Poverty and Social Impact Poverty and Social Impact Analysis – Distributional Issues in Analysis – Distributional Issues in

Policy ReformPolicy Reform

Renate KirschRenate Kirsch

Nairobi, Dec 2006Nairobi, Dec 2006

This presentationThis presentation

Where does it come fromWhere does it come from What is it and what does it try to achieveWhat is it and what does it try to achieve How it has been applied in AfricaHow it has been applied in Africa How is relates to the PRSPHow is relates to the PRSP How it is used at the World BankHow it is used at the World Bank What are the challenges we faceWhat are the challenges we face

The ContextThe Context 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

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?What is PSIA? PSIA is the analysis of intended and

unintended consequences of policy interventions (ex-ante, during implementation, and ex-post) on the well-being of different social groups, with a particular focus on the poor and vulnerable.

PSIA focuses on distributional impacts on different stakeholders positive and negative impacts, intended and

unintended impacts income and non-income dimensions.

PSIA helpsPSIA helps

To inform the design of reforms: 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: 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 processPSIA in a policy process

AnalysisPolicy Dialogue

Selection of reform for PSIA

Monit

ori

ng

Recommendation

Policy design

The dual function of PSIAThe dual function of PSIA

Approach to support due diligence for donor operations 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

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 PSIAs in Africa - a wide range of reformsof reforms

Agriculture, Rural Development, NRM

ReformsCotton (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)

Macro ReformsPAMS modeling (Benin, Mauritania, Rwanda, Guinea))Growth and poverty linkages (Cameroon, Burkina Faso)

Tax ReformsLocal 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)

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 PricingGhana Electricity PricingReform 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.

ProcessMulti-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 ReformDRC Mining Sector ReformReform 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 PRSPPSIA relation to PRSP

PSIA an important analytical underpinning of PRS

• 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

Poverty Diagnostic

Strategy design

Implementation of reforms

Ex ante

during implementation

monitoring

Monitoring

PSIA in the PRS-CyclePSIA in the PRS-Cycle

Evolution of PSIA in the WBEvolution of PSIA in the WB 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?Where does PSIA fit in the WB?

UpstreamAnalysis

• CEM, PA, CSA

Development Policy Lending

CAS(PRSP)

Investmentprojects

Country Level

Program andPolicy Level

Project Level

PSIA

Economic & Social

Appraisal

ESW Lending andPolicy Dialogue

TA

• CapacityBuilding

• Increasedlocal

participation

PSIA FeaturesPSIA Features

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

ChallengesChallenges

Influencing policy 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 IIChallenges II

Awareness how PSIA assist in policy reformAwareness how PSIA assist in policy reform Capacity to identify when it is neededCapacity to identify when it is needed Capacity to commission and supervise such Capacity to commission and supervise such

workwork Capacity to conduct rigorous analysisCapacity to conduct rigorous analysis

A 10 Step approach to A 10 Step approach to PSIAPSIA

1. Selecting the Reform1. Selecting the Reform2. Identifying stakeholders2. Identifying stakeholders3. Understanding transmission channels3. Understanding transmission channels4. Assessing institutions4. Assessing institutions5. Gathering data and information5. Gathering data and information6. Analyzing impacts6. Analyzing impacts7. Enhancing design and compensatory schemes7. Enhancing design and compensatory schemes8. Assessing risks8. Assessing risks9. Establishing monitoring and evaluation 9. Establishing monitoring and evaluation

systemssystems10. Fostering policy debate and feedback into 10. Fostering policy debate and feedback into

policy choicepolicy choice

1. Selecting the reform and 1. Selecting the reform and mapping out research mapping out research

questionsquestions Criteria for selection of reformCriteria for selection of reform

Expected size and direction of impactsExpected size and direction of impacts Prominence of issue in the government’s policy Prominence of issue in the government’s policy

agendaagenda Timing and urgency of policy or reformTiming and urgency of policy or reform Level of national debate surrounding the reform Level of national debate surrounding the reform

Formulating the key questionsFormulating the key questions Identify key problems/constraints that policy will Identify key problems/constraints that policy will

addressaddress Make development objectives explicitMake development objectives explicit Formulate causal hypotheses linking objectives to Formulate causal hypotheses linking objectives to

actions to likely short-term and long-term impactsactions to likely short-term and long-term impacts Define the alternative (other option, status Define the alternative (other option, status

quo)quo)

Upstream or DownstreamUpstream or Downstream

Upstream: Assessing the reform issues in a Upstream: Assessing the reform issues in a sector to start a discussion over reform optionssector to start a discussion over reform options

Downstream: Assessing winners and losers of Downstream: Assessing winners and losers of a very specific reform proposal – Risk: a very specific reform proposal – Risk: narrows space for national debate, mere narrows space for national debate, mere mitigation of previous policy decisionmitigation of previous policy decision

Operational lesson 1: Operational lesson 1: identify reformsidentify reforms

Need for PSIA should emerge from PRSNeed for PSIA should emerge from PRS Identifying reforms for PSIA should be part Identifying reforms for PSIA should be part

of national PRS process (no duplication)of national PRS process (no duplication) In practice, work in progress. Selection In practice, work in progress. Selection

should strengthen broader process, not should strengthen broader process, not undermine/duplicate itundermine/duplicate it

Selectivity/prioritization essentialSelectivity/prioritization essential Costly and time consumingCostly and time consuming PSIA most meaningful and effective when PSIA most meaningful and effective when

applied to specific reformsapplied to specific reforms