Poverty And Social Impact Assessment (PSIA)

New Rules for Global Finance has called for the development of standards, methodologies and tools that can be used for the poverty and social impact assessment in developing countries. The IMF, through lending conditions, Article IV consultations and technical assistance, advice developing (and advanced) countries on macroeconomic policies. These policy recommendations have been the subject of criticism for their suspected negative impact on poverty and social conditions. We need better tools for understanding the consequence of macroeconomic policy advice to ensure that IMF programs – especially the Poverty Reduction and Growth Trust (PRGT) – lead to positive outcomes for the real economy and real people.

The rationale to develop such standards, methodologies, and tools is based on two related facts:

There are substantial disagreements on what appropriate macroeconomic policies are to reduce poverty most effectively, and
There are no agreed standards, methodologies, or tools to assess the impact of macroeconomic policies on poverty.

Based on overall positive replies from top researchers in academia and senior staff members at some international organizations (i.e., IFPRI, ILO, IMF, and World Bank) to a draft of a Strategy Paper, New Rules is currently in the process of contacting all international and many national developmental institutions for a formal commitment to work together on next steps to develop some standards, methodologies and tools that can be used for poverty and social impact assessments in developing countries. David Evans, University of Sussex, is leading the project. Think tanks, NGOs, and researchers in academia interested in joining the project should contact This e-mail address is being protected from spambots. You need JavaScript enabled to view it .

Project Details:

1. Context and Justification

In 2000 the IMF introduced a Poverty Reduction and Growth Facility (PRGF), which aimed to orient its low-income country programmes more clearly to reducing poverty and increasing growth. In 2010, during the global economic crisis, this was replaced by the Poverty Reduction and Growth Trust (PRGT), which aimed to have “an enhanced focus on growth and poverty reduction”. Yet many programme countries have seen higher levels of growth, but widening inequality and slow poverty reduction.

In addition, most low-income countries have since 2000 developed Poverty Reduction Strategies, or broader national development strategies, which aim to accelerate equitable growth and reduce poverty, as well as reach the MDGs and other national goals. These strategies have also in many cases accelerated growth and attained some social sector MDGs, but had unpredictable and often disappointing impacts on equity and poverty.

This is partly because the IMF (and PRGT countries) lack operational tools to simulate the impact of macroeconomic programmes and shocks on growth, poverty reduction and income distribution. In recent years, the IMF has done much research work assessing growth drivers and designed tools to assess impact of individual policies. Independent analysts, country authorities and the World Bank have developed models and carried out research which can help assess poverty impact of macroeconomic policies. However, there has been no work bringing these together to develop operational tools which PRGT governments and IMF can use to assess growth and distributional impact of programmes.

2. Goal, Outputs and Beneficiaries

The project goal is to develop user-friendly tools for country authorities and the IMF to conduct such analysis, and link it to existing IMF/country tools, thereby enhancing development strategy and PRGT impact on equitable growth and poverty reduction.

The outputs of the project will be low-cost and user-friendly tools which can be used to conduct policy analysis of the impact of macroeconomic shocks and policy responses on growth, income distribution and poverty, while designing national development strategies or IMF programmes. The core tools will link macroeconomic projections (based on IMF Article IV and PRGT programme documents, and research department DSGE models) to:

CGE/SAM-based tools, allowing comprehensive analysis at the beginning of national development plans/multi-year IMF programmes, and updates thereafter;
Rapid Appraisal Tools, which can be used by/during IMF missions and annual development strategy updates, and in countries which lack CGE/SAM data.

The beneficiaries of the project are expected to include:

Policymakers and senior officials in PRGT-eligible developing countries, improving the impact of development strategies on equitable growth and poverty reduction ;
International financial institutions such as the IMF, World Bank and RDBs, improving the quality of their policy advice and support to PRGT-countries;
Like-minded OECD governments concerned to ensure that the PRGT has maximum impact on equitable growth and poverty reduction, such as Norway and the UK; and
Independent researchers and CSOs in PRGT-eligible and donor countries, already trying to hold the IFIs to account for equitable growth and poverty reduction.

3. Methodology

To ensure they are robust, the tools will be developed by renowned macroeconomic modeling experts, but kept simple enough to be used for national development strategies and IMF programmes. They will build on earlier work in a pilot phase which conducted analysis of existing tools, and case studies of Ethiopia and Ghana, as well as work on rapid appraisal conducted by CARIS (Sussex) and Monash University.

The tools will be tested in four PRGT-eligible countries. Three will be countries with comprehensive SAMs and CGE applications, where both models and projections, and rapid appraisal, will be tested. The fourth will be a country without a SAM/CGE but where a rapid appraisal is feasible based on IMF Article IV projections and structural databases. The results of CGE and Rapid Appraisal tools will be compared and refined, thereby boosting confidence in using Rapid Appraisal on a stand-alone basis. The CGE models will be intermediate in size and also useable in an operational context.

Research Update:

Latest draft of research/model to measure "Poverty Impact of Macroeconomic Shocks and Policies" – presented at 16th Annual GTAP Conference, June 12-14, 2013 Shanghai, China

New Rules for Global Finance welcomes your suggestions, comments, and questions.