The Policy Support Instrument (PSI)
March 21, 2016
The Policy Support Instrument (PSI) offers low-income countries that do not want—or need—Fund financial assistance a flexible tool that enables them to secure Fund advice and support without a borrowing arrangement. This non-financial instrument is a valuable complement to the IMF’s lending facilities under the Poverty Reduction and Growth Trust. The PSI helps countries design effective economic programs that deliver clear signals to donors, multilateral development banks, and markets of the Fund's endorsement of the strength of a member's policies.
Purpose. The PSI is designed to promote a close policy dialogue between the IMF and a member country, normally through semiannual Fund assessments of the member's economic and financial policies. This support from the IMF also delivers clear signals to donors, creditors, and the general public about the strength of the country’s economic policies.
Eligibility. The PSI is available to all PRGT-eligible countries that have no current or prospective balance of payments need requiring any significant macroeconomic policy adjustment, but that may still benefit from structural reforms supporting strong and durable poverty reduction and growth, and that have institutions of sufficient quality to support continued good performance.
Duration and repeated use. A PSI may be approved for an initial duration of one to four years, and later extended up to a maximum period of five years. Successive PSIs may be requested as long as the country continues to qualify.
Use with financial instruments. The PSI cannot be used concurrently with the Extended Credit Facility (ECF). In contrast, the PSI can be used in conjunction with the Rapid Credit Facility (RCF) or Standby Credit Facility (SCF), if short-term financing needs arise, or with a precautionary SCF in periods of increased uncertainty or risk.
Policy objectives. The PSI is designed to support member countries in maintaining or consolidating macroeconomic stability and debt sustainability, while deepening structural reforms in key areas in which growth and poverty reduction are constrained. Countries have the flexibility to specify policy objectives and design reform strategies that are tailored to their own economic conditions. In general, policies aim to consolidate macroeconomic stability and push ahead with structural measures to boost growth and jobs. These include measures to improve public sector management, strengthen the financial sector, or build up social safety nets.
Program reviews by the IMF’s Executive Board play a critical role in assessing performance under the program and allowing the program to adapt to economic developments. Reviews are normally semiannual.
To date, the Executive Board has approved 18 PSIs for seven members: Cape Verde, Mozambique, Nigeria, Rwanda, Senegal, Tanzania, and Uganda.