OREANDA-NEWS. November 03, 2015. Executive Board of the International Monetary Fund (IMF) concluded a periodic review of the safeguards assessments policy. The review included a discussion on experience since the last review in 2010, a staff paper, Safeguards Assessments–Review of Experience, and a report by an independent panel of experts, Safeguards Assessments Policy–External Expert Panel’s Advisory Report.

The safeguards assessments policy is an integral part of the IMF risk management framework and has been a permanent feature of IMF lending operations since 2002. The policy’s main objective is to minimize the possibility of misreporting of information under IMF lending arrangements and misuse of IMF resources.

Safeguards assessments seek to provide reasonable assurance to the IMF that central banks of member countries using IMF resources have adequate governance and control frameworks to manage their resources and IMF purchases or disbursements. The assessments cover five key areas of central bank operations, namely the external audit mechanism, the legal structure and autonomy, the financial reporting framework, the internal audit mechanism, and the system of internal controls. The policy requires that central banks publish their financial statements that have been independently audited by external auditors in accordance with internationally accepted auditing standards.

Executive Board Assessment

Executive Directors welcomed the opportunity to review the experience with the safeguards assessment policy since its last review in 2010. They noted that the policy, which became a permanent feature of Fund operations in March 2002, remains an integral part of the Fund’s overall risk management framework. Directors expressed their gratitude to the panel of experts for their independent perspective on the safeguards assessment policy and noted the panel’s recommendations for further refinements to the process.

Directors reiterated the importance of the safeguards assessment policy in helping to mitigate the risks of misreporting and misuse of Fund resources, and to maintain the Fund’s reputation as a prudent lender. They welcomed the findings that the policy has been applied appropriately and effectively met these objectives. Directors also observed that the safeguards process has helped central banks improve their control, audit, and reporting practices.

Directors considered that the existing framework for the assessment and monitoring of central banks’ governance and control mechanisms is broadly appropriate and flexible. They welcomed the proposed enhancements to keep pace with the evolving nature of safeguards risks, particularly the sharper focus on governance as an overarching principle of the safeguards framework. Directors also recognized the increasing importance of integrated risk management frameworks in strengthening institutions, and supported broadening coverage in this area, tailored to each central bank’s capacity.

Directors welcomed staff efforts to refine modalities for addressing safeguards risks in Fund arrangements involving budget financing. They agreed that fiscal safeguards reviews should be part of the safeguards assessment policy, and endorsed the proposals on the operational modalities for conducting such reviews. Given the scope and resource challenges, Directors supported the risk-based approach for fiscal safeguards reviews of state treasuries to be conducted for all arrangements where a member requests exceptional access to Fund resources, and at the time of program approval the member expects that at least 25 percent of the funds will be directed to financing the state budget. This approach would also apply when a member requests exceptional access during an arrangement, unless a fiscal safeguards review was completed within the previous 18 months. A few Directors felt that fiscal safeguards risks would be best addressed through targeted technical assistance, while a few others noted that countries accessing PRGT resources could also benefit from fiscal safeguards reviews.

Directors supported the risk-based streamlining proposals to achieve efficiency gains while preserving the fundamental objectives of the policy. They agreed to discontinue conducting update safeguards assessments for (i) augmentations of existing arrangements; (ii) successor arrangements where a safeguards assessment was completed no more than 18 months prior to the approval of the successor arrangement; or (iii) central banks with a strong track record, if the previous assessment was completed within the past four years and no substantial issues were identified in the prior assessment or subsequent monitoring. Directors also considered it appropriate to modify the monitoring framework to follow post-program monitoring practices. Once a member’s credit outstanding falls below the post-program monitoring threshold, the safeguards monitoring procedures will be limited to a review of annual external audit results, unless a country continues to be subject to post-program monitoring.

Directors concurred on the need to retain the confidentiality of safeguards reports. Noting that the Executive Board is informed about safeguards matters mainly through country staff reports, Directors endorsed the panel’s recommendation for greater consistency in presenting a summary of safeguards issues in these reports. They agreed that a summary paragraph should be consistently placed in the main body of the report and should include any significant recommendations on legislative amendments that involve parties external to the central bank, problems in obtaining access to data, and deviations from commitments relating to safeguards recommendations. Where broader engagement is deemed necessary to advance on amendments to central bank legislation, Directors encouraged staff to consult with key domestic players, in close collaboration with the central bank.