Chapter

I. Introduction

Author(s):
Robert Gillingham
Published Date:
March 2008
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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)
CountryTopicActivityOutput
2004
BoliviaMagnitude and distribution of fuel subsidies, welfare impact of subsidy reform, and potential mitigating measuresMission (October)Aide-memoire for WHD and country authorities
MaliImpact of recent shocks (terms of trade for cotton and petroleum products, locust infestation) on welfare of poor and potential mitigating measuresMission (November)Aide-memoire for AFR and country authorities
SenegalImpact of groundnut sector reform on poor and potential mitigating measuresMission (November)Aide-memoire for AFR and country authorities Selected Issues Paper
TajikistanWelfare impact of energy sector reforms and performance of mitigating measuresMission (December)Aide-memoire for MCD and country authorities Selected Issues Paper
2005
GhanaMagnitude and distribution of fuel subsidies, welfare impact of subsidy reform, and potential mitigating measuresMission (January)FAD Technical Assistance Report
JordanMagnitude and distribution of fuel subsidies, welfare impact of subsidy reform, and potential mitigating measuresMission (February)FAD Technical Assistance Report
Bosnia and HerzegovinaDistributional impact of replacement of sales taxes with value-added tax (VAT) and potential mitigating measuresMission (May)FAD Technical Assistance Report
UgandaDistributional impact of reform of indirect tax system and potential mitigating measuresMission (May)Aide-memoire for AFR and country authorities
DjiboutiDistribution of impact of devaluation versus wage reform in public sectorSupport to area department (June/July)Desk study for MCD
MaliMagnitude and distribution of fuel subsidies, welfare impact of subsidy reform, and potential mitigating measuresSupport to area department (July/August)Advice, programming support, and review of Working Paper by AFR staff
SudanMagnitude and distribution of fuel subsidies, welfare impact of subsidy reform, and potential mitigating measuresMission with AFR (November)Aide-memoire for MCD
2006
EthiopiaReview of World Bank study on fuel subsidy reformSupport to area department (January)Note for AFR
NamibiaReview of area department chapter on “Dimensions of poverty and social policy towards the poor” for Selected Issues Paper (SIP)Support to area department (January)Annoted review for AFR
BangladeshMagnitude and distribution of fuel subsidies, welfare impact of subsidy reform, and potential mitigating measuresMission with APD (February)Aide-memoire for APD
GabonMagnitude and distribution of fuel subsidies, welfare impact of subsidy reform, and potential mitigating measuresSupport to area department (February)Selected Issues Paper; IMF Working Paper 06/243
MalawiDistributional impacts of agricultural input subsidies and potential mitigating measuresMission (March)Aide-memoire for AFR and country authorities
AngolaReview of World Bank study of fiscal and social cost of fuel subsidiesArea department support (March)Short note for AFR
MadagascarThe relative distributional and welfare implications of rice tariff reforms and targeted transfer programsSupport to area department (April)Desk study for AFR
Burkina FasoDistributional impact of electricity subsidiesSupport to area department (May)Desk study for AFR
MauritiusImpact of reform of price subsidies and social transfers and potential mitigating measuresMission (March)FAD Technical Assistance Report
MoldovaMagnitude and distribution of energy subsidies, welfare impact of subsidy reform, and potential mitigating measuresMission (June)Aide-memoire for EUR and country authorities
Sri LankaMagnitude and distribution of fuel subsidies, welfare impact of subsidy reform, and potential mitigating measuresMission (July)Selected Issues Paper
HondurasMagnitude and distribution of fuel subsidies, welfare impact of subsidy reform, and potential mitigating measuresMission (August)FAD Technical Assistance Report
PhilippinesDistributional impact of changes in VAT system and accompanying mitigating measuresMission with APD (November)Selected Issues Paper
HondurasFollow-up on Poverty and Social Impact Analysis (PSIA) mission to evaluate plan of the state-owned electricity company to reduce subsidiesMission (November)Addendum to original technical assistance report
CameroonMagnitude and distribution of tax preferences for energy commodities, welfare impact of reduction in preferences, and possible mitigating measuresMission (November)Aide-memoire for AFR and country authorities
MoldovaFollow-up on earlier PSIA mission on energy subsidiesMission (December)Revision of aide-memoire
2007
GabonEvaluation of alternative measures to mitigate impact of higher energy prices on the poorMission (January)Aide-memoire for AFR and country authorities
MoroccoNote on “Measures to mitigate the adverse poverty impact of higher fuel prices in Morocco”Support to area department (February)Note for MCD
CaribbeanNote on “Social protection for structural adjustment in the Caribbean”Support to area department (February)Note for WHD
The GambiaImpact of groundnut sector reform on poor and potential mitigating measuresMission (April)Aide-memoire for AFR and country authorities
Central African RepublicMagnitude and distribution of tax preferences for energy commodities, welfare impact of reduction in preferences, and possible mitigating measuresMission (May)Aide-memoire for AFR and country authorities
Republic of the CongoMagnitude and distribution of fuel subsidies, welfare impact of subsidy reform, and potential mitigating measuresSupport to area department (July/August)Advice, programming support, and review of PSIA by AFR staff
MacedoniaDistributional impact of existing social assistance programs as well as implicit electricity subsidiesSupport for and participation in FAD technical assistance mission (July)Contribution to FAD Technical Assistance Report
Republic of the CongoMagnitude and distribution of fuel subsidies, welfare impact of subsidy reform, potential mitigating measures, and evaluation of authorities’ planMission (November)Aide-memoire and Technical Assistance Report for AFR and country authorities
LebanonMagnitude and distribution of gasoline, agriculture, and electricity subsidies, welfare impact of subsidy reform, and potential mitigating measuresMission (November)Aide-memoire and Technical Assistance Report
MongoliaDistributional incidence of tax and spending policy (including evaluation of recent reforms)Mission (December)Aide-memoire and Technical Assistance Report
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.
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.

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