The Early Warning Exercise (EWE) is a semiannual assessment by the IMF and the Financial Stability Board (FSB) of low-probability, high-impact risks —also known as tail risks— to the global economy. It was created in 2008 when the G20 asked both institutions to work jointly on an early warning exercise to help policymakers spot tail risks and vulnerabilities that could lead to further systemic shocks.
The IMF uses the EWE to strengthen its policy advice, especially the analysis of economic, financial, fiscal, and external risks, along with cross-sectoral and cross-border spillovers. It is conducted semiannually, in close coordination with the World Economic Outlook, Global Financial Stability Report, and the Fiscal Monitor, the IMF’s flagship publications on global surveillance. The IMF uses country, regional, and global surveillance activities to follow up on EWE findings and policy recommendations.
The EWE examines unlikely but plausible risks that would necessitate additional policy recommendations to those related to baseline projections presented in the World Economic Outlook, Global Financial Stability Report, and the Fiscal Monitor. The EWE does not attempt to predict crises. Rather, it seeks to identify the vulnerabilities that could trigger systemic crises, and identifies risk-mitigating policies, including those that would require international cooperation.
The FSB represents financial supervisory agencies and central banks in IMF member countries, thus complementing the multilateral research and analysis at the IMF. Because the EWE aims to provide an integrated perspective on risks and vulnerabilities, the IMF and the FSB cooperate closely on the exercise. The IMF tends to take a leading role on economic, macro-financial, and sovereign risk concerns over a medium- to longer-term horizon, and the FSB on financial system regulatory and supervisory issues in the near-term.
The EWE draws on analytical work, market information, and expert opinions. These include market and country-specific insights gained through the IMF’s regular surveillance and crisis work, and consultations with market participants and academics.
Following discussions at the IMF Executive Board and with the FSB, the EWE findings are presented to senior officials during the IMF-World Bank Spring and Annual Meetings. The findings also contribute to the discussion of tail risks in IMF policy advice more generally.
