Abstract

The Poverty Reduction and Growth Facility (PRGF) is the instrument used by the IMF to provide support for countries in the implementation of their poverty reduction and growth strategies, as identified in their Poverty Reduction Strategy Papers (PRSPs). The core objective of the PRSP approach is to arrive at policies that are more clearly focused on growth and poverty reduction, in which the poverty reduction and macroeconomic elements of the program are fully integrated, and that embody a greater degree of national ownership, thereby leading to more consistent policy implementation. Key requirements in the design of the PRGF programs that support this approach are an understanding of the effect of program measures on vulnerable groups—particularly the poor—and designing measures to mitigate any negative effects. Poverty and Social Impact Analysis (PSIA) is, in turn, a critical instrument for pursuing this goal. In this regard, IMF staff is expected to draw on PSIAs carried out by other institutions (such as the World Bank) and donors in addressing distributive concerns in PRGF-supported programs. To this end, the IMF established a small in-house capability on PSIA to facilitate the integration of PSIA into PRGF-supported programs. The group has only four full-time positions, so its activities are designed to leverage expertise and available resources both inside and outside the IMF. In limited cases, the group also conducts PSIAs in areas that are central to the work of the IMF and where no other analysis is available. The goals of the PSIA group are to assist mission teams to

The Poverty Reduction and Growth Facility (PRGF) is the instrument used by the IMF to provide support for countries in the implementation of their poverty reduction and growth strategies, as identified in their Poverty Reduction Strategy Papers (PRSPs). The core objective of the PRSP approach is to arrive at policies that are more clearly focused on growth and poverty reduction, in which the poverty reduction and macroeconomic elements of the program are fully integrated, and that embody a greater degree of national ownership, thereby leading to more consistent policy implementation. Key requirements in the design of the PRGF programs that support this approach are an understanding of the effect of program measures on vulnerable groups—particularly the poor—and designing measures to mitigate any negative effects. Poverty and Social Impact Analysis (PSIA) is, in turn, a critical instrument for pursuing this goal. In this regard, IMF staff is expected to draw on PSIAs carried out by other institutions (such as the World Bank) and donors in addressing distributive concerns in PRGF-supported programs. To this end, the IMF established a small in-house capability on PSIA to facilitate the integration of PSIA into PRGF-supported programs. The group has only four full-time positions, so its activities are designed to leverage expertise and available resources both inside and outside the IMF. In limited cases, the group also conducts PSIAs in areas that are central to the work of the IMF and where no other analysis is available. The goals of the PSIA group are to assist mission teams to

  • better understand the likely impact of key macro and structural reforms on different population groups, particularly the poor, on the basis of available PSIA;

  • assess the appropriateness, timing, and sequencing of alternative measures in the design of programs and, where appropriate, design and integrate into IMF programs compensatory and complementary measures to mitigate any negative effects of reform policies; and

  • perform distributional analyses to fill critical information gaps in areas of the IMF’s core competence.

The PSIA group pursues these goals in several ways. First and foremost, the group works closely with development partners—especially the World Bank—to keep abreast of ongoing PSIA activity and help set priorities for future work that will support the integration of PSIA into IMF programs. Second, the group works with area department mission teams on several levels to

  • draw lessons from existing PSIAs to assess the likely impact of program measures on vulnerable groups and, where appropriate, craft compensating measures;

  • participate in area department missions when an economic reform has a potentially significant poverty or social impact and can benefit from more intense attention by a member of the PSIA group; and

  • perform a limited number of new PSIAs in the areas of the IMF’s core competence.

Table 1.1 summarizes the country work of the PSIA group since its inception in 2004 through December 2007.

Third and finally, the group produces reviews of PSIA methods and results that can be used by IMF economists to inform their own efforts in PSIA. For instance, the group has summarized its work on the distributional impacts of energy subsidies in a working paper entitled “The Magnitude and Distribution of Fuel Subsidies: Evidence from Bolivia, Ghana, Jordan, Mali, and Sri Lanka” (Coady and others, 2006). It has also produced a companion guidance note on the statistical techniques used in the fuel subsidy analyses.

Table 1.1.

Summary of Activities and Outputs of the Poverty and Social Impact Analysis Group

(October 2004-December 2007)

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Notes: AFR = African Department; APD = Asia and Pacific Department; EUR = European Department; FAD = Fiscal Affairs Department; MCD = Middle East and Central Asia Department; WHD = Western Hemisphere Department.

In this volume, the group’s reviews of analytical techniques used in PSIA are combined with reviews of several important topics to which PSIA can make valuable contributions. The volume comprises the following:

  • “A Review of Macro-Micro Approaches for Evaluating the Distributional Impacts of Macroeconomic Reforms, “by Moataz El-Said. This chapter provides a brief and accessible guide to economy-wide modeling approaches—those that are referred to as “macro-micro” techniques—to evaluating poverty and distributional impacts of macroeconomic policies. The chapter highlights how the macro-poverty links are modeled; the underlying assumptions; the trade-offs involved in terms of data, time, and resource requirements; and the typical policy questions addressed by these techniques.

  • “The Distributional Impacts of Indirect Tax and Public Pricing Reforms: A Review of Methods and Empirical Evidence,” by David Coady. The reform of indirect taxes and public sector prices is a key component of many structural adjustment programs in developing countries. These reforms can have important implications for income distribution and poverty. This chapter reviews the various methodological approaches to evaluating these impacts, highlighting their interrelationships and relative resource requirements. It also identifies general policy implications from the empirical literature.

  • “Analyzing the Impact of Trade Liberalization and Devaluation on Poverty,” by Alejandro Simone. This chapter lays out an organized approach to analyzing the distributional aspects of trade liberalization and devaluation with a specific focus on poverty impact. It discusses selected theoretical issues to consider in evaluating existing empirical studies on trade liberalization and devaluation and concludes with a road map providing guidance on how to analyze the impact of trade liberalization and devaluation on poverty.

  • “The Distributional Impact of Agricultural Sector Reforms in Africa: A Review of Past Experience,” by David Newhouse. African governments have intervened in the agricultural sector for decades, but generous pricing policies and operational inefficiencies have often necessitated large budgetary transfers to parastatals. This chapter evaluates the liberalizing reforms undertaken in the past 20 years, the channels by which these reforms affected stakeholders, and the outcomes of the reforms on poor households.

Chapters II and III focus primarily on methodological issues. They are useful to anyone wanting to understand how to embark on a PSIA. Chapters IV and V focus on important topic areas and are a useful reference for someone wanting to address either of these topics in a particular country. In particular, Chapter V focuses on the results of existing PSIAs in the covered topic area. All four chapters were written primarily to inform the PSIA efforts of IMF economists, but should be useful to a broader audience as well.

Review of Methodology and Selected Evidence
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