Georgia - First, Second and Third Competitiveness and ... · Web viewIMPLEMENTATION COMPLETION AND...

Document of The World Bank

Report No: ICR00003714

IMPLEMENTATION COMPLETION AND RESULTS REPORT(IDA-51470, IDA-52850, IDA-55110, IDA-55120)

FOR A

SERIES OF IDA CREDITS

IN THE AMOUNT OF SDR 39.8 MILLION, SDR 18.6 MILLION, SDR 7.8 MILLION AND SDR 6.85 MILLION

(US$60 MILLION, US$28 MILLION, US$12.1 MILLION, AND US$10.6 MILLION EQUIVALENT)

AND A SERIES OF IBRD LOANS

IN THE AMOUNT OF US$32 MILLION AND US$70 MILLION

TO THE REPUBLIC OF GEORGIA

FOR THE

FIRST, SECOND AND THIRDCOMPETITIVENESS AND GROWTH DEVELOPMENT POLICY LOANS

July 27, 2016

Macroeconomic and Fiscal Management Global Practice South Caucasus and Central Asia Country UnitEurope and Central Asia Region

CURRENCY EQUIVALENTS(Exchange Rate Effective as of May 2, 2016)

Currency unit = Georgian lari (GEL) 1.00 GEL = US$ 0.4494US$ 1.00 = 2.2249 GEL

FISCAL YEAR

January 1 – December 31

ABBREVIATIONS AND ACRONYMS

AA Association AgreementCCZ Customs Clearance ZonesCEM Country Economic Memorandum CFAA Country Financial Accountability

AssessmentCPA Country Procurement AssessmentCPAR Country Procurement Assessment

ReportCPS Country Partnership StrategyDCFTA Deep and Comprehensive Free

Trade AgreementDPL Development Policy LoanEBRD European Bank for Reconstruction

and DevelopmentEU European UnionFDI Foreign Direct InvestmentGCI Global Competitiveness IndexGDP Gross Domestic ProductGMO Genetically Modified OrganismsIBRD International Bank for

Reconstruction and DevelopmentICN International Competition NetworkICRR Implementation Completion Results

ReportIDA International Development

AssociationIFC International Finance CorporationIMF International Monetary FundIP Implementation progressIPSAS International Public Sector

Accounting StandardsISR Implementation Status ReportsLEPLs Legal Entities of Public Law

MIP Medical Insurance PlanMOES Ministry of Education and Science MOESD Ministry of Economy and

Sustainable DevelopmentMOF Ministry of FinanceMOLHSA Ministry of Labor, Health, and

Social AffairsNBG National Bank of GeorgiaPDO Project Development objectivesPEFA Public Expenditure and Financial

Accountability PER Public Expenditure ReviewPIRLS Progress in International Reading

Literacy Study PISA Program for International Student

AssessmentPRSC Poverty Reduction Support CreditsPSFMRS Public Sector Financial

Management Reform SupportSAID System Average Interruption

Duration indexSAIFI Average Interruption Frequency

IndexSCF Sofia Competition ForumSIMS Social Information Management

SystemTIMSS Trends in International

Mathematics and Science StudyTSA Treasury Single AccountUHC Universal Health CareUSAID United States Agency for

International Development

Vice President: Cyril MullerCountry Director: Mercy Miyang Tembon

Senior Global Practice Director: Carlos Felipe JaramilloPractice Manager: Miria Pigato

Project Team Leaders: Rashmi Shankar and Mona PrasadICRR Team Leader: Elena Bondarenko

GEORGIACOMPETITIVENESS AND GROWTH DEVELOPMENT POLICY LOANS

CONTENTS

Data SheetA. Basic Information...........................................................................................................iiB. Key Dates.......................................................................................................................iiiC. Ratings Summary...........................................................................................................ivD. Sector and Theme Codes................................................................................................vE. Bank Staff.......................................................................................................................viF. Results Framework Analysis.........................................................................................viiG. Ratings of Program Performance in ISRs.......................................................................xH. Restructuring...................................................................................................................x1. Program Context, Development Objectives and Design.................................................1

1.1 Context at Appraisal..............................................................................................11.2 Original Program Development Objectives and Key Indicators...........................21.3 Revised PDOs and Key Indicators, and Reasons/Justification..............................31.4 Original Policy Areas Supported by the Program:................................................51.5 Revised Policy Areas.............................................................................................61.6 Other Significant Changes.....................................................................................6

2. Key Factors Affecting Implementation and Outcomes...................................................72.1 Program Performance............................................................................................72.2 Major Factors Affecting Implementation:.............................................................82.3 Monitoring and Evaluation (M&E) Design, Implementation and Utilization:....112.4 Expected Next Phase/Follow-up Operation:.......................................................12

3. Assessment of Outcomes...............................................................................................123.1 Relevance of Objectives, Design and Implementation........................................123.2 Achievement of Program Development Objectives............................................133.3 Justification of Overall Outcome Rating.............................................................213.4 Overarching Themes, Other Outcomes and Impacts...........................................223.5 Summary of Findings of Beneficiary Survey and/or Stakeholder Workshops....24

4. Assessment of Risk to Development Outcome.............................................................245. Assessment of Bank and Borrower Performance..........................................................25

5.1 Bank Performance...............................................................................................255.2 Borrower Performance.........................................................................................26

6. Lessons Learned............................................................................................................287. Comments on Issues Raised by Borrower/Implementing Agencies/Partners...............29Annex 1 CG DPL Outcome Indicators and Prior Actions.................................................30Annex 2 Bank Lending and Implementation Support/Supervision Processes..................37Annex 2. Beneficiary Survey Results................................................................................40Annex 3. Stakeholder Workshop Report and Results.......................................................41Annex 4. Summary of Borrower's ICR and/or Comments on Draft ICR..........................42Annex 5. Comments of Cofinanciers and Other Partners/Stakeholders............................49Annex 6. List of Supporting Documents...........................................................................50

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A. Basic Information Program 1

Country Georgia Program Name

First Competitiveness and Growth Development Policy Loan

Program ID P129597 L/C/TF Number(s) IDA-51470ICRR Date 7/27/2016 ICRR Type Core ICRR

Lending Instrument DPL BorrowerGOVERNMENT OF GEORGIA

Original Total Commitment

XDR 39.80M Disbursed Amount XDR 39.80M

Implementing Agencies: The Ministry of Finance, The Prime Minister’s Office, The Ministry of Education and Science, and the Ministry of Labor, Health, and Social Affairs.Cofinanciers and Other External Partners Program 2

Country Georgia Program NameGeorgia Competitiveness and Growth DPL2

Program ID P143060 L/C/TF Number(s)IBRD-82790, IDA-51470, IDA-52850

ICRR Date 7/27/2016 ICRR Type Core ICRR



USD 60.00M Disbursed Amount USD 60.79M

Implementing Agencies: The Ministry of Finance, The Ministry of Economic Development, The Ministry of Education and Science, and the Ministry of Labor, Health, and Social Affairs.Cofinanciers and Other External Partners Program 3

Country Georgia Program NameGeorgia Competitiveness and Growth DPL3

Program ID P146890 L/C/TF Number(s)IBRD-82790,IBRD-83940, IDA-52850, IDA-55110,IDA-55120

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ICRR Date 7/27/2016 ICRR Type Core ICRR



USD 92.69M Disbursed Amount USD 92.25M

Implementing Agencies: The Ministry of Finance, The Ministry of Economic Development, The Ministry of Education and Science, and the Ministry of Labor, Health, and Social Affairs.Cofinanciers and Other External Partners

B. Key Dates First Competitiveness and Growth Development Policy Loan - P129597

Process Date Process Original Date Revised / Actual Date(s)

Concept Review: 04/17/2012 Effectiveness: 07/27/2012 07/28/2012Appraisal: 06/05/2012 Restructuring(s): n/a n/aApproval: 07/19/2012 Mid-term Review: n/a n/a Closing: 03/31/2013 03/31/2013

Georgia Competitiveness and Growth DPL2 - P143060






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C. Ratings Summary C.1 Performance Rating by ICRR Overall Program RatingOutcomes SatisfactoryRisk to Development Outcome ModerateBank Performance SatisfactoryBorrower Performance Satisfactory

C.2 Detailed Ratings of Bank and Borrower Performance (by ICR) Overall Program Rating

Bank Ratings Borrower RatingsQuality at Entry: Satisfactory Government: Satisfactory

Quality of Supervision: Satisfactory Implementing Agency/Agencies: Satisfactory

Overall Bank Performance: Satisfactory Overall Borrower

Performance: Satisfactory

C.3 Quality at Entry and Implementation Performance IndicatorsFirst Competitiveness and Growth Development Policy Loan - P129597

Implementation Performance Indicators QAG Assessments

(if any) Rating:

Potential Problem Program at Any Time (Yes/No):

No Quality at Entry (QEA): None

Problem Program at Any Time (Yes/No): No Quality of

Supervision (QSA): None

DO Rating before Closing/Inactive Status:

Moderately Satisfactory

Georgia Competitiveness and Growth DPL2 - P143060Implementation

Performance Indicators QAG Assessments (if any) Rating:






Moderately Satisfactory

iv

Georgia Competitiveness and Growth DPL3 - P146890Implementation

Performance Indicators QAG Assessments (if any) Rating:






D. Sector and Theme Codes First Competitiveness and Growth Development Policy Loan - P129597

Original ActualSector Code (% of total World Bank financing)Central government administration 31 31General industry and trade sector 18 18Health 25 25Primary education 13 13Tertiary education 13 13

Theme Code (% of total World Bank financing)Education for all 25 25Export development and competitiveness 6 6Health system performance 25 25Public expenditure, financial management and procurement 25 25

Trade facilitation and market access 19 19

Georgia Competitiveness and Growth DPL2 - P143060Original Actual

Sector Code (% of total World Bank financing)General education sector 22 22General energy sector 11 11General public administration sector 22 22Other domestic and international trade 23 23Other social services 22 22

Theme Code (% of total World Bank financing)Education for all 22 22

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Health system performance 11 11Public expenditure, financial management and procurement 22 22

Social safety nets/social assistance and social care services 11 11

Trade facilitation and market access 34 34

Georgia Competitiveness and Growth DPL3 - P146890Original Actual

Sector Code (% of total World Bank financing)General education sector 30 30General energy sector 10 10General public administration sector 20 20Other domestic and international trade 20 20Other social services 20 20

Theme Code (% of total World Bank financing)Education for all 30 30Public expenditure, financial management and procurement 15 15

Social safety nets/social assistance and social care services 20 20

Trade facilitation and market access 30 30e-Government 5 5

E. Bank Staff First Competitiveness and Growth Development Policy Loan - P129597

Positions At ICRR At ApprovalVice President: Cyril Muller Philippe Le HouerouCountry Director: Mercy Miyang Tembon Henry G. KeraliGlobal Practice Senior Director Carlos Felipe Jaramillo

Practice Manager: Miria Pigato Ivailo V. IzvorskiTask Team Leader: Rashmi Shankar Rashmi ShankarICRR Team Leader: Elena BondarenkoICRR Primary Author: Elena Bondarenko

vi

Georgia Competitiveness and Growth DPL2 - P143060Positions At ICRR At Approval

Vice President: Cyril Muller Philippe Le HouerouCountry Director: Mercy Miyang Tembon Henry G. KeraliGlobal Practice Senior Director Carlos Felipe Jaramillo

Practice Manager: Miria Pigato Ivailo V. IzvorskiTask Team Leader: Rashmi Shankar Rashmi ShankarICRR Team Leader: Elena BondarenkoICRR Primary Author: Elena Bondarenko

Georgia Competitiveness and Growth DPL3 - P146890Positions At ICRR At Approval

Vice President: Cyril Muller Laura TuckCountry Director: Mercy Miyang Tembon Henry G. KeraliGlobal Practice Senior Director Carlos Felipe Jaramillo

Practice Manager: Miria Pigato Ivailo V. IzvorskiTask Team Leader: Mona Prasad Mona PrasadICRR Team Leader: Elena BondarenkoICRR Primary Author: Elena Bondarenko

F. Results Framework Analysis

Program Development ObjectivesThe program document for the first and second DPL (DPL1 and DPL2) articulated that the overall Program Development Objectives (PDOs) of the Competitiveness and Growth (CG) DPL series were designed to support the Government of Georgia’s medium-term reform program by strengthening competitiveness and facilitating inclusive growth under three pillars: competitiveness, public financial management, and effectiveness of social spending.

Revised Program Development Objectives

For DPL3, the wording of the PDOs was revised to make them more specific to the content of the reforms. The PDOs for the DPL3 were to support the Government of Georgia to: (i) strengthen legislation to promote market access to the European Union and improve customs efficiency, power sector reliability, and the quality of general education; (ii) improve the coverage and transparency of the budget; and (iii) improve the accessibility and quality of healthcare services and efficiency of targeted social programs. For the purpose of evaluation, the ICRR uses the revised PDOs.

The indicators were adjusted to facilitate the concordance with the content and pace of the reforms. Table (a) lists the indicators from the DPL3 Program Document, which are used to assess the outcome rating.

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Indicator Baseline Value

Original Target Value (from

approval documents)

Revised Target Value

Actual Value Achieved at

Completion or Target Years

Indicator 1: The number of European and international standards registered/adopted as Georgian standards

ValueQuantitative orQualitative

Commencement of negotiations for the Deep and Comprehensive Free Trade Agreement with EU

20% increase from 4,700 in 2011

10% increase from 4,700 in

2011

69.5% increase (from 4,362 in 2011

to 7,394 in 2015)

Date Achieved 2012 12/31/2015 12/31/2014 12./31/2015Comments (Incl. % of achievement)

Surpassed (54% over the revised target, assuming that the revised target is 4,798). It should be noted that the original base value in 2011 was 4,362, as reported by the Ministry of Economy and Sustainable Development (MoESD) during the ICRR mission.

Indicator 2: Number of animal vaccinations done by the National Food AgencyValueQuantitative orQualitative

1.2 million 3.5 million -- 4.8 million

Date Achieved 12/31/2012 12/31/2014 -- 12/31/2015Comments (Incl. % of achievement)

Surpassed (37% over the original target). This indicator reflects the results of the policy action related to the implementation of the Law on Food Safety.

Indicator 3: Customs violation detection for a given number of checks based on the risk based management system Value Quantitative or Qualitative

175 100% increase relative to 2011 -- 560% increase

Date Achieved Nov/Dec 2011 Nov/Dec 2014 -- Nov 2015Comments (Incl. % of achievement)

Surpassed (180% over the original target). A number of actual violations reported at the target year was 981. This indicator reflects improvements in customs controls from introducing automated selectivity for transit traffic at border crossings.

Indicator 4: Percent of primary education teachers are aware of formative assessment techniques to improve student learningValue Quantitative or Qualitative

33% 40% -- 41.3%

Date Achieved 12/31/2011 12/31/2014 -- 12/31/2014Comments (Incl. % of achievement)

Surpassed (130 bps over the original target). This indicator reports the percentage of teachers who attended training modules on assessing, planning and organizing learning processes.

Table (a) Project Development Outcome Indicators1

1 The latest available data are used to assess the achievement of program outcomes. A detailed assessment of the progress achieved in meeting the targets captured by the key indicators is provided in Section 3.2 Achievement of Program Development Objectives.

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Indicator Baseline Value

Original Target Values (from approval

documents)

Revised Target Values

Actual Value

Achieved at Completion

or Target Years

Indicator 5: The score under the relevant PEFA indicator (PI-25)Value Quantitative or Qualitative

D+ C C+ C+

Date Achieved November 2008 12/31/2014 12/31/2014 2012

Comments (Incl. % of achievement)

Achieved. This indicator assesses the quality and timeliness of annual financial statements. The original target value was surpassed in 2012 based on the 2013 PEFA Assessment Report, which indicates that the overall score for PI-25 is C+. The indicator is created by the government (and validated by the World Bank) every 5 years. The last report was prepared in 2013.

Indicator 6: Percentage of hospitals, outpatient facilities, and laboratories submitting detailed reports on compliance with upgraded standards Value Quantitative or Qualitative

There was no such reporting system 100% 65% 88%

Date Achieved 12/31/2011 12/31/2014 12/31/2014 12/31/2014


Surpassed (2,300 bps over the revised target). However, it should be noted that this indicator should only be attributed to hospitals, since outpatient facilities and laboratories are not required to submit reports on compliance with permit conditions (upgraded standards), as confirmed by the Ministry of Labor, Health, and Social Affairs.

Indicator 7: Percent of population covered by publicly funded health program

Value Quantitative or Qualitative

19%

35% increase in covered

population, an increase of

about 600,000 persons

90% 100%

Date Achieved 12/31/2011 12/31/2014 12/31/2014 12/31/2015


Surpassed (1000 bps over the revised target). This indicator reflects the share of the population covered by the Universal Health Care (UHC) program. The baseline and original target value reflect the coverage of the Medical Insurance Plan (MIP), as originally designed in DPL1.

Indicator 8: The time taken for issuing first benefits after assessing beneficiary eligibilityValue Quantitative or Qualitative

90 days for the TSA and 120 days for the MIP.

60 days for the TSA and 120 for the MIP.

3 days for the assignment of state pension.

3 days

Date Achieved 12/31/2011 12/31/2014 12/31/2014 12/31/2014


Achieved. This indicator represents the amount of time taken to issue a state pension after assessing the applicant’s eligibility once the application for a state pension is submitted. However, it should be noted that while a decision is usually made within 3 days, the State Pension Law allows the authorities up to 10 days to make a decision.

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G. Ratings of Program Performance in ISRs First Competitiveness and Growth Development Policy Loan - P129597

No. Date ISR Archived DO IP

Actual Disbursements(USD millions)

1 04/14/2013 Moderately Satisfactory Moderately Satisfactory 60.06


No. Date ISR Archived DO IP

Actual Disbursements(USD millions)

1 11/09/2013 Moderately Satisfactory Moderately Satisfactory 60.71

H. RestructuringNot Applicable

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1. Program Context, Development Objectives and Design

1.1 Context at Appraisal

1. Georgia has implemented far-reaching reforms since 2004, achieving impressive results despite the dual shocks of the crisis and the 2008 conflict. Prior to 2004, Georgia was one of the poorest performing economies in the region, mainly due to conflict and governance issues. In 2003 its GDP was just 40 percent of its 1989 level. Starting in 2004, reforms to strengthen the public finances, improve the business environment, enhance social services, fight corruption, liberalize trade, and upgrade infrastructure helped the country achieve an annual average growth rate of more than 9 percent over 2004-08, driven largely by foreign direct investment (FDI). However, the country then experienced a sharp economic downturn in 2009, as GDP contracted by 3.8 percent due to the August 2008 conflict with Russia, the closing of the Russian market, and the subsequent global economic crisis. These shocks had severe consequences for growth, resulting in a sharp deterioration in investor and consumer confidence, a decline in FDI, exports, and remittances, and a reduction in bank lending.

2. A countercyclical fiscal stimulus helped the economy recover through 2010-2012. To support the economy in the aftermath of the dual shocks, the government engaged in a countercyclical fiscal stimulus, reprioritizing expenditures and raising the level of spending from about 34 percent of GDP in 2007 to 38 percent in 2009, before stabilizing it at 32 percent in 2011 and 2012. Expenditures on transport infrastructure, education, health and social protection were scaled up significantly, with the fiscal space for these increases coming in part from a marked reduction in defense expenditures and a tightening of public sector administration. Bolstered by public investment, growth averaged nearly 6.5 percent between 2010 and 2012. The increase in social spending and public investment also helped mitigate the impact of the dual shocks on poverty.

3. Increasing employment and sustaining high growth against a backdrop of macroeconomic stability remained a priority for the government. Unemployment spiked during the 2009 crisis, but fell from 17 percent in 2010 to a still-high 15 percent in 2012. Persistent unemployment was the main development challenge faced by the country as a result of low net job creation. Businesses reported that job seekers did not have the skills required. In part, the skill gap can be attributed to an outdated educational curriculum that was not in line with the demands of the private sector. In addition, the country made limited progress in improving the ease of closing a business, getting electricity and accessing financing, which negatively affect the ability of firms to invest and create jobs. The government introduced reforms to address job creation and productivity growth by advancing further structural reforms and protecting those who did not gain from these reforms.

4. As part of the economic recovery efforts, the government launched the Ten-Point Plan for Modernization and Employment development program in October 2011. The medium-term reform program for 2011-2015 included a wide range of policy and institutional reforms aimed at achieving sustained and inclusive growth. The ten-point agenda established among other priorities the strengthening of the power sector and infrastructure, the positioning of the country as a regional trade and logistics hub, and intensification of investment and export promotion. Improving the education system and enhancing social policy were also critical components of the plan.

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5. Improving the country’s competitiveness and promoting inclusive growth are the key themes of the Country Partnership Strategy (CPS) for 2010-13, and they are a central component of the Competitiveness and Growth Development Policy Loan (CG DPL) series. The 2010-2013 CPS (Report Number: 48918 – GE) was based on a two-pillar approach to the World Bank's engagement with Georgia, namely: (i) meeting post-conflict and vulnerability needs; and (ii) strengthening competitiveness for post-crisis recovery and growth. The CPS is fully consistent with the government's reform program as highlighted both in Basic Data and Directions (2011-14) and the government’s Ten-Point Plan. The CG DPL was fully consistent with the CPS and covered the core sectors targeted for World Bank support, including exports, energy, education, health and public financial management. The government focused on reforms aimed at the social sectors, particularly social assistance, education and health. The government has also indicated its commitment to a growth strategy focused on investments in the tradable sectors and expressed full ownership of the policy actions under the CG DPL.

6. The CG DPL supported the government’s most urgent development challenges and was approved in July 2012, just months before parliamentary elections.2 Export promotion and an increase in FDI were considered essential for productivity growth and were targeted through the Deep and Comprehensive Free Trade Agreement (DCFTA) with the European Union (EU). An efficient and reliable supply of energy to domestic businesses and consumers was deemed necessary to improve the business environment. A sound education system and increased access to healthcare were identified as vital to promote human capital development, and improving the effectiveness of social spending was necessary to increase assistance to the poor. Finally, improved public financial management was targeted in order to promote better policymaking and fiscal discipline, thereby contributing to macroeconomic stability.

7. The newly-elected government supported the policy actions of the CG DPL series. Parliamentary elections were held on October 2012, followed by presidential elections in 2013 and local elections in July 2014. The elections led to a smooth transition of power, representing the first peaceful transition in the country’s history and highlighting the growing resilience of Georgia's young institutions. All of the main political parties remained committed to economic and institutional reform. The new government retained full ownership over the policy actions under the Competitiveness and Growth DPL series, which ensured the implementation, follow-up and sustainability of the supported reforms.

1.2 Original Program Development Objectives and Key Indicators

8. The program document for the first and second DPL (DPL1 and DPL2) articulated that the overall Program Development Objectives (PDOs) of the Competitiveness and Growth (CG) DPL series were designed to support the Government of Georgia’s medium-term reform program by strengthening competitiveness and facilitating inclusive growth under three original core pillars: competitiveness, public financial management, and effectiveness of social spending.

2 The government agreed upon and endorsed the CG DPL reform agenda in 2011. All prior conditions for the DPL1 were met by July 2012.

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9. The original key indicators, as presented in DPL1 were3:

Pillar 1: Competitiveness:

Total trade with the EU increases to 22 percent of GDP by 2015. Baseline: 17 percent of GDP in 2011.

Score on the customs component of the World Bank’s Logistics Performance Index is 3.5 by 2015. Baseline: 2.37 in 2010.

Power exchange increases to 3 TwH by 2015. Baseline: 1.5 TwH in 2011.

Gender disaggregated learning outcomes from national assessments of Grade 9 in Georgian language, literature and mathematics improve. Baseline: in 2009, 44 percent scored above average in Georgian (54 percent of girls and 35 percent of boys) and 45 percent in mathematics (46 percent of girls and 45 percent of boys).

Pillar 2: Public Financial Management:

The score under the relevant Public Expenditure and Financial Accountability (PEFA) indicator (PI-25, the quality and timeliness of annual financial statements) increases to C by 2015. Baseline: D+ in November 2008.

Pillar 3: Effectiveness of Social Spending:

Percentage of hospitals, outpatient facilities and laboratories submitting detailed reports on compliance with upgraded standards is 100 percent. Baseline: there were no such reporting systems in 2011.

Coverage of the government’s Medical Insurance Plan increases to approximately 35 percent of the population, an increase of about 600,000 persons. Baseline: 21 percent in 2011.

The time taken for issuing first benefits after assessing beneficiary eligibility will fall to 60 days for the TSA and the MIP. Baseline: 90 days for the TSA and 120 days for the MIP in 2011.

1.3 Revised PDOs and Key Indicators, and Reasons/Justification

10. For DPL3, the wording of the PDOs was revised to make them more specific to the content of the reforms. The PDOs for the DPL3 were to support the Government of Georgia to: (i) strengthen legislation to promote market access to the European Union and improve customs efficiency, power sector reliability, and the quality of general education; (ii) improve the coverage and transparency of the budget; and (iii) improve the accessibility and quality of healthcare services and efficiency of targeted social programs. For the purpose of evaluation, the ICRR uses the revised PDOs. Pillars were also reformulated in DPL3 to reflect the revised objectives.

3 Since this section focuses on the original PDOs and key indicators as designed in DPL1, the key indicators for DPL2 are not presented here, however listed in the Table1, Annex 1.

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11. Final Key Outcome Indicators expected to be achieved at the end of the series were the following:

Pillar 1: Strengthen legislation to promote market access to the European Union and improve customs efficiency, power sector reliability, and the quality of general education

Increase in the number of European/ international standards adopted as Georgian standards by 10 percent by 2014 from 4,700 in 2011. Baseline: Commencement of negotiations in 2012.

Number of animal vaccinations done by the National Food Agency is 3.5 million in 2014. Baseline 1.2 million in 2012.

Customs violation detections for a given number of checks based on the risk based management system: 100 percent increase in cases detected in the month of November/December 2014. Baseline: 175 cases in the month of November/December 2011.

Forty percent of primary education teachers are aware of formative assessment techniques to improve student learning in 2014. Baseline: 33 percent in 2011.

Pillar 2: Improve the coverage and transparency of the budget

Score on PEFA indicator (PI-25) which measures the quality and timeliness of annual financial statements improves to C+ by 2014. Baseline: D+ in November 2008.

Pillar 3: Improve the accessibility and quality of healthcare services and efficiency of targeted social programs

Percent of hospitals, outpatient facilities, and laboratories submitting detailed reports on compliance with upgraded standards is 65 percent in 2014. Baseline: none in 2011.

Percent of population covered by publicly funded health programs is 90 percent in 2014. Baseline: 19 percent in 2011.

Time taken to issue first benefits after assessing beneficiary eligibility is 3 days for the assignment of state pension by 2014. Baseline: 10 days for the assignment of state pension in 2011

Table 2 in Annex 1 summarizes the rationale behind the adjustments to the results indicators for DPL2 and DPL3, including indicators that were revised, added, or dropped. These adjustments were made to improve the attribution and measurability of the monitoring framework and to address changes in the pace of the reform.

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1.4 Original Policy Areas Supported by the Program:

12. The CG DOL series supported the Government’s reforms in eight policy areas as outlined in the DPL1 program document.

Pillar 1: Competitiveness.

Competitiveness reforms were intended to improve trade policy and trade facilitation, the investment climate in the power sector, and the quality of general education. Under this pillar, the DPL series supported the following reforms:

Policy Area I.1 Promote market access with a view to enhancing exports and foreign investment. The DPL series supported legislative and regulatory reforms to promote and facilitate trade and foreign investment. To meet these goals, the Government of Georgia implemented trade-related reforms necessary to meet the requirements of the DCFTA with the EU. These actions are part of the government’s Ten-Point Plan to develop the country as a regional and logistics hub, sustain growth through improved competitiveness, and expand foreign investment and exports.

Policy Area I.2 Improve customs efficiency to facilitate trade. The DPL series supported the goal of the Government to further improve the customs efficiency. To meet this goal, the Government of Georgia lowered logistics costs by streamlining customs procedures, and further strengthened risk-based management system. Improving customs efficiency is essential for Georgia’s ability to become a ‘corridor’ for transit and ‘Business Platform” for the region, and is an important element of the Ten-Point Plan.

Policy Area I.3 Strengthening the Investment Climate in the Power Sector. The government’s strategic objectives for the power sector include ensuring a reliable domestic energy supply and expanding participation in the regional hydropower trade. The government’s reforms aimed to attract investors to develop hydropower plants by implementing a program of legislative and regulatory harmonization with the EU and prioritizing new hydropower and renewable energy projects’ access to the transmission grid. These reforms are viewed as critical to realize the potential of Georgia’s renewable energy sector.

Policy Area I.4 Strengthen the quality of general education to support competitiveness through improved national curriculum and better human resource policies. The government’s education program is grounded in the Strategy for the Development of Education in 2011-15 adopted by the Ministry of Education and Science in 2010. Education is recognized as a critical component of a successful strategy to improve competitiveness and create better employment opportunities. The CG DPL supports the government’s efforts to improve the quality of general education through the introduction and implementation of a modernized curriculum, expanded teacher certification, and a quality assessment system for the evaluation of school principals.

Pillar 2: Public Financial Management.

Improvements in public financial management are crucial to ensure expenditure effectiveness and promote financial consolidation. The reforms aimed to increase transparency, expand

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coverage of financial reporting and support the phased implementation of international accounting standards.

Policy Area II.1 Strengthen the efficiency of treasury management. The government expanded the use of International Public Sector Accounting Standards (IPSAS), which assess the government’s fiscal accounts on a modified cash basis. The CG DPL series supported the adoption of IPSAS by all central government budgetary organizations.

Policy Area II.2 Improve the coverage and transparency of the budget. The government expanded the coverage of the budget to Legal Entities of Public Law (LEPLs4) while integrating accounts with the e-budget system. This reform aimed to improve monitoring of LEPLs’ expenditures. Improved coverage and tracking of LEPLs’ budgets is important, since these entities’ revenues accounted for 10 percent of the 2012 State Budget. The government also requested LEPLs to submit budget-execution reports to the Ministry of Finance, which include information on financial flows covering revenues and expenditures by economic classification.

Pillar 3: Effectiveness of Social Spending.

Healthcare and social safety nets are important elements of the government’s strategic development plan, as elaborated in the Georgia National Health Care Strategy for 2011-15. The CG DPL supported actions to improve healthcare quality and access, and to enhance the efficiency of public medical insurance and targeted social assistance by lowering transaction costs for beneficiaries.

Policy Area III.1 Improve the quality and accessibility of healthcare services. The Ministry of Labor, Health, and Social Affairs (MOLHSA) implemented upgraded standards in all hospitals designed to improve the safety and quality of healthcare services. These upgraded standards align with international experience on the quality and safety of medical care and ensure that hospital facilities meet requirements for adequate staffing, safety of medical equipment, organization of services, infection control, and proper management of medical records. In addition, the government expanded publicly funded health insurance by increasing coverage for selected groups.

Policy Area III.2 Improve the efficiency of targeted programs. MOLHSA established the SIMS to help beneficiaries access benefits more quickly. Reducing transaction costs is critical to improving the efficiency of targeted programs. The time between the application for benefits and the receipt of benefits represents a significant cost to eligible beneficiaries.

1.5 Revised Policy Areas

13. The policy context remained as originally designed. However, Pillars were reformulated in DPL3 to reflect the revised reforms’ objectives, as mentioned in Section 1.3.

1.6 Other Significant Changes

4 LEPLs are entities created under various ministries to provide specific public services for which they can charge service fees which they are allowed to retain for their needs and for this part of the revenues their operations are not integrated with the budget. LEPLs revenues accounted for 10% of the 2012 State Budget.

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There were no other changes to the CG DPL’s design, scope, scale, implementation arrangements, or funding allocations.

2. Key Factors Affecting Implementation and Outcomes

2.1 Program Performance

14. The CG DPL series involved three single tranche operations (Table 2). The operations were approved subject to ratification by Parliament and implementation of the respective prior actions. The World Bank released proceeds of the IDA credits and IBRD loans upon effectiveness. The World Bank delivered the series and disbursed funds in a timely manner.

Table 1: DPL Series DisbursementOperation # Amount Expected Release

DateActual Release

DateRelease

DPL 1 US$60 million Aug 2, 2012 Aug. 2, 2012 RegularDPL 2 US$60 million Oct 24, 2013 Oct. 24, 2013 Regular DPL 3 US$92.7 million Aug. 26, 2014 Aug. 26, 2014 Regular

15. The Ministry of Finance (MOF) led the effort in coordinating the preparation and implementation of the CG DPL series. The MOF coordinated with all of the line ministries that were involved in the operations. The primary implementing line agencies for the program were: the MOF, the MoESD, the MOES, and the MOLHSA. Given the long history of budget lending operations in Georgia, some institutional capacity and memory has been developed on data requirements for implementation and monitoring. While line ministries have the capacity to provide progress reports on the prior actions and results indicators, there were variations between them.

16. The World Bank evaluated implementation performance based on the progress made on all prior actions and outcome indicators, as well as the need to adjust the policy matrix. As of DPL1 and DPL2, the team rated overall implementation progress (IP) and the progress towards achieving program development objectives as Moderately Satisfactory given progress on the reform program, adjustments in the policy matrix and the achievement of intermediate results indicators.

17. As the series evolved, the scope of some of the prior actions was adjusted, but the program remained strong and consistent with the Government’s priorities. Several adjustments to the policy prior actions were introduced in response to changes in government and technical constraints. These modifications, however, did not represent a substantive divergence from the original policy actions and triggers, and the strength of the overall package was maintained. Out of 27 prior actions of the three-part CG DPL series, only two indicative triggers were dropped and six triggers were marginally revised (Table 3, Annex 1). Table 4 in Annex 1 presents the completed prior actions before Board approval.

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2.2 Major Factors Affecting Implementation:

Several factors affected implementation of the CG DPL series:

Government Commitment:

18. The government expressed strong ownership of the reforms under the CG DPL series. The objectives of the DPLs were highly relevant to the government’s medium-term structural reform program and targeted the country’s most urgent development challenges. Therefore, despite the change in key political posts after the parliamentary elections in October 2012, the presidential elections in 2013 and the local elections in July 2014, the government retained full ownership of the proposed policy actions under the CG DPL series. This ensured the continued implementation, follow-up, and sustainability of the supported reforms. While managerial responsibilities changed hands as a new cabinet took office, technical staff remained in place, allowing for continuity in the dialogue on the reform agenda. The CG DPL missions and ICRR mission confirmed the government’s commitment to the reforms and the authorities continued to make solid advances in implementing the development agenda.

19. In addition, the government strengthened outreach and consultations with civil society. Public outreach efforts sought to receive feedback on reforms and better explain the government’s policies to the public. Over the course of preparing the CG DPL program, the government improved its external communications on public services, programs and policies through the use of media presentations, brochures, social networks, and other means, with the Prime Minister and members of the Cabinet directly reaching out to the public. The government also teamed up with the World Bank and the IFC to launch a series of key policy issues in coordination with a broad range of stakeholders.

Soundness of the background analysis:

20. The preparation of the CG DPL series was underpinned by extensive analytical work undertaken in collaboration with the government. The World Bank’s analytical work contributed to the formulation and implementation of selected aspects of the government’s reform program. In particular, Public Expenditure Review (2013) and Sources of Growth (2013) helped identify policy options to implement fiscal adjustments, improve the efficiency and quality of public services, and provide effective social safety nets, supporting the design of the public financial management pillar of the CG DPL program. The Programmatic Poverty Assessment complemented dialogue on social-safety net reforms and provided information on labor markets, unemployment and skills mismatches. Sources of Growth (2013) built further on the policy conclusions relating to competitiveness and growth developed under the CEM (2011), which provided recommendations for the competitiveness pillar of the CG DPL series. Georgia Demographic Change: Demographic Implication for Social Programs and Poverty (2012) complemented reforms under the effectiveness of social spending pillar. In addition, the CG DPL series built on the Country Procurement Assessment Report (2009) and the World Bank-EC Joint PEFA (2008), along with the PEFA assessment led by the Ministry of Finance, which produced several assessments with recommendations for improving accounting systems. The World Bank team also prepared notes on themes relevant to the operation and provided technical assistance as necessary.

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21. Findings and conclusions from various assessments of the Georgian public financial management system were an integral part of the design of the CG DPL series. These assessments include the World Bank's 2007 Draft Country Procurement Assessment (CPA); the 2003 Country Financial Accountability Assessment (CFAA); the International Monetary Fund (IMF) 2003 Report on the Observance of Standards and Codes-Fiscal Transparency Module; the World Bank's 2009 Country Procurement Assessment Report (CPAR); the World Bank's 2003 Public Expenditure Review (PER), and the 2008 Joint World Bank-European Commission PEFA. The salient public financial management issues addressed in these assessments, as well as issues arising since their publication, were summarized and progress was found to be adequate. Improvements to Georgia’s public financial management system, the IMF’s positive assessment of the National Bank of Georgia (NBG), and an independent audit of the NBG determined that fiduciary risks to the operation were moderate.

22. The CG DPL exploited complementarities with other World Bank operations and was built on previous policy-based lending. The policy dialog underlying the CG DPL was greatly facilitated by the previous 2005-2011 DPL series, the 2005-2008 Poverty Reduction Support Credits (PRSC) and the Public Sector Financial Management Reform Support (PSFMRS) project. The previous DPL series guided reforms relating to the public finances, competitiveness and social sectors. The PRSC series primarily supported reforms to the public sector, education and healthcare. The PSFMRS project assisted the government to address the capacity constraints of key public sector agencies.

23. The team leveraged other technical assistance to design the CG DPL series. The World Bank worked closely with USAID, the EU, the European Bank for Reconstruction and Development (EBRD), and the IFC during the preparation of the operations. In particular, USAID supported the CG DPL series by providing technical assistance on trade facilitation. The EU also provided technical assistance on trade facilitation. Moreover, the IFC, USAID and the EBRD supported the government’s power sector strategy. The World Bank team also maintained close collaboration with the IMF in the areas of technical assistance and policy dialog on issues pertaining to macroeconomic developments, debt sustainability analysis, fiscal policy and public financial management.

Operations design:

24. Overall, the CG DPL series was well designed. First, the project’s design was consistent with the government’s development objectives. The CG DPL team worked closely with the government to design prior actions and measurable outcome indicators that were consistent with the government’s policy goals. Second, extensive analytical work was undertaken in collaboration with the government in preparing the CG DPL series. Third, the operation was well defined and focused on priority issues where the World Bank’s comparative advantage and strong track record of engagement were based on policy dialog, analytical work and the ability to leverage ongoing assistance from international partners. Finally, reforms were grounded in a thorough assessment of the capacity of the borrower and implementing agency, and reflected lessons learned from previous development policy lending and IDA support. Balancing these factors led to a well-sequenced program.

25. The flexible design of the CG DPL series allowed for the refinement of prior actions and indicators during the implementation stage. The policy matrix evolved over time to

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account for political changes, emerging reform priorities, capacity constraints and other conditions that became apparent in the context of the programmatic operations. The World Bank team worked closely with the government and both parties agreed on appropriate changes to the prior actions and key indicators. Six indicative triggers were modified and two dropped as a result of political changes, technical constraints, and the time needed for parliamentary approvals. Three indicators were replaced, one added, and one dropped without a replacement, while the remaining four indicators underwent revisions to improve the specificity and realism of the monitoring framework. Overall, the prior actions showed consistent progress on the reform program and ensured continuity from operation to operation.

Assessment of Risks:

26. Several risks were identified during the preparation of the CG DPL series and mitigation measures were incorporated into the design of the program. Georgia faced three main types of risks: political, macroeconomic, and program-specific.

Political risks : Policy uncertainty due to the transition of power characterized much of 2013 and represented a risk to program sustainability. This risk was mitigated by a stabilization in the political context following the presidential elections in October 2013. Elections were carried out in a stable political environment. The new government confirmed its commitment to the previous government’s reform agenda and expressed its interest in developing a longer-term development plan with World Bank support. In response, the World Bank's team prepared 17 policy notes5 encompassing all sectors, which were shared with the government. The World Bank team was in constant dialog with the authorities to ensure that the reform measures supported by this operation were sustained.

Macroeconomic risks: High unemployment, fiscal pressures and external vulnerability represented three sources of macroeconomic risk. Low net job creation, even during high-growth periods, led to high and sustained unemployment levels in the country. Further increases in the scope of public health services and the increased budget allocation for social benefits could have exacerbated fiscal risks. On the external front, a large current-account deficit and significant external debt had heightened foreign-exchange risks. In addition, disturbances in some of the country’s key export markets could have affected external performance. External disturbances could have reduced FDI, exports, remittances and other capital inflows, potentially undermining overall macroeconomic stability, a requisite for the program’s success.

Macroeconomic risks were mitigated through several actions. A first cushion against the external shocks was provided by the government's flexible exchange-rate policies, its comfortable level of international reserves, the Precautionary Standby Arrangement and Standby Credit Facility with the IMF, and Georgia's market access to the EU. Steps were taken to improve relations with Russia and trade resumed for the first time since 2007. Fiscal risks were mitigated by the authorities’ commitment to improve public financial management, as well as successful fiscal consolidation

5 For example, the notes “Georgia: Source of Growth”, “Georgia: Managing Expenditure Pressures for Sustainability and Growth”, and “Georgia: Customs as Trade Facilitator”, among others, proposed the reforms relevant to the design of the CG DPL series, including progression with DCFTA, adoption of the new grid code, the increase in TSA and medical insurance coverage, and custom services improvement.

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efforts throughout program implementation. Other mitigating factors included technical assistance from the World Bank in the health and social assistance sectors.

Program-specific risks: Risks included the potential capacity and implementation constraints of several line ministries. For example, the adoption of the SIMS was delayed by emerging capacity constraints in the Ministry of Health, Labor, and Social Affairs (MOHLSA). The World Bank provided MOHLSA with technical assistance to ensure that the SIMS was at least partially implemented. In addition, the World Bank and international development partners provided complementary technical assistance in specific reform areas that helped to mitigate implementation risks in other line ministries. The World Bank, USAID, EBRD, and IFC collaborated with the government on the power sector strategy. The EU and USAID provided technical assistance to ensure the implementation of the legislative and regulatory reforms required for the Deep and Comprehensive Free Trade Agreement. Program-specific risks were mitigated through the authorities' continued commitment to the program and their efforts to work with all key stakeholders.

2.3 Monitoring and Evaluation (M&E) Design, Implementation and Utilization:

27. M&E Design: Program monitoring and evaluation were based on the results framework. The CG DPL included a policy matrix for prior actions and end-program outcome indicators, as well as intermediate results indicators, which were used to identify implementation problems and ensure that project implementation remained on schedule. Indicators for the results framework were chosen in consultation with government counterparts, who were also responsible for data collection and reporting with the CG DPL team. Baseline data for the indicators were included in the program documents of all three operations. As highlighted in Section 1.3, the PDOs and results framework were revised to facilitate the concordance with the content and pace of the reforms. Some of the indicators were either not relevant to measure the stated development outcome, not measurable, or their expected values were set at levels that were ambitious relative to implementation capacity. Where policy actions took longer to materialize, other indicators and corresponding baseline data were used. For example, as more time was required to see improvements in the educational system, the indicator “improvement in learning outcomes” was substituted with the indicator “percentage of primary education teachers who are aware of formative assessment techniques” to monitor progress in strengthening the quality of education. For the purpose of evaluation, the revised PDOs and outcome indicators for DPL3 were used.

28. M&E Implementation and Utilization: The MOF was responsible for overall coordination and data collection. Line ministries submitted reports on the prior actions and results indicators to the MOF. Data for monitoring were generally available through special requests made to the respective ministries and were considered reliable. Other data, including macroeconomic and poverty data, were accessed through the National Bank of Georgia and the National Statistical Office. The data were used to inform decision making by the ministries and agencies responsible for implementing the reforms. The World Bank continuously monitored progress against the operation’s objectives through follow-up, identification and pre-appraisal missions, as well as regular communication with the authorities. The government has remained committed to the reform agenda supported by the CG DPL series. In cases where implementation of the prior actions was not on track, the team worked closely with the respective ministries to monitor the situation in coordination with the MOF. Aide Memoires and two Implementation

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Status Reports (ISRs) reflected the status of policy actions, achievement of key milestones and next steps in the program. Overall, M&E was rated Satisfactory at the closing of DPL1 and DPL2.

2.4 Expected Next Phase/Follow-up Operation:

29. The CG DPL series was followed by a series of three annual Inclusive Growth Development Policy Loans spanning 2015-17. The ongoing series focuses on supporting the government in its efforts to improve public service delivery and strengthen fiscal management to make growth more inclusive. In particular, reforms aim to support greater fiscal oversight of public institutions (including municipalities, legal entities of public law, non-profit legal entities and state-owned enterprises), and improvements in budgeting and the framework for civil services, as well as improvements in the coverage and targeting of social expenditures, quality of education and healthcare services, and monitoring of outcomes. Reforms supported by this operation will support both greater inclusion and inclusive growth.

30. The new DPL series is built on the previous CG DPL series and incorporates key lessons learned from previous operations. The new series continues to be closely aligned with the Country Partnership Strategy for 2014-17 and is consistent with the government’s Socioeconomic Development Strategy, “Georgia 2020”. The first operation in the series, IG DPL (US$60 million), was approved by the Board in April 2015. The second operation in the series is under preparation and is proposed to be submitted to the Board in fiscal year 2017. Lessons learned from previous operations have been instrumental in the current series. As a result, the design of the reform program was led by the government, the areas chose were those where the World Bank Group had a strong track record of engagement and the reform actions were based on a realistic assessment of the country’s implementation capacity.

3. Assessment of Outcomes

3.1 Relevance of Objectives, Design and Implementation

Relevance of Objectives: High

31. The relevance of the CG DPL’s objectives to Georgia’s development priorities is high. The PDOs to strengthen competitiveness and inclusive growth were, and continue to be, highly relevant to Georgia’s economic development. The objectives are consistent with the country’s current development strategy, as outlined in Georgia 2020. The Strategy intends to (i) maintain macroeconomic stability and promote efficient public spending and effective public administration; (ii) strengthen the competitiveness of the private sector, (iii) develop human capita (health, education and social safety nets), and (iv) enhance access to finance. The three CG DPL pillars map to three of the four priority areas outlined in Georgia 2020.

32. In addition, the objectives of the CG DPL series are also fully consistent with the new CPS (2014-17). The CPS was discussed by the Board of Executive Directors on May 8, 2014 (Report Number: 85251-GE) and focused on: (i) strengthening public service delivery to promote inclusive growth, and (ii) enabling private-sector-led job creation through improved competitiveness. The second and third pillar of this CG DPL series support the first focus area of the CPS, while the first pillar of this operation supports the second focus area of the CPS. The Georgian government maintains its ongoing commitment to investment in human capital and improvements in private sector competitiveness to support inclusive growth.

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Relevance of Design: Substantial

33. Project design was directly relevant to the PDO and current development objectives. The CG DPL team designed the reform agenda to be consistent with the government’s policy priorities in terms of competitiveness, public financial management and social spending. The adoption of trade-related European and international standards is essential for productivity growth and competitiveness, and was being targeted through the DCFTA with the EU. Improving public financial management helps to promote fiscal discipline and contributes to macroeconomic stability. Ensuring an efficient and reliable supply of energy to domestic businesses and consumers is necessary to improve the business environment. Improving the education system and increasing access to healthcare helps to develop human capital. Finally, enhancing the effectiveness of social spending helps to increase assistance to the poor.

Relevance of Implementation: Substantial

34. Project implementation was appropriate given the priorities of the Georgian government, implementation capacity and other factors. Reform actions were well designed and were reasonably correlated with the capabilities of implementing agencies. Project design was flexible, allowing for adjustments in response to the evolving policy environment, capacity constraints and other factors. For example, the original target for the coverage of publicly funded medical insurance was revised and the corresponding prior action was added to reflect the new government’s priority to implement the UHC program. Similarly, the prior action requiring adoption of the monitoring framework and assessment of the new curriculum was revised due to limited resources and institutional support. Finally, government officials admitted that nationwide rollout of all three modules of the SIMS would not be achievable during the timeframe of DPL3 due to changes in methodologies and TSA and child protection rules. In response, the World Bank team made the necessary modifications to maintain the strength of the program.

3.2 Achievement of Program Development Objectives

35. The CG DPL program largely achieved its objectives as evidenced by progress against the monitoring indicators. All of the outcome indicators met or surpassed their target levels. The PDO’s achievement can be analyzed through three main objectives:

Objective 1: Strengthen legislation to promote market access to the EU and improve customs efficiency, power sector reliability and the quality of general education.

36. The CG DPL series contributed to trade policy, trade facilitation and competitiveness through support for the DCFTA, improved customs efficiency, enhanced power reliability, and strengthened education quality.

37. DCFTA with the EU . The government successfully furthered the legislative and regulatory reforms necessary to meet the requirements for entering into the DCFTA with the EU. To achieve this goal, the CG DPL series supported the government’s efforts to:

Implement the Law on Food/Feed Safety, Veterinary and Plant Protection, and Free Movement of Products (technical barriers to trade).

Make budgetary provisions for an additional 180 staff in the National Food Agency, which is the primary unit responsible for implementation of the law on food safety.

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Set up the Competition Agency for the implementation of the Law on Competition.

38. Negotiations between Georgia and the EU on the DCFTA were concluded in July 2013. In June 2014, Georgia and the EU signed an Association Agreement, which introduced the DCFTA trade regime and removed EU customs duties on all Georgian-originated products6. Georgia entered the agreement provisionally in September 2014, and is awaiting ratification by all EU parliament members. The agreement requires the approximation of Georgian trade-related laws with the EU legal framework,7 which is evidenced by the following key monitoring results:

According to MoESD, the number of European and international standards adopted as Georgian standards increased by 30 percent from 4,362 in 2011 to 5,669 in 2014. A total of 7,394 standards were adopted by the end of 2015. This indicates that the CG DPL’s target for this indicator was exceeded.

According to the National Food Agency, the number of animal vaccinations carried out increased from 1.2 million in 2012 to 4.8 million in 2015, which indicates that the target indicator was exceeded.

39. In addition, the Competition Agency was established in April 2014 to support the liberalization of Georgian market, promote free trade and competition. This is the first formally independent competition agency in Georgia which implements policies, monitors and analyses commodity and service markets, and controls compliance with Georgian legislation. The Agency already completed 12 cases in terms of enforcement of Competition Legislation and adopted a number of sub-legal normative acts which is a substantial result given the short period of its operation. While the Competition Legislation is broadly aligned with the EU Competition Law and relevant EU directives, opportunities for improvement exist, especially in the area of law enforcement. The agency strives to further improve Georgian legislation on competition, pursue best practices and expand the expertise. The Competition Agency collaborates with international organizations, legislative and executive authorities and actively engages in international seminars and conferences organized by International Competition Network (ICN) and Sofia Competition Forum (SCF).8

40. The implementation of reform actions in this policy area fostered competitiveness . This is evidenced by the Global Development Forum’s most recent Global Competitiveness Index (GCI), in which Georgia advanced 11 places in three years (GCI 2012-2013 vs. GCI 2015-2016), ranking 66th out of the 146 countries in the sample.9 The country also enjoys a high ranking with respect to the World Bank’s doing business indicators. In the 2016 Doing Business report, Georgia ranked 24th out of 189 countries, 34 places higher than the average for other developing countries in the Europe and Central Asia (ECA) region.10

6 There is only a quota for garlic as of February 2016 (MoESD).7 A special web portal is integrated within the MoESD website, which includes information related to the DCFTA, as well as information about implemented, ongoing and planned reforms. http://economy.ge/ge/ dcfta 8 For detailed information on the Competition Agency, including its goals, functions, structure, current cases, and plans, please visit http://competition.ge/en/index.php 9 The Global Competitiveness Index measures the competitiveness of a country based on the set of institutions, policies and factors that determine the level of productivity of an economy, which in turn sets the level of prosperity that the country can achieve. The Global Competitiveness Report 2015-2016, http://www3.weforum.org/docs/gcr/2015-2016/GCI_Dataset_2006-2015.xlsx 10 Economies are ranked on their ease of doing business, with scores ranging from 1 to 189. A high ease of doing business ranking means that the regulatory environment is more conducive to the opening and operation of a local firm. The rankings are determined by sorting the aggregate distance to frontier scores on 10 topics, each consisting of several indicators, with equal

14

http://www.doingbusiness.org/data/distance-to-frontier

http://www3.weforum.org/docs/gcr/2015-2016/GCI_Dataset_2006-2015.xlsx

http://www3.weforum.org/docs/gcr/2015-2016/GCI_Dataset_2006-2015.xlsx

http://competition.ge/en/index.php

41. Overall, the new trade regime, free from all import duties on goods and broad mutual access to trade in services, is expected to contribute to deepening country’s economic integration with Europe. Moreover, the signing of the Association Agreement (AA) in 2014 and policy certainty regarding strengthening relationship with the EU, is also expected to promote Georgia’s market access to the EU. Indeed, despite anemic growth in the EU, Georgian exports to EU have been steadily growing in nominal terms and as a share of GDP since 2012. Relative to other key trading partners, the EU has been demanding more goods from Georgia. The share of exports to the EU reached 29.3% in 2015 – as twice as high in 201211. Since the DCFTA implementation in 2014, export to the EU of leading export commodities increased. In particular, the export hazelnuts increased by 20%, wine by 5% and mineral and still wanted by 13 % over the September 2014 – August 2015 period.12

42. FDI inflows, which originate primarily in the EU, nearly doubled from 2012 to 2014, reaching 5 percent of GDP; however, FDI declined in 2015. Despite the positive trends in exports and FDI, the data do not yet confirm that these increases are attributable to DCFTA implementation. The benefits of the new trade regime are expected to be realized 5-10 years after implementation, as this is a long-term process involving significant reforms related to convergence with the EU. An impact assessment in 2017 will produce a more timely review of DCFTA’s impact on Georgia.13 Nevertheless, there is anecdotal evidence from businesses indicating the success achieved during the first year of DCFTA implementation, as reported on the web portal Europe for Georgia.14

43. Customs efficiency . To further facilitate regional trade, reduce the cost of trade and improve customs efficiency, the government successfully enhanced customs administration by streamlining and simplifying processes. The CG DPL series contributed to the government’s efforts to:

Issue certificates of origin and permits related to exports, imports and transit at border crossing points or customs clearance zones.

Streamline customs procedures for transit traffic through the introduction of the automated selectivity system.

Adopt the Trade Facilitation System software to integrate processes and simplify transactions for handling containers at sea ports. The system was adopted by the Revenue Services in March 2014 and became fully operational in mid-February 2016.

44. Georgia has made significant progress in the area of customs reform, especially with regard to the customs clearance system. In order to promote streamlined and seamless

weight assigned to each topic. The rankings for all economies are benchmarked to June 2015. WDI (2016). 11 GeoStat based on data provided from the Ministry of Finance, Ministry of Internal Affairs, Georgia State Electric System, and Georgia Gas Transportation Company.12 DCFTA: Benefits and Success in Georgia, USAID Governing for Growth (G4G) in Georgia, 2015, http://pdf.usaid.gov/pdf_docs/PA00KTZN.pdf . Under the EU Generalized System of Preferences program, both hazelnut and mineral water already had duty free access to the EU market; thus, it is difficult to determine the share of the growth of exports attributable to DCFTA. 13 See: Trade Sustainability Impact Assessment in support of negotiations of a DCFTA between the EU and Georgia and the Republic of Moldova, 2012.14 Europe for Georgia (http://eugeorgia.info) is a web portal that was launched soon after the DCFTA’s adoption to explain DCFTA provisions.

15

http://pdf.usaid.gov/pdf_docs/PA00KTZN.pdf

import/export operations, Customs Clearance Zones (CCZ)15 were established with a complete renovation of border infrastructure. Computerized systems on web-based services were launched and the majority of operations were finalized through the business operator’s office. Reforms supported under the CG DPL supported improvements in security, effectiveness and enforcement. This is evidenced by the following achievements:

Customs violation detections for a given number of checks based on the risk management system increased by more than 100 percent relative to the baseline in November 2014 (454 cases) and 2015 (981 cases). The Customs Risk Profile, a segment of the risk identification system which identifies risk objects via certain criteria (suspicious route, means of transport, citizenship, etc.) registered a higher number of customs violation cases.16

45. In addition, a 2013 Time Release Study on Customs Procedures by the Georgian Revenue Service found that border-crossing procedures were effective in terms of infrastructure and the amount of time spent developing customs procedures, while the implementation time for customs procedures was found to be optimal. 17 Moreover, service standards were rated high and customers (importers) expressed overall satisfaction with the streamlined customs procedures. While these reforms helped to reduce the overall cost and time required to implement customs procedures, specific areas for further improvement were recommended in the study.

46. Power Sector Reliability . The government has been pursuing legislative and regulatory reforms to improve the reliability of the domestic power supply and to facilitate greater participation in regional hydropower trade. In particular, the CG DPL series supported:

The amendment of the Electricity Market Rules to prioritize access to the transmission grid for new renewable energy projects.

The development and approval of a new transmission grid code to ensure that technical specifications are established to help support system reliability. The code was fully harmonized with EU requirements and approved by the Electricity Regulatory Authority in 2014.

47. There is no result indicator, as the agreement was reached during the pre-appraisal mission of DPL3 to drop the indicator due to the lack of viable alternatives. The original indicator, power cross-border exchange, fell below baseline due to weak hydrology arising from the drought in the spring and summer of 201318. In addition, power exchanges are dependent on seasonal variations. Indeed, total regional power trade registered at 0.93 TWH, 1.39 TWH and

15 The CCZ is a large clearance center—unprecedented in Georgia—covering several hectares, with special parking areas for hundreds of trucks. CCZs conduct air, land, railway and sea cargo clearance while offering services for customs declaration submission and related procedures, enabling drivers and firms to benefit from a one-shop stop for customs clearance without the need to step out of the vehicle.16 Customs violations are divided into three segments: clearance risk profiles, customs risks profiles, and T-1 internal transit documents. The first is used for all customs declarations and targets counterfeiting, non-declared GMOs and other goods. The last targets the transport of T1 documents via a random risk profile or certain criteria identified by the risk module. 17 The study was carried out in accordance with the World Customs Organization’s methodology and in coordination with the Georgia Revenue Service and the USAID EPI project for the Sarpi Customs Crossing Point and at the Tbilisi CCZ, comprising a full range of import processes, from the entry of goods into Georgia to their final release.18 Hydropower provides more than 80 percent of Georgia’s generating capacity depending on rainfall and other conditions; therefore, the volume of regional trade is highly influenced by hydropower generation.

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1.35 TWH in 2013, 2014 and 201519, which is below the baseline exchange of 1.4 TWH in 2011. This indicator was not a robust indicator for measuring results and less indicative of improvements in technical and institutional capacity.

48. Other indicators were not proposed, as there was not sufficient time to observe related policy outcomes within the framework of the operation. Since the prior action in the energy sector from DPL2 (the government order to prioritize grid access for new renewable power projects) was only adopted in May 2013, and the prior action from DPL3 (the adoption of the new transmission code) was fulfilled in 2014, there was not sufficient time to observe improvements in renewable generation capacity, increased private investment inflows into the sector, or changes in reliability, prices, etc. For example, during the implementation stage, FDI into Georgia’s energy sector had been highly volatile and was not necessary indicative of the operation’s prior actions.20

49. However, since the CG DPL energy policy reforms were complimentary to an Investment Public Finance Project (IPF, P147348), the results of the combined actions would be observable by mid-2019. The IPF’s component relevant to CG DPL prior actions aims to (i) strengthen and expand the transmission grid to ensure it provides reliable transmission to consumers and suppliers of power, (ii) establish systems for local and regional power exchange. The prior actions in energy sector under the CG DPL were essential to enable the connections of new hydroelectric power plants (HPP) to the transmission grid that follows the EU standards. The priority access for the HPP to the transmission grid is necessary for the origination of HPP constructions. A total of 36 memorandums to construct HPP were signed during the 2013-2015 period, to be competed between 2016 and 2024.21

50. Nevertheless, it is possible to observe the evidence of an improved power reliability in Georgia. System Average Interruption Duration index (SAIDI) and System Average Interruption Frequency Index (SAIFI), commonly used reliability indicators by electric power utilities, have been improving in Georgia. SAIDI measures the average total duration of outages, and SAIFI the average frequency of outages, experienced by a customer in a year (excluding outages due to natural disasters). Large electric power utilities companies in Georgia such as JSC TELASI, JSC Energo-pro Georgia, and JSC Kakheti Energy Distribution reported a decline in both indices over the 2013-2015 period. For example, customers served by JSC TELASI experienced 20 percent less interruptions in service in 2015 relative to 2013. The number and electricity interruptions and their duration declined uniformly across the country – in cities, boroughs and villages22. In addition, “Getting Electricity” sub-component of Doing Business index registered at 70 points in 2016 – 8 points higher compared to a year before, showing an improvement in efficiency, reliability and transparency of electricity connections in Georgia.23

19 The Ministry of Energy of Georgia, www.energy.gov.ge20 FDI inflows into the energy sector dropped by 13 percent in 2012 and 10 percent in 2014, falling below their 2011 level. Source: the Ministry of Energy of Georgia.21 Source: Ministry of Energy, http://www.energy.gov.ge/investor.php?lang=eng&id_pages=53 22 Based on the data provided by Georgian National Energy and Water Supply Regulatory Commission.23 Getting Electricity (GE) index incorporates reliability of supply and transparency of tariff sub-index which includes SAIDI and SAIFI indices. This GE sub-index also registered improvements in 2016 relative to a year ago. Source: http://www.doingbusiness.org/data

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http://www.doingbusiness.org/data

http://www.energy.gov.ge/investor.php?lang=eng&id_pages=53

http://www.energy.gov.ge/

51. Quality of Education . To support competitiveness and growth, the government took significant steps to strengthen the quality and relevance of general education. The CG DPL series supported the following reforms:

The implementation of a new national curriculum for all levels of education, including the distribution of supporting materials to schools.

The establishment of an implementation-monitoring framework to evaluate the implementation of the new curriculum in classrooms for all levels of education.

The introduction of the new Teacher Salary Scale and Instructions.

The expansion of the teacher certification program to include teachers across all grades and subjects.

The adoption of new professional standards for teachers, covering key knowledge and skills requirements, as well as the professional development path for each category of teachers.

The implementation of a new quality assessment system for the evaluation of school principals.

52. The reforms further improved the quality of teachers and helped raise awareness among teachers of different techniques to improve student learning. This is evidenced by the following key monitoring indicator:

The percent of primary education teachers who are aware of formative assessment techniques to improve student learning was 41.3 percent in 2014–1.3 basis points over the target value. Two training modules, Assessment of Learning Processes and Planning, Management and Assessment of Learning Processes, were completed by a total of 318 primary education teachers in 2014.

53. Overall, the results of these policy actions were that:

(i) New textbooks were developed based on the new curriculum and are being used in all schools.

(ii) Curriculum-based trainings were provided to teachers instructing on new subjects introduced by the new curriculum.

(iii) A hotline for curriculum-related questions was created in the Ministry of Education and Science (MoES).

54. While the curriculum department in MoES developed a monitoring framework for primary and secondary schools in August 2013 and February 2014, the implementation and assessment of those curricula at all levels of the education system continues . Primary education monitoring and evaluation is completed, while the assessment of basic and secondary education is in process. The certification process for school principals was completed in February 2014, when 918 candidates were certified from a pool of 3,000 applicants.

55. Education quality in Georgia is also monitored through national and international student assessments; however, learning outcomes have not been measured in a systematic manner. International assessments are the most reliable means of analyzing the quality of learning outcomes. Georgia has participated in several cycles of the PIRLS (2006, 2011 and

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2016), TIMSS (2007, 2011 and 2015), TEDS-M (2007), and PISA (2009 and 2015). According to results from the TIMSS and PIRLS 2011, the performance of Georgian students in key learning areas (literacy, mathematics and science) remains low compared to CIS, CEE and Western European countries. Nonetheless, learning outcomes have shown a modest improvement. Specifically, the PIRLS 2011 revealed a significant improvement in the performance of Georgian students in 4th grade reading literacy between 2006 and 2011, with an increase in the average score from 471 to 488, just slightly below the international average of 500. Similarly, the TIMSS 2011 revealed a significant improvement in the scores of 4th and 8th grade students in mathematics and 4th grade students in science between 2007 and 2011. The results of the PISA 2015 and TIMSS 201524 have not yet been released.

56. National assessments have not been carried out on a regular basis and have typically not been used to inform policymaking. The last national assessments were administered in Georgian Language and Literature and Mathematics for grades 4 and 9 in 2009-2011. The responsibility for assessments has shifted a number of times between three different education agencies, with the institutions bringing different capacities and methodologies to each assessment round. This has affected both the quality of the assessments and the ability to compare trends over time. Nonetheless, the MoES intends to put a more regular cycle of national assessments in place through support from the Millennium Challenge Account. The following assessments are being planned: Mathematics for Grade 9 (in 2015 and 2018); Biology, Chemistry and Physics for Grade 9 and Georgian Language for Non-Georgian Schools for Grade 7 (in 2016 and 2019).

Objective 2: Improve the coverage and transparency of the budget

57. Further efforts to enhance competitiveness were accompanied by reforms to strengthen the efficiency of public financial management through improved accountability, broader coverage and greater transparency of the government’s fiscal accounts. The CG DPL series supported the authorities’ efforts to improve performance budgeting at all levels of government and contributed to improving budgetary controls and enhancing the quality of public spending. Specific actions supported by the CG DPL include:

Implementation of the modified cash-basis International Public Sector Accounting Standards for all central government budgetary organizations.

Expansion of the budget’s coverage to include Legal Entities of Public Law and their inclusion in the e-budget.

Harmonization of the software used for budget planning (MOF e-budget) and execution (MOF e-treasury).

58. The pillar achieved the development objective of improving accounting standards, expenditure management and budget transparency, as evidenced by the following monitoring indicator:

The Public Expenditure and Financial Accountability (PEFA) indicator (PI-25), which corresponds to the quality and timeliness of annual financial statements, improved from a D to a C+ rating. The PEFA-based self-assessment was conducted

24 The international reports will be released in December 2016.

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and validated by international partners, ensuring adequate monitoring and evaluation. 25

59. Georgia has advanced significantly with respect to its budgetary and financial management systems since the previous PEFA assessment in 2008. The modified cash method was implemented in 2012 based on IPSAS 2, and the government has been implementing further IPSAS standards since 2013. As of April 2016, ten IPSAS standards were implemented by the State Treasury. The Ministry of Finance produces modified cash-basis consolidated financial statements and reports aligned with international standards, and publishes them on its official website in line with efforts to improve transparency26.

60. The 2013 budget performance reports of all central government LEPLs are available through the e-budget. The State Treasury continued its efforts to incorporate LEPLs within the budget and enhance transparency by integrating the financial transactions of LEPLs into the electronic budget system. Beginning in January 2015, all LEPLs were integrated into the system and all submissions were going through the e-budget.

61. Web-based solutions for the submission of payment requests by spending units (e-treasury) and the electronic budget management system (e-budget) have been harmonized since January 2012, allowing for the automated exchange of information and simplified and systemized planning processes.27 The state budget allocation by quarter and budget classification is performed using the e-budget and automatically shown in the e-Treasury. The automated system consolidates budget inputs from central government spending units into the overall budget file, which is used for parliamentary review and publications.

Objective 3: Improve the accessibility to and quality of healthcare services and efficiency of targeted social programs

62. The CG DPL contributed to the government’s efforts to improve the accessibility and quality of healthcare services, as well as to improve the efficiency of social programs. The objectives of the pillar were achieved. The CG DPL supported the following actions:

Implementation of the upgraded standards in all hospitals to improve the safety and quality of healthcare services.

Expansion of the medical insurance plan to include children below the age of six and pensioners (prior to the implementation of the UHC in 2013).

Introduction of universal health coverage.

Implementation of upgraded standards for facilities providing primary healthcare.

Development and implementation of the SIMS for state pensions, state compensation and targeted social assistance.

25 Georgia achieved its target outcome in the 2012 PEFA assessment. See PEFA Assessment 2012 for a detailed review of the results: http://www.pefa.org/en/assessment/ge-sep13-pfmpr-public-en-026 The consolidated financial statements of the state budget organizations for the years 2012, 2013 and 2014 are published on the official web site of the State Treasury: http://treasury.gov.ge/550927 The e-budget provides the budgetary organizations with access to the budget planning module. The e-treasury provides access to user portals for central government spending units, legal entities of public law, the MOF Budget Department, Financial Planning Division and Treasury Service, as well as autonomous and local government bodies in order to collect information on their budgets and budget performance.

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http://treasury.gov.ge/5509

http://www.pefa.org/en/assessment/ge-sep13-pfmpr-public-en-0

63. Reforms supported by the CG DPL series improved the accessibility and quality of health services, and enabled state pension beneficiaries to access benefits faster. This is evidenced by the following key results indicators:

The percentage of hospitals submitting detailed reports on compliance with upgraded standards28 was 88 percent in 2014–23 basis points above the revised 2014 target.

The percentage of the population covered by the publicly funded healthcare program reached 100 percent in 2015.

The time taken to issue a state pension after assessing the beneficiary’s eligibility is 3 days. However, it should be noted that while the decision to assign the pension is usually made within 3 days, the State Pension Law allows the authorities up to 10 days to make this decision.

64. The UHC program was introduced in March 2013 and initially covered only outpatient and emergency healthcare services. The program was then expanded in July 2013 to include a broader package of services, such as elective surgery, oncology, and delivery. A month earlier, the government implemented quality standards related to infrastructure, equipment, and the provision of relevant services in hospitals and primary healthcare centers. The State Regulation Agency for Medical Activities is responsible for ensuring adherence to health standards by hospitals and facilities providing primary healthcare. Adherence is ensured through random checks and self-reporting by hospitals and primary healthcare facilities. All hospital and urban outpatient facilities are now submitting reports based on these standards.

65. The SIMS was designed to unify various databases in the Social Service Agency and to connect the system with other authoritative data in ministries and agencies in real time. This allowed the authorities to improve efficiency and streamline service provision for beneficiaries across the country. The development of SIMS was completed in June 2012 and pilot phases began across the country. The system consists of three pillars with three sub-components: (i) pensions; (ii) child protection and guardianship; and (iii) targeted social assistance. Nationwide implementation of the pension component began in February 2014, while implementation of the other two components took place after the CG DPL was closed. As of April 2016, all modules of the SIMS had been implemented throughout the country.

3.3 Justification of Overall Outcome Rating

Rating: Satisfactory

66. The program’s overall rating is satisfactory. The rating is based on the operations’ relevance, outcomes, design, and implementation. The relevance of the PDO to current and past strategic priorities, as well as to the circumstances of the country, is high. As measured through the program indicators and supplemental evidence, the operations’ development objectives were achieved. All results indicators met or surpassed their targets. This was due to (i) the high performing borrower, committed to achieving the development outcomes, and (ii) the close coordination between the Bank’s tem and the Implementing Agencies, which allowed timely amendments of the policy matrix while preserving the original PDO focus. Although there were

28 As noted in Table (a) p. viii and Table 1 Annex 1, the original indicator included outpatient facilities and laboratories; however, these facilities are not required to submit detailed reports on compliance with upgraded standards. This was confirmed with the Ministry of Labor, Health, and Social Affairs during the ICRR mission.

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no indicators to measure outcomes for prior actions in the energy sector, there is indication that these prior actions contributed to the objective to improve power sector reliability. The CG DPL’s design and the package of prior actions addressing the country’s development challenges from a multi-sectoral perspective was sound and allowed for flexibility in addressing evolving policy priorities and challenges. Shortcomings, primarily in institutional implementation capacity and as a result of the political context at the time of the operation, had a diminishing effect on reform progress, which led to changes in prior actions and key indicators. These shortcomings and the absence of a development key outcome in the energy sector influenced the overall outcome rating.

3.4 Overarching Themes, Other Outcomes and Impacts

(a) Poverty Impacts, Gender Aspects, and Social Development

67. The policies supported by the CG DPL were expected to have generally positive poverty, social, and gender impacts and to improve the living standards of the poor, both directly (Pillar 3) and indirectly thought greater competitiveness (Pillar 1).

Poverty impacts

68. The policies supported under Pillar 3 may have had a positive impact on poverty, predominantly through increased healthcare coverage and improvements to the efficiency of the pension system. According to a recent study based on survey data for 2013, both the UHC and state pensions contribute significantly to a decrease in poverty.29 The improved efficiency of pension transfers is expected to further contribute to alleviating poverty, especially among women, as due to demographic patterns there are twice as many female pensioners as male pensioners in Georgia. In 2014, the poverty headcount rates at US$2.5/day and US$5/day declined to 32.3 percent and 69.4 percent, respectively, from 42.5 percent and 77.9 percent in 2012.30 Nevertheless, poverty rates in Georgia remain among the highest in the ECA region.31

69. Pillar 1 actions that have helped to strengthen competitiveness and growth are expected to be the driving force behind decreased unemployment and improved living standards. While the Georgian economy grew by an average of 4.3 percent a year from 2012-2015, the implementation of DCFTA is expected to boost average net incomes, albeit with a smaller gain for those at the lower end of the income distribution32. Increased FDI inflows and exports to the EU are likely to create additional jobs. Over the course of the CG DPL series, the unemployment rate declined from 15 percent in 2012 to 12.4 percent in 2014, while the average monthly household income per capita increased by 25 percent over the same period.33 However, as mentioned earlier, the effects of entering into DCFTA will be realized over a longer time horizon (5-10 years), and it will be possible to make a more conclusive assessment of its impact at that time.

Gender Impacts

29 Georgia Public Expenditure Review, Selected Fiscal Issues (2015)30 Based on ECATSD using ECAPOV, The World Bank31 Georgia Country Gender Assessment, The World Bank, 201632 Based on simulations results, ECORYS-CASE, 2012, Trade Sustainability Impact Assessment in support of Negotiations of a DCFTA between the EU and Georgia and the Republic of Moldova, Final Report33 GeoStat, geostat.ge

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70. The CG DPL series has likely had a direct impact on gender and social development through the effects the DCFTA, as well as upgraded standards for healthcare facilities, the UHC, better targeting of pensions and improved educational outcomes. Entering DCFTA with the EU offers Georgia a number of avenues for enhancing economic opportunities for both men and women, and it presents a significant opportunity to strengthen gender equality institutions as a commitment to gender equality, fair practices and antidiscrimination measures, particularly with regards to employment, are part of the Agreement.34

71. Implementing upgraded standards for health facilities and the introduction of the UHC is expected to benefit all users, particularly women accessing reproductive health services. While most women have a usual facility for preventive and curative care, women at different income levels seek care from very different sources. Lower-income women are more likely to use city hospitals, while higher-income women typically visit women’s consultation clinics and primary health centers. The quality of care women receive also varies. Implementing and monitoring health standards has the potential to reduces disparities in accessing critical preventive care.35 In addition, the recent introduction of universal medical insurance is also likely to have a positive impact on women, who typically use medical services more often than men: for instance, 12.6 percent of men and 16 percent of women reported using out-patient services at health facilities in the last 30 days,36 which includes visits for reproductive health care.

72. New professional standards for teachers and quality assessment systems for school principals, as well as an increase in the base salary for teachers, are expected to have a positive impact on gender equality in the labor market. Teaching is a popular occupation for educated women in Georgia, and about 80 percent of teachers in primary and secondary schools are women. However, salaries tend to be low. Introducing quality standards is expected to raise teachers’ wages.

(b) Institutional Change/Strengthening

73. This CG DPL supported several policy actions that are expected to have a longer-term development impact on Georgian institutional capacities:

Government implementation personnel were beneficiaries of capacity building. Staff at the Ministry of Finance, Ministry of Labor, Health, and Social Affairs, and those working in other local government agencies, have been strengthening their capacity by studying new systems such as the e-Budget, ISPAS, SIMS and the Trade Facilitation System. In addition, the MOF Finance Academy has been providing IPSAS training and exams to public sector accountants in Georgia since 2013.

DCFTA implementation has involved capacity building on regulatory approximation, particularly on trade facilitation, technical barriers to trade and intellectual property rights.

The operational capacity of the customs-clearance system has been strengthened. Georgia is officially recognized as having the leading customs agency in the region.

34 Georgia Country Gender Assessment, The World Bank, 201635 World Bank, Program Document for the Third Competitiveness and Growth Development Policy Operation, Report No. 68436-GE, May 28, 2014, pp. 2436 UNICEF’s Welfare Monitoring Survey, 2011 round.

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Georgia’s customs model has become a regional standard of performance, and Georgia now shares its experience with other CIS countries, having created efficient Customs Clearance Zones with e-services, modern infrastructure, and strong inter-agency cooperation.

74. Overall, the policy advice and technical assistance provided by the World Bank helped to strengthen institutional capacity. Implementation of the CG DPL series spans several ministries, some of which have limited institutional capacity. This has been mitigated through the technical assistance provided by the World Bank and other development partners. Donor-supported programs have provided assistance in key policy areas covered by the CG DPL series, such as the power sector (World Bank, USAID, and EBRD), social protection (World Bank), education (World Bank) and trade facilitation (EU). The World Bank’s analytical work and oversight during the CG DPL’s preparation helped the government to internalize policy advice and make sound policy decisions.

(c) Other Unintended Outcomes and Impacts

None

3.5 Summary of Findings of Beneficiary Survey and/or Stakeholder Workshops

Not Applicable

4. Assessment of Risk to Development Outcome

Rating: Moderate

75. The overall risk to project development outcomes is rated moderate for the following reasons:

The risk of not maintaining the development outcomes due to country’s structural vulnerability to exogenous economic shocks is high. The recession in Russia and slower growth in other key trading partners have been impacting Georgia through lower exports and reduced remittances, which in turn puts strong depreciation pressure on the exchange rate and raises inflation expectations. Weak external demand coupled with overruns in current spending (health care, social expenditures, etc.) creates upward pressures on fiscal deficit and public debt. Weakness in external markets likely to persist37, so does the likelihood of adverse impacts of external shocks on Georgia’s economic performance and its available public resources that are necessary for maintaining the achieved development outcomes.

The likelihood of not achieving the development outcomes due to a lack of government commitment and political volatility is low. The political transition that took place in 2012-2013 did not affect the continuity of the reform program. The new government remained committed to the reform objectives and expressed strong

37 World Bank, Georgia Partnership Program Snapshot, Washington, D.C., April 2016

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ownership of the development operation. Political and policy uncertainty emanating from the October 2016 parliamentary elections, along with the existing geopolitical risks, could weaken consumer and business confidence and dampen the pace of reforms. However, a rapid return to normal is likely, as both the ruling and opposition parties are equally committed to Georgia’s European integration aspirations and business friendly policies. Thus, the government’s commitment to the medium-term development policy will help to mitigate these risks and the risk of policy reversal at this point appears to be manageable.

The probability that Georgia will not maintain the development outcomes due to technical risks is low. The technologies introduced under the CG DPL are well established and tested, and are being used by relevant staff, who are fully trained in their implementation. In addition, continuity in the technical team’s composition and established training facilities and programs (i.e. IPSAS, TFS and teachers' professional development and training) will enable further implementation of the reform agenda. For example, the Teacher Recruitment, Evaluation, Professional Development and Career Advancement Scheme aims to improve several key policy areas simultaneously, attract motivated and qualified staff into the teaching profession, build the competencies of existing teachers, and enhance professional development opportunities tailored to the individual needs of teachers.

76. Overall, the risk to development outcomes is rated as moderate considering high risk to exogenous shocks and low risks to internal conditions. While external environment may continue to pose risks to economic performance in Georgia, the development outcomes achieved are expected to be sustained given strong government commitment, low political volatility, and well established technology and trainings facilities.

5. Assessment of Bank and Borrower Performance

5.1 Bank Performance

(a) Bank Performance in Ensuring Quality at Entry


77. The Quality at Entry rating is based on the fact that the CG DPL’s design aligns adequately with the government’s development objectives and the Country Partnership Strategy and is consistent with internal accountability mechanisms. It is positive that the CG DPL series’ design reflects the close collaboration between the World Bank and government counterparts from various ministries, and the relevance of achieving project objectives among both parties is high. The operation was underpinned by extensive analytical work and various assessments of the Georgian public financial management system designed to ensure a satisfactory macroeconomic, fiscal and fiduciary framework, and to propose a menu of policy options. The CG DPL team had the right skills composition to address the multi-sectoral nature of the reform program and included experts from different fields and Global Practices.

78. The World Bank ensured that the CG DPL’s design included reasonable target outcomes given the authorities’ evolving policy priorities and implementation constraints.

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The team was responsive to the government’s concerns regarding the progress of reform implementation and possible delays, making necessary adjustments to the policy matrix in a timely manner. However, the program’s design was overly ambitious with respect to some of the original target indicators. For example, the speed of adopting upgraded standards in facilities providing primary care services was overestimated. This was evident during the preparation of the DPL2 and the relevant indicator was modified as a result. In addition, some of the originally proposed indicators were found to be weakly related to the implemented reforms, such as the Logistic Performance Index and Total Trade with the EU, and these were replaced. Had the World Bank team identified more relevant results indicators to ensure higher quality at entry, this rating would likely have been highly satisfactory.

(b) Quality of Supervision


79. The CG DPL was actively supervised, as reflected by the 11 missions that were conducted over the three years of project implementation.38 Moreover, supervision was co-located, with part of the team following up directly from the Country Office. This ensured continuous monitoring of the operations’ progress toward its development objectives and allowed for early identification and action on potential problems. The CG DPL team worked closely with government counterparts from various ministries and responded to implementing ministries concerns regarding capacity and implementation risks in a timely manner. The ICRR rating recognizes that missions were generally timely and solutions-oriented, that they resulted in effective decisions and agreements throughout program monitoring, evaluation and re-design, and that several issues affecting policy implementation were adequately handled. The World Bank should have, however, followed up more closely on the development impact of reforms in the energy sector, and worked more quickly to establish a measurable key indicator for improved educational outcomes. Nevertheless, this shortcoming did not materially affect the program outcomes.

(c) Justification of Rating for Overall Bank Performance


80. World Bank performance is rated as satisfactory. According to the OPSC guidelines, the overall rating for World Bank performance is satisfactory when the ratings for both dimensions are satisfactory.

5.2 Borrower Performance

(a) Government Performance


81. The Borrower fulfilled its obligations and expressed strong ownership of the reform agenda. The government had a good understanding of the competitiveness and growth-related challenges facing the country and took an active role in preparing the CG DPL series. The Ministry of Finance led the effort in coordinating the overall implementation and monitoring of 38 This includes identification, follow-up, pre-appraisal, as well as technical follow-up missions.

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the CG DPL program. It informed the World Bank of progress against policy objectives and possible delays. It also expressed concerns regarding certain results indicators, proposing changes to better align the proposed reforms with expected outcomes. For example, the MOF’s budget department informed the World Bank team of the feasibility of including local self-governments in the e-budget by a particular date, noting that IT-related technical delays were possible.

82. The ICRR’s rating recognizes the priority the authorities gave to the CG DPL in light of the changing composition of the government and its evolving policy priorities . Despite some changes in the composition of the Cabinet and in high-level officials, the government maintained the vision and ambition of the reform program, and successfully implemented the policy actions. While the government’s commitment to PDO objectives was high, there were some minor shortcomings in terms of performance. Given the inter-sectoral nature of the operations, implementation issues were bound to arise, and more effort from the central level could have been made to address these.

(b) Implementing Agency or Agencies Performance


83. All of the implementing agencies involved were committed to the reform process and advanced their respective agendas to ensure the timely completion of prior actions. The implementing agencies also worked closely with the World Bank team and notified them of progress and issues that arose at each stage of the project. The overall rating of satisfactory as opposed to highly satisfactory reflects the performance of the four ministries that were responsible for project implementation in the areas of energy, budget, education, and health and social assistance. Various implementation challenges arose, which led to adjustments in the design of the operation, however the design remained aligned with the PDOs and the CG DPL series achieved all development outcomes.

84. Changes in key government positions led to a delay in preparing the Law on Renewables adhering to EU standards, which resulted in a dropped prior action in DPL2. However, the EU directives allow additional implementation time for energy-security reforms, while the other two prior actions successfully implemented by the Ministry of Energy contributed to the PDO of the increased power sector reliability. Changes in key high-level officials, along with some capacity constraints, was also a factor for revisions in education reforms. The MOES, in coordination with the Bank team, ensured the timely adjustment to the policy matrix and further successful implementation of policy actions.

85. The MOF identified the delays in integrating the budgets of municipalities with the e-budget due to the decentralization reform. While more time was needed for the integration, the MOF decided to adjust the policy action to include all central government LEPLs instead, thus improving the coverage and transparence of the budget. Two prior actions were adjusted by the MOHLSA in response to new policy priorities and ongoing legislative and methodological changes. The MOHLSA successfully implemented the UHC system and the pension module of the SIMS, while ensuring the nation-wide rollout of SIMS after the CG DPL was closed. Overall, all of the shortcomings and implementation challenges were fully overcome.

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(c) Justification of Rating for Overall Borrower Performance


86. Overall borrower performance is rated as satisfactory given the ratings of satisfactory for government performance and satisfactory for implementing agencies performance. According to the OPSC guidelines, the overall rating is satisfactory when the rating for both dimensions are satisfactory.

6. Lessons Learned

87. The following key lessons were learned from the CG DPL project:

Strong government commitment to the reform program and continuous engagement by the Bank’s team are both necessary for a successful implementation of the lending operation. The CG DPL originated as a direct request from the Government seeking additional budget support to finance its long-term development objectives. Even though the country went through a number of political transitions during the implementation stage, the Government maintained solid ownership of the reform agenda. The Bank team actively engaged in policy dialog with the government over the implementation period, monitoring progress against the operation’s objectives through follow-up, identification and pre-appraisal missions, as well as regular communication with the authorities. The close relationship between the World Bank team and government counterparts created mutual trust and understanding, thus facilitating the resolution of issues arising during CG DPL implementation.

The choice of a programmatic instrument should be dictated by a strong country’s ownership of the development strategy and reform process. When the development agenda is shared by its country’s citizens and not by a single government, the reform process is more likely to withstand transitions in political power. Therefore, the design of a programmatic DPL should take into account country’s ownership of the reform agenda and the views of different political parties on the long-term country’s development strategy. This would support programmatic operation continuation and successful implementation especially during the transitions of political power.

Strong prior analytical work and technical assistance from the Bank and other donors is an essential component of well-structured operation’ design. Extensive analytical work in the areas of policy agenda, findings and conclusions from previous policy-based lending operations and timely technical assistance help to identify relevant policy options, complement policy dialogs, provide necessary information and recommendations for policy framework under the government development strategy. Sound background analysis greatly facilitates the preparation of an operation and ensures a well-structured and flexible operation’s design that includes reasonable and adaptable policy framework.

Key outcome indicators should be attributable and measurable. Establishing target outcomes proved to be challenging for accessing some implementation outcomes in CG DPL series. Identifying measurable indicators that are attributable to government actions and not too dependent on exogenous factors at the early stage of

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the operation preparation are of outmost importance to effectively evaluating development outcomes.

7. Comments on Issues Raised by Borrower/Implementing Agencies/Partners

(a) Borrower/Implementing agencies

The draft ICRR report was sent for comments to the Ministry of Finance, who in turn distributed it for comments to the implementation agencies. The MOF39, MoESD, and MOES indicated they did not have comments regarding the ICR report.

The MOLHSA provided comments on the draft ICRR. The comments related primary to: 1) a few sentences to be removed from the “Gender Impacts” section of the ICRR due to the lack of a reference, and 2) the recommendation to remove the progress achieved under the SIMS implementation after the CG DPL was closed.

The MOLHSA’s comments have been addressed in the final version of the ICRR as follows: 1) the sentences were kept unchanged, however the relevant reference was added, and 2) no changes were made: while the reform outcome is assessed against the results achieved at target year (end-2014), it is recommended to assess the progress achieved at the time of ICRR preparation (April 2016).

(b) Cofinanciers

Not Applicable

(c) Other partners and stakeholders Not Applicable

39 The MOF indicated that it did not have comments in the email correspondence with the Bank.

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Annex 1 CG DPL Outcome Indicators and Prior ActionsTable 2 DPL1, DPL2, and DPL3 Outcome Indicators and Reasons for Adjustments40 41

IndicatorRevised/Dropped/

AddedComment

Pillar I: Strengthen legislation to promote market access to the European Union and improve customs efficiency, power sector reliability, and the quality of general educationPolicy Area I.1 Enhance market access to promote exports and Foreign Direct investmentTotal Trade with the EU [Baseline: 17% of GDP in 2011. Target: 22 % of GDP by 2015. Actual: 22.7% of GDP in 2015]

Dropped in DPL2

Dropped Indicator 1. The original indicator from DPL1 was dropped due to its weak attribution to policy actions on strengthening legislation for DCFTA with the EU. The volume of total trade with the EU is affected by a variety of factors and it would be impossible to determine to what extent DCFTA contributed to total trade.

The number of European and international standards registered/adopted as Georgian standards. [Baseline: Commencement of negotiations for the Deep and Comprehensive Free Trade Agreement with the EU. Target for DPL2: 20% increase in 2015 from 4,700 in 2011. Revised Target in DPL3: 10% increase in 2014 from 4,700 in 2011]

Added in DPL2 and Revised in DPL3

Added indicator during the DPL2 to replace dropped indicator 1, as it is more attributable to the policy actions related to DCFTA legislation implementation. The revised target value for DPL3 reflects the more realistic pace of standard adoption processes that was assessed during the implementation stage. The Ministry of Economy and Sustainable Development (MoESD) reported that the original base value in 2011 was 4,362.

Number of animal vaccinations done by the National Food Agency. [Baseline: 1.2 million in 2012. Target: 3.5 million in 2014]

Added in DPL3

Added indicator during DPL3 to reflect the results of the policy action related to the implementation of the Law on Food Safety.

Policy Area I.2 Improve customs efficiency to facilitate tradeScore on the customs component of the Logistics Performance Index (LPI). [Baseline: 2.7 in 2010. Target: 3.5 in 2014. Actual: 2.21 in 2014.]

Dropped in DPL2

Dropped Indicator 2. This indicator aimed to capture customs efficiency; however, it was dropped due to weak attribution. The Revenue Service expressed concern that this indicator did not fully reflect the real state of business, especially since it measured the “efficiency of the clearance process (i.e., speed, simplicity and predictability of formalities) by border control agencies, including customs.” The customs authorities expressed concern that it might be a challenge to achieve substantial progress on the LPI due to a shift in priorities from facilitation to strengthening customs control and enforcement. Since freight forwarders largely define the LPI’s rating, this would potentially imply negative feedback and low index scores.

40 This table lists the pillars formulated for DPL3. Revised indicators are original indicators that were designed during the DPO1 while their target values were revised during implementation. The exception is the revised indicator for healthcare coverage for which both the formulation and targets were modified. Added indicators are indicators that were added in the DPO2 or DPO3. The target values of some added indicators in DPO2 were revised in DPO3.41 The target years also differ in program documents: while DPO1 and DPO2 list 2015, DPO3 uses 2014. It was thought that only 2014 data would be available at the time of the ICRR’s preparation (typically, within a year after the closing date of the last operation, which is March 2015 for the CG DPO).

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IndicatorRevised/Dropped/

AddedComment

Customs violation detection for a given number of checks based on the risk-based management system. [Baseline: 175 in Nov/Dec 2011. Target: 100% increase in cases detected in Nov/Dec 2014 from the baseline].

Added in DPL2

Added indicator during DPL2 to replace dropped indicator 2 since it identifies improvements in logistics and risk-based management at the border crossings better than the original indicator. This indicator reflects customs efficiency.

Policy Area I.3 Enhance climate for attracting investment in the power sectorPower Cross-Border Exchanges [Baseline: 1.5 TwH in 2011. Target for DPL2: 3 TwH in 2014. Revised Target in DPL2: 2.5 TwH in 2014. Actual: 1.36 TwH in 2015]

Revised target in DPL2 and Dropped in DPL3

Dropped Indicator 3. The original indicator was intended to reflect improvements in the technical and institutional capacity of the energy sector. It was revised in DPL2 and dropped in DPL3 for a few reasons. Attribution: the indicator is impacted by seasonal variations. For example, power exchanges fell below baseline due to weak hydrology arising from the drought in the spring and summer of 2013. In addition, the indicator is less indicative of improvements in technical and institutional capacity. Timing: the prior action aimed at adopting new transmission codes was completed during the DPL3, therefore, there was no sufficient time to observe improved power system reliability. Other indicators, such as increased investment in the energy sector, were not proposed for the same reason. The result of the prior action that prioritizes new hydropower projects’ access to the grid will be seen in the longer term, as it takes about 7 years to construct a new Hydro Power Plant (HPP). Consequently, once new HPPs are connected to the grid, the domestic and regional supply of electricity will increase.

Policy Area I.4 Strengthen the quality of education to support competitivenessGender disaggregated learning outcomes as measured by national assessments of Grade 9 students improve in Georgian language, Literature and Mathematics. [Baseline: 44% scored above average in Georgian (54% of girls and 35% of boys). In the same year, 45% scored above average in mathematics (46% of girls and 45% of boys). Target: Improvement in learning outcomes is recorded in 2015 (gender disaggregated).

Dropped in DPL3

Dropped Indicator 4. The original indicator for DPL1 was dropped in DPL3 for a number of reasons. First, education quality is not monitored in a systematic manner. The Program for International Student Assessment (PISA) was conducted only once in 2009 and other international tests were completed in 2011. National tests have not been carried out on a regular basis, as the responsibility for conducting assessments has shifted many times. This affected the quality of the indicator and the ability to compare trends over time. Second, the effect of the integration and the introduction of a new curriculum, new professional standards for teachers, and expanded certification examinations for teachers and certification of school principals goes beyond the timeframe of this series and the ICRR. Therefore, an improvement in learning outcomes will only appear in the long term. Indicator 4 was introduced to reflect the immediate results of improved education quality.

Percent of primary education teachers are aware of formative assessment techniques to improve student learning. [Baseline: 33% in 2011. Target: 40% in 2014].

Added in DPL3

Added indicator during DPL3 to replace dropped indicator 4. This indicator reports the percentage of teachers who attended training modules on assessing, planning and organizing learning processes.

31

IndicatorRevised/Dropped/Added

Comment

Pillar 2: Improve the coverage and transparency of the budgetPolicy Area II.1 Strengthen the efficiency of treasury management and Policy Area II.2. Improve coverage and transparency of financial reportingThe score under the relevant PEFA indicator (PI-25). [Baseline: D+ in November 2008. Target for DPL1: C in 2015. Revised Target in DPL2: C+ in 2015.

Revised in DPL2

This Revised indicator assesses the quality and timeliness of annual financial statements. The original target value was surpassed in 2012 based on the 2013 PEFA Assessment Report, which indicates an overall score of C+ for PI-25. The original indicator was revised in DPL3 to reflect the achieved outcome. Other indicators were not used for attribution reasons, as the PEFA indicator best captures improvements in the coverage and transparency of the budget. The indicator is created by the government (and validated by the World Bank) every 5 years. The last report was prepared in 2013.

Pillar 3: Improve the accessibility and quality of healthcare services and efficiency of targeted social programsPolicy Area III.1 Improve accessibility, and quality of healthcare servicesPercentage of hospitals, outpatient facilities, and laboratories submitting detailed reports on compliance with upgraded standards. [Baseline: There was no such reporting system in 2011. Original Target: 100% in 2014. Revised Target in DPL2: 65% in 2014.

Revised target in DPL2

This Revised indicator should only be attributed to hospitals, since outpatient facilities and laboratories are not required to submit reports on compliance with permit conditions (upgraded standards), as confirmed by The Ministry of Labor, Health, and Social Affairs during the ICRR mission. The indicator was revised during DPL2, as the original target was too ambitious and more time was required to implement the upgraded standards throughout all of the hospitals in the country.

Coverage of the Government's Medical Insurance Plan. [Baseline: 21 percent of the population was covered by the MIP. Target: 35%, an increase of about 600,000 persons by 2015.] Revised in DPL2: Universal Health Care Coverage is fully operationalized for primary and emergency care. [Baseline: There was no universal health care coverage.] Revised in DPL3: Percent of population covered by a publicly funded health program. [Baseline: 19% in 2011. Target: 90% in 2014.]

Revised formulati-on and targets in DPL2 and DPL3.

This Revised indicator was initially introduced as the coverage of the government’s Medical Insurance Plan (MIP) to vulnerable groups, children and pensioners in DPL1. However, the new government that took office in October 2012 announced the expansion of health coverage to the entire population, thus consolidating MIP with Universal Health Care (UHC). The World Bank team revised the indicator in DPL2 and DPL3 to extend health coverage to the whole population to reflect the newly introduced UHC in 2013.

Policy Area III.2 Improve the efficiency of targeted programs

32

The time taken for issuing first benefits after assessing beneficiary eligibility. [Baseline: 90 days for the TSA and 120 days for the MIP in 2011. Original Target: 60 days for the TSA and 120 for the MIP in 2015. Revised Target in DPL2: 60 days for TSA and 3 days for the assignment of state pension in 2015 (down from 10 days in 2011). Revised Target in DPL3: 3 days for the assignment of state pension in 2014.]

Revised targets in DPL2 and DPL3

The Revised indicator reports the time taken to issue a state pension after assessing the applicant’s eligibility once the application for a state pension is submitted. This indicator was revised in DPL2 and DPL3. The DPL2 revision replaced the original MIP with the state pension, since the MIP was consolidated with Universal Health Care (UHC) in 2013. The DPL3 revision excluded TSA, since the government was in the process of changing the methodology for calculating TSA, which was expected to be finalized in 2014. Therefore, the adoption of the TSA component to the Social Information Management System (SIMS), which would reduce the time taken for issuing first benefits, was expected to be completed after the closure of the CG DPL series. Thus, the final indicator reports only the state pension component of SIMS. The government prioritized the inclusion of the pension in SIMS (among other modules) since it covers the largest segment of beneficiaries. Note: while the decision to assign the pension is usually made within 3 days, the State Pension Law allows the authorities up to 10 days to make this decision.

Table 3 DPL1, DPL2, and DPL3 Revised Prior Actions

33

Triggers as per DPL1 Revised Prior Action in DPL2 ReasonThe Government of Georgia submits to Parliament the Law on Renewables adhering to EU principles*.

*This law provides a framework for promoting the use and development of broader sources of renewable energy in Georgia.

Dropped Given changes in key government positions in 2012, more time was required to undertake the multiple adjustments needed to approximate the law on renewables with EU standards. In addition, the EU directives (2009/28/EC) allow additional implementation time for energy-security reforms. The government decided to postpone the law’s adoption.

Launch certification of school principals and implement quality assessment system for their evaluation.

Operationalize quality assessment system for the evaluation of school principals

Make Teacher Certification mandatory for all teachers.

The Government of Georgia's Ministry of Education and Science approved new Teacher Salary Scale and Instructions recognizing teacher experience and performance.

Dropped

More time was needed to implement the certification of school principals and the assessment system for the evaluation. These prior actions were moved to DPL3.

Progress on teacher certification was slow for a combination of political and technical reasons: (i) the Minister of Education was replaced 4 times during the year; and (ii) technological uptake was slow, examination results were weak, and design shortcomings were identified. Both reasons contributed to the cancelation of the mandatory certification system.

Expand coverage of medical insurance plan to vulnerable groups, for example persons with disabilities, and university students.

The Government of Georgia issued Governmental Decree No. 36 dated February 21, 2013 introducing Universal Health coverage for the primary and emergency care.

The new government that took office in October 2012 announced the expansion of healthcare coverage to the entire population, thus consolidating the existing Medical Insurance Plan (MIP) for vulnerable populations with Universal Health Care (UHC).

Triggers as per DPL2 Revised Prior Action in DPL3 ReasonMonitoring frameworkestablished andassessment of newnational curriculum tobe prepared.

The Minister of Education and Science has issued Order No. 180 dated May 2, 2013, Order No. 960 dated December 3, 2013 and Order No. 220 dated March 4, 2014 for establishing a framework for the monitoring of the implementation of the new national curriculum for primary, basic and secondary education.

A full assessment of curriculum implementation at the primary, basic and secondary level goes beyond the timeframe of this operation since it includes teacher interviews and classroom observations in several schools throughout the country. The government put the framework in place and also initiated the process and shared the assessment report for primary schools in Tbilisi.42

42 Support for new curriculum implementation was not sufficient for two key reasons: (i) the previous management did not see school-based implementation support and monitoring as integral parts of curriculum reform, so the latter was limited to adoption of the curriculum and development of new textbooks; and (ii) the National Curriculum Center was abolished as a separate institution and was merged into the ministry as a department; as a result, it did not have the budget to support the implementation process. For the same reasons, supporting materials were not distributed to schools. Little progress was made as the education system was completely overhauled in line with the new education strategy.

34

Triggers as per DPL2 Revised Prior Action in DPL3 Reason

Continued attention toteaching professionthrough designing amore comprehensiveteacher performanceappraisal system andenhancing opportunitiesfor career development.

The Minister of Education and Science has issued Order No. 39/N dated March 28, 2014 adopting professional standards for teachers which gives professional characteristics, knowledge and skillrequirements pertaining to the teaching environment, teaching/learning process, andprofessional development for each category of teachers.

The MOES developed a performance appraisal system for teachers. The adoption of this system, however, was contingent on a set of legislative amendments in the education sector that were in the initial stages of consultation with stakeholders at the time of DPL3. Parliamentary approval for these amendments were not completed within the timeframe of this operation. The Teacher Recruitment, Evaluation, Professional Development and Career Advancement Scheme was adopted in February 20, 2015. The respective changes were introduced in the Law on General Education in December 2016.

The Ministry of Financeof Georgia includesbudgets of local self-governmentsand five largest LEPLs in the e-budget.

The 2013 budget performance of all central government LEPLs is available through the e-budget and the Minister of Finance of Georgia issued Order No. 77 dated March 14, 2014 and Order No. 442 dated December 31, 2013 requiring all central government LEPLs to submit budget performance numbers for 2014 either through the e-budget or through hard copies and only through the e-budget from 2015 onwards.

The decentralization reform created some uncertainty in terms of the number and size of municipalities. Hence, the government needed more time to work on integrating the budgets of municipalities with the e-budget. Thus, this prior action was limited to LEPLs. However, instead of the 5 largest LEPLs, it included all central government LEPLs.

Nation-wide rollout ofSIMS.

The Ministry of Labor, Health and Social Affairs has adopted the pension module of the Social Information Management System throughout the country.

The SIMS consists of three components: (i) pensions; (ii) child protection; and (iii) targeted social assistance (TSA). However, only the prior action for the pension module was fulfilled. At the time of DPL implementation, the government was in the process of changing the rules for adoption and foster care, which would have an impact on the child protection component. Hence, this component was not included. The government was also changing the methodology for the calculation of TSA by reducing the weight of subjective measures. The nationwide roll-out of the pension component began in February 2014, while implementation of the other two components occurred after the CG DPL was closed. As of April 2016, all modules of the SIMS had been implemented throughout the country.

Table 4 DPL1, DPL2, and DPL3 Prior Actions

35

DPL 1 DPL 2 DPL 3 StatusPillar 1: Strengthen legislation to promote market access to the European Union and improve customs efficiency, power sector reliability, and the quality of general educationPolicy Area I.1 Enhance market access to promote exports and Foreign Direct investment The Government of Georgia enacted laws adopting the trade-related reforms on food/feed safety, veterinary and plant protection, free trade and competition, and general safety and liability, needed to meet the requirements of the DCFTA with the EU.

The Government of Georgia issued the necessary decrees to implement the Law on Safety and Free Movement of Products.

The Government of Georgia has issued the relevant decrees to support implementation of the law on competition and the law on food/feed safety

Completed

Policy Area I.2 Improve customs efficiency to facilitate trade The Revenues Service was authorized to issue certificates of origin and import, as well as export- and transit-related permits at the border crossing.

The Government of Georgia strengthened the risk-based management of customs control by introducing the automated selectivity for transit traffic.

The Revenue Service has adopted the Trade Facilitation System to integrate processes and simplify transactions for handling containers in sea ports.

Completed

Policy Area I.3 Enhance climate for attracting investment in the power sector The Ministry of Energy amended

the Electricity (Capacity) Market Rules to prioritize new hydropower projects and renewable power production access to the grid with remaining congested transfer capacity allocated via transparent auctions.

The Electricity Regulatory Authority has approved the transmission grid code to improve power system reliability.

Completed

Policy Area I.4 Strengthen the quality of education to support competitiveness The Ministry of Education and Science approved a new national curriculum for grades I through XII and implemented the new national curriculum for grades I through VI, including the distribution of supporting materials.

The Government of Georgia's Ministry of Education and Science approved a new national curriculum for grades I through XII and implemented the new national curriculum for grades VII through XII, including the distribution of supporting materials to schools.

The Ministry of Education and Science adopted a framework for monitoring the implementation of the new national curriculum for primary, basic and secondary education.

Completed

The Ministry of Education and Science expanded teachers’ voluntary certification examination to include teachers for all grades and in all subjects.

The Government of Georgia's Ministry of Education and Science strengthened incentives for improved teaching by approving the new Teacher Salary Scale and Instructions recognizing teacher experience and performance.

The Ministry of Education and Science adopted professional standards for teachers, which specify the professional characteristics, knowledge and skills required for different categories of teachers.

Completed

The Ministry of Education and Science implemented the new quality assessment system for the evaluation of school principals, which certified 981 candidates.

Completed

Pillar 2: Improve the coverage and transparency of the budget

36

Policy Area II.1 Strengthen the efficiency of treasury management

The Ministry of Finance of Georgia prepared the financial reports of 8 pilot agencies in accordance with modified cash-basis accounting methods as part of the transition to adopting IPSAS.

The Government of Georgia's Ministry of Finance adopted the rules for the preparation of financial statements by the State Budget Organizations using the modified cash-basis methods in accordance with international public sector accounting standards (IPSAS).

The Ministry of Finance of Georgia consolidated the financial reports of all central government budgetary organizations in accordance with the modified cash-basis International Public Sector Accounting Standards.

Completed

Policy Area II.2. Improve coverage and transparency of financial reporting The Government of Georgia issued relevant decrees requiring the inclusion of information pertaining to the financial flows of Legal Entities of Public Law (LEPLs) in the annual budget execution report.

The Government of Georgia has harmonized the electronic budget management system (E-budget) with the electronic treasury system (E-treasury).

The Ministry of Finance of Georgia included the budgets of all central government LEPLs in the e-budget.

Completed

Pillar 3: Improve the accessibility and quality of healthcare services and efficiency of targeted social programs

Policy Area III.1 Improve accessibility, and quality of healthcare services

The Ministry of Labor, Health, and Social Affairs of Georgia implemented upgraded standards in all hospitals by issuing permits to improve the safety and quality of healthcare services.

The Government of Georgia introduced universal health coverage for primary and emergency care.

The Minister of Labor, Health and Social Affairs implemented upgraded standards for facilities providing primary healthcare.

Completed

The Government of Georgia issued a decree expanding medical insurance to children below the age of six (6) and pensioners.

Completed

Policy Area III.2 Improve the efficiency of targeted programs The Government of Georgia's

Ministry of Labor, Health and Social Assistance adopted three pilot modules in the districts of Tbilisi, Rustavi and Mtskheta for social information management systems on: (a) state pensions; (b) state compensation; and (c) state social packages.

The Ministry of Labor, Health and Social Affairs adopted the pension module of the Social Information Management System throughout the country.

Completed

Annex 2 Bank Lending and Implementation Support/Supervision Processes

37

(a) Task Team Members

P129597: Competitiveness and Growth Development Policy Loan (CG DPL1)Adriana Eftimie Senior Operations Officer CNGAE

Ahmed Eiweida Lead Urban Specialist GSU08

Arman Vatyan Senior Financial Management Specialist GGO21

Arturo S. Rivera Lead Energy Specialist GEE03

Carola Gruen Consultant GSP03

Claudia Rokx Lead Health Specialist GHN04

Darejan Kapanadze Senior Environmental Specialist GEN03

Efstratios Tavoulareas Senior Operations Officer CASEE

Elene Imnadze Representative AFMBW

Faruk Khan Program Leader ECCU2

Ghada Youness Country Lawyer LEGLE

John E. Strongman Consultant GEEDR

Jose Luis Guasch Consultant GTI04

Joseph Melitauri Senior Operations Officer GEE03

Karen Grigorian Senior Private Sector Development Specialist GTC10

Maria Davalos Senior Economist GPV03

Mariam Dolidze Senior. Economist GMF09

Mark M Moseley Lead Lawyer GCPDR

Martha Martinez Licetti Lead Specialist GTCTC

Meskerem Mulatu Lead Education Specialist GED07

Michael Zarnowiecki Consultant GGO15

Nino Kutateladze Operations Officer GED03

Nino Moroshkina Consultant GHNDR

Owen K. Smith Senior Economist GHN06

Pedro L Rodriguez Program Leader LCC6c

Ramya Sundaram Senior Economist GSP03

Rashmi Shankar Program Leader (Task Manager) ECCU3

Salvador Rivera Consultant GMF09

Sarah Babirye Program Assistant GMF09

Sarosh Sattar Senior Economist GPV03

Tamuna Namicheishvili Program Assistant GMF09

Uzma Khalil Senior Financial Sector Specialist GFM01

Zakia Nekaien-Nowrouz Program Assistant GMF09

P143060: Second Competitiveness and Growth Development Policy Loan (CG DPL2)Adriana Damianova Consultant GMF09

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http://isearch.worldbank.org/oui?qterm=GHN06

http://isearch.worldbank.org/oui?qterm=GSU08

http://isearch.worldbank.org/oui?qterm=CNGAE


Angela Prigozhina Senior Financial Sector Specialist GFM09

Arman Vatyan Senior Financial Management Specialist GGO21

Arti Grover Consultant GTC01

Arturo S. Rivera Lead Energy Specialist GEE03

Carla Pittalis Senior Country Officer ECCU4

Claude Baissac Consultant GMF09

Claudia Rokx Lead Health Specialist GHN04


Elene Imnadze Representative AFMBW

Enrique Fanta Ivanovic Senior Trade Facilitation Specialist GTC04

Faruk Khan Senior Economist ECCU2



Mariam Dolidze Senior Economist GMF09

Meskerem Mulatu Lead Education Specialist GED07

Michael Minges Consultant GTI11

Moris Tsamalashvili Consultant GMF09



Nistha Sinha Senior Economist GPV03

Owen K.Smith Senior Economist GHB06

Ramya Sundaram Senior Economist GSP03

Rashmi Shankar Lead Economist (Task Manager) ECCU3


Sarah Babirye Program Assistant GMF09

Sarosh Sattar Senior Economist GPV03

Tamuna Namicheishvili Program Assistant ECCGE


Zakia Nekaien-Nowrouz Program Assistant GMF09

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http://isearch.worldbank.org/skillfinder?qterm=&title=Sr+Financial+Management+Specialist

P146890: Third Competitiveness and Growth Development Policy Loan (CG DPL3)Adriana Damianova Consultant GMF09


Angela Prigozhina Senior Financial Sector Specialist GFM09

Dandan Chen Program Leader ECCU3


Elena Bondarenko Economist GMF09

Galina Alagardova Senior Financial Management Specialist GG021

Georgiana Pop Senior Economist GTCTC


Graciela Miralles Murciego Economist GTCTC


Malcolm Childress Consultant GSULN

Mariam Dolidze Senior Economist GMF09



Nistha Sinha Senior Economist GPV03

Mona Prasad Senior Economist (Task Manager) GMF09


Sandro Nozadze Procurement Specialist GGO03

Sarah Nankya Babirye Program Assistant GMF09

Rashmi Shankar Lead Economist ECCU3

Tamuna Namicheishvili Program Assistant ECCGE

Congyan Tan Country Economist GMF09

Vincelette Gallina Andronova Program Leader ECCU4

(b) Staff Time and Cost*

Stage

Staff Time and Cost (World Bank Budget only)

No. of Staff Weeks US$ Thousands (including travel and consultant costs)

Lending DPL1 31 150,598.90DPL2 - 42 268,445.79DPL3 - 34 141,303.00

Total 107 560,347.69Supervision/ICRR DPL1 - 13 68,900.01

DPL2 354.41DPL3 -

Total 13 69,254.42*Note: ICRR costs are not included.

Annex 2. Beneficiary Survey Results

40

http://isearch.worldbank.org/oui?qterm=ECCGE

http://isearch.worldbank.org/skillfinder/ppl_profile_new/000226688

http://isearch.worldbank.org/skillfinder?qterm=&title=Sr+Financial+Management+Specialist

Not Applicable

41

Annex 3. Stakeholder Workshop Report and ResultsNot Applicable

42

Annex 4. Summary of Borrower's ICR and/or Comments on Draft ICR

The draft ICRR report was sent for comments to the Ministry of Finance, who in turn distributed it for comments to the implementation agencies. The MOLHSA provided comments on the draft ICRR. The comments related primary to: 1) a few sentences to be removed from the “Gender Impacts” section of the ICRR due to the lack of a reference, and 2) the recommendation to remove the progress achieved under the SIMS implementation after the CG DPL was closed.

1. Ministry of Finance

43

2. Ministry of Economy and Sustainable Development

45

Translation

Ministry of Economy and Sustainable Development of Georgia

No: 09/4324 July 6, 2016

To: Deputy Minister of Finance Mr. Lasha Khutsishvili

Dear Mr. Lasha:

The Ministry of Economy and Sustainable Development has reviewed your letter (No: 07-01/48829 of June 3, 2016) related to the ICCR of Georgia Competitiveness and Growth DPOs (1-3) prepared by the World Bank.

Please note that the Ministry does not have any comments regarding the ICCR.

Thank you

Sincerely,

Irma Kavtaradze

Deputy Minister of Economy and Sustainable Development [signature]

46

3. Ministry of Education and Science of Georgia

Translation

47

Ministry of Education and Science of Georgia

No: MES 7 16 007 63 438 June 23, 2016

To: The Ministry of Finance

In response to your letter No: 07-01/48829 related to the ICCR of Georgia Competitiveness and Growth DPOs (1-3) prepared by the World Bank, please note that the Ministry does not have any comments.

Thank you

Sincerely,

Nino Tuskia

Head of Department of International Relations and Programs [signature]

48

4. Ministry of Labour, Health and Social Affairs of Georgia

49

Translation

Ministry of Labour, Health and Social Affairs of Georgia

No: 01/48370 June 23, 2016

To: Mr. Lasha Khutsishvili

Deputy Minister of Finance

Dear Mr. Lasha:

In response to your letter No: 07-01/48829 of June 2, 2016 related to the ICCR of Georgia Competitiveness and Growth DPOs (1-3) prepared by the World Bank, please find below comments from the Ministry of Labour, Health and Social Affairs.

We think that sentences 2, 3 and 4 of paragraph 64 (page 44) of the report should be removed (“While most women have a usual facility for preventive and curative care, women at different income levels seek care from very different sources. Lower-income women are more likely to use city hospitals, while higher-income women typically visit women’s consultation clinics and primary health centers. The quality of care women receive also varies”). The sentences provide information on women with different income level addressing various medical institutions to get reproductive health services. The report does not provide the sources of this information.

In addition, since Competitiveness and Growth DPOs of 2015 – 2017 do not cover SIMS issues we think the following revisions should be introduced to the last part of the third column of Table 2 (page 24) and point 63 (page 42): “The SIMS consists of three components: (i) pensions; (ii) child protection; (iii) targeted social assistance (TSA). However, only the prior action for the pension module was fulfilled. At the time of DPO implementation, the government was in process of changing the rules for adoption and foster care, which would have an impact on the child protection component. Hence, this component was not included. The government was also changing the methodology for the calculation of TSA by reducing the weight of subjective measures. The nationwide roll-out of the pension component began in February 2014.”

Sincerely,

Zaza SopromadzeDeputy Minister [signature]

50

Annex 5. Comments of Cofinanciers and Other Partners/Stakeholders Not Applicable

51

Annex 6. List of Supporting Documents 1. World Bank, Program Document for a Competitiveness and Growth Development Policy

Operation, Report No. 67922-GE, July 20, 2012

2. World Bank, Program Document for the Second Competitiveness and Growth Development Policy Operation, Report No. 76177-GE, June 3, 2013

3. World Bank, Program Document for the Third Competitiveness and Growth Development Policy Operation, Report No. 68436-GE, May 28, 2014

4. World Bank, Georgia Country Partnership Strategy for the period FY 2010-13, Report Number: 48918 – GE, August 2009. Closing date: April 19, 2011.

5. World Bank, Georgia Country Partnership Strategy for the period FY 2014-17, Report Number: 85251-GE, April 9 2014. Board date: May 9, 2014.

6. The World Bank, Georgia Public Expenditure Review, Selected Fiscal Issues, June, 20157. The World Bank, Georgia Country Gender Assessment, June 2016

8. World Bank. Official Documents- Financing Agreement for Credit 5147-GE (Closing Package) . Washington, DC., 2012https://hubs.worldbank.org/docs/imagebank/pages/docprofile.aspx?nodeid=16567054

9. World Bank, Official Documents- Loan Agreement for Loan 8279-GE (Closing Package) . Washington, DC., 2013 https://hubs.worldbank.org/docs/imagebank/pages/docprofile.aspx?nodeid=18145459 for DPL2 and DPL3

10. World Bank, Official Documents- Loan Agreement for Loan 8394-GE (Closing Package) . Washington, DC., 2014.https://hubs.worldbank.org/docs/imagebank/pages/docprofile.aspx?nodeid=19887736

11. World Bank, Georgia - First Competitiveness and Growth Development Policy Operation Program : letter of development policy from the Government of Georgia . Washington, DC: 2012. https://hubs.worldbank.org/docs/imagebank/pages/docprofile.aspx?nodeid=16540059

12. World Bank, Official Documents- Letter of Development Policy Ref. Loan 8394-GE, Credit A 5511-GE and Credit B 5512-GE (Closing Package) . Washington, DC: World Bank, 2014https://hubs.worldbank.org/docs/imagebank/pages/docprofile.aspx?nodeid=19887767

13. World Bank, CG DPL1-3 Mission Aide-Memoires, 2012-2014.

14. World Bank, Georgia - First Competitiveness and Growth Development Policy Operation Project. Washington, DC: World Bank, 2012. https://hubs.worldbank.org/docs/imagebank/pages/docprofile.aspx?nodeid=16413589

15. World Bank, World Development Indicators, 2016.

16. World Bank, Georgia - First Inclusive Growth Programmatic Development Policy Operation Program. Washington, DC , 2015 https://hubs.worldbank.org/docs/imagebank/pages/docprofile.aspx?nodeid=24328511

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https://hubs.worldbank.org/docs/imagebank/pages/docprofile.aspx?nodeid=16413589



17. World Bank, Georgia - Second Programmatic Inclusive Growth Development Policy Operation Project. Washington, D.C., 2015https://hubs.worldbank.org/docs/imagebank/pages/docprofile.aspx?nodeid=25456610

18. World Bank, Georgia Partnership Program Snapshot, Washington, D.C., April 2016

19. Government of Georgia, Social-economic Development Strategy of Georgia “GEORGIA 2020”, June 2014.

20. Government of Georgia, Strategic “10-Point Plan” of the Government of Georgia for Modernization and Employment 2011-2015, 2011. http://gov.ge/files/238_33228_344995_2011_11_28_17_05_14_1.pdf

21. Implementation Status Reports (ISRs) for DPL1 and DPL2

22. Shankar,Rashmi, Georgia - First Competitiveness and Growth Development Policy Operation : P129597 - Implementation Status Results Report : Sequence 01 . Washington, D.C. : World Bank Group, 2013. https://hubs.worldbank.org/docs/imagebank/pages/docprofile.aspx?nodeid=17578007

23. Shankar,Rashmi,. Georgia Competitiveness and Growth DPO2 : P143060 - Implementation Status Results Report : Sequence 01 . Washington, D.C. : World Bank Group, 2013. https://hubs.worldbank.org/docs/imagebank/pages/docprofile.aspx?nodeid=18493780

24. Georgia: Third Competitiveness and Growth DPL – ROC Review Meeting Matrix of comments and team’s response April 23, 2014

25. The Global Competitiveness Report 2015-2016, World Economic Forum. Websource: http://reports.weforum.org/global-competitiveness-report-2015-2016/

26. Doing Business 2016: Measuring Regulatory Quality and Efficiency. Websource: http://www.doingbusiness.org/reports/global-reports/doing-business-2016

27. DCFTA: Benefits and Success in Georgia, USAID Governing for Growth (G4G) in Georgia, 2015, http://pdf.usaid.gov/pdf_docs/PA00KTZN.pdf

28. PEFA Assessment 2012 for a detailed review of the results: http://www.pefa.org/en/assessment/ge-sep13-pfmpr-public-en-0

29. ECORYS-CASE, Trade Sustainability Impact Assessment in support of Negotiations of a DCFTA between the EU and Georgia and the Republic of Moldova, Final Report, October 27, 2012

30. The Ministry of Finance of Georgia, Country Basic Data and Directions, 2011-2014. http://old.mof.ge/en/4618

31. The Ministry of Energy of Georgia, www.energy.gov.ge

32. GeoStat, websource: www.geostat.ge

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http://www.geostat.ge/

http://www.energy.gov.ge/

http://old.mof.ge/en/4618

http://www.pefa.org/en/assessment/ge-sep13-pfmpr-public-en-0

http://pdf.usaid.gov/pdf_docs/PA00KTZN.pdf

http://www.doingbusiness.org/reports/global-reports/doing-business-2016

http://reports.weforum.org/global-competitiveness-report-2015-2016/



http://gov.ge/files/238_33228_344995_2011_11_28_17_05_14_1.pdf


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