Understanding the Policy Support Instrument of the IMF


The plethora of acronyms in the IMF has a new addition- the ‘PSI’. On October 17, 2005, the International Monetary Fund (IMF) approved Nigeria’s request for a Policy Support Instrument (PSI), thereby documenting Nigeria as the first user of the new IMF program. Following the approval of the PSI, Nigeria signed an agreement with its Paris Club creditors on October 20 2005 under which approximately 60% of its $30bn debt was written off on Naples terms, with the remainder to be paid back in two tranches over 6 months. Obtaining approval for its economic reform program through the Policy Support Instrument was one of the conditions for Nigeria’s debt restructuring negotiations with the Paris Club.

The PSI is a voluntary instrument requested by a member of the IMF in order to get IMF approval for its economic policies. According to the ‘PSI Factsheet’ on the IMF website, the PSI which was introduced in October 2005 to “enable[] the IMF [] support low-income countries that do not want or need Fund financial assistance”. “The PSI will help countries design effective economic programs, and, once approved by the IMF’s Executive Board, will signal to donors, multilateral development banks, and markets the Fund’s endorsement of a member’s policies”.

This paper intends to discuss the PSI using Nigeria as a reference point. What exactly is the PSI about and what is its purpose? How is it different from similar IMF instrument(s) which are currently operational? What is the modus operandi of the PSI? What are the eligibility criteria for the PSI? What is the standard of assessment to be used in evaluating a PSI? These and more will be the focus of this research paper.


International Law

Date of this Version

May 2006