The Operational Relevance of Poverty and Social Impact Analysis

1. The Operational Relevance of Poverty and Social Impact Analysis Erika Jorgensen (OPCS) April 19, 2007 with acknowledgements to Andy Norton, SDV, and Ken Simler, PRMPR

2. Definition • Background – history/experience of PSIA • The OP 8.60 framework • Poverty and Social Impact Analysis in the first wave of DPLs • Lessons learned • Challenges and future directions

3. Poverty and Social Impact Analysis (PSIA) • Definition • PSIA is the analysis of the distributional impact of policy reforms on the welfare of different social groups, with a particular focus on poor and vulnerable groups • What is it? An approach to: • understand the impact of policy reforms and public actions on poverty and social outcomes (income and non-income effects) • analyze intended and unintended consequences of policy interventions (ex-ante, during implementation, ex-post) • consider tradeoffs between social costs and benefits of reform by assessing opportunities, constraints and social risks • design appropriate mitigating measures and risk management strategies for the reform program, when adverse impacts and risks are unavoidable

4. PSIA summary history • PSIA work program since 2001: collaboration between SDV and PRMPR. Implementation since 2002: 154 PSIAs in 72 countries • embedded in lending/non-lending operations (e.g. projects, DPLs, PRSCs, PAs, CEMs) • anchored in Bank policy on Development Policy Lending (OP 8.60, 2004) • Body of knowledge • 154 PSIAs across 19 sectors and all regions • Conceptual framework and tools (PSIA User’s Guide, 2003) • Technical guidance (Good Practice Note, 2004); Sector guidance notes (2005); Case studies (2006) • Tools: Economic toolkit (2003); Institutional, political and social - TIPS Sourcebook (2005), E-Learning & Hard Cover (2006) • Partnerships: • PSIA Multi-donor Network, Norway/Finland TF (1.8 million FY02-03), German TF ($4.5 million 2004-09), WB/UNDP/Belgium TF ($3 million, recipient executed, 2005+)

5. Sectoral and Regional Distribution of PSIA (FY03-06)

6. PSIA Framework • Asking the right questions • Analyzing stakeholders, institutions, impacts, risks • Understanding transmission channels • Gathering data and information to fill gaps • Enhancing positive & address negative impacts • Establishing monitoring and evaluation systems • Fostering policy debate and feedback for policy adjustment

7. PSIA and Development Policy Operations • The operational policy (OP 8.60) expects program documents for development policy support operations to specify which policies supported by the operation may have significant distributional consequences. • If significant poverty and social impacts likely for policy reform supported by a specific lending operation, • Analysis is either conducted by the Bank or other partners before operation goes to Board, and summarized in the program documents, or • Operation proceeds to the Board with an action plan for Poverty and Social Impact Analysis during implementation of DPL

8. Example – Indonesia Fuel • Reduction of regressive subsidy politically contentious • Prior to policy reform government undertook PSIA – and engaged in dialogue with partners in donor and civil society • Although regressive – some impact on the poor – govt reallocated funds to a UCT program for poor hhs • PSIA work a major input to extensive discussions with stakeholder groups (private sector, parliameentarians, regional govts etc.)

9. Identifying priority reforms for PSIA The Bank determines, in consultation with the Borrower and key stakeholders, whether specific policies supported by the operation are likely to cause significant distributional effects Assessing prior analytical work For policies with likely significant effects, the Bank summarizes relevant analytic knowledge of distributional effects (undertaken by the country, the Bank or third parties), identifying knowledge gaps Addressing analytical gaps through additional work If there are significant gaps in the analysis, the Bank describes in the program documentation how such gaps would be filled prior to or during program implementation, as appropriate Assessing borrower capacity to deal with distributional impacts For policies with likely significant effects, the Bank assesses the borrower’s institutions, mechanisms and procedures for reducing adverse effects and enhancing positive effects Feeding results into policy dialogue, operational design and monitoring system ·Analytical results are disseminated to inform ongoing policy dialogue; ·Findings inform the design, timing or sequencing of policy actions, or the introduction of compensatory or complementary measures to mitigate negative or strengthen positive impacts

10. Criteria to select reforms for PSIA • The expected size and direction of the poverty and social impacts • The prominence of the issue in the government’s policy agenda • The level of national debate surrounding the reform • The timing and urgency of the underlying policy or reform

11. Identifying priority reforms for PSIA The Bank determines, in consultation with the Borrower and key stakeholders, whether specific policies supported by the operation are likely to cause significant distributional effects Assessing prior analytical work For policies with likely significant effects, the Bank summarizes relevant analytic knowledge of distributional effects (undertaken by the country, the Bank or third parties), identifying knowledge gaps Addressing analytical gaps through additional work If there are significant gaps in the analysis, the Bank describes in the program documentation how such gaps would be filled prior to or during program implementation, as appropriate Assessing borrower capacity to deal with distributional impacts For policies with likely significant effects, the Bank assesses the borrower’s institutions, mechanisms and procedures for reducing adverse effects and enhancing positive effects Feeding results into policy dialogue, operational design and monitoring system • Analytical results are disseminated to inform ongoing policy dialogue; • Findings inform the design, timing or sequencing of policy actions, or the introduction of compensatory or complementary measures to mitigate negative or strengthen positive impacts

12. Identifying priority reforms for PSIA The Bank determines, in consultation with the Borrower and key stakeholders, whether specific policies supported by the operation are likely to cause significant distributional effects For policies with likely significant effects, the Bank summarizes relevant analytic knowledge of distributional effects (undertaken by the country, the Bank or third parties), identifying knowledge gaps Assessing prior analytical work Addressing analytical gaps through additional work If there are significant gaps in the analysis, the Bank describes in the program documentation how such gaps would be filled prior to or during program implementation, as appropriate Assessing borrower capacity to deal with distributional impacts For policies with likely significant effects, the Bank assesses the borrower’s institutions, mechanisms and procedures for reducing adverse effects and enhancing positive effects Feeding results into policy dialogue, operational design and monitoring system ·Analytical results are disseminated to inform ongoing policy dialogue; ·Findings inform the design, timing or sequencing of policy actions, or the introduction of compensatory or complementary measures to mitigate negative or strengthen positive impacts

13. Identifying priority reforms for PSIA The Bank determines, in consultation with the Borrower and key stakeholders, whether specific policies supported by the operation are likely to cause significant distributional effects For policies with likely significant effects, the Bank summarizes relevant analytic knowledge of distributional effects (undertaken by the country, the Bank or third parties), identifying knowledge gaps Assessing prior analytical work Addressing analytical gaps through additional work If there are significant gaps in the analysis, the Bank describes in the program documentation how such gaps would be filled prior to or during program implementation, as appropriate Assessing borrower capacity to deal with distributional impacts For policies with likely significant effects, the Bank assesses the borrower’s institutions, mechanisms and procedures for reducing adverse effects and enhancing positive effects Feeding results into policy dialogue, operational design and monitoring system ·Analytical results are disseminated to inform ongoing policy dialogue; ·Findings inform the design, timing or sequencing of policy actions, or the introduction of compensatory or complementary measures to mitigate negative or strengthen positive impacts

14. Identifying priority reforms for PSIA The Bank determines, in consultation with the Borrower and key stakeholders, whether specific policies supported by the operation are likely to cause significant distributional effects For policies with likely significant effects, the Bank summarizes relevant analytic knowledge of distributional effects (undertaken by the country, the Bank or third parties), identifying knowledge gaps Assessing prior analytical work Addressing analytical gaps through additional work If there are significant gaps in the analysis, the Bank describes in the program documentation how such gaps would be filled prior to or during program implementation, as appropriate Assessing borrower capacity to deal with distributional impacts For policies with likely significant effects, the Bank assesses the borrower’s institutions, mechanisms and procedures for reducing adverse effects and enhancing positive effects Feeding results into policy dialogue, operational design and monitoring system • - Analytical results are disseminated to inform ongoing policy dialogue • - Findings inform the design, timing or sequencing of policy actions, or the introduction of compensatory or complementary measures to mitigate negative or strengthen positive impacts

15. Review of PSIA in DPLs • Majority of DPLs (35 out of 39) comply with OP 8.60 by addressing poverty and social impacts • Although most documents mention distributional impacts, some fail to clearly link the general material on poverty to an analysis of distributional impacts of key reforms • Available analytic work often not fully utilized • PSIA could be better embedded in upstream processes and partner policy systems • Plans and results of PSIA work could be disclosed earlier and more widely

16. Lessons Learned • Reform identification • Selection should come from national policy processes (e.g. PRS) rather than a duplicate process • Selectivity necessary because of cost and time and because PSIA works best for specific, well-defined reforms (and alternative) • Interface analysis/policy making • Reform implementing agency close to analytical process • Feed analytical work into operation design • Align with broader policy cycle in country (Policy process no clear beginning/end) • Clear findings, easy to understand and communicate • Contribution to public debate about policy choices • Participation • Part of broader policy process (choice and debate) • No monopoly on analysis (but objectivity and rigor) • Stakeholders’ perception part of inputs into analysis • Coordinate with other partners

17. Lessons Learned • PSIA ex ante and monitor results during implementation • Integrate monitoring of impacts within national monitoring systems • Add relevant questions to ongoing household surveys, establish control groups, panel data • Build country capacity to sustain PSIA work • Capacity of policy actors to ask the right question, commission and supervise work, use findings to choose between policy options • Capacity of research institutions and government agencies to collect data and analyze. Tools and methods should be realistic, understandable, and replicable • Capacity of key stakeholders to use evidence during policy debates and to build ownership for the reform.

18. Summary – where we are now • PSIA can be seen as in transition between an ‘R&D’ phase and a mainstreaming phase • R&D: responding to external critique; activity, product-based; focus on developing technical methods; use of incremental resources; ‘due diligence’ focus • Mainstreaming (post OP8.60): moving from tracking outputs and activities to tracking results; emphasis on PSIA as process rather than product; using mainstream resources; emphasis on PSIA to strengthen reform ownership.

19. Challenges and Future Directions • Embedding PSIA within partner policy systems (response – GPSAF country programs, TIPS, PSIA network) • Methods and approaches which enable delivery within available time and budget (TIPS, PIA) • Better understanding of the political economy of policy reform (TIPS/PIA)