I.Executive Summary ¹

• Surveillance is a key instrument for the Fund’s crisis prevention role. It needs to be comprehensive, consistent and coherent.

• Significant gaps in its coverage were identified in the 2008 TSR, in particular in its coverage of risk assessment; macro/financial linkages; multilateral perspective (including spillovers and cross-country analysis); and exchange rate assessments.

• The Fund has responded by introducing a number of new products and processes. While it is too early to tell whether they have been fully successful, in most areas the Fund has moved significantly in the right direction and there are not big gaps in its coverage; but there are areas where the Fund should do more.

• There is a growing demand for the Fund to present more analysis of risks and vulnerabilities The Fund should publish more of its internal work on risks and vulnerabilities in its multilateral surveillance reports (Recommendation 1), while being mindful of possible market reactions.

• The introduction of new products has increased the level of overlap between different products, and the risk of inconsistencies. Also the three flagship reports overlap to some degree given the interlinkages between the issues covered in them. But in general overlaps are kept to a manageable level.

• Although there is a general presumption to have fewer (and shorter) surveillance reports, there is not a strong case for radical pruning or merger of the main multilateral products, since each appears to have a rather different focus and target audience. However, there is some scope for rationalization of multilateral products to reduce overlap (and to help ensure consistency) (Recommendation 2).

• At a minimum it is important that the Fund’s various surveillance products are not inconsistent. Although some inconsistencies do appear on occasion, review processes seem to be working effectively to prevent serious consistency problems.

• But the Fund should also do more to integrate its surveillance by applying consistent approaches across surveillance, and make connections across countries and issues— 'connecting the dots’. A number of changes have also been introduced already to address these issues. But further steps are proposed in this report.

• There are a significant number of products which provide the Fund’s 'top line’ messages on global policies and priorities, which puts at risk the consistency, coherence and clarity of the Fund’s analysis and advice The Fund should publish a single concise overarching document, covering global prospects, policies, spillovers and risks (Recommendation 3).

• Changes are proposed to improve integration of bilateral and multilateral surveillance, including on financial stability, spillovers, and global policy issues (Recommendation 4).

• Also outward spillovers should be systematically identified and incorporated in Article IV consultations; and reports drawing out the themes from Article IV reports for systemic countries should be produced regularly (Recommendation 5).

• More effective cross-departmental working is needed to better integrate surveillance across the Fund. There should be greater use of cross-departmental teams and working groups (Recommendation 6), and staff should be encouraged and incentivized to work cross-departmentally (Recommendation 7).

• A number of supra-national bodies and groups have emerged recently and are carrying out self-assessments which cover similar issues to Fund surveillance. Although these groups present challenges for the Fund, technical support by the Fund to these groups will leverage the Fund’s technical expertise, and also could help improve the Fund’s own surveillance and traction.

• In interacting with these groups, the Fund needs to be clear on its role (Recommendation 8) either as an adviser or as a participant in their decisions.

• The Fund should also align its own organizational structures to strengthen links with these groups (Recommendation 9), and learn lessons for its own surveillance activities.