Review of the Policy Support Instrument
The Policy Support Instrument (PSI), introduced in October 2005, enables the IMF to support low-income countries that may not need-or want-Fund financial assistance. The PSI helps countries design effective economic programs that, once approved by the IMF's Executive Board, signal to donors, multilateral development banks, and markets the IMF's endorsement of a member's policies.
The PSI was launched in late 2005, and the IMF's Executive Board called for a review of the PSI after three years. The policy papers, in particular Policy Support and Signaling in Low-Income Countries, June 2005, and the Executive Board assessment, October 2005, set out a variety of motivating factors for the PSI, and operational goals; these will guide the review. Data on macroeconomic outcomes vis-à-vis other countries and prior experience for PSI countries, information about PSI program design, and the views of low-income country (LIC) members and donors about the PSI will all inform the review.
Rationale for the PSI: The PSI was "created to address the needs of low-income members that may not need, or want, Fund financial support, but still want the Fund to support, monitor, and endorse their policies ... the PSI will offer a sound approach for helping countries design effective economic programs and provide signals to donors, the multilateral development banks, and markets."
Goals of the Review are to assess whether: (1) the PSI is meeting stated objectives; (2) the rationale and objectives remain appropriate; (3) the PSI can be made more effective.
General questions to be addressed:
• To what extent has the PSI met it design objectives and expectations?
• Has the PSI served low-income members well in strengthening and maintaining their macroeconomic stability and growth?
• Is the mature stabilizers group for which the PSI is intended too narrow or broad?
• What factors, if any, have inhibited members from making greater use of the PSI?
• What are the benefits or drawbacks of PSI-supported program design (e.g., rigid timing of reviews, ownership, harmonization)? Is the PSI distinguishable from other forms of Fund engagement?
• Have assessment criteria and program benchmarks been appropriate?
• To what extent does the PSI meet the needs of LIC, donor, and creditor members?
• Does the experience with the PSI thus far suggest any avenues for improvement?
Proposed approach to the review: The activity under the PSI in its first three years provides a base to address these questions. Seven PSIs with six countries have been approved, providing a base of experience to assess the operation of the PSI in practice, and its usefulness relative to lending arrangements and other forms of Fund engagement with members. The assessment will take a two-pronged approach:
I. Desk-based analysis (e.g., analysis of staff reports and other documents, quantitative analysis, comparisons of macroeconomic data):
• The primary focus will be on the PSI users' experience before (including under other Fund-supported programs) and during their PSIs. Data on macroeconomic outcomes (including vis-à-vis prior experience), information about PSI program design, deviation from targets, and other Fund staff documentation can all inform a preliminary assessment of the instrument.
• For purposes of comparison, we will assess the experience of PSI users relative to contemporaneous mature-stabilizer LICs with and without PRGF arrangements (comparing macro performance, including private capital inflows and aid and, as relevant, deviation from targets and program design).
II. Views from countries that had used or considered the PSI, and from other stakeholders
• PSI-using members, other LICs, donors, creditors, civil society organizations (CSO) audiences and private investors will be consulted on the scope of the review (issues covered, data collection, and options for change) and/or for informational input. Some of the expectations and goals of the PSI are defined in terms of meeting the needs of LIC, donor, and creditor members. Such goals are subjective judgments of these members in many cases, and can most credibly be addressed directly by them, even where quantitative evidence might also be brought to bear.
Several approaches to outreach are planned:
• In-country seminars will be chaired by PSI-country Resident Representatives, including officials, donor representatives, local CSOs, and the private sector.
• Outreach will be conducted with think tanks and CSOs.
• Questionnaires will be sent to (i) LIC country authorities, (ii) official donors and creditors, and (possibly) (iii) private sector investors.
Timing: The review is expected to be discussed by the Executive Board in the first quarter of 2009.