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Financial stability monitoring

IMF multilateral surveillance products help assess systemic risks and cross-border policy spillovers. In general, the IMF flagship reports focus on high probability risks to the baseline. The WEO takes a comprehensive approach to global macroeconomic risks, including through the use of fan charts, accompanied by model-generated scenarios to illustrate risks. The GFSR covers risks to global financial stability. Key analytical tools include the global financial stability map—providing a quantitative representation of risks in key areas and markets—and scenario analysis. Risk assessment is complemented by market intelligence. The Fiscal Monitor focuses on medium-term risks to fiscal sustainability. Additionally, an annual External Sector Report presents a multilaterally consistent assessment of the largest economies’ external sector positions and policies. On the request of the G20, the IMF, UNCTAD and other international institutions provides technical analysis as input to the G20’s Mutual Assessment Process (MAP), which seeks to evaluate key imbalances and assess how members' policies fit together—and whether, collectively, they can achieve strong and sustainable growth.

Bilateral surveillance documents, notably Article IV staff reports, address each country’s vulnerabilities in context and in significant detail. Strengthening risk assessment in bilateral surveillance has been an operational priority for Fund country teams. The dialogue with country authorities involves an explicit and thorough discussion of the baseline projections, the risks to the assessment and their potential impact, and policy responses (including contingency planning). Country risks are summarized in a country Risk Assessment Matrix (RAM), which identifies the nature and source of the main macro-financial risks that could materially alter the baseline in the staff report. The RAM includes a subjective assessment of the relative likelihood of each risk and assesses the expected impact of the risks if they were to transpire.

The Global Risk Assessment Matrix (G-RAM) is the prime source of the global risks discussed in the Article IV RAMs. It is a consolidated list of key global risks and also includes an assessment of their likelihood and impact. The G-RAM ensures an up-to-date and consistent approach to global risks across IMF products. It is distilled into a one-page summary based on detailed background work and, in most cases, model simulations.

The IMF’s work on its Financial Sector Assessment Program (FSAP) covers some of the largest and most connected financial systems. Assessments of financial sectors in Germany, the United Kingdom, Russia, China are ongoing, and will be completed in FY2017 and FY2018. FSAPs are being conducted in a number of euro area countries for the first time since the post-crisis transformation of the regulatory and supervisory environment.

The IMF is also working to support members in updating policy frameworks to improve resilience and domestic capacity to absorb and overcome shocks. To help countries better understand and address the impact of cross-border capital flows, the IMF is reviewing countries’ experience with the IMF’s institutional view on the liberalization and management of capital flows, with a view to identifying emerging issues, including the interaction between capital flow and macroprudential policies. Taken together, these work programs will help provide tailored and consistent policy advice in addressing macroeconomic and financial stability risks. Also, jointly with the World Bank, the IMF is working on reforming the debt sustainability framework for LICs to improve its value as a tool for assessing risks to public debt positions.