1. The Policy Support Instrument Early Experience
Tom Dorsey
Policy Strategy and Review Department
IMF

2. The Policy Support Instrument in brief
A shadow program for low-income IMF members that do not need or want IMF resources.
A framework for structuring policy dialogue between members and the IMF.
A means of signaling donors, investors, and others of a member’s program design and its implementation.

3. Key Features of the Policy Support Instrument (PSI)
Programs modeled on PRGF-supported programs.
Fixed schedule of reviews to ensure regular and timely assessments.
No IMF financing, but designed to facilitate rapid transition to an arrangement if a balance of payments need arises.

4. The Prehistory of PSI Staff Monitored Programs
Both signaling and track record purposes for a single instrument
A light approach to documentation leading to limited Executive Board involvement and uneven public information.
Low-access PRGF arrangement
No precautionary PRGF arrangements possible.
Signals the lack of balance of payments need, but not a record of successful policy implementation (e.g., “graduation”).

5. An Instrument for Mature Stabilizers
Mature stabilizers have:
achieved a reasonable growth performance;
low-underlying inflation (comparable to that obtaining in their major trading partners);
have an adequate level of official international reserves; and
begun to establish (external and net domestic) debt sustainability.
Emphasis on “second generation” structural reforms implies a threshold of institutional and policy quality.
Policy Support and Signaling in Low-Income Countries June 2005).

6. Has the PSI been Used by Mature Stabilizers?
YES
Quantitative thresholds set for each of the criteria at or around the average levels for PRGF-eligible members.
Mature stabilizers are defined as those members that exceed the thresholds for all five criteria.
19 of 78 PRGF-eligible members are mature stabilizers by this definition.
All but one of the PSI users were mature stabilizers; the exception missed only a single criterion.

7. Has Conditionality Under the PSI Been Lighter than Under the PRGF?
YES
Fewer benchmarks and assessment criteria than under PRGF-supported programs for other mature stabilizers or PRGF-supported programs in general

9. Has Program Implementation Been Better Under the PSI than Under the PRGF?
YES
A higher percentage of benchmarks and assessment criteria were met in PSI-supported programs than under PRGF-supported programs for other mature stabilizers or PRGF-supported programs in general

11. Topics for Structural Benchmarks and Assessment Criteria
The heaviest concentration of structural measures in PSI-supported programs is in debt and expenditure management.
Other areas with significant structural measures are banking and financial sector reforms, revenue mobilization, and transparency and governance.

13. Authorities’ Views
The usefulness of the PSI for promoting closer policy dialogue with the IMF and providing effective signals to donors and markets are best assessed by PSI country authorities.
In a survey, country authorities gave the PSI generally good marks.
The satisfaction with the PSI was highest on promoting policy dialogue but more lukewarm on attracting private sector interest.

15. Summary Early evidence suggests a successful launch of the PSI.
The PSI seems to be achieving the expectations set out for it in 2005.
Caveats: A small sample, seven programs in six countries with most programs still ongoing.