4. The Bank has been leading the dialogue on structural reforms through SAC 3, approved by the Bank’s Board of Executive Directors in June, 1999, and closed in October, 2002. Despite considerable delays, the core conditions of SAC 3 were met, but their impact was reduced by poor governance. Institution building and technical assistance has been supported through the Structural Reform Support Credit, also approved by the Bank’s Board of Executive Directors on June 29, 1999. The Bank also leads in the areas of:
· Private sector development. SAC 3 supported improvements in the environment for private sector development, focusing on: (i) simpler licensing regulations; (ii) more transparent government procurement; (iii) reduced cost of entry for businesses; and (iv) privatization of state-owned commercial assets. IDA has also been supporting private sector participation in other areas such as energy, telecommunications, urban services and agriculture. The IMF has worked with the authorities to initiate audits of the 2002 accounts of three major state owned enterprises.
· Energy. The energy system is in poor condition, with unreliable supply, massive non-payment and mounting debts. IDA has been working with other donors, including the IMF, to encourage more private management and ownership, and to implement a series of short-term action plans to improve the overall functioning of the sector. The IMF has also been focusing on improved payments for electricity.
· Public Sector Management. The Bank is supporting the development of a civil service reform program, while the Fund is providing technical assistance in support of tax and customs administration reform.
Areas of shared responsibility of the World Bank and IMF
5. The Bank and the Fund have been working jointly in the following main areas (supported by the Bank’s SAC 3 and Structural Reform Support Credit, several investment operations and the Fund’s PRGF):
· Poverty Reduction Strategy. Both institutions have been working closely with the Government to provide support to the development of the PRSP, through seminars and workshops, direct staff input, and a multi-donor Trust Fund to support the work of the PRSP secretariat..
· Budget Planning and Execution. The annual process-based Public Expenditure Reviews will provide the underpinnings for systemic changes in expenditure management, with the immediate aim being improved budget formulation in 2004. The IMF is focusing on Treasury reform within the Ministry of Finance.
· Financial Sector Reforms. The joint Financial Sector Assessment Program has supported: (i) strengthened banking and non-banking supervision; (ii) introduction of international accounting standards; (iii) and consolidation of banks through higher capital requirement ratios; and (iv) anti money-laundering legislation. The IMF has focused in particular on banking supervision.
· Debt Sustainability Analysis (DSA). Given Georgia’s heavy external debt burden, the Bank and the Fund conduct joint Debt Sustainability Analysis on a regular basis.
Areas in which the IMF leads and its analysis serves as input into the World Bank program
· Fiscal Framework. The IMF’s focus on prudent fiscal policy has served as an important framework for IDA’s work on public expenditure management.
Areas in which the IMF leads and there is no direct World Bank involvement
· Monetary Framework. The IMF closely collaborates with the NBG in the design and implementation of a monetary program that aims at remonetization of the economy, while keeping inflation low and the exchange rate of the Lari stable
· Economic Statistics. IMF technical assistance has been conducive to improvements in national accounts, price, monetary and government financial statistics.
Activities
(as identified in the EDPRP)
Responsible Agencies
Focus of Bank
Actions
Expected Results FY04-06
Bank Group Program
Part-ners
WB Performance
Indicators for End FY06
Improvement of Governance
· Development of a comprehensive, long-term concept and action plan of executive government reforms, and of a program to improve structure and number of employees in organizations under budgetary financing
State Chancellery, Ministry of Justice, Ministry of Finance
relevant executive government bodies
Assistance to the State Chancellery in carrying out a functional analysis of the central government agencies and assessment of budgetary employment, remuneration, and training policy; on the basis of the above studies, develop recommendations
Widely owned program to improve functioning of government administration and agencies; remuneration and retrenchment policy for core civil service introduced, and plans for civil service training developed
Public Sector Management Project
DFID, USAID, UNDP
Initiation of reform and restructuring of civil service
· Inventory of normative acts defining the competence of government agencies to avoid duplication of local government functions
State Chancellery of Georgia, Ministry of Justice
Review of the existing legal framework
Initiation of legislative change and amendments
Public Sector Management Project; Public Expenditure Reviews
DFID
EU USAID UNDP
Duplications and overlap among the central state agencies reduced, mandates more clearly defined
· Distinction of municipal property from central government and private property
State Chancellery, Ministry of Economy, Industry and Trade, Agency of State
Property Management, Ministry of Justice, Ministry of Finance
Advice on financing mechanism for transfer of road and transport properties and legal mechanisms for owning and managing very low volume farm access roads
Revised functional/administration classification of roads; sound allocation formula for dividing Road Fund revenues between road owners
Secondary Roads Project; Trade and Transport Facilitation Project; Rural Infrastructure Study
Kuwait Fund for Economic Development
New road classification; new procedures for managing the road fund, including allocation of funds between road owners
Macroeconomic Stability
· Preparation of indicative plans of development for the economy for 2004 and 2005
Ministry of Economy, Industry and Trade
Improvement of linkage between policy, resource constraints and budgets
Develop a more realistic medium-term budget framework
Public Expenditure Reviews, PRSC in High Case
IMF
Budget execution closer to planned
· Initiate the process to convert a portion of government debt liabilities into long-term debt instruments
National Bank
Assistance to the MoF develop long-term debt instruments, e.g. government bond market
MoF starts to use medium to long-term government bonds to replace the rolling of short-term debt instruments
Financial Sector Advisory Program
1-10 year government bond market in place
· Improvement of the management of international reserves of the NBG
Advise to National Bank on management of reserves
Increased import coverage
Gross foreign reserves to reach over 2 months of imports
· Completion of tax and customs administration reform
Ministry of Finance, State Tax and Customs Departments
Development of a business-friendly tax environment
Increased collection of excise taxes and improved VAT administration
Public Expenditure Reviews, Business Environment Study, PRSC in High Case
IMF USAID EU
Collection of excise taxes to reach over 2 percent of GDP
· Implementation of treasury reform, centralization of treasury service; development and introduction of commitment accounting and control system; development and introduction of expenditure control system
Ministry of Finance
Assistance to the MOF to improve its cash and debt management capacity and skills
Consolidation of effective control system, and adoption of a single treasury account
CPAR Updates, Public Expenditure Reviews, PRSC in High Case
Improved cash management and debt management capacity
· Improve government procurement system and expand scope of its coverage
State Procurement Department, Ministry of Economy, Industry and Trade
Establishment of a transparent state procurement system; decentralization of State procurement functions to line agencies
Greater efficiency and competition within the system; reduced delays and corruption in procurement process
CPAR, Public Expenditure Reviews, PRSC, project lending (e.g. Secondary Roads and Trade and Transport Facilitation)
Recommendations of Country Portfolio Assessment Report implemented
· Gradual increase of the share of targeted programs in the state budget
Ministry of Finance, Ministry of Economy, Industry and Trade
Develop program-based budgeting
Improve consistency between medium-term indicative plan and the budget
Public Expenditure Reviews, Public Sector Management Credit, PRSC in High Case
Public Expenditure Reviews assessment of better targeting of programs in the budget
· Inventory of budgetary arrears
Establish accurate estimates of past government liabilities
Better information on, and reduction in, arrears
CFAA Updates, Public Expenditure Reviews
Reduced arrears
· Increase the number of participants in treasury bill market and improve bidding mechanisms to increase maturity and reduce the discount rate through market
Ministry of Finance, National Bank, National Commission of Securities
More competitive and efficient T-bill market
Short term: more participants for competitive bidding, and for non-competitive quota; medium term: cash management, coordination between MOF & NBG on T-bills/open market operations; long term: independent debt management office
Financial Sector Advisory Program, PRSC in High Case
USAID
FIRST
Lower T-bill yield
· Develop legislation promoting the activities of investment funds in order to introduce best corporate management practice in enterprises and develop stock market
Ministry of Finance, National Commission of Securities
Help build legal environment for investment funds; provide information/advice
Establishment of legal environment for investment funds
Regulation of investment funds in place; NCS has capacity to supervise those funds
· Prepare and adopt bill “on Personification and Registration of Insurance Contributions to Social Insurance System” required for regularizing first (distributive) pillar of pension system and development of pensioners’ personified registration system
Ministry of Labor, Health and Social Protection
Support to Ministry of Labor, Health and Social Protection on legal reforms and their implementation
Law adopted successfully
Social Protection Reform Project
Regularization of 1st pillar of pension system; better links between pensions and contributions
· For private pension funds, adopt statutory normative acts in accordance with the laws “on Non-Government Pension Funds” and “on Securities Market”
National Securities Commission, Ministry of Labor, Health and Social Protection
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