## ppea2024020 ## Source details **Canonical URL:** [ppea2024020](https://www.imf.org/-/media/files/publications/pp/2024/english/ppea2024020.pdf) ## Other formats - [Markdown version](/-/media/files/publications/pp/2024/english/ppea2024020.pdf.md) - [Structured JSON version](/-/media/files/publications/pp/2024/english/ppea2024020.pdf.json) --- ### Executive summary — purpose, scope, and legal basis - The note provides operational guidance on the Policy Coordination Instrument (PCI), a non-financial instrument to help countries unlock financing from multiple sources and/or demonstrate commitment to a reform agenda. - Operational topics covered include: Purpose/objectives/eligibility; Modalities (duration, extension, cancellation, repeated use, concurrent use rules); Applicability of UFR-related policies (financing assurances, arrears, safeguards); PCI program design; Conditionality framework and review-based monitoring; PCI review cycle (fixed schedule, noncompletion, automatic termination); Applicability of other policies (post financing assessments, Article IV consultations); Annexes compare PCI with other instruments and document review processes. - The guidance note supports implementation of the PCI policy and its underlying Board decisions; if guidance conflicts with PCI policy, the PCI policy prevails. - Date on document: March 26, 2024. - Legal basis: Board decision No. 16230-(17/62) adopted on July 14, 2017, amended on October 4, 2023 (the PCI Decision). - As a non-financial instrument, the PCI is treated as technical assistance (TA) by the Fund and is voluntary for the member and the Fund. ### Objectives and appropriate use cases - Objective: - PCI established in 2017 to support countries in designing and implementing policies through a fully-fledged macroeconomic program to (i) prevent crises and build buffers, (ii) enhance macroeconomic stability, or (iii) address macroeconomic imbalances. - Purpose: - Non-financial instrument for countries seeking to unlock financing from multiple sources and/or signal commitment to reforms; enables closer dialogue, regular monitoring, and Board endorsement of policies. - Application — three broad cases: - Countries facing external difficulties to help secure market access or access to other GFSN layers (RFAs, bilateral swaps) or other sources (multilateral development banks, bilateral creditors, donors). - Countries signaling strong policies, e.g., graduating from a Fund financial instrument or new government policy changes. - Countries underpinning broader macro-structural reform agendas without a BoP problem; PCI serves as organizing framework and commitment device. - Comparative note: - PCI may be more appropriate than low-access precautionary arrangements, especially where tapping RFA resources and/or other GFSN layers. ### Eligibility and UCT standard - Eligibility restrictions: - PCI available to all Fund members except (i) those with overdue obligations to the GRA, PRGT, or RST and (ii) those who require or seek financial assistance from the GRA and/or PRGT at time of PCI request due to a present, potential, or prospective BoP need. - Clarifications: - A country can have an actual BoP need and still qualify for PCI if covering the need does not require Fund financing (financing may come from RFAs, MDBs, bilateral creditors, donors). - Short-term financing/adjustment needs could instead be supported by SCF/SBA or, for urgent BoP needs, RCF/RFI. - Protracted BoP problems: ECF; medium-term BoP problem: EFF. - UCT standard: - Programs under PCI must meet the UCT-quality standard; although PCI has no formal qualification criteria, the requesting country must credibly commit and have capacity to implement UCT-quality policies. ### Modalities — duration, extension, termination, repeated use - Duration: - Expected: two to three years. - Can be approved for: six months to four years. - PCIs of less than one year require at least one scheduled review. - Extension: - Can be extended up to overall maximum period of four years. - Extensions must be requested by the member and approved by the Board before current PCI expires. - Termination/Cancellation: - Authorities may cancel PCI at any time, including when financing or adjustment needs extend beyond the short term or affect objectives/capacity to implement PCI. - PCI will be automatically terminated if: - (i) no scheduled review is completed within 15 months after Board approval of the PCI request or of the scheduled review date of the last completed review (for a PCI with semi-annual reviews), - (ii) the member incurs overdue financial obligations to the GRA, PRGT, or RST; or - (iii) approval of Fund financing other than through the SBA/SCF, RSF, or RFI/RCF. - For programs with more frequent reviews, the automatic termination period is reduced proportionally but not shorter than 12 months. - A grace period of 30 days can be added to the 15 months if the member is transitioning from a PCI to a Fund arrangement in limited circumstances. - Repeated use: - No limit on number of successor PCIs. ### Concurrent use with other Fund instruments — general rules and incompatibilities - General rules: - Simultaneous requests for PCI and GRA/PRGT financial assistance are not permissible; a country cannot seek Fund financial assistance from GRA/PRGT at time of PCI request. - PCI could be requested jointly with an RSF arrangement when member faces risks to prospective BoP stability from qualifying longer-term structural challenges, has sustainable debt and adequate capacity to repay. - PCI can be used concurrently with: - (i) SBA and/or SCF—precautionary or disbursing—when a short-term BoP need emerges after PCI approval; - (ii) RSF arrangement; - (iii) emergency financing instruments (RFI and/or RCF). - PCI cannot be combined with EFF and/or ECF; approval of EFF/ECF will automatically terminate the PCI. - PCI cannot be used concurrently with FCL, PLL, SLL, SMP (including PMB). ### Concurrent versus sequential use — processes and implications - Concurrent use process: - Requests for Fund financing by a PCI user follow regular processes and UFR policies. - Path toward concurrent RFI/RCF or SBA/SCF for on-track PCI is expected to be rapid and smooth. - Modification of PCI (e.g., specific targets) may be warranted under changed circumstances. - If PCI is off track, approval of concurrent instrument typically occurs after corrective actions or sufficient commitments are taken. - Sequential use process: - Prior support under an on-track PCI can reduce time to design a financing program when objectives carry over. - If sequential use follows an off-track PCI and the country cancels PCI to request financing, corrective actions for PCI slippages (e.g., Prior Actions) are expected as part of the new financing request. ### Exceptional access and blending - Exceptional access: - Requests from PCI users for Fund arrangements involving exceptional access are generally discouraged. - Exceptional access usually signals a fundamental change weakening continuity; typical course is to cancel PCI when requesting a Fund arrangement. - Blending: - Countries meeting criteria for presumed blending and experiencing a BoP need during a PCI are expected to receive PRGT financing only in combination with GRA financing. - Arrangements combining three or four instruments (including RST concurrent financing) may be too cumbersome and are generally discouraged. ### Concurrent use with RFI/RCF and SBA/SCF — operational detail - RFI/RCF: - On-track PCI user with urgent BoP need can request RFI/RCF without cancelling the PCI. - RFI/RCF request typically standalone but may be combined with a PCI review. - Assurances of capacity to repay should be provided through program documents, medium-term BoP projections, and the standard table on indicators of capacity to repay. - Subsequent PCI reviews follow up on policy commitments made under RFI/RCF. - SBA/SCF — rationale: - On-track PCI user with BoP need could receive SBA/SCF without cancelling PCI; SBA/SCF addresses short-term BoP gap while PCI ensures continuity on medium-term agenda. - SBA/SCF — duration: - Concurrent use could be considered where BoP need is short-term spanning 6-12 months, although longer durations not precluded. - Duration of concurrent SBA/SCF depends on financing/adjustment needs and need not be tied to PCI duration. - SBA/SCF could extend beyond the end of existing PCI. - For SBA/SCF treated as precautionary, continued insurance may be needed beyond PCI end date. - Successor PCI approval can take place only after expiration or cancellation of SBA/SCF arrangement. - PCI cannot exceed overall maximum period of four years. - SBA/SCF — modalities: - Engagement identical to SBA/SCF arrangement for duration of concurrent use, in conjunction with PCI’s fixed review schedule. - Reviews under SBA/SCF must coincide with PCI’s fixed review schedule. - If staff and authorities prefer a flexible review, PCI should be cancelled as part of the SBA/SCF request. - SBA/SCF review cycles must coincide with existing PCI (e.g., SBA with quarterly reviews infeasible with PCI semi-annual reviews). - Quantitative targets (QTs) under PCI must normally be established for same test dates and apply to same variables and measures as quantitative performance criteria (QPCs) under SBA/SCF. - New QPCs under SBA/SCF automatically become QTs under PCI. - Monitoring of quantitative conditionality under SBA/SCF reviews is not review-based. - Modification of forward-looking QPCs requires explicit Board approval. - Structural benchmarks (SBs) under SBA/SCF and reform targets (RTs) under PCI are established for same test dates and measures. - Prior actions (PAs) under PCI are also established for SBA/SCF arrangement. - If structural measures tied to reviews rather than test dates, fixed PCI review dates must be used. - SBA/SCF — tradeoffs: - Benefits: - (i) Precautionary SBA/SCF approved while maintaining PCI gives immediate access to Fund financing if an actual BoP need materializes. - (ii) Retaining PCI avoids negative signals from PCI termination and maintains authorities’ preference for familiar instrument. - (iii) Preserves continuity of RSF arrangement for members using PCI as concurrent UCT-quality instrument. - Operational/conceptual issues: - (i) Concurrent support by multiple instruments can duplicate conditionality and blur short-term versus medium/long-term roles. - (ii) Blended SBA-SCF and RSF with PCI could result in up to four instruments, raising desynchronization risks and diluting signaling. - (iii) Fixed review schedule reduces flexibility relative to standalone SBA/SCF and may be undesirable to authorities. - Documentation for SBA/SCF concurrent use: - Staff report requesting SBA/SCF for a country with PCI must explain rationale for retaining PCI, weighing benefits and limitations. - If concurrent SBA/SCF duration exceeds 12 months, subsequent staff reports for PCI reviews must explain continued appropriateness of concurrent use. - Authorities’ program is described in LOI and MEFP which will also serve as PCI’s Program Statement (PS) during concurrent use. - Documentation for scheduled PCI review is issued to Board at same time and combined with SBA/SCF review documentation (one combined staff report, MEFP and TMU). - Assurances of capacity to repay must be provided via program documents, medium-term BoP projections, and the standard table on indicators of capacity to repay. ### Illustrative concurrent-use scenarios (Figure 1) - Scenario 1: - A major crisis creates a BoP gap and structural imbalances a year after a three-year PCI approval. - A three-year EFF/ECF arrangement is approved. - The PCI must be cancelled. - Scenario 2: - A short-term actual BoP need arises a year after a three-year PCI. - A 12-month SBA/SCF arrangement is approved. - Staff report completing the PCI review alongside SBA/SCF approval must justify concurrent use versus standalone SBA/SCF. - Scenario 3: - Short-term potential BoP need arises at mid-term of a three-year PCI. - A 24-month SBA/SCF arrangement treated as precautionary is approved, extending beyond the PCI. - Staff report for PCI review issued with SBA/SCF approval and subsequent PCI review staff reports required to justify concurrent use. - Scenario 4: - Short-term actual BoP need arises at mid-term of a two-year PCI. - An 18-month SBA/SCF arrangement is approved that extends beyond the PCI. - Staff report for PCI review and subsequent reviews must justify concurrent use. - A successor PCI is approved after end of SBA/SCF arrangement. ### Concurrent use with RSF and financing assurances - RSF: - PCI is a qualifying UCT-quality instrument for RSF arrangements; a country with no need for GRA/PRGT financing can request RSF financing supported by a PCI. - RSF duration expected to coincide with duration of new PCI (when requested together) or remaining duration of existing PCI (when RSF requested at time of PCI review). - Upon termination/cancellation/expiration of accompanying PCI, RSF arrangement is automatically terminated. - PCI needs at least 18 months remaining before expiration at time of RSF approval. - To align RSF duration with remaining PCI, extending PCI may be warranted, noting PCI cannot exceed four years overall. - Financing assurances: - PCI requires same financing assurances as Fund arrangements. - Fund must be satisfied that: - (i) firm commitments of financing are in place for the first 12 months following PCI approval; and - (ii) good prospects exist for adequate financing for the remaining PCI period beyond the first 12 months. - Program reviews require assurances of full financing for each successive 12-month period (or remaining PCI period). - Post-program, staff must assess whether prospective policies deliver projected post-program performance that safeguards repayments consistent with a sustainable debt path. - PCI users seeking financing from other sources still require assurances sufficient to support an assessment that program is fully financed per Fund financing assurances policy. ### Arrears and safeguards - Arrears: - Fund sovereign arrears policies apply to PCI by analogy, including resolution of existing arrears and non-accumulation of new arrears during program. - LIOA and LIA policies apply by analogy on case-by-case basis for PCI engagement in sovereign arrears situations. - Resolution of existing arrears to official creditors should be the normal case; where upfront clearance not possible, commitment to future arrears resolution must align with PCI macro assumptions. - Staff should have reasonable assurances that arrears clearance understandings are realistic. - PCIs should address domestic arrears where relevant as part of program design. - Members in arrears to the Fund (GRA, Special Disbursement Account, SDR Department, or as Trustee including PRGT and RST) are not eligible for PCI support. - Existing PCI for a member terminates upon incurrence of such arrears. - Safeguards: - A safeguards assessment is not automatically required for a PCI. - When PCI accompanies an RSF arrangement, a safeguards assessment is required under the concurrent PCI. - Members with a PCI are encouraged to undertake voluntary safeguards assessments to enhance accountability, transparency, and institutional strength and to facilitate quick access to Fund resources if needed. - Safeguards-related reforms can be included as structural conditionality where critical. - Requests for voluntary assessments should be coordinated with FIN. ### Program Statement (PS) objectives and program design highlights (¶26–¶29) - PS role: - PS specifies objectives and policy actions under the PCI, analogous to LOI/MEFP. - PCI supports policies to (i) prevent crises/build buffers, (ii) enhance macro stability, (iii) address macro imbalances/vulnerabilities. - PS and staff report should clearly articulate member’s program of economic and financial policies and objectives. - Typical policy areas the PS could include: - Fiscal policies: fiscal stance anchored for macro stability and fiscal/debt sustainability; revenue/spending aligned with growth/social objectives; budgets guided by medium-term fiscal frameworks; public financial management reforms. - Monetary policies: consistency with inflation, exchange rate, reserve objectives, and cyclical stance. - Exchange rate policies: unified exchange rate and real exchange rate broadly in line with fundamentals. - Financial sector policies: geared to financial stability, foster investment and inclusion, prevent crises. - Structural reforms: enhance growth potential, resilience (including climate), capacity to manage volatility, and social goals including poverty reduction. - Design — medium-term debt strategy and fiscal framework (¶27): - PCI programs should be underpinned by a thorough Debt Sustainability Analysis (DSA) to inform medium-term debt strategies and fiscal frameworks. - DSA periodicity and engagement guided by SRDSF or LIC DSA guidance for program countries. - Links to PRS and social spending (¶28): - For PRGT-eligible members, social and priority spending should be safeguarded and, when appropriate, increased; monitor via memorandum item on social/priority spending. - If poverty reduction critical to program success, PCI should align with country’s PRS; PRGS document encouraged where relevant. - Capacity development and partner collaboration (¶29): - When capacity gaps constrain policy implementation, incorporate Capacity Development (CD) into PCI design. - Fund staff should consult development partners when designing and monitoring PCI. - For non-core measures, draw on advice from World Bank or bilateral donors. - In PRGT-eligible countries, World Bank and Fund country teams should consult at least once a year. ### Conditionality principles, specification, monitoring, and misreporting (¶31–¶42) - Conditionality principles (¶31–32): - Conditionality ensures policies are strong enough to meet program objectives; set at approval and updated at reviews. - Conditions normally are macro variables and structural measures within member’s control and either: - (i) critical for achieving program goals or monitoring implementation; or - (ii) analogous to UFR context, necessary for implementing IMF Articles or policies. - Design/modalities consistent with Fund’s Guidelines on Conditionality. - PCI programs must meet UCT conditionality standard. - A PCI cannot be approved and a review cannot be completed if financing gaps are forecast beyond PCI end unless covered by concurrent Fund arrangement. - Implementation monitored via QTs, RTs, Standard Continuous Targets, PAs, and other relevant information. - Standard Continuous Targets apply to all PCI programs; some programs can have QTs but not RTs, or vice versa. - Targets are defined in a Technical Memorandum of Understanding (TMU), normally annexed to the PS. - Specification of program conditions: - Test dates (¶33): - Normally set on a semi-annual basis and correspond to scheduled reviews. - At approval or review completion, QTs and/or RTs set for subsequent two reviews (i.e., 12-month period for semi-annual reviews) or through end of PCI if expires in less than 12 months. - Quantitative Targets (QTs) (¶34): - Apply to clearly specified quantitative variables objectively monitored and critical to program goals. - Typically include net international reserves, central bank domestic assets, domestic debt and fiscal balances/financing, limits on external debt, and other indicators. - QTs may be subject to program adjustors reflecting deviations driven by unforeseen factors. - At a review, QTs for subsequent review can be modified when assumptions not realized or significant developments occur, provided new targets remain critical. - Memorandum items (¶35): - Variables that might be indicative targets (ITs) elsewhere are not included in PCI conditionality. - PCI uses only QTs; variables that would be ITs may be included as commitments discussed in PS and optionally as memorandum items. - Reform Targets (RTs) (¶36): - Apply to key structural measures needed for objectives; used parsimoniously with criticality justified. - Number depends on country factors; set with specific test dates aligned with reviews. - Delayed RTs are found not met but can be proposed as new RTs with new test dates if critical. - Standard Continuous Targets (¶37): - Relate to trade/exchange restrictions, bilateral payments arrangements, multiple currency practices and non-accumulation of external payments arrears. - Prior Actions (PAs) (¶38): - Expected to be adopted prior to Management recommending Board approval or review completion. - Applied when critical and specified in clear, objective terms. - Prior Actions should be implemented at least five working days before Board discussion. - Monitoring (¶39–40): - Monitoring is fully review-based. - Under review-based monitoring, QTs differ from performance criteria: missing a QT does not require a formal waiver. - Deviations indicate program may be off track; completion of review requires Board judgment on compensating factors. - In substantial deviations without sufficient commitments, review cannot be completed. - Missed targets: staff reports must discuss missed targets, why program remains on track if so, and PS should refer to missed targets; staff appraisal reiterates rationale for completing review. - Misreporting framework (¶41–¶42): - Tailored misreporting framework applies to PCI; accuracy of information on PAs, QTs, and Standard Continuous Targets is condition for approving PCI or completing reviews. - Procedures: - If evidence indicates inaccurate reporting on QTs, Standard Continuous Targets, or PAs for a PCI approved or review completed within preceding three years, MD shall promptly inform the member. - After consultation, if MD finds inaccurate reporting, MD notifies member; Executive Board decides whether misreporting occurred where relevant PCI approval/review within three years. - No waivers for misreporting; Board reassesses program performance with revised information but will not retroactively reverse prior Board decisions completing a review. - If misreporting found (not de minimis), member required to take corrective action as condition for continued PCI support, and relevant information would be published. ### De minimis misreporting procedures (¶43) - Definition: - De minimis defined as "so small as to be trivial with no impact on the assessment of performance under the relevant member’s program." - Procedures when Management determines misreporting de minimis: - Communications may be made by an Area Department representative. - Executive Board informed of misreporting in a staff report on a PCI review or other staff report, with recommendation that Board find misreporting de minimis and no effect on performance. - In rare cases with no timely review or other staff report, MD may issue a stand-alone report for Executive Board consideration, normally on a lapse-of-time basis. - When Executive Board finds misreporting de minimis: - (i) it shall find misreporting had no effect on program performance; and - (ii) the fact of misreporting shall not be published. ### Program reviews — purpose, fixed schedule, IPUs, and automatic termination - Purpose of reviews: - Evaluate whether program is on track, assess past performance against QTs, RTs, Standard Continuous Targets, and PAs, and establish policy understandings and updates. - Completion by the Board signifies policies and commitments are on track under UCT-quality standard. - Fixed review schedule and test dates: - Reviews on fixed schedule with limited buffer; schedule summarized in staff report table at PCI approval and cannot be modified during subsequent reviews. - Reviews normally semi-annual; more frequent (e.g., quarterly) possible in special cases. - At PCI request some flexibility exists, but normally reviews scheduled at most six months apart. - Each semi-annual review can be completed within three months following review date (the review window). - If review not completed within three months for semi-annual reviews, an Interim Performance Update (IPU) is provided to Board for information. - For more frequent review schedules, review window shortens proportionally and closes at midpoint between reviews. - Review dates cannot be changed once established even if PCI term extended. - Test dates must allow all scheduled reviews before PCI end and data must be available; no waiver if data unavailable — review cannot be completed. - Interim Performance Update (IPU) and noncompletion: - If review not completed within review window, staff issues IPU to Board within 2 weeks of end of review window explaining delays, economic situation, program performance, sources of delay, and corrective actions. - IPU cannot adjust targets; internal review process same as staff reports. - Brief factual press release stating IPU issuance would be published; IPU report published subject to member consent. - If member does not consent to IPU publication, Management will consider this in recommending completion of subsequent reviews. - Bringing PCI back on track indicated by completion of next scheduled review; a delayed review beyond window is "dead" and program moves to subsequent review. - Automatic termination: - For semi-annual reviews, non-completion of a review for a 15-month period since scheduled review date of most recently completed review or since Board approval results in automatic termination. - Factual press release stating termination relayed to Board via SEC and published. - In concurrent use with SBA/SCF, automatic termination of PCI has no implications on status of Fund arrangement (except RSF where PCI is only accompanying UCT-quality instrument). ### Flexibility when transitioning to a Fund arrangement — grace period - Grace period: - If PCI on track and member intends joint completion of a PCI review and approval of new Fund arrangement and cancellation of PCI, review could be completed within 30 days beyond regular buffer in limited circumstances. - Conditions for 30-day grace period: - SLA on completion of PCI review and request for new Fund arrangement must be reached and announced within buffer period (three months for semi-annual reviews). - PCI review must be completed jointly with request for new Fund arrangement and PCI cancellation in same Board meeting. - If buffer period expired and joint Board meeting cannot be held within additional 30 days, PCI review cannot be completed; an IPU or automatic termination may follow depending on prior completion status. - Grace period intended for minor administrative challenges and requires high certainty of joint Board meeting within 30 days. ### Other relevant policies — PFA, Article IV cycle, transparency, and limits - Post Financing Assessment (PFA): - PCI provides alternative vehicle for PFA for members subject to such monitoring given outstanding Fund obligations. - For PFA, members with PCI treated similarly to members with Fund arrangements or SMP. - PCI staff reports should include capacity-to-repay section and PFA-specified elements. - Article IV consultation cycle: - 24-month cycle applies to members with PCI. - Article IV can be combined with a PCI review. - Article IV consultations expected within 24 months after completion of previous Article IV for members with on-track PCI. - If PCI review not completed by specified date, next Article IV expected by later of (i) six months after scheduled review date and (ii) 12 months plus three-month grace period after previous Article IV, unless review completed earlier. - Member with expired PCI who completed all reviews remains on 24-month cycle unless Decision No. 14747-(10/96) criteria apply. - At final PCI review, staff should assess whether to shorten consultation cycle to 12 months and recommend Board approval where appropriate. - Cancellation or expiration with uncompleted reviews leaves member on existing cycle unless Executive Board decides otherwise. - Other UFR policies: - PCI generally subject to same policies as UFR by analogy: Transparency Policy, Open Archives Policy, Guidelines on Public Debt Limits, Lapse of Time Procedures for Completion of Program Reviews, policies on side letters. - PCI subject to data reporting framework under Decision on Strengthening the Effectiveness of Article VIII, Section 5. - PCI cannot be used to establish track record for HIPC decision or completion point. - Staff/management may seek political assurances before elections consistent with practice for Fund arrangements. ### Administrative costs, instrument comparisons, and documentation process - Administrative costs and financing principle: - PCI is considered TA for financing policy purposes; generally applicable TA financing policies apply, including charging policies or expectations of self-financing. - Advanced economies generally expected to self-finance Fund TA and therefore generally expected to self-finance administrative costs of the PCI. - Key numerical and policy facts (Annex I excerpts): - Duration (PCI): "6 months to 4 years" - Duration (SBA): "6 months to 3 years" - Duration (SCF): "1 to 3 years" - Duration (EFF): "2 to 4 years" - Duration (ECF): "3 to 5 years" - Duration (SMP): "Duration normally 6-18 months" - Duration (PMB): "Duration normally 6-18 months" - Access Limit (PCI): "No financial. Can expedite process for requesting Fund financial arrangement" - Costs for Members (PCI): "Follow TA charge policies. According to the current policies, advanced economies need to cover administrative costs" - Costs for Members (SBA/SCF/EFF/ECF) — progressive commitment fee structure: - "15 bps for first 115 percent of quota" - "30 bps on 115 to 575 percent of quota" - "60 bps above 575 percent of quota" - "Refunded pro-rata when amounts drawn" - SCF interest/fees: - "The SCF’s interest rate setting mechanism has been aligned with that of the ECF and is currently set at zero percent until July 31, 2025.15 bps availability fee on undrawn portion of precautionary SCF during each 6-month period." - Review schedule (PCI): "Normally semi-annual; shorter possible. Fixed schedule (with a buffer) to provide regular and uninterrupted signal" - Automatic termination (PCI): "15 months after Board approval of the PCI request or of the scheduled review date of the last completed review (for PCI with semi-annual review)" - Conditionality (PCI): "UCT-quality, may contain QTs, RTs, and Continuous Targets, as well as PAs, as needed" - Monitoring (PCI): "Review-based monitoring of QTs and RTs. No waivers if missed, but substantive requirements for completing reviews same as under PC-based monitoring" - Safeguards Assessment (PCI): "Not required, but encouraged" - Misreporting (PCI): "Tailored misreporting framework applies to PAs, QTs and CTs" - Documentation and review process (Annex III) — major steps and requirements: - Pre-mission: - Early consultation with SPR (and FIN/LEG if relevant). - Policy Note (PN) must include program tables with QTs covering: (i) previously established targets and outturns since PCI approval or over at least past 12 months, (ii) QTs for subsequent two reviews (i.e., 12-month period for semi-annual reviews) or through end of PCI if expiring in less than 12 months, (iii) memo items optionally, and (iv) continuous targets relating to trade/exchange restrictions, bilateral payments arrangements, multiple currency practices and non-accumulation of external payments arrears. - RT table must cover: (i) implementation status of previously established RTs, (ii) RTs covering next two reviews with timing and macro criticality, and (iii) any PAs. - Preliminary DSA and other annexes normally in UFR request PNs should be included. - Policy Consultation Meeting (PCM) approximately two to three weeks prior to missions. - Cover memorandum for PN must concisely state key issues, staff recommendations, main review process issues, and controversial aspects. - On mission: - Program Statement (PS): Authorities sign PS setting out policies/measures; PS combines LOI and MEFP functions and must include standard LOI consultation clause. - TMU: TMU annexed to PS defines program conditions, indicator definitions, public debt coverage, exchange rate valuation, adjustors, data submission requirements, etc. - End-of-mission press release encouraged. - Post-mission: - Back-to-Office Report (BTO): Mission chief sends BTO to Management within two working days of return; limit up to two pages. - Staff Report (SR): Required for initial PCI request and each program review; must include DSA and ESA update. ESA required every 12 months and for Article IV consultations. - Interim Performance Update (IPU): Issued to Board within 2 weeks of end of review window when review cannot be completed within review window (example reference: "[3] months" used for semi-annual reviews). - Management clearance memo, Summing Up/Chairman’s Statement, and press releases follow standard practice. - Publication regime: Board documents for PCI requests and review completions are published pursuant to Transparency Policy, subject to authorities’ consent; publication voluntary but subject to stronger presumption under Transparency Policy. - Other documents: - PRGS document encouraged for PRGT-eligible countries when poverty reduction critical. - Safeguards assessment not required but encouraged. - Administrative/procedural timeframes and limits: - BTO submission: "within two working days" - Interim performance updates to Board: "within 2 weeks of the end of the review window" - IPU example referencing: "[3] months" - Word limits: "The word limits for a stand-alone PCI staff report are 6,000 for program approval and 5,000 for program review." *Source: POLICY COORDINATION INSTRUMENT—UPDATED OPERATIONAL GUIDANCE NOTE (selected excerpts), International Monetary Fund, March 26, 2024.* ### EXECUTIVE SUMMARY ### EXECUTIVE SUMMARY ### Overview - The note provides general guidance on the use of the Policy Coordination Instrument (PCI), a non-financing instrument designed for countries seeking to unlock financing from multiple sources and/or to demonstrate a commitment to a reform agenda. - Operational issues are grouped into: Purpose, objectives, and eligibility; Modalities including duration, extension, cancellation, repeated use, and rules for its concurrent use; The applicability of use of Fund resources (UFR)-related policies, such as financing assurances, arrears, and safeguards; The design of a PCI program; The conditionality framework, including the review-based approach to monitoring and the related misreporting framework; The PCI review cycle, including details on the fixed review schedule and noncompletion of reviews; The applicability of other relevant policies, such as post financing assessments or Article IV consultations; Annexes comparing the PCI with other instruments and corresponding nomenclature, and on documentation and the review process. - The note is an aid to the implementation of the PCI policy and its underlying principles as set forth in relevant Board decisions, summings up, and Board papers. If a provision of this guidance note or its implementation conflicts with the PCI policy, the PCI policy shall prevail. - Date on document: March 26, 2024. ### Objectives and Purpose - Objective: - The PCI was established in 2017 with the overall objective of supporting countries in designing and implementing policies through a fully-fledged macroeconomic program to (i) prevent crises and build buffers, (ii) enhance macroeconomic stability, or (iii) address macroeconomic imbalances. - Purpose: - The PCI is a non-financial instrument designed for countries seeking to unlock financing from multiple sources and/or to demonstrate a commitment to a reform agenda. - The PCI can enable closer dialogue with countries and regular monitoring of economic developments and policies, including Board endorsement of those policies. - Application — three broad cases where the PCI is most appropriate: - Countries facing external difficulties — where the commitment to a PCI program can help secure adequate market access or access to other layers of the Global Financial Safety Net (GFSN) (e.g., Regional Financing Arrangements (RFAs) or bilateral swap arrangements) or other sources (e.g., multilateral development banks, bilateral creditors, or donors). - Countries that want to signal strong policies, such as when graduating from a Fund financial instrument or when a new government institutes or announces policy changes. - Countries that want to underpin a broader macro-structural reform agenda but do not have a BoP problem, and for which the PCI can serve as a familiar organizing framework and a commitment device. - Comparative note: - The PCI may be more appropriate than low-access arrangements treated as precautionary, especially where such arrangements are used to tap RFA resources and/or other layers of the GFSN. Annex 1 provides a comparison with alternative instruments. - Legal basis: - The legal basis of the PCI is the Board decision No. 16230-(17/62) adopted on July 14, 2017, amended on October 4, 2023 (the PCI Decision). - As a non-financial instrument, the PCI is legally considered to be technical assistance (TA) by the Fund and is voluntary for the member and the Fund. ### Eligibility and Qualification - Eligibility restrictions: - The PCI is available to all Fund members, except (i) those with overdue obligations to the Fund under the General Resources Account (GRA), the Poverty Reduction and Growth Trust (PRGT), or the Resilience and Sustainability Trust (RST) and (ii) those who require or seek financial assistance from the GRA and/or PRGT at the time of the PCI request, owing to a present, potential, or prospective balance of payments (BoP) need. - Clarifications: - A country can have an actual BoP need and qualify for the PCI, as long as covering this need does not require Fund financing. Financial assistance could instead come from other official creditors, such as RFAs, multilateral development banks, bilateral creditors or donors. - Countries with short-term financing and adjustment needs could instead be supported by the Standby Credit Facility (SCF)/Standby Arrangement (SBA) or, where BoP needs are urgent, under the Rapid Credit Facility (RCF)/Rapid Financing Instrument (RFI). - Countries that face a protracted BoP problem could be supported by an Extended Credit Facility (ECF) arrangement; countries with a medium-term BoP problem could be supported by an Extended Fund Facility (EFF) arrangement. - UCT standard: - Programs supported under the PCI must meet the UCT-quality standard. While the PCI has no qualification criteria, the requesting country would have to credibly commit, as well as have the capacity, to implement policies strong enough to constitute the basis for a Fund-supported program (i.e., UCT policies). ### Modalities — Duration, Extension, Termination, Repeated Use - Duration: - A PCI is expected to have a duration of two to three years. - A PCI can be approved for a duration of six months to four years. - PCIs of less than one year require at least one scheduled review. - Extension: - A PCI can be extended up to an overall maximum period of four years. - Extensions must be requested by the member and approved by the Board before the current PCI expires. - Termination/Cancellation: - The PCI can be cancelled by the authorities at any time, including when the country experiences financing or adjustment needs expected to extend beyond the short term or have impacted the authorities’ objectives or their capacity or commitment to implement the PCI program. - The PCI will be automatically terminated if: - (i) no scheduled review is completed within 15 months after Board approval of the PCI request or of the scheduled review date of the last completed review (for a PCI with semi-annual reviews), - (ii) the relevant member incurs overdue financial obligations to the GRA, PRGT, or RST; or - (iii) approval of Fund financing other than through the SBA/SCF, Resilience and Sustainability Facility (RSF), or RFI/RCF. - For PCI programs with a more frequent review schedule, the automatic termination period will be reduced proportionally but will not be shorter than 12 months. - A grace period of 30 days can be added to the 15 months if the member is transitioning from a PCI to a Fund arrangement in limited circumstances. - Repeated use: - There is no limit on the number of successor PCIs. ### Concurrent Use and Relationship to UFR Instruments - General rules: - Simultaneous requests for approval of a PCI and of financial assistance under the GRA and/or PRGT—precautionary or otherwise—are not permissible as a country cannot require or seek Fund financial assistance from the GRA and/or PRGT at the time of the PCI request. Similarly, a request for a PCI while a Fund instrument is already in place is not possible. - The PCI could be requested jointly with an RSF arrangement when the member faces risks to prospective BoP stability from qualifying longer-term structural challenges and commits to a strong package of reforms aimed to address these challenges, its debt is sustainable, and capacity to repay is adequate. - The PCI could be used concurrently with: - (i) an SBA and/or SCF arrangement—precautionary or disbursing—when a short-term BoP need emerges after the PCI approval, requiring Fund financial assistance under the GRA and/or PRGT; - (ii) an RSF arrangement; - (iii) emergency financing instruments (RFI and/or RCF). - The PCI cannot be combined with an EFF and/or ECF arrangement. Approval of an EFF arrangement and/or ECF arrangement will in any event cause automatic termination of the PCI. - The PCI cannot be used concurrently with any other Fund instruments, including the FCL, PLL, SLL, and SMP (including PMB). - Concurrent versus sequential use: - Concurrent use process: - Requests for Fund financing by a member that is using a PCI should go through regular processes for requesting Fund financial assistance subject to all relevant Fund policies on UFR. - The path towards a concurrent RFI/RCF or SBA/SCF for countries with an on-track PCI that experience a BoP need is expected to be rapid and smooth. - Modification of the PCI (e.g., specific targets) may be warranted when changed circumstances prevent meeting program objectives. - If the PCI program is off track, approval of the concurrent instrument (SBA/SCF, RSF) would typically occur when appropriate corrective actions (or sufficient commitments to that end) have been taken. Such corrective actions (or sufficient commitments) would also apply, where appropriate, for approval of a concurrent RCF/RFI. - Sequential use process: - For requests for stand-alone use of financing instruments by members that had been (but are no longer) using the PCI (“sequential use”), prior support under an on-track PCI could reduce the time normally required to design and agree on a financing program where the broad objectives of the UFR-supported program carry over from the PCI and there is a clear understanding of what concepts, variables, and measures should be subject to conditionality. - If sequential use is considered where the PCI program is off track and the country decides to simultaneously cancel the PCI and request financing under a Fund instrument (e.g., SBA/SCF, EFF/ECF, RFI/RCF), the country would be expected to take corrective actions for slippages under the PCI program, such as Prior Actions (PAs) for approval of the new request for financing under the Fund instrument, if such measures remain critical under the financial instrument. - Instruments explicitly referenced as incompatible with concurrent PCI use: - FCL, PLL, SLL, SMP (including PMB). - Note: - The same applies to EFF/ECF arrangements that follow a PCI program automatically terminated by virtue of the approval of these arrangements. ### Review, Conditionality, and Program Design (Highlights) - The PCI has a fixed review schedule and a review-based approach to monitoring and conditionality. - The note covers conditionality principles, specification of program conditions, monitoring, and the misreporting framework. - The PCI review cycle includes details on the fixed review schedule and noncompletion of reviews, with explicit automatic termination rules (see Termination/Cancellation). - The note addresses applicability of other relevant policies, such as post financing assessments or Article IV consultations, and includes annexes comparing the PCI with other instruments, nomenclature, and documentation and review processes. - Figures included in the full note (not reproduced here) illustrate: Illustrative Scenarios on Concurrent Use; Illustrative Scenarios Under a Three-Year PCI; Illustrative Scenario on Test Dates. *Source: POLICY COORDINATION INSTRUMENT—UPDATED OPERATIONAL GUIDANCE NOTE (EXECUTIVE SUMMARY), International Monetary Fund, March 26, 2024.* ### 13. Exceptional access. Requests from PCI users for Fund arrangement involving exceptional ### 13. Exceptional access. Requests from PCI users for Fund arrangement involving exceptional access are generally discouraged. ### Exceptional access - Requests from PCI users for Fund arrangement involving exceptional access are generally discouraged. - The need for exceptional access usually signals a fundamental change in the country’s economic situation, which weakens the continuity argument underpinning concurrent use. - If the country’s economic circumstances call for exceptional access, the typical course of action would be to cancel the PCI when the country requests the Fund arrangement. ### Blending - Countries that meet the criteria for presumed blending and experience a BoP need during a PCI program are expected to receive financial assistance from the PRGT only in combination with financing from the GRA. - Arrangements combining three separate instruments—or even four instruments under concurrent financial assistance from the RST—may be too cumbersome and are therefore generally discouraged. ### Concurrent use with the RFI and/or RCF - A country with an on-track PCI that experiences an urgent BoP need can request an RFI and/or RCF without cancelling the PCI. - The RFI and/or RCF request would typically be on a standalone basis but could also be combined with a PCI review. - Assurances of the country’s capacity to repay the Fund should be given through: - discussion in PCI program documents; - medium-term projections of the BoP; and - the standard table on indicators of the capacity to repay the Fund. - Subsequent PCI reviews follow up on policy commitments made under the RFI and/or RCF request. ### Concurrent use with the SBA and/or SCF — Rationale - A country with an on-track PCI that experiences a BoP need could receive financial support under the SBA and/or SCF arrangement(s) without cancelling the PCI. - The SBA and/or SCF would focus on the policy response to the short-term BoP gap, while the PCI would ensure continuity of policy cooperation and maintain focus on the broader medium-term agenda. ### Duration (SBA/SCF concurrent use) - Concurrent use could be considered where the BoP need is assessed to be short-term, i.e., spanning 6-12 months, although longer durations are not precluded. - The duration of the concurrent SBA and/or SCF arrangement(s) depends on the length of financing and adjustment needs and would not necessarily be tied to the duration of the PCI. - The SBA/SCF could extend beyond the end of the existing PCI. - For SBA/SCF arrangements treated as precautionary, continued insurance may be needed beyond the PCI end date. - With respect to successive PCIs, if the concurrent SBA/SCF arrangement ends after the PCI, approval of a new PCI can take place only after the expiration or cancellation of the SBA/SCF arrangement, since the PCI requires the absence of a BoP need warranting Fund financial assistance at the time of approval. - The PCI cannot exceed an overall maximum period of four years. ### Modalities (SBA/SCF concurrent use) - For the duration of concurrent use, engagement will be identical to an SBA/SCF arrangement in conjunction with the PCI’s fixed review schedule. - Reviews under the SBA and/or SCF arrangement(s) must coincide with the PCI’s fixed review schedule. - If staff and the authorities agree that a flexible review is preferable, the PCI should be cancelled as part of the SBA/SCF request. - SBA/SCF review cycles must coincide with that of the existing PCI (e.g., an SBA with quarterly reviews will not be feasible when the country already has a PCI with semi-annual reviews). - Quantitative targets (QTs) under the PCI must normally be established for the same test dates and must apply to the same variables and measures as quantitative performance criteria (QPCs) under the SBA/SCF arrangement. - New QPCs introduced under the SBA/SCF will automatically also become QTs under the PCI. - Monitoring of quantitative conditionality under the SBA/SCF reviews is not review-based. - Modification of forward-looking QPCs always requires explicit Board approval. - Strict adherence to the fixed PCI schedule should ensure reviews under the PCI and the SBA/SCF arrangement are always based on the same test date, even if one review (the maximum allowed under a semi-annual review schedule) is not completed. - If test dates under the two instruments become desynchronized, the natural course would be to discontinue concurrent use by cancelling the PCI while maintaining the SBA/SCF arrangement. - Structural benchmarks (SBs) under the SBA/SCF arrangement and reform targets (RTs) under the PCI are established for the same test dates and apply to the same measures. - Prior actions (PAs) under the PCI are also established for the SBA/SCF arrangement. - If structural measures are tied to reviews rather than test dates, the fixed PCI review dates must be used. ### Tradeoffs (SBA/SCF concurrent use) - Benefits of concurrent use: - (i) Countries with precautionary SBA/SCF arrangement approved while maintaining the PCI would enjoy immediate access to Fund financing should an actual BoP need materialize. - (ii) Retaining the PCI could avoid negative signals from termination of the PCI upon SBA/SCF approval and accommodate authorities’ preference to maintain a familiar instrument. - (iii) Preserving continuity of the RSF arrangement for members that have the PCI as a concurrent UCT-quality instrument to the RSF arrangement. - Operational and conceptual issues: - (i) Concurrent support by two (or three under blending) different instruments can lead to duplication of conditionality, making it difficult to differentiate the SBA/SCF (short-term) and the PCI (medium/long-term). - (ii) For presumed blenders and countries supplementing PRGT resources with GRA resources, the PCI could be used concurrently with a blended SBA-SCF arrangement and the RSF, resulting in up to four instruments, increasing risk of desynchronized test dates and diluting signaling. - (iii) Reduced flexibility from a fixed review schedule—compared to a standalone SBA or SCF—may be undesirable to some authorities and must be factored into considerations of concurrent use. ### Documentation (SBA/SCF concurrent use) - The staff report requesting the SBA/SCF arrangement for a country with a PCI must explain the rationale for retaining the PCI, weighing benefits and limitations. - When the duration of the concurrent SBA/SCF arrangement exceeds 12 months, all subsequent staff reports for PCI reviews must explain the continued appropriateness of concurrent use. - The authorities’ program is spelled out in the Letter of Intent (LOI) and the Memorandum of Economic and Financial Policies (MEFP), which will also serve as the PCI’s Program Statement (PS) for the duration of concurrent use. - Documentation for a scheduled PCI review is issued to the Board at the same time and combined with documentation for a review under the SBA- and/or SCF arrangement (one combined staff report, MEFP and TMU). - When a PCI is used concurrently with the SBA/SCF, assurances should be given that the country has the capacity to repay the Fund through: - (i) discussion in program documents; - (ii) BoP medium-term projections; and - (iii) the standard table on indicators of the capacity to repay the Fund. ### Illustrative scenarios on concurrent use (Figure 1) - Scenario 1: - A major crisis opens a BoP gap and exposes wide-ranging weaknesses, resulting in protracted BoP need and structural imbalances a year after the approval of a three-year PCI. - A three-year EFF/ECF arrangement is approved to address the BoP problem. - The PCI must be cancelled. - Scenario 2: - A short-term actual BoP need arises a year after the approval of a three-year PCI. - A 12-month SBA/SCF arrangement is approved. - The staff report on the request for completion of the PCI review issued alongside the request for the approval of the SBA and/or SCF arrangement would be required to justify concurrent use versus a standalone SBA/SCF arrangement. - Scenario 3: - A short-term potential BoP need arises at the mid-term of a three-year PCI. - A 24-month SBA/SCF arrangement treated as precautionary is approved which extends beyond the PCI period. - The staff report on the request for completion of the PCI review issued alongside the request for the approval of the SBA/SCF arrangement and staff reports for subsequent reviews are required to justify concurrent use. - Scenario 4: - A short-term actual BoP need arises at the mid-term of a two-year PCI. - An 18-month SBA/SCF arrangement is approved that extends beyond the PCI period. - The staff report on the request for completion of the PCI review issued alongside the request for the approval of the SBA/SCF arrangement and staff reports for subsequent reviews are required to justify concurrent use. - A successor PCI is approved after the end of the SBA/SCF arrangement. ### Concurrent use with the RSF - The PCI is a qualifying UCT-quality instrument for purposes of an RSF arrangement, allowing a country with no need for GRA or PRGT financing to request financing under an RSF arrangement. - The duration of the RSF arrangement would be expected to coincide with the duration of a new PCI (when requested together) or with the remaining duration of an existing PCI (when the RSF arrangement is requested at the time of a PCI review). - Upon termination, cancellation, or expiration of the accompanying PCI, the RSF arrangement is automatically terminated. - Similar to other UCT-quality programs accompanying the RSF arrangement, the PCI needs to have at least 18 months remaining before expiration at the time of the RSF arrangement approval. - Ensuring that the duration of the RSF arrangement coincides with that remaining under an existing PCI may warrant extending the duration of the PCI, which cannot exceed an overall maximum period of four years. ### Financing assurances - The PCI requires the same financing assurances as Fund arrangements. - The Fund needs to be satisfied that: - (i) firm commitments of financing are in place for the first 12 months following approval of the PCI; and - (ii) good prospects are in place that there will be adequate financing for the remaining period of the PCI beyond the first 12 months. - Program reviews require assurances of full financing for each successive 12-month period (or whatever period is left under the PCI). - For the post-program period, staff must assess whether prospective policies deliver a projected post-program performance that adequately safeguards repayments to the Fund consistent with a sustainable debt path during the program period. - PCIs for countries that seek financing from other sources still require assurances that financing is sufficient to support an assessment that the program is fully financed in line with the Fund’s policy on financing assurances. ### Arrears - The Fund’s policies on sovereign arrears apply to the PCI by analogy, including the call for resolution of existing arrears and non-accumulation of new arrears during the program period. - The Fund’s policies on lending into arrears to official bilateral creditors (LIOA) and to private creditors (LIA) apply by analogy for PCI engagement on a case-by-case basis in situations of sovereign arrears. - The resolution of any existing arrears to official creditors should be the normal case. Where upfront clearance is not possible, a commitment to future arrears resolution must be consistent with the macroeconomic program assumptions under the PCI. - Staff should have reasonable assurances that arrears clearance understandings are realistic. - PCIs should also address domestic arrears, if any, as part of the overall program design; specification depends on country context and the fiscal framework. - A member in arrears to the Fund in the GRA, the Special Disbursement Account, or the SDR Department, or to the Fund as Trustee (including the PRGT and RST), is not eligible for PCI support. - Any existing PCI for a member terminates upon the relevant member incurring the above-mentioned arrears. ### Safeguards - A safeguards assessment is not automatically required for a PCI. - When a member seeks financing under an RSF arrangement with a concurrent program supported by the PCI, a safeguards assessment is required under the concurrent PCI. - Members with a PCI are encouraged to undertake a safeguards assessment on a voluntary basis to enhance accountability, transparency, and institutional strength of their central banks and to facilitate quick access to Fund resources if a need materializes. - Safeguards-related reforms can be included as part of structural conditionality where critical to program success. - Requests for voluntary assessments should be coordinated with FIN. *Source: POLICY COORDINATION INSTRUMENT—UPDATED OPERATIONAL GUIDANCE NOTE (selected excerpts).* ### 26. Objectives in the Program Statement (PS). The PS specifies objectives and policy actions ### 26. Objectives in the Program Statement (PS). The PS specifies objectives and policy actions ### Objectives of the PS under the PCI - The PS specifies objectives and policy actions under the PCI, similar to a LOI/MEFP in other programs. - The PCI supports countries in designing and implementing policies through a fully-fledged macroeconomic program to: - (i) prevent crises and build buffers, - (ii) enhance macroeconomic stability, and/or - (iii) address macroeconomic imbalances and vulnerabilities. - The member’s program of economic and financial policies and objectives for the period of a PCI should be clearly articulated in the PS and associated staff report for a new PCI and could include: - Fiscal policies, where: - (i) the fiscal stance is well anchored to help ensure macroeconomic stability and fiscal/debt sustainability, - (ii) revenue and spending policies take due account of the country’s growth and social objectives, and - (iii) budgets are guided by medium-term fiscal frameworks to the extent possible. - These could be supplemented by public financial management reforms. - Monetary policies that are consistent with inflation, exchange rate, and reserve objectives, and that take into account the cyclical stance. - Exchange rate policies that ensure a unified exchange rate and a real exchange rate level that is broadly in line with fundamentals and desirable policy settings, ensuring a stable and sustainable external position. - Financial sector policies geared toward financial stability with a view to fostering investment, financial inclusion and preventing financial crises. - Other structural reforms critical for achieving the program’s macroeconomic objectives, aimed at enhancing the country’s growth potential, resilience to external shocks (including stemming from climate change), capacity to manage volatility, and ability to achieve social goals, including poverty reduction. ### B. Design — Medium-term debt strategy and fiscal framework (¶27) - PCI programs should be underpinned by a thorough Debt Sustainability Analysis (DSA) to inform the elaboration of medium-term debt strategies and fiscal frameworks. - DSA-related process issues — such as periodicity, engagement with the authorities, with the Fund, and with the World Bank — are guided by the provisions for program countries in the relevant (Sovereign Risk and Debt Sustainability Framework (SRDSF) or LIC) DSA guidance notes. ### Links to Poverty Reduction Strategies (PRS) and social spending (¶28) - Social and other priority spending: - For PRGT-eligible members, social and other priority spending should be safeguarded and, whenever appropriate, increased under PCI programs. - This objective should usefully be monitored, for instance through a memorandum item on social and other priority spending. - Poverty reduction: - Where poverty reduction is deemed critical to the program’s success, the PCI should be aligned with the country’s own PRS. - While the PCI is not subject to the requirements of poverty reduction strategies as is the case of PRGT arrangements, cases where poverty reduction is a main objective of the program would be expected to follow similar processes. - A Poverty Reduction and Growth Strategy (PRGS) document is encouraged as part of the program, and the PS should state how the PCI advances the country’s poverty reduction and growth objectives. - If a relevant PRGS document already exists, the PS should cross-reference it; otherwise, the poverty reduction discussion should be expanded in the PS for a review once a new PRGS document is produced by the country. ### Capacity Development (CD) and collaboration with development partners (¶29) - When capacity gaps constrain implementation of recommended policies, implementation of relevant CD should be incorporated into the design of the PCI program. - Fund staff should consult with development partners active in the country when designing and monitoring a PCI program. - When establishing and monitoring conditions based on variables and measures not within the Fund’s core areas of responsibility, Fund staff will, to the fullest extent possible, draw on the advice of other multilateral institutions, particularly the World Bank. - In PRGT-eligible countries, World Bank and Fund country teams should consult with each other at least once a year to identify key macroeconomic and structural reform challenges and coordinate work plans. ### Interactions with Regional Financing Arrangements (RFAs) (¶30) - One purpose of the PCI is to facilitate access to financing from other GFSN sources; the mandate and decision‑making process of each institution must be respected while upholding the Fund’s independence and reputation. - Interactions with RFAs are guided by the Fund’s principles of collaboration between the Fund and RFAs. - Collaboration should depend on the mandates and technical expertise of RFAs and the Fund: - Where a division of labor is possible, a “lead agency” model can be used (Fund leads on macroeconomic framework and policies; RFA focuses on areas within comparative advantage). - Where division of labor is not possible due to overlapping mandates or expertise, early engagement and collaboration based on one coherent program is called for. ### CONDITIONALITY — A. Principles (¶31–32) - Criticality: - Conditionality under a PCI ensures that a member’s policies are strong enough to meet program objectives. - Conditionality is set at approval and updated at reviews. - Conditions normally consist of macroeconomic variables and structural measures reasonably within the member’s direct or indirect control and that are either: - (i) of critical importance for achieving program goals (or for monitoring program implementation), or - (ii) analogous to the UFR context, necessary for implementation of specific provisions of the IMF Articles of Agreement or policies adopted under them. - For non-core but critical measures, staff should draw on advice of other multilateral institutions, particularly the World Bank, or bilateral donors with expertise. - Design and modalities for these conditions should be consistent with the Fund’s Guidelines on Conditionality. - Upper Credit Tranche (UCT) standard: - PCI programs must meet the UCT conditionality standard, which requires the commitment and capacity by the authorities to implement policies adequate to correct external imbalances and, if Fund resources are used or credit outstanding under the GRA, PRGT or RST exists, enable repayment to the Fund within the specified maturity period. - A PCI cannot be approved and a review cannot be completed if there are financing gaps forecasted beyond the end of the PCI, as that would indicate a prospective BoP need for Fund financing incompatible with completion of a PCI review unless covered under a concurrent Fund arrangement. - Implementation of the program is monitored as informed by QTs, RTs, Standard Continuous Targets, Prior Actions (PAs), and other relevant information. - Standard Continuous Targets apply to all PCI programs; some programs can have QTs but not RTs, or vice versa. - Targets to be monitored should be defined in a Technical Memorandum of Understanding (TMU), normally annexed to the PS in the request/review documentation. ### B. Specification of Program Conditions - Target test dates (¶33): - Test dates for targets are normally set on a semi-annual basis and correspond to scheduled reviews. - At approval or review completion, QTs and/or RTs should be set for the subsequent two reviews (i.e., for a 12-month period in the case of semi-annual reviews) or through the end of the PCI if it expires in less than 12 months. - Quantitative Targets (QTs) (¶34): - QTs apply to clearly specified quantitative variables that can be objectively monitored and are of critical importance for achieving program goals or monitoring implementation. - QTs typically include measures of net international reserves, central bank domestic assets, domestic debt and fiscal balances or financing, limits on external debt, and any other indicators critical to meet program objectives. - QTs may be subject to program adjustors that reflect deviations from estimated values driven by unforeseen factors. - At a review, QTs associated with the subsequent review can be modified when basic program assumptions have not been realized or significant unanticipated developments have occurred, provided new targets remain critical to program success. - Memorandum items (¶35): - Variables that might be indicative targets (ITs) in other Fund-supported programs are not included in PCI conditionality. - Since PCI uses only QTs, and the misreporting framework applies to all QTs, variables that would otherwise be ITs may be included as commitments by the authorities and discussed in the PS without becoming subject to program reviews like QTs. - Such variables can be optionally included in the quantitative conditionality table as “memorandum items”. - Reform Targets (RTs) (¶36): - RTs apply to key structural measures needed to meet program objectives. - RTs should be used parsimoniously, and their criticality explicitly justified in program documents. - The appropriate number of RTs depends on country-specific factors, including centrality of structural reforms and country capacity. - RTs should be set with specific test dates aligned with review schedules so reviews allow assessment of whether the RT was met. - If implementation of an RT is delayed beyond the test date, the measure will be found not to have been met but can be proposed to the Board as a new RT with a new test date if still critical. - If implementing an RT is no longer possible as defined, a new or modified target may be appropriate if it remains critical to achieving program goals. - Standard Continuous Targets (¶37): - Standard Continuous Targets relate to trade and exchange restrictions, bilateral payments arrangements, multiple currency practices and non-accumulation of external payments arrears, analogous to specified provisions of Decision No. 10464-(93/130), as amended. - Prior Actions (PAs) (¶38): - Prior Actions are measures expected to be adopted prior to Management recommending Board approval of a PCI or completion of a review. - PAs are applied when critical for successful program implementation to underpin upfront implementation of important measures; they are applied parsimoniously and specified in clear, objective, unambiguous terms. - Prior Actions should in principle be implemented at least five working days before the Board discussion. ### C. Monitoring (¶39–40) - Review-based monitoring (¶39): - Monitoring of PCI conditionality is fully review-based. - Under review-based monitoring, QTs differ from performance criteria (PCs): failure to meet a QT does not trigger the need for a formal waiver. - Deviations from targets serve as indicators that the PCI might no longer be on track; completion of the review requires a Board judgment that compensating factors exist (e.g., deviations are minor/temporary or corrective actions taken). - In case of substantial deviations and insufficient commitments to correct slippages, the review cannot be completed. - “Review-based monitoring” is virtually identical to monitoring under normal programs except there are no waiver requirements when targets are missed; substantive monitoring requirements are the same. - Missed targets (¶40): - When targets are missed, staff reports must remain comprehensive as under traditional monitoring: - The program performance section needs to discuss missed targets and ascertain that the program remains on track despite deviations (i.e., deviations were small, temporary, or corrective actions taken). The PS should also refer to missed targets. - The staff appraisal section reiterates why staff considers the program on track and recommends completing the review. - The PS includes tables of QTs and RTs with clear indication of status for past targets. ### D. Misreporting Framework (¶41–42) - Principle (¶41): - A tailored misreporting framework applies to the PCI. - The PCI does not entail use of Fund resources, and the Fund’s misreporting framework has not been applied to targets that are not “binding” (in the sense that missing the targets would not prevent completion of a review absent a Board waiver). - Credibility of data is critical for monitoring and signaling objectives of the PCI. - Any decision approving a PCI or completing a review will be conditional upon the accuracy of information provided by the member regarding implementation of Prior Actions or performance under associated QTs or Standard Continuous Targets. - Procedures (¶42): - When evidence indicates that a country’s reporting on QTs, Standard Continuous Targets, or PAs was inaccurate in relation to a PCI approved or review completed within the preceding three years, the Managing Director (MD) shall promptly inform the member. - If after consultation the MD finds the member reported inaccurate information, the MD shall promptly notify the member of this finding. - Where a PCI was approved, or a review completed, no more than three years prior to the date the MD informs the member, the Executive Board shall decide whether misreporting has occurred. - There are no waivers for misreporting; the Board shall reassess program performance in light of that determination including the revised information associated with the misreporting. - Such reassessment will not lead the Board to retroactively reverse its decision completing a review that subsequently became associated with misreporting. - If the Board determines misreporting has occurred (and it is not found to be de minimis), the member would be required to take corrective action, if necessary to ensure the cause of misreporting does not hinder future program implementation or monitoring, as a condition for continued PCI support, and the relevant information would be published. *International Monetary Fund — POLICY COORDINATION INSTRUMENT—UPDATED OPERATIONAL GUIDANCE NOTE (excerpt: ¶26–¶42)* ### 43. De minimis procedures. Misreporting procedures are streamlined in cases that are deemed ### 43. De minimis procedures. Misreporting procedures are streamlined in cases that are deemed de minimis ### De minimis definition and consequences - De minimis is defined as "so small as to be trivial with no impact on the assessment of performance under the relevant member’s program." - When Management determines the possible misreporting is de minimis: - The communications referred to in the preceding paragraph may be made by a representative of the relevant Area Department. - The Executive Board shall be informed of the misreporting in a staff report on a review under the relevant PCI 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 PCI. - In rare cases with no review provided for and no other such staff report to be issued promptly after the MD concludes misreporting, the MD shall consult with Executive Directors and may decide to issue a stand-alone report on the misreporting to be considered by the Executive Board, normally on a lapse-of-time basis. - Whenever the Executive Board finds that misreporting was de minimis: - (i) it 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. *Italic: Source: ppea2024020 - 43. De minimis procedures. Misreporting procedures are streamlined in cases that are deemed* ### PROGRAM REVIEWS ### A. Purpose of Program Reviews - Reviews evaluate whether the program is on track to achieve its objectives and assess past performance under the PCI in periodic reviews. - Reviews are based on: - Backward-looking assessment: performance against Quantitative, Reform and Standard Continuous Targets, and Prior Actions. - Forward-looking assessment: prospects for successful program implementation, including policy capacity and commitments for implementing the UCT-quality program. - Reviews establish policy understandings for the future, including updates to program design and conditionality as needed. - Completion of a review by the Board signifies the Fund’s assessment that policies and commitments are on track to meet program objectives, in accordance with the standard of UCT quality policies. - At each review, authorities’ PS updates their policy program and a staff report provides an overall assessment of performance and policy commitments. ### B. Fixed Review Schedule and Test Dates - Schedule principles: - Reviews are on a fixed schedule with a limited time buffer. The timing of all reviews and test dates is summarized in a staff report table at time of PCI approval, and the schedule cannot be modified during subsequent reviews. - Reviews by the Board would normally be conducted on a semi-annual basis, although a more frequent review schedule (e.g., quarterly) could be applied in special circumstances. - At PCI request there is scope for some flexibility in setting review and test dates, but normally they are scheduled at most six months apart. - Each semi-annual review can be completed within three months following the review date specified in the PCI request; this period represents the review window (or “buffer”). - If the review is not completed within three months (in the case of semiannual reviews) from the scheduled review date, an interim performance update (IPU) by staff would be provided to the Board for information. - For more frequent review schedules, the review window is shortened proportionally and closes at the midpoint between the two reviews. - Notes on timing and modification: - While the term of the PCI could be extended, it is not possible to change the dates for reviews once established. - For programs on a more frequent review schedule, the period after which an IPU is required would be adjusted downward (e.g., 1½ months for programs on a quarterly review schedule). The automatic termination period will also be reduced proportionally but will not be shorter than 12 months. - Test dates: - Each review is linked to a particular test date for QTs and RTs and each review needs its own set of QTs and/or RTs. - Factors when setting test dates: - Test dates must be set such that all scheduled reviews can take place before the end of the PCI, accounting for reporting lags and staff report preparation and circulation periods. - Review dates specified in the PS and approval Decision should be set so all data needed to confirm observance of targets would have become available. There is no possibility of a waiver where data for targets are not available. - When data are not available for a PCI review, the review cannot be completed. - Consideration should be given to alignment with the country’s budget cycle. - It is recommended that, for semi-annual review schedules, the test date is scheduled at least three months from the preceding fixed review date to reduce the chance a review is completed after the next review’s test date. ### Illustrative scenarios (summarized) - PCI on track throughout program: Reviews every six months as scheduled. - PCI off track for one review plus minor delays: Third review not completed within three months from scheduled date, triggering an IPU within two weeks of the end of the review window; program back on track thereafter. - PCI terminated automatically fifteen months after the scheduled review date of the last completed review: Third review missed triggering an IPU; fourth review not completed within 15 months from the scheduled date of the second review → automatic termination. ### C. Noncompletion of Reviews and Automatic Termination - Interim performance update (IPU): - If a review is not completed within the review window, staff must provide an IPU to the Board for information. - The IPU aims to reduce uncertainty by explaining why the review was not completed, overviewing the economic situation and program performance, indicating sources of delay, and highlighting corrective actions needed to bring the program back on track. - Staff should engage in policy discussions where possible and reflect authorities’ views in the IPU. - The IPU cannot be used to adjust targets because it is for information only. - IPUs should be issued to the Board within 2 weeks of the end of the review window. - The internal review process for IPUs is the same as for staff reports. - External communication: - A brief factual press release stating the issuance of the IPU would be published. - The IPU report should be published subject to the member’s consent. - If published, the press release could summarize staff views set out in the IPU. - Where a member does not consent to publication of an IPU, Management will consider this when recommending whether the Executive Board should complete a subsequent review of the member’s PCI. - Bringing a PCI back on track: - Indicated through completion of the next scheduled review; a review delayed beyond the review window is “dead” and the program moves to the subsequent review. - Corrective action is required where performance prevented completing a particular review. - Automatic termination: - For PCI programs with semi-annual reviews, non-completion of a review for a fifteen-month period since the scheduled review date of the most recently completed review or since Board approval of the PCI results in automatic termination of the PCI. - A factual press release stating the termination is to be relayed to the Board via SEC and then published. - In cases of concurrent use with an SBA and/or SCF arrangement, automatic termination of the PCI has no implications on the status of the Fund arrangement (except an RSF arrangement for which the PCI is the only accompanying UCT-quality instrument). ### D. Flexibility When Transitioning to An Arrangement - Grace period: - When a PCI is on track and the PCI user intends joint completion of a PCI review and approval of a new Fund arrangement and to cancel the PCI, a review could be completed within 30 days (“grace period”) beyond the regular buffer period in limited circumstances. - Conditions for the 30-day grace period: - A staff-level agreement (SLA) on completion of the PCI review and request for a new Fund arrangement must have been reached and announced within the buffer period—i.e., three months of the scheduled review date for semi-annual reviews. - The PCI review must be completed jointly with a request for a new Fund arrangement and the cancellation of the PCI in the same Board meeting. - If the buffer period has expired and the joint Board meeting cannot be held within the additional 30-day grace period, then the PCI review can no longer be completed. An IPU will need to be issued if the preceding review had been completed, or the PCI would be automatically terminated if an IPU had been issued for the previous review. - The grace period should only accommodate minor administrative challenges and should be used only when there is a high degree of certainty a joint Board meeting will take place within the 30-day grace period. It should not serve as an extra buffer for delaying reviews. - If there is uncertainty about the request for a new Fund arrangement, the PCI review should be completed within the regular three-month buffer and the new arrangement request made later. ### OTHER RELEVANT POLICIES - Post Financing Assessment (PFA): - A PCI provides an alternative vehicle for PFA for members subject to such monitoring given outstanding Fund obligations. - For PFA purposes, members with a PCI are treated similarly to members with programs supported by a Fund arrangement or SMP. - PCI staff reports should include a section on the member’s capacity to repay the Fund and other elements specified in the PFA guidance. - Article IV consultation cycle: - The 24-month cycle for Article IV consultations applies to members with a PCI. - An Article IV consultation can be combined with a PCI program review. - Article IV consultations with members that have an on-track PCI are expected to be completed within 24 months after the completion of the previous Article IV consultation. - If a PCI program review is not completed by the date specified in the PCI, the next Article IV consultation is expected to be completed by the later of (i) six months after the scheduled review date and (ii) 12 months plus a grace period of three months after the previous Article IV consultation, unless the program review has been completed earlier, in which case the 24-month cycle continues. - A member with an expired PCI who completed all reviews under the expired PCI remains on the 24-month cycle, unless criteria in Decision No. 14747-(10/96) apply. - At the time of the final PCI review, staff should assess whether the consultation cycle should be shortened back to 12 months and, when appropriate, recommend Board approval to transition to the 12-month cycle. - Where the PCI is cancelled by the member or expires with uncompleted reviews, the member will remain on the existing cycle unless the Executive Board determines a different cycle will apply per Decision No. 14747-(10/96). - Other UFR policies: - The PCI is generally subject to the same policies as UFR, applied by analogy to the PCI. This includes the Transparency Policy, the Open Archives Policy, Guidelines on Public Debt Limits in Fund Arrangements, Lapse of Time Procedures for Completion of Program Reviews, and policies on use of side letters. - The PCI is subject to the data reporting framework under the Decision on Strengthening the Effectiveness of Article VIII, Section 5. - The PCI cannot be used to establish a track record for a HIPC decision or completion point. - Staff and management may seek political assurances in the run-up to national elections, consistent with practice with Fund arrangements. *Italic: Source: ppea2024020 - 43. De minimis procedures. Misreporting procedures are streamlined in cases that are deemed* ### 57. Administrative costs. Any generally applicable policies on the financing of TA also apply to ### ppea2024020 - 57. Administrative costs. Any generally applicable policies on the financing of TA also apply to ### Administrative costs and financing principle - The PCI is considered a TA for financing policy purposes; "Any generally applicable policies on the financing of TA also apply to the PCI, as it is considered a TA, including charging policies or expectations of self-financing." - According to current TA policy, "advanced economies are generally expected to self-finance Fund TA, and therefore advanced economies would generally be expected to self-finance the administrative costs of the PCI." ### Key numerical and policy facts from instrument comparison (Annex I) - Duration (PCI): "6 months to 4 years" - Duration (SBA): "6 months to 3 years" - Duration (SCF): "1 to 3 years" - Duration (EFF): "2 to 4 years" - Duration (ECF): "3 to 5 years" - Duration (SMP): "Duration normally 6-18 months" - Duration (PMB): "Duration normally 6-18 months" - Access Limit (PCI): "No financial. Can expedite process for requesting Fund financial arrangement" - Costs for Members (PCI): "Follow TA charge policies. According to the current policies, advanced economies need to cover administrative costs" - Costs for Members (SBA/SCF/EFF/ECF): progressive commitment fee structure listed as: - "15 bps for first 115 percent of quota" - "30 bps on 115 to 575 percent of quota" - "60 bps above 575 percent of quota" - "Refunded pro-rata when amounts drawn" - SCF interest/fees: "The SCF’s interest rate setting mechanism has been aligned with that of the ECF and is currently set at zero percent until July 31, 2025.15 bps availability fee on undrawn portion of precautionary SCF during each 6-month period." - Review schedule (PCI): "Normally semi-annual; shorter possible. Fixed schedule (with a buffer) to provide regular and uninterrupted signal" - Automatic termination (PCI): "15 months after Board approval of the PCI request or of the scheduled review date of the last completed review (for PCI with semi-annual review)" - Conditionality (PCI): "UCT-quality, may contain QTs, RTs, and Continuous Targets, as well as PAs, as needed" - Monitoring of conditionality (PCI): "Review-based monitoring of QTs and RTs. No waivers if missed, but substantive requirements for completing reviews same as under PC-based monitoring" - Safeguards Assessment (PCI): "Not required, but encouraged" - Misreporting (PCI): "Tailored misreporting framework applies to PAs, QTs and CTs" ### Documentation and review process (Annex III) — major steps and requirements - Pre-Mission Work - Early consultation: "Mission teams are encouraged to consult informally with SPR (and if relevant FIN or LEG) at an early stage to get information on relevant Fund PCI policies and technical requirements." - Policy Note (PN) must include program tables with Quantitative Targets (QTs) covering: - "(i) previously established targets and outturns (QTs) since PCI approval or over at least the past 12 months," - "(ii) QTs for the subsequent two reviews (i.e., for a 12-month period in the case of semi-annual reviews) or through the end of the PCI if it is scheduled to expire in less than 12 months (from the expected Board date)," - "(iii) memo items, optionally, as ITs are not included in PCI program conditionality, and" - "(iv) continuous targets that relate to trade and exchange restrictions, bilateral payments arrangements, multiple currency practices and non-accumulation of external payments arrears;" - RT table must cover: - "(i) the implementation status of previously established RTs," - "(ii) RTs covering the next two reviews, highlighting their timing and macro criticality, and" - "(iii) any Prior Actions (PAs)." - A preliminary DSA and other annexes normally found in UFR request PNs should also be included. - Policy Consultation Meetings (PCM): "A PCM should be held approximately two to three weeks prior to missions." - Cover memorandum for PN: must provide concise information on "(i) key issues—economic situation, including vulnerabilities to an external or financial crisis; (ii) staff’s main recommendations; (iii) main issues raised in the review process, including reconciliation of diverging departmental views as appropriate; and (iv) any controversial aspects." - On Mission - Program Statement (PS): "The authorities of the country will need to sign a PS that sets out the policies and measures they intend to pursue in line with their Fund-supported program." PS combines LOI and MEFP functions and must include "the standard LOI consultation clause." - Technical Memorandum of Understanding (TMU): "A TMU is annexed to the PS. The TMU clearly and precisely defines the program conditions, including the definitions of indicators, the coverage of public debt of the government and the monetary authorities, exchange rate valuation for program purposes, program adjustors, data submission requirements, etc." - End-of-mission Press Release: missions are encouraged to issue one and "should inform the authorities of their intention to issue a press statement." - Post-Mission Work - Back-to-Office Report (BTO): "The mission chief should send a BTO to Management within two working days of the mission's return to headquarters." BTO limit: "up to two pages." - Staff Report (SR): "A staff report is required for an initial PCI request, and at the time of each program review." SR must include a DSA and an ESA update: - "Debt Sustainability Analysis. Staff reports should be underpinned by a thorough DSA..." - "External Sector Assessment (ESA). An ESA is required every 12 months and for Article IV consultations." - Interim Performance Update (IPU): "Interim performance updates should be issued to the Board within 2 weeks of the end of the review window." Example box notes IPU use when a review cannot be completed within "[3] months of the scheduled date." - Management Clearance Memo: "Management clearance of staff reports is based on a clearance note that states the main issues addressed in the report..." - Summing Up/Chairman’s Statement: "All stand-alone PCI discussions and combined PCI discussions with Article IV consultation discussions require both a Summing Up and Chairman's Statement." - Press Release: "COM issues Press Releases for new PCI programs and reviews, containing the Chair’s statements." - Publication regime: "The Board documents for both requests for the PCI and completion of reviews under the PCI, after being sent to the Board for approval, are published pursuant to the Transparency Policy, subject to the authorities’ consent, together with a Press Release containing the Chair’s Statement." Publication of PCI-related documents is "voluntary" but "subject to the stronger publication presumption under the Transparency Policy." - Other Documents and Guidance - Poverty Reduction and Growth Strategy (PRGS) document: "For PRGT-eligible countries whenever poverty reduction is considered critical to program success, a Poverty Reduction and Growth Strategy (PRGS) document, while not required, would be encouraged..." - Safeguards Assessment: "A safeguards assessment is not required for a PCI. However, countries with a PCI are encouraged to undertake such an assessment on a voluntary basis." ### Administrative and procedural timeframes and limits - BTO submission: "within two working days" - Interim performance updates to Board: "within 2 weeks of the end of the review window" - IPU example referencing: "[3] months" (used in template language) - Word limits for documents: - "The word limits for a stand-alone PCI staff report are 6,000 for program approval and 5,000 for program review." *International Monetary Fund — Policy Coordination Instrument — Updated Operational Guidance Note (extract).* --- _Source: https://www.imf.org/-/media/files/publications/pp/2024/english/ppea2024020.pdf_