1) How long have you been involved with PSIAs, the PSIA Multi-Donor Trust Fund (MDTF), and have things improved over the years?
I’ve been involved in PSIAs since 2000, at the time when the World Bank and the IMF were criticized for not having any worry over the poverty and social impacts of structural adjustments and conditionality related to both IMF and Bank programs. At that time I was working for the IMF on PSIA in programs that were being supported by the IMF, but there was a similar parallel discussion going on at the Bank and I participated in some of those meetings, and those were sort of cross-cutting, so it’s been a very long time. Then I joined the World Bank in 2010 and I was included in the Multi-Donor Trust Fund team from the Poverty Anchor point of view, and already there I saw a big change in the sense of seeing PSIA not as a mandate but as a way of designing programs, so that was definitely a big improvement. Since 2010 what I have seen is that it has become mainstreamed, not only as part of Development Policy Lending (DPL), but also to the extent that the PSIA trust fund has allowed for better quality PSIAs. It has allowed for a demonstrative effect which I think was important. I’ve seen it in several places where well-funded PSIAs took place and similar projects followed, often funded by Bank budget.
2) Are PSIAs relevant to the new World Bank Group? What role can it play with the new twin goals?
I think they’re part of the new twin goals very much, I don’t think that’s changed within the Bank.
3) Why would you would recommend a PSIA to a TTL?
Anytime we are supporting any kind of policy there may be concerns about the potential negative impacts, but I think more and more teams are trying to make sure that the potential positive distributional impacts are maximized as well. With distributional analysis, PSIAs can only help the design of the program and they’re sort of what keeps us anchored to the twin goals, making sure that everything we do goes back to our “mandate”.
4) You have worked on PSIAs projects before, so from a technical perspective, what is exciting about the PSIA approach and what are the main challenges?
I think what’s exciting is that you are able to bring evidence to bear, so instead of having a discussion over people’s opinions on the potential impacts of a reform you’re often able to quantify using data. Other times you’re able to inform the decisions with qualitative approaches. Even perception studies are critical in shaping the communication strategy that the government might have in announcing the reform, and it may also be critical making sure that governments are able to address the political economy factors that actually matter for carying through a reform process. In the absence of those things often reforms fail, so I think what’s interesting about the PSIA approach is that it looks across sectors at different ways, ensuring that the poor are protected, that excluded groups are not forgotten, and more generally that reforms we support can have the social and political backing in order for them to be successful.
5) How can we take PSIA forward once the MDTF ends?
For Development Policy Operations (DPO) it’s relatively easy because they’re part of DPL programs, which means it has to be part of their budget, so those budgets would need to be increased to make sure that the best possible PSIAs can be conducted. In the past what used to happen was that you would have a DPL that had a PSIA component that covered “the bare bones”, and the trust fund often complemented so a “fancier” PSIA could be produced. What I mean by fancier is having something like a survey done, either qualitative or quantitative, that addresses a particular reform action without which funding that kind of PSIA would not be possible, and we would have to go back to get informed opinions or guesses instead of having actual data.
Increasing the amount allocated as part of DPLs for PSIA may be an approach to the extent that the Bank’s funding is more towards lending and less towards AAA. The problem is what to do with PSIAs that have nothing to do with DPLs, and I guess that’s where the big challenge is. The only thing you can do is to make a pitch in every situation for funding from the CMU, competing with other projects and priorities. The CMU needs to see the value added of these things, and you need to prove that PSIA can contribute to the debate on a continual basis. Making PSIA sustainable is critical. My own experience is that where I have been able to convince the CMU to allow me to invest and build a machinery in order to have regular PSIA updates, then the marginal cost of keeping that up was relatively low. What’s costly is the first time you do it. If you have a team that is continuously working on micro data, looking at alternative reforms that could be supported (or not) by the Bank, but with an analysis that could allow the Bank to have a dialogue, then you can sell that to the CMU, and it really becomes powerful. Building that is the challenge, and making the case in every situation is a challenge. I think that countries that are facing lot of fiscal constraints are probably the place to start, because that’s where trade-offs are becoming very obvious, where countries are having to make decisions about a particular tax policy, or social spending policy, or where some painful adjustments needs to be made. Building up a system that allows PSIA to become sustainable is perhaps the right entry point.
Gabriela Inchauste is a lead economist in the Poverty and Equity Global Practice. She currently leads work on Fiscal and Social Policies for poverty reduction and shared prosperity, where she has been exploring the distributional impact of fiscal policy, ex-ante analysis of the distributional impacts of policy reforms, and understanding the channels through which economic growth improves labor market opportunities for poverty reduction. A Bolivian national, she holds a Ph.D. in economics from the University of Texas at Austin.