Policy Support Instrument (PSI) – seminar

24 April 2009 | Minutes

Tom Dorsey (IMF) presentation

Conditionality under PSI

– Fewer benchmarks and assessment criteria than PRGF (13 compared to 16.5 on average)

– Higher percentage of conditionality has been met under PSI than PRGF (three quarters compared with around 60% on average)

– Heaviest concentration of conditionality for PSI countries is on debt and public expenditure management.

– Other areas with significant conditionality are banking and financial sector reforms, revenue mobilisation,and transparency and governance.

Authorities views

Country authorities surveyed gave PSI good marks. Best on promoting policy dialogue, worst on usefulness for promoting private investment.


Successful launch, seems to be achieving board’s expectation, but based on a small sample of 7 programmes in 6 countries.

Matthew Martin (Debt Relief International)

There is still quite a lot of confusion about what the expectations of PSI were.


Oxfam commissioned study by DRI – focus on opinions of African policy makers on PSI. Desk based analysis and questionnaires and interviews with 40 senior economic policy makers. Also donor officials and IMF staff. Looked at process of negotiation – slightly more open than the PRGF in terms of willingness to accept country government suggestions, but not in terms of engagement with civil society. On conditionality saw some streamlining, but as part of a general trend for mature stabilisers. On signalling, feeling that it should affect aid and investment, but no evidence that it had.

Overall 43% of policy makers saw little point to the PSI as currently structured. Need to establish way of reentry to Fund programmes if shocks made it necessary. Also saw that important to have some programme with the Fund in order to get technical and diagnostic assistance.

Wanted more government-led process of negotiation, with consultation of parliament and civil society; should be poverty and social impact analysis of PSI conditions; need to streamline conditions – for example could abolish structural conditions. Also presupposition that aiming for higher growth rates, MDG spending and fiscal space. Need for clearer signals from donors – not clear that they reacted to PSI in any consistent way.

Lessons for LIC review of IMF facilities

PSI countries already have strong policy framework; should have minimal conditionality no matter what kind of finance they are looking for. Also need more fundamental change in way IMF relates to all LICs – should focus on enhancing growth, poverty reduction and government spending to support this and also support genuine democratic ownership of policies, through for example allowing parliamentary approval.

Roger Nord (IMF) – reaction

PSI came out of desire of membership, in particular African countries. No country that doesn’t want one need have one. African officials see it as a step forward in relationship with IMF. Attraction of PSI is the high degree of ownership that comes with it.

PSI countries and the current crisis

Sub-Saharan African growth over last 2 years averaged 5% excluding oil exporters. Next year’s projection is 1.5%. PSI countries have done significantly better – 6-9% growth rates, except Senegal. In 2009 the range will be much higher than general.

Crisis is a good time to measure fiscal space. Across non-oil producing sub-Saharan Africa, fiscal deficits are widening by about 2% of GDP – reflects strong policies and debt relief. PSI countries have more fiscal space because of strong policies, have built up necessary fiscal and exchange reserves.

PSI works as pre-qualification mechanism – allows them to access emergency resources without any additional conditionality. The ESF for PSI countries works in the same way as the FCL. This is a huge advantage.

Matthew Martin response

PSI is a step forward, but policy makers think it’s not enough of a step forward. Those countries with better fiscal space or more leading relationship in last PRGF continued through the PSI – therefore it’d the relationship that exists already is important, not the PSI.

Need for surveys to be conducted by independent organisations, such as the IEO. ESF not quite the same as the FCL has no conditionality at all. PSI not responsible for fiscal space – this is a function of the kinds of countries that take up PSI.

Study shows that can’t ascribe any dramatic changes to PSI. It would be nice to have a clearer demarcation between PRGF and PSI – to signal international community’s support for those countries.

Questions and discussion

– Will there be room to expand consultation processes beyond the Ministry of Finance, to other departments, parliaments, civil society etc?

– Shouldn’t poverty reduction be part of PSIs?

– What is future of PSI given the current crisis?

– Do PSI countries have more country owned and directed technical assistance?

– Signalling role of PSI is not clear either for donors or financial investors. Link to getting ESF funding is a better rationale, but not the original purpose of the PSI.

Roger Nord response

Nigeria is not the typical PSI country; it pushes up the number of average PSI conditions. Because the Nigerian finance minister said conditionality important for her; wanted all her targets in the PSI.

– PSI does ground itself in a home-grown poverty reduction strategy.

– In current environment; PSI countries will use PSI as basis for accessing ESF if needed. FCL now tapped by 3 countries – Mexico, Poland and Colombia.

– On technical assistance – more and more of IMF TA is being provided by regional technical assistance centres. Centres have steering committee with all countries represented. TA programmes are driven by needs.

Tom Dorsey response

– Difficult to get input into review from CSOs, but tried and also from e.g. financial sector.

– Poverty numbers are expensive to come up with, also don’t get produced regularly. Also question of whether IMF should be focussed on

poverty reduction.

– Don’t have TA budgets that differenetiate between programme and non-programme countries. Programme countries just have better relationships and knowledge on which to build TA programmes.

– Not planning to phase out the PSI. Board will make decision. Since last autumn countries have been allowed to have both a PSI and an ESF. Only Senegal of all PSI countries have made use of the ESF.

Matthew Martin response

– Study also did a parallel consulation with CSOs – who felt across the board that they weren’t consulted at all, except in Nigeria.

– Donors view was that where there was a strong budget support relationship, IMF views were irrelevant. Have a sixteen year survey of investors which has repeatedly shown that existence of IMF programme has no impact on their decisions to invest.

– On crisis; important not to provide perverse incentives. Mature stabilisers need to be supported to stay on PSI and graduating to Article 4; not be forced back into PRGF relationship. Welcome

– On TA, policy makers felt that if TA recommendations were delinked from IMF programmes, they would be more likely to be impartial and more likely to be implemented by the country authority. Question of process of how TA is decided – need a relationship where these are less programme linked.