The Policy Support The Policy Support Instrument Instrument

Early ExperienceEarly ExperienceTom DorseyTom Dorsey

Policy Strategy and Review DepartmentPolicy Strategy and Review DepartmentIMFIMF

The Policy Support InstrumentThe Policy Support Instrumentin brief in brief

A shadow program for low-income IMF members A shadow program for low-income IMF members that do not need or want IMF resources.that do not need or want IMF resources.

A framework for structuring policy dialogue A framework for structuring policy dialogue between members and the IMF.between members and the IMF.

A means of signaling donors, investors, and A means of signaling donors, investors, and others of a member’s program design and its others of a member’s program design and its implementation.implementation.

Key Features of the Policy Support Key Features of the Policy Support Instrument (PSI)Instrument (PSI)

Programs modeled on PRGF-supported Programs modeled on PRGF-supported programs.programs.

Fixed schedule of reviews to ensure Fixed schedule of reviews to ensure regular and timely assessments.regular and timely assessments.

No IMF financing, but designed to facilitate No IMF financing, but designed to facilitate rapid transition to an arrangement if a rapid transition to an arrangement if a balance of payments need arises.balance of payments need arises.

The Prehistory of PSIThe Prehistory of PSI

Staff Monitored ProgramsStaff Monitored Programs Both signaling and track record purposes for a single Both signaling and track record purposes for a single

instrumentinstrument A light approach to documentation leading to limited A light approach to documentation leading to limited

Executive Board involvement and uneven public Executive Board involvement and uneven public information.information.

Low-access PRGF arrangementLow-access PRGF arrangement No precautionary PRGF arrangements possible.No precautionary PRGF arrangements possible. Signals the lack of balance of payments need, but not Signals the lack of balance of payments need, but not

a record of successful policy implementation (e.g., a record of successful policy implementation (e.g., “graduation”).“graduation”).

An Instrument for Mature An Instrument for Mature StabilizersStabilizers

Mature stabilizers have:Mature stabilizers have: achieved a reasonable growth performance;achieved a reasonable growth performance; low-underlying inflation (comparable to that obtaining in low-underlying inflation (comparable to that obtaining in

their major trading partners);their major trading partners); have an adequate level of official international reserves; have an adequate level of official international reserves;

and and begun to establish (external and net domestic) debt begun to establish (external and net domestic) debt

sustainability.sustainability. Emphasis on “second generation” structural reforms Emphasis on “second generation” structural reforms

implies a threshold of institutional and policy quality.implies a threshold of institutional and policy quality.

Policy Support and Signaling in Low-Income CountriesPolicy Support and Signaling in Low-Income Countries June 2005). June 2005).

Has the PSI been Used by Mature Has the PSI been Used by Mature Stabilizers?Stabilizers?

YESYES Quantitative thresholds set for each of the Quantitative thresholds set for each of the

criteria at or around the average levels for criteria at or around the average levels for PRGF-eligible members.PRGF-eligible members.

Mature stabilizers are defined as those members Mature stabilizers are defined as those members that exceed the thresholds for that exceed the thresholds for all fiveall five criteria. criteria.

19 of 78 PRGF-eligible members are mature 19 of 78 PRGF-eligible members are mature stabilizers by this definition.stabilizers by this definition.

All but one of the PSI users were mature All but one of the PSI users were mature stabilizers; the exception missed only a single stabilizers; the exception missed only a single criterion.criterion.

Has Conditionality Under the PSI Has Conditionality Under the PSI Been Lighter than Under the Been Lighter than Under the

PRGF?PRGF?YESYES• Fewer benchmarks and assessment Fewer benchmarks and assessment

criteria than under PRGF-supported criteria than under PRGF-supported programs for other mature stabilizers or programs for other mature stabilizers or PRGF-supported programs in generalPRGF-supported programs in general

Benchmarks and Assessment/Performance Criteria

17.2 16.5

13

0

2

4

6

8

10

12

14

16

18

20

PSI users Program MatureStabilizers

Other ProgramCountries

pe

r re

vie

w

Conditions

Has Program Implementation Been Has Program Implementation Been Better Under the PSI than Under Better Under the PSI than Under

the PRGF?the PRGF?YESYES• A higher percentage of benchmarks and A higher percentage of benchmarks and

assessment criteria were met in PSI-assessment criteria were met in PSI-supported programs than under PRGF-supported programs than under PRGF-supported programs for other mature supported programs for other mature stabilizers or PRGF-supported programs stabilizers or PRGF-supported programs in generalin general

Conditions Met

56

58

60

62

64

66

68

70

72

74

76

78

PSI users Program MatureStabilizers

Other ProgramCountries

Perc

en

t m

et

Topics for Structural Benchmarks Topics for Structural Benchmarks and Assessment Criteriaand Assessment Criteria

The heaviest concentration of structural The heaviest concentration of structural measures in PSI-supported programs is in measures in PSI-supported programs is in debt and expenditure management.debt and expenditure management.

Other areas with significant structural Other areas with significant structural measures are banking and financial sector measures are banking and financial sector reforms, revenue mobilization, and reforms, revenue mobilization, and transparency and governance.transparency and governance.

0

1

2

3

4

PSI

Previous PRGF

Mature-Stabilizer PRGF

Other PRGF

Figure 1. Areas of Structural Conditionality 1/ 2/

Source: Fund staff reports.1/ Structural conditionality includes prior actions, assessment criteria, and benchmarks.2/ These figures represent the average number of conditions per program review.3/ Institutional reform includes legal and regulatory , labor market, and corporate reform.

Authorities’ ViewsAuthorities’ Views

The usefulness of the PSI for promoting closer The usefulness of the PSI for promoting closer policy dialogue with the IMF and providing policy dialogue with the IMF and providing effective signals to donors and markets are best effective signals to donors and markets are best assessed by PSI country authorities.assessed by PSI country authorities.

In a survey, country authorities gave the PSI In a survey, country authorities gave the PSI generally good marks.generally good marks.

The satisfaction with the PSI was highest on The satisfaction with the PSI was highest on promoting policy dialogue but more lukewarm on promoting policy dialogue but more lukewarm on attracting private sector interest.attracting private sector interest.

Views of PSI Country Authorities

0

1

2

3

4

5

StronglyAgree

Agree Neutral Disagree StronglyDisagree

Notapplicable

Promote closer policy dialogue Delivered clear and timely signals

Useful for attracting private investment Important input into donor aid decisions

SummarySummary

Early evidence suggests a successful Early evidence suggests a successful launch of the PSI.launch of the PSI.

The PSI seems to be achieving the The PSI seems to be achieving the expectations set out for it in 2005.expectations set out for it in 2005.

Caveats: A small sample, seven programs Caveats: A small sample, seven programs in six countries with most programs still in six countries with most programs still ongoing.ongoing.