Journal Issue

Safeguards assessments: Strengthened assessments framework helps safeguard use of IMF resources

International Monetary Fund. External Relations Dept.
Published Date:
January 2001
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Strengthening safeguards assessments

In March 2000, the Executive Board of the IMF adopted a strengthened framework of measures to safeguard the use of financial resources made available to IMF member countries. These measures include safeguards assessments of member country central banks. The International Monetary and Financial Committee (IMFC), at the 2000 IMF-World Bank Annual Meetings, endorsed the new policy of safeguards assessments and stressed the “forceful application of the strengthened framework” (see IMF Survey, October 9, 2000, page 314).

The strengthened framework aims at supplementing conditionality, technical assistance, and other means that have traditionally ensured the proper use of IMF financial resources. Safeguards assessments, which became operational in July 2000, aim to provide a reasonable assurance to the IMF that a central bank’s framework of reporting and controls is adequate to manage resources, including IMF disbursements. The assessments are conducted for central banks because they are typically the recipients of IMF disbursements.


Several instances of misreporting and allegations of misuse of IMF resources led to a call in 1999 by the Interim Committee (now the IMFC) for the IMF to review its procedures and controls, so as to strengthen safeguards on the use of its resources. The review of the new proposals was aided by a panel of eminent outside experts, who provided the Executive Board with an independent evaluation of IMF staff proposals for the conduct of safeguards assessments. The external panel comprised six experts drawn from different geographic regions and with diverse backgrounds: Michèle Caparello, Director of Internal Audit at the European Central Bank, who chaired the panel; Jeremy Foster, Head of Central Bank Services at PricewaterhouseCoopers; Eduardo Grinberg, President of the Court of Accounts, Province of Buenos Aires, Argentina; Suparut Kawatkul, Director General, Thailand’s Ministry of Finance; M.R. Rasheed, Deputy Governor of the Central Bank of Nigeria; and Lynn Turner, Chief Accountant, U.S. Securities and Exchange Commission. The panel made a number of recommendations and unanimously concluded that the staff proposals were “an appropriate and useful framework for the strengthening of the safeguards in the use of IMF resources.” Of course, safeguards assessments would not prevent misuse of resources by a willful override of controls or manipulation of data.

Safeguards assessments consider the adequacy of five key areas of control and governance within a central bank, summarized under the acronym ELRIC: External audit mechanism, Legal structure and independence of the central bank, financial. Reporting practices, Internal audit mechanism, and the system of internal Controls.

The ELRIC framework is derived from the IMF’s Code of Good Practices on Transparency in Monetary and Financial Polices and employs International Accounting Standards, International Standards on Auditing, and the IMF’s data dissemination standards (SDDS and GDDS) as benchmarks.


Safeguards assessments apply to all countries with arrangements for use of IMF resources approved after June 30, 2000. Member countries with arrangements in effect prior to that date are subject to transitional procedures. These countries are required to demonstrate the adequacy of only one key element of the safeguards framework—namely, that their central banks publish annual financial statements that are independently audited by external auditors in accordance with internationally accepted standards.

The IMF’s Treasurer’s Department takes the lead in implementing safeguards assessments, which are undertaken in two stages. Stage 1 is a preliminary assessment by IMF staff at headquarters of the adequacy of a central bank’s ELRIC, based on a review of documentation provided by the authorities and, if necessary, discussions with the central bank’s external auditors. A confidential Stage 1 report that documents vulnerabilities identified in a central bank’s ELRIC, together with staff’s proposed remedial measures, is prepared for consideration by IMF management. If necessary, a Stage 2 (on-site) assessment is undertaken to confirm or modify the preliminary conclusions drawn by the Stage 1 assessment and to agree on appropriate remedial measures with the central bank authorities. Multidisciplinary teams led by IMF staff and including external experts conduct Stage 2 assessments. The final confidential report is discussed with central bank officials and includes their formal response. The conclusions and agreed-upon remedial measures are reported to the IMF Executive Board.

Early results

The implementation of the safeguards policy has resulted in a heightened awareness regarding transparency and governance issues in central bank operations, which it is hoped will lead to improved overall effectiveness of the safeguards employed by central banks. For example, at least 10 central banks have recently appointed, or are currently in the process of appointing, independent external auditors for the first time. They are those of Albania, Brazil, Cambodia, Croatia, the former Yugoslav Republic of Macedonia, Peru, Romania, Turkey, the Federal Republic of Yugoslavia, and the Banque des Etats de l’Afrique Centrale (BEAC). Several of these appointments can be directly attributed to the advent of safeguards assessments, and a number of central banks have sought IMF staff’s advice in this matter.

Based on the Stage 1, Stage 2, and transitional procedure reports completed so far, the early experience with safeguards assessments suggests that they provide a useful tool for reducing the possibility of misreporting and for raising awareness among central bank officials of the need for vigilance over controls to safeguard central bank resources from misuse, especially in the area of foreign reserves. Although the sample of completed cases is too small to confirm a trend, recurring findings of safeguards assessments include the absence of reconciliation between audited financial statements and economic data used in the monitoring of IMF-supported programs; weak oversight by central bank boards over control, audit, and financial reporting processes; and, more generally, inadequate financial reporting. In general, central bank officials have been receptive to the findings of safeguards assessments and have adopted the staff’s recommendations. In some cases, central banks have undertaken a deeper analysis of their ELRIC safeguards already in place in response to the IMF initiative. Toward the end of 2001, the IMF Executive Board will review the framework governing the assessments and the collective experience from the new policy, with the assistance of the panel of external experts.

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