The IMF’s Policy Support Instrument: more flexibility or continued belt tightening

World Bank-IMF annual meetings 2007

26 October 2007 | Minutes

Sponsor: ActionAid International
Speakers: Soren Ambrose, Specioza Kiwanuka
Chair: Jesse Griffiths, ActionAid


Soren Ambrose – on the PSI

  • Basics on the PSI
    • Nigeria first in 2005
    • Defined as instrument for LICs, no loans, designed for “mature stabilisers”, still sends signals
    • No money -> symbolic of new role of the IMF, advisor more than lender or disciplinarian; emphasises gate-keeper role and public credit rating agency
    • PSI is linked to MDRI
  • What is a “mature stabiliser”?
    • Countries that had gone through macro-instability
    • Now with internal macro balance and fiscal stability
    • Indicators, GDP growth, inflation < 10%, domestic debt , 1% of GDP
  • In effect the PSI does not differ from the PRGF
    • Even IMF called it a PSI without money
    • If countries are stabilizers – shouldn’t the programme be different than a crisis programme; should be able to pursue more development goals
    • Descriptors – flexible, home-grown, country dialogue; though not officially described as flexible
    • Mozambique and wage bill ceilings – constricted hiring of wage bill ceilings
    • Uganda – ‘directed lending’ programme opposed by the Fund.
  • Conclusions and recommendations
    • IMF has opportunity to take a bold step on signalling
    • Can be proactive in positive signal on governments tackling MDGs and human development goals, allow fiscal space while not violating macro stability
    • Need to approve programmes that are not similar or identical to IMF programmes
    • There should be questions on the credit rating agency function of the IMF – maybe there are other options for this
    • Conflict of interest in both designing and evaluating programmes
    • Countries need fiscal space and policy space to make own decisions – the PSI could do that, but it is not now

Specioza on Uganda PSI programme

  • Bonna Bangawala programme – this was a domestic priority that was challenged by the IMF through the PSI
  • IMF has rhetoric on supporting policies, but this is not happening in practice
  • Credit in Uganda
    • SACCOs are the method by which the scheme was supposed to help low-income people get credit
    • Borrowing costs are high, credit availability is low – only large companies and government
    • Microfinance has not filled the gap – they only reach a small proportion of the population, their credit is not very affordable
    • In election campaign – rural voters demanded credit programmes, the president made a promise in the campaign
  • December 2006 – the IMF communication called it directed lending and essentially wants the programme stopped
    • Clear popular support
    • Government trying to address needs
    • Filling gaps to solve market failure of rural credit
  • Government later included in its programme and defended the idea
    • Unclear what the IMF response will be
    • No conditions in Dec 2006 to stop the programme
    • Maybe the IMF wants to avoid criticism
    • Earlier IMF statements maybe undercut ability to raise funds from donors

General Discussion

Robert – civil society for poverty reduction in Zambia

  • How does parliament oversee government loans in Uganda
  • What about two-way monitoring from Paris Declaration? Do we have a tool for monitoring the IMF and is fulfilling its promises?

Vasuki Shastri – IMF

  • Where exactly PSI should head? Greater role or less?
  • In Uganda, this is the wrong impression. Rural credit schemes don’t work – ie evidence in Asia. This isn’t national sovereignty, it is a leakage and targeting

Peter Chowla

  • What about Korean rural credit schemes?
  • What about Uganda Development Bank and privatisation – has this effected credit provision?

Grenada’s ambassador to UN

  • Did the IMF come up with any alternatives when they criticised the Bonna B programme?


  • In Uganda – the parliament does approve loans, but PSI has no loan – parliament is not involved in the contract or the review process
  • This is a ‘directed lending’ programme – only IMF called it this

Eric Gutierrez

  • There is an urgent need of credit in the rural sector, WB/IMF has over 20 years of SAP destroyed credit access to rural small landholders
  • Yes rural credit scheme have had problems – this requires good design and good management of the programme
  • Small holder agriculture needs credit to be viable
  • IMF needs to help design the programme well


  • IMF gave no alternatives – only to rely on private markets
  • On UDB – not really linked to the past experience


  • Do we want IMF out of the PSI business? – no clear answer
    • Depends on the design. If same as PRGF then it is not useful
    • If the IMF were to take on role of promoting development, and depart from rigid guidelines, and promote expansionary policies – then it can be useful
    • If IMF can not be persuaded to go in that direction – then we must question IMF’s status as the signaller, donors should be looking elsewhere at more objective institutions

Amy Gray

  • Grameen Bank as a positive example of micro lending in Bangladesh
  • Bangladesh said it doesn’t want PSI – clearly something in Asia is happening differently
  • Clearly a problem between calling it home-grown programme when the IMF might be curtailing the programme

Eric Gutierrez

  • How do you manage the trade-offs between inflation and growth. When it isn’t a crisis anymore, then these trade-offs are really important
  • Now these countries are not in crisis – IMF does not have expertise to deal with long-term development problems

Saviour (CSPR Zambia)

  • The question of ownership – different definitions from IMF point of view and the public
    • IMF thinks finance ministry officials bought-in is ownership
    • But ownership must be broader – CSOs, parliaments, etc
    • Narrow view of ownership will distort things
    • Executives and civil servants have different interests
    • IMF should promote real ownership, not rely on fin min
  • On relevance of IMF and alternatives
    • Perception studies on multilateral agencies
    • ODI study on aid effectiveness and other rankings
    • UN agencies always preferred over IFIs – even among the government officials

Colins M from ActionAid

  • IMF programmes and conditions have led to crash of political systems
  • We had a similar situation in Malawi – fertiliser subsidies
    • Political agreement in the country to increase subsidies but the World Bank completely opposed
    • Government will have choice to either go against the IMF or the people
  • Fund claims to have promoted more fiscal space in Africa
    • But this doesn’t match with what we see in the PSI
    • We have had enough of untested programmes and policies
  • Practice on the ground has not changed, business as usual

Rick Rowden from ActionAid

  • Definitional problem of what is ‘macro stability’
    • What level of interest rates and fiscal deficits means macrostability
  • On interest rates
    • In Malawi – who buys the bonds, only commercial banks
    • Banks buy the T-bills, and enjoy the high interest rates

Akanksha Marphatia from ActionAid International

  • In Mozambique – there was demand by donors on why wage bill ceiling is there, still can’t hire enough teachers
  • Some donors (UK, DFID, Nordics) are questioning the role of IMF in mature stabilizers

Jan Kees

  • We get accused of both one-size-fits-all policies and for being incoherent
  • Country executive branches oppose the IMF reaching out to parliaments and citizens; plus the Articles of Agreement don’t allow this
  • We did lift the wage bill ceiling in Moz., that shows we are flexible
  • Of course ownership doesn’t come from just a few finance ministry officials; we would like to see counter examples where it is just a few people in the finance ministry


  • Government of Uganda would write the PSI itself if it were really home grown
  • Mature stabilizers should be trusted to write their own policies


  • Reiterated the points about the IMF potentially having a new more constructive role to play. The IMF could signal that countries are running “good” but expansionary programmes that meet domestic development priorities
  • European donors don’t match their rhetoric to their reality on whether they want a signal from the IMF or not, this should be fixed
  • The IMF is running out of willing takers for its standard advice, plus advocacy is increasing.