IFI governance


Real impact of new poverty analysis uncertain

26 November 2002

The first clear indications of how the World Bank and IMF are going to conduct Poverty and Social Impact Analysis (PSIA) are now available. A number of the pilot studies have been completed and a conference was recently held in Washington DC. NGOs have expressed concern that their objectives of opening up debates about different social and economic policy options are not being met through the current approaches.

“It is essential to equip countries with the tools to conduct their own PSIAs rather than depending on outside assistance. These tools should have input from the Bretton Woods Institutions and donors, but be administered and disseminated by independent capacity-building sources, to avoid conflict of interest for partners in the negotiation process of PRGF and PRSC frameworks”.

HIPC Finance Ministers Network

The World Bank and the IMF, under pressure from NGOs and some governments, have agreed to introduce more systematic analysis of the likely poverty impact of policies proposed in their loans. This analysis is to help foster an informed national debate about social and economic policies, and make explicit and accessible the logic underpinning reform proposals and conditions.

A first wave of PSIA studies piloted (separately) by the UK‘s Department for International Development (DFID) and the World Bank have focused on specific policy actions that are expected to have significant social impacts. These include: tax increases, subsidy reforms, exchange rate shifts, civil service downsizing, energy price reforms and changing the size of the fiscal deficit. The Bank has stated that it proposes to introduce analyses of country policies and institutions and their capacity to mitigate adverse effects of reforms. This would apply to “all key sectors, including agriculture, education, energy, forestry, health, mining, social protection, transport and water”. The pilot studies have used (and sometimes combined) qualitative and quantitative methods, and research has ranged from ‘quick and dirty’ analysis to inform the decision making process to complex, data-intensive modelling.

NGOs have argued that PSIA should look at macro-level policy alternatives, not just at the ‘fine-tuning’, timing and sequencing of pre-determined policies. The pilot studies being carried out by the World Bank and DFID for the most part fail to do this. Instead they take single pre-existing reforms, which are assumed to be going ahead, and focus on sequencing and mitigation measures. They do not question whether or not this reform is the appropriate or the optimal one for poverty reduction. For example, rather than considering whether or not privatisation is a good thing for poor people, the World Bank Chad study on privatisation of the cotton marketing board only looks at alternative privatisation scenarios. Consultation of civil society in many studies has also been minimal. In Malawi, a Bank study on privatisation of the state marketing board, ADMARC, has been carried out without involving parliamentarians and NGOs, despite the importance of the issue in the current context. It is also worrying that a DFID study in Mozambique on a potential rise in fuel tax concludes that the impact would be “low” when “over 50,000 people would be pushed into extreme poverty”. This raises questions about who is best qualified to arbitrate trade-offs, especially as the participation of NGOs in this study was insufficient.

Now that the first phase is over, the coming months will give a good indication of the real intentions of the Bank and Fund and until now the uptake among the staff is reported as slow, particularly at the IMF. There is a risk that PSIA will join other initiatives such as the Comprehensive Development Framework in the graveyard of Bank schemes which have promised much but yielded little benefit.

NGOs and officials, including finance ministers from HIPC countries, have argued that the analyses must be conducted independently – not by the Bank, which faces conflicts of interest. UK Secretary of State for International Development Clare Short backed these calls, telling the Development Committee in late September “PSIA is crucial to ensuring that major reforms to be undertaken will benefit stakeholders and achieve real poverty reduction. It is critically important that the Bank and Fund undertake these analyses in a way that not only builds national capacity for PSIA, but also actively transfers ownership of the analytic agenda underpinning major reform policies to national stakeholders”. A recent Bretton Woods Project briefing, Blinding with science, explains the World Bank’s roles in conducting multiple, influential assessments in PRSP countries, outlines typical biases of Bank research in key areas and sets out ways for civil society groups to engage with in-country assessments.

It appears that the World Bank is moving to institute PSIA in some of its work before properly concluding these debates about what it is and what change it will make. Past experience (with, for example, the Structural Adjustment Participatory Review Initiative) has shown that the Bank is often dismissive of conclusions that it finds disturbing. It is likely that PSIA‘s real potential for change, including on the macroeconomic framework, will partly depend on who funds, commissions and carries out the studies. To limit donors’ excessive influence on the studies, financial resources for each country could be pooled in a trust fund managed by local officials and civil society stakeholders. Firm decisions about this, and other aspects of these studies are expected to be taken in the coming months.

Blinding with science or encouraging debate? How World Bank analysis determines PRSP policies (and response letter from Institute for Development Studies researchers)

WB PSIA resources

Joint site on donor country analytic work

Completed PSIA pilot studies

Bank studies

  • Chad privatisation of cotton marketing board
  • Mongolia cashmere and energy sectors
  • Malawi privatisation of state marketing board, ADMARC
  • Kyrgyzstan electricity sector
  • Pakistan energy tariffs hike
  • Guyana Reform of sugar sector, privatisation of water and bauxite sector (see also ‘Guyana sued over nationalisation‘)
  • Other planned or ongoing studies include Cambodia and Zambia. Contact Stefano Paternostro or Aline Coudouel

DFID studies

  • Honduras privatisation of electrical distribution
  • Armenia privatisation of water supply
  • Rwanda size of fiscal deficit
  • Uganda coffee and fish exports promotion
  • Mozambique fuel tax rise
  • A study piloted by DFID is currently being carried out on rice price liberalisation in Indonesia. Contact Lucia Hanmer

The full studies and/or summaries will be available at www.prspsynthesis.org (DFID) and www.worldbank.org/poverty/psia (WB).