Poverty and Social Impact Analysis – Distributional Issues in Policy Reform

1. Poverty and Social Impact Analysis – Distributional Issues in Policy Reform Renate Kirsch Nairobi, Dec 2006

2. This presentation • 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

3. The 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

4. 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.

5. PSIA 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

6. PSIA in a policy process Policy Dialogue Selection of reform for PSIA Analysis Monitoring Recommendation Policydesign

7. The 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

8. 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) • 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) • 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) • Tax Reforms • Local government taxation (Tanzania) • VAT and utility sector (Cape Verde) • Labour Markets + Social Protection • Pension reforms (Kenya)

9. 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.

10. 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

11. PSIA 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

12. PSIA in the PRS-Cycle Ex ante monitoring Poverty Diagnostic Strategy design Monitoring during implementation Implementation of reforms

13. Evolution 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

14. TA • CapacityBuilding • Increasedlocalparticipation Where does PSIA fit in the WB? Lending andPolicy Dialogue ESW • Upstream • Analysis • CEM, PA, CSA CAS (PRSP) Country Level PSIA Development Policy Lending Program andPolicy Level Investmentprojects Economic & SocialAppraisal Project Level

15. PSIA 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

16. Challenges • 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

17. Challenges II • 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

18. 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

19. 1. Selecting the reform and mapping out research questions • Criteria for selection of reform • 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 • Formulating the key questions • 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)

20. Upstream or Downstream • Upstream: Assessing the reform issues in a sector to start a discussion over reform options • Downstream: Assessing winners and losers of a very specific reform proposal – Risk: narrows space for national debate, mere mitigation of previous policy decision

21. Operational lesson 1: identify reforms • Need for PSIA should emerge from PRS • 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 • Costly and time consuming • PSIA most meaningful and effective when applied to specific reforms