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 analysisex ante, during
implementation of reforms, and ex postof 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
World Summit on Sustainable Development
Johannesburg, August 26September 4, 2002