Indicators for monitoring poverty reduction

In recent years, the World Bank has stressed that poverty reduction is its overarching objective. This paper discusses the indicators that are relevant in monitoring the performance of the Bank's lending for poverty reduction. For every project, three classes of indicators can be distinguished - input, process, and impact. An indicator is classified depending on whether it reflects the means, the process, or the end in achieving the overall development objective of the project. Good monitoring requires a balanced use of all three types of indicators. The indicators should yield information that may be interpreted in a "with" versus "without" manner. That is, it should be possible to determine what these indicators would have been if the project had not taken place. Project analysis has to rely on "before" versus "after" data, control groups, and an understanding of exogenous factors that may influence the chosen indicators. In the case of adjustment lending, modelling may be used to construct counterfactual analysis. There are very few indicators of poverty per se. Poverty indices are among the few measures of poverty per se. Poverty indices refer to the three measures of income poverty - the headcount index, the poverty gap index, and the squared poverty gap index. Other poverty indicators fall into two categories. First, there are poverty-related indicators - variables of particular relevance to the well-being of the poor such as the rural terms of trade or the unskilled wage index. Second, existing indicators may be disaggregated in such a way as to focus on the poor; the usual diaggregation is by gender and/or region, but it can also be by income group. This paper analyzes experience in designing performance indicators in the Bank's targeted poverty projects and poverty-oriented SALs/SECALs, and sets out key considerations that should guide the choice of indicators for monitoring the poverty reduction performance of the Bank's lending. The paper is primarily addressed to Bank staff and policymakers involved in the indicators exercise, and those with an interest in monitoring and evaluation.