Poverty and Social Impact Analysis (PSIA)

Policy makers are constantly trying to find better solutions to development problems and this involves analyzing and considering different policy options. All reforms have costs and benefits which are usually distributed unequally across different groups of the population. Even the best planned reforms may have unintended impacts on the poor and vulnerable groups.

News reports on protests and even calls for governments to step down as a result of proposals to eliminate or reform subsidies, to increase retirement ages, or to consolidate schools, are not hard to find. And even though the sensitive and unpopular nature of these reforms strengthen the case for rigorous analysis of their potential impacts, it takes a strong political will for governments to undertake and own this analysis.

Evidence-based analyses of the potential poverty and social impacts of reforms offer insights into different policy options and support the decision making process. Such analyses can help mitigate potential negative impacts and identify pathways to more inclusive reforms.

Poverty and Social Impact Analysis (PSIA)

PSIA is a versatile analytical approach to assess the distributional and social impacts of policy reforms on different groups, with emphasis on the poor and vulnerable. It aims to inform the design of policies and programs in four main ways:

1. Providing evidence on the poverty, social, and distributional effects of reforms;

2. Proposing changes and course corrections to a policy or program, and identifying measures to mitigate any adverse impacts;

3. Identifying alternative options to enhance poverty reduction and positive outcomes; and

4. Creating space for public dialogue around reforms through engaging stakeholders.

In doing so, a PSIA enhances policy effectiveness, contributes to national dialogue, and increases accountability and transparency surrounding policies and programs. PSIAs can use both quantitative and qualitative methods, and can be undertaken before, during or after a policy reform. If done before or during the reform process, the analysis can inform the design and sequencing of alternative policy options, and suggest changes along the way. If undertaken after the reform, PSIA can help assess the actual impacts of the policy, which can suggest ways to mitigate any adverse effects and help inform decision makers about the likely impacts of future reforms.

PSIAs in Action

Experiences from countries where PSIAs have been carried out show the far-reaching effect a PSIA can have on policy design and dialogue. Findings from Poverty and Social Impact Analysis can be used to:

Anticipate impact on the poor and excluded

In Burundi, a PSIA concluded that privatization of the coffee sector would have no negative effects on the livelihoods of coffee growers and that it would not lead to increases in poverty - a major concern among coffee growers. The findings convinced the National Parliament to move ahead with the privatization. Moreover, as a result of the PSIA’s recommendations, new and upfront investment is also being made at all stages of coffee production and distribution.

Make informed, evidence-based decisions

In Moldova, a PSIA informed the school consolidation reform by identifying and quantifying the potential risks involved in the process. Based on the results of the PSIA in eight regions in Southern Moldova, government decided to expand the monitoring system to cover the entire country. The PSIA also contributed to strengthening social accountability through the production of school report cards and is informing the design of a national program for dropout prevention.

Improve policy implementation

In Morocco, a PSIA examined the potential effects of universal free primary education on the school system. While free education would allow low-income families to send their children to school, it would also reduce the resources the school system needed to expand in order to meet demand. This prompted the Government to restructure education financing mechanisms by raising budgetary provisions (including mobilizing donor support) for schools to support free education. 

PSIA in the World Bank Group (WBG)

PSIA has a long history in the WBG and the development community, and has received support by donors since the early 2000s. In 2010, the PSIA Multi-Donor Trust Fund (MDTF) was established with support from Norway, United Kingdom, Germany, The Netherlands, and Switzerland. PSIAs cover a wide range of topics, from social protection and human development, which have traditionally been analyzed with a social and distributional lens, to relatively newer topics such as reforms focused on environment and natural resources, resource policies, and reforms of public sector governance.

On March 24-25, 2015, the PSIA team, in partnership with the World Bank Poland Country office held a very successful learning event. Best practices, challenges in PSIA work on policy, and more, were highlighted during the 2-day event. For more information watch the above video and check out the related event page.

For more information on PSIA please contact Simona Palummo (spalummo@worldbankgroup.org).

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