The study attempts to measure the change in welfare and poverty that occurredrnin the wake of policy reform implemented in Ethiopia. For this purpose, twornperiods (1994/95 and 1996/97) were taken for the study. The data for 1994/95rnwere obtained from CSA while for 1996/97 were collected by the author.rnAnal ysis of income transfer and real income effect of policy reform indicated thatrnresources were taken out of agriculture and hence low real income (showingrnwelfare losses) received by-raral household compared to the real income-that theyrnwould have to receive in the absence of intervention. Moreover, evidence pointedrnthat over 90 per cent of welfare loss were due to direct tax levied on agriculturalrnand non-agricultural goods.rnDuring 1994/95 - 1996/ 97, the level of poverty (incidence, depth and severity)rnincreased due to decline in mean per capita consumption. However, the rise in perrncapita consumption of the poor contributed in reducing the rate of increase inrnpoverty. Decomposition of poverty changes further showed that the rise in povertyrnwere attributed to decline in mean expenditure. However, the improvement in therndistribution played the major role in decreasing the effect of decline in per capitarnexpenditure on generation of poverty. Finally, the elasticity estimates emphasizedrnthe role of growth inducing policies than inequality reducing policies which playsrnpajama or role in reducing poverty since already stable dis retribution is attained in thernarea.