Document of The World Bank FOR OFFICIAL USE ONLY Report No. 137090-ME INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT INTERNATIONAL FINANCE CORPORATION MULTILATERAL INVESTMENT GUARANTEE AGENCY PERFORMANCE AND LEARNING REVIEW OF THE COUNTRY PARTNERSHIP FRAMEWORK FOR MONTENEGRO FOR THE PERIOD FY16-FY20 August 20, 2019 Western Balkans Country Unit Europe and Central Asia Region International Finance Corporation Europe and Central Asia Department The Multilateral Investment Guarantee Agency Economics and Sustainability Group This document is being made publicly available after the Board consideration. It may be updated following Board consideration and the updated document will be made publicly available in accordance with the Bank’s policy on Access to Information. The date of the last Country Partnership Framework is May 24, 2016 (Report No. 105039-ME) FISCAL YEAR January 1 – December 31 [government’s fiscal year] CURRENCY EQUIVALENTS Exchange Rate Effective August 2019 EUR 1.00 = US$ 1.12 ABBREVIATIONS AND ACRONYMS ASA Advisory Services and Analytics CBM Central Bank of Montenegro CMU Country Management Unit CPF Country Partnership Framework ECA Europe and Central Asia EC European Commission EU European Union EUR Euro ERP Economic Reform Program FDI Foreign Direct Investment FY Fiscal Year GDP Gross Domestic Product GEF Global Environment Facility IBRD International Bank for Reconstruction and Development IFC International Finance Corporation IFIs International Financial Institutions IMF International Monetary Fund IPA Instrument for Pre-Accession IPARD Instrument for Pre-Accession in Rural Development IPF Investment Project Financing LGBTI Lesbian, Gay, Bisexual, Transgender, and Intersex MDD Montenegro’s Development Directions MoF Ministry of Finance MIGA Multilateral Investment Guarantee Agency MSME Micro, Small, and Medium Enterprises NPLs Non-performing Loans PBG Policy Based Guarantee PEFA Public Expenditures and Financial Accountability PLR Performance and Learning Review RAP Resettlement Action Plan SCD Systematic Country Diagnostic SORT Standardized Operations Risk-rating Tool TVET Technical and Vocational Education and Training TFs Trust Funds UN United Nations VAT Value Added Tax WBG World Bank Group WB6 Western Balkan countries IBRD IFC MIGA Vice President: Cyril E. Mueller Georgina E. Baker Keiko Honda Director: Linda Van Gelder Wiebke Schloemer Merli M. Baroudi Task Team Leaders: Sanela Ljuca Levent Karadayi Gianfilippo Carboni Denis Mesihovic Zoran Martinovski PERFORMANCE AND LEARNING REVIEW FY16–FY20 Country Partnership Framework MONTENEGRO TABLE OF CONTENTS I. INTRODUCTION II. MAIN CHANGES IN THE COUNTRY CONTEXT III. SUMMARY OF PROGRAM IMPLEMENTATION IV. EMERGING LESSONS V. ADJUSTMENTS TO THE COUNTRY PARTNERSHIP FRAMEWORK VI. RISKS TO THE CPF PROGRAM TABLES Table 1: Original vs. Actual Lending Program Table 2: Systematic Operations Risk-Rating Tool ANNEXES Annex 1: Updated Results Matrix Annex 2: Changes to the Original CPF Results Matrix Annex 3: Detailed Progress as per the Original CPF Results Matrix Annex 4: Citizen Engagement I. INTRODUCTION 1. The Performance and Learning Review (PLR) for Montenegro reviews the implementation progress to date of the Country Partnership Framework (CPF) discussed by the Executive Directors on June 16, 2016. The PLR was conducted jointly by the IBRD, IFC, and MIGA with the objective to: (i) update the Board on the evolving political and socio-economic situation in Montenegro, (ii) inform the Board on the progress toward achieving CPF objectives, and (iii) propose one-year extension and program IBRD and IFC resources for FY19 - FY21 that had not been determined at the time of Board presentation of the CPF. The Program remains well aligned with the Government's medium and long-term strategies and consistent with the World Bank Group's twin goals of ending extreme poverty and boosting shared prosperity. 2. Progress toward the CPF outcomes has been mixed. Satisfactory advancements were made with fiscal consolidation efforts and there has been good progress in meeting the set objectives of the WBG’s program in the areas of agriculture, education, research and innovation, as well as in energy efficiency. On the other hand, while the work is in progress, some of the anticipated results and mid-term targets with respect to the WBG’s support to the country’s environmental agenda have been missed. When it comes to the overall growth and jobs agenda, while some progress has been made in high priority sectors in terms of enabling financing and job creation, more needs to be done to enhance private sector growth. 3. While the CPF Program's focus areas remain highly relevant, the PLR takes the opportunity to introduce adjustments to selected objectives and firm up the lending program in the remainder of the CPF. The PLR reflects the changes in the Government’s prioritization that had impacted the scope and timeline of the WBG’s program for the initial years of the CPF. The WBG Program for FY19-FY21 is now clearly defined and the lending is expected to stay within the original CPF envelope, depending on the country demand and IBRD's financial capacity. The Results Matrix of the CPF is adjusted to reflect these changes i.e. refocus on objectives and planned outcomes that the WBG program can realistically achieve in the CPF period. 4. The PLR proposes a one-year extension of the CPF period until June 30, 2021. In view of the relatively young age of most of the projects as well as the adjustments introduced to the CPF program in response to the shift in client’s priorities, a one-year extension would be beneficial to maximizing the chances for achieving most of the CPF objectives. Significant attention is put on improving portfolio performance which is expected to lead to higher disbursement ratio in coming years, and increased probabilities of meeting the development objectives. Such an extension would also mean that the preparation of the next CPF would begin in early 2021, following the next general elections currently anticipated to take place in the second half of 2020. II. MAIN CHANGES IN THE COUNTRY CONTEXT A. Political Update 5. Montenegro experienced a relatively stable political situation during the first years of the CPF period, yet there have recently been some signs of potential instability down the road. The current Government was formed in November 2016 following the parliamentary elections. While the Cabinet was reshuffled, there is overall consistency with the previous Government’s program, and the strategic focus remains on the country's accession to the European Union (EU) and regional cooperation. Part of the period was marked by some of the opposition parties’ not participating in the work of the Parliament and, more recently, court rulings against some opposition MPs. Also, there have been citizen protests spurred by allegations of misuse of power against some of the high-level officials and demanding that competent institutions duly respond to those. All of this complicates the political dialogue in the country. However, this has to date not significantly impacted the functioning of the institutions and the decision-making processes. The WBG’s engagement with the Government continues, especially in the areas of fiscal consolidation and growth and jobs. 1 6. Montenegro’s strategic development objective remains smart, sustainable, and inclusive economic growth that will contribute to reducing the country’s development gap relative to the EU average and increasing the quality of life of all its citizens. These objectives have been consistently put forward in the key strategic documents, most notably Montenegro’s Development Directions (MDD) and country’s Economic Reform Programs (ERP). Both documents are periodically updated, and the most recent ones – MDD for 2018-2021 and ERP for 2019-2021– are consistently emphasizing these key objectives. The 2018-2021 MDD, consistent with the previous one, defines four priority sectors: tourism, energy, agriculture and rural development, and manufacturing, and corresponding measures taken and to be taken related to priority sectoral policies and infrastructure projects. 7. Montenegro remains a regional frontrunner in EU accession. To date, 32 chapters out of 33 chapters have been opened, with 3 of them provisionally closed. The EU Strategy for Western Balkans (February 2018) indicates that Montenegro could complete the accession process in a 2025 perspective. However, it also outlines that this timeline is an ambitious one and it will require the country’s strong political will in achieving substantial and concrete reforms, most notably in the area of rule of law and the fight against corruption and organized crime, as indicated in the EU Montenegro 2019 Report. B. Economic Update and Emerging Issues 8. Montenegro’s economy grew 4.21 percent on average in the first years of the CPF. The growth was strongly driven by investments, including heavy Government spending on infrastructure such as the Bar-Boljare highway construction and private sector investments in energy and tourism activities. Economic growth was further boosted by domestic consumption and services exports thanks to record tourism seasons. Among the economic activities, growth was supported by a surge in energy production, which grew by 62.1 percent in 2018 thanks to new investments into generation capacities, and by manufacturing, construction, and retail trade growth. 9. Higher growth has stimulated job creation. Employment grew by 4.3 percent in 2018, mostly in the construction, tourism, services, and the public sector. The unemployment rate declined to a historic low of 15.2 percent in 20182. At the same time, participation and employment rates3 reached record highs of 56 percent and 47.5 percent in 2018, respectively. Strong economic activity has had a positive effect on youth unemployment which declined to 29.8 percent. However, a significant portion of the new jobs are temporary and/or seasonal employment, primarily in tourism and construction sectors. 10. Still, the labor market faces significant structural challenges. The labor participation rate of 56 percent for those aged 15 and above reveals that almost every second person of the working age is out of the labor market. The employment rate for the group 15 to 64 in Montenegro stands at 55 percent, compared to 65 percent in the EU and the Europe 2020 target of 75 percent. In order to reach the EU average, Montenegro would need to create additional 40,000 jobs, which is close to the current number of unemployed. The difference in the employment rate between women and men remains significant at 14 percentage points, although lower than in many other Western Balkan countries (WB6), and the share of youth not in employment, education, or training is still high. In addition, the Government plans to reduce the high public sector staffing in central and local Governments by 6 percent in 2019-20 which intensifies the labor market challenges. Job creation in the formal private sector needs to be a priority for economic policy to increase the number of well- paid jobs that Montenegrins aspire to. It requires implementing critical structural reforms that raise the skills of the workforce and strengthen public institutions that safeguard transparent and accountable policymaking and enforce fair market competition to ensure that entrepreneurs compete on the basis of innovations. 1 2016: 2.9 percent, 2017: 4.7 percent and 2018: 4.9 percent (preliminary). 2 Based on Survey data, which captures informal employment. According to administrative employment data the unemployment rate declined to 17.8 percent in December 2018 (compared to 22.4 percent in December 2017). 3 Based on survey data 2 11. The gradual fiscal consolidation program led to a reduction in the fiscal deficit but higher than initially planned public expenditures are delaying reaching the objective of a balanced budget. After reaching 5.6 percent in 2017, the overall fiscal deficit declined to 3.8 percent of Gross Domestic Product (GDP) in 2018. This reduction in the deficit was facilitated by fiscal consolidation. Revenue growth was supported by increases in Value Added Tax (VAT), corporate income tax, and non-tax revenues, while excises revenues dropped. On the expenditure side, spending on social benefits declined but spending on public sector wages and goods and services increased compared to 2017. Despite the declining fiscal deficit, public debt reached 71 percent of GDP in 2018 and public and publicly guaranteed debt at 75.7 percent. 12. On a systemic basis, key figures of the financial sector are largely stable after the liquidation of two ailing banks. Some of the indicators on the overall financial sector have improved over the past years4, the banking sector as a whole is well capitalized and remains profitable although there are variations among banks. On the other hand, the financial sector has been facing vulnerabilities stemming from weakness in three second tier banks. While these vulnerabilities so far appear not to have spilled over to the rest of the financial sector, a lengthy resolution was creating the risk that this might undermine the overall sector’s stability as well as confidence of public and investors. The decision to liquidate two of these banks was important since it was generating risk of instability in the banking system. Now the priority should be to ensure that no other vulnerability remains that can threaten financial sector stability. 13. Montenegro’s credit rating in 2019 was set at B+/B with stable o utlook (Standard & Poor's) and B1 with positive outlook (Moody’s). Today, Montenegro enjoys fairly low borrowing spreads, suggesting that, if needed, the Government could raise funding from the capital markets. Current yields on outstanding bonds (namely the current 2025 Eurobond) figure around 2.6 percent, which reflects a reduction of near 100bp since the start of the year. While some of this reduction in yield may be due to strengthening of outlook locally, there are external factors5 which also account for the improvement in yields. Nevertheless, Montenegro’s decision to issue Eurobonds must be driven by careful consideration of the Government’s debt management strategy, which would reflect a medium-term plan to access various market segments for funding in an organized and transparent manner. 14. The economic outlook is positive, but with significant downside risks. The economy is projected to grow at a slower pace in 2019-2020, at 2.7 percent on average, as private investment is expected to slow down after a strong increase in 2018 and the large public infrastructure investment projects will be gradually phasing out in 2020. Private consumption and employment growth are expected to decline in 2019 due to the impact of the fiscal consolidation, especially the implementation of the Government’s ambitious public administration staff reduction plan. Moreover, the increasing political and overall uncertainty will likely weigh on private consumption and investments. Enhancing policy predictability and accelerating structural reforms is required to reduce downside risks and assure the continued improvement of growth and labor market prospects. In this regard the Government has announced reforms in public financing, public administration, the labor market, the business environment, and health sector as well as the continuation of the tax and procurement related reforms, while the pension reform has been postponed6. Successful 4 The overall financial sector capital adequacy ratio of 16.6 percent as of April 2019 is well above the regulatory minimum threshold of 10 percent. CAR varies between 11.55 percent to 42 percent among banks. Overall credit grew by 6.9 percent y-o-y (annualized 12 months moving average) by April 2019, driven by household lending. The liquidity ratio (liquid assets/ total assets) is at around 22 percent, same compared to a year ago. Total liquid assets are around EUR 940 million. The loan to deposit ratio is at 88.6 percent, indicating available short-term liquidity in the system. Deposits grew by 3.6 percent y-o-y (annualized 12 months moving average). The share of NPLs stood at 4.75 percent by end of May 2019, . The banking sector is profitable, yet the profitability level remains relatively low and is unevenly distributed among banks, with net interest margins narrowing compared to a year ago. 5 Spreads in the broader emerging market have improved in a climate of strong market liquidity amid scarcity of higher-yielding investment options and new issues and in the absence of major risks to global outlook on the horizon. Montenegro has enjoyed the benefit of some of these conditions, as its own bonds have been quoted lower in yield and slightly higher in price too (notwithstanding that due to its small issuance sizes and thus limited trading of its less liquid assets, price and spread data may be a bit less reliable than for larger issuers). A second driver in yield reduction is also the drop in the basis observed over the period (both benchmark Government bonds and in Euribor, over which the spread for Montenegro is observed), which accounts for at least half the improvement in overall yields. 6 Due to political economy risks the Government has decided to postpone the pension reform. The Draft Penson Insurance Law contained measures that would worsen the fiscal and financial sustainability of the pension system,and disrupt previous pension reform achievements. 3 implementation of these reforms is of utmost importance to achieving sustainable and inclusive growth. C. Trends in Poverty, Shared Prosperity, and Gender 15. Poverty has been on decline since 2013, though with a temporary uptick in 2017-2018 due to the short-term impact of fiscal consolidation measures. On the one hand, with continuous economic growth, the labor market experienced improvements, with the increase of the employment rate from 43.5 percent in 2016 to 46.1 percent in 2018. On the other hand, the necessary reforms undertaken in 2017-2018 to restore fiscal sustainability included the withdrawal of the lifetime benefit for mothers of three or more children, real wage decline driven by public sector wages, and the rise in indirect taxes. While these measures were important for sustaining macroeconomic stability as a precondition for growth and further poverty reduction, they likely had short-term negative poverty impacts. Poverty7 is estimated to have declined to 4.2 percent in 2016 but edged up to 4.4 percent in 2017 and 4.8 percent in 2018. This measure of poverty is expected to resume its decline in 2019 to an estimated 4.7 percent in 2019 and 4.6 in 2020, given the projected growth rate and subject to improvements in private sector employment and earnings. Yet many people are still considered at risk of poverty as, following the concept used in the European Union8, 23.6 percent of the population in Montenegro were earning less than 60 percent of the median income in 2016. Income inequality, with the Gini coefficient of income at 36.7 percent in 2016, is relatively high compared to new EU Member States. Sustainable poverty reduction going forward will depend on strengthening fiscal and financial stability, investment, and access to more and better jobs for most people. 16. Labor market outcomes among women have slightly improved, but gender gaps have widened. Labor force participation and employment among women (15-64 years old) saw modest increases of 0.6 and 1.6 percentage points between 2016 and 2018. The improvement was more pronounced among women aged 50-64s. At the same time, the gaps between men and women in these outcomes widened over the same period. The gender gap in labor force participation increased by 1.5 percentage points and the employment gender gap increased by 2.1 percentage points. However, in 2018 unemployment rate among women at 15.1 percent was lower than unemployment rate among men (15.2 percent). 17. Women face persistent barriers and disincentives for economic participation . For example, women-owned properties represent about one-quarter of registered properties (26 percent), suggesting women have a more limited access to assets. Moreover, evidence from the region finds limited access to affordable services that support economic participation, such as child and elder care. Montenegro also has the largest labor tax wedge in the Western Balkans for a family with 2 children, and a relatively high tax wedge (40.3 percent) at the average wage level for a single earner. High labor tax wedges can present major disincentives to female formal economic activity. Through its portfolio, the World Bank is contributing to addressing and/or monitoring gender gaps in Montenegro (see Box 1), and continuous attention will be put in ensuring that the gender lens is mainstreamed in the engagement in Montenegro. A World Bank regional high-level workshop (May 2018), focused on promoting gender equality in access to economic opportunities, provided opportunities to give visibility to the agenda and engage with key Government stakeholders from the Western Balkans, including from Montenegro. 7 Measured as consumption below the standardized middle-income-country poverty line of $5.5/day 2011PPP. 8 The at-risk-of-poverty rate is the share of people with an equivalised disposable income (after social transfer) below the at-risk-of-poverty threshold, which is set at 60 % of the national median equivalised disposable income after social transfers. This indicator does not measure wealth or poverty, but low income in comparison to other residents in that country. 4 Box 1. Gender Portfolio Review A Gender Portfolio Review of the active projects was carried out in 2018. The main findings reveal that the key gender gaps, aligned with the four strategic objectives9 set up by the World Bank´s gender strategy 2016-2023, are overall being addressed throughout implementation. The Montenegro Institutional Development and Agriculture Strengthening (MIDAS) and MIDAS2 projects were considered as best practice examples since they included gender consistently in analysis, actions and gender-sensitive indicators. For instance, MIDAS2 follows the results chain proposed by the “gender-tag”10 methodology in that it presents gender analysis in the agriculture sector, establishes a grants program by providing preferential ranking criteria for applications from women and measures the outcomes by presenting data in a gender-disaggregated manner in the M&E results framework. Moreover, the Project team has requested additional funding to increase the project resources to continue addressing the existing gender gaps in the agriculture sector, in which women are less represented than men. The Project also aligns with the strategic objective of “Removing constraints for more and better jobs” by analyzing constraints for women to play an equal role in the rural economy as farmers, forest and irrigation managers, and value chain partners. These efforts also relate to the objective of “enhancing women’s voice and agency” by identifying gender gaps in their access, engagement and voice in forest management or producer associations. The earlier approved projects such as Industrial Waste Management and Cleanup Project and Revenue Administration Project took into account gender under the ESIA consultations and ensuring that the Resettlement Action Plan (RAP) framework responds to gender-related needs and livelihood compensation i.e. track women’ participation in surveys and in training program organized for institutional development. III. SUMMARY OF PROGRAM IMPLEMENTATION A. Program Evolution and Performance 18. The CPF is highly selective in supporting Montenegro’s key development objectives and its path towards EU membership. During the CPF the realism filter was continuously applied to new lending, recognizing that the WBG can contribute most effectively by focusing on areas where there is strong demand from the Client, country, but also where WBG has comparative advantages that can result in higher impact. This is reflected in reshaping the CPF Program, including a shift to stronger analytical work in areas where lending did not materialize (e.g. jobs, digital infrastructure). Another filter for more selective engagement was scalability. The WBG Program carefully considered opportunities to complement the ongoing efforts and build on the already existing Government programs and long terms strategies, such as in agriculture and energy efficiency. Working closely with other key international development partners active in the country, most notably EU and IFIs, ensured maximizing the financing and expertise mobilized to support the respective programs, and thus the overall development impact. 19. The current IBRD Program comprises five investment operations totaling US$138.4 million, one US$93 million Policy Based Guarantee (PBG), and advisory and analytical work in key areas. In terms of project age, the portfolio is mixed with two projects in final year(s) of implementation, and three projects in early implementation (all FY18 approvals). Two operations concluded during the CPF period as Satisfactory (Montenegro Energy Efficiency Project and Higher Education and Research for Innovation and Competitiveness). The projects under implementation focus on agriculture, environment, energy efficiency and public revenue administration. In addition to investment lending, the first Policy Based Guarantee (PBG1, US$93 million) was approved in 2017. Key advisory services and analytics (ASA) support the areas of jobs and growth, digital economy, efficiency of public finances, public administration reform, and justice sector reform. To complement and maximize the impact of the IBRD operations and analytical and advisory activities, trust fund resources of around US$13 million were mobilized mainly to support the agriculture program, the management of the transboundary Drina River Basin and justice sector reforms. 9 i) Improving Human Endowments (Health, Education, Social Protection); ii) Removing Constraints for More and Better Jobs; iii) Removing Barriers to Women´s Ownership and Control over Assets; iv) Enhancing Women´s Voice and Agency and Engaging Men and Boys. 10 The new Bank´s methodology “gender tag" monitors and rates projects on their "depth" of gender integration by assessing whether the project design integrates (1) gender analysis and / or consultation on gender or gender-related issues; (2) specific actions to address the distinct needs of women and girls, or men and boys, or to positively affect gender gaps; and (3) mechanisms to facilitate the monitoring and / or evaluation of gender impacts through the results framework. 5 20. Disbursements of Montenegro’s investment operations were slow during the first years of the CPF. Annual disbursements have ranged between 5 and 10 percent during the CPF period. Disbursement rates have been affected by slow implementation in the largest project, the Industrial Waste Management and Cleanup Project (IWMCP), which formed more than half of the total portfolio size during the first years of CPF. The IWMCP had almost no disbursements during its first two years due to shortcomings in implementation. Following a recent project restructuring, implementation has improved, and disbursements are expected to increase in the coming months. For the rest of the portfolio, although the number of projects remained in line with the previous years, the more recent approvals are larger in size. As is typically the case, significant disbursements materialize once the implementation is well advanced, which in the case of these projects is expected in the coming year. The Government and the WBG teams have strengthened their efforts to accelerate the implementation of the entire portfolio, and disbursements are expected to improve considerably in the next year. 21. The most significant challenges that the WBG program faced at the start of the CPF period included ownership and capacity-related constraints, and limited inter-institutional coordination. This translated into longer than expected timeframes for project preparation and cancelation of plans for previously agreed projects. At implementation, deficiencies in coordination among stakeholders translated into delays, notably on the IWMCP. Over the past two years the strategic collaboration with authorities has strengthened, resulting in an improved clarity on the priorities for WBG program, enhanced leadership on implementation and renewed emphasis on collaboration on critical and complex areas such as growth and jobs. 22. In the first period of the CPF, IFC invested a total of US$21million, against an original target of US$40-60 million. A total of US$13.5 million was invested in long-term financing across two projects in the financial and municipals sectors. IFC’s advisory program delivered significant impact in Montenegro, particularly in the energy sector and PPPs. Through its Balkans Renewable Energy Program (BREP), IFC played a catalytic role in policy development in the renewable energy market in Montenegro by improving the investment enabling environment for renewable energy. IFC also invested US$7.5 million in a regional real estate investment platform (UK-based company Hystead) for its retail sector project in Montenegro. Although the planned advisory work on insolvency and debt resolution did not materialize during the CPF period on account of a lack of donor funding available for Montenegro IFC has supported NPL resolution in the country through its Distressed Asset Resolution Program (DARP) program by financing the purchase of distressed debt portfolios which should reach financial closure by fall 2019. 23. IFC aims to continue its program in Montenegro to support private sector investments to foster tourism-based local economy, develop tourism-related infrastructure, support the development of microfinance, renewable energy, and municipal infrastructure through direct investments and advisory support as well as design and implementation of viable PPPs. The improvements of the PPP regulatory framework with the expected adoption of the new laws on PPPs and concessions with IFC’s support will open up new PPP opportunities that could mobilize significant private sector investment. 24. MIGA will continue to seek opportunities in the country to foster foreign investments and mobilize private capital via its political risk insurance products and in close collaboration with IBRD and IFC. 25. This WBG program will continue to support Montenegro’s trajectory toward graduation through the introduction of additional selectivity principles for IBRD financing. The WBG program builds on the existing government programs and strategies while ensuring that at least one of the following filters apply to all new IBRD financing: (i) support to sustainable market access; (ii) support institutional strengthening; (iii) focus on the poor, marginalized and vulnerable group, and (iv) contributes to regional and global public goods. 26. The ongoing program already supports WBG’s key commitments with respect to institutional strengthening, as well as to the poor and marginalized groups. All IBRD financing approved during the CPF contains robust institutional building components. To name a few, the 6 ongoing projects support the Client to improve its capacity to plan and implement environmental clean-up investments and develop sustainable energy efficiency financing mechanism. Furthermore, the long-term and still ongoing engagement in agriculture supports the next stages of line institutions’ modernization to prepare them for fully utilizing EU funds and meeting related requirements. At the same time, the WBG’s long term engagement in this sector maintains a focus on rural areas where the majority of the poor live, expanding their economic opportunities. Important pieces of analytics on the vulnerable groups are done to inform the next steps in the decision making. The WBG assisted the Government with reintegration of Roma and other returnees from Western Europe by providing Management Information Systems designed for data access and exchanges for Roma and other returnees as well as asylum seekers. The results of the study on experiences of lesbian, gay, bisexual, transgender, and intersex (LGBTI) people in Southeastern Europe set a benchmark for understanding the lives of LGBTI people in the Western Balkans, including in Montenegro. As a follow up, the WBG is asked to help with an analysis and systematic overview of the application of the anti-discrimination legislation protecting LGBTI community. 27. IFC 3.0 will be focused in the near term on attracting private sector investments into infrastructure. IFC has been appointed by the Government as the lead advisor for a possible airport concession (details further in the PLR) The engagement aims to support a strategic project for the tourism-driven Montenegrin economy, representing the best potential for an IFC 3.0 intervention. Should the tender process advance successfully and reach commercial close, IFC could also consider a potential engagement on the investment side, providing financial support to the winning bidder. In addition, IFC will also consider potential engagement on a 250 MW solar project, the first in Montenegro to be awarded through a competitive tender and the first market based renewable energy project in the Western Balkans. The project would add renewable capacity, reduce reliance on electricity imports, and support the connection and integration with neighboring markets while aligning interest for creation of Montenegrin electricity exchange. 28. The WBG’s program supports the country in mitigating the impact of climate change . The IWMCP supports remediation of the industrial waste dumps and ponds that present a risk to public health but also a risk of contamination of surrounding environment. These sites are particularly sensitive to natural hazards, and a flood or an earthquake could result in severe devastation of some of the country’s most valuable natural resources. In agriculture, Montenegro Institutional Development and Agriculture Strengthening (MIDAS) and (MIDAS2) projects are helping introduce and promote modern technologies and climate smart agricultural practices to cope with the effects of climate change, especially increased weather-related natural disasters such as droughts and floods. The Western Balkans Drina River Basin Management Project supports regional cooperation so as to improve integrated planning mechanisms and capacity to manage this river basin via incorporating climate change adaptation measures. The refurbishment of public buildings under Montenegro Energy Efficiency Project (MEEP) showcased benefits of energy efficiency measures, not only in results achieved with energy cost savings and reduction in GHG emissions, but also in increased level of comfort in volatile weather conditions (periods of extreme cold and warm days). The teams continue to diligently explore all potential to further support this agenda. Second Policy Based Guarantee (PBG2) supports adoption of the new Law on Climate Change. This reform aims to raise energy efficiency, improve environmental standards to reduce the risk of future environmental expenses, increase the collection of environmental taxes, and capture climate co- benefits. The new Sava Drina River Corridor Regional Program will broaden the support to enhanced transboundary water management, expected to contribute to additional climate mitigation or adaptation co-benefits. 29. During this CPF period, dialogue with civil society has been ongoing with a number of public awareness events related to project activities, and meetings with representatives of NGOs, academia and business associations. Since 2014 when the citizen engagement corporate requirements were introduced, efforts have been stepped up to embed citizen engagement in all investment project financing (IPFs) in the Montenegrin portfolio. With regards to compliance with the CE requirements, by FY16, 100 percent of Montenegro projects approved by the Board were fully compliant with both requirements (having a citizen-oriented design and a beneficiary feedback 7 indicator). However, the quality of citizen engagement in the portfolio is relatively weak compared with other Europe and Central Asia (ECA) countries due to the use of weak tools, that do not provide an opportunity for direct interaction or active engagement. Going forward, to further strengthen the quality of citizen engagement, several activities are proposed for the remainder of the CPF implementation, presented in detail in the Annex 4. Citizen Engagement Update. 30. The FY19 Montenegro Country Survey findings indicate that the WBG continues to have strong relationships on the ground in the country, and the institution is regarded as well positioned to support the country in development areas that the respondents consider most challenging. Jobs are first and foremost on the minds of stakeholders. A third of respondents identified jobs as the top development priority, and nearly two thirds said it was the key contributor to poverty reduction. The stakeholders who have experience with, and exposure to the WBG in Montenegro are extremely positive about how the institution operates on the ground, especially about disbursement speed, monitoring and evaluation and, more attitudinally, the WBG as a long- term partner, its effectiveness at collaboration with the Government, and its position as a respectful institution. On the other hand, among the areas to improve the survey shows that more than a third of respondents think that the WBG should engage more with private sector and local government beyond the national government. In addition, the survey findings suggest that many respondents would like to see the WBG offer more financial products/services as part of its offerings. However, the survey findings show inadequate familiarity with the instruments currently available (e.g. IPF, development policy lending, IFC services, MIGA guarantees), even amongst the stakeholders who collaborate with the WBG. B. Evolution of Partnerships and Leveraging 31. The Bank has maintained close collaboration with development partners . The CPF is aligned with and supports Montenegro’s EU Accession Program 2014-18 and integration process. During the first years of the CPF period, two operations were financed through EU funded Result Oriented Review of the Delivery of Justice in Montenegro Technical Assistance, with the objective to enhance the rule of law, a long-lasting EU priority for the country, and Agriculture and Rural Development Institution Building to support development of the agriculture sector. The recently approved MIDAS2 Project focuses on supporting the Government further in meeting requirements for closure of three EU negotiations chapters. Efficient coordination continues in preparation of PBG2 with the EU Delegation to Montenegro on public administration, financial sector and PFM reforms and the Directorate General of the EC on fiscal and macro aspects. The WBG continued cooperation with the United Nations Development Program on health and social benefits, and with the WHO on health. To address the increasing Government needs for technical and financial support in areas of public finance and environment, coordination with EU Delegation and other developmental agencies should be further strengthened. 32. IFC and MIGA will continue to collaborate with other IFIs and the EU to support private sector development in Montenegro, particularly IFC through its regional advisory service. Depending on availability of funding from donor countries/institution, IFC will support improvements in the insolvency and debt recovery regulatory framework based on its recent experience in Serbia, Bosnia and Herzegovina, and Albania and provide advice on trade facilitation through the ECA Trade Facilitation Program to leverage potential partnerships, both bilaterally with neighboring countries and through regional platforms such as CEFTA. C. Overview of Progress toward Achieving CPF Objectives 33. During the first three years of the CPF program, lending delivery has been largely in line with the planned volume, although changes of Government priorities led to program adjustments. In FY16 – FY18, a total of six IBRD operations were scheduled. Three of those, as well as two that have been advanced from later FYs have been approved by the end FY18, in the total amount of US$154.3 million. Out of this, US$ 93 million was provided in budget support (PBG1). Following the formation of the new Government, the WBG held a round of consultations in February 2017 to reconfirm the Government priorities, and this process led to a number of 8 adjustments to the CPF program. It was agreed to stop the preparation of two operations, in health and sustainable tourism. Instead, a request was made to prioritize the preparation of the second agriculture operation (MIDAS 2, moved forward from FY20 and delivered in FY18), as well as the second energy efficiency operation (also delivered in FY18, earlier than originally planned). These adjustments remain well in line with the original objectives and focus areas of the CPF. 34. The IBRD lending program was only indicative for years four and five of the CPF and was envisaged to be firmly defined at the PLR stage. It anticipated building on successful experience of ongoing operations (some of which materialized ahead of planned, as noted above) or new areas of engagement in support of private sector growth, skills and jobs. Even though not all operations tentatively planned for FY19 and FY20 proceeded in the originally anticipated scope, the main focus remains on the PBG2 operation, and on supporting the broader growth and jobs agenda. On the latter, technical assistance is being provided to inform the Government about policy options, institutional reforms, and supporting programs that may be needed to respond to the challenges of the jobs agenda in a holistic manner. The Montenegro Growth and Jobs ASA finalized in June 2019, feeds into the preparation of the Growth and Jobs Project to be delivered in FY21. While the results of this operation will not be measurable within this CPF cycle, it is expected to support a more strategic approach to tackling such a complex set of issues. This is a long-term agenda, going beyond the CPF cycle, and this approach enables the WBG to engage in a well informed and scalable manner. Table 1: Original vs. Actual Lending Program 35. Overall progress toward the CPS objectives has been mixed. Namely, of the original 11 CPF objectives one has been achieved, three are on track to be achieved and two are off track. The remaining five objectives were supposed to be supported by operations that have not materialized and, therefore, progress cannot be assessed and/or attributed to the WBG’s Program. The detailed progress per objective is presented in Annex 3, highlighting indicators that are not on track. 9 Focus area 1: Enhance Macroeconomic and Financial Resilience 36. Two objectives of the Focus Area 1 aimed at supporting the Government to (i) improve the sustainability and efficiency of public finances, with an emphasis on restoring fiscal sustainability and (ii) increase the stability and efficiency of the financial sector, by addressing weaknesses in the banking sector and the high level of non-performing loans (NPLs). 37. The progress in meeting the objectives related to supporting the fiscal and financial reform agenda is notable, yet vulnerabilities remain. The World Bank has been a key strategic partner to the Government in this effort. In 2017, the World Bank approved the first in a series of two Fiscal and Financial Sector Resilience Policy-Based Guarantee (PBG) of EURO (EUR) 80 million that aim to assist the Government in stabilizing public finances, including putting public debt on a firm declining trajectory, and supporting reforms to strengthen of the financial sector. It supported the Government’s comprehensive fiscal consolidation package aimed at restoring and safeguarding fiscal sustainability while mitigating the impacts of fiscal consolidation on the most vulnerable ones. These reforms11 were an important positive signal to investors and have allowed the Government to mobilize EUR 250 million in commercial financing, increasing tenures and reducing overall financing costs and refinancing risks, to better support 2018 budget financing needs and liability management for 2019-2021. Out of this amount EUR 80 million was covered by the World Bank guarantee. The reforms helped reduce the fiscal deficit in 2018, but better Government control over expenditures would have reduced it further. 38. At the same time the first PBG operation also supported financial sector reforms. This includes strengthening the supervisory capacity of the Central Bank of Montenegro (CBM) through expanding the supervisory framework to non-bank financial sector12, strengthening Central Bank Law, enhancing Non-performing Loan (NPL) resolution framework and supporting supervisory action plans addressing vulnerabilities in the financial sector. Overall key financial sector indicators have improved and the supervisory capacity of the CBM has been increased. Further strengthening of the legal framework and the CBM capacity are needed and will continue to be supported under the PBG program. However, vulnerabilities stemming from ailing second-tier banks remain. Although some of these vulnerabilities have been addressed through liquidation decision of two of these banks, now the priority should be to ensure that no other vulnerability remains that can threaten financial sector stability. 39. In FY18, IFC provided assistance to the Ministry of Finance in the reform undertaken to improve the Public Private Partnership (PPP) framework. Addressing weaknesses in Montenegro’s PPP legislation aims to help create a well-functioning PPP system that attracts more private sector participation into investments in infrastructure and public services, particularly given the country’s increasing public debt. IFC’s advice focused on improving the regulatory structure, particularly in harmonizing the Law on PPPs and the Concession Law with international standards and EU directives. Through IFC’s advice, these two laws have been improved, pending enforcement by the Government, which would help leverage private resources for critical infrastructure projects, further supporting Montenegro’s fiscal consolidation efforts. 40. IFC is acting as the lead transaction advisor to the Ministry of Transport and Maritime Affairs (MoTMA) since February 2018 and has been advising the Government on how to introduce the private sector to design, finance, rehabilitate, and expand as well as operate and maintain Tivat and Podgorica airports under a long-term concession agreement. There is an urgent need for substantial investment in infrastructure to expand capacity and improve safety. The improvement of services to passengers and airlines at the airports is a strategic priority of the Government to support long-term tourism growth. IFC is providing comprehensive transaction preparation support and is 11 The PBG-supported set of reforms include: increase of the VAT rate from 19 percent to 21 percent, increase in the excise tax rates on the alcohol, tobacco and sugary drinks and introduction of excise on coal, abolishment of fiscally and socially unsustainable social transfers, (“mothers’ benefits), officials wage reduction by 6 percent and reduction of the wage bill coefficient for 1 percent, rationalization of the costs of pharmaceuticals. 12 Leasing, factoring and micro finance sectors. 10 also working on increasing the capacity of Montenegrin institutions to implement robust PPP structures, particularly given that this will be the first PPP transaction of this scale in the country. 41. IFC supports financing of some of the key transport infrastructure. A EUR15 million financing package provided to the City of Podgorica is comprised of an IFC senior loan and a parallel loan mobilized from a local commercial bank on a 50/50 basis to finance the construction of Podgorica Southwest Bypass section of the Podgorica ring road. This is a priority project aiming to remove a critical bottleneck for regional transport, especially during summer months when traffic on the urban network peaks due to tourism related traffic. IFC-supported infrastructure projects including the above-mentioned airport PPPs and Podgorica Bypass project should improve the transport and tourism infrastructure in the country, achieving private sector efficiencies in a constrained fiscal environment. Focus Area 2: Expand Access to Economic Opportunities and Jobs 42. Four objectives of the Focus Area 2 are aimed at supporting the Government to (i) increase alignment between skills and labor market demand, (ii) facilitate and strengthen incentives for work, (ii) enhance private investments and job creation in high-potential sectors, and (iv) enhance environmental sustainability. 43. The progress in respect to the CPF objectives under this Focus Area is mixed. Legacy projects from the previous CPS in areas of education and research, agriculture and energy efficiency achieved strong results. These results merit a more prominent place in the CPF Result Matrix and several new indicators are introduced to that end, as discussed in Annex 2. Most of the expected outcomes (and five out of the total nine indicators) were based on projects that have either not moved forward or were delayed and will not yield results within this CPF cycle (see below). 44. The WBG’s support to the agriculture and rural development sector yielded good results to date and the targets are well on track to be achieved. A strong support to institutional strengthening continued and the Montenegro Institutional Development and Agriculture Strengthening Project (MIDAS) and the associated EU trust funds have significantly contributed to the upgrade of the food processing industry and paved the way towards meeting EU standards in the food safety area. One of the important milestones that Montenegro achieved, the EU’s “Entrustment of budget implementation tasks for EU IPARD funds”, was also supported by the MIDAS project. This Entrustment certifies that the country has established structures, systems and procedures in compliance with EU requirements, granting the country access to IPARD funds. 45. Montenegro’s higher education and research and innovation sectors benefited from the WBG’s support. The Higher Education, Research and Innovation Project supported creating value for country’s innovation potential by helping establish connections between research and development and private sector, stronger basis for research development, and strengthening the pool of young researches – elements important for the competitiveness, economic growth, and creation of jobs in Montenegro. The Project also supported reforms to improve higher education monitoring and service delivery, creating better conditions for students and improved access to international agreements and programs to further strengthen their skills. 46. A number of operations intended to support the CPF objectives regarding enhancing skills, job creation and private investments in high priority areas did not materialize. These include Tourism-based Local Development, Training and Education for Improved Skills and Jobs and Competitiveness Project. These operations were rightly considered a priority by authorities at the time the CPF was prepared and, in hindsight, reflected a highly optimistic pipeline. However, the increased focus on fiscal consolidation, on one side, and the lack of consensus on the scope and objectives of the above referenced operations, on the other side, resulted in delays or cancelations of authorities’ requests for these operations. It is worth noting that while the Jobs and Competitiveness project did not materialize in this CPF cycle, the Growth and Jobs Project is already under preparation (FY21 delivery) to tackle this agenda, and the results will be reflected in the next CPF period. 11 47. Reaching the CPF objective related to the increase of the private investments and job creation in high potential sectors is somewhat off track. This is mostly due to the fact that the foreseen objectives and indicators were mostly linked to a planned IBRD operation in tourism that did not materialize. On the other hand, IFC’s advisory and investments in above referenced infrastructure projects (airports, bypass road) will significantly improve the transport and tourism infrastructure in the country. To boost access to economic opportunities, IFC committed US$4.5 million in microfinance loan to a leading microfinance institution (MFI) in Montenegro that provides micro, small, tourism and adaptable lending. The investment helped bridge the financing gap that affects lower income population, create job opportunities for underserved entrepreneurs and individuals; and strengthen important GDP segments, including tourism. 48. Under the objective on improving environmental sustainability, progress to date has been mixed. MEEP project yielded good results in 25 public facilities retrofitted, in which energy consumption cost was reduced by an average of 45 percent. As a result, improvements in these facilities alone are estimated to reduce public energy expenditures by up to EUR 600,000 per year, or about EUR 8-10 million over the 15-20 years lifetime of the investments. The Government requested a follow up operation (MEEP 2) to build on the achievements of the MEEP and to introduce a sustainable energy efficiency (EE) financing model to use achieved energy cost savings to recover part of the EE investment costs to enable sustainable financing of additional EE investments in public buildings. On the other hand, the progress with remediation of the industrial waste legacy sites has been very slow, due to substantial delays in producing technical documentation and procuring the needed services and works, due mostly to capacity issues as well as the previously referenced inter-agency coordination issues. The originally foreseen project targets cannot be achieved i.e. have been revised in the respective project to targets that remain achievable (revision to related CPF objective indicator is explained in Annex 2). 49. The WBG’s Program supports country’s regional integration agenda. The digital agenda is supported through the country specific (e.g. Policy Note of Broadband) and regional ASAs that informs lending programs of other IFIs considering financing rural broadband in Montenegro. The pre-feasibility work is delivered through regional ASA on strengthening the broadband connectivity at the regional (Western Balkans countries) level. This work feeds into regional Balkans Digital Highway initiative (with an IPF potentially to be approved by next CFP cycle) aiming to contribute to improved access to digital infrastructure in rural and geographically remote areas of Western Balkans. With the Climate Proofing through Resilient Infrastructure programmatic technical assistance (TA), the environment for climate resilience preparedness, response and recovery of road transport infrastructure is being enhanced. The innovative Boosting Intermodal Connectivity TA studies the regional intermodal freight in the Western Balkans by analyzing how the market is structured, which terminals have potentials, venues for digitalization of logistics, which financing and funding models to use and how to align with EU’s intermodal policy. Finally, discussion is ongoing on Montenegro’s participation in the Phase 2 of the Western Balkans Trade and Transport project, that could include measures such as digitalization of the customs, the addition of border inspection points, and the facilitation of exports intra-WB6. IV. EMERGING LESSONS 50. Strategic and proactive approach to reengaging with the new Government proved key to strengthening the partnership and enhancing the program delivery. Following the formation of the new Government in early 2017, the WBG prepared a set of policy notes and initiated a discussion on firming up the short-term lending program. The teams on both the Government and the WBG side expedited preparation of the operations that were given priority in the short term (PBG, agriculture, energy efficiency and tax administration). This helped reshape the program and deliver some of the key operations even ahead of the original schedule, thus maximizing the chances of achieving good results by the end of the CPF. As for implementation, this approach helped put in place action plans that lead to resolution on key implementation hurdles. This was most notably demonstrated in the case of the Industrial Waste Management and Clean-up Project, where reassessment of the likelihood of implementing the planned activities by project closing resulted in 12 a complex restructuring with substantial cancellation that is expected to unlock the implementation of the revised components. Going forward, the teams will be proactively encouraged to consider adjusting the projects’ scope to the changed circumstances so that everyone’s efforts remain focused on results that can realistically be achieved. 51. The two Focus Areas defined in the CPF were appropriate; yet, in retrospective, the size of the planned investment lending program was overly ambitious. While it was clear in the CPF that the program for the outer years was indicative, the number of new operations and especially the indicative size of some of the new operations, was substantially above the previous years’ delivery trend. More importantly, given the implementation and disbursements track record, some of the large operations would represent a significant challenge for Montenegro’s absorption capacity, both in terms of borrowing and implementation, which should have been considered more closely in defining the CPF program. Furthermore, the CPF Results Matrix was substantially relying on results expected from operations the scope of which had not been defined at the time of the CPF preparation. A more balanced Results Matrix and/or better phased approach at the CPF preparation stage would have been more prudent in the case of Montenegro. While this is a lesson to take on board for the next CPFs, in the context of this PLR it is reflected in smaller but strongly owned program for the remainder of the CPF, as well as redefining the results expected till the end of the CPF in the more streamlined Results Matrix. 52. Building on the existing successes and maintaining engagement with local champions for follow-up to and scaling-up of ongoing operations makes sense in Montenegro’s context. As lending in Montenegro is constrained by the country’s borrowing capacity, it was a good decision to take opportunities to build on the well performing projects and sectors. The MEEP proved to generate benefits that went beyond the planned energy savings project targets in many aspects. More importantly, it opened the door to expand the engagement and raise the bar higher by aiming to put in place a sustainable financing mechanism through MEEP 2. Similarly, MIDAS was particularly successful in supporting the building of institutional capacities and processes in the agencies that are key in Montenegro’s dialogue and compliance with EU requirements in agriculture, which is one of the priority sectors. The project has benefited from strong ownership on the key counterparts ’ side, from top to bottom, and resulted in preparing the follow-on project – in record time - with a substantially more ambitious agenda that fully fits into the country’s EU accession dynamics . 53. Implementation capacity in Montenegro remains a constraining factor. As mentioned above regarding the absorption capacity, it is important to note the limitations in capacity to implement projects, in particularly larger and more complex ones. Starting up projects requires major efforts, as particularly witnessed in the cases of projects with new implementing agencies and teams (for instance IMWCP). Reaching an agreement with the Client on the need to bring on board additional capacities was also a challenge and has taken over a year of intensive dialogue in case of the Industrial Waste Management and Clean-up Project. Even in cases where capacity has been created successfully through the ongoing project, such as the case of MIDAS, it proved challenging for the same team to keep up the fast pace on MIDAS and adjoining AFs, and at the same time prepare a sizable and complex follow on MIDAS 2. These lessons highlight the need to carefully consider the implementing capacity in the country and have a more balanced approach in future CPF programming. To that end, the WBG will ensure that more support is provided to counterparts in strengthening implementation capacity in the early stages, starting in preparation phase, including ensuring that the core implementation teams are fully in place by the time the project is approved. Going forward, additional efforts will be put in analyzing the gaps in capacities on the Client’s side in the given areas and better integrating institutional building efforts into project activities. 54. IFC’s advisory work as well as financing were successful in mobilizing finance for development. The engagement with the Podgorica municipality is a concrete example where IFC effectively brought in a local commercial bank into a transaction (for Podgorica Bypass) in which it would not engage on its own, considering the perceived risks involved. The arrangement allowed IFC to reduce its exposure towards the municipality while the commercial bank was encouraged to co-finance a municipal project, taking into account IFC’s project financing expertise and established relationship with the client. Under the Cities Platform initiative, IFC is trying to replicate the 13 experience from Montenegro in the rest of the Balkans region by joining forces with regional banking groups to co-finance projects in the municipal sector. V. ADJUSTMENTS TO COUNTRY PARTNERSHIP FRAMEWORK 55. The overall program scope and the two Focus Areas remain relevant in the current country context and reflect well the Government priorities. Demand from the Government for WBG’s support remains strong. Improved public expenditure management was noted as a crucial goal for Montenegro’s fiscal sustainability and economic development and remains a key theme for the remainder of the CPF, under Focus Area 1. As for Focus Area 2, the Government counts on the WBG to continue supporting its efforts on expanding access for economic opportunities and jobs. Supporting private-sector driven growth, increasing investments, and promoting inclusion remain the critical dimensions of the overall growth and jobs agenda, which is a high priority for the WBG as well. 56. One of the immediate Government priorities is implementation of the electronic fiscalization system, with the objective to increase the revenue collection and to tackle the informal economy. The WBG is supportive of this initiative and this it is very much in line with the objectives of the ongoing Revenue Administration Reform Project. It was thus agreed with the Government that the ongoing project would include this as a new component, with additional financing provided for it in early FY20. The project supports Montenegro’s long-term vision of a revenue administration that operates with streamlined risk-based business processes that contribute to the efficient collection of taxes. This includes improvements in revenue administration capacity, and in particular training in implementing the electronic fiscalization invoicing system. 57. There is an ongoing dialogue and a planned scaling-up of Montenegro’s engagement in regional water management projects. Over the past years, the WBG has engaged in several activities to support the Western Balkans countries to advance the goal of integration within the region and within the European Union. In that context, Montenegro has an ongoing engagement with the neighboring countries on cross-boundary water management. This is currently supported through the ongoing regional Drina River Basin Project (GEF-funded) and the regional Sava-Drina River Corridor Integrated Development Program (ASA). These efforts will be scaled up with the Sava Drina River Corridor Regional Program (under preparation for FY20/21) This operation can facilitate a transition from fragmented, country-specific actions to joint decisions and concrete investments that will foster regional economic integration and growth by unlocking productive investments in the areas of navigation, flood protection, renewable energy management, and river basin management. This will be achieved through a combination of infrastructure investments and strengthening institutional capacity in the countries. The design of waterway infrastructure interventions (dredging, river training, etc.) can be adapted to simultaneously revitalize and protect floodplains, wetlands, and the development of new infrastructure maximizing the sustainable utilization of public goods for regional benefits. Together, these measures can boost sustainable tourism (including eco-tourism), a sector with a large potential for job creation, and enable investments in other sectors such as irrigated agriculture, focusing on rural areas where most of the poor live. 58. The Results Matrix is considerably streamlined to reflect the revised CPF program, and to bring into focus the objectives that the WBG program can realistically achieve in the remaining period. The review of the overall Results Matrix and the proposed revisions aim to strengthen the linkages between CPF objectives, indicators, and supplemental indicators to ensure greater alignment between them. A significant adaptation of objectives, indicators and supplemental indicators is suggested for Focus Area 2, with the key ones being: a. Objective 2A: New lending that was envisaged to support increased alignment between skills and labor market (Training and Education for Improved Skills project) did not materialize. The HERIC project that closed in June 2019, focused on enhancing the quality of the higher education and research and the Objective 2A is thus refined to Enhanced quality and relevance of higher education and research, with the indicators revised accordingly. 14 b. Objective 2B: New lending that was envisaged to support facilitation and strengthened incentives for work did not materialize at the originally foreseen pace (Jobs and Competitiveness Project was expected to be approved in FY19). While the broader and deeper analytical work on the jobs and growth agenda is done and the Growth and Jobs operation is expected to be approved in the last year of this CPF, the results will only be measurable in the next CPF cycle. For this reason, this objective is dropped. c. Objective 2C: A number of operations intended to support the CPF objectives regarding private investments and job creation in high potential sectors did not materialize. In addition to the above referenced operations, this objective was to be supported by an operation targeting tourism sector in particular (Tourism-based Local Development) that was cancelled. This significantly limited the WBG program’s impact on the job creation and mobilization of direct private investments in tourism, one of the two priority areas. On the other side, notable progress has been made with respect to private investments, mobilized through IBRD lending program and IFC’s microfinance and SME program. This objective is thus reshaped to reflect the expected results and revised to: Agriculture and rural development sector strengthened in line with EU pre- accession requirements. d. Focus Area 2: While the results expected to be achieved under this Focus Area do expand the economic opportunities, their contribution to jobs creation is difficult to measure and attribute to the ongoing and planned WBG program in this CPF period. Consequently, and reflecting the above noted changes in objectives and indicators, Focus Area 2 is renamed to Expand Access to Economic Opportunities. e. Other changes in the Results Matrix include: (i) adjustments to baseline and target values for a number of indicators, to align them to the revised program, revised values or estimates (e.g. revised GDP figures and estimates) and extended CPF period and (ii) reformulation of some of the indicators for clarity of what is being measured and reported on. The revised Results Matrix builds mostly on the ongoing portfolio and all the changes are explained in detail in the Annex 2. VI. RISKS TO CPF PROGRAM 59. The overall risk to the achievement of the CPF objectives was assessed as High at the beginning of the CPF mostly due to concerns over the Government’s ability to implement a robust set of reforms. These concerns were twofold: on one side, related to progress toward the macroeconomic and financial resilience (Focus Area 1) and, on the other, stemming from lack of clarity on the commitment and capacity to implement the ambitious CPF Program. As for the risks to achieving the results under Focus Area 1, the above discussed achievements to date, mainly supported by the PBG, are notable, and further implementation of the fiscal reform program remains as one of the main Government priorities in the coming period. However, significant risks remain as the remaining period of the CPF will require sensitive political decisions, including substantial optimization of public administration and reforms in the labor, pension and health sector. Similarly, any remaining vulnerabilities in the financial sector stemming from ailing banks may create the risk of undermining financial sector stability. The political pressures associated with the implementation of the reforms in a current minority coalition Government will be high. There was a delayed implementation of a policy measure supported under the PBG only two months after declaring the effectiveness of the operation13. Any slippages from the adopted reforms would likely put into question the Second PBG operation, in which case the objectives under the Focus Area 1 will not be achieved. 13 Shortly after the effectiveness of the PBG1 operation on July 6, 2018 the Government amended the Law on Excises, to address the short- term adverse fiscal revenue impact for excises for tobacco and tobacco products after excise revenues dropped by 27 percent in the first 6 months of 2018 compared to the same period in 2017. The Government corrected the excise level back to the first increase and made a calendar more gradual stretching the necessary increase in excises for tobacco and tobacco products to comply with EU regulation. 15 60. The overall risk to the achievement of the CPF objectives is revised from High to Substantial. In order to mitigate the above discussed risks related to ongoing reforms toward the macroeconomic and financial resilience, the WBG strengthened the coordination with the Government and maintains regular collaboration with the IMF, the EU Delegation and UNDP to align programs that support the Government with this important agenda. In the event that the Second PBG operation does not proceed as planned, the program under the Focus Area 1 would be adjusted and focused on technical assistance in the area of pensions, labor, PEFA and eventually to the health sector. On the other hand, the initial concerns regarding the Government’s commitment and capacity to implement the CPF investment program are no longer as strong i.e. do not impact the overall risk to the same extent as they did originally at CPF approval. The selectivity filter was reapplied to the original CPF Program, and the hereby revised Program includes only the operations and analytical and advisory activities that were indicated as priority by the Government and have its commitment to implement. The expected CPF results have also been adjusted accordingly. As a result, while significant risks remain, with the overall progress recorded and the adjustments to the Program agreed, the overall risk is considered substantial rather than high. 61. Political and governance risks, remain substantial, albeit for reasons different than the ones anticipated in the CPF. Initially, these risks were noted to be due to frequent changes of the Government priorities at the time. The WBG remained engaged with the key counterparts and flexible in responding to the changes of the Government priorities for cooperation. As a result of such an approach, the original CPF program was adjusted to reflect the (new) Government’s priorities with changes also including increasing the size of the PBG operation from EUR 50 to EUR 80 million and approving two projects in advance to the original CPF lending plan. The Program for the remaining years is now fully planned and well under preparation, and further changes of the Government’s priorities are at this point considered rather improbable. However, there is a risk of some political instability potentially arising from the increased tensions with the opposition parties and civil society. Worsening of the political dialogue in the country and increased political activities in preparation for 2020 parliamentary elections, while not substantially impacting the choices made within the revised CPF Program, could cause or contribute to delays in the overall pace of the needed decision-making and in preparation of the new lending. To mitigate the impact of this risk on the WBG program, the WBG will continue to work closely with key counterparts to ensure smooth preparation of what is now a well-defined program for the remainder of the CPF, as well as implementation of the ongoing portfolio. 62. Macroeconomic risk remains high, stemming from both external and domestic environments. Among external factors that could affect Montenegro are weaker growth in the EU, renewed financial market turmoil in emerging and developing economies, as well as further escalation of trade tensions between major global economies. Realization of any of these risks would weigh down on Montenegro’s growth prospects, further straining its public finances and negatively affecting the fiscal and debt consolidation agenda. Montenegro is vulnerable to a slowdown in capital inflows, weak export demand, lower remittances, and thus growth, that may increase debt service requirements over the medium in a volatile financing environment. Among emerging domestic risks are delays in implementation of structural reforms, further motorway cost overruns, the vulnerability of some smaller banks, and possible pressures on public spending in the run-up to the 2020 elections. So far, implementation of optimization of public sector employment has been delayed, while pension reform was postponed. Any further delays in the implementation of these key reforms would negatively impact overall macro and fiscal sustainability. Additionally, accumulation of new arrears/contingent liabilities that had happened in the past, would also worsen the credit rating outlook and thus hamper the refinancing options at the time of the redemption of over 40 percent of public debt in 2019-21. Mitigating all of the above-mentioned risks will require Government’s firm commitment to fiscal consolidation and the implementation of critical structural reforms in the labor market, social sector and public administration. The PBG2, which is under preparation with the Government, would support these reforms and help mitigate these risks and ease Government financing pressures in the short term. 16 63. Institutional capacity risk remains substantial, and some of the recently approved operations will require a pro-active approach in client’s capacity strengthening. Week implementation capacity and fragile inter-Governmental coordination have been identified as the most crucial factors in poor implementation of the largest project in the investment portfolio, the IWMCP. In addition, week capacity of the public administration to implement sensitive sectorial reforms identified may significantly impact achievement of CPF development results. The WBG will continue providing hands-on preparation and implementation support, as well as technical assistance in order to mitigate this risk. In particular, the WBG teams will maintain strong focus on accelerated implementation, including diligent monitoring of the action plans in place and adjusting the course of actions timely to maximize the results. To that end, various options that are available to address the implementation bottlenecks, such as substantial restructurings (including changes of components and, if deemed reasonable, partial cancellations) will be explored jointly with the counterparts in earlier rather than in later stages of implementation. Finally, organizing more of the targeted trainings to support the Client in complying with the specific aspects of the WBG-financed projects (procurement, safeguards etc.) will be considered. 64. Environmental and social risks remain substantial. As highlighted by the CPF and considering the increased levels of vulnerability of Montenegro to natural disasters, especially floods and earthquakes, it is evident that disaster risk reduction becomes an important factor for the sustainable economic and social development of the country. The Bank has already taken concrete steps to support the Government’s hazard risk reduction agenda through the IWMCP and Drina River Basin Management Project and will scale this up through inclusion of Montenegro in the regional Sava Drina River Corridor Regional Program. Concerning the environmental risks, the existing main industrial waste hotspots scheduled for the remediation under the ongoing WB IWMCP project pose substantial environmental risk due to their impact on the groundwater contamination and its exposure to the seismic risks and flooding. The IWMCP team mitigates this risk through supervision of the environmental and social safeguards as well as through the grievance mechanism. Table 2: Systematic Operations Risk-rating Tool (SORT) Risk Categories Original Revised Political and governance S S Macroeconomic H H Sector strategies and policies M M Technical design of project or program M M Institutional capacity for implementation and sustainability S S Fiduciary M M Environment and social S S Stakeholders M M Overall H S 17 ANNEX 1. UPDATED CPF RESULTS MATRIX (2016 – 2021) FOCUS AREA 1: ENHANCE MACROECONOMIC AND FINANCIAL RESILIENCE CPF OBJECTIVE 1A: Improved sustainability and efficiency of public finances CPF Objective Indicators Supplementary Progress Indicators WBG Program Completed: Indicator 1: Reduction of public debt SPI1: Wage bill to decline by one percentage point of Energy Efficiency in Public Buildings Baseline: Public debt at 66.2 percent of GDP GDP. (FY18) (2015) Baseline: 13.1 percent (2015) Western Balkans Pensions TA (FY16 and Target: After reaching its projected peak in 2018 Target: 11.2 percent (2019) FY18) (estimated at 70.8 percent of GDP) public debt is Justice Functional Review TA (FY17) reduced to 64.3% in 2020 SPI2: Arrears of general government to GDP ratio declined Baseline: 7.3% (2014), Ongoing: Target: Below 5% (2019) Fiscal and Financial Sector Resilience PBG1 (FY18) SPI3: Tax gap for VAT Revenue Administration Project (FY18) (VAT to GDP ratio is being used as proxy) Second Energy Efficiency in Public Baseline: 12.3 (2010-14 average) Buildings Project (FY18) Target: 13.4 (2020) Restoring sustainability and strengthening SPI14 Additional savings due to energy efficiency efficiency of public finance (FY19) improvements in public buildings Western Balkans Poverty Program (FY18- Baseline: 0.0 (2015) 19) Target: EUR950,000 (2020) Montenegro: Sustainable Energy Efficiency Financing for Public Buildings SPI15: VAT payment compliance rate increase ASA (FY19) Baseline: 62% (2016) Target: 75% (2021) Planned: Fiscal and Financial Sector Resilience SPI16: Corporate Income Tax payment compliance rate PBG2 (FY20) increase Western Balkans Pensions TA (FY19) Baseline: 81% (2016) Western Balkans Poverty Program (FY20) Target: 86% (2021) IFC Support for PPPs in infrastructure 18 SPI7: Development of a sustainable energy efficiency financing model Baseline: No sustainable financing model (2018) Target: Sustainable financing model developed (2020) CPF OBJECTIVE 1B: Increased stability and efficiency of financial sector CPF Objective Indicators Supplementary Progress Indicators WBG Program Indicator 2: Reduction in the incidence of NPLs SPI8: Adoption of a methodology for risk-based Completed: in total loan portfolio contributions from member banks for the Deposit 2015 WB/IMF FSAP Protection Fund (DPF) and shortening of pay out period to Baseline: NPL value of 13.8 % (September 2015) seven working days. Ongoing: Target: NPL value of 10% (2021) Baseline: Methodology not adopted and pay out period of Fiscal and Financial Sector Resilience 15 working days (2015) PBG1 (FY18) Indicator 3: Strengthened prudential norms for Target: Methodology adopted and pay out period of seven TA on strengthening of the financial identification, classification, and re-classification working days (2019) safety net (FinSAC) (FY17) of nonperforming assets. SPI9: Number of out-of-court restructurings completed Planned: Baseline: No amendment to CBM Decision on the under the recently enacted Law on Voluntary Restructuring Fiscal and Financial Sector Resilience minimum standards for management of credit risk of Debts PBG2 (FY20) (2015) Baseline: 0 (2015) TA Resolution and Recovery Plans in Target: Amendments adopted (2021) Target: 10 (2020) accordance with the requirements of the BRRD (FINSAC) (FY19) SPI10: Strengthened bank resolution framework via TA Instruments Applied to Distressed transposition of the EU Bank Recovery and Resolution Banks (FINSAC) (FY19) Directive (BRRD). Debt Resolution Program advisory work Baseline: No amendment to CBM and Banking Laws (2015) Target: Amendments adopted (2019) 19 FOCUS AREA 2: EXPAND ACCESS TO ECONOMIC OPPORTUNITIES CPF OBJECTIVE 2A: Enhanced quality and relevance of higher education and research CPF Objective Indicators Supplementary Progress Indicators WBG Program Indicator 4: Increase of employers’ perception of Completed: the relevance of skills of the higher education SPI11: Number of students receiving scholarships for Higher Education Research for Innovation graduates recruited in the last five years. master’s, doctoral and postdoctoral studies abroad and Competitiveness Project -HERIC Baseline: 25% (2015) (FY12) Target: 30% (2021) Baseline: 0 (2015) Target: 60 (2019) Indicator 5: Higher education institutions Ongoing: introduced key reforms based on Western Balkans Growth and Jobs ASA recommendations that resulted from independent (FY21) external evaluation of Montenegro universities (number) Demand and Supply-side Barriers to Baseline: 0 (2016) Employment TA (FY17) Target: 4 (2021) Planned: Indicator 6: Establish 10 public/private or Growth and Jobs Project (FY21) international R&D partnerships and/or businesses Western Balkans Education TA (FY19) start-ups with research institutes or university Baseline: 0 (2014) Target: 10 (2021) CPF OBJECTIVE 2B: Agriculture and rural development sector strengthened in line with EU pre-accession requirements CPF Objective Indicators Supplementary Progress Indicators WBG Program SPI12: Incremental number of individual Indicator 7: Total amount invested through the entrepreneurs/microenterprises receiving financial support Completed: MIDAS grants program to boost agriculture and from IFC portfolio banks and microfinance clients as well Policy Note on Broadband TA (FY16) agro processing sector as real sector clients Baseline: 0 (2015) Ongoing: Target: US$10 million (2021) Baseline: 0 (2015) Montenegro Institutional Development Target: 8,000 (2019) and Agriculture Strengthening Project Indicator 8: Increased investments in agricultural (MIDAS) and rural development in line with IPARD SPI13: Food establishments modernized MIDAS Additional Financing (FY17) measures MIDAS 2 (FY18) Baseline: 0 (2015) 20 Baseline: 327 commercially oriented agro- Target: 65 (2019) Planned: holdings (2014) IFC investments and advisory in tourism Target: 658 commercially-oriented agro-holdings SPI14: Integrated farm register operational and registration and tourism related sectors, including in (2021) of farms ongoing transport infrastructure PPPs IFC Trade Facilitation Support Project Indicator 9: Accreditation for access to IPARD Baseline: no farm register in place (2015) IFC investments in local financial funds (“Entrustment for budget implementation Target: farm register operational (2019) intermediaries (banks and microfinance task”14) for Measures 1 and 3 institutions) aimed at enhancing access to Baseline: Accreditation not received (2015) SPI15: Female farmers reached with agricultural assets or finance for MSMEs Target: Accreditation received (2018) services Baseline: 0 (2018) Indicator 10: Number of agro-processors15 Target: 10% of all farmers reached (2021) compliant with EU regulations Baseline: 18 (2015) Target: 120 (2021) CPF OBJECTIVE 2C: Enhanced environmental sustainability CPF Objective Indicators Supplementary Progress Indicators WBG Program Indicator 11: Number of contaminated sites Completed: remediated SPI16: Develop project designs for investments and Montenegro Energy Efficiency Project activities to address climate changes impact on water Baseline: 0 (2013) resources in Lim and Grncar River Basin Ongoing Target: 3 (2021) Baseline: 0 (2015) Industrial Waste Management and Target: Project designs prepared (2019) Cleanup Project (FY14) Indicator 12: Energy savings in targeted public Western Balkans Drina River Basin buildings Management GEF (FY18) Second Energy Efficiency Project (FY18) Baseline: 0% (2015) Montenegro: Sustainable Energy Target: 25% (2021) Efficiency Financing for Public Buildings ASA (FY19) 14 The EU provides access to IPARD funds through the “Entrustment of budget implementation tasks for EU IPARD funds” which certifies that the country has established structures, systems and procedures in compliance with EU requirements. Measure 1 regards Investments in physical assets of agricultural holdings and Measure 3 regards Investments in physical assets concerning processing and marketing of agricultural and fishery products. 15 Agro-holdings benefiting from market-driven support measures (i.e. IPARD-like) rather than national measures that are continuously provided but often not market driven. The support provided through WBG targets agro-holdings that have the potential to be commercially oriented (instead of subsistence farmers) and supporting them in reaching the commercial area, and (ii) availing of market driven measures. 21 ANNEX 2. CHANGES TO THE ORIGINAL CPF RESULTS MATRIX (2016 – 2020) FOCUS AREA 1: ENHANCE MACROECONOMIC AND FINANCIAL RESILIENCE CPF OBJECTIVE 1A: Improved sustainability and efficiency of public finances CPF Objective Indicators Action Revised. Indicator is revised to “Reduction” (instead of “Stabilization”) to be more Indicator 1: Stabilization of public debt explicit i.e. align it better with the overall Focus Area 1 objective. Baseline and target values are adjusted as follows: for baseline from 68 to 66.2 percent, for target i.e. reference to 2018 from 76 percent to revised estimate of 70.8 percent, in line with the revised data on GDP. The end target of 64.3% for 2020 is also added, and the target year adjusted to revised end CPF period i.e. to capture the relevant reporting year (calendar year 2020). Supplementary Project Indicators SPI1: Wage bill to decline by one percentage point of GDP. Revised. Baseline for 2015 adjusted from 12.2 percent to 13.1 percent, in line with the revised data on GDP. SPI2: Arrears of general government to GDP ratio declined. Revised. Baseline for 2014 adjusted from 10.9 percent to 7.3 percent, in line with the revised data on GDP. SPI3: Tax gap for VAT (VAT to consumption ratio is being used as Revised. The indicator is reworded to reflect that instead VAT to consumption it is proxy) VAT to GDP ratio that is to be used as proxy. SPI4: Percentage decrease in total cost of 50 most frequently dispensed Dropped. Results in this area were to be supported by Health System Efficiency prescription outpatient medicines and Quality Improvement Project that did and will not materialize during the CPF cycle. SPI5: Additional savings in heating costs due to energy efficiency Revised (now SPI4). The target is adjusted from 950,000 to 750,000 and to clarify improvements in public buildings that the target is for annual rather than cumulative savings, as well as that it is to measure all savings, and not just those in heating costs. The revised target also takes into account results expected from recently approved Second Montenegro Energy Efficiency Project. VAT payment compliance rate increase New (SPI5 in updated Results Matrix) Corporate Income Tax payment compliance rate increase New (SPI6 in updated Results Matrix) Development of a sustainable energy efficiency financing model New (SPI7 in updated Results Matrix) CPF OBJECTIVE 1B: Increased stability and efficiency of financial sector CPF Objective Indicators Action Indicator 2: Reduction in the incidence of NPLs in total loan portfolio Revised: Baseline for Q3 i.e. September 2015 is adjusted from 14.7 to 13.8 percent, in line with the revised banking sector data. The target year is also adjusted to the revised end CPF period. Indicator 3: Strengthened prudential norms for identification, Revised. The timeline to reach this target is extended from 2018 to 2020 given the classification, and re-classification of nonperforming assets additional time needed for adoption of respective regulations. 22 Supplementary Project Indicators Action SPI6: Adoption of a methodology for risk-based contributions from Revised (SP18 in updated Results Matrix). The timeline to reach this target is member banks for the Deposit Protection Fund (DPF) and shortening of extended from 2018 to 2019, given the additional time needed for plans to be pay out period to seven working days. finalized and implementation. SPI7: Number of out-of-court restructurings completed under the No change (SP19 in updated Results Matrix). recently enacted Law on Voluntary Restructuring of Debts SPI8: Strengthened bank resolution framework via transposition of the No change (SP110 in updated Results Matrix). EU Bank Recovery and Resolution Directive (BRRD) FOCUS AREA 2: EXPAND ACCESS TO ECONOMIC OPPORTUNITIES AND JOBS The Focus Area 2 is revised to read EXPAND ACCESS TO ECONOMIC OPPORTUNITIES, given that the operations that were intended to support creation of jobs in a more direct and measurable manner have not materialized, and thus the progress with respect to access to jobs cannot be contributed to WBG’s engagement. Action The objective is revised to Enhanced quality and relevance of higher education CPF OBJECTIVE 2A: Increased alignment between skills and research. Given that the operation that was envisaged to provide additional and labor market demand support to increasing alignment between skills and labor market demand was dropped, the objective is revised to refocus on the realistically expected results to come from the ongoing WBG program in the higher education area. CPF Objective Indicators Action Indicator 4: Share of updated TVET curricula in line with occupational Dropped. Results in this area were to be supported by Training and Education for standards Improved Skills Project that did not materialize. While Growth and Jobs Project is in the pipeline for FY21, no results are expected during the current CPF cycle. Indicator 5: Increase in the perception of relevance of higher education Revised (Indicator 4 in updated Results Matrix). The indicator is revised to reflect programs and degrees (gender disaggregated) employers’ perception of the relevance of skills of higher education graduates recruited in the last five years, which provides a more relevant indicator in support of the revised Objective 2A. The baseline is accordingly revised from 95 to 25 percent, to readjust to the initial study responses i.e. those fully satisfied with the relevance of higher education programs and degrees, excluding those partly satisfied (which contributed to unrealistically high baseline). The target is revised to 30 percent, and the target year moved to take into account the timing of the next study and the revised CPF period. Higher education institutions introduced key reforms based on New (Indicator 5 in updated Results Matrix). recommendations that resulted from independent external evaluation of Montenegro universities (number) Establish 10 public/private or international R&D partnerships and/or New (Indicator 6 in updated Results Matrix). businesses start-ups with research institutes or university 23 Supplementary Project Indicators Action SPI9: % of secondary TVET students benefitting from practical Dropped. Results in this area were to be supported by Training and Education for training in MSMEs and large sized firms (geographically and gender Improved Skills Project that did not materialize. While Growth and Jobs Project is disaggregated) in the pipeline for FY21, no results are expected during the current CPF cycle. Number of students receiving scholarships for master’s, doctoral and New (SPI11 in updated Results Matrix). postdoctoral studies abroad Action CPF Objective 2B and all indicators (Indicators 6 and 7, as well as SPI10) are dropped. The results in this area were to be supported by Jobs and CPF OBJECTIVE 2B: Facilitation and strengthened Competitiveness Project that did not proceed as planned. A stronger WBG incentives for work engagement in support of the job creation and growth agenda in coming years is being discussed. While Growth and Jobs Project is planned to be approved in FY21, the corresponding results are to be expected only in the next CPF cycle. Action The objective is revised to E Agriculture and rural development sector strengthened in line with EU pre-accession requirements (OBJECTIVE 2B in CPF OBJECTIVE 2C Enhanced private investments and job the updated Results Matrix). The originally planned operations supporting tourism development and job creation were dropped. The objective is thus revised around creation in high-potential sectors the ongoing and new (approved during CPF) WBG program in the agriculture area, and refocused on broader support to the agriculture sector, including also the very important institutional and client capacity building aspects and the links to the EU accession requirements. CPF Objective Indicators Action Indicator 8: Private sector investments generated through IFC Revised (Indicator 7 in updated Results Matrix). The indicator is revised to specify interventions and WB investments in tourism that the achievements are expected as a result of investments provided thorough WBG’s program supporting agriculture. The target year is also adjusted to the revised end CPF period. Indicator 9: Increased share of jobs in Travel & Tourism (T&T) sector Dropped. The results in this area were to be supported by Tourism-based Local in non-coastal urban centers. Development Project that did and will not materialize during the CPF. Indicator 10: Increased investments in agricultural and rural No change (Indicator 8 in updated Results Matrix). The target year is also adjusted development in line with IPARD measures to the revised end CPF period. Accreditation for access to IPARD funds (“Entrustment for budget New (Indicator 9 in updated Results Matrix). implementation task”1) for Measures 1 and 3 Number of agro-processors compliant with EU regulations New (Indicator 10 in updated Results Matrix). The target year is also adjusted to the revised end CPF period. Supplementary Project Indicators Action SPI11: Increased percentage of tourism overnight stays in non-coastal Dropped. The results in this area were to be supported by Tourism-based Local cities Development Project that did and will not materialize during the CPF. 24 SPI12: Incremental number of microfinance and SME loans Revised. The indicator is revised to specify that these loans are provided to individual entrepreneurs/microenterprises receiving financial support from IFC portfolio banks and microfinance clients as well as real sector clients. Food establishments modernized New (SPI13 in updated Results Matrix). Integrated farm register operational and registration of farms ongoing New (SPI14 in updated Results Matrix). Female farmers reached with agricultural assets or services New (SPI15 in updated Results Matrix). CPF OBJECTIVE 2D (2C in updated Results matrix): Enhanced Environmental Sustainability CPF Objective Indicators Action Indicator 11: Contaminated land managed or dump sites closed Revised. The indicator is revised to clarify the target i.e. number of sites vs the number of hectares, and to adjust the target to reflect results to be expected from the Industrial Waste Management and Clean-up Project by end CPF period. Indicator 12: Energy savings in targeted public buildings Revised. i.e. The baseline year as well as the target year are adjusted. While some of the buildings had been renovated through then ongoing MEEP and achieved initial energy savings prior to the CPF start, we keep the target at zero (0). Namely, the intent of the indicator is to measure the savings annually with a view to achieve an average of 25% savings on all buildings renovated through MEEP (closed in FY18) as well as ongoing MEEP2 Program. Supplementary Project Indicators Action SPI13: Number of buildings retrofitted with energy efficiency Dropped. The baseline for the indicator taken at CPF stage was the beginning of improvement schemes the project (0), and not the CPF start date (25 buildings). With that into consideration, the indicator loses much of its relevance as only 5-10 additional buildings are expected to be completed by end of CPF. SPI14: Additional Renewable Energy capacity facilitated Dropped. This indicator is dropped due to attribution concerns. While IFC’s support resulted in significant achievements in the area of RE, these were focused on improvements of the regulatory environment, in which other development partners including EBRD were also involved. SPI15: Percentage of Drina River Basin Strategic Action Plan activities Dropped. The preparatory activities for development of the SAP have been addressing climate change issues related to droughts and floods. initiated, yet with delay, so its finalization is expected in 2020. Develop project designs for investments and activities to address New (SPI16 in updated Results Matrix). climate changes impact on water resources in Lim and Grncar River Basin 25 ANNEX 3. ORIGINAL CPF RESULTS MATRIX (2016 – 2020), PROGRESS TO DATE FOCUS AREA 1: ENHANCE MACROECONOMIC AND FINANCIAL RESILIENCE CPF OBJECTIVE 1A: Improved sustainability and efficiency of public finances CPF Objective Indicators Progress to date Supplementary Progress Progress to date WBG Program Indicators Indicator 1: Stabilization of On track SPI1: Wage bill to On track Completed: public debt Public debt in 2017 stood at decline by one percentage Under the PBG1, Wage Bill coefficient Energy Efficiency in Baseline: Public debt at 68 64.2 % of GDP, while it is point of GDP. reduced by 1%, and senior officials’ Public Buildings (FY18) percent of GDP (2015) estimated to have increased to Baseline: 12.2 percent wages by 6%. Wage bill declined from Justice Functional Target: After reaching its 70.8% of GDP in 2018. (2015) 13.1% in 2015 (revised GDP data) to Review TA (FY17) projected peak in 2018 (at Target: 11.2 percent 12.2% in 2017 (MOF, National Western Balkans 76 percent of GDP) public PBG1 supports a package of (2019) Statistical Office, MONSTAT). Pensions TA (FY16) debt is reduced in 2019 reforms such as social benefits i.e. as per latest estimate, it declined Public Finance Review and pension reforms, further to 11.7 % in 2018. TA (FY17) pharmaceutical reform as well as public administration SPI2: Arrears of general On Track Ongoing: optimization that aimed to Government to GDP ratio Arrears declined to 3.6% (2016) and Fiscal and Financial stabilize and reduce public declined. 3.7% (2017), and further to an estimated Sector Resilience PBG1. debt levels to 64.3% by 2021. Baseline: 10.9 (2014), 3.6% in 2018. (FY18) Target: Below 5% PBG1 supports a package of reforms that Revenue Administration The most recent forecast (2019) aims to stabilize and reduce arrears of Project (FY18) suggests that the public debt the general Government such as public Second Energy will decline to 67.2% of GDP finance management reforms and Efficiency in Public in 2019 and then further spending reforms. Buildings (FY18) decline to 64.3% of GDP in Western Balkans 2020. SPI3: Tax gap for VAT On track Poverty Program (FY18- (VAT to consumption Status: 19) ratio is being used as 2016: 12.7% proxy) 2017: 12.8% Planned: Baseline: 12.3 (2010-14 2018: 13.4% (preliminary) Fiscal and Financial average) (2018 National Budget) Sector Resilience PBG2 Target: 13.4 (2020) Ongoing Revenue Administration (FY20) Reform Project (effective as of March Western Balkans 2018) supports measures that are Poverty Program (FY20) expected to reduce the tax gap by, among other, strengthening IFC: Support for PPPs modernization of the revenue in infrastructure 26 management information system. In • addition, It will also support e- Dropped: fiscalisation which aims to increase Health System compliance and reporting in service Efficiency and Quality sectors. Improvement Project SPI4: Percentage Off track decrease in total cost of The results were expected to come from 50 most frequently the Health System Efficiency and dispensed prescription Quality Improvement Project that did not outpatient medicines materialize as planned. Baseline: EUR7.8 million Nevertheless, efficiency reforms in the (2014) area of public spending on Target: 10 percent pharmaceuticals are supported under the reduction in real terms PBGs, including the development of (2019) guidelines/protocols to rationalize prescriptions, prevent the unnecessary use of expensive drugs, and use savings for more efficient goods/services. SPI15: Additional On track savings in heating costs As a result of energy efficiency, due to energy efficiency improvements in the 25 public buildings improvements in public retrofitted under the Montenegro Energy buildings Efficiency Project, annual savings are Baseline: 0 (2015) estimated at €600,000. These annual Target: EUR950,000 savings are expected to increase as a (2020) result of retrofitting of the additional health sector buildings under the Second Energy Efficiency Project. CPF OBJECTIVE 1B: Increased stability and efficiency of financial sector CPF Objective Indicators Progress to date Supplementary Progress Progress to date WBG Program Indicators Indicator 2: Reduction in On Track SPI6: Adoption of a Off track Completed: the incidence of NPLs in Status (May 2018): 4.75% methodology for risk- (not met in 2018) 2015 WB/IMF FSAP total loan portfolio based contributions from The WBG team works with Deposit Baseline: NPL value of PBG1 operation supported the member banks for the Protection Fund on the new Deposit Ongoing: 14.7 (Q3, 2015) – enactment of the amendments Deposit Protection Fund Protection Law which stipulates that the Fiscal and Financial Target: NPL value of 10% to the Law on Voluntary (DPF) and shortening of payout period of seven working days Sector Resilience PBG1 (2019) Restructuring (adopted in July will be effective as of January 1, 2021. (FY18) 27 2017 and July 2018) targeting pay out period to seven The Methodology will be adopted as a TA on strengthening of restructured loan amounts of at working days. secondary legislation after adoption of the financial safety net least EUR 10 million. Baseline: Methodology the new Deposit Protection Law (FinSAC) (FY17) not adopted and pay out expected in first half of 2019. Indicator 3: Strengthened On track period of 15 working days Planned: prudential norms for The Decision on minimum (2015) Fiscal and Financial identification, classification, standards for credit risk Target: Methodology Sector Resilience PBG2 and re-classification of management in banks was adopted and pay out (FY20) nonperforming assets. amended in December 2018, period of seven working TA Resolution and with the application started in days (2018) Recovery Plans in Baseline: No amendment to July 2019. These amendments accordance with the CBM Decision on the were made in accordance with SPI7: Number of out-of- Achieved requirements of the minimum standards for the relevant EU regulations, court restructurings Status: (April 2019): 54 loans BRRD (FINSAC) management of credit risk and existing solutions were completed under the restructured. (FY19) (2015) improved in the part relating to recently enacted Law on TA Instruments Applied Target: Amendments valuation of collaterals in the Voluntary Restructuring Loans restructured by the end of April to Distressed Banks adopted (2018) process of classification of of Debts 2019 amounted to EUR 36.8 million. In (FINSAC) (FY19) assets and allocation of Baseline: 0 (2015) addition, Initiated and signed agreements Debt Resolution provisions for potential credit Target: 10 (2020) on restructuring (pending) at the end of Program advisory work losses in banks, harmonization April amounted to EUR 20.8 thousand. of the definition of NPL with the EU regulations, the SPI8: Strengthened bank On Track treatment of restructured loans resolution framework via The Bank Resolution Law is one of the in the classification, etc. transposition of the EU indicative triggers for the PBG2. The Further improvements of the Bank Recovery and team has provided comments to the Decision and new amendments Resolution Directive CBM on the Bank Resolution Law and according to which further (BRRD). has secured Funds for TA to support the alignment with the EU CBM in implementation of the Law. The regulations is achieved, Baseline: No amendment law will enhance the bank resolution especially in the part of the to CBM and Banking framework in Montenegro and is treatment of forborne Laws (2015) expected to be adopted by mid-2019. exposures for the purpose of Target: Amendments reporting, were adopted in July adopted (2019) 2019 with the application to start from January 2020. 28 FOCUS AREA 2: EXPAND ACCESS TO ECONOMIC OPPORTUNITIES AND JOBS CPF OBJECTIVE 2A: Increased alignment between skills and labor market demand CPF Objective Indicators Progress to date Supplementary Progress Progress to date WBG Program Indicators Indicator 4: Share of Not verified SPI9: % of secondary Not verified Completed: updated TVET curricula in The results were expected to TVET students The results were expected to come from Higher Education line with occupational come from the Training and benefitting from practical the Training and Education for Improved Research for Innovation standards. Education for Improved Skills training in MSMEs and Skills Project that did not materialize as and Competitiveness that did not materialize as large sized firms planned. Project -HERIC (FY12) Baseline: 0 (2015) planned. (geographically and Montenegro Growth and Target: All TVET curricula gender disaggregated) Jobs ASA (FY19) updated (2020) Baseline: 54% (2015) Ongoing: Target: 20% increase on Western Balkans Indicator 5: Increase in the Not verified baseline (2020) Growth and Jobs ASA perception of relevance of No assessment has been made (FY21) higher education programs in the course of the CPF and degrees (gender period. A survey to assess Planned: disaggregated) perception of relevance of Growth and Jobs higher education programs, Project, FY21 (originally Baseline: 86% (2015) supported through HERIC planned Jobs and Target: 95% (2019) Project, is planned to be Competitiveness Project, completed in 2019. FY19 Western Balkans Education TA (FY19) Dropped: Training and Education for Improved Skills (FY19) Demand and supply-side barriers to employment TA (FY17) CPF OBJECTIVE 2B: Facilitation and strengthened incentives for work Indicator 6: Decrease in Not verified SPI10: Public Not verified Completed: the average effective tax (both indicators) employment services The results were expected to come from Western Balkans rate (AETR) of a low- The results were expected to implement strengthened the Jobs and Competitiveness Project Pension TA (FY16) income one earner couple come from the Jobs and methodology for job that did not materialize as planned. Montenegro Growth and (equivalent to half-time job Jobs ASA (FY19) 29 at minimum wage) with two Competitiveness Project that profiling of the children on social assistance did not materialize as planned. unemployed Ongoing: that moves from While Growth and Job Baseline: Methodology Western Balkans unemployment into a formal Creation Project is planned to not implemented (2015) Poverty Program (FY18- job. be approved in FY20, the Target: Methodology 19) corresponding results are to be implemented (2018) Western Balkans Baseline: 93.3% (2011) expected only in the next CPF Pension TA (FY20) Target: 80% (2019) cycle. Western Balkans Growth and Jobs Indicator 7: Percentage of ASAASA (FY21) unemployed registered with Planned: Public Employment Growth and Jobs Services finding formal Project, FY21 (originally employment. planned Jobs and Competitiveness Project, Baseline: 12.2% (2015) FY19) Target: 20% (2019) Dropped: Demand and Supply Side Barriers to Employment TA (FY17) CPF OBJECTIVE 2C: Enhanced private investments and job creation in high-potential sectors CPF Objective Indicators Progress to date Supplementary Progress Progress to date WBG Program Indicators Indicator 8: Private sector Off track SPI11: Increased Not verified Completed investments generated percentage of tourism The results were expected to come from Policy Note on through IFC interventions Status (investments in overnight stays in non- the Tourism-based Local Development Broadband TA (FY16) and WB investments in agriculture): US$7.5 million coastal cities Project that did not materialize as tourism. (EUR 6.5 million) planned. Baseline: 3% (2014) Ongoing Baseline: 0 (2015) Out of total investment of Target: 5% (2019) Montenegro Institutional Target: US$30 million EUR 13.04 million provided Development and (2019) through MIDAS–supported Agriculture IPARD-like grant scheme, a SPI12: Incremental On track Strengthening Project total of EUR6.5 million (or number of microfinance Status (2018): 3,300 individual (MIDAS) roughly 49 percent) of private and SME loans entrepreneurs/microenterprises have MIDAS Additional investments has been received financial support from IFC Financing (FY17) leveraged. Baseline: 0 (2015) portfolio banks and microfinance clients MIDAS 2 (FY18) The Program has leveraged Target: 8,000 loans to as well as real sector clients. private sector investments microfinance companies, (It is unfortunately nor possible to report Planned either through the local banks of which 3,000 owned by how many of them were owned by 30 and financial institutions that women women, as women customers are not Investments in tourism provided loans to the grant (owners/stakeholders) tracked by microfinance client) and tourism related beneficiaries to ensure a 100% (2020); 500 loans to sectors, including in of pre-financing as well as SMEs (2020) infrastructure beneficiaries’ contribution of Trade Facilitation 40-50%of total investment. Support Project The investments were aimed at Possible PPP advisory farms modernization, support to support improvement of the food private sector safety, and processing investments in standards. infrastructure Indicator 9: Increased Investments in local share of jobs in Travel & Not verified financial intermediaries Tourism (T&T) sector in The results were expected to (banks and microfinance non-coastal urban centers. come from the Tourism-based institutions) aimed at Baseline: 9.7% (2014) Local Development Project enhancing access to Target: 12% (2019) that did not materialize as finance for MSMEs planned. Dropped Indicator 10: Increased Tourism-based Local investments in agricultural Achieved Development project and rural development in Status (2019): 658 (FY18) line with IPARD measures commercially oriented agro- Digital Economy Project Baseline: 0 (2009) holdings (FY20) Target: 400 commercially- Jobs and oriented agro-holdings Competitiveness Project (2016) (FY19) Demand and Supply Side Barriers to Employment CPF OBJECTIVE 2D: Enhanced Environmental Sustainability CPF Objective Indicators Progress to date Supplementary Progress Progress to date WBG Program Indicators Indicator 11: Off track SPI13: Number of On track Completed: Contaminated land (will not be met in 2019) buildings retrofitted with Under the EE Project 25 public sector Montenegro Energy managed or dump sites The progress with preparatory energy efficiency buildings have been retrofitted since the Efficiency Project closed activities and start of work has improvement schemes start of the project in 2009. Under the Energy Efficiency in Baseline: 0 (2013) suffered substantial delays. Of Baseline: 0 buildings recently approved Second Energy Public Buildings Target: 110 (2019) the three sites included in the (2009) Efficiency Project, retrofitting of another project for remediation, works 18 public (health) sector buildings is Ongoing 31 have started on one: Bijela Target 27 buildings planned, with 5 of them expected to be Industrial Waste Shipyard, Site investigations (2017) completed by end CPF. Management and for the Gradac remediation Not verified Cleanup Project (FY14) design and investigations SPI14: Additional While IFC’s support resulted in Western Balkans Drina supervision was completed and Renewable Energy significant achievements in the area of River Basin activities are on track for capacity facilitated RE, these were focused on Management GEF preparation of works tender Baseline: 0 (2015) improvements in regulatory (FY18) completion by May 2019. Target: 20 MW (2020) environment, and this area was also Second Energy Design has been completed for supported by other development partners Efficiency Project the remediation works at the including the EBRD, causing attribution (FY18) Maljevac ash disposal site in concerns. Pljevlja. Regarding EPCG, activities are on track for Off track (will not be met in 2019) Dropped: bidding to result in works SPI15: Percentage of Due to delays in effectiveness of the Tourism-based Local starting in the spring of 2019. Drina River Basin Regional GEF SCCF Drina Project, it is Development Project Strategic Action Plan likely that target would be reached at (FY18) Indicator 12: Energy On track activities addressing later stage. Namely, ToR for preparation savings in targeted public climate change issues of the Drina River Basin Strategic buildings Current (2018): 46.70% related to droughts and Action Plan is under development, but (savings measured in the 25 floods. its finalization is not expected before Baseline: 0% (2009) public buildings that have been 2020. Target: 25% (2019) retrofitted) Baseline: 0 (2015) Project activities in Montenegro have Target: 30 percent (2019) started. Climate changes would be addressed through preparation of the Conceptual design for the Flood protection, rehabilitation and irrigation of Lim river basin (with Grnčar river) with the aim of mitigating the impact of climate change and sustainable use of natural resources, as well through Assessment of climate change impacts on groundwater in Drina River Basin in Montenegro. 32 ANNEX 4. CITIZEN ENGAGEMENT UPDATE 1. During this CPF period, dialogue with civil society has been ongoing with a number of public awareness campaigns and presentations of project activities, meetings with representatives of NGOs, academia, business associations. Since 2014 when the citizen engagement corporate requirements were introduced, efforts have been stepped up to embed citizen engagement in all IPFs in the Montenegrin portfolio. During FY14-FY19, five projects in Montenegro were subject to corporate requirements. With regards to compliance with the CE requirements, by FY16, 100 percent of Montenegro projects approved by the Board were fully compliant with both requirements (having a citizen-oriented design and a beneficiary feedback indicator). ISR reporting requirements will take effect in FY20. 2. Like other projects in the Western Balkans, quality of the citizen engagement in all IPFs in Montenegro is reviewed continuously. Quality is assessed for four key attributes of citizen engagement. Of those projects approved since FY14, 75 percent of projects enable all citizens to provide feedback and to engage on any project issue (openness) and all projects enable citizens to provide feedback at least annually (frequency). However, the depth of engagement can be improved - the portfolio largely relies on two mechanisms (GRMs and satisfaction surveys) which do not provide an opportunity for direct interaction or active engagement. Apart from GRMs, citizens are able to provide feedback through satisfaction surveys in three projects, providing multiple feedback channels). Quality of citizen engagement in the portfolio is relatively weak compared with other ECA countries due to the use of weak tools (see planned actions below). 3. Two initiatives in the country provide evidence of the opportunity and enabling environment for citizen engagement: • Of those projects most recently approved, for instance, the Second Institutional Development and Agriculture Strengthening Project (MIDAS 2) approved in FY18, will maintain the well-functioning complaints handling mechanism and beneficiary feedback surveys established under the existing MIDAS project. The project's public awareness campaign aimed to specifically reach out to and consult all local communities and to include their feedback to the grants application process. During preparation, the Fisheries Directorate held consultations with fishermen and fishermen associations and conducted a beneficiary survey to identify fishermen's needs and to influence project design • Montenegro has strengthened its public consultative process, in which the Government collects citizens' comments on the draft laws/strategies and incorporates accepted comments from the public in the final documents. In February 2017, the Ministry of Labor and Social Policy established a working group comprised of representatives of state Government ministries and agencies, local Governments, trade unions and civil society organizations, to work on the amendments of the Law on Social and Child Protection, and consultations were held through a roundtable. This process led to revisions and the consultations were well documented. 4. Going forward, to further strengthen quality of citizen engagement, several activities are proposed for the remainder of the CPF implementation, in addition to ongoing actions set out in the CPF CE country roadmap: (i) Capacity building of PMUs and other Governmental stakeholders in Citizen Engagement principles and best practice; coaching to support PMUs expand the weak CE tools to optimize CE opportunity 33 (ii) Efforts to enhance the quality of the beneficiary feedback, through more structured tools that encourage dialogue and active engagement (iii) Include citizen engagement discussion in the annual portfolio review with Government for the remaining period of the CPF implementation (iv) Encourage the use of civic technology options to obtain feedback for the upcoming consultations on the SCD and the new CPF. 5. These have been added to the implementation plan which tracks the progress of the CPF Citizen Engagement Country Roadmap. 34 Table 1. Update of the Montenegro Citizen Engagement Country Road Map (for the remainder of the CPF) Citizen Engagement Roadmap CPF Actions finalized Actions for the remainder of the CPF 2016 GOAL 1 (CPF/ DPO): The dialog with civil society has been continued through a Continue good practice and organize Regular CPF roundtables: Identify and number of public awareness campaigns and meetings with genuine consultations on the SCD and the liaise with a group of key stakeholders to representatives of the NGO, academia, business new CPF. provide feedback and input into CPF associations. implementation. Public hearings were organized to assess environmental and DPO consultations: Consultations on social impact the WB financed project activities. DPO-supported reforms will be carried out based on the reform sectors identified. If the DPO is dropped, communication with civil society will continue as part of outreach and awareness efforts on macro and fiscal challenges the country is facing. GOAL 2 (Pipeline): All planned projects of these sectors have been dropped. - Include CE Mechanisms in Project Design Health. Employment and Skills. Sustainable Tourism. GOAL 3: (Implementation) Agriculture. MIDAS is still supporting GRM and Set up GRM for MIDAS 2 (as soon as Stakeholder Feedback is Incorporated disclosure requirements (closure March 2019), two social call for grant applications has been in Project Implementation surveys have been conducted and applicants’ concerns have issued). Agriculture. Continue effective dialogue been addressed. MIDAS 2 has not yet issued a call for grant The MEEP 2 PIU will have to be with and inclusion of beneficiaries, applications (no GRM set up yet). Industrial Waste sensitized to make the selected buildings including vulnerable groups. Management (IWMP) has held resettlement related barrier-free. Environment. Ensure that interventions consultations. Energy Efficiency 2 (MEEP 2) holds regular are designed with input from local consultations (including on accessibility considerations). Until the remainder of the CPF, a new stakeholders and direct beneficiaries. goal is to support capacity building activities of PMUs on effective implementation of CE activities in projects under implementation. 35 GOAL 4: Replicate success of past Target is met since FY16 (100%). (i) BFIs beneficiary feedback practices. (i) BFIs HERIC (Higher Education and Research By FY20 Montenegro will meet the 100% MIDAS; MIDAS 2; RARP (Revenue Administration for Innovation Project) will still have to target for Beneficiary Feedback Indicator Reform) – gender (and/ or vulnerable group) disaggregated disaggregate data by gender. and BF-informed in all projects with direct beneficiary data; (ii) Feedback sought during beneficiaries, and where possible: (i) (ii) Feedback sought during implementation implementation disaggregate feedback by vulnerable MIDAS – surveys already completed (MIDAS 2 just at the RARP – planned tax user surveys group; (ii) feedback sought also during beginning); MEEP 2 – regular feedback sought before and (iii) results discussed in open forum implementation in order to inform after renovations (social monitoring surveys) RARP – tax user survey results needs to subsequent activities; (iii) results (iii) results discussed in open forum be discussed communicated and discussed in an open MEEP 2 – social monitoring surveys results are regularly (iv) perception questions in feedback forum; (iv) perception of beneficiaries with discussed (second round after renovation). questionnaires regard to the CE process included in (iv) perception questions in feedback questionnaires RARP – tax user survey needs to measure feedback questionnaire. MEEP 2 – in social monitoring surveys a question on “Do perception and have question in you feel that the retrofits were centered on citizens' needs?” questionnaire GOAL 5: GRMs are included in all Social Risks Management Initiative finalized in June 2017 MEEP 2 does foresee a GRM in the PAD relevant projects beyond safeguards. (MIDAS and IWMP meet all targets - followed up in each (still at the beginning). By the end of FY20 GRMs should follow mission). good practices, including: (i) ensuring that standard practices are developed when dealing with complaints; (ii) training all parties on the GRM process; (iii) building capacity to ensure sustainability of the GRMs after the life of the project. GOAL 6: Measuring and Monitoring CE aspects are monitored in every ISR that is being For the remaining period of the CPF, the Progress and Impact. submitted, with the goal to ensure that it reports on the goal is to: By the end of FY20, the team will review GRM as well as on the progress related to all CE indicators. • work with Bank teams and PMU’s to the extent of CE achieved, and will enhance the quality of the beneficiary identify good practices and areas of Particular attention is paid to the CE aspects as part of the feedback and their efficient monitoring improvement. All projects will include an review process of all projects under development. throughout project implementation; and indicator that will reflect the level of CE in • develop a plan to include CE in the the project. In April 2018 a portfolio review workshop was held as a portfolio reviews with the Government. part of the PLR preparation process. It included a broad group of counterparts, and discussions on the ongoing program as well as of the preliminary findings of the progress made to date on the CPF objectives and CE. 36