Why is IMF surveillance important?

In today's globalized economy, where the policies of one country typically affect many other countries, international cooperation is essential. The IMF, with its near-universal membership of 187 countries, facilitates this cooperation. There are two main aspects to the IMF’s surveillance work: bilateral surveillance, or the appraisal of and advice on the policies of each member country; and multilateral surveillance, or oversight of the world economy.

Consulting with member states

IMF economists continually monitor members’ economies. They visit member countries—usually annually—to exchange views with the government and the central bank and focus on whether there are risks to domestic and external stability that argue for adjustments in economic or financial policies. During their missions, IMF staff also typically meets with other stakeholders, such as parliamentarians and representatives of business, labor unions, and civil society to help evaluate the country’s economic policies and direction. On return to headquarters, the staff presents a report to the IMF’s Executive Board for discussion. The Board’s views are subsequently transmitted to the country’s authorities. In recent years, surveillance has become increasingly transparent. Almost all member countries now agree to publish a Public Information Notice summarizing the views of the Board, as well as the staff report and accompanying analysis. Many countries also publish a statement by staff at the conclusion of an IMF mission.

Overseeing the bigger world picture

The IMF also reviews global and regional economic trends. Its key instruments of multilateral surveillance are the semi-annual publications: World Economic Outlook (WEO), Global Financial Stability Report (GFSR), and Fiscal Monitor. The WEO provides detailed analysis of the state of the world economy, addressing issues of pressing interest, such as the current global financial turmoil and economic downturn. 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 market stability.

The IMF also publishes Regional Economic Outlook reports, providing more detailed analysis for the five major regions of the world, and cooperates closely with other groups such as the Group of Twenty (G-20) industrialized and emerging market economies. In particular, since 2009, the IMF has been supporting the G-20’s efforts to sustain international economic cooperation through their mutual assessment process, launched at the G-20 Summit in Pittsburgh. The IMF provides analysis of whether policies pursued by member countries are consistent with sustained and balanced growth for the global economy.

In 2011, the IMF prepared, on a pilot basis, dedicated reports analyzing the impact of economic policies in the world’s five largest economies—China, the euro area, Japan, the United States, and the United Kingdom—on their partner economies. The findings were summarized in a Consolidated Spillover Report. The IMF also prepared the first Consolidated Multilateral Surveillance Report that pulls together the key findings and policy advice from the IMF’s various multilateral reports.

Keeping surveillance relevant

Surveillance in its present form was established by Article IV of the IMF’s Articles of Agreement, as revised in the late 1970s following the collapse of the Bretton Woods system of fixed exchange rates. Under Article IV, member countries undertake to collaborate with the IMF and with one another to promote stability. For its part, the IMF is charged with (i) overseeing the international monetary system to ensure its effective operation, and (ii) monitoring each member's compliance with its policy obligations.

The legal framework for surveillance was updated in June 2007 with the adoption of the Decision on Bilateral Surveillance over Members’ Policies. The Decision clarified that country surveillance should be focused on assessing whether countries’ policies promote domestic and external stability. This means surveillance should mainly focus on monetary, fiscal, financial, and exchange rate policies and assess risks and vulnerabilities.
In 2010, the IMF undertook a review of its surveillance mandate. This resulted in measures to integrate all dimensions of IMF surveillance—multilateral, bilateral and financial—and make it more effective. These measures helped address some of the weaknesses identified in pre-crisis surveillance which were set out in the report by the IMF’s Independent Evaluation Office on IMF Performance in the Run-up to the Financial and Economic Crisis.
In October 2011, the latest comprehensive review of the effectiveness of its surveillance, or Triennial Surveillance Review, was completed. The review—which covered both bilateral and multilateral surveillance—drew extensively from feedback from all major stakeholders, analysis by IMF staff, as well as from studies and commentaries by external experts. The review highlighted progress since the beginning of the global financial crisis but also found remaining gaps in the IMF’s surveillance. In particular, surveillance was seen as too fragmented, with risk assessments lacking depth and insufficient focus on interconnections and the transmission of shocks. Surveillance was also found to have less impact for larger member countries. The subsequent recommended actions will focus on improvements in six key areas: interconnectedness, risk assessments, external stability, financial stability, traction and the legal framework. The Managing Director’s action plan, endorsed by the Board, is being implemented. In particular, the IMF is working on concrete proposals for a new, integrated surveillance decision—covering both bilateral and multilateral surveillance—that will foster a broader approach to global stability. A progress report will be prepared in September 2012.