2011 Triennial Surveillance Review - Health Check and Statistical Information
Author: International Monetary Fund
Publication Date:
26 Aug 2011
eISBN:
9781498338547
Language:
English
Keywords:
PP; country authorities; country type; LIC authority; Authoritiy survey; region group
Download PDF (14.3 MB)

This paper (a) provides a snapshot of the overall value added of Fund‘s surveillance perceived by stakeholders; (b) details where the Fund stands in terms of four operational priorities set out in the 2008 TSR; (c) examines key issues identified in the recent IEO paper on the IMF performance in the run up to the global crisis; and (d) discusses stakeholders' perception on the communication aspects of surveillance.

Abstract

This paper (a) provides a snapshot of the overall value added of Fund‘s surveillance perceived by stakeholders; (b) details where the Fund stands in terms of four operational priorities set out in the 2008 TSR; (c) examines key issues identified in the recent IEO paper on the IMF performance in the run up to the global crisis; and (d) discusses stakeholders' perception on the communication aspects of surveillance.

I. Introduction

1. Overview. This paper (a) provides a snapshot of the overall value added of Fund’s surveillance perceived by stakeholders; (b) details where the Fund stands in terms of four operational priorities set out in the 2008 TSR;2 (c) examines key issues identified in the recent IEO paper on the IMF performance in the run up to the global crisis;3 and (d) discusses stakeholders’ perception on the communication aspects of surveillance.

2. Methodology. This paper relies on various stakeholders’ surveys (country authorities; Executive Directors, IMF mission chiefs; financial market participants, media and civil society organizations) and interviews by former senior Fund staff of country authorities (mainly at the time of the 2011 Spring Meetings) to analyze stakeholders’ perception (TSR External Report on Interviews with Country Authorities).4 The paper also relies on a review by staff of 50 Article IV staff reports issued from January 2010 through April 2011.5

II. Overall Value-Added Of Surveillance, Traction, And Areas For Progress

3. Scope. This section provides a snapshot of perceptions related to effectiveness, value added, and areas for future progress in Fund surveillance. It also reports on the coverage of basic macro issues and the follow up on past policy advice in Article IV staff reports.

4. Policy advice during the global crisis. About 80 percent of respondents to the country authority and Executive Director surveys thought that the Fund’s advice during the global crisis has taken into account changing economic conditions in the global economy and their own country (Chart 1). In addition, around 70 percent thought that Fund’s advice has been timely, but this opinion varied across country groups. The timeliness of Fund advice was viewed more negatively in Asia than elsewhere (only 36 percent of respondents agreed that it was timely), and among G-20 countries (only 50 percent of respondents agreed that it was timely). (Statistical Appendix II, Table 1).

Chart 1.
Chart 1.

Authorities’ Perception on Policy Advice about Crisis Response During the aftermath of the global crisis, Fund staff’s policy advice to you country has:

(in percent of responses)

Citation: Policy Papers 2011, 065; 10.5089/9781498338547.007.A001

Source: 2011 TSR Country Authority Survey.
Appendix I, Table 01.
Appendix I, Table 01.
Appendix I, Table 01.

Summary of Article IV Staff Report Review - Basic Macro Issues

Citation: Policy Papers 2011, 065; 10.5089/9781498338547.007.A001

Appendix II, Table 1.
Appendix II, Table 1.
Appendix II, Table 1.
Appendix II, Table 1.
Appendix II, Table 1.
Appendix II, Table 1.
Appendix II, Table 1.

TSR Country Authorities’ Survey Results 1/

Citation: Policy Papers 2011, 065; 10.5089/9781498338547.007.A001

1/ Responses to questions asking for written comments are presented at the end of the survey results tables.2/ Country authority surveys were sent to both the central bank/financial supervision agency and the ministry of finance/treasury of each member country.3/ A weighted average was used to convert the responses to questions to select one from four or five answer choices to a 5-point scale to make the responses more comparable across questions. The higher the score, the more positive the response was.

5. Coverage of basic macro issues in Article IV staff reports. Article IV staff report reviews found that all basic macro policy areas were covered in recent staff reports. Virtually all of the 50 sample reports provided a rationale and justification for recommended fiscal and monetary policy adjustments and stance; covered core financial sector issues; and provided a clear assessment of the exchange rate level (Tables 1 through 3, Statistical Appendix I). All sample staff reports clearly identified the baseline scenario and discussed key medium-term challenges. This represents progress compared with the 2008 TSR when about a quarter of the sample reports did not clearly describe the baseline medium-term scenario.

6. Follow up of past policy advice. Follow up of past policy advice in recent Article IV reports has been uneven. Fund advice was not followed in 64 percent of the cases. This may be due to a variety of reasons, including unexpected changes in country circumstances. Among countries where past Fund advice was not followed, more than half (around 56 percent) did not provide reasons why, despite the fact that the Bilateral Surveillance Guidance Note stipulates that staff reports should include follow up on previous policy recommendations. The lack of follow up of previous policy recommendations may be an impediment to the traction of surveillance.

7. Valued-added: country authorities’ general perception. Many interviewees saw the main value-added of bilateral surveillance as the provision of an integrated view of the main economic and financial challenges currently facing the country; and they added that the assessments offered by surveillance provided new insights to policy interactions within their country. The authorities from small emerging markets and LICs noted in the interviews that Fund staff provided them with valuable specific technical inputs that helped domestic policy making, and supported internal policy coordination. Larger countries valued multilateral surveillance more than smaller ones.

8. Perceived value added across products. Different products seem to have different audiences, but among multilateral products, the WEO and GFSR appear to be the most frequently used products by virtually all stakeholders.

9. Perception from the Civil Society Organizations (CSOs): 80 percent of CSO survey respondents noted that they found analysis of developments and outlook the most valuable aspects of the Fund’s surveillance products, while almost 70 percent of them perceived cross-country thematic aspects in that way (Statistical Appendix II, Table 6). In addition, 40 percent of CSO respondents considered the Fund’s communications on surveillance as somewhat or much better than other comparable international financial institutions, government agencies and think tanks.

Appendix I, Table 6.
Appendix I, Table 6.

Summary of Article IV Staff Report Review - Statistical Issues

Citation: Policy Papers 2011, 065; 10.5089/9781498338547.007.A001

Appendix II, Table 6.
Appendix II, Table 6.
Appendix II, Table 6.

TSR CSO Survey Results

Citation: Policy Papers 2011, 065; 10.5089/9781498338547.007.A001

1/A weighted average was used to convert the responses to questions to select one from four or five answer choices to a 5-point scale to make the responses more comparable across questions. The higher the score, the more positive the response was.

10. Perceived relative value-added differs across policy areas. Country authorities thought that Fund’s fiscal analysis contributed most in terms of providing new insights or improving the understanding of the issues, similar to the 2008 TSR, followed by the analysis of macro-financial and financial sector policy issues (see Chart 2). The perceived contribution of surveillance in monetary policy ranked lower than for fiscal and financial policy issues, but this was driven downward by respondents from European members, many of which are in the euro area.7 The reported contribution from surveillance in the analysis of lessons from experiences in other countries (cross-country analysis) lagged fiscal and financial policy related areas. Finally, country authorities ranked the current contribution from Fund’s surveillance of inward and outward spillovers and exchange rate and competitiveness issues lowest (discussed in section III below).8 In the 2008 TSR, while the question asked was different, the ordering of relative value added across policy areas perceived by country authorities was broadly similar to that in the 2011 TSR (see Chart 3).9

Chart 2.
Chart 2.

Country Authorities: Areas Contributing Most to Your Understanding of Issues

(in percent of responses)

Citation: Policy Papers 2011, 065; 10.5089/9781498338547.007.A001

Source: 2011 TSR Country Authoritiy Survey
Chart 3.
Chart 3.

2008 TSR -To What Extent Did IMF Surveillance Contribute to Country Authorities’ Understanding of Issues?

(1 = not to all to 5 = to a very large extent)

Citation: Policy Papers 2011, 065; 10.5089/9781498338547.007.A001

Source: 2008 TSR

11. Perceived value-added also varied across the membership. Across the range of policy areas, higher value-added was perceived by African and Middle East country authorities compared to their European and Asian counterparts, by non-G-20 as compared to G-20 authorities, and by program compared to non-program countries. Similar to the 2008 TSR, LIC authorities saw the greatest value added in Fund’s surveillance across policy areas, followed by emerging markets, and to a lesser extent for advanced countries. Likewise, Executive Directors perceived that surveillance was most valuable for LICs. These results were echoed by financial market participants.

12. Perceived traction of Fund’s bilateral surveillance was overall high, but varied across groups. More than 70 percent of respondents to the country authority survey thought that recent Article IV consultations have generated policy debate at least to some extent, while more than 60 percent of them thought that they have fostered appropriate policy changes at least to some extent (Chart 4). Perceived traction of bilateral surveillance, however, varied across country groups: the highest traction was perceived among LICs and African countries, and the lowest among advanced economies and countries in Asia Pacific; less traction was perceived by G-20 compared to non-G-20 countries and by non-program versus program cases. Not surprisingly, this pattern is consistent with the perceived value added of bilateral surveillance across the membership. The 2009 IEO Report on IMF Interactions with Member Countries also found that the Fund got least traction with advanced and large emerging market economies, and most traction with PRGT-eligible countries. Some of the authorities interviewed noted that staff sometimes lacked the political savvy needed to gain traction for Fund advice among policy makers, other relevant stakeholders (e.g. parliamentarians, unions, and civil society), and public opinion more generally. As to the traction of multilateral surveillance, interviews indicated that representatives of larger, more systemic countries were interested in the Fund’s analysis of cross-border spillover effects of national policies and related policy recommendations. In particular, many interviewees noted that the closed-door IMFC breakfast presentations had generated significant interest and attention of the senior policy makers attending them and had increased interest in the IMFC.

Chart 4.
Chart 4.

Country Authorities: To what extent did Fund policy advice give in the context of most recent AIV cosultation help?

(in percent of responses)

Citation: Policy Papers 2011, 065; 10.5089/9781498338547.007.A001

Source: 2011 TSR Country Authoritiy Survey

13. Area for future progress. Almost 70 percent of respondents to the country authority survey thought that the Fund’s policy advice during the crisis has been appropriately informed by the political and social context. However, more than 60 percent of survey respondents saw the need for policy advice to be more tailored to country circumstances in order to further strengthen Fund’s surveillance (Chart 5). Interviews found that many authorities would like country teams to be more familiar with the country’s background, such as the legal and institutional framework. At the same time, the need for better consistency was also ranked high (around 40 percent). In addition, almost 50 percent of survey respondents indicated they would like to see greater use of cross-country comparisons in the future, and around 45 percent a better quality of analysis. Opinions on the most important areas for improvement differed across country types. Larger countries were mostly asking for improvements in the quality of analysis, while emphasizing the need for more consistency of advice (around 60 percent).

Chart 5.
Chart 5.

Country Authorities: Areas which should be improved to strengthen Fund surveillance:

(in percent of responses)

Citation: Policy Papers 2011, 065; 10.5089/9781498338547.007.A001

Source: 2011 TSR Country Authority Survey

III. Where We Stand On The Four Operational Priorities

14. Scope. This section discusses where the Fund stands regarding the four operational priorities identified in the 2008 TSR: risk assessment; multilateral perspective; financial sector surveillance and real-financial linkages; and analysis of exchange rate and external stability risks. While a number of steps have been taken to address shortfalls in each area, this TSR suggests that there is scope for further improvement.

Risk Assessment

15. The 2008 TSR found insufficient attention to risks to the baseline scenario in Article IV staff reports. It called for (i) greater attention to risks around the baseline; (ii) an improved toolkit to quantify high probability risk assessment; and (iii) more systemic approach to tail risks in Article IV consultations.

16. The toolkit for risk detection has been enriched. The Fund has developed new vehicles to sharpen the focus on risks. Since 2008, the Fund and the Financial Stability Board (FSB) have initiated regular Early Warning Exercises (EWEs). The EWE examines tail risks to the global economy that would result in policy recommendations that could differ from those generated by the baseline scenario presented in the WEO, GFSR, and the Fiscal Monitor. It seeks to identify the vulnerabilities and triggers that could precipitate systemic crises, and identifies risk-mitigating policies including those that would require international cooperation. As part of the EWE, the scope of the vulnerability exercises was expanded to include advanced economies. Starting 2011, a Vulnerability Exercise for LICs has been introduced.

17. Greater attention has been paid to risks around the baseline since 2008. More than 70 percent of the respondents to the country authority survey noticed an improvement in the quality of risk assessment at least to some extent compared with pre-global crisis Article IV consultations (Chart 6).10 The Article IV staff report reviews found that the bottom-line messages took account of the major risks to the baseline scenario in 78 percent of the sample reports. This is an improvement from the 2008 TSR, where the comparable ratio was 54 percent. While a large majority of respondents to the country authority surveys thought that, in general, the discussion of risks was appropriate for their own country, this ratio dropped significantly when it comes to signaling risks for other countries (Chart 7). G-20, Asian, and

Western Hemisphere country authorities were particularly critical of the Fund’s ability to adequately signal risks for other countries.

Chart 6.
Chart 6.

Country Authorities: Compared with pre-global criss Article IV constulations, have you noticed an improvement in the quality of:

(1 = not to all to 5 = to a very large extent)

Citation: Policy Papers 2011, 065; 10.5089/9781498338547.007.A001

Source: 2011 TSR Country Authority Survey.
Chart 7.
Chart 7.

Percent who think that Fund advice adequately signals risks:

Citation: Policy Papers 2011, 065; 10.5089/9781498338547.007.A001

Source: 2011 TSR Country Authority and Executive Director Survey.

18. There is scope for improvement on transmission channels of risks. Risk transmission channels still seem to be insufficiently spelled out. 50 percent of Executive Director survey respondents indicated that the discussion of transmission channels of risks in the Article IV reports was insufficient, with more than 30 percent of respondents to the financial market survey sharing this view. In particular, as discussed below, despite some progress since 2008, the coverage of two-way macro-financial possible transmission channels was still uneven in the Article IV staff reports in recent years.

19. There is also scope for progress on tail risks.

Interviews by external experts indicated that the authorities welcomed the increased focus on the analysis of systemic risks, but felt there was a need for further progress not only in identifying tail risks, but also in tracing the effects of their possible realization (i.e., connecting the dots). More than a quarter of respondents to the Executive Director and financial market surveys indicated that the discussion of tail risks in the Article IV reports was insufficient. The review of 50 Article IV reports found that tail risks were discussed only in 16 percent of the sample (Chart 8, Statistical Appendix I, Table 4). Although more than 90 percent of respondents to the mission chief survey reported that authorities were open at least to some extent to discussing high probability risks, this ratio dropped below 70 percent when it pertained to a discussion of tail risks (Statistical Appendix II, Table 3).

Chart 8.
Chart 8.

Coverage of Risk Transmission and Tail Risk

(in percent of 50 sample Article IV reports)

Citation: Policy Papers 2011, 065; 10.5089/9781498338547.007.A001

Source: Article IV Staff Report Reviews.
Appendix I, Table 3.
Appendix I, Table 3.

Summary of Article IV Staff Report Review - Exchange Rate and External Stability Issues

Citation: Policy Papers 2011, 065; 10.5089/9781498338547.007.A001

Appendix I, Table 4.
Appendix I, Table 4.

Summary of Article IV Staff Report Review - Risk Assessment

Citation: Policy Papers 2011, 065; 10.5089/9781498338547.007.A001

Appendix II, Table 3.
Appendix II, Table 3.
Appendix II, Table 3.
Appendix II, Table 3.
Appendix II, Table 3.
Appendix II, Table 3.
Appendix II, Table 3.
Appendix II, Table 3.
Appendix II, Table 3.
Appendix II, Table 3.
Appendix II, Table 3.
Appendix II, Table 3.
Appendix II, Table 3.