Ex Ante Poverty Impact Assessment of Macroeconomic Policies

Ex Ante Poverty Impact Assessment of Macroeconomic Policies A Case Study of Bangladesh Mustafa K. Mujeri

Introduction • Noteworthy performance especially in social development despite initial pessimistic predictions • Well-informed policy making important for fostering pro-poor growth • Despite limited role, EPIAs sharpened poverty focus of policy regime in the past • EPIAs can be significant catalyst in future

Objectives/Methodology • Examine available tools and capacity; identify constraints; suggest measures to ensure more informed and effective decision making through promoting credible EPIAs • Variety of methodologies. e. g. descriptive analysis; interviews; reviews covering adequacy of existing tools, availability of capacity, degree of participation among ‘producers’ and ‘consumers’, and willingness and capability to formulate research-based macro-policies

Structure of Study • Section I: Introduction • Section II: Background-context of evolved policies in terms of (i) development and poverty trends; and (ii) different policy regimes creating ‘turning points’ in growth-history • Section III: Role of EPIAs examined in terms of three key instruments: (i) tools of analysis; (ii) capacity to support policy making; and (iii) openness and elasticity of policy regime to new ideas and policy innovations • Section IV: Constraints and measures including examples of successful contribution • Section V: Conclusions and elements of a successful strategy

Macroeconomic Performance and Poverty • Per capita GDP growth rate increased in 1990 s due to higher economic growth and falling population growth • Some parts of all sectors emerged as rapidly growing activities • Incidence of poverty consistently declined in 1990 s • Inequality increased considerably especially in urban areas

Contd. • Several sources of inequality e. g. non-farm enterprises, non-agricultural jobs, remittances, property income etc. • Structural change in rural non-farm sector: more expansion of wage-labor based larger enterprises in 1990 s than lowearning self-employment activities • Well-off groups were major gainers

Contd. • Implications: Limited opportunity of pursuing growth and equity within sectoral growth pattern • Importance of pursuing ‘asset building’ policies of the poor for accessing growth opportunities. • Two important issues: (i) scope of pursuing policies to address inequality without affecting growth; and (ii) nature of impact of growth maximizing policies on poverty in the face of potentially widening inequality with growth.

Phases in Policy Regime • Four phases using policy-based periodization • Phase I (1971 -1982): Reconstruction and recovery amidst political turbulence • Phase II (1983 -1989): Growth with growing macroeconomic instability • Phase III (1990 -1993): Crisis-driven economic reforms and formation of favorable initial condition state • Phase IV (1994 -2005): Higher economic growth and faster social development

Contd. • Three important factors: first, shift in fundamental development philosophy; second, wave of globalization; third, emergence of economic crisis • Continuing themes of policy consistency: e. g. emphasis on social development, grassroots mobilization, women’s empowerment

Ex Ante Impact Assessments • Tools and contents of analysis: wide varieties; government-sponsored and donor-supported initiatives; independent civil society efforts especially in 1990 s; partnership approach (e. g. MIMAP) • In-country capacity: human skills scattered in government and non-government institutions (formal/informal collaboration); number of mandated agencies increased; lack of adequate earmarked resources; lack of sustainability; varying strength of researcher-policy maker relationships.

Contd. • Role of participation: largely context-specific. Presence of strong interest groups on issues of ‘hard decisions’; variation in capacities, differences of opinion, limited ability to master adequate support to exert a threshold level of pressure on policy makers to change • Combined role of researchers and ‘coalitions for change’: solidarity and unity between civil society and researchers/advocacy groups on specific issues

Contd. • Three major routes by which EPIAs contributed to improved policy making: (i) expanded policy capacity by improving knowledge base; (ii) broadened policy horizons through networking, dialogues, cross-fertilization; and (iii) changing policy regime by modifying and/or re-designing existing policies

Constraints and Possibilities • Institutional Dimension: fragmented jurisdiction of government institutions; low level of coordination within policy making institutions; lack of transparency and accountability resulting in generally inefficient, time-consuming and largely ineffective decisions; lack of motivation and incentives to promote credible policy making; inadequate reflection of country’s unique characteristics making policies less responsive to ground realities

Contd. • Role of intermediary institutions: professional bodies and ‘lobbying groups’ • Multi-level dimensions and complexity of institutional culture: need to promote an issue to attract attention and ensure participation of key policy makers.

Contd. • Relevance of EPIAs: Two important factors: (i) how EPIAs were conducted; and (ii) for what purpose. • Several determinants e. g. quality of research; effective interpretation; identification of feasible options and likely outcomes; participation of and consultation with relevant parties; and nature of research-policy nexus.

Examples • Pro-Poor Growth: Adequacy of growth maximizing policies; e. g. growth path under ‘growth maximization’ strategy vs. ‘pro-poor growth’ strategy; poverty reduction outcomes under alternative strategies; likely trade-offs in choice of strategies etc. and plausible mix of ruralurban policies.

Contd. • Trade Liberalization: MIMAP analysis with CGE framework and use of double-calibration GE methodology. • Major policy conclusions: gains and losses relatively small; differ across household groups determined by transmission channels; generally benefits accrue more to well-off households; abilities to adjust differ with access to and participation in socio-economic transactions.

Contd. • Increasing ‘wage-divide’ between skilled and unskilled workers and poverty implications; skillbiased technical change significant determinant of wage inequality. • Reducing wage divide can produce large positive income effect on the poor; needs education and skill up-gradation of abundant unskilled labor; • Overall, trade reforms neither readily nor necessarily benefited the poor; need to effectively manage liberalization process.

External Influence on Policy • Often played key role in breaking statusquo and acted as dominant force: SAF and ESAF during mid-1980 s; different forms at different times • Turning to new sources for policy advice by different regimes; brings new players and new ideas into prominence both inside and outside government

Research-Policy Links • Broader issue: how and to what extent research can and does actually influence policy; difficult to measure. • Depends on a host of factors, e. g. quality of research, ability to address policy problem in a credible and timely manner, nature of policy making process, relative ‘weakness’ of policy makers vis-à-vis research community, political and social sensitiveness of the policy issue, strength of linkages between policy makers and researchers etc. Most of these issues remain inadequately explored in Bangladesh.

Contd. • One bottleneck: distance between researchers and policy makers as separate groups; over time becoming somewhat permeable through more frequent movement of researchers into and out of government than in the past • No predictable pattern in policy making; unexpected events (e. g. crisis) often dominated course of policy history in Bangladesh • Opening of ‘policy windows’ has sometimes ensured serious consideration of alternatives to existing policies and/or adoption of new policies

Conclusions • Impact of EPIAs: wider perspective needed in Bangladesh; should not focus on measuring policy change alone; within country’s complex and nascent policy making environment, measuring policy influence should cover intermediate influence as well; often important for building policy capacity and furthering dialogues to enhance chances of adopting research-based policies

Contd. • Research-policy nexus: vaguely understood relationship and inadequate awareness on direct value of EPIAs to policy makers • Positive development: boundaries becoming more permeable • Role of intermediary institutions: ‘transmitting vehicles’ of EPIA policy messages; formal/informal networks

Contd. • Effective ways to deal with fragmented jurisdiction of government institutions in policy making • Forming ‘like-minded’ advocacy coalitions with government/non-government actors • Important issue: take advantage of policy windows, learn to create new windows, play role of ‘policy entrepreneurs’

Contd. • Important to predict nature of policy change: big demand receptivity comes in discrete jumps, e. g. aftermath of political regime change or during ‘defining moments’ • External force: Bangladesh’s aid-dependence declined but no commensurate decline in ‘policy advice’ • Need to make EPIAs powerful tool of effective policy change using new evidence, new arguments and new strategies