metadata: authors: 0: author: Ribe, Helena
1: author: Carvalho, Soniya
docna: 0: docna: World Bank treatment of the social impact of
            adjustment programs
docty: Policy Research Working Paper
subtopic: Environmental Economics & Policies,Poverty Assessment,Health Economics & Finance,Health Monitoring & Evaluation,ICT Policy and Strategies
teratopic: Poverty Reduction
abstracts: cdata!: Since 1987 the Bank's operational
            guidelines have required President's Reports supporting
            structural adjustment loans (SALs) to pay particular
            attention to an analysis of the short term impact of the
            adjustment program on the poor and to measures proposed to
            alleviate negative effects. The authors review how SAL
            President's Reports prepared between July 1986 and
            December 1988 have addressed the social impact issue. The
            authors find that most efforts to address this issue have
            focused on targeted projects, including special employment
            programs, nutrition projects, resettlement projects, and
            credit, severance pay, and retraining projects for displaced
            workers. By contrast, there has been little analysis of the
            impact of the chosen policy mix on major sub-groups in
            poverty. Design modifications other than reallocations of
            social expenditures, have received relatively less
            attention. For example, the composition, incidence, and
            effectiveness of public expenditures and their implications
            for reducing poverty have not generally been examined. In
            preparing for adjustment operations, Bank staff should
            explore policy choices that eliminate economic distortions
            in a way that creates a basis for a more equitable pattern
            of long-term growth. To the extent that some adjustment
            measures may hurt the poor in the short term, this should be
            mitigated through appropriate modifications in SAL design
            and carefully designed targeted projects.
repnme: repnme: World Bank treatment of the social impact
            of adjustment programs
display_title: World Bank treatment of the social
            impact of adjustment programs
listing_relative_url: /research/1990/10/700169/world-bank-treatment-social-impact-adjustment-programs
publishtoextweb_dt: 2010-07-01T00:00:00Z
historic_topic: Poverty Reduction
origu: Policy, Research & Ect Affairs
no_of_pages: 63
model_extractions: **Policy, Research, arsd ExternalAfar**

<!-- Start of picture text --> Review and AnalysisX<br><!-- End of picture text --> WPS 521 This papera product of the Review and Analysis Division, Policy and Review Department- is part of a larger effort in PRE to help improve the treatment of social impact issues in adjustment programs supported by the Bank. Copies are available free from the World Bank, 1818 H Street NW, Washington DC 20433. Please contact Marilou Abiera, room S13-033, extension 31262 _(58_ pages with annexes).

Since 1987 the Bank's operational guidelines have required President's Reports supporting structural adjustment loans (SALs) to pay particular attention to an analysis of the shortterm impact of the adjustment program on the poor and to measures proposed to alleviate negative effects. Ribe and Carvalho review how SAL President's Reports prepared between July 1986 and December 1988 have addressed the social impact issue.

They find that most efforts to address the social impact of adjustment programs have focused on targeted projects, including special employment programs, nutrition projects, resettlement projects, and credit, severance pay, and retraining projects for displaced workers. A great deal of experience has been gained in designing and implementing targeted projects and this can help to improve their future effectiveness. By contrast, there has been little analysis of the impact of the chosen policy mix on major sub-groups in poveny. Design modifications other than reallocations of social expenditures, have received relatively less attention. For example, the composition, incidence, and effectiveness of public expenditures and their implications for reducing poverty have not generally been examined. In more recent Banksupported adjustment programs, however, more attention is being paid to the social impact of policy decisions.

In preparing for adjustment operations, Bank staff should explore policy choices that eliminate economic distortions in a way that creates a basis for a more equitable pattem of long-term growth. To the extent that some adjustment measures may hurt the poor in the short term, this should be mitigated through both appropriate modifications in SAL design and carefully designed targeted projects. Longer-tern investments in the economic and social sectors can be addressed in sector and project lending.

Given existing knowledge and data, a better treatment of social impact can be achieved, in most cases, at little additional cost and without sophisticated databases. The design and implementation of future targeted projects can be improved on the basis of the experience gained so far.

The PRE Working Paper Series disseminates the findings of work under way in the Bank's Policy, Research, and External AffairsComplex. An objectiveoftheseries is to getthese findingsoutquickly, even ifpresentations are lcss than fully polished. The findings, interpretations, and conclusions in these papers do not necessarily represent official Bank policy.

Produced by the PRE Dissemination Center
# TABLE OF CONTENTS

|I.|Introduction ............................................<br>1|
|---|---|
|II.|Analysis of the Social Impact of Adjustment Programs<br>....<br>2|
|III.|How have SALs addressed the Social Impact ....<br>........... 4|
|IV.|Improving the treatment of the Social Impact of SALs<br>....<br>15|
|V.|Conclusion ..............................................<br>35|
|Annex I:|Measures to Address the Social Impact of Adjustment Programs<br>listed in SAL President's Reports FY86-89(First Half).|
|Annex II:|World Bank Guidelines for Preparing and Processing Adjustment<br>Loans and Credits.|

This paper has been prepared by Helena Ribe and Soniya Carvalho. The authors would like to thank participants of the meeting chaired by Vinod Dubey that discussed the paper and Nancy Gillespie, Peter Hopcraft, Robert Liebenthal, Anne Maasland, and Gerardo Sicat for helpful comments.
WORLD BANK TREATMENT OF THE SOCIAL IMPACT OF ADJUSTMENT PROGRAMS

# Introduction

1. Since 1987 the World Bank's Operational Guidelines have required President's Reports supporting structural adjustment loans (SALs) to pay particular attention to.. an analysis of the short-term impact of the adjustment program on the urban and rural poor, and measures proposed to alleviate negative effects."<sup>1</sup> This paper reviews how the SAL President's Reports prepared between July 1986 and December 19882 have addressed the social impact issue. In particular, it examines: the analysis of the social impact<sup>3</sup> of adjustment programs, the measures proposed to address the social impact, and how the treatment of social impact may be improved.

2. The review is based mainly on President's Reports; other supporting documentation and analysis have not been examined comprehensively. Best practice examples lhave, in some cases, been drawn from documents other than the President's Reports and from periods outside the one under review. The note does not discuss how the proposed measures were actually implemented subsequent to loan disbursement. It also does not examine poverty reduction measures proposed outside of the SAL context.

- I/ See The World Bank Manual Circular, **no.** Op 87/06, dated 23 November, 1987. **The** relevant sections **are** attached **in** Annex **II.**

- 2/ Although **the** guidelines were formally introduced in 1987, most SAL-President's Reports have addressed this issue since **1988.**

- 3/ Social Impact refers to the positive **and** negative welfare impact in terms of **the** standard of **living (real** incomes **and** social Indicators) on society **at large, espec;illy** (but not exclusively) on the **poor.**
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<!-- Start of picture text --> Box 1<br>Social Impact Analysis -- President's Report Sao Tome and Prin'lpe (SAL I)<br>| The Sao Taomean economy Is expected to be able to adjust structually<br>with a positive CDP growth rate by the end of the decade. The shift<br>in the internal terms of trade In favor of the rural sector will be<br>accompanied by substantial increases In the Incomes of rural households.<br>The now wage and price liberalization policies will directly benefit<br>10,000 workers and 3,000 smallholders. While public sector Incomes<br>are expected to decrease in the initial years of structural adjustment,<br>as the public sector starts to retrench from productive and comm rcial<br>a|tivities, the lncertive policies aro expected to promote growth and<br>thereby soften the overall impact of the adjustment program on<br>employment. On balance, the negative social impact of structural<br>| adjustment will be limited and outwelghed by the benefits in terms of<br>growth and efficiency and by the specific measures to protect the most<br>| vulnerable groups. In addition, the redistribution of incomes should<br>shift in favor of the agricultural sector, which would benefit a large<br>majority of the population."<br>IJ<br><!-- End of picture text -->

# Analysis of the Social Impact of Adjustment Programs

3. The World Bank approved 30 SALs between July 1986 and December 1988.4 Following Bank guidelines, President's Reports for each of these SALs analyze the expected social impact of the proposed adjustment programs. Box 1 illustrates the analysis typically made with the example of the social impact analysis in the President's Report for Sao Tome and Principe (SAL I).

4. The SAL President's Reports emphasize that in the long run the poor are likely to be better off with the adjustment program than without. This argument is based on the expectation that adjustment programs would promote 4/ The SALs were approved for twenty-four countries -- 19 in Africa, 1 in Asia, 2 In EMENA, **and** 8 in Latin America -- with some countries receiving more than one SAL.
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higher long run growth by reducing or eliminating product and factor market dstortions. In particular, higher agricultural growth would increase rural incomes and improve food consumption and nutrition levels. Further, reforms to stimulate investment in efficient industries and services, especially in the tradeables sector, would increase both rural and urban employment.

5. The SAL President's Reports also r.cognize that in the short run there are likely to be significant negative social effects from adjustment. This is because expenditure reducing policies, aimed at closing the balance of payments and savings/investment gap, may result in lower real wages and consumption levels. Public sector workers who may be retrenched as part of the expenditure reducing measures are commonly identified as major losers. Further, the adverse effect of trade liberalization and tariff reforms on inefficient enterprises may result in employment losses. ThM poor may also face higher prices, especially for food, and reduced access to sncial services due to cuts in social expenditures.

6. The analysis presented in the President's Reports is, however, fairly general. Different macroeconomic policy mixes, and their timing and sequencing can have differing long and short run impacts on income distribution and the welfare of the poor. Further, the adjustment program can entail important structural changes in the economy (through reallocations of resources across sectors and changing shares of wages and profits) in which different socio-economic groups can fare quite differently. But the President's Reports do not indicate if the proposed policy mixes, and their timing and sequencing are the best possible from the
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- int of view of their social impact. Moreover, beyond broadly identifying impacts on the urban and rural poor, the President's Reports generally give little attention to examining the impacts of spec:^ic policy mixes and the resulting structural changes on major rural and urban socio-economic subgroups in poverty who may be affected through changes in real consumption (of public and private goods), income, or employment.

7. To some extent, the relatively weak analysis of the social impact is due to inadequate data, the absence of an established methodology, and time constraints. However, even a modest analysis of the likely social impact could help identify the optimal policy-mix for long and short run poverty reduction. It would also allow designing appropriate sh(:t run compensatory targeted projects. S"ch analysis could be done with little additional research and would not require sophisticated databases. This note illustrates major elements of such an analysis and where possible, the costs -- in terms of time and money -- that it might entail. The Social Dimensions of Adjustment (SDA) project and the Living Standards Measurement Surveys (LSMS) which are currently underway or are planned in a number of countries, are expected to yield useful household data and help improve such analyses.

# How have SALs Addressed the Social ImDact?

8. Most SAL President's Reports contain some measures intended to address the long or short run social impact (see list of measures in Annex 1).5 6/ **As specified In the** Operational **Guidelines,** tho **financing** of **theoe** intervontions **is** not **necessarily** supported by SALs **since** other donors **and cofinanciers and sometimes** other **Bank projects, may** provide **the** financing.
Of the 30 SALs approved during the period considered, only one -- Burundi SAL-I -- does not include any specific measures to address the social impact. Since the analysis of social impact in Presideil.t's Reports is fairly general, it is usually not possible to assess if the proposed interventions appropriately and adequately address the social impact. Furthermore, the President's Reports do not, generally, provide details of the design of the interventions, their implementation mechanisms, and their financial arrangements which makes it difficult to assess their likely effectiveness.

9. Most countries have proposed interventions for some (or all) of the following three groups (see the attached summary table): (1) The newly unemployed comprising retrenched public sector employees and civil servants. Measu - to reach this group have included severance payments, resettlement to rural areas, public works, retraining, and credit schemes.

(2) The chronically poor comprising people who have been in poverty for a long time -- certainly prior to the adjustment program. Some adjustment policies may further impoverish them. Measures for this group have included social expenditure reallocations and targeted interventions such as subsidized distribution of food, public works, retraining, nutrition, and credit schemes.

(3) Others including civil servants and prospective entrants to the labor force (e.g. graduates or school leavers) who may fail to find jobs as
SUMMARY OF MEASURES IN SAL PRESIDENT'S REPORTS THAT ADDRESS THE SOCIAL IMPACT OF ADJUSTMENT PROGRAMS

|Year|Country|Measures||Measures fo|r the Poor||Other|
|---|---|---|---|---|---|---|---|
|||for the<br>Newly<br>Unemployed|Social<br>Expenditure<br>Reallocations|Targeted<br> <br>Subsidies|Tax or<br>Labor Market<br> <br>Reforms|Targeted<br>Projects|Measures|
|FY86|Chile I|-|x|||**x**|-|
||Malawi III||-|-||-|**x**|
||Senegal II|x|x||x|-|-|
||Guinea I|x|-||x|-|x|
||NigerI|-|x|||**x**|-|
||Burundi I|-|_|||||
|FY87|Gambia I|x||||||
||CARI|x|-||-|**x**||
||Chile<br>II|-|x||x|x||
||Panama II|x|x|||||
||NepalI|-|-|x||x|x|
||Ghana<br>I|x|x|-||x|-|
||Guinea-Bissau<br>I|x|x|-||x|-|
||Senegal<br>III|x|x|-|x|x|-|
||Mauritania<br>I|x|x|-||x|-|
||Dominica<br>I|-|-||||x|
||Uruguay<br>I|-|x|-|-|x||
||Zaire<br>I_||x|-|-|x|x|
||Sao Tome &|||||||
||Principe<br>I|x|x|-|-|x||
|FY88|Congo I|x|x|-|-|||
||Chile III|-|x|x|-|x||
||Togo III|x|x|-|-|**x**|-|
||Gabon I|x|x|-|x|-|-|
||Burundi<br>II|-||-|**x**|x|-|
||CAR II|x|x|-||x|-|
||Tunisia<br>I|A|x|x||x|-|
||Guinea<br>II|x|x|||x|x|
|FY89|Honduras I|-|x|||||
|(First|<br>MoroccoI|-|x|x|x|x||
|Half)|Costa Rica II|-|x|||x||
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a result of a contracted public sector. Measures for them have comprised compensatory wage increases to counter price increases, and expansion of facilities for vocational training to prepare them for alternative labor market opportunities.

10. Annex I shows that the types of interventions proposed in the various countries have varied widely. The diversity of approaches is illustrated by the contrast between Ghana (SAL I) which included a wide range of measures for both the newly unemployed and the poor, and Dominica (SAL I) which focussed on a Vocational and Technical Education project to reach school leavers who may face a contracted public sector job market after adjustment. The same Annex also shows that more recent SALs include a greater number of interventions to address the social impact suggesting that this issue is receiving more attention.6 11. The use of tranche release conditions related to the adoption of social measures has not been common. Out of the twenty-four countries reviewed, tranche release conditions for social measures were found in the following six countries:

*In Chile, SAL I and SAL II second tranche release required satisfactory progress in studies to assess the relative efficiency of the employment programs and to review major issues in the health sector.<sup>7</sup>

> 6/ **The 'Report** on Adjustment Lending IIO (RAL **II,** 1990) found that the shar, of loans with **at least** one social policy reform had increased from **16** percent in FY79-86 to **26** percent ir, FY66-88 to 34 **percent** in FY89.

- 7/ Th- second trenche release **was** contingent only upon satisfactory progress in **the** studies, not upon **th.** adoption of follow-up actions.
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In SAL ITI, second tranche re'Lease conditions included reforms in the social security system (e.g. increasing the efficiency of private pension funds and conducting a study of the coverage of the self-employed) and the health sector (e.g. improving preventive health care).

- In Burundi (SAL II) the second tranche release condition included the preparation of monitoring systems for social impact and defining and agreement on an action plan for poverty alleviation.

- In Senegal (SAL III) the second tranche release condition required ffective operation of a reinsertion fund for laid-off workers and a third tranche release condition was the adoption of recommendations of the study on labor markets and employment.

- In Togo (SAL III) the second tranche release condition included agreement on budgetary allocations for services in agriculture, health, education, and maintenance of transport infrastructure.

- In CAR (SAL I) the second tranche release condition included setting up a "personnel bank' to facilitate reassignments of redundant ctaff and i-,untary resignations of civil servants and their absorption irto the private sector.

- In Gabon (SAL I) a second tranche release condition was to establisha financing facility to help reorient released government employees and the adoption by government of final drafts of the new labor code, investment code and participation code.
12. The response to the possible social impact of SALs has occured in two .nain ways: by including specific actions in the SALs themselves and by adding targeted projects to the SAL package. These are described in the two sections below.

# Modifying SAL Design

13. Modifications in SAL design have been pursued mainly through reallocation of social expenditures, mostly in education and health. Other design changes (e.g. attention to the macro policy-mix) that might help or protect the poor _haw_ received lit.le attention. In a few instances, targeted subsidies or tax and labor market reforms have been proposed.

14. Most SALs include agreement with the government on the public expenditure or the puiblic investment programs and require periodic approvals or reviews of future expenditurelinvestment programs. In a few SALs, priority expenditures and (or) priority inve3tments have also been protected; for example, in CAR (SAL II) 75 percent of the investment program was to be allocated to priority sectors. But concern with the poverty implications of public expenditure reform has generally been focussed on social expenditures. The poverty implications of non-social public expenditures have rarely been explored.

# 15. Social ExRenditure Reforms.<sup>8</sup>

These reforms have aimed either at protecting the poor against short

**8/** SECALs directed **at specific sectors,** for **example the** health or **education sectors,** contain **more** dotsiled reforms **In these** sectors.
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term social costs (e.g. maintaining social expenditures on basic health and education in a period of overall reduction in public expenditures), or at enhancing the long term impact of the adjustment program for poor groups (e.g. improving targeting and efficiency in the social sectors). Of the thirty SALs reviewed, twenty-two have addressed the structure and efficiency of public social expenditures by:

- Maintaining or increasing public expenditures on education and health,<sup>4</sup> nupite of reductions in total public spending during adjustment. For example, in Mauritania (SAL I) priority was to be given to allocating more budgetary resources to health and education under the strict constraint of balanced budgets.

- Redirecting social sector expenditures towards the poor, mainly through better targeting of resources towards or within primary education and basic health. For example, in Chile (SAL III) the government intended to improve targeting in primary and preventive health care and maintain the existing level of food distribution in maternal-child programs on a per capita basis.

- improving efficiency. For example, the SAL I program in Sao Tome and Principe proposed to improve the efficiency of public expenditures in social sectors such as health and education by assuring adequate budgetary allocations and by redesigning with external partners programs and delivery systems to maximize the impact of such programs, and the SAL III program in Chile proposed to increase the efficiency of investment in health.
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16. TaraetinR subsidies. In relatively few countries (Tunisia (SAL I), Morocco (SAL I) and Nepal (SAL I)), have SAL programs proposed to improve the targeting of subsidies to protect the poor. In Tunisia the aim was to reduce subsidies faster on commodities that constitute a small part of the consumption of the poor. Hence subsidies on milk, sugar and vegetable oil for soap-making were to decline faster than subsidies on wheat and cooking oil. The Morocco SAL proposed to target consumer subsidies to the urban poor and rural landless. In Nepal it was planned to target subsidized food programs more appropriately on the poor through the Food Corporation and to account for the subsidies explicitly in the budget.

17. Tax and labor market interventions. In a very few cases, attention has been paid to the distributional effects of changes in tax policy. For example, Morocco (SAL I) proposed to increase the progressivity of the tax structure in order to achieve a more equitable distribution of income. Labor market policies have received attention in some SALs. For example, in Burundi (SAL II) the government proposed to liberalize the labor market, specifically revising the legislation on domestic and foreign labor, strengthening the role of the Ministry of Labor as a promoter of employment, and reducing costs to employers such as unnecessary medical costs. In Senegal (SAL II) the government planned to foster labor mobility by reviewing and modifying the administrative procedures of the labor law which regulates hiring, firing and temporary work contracts.

# Taraeted Proiects

18. Targeted projects have been a more common way of addressing the social
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impact than modifications in SAL design (See Annex I for details). These projects have aimed at addressing short term social costs and have mainly been "compensatory" in nature. Major targeted projects have comprised severance payments, retraining, credit, public works, nutrition, and resettlement schemes. The proposed targeted projects have generally been additional to those supported by the Bank's investment lending. In some cases, new projects have been designed, for example, a new priority action program was proposed in Guinea (SAL II) which aimed at clearly targeting vulnerable groups. In other cases, existing programs have been expanded, extended, or improved, for example in Chile it was proposed to improve the emergency employment programs (SAL I) and nutrition programs (SAL III). The major types of projects proposed are described below.

19. Severance payments. Cash payments have been proposed to compensate retrenched public sector workers and civil servants in Guinea (SAL I and II), Gambia (SAL I), CAR (SAL I and II), Ghana (SAL I), Guinea Bissau (SAL I), Senegal (SAL III), Mauritania (SAL I), Sao Tome and Principe (SAL I), Congo (SAL I), Togo (SAL III), and Gabon (SAL I). Severance payments are aimed at sustaining living standards of dismissed workers during the transition to new jobs.

20. Retraining. Retraining schemes have been planned for dismissed workers and the chronically poor in a number of adjusting countries. These schemes aim to retrain the unemployed for other occupations, often for selfemployment in the informal sector. CAR (SAL I), Guinea Bissau (SAL I), Senegal (SAL I), Gabon (SAL I), Sao Tome and Principe (SAL I), and Togo
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(SAL III) have proposed to provide retraining to the retrenched. Ghana (SAL I) has proposed retraining schemes for both the retrenched and the chronic poor.

21. Credit. Guinea (SAL II), Gambia (SAL I), Ghana (SAL I), Mauritania (SAL I), Senegal (SAL II), Congo (SAL I), CAR (SAL II), Gabon (SAL I), and Togo (SAL III) have proposed schemes providing loans (often subsidized) to retrenched workers for investing in small business.

22. Public Works. Tunisia (SAL I), Chile (SAL I), Ghana (SAL I), Mauritania (SAL I), Sao Tome and Principe (SAL I), and Guinea (SAL I and II) have proposed public works programs to employ the newly unemployed and the chronically unemployed. In most cases, the programs are also intended to build infrastructure. Food aid or international grants are the major sources of finance.

23. Nutrition. Nutrition schemes have been proposed in Ghana (SAL I), Sao Tome and Principe (SAL I), Chile (SAL III), Burundi (SAL II), and Guinea (SAL I) to maintain or improve consumption levels of such groups, particularly pregnant mothers and malnourished children.

24. Resettlement. Countries with a comparatively low pressure on land have proposed to relocate the newly unemployed to agriculture. Guinea Bissau (SAL I), Mauritania (SAL I), Sao Tome and Principe (SAL I), Ghana (SAL I), and CAR (SAL II) are some examples. In Sao '.ome and Principe the scheme is intended to resettle the newly unemployed to land not currently in use and in CAR to abandoned coffee plantations.
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25. These projects have often been poorly designed and institutional arrangements to implement them have generally not received sufficient attention. Sometimes, adequate financing has not been ensured at the appropriate time. In Guinea (SAL II), for example, voluntary departure bonuses with access to loans were to be made available to civil servants with bankable projects, but important issues such as project selection criteria, interest rate levels, and incentive mechanisms to repay did not receive due attention. In Ghana (SAL I) the proposed retraining program for retrenched workers suffered from lack of funds, equipment, logistical support and qualified staff in the institutions that were to provide the training.<sup>9</sup> 26. Each targeted project to address the social impact is generally designed as an independent intervention, but in some countries (e.g. Ghana),<sup>1 0</sup> the targeted projects have been combined into multi-sector programs. Such programs face three potenti.al problems: (a) they may be excessively delayed by requirements to coordinate several government agencies and outside donors; (b) they may not be well-integrated with other elements of the adjustment program; and (c) they may require special institutions capable of effectively implementing a range of diverse, multi-sectoral activities.

9/ **Typical** design weaknesses **and** other likely problems with **targeted** projects **are elaborated** In *How Adjustment Programs Can Help **The** Poor (1990), Ribe, Carvalho, Liebenthal, Nicholas, **and** Zuckerman, Discussion Paper **71, The** World **Bank.** 10/ In **Ghana, the** social measures proposed in **the** SAL **were** subsequently incorporated into **the** Program of Action to Mitigate **the** Social Costs of Adjustment (PAMSCAD) although **there** is no **reference** to PAUSCAD in **the** SAL President's Roport.
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27. Some countries (e.g. Ghana, Senegal, Burundi, CAR, and Guinea) have planned Non-Governmental Organization (NGO) involvement in their targeted projects. Such involvement has generally been proposed in the case of public works, retraining programs, credit schemes and nutrition projects.

# ImprovinR the Treatment of the Social Impact of SALs

28. Efforts to review a decade of the Bank's experience with adjustment lending culminated in two 'Reports on Adjustment Lending" -- RAL I (1988) and RAL II (1990). These reports concluded that since domestic inefficiencies have proved to be more intractable than previously thought and external uncertainties have continued, there is need to shift the focus of adjustment lending from short term crisis management and stabilization (which dominated the last decade), to more fundamental issues of long term growth, development, and poverty reduction. This section examines how adjustment programs can lay the basis for long term poverty reduction through improvements in: the analysis of the social impact, the design of the adjustment program, and the effectiveness of the targeted projects.

# Improving the Analysis

29. Elements of a framework that would help to improve social impact analysis could include the following:

# 30. Analysis of the impact of the proposed policy mixes. timing. and

sequencing. Alternative macroeconomic policy mixes as well as their timing and sequencing, affect factor and commodity prices differently and,
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therefore, are likely to have different implications for labor incomes and the purchasing power of various income groups. For example, a study for the Philippinesl on the effects of macroeconomic variables on the income shares of the poor indicates that if the stabilization had been through a greater reliance on the exchange rate and supply enhancing policies rather than fiscal adjustment, and if the adjustment had been undertaken earlier than it actually was, the incomes of the poor could have been better protected. The extent of analysis required will differ from country to country depending on the specific circumstances and data availability, but a minimum analysis sufficient to justify the chosen policy mix would help to ensure that the long and short run social impact receive due attention.

31. The SDA project is developing macro/micro models such as the RMSM-S (Revised Minimum Standards Model - Social) and the CGE (Computable General Equilibrium Model) that will enable the impact of alternative macro-policies on income distribution to be examined. One of the models that has been prepared so far is the RMSM-S for Togo and the results will be tested in the upcoming SAL. The RMSM-S for Tanzania is under preparation. RMSM-S builds on the conventional Bank RMSM model by adding detailed production, government and household modules that enable projections of income distribution in the agricultural, industrial and service sectors, and of key social indicators. Relative prices and wages are exogenously determined in this model and limited behavioral responses by households, firms, and goverrnments are built into it. But the RMSM-S has the advantage of

**_11/_ See** Section II-A-3 **In** *The Philippines: **The** Challenge of Poverty, Report No.7144-PH, 1988.
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extending a model with which Bank-staff are already familiar, and of requiring relatively less social data for its use. As a result, once it is tested and standardized, the additional cost of adapting it to specific country circumstances in order to determine the most appropriate povertyreducing policy-mix should be relatively small. Efforts are also underway to develop a CGE model for Cote d'Ivoire and Cameroon, as well as to expand the existing CGE on Egypt. The major additions of the CGE model (unlike the RMSM-S model) are that relative prices and wages are endogenously determined and behavioral responses by households, firms, and governments are built-in. While this model has the advantage of providing a richer and fuller analysis of the medium and long term effects of policy changes, it will take more time to use due to the extra data requirements necessary for calibration, as well as the additional time required to learn to operate and interprete the model.

32. Identification of groups likely to be affected. Depending on the structure of the economy and the characteristics of the poor, the same policies may have quite different effects on different groups of poor people. Identification of the major socio-economic groups who may be affected by the adjustment program is necessary if measures are to be designed to help or protect them. In Malawi, for example, large estate holders were likely to benefit from an exchange rate devaluation since they were the predominant producers of export crops but smallholders were prevented by existing regulations to engage in the cultivation of some export crops. In such cases, governments could ensure that smallholder export responsiveness is not impeded by inappropriate regulations or the
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lack of technical support and complementary infrastructure.12 Identification of the different socio-economic groups may not be easy in view of data and methodological limitations, but even in countries where data is poor, analysis of available information and technical knowledge can provide useful results. In Gambia, a qualitative estimate of the probable impact of the adjustment process on different socio-economic groups was made (see Box 2).

33. Information about specific groups may often be available from existing studies, NGOs or international agencies working in specific regions. For example, the UNICEF report "Situation Analysis: Women and Children' is an important source of information on vulnera.ble groups in a number of countries. In Chad an NGO, Medecins sans Frontieres (MSF), has surveyed and maintains information on the nutritional status of specific groups.

34. "Priority Surveys' developed by SDA can also facilitate better identification of target groups and their specific needs. Priority Surveys are quick surveys using a relatively large sample and a questionnaire limited to vital areas concerning household living standards. Especially in countries where little data exists, they can provide a quick broad brush picture of the vulnerable groups and yield information on key variables relating to them. In Chad the preparation of the Social Development Action Program (SDAP) was based in part on a priority survey for N'Djamena conducted a few months before appraisal and completed in roughly four months at a cost of about US $40,000.

12/ In Malawi **the** proposed *xtension of **licenses** to grow certain export crops to smallholdern, In particular, burley tobacco, **is** expected to provide additional income for **some** smaliholdera.
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Box 2 Anslyzing impact on different socio-economic groupe: Gambia Five major groups were Identified and the likely social Impact of the adjustment reforms on them was qualitatively analyzed. Thes. groups were: in the rural **areas** -- formers, livestock herders, and those engaged In non-farm activities 2.g. craftsmen and traders -- urban areas, formal sector workers, and informal sector workers. Farmers were expected to gain from an increase in the price of groundnut. They could, however, be adversely affected by the depreciation of the dalasi and the elimination of fertilizer subsidies **as well as** by increases in the price of other Imported goods consumed by Gambian farm families. Non-farm househoid (both herders and rural traders/craftsman) would not gain directly from the changed incentive structure, although increased farm incomes were likely to result In Increased demand for other products and services. The adjustment program would also promote a larger rolv for private traders In the countryside **as** input suppliers, credit agents and marketers. All urban groups would, at least initially, experience a loss of purchasing power associated with the exchange rate depreciation and increased prices for tradeable food items, ut;lty, and transport tariffs, **as these** constitute a large portion of **the** urban household budget. Some **reversal** of the high rate of rural/urban migration of the past decade would most likely occur **as** urban employment oppotunities shrank. Real incomes in the urban formal sector would decline in the short run relative to incomes in the rural areas. The civil service reform would result in some unemployment as would the curtailmant of public Investment. In the medium term, howerver, improved Incentives for the private sector, especially in resource-based Industries such as agro and fish processing would stimulate private soctor employment. The urban informal sec%or would be hurt as a result of a slow down In formal sector production and Income growth, but may be partly compensated by growing demand for Informal sector services/products from **the** rural **areas.** Besides, many informal sector products are Import substitutes whose demand would be boosted by the dalas' depreciation.

35. Analysis of the scale of the impact. An analysis of the broad magnitude of the expected impact on the real incomes and consumption of the poor would assist in designing and implementing appropriate interventions to
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help them. Even a modest household expenditure survey could, for example, allow determining the amount of expenditure devoted to specific commodities by different groups and the impact of a likely change in the prices of those commodities on their overall welfare. In the Sudan, a quick household expenditure survey examined the expected impact of price liberalization on the poor (see Box 3). The surney was cheap and quick: the time between Box a Household Expendituro Survey: Sudan A quick household *xpenditur- survoy wos conducted to oxamine the expected social impact of tho proposed adjustment program. The household survey aimed at analyzing the Impact of price liberalization on the poor, and supplemented the report on the social dimensions of adjustment prepared by the Economic and Social Research Council (ESRC), Khartoum, for the Ministry of Finance, Economics and Planning. The survey concentrated on household expenditures for basic needs goods and on thoir prices. Four groups of commodities, considred to be particularly Important for the poor, were Identifoed: petroleum products (represented in the survey by kerosene), wheat products (represented by bread and flour), sugar and essential drugs, and sorghum, soap, milk, lentils, cooking oil, tea and mataches. Tho survey did not cover soclo-anthropological characteristics of the households, relying instead on the counterpar **t** eam$s work. In addition to information on prices and expenditures, information was also sought on the household's length of stay in Khartoum, province of orgigin, quality of housing, accoss to Identity and ration cards and main activity of household members. The survoy concentrated on four poor areas In the national capital which the ESRC had Identifled -- one where tho residents wero Opoor and three whoro they were Ov-ry poor. Thirty-two :c.ssehold were surveyed In each area making the sample size 128 housoholds. No sophisticated sampling procedure was cossiblo, there being no population frame available **as** a basis for sampling. However, prior flold obsorvations had confirmed that the areas were Internally relatively homogenous. The actual survey was conducted by staff and senior students of Ahfad College, Khartoum. The survey came to the conclusion that the main group expected to be advorsely affocted would be the Opoor' and not the *very poor. Since the former group **was** politically Important, the survey recommended care In liberalizing prices of commodities in their consumption basket. Targeted employment generating projects were also recommended for this group.
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determining the need for the survey and obtaining the first results was about ten days, and the incremental cost of the survey was US $330, exclusive of Bank staff-time input. The Bank staff-time input was three weeks and the cost was around US $6000. Further, as the WDR 1990 indicates, changes in the living standards of the poor can be assessed by movements in proxy variables such as producer prices for small farmers, real wages for unskilled labor, the relevant cost-of-living indices, and per capita expenditures on basic social services. Useable information about these variables can often be obtained fairly quickly.

36. LSMS-type surveys or Integrated SDA Surveys which include small samples but a detailed questionnaire (as opposed to the Priority SDA Survey which includes a large sample with a limited number of questions -- referred to in paragraph 34) could be used to collect data about the likely changes in the consumption (of public and private goods), income, and employment of different socio-economic groups. An LSMS survey can take roughly 12 to 18 months and cost on average US $500,000, but the survey can be focussed on issues of immediate concern, and can be performed using existing government survey personnel and apparatuses, thereby reducing costs and producing results quickly. In Jamaica, for example, a first round LSMS survey consisted of adding-on a questionnaire to the existing labor force survey conducted every quarter by the government. The questions pertained to consumption expenditure, health, education, housing, ownership of durable goods, and anthropometrics and did not include other modules such as agricultural production and migration. As a result, the additional cost of obtaining the relevant data (which fed into the design of the Human Resource Development Program) was only about US $ 75,000 and took 2 to 3 months of
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Bank staff-time. The subsequent rounds (second and third) comprised the same questionnaire and focussed on measuring changes over time. A fourth round is now being planned.

37. Analysis of the rough duration or type of the impact. The expected impact of a given adjustment program on different income groups can be divided between: the lung term benefits to the poor from their participation in the economic growth expected from structural adjustment; and the transitional costs incurred before the potential pay-offs from the implementation of the adjustment policies are realized. Anticipating the rough duration or type of the long and short run impact would allow determining the relative emphasis that may be placed on "complementary" interventions that facilitate the longer term integration of the poor into the expanding sectors of the economy, or 'compensatory' ones that mitigate short term costs.

# Improving the design of SALs and of targeted proiects

38. Depending on specific country circumstances, the following interventions may be explored to improve the effectiveness of measures to address the social impact. Many of these interventions will not only help or protect the poor, but may also strengthen the adjustment process itself by, for example, facilitating labor mobility and making appropriately qualified labor available in expanding sectors of the economy. Some of the measures may also enhance the political sustainability of the adjustment program.
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# Improving SAL design

39. Appropriately designed adjustment programs can create a policy framework that fosters pro-poor growth in the long run and protects the poor from adverse short run effects.<sup>13</sup> 40. Modifying the Policy-mix. A number of policy options, each with differing implications for the poor, are generally available to effect a specific economic change. For example, an external current account deficit can be reduced by fiscal contraction or expenditure switching. The choice of instrument and the specific policy-combination will have differing long and short run consequences for employment patterns and income distribution between different groups in poverty. A study for the Philippines (referred to earlier) concluded that greater reliance on expenditure switching policies rather than fiscal contraction would have been preferable in the Philippines context (see Box 4). The Philippines study was completed in five staff weeks at a cost of roughly US $9000.14 Similarly, phasing of price adjustments may be an option in cases where supply elasticities are

- 13/ For further discussion **see** "How Adjustment Programs Can Help The Poor", Ibid.

- 14/ The figure refers to the amount spent on the "adjustment and poverty' part of a larger study on poverty in **the** Philippines (referenced in footnote 10). The cost of much studies will vary from country to country depending on how much **data and** analysis **are already** available **at the** time of the study. The Bank may already have Invested in such data and analyses In **the** context of its CEVs, CSPs or other similar work. If **quarterly** data on income shares **are** not available, **as** may often **be the** case, yearly Income **and** expenditur, data for some years may **be used.** Where this **data** is **also** lacking, **a** qualitative assessment may still **bt** possible.
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low and uncertain, and dependent on a wide range of complementary actions such as the availability of basic infrastructure and services. In such cases, sharp price adjustmrents may only be inflationary and have particularly adverse impacts on net purchasers. Awareness of the trade-offs between different groups and between different time periods, in the early stages of SAL design, would allow designing appropriate long and short run poverty reducing policies.

Box 4 Macroeconomic Policy Choices and Income Distribution: Philippines A study of the effects of macroeconomic variables on the income **shares** of the rich **and** poor, based on quarterly surveys of households Income for 1980-86 in the Philippinos, found that the poor are relatively hard-hit by overall recession and a contraction in the labor market. Accelerating Inflation is also rogressive because of the stickiness in nominal wages. The poor gain from real exchange rate depreciation because exports **are** Intensive in unskilled labor (and often produced by peasants) and tradeables account for a small part of the consumption basket of the majority of the Philippine poor. Since benefits from government sponding largely go to the middle classes, cutbacks hurt the poor lose. Finally, the effects of real interest rate increases are largely borne by the rich, who **are** the principal debtors In the economy. In 1985, only 8 percent of the poor farmers reported using formal credit In the previous fifteen years. The stabilization path chosen was not favorable to the poor, with the exception of cuts in some forms of public spending and the liberalization of interest rates. Although some fiscal and monetary contraction wse necessary, greater reliance on relative price changes would have moderated **the** extent of the recession and provided relative protection for the poor. Drastic changes in the composition of public expenditures (a large part of which were benefitting higher Income groups) could have moderated the costs of economic decline for the poor.
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41. Fiscal Reforms. Public expenditure and taxation policy is an area where social considerations could receive explicit attention. There is often substantial scope for helping or protecting the poor through shifts in the composition of public spending and revenue. While public expenditure cuts may be unavoidable, across-the-board reductions can be avoided. Available resources can instead be allocated to priority investments in infrastructure and the social sectors; and to finance operation and maintenance expenditures, while increasing the efficiency of existing programs. The incidence of such reallocations on poor groups can be analyzed and taken into account. Improving the efficiency and equity of economic infrastructure that is particularly relevant to the productive activities of the poor, and of investments in human capital development, may not only protect the poor against adverse impacts, but may actually help them to respond to the new incentives generated by the adjustment program. Indonesia provides an example of effective public expenditure shifts in the process of fiscal adjustment to the oil price decline (see Box 5). The SDA Box 6 Changing Public Expenditure priorities: **Indonesia** Indonesia presents a model of what can be done in th- way of appropriate shifts in spending. Over **the** 1982-8S to 1987-88 **period, real** public spending declined by 17 percent. However, recurrent spending grew by 6 percent **and** transfers to **the** provinces by 29 percent, **despite** a near doubling of real Interest payments. This was facilitated by **a major** reduction in development spending and a r **al** decline in **the wage** bill. Within **development spending, there were major** shifts out of import-intensive Industry and mining projects **and** into human resources. **The net** effect was to **raise the** domestic and employment content of public **spending and** ensure **adequate** resources for **the** maintenanco and **selective** expansion of social and economic Infrastructure. Indonesia's starting position was also relatively favorable -- it had a low public debt burden and a relatively compliant civil service.
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project is planning to design Core Social Expenditure Programs in Cameroon, Senegal, CAR, and Chad. In CAR, SDA is planning to use beneficiary assessments to help design the Core Public Expenditure Program.

42. Labor Market Reforms. Labor market regulations (such as job security and social security regulations) are intended to raise worker welfare and security. But they tend to raise labor costs and reduce employment in the formal sector and therefore increase labor supply in the informal sector and reduce the incomes of the poor. They also introduce rigidities which may impede the labor supply response to economic policy reforms. In such cases, the poor would benefit from labor market reforms such as: removing biases that favor capital intensive production or other impediments to employment growth through changes in regulatory laws; strengthening the institutional framework for labor exchanges to lower the costs of job search; or counteracting labor market segmentation in the presence of which a nominal devaluation imposes an unduly great burden on the poorest workers.<sup>15</sup> In Senegal (SAL IV), labor market reforms have been proposed to remove existing labor market rigidities (see Box 6).

43. Targeting Subsidies. Replacing generalized subsidies by targeted subsidies can yield substantial fiscal savings while maintaining the benefits to the poor. Most generalized subsidies are applied to goods with a positive income elasticity. The resulting inefficiency can rarely be justified in

**15/ Sea** Macroeconomic Adjustment **and the Labor** Market in Four **Latin American** Countri.os (1989), Lopez **and** Riveros, Working **Paper** 336, **The** World Bank.
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<!-- Start of picture text --> Box 6<br>Addressing Labor Market Issues: Senegal<br>In Senegal (SAL IV) the government proposes to confront labor<br>market rigidities and reduce labor costs by adopting labor market<br>reform for the short and the medium term.<br>In the short run, the government has agreed to take two actions<br>which will lncrease employment flexibility. First, existing enterprises<br>will enjoy unlimited use of temporary contract labor. Second, eligible<br>enterprises will be able to hire their workforce on the basis of<br>temporary employment contracts for a period of up to five years.<br>Furthermore, somil and medium enterprises will be exempted from prior<br>government authorization for dismissal of employees.<br>In the medium term, the government has agreed to establish a<br>tripartite commission (i.e. with employer and union participation)<br>which will examine the existing labor legislation and industrial<br>regulations to identify new policies to encourage production and<br>employment In the modern sector. The government intends to seek<br>technical assistance from the ILO to support the commission's work.<br><!-- End of picture text --> times of fiscal austerity. Cost-effectiveness and equity considerations demand that such subsidies are phased out and replaced by more targeted ones. In Venezuela, the government has included as part of its adjustment program, an effort to redefine and target indirect food subsidies to benefit lower income groups. This will be achieved, among other things, by developing with the private sector, differentiated inferior products to be marketed solely in poor areas at subsidized prices (see Box 7).

44. Targeting subsidies in the social sectors may also be explored. This could be done by subsidizing services that benefit the poor most, for
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Box 7 Targeting Subsidies: Venezuela In Venezuela, It **was** recognized that contractionary policies followed by the Government during the stabilization period could affect the poorest groups severely. The Government has, therefore, Included **as** an xseential part of its structural adjustment program, an effort to redefine and redirect Indirect food subsidies to benefit lower income groups in the following **ways:** (a) by limiting the goods subsidized to those that are consumed intensively by the poor and redress fundamental nutritional deficiencies; (b) by developing with the private sector, differentiated inferior products to be marketed solely in poor **areas at** subsidized prices; and (c) by eliminating or severely reducing subsidies on inputs, especially concentrated animal feed.

Prior to loan effectiveness, It **was** agreed that studies would be Initiated to **examine** the feasibility of developing for **sale** (perhaps with subsidy), very specific Items targeted to **the** poor, including **an** Inexpensive short pasta, a pasta made of a mix of rice and wheat flour, unrefined sugar, rice with 10-20 percent broken grain, a differentiated corn meal that mix&s white and yellow corn flour, a powdered milk based on a mix of skim and soyabean milk, a vegetable oil with a differentiated taste, and perhaps other items.

example, primary education and basic health care. Because of stringent budgetary constraints, and for efficiency and equity reasons, some form of cost recovery may be desirable in the social sectors. Experience indicates that user fees have to be introduced slowly, starting with fees at higher levels of education and health care. Such fees are likely to be more successful if introduced as part of a broader effort to reduce costs and improve overall effectiveness of social services.
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# ImprovinR Targeted Proiects

45. Improvements in SAL design could be complemented by targeted projects. These projects are a particularly attractive tool to address the social impact since they are targeted to a narrow group of beneficiaries and can be cost-effective.

46. Targeted projects could include short or long run measures. There is a clear rationale for short term targeted projects to compensate groups adve-sely affected during the transitional period. Long run projects generally require more time and institutional development, and may best be addressed in the context of the Bank's overall lending program to a particular country.

47. Special Employment Proiects. In most countries a restructuring in the labor market is a central feature of the economy's response to economic crisis. If designed appropriately, employment schemes can help to protect the poor. They have been used in response to macroeconomic shocks in a number of countries, for example in Bolivia, Chile and Peru, and are now being initiated in Ghana and Madagascar.

48. Relatively low wages on these programs can facilitate self-targeting. This is shown by the experience in Chile and Peru during the early eighties. In Chile low wages were paid on the public employment programs and two-thirds of the employees in 1986-87 were from the poorest 20 percent of the population. Similar coverage has also been achieved in the employment
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programs in rural India and Bangladesh. By contrast, in Bolivia where market wages were paid, fewer than half of the workers employed by the ESF came from the pooorest 40 percent of Bolivian households.

49. Another lesson from experience with employment programs is that decentralization often increases administrative efficiency and that local participation facilitates targeting and gives the community a stake in the program. When governments have scarce local administrative capacity, mobilizing local groups and working with non-gcvernmental organizations can help. In Ghana and Bolivia, for example, the employment schemes have expanded programs initiated by local NGOs.

50. Special employment programs are often traditional public works schemes, but in many cases, including Bolivia, Ghana and Madagascar, the government has acted as a financing agency for labor-intensive projects carried out by private contractors. In Ghana, for example, the Ministry of Transport has shifted to efficient labor-intensive techniques of feeder road construction using local contractors -- this new method uses approximately four times the labor input and is responsible for a 40 percent saving in foreign exchange.

51. Nutrition Projects. Targeted nutrition programs could provide direct compensation and protect the consumption levels of groups who are likely to face reduced access to food through higher prices and lower incomes notably the urban poor, women and children. The Emergency Social Fund (ESF) in Bolivia supports a nutritioI project for vulnerable groups; by May 1988 the ESP had approved fourteen different nutrition projects reaching a total of
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42,000 beneficiaries -- the range of projects included school feeding, mothers clubs, soup kitchens for designated groups of adults, open soup kitchens for children and food for institutionalized children.

52. Nutrition projects are often difficult to target but targeting may be facilitated by involving agencies that work close to the grassroots. This is being done in a number of countries such as Chad where a nutrition program for women and children is being carried out by local social centres. Delivering nutrition supplements through the public health care system can also be an effective targeting mechanism but requires a fairly advanced health sector. This has been the case in Chile where local health centres distribute milk and other food supplements and where in the eighties there were major improvements in targeting and monitoring of maternal and child nutrition. Special attention may have to be given to large nutrition programs since they can have a negative impact on the incentive to produce food crops if they contribute to lower food prices in a specific region.

53. Redeployment Programs. Laid-off workers can be compensated through severance or other redeployment payments, special credit, and retraining schemes. Such workers are not generally poor, but schemes such as these can strengthen political support for the adjustment program. In Eastern European countries (notably Poland), however, the 1980s have seen an increase in poverty among state employees in urban areas in the 1980s and loss of jobs in the state sector could thus lead to deepening poverty. In such cases, compensating laid-off workers is justified on both poverty and political grounds.
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54. Direct payments may often be superior to special credit and retraining schemes which have been generally more difficult to implement successfully. Subsidized credit schemes have generally failed and those that have succeeded rely on organization-intensive systems which are unlikely to work in the time frame of adjustment programs. Training programs provide little benefit unless they impart flexible skills and are responsive to changing demand. They are also difficult to organize and should focus on improving existing training systems (such as the Manpower Training Project in Mexico) and on increasing the flexibility of the labor force rather than on equipping displaced workers for specific new jobs. In cases where credit or training programs are desirable, experience suggests that it may be more effective to utilize and improve existing programs rather than set-up special programs for displaced workers.

55. Multi-sector Programs. The targeted projects described above have often been combined into single multi-sectoral operations. Experience suggests that financing for such short term, emergency-type operations may be fairly easily available during an adjustment period. These operations tend to be highly visible and attract a great deal of international attention. Special foreign assistance is usually forthcoming from a variety of donors to support such operations. But these programs can be quite complex and special attention may have to be given to coordination among several government agencies, non-governmlent groups and external donors; institutional capacity and implementation mechanisms and political arrangements. Experience suggests three ingredients for the success of these projects:
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- it is important to ensure that each of the components can be executed independently -- any delay affecting one of the components should not hold up the rest;

- project implementation is more efficient when handled by a management unit which may be located in the Ministry of planning but which also draws staff from the private sector; and

- the program is coordinated at the political level by an interministerial committee but also has support at the higher levels (e.g. of the President in Bolivia) to whom it reports directly.

56. The SDA project is supporting multi-sector Social Actior. Programs in a number of Sub-Saharan countries such as Cameroon, Madagascar, Somalia, Guinea and Guinea Bissau. In some of these countries (e.g. Somalia or Guinea) "Social Funds" have been introduced either as part of the Action Programs or as independent operations. The Social Funds differ from the Actions Programs in that the Funds provide financing for yet unspecified projects that will be identified and appraised as project implementation proceeds according to precise selection criteria. Because of their flexibility, the Funds offer greater scope for involving local groups in project design. Funds can also manage small grants that would not be manageable through the normal government process.<sup>16</sup>

**16/** For **dotails se** *Social Action Program **In** Sub-Saharan **Africa'** (1990), Alexandra **Marc, Preliminary** Draft, **The** World Bank.
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57. Beneficiary assessments can help understand projects from the point of view of the intended beneficiaries and facilitate their design (and implementation) in ways that are consistent with beneficiary needs, values -- and behavior. This method can be used at any point in the project cycle for appraisal. or for mid-term or post completion evaluation. The cost of the assessments will vary according to their coverage but the average cost has been about US $17,000 (50 percent for local, in-country expenses and 50 percent for Bank orientation). The average time needed is about six months from initial planning in the field to £ubmission of the evaluator's final report.

58. Since the adjustment period can prove to be quite long, short run measures may sometimes be more successful if they help to initiate longer term action. This is being attempted in Madagas-ar, Chad and Guinea Bissau. For example, the Economic Management and Social Action Project in Madagascar includes measures to provide essential drugs and family planning immediately, but is designed to link these to longer term health programs. Similarly, an urban sanitation program in Chad is designed to fit into a master development plan for the sector, and a drug distribution program in Guinea Bissau is being carried out within the framework of a separate, larger program to reform the drug distribution system. Social Action Programs supported by SDA in Sub-Saharan Africa aim to be integrated with national long-term programs. They are giving greater attention to building institutional capacity, include a smaller number of emergency components and are preparing pilot projects for future replication on a large scale.
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59. The actual interventions will depend on the country circumstances and will differ according to the economic structure, financial options, characteristics of the vulnerable groups, and administrative structures of the economy. Where the government's capacity to implement such programs is limited (wnich it usually is) the involvement of non-government agencies should be explored. Even where such capacity exists, non-government organizations often have a comparative advantage vis-a-vis the government in the provision of certain services to the pocet and the scope for their involvement should be examined.

# Conclusion

60. For the most part, efforts to address the social impact of adjustment programs have focussed on targeted projects rather than on design changes. Modifications in design other than social expenditure reallocations have received relatively little attention. For example, in the SALs reviewed, the overall composition, incidence, and effectiveness of public expenditures and their implications for poverty reduction have not been examined. Furthermore, for the SALs reviewed, there was little analysis of the impact of the chosen policy-mix or. major sub-groups in poverty. However, in more recent Bank-supported adjustment programs the treatment of social impact issues has been improving.

61. In preparing for future adjustment operations, Bank staff should explore policy choices that eliminate economic distortions in a manner that lays the basis for a more equitable long run pattern of growth. To the
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extent that some adjustment measures may have an adverse short run impact upon the poor, this should be mitigated through both appropriately modifying SAL design, and carefully designing targeted projects (which could, but need not necessarily, be included in the SAL itself). Longer term investments in the economic and social sectors can be addressed in sector and project lending. Given existing knowledge and data, a better treatment of social impact can be achieved in most cases at little additional cost and without sophisticated databases.