April 17, 2018

On April 5, 2018, the Executive Board of the International Monetary Fund (IMF) concluded its interim review of the IMF’s surveillance activities. This interim review provides a basis for the next comprehensive review of surveillance expected in late 2019.

Background

The IMF periodically examines the way it conducts its economic and financial analysis and formulates policy advice—a process known as surveillance. At the time of the last comprehensive review—the Triennial Surveillance Review (TSR) in 2014—it was decided to move to a five-year review cycle, which has allowed time to embed reforms and reflect on their implementation, and to introduce this interim progress report. 

A key priority identified in the TSR was to fine-tune surveillance through better tailoring of advice on the fiscal, monetary, external and structural policy mix, drawing on cross-country experience. A more member-focused approach and increased attention to evenhandedness were identified as factors to help achieve greater impact. The Board thus endorsed several broad areas of operational focus for 2014–19: risks and spillovers; macrofinancial surveillance; structural policy advice; and cohesive and expert policy advice. The broad-based push to advance bilateral and multilateral surveillance in recent years has reflected efforts in these areas as well as the macroeconomic challenges that have evolved since the 2014 TSR.

The Interim Surveillance Review (ISR) takes a broad view of surveillance activities and focuses on progress in implementation. It considers actions expected to be taken before the Comprehensive Surveillance Review (CSR) on the surveillance objectives set out in the Board’s Work Program. Inputs to surveillance are assessed across three dimensions: resources, analytical approaches, and engagement. Its assessment of outputs gauges the extent and quality of surveillance, drawing on views of Board members and staff views and analysis.

Executive Board Assessment[1] 

Executive Directors welcomed the Interim Surveillance Review (ISR) and broadly supported its main conclusions and recommendations. They noted that significant progress had been made in advancing the priorities laid out in the 2014 Triennial Surveillance Review (TSR). This has enabled the Fund’s surveillance to be more integrated and risk based and better adapt to evolving developments and challenges facing the membership. Directors welcomed the progress in the Fund’s risk work and inward spillovers, fiscal and external sector assessments, and in the quality and integration of macrofinancial analysis into Fund surveillance. They considered the ISR’s detailed stocktaking a valuable input to the Comprehensive Surveillance Review (CSR) scheduled for 2019.

Directors noted that better integration of bilateral and multilateral surveillance has resulted in a deeper understanding of global risks and spillovers in the flagship reports and an increased focus on inward spillovers in Article IV consultations. They noted that, while outward spillover work is being developed via a range of surveillance outputs, this work should feature more prominently in Article IV consultations. They thus encouraged staff to make further efforts to understand and ensure deeper and more consistent coverage of outward spillovers in surveillance, including through outreach with member countries.

Directors recognized the efforts being made to strengthen external sector assessments. These efforts include the External Balance Assessment (EBA) methodology and the External Sector Report (ESR), which have helped promote greater multilateral consistency for major economies and adoption of the EBA lite methodology for other countries. Directors looked forward to the upcoming discussion on the refinements of the EBA and EBA lite methodologies to further improve them and their application. In this context, they highlighted the need to further enhance consistency and transparency, ensure careful and clear public communication about the nature of the exercise and role of judgment, and better integrate external assessments into the broader policy discussion. Directors noted that the Fund’s Institutional View (IV) on capital flows is now being embedded in surveillance, with greater attention to country circumstances, and encouraged more consistency in applying the framework across the membership as experience accumulates. A few Directors saw merit in fine tuning implementation of the IV, drawing on experience thus far, including further nuancing the distinction between macroprudential and capital flow measures. 

Directors noted that fiscal policy advice continues to adapt to the evolving challenges of the membership, reflecting greater attention to anchors and the use of debt sustainability analyses, especially in low income countries. They emphasized that with the recovery strengthening and financing conditions expected to tighten, rebuilding buffers, reversing the build-up in debt levels and vulnerabilities, and limiting procyclicality in the upturn will become more pressing. Directors welcomed ongoing work to investigate the impact of technology and digitalization on fiscal policy, as on other areas. In this context, a few  Directors called for further work on fiscal space, while a few others asked for additional analysis on fiscal rules.

Directors welcomed the progress in integrating macrofinancial analysis into bilateral surveillance and called for continued efforts to mainstream macrofinancial surveillance and extend its coverage, including the use of the balance sheet approach and assessment of risks from outside the banking sector and technological innovation. They recognized that the macrostructural pilot initiative has facilitated better integration of structural issues into macroeconomic analysis, and improved the depth and granularity of coverage in country papers, noting that there remains scope to increase the country specificity of policy advice.  Directors generally viewed pilot initiatives as an effective approach to build knowledge and experience in addressing emerging issues, with analysis to be incorporated into surveillance where macrocritical, and considered for mainstreaming where the issue is relevant for a large part of the membership, within the Fund’s resource constraints. A few Directors supported more systematic tackling of climate change. Directors underscored the importance of better leveraging external expertise in areas where Fund expertise is limited. They also looked forward to a conceptual framework for macrostructural analysis in low income and developing countries.

Directors acknowledged the efforts in support of evenhandedness by developing a shared understanding of the issues, establishment of an evenhandedness mechanism, and progress in risk adjusted surveillance. While internal resource allocation is increasingly informed by country vulnerabilities, Directors emphasized the need for continuing progress in aligning surveillance inputs with risks.

Directors saw a need to better leverage the Fund’s expert analysis in its core areas of expertise and lessons from cross country experience. They agreed that both technology and people based solutions are needed to identify and disseminate these lessons effectively, building on the Fund’s knowledge management strategy. Directors also called for better integration of capacity development with surveillance. They looked forward to further efforts to address data gaps, particularly in the areas of public debt and financial sector work, and anticipated that the Fund’s budget framework, capacity development, human resources, and information technology strategies should help attain surveillance goals. 

Directors underscored that the forthcoming CSR should evaluate the traction of Fund surveillance and emphasized the importance of the planned engagement with members and other stakeholders to identify priorities for the CSR. They saw merit in the CSR adopting a forward-looking focus to enable the Fund to continue supporting member countries and effectively address the impact arising from evolving global challenges. Director emphasized the importance of tailoring policy advice to reflect members’ specific circumstances.