Review Helps IMF Keep Finger on Pulse of Post-Crisis World

IMF to probe deeper on risks and spillovers

Economic monitoring is a dynamic process; should adapt to emerging challenges

Evenhanded treatment of member countries key for value-added analysis

The review of how the IMF assesses economies and provides policy advice, known as surveillance, was discussed by the IMF’s Executive Board on September 26. It explores how the institution can consolidate the major reforms adopted since the 2011 surveillance review. The 2014 review also considers how surveillance should adapt to emerging challenges and better tailor policy advice to help countries build resilience and secure durable growth.

This stocktaking comes at a time when many countries are still grappling with the painful legacies of the global financial crisis—large debts, high unemployment, and sluggish growth—and have limited policy space to secure job-rich growth. Policymakers in a highly interconnected world also face the dual challenge of harnessing the benefits of globalization, while shielding their economies from the risk of negative spillovers from greater integration.

Deepening work on risks and spillovers

In response to the global financial crisis, the IMF overhauled its surveillance in 2011 to make it more risk based and to better reflect global interconnections. The Integrated Surveillance Decision, which came into effect in early 2013, was an important step in making headway toward that goal. It makes analysis of spillovers—how policies in one country can impact other countries—an integral part of the IMF’s regular health checks of members’ economies.

The latest review seeks to build on the progress made since 2011, further solidifying the connection between the IMF’s analysis at country and global levels. It also calls for delving more deeply into how risks and spillovers are transmitted across borders and sectors.

One way of better mapping these links would be to revive and modernize the analysis of national balance sheets, an approach the IMF developed in response to the Asian crisis of the late 1990s. This would allow surveillance to better capture the full range of risks, reflecting not just the size of cross-border capital flows, but also their composition. It would also shed more light on domestic vulnerabilities, such as leverage, currency, or liquidity mismatches in the major sectors that make up the economy—the government, financial institutions, corporations, and households.

The review also suggests that the IMF...