Surveillance and Policy Coordination

How should IMF surveillance respond to an increasingly interconnected world, and how can it support multilateral cooperation?

November 7, 2011

IMF surveillance – the process of assessing policies, outlooks and risks in its 187 member countries (bilateral surveillance) and the global economy (multilateral surveillance) – is crucial to the smooth functioning of the IMS. Indeed, Article IV, Section 1 clearly sets out that countries need to cooperate with one another and the IMF to ensure the smooth functioning of the system. Further, the injunction to consult with the IMF and furnish the data necessary for surveillance is an obligation that each member must fulfill. Other related activities call on IMF staff to express their judgment and provide assessments of policies. For instance, the Financial Sector Assessment Program (FSAP), which is now mandatory for the 25 jurisdictions judged to have the most systemic financial sectors, informs surveillance. The IMF also works with various groups of countries to help them frame their policies in a regional and multilateral context, such as the G-20 (through the Mutual Assessment Program), currency unions such as the eurozone, where surveillance is conducted at the level of the member and the currency union as a whole, or other regional organizations (e.g., the Southern African Customs Union, the Gulf Cooperation Council (GCC), etc.) about which IMF staff conducts regional research and policy analysis on topics relevant for the region.

In recent years, the IMF has put in place a number of key reforms were to improve surveillance, responding to internal reviews of the effectiveness of surveillance (including the 2008 Triennial Surveillance Review, a review of the IMF’s surveillance in the run-up to the crisis, and the more recent review of the Fund’s mandate). The 2011 Triennial Surveillance Review has now been completed. It offered an opportunity to assess recent reforms and identify further improvements. These reforms will also go a long way in addressing many of the points raised by outside observers, including the IMF’s Internal Evaluation Office (IEO). They aim to:

  • Strengthen multilateral surveillance and its integration with bilateral surveillance, including through better assessments of policy spillovers across countries;
  • Improve the understanding of the real sector’s linkages with the financial system (macro-financial linkages), as well as mapping the connections in the global financial system;
  • Strengthen financial sector surveillance, including by making this more of a focus of bilateral surveillance and making the financial stability assessment under the FSAP mandatory for systemically important financial centers; and
  • Make sharper risks assessments through the Early Warning Exercise and the vulnerability exercises, thereby fostering more candid policy dialogue with country authorities.