Certain government expenditures, such as temporary income transfers or public works programs, can help form social safety nets to protect the poor from the short-term adverse effects of reforms. The economic reforms needed to spur economic growth may, in some cases, have adverse short-term effects on the poor. These can be mitigated, however, with appropriate social safety nets to shelter the disadvantaged from the hardships that may be associated with the implementation of reform programs. In this way, economic reform can be consistent with countries’ povertyreduction strategies and continued progress toward the MDGs.
Social safety nets should be in place before they are needed and should be well targeted to the intended beneficiaries. These programs should be directed primarily to those poor and vulnerable groups who are most adversely affected by the temporary shocks to income and general wellbeing caused by economic reform. Examples of social safety nets include cash and in-kind transfers, price subsidies, social services fee waivers, supplemental feeding and nutrition programs, public works programs, and microfinance programs, as well as other social insurance programs, such as unemployment benefits and minimum or social pensions.
Social safety nets play an important role in many IMF-supported programs.
For example, IMF-supported programs included measures to protect the poor in Indonesia, Korea, and Thailand during the Asian crisis.50 Social safety nets are incorporated into about two-thirds of PRGFsupported programs.51 Examples include severance payments for retrenched state enterprise employees or civil servants (as in Kenya, Mongolia, and Vietnam) and provision of free electricity to the poor (as in Georgia).
The design of social safety nets can be aided by poverty and social impact analysis (PSIA). PSIA consists of the analysis—ex ante, during implementation of reforms, and ex post—of the positive and negative impacts of reform policies on the well-being of the poor and other vulnerable groups. As such, PSIA can be a powerful tool for both redesigning policies (to avoid an adverse effect on low-income groups) or for implementing social safety net measures.
PSIA is a key feature of PRGF-supported programs, although significant improvement is needed in this area. More than half of all PRGFsupported programs refer to some form of PSIA. However, the majority of measures that could potentially affect the poor have not been covered by PSIA or by social safety net measures. Moreover, in the majority of lowincome countries, the technical capacity to perform PSIA is very weak.
Thus, the IMF, together with the World Bank and other development partners, is actively working to widen the depth and scope of PSIA, with their efforts concentrating on increasing countries’ capacity to undertake such analyses, although experience indicates that it will be several years before most countries are able to implement PSIA based on analytical studies.
Fiscal Dimensions of Sustainable Development Prepared for World Summit on Sustainable Development Johannesburg, August 26–September 4, 2002
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