Poverty and Social Impact Analysis
This work was carried out with the aid of a grant from the International Development Research Centre, Ottawa, Canada
A new approach called Poverty and Social Impact Analysis (PSIA) is being used increasingly by the World Bank to examine the distributional impacts of adjustment policies. PSIA is one of the World Bank's central responses to NGO calls that its resources effectively contribute to poverty reduction. The Social Justice Committee is engaging with the Bank on the issue in an effort to make the process transparent and participatory, and to ensure that it is a process that will shape policy decisions, rather than another public relations exercise without notable impact.
At their Annual Meetings in 1999, the World Bank and IMF made a splash, promising that the policies they promoted would clearly and directly contribute to poverty reduction. Their new way of working would be embedded in the Poverty Reduction Strategy Process (PRSP), which was linked to the delivery of debt relief through the Enhanced Heavily Indebted Poor Country (HIPC) Initiative.
This apparent mini revolution at the institutions was largely a response to the Jubilee 2000 Debt Campaign. Specifically, the revisions to the HIPC Initiative and the introduction of PRSP were products of the HIPC Review that took place during the first half of 1999. Debt campaigner responses to the changes were mixed. While all were pleased that more debt relief would be delivered through the Enhanced HIPC Initiative - although most still advocated for still further debt relief - most were sorely disappointed at the delay linking debt relief to PRSP would entail, and many had their doubts about the usefulness of the PRSP approach in general.
Both institutions launched new lending instruments over the next period to signal their new, poverty reduction-friendly approach to their lending. Right on the heels of the launch of the PRSP, the IMF renamed their Enhanced Structural Adjustment Facility the Poverty Reduction and Growth Facility (PRGF). Later, the World Bank created the Poverty Reduction Support Credit (PRSC) through which it planned to provide budgetary support to governments implementing acceptable PRSPs. The Bank also coined the phrase "development policy lending" to replace its relentlessly criticized "structural adjustment lending."
Nomenclature revisions aside, these powerful institutions are not ready to meet their professed commitment to poverty reduction. The institutions have stated in their guidelines for PRGF and PRSC lending agreements that they will include an ex-ante poverty impact assessment of proposed programs as a way of making good on their commitment. But their staff and management do not employ ways of working that ensures their policy advice complements poverty reduction efforts or that encourage alternative development paths that are country-owned. Significant change in attitudes, analytical approach and country programming are needed before this can happen.
PSIA is one way in which the IFIs proposed to more integrally link their lending to poverty reduction efforts. PSIAs are to analyze the possible distributional impacts of proposed policy reforms on different stakeholders, with a special focus on the poor and vulnerable. PSIA can be conducted ex-ante, ex-post, or during reform implementation. PSIA can inform policy design and sequencing, or point to mitigation measures needed to protect certain stakeholders. Many of the tools and approaches used in PSIA are not new. What is new is the focus on policy reforms, rather than projects, the multidisciplinary approach and the effort to integrate the approach into Bank, and to some extent Fund, lending.
In 2001/02 the Bank and the UK's Department for International Development (DFID) conducted pilot PSIAs to test this new approach. The Bank conducted pilot PSIAs on: possible privatization of CotonChad; agriculture and the macroeconomic framework in Madagascar; the closure of markets under ADMARC in Malawi; utility tariff reform in the Kyrgyz Republic; cashmere tariff regime and utility reform in Mongolia; utility tariff reform and decentralization in Pakistan; and water, bauxite and sugar reforms in Guyana.
DFID supported five pilot PSIAs examining: water pricing reforms in Armenia; petroleum tax reform in Mozambique; fiscal deficit targets in Rwanda; the strategic export initiative in Uganda; and electricity reform/privatization in Honduras.
The Bank and DFID were convinced by the work conducted during this pilot phase that PSIA was a useful approach. PSIA is now becoming somewhat streamlined into Bank policy lending and a great number of PSIAs are underway and being supported by a number of donors.
NGOs have been cautious about PSIA, and for good reason. The limitations of the approach are many, including: in almost all cases, PSIA is not used to make policy choices but to analyze the potentially damaging impacts of policy choices already made; PSIA is alienating for outsiders and overly quantitative; and PSIA can easily be interpreted as a tool through which architects of adjustment policies identify opponents of reform and co-opt them or undermine their efforts.
It is also disappointing that the institutions do not accept their ownership of their policy advice in this work. The IFIs insist that PSIAs must be owned by governments, as they insist the policies examined are designed and promoted by governments – not the IFIs. The influence of the IFIs in policy choice is poor countries is clear and present. It will not conveniently disappear because the IFIs keep denying it. The IFIs should conduct PSIA as part of their due diligence in making appropriate policy advice to the governments to which they lend, not as one more tool to deflect attention from their responsibility in promoting policy choice.
Nevertheless, the possibilities are many, and growing. Bank staffs are beginning to question their traditional policy packages and there are a few examples of where the work is upstream enough to inform policy choice.
Furthermore, an increasing amount of development resources are being spent on this work - the PSIAs supported by the Bank last year cost over USD$3.5 million – making it more important that NGOs monitor and engage in this work.
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– Karen Joyner