Poverty and Social Impact
Analysis – Distributional Issues in
Policy Reform
Renate Kirsch
Nairobi, Dec 2006
This presentation
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Where does it come from
What is it and what does it try to achieve
How it has been applied in Africa
How is relates to the PRSP
How it is used at the World Bank
What are the challenges we face
The Context
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PRSPs have given greater impetus to the understanding of
impacts of policy reforms on the poor to underpin
development strategies
PSIA emerged in the context of reforms likely to be
supported by PRSC and PRGF operations
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Includes macroeconomic, structural and sectoral reforms
Although the Bank has comparative advantage in poverty analysis,
PSIA involves shared responsibility between Bank, IMF and other
partners
Poverty analysis is not new, recognition that prior ESW was
less focused on impacts of specific reforms – systematic
application
Call for providing policy options to reforms
What is PSIA?
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PSIA is the analysis of intended and unintended
consequences of policy interventions (ex-ante,
during implementation, and ex-post) on the wellbeing of different social groups, with a particular
focus on the poor and vulnerable.
PSIA focuses on
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distributional impacts on different stakeholders
positive and negative impacts, intended and
unintended impacts
income and non-income dimensions.
PSIA helps
To inform the design of reforms:
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To understand the impact of policy reforms and public actions on different
social groups and poverty
To analyze tradeoffs between social costs and benefits of reform by
assessing opportunities, constraints and social risks
To design appropriate mitigating measures and risk management strategies
for the reform program, when adverse impacts and risks are unavoidable
To inform the policy dialog:
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To underpin policy reforms with empirical evidence
To keep a pro-poor focus in policy reform
To open space for policy dialogue and enhance transparency and
accountability in reform process
To build country ownership of policies by informing a public debate on the
trade-offs between policy choices
PSIA in a policy process
Analysis
Policy Dialogue
Recommendation
Policy design
Monitoring
Selection of reform for PSIA
The dual function of PSIA
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Approach to support due diligence for donor operations
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Developed by WB with support from several bilateral agencies
Institutional Anchor: Operational Policy for Development Policy
Lending
Approach to inform national policy making and foster
ownership for reform implementation
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Analytical results can help to change public perceptions and create
political space
Aims at developing options and scenarios
Informs the design of reforms and the implementation process
Risk of becoming a box ticking exercise if not
owned and demanded by national stakeholders
PSIAs in Africa - a wide range of reforms
Agriculture, Rural Development,
NRM Reforms
Cotton (Mali, Chad, Benin)
Tobacco Marketing (Malawi)
Maize prices (Kenya)
Tea sector privatization (Rwanda)
Groundnut sector liberalization (Senegal)
Crop boards (Tanzania)
Land reform (Zambia)
Fertilizer subsidy reform (Zambia)
Livestock sector reform (Botswana)
Agriculture market closures (Malawi)
Agriculture services (Madagascar)
Cocoa/coffee taxation (Cote d’Ivoire)
Forestry sector (DRC)
Coffee liberalization (Burundi)
Tax Reforms
Local government taxation
(Tanzania)
VAT and utility sector (Cape Verde)
Utility Reform/
Privatization
Energy/electricity sector
privatization/reforms
(Ghana, Malawi, Lesotho,
Eritrea)
Water sector (Mauritania)
Mining services
(Mauritania, DRC)
Rural electrification
(Lesotho)
Macro Reforms
PAMS modeling (Benin,
Mauritania, Rwanda, Guinea))
Growth and poverty
linkages (Cameroon, Burkina
Faso)
Decentralization, Public
Expenditure, Service
Delivery Reforms
Health service delivery
(Madagascar), and user fees
(Kenya)
Education – public expenditure
distribution (Malawi)
Primary schools fees
(Mozambique)
Rural roads (Zambia)
Service delivery (Madagascar)
Road construction (Ethiopia)
Public expenditure
prioritization (Cote d’Ivoire)
Public sector reform (DRC)
Labour Markets + Social
Protection
Pension reforms (Kenya)
Ghana Electricity Pricing
Reform Context:
New GOG electricity pricing policy with automatic increases + lifeline protection for
the poor; request from GOG to evaluate the poverty impact of reform.
Focus of PSIA
(1) Inform PRSC2 on whether lifeline tariff policy an effective mechanism to protect
poor consumers; (2) assess if subsidies an effective means of reaching the poor;
Tools and methods
(1) Consumer and social impact assessments of tariff changes (small-scale household
surveys); (2) analysis of nationally representative study on consumer response; (3)
stakeholder analysis; (4) social risk analysis /w key informant interviews + focus
groups.
Process
Multi-stakeholder steering committee – with diverse interests – to guide process.
Impact
(1) Confirmation of PRSC1&2 reliance on a lifeline to protect poor consumers; (2)
discredited assumptions of the reform; (3) lending approved to include off-grid and
renewable energy options appropriate for poorer Northern regions.
DRC Mining Sector Reform
Reform Context
Retrenchment of 50% of employees of bankrupt state mining company, potential for future
privatization to grant foreign investors access to mineral resources + revitalize sector.
Focus of PSIA
(1) Analysis of direct/indirect social costs of reform and monitoring framework; (2) initial focus
on impact of retrenchment but subsequently highlighted broader set of issues (e.g. differential
impact for remote areas, impacts on those highly dependent on mine services).
Tools and Methods
(1) Stakeholder analysis; (2) social impact analysis using existing baseline data; (3) participatory
focus groups in each town; (4) supplementary module on vulnerability/social capital integrated
into exit survey for retrenchees.
Process
(1) Collaboration with local university, incl. TOT; (2) local multi-stakeholder consultative groups;
(3) substantial dialogue; (4) design of mitigation mechanisms for most severe impacts.
Impact
(1) Assistance to keep 50,000 students in school in order to keep teachers from striking; (2)
ongoing dialogue with sectors on mgt options for schools and clinics; (3) creation of local-level
information centers; (4) proposal for ring-fenced social services in mine policy paper; (5) local
level consultative committee formed to bring in broad set of stakeholders; (6) raised awareness
with other active partners (UNICEF) and other stakeholders on severe impacts of reform
PSIA relation to PRSP
PSIA an important analytical underpinning of PRS
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PRSP and MDGs put poverty reduction at the center
Increased demand for prior understanding of impacts
of policy reforms on different groups
PSIA should be part of PRSP process
Good institutional home for PSIA is the PRS
secretariat
Caveat: PSIA can address most individual reforms
but cannot address programs such as the PRS
PSIA in the PRS-Cycle
Monitoring
Poverty
Diagnostic
Strategy design
Implementation
of reforms
Evolution of PSIA in the WB
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Development of approach 2001 with great support from
bilateral development agencies
Pilot phase 2002 (6 PSIA by WB and 6 by DfID)
Founding of PSIA donor network in 2003 (process,
participation)
Scaling up 2003 -2006, supported by $ 4.5 Mio extra funds
(154 PSIA in 72, of which 50 are PRSP countries, in 15
sectors)
Institutional anchor via new OP on Development Policy
Lending
Production of a wide range of knowledge sharing and learning
instruments to build capacity
2006 shift in focus towards country led PSIA and launch of
capacity building initiative
Where does PSIA fit in the WB?
ESW
Country Level
Upstream
Analysis
• CEM, PA, CSA
Program and
Policy Level
Project Level
PSIA
Economic &
Social
Appraisal
Lending and
Policy Dialogue
TA
CAS
(PRSP)
Development
Policy Lending
Investment
projects
• Capacity
Building
• Increased
local
participation
PSIA Features
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Average cost: $140,000
but considerable variation ($40,000 200,000)
Around 60% PSIA complete analytical
work in less than one year; dissemination
and policy dialog often continues in
second year
Challenges
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Influencing policy
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Translating analytical findings into relevant policy
recommendations to inform reform design
Alignment and link to PRSP process to be more
effective
Embedding the approach into national policy cycles:
PSIA needs an institutional home to incorporate
results into the policy process – in most PRSP
countries this has been the PRSP secretariat
Building on existing systems to contribute to
development of national poverty monitoring system,
Integrating results into national M&E
Challenges II
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Awareness how PSIA assist in policy reform
Capacity to identify when it is needed
Capacity to commission and supervise such
work
Capacity to conduct rigorous analysis
A 10 Step approach to PSIA
1. Selecting the Reform
2. Identifying stakeholders
3. Understanding transmission channels
4. Assessing institutions
5. Gathering data and information
6. Analyzing impacts
7. Enhancing design and compensatory schemes
8. Assessing risks
9. Establishing monitoring and evaluation systems
10. Fostering policy debate and feedback into
policy choice
1. Selecting the reform and mapping
out research questions
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Criteria for selection of reform
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Formulating the key questions
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Expected size and direction of impacts
Prominence of issue in the government’s policy
agenda
Timing and urgency of policy or reform
Level of national debate surrounding the reform
Identify key problems/constraints that policy will
address
Make development objectives explicit
Formulate causal hypotheses linking objectives to
actions to likely short-term and long-term impacts
Define the alternative (other option, status quo)
Upstream or Downstream
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Upstream: Assessing the reform issues in a
sector to start a discussion over reform options
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Downstream: Assessing winners and losers of
a very specific reform proposal – Risk:
narrows space for national debate, mere
mitigation of previous policy decision
Operational lesson 1: identify
reforms
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Need for PSIA should emerge from PRS
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Identifying reforms for PSIA should be part of
national PRS process (no duplication)
In practice, work in progress. Selection should
strengthen broader process, not
undermine/duplicate it
Selectivity/prioritization essential
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Costly and time consuming
PSIA most meaningful and effective when
applied to specific reforms