Forewarned Is Forearmed: How the Early Warning Exercise Expands the IMF’s Surveillance Toolkit

“Never again can we let ourselves be caught unprepared by an economic and financial crisis of such global magnitude.” This was the spirit, in late 2008, in which G-20 Finance Ministers tasked the IMF and the Financial Stability Board to jointly develop an Early Warning Exercise (EWE). The inspiration was clear: In the wake of the onset of unprecedented financial turmoil, policymakers recognized that earlier danger signs had not been synthesized into an actionable warning. The EWE was intended to fill the analytical gap—to produce an effective “call to arms” as threats emerge, but well before crises erupt. Here, IMF First Deputy Managing Director John Lipsky discusses how the EWE works, and how it will help to more systematically and effectively reduce the risk of a new global crisis.