Selected Decisions and Selected Documents of the IMF, Thirty- Eighth Issue -- Policy Support Instrument—Framework

Prepared by the Legal Department of the IMF
As updated as of February 29, 2016

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ARTICLE V, SECTION 2(b)
Technical and Financial Services
Technical Services

POLICY SUPPORT INSTRUMENT—FRAMEWORK

General

  • 1. Upon request, the Fund will be prepared to provide the technical services described in this Decision to members that are eligible for assistance under the Poverty Reduction and Growth Trust (PRGT), i.e., included in the list of members annexed to Decision No. 8240-(85/56), as amended, and that: (a) have a policy framework focused on consolidating macroeconomic stability and debt sustainability, while deepening structural reforms in key areas in which growth and poverty reduction are constrained; and (b) seek to maintain a close policy dialogue with the Fund, through the Fund’s endorsement and assessment of their economic and financial policies under a Policy Support Instrument (PSI).

  • 2. A PSI is a decision of the Executive Board setting forth a framework for the Fund’s assessment and endorsement of a member’s economic and financial policies. A PSI may be approved for a duration of one to four years, and may be extended up to an overall maximum period of five years.

  • 3. Members with overdue financial obligations to either the Fund’s General Resources Account (GRA) or to the PRGF Trust are not eligible for a PSI.

The Member’s Documents

  • 4. Program Documents. The member’s program of economic and financial policies for the period of a PSI will be described in a letter and/or memorandum that may be accompanied by a technical memorandum (“Program Documents”). The initial Program Documents will include: (a) a macroeconomic policy framework, including a quantified framework for at least the first 12 months under the PSI, with quantitative targets set at regular intervals, and proposed assessment criteria for the first twelve months, and (b) key structural measures that are needed to meet the objectives of the program. The Program Documents will be updated from time to time, as appropriate, in the context of reviews under the PSI.

  • 5. Poverty Reduction Strategy (PRS) Documents. The member’s program will be based on the member’s poverty reduction strategy, which will be set forth in an Economic Development Document (“EDD”).

Approval

  • 6. A member’s request for a PSI may be approved only if the Fund is satisfied that: (a) the policies set forth in the member’s Program Documents meet the standards of upper credit tranche conditionality; and (b) the member’s program will be carried out, and in particular, that the member is sufficiently committed to implement the program.

  • 7. A member may be expected to adopt measures prior to the Executive Board’s approval of a PSI when it is critical for the successful implementation of the program that such actions be taken.

Program Reviews

  • 8.

    • (i) The implementation of the member’s program under a PSI will be assessed through program reviews, scheduled normally at regular intervals no more than six months apart. A review can be completed only if the Executive Board is satisfied that the member’s program is on track and that the conditions for the approval of a PSI, noted in paragraph 6, above, continue to be met. Having conducted, but not completed, a scheduled review, the Executive Board may subsequently return to that review, unless the previous scheduled review was not completed. Documentation supporting a return to the uncompleted review must be issued to the Executive Board prior to the earliest test date of the periodic quantitative assessment criteria linked to the next scheduled review, except for the staff report which may be issued up to one month after the earliest test date of the periodic quantitative assessment criteria linked to the next scheduled review.

    • (ii) With respect to PSIs that will be approved starting January 1, 2016, the Trustee shall not complete the first or any subsequent review under a PSI unless it finds that: (A) the member concerned has a poverty reduction strategy that has been developed and made publicly available normally within the previous 5 years but no more than 6 years, and covers the period leading up to and covering the date of the completion of the relevant review; and (B) the poverty reduction strategy has been issued to the Executive Board as an EDD that has been the subject of a staff analysis in the staff report on a request for a PSI or a review under a PSI. For purposes of this Instrument, the term EDD shall have the meaning as follows: (a) an EDD may be a document developed by a member country on its national development plan or strategy that is already in existence and publicly available, and documents its poverty reduction strategy; (b) an EDD may be a document newly prepared by a member country documenting its poverty reduction strategy; or (c) a PRSP that has already been issued to the Executive Board as of June 22, 2015 and has been the subject of a staff analysis in a staff report on a request for a PSI or a review under a PSI so long as the poverty reduction strategy set out in the PRSP has been developed and made publicly available normally within the previous 5 years but no more than 6 years, and covers the period leading up to and covering the date of the completion of the relevant review. An EDD shall be accompanied by a cover letter from the member country concerned to the Managing Director, and shall be issued to the Executive Board with the cover letter. As such, the cover letter shall be deemed to constitute part of the EDD.

    • (iii) With respect to PSIs that are in existence as of June 22, 2015 or will be approved from June 22, 2015 to December 31, 2015, the Trustee shall not complete the second or any subsequent review unless it finds that the member concerned has a poverty reduction strategy set out in: (A) an EDD as defined in paragraph 8(ii) above; or (B) an I-PRSP, PRSP preparation status report or APR that has been issued to the Executive Board normally within the previous 18 months and in any event not after December 31, 2015, and has been the subject of a staff analysis in the staff report on a request for a PSI or a review under a PSI.

    • (iv) For purposes of this Instrument, subject to the terms of paragraphs 8(ii)-(iii) above, the terms I-PRSP, PRSP, PRSP preparation status report and APR shall have the meaning given to each of them in Section I, paragraph 1 of the PRG-HIPC Trust Instrument (Annex to Decision No. 11436-(97/10), adopted February 4, 1997, as amended).

  • 9. Implementation of the program will be monitored, in particular, on the basis of assessment criteria, indicative targets, structural benchmarks and prior actions:

    • (a) Assessment criteria.

      • (i) For the purposes of each review, the Fund shall establish assessment criteria, which may include: (a) assessment criteria linked to that review; and (b) assessment criteria that will apply on a continuous basis. Assessment criteria will apply to clearly-specified quantitative variables or structural measures that can be objectively monitored and are critical for the achievement of program goals or for monitoring implementation and whose nonobservance would normally signify that the program is off-track. Documentation with respect to the conduct of a scheduled review would normally be issued to the Executive Board within 4 months of the earliest test date for the periodic quantitative assessment criteria linked to that review and shall in any event be issued before the earliest test date of the periodic quantitative assessment criteria linked to the next scheduled review.

      • (ii) A review will not be completed unless each assessment criterion related to that review is observed or a waiver for the nonobservance is granted. A review will not be completed where the member does not provide information necessary for the Fund to conclude that: (a) an assessment criterion related to that review is observed, or (b) a waiver of nonobservance is warranted. The Fund will grant a waiver for the nonobservance of an assessment criterion only if it is satisfied that, notwithstanding the nonobservance, the program will be successfully implemented, either because of the minor or temporary nature of the nonobservance or because of corrective actions taken by the authorities.

      • (iii) In order to complete a review, assessment criteria must be established for the shorter of: (a) the next two scheduled reviews, or (b) the remaining period of the PSI.

    • (b) Indicative targets and structural benchmarks. Variables and measures may also be established as quantitative indicative targets or structural benchmarks that will be examined in a review’s assessment of program performance.

    • (c) Prior actions. A member may be expected to adopt measures prior to the Executive Board’s completion of a review.

  • 10. Notwithstanding paragraphs 8 and 9, and subject to paragraph 20, following the approval of an arrangement under the Exogenous Shocks Facility (“ESF arrangement”) or the Standby Credit Facility (“SCF arrangement”) for a member implementing a program under a PSI, and for as long as the ESF arrangement or SCF arrangement remains in effect:

    • (a) reviews of the implementation of the member’s program under the PSI may be scheduled at such time as reviews of the member’s ESF-supported program or SCF-supported program are scheduled;

    • (b) assessment criteria under the PSI shall normally be established for the same test dates and shall apply to the same variables and measures as performance criteria under the ESF arrangement or SCF arrangement;

    • (c) documentation with respect to the conduct of a scheduled review under the PSI shall normally be issued to the Board at such time as documentation for a review under the ESF-supported program or SCF-supported program is issued;

    • (d) in order to complete a review under the PSI, assessment criteria would be required to be established only for the next scheduled PSI review; and

    • (e) no reviews under the PSI could be conducted but not completed.

Misreporting

  • 11. Any decision approving a PSI or completing a review will be made conditional upon the accuracy of information provided by the member regarding implementation of prior actions or performance under related assessment criteria.

  • 12. Whenever evidence comes to the attention of the staff indicating that the member’s reporting of information noted in paragraph 11 above was inaccurate, the Managing Director shall promptly inform the member concerned.

  • 13. If after consultation with the member, the Managing Director finds that, in fact, the member had reported such inaccurate information to the Fund, the Managing Director shall promptly notify the member of this finding.

  • 14. In any case where a PSI was approved, or a review was completed, no more than three years prior to the date on which the Managing Director informs the member, as provided for in paragraph 12 above, the Executive Board shall decide whether misreporting has occurred and shall reassess program performance in the light of that determination.

  • 15. The Fund shall proceed to make relevant information public in every case following an Executive Board decision under paragraph 14 above that misreporting has occurred, with prior Executive Board review of the text for publication.

  • 16. For the purposes of this decision:

    • (a) whenever the Managing Director considers there is evidence that the member’s reporting of information noted in paragraph 11 above was inaccurate, but the nonobservance of the relevant assessment criterion or other specified condition was de minimis in nature, as defined in paragraph 1 of Decision No. 13849, the communication referred to in paragraph 12 may be made by a representative of the relevant Area Department;

    • (b) if the Managing Director determines that, in fact, a member has reported such inaccurate information to the Fund, but the nonobservance was de minimis in nature, as defined in paragraph 1 of Decision No. 13849, the notification referred to in paragraph 13 may be made by a representative of the relevant Area Department, and the Executive Board shall be informed of the misreporting in a staff report on a review under the relevant PSI or, if no such review is provided for, a staff report which deals with issues other than the misreporting, and shall include a recommendation that the Executive Board find that the misreporting was de minimis in nature and had no effect on program performance under the PSI. In those rare cases in which no review is provided for, and no other such staff report on the member is to be issued to the Board promptly after the Managing Director concludes that misreporting has taken place, the Managing Director shall consult Executive Directors and, if deemed appropriate by the Managing Director, a stand-alone report on the misreporting will be prepared for consideration by the Executive Board normally on a lapse-of-time basis; and

    • (c) whenever the Executive Board finds that a member has misreported information referred to in paragraph 11, but that the nonobservance of the relevant assessment criterion or other specified condition was de minimis in nature as defined in paragraph 1 of Decision No. 13849: (i) the Executive Board shall also find that the misreporting had no effect on program performance; and (ii) the fact of misreporting shall not be published by the Fund.

Applicability of Certain UFR Policies

  • 17. The Guidelines on Conditionality (Decision No. 12864-(02/102), September 25, 2002) shall apply where relevant and except where this Decision sets forth different or more specific provisions.

  • 18. In addition, the Fund’s policies on the following subjects shall apply by analogy to PSIs: (a) requirement of full program financing; (b) arrears to official sector and external private creditors; (c) use of side letters; and (d) Guidelines on Public Debt Conditionality in Fund Arrangements.

Termination of a PSI

  • 19. A member may cancel a PSI at any time by notifying the Fund of such cancellation.

  • 20. A PSI for a member will terminate upon: (a) the relevant member incurring overdue financial obligations to the GRA or PRGT; or (b) noncompletion of two consecutive PSI scheduled reviews; provided that, in lieu of the circumstance specified in clause (b), the PSI for a member whose program reviews are scheduled at the same time as reviews of the member’s ESF-supported program or SCF-supported program are scheduled will terminate if no scheduled review is completed within twelve months of the completion of the last scheduled review; or (c) the approval for the relevant member of an arrangement under the Extended Credit Facility of the PRGT.

Periodic Review

  • 21. The Fund will review application of this Decision at intervals of five years.1

Decision No. 13561-(05/85),

October 5, 2005,

as amended by Decision Nos. 13814-(06/98), November 15, 2006,

13849-(06/108), December 20, 2006,

14153-(08/82), September 19, 2008, effective November 24, 2008,

14253-(09/8), January 27, 2009,

14354-(09/79), July 23, 2009, effective January 7, 2010, and

15354-(13/32), April 8, 2013,

15688-(14/107), December 5, 2014, and

15804-(15/62),

June 22, 2015

1 Ed. Note: Pursuant to Decision No. 13814-(06/98), November 15, 2006, the frequency interval of reviews is extended from three years to five years after 2008. Decision No. 14235-(09/1), December 31, 2008, provided that a review of the Policy Support Instrument shall be completed by March 31, 2009.

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