World Bank – Georgia Partnership Program Snapshot September 2011 were composed primarily of metals and RECENT ECONOMIC AND metal products, repaired and SECTORAL DEVELOPMENTS remanufactured vehicles, wines and beverages, and fruits and nuts. The leading export destinations include Azerbaijan, Growth and External Performance Turkey, United States, Armenia, Ukraine, Canada, and Bulgaria. Export of services The economy rebounded by 6.4 percent was up 21.9 percent (y-o-y) in 2010, with in 2010 and posted growth of 5.8 tourism and transport receipts up 38.5 percent in the first quarter of 2011. The percent and 12.0 percent, respectively. The recovery has been led by a strong rebound export rebound has benefited from in 2010 in several sectors, including improved conditions in external markets as manufacturing (20.3 percent), construction well as real exchange rate (RER) (7.6 percent), and services including depreciation in the post-crisis period. transport (13.1 percent), wholesale and retail trade (14.1 percent), and hotels and Figure 2 restaurants (12.9 percent). The recovery 700 Georgia: Quarterly FDI (Gross,USD M) has benefited from a pickup in exports, 600 tourism, bank lending, and continued high 500 levels of public investment. At the same 400 time, FDI inflows have remained weak at % 300 4.7 percent of GDP in 2010, down from 12 200 percent in 2008. Private investment rates 100 recovered only modestly in 2010, 0 QT107 QT207 QT307 QT407 QT108 QT208 QT308 QT408 QT109 QT209 QT309 QT409 QT110 QT210 QT310 QT410 suggesting that the strong growth rebound has been facilitated in part by higher capacity utilization. The economy is Figure 3 projected to grow by about 5 percent per Georgia: External Current Account and Financing year during 2011-14, which will require 15 higher private domestic investment and productivity in the tradable sectors. 10 Downside risks from global economic Perent of GDP 2010 uncertainty remain significant. 5 2011p 2012p 2013p 2014p Figure 1 0 Quarterly Growth of GDP, Exports, and Imports 15 60 -5 10 40 External CA FDI Other Pvt Public Sector Use of IMF Deficit Inflows Resources 5 20 %0 0 % The external current account deficit has -5 -20 adjusted to 9.6 percent of GDP from -10 -40 22.7 percent two years earlier. From 2008 to 2010, imports were down by 6.1 -15 -60 percentage points of GDP and exports QT107 QT207 QT307 QT407 QT108 QT208 QT308 QT408 QT109 QT209 QT309 QT409 QT110 QT210 QT310 QT410 QT111 Real GDP growth (%) Exports, growth YoY were up by 6.1 percentage points of GDP. Imports, growth YoY This external adjustment has been facilitated by the credible fiscal program Exports of goods and services were up and a flexible exchange rate. The RER to 34.8 percent of GDP in 2010 from depreciated by about 13.2 percent between 29.8 percent in 2009. Merchandise October 2008 and October 2010 after exports (up 39.5 percent y-o-y in 2010) appreciating by 38 percent in the pre-crisis period (from 2004 through October 2008). Fiscal Framework (% GDP, 2007-2011) More recently, as private capital inflows 38.4 40 37.0 34.0 34.8 have picked up, the RER appreciated by 10 35 32.1 30 30.7 percent between October 2010 and March 29.3 29.3 28.2 28.5 25 2011, although exports continued to grow 25.8 24.9 24.9 24.4 23.4 20 by 36 percent in the first quarter of 2011. 15 9.2 Gross international reserves improved to 10 4.7 6.3 6.6 3.6 4.5 months of imports ($2.26 billion) in 5 0 2010 from 2.4 months of imports ($1.48 2007 2008 2009 2010 2011 billion) in 2008. Total Expenditures Revenues & Grants Tax Revenues Overall fiscal deficit Fiscal Sector Performance The fiscal stance has also included a Significant fiscal adjustment has been commitment to enhance efficiency implemented in 2010-11 as recovery has through marked reallocation of taken hold. The overall fiscal deficit expenditures. As part of the stimulus in declined from 9.2 percent of GDP in 2009 2009, expenditures on transport to 6.6 percent in 2010 and is budgeted to infrastructure, as well as on education, decline to 3.6 percent in 2011. Overall health, and social protection were scaled up expenditures declined from 38.4 percent of significantly, with the fiscal space for these GDP in 2009 to 34.8 percent in 2010. increases coming from a marked reduction While fiscal adjustment in 2010 came of defense expenditures. As fiscal primarily from current expenditures, the adjustment is being implemented in strategy going forward involves adjusting 2010-11, important social expenditures are both current and capital expenditures as being protected, while capital expenditures higher private investment and sustained are projected to decline from the winding growth take hold. Total expenditures are down of crisis-related investments. projected to decline to 32.1 percent by 2011 and 28.1 percent by 2014, with Georgia received a strong vote of current and capital expenditures making confidence from international capital similar contributions to this adjustment markets in April 2011 by successfully path. Tax revenues are projected to remain refinancing its Eurobond. The 10-year at about 24.5 percent of GDP during 2011- benchmark Eurobond was issued at very 14, although the winding down of grants favorable terms ($500 million at a 6.875% means that total revenues are projected to coupon rate and 7.125% yield), with the decline from 28.2 percent of GDP in 2010 offer more than 5 times oversubscribed. to about 26.1 percent by 2014. As external The issuance was combined with a borrowing has picked up, public external concurrent exchange of $417 million (83%) debt increased from 17.5 percent of GDP of the previously issued 5-year Eurobond in 2007 to 33.7 percent in 2010. coming due in 2013, thus allowing Georgia to significantly smooth out its debt Figure 4 repayment profile. Financial Sector Liquidity and capitalization of the banking sector have improved since mid-2009 and non-performing loans have abated, but the banking sector remains highly dollarized. Deposits 3 have grown strongly since mid-2009 and about 2 percent). The authorities have also banks have raised precautionary balances responded by distributing GEL 57 million and increased loan provisioning, with the (US$ 34 million) in untargeted food and result that liquidity and capitalization electricity vouchers and by announcing a indicators improved significantly. The plan to raise pensions by 25 percent from ratio of non-performing loans (NPLs) has September 2011. eased from a peak of 8.3 percent in September 2009 to 5 percent in March Figure 6 2011, although it remains elevated 20 Georgia: Consumer Price Inflation compared to pre-crisis levels. The banking system also remains substantially 10 dollarized, with about 74 percent of loans and 71 percent of deposits in foreign currency. As a result, while the direct 0 currency-induced credit risk to bank balance sheets from exchange rate depreciation is limited, the indirect risk -10 0107 0307 0507 0707 0907 1107 0108 0308 0508 0708 0908 1108 0109 0309 0509 0709 0909 1109 0110 0310 0510 0710 0910 1110 0111 0311 0511 0711 through balance sheets of borrowers is significant. The authorities have taken a CPI MoM CPI YoY number of steps to enhance bank supervision and encourage de-dollarization. Poverty and Social Protection Figure 5 8000 Georgia: Deposits and loans Several indicators point toward an 7000 improvement in living standards in 6000 Georgia between 2003 and 2007. GEL million 5000 Comparisons based on the annual national 4000 Household Budget Surveys (HBS) suggest 3000 a reduction in the poverty headcount from 2000 28.5 percent in 2003 to 22.7 percent in 1000 2008. Real household consumption per 0106 0506 0906 0107 0507 0907 0108 0508 0908 0109 0509 0909 0110 0510 0910 0111 0511 adult equivalent increased from 122 GEL Total Deposits Total loans, FX and Lari in 2003 to 141 GEL in 2008 (about a 16 percent increase, in 2007 prices). Inequality also followed a similar pattern, Inflation has picked up markedly since with the Gini coefficient declining from the second half of 2010 after being in 38.0 in 2003 to 33.8 in 2008. In addition, the low single digits for most of the important non-income dimensions of post-crisis period. Inflation picked up to welfare improved for those in the bottom 11.2 percent (end-of-year) in 2010 and 14.3 deciles of the population since 2004. percent (y-o-y) in May 2011 from 3 percent These include significantly improved access in 2009. This has been driven primarily by to electricity, natural gas, safe water, health, higher international food and fuel prices and higher education. (with food prices up 30.7 percent y-o-y in May 2011 and fuel prices up 21.4 percent). Evidence on the impact of the In response, the NBG has progressively economic downturn starting in 2008 raised the refinancing rate from 5 percent points toward greater hardship in June 2010 to 8 percent in February 2011. resulting from higher unemployment So far, there is no evidence of second and the credit crunch. round effects on prices of products other The economic downturn has affected the than food or fuel (with core inflation at welfare of Georgian households on 4 multiple fronts, including reduced access to social safety net and simulations credit, increased unemployment, and indicate that social expenditures have a reduced wages and hours of work. The very significant impact in mitigating poverty headcount is estimated to have the incidence of poverty. increased from 22.7 percent in 2008 to 24.7 Targeted Social Assistance (TSA) and percent in 2009, with real household pensions both contribute significantly to consumption per adult equivalent declining reducing poverty in Georgia. Based on the from 141 GEL in 2008 to GEL 136 in Georgia national poverty line of 89.7 GEL 2009. Rural areas experienced a slower per adult equivalent per month, the poverty decline in poverty through 2008 and a headcount in 2009 without TSA would greater impact from the 2009 downturn. have been almost two percentage points Urban poverty incidence declined from higher than the headcount with TSA (27.5 23.7 percent in 2003 to 17.5 percent in percent versus 25.7 percent), while the 2008, before increasing to 18.4 percent in poverty gap would have been more than 2009; rural poverty incidence declined from two percentage points higher (9.6 versus 33 percent in 2003 to 27.8 percent in 2008, 7.5). As pensions are larger in value and before increasing to 30.7 percent in 2009. reach a much wider population, poverty Increased unemployment is one of the levels would have been much higher main transmission channels through which without pensions, with the headcount and the economic crisis has affected the welfare gap reaching 39.1 and 18.6, respectively. In of Georgians. Unemployment increased addition, both TSA and pensions reach a from 13.3 percent in 2007 to 16.9 percent proportionally larger share of the rural than in 2009, before moderating to 16.3 percent urban population, and thus have a relatively in 2010. greater poverty impact in rural areas (thereby also reducing spatial inequality). Figure 7 Figure 9 Cumulative distribution of consumption with and without pensions and TSA Figure 8 A key social challenge is support to internally displaced persons (IDPs). The first phase of the Government response following the August 2008 conflict focused on essential housing for 30,000 new IDPs. This remains a challenge, particularly for some IDPs from the 1990s. The bigger challenge is in terms Georgia has put in place an effective 5 of improving employment opportunities comparing with the MDG target of 12.3. and important public services for all IDPs. Life expectancy increased from 70.3 years Supporting IDPs is a central and priority in 1995 to 75.1 years in 2007. The feature of both the Joint Needs Government is in the midst of a major Assessment (JNA) and the recent Basic health reform, with greater private Data and Directions (BDD). The Bank is provision of services, combined with the working closely with the UN to assess and introduction of a Medical Insurance monitor the needs of IDPs. The ongoing Program (MIP), subsidized for the poorest. Regional and Municipal Infrastructure The ultimate goal is to improve key health Project provides direct assistance on IDP indicators of the population, where housing. The Bank has also approved an important strides have been made but IDP Community Development Grant to further progress is needed. support the social and economic integration of recently displaced IDPs into Figure 11 the society. The EU has also made Pre-immunization check-up at the Khunevi Ambulatory available grant resources to the Bank to constructed and equipped with WB assistance support this effort. The Bank will continue to monitor the situation with IDPs through analytic work on the impact of the economic crisis on IDPs and its follow up JNA Progress Reports with the UN, EU and other donors. Figure 10 IDP Housing constructed with the WB assistance. High level of private expenditures on health remains a challenge in the sector. 70 percent of expenditures are carried as out-of-pocket payments and represent the highest share in Europe and Central Asia (ECA) compared with 27 percent in the EU-12 and 16 percent in the EU-15 (WHO Health for All). This is partly caused by low public expenditures on health which accounted for only 1.85 Health Development percent of GDP despite recent budget increases for the sector. Recent trends in Georgia’s health indicators point to steady improvement. The Bank supports the health sector in Some progress has been observed in terms Georgia through (i) the Heath Sector of achieving the Health Millennium Development Project with the main Development Goals (MDGs): Infant objective to improve coverage, utilization mortality per 1000 live births has dropped and quality of health care services in the from 31 in 2000 to 26 in 2008. However, territory of Georgia, and to strengthen there is still some way to go to achieve the Government’s stewardship function in the MDG target of 7 per 1000 live births by health sector and (ii) Avian Influenza and 2015. The maternal mortality ratio at 20 Human Pandemic Preparedness and per 100,000 live births in 2007 as reported Response Project with the main goal to by the national sources is still high when minimize the threat posed to humans and 6 the poultry industry in Georgia by HPAI introducing new school leaving and other zoonoses in domestic poultry, examinations. In the framework of the and to prepare for, control, and respond to state program “Teach and learn with influenza pandemics and other infectious Georgia”, roughly 1,000 English speaking disease emergencies in humans. Additional individuals were invited to live in Georgia support is being provided by IDA/IBRD and teach in schools along with their through the First Development Policy Georgian counterparts. Operations, which provide support to many sectors, including health, for the 1st round of School leaving examinations, development of policy and institutional also referred to as Computer Adaptive Test reforms. (CAT), were carried out in July, 2011, in which 30% of the school graduates Education demonstrated a high level of knowledge. The teacher certification process was Georgia’s education system has launched across the country, which achieved internationally acceptable mandates each teacher to obtain levels of net enrollment and school accreditation by 2014. Up to 60, 000 first completion rates despite relatively graders will receive net-books free of modest levels of public expenditure at charge in September 2011 to build strong approximately 2.9 percent of GDP in ICT skills. School branding was also 2009. Notwithstanding the fact that introduced involving a mandatory Georgia spends on education half of what assessment of general education is spent on average within the region, institutions with a ten star system, to keep indicators such as gross primary and public informed about the quality of secondary enrollment rates do not differ education offered. In order to ensure safety from those regionally. There is indeed a at schools, the Ministry has introduced the very strong (92 percent) primary Institute of “Mandatories” (Resource Officers). enrollment rate and close to full gender At the higher education level, ambitious parity in classrooms. Learning outcomes accreditation of higher education programs have been benchmarked through Trends in is currently being carried out by the International Mathematics and Science National Center for Quality Enhancement. Study (TIMSS) and Progress in International Reading Literacy Study Figure 12 Unified university entrance examination (PIRLS), though the ranking indicates room for improvement (for example the 8th grade ranking shows Georgia as 33 out of 49 countries in math achievements). Quality of education remains a work in progress, though the Government of Georgia has put in place a number of new initiatives to address this issue. A new Strategy for the Development of Education in 2010-2015 has been adopted, which puts a strong emphasis on improving the quality of general education. Among many, some of the new initiatives introduced by the Government throughout 2010 include The Bank supports the Education emphasis on English language proficiency, Sector of Georgia through the Education ICT literacy, increased safety at schools, System Realignment and Strengthening improving teacher qualifications and Program – a three phase Adaptable 7 Program Loan (APL) which seeks to a major development challenge for the effectively realign the objectives of the Government. Agriculture has not education system and enhance the policy contributed significantly to Georgia’s and the management capacity to improve economic growth since 2004 and declining efficiency, quality and relevance of learning area under cultivation, yields, and livestock outcomes. APL1 (US$ 25.9 IDA credit) numbers point to the difficulties facing the closed in 2007. APL2 (US$ 15 million IDA sector. Issues depressing agricultural credit, and US$ 4.95 PHRD grant) closed productivity and investments relate to in August, 2011. Achievements include fragmentation of land, high transport costs construction of seven new schools and poor roads connectivity to markets and previously in dire physical condition, generally degraded rural infrastructure. implementation of the new national curriculum in all general education Figure 13 institutions across the country and Top 10 trade partners by export of agricultural products development of new policies for teacher (2010, million USD) professional development, including adoption of teacher professional standards and design and launch of teacher Ukraine, certification examinations. Czech rep, $84.1 m $7.1 m Azerbaijan, In addition, in 2009-2010 the Bank has $47.2 m mobilized US$ 260,000 from the Iraq, $7.8 m Education Program Development Fund Lithuania, (EPDF) for the financing of international $8.8m Germany, assessment of students’ learning Turkey, $11.1m Belarus, Kazakhstan, Armenia, $21.1 m achievements. $13.6 m $16.7 m $17.6 m The lack of standards, phytosanitary and Agriculture Development plant protection measures, and livestock disease control are also a challenge going The Government is working towards forward and in particular limit export increasing rural productivity and potential for agricultural products. incomes based on a strategy of Inadequate seed quality, poor rural providing a more conducive infrastructure, and limited financial services environment for private agricultural in rural area also continue to constrain the investment, both foreign and domestic. sector. Government support for traditional Its business environment reforms, along agricultural services such as research and with land reforms introduced in 2005 to extension and veterinarian services is provide secure titles to agriculture land, are limited. intended to help foster growth of a more Figure 14 commercially oriented sector. Although the share of agriculture in total GDP has Top 10 Agricultural Export Commodities declined significantly (from 25 percent in (2010, million USD 1999 to about 8.4 percent in 2010), it remains an important sector in Georgia given that over 50 percent of the population lives and works there. Agriculture contributes to about 25 percent of exports (compared to 39 percent in 2005). The agricultural sector continues to be 8 Bay leaf, Apple concentrat 100 Black see $3.7 m Anchovy, e, $3.6m 4.1 50 Cattle, 19.4 Mandarin, 12.1 0 fair Non alcoholic main poor secondary local main beverages, secondary Sheep, local 13.8 $14.4 m good 2004 2009 The Bank supports the agriculture sector of Georgia through the Rural The Government has asked Development Project and the Avian international development agencies to Influenza Project. The Bank is also rehabilitate different segments carrying out a Rural Investment Climate according to its medium term program. Assessment study, primary results of which The World Bank is already financing the will be available in Autumn, 2011. most congested section through its series of East-West Highway Operations, as well as rehabilitating Kakheti Roads and various Transport secondary and local roads of Georgia. The Bank also finances technical assistance Georgia’s transport system is a key link components to strengthen capacity of the in the historic “Silk Road”, which the Roads Department as well as local Transport Corridor Europe to Central government units in management and Asia (TRACECA) initiative seeks to maintenance of the road network. Other emulate. Both in terms of geographical donors including JICA, ADB and the MCC location and existing infrastructure, are financing different sections, and the Georgia is well placed to absorb growing Government is seeking additional donor transport demands. It is located on the support for other segments. shortest route between Europe and Azerbaijan, Armenia and the Central Asian Energy countries through its Black Sea ports. The Government has made remarkable Road Rehabilitation has been a key strides in recent years turning around a Government priority since 2004. collapsing energy sector. Power supply Rehabilitation and maintenance budgets has significantly improved and Georgia has have increased substantially. The secured a diversified and stable gas supply. Government’s commitment to Power system outages steadily improved rehabilitation of main, secondary and local going from 15-20 hours per day to virtually roads networks has intensified in response continuous power supply. The turnaround to the global economic down-turn, as road in the sector was related in part to the rehabilitation will improve access to privatization of power generation and markets and services, and create short-term distribution with the Government employment through civil works. supporting private operator efforts to improve payment discipline through financing the installation of meters and Figure 15 stopping political interference in tariff Roads Condition in Georgia collection. Georgia has also stabilized its 9 basic energy security by increasing gas reliability and efficiency of electricity supplies from Azerbaijan through the new supply, and improving financial and South Caucasus Pipeline (SCP) and other corporate management in the wholesale pipelines. electricity market. Figure 16 Number of Major Power Blackouts 2004-2008 Municipal Services The Government recognizes the importance of building local infrastructure not only to increase the well being of the population but also as a key element in promoting growth. Roads, water and sanitation infrastructure has remained in need of substantial rehabilitation in much of the country. Now that Georgia has developed a more stable and reliable energy sector, The Bank has been providing the next challenge is to continue significant support through the Georgia increasing power generation to meet Municipal Development Fund (MDF) future domestic demand and to to assist in improving intergovernmental generate additional income from power fiscal relationship, raising the capacity of exports. At the same time efforts are local governments, restoring infrastructure, required to improve the efficiency in improving efficiency and reliability of domestic energy use. The most promising selected municipal infrastructure and source of additional energy generation is service, and improving housing and hydropower where only 12 percent of infrastructure conditions of IDPs. Georgia’s hydropower potential is being Investments results in improved access to, utilized. In order for the Government to and quality of water, improved energy implement its strategy for energy security efficiency and reduced transport time and and export oriented production, in the near cost on local roads. term it is focused on securing private Figure 17 investments for construction of new hydropower stations. For the medium to Kutaisi fire fighters are taking good care of the new vehicles purchased under the WB assistance long term, the Government will explore other forms of financing for promising projects. Further hydropower utilization also requires increased power transmission capacity for domestic and export purposes, an issue that is being addressed in parallel. Strong regulatory involvement is also needed, within the context of private provision of power. The Bank has supported the Energy sector of Georgia through an The Bank extended a new Regional & Infrastructure Pre-investment Facility Municipal Infrastructure Project in the aimed at facilitating infrastructure amount of US$ 40 million IDA in 2009, investments that have strategic importance, and US$ 45 million IDA/IBRD in 2010, and the recently closed Electricity Market which is providing both regular and Supply Project aimed at improving emergency support in light of the August 10 conflict. The Bank is also administering a while 36 percent is directed on budget Cities Alliances Grant for Tbilisi to develop assistance through development policy a City Development Strategy. operations. Public Financial Management The Country Partnership Strategy (CPS) approved by the Board in The Government has taken significant September 2009 with new planned steps to improve the public financial IDA/IBRD lending of about US$ 396 management system. The budget has million for the fiscal years 2010-2013. The been reformed through establishment of strategic objectives of the CPS are to (i) medium-term expenditure framework, meet post conflict and vulnerability needs, gradual introduction of program budgeting and (ii) strengthen competitiveness for and implementation of the Treasury Single post-crisis growth. Given the short-term Account. The tax and customs codes also financing needs, the Government have been simplified and revenue requested maximum frontloading of administration has been reorganized and financial flows from both IDA and IBRD strengthened. In addition, the Chamber of sources. To that end, the lending program Control was transformed into the Supreme in fiscal year 2010 amounted to US$ 290 Audit Institution (SAI), including million and represented the highest volume amendment of the external audit legislation since joining the Bank. In view of to address shortcomings in the area of increased IDA-16 envelope for Georgia, public accountability and oversight, and and increased IBRD exposure limit, the endorsement of a new financial audit CPS program lending will increase by methodology consistent with INTOSI about US$ 320 million. standards. Figure 18 The Bank supports the Public sector in WB Commitments in USD million by Fiscal Years Georgia through (i) the series of Development Policy Operations (DPOs); 350 (ii) ongoing Public Sector Financial 300 Management Reform Support Project, and 250 (iii) IDF grant for Tbilisi City Capital 200 Investment Planning and Budgeting. 150 100 50 THE WORLD BANK 0 PROGRAM IN GEORGIA Georgia joined the World Bank in 1992 and the International Development * Includes actual plus projected lending. Association (IDA) in 1993. The Bank has Fiscal Year starts July 1. provided financing for 51 projects in different sectors totaling over US$ 1.55 Key accomplishments of the CPS cut billion of IDA Credits and Grants, and across both pillars and various sectoral IBRD Loans, of which about 92 percent interventions. Over 600 km of roads has already been disbursed. Approximately were rehabilitated, creating about 20,000 64 percent of the Bank financing for person-months of employment and Georgia comes on Investment Projects providing improved public access to 11 markets and social services. Seven new Growth – South Caucasus regional work schools were constructed, serving 4150 with focus on regional competitiveness, students (about half of whom are girls) and agriculture, trade, power and environment; employing more than 300 teachers. Over (v) Skills Study, also part of a South 1800 health specialists were trained in Caucasus regional work, to look at the role family medicine, of which 95 percent are of labor markets, education and training, in women. A 25-bed hospital was enhancing market skills; and (vi) South constructed in a mountainous area and a Caucasus Poverty and Inequality Analyses primary health care center was opened in that will focus on informing policy choices Gori serving about 69,000 beneficiaries (of to maximize poverty reducing impacts of which 10,000 are IDPs). The targeted growth and social policies, social assistance (TSA) scheme was scaled up to cover 408,367 beneficiaries, of which In addition, the Bank has, jointly with the about 56 percent are women. Government, embarked on communication Improvements in the business initiative around key policy issues. Several environment have continued. The e-filing round-tables with the representatives from system was expanded for all tax payments; the Government, private sector and think- as a result, 75 percent of all declarations in tanks were organized over issues such as 2010 were done electronically (compared investment climate, health system with only 10 percent in 2009). performance, social protection, tertiary education, agriculture, and other. Figure 19 Disbursements in USD million by Fiscal Years Current Portfolio consists of 8 active investment projects, financed by 8 IDA $300 Credits/Grants and 5 IBRD loans for a $250 total of US$ 477 million, of which about $200 US$ 92 million is undisbursed. In addition, $150 The Board approved a US$ 40 million $100 DPO3 in July, 2011 which will be $50 disbursed in the coming weeks. $- Additional lending of about $335 million FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12* is envisaged for over FY12-13. This is expected to come from both IDA and IBRD sources and includes US $ 40 million * As of August 25, 2011. Fiscal Year starts July 1. for DPO3 already approved in July, 2011. Other projects in the pipeline for the Analytical and Advisory Activities current fiscal year are: (i) US$ 50 million (AAA) further contribute to program Regional Development project, (ii) US$ 40 implementation. For the current Fiscal million second Secondary and Local Roads Year the Bank will focus on the following project, and possible US$ 43 million activities: (i) Georgia Programmatic PER - Additional Financing for the ongoing poverty work that provides useful analysis Third East-West Highway Development of poverty impacts of changing patterns of project to finance additional section of the growth as well as of key social programs; road subject to technical feasibility and (ii) Georgia Rural Investment Climate social/environmental safeguards. Assessment (RICA) that contributes to understanding the constraints faced by the In addition to IDA/IBRD operations rural sector at the household, farm and there is an active program of 6 Trust non-farm levels; (iii) Capacity Building for Fund operations for about $8 million the GeoStat; (iv) Analysis on Sources of which is financing or co-financing ongoing 12 projects as well as providing sector diagnosis and strategies that underpin the Bank’s dialogue and possible interventions. 13 ONGOING PROJECTS Health Sector Development Project Key Dates: Approved : August 1, 2002 Effective: May 6, 2003 Closing: December 31, 2011 Financing in million US Dollars: Financier Financing Disbursed* Undisbursed IDA Credit 23.50 22.90 3.02 Government of Georgia 4.46 Total 27.96 22.90 3.02 *World Bank Disbursements as of August 22, 2011. Note: Disbursements may differ from financing due to exchange rate fluctuations at the time of disbursement. The Government has been implementing a major reform program in the health sector, whereby the private sector role in health financing and service provision was increased by privatizing public health facilities, public funds were prioritized to finance health care for the poor and other vulnerable groups, public health financing have been channeled through private health insurance companies, and the regulatory role of Ministry of Labor, Health and Social Affairs (MoLHSA) has been strengthened. In light of these reforms, the Government requested that the Bank support under the Primary Health Care (PHC) Development Project be revised by increasing funds for additional training on family medicine, to revise financial management guidelines, to strengthen the stewardship functions of the MoLHSA, and to develop a modernized public health information management system covering the entire health system rather than just PHC as was originally envisaged. To meet the new requirements of the reform, the Government and the Bank agreed to restructure the project (restructured in 2009). The Project Development Objective (after restructuring) is to improve coverage, utilization and quality of health care services on the territory of Georgia, and to strengthen Government’s stewardship function in the health sector. Under the Project, existing health facilities and regional family medical training centers are being upgraded. The Project also strengthens the capacity of primary healthcare. In addition, the Project supports overall health sector reform by building capacity of MoLHSA and other relevant agencies for health policy formulation, regulation, financing, monitoring and evaluation. Health Management Information System will also be strengthened and information and communications campaign for the sector will be designed and implemented. Results achieved to date: • The first cohort of 103 PHC facilities in Imereti, Adjara and Shida Kartli are fully operational - rehabilitated, equipped, and staffed with trained personnel. A 25-bed hospital was built in high mountainous Ambrolauri and represents a good example of PPP as it has been handed over to a private insurance company for management. • The world class clinical practice guidelines were introduced and related capacity building was supported. The new guideline on Acute Stroke has been developed and approved by the Ministry. • The Family Medicine Faculty, established at the State Medical University, along with the network of 5 national training centers, is actively involved in the training of PHC personnel. 43 percent of population covered with re- trained family medicine providers, compared to 0.6 percent at the beginning of the Project. 78 percent of rural population has access to a PHC clinic within 30 minutes of transportation/walking – way above the targeted 50%. • Immunization rate of Diphteria, Pertussis, and Tetanus (DPT3) increased and reached about 92 percent in 2010. • 80 percent of population is satisfied with PHC services in target areas, as measured by the utilization survey. • Number of tuberculosis patients managed at the PHC level has increased from 3 to 57 percent. • Public health expenditure earmarked to program for poor has increased from 3.6 to 38 percent. Key Partners: The Bank team works closely with (i) the Ministry of Labor, Health and Social Affairs of Georgia which is responsible for overall implementation of the Project and policy development; (ii) National Center of Disease Control and Public Health responsible for daily oversight and management of Project activities; and other sub-ordinate structures of the MoLHSA. The GoG’s health care reform agenda is also supported by the USAID, the EU, the Global Fund and the UN agencies with which the World Bank team coordinates on a regular basis. East-West Highway Improvement Project Key Dates: Approved : December 5, 2006 Effective: March 5, 2007 Closing: June 30, 2013 (additional financing) Financing in million US Dollars: Financier Financing Disbursed* Undisbursed IDA Credit 19.00 19.75 - IBRD Loan 28.00 16.31 11.69 Government of Georgia 9.34 Total 56.34 36.06 11.69 *World Bank Disbursements as of August 22, 2011. Note: Disbursements may differ from financing due to exchange rate fluctuations at the time of disbursement. Georgia enjoys a strategic location - on the shortest route between Europe and Azerbaijan, Armenia and the Central Asian countries through its Black Sea ports. It also links Russia and Turkey. Trade with neighboring countries, both transit and bilateral, is thus an important feature of the economy. The transport sector is one of the fastest growing in the Georgian economy. Nevertheless, in terms of ton-kilometers, total land transport movement only amounts to about one third of the levels in 1990. The transport infrastructure remains deficient, and hinders growth in other sectors, including agriculture. The transport infrastructure has to improve if Georgia wants to benefit from its strategic transit location, to support its recovering economy, and to integrate its whole population to the national economy. The Government of Georgia and the World Bank have, therefore, designed a series of projects to upgrade the condition of the main East West Highway Corridor between Azerbaijan and Turkey, while also supporting the institutional development of the roads administration. The Project Development Objectives are to (i) contribute to the gradual reduction of road transport costs and improve access, ease of transit, and safety along the central part of Georgia's East-West corridor, through upgrading a segment of the East-West Highway from Tbilisi to Rikoti, including the rehabilitation of the Rikoti Tunnel; and (ii) to strengthen the capacity of the Government, Roads Department and the local road construction industry to plan and better manage the road network. The Project builds upon the Bank’s past involvement and addresses some of the remaining policy and investment gaps in the road sector. Specifically, the Project upgrades the 13 km Agaiani to Igoeti section of the E60 Highway from two lanes to four lanes. An Additional Financing, in the amount of US$ 28 million, designed to scale up the original Project to rehabilitate the Rikoti Tunnel, repair its by-pass road, and support additional institutional strengthening, was approved by the Board in November 2009. Results achieved to date: • The second carriageway has been rehabilitated, and the 4 lanes of upgraded 13 kilometer section of E60 Highway between Agaiani to Igoeti are now open to traffic. Transit time has been reduced from 10 minutes to about 7 minutes (which was one of the targets of the project). • Vehicle operating costs have been reduced as a result of improved roads – from $0.20 to $0.16 for cars and from $0.76 to $0.68 for trucks. • Works to rehabilitate Rikoti Tunnel (as part of the Additional Financing) are also underway, while Rikoti by-pass has already been rehabilitated and was open to traffic in June 2010. 15 Key Partners: The Bank team works closely with (i) the Ministry of Regional Development and Infrastructure of Georgia (MoRDI), responsible for policy setting, (ii) Roads Department under the MoRDI, which is responsible for implementing the Project; and (iii) Transport Reform and Rehabilitation Center (TRRC) responsible for Financial Management and Disbursement functions within the Project. Key Development Partners include JICA, ADB, MCC, EC, IBRD, EIB, Kuwait Fund which have been financing (or plan to finance) different sections of Georgia’s road network, and which the World Bank team maintains regular interaction through the donor coordination meetings. Second East-West Highway Improvement Project Key Dates: Approved : December 18, 2007 Effective: March 10, 2008 Closing: February 29, 2012 Financing in million US Dollars: Financier Financing Disbursed* Undisbursed IDA Credit 55.00 55.05 1.64 Government of Georgia 55.00 Total 110.00 55.05 1.64 *World Bank Disbursements as of August 22, 2011. Note: Disbursements may differ from financing due to exchange rate fluctuations at the time of disbursement. This is a second in the series of East-West Highway Improvement projects in Georgia Portfolio. The Project Development Objectives are to (i) contribute to the gradual reduction of road transport costs and improve ease of transit, and safety along the central part of Georgia's East-West corridor, through upgrading a segment of the East- West Highway from Tbilisi to Rikoti; and (ii) to strengthen the capacity of the Government agencies (and particularly Roads Department) to develop and implement a traffic safety program. Specifically, the Project envisages upgrade of the Igoeti to Sveneti section of the E60 Highway from two lanes to four lanes (24 km section), rehabilitation of existing 2 lanes, and construction of 4 bridges. Results achieved to date: • Construction of the East-West highway is still underway – 21 kilometers of the 24 kilometer section of the E60 Highway have been fully constructed and/or rehabilitated. Defect fixing is underway on the remaining 3 km. • Transit time in the direction from Igoeti to Sveneti has reached target values (reduced from 19 minutes to 12 minutes) but the opposite direction is still partly under construction. • Vehicle operating costs have also been slightly reduced – from $0.20 to $0.19 for cars and from $0.76 to $0.71 for trucks. • The Government has adopted the National Road Safety Strategy and the Action Plan. Key Partners: The Bank team works closely with (i) the Ministry of Regional Development and Infrastructure of Georgia (MoRDI), responsible for policy setting, (ii) Roads Department under the MoRDI which is responsible for implementing the Project; and (iii) Transport Reform and Rehabilitation Center (TRRC) responsible for Financial Management and Disbursement functions within the Project. Key Development Partners include JICA, ADB, MCC, EC, IBRD, EIB, Kuwait Fund which have been financing (or plan 16 to finance) different sections of Georgia’s road network, and with whom the World Bank team maintains regular interaction through the donor coordination meetings. 17 Third East-West Highway Improvement Project Key Dates: Approved : September 10, 2009 Effective: November 3, 2009 Closing: June 30, 2013 Financing in million US Dollars: Financier Financing Disbursed* Undisbursed IBRD Loan 147.00 104.24 42.76 Government of Georgia 37.12 Total 184.12 104.24 42.76 *World Bank Disbursements as of August 22, 2011. Note: Disbursements may differ from financing due to exchange rate fluctuations at the time of disbursement. This is a second in the series of East-West Highway Improvement projects in Georgia Portfolio. The Project Development Objectives are to (i) contribute to the gradual reduction of road transport costs and improve access, ease of transit, and road safety along the central part of Georgia's East-West corridor, and (ii) to strengthen the capacity of the Government, Roads Department and relevant Government entities to plan and manage the road network and to improve traffic safety. The Project builds upon the Bank’s past projects and addresses some of the remaining policy and investment gaps in the road sector. Specifically, the Project envisages the upgrade of the 15 km segment of the E60 East-West Highway from Sveneti to Ruisi to a dual carriageway. The East-West Highway will be selected to implement a holistic approach to traffic safety along part of E60 corridor which will integrate ambulance services, police, first aid training and other safety measures under the corridor safety management plan. As a result of the Project, the road users will get better road quality and level of service, avoid costly congestion, have better road safety, and save on travel time. Results achieved to date: • Civil works are underway on the 15 km segment of the E60 Highway – 6 kms have already been completed, and 12 km section is open to traffic in the East-West direction. • Institutional strengthening and road safety components have started implementation; procurement is completed for the development of road safety audit guidelines. Monitoring and Evaluation outputs have recently improved. Key Partners: The Bank team works closely with (i) the Ministry of Regional Development and Infrastructure of Georgia (MoRDI), responsible for policy setting, (ii) Roads Department under the MoRDI which is responsible for implementing the Project; and (iii) Transport Reform and Rehabilitation Center (TRRC) responsible for Financial Management and Disbursement functions within the Project. Key Development Partners include JICA, ADB, MCC, EC, IBRD, EIB, Kuwait Fund which have been financing (or plan to finance) different sections of Georgia’s road network, and with whom the World Bank team maintains regular interaction through the donor coordination meetings. 18 Secondary and Local Roads Project Key Dates: Approved : June 24, 2004 Effective: October 21, 2004 Closing: October 31, 2011 Financing in million US Dollars: Financier Financing Disbursed* Undisbursed IDA Credit 20.00 22.23 - IBRD Loan 70.00 62.54 7.46 Government of Georgia 37.14 Total 127.44 84.76 7.46 *World Bank Disbursements as of August 22, 2011. Note: Disbursements may differ from financing due to exchange rate fluctuations at the time of disbursement. At the time of the Project preparation about 60 percent of secondary roads were in poor condition and required rehabilitation while large network of local roads was on average, in a very poor condition. Previous Bank operations in the transport sector had focused on the main highway networks, which are important for trade and transit, and on institutional strengthening. Addressing rural poverty, however, required improvement of the extremely poor condition of secondary and rural roads networks. This is important both to stimulate agricultural output, and to make various social services more accessible to the rural poor. The Project Development Objective is to (i) upgrade and rehabilitate the secondary and local roads networks; and (ii) increase RDMRDI’s and local Governments’ capacity to manage the road network in a cost effective and sustainable manner. The original US$ 20 million (IDA credit) Project envisaged rehabilitating about 250 kilometers of secondary and local roads, carrying out drainage improvements and providing signage and access to adjacent properties. Additional financing of US$ 70 million (IBRD loan) approved in March 2009 envisaged to rehabilitate additional 450 kilometers of secondary and local roads, and also to strengthen capacity of local government units in management and maintenance of local roads network. Due to accumulated cost savings the Project was further restructured in February 2010 and the new target is to rehabilitate a total of 840-880 kilometers of secondary and local roads instead of 700 kilometers. As a result of the Project, travel time will be reduced by 20 percent on the targeted road sections. Results achieved to date: • Rehabilitation of 250 km of secondary and local roads envisaged at the project preparation has been completed • The works on the 38 road sections – 450 kilometers envisaged under the Additional Finance (AF) program - are either completed (about 182 km) or are successfully under implementation. • Travel time has improved by 16.8% on targeted road sections. • Percentage of roads in good and fair condition as a share of total classified roads has increased from 40% to 48% (target – 61%) • As a result of civil works, 10,122 person-month of jobs have been created. • 6 regional offices of the Roads Department are fully operational, 148 Traffic Police staff were trained. • The Roads Department (RD) has developed a 5 year rolling plan and is using it as a planning tool for planning of investments. • RD has initiated the adoption process of the Design and Maintenance standards. Key Partners: The Bank team works closely with (i) the Ministry of Regional Development and Infrastructure of Georgia (MoRDI), responsible for policy setting, (ii) Roads Department under the MoRDI which is responsible for implementing the Project; and (iii) Transport Reform and Rehabilitation Center (TRRC) responsible for Financial Management and Disbursement functions within the Project. Key Development Partners include JICA, ADB, MCC, EC, IBRD, EIB, Kuwait Fund which have been financing (or 19 plan to finance) different sections of Georgia’s road network, and with which the World Bank team maintains regular interaction through the donor coordination meetings. Kakheti Regional Roads Improvement Project Key Dates: Approved : November 10, 2009 Effective: December 8, 2009 Closing: November 3, 2013 Financing in million US Dollars: Financier Financing Disbursed* Undisbursed IBRD Loan 30.00 22.13 7.65 Government of Georgia 7.50 Total 37.50 22.13 7.65 *World Bank Disbursements as of August 22, 2011. Note: Disbursements may differ from financing due to exchange rate fluctuations at the time of disbursement. Roads are the lifeline of the economic activities of most Georgians, and even in the main foreign trade road corridors, local movements represent up to 90 percent of the traffic. In the Kakheti region, the main activities are wine industry and tourism. A reliable transport network is essential to stimulate both of these activities as well as to reduce poverty in rural areas. The Project Development Objective is to reduce transport costs and improve access and traffic safety for Kakheti regional roads. The Project entails (a) rehabilitation of 65 km Vaziani-Gombori-Telavi (VGT) road, mainly along its existing alignment; (b) implement traffic safety improvement measures on the VGT road and along the existing alignment of Vaziani-Sagarejo-Bakurtsikhe-Gurjaani-Telavi road; and (c) strengthen the operational effectiveness of the Sagarejo Regional Office of the Roads Department. As a result of this Project, travel time on the above section will be reduced from 120 to 55 minutes, vehicle operating costs will be reduced by about 30 percent, and road safety hazards are also supposed to decrease. Results achieved to date: • The rehabilitation works are almost finished on the Vaziani-Gombori-Telavi road (50 km) which has been open to traffic since October 2010. • Travel time Vaziani and Telavi via Gombori has decreased from 120 to 60 minutes. • Vehicle operating costs have reduced significantly – from $0.36 to $0.17 for cars and from $1.05 to $0.65 for trucks. • The Government has proposed to rebuild Sasadilo-Sioni road with the savings under the project. Key Partners: The Bank team works closely with (i) the Ministry of Regional Development and Infrastructure of Georgia (MoRDI), responsible for policy setting, (ii) Roads Department under the MoRDI which is responsible for implementing the Project; and (iii) Transport Reform and Rehabilitation Center (TRRC) responsible for Financial Management and Disbursement functions within the Project. Key Development Partners include JICA, ADB, MCC, EC, IBRD, EIB, Kuwait Fund which have been financing (or plan to finance) different sections of Georgia’s road network, and with which the World Bank team maintains regular interaction through the donor coordination meetings. 20 21 Regional & Municipal Infrastructure Development Project Key Dates: Approved : October 2, 2008 Effective: December 12, 2008 Closing: June 30, 2013 Financing in million US Dollars: Financier Financing Disbursed* Undisbursed IDA Credit 51.50 47.55 5.92 IBRD Loan 33.50 24.75 8.74 Trust Fund/EU 3.70 1.20 1.62 Government of Georgia 10.80 Local Governments 7.90 Local Sources, other 6.70 Total 114.10 73.50 16.28 *World Bank Disbursements as of August 22, 2011. Note: Disbursements may differ from financing due to exchange rate fluctuations at the time of disbursement. Since Georgia’s independence in 1991, many years of decline in the quality, coverage and maintenance of basic urban services had reduced dramatically the quality of life and constrained private sector growth. The situation has improved over the last decade, but roads, water and sanitation infrastructure has remained in need of substantial rehabilitation in much of the country. The August 2008 conflict has resulted in shocks to the key pillars of economic development, and increased numbers of IDPs with no homes by 30,000 people. The Project Development Objective is to improve efficiency and reliability of selected municipal infrastructure and service, and to assist in restoring infrastructure, services and improving housing conditions of conflict-affected people in Georgia. The Project makes financing available to creditworthy municipalities on a combined loan and grant basis, and grants to small LSGs, to implement their high priority municipal services and infrastructure subprojects such as water & wastewater, local roads, solid-waste disposal and street lighting. The Project also finances construction of durable housing and infrastructure for IDPs. Results achieved to date: The project has implemented 113 water, wastewater and road subprojects throughout Georgia in 53 urban and rural municipalities benefitting about one million inhabitants, half of which are women. Also, following the armed conflict of 2008, the project has constructed housing for IDPs in a record time. More specifically: • About 3600 IDPs have benefited from the construction of 783 houses under the Project. With the EU co-financing of EUR 3.00 million major improvements have been carried out to the IDP settlements, namely: house improvement and infrastructure expansion activities such as rehabilitation of drainage channels and pedestrian crossings, construction of a bridge over the Mtkvari River leading to Akhalsopeli IDP settlement, Provision of 133 solid-waste containers and eleven trucks, Improvement of the physical conditions of 1263 houses in nine IDP settlements. • Electricity consumed reduced (from average 0.7 kilowatt hour consumed/ m3 to 0.4) due to installation of more energy efficient water systems. • Hours of piped water service increased from average 7 hours/day to 12. Piped household water connections that are benefiting from rehabilitation works undertaken by the project have increased by 30,000. • Vehicle operating costs have been reduced average of 25% due to improved urban roads condition. Key Partners: The World Bank and the U.S. Millennium Challenge Corporation (MCC) have entered into an innovative partnership around the MDF, under which MCC provides US$ 85 million for municipal infrastructure development over the period 2006-2011, and the World Bank provides technical, safeguards and procurement quality assurance and supervises implementation under a fee-based service arrangement. Similarly, the World Bank and the European Union (EU) have concluded a partnership agreement (2010-2011) by which the EU provides EUR 3.00 million trust fund to co-finance the improvement of the IDPs’ housing and infrastructure conditions. The Bank is also collaborating with ADB, EBRD, 22 USAID, German Cooperation (GTZ and KfW), European Investment Bank (EIB), UNHCR and the Cities Alliance Program, all of which provide financing or technical assistance to the municipal sector in Georgia. Public Sector Financial Management Reform Support Project Key Dates: Approved : February 16, 2006 Effective: August 3, 2006 Closing: March 1, 2012 Financing in million US Dollars: Financier Financing Disbursed* Undisbursed IDA Grant 3.00 0.40 3.01 Govt of Georgia 0.90 0.74 0.16 Other Donors: SIDA 4.50 2.85 1.65 DFID 4.50 4.50 - Netherlands 2.10 1.64 0.46 Total Project Cost 15.00 10.13 5.28 *World Bank Disbursements as of August 22, 2011. Note: Disbursements may differ from financing due to exchange rate fluctuations at the time of disbursement. Since independence, Georgia’s efforts to construct a democratic state and rebuild the economy have been challenged by a number of factors including two separatist conflicts, civil war, domestic political controversy, and a series of natural calamities. Significant structural reforms were undertaken in the late 1990s but achievements were diluted by weak fiscal management and poor public sector capacity. Successful implementation of second-generation reforms required sustained commitment and capacity across the Government. The Project Development Objective is to enhance governance, particularly in the public financial management domain, through: i) strengthening the institutional capacity of key agencies to more effectively and efficiently use public resources; and ii) improving accountability in the use of public resources. The Project is part of a larger reform program spelled out in the Public Financial Management Reform Policy Vision of the Government. It helps to: (i) strengthen planning and budgeting capabilities through support to the Medium-Term Expenditure Framework; (ii) introduce more effective systems for tracking the use of public resources through an expanded Treasury management system; (iii) improve HR management function of the Ministry of Finance (MoF) with potential roll-out to other line ministries; (iv) further increase accountability through strengthened external oversight capacities, by the Chamber of Control, and the provision of timely, transparent information to the Parliament and civil society groups. Results achieved to date: 1. Costed expenditure strategies included in 2010-2013 Basic Data and Directions (BDD) document cover about 88 percent of executive branch expenditures as approved by 2010 Budget Law; results-based sectoral strategies were prepared by three pilot ministries (Justice, Education, and Health) and presented to the Parliament as information annex only. 2. Ministry ceilings as per the Government’s Decree of June 11, 2009 are about 25 percent less than respective BDD estimates approved. This differences partially explained by the fact that ceilings do not include funds received from international financing sources (credits/grants) which account for about 66 percent of the variation. 3. Budget execution bi-annual and annual reports are prepared and issued on time. 4. Central personnel database for all staff (4,200 records) of the Ministry of Finance supported through locally developed software by the Financial Analytical Service (FAS) of MoF. 5. Fiscal year 2008 on-site annual audits covered 28 percent of central government expenditure; 2009 audit report is due by June 2010. 6. Budget information by years, BDDs, Government financial statistics and information about Central Government debt is published on the MoF website and updated; Citizens Guides to State Budget and BDD published regularly since 2006 and disseminated to the Parliament and other stakeholders; Citizens Guide on Tbilisi 2009 Budget as well as a brief review of its 6 months execution was published in 2009. 23 Key Partners: The Bank team works closely with (i) the Ministry of Finance of Georgia; (ii) Treasury Service of the MoF; (iii) Chamber of Control of Georgia which are key implementers and well as beneficiaries of the Project. Key Development Partners include SIDA, DfID, and the Embassy of Netherlands who financially contributed to the Project and the European Commission with whom the Bank Team coordinates closely on policy issues. 24 Programmatic Development Policy Operation (DPO) Key Dates: Approved : July 2, 2009 and July 29, 2010 Effective: July 16, 2009 and September 24, 2010 Closing: March 31, 2011 Financier Financing Disbursed* Undisbursed IDA Credit 165.00 129.00 40.27 IBRD Loan 10.00 10.00 - Trust Fund/Dutch 3.60 3.60 - Total 138.60 142.60 40.27 *World Bank Disbursements as of August 22, 2011. Note: Disbursements may differ from financing due to exchange rate fluctuations at the time of disbursement. The double shocks to the economy from the August 2008 conflict and the subsequent global economic crisis resulted in a sharp downturn in economic growth to 2.3 percent in 2008 and 3.8 percent contraction in 2009, from growth in excess of 9 percent during 2004 to mid-2008. Georgia has been addressing the dual challenge of mitigating the impact of the economic downturn in the short term, and facilitating recovery and creating the conditions for post-crisis growth with an effective social safety net in the medium term. Although economic growth rebounded to 6.4 percent in 2010, significant challenges remain in sustaining economic recovery and in creating the conditions for sustained post-crisis growth with an effective social safety net. The Program Development Objective is to support key elements of the Government of Georgia’s policy reform program to (i) mitigate the impact of the economic downturn in the short-term; and (ii) facilitate recovery and prepare Georgia for post-crisis growth in the medium-term. In addition to a satisfactory macroeconomic and fiscal framework, the main policy areas supported are: (i) improving the efficiency and effectiveness of public finances; (ii) improving the effectiveness of the social safety net; and (iii) improving external competitiveness. Results achieved to date: 1. The economic downturn was contained in 2009 and growth has rebounded strongly in 2010 and 2011. 2. An effective countercyclical fiscal stimulus was implemented in 2009 to mitigate the impact of the downturn; as economic recovery takes hold in 2010 and 2011, quality fiscal adjustment to safeguard sustainability is being implemented in a manner that protects important social and infrastructure investment expenditures. 3. Efficiency and effectiveness of public finances are being improved through an increase in coverage, quality, and monitoring of results-oriented budgets and through improved programming of public investment. A greater share of public expenditures is being covered by improved performance indicators; and transparency and accountability of public investment is being strengthened. 4. Effectiveness of the social safety net has been improved by scaling up coverage and benefits while enhancing targeting effectiveness. The shares of the poor and extreme poor receiving publicly subsidized health care and targeted social assistance have increased markedly. Steps have been taken to increase accountability and efficiency of state-funded health programs. 5. External competitiveness is being improved by reducing the time required for tax compliance and for trading across borders (with e filings up markedly and the share of customs declarations through the red corridor down significantly); furthermore, brisk progress was made in identifying trade-related reforms for improved access of Georgian products to international markets. Independence of the statistics agency with streamlined institutional structures has been established. Key Partners: The Ministry of Finance is the main coordinator for managing overall implementation of the DPO program. The Bank team works closely with the primary implementing line agencies, including the Ministry of Finance, the Ministry of Labor, Health, and Social Affairs, the Chief Trade Negotiator, and the Statistics Agency, GeoStat. Key Development Partners include the International Monetary Fund, the Netherlands Embassy (which provides co- financing for the DPO program), the European Commission, and the Asian Development Bank. 25 26