IMF Executive Board Concludes the Review of Experience with the Policy Support InstrumentPublic Information Notice (PIN) No. 09/89
July 27, 2009
Public Information Notices (PINs) form part of the IMF's efforts to promote transparency of the IMF's views and analysis of economic developments and policies. With the consent of the country (or countries) concerned, PINs are issued after Executive Board discussions of Article IV consultations with member countries, of its surveillance of developments at the regional level, of post-program monitoring, and of ex post assessments of member countries with longer-term program engagements. PINs are also issued after Executive Board discussions of general policy matters, unless otherwise decided by the Executive Board in a particular case.
On July 8, 2009, the Executive Board of the International Monetary Fund (IMF) concluded the review of the experience with the Policy Support Instrument.
The Policy Support Instrument (PSI), created in 2005, enables the IMF to support low-income countries that do not need Fund financial assistance. The PSI is intended for low-income countries that have secured macroeconomic stability and completed basic structural reforms, but wish to remain closely engaged with the Fund to consolidate their macroeconomic performance and pursue important second-generation reforms to secure higher and sustainable growth, and provide a signal of good policies to donors and investors. Specifically, engagement with the Fund through a PSI can help member countries develop their policy programs, enhance reform commitment through the Fund-endorsed program, and identify priorities for technical assistance. The design and implementation of a reform program under the PSI can also facilitate a rapid move to Fund financial support should conditions change. Since 2005, seven PSIs have been approved for six member countries.
Executive Board Assessment
Executive Directors welcomed the first review of experience with the Policy Support Instrument (PSI) since its inception in October 2005. They took note of the generally positive findings by the staff covering various dimensions. Recognizing that the staff’s findings were tentative, given the small sample size, data limitations, and the fact that most PSI-supported programs are ongoing, Directors stressed that their views could only be preliminary.
Directors broadly shared the staff’s judgment that the PSI has generally met its goals and expectations. They noted the staff’s assessment that economic performance of PSI users has generally been at least as good as, or better than, other comparator groups of low-income countries. While available to all PRGF-eligible members, the PSI has been targeted for “mature stabilizers” and remains a voluntary, demand-driven signaling instrument. A few Directors suggested revising the PSI criteria to qualify a broader range of low-income countries. Directors were reassured by the survey results that member countries found the PSI to be a useful instrument in circumstances where there is no immediate need for Fund financing. They concurred that Fund engagement through a PSI can usefully help member countries develop their policy programs, enhance reform commitment, and identify priorities for technical assistance. Some Directors proposed that the PSI design incorporate a stronger focus on poverty reduction and growth objectives. It was noted that current policy provides that a PRGF-eligible member’s development strategy document could qualify as a Poverty Reduction Strategy Paper, fulfilling one of the PSI criteria.
A number of Directors saw the benefits of a PSI-type instrument as an exit vehicle for a broader group of countries, including middle-income countries, while some others emphasized that such an instrument should not weaken the role of Fund surveillance. The Board would return to the issues associated with suitable exit strategies from Fund-supported programs for middle-income members before the 2009 Annual Meetings.
Directors noted that the standard of upper credit tranche conditionality under the PSI has helped facilitate a rapid move to Fund financial support if conditions change, as has occurred in a few recent cases. They observed that the extent of conditionality and its implementation has been broadly similar between PSI- and PRGF-supported programs with comparator countries. A number of Directors nevertheless saw scope for more focused conditionality under the PSI, given these members’ track record of sustained macroeconomic stability. Most Directors agreed with the staff’s finding that the fixed review schedule encouraged strong performance and policy discipline, while some stressed the need for a more flexible review schedule. Directors expected that the recent Board decisions to streamline structural conditionality and to amend the Exogenous Shocks Facility would further improve the attractiveness of the PSI.
Directors observed that surveyed views on the PSI’s signaling role were less positive than other aspects of the PSI. Many Directors felt that Fund assessments of performance under the PSI had delivered clear and timely signals to donors and private investors. A number of other Directors reiterated their view that Fund arrangements, in particular a low-access PRGF arrangement, also effectively signal Fund endorsement. A few other Directors stressed that the PSI helps conserve scarce concessional resources for use where financing is necessary.
On balance, the Board considered that there is no pressing need at this time to modify the PSI.