# **I. Introduction**

The persistence of poverty in a large number of developing countries that have been recipients of development assistance from the international community over the course of years has led to increased emphasis on poverty reduction by the international community, beginning in the late 1990s. The increased focus on poverty reduction was further motivated by the depth and widespread nature of poverty, especially in Sub-Saharan Africa, where a large number of countries, including those that embraced the path of economic reforms and stabilization programs, continued to face declining living standards (De Maio, Stewart and Van Hoeven [1999], Easterly [2001], Hillman [2002], Fofack [2002]).<sup>2</sup> These efforts by the international community to increase the focus on poverty call for a better understanding of the constraints on poverty reduction in a relatively stable growth context, the transmission channels through which adjustment policies may affect the poor, and the possible trade-offs that poverty reduction may entail regarding the allocation of scarce resources and sequencing of policy reforms in the elaboration of poverty-reducing economic growth strategies.

The Integrated Macroeconomic Model for Poverty Analysis (IMMPA) recently developed by the World Bank provides an analytical framework for assessing ex-ante and a priori the expected welfare effects of macroeconomic reforms and policies in the design of growth and poverty reduction strategies (Agénor, Izquierdo and Fofack [2003]). That analytical framework is dynamic in its approach and draws on the architecture of financial computable general equilibrium (FCGE) models. It emphasizes a number of issues, including the role of labor markets, informal employment, the transmission of policy and exogenous shocks to the poor, the urban-rural bias to capture the geographical dimension of poverty, the composition of government expenditure and credit market imperfection.<sup>3</sup> It was specifically developed to enhance poverty reduction efforts in developing countries engaged in the PRSP process.<sup>4</sup> The IMMPA framework also emphasizes the linkage between macroeconomic and household surveys. Its implementation requires comprehensive data and information at the household and individual level, household survey data, and at the aggregate level, national accounts. During its implementation, national accounts data are summarized in a financial social accounting matrix following the classification of households and institutional agents into six broad income categories.<sup>5</sup> The financial social accounting matrix (financial SAM) provides an accounting record for the whole economy during a given period, and serves as a useful

> 2 For instance, despite the robust growth rates observed in Burkina Faso, notably in the post-devaluation growth period of the mid-1990s, poverty remains widespread, with headcount indices exceeding 45 percent in most geographical regions (Fofack, Monga and Tuluy [2001]). Similarly, De Maio et al. [1999] concluded that the welfare of the poor deteriorated during adjustment in Tanzania and Madagascar in the late 1980s, a period characterized by the implementation of comprehensive adjustment policies in these countries.

> 3 For further details on the analytical framework and detailed structure of the IMMPA model, see Agénor, Izquierdo, and Fofack [2003]. Note that this paper has been circulated in draft form since 2001.

> 4 PRSP stands for “Poverty Reduction Strategy Paper”; and countries engaged in the PRSP process include a large number of low-income countries with poor welfare and social indicators, unsustainable levels of external debt and good prospects for eligibility to debt relief under the enhanced HIPC Initiative. For further details on the background and progress on the implementation of the PRSP process, see Jeni Klugman [2002].

> 5 These income categories include rural traded sector, rural non-traded sector, urban unskilled informal sector, urban unskilled formal sector, urban skilled formal sector, and capitalists. For further details on their selection see Agénor, Izquierdo and Fofack [2003], Chen et al. [2001].

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