators in Fund Reports](https://www.imf.org/en/publications/policy-papers/issues/2017/11/22/pp101217use-of-third-party-indicator)
- [IMF Surveillance -- A Factsheet](https://www.imf.org/en/about/factsheets/imf-surveillance)
- [Press Releases](https://www.imf.org/en/news/searchnews)
- [PRESS CENTER](http://presscenter.imf.org/)
- [http://www.imf.org/external/np/sec/misc/qualifiers.htm](http://www.imf.org/external/np/sec/misc/qualifiers.htm)
- [https://www.imf.org/en/home](https://www.imf.org/en/home)

_Source: https://www.imf.org/en/news/articles/2017/11/22/pr17456-imf-executive-board-discussed-use-of-third-party-indicators-in-fund-reports_