In the 1980s and 1990s the focus of international development cooperation was on economic reforms under the structural adjustment programmes of the World Bank (WB) and the International Monetary Fund (IMF). Experience showed, however, that the interaction between privatisation, liberalisation and macro-economic stabilisation was not enough to reduce poverty. On the contrary, these measures sometimes had the effect of exacerbating the social and economic situation of large sections of the population.

That recognition brought a reorientation of international development policy. Developing countries undertook to draw up national poverty reduction strategies (PRSs) as guidance for both national policy and international cooperation. Unlike the standardised approaches to reform of the structural adjustment era, poverty reduction strategies must be developed independently by the countries themselves, with broad societal participation. Today's poverty reduction strategies are central planning and steering instruments for governments and international development players alike.

Even in middle-income countries, which have no PRSs, it is generally recognised that economic growth on its own is no guarantee of general well-being. If nothing is done to ensure that poor people have a share in growth, increased social inequality and poverty can result.

Successful poverty reduction depends not only on the political will but on a better understanding of adequate approaches and the potential risks of certain measures for the poor sections of the population. Assessing the likely consequences of planned measures is vital to enhance the positive impacts of reforms and avoid or mitigate the adverse impacts. It is equally important to link these analyses with the policy negotiations in the countries concerned.

With this in mind, the World Bank, together with other organisations, has developed the Poverty and Social Impact Analysis (PSIA). GTZ was also involved in the testing and further development of this tool.