The World Bank Assistance

Ingrid BrockováCountry Manager

The World Bank, Slovakia

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International Development Experience Poverty Reduction Strategies (PRS)

Country ownership Long-term nature Results focus Comprehensive/multi-sector Partnerships MDGs rather prominent

MICs may focus less on MDGs but above integrated approach still holds:

Social inclusion (Roma population) Institutional capacity of social institutions

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Need for a coherent sectoral framework and systematic approach

Achieving sustainable and sustained outcomes requires a systemic approach specific sector policies, institutional

development, prioritized investments, sustainable financing, good governance together

=> form a coherent sectoral framework Such framework prepares the ground and

creates a conducive environment for sectoral investment and institutional accountability

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Monitoring and evaluation systems are required at the country level

The Bank is committed to social development, achieving the MDGs.

need to balance advocacy for global public goods with country demands and needs

Successful implementation of strategy will rely on data collected at the country level (statistical capacity)

To achieve results, countries need to benchmark, conduct surveillance, and evaluate data for priority setting and allocation of funding among sectors

Monitoring and evaluation systems need to fully involve other sectors

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Vertical programs in the context of the Bank’s perceived comparative advantage

Comparatively simple to conceptualize, implement, and report on

Often uncontroversial and targeted towards defined, vulnerable groups

Not contradictory to the Bank’s values or focus, but may not in all cases be in line with our comparative advantage: At country level, WB comparative advantages

are convening power, cross-sectoral technical capacity, analytic work, and ability to link sector policies to countries’ macroeconomic framework

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WB approach and reality check: managing inevitable trade-offs at country level among competing priorities

Support country development in a systemic manner focus on long-term results country ownership Capacity-building and institutional development

Balance a country’s needs and demands and (sectoral) supply and advocacy

Manage constant trade-offs within and between sectors / operations as competing priorities vie for attention and funding

Increasing attention paid to the concept of “binding constraints” Country Teams must focus on solving binding constraints and Bank’s

comparative advantage Country Directors are fund holders and ultimate arbiters

must strike a balance among competing sectoral priorities against background of financial constraints

Challenges: strengthen results framework effective multi-sector work live up to claim of our comparative advantage

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Finance is not the only way for the Bank to provide support

Bank instruments, both lending and non-lending, contribute to multi- and cross-sectoral work:

Diagnostic tools: public expenditure and institutional reviews (PEIRs); specific sector studies to underpin policy dialogue (e.g. hospital administration reform);

lending instruments: sector investment loans; SWAps (sector-wide); development policy loans (DPLs) – multi-sectoral;

Advisory services and technical assistance, capacity building, and strategic intergration services.

ECA experience: Bank’s technical advice, advisory services, and policy analysis valued by non-borrowing countries, including the EU

But need for ECA to develop sustainable business model for such non lending, analytical work

Role of WB is also to foster partnerships with private sector: Focus on mainstreaming (performance-based) contracting

modalities

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Why do institutions matter?Where are institutional bottlenecks and binding constraints?

Burden of disease may not be just a function of lack of funding that can be solved simply with additional financing

Institutional capacity is often real constraint, together with country absorptive capacity must be addressed across sectors

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The need for good governance Good governance defined as “the traditions

and institutions by which authority in a country is exercised (Kaufman, Kraay)

Capacity of government to formulate and implement sound policies, manage resources, and set an overall framework for efficient and effective health systems.

Corruption: “use of public office for private gains”.

Indicators of poor governance: mismanagement staff absenteeism and low productivity; leakage of funds, and supplies poor procurement and oversight practices; informal payments; corrupt practices: theft, kickbacks, selling of public

positions.

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Corruption Management and performance Anticorruption

National anticorruption initiatives clear rules for and audits by enforcement agencies community oversight (local level)

Affordability improvements charging formal fees with exemptions reorganizing staffing and performance with rewards

systems seeking alternative financing options

Accountability tightening embedding accountability at every level of the system contracting out services and overseeing performance calibrating performance through clients satisfaction

surveys Ensuring good governance-accountability to ministries,

local governments, Check and balances – voice of the users/civil society

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The EU8, One Year After

Very good performance across the spectrum – countries and sectors

Improved perception of benefits from accession

But diverse countries with different outstanding agenda and different approaches to reform

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Pre-Accession Policy Highlights

Macro – created room for monetary tightening to stem “accession price spikes”

Business climate – liberalized to encourage supply response by local enterprises and FDI inflows to take advantage of accession opportunities

Public administration and management – increased credibility vis-à-vis Brussels and improved absorption of EU funds

Structural policy – undertook reforms that had short-term fiscal costs but increased fiscal space for medium term (pension reform, subsidy policy, banking sector reform, SOE restructuring)

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The World Bank in the EU8

The view of the Shareholders

Strong encouragement by the European Commission and the EU15 to remain actively engaged

Some skepticism on our Board from some non-European Part I countries

The view of the EU8

Senior policy makers in all EU8 countries welcome engagement with the World Bank

All EU8 countries have reduced their borrowing from the World Bank

The view of the World Bank

Engagement in the EU8 is core part of our mandate, provides important lessons, and also stimulus for improving our instruments

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Main Areas of World Bank Activity

Pre-Accession – lending, institutional development and policy advice, focused on modernization of public institutions and management to get ready for accession, and sector reforms to make the most from accession

Current – three main approaches: Lending in support of complex operations Lending for outstanding sector reforms and institution building Policy advice on EU as well as non-EU areas

Prospective – continued decline in lending while engaged in policy advice

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I. Lending in support of complex operations

On-going examples include coal sector restructuring, Odra flood protection, both in Poland – Key aspects include:

Complexity especially in social and environmental areas

Support provided from identification to technical design, to implementation, to monitoring and evaluation of impacts

Co-financing with EU structural funds and/or European Institutions (EIB, CoEDB)

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II. Lending for Sector Reform and Institution Building

‘Umbrella Facility’ created to respond quickly and flexibly to support institution building Examples include TA loans in support of

education and social protection, and rural development in Slovakia

Stand-alone operations in support of capacity building for implementation of sector reform cum investment building Examples include Sector & TA loans for the

health sector in Slovakia, SWAp for road maintenance in Poland

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III. Policy advice on EU as well as non-EU areas

In very high demand by EU8, including by countries that have already graduated with focus on shared learning

Four areas are most in demand: Health policy– all countries from Estonia to Slovenia Corporate governance and consumer protection in

financial services – Czech Republic, Slovakia and Slovenia, other countries in the pipeline

Utilization of EU Structural Funds, especially in agriculture and rural development – Latvia, Poland, Slovakia

PPPs especially in transport – Baltics, Poland, Hungary

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Key challenges for prospective engagement Main constraint to continued engagement in

policy advice with limited lending is the Bank budget – our resources are limited and priority must be given to poorer countries

Cost-sharing with EU8 partners is a key factor – and innovative approaches to cost-sharing with European Institutions will also be needed

Our ability to provide timely and high quality advice based on global experience will continue to be the essential pre-condition to support effectively rapidly growing countries such as the EU8

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Next Stage – Graduation Graduation is the process of moving away from

being a recipient of World Bank support towards becoming a provider of development assistance

Criteria for graduation include: per capita income, access to capital markets, persistence of poverty despite high per capita income, pending structural reform agenda, institutional capacity, client’s own demand for World Bank assistance

Only a limited number of countries have graduated in recent years: Singapore, Korea, Cyprus, Greece

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Graduation for EU8 is different

The EU8 benefit from special advantages: The positive legacy of transition (human capital,

infrastructure) EU anchor – institutional, financial, political

But also face special challenges: External and internal convergence Regional disparities, ethnic minorities Incomplete or weak market institutions Innovation gap

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Prospects for Graduation of the EU8

Slovenia and the Czech Republic have graduated – they are no longer borrowers but continue to receive limited support in the form of policy advice for a three-year period

Estonia, Hungary, Latvia and Lithuania have not borrowed in recent years but remain interested in financing for global public goods (GEF, PCF, GIS) and institution building (PPIAF, IDF), as well as policy advice

In addition to being interested in the above, Poland and Slovakia are also borrowing in selected areas and engaging in policy dialogue

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Prospects for Graduation of the EU8 cont’d

We expect that each country will decide to graduate when ready to make the transition from recipient to donor, and will initiate the process with the Bank

We expect that all countries will decide to graduate by the time they are ready to adopt the euro

We look forward to each country becoming an increasingly important donor partner after having worked closely as a borrower with the World Bank

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Assistance of the World Bank in Slovakia Advocacy Role and Bank as a Facilitator of Changes

(Knowledge Economy Strategy; Roma Issues) “Knowledge and Experience” Bank (Government

successfully implemented a wide-ranging reform program, although the desired pace of reform exceeded capacity) – not only financial assistance, but well-targeted Bank technical assistance to overcome capacity constraints

Reform Process Internalized, Looking Beyond the EU Policies (experience from the OECD and non-EU countries was required) – OECD and the World Bank engagement

Communication with all stakeholders, interest groups and non-governmental sector

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Economic Development 2001 Unsustainable growth Few structural reforms Fiscal policy risked high

deficits Current account deficit

high Indebtedness high Monetary policy good Inflation 12% in 2000 Exchange rate

depreciation Interest rates high FDI low High unemployment

2005 Sustainable growth path Structural reform agenda

well advanced Reforms now sharply

reducing fiscal deficit Current account

manageable Debt substantially reduced

Monetary policy good Ex. rate appreciation Interest rates low FDI very high Unemployment still

high

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Economic Changes (1998-2006) Sustained robust growth in spite of the weak

external environment. The highest growth in Central Europe (6.3 percent in 2005)

Structural Reforms (government policy planning capacity and implementation team; strong ownership)

Business EnvironmentWB&IFC Report: Doing Business in 2005 and

2006, Slovakia one of the best reformers in the world (regulatory environment)

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Economy is highly open and fully integrated into EU’s common market

Full benefits resulting from the free movement of goods, services and labor in the EU

open and easy access to sophisticated suppliers and customers in the EU’s

single market no customs or duties on any transactions

within the EU

Legislative and regulatory framework fully compatible with the rest of the EU

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Entry into Eurozone in January 2009

Slovakia will probably be the first country in Central Europe to adopt the euro

- uncertainty regarding the fiscal treatment of pension reform costs - the government is fully committed to

meet all the Maastricht criteria Slovakia plans to stay in ERM II for two

years only - entry in November 2005

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Business Environment Flat Tax Policy

Light, Non-distortive, Simple and Transparent Tax System, GOALS:

Create business and investment friendly environment for both individuals and companies

Eliminate existing weaknesses and inefficiencies in the tax law

Eliminate distortive roles of tax policy as instruments for achieving non-fiscal goals

Improve tax fairness by taxing all types and all amounts of income equally

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Flat Tax Policy Radical simplification of the tax system

- elimination of virtually all exceptions, exemptions, deductions, special rates, and special regimes

- elimination of dividend, inheritance, gift taxes and real estate transfer tax

Introduction of low nominal rates - 19% corporate tax - 19% unified VAT on all goods and services – without any

exceptions- 19% flat individual income tax

Shift from direct to indirect taxes

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Social System Reform, Goals:

“make work pay” – activity should pay more than inactivity and employment should pay the most

Improve skills and prospects of disadvantaged individuals

Reduce the scope for abuse of the social system by improved targeting

Make the labor market more flexible to foster long-term employment growth

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Other Structural Reforms Pension Reform

- radical reform of the pay-as-you-go pillar - introduction of a fully-funded pillar (private pension accounts)

Health Care - make the system financially self-sustainable, - improve the quality of services provided

Education- improve efficiency and quality of education system - increase capacity and quality of tertiary education

Public Administration - continue the decentralization of public administration - improve the quality of the public service

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Communication of Reforms

Government needs to improve communications to promote public understanding of and support for structural reforms. The pace of reform has exceeded the public appreciation of wide-ranging policy/program improvements.

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Challenges of the EU Membership Capacity to take advantage of EU membership

and use newly available resources wisely Rapid adoption of the EURO will require

stringent fiscal management and possible trade-offs with pace of implementation of some structural reforms which require budget support

Implementing the Lisbon Strategy – making knowledge-based society the catalyst for growth in the EU context, overcoming poverty and improving social inclusion

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National Lisbon Strategy

Education and Human Resources Information Society Research and Innovation Policy Business Environment and

Governance Climate Role of the Government

(Framework)

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Key Priorities for the Future Fiscal consolidation (public expenditure reform)

and completion of structural reforms; economic growth and Euro-adoption

Convergence – building capacity to be able to take advantage of the EU membership; competitiveness of the Slovak economy and sustainable economic growth

Social inclusion of society (poverty reduction, human development); role of the non-governmental sector

Improving public sector performance (EU funds)

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811 03 BratislavaSlovak Republic

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