Economic Surveillance

International Monetary Fund
Published Date:
October 2017
  • ShareShare
Show Summary Details

Surveillance is a catch-all term encompassing the process through which the IMF oversees the international monetary system and global economic developments and monitors the economic and financial policies of its 189 member countries. As part of this typically annual health check, the IMF highlights possible risks to stability and advises on the necessary policy adjustments. In this way, it helps the international monetary system serve its essential purpose of facilitating the exchange of goods, services, and capital among countries, thereby sustaining sound economic growth.

There are two main aspects to the IMF’s surveillance: bilateral surveillance, or the appraisal of and advice on the policies of each member country, and multilateral surveillance, or oversight of the world economy. By integrating bilateral and multilateral surveillance, the IMF can ensure more comprehensive, consistent analysis of “spillovers”—how one country’s policies may affect other countries.

The centerpiece of bilateral surveillance is the Article IV consultation, named after the article of the IMF’s Articles of Agreement that requires a review of economic developments and policies in each of the IMF’s 189 member countries. Article IV consultations cover a range of issues considered to be of macro-critical importance—fiscal, financial, foreign exchange, monetary, and structural—focusing on risks and vulnerabilities and policy responses. Hundreds of IMF economists and other IMF staff members are involved in the Article IV consultation process.

The consultations take the form of a two-way policy dialogue with the country authorities, rather than one-sided IMF assessments. The IMF team typically meets with government and central bank officials, as well as other stakeholders—such as parliamentarians, business representatives, civil society, and labor unions—to help evaluate the country’s economic policies and direction. The staff presents a report to the IMF’s Executive Board, normally for discussion, after which the consultation is concluded and a summary of the meeting is transmitted to the country’s authorities. In most cases and subject to the member country’s agreement, the Board’s assessment is published as a press release, along with the associated staff reports. In FY2017, the IMF conducted 135 Article IV consultations (see Web Table 2.1).

Table 2.1Arrangements approved in the General Resources Account in FY2017(Millions of SDRs)
MemberType of arrangementEffective dateAmount approved
Bosnia and Herzegovina36-month Extended Fund FacilitySeptember 7, 2016443.0
Colombia24-month Flexible Credit LineJune 13, 20168,180.0
Côte d’Ivoire36-month Extended Fund FacilityDecember 12, 2016325.2
Egypt36-month Extended Fund FacilityNovember 11, 20168,596.6
Georgia36-month Extended Fund FacilityApril 12, 2017210.4
Iraq36-month Stand-By ArrangementJuly 7, 20163,831.0
Jamaica36-month Stand-By ArrangementNovember 11, 20161,195.3
Jordan36-month Extended Fund FacilityAugust 24, 2016514.7
Mexico24-month Flexible Credit LineMay 27, 201662,388.9
Moldova, Republic of36-month Extended Fund FacilityNovember 7, 201686.3
Morocco24-month Precautionary and Liquidity LineJuly 22, 20162,504.0
Poland, Republic of24-month Flexible Credit LineJanuary 13, 20176,500.0
Sri Lanka36-month Extended Fund FacilityJune 3, 20161,070.8
Suriname24-month Stand-By ArrangementMay 27, 2016342.0
Tunisia48-month Extended Fund FacilityMay 20, 20162,045.6
Source: IMF Finance Department.
Source: IMF Finance Department.

Following the global financial crisis, the IMF continued to carry out financial stability assessments under the Financial Sector Assessment Program. The financial sector assessments formed part of surveillance for countries with systemically important financial sectors.

Multilateral surveillance involves monitoring global and regional economic trends and analyzing spillovers from members’ policies onto the global economy. As part of its World Economic and Financial Surveys, the IMF publishes flagship reports on multilateral surveillance twice a year: World Economic Outlook (WEO), Global Financial Stability Report (GFSR), and Fiscal Monitor (FM). The WEO provides detailed analysis of the state of the world economy, addressing issues of pressing interest such as the protracted global financial turmoil and ongoing economic recovery from the global financial crisis. The GFSR provides an up-to-date assessment of global financial markets and prospects and highlights imbalances and vulnerabilities that could pose risks to financial stability. The FM updates medium-term fiscal projections and assesses developments in public finances. The IMF also publishes Regional Economic Outlook (REO) reports as part of its World Economic and Financial Surveys.

Bilateral Surveillance

The Article IV Consultation Process: The Annual Economic Policy Assessment

The Article IV consultation process for a particular member country unfolds over a period of several months, beginning with an internal review of key policy issues and surveillance priorities across IMF departments and with management, set out in a briefing document known as the Policy Note.

The Policy Note elaborates on key economic policy directions and recommendations to be discussed with the member country’s government. Review of the Policy Note with all IMF departments to build consensus about a country ahead of the consultation culminates in a Policy Consultation Meeting, and then the Policy Note goes to IMF management for approval. After Policy Note approval, the Article IV team travels to the country for its meetings with government officials and stakeholders. When the team returns to IMF headquarters, a staff report is prepared that again proceeds through departmental and management review before consideration by the IMF Executive Board.

Macro-Financial Issues in Article IV Surveillance

According to a staff paper, “Approaches to Macro-Financial Surveillance in Article IV Reports,” the 2008 global financial crisis underscored the importance of financial sector surveillance and the need for better understanding of macro-financial linkages. Even though the global financial system is stronger and more resilient, macro-financial linkages remain critical for all IMF members.

To improve the traction and usefulness of IMF surveillance, the 2014 Triennial Surveillance Review recommended that macro-financial analysis be an integral part of Article IV consultations, with strengthened IMF focus on macroprudential policies. The Managing Director’s Action Plan for strengthening surveillance outlined steps to achieve these goals. Efforts undertaken to strengthen macro-financial surveillance include new analytical tools and staff training. More than 60 Article IV consultations have sought to strengthen such coverage.

In March 2017, the Executive Board discussed progress in incorporating macro-financial analysis and policy advice into Article IV surveillance, drawing on the findings of the paper. The Board commended the progress achieved and agreed it is appropriate to broaden the effort across the membership. Executive Directors said that surveillance should include two-way assessment of macro-financial risks and macroeconomic stability. They also underscored that financial sector recommendations should be appropriately integrated with the IMF’s advice on fiscal, monetary, and structural policies.

Executive Directors saw the work as strengthening the traction of IMF surveillance by fostering a more effective dialogue with country authorities. They also noted gaps that should be addressed, while taking due account of legal constraints in the provision of confidential supervisory data.

Multilateral Surveillance

The Early Warning Exercise

The Early Warning Exercise (EWE) is an important element of the IMF’s efforts to assess economic, financial, fiscal, and external risks. The exercise is part of the institution’s surveillance work and is conducted twice a year in coordination with the flagship publications—the World Economic Outlook, Global Financial Stability Report, and Fiscal Monitor.

Findings are presented to the Executive Board and to senior officials during the IMF Spring and Annual Meetings. Follow-up to the EWE takes place in the context of country and global surveillance activities. The IMF and Financial Stability Board (FSB) cooperate closely on the EWE in order to provide an integrated perspective on risks and vulnerabilities. The IMF tends to take a leading role on economic, macro-financial, and sovereign risk concerns, while the FSB focuses on financial system regulatory and supervisory issues.

2016 External Sector Report

A core function of IMF surveillance is providing multilaterally consistent assessments of member countries’ external sector, including their exchange rates, current accounts, reserves, capital flows, and external balance sheets. This is done comprehensively in Article IV consultations and in the External Sector Report. This report, which has been produced annually since 2012, covers 28 of the world’s largest economies, plus the euro area, representing over 85 percent of global GDP. The report is part of an ongoing effort to provide a rigorous and candid assessment of global excess imbalances and their causes, and ensure that the IMF is in a good position to address the possible effects of members’ policies on global external stability.

The Executive Board discussed the 2016 report, issued along with individual economy assessments, in an informal session in July 2016. No decisions were made at the meeting. The forthcoming 2017 report will be discussed in a formal session.

Macroeconomic Developments and Prospects in Low-Income Developing Countries

The third annual staff paper, “Macroeconomic Developments and Prospects in Low-Income Developing Countries—2016,” highlighted continued economic adjustment to low global commodity prices, particularly for commodity-exporting low-income developing countries (LIDCs). The paper—discussed by the Executive Board in December 2016—considered the policy challenges of high fiscal deficits, reduced foreign reserves, and elevated economic and financial stress. The paper also examined infrastructure development issues.

In their assessment, Executive Directors welcomed the “comprehensive assessment of macroeconomic developments” in LIDCs, “appreciated the attention given in the paper to the diversity of situations and experiences across countries, and saw the more in-depth discussion of financial sector issues and public infrastructure provision as being timely and appropriate.” The Board supported an annual, formal Board discussion of LIDC developments to better understand the “unique policy issues” they face.

Directors underscored the need for vigilance and decisive policy responses by country authorities and noted the importance of close IMF monitoring and tailored policy advice. They agreed on the need for commodity exporters to undertake further policy adjustments, including fiscal consolidation and exchange rate adjustment, where feasible. The Executive Board also expressed concern that financial sector stresses are increasing in a significant number of LIDCs and called for proactive oversight.

On infrastructure development, Executive Directors stressed that financing the necessary levels of public investment while safeguarding debt sustainability would require several actions:

▪ Boosting public saving through enhanced domestic revenue mobilization and containing nonpriority spending

▪ Strengthening public investment management

▪ Developing local capital markets

▪ Tapping available sources of concessional financing

Directors also agreed that enhancing the role of the private sector in infrastructure delivery, where feasible, is a priority for many LIDCs.

Enhancing the Financial Safety Net for Low-Income Developing Countries

Access to IMF resources by developing countries was the subject of a November 2016 Executive Board discussion of a paper titled “Financing for Development: Enhancing the Financial Safety Net for Developing Countries—Further Considerations.” The paper identified areas where IMF policies need clarification for concessional lending under the Poverty Reduction and Growth Trust (PRGT).

The paper provided clarification on issues pertaining to access to Fund resources for PRGT-eligible members, including the following:

▪ Such members’ access to Fund instruments that draw on the General Resources Account (GRA)

▪ The role of access norms in providing indicative guidance on what could constitute the appropriate level of access

▪ The adequacy of PRGT-eligible members’ access to precautionary financial support

▪ The adequacy of safeguards to prevent repeated use of the Rapid Credit Facility as a substitute for arrangements with ex post conditionality

The Board, in its assessment, reaffirmed that PRGT-eligible members have a right to nonconcessional financing, but noted that, given the financial benefits from borrowing on concessional terms, the staff should continue to advise these members to seek concessional support up to the applicable limits.

Executive Directors emphasized the importance of continued attention to maintaining the adequacy and flexibility of the PRGT toolkit, including by reviewing access norms and limits, blending policy, interest rate structure, and mechanisms for maintaining PRGT sustainability. The Board will address a comprehensive review of PRGT resources and facilities in 2018.

Assessing Fiscal Space

The IMF’s ongoing work on fiscal sustainability and fiscal space took a step forward with the publication of an analytical framework for assessing fiscal space. The Executive Board was briefed on the paper “Assessing Fiscal Space: An Initial Consistent Set of Considerations” at an informal session in June 2016.

The proposed framework is designed to support future IMF surveillance and policy advice. It should apply to a broad range of future circumstances, such as a country’s scope to use fiscal policy to offset current global economic policy challenges, fill gaps in public infrastructure, calibrate the pace of fiscal adjustment, or build buffers.

Fiscal space can be defined as the ability of a government to raise spending or lower taxes without endangering market access and debt sustainability. The paper puts forward a comprehensive approach that is broadly comparable across countries. It provides IMF staff and policymakers with a consistent methodology.

Making a determination about fiscal space requires a comprehensive approach that includes economic and structural conditions, market access, the level and trajectory of public debt, present and future financing needs, and analysis of the liquidity and solvency of the fiscal position under alternative policies.

The framework brings together various tools for fiscal sustainability developed by the IMF staff over the years, including debt sustainability analysis. In addition, the IMF staff employs indicators developed by the IMF’s Fiscal Affairs Department, along with methods based on fiscal stress tests, scenario analysis, and general equilibrium modeling.

The new framework advances the analysis by allowing the IMF staff to assess fiscal space consistently across all member countries, especially for advanced and emerging market economies. It will be applied initially in the Article IV consultations of about 40 major economies, and updated over time based on experience, research, and feedback.

IMF, FSB, Bank for International Settlements Report to G20 on Macroprudential Policy

In the wake of the global financial crisis, countries introduced policy frameworks and tools to limit risks to the entire financial system or entire market that could cause economic damage.

Responding to a request by the Group of 20 industrialized economies to take stock of international experience with macroprudential policies since the 2008 financial crisis, the IMF, the FSB, and the Bank for International Settlements prepared a report titled “Elements of Effective Macroprudential Policies.”

The report, issued for the September 2016 G20 summit in Hangzhou, China, followed a 2011 progress report by the three institutions on macroprudential policy tools and frameworks. While the report determined that there is no one-size-fits-all policy approach, it highlighted several useful elements. Structural reforms were the subject of a chapter in the Spring 2016 World Economic Outlook.

These included the need for a mandate for decision-making responsibility, adequate institutional foundations for policy frameworks, well-defined objectives and powers, transparency and accountability mechanisms, cooperation and information sharing among domestic authorities, a comprehensive framework to analyze and monitor systemic risk, policy tools to address systemic risk over time, and the ability to calibrate policy responses to risks.

The Impact of Migration and Refugee Flows

Migration has emerged as a macroeconomic issue affecting advanced, emerging market, and developing economies. The rapid increase of migrant and refugee flows also has taken on political dimensions, particularly in the wake of conflicts in the Middle East.

IMF work on migration- and refugee-related issues takes place across a range of activities, including bilateral surveillance. For example, the 2016 Article IV report on Lebanon, released in January 2017, included an analysis of Lebanon and the Syrian refugee crisis.

In the area of analytical work, a July 2016 paper, “Emigration and Its Economic Impact on Eastern Europe,” addressed the implications of the outflow of migrants. A September 2016 paper examined the impact of conflicts and the refugee crisis in the Middle East and North Africa (see the Regional Highlights section in Part 1).

Two spillover notes released during the year addressed aspects of the migration issue. One note, titled “The Impact of Migration on Income Levels in Advanced Economies,” determined that immigration increases the GDP per capita of host economies, mostly by raising labor productivity. The other note, “Sub-Saharan African Migration: Patterns and Spillovers,” addressed migration within the region and to the rest of the world. This work built on a January 2016 paper, “The Refugee Surge in Europe: Economic Challenges.”

In a January 2017 speech in Brussels, First Deputy Managing Director David Lipton discussed the debate over migration, tying it to the concurrent debate over globalization. “The economic benefits of migration are well established,” he said, “but as we are doing in the broader debate around globalization, we also must recognize that more work must be done on the topic, particularly to obtain a clearer picture of who may be hurt by migration—and how we can mitigate the impact.”

Trade Integration in Latin America and the Caribbean

Since the 2011 Triennial Surveillance Review, the IMF staff has prepared a group of “cluster reports” that address issues relevant to member countries in specific regions. These assessments are designed to fill gaps between the individual country assessments (Article IV consultations) and multilateral surveillance of global trends.

In March 2017, the IMF staff released a cluster report, “Trade Integration in Latin America and the Caribbean.” The Executive Board discussed it in an informal session. The report explored opportunities for expanded trade integration in the region, drawing on 12 analytical studies issued as accompanying papers. It found that Latin America and the Caribbean can reap benefits through trade as an engine of growth.

The paper suggested that trade integration could be promoted through a regional trade agreement, convergence of trade rules and regulatory standards, and measures to encourage trade. It also emphasized regional efforts to strengthen infrastructure and human capital and the need to increase participation in global value chains that may offer opportunities for technology transfer.

The IMF and 10 international development banks agreed to scale up financing for development.

Policy Advice

IMF and Development Banks’ Commitments on the 2030 Agenda

Following the 2015 adoption of the United Nations Sustainable Development Goals (SDGs), in October 2016 IMF Managing Director Christine Lagarde and the heads of 10 multilateral development banks adopted a statement on delivering on the SDGs.

The institutions committed to enhancing coordination and collaboration to address key issues in the 2030 Agenda, including forced displacement, infrastructure, urbanization, climate finance, and private investment. They agreed to strengthen efforts to scale up financing for development by “leveraging, mobilizing, and catalyzing resources at all levels.” They also will expand policy guidance and technical assistance in support of countries’ efforts to increase domestic resource mobilization.

Reducing Oil Dependence in Gulf Countries

The IMF Middle East Center for Economics and Finance, jointly with the Arab Fund for Economic and Social Development, held a symposium called “The Path to Economic Diversification in Kuwait and Other Gulf Cooperation Council Countries” in May 2016. The event was hosted at the Arab Fund headquarters.

The symposium was the fourth in a series organized jointly by the two institutions aimed at stimulating discussion on economic policies for the Gulf Cooperation Council countries to ensure durable development based on a long-term strategy to reduce oil dependence.

Small States’ Resilience to Natural Disasters and Climate Change

The Executive Board examined the challenges that small states face from natural disasters and climate change through discussion of a paper exploring how IMF policy advice, capacity building, and lending can meet the evolving needs of these countries. The 2016 paper, “Small States’ Resilience to Natural Disasters and Climate Change—Role for the IMF,” builds on a 2015 paper quantifying the impact of natural disasters in a cross-country study.

The paper, discussed by the Board in December 2016, outlined the key elements—and the role of macroeconomic policies—in a risk management framework to reduce the economic and human cost of disasters. The paper highlighted the importance of planning contingent financing ahead of a disaster and the need for climate change financing for risk mitigation and adaptation.

Executive Directors concurred that strengthened domestic policies are crucial to reducing the costs associated with natural disasters and climate change. They underscored the need to identify risks and vulnerabilities in advance, invest in programs and projects that can reduce risk, and develop contingency plans.

Directors agreed that small states should seek to develop more financing arrangements for use after natural disasters, and encouraged broader use of contingent financing arrangements, regional insurance pools, and catastrophe bonds. Directors welcomed the ongoing use of the IMF’s Rapid Credit Facility and Rapid Financing Instrument by countries hit by natural disasters, and supported the staff’s proposal to raise the annual access ceiling to 60 percent of quota for countries experiencing severe disaster-related damages.

The Executive Board also emphasized the role of IMF capacity development in helping small states build resilience to climate events.

IMF Offers Support for the Central African Republic

Managing Director Christine Lagarde reaffirmed the IMF’s commitment to fragile states during a January 2017 visit to the Central African Republic. During the visit, the Managing Director stated determination to support efforts to achieve robust and inclusive growth and achieve national reconciliation in the country, which has been devastated by internal conflict.

The Managing Director also used the opportunity of a speech to the National Assembly to highlight the IMF’s commitment to strengthening cooperation with fragile states, which is also embedded in the 2015 UN SDGs.

“One clear understanding is that responding to fragility is not just a matter of more money,” the Managing Director said. “There must be a concrete focus on building peace, restoring social cohesion, and assembling a working government. Close coordination among donors is also key. This type of comprehensive approach is needed to lay the foundation for economic stability and growth. The IMF has a great deal to offer to Central African Republic and other countries as part of a coordinated effort.”

Ensuring Financial Stability in Countries with Islamic Banking

Islamic Finance refers to the provision of financial services in accordance with Sharia Islamic law, principles, and rules. Sharia does not permit receipt and payment of riba (interest), gharar (excessive uncertainty), maysir (gambling), short sales, or financing activities that it considers harmful to society. Instead, the parties must share the risks and rewards of a business transaction, and the transaction should have a real economic purpose without undue speculation and not involve any exploitation of either party.

The IMF has worked with member countries on Islamic banking issues for two decades and has cooperated with international bodies on matters related to banking standards. In recent years, issues arising from Islamic banking during regular interactions with member countries have required more formal IMF involvement.

In February 2017, the Executive Board held its first formal discussion on Islamic banking and adopted proposals on the IMF’s role in this area. The proposals were included in a staff paper titled “Ensuring Financial Stability in Countries with Islamic Banking.”

Executive Directors agreed that Islamic banking presents an opportunity for many member countries to enhance financial intermediation and inclusion and mobilize funding for economic development. They noted that the growth of Islamic banking poses challenges and risks for regulatory and supervisory authorities. Directors called for stronger efforts to establish a policy framework that promotes financial stability and sound development of Islamic banking, particularly for countries where it has become systemically important.

Directors supported the staff’s proposed approach to develop and provide policy advice in IMF economic surveillance, program design, and capacity development. They also called for the staff to continue supporting the work of international standard setters and other international bodies in addressing gaps in the regulatory framework for Islamic banking.

Directors saw merit in considering a proposal to formally recognize the Core Principles for Islamic Finance Regulation for Banking, prepared by the Islamic Financial Services Board, as a standard under the IMF–World Bank Standards and Codes Initiative. A formal proposal for Board endorsement will be part of a paper to be presented for consideration during FY2018.

A Global Approach to Capital Flows

Capital flows are an important aspect of the international monetary system. They provide significant benefits, both direct and indirect. At the same time, they also carry risks, and a key challenge for countries is how to harness the benefits while managing the risks. In 2012 the IMF adopted an institutional view on the liberalization and management of capital flows to help ensure clear, consistent policy advice for the membership.

In December 2016, the Executive Board discussed a paper titled “Capital Flows—Review of Experience with the Institutional View.” The paper focused on how countries dealt with macroeconomic and financial stability challenges related to capital flows and the progress made in liberalizing capital flows, and interpreted these policy responses through the lens of the institutional view.

Executive Directors welcomed the review of experience with the institutional view since the institutional view was adopted; they considered that it remains relevant and that there is no need for substantive adjustment at this point.

Directors noted that the policy challenge for recipient countries has generally shifted from handling capital inflow surges to dealing with capital flow reversals while continuing to manage volatility. They observed that policy responses have generally been in line with the institutional view. Directors took positive note of the continued gradual trend toward greater capital account liberalization.

Directors supported follow-up work on the interaction between macroprudential and capital flow policies, especially the role of macroprudential policy frameworks in addressing systemic financial risks arising from capital flows. Directors saw value in the IMF’s promoting a more consistent global approach to handling capital flows, including in bilateral and multilateral agreements. They stressed the need to take into account country-specific macroeconomic and financial stability considerations in determining the appropriate policy response, as emphasized in the institutional view.

Managing Government Compensation and Employment

Government compensation and employment policies are crucial for the efficient delivery of public services and the functioning of economies. They also have important implications for fiscal policy and fiscal sustainability. Issues related to government wage bills were examined in a policy paper, “Managing Government Compensation and Employment—Institutions, Policies, and Reform Challenges,” presented to the Executive Board at an informal session in May 2016.

The paper, accompanied by a supplement on case studies, outlined how pressures on wage spending will increase over the coming decades across advanced, emerging market, and low-income developing countries. Effective management of wage bill spending is needed to ensure that public services are delivered in a cost-effective and fiscally sustainable manner. The paper said that this requires stronger institutions, adequate fiscal planning, competitive compensation, and the flexibility to respond to demographic and technological developments.

Priorities for Structural Reforms in G20 Countries

In advance of the September 2016 G20 summit in China, the IMF staff prepared a background paper titled “Priorities for Structural Reforms in G20 Countries.” The paper included recommendations for each G20 member on changes in government policies, regulations, and institutions that could improve the way the economy works, to allow markets to operate more efficiently and boost growth at a time when nearly all the economies were operating at below-potential output.

The paper said that structural reforms can lift growth if they are well aligned with individual country conditions, including an economy’s level of development, position in the economic cycle, and ability to support reforms. The larger a country’s output gap, the more it should prioritize structural reforms such as product market deregulation and infrastructure investment.

Enhanced Clauses in Sovereign Bonds

The Executive Board in 2014 endorsed the inclusion of features of enhanced pari passu provisions and collective action clauses in new international sovereign bonds. The enhanced clauses complement reforms to the IMF’s lending framework designed help achieve the overall objectives of timely and orderly sovereign debt restructurings, where restructurings are deemed necessary, and reducing the overall costs to the system.

In December 2016, the IMF staff sent to the Board the second progress report on the inclusion of those enhanced contractual provisions in sovereign bond contracts. The report outlined continued substantial progress on incorporation of both the enhanced collective action clauses and the modified pari passu clause. The outstanding stock of debt without the enhanced clauses remained significant at about $846 billion as of October 31, 2016, and is slowly declining.

Withdrawal of Correspondent Banking Relationships

A correspondent bank is a financial institution that provides services on behalf of another financial institution. It can facilitate wire transfers, conduct business transactions, accept deposits, and gather documents on behalf of another financial institution. Correspondent banks are most likely to be used by domestic banks to service transactions that either originate or are completed in foreign countries, acting as a domestic bank’s agent abroad.

Correspondent banking relationships, which facilitate global trade and economic activity, have been under pressure in several countries, disproportionately affecting developing countries. Financial fragility has risen in these economies because their cross-border flows are concentrated through fewer correspondent banks or maintained through alternative arrangements, which may drive up costs. Such fragility could undermine those countries’ long-term prospects for growth and financial inclusion by making financial services more expensive and negatively affecting the ratings of their banks.

The trend of shrinking correspondent banking relationships became a focus of the IMF’s work during FY2017. The Executive Board in April 2017 discussed a staff report titled “Recent Trends in Correspondent Banking Relationships—Further Considerations.” The report followed a paper, issued in June 2016, “The Withdrawal of Correspondent Banking Relationships: A Case for Policy Action.” A joint IMF–World Bank paper on the withdrawal of correspondent banking relationships in the Middle East was released in September 2016, and a paper titled “Challenges in Correspondent Banking in the Small States of the Pacific” was released in April 2017. Deputy Managing Director Tao Zhang addressed the issue in a speech to the 2016 High-Level Caribbean Forum held in November 2016 in Port of Spain, Trinidad and Tobago. Co-organized by the IMF and the government of Trinidad and Tobago, the forum was attended by over 100 participants, including four prime ministers, four ministers of finance, and nine central bank governors from the region.

The staff report reviewed the drivers of correspondent banking relationship withdrawal, focusing on profitability and risk management. It also assessed the feasibility and impact of policy responses and industry initiatives. It proposed an approach for the IMF to monitor risks and advise its membership using economic surveillance, the Financial Sector Assessment Program, and capacity development activities. To achieve these objectives, the IMF will continue its collaboration with the FSB, the World Bank, the G20, the Financial Action Task Force, the Committee on Payments and Market Infrastructures, and other stakeholders.

In their discussion of the staff report, Directors emphasized the importance of correspondent banking relationships in facilitating global trade and remittances and supporting economic growth and development. They welcomed the various initiatives to tackle pressures on correspondent banking relationships, and cautioned that given the multitude of drivers, responses to withdrawal of correspondent banking relationships need to be tailored, prioritized, and sequenced, depending on country-specific or regional circumstances. They underlined the importance of strengthened, coordinated, and collective efforts on the part of public and private stakeholders, and highlighted the crucial role of the IMF in addressing this issue.

Comprehensive, Consistent, and Coordinated Approach to Economic Policies

Concerns about the effectiveness of efforts to boost slow global growth were at the center of international discussions of economic policy during FY2017. In September 2016, the IMF released a paper, “Macroeconomic Management When Policy Space Is Constrained: A Comprehensive, Consistent, and Coordinated Approach to Economic Policy,” arguing that “room exists for effective policies and that it should be used if appropriate.”

The paper maintained that the most promising approach involves a “comprehensive, consistent, and coordinated” use of policies.

Comprehensive policy actions by an individual country exploit policy synergies, making the whole greater than the sum of its parts. This entails the mutually supportive use of monetary, fiscal, and structural policies.

Consistent policy frameworks anchor long-term policy expectations while allowing for short- to medium-term accommodation whenever necessary.

Coordinated policies across major economies amplify the helpful effects of individual countries’ policy actions. Under conditions of very low interest rates and wide output gaps, international coordination of fiscal and monetary stimulus can boost global GDP.



The highest tier of the IMF’s Data Dissemination Initiative, the Special Data Dissemination Standard (SDDS) Plus, is intended primarily for economies that play a leading role in international capital markets and whose financial institutions are globally interconnected. During FY2017, four economies adhered to the SDDS Plus—Austria, Bulgaria, Canada, and Denmark.

Enhanced General Data Dissemination System

Under the enhanced General Data Dissemination System (e-GDDS), endorsed by the IMF Executive Board in May 2015, country authorities commit to publishing the data that support their ongoing policy dialogue with the IMF staff. Publication must be according to a release schedule agreed upon in advance, with data easily accessible, including for machine-to-machine transmission.

The effort is fostering international cooperation, with the African Development Bank and the Inter-American Development Bank providing material support for the installation of information technology infrastructure (Open Data Platform) that sustains National Summary Data Pages in selected countries in Africa and the Western Hemisphere.

Implementation of the e-GDDS proceeded in 17 countries during the year. Thirteen of these countries—Benin, Honduras, Jamaica, Malawi, Namibia, Paraguay, Samoa, Senegal, Sierra Leone, Swaziland, Tanzania, Uganda, and Zambia—published a National Summary Data Page.

Data Gaps Initiative

In September 2016, the G20 leaders welcomed the First Progress Report on the Second Phase of the Data Gap Initiative (DGI-2) and supported the proposed action plans for the implementation of 20 recommendations. To take forward the initiative, the 2017 DGI-2 work program included four thematic workshops—data sharing, data gaps on systemic risks in the insurance sector, institutional sector accounts, and financial soundness indicators.

New Data Release on Currency Composition

In March 2017, the IMF released quarterly data on the currency composition of official foreign exchange reserves (COFER), identifying separately the holdings in the Chinese currency, the renminbi, for the first time. On February 26, 2016, the IMF Executive Board had agreed to modify the COFER survey to allow separate identification of the renminbi effective October 1, 2016, in line with its decision to include the renminbi in the Special Drawing Rights basket of currencies.

Argentina Adopts International Standards

In support of the Board’s monitoring of efforts to improve Argentina’s macroeconomic statistics, the IMF conducted three technical assistance visits to the statistics agency, INDEC, during 2016. Two missions reviewed and assisted the development of a new national consumer price index that broadly reflects international standards and best practice, including indices for each of the country’s six regions. The third mission helped to align Argentina’s external sector accounts with the latest statistical standards.

Monetary and Financial Statistics for Global Financial Stability

Through its capacity development efforts, the IMF’s Statistics Department continues to promote expanding coverage of monetary statistics to include nonbank financial institutions. This will facilitate application of the balance sheet approach to macro-financial surveillance. As of April 2017, data on nonbank financial institutions are available for 47 countries.

Financial Soundness Indicators Workshop

The IMF’s Financial Soundness Indicators (FSIs) help assess the strengths and vulnerabilities of financial systems, providing valuable insight for financial stability analysis and the formulation of macroprudential policies. IMF staff members are required to report on FSIs as part of their regular reviews of countries’ economic health.

In April 2017, the IMF conducted a workshop on FSIs that brought together over 80 participants from 36 countries and seven international organizations. The workshop was designed to inform the selection of a priority list of FSIs and the revision of the FSI Compilation Guide. Participants expressed strong support for the IMF effort to provide a harmonized framework for the compilation of the FSIs, which participants found useful for macroprudential policies and financial stability analyses. They supported expanding the coverage of the FSIs to include subsectors of the other financial corporations.

During the year, the IMF’s Statistics Department conducted knowledge-sharing sessions to assist countries in compiling and disseminating FSIs, with funding from the Japan Administered Account for Selected IMF Activities and the United Kingdom’s Department for International Development. Thanks to these efforts, the cumulative number of FSI-reporting countries rose from 46 at the end of 2009 to 124 as of April 2017 (Figure 2.1). In Africa, the number of FSI reporters reached 26 in April 2017, compared with five at the end of 2013.

Figure 2.1Number of FSI-reporting countries, by region, 2009–17

(as of April 30, 2017)

Source: IMF staff calculations.

Financial Access Survey

The World Bank estimates that 2 billion working-age adults—more than half of the world’s total adult population—do not have an account at a formal financial institution. Financial inclusion efforts seek to ensure that all households and businesses, regardless of income level, have access to and can effectively use the appropriate financial services they need to improve their lives.

The IMF produces an annual Financial Access Survey, a source of data on financial inclusion. The seventh survey, based on data from traditional financial service providers and digital financial services, was released in October 2016. The database contains more than 150 series for up to 189 economies spanning the period 2004–15.

The role of digital financial services in promoting the spread of financial inclusion was recognized by the G20 during 2016, leading to a revision of the G20 Financial Inclusion Indicators. The Financial Access Survey has been an official source for the indicators since 2012.

Growing interest in gender-related statistics on financial inclusion led to a pilot survey of some governments to assess their capacity to compile and disseminate such statistics. The results of the pilot, along with the most recent survey, are available on the Financial Access Survey website.

Standards and Codes Initiative

“Standards and codes” refers to aspects of the institutional environment—the rules of the game for economic and financial policy. Countries with well-regulated and transparent institutions tend to enjoy better economic health and greater financial stability, so it is in countries’ own interest to adopt and implement internationally recognized standards and codes.

The global financial crisis made it clear that compliance with international standards is only one element of crisis prevention: gaps and weaknesses remain, and rigorous follow-up is essential. Standards and codes in several areas have been updated in accordance with evolving best practice; other areas are still under consideration.

The IMF and the World Bank recognize international standards under three broad groups:

Policy transparency: Standards in these areas have been developed by the IMF. In the area of fiscal policy transparency, three of the four pillars of the IMF’s Fiscal Transparency Code have been issued. The fourth pillar, on resource revenue management, is currently being developed and has undergone two rounds of public consultation and several pilots in the field.

Financial sector regulation and supervision: Standards in these areas, and corresponding assessment methodologies, have been developed by specialized standard-setting bodies. In addition, the new standard for crisis resolution is up for IMF Board endorsement during the initiative’s 2017 review.

Institutional and market infrastructure: Standards in this area, and corresponding assessment methodologies, have been developed by specialized standard-setting bodies, with substantive input from the IMF and World Bank.

In addition, one standard in the crisis resolution and deposit insurance area is up for IMF Board endorsement during the initiative’s 2017 review.

Observance of standards and codes may be assessed, at a member’s request, by the IMF and/or the World Bank. Data dissemination observance is also monitored monthly for subscribers to the IMF’s Special Data Dissemination Standard. Fiscal transparency evaluations assess countries against the Fiscal Transparency Code.

Since the last review of the Standards and Codes Initiative in 2011, several refinements have been made in data and statistics. These include enhancing the SDDS in 2012, establishing the SDDS Plus in 2012, and enhancing the GDDS in 2015. The Data Quality Assessment Framework, used for comprehensive assessment of countries’ data quality, was updated in 2012 to reflect additional assessment experience, updates in statistical methodologies (2008 System of National Accounts and 2009 sixth edition of the Balance of Payments and International Investment Position Manual), and the extension of the coverage of the monetary statistics to other financial corporations—following the global financial crisis in 2008.

Fiscal Transparency for Public Finances

Fiscal transparency—the comprehensiveness, clarity, reliability, timeliness, and relevance of public reporting on the past, present, and future state of public finances—is critical for effective fiscal management and accountability. It helps ensure that governments have an accurate picture of their finances when making economic decisions, including of the costs and benefits of policy changes and potential risks to the fiscal outlook. It also provides legislatures, markets, and citizens with the information they need to hold governments accountable. Furthermore, fiscal transparency facilitates international surveillance of fiscal developments and helps mitigate the risk of transmission of fiscal spillovers between countries.

The IMF’s Fiscal Transparency Code and evaluation are the key elements of the institution’s ongoing efforts to strengthen fiscal monitoring, policymaking, and accountability among its member countries. The Code is the international standard for disclosure of information about public finances. It consists of a set of principles built around four pillars: (1) fiscal reporting, (2) fiscal forecasting and budgeting, (3) fiscal risk analysis and management, and (4) resource revenue management. For each transparency principle, the Code differentiates between basic, good, and advanced practices to provide countries with clear milestones toward full compliance with the Code and ensure its applicability to the broad range of IMF member countries.

During FY2017, the IMF published fiscal transparency evaluations of Guatemala, Kenya, Tunisia, and the United Kingdom.

Guatemala is engaged in substantive reforms to improve transparency and fight corruption. The wealth of information available and the systems in place related to the public sector’s execution of its budget allow for easy access by the population to an impressive volume of fiscal data. The main areas for improvement are the consolidation of public sector accounts and management of fiscal risks.

Significant decentralization reforms in Kenya amid increasing pressure for public services and infrastructure make fiscal transparency critical, more so as Kenya is expected to form a monetary union with its East African partners in 2024. Kenya scored well against several of the Code’s standards. Across three pillars, 13 principles were at the good or advanced level, and 16 were rated basic. Fiscal forecasting and budgeting are mostly in line with good or advanced practice, but credibility of future spending estimates, management and oversight of investment projects, publication of revised budgets, and alignment of spending programs with medium-term sectoral priorities could improve. Weaknesses in fiscal reporting and fiscal risk management were also identified, and the evaluation has provided a good basis for the government to make progress in these areas.

Following the 2011 revolution, Tunisia has witnessed a profound transformation of its political institutions, including reforms aimed at modernizing public financial management and enhancing the transparency of public finances. Although it scored well in some areas of the Code, improvement is needed in many areas to bring country practices in line with international standards. Among the principles evaluated, 10 scored at the good or advanced level, 11 were rated basic, and 14 were not met. Consolidating and publishing information that is now fragmented could boost fiscal transparency in the short term.

The United Kingdom got high scores across all pillars of the Code. Among the principles evaluated, 23 scored at the advanced level, 10 at the good level, and 9 at the basic level. Transparency practices are strongest when it comes to fiscal reporting and natural resource revenue management. Transparency fell short of basic practice in 4 evaluated principles.

    Other Resources Citing This Publication