Social Safety Nets and Poverty and Social Impact Analysis

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

Author:.

The IMF is an international organization of 185 member countries. It was established to promote international monetary cooperation, exchange stability, and orderly exchange arrangements; to foster economic growth and high levels of employment; and to provide temporary financial assistance to countries to help ease balance of payments adjustment. Since the IMF was established its purposes have remained unchanged but its operations—which involve surveillance, financial assistance, and technical...

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