Transcript Policies, Institutions, and Governance

The World Bank Assistance
Ingrid Brocková
Country Manager
The World Bank, Slovakia
International
Development Experience
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Poverty Reduction Strategies (PRS)
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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:
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Social inclusion (Roma population)
Institutional capacity of social institutions
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Need for a coherent sectoral
framework and systematic approach
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Achieving sustainable and sustained
outcomes requires a systemic approach
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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
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The Bank is committed to social development,
achieving the MDGs.
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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
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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:
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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
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Support country development in a systemic manner
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focus on long-term results
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country ownership
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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
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must strike a balance among competing sectoral priorities against
background of financial constraints
Challenges:
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strengthen results framework
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effective multi-sector work
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live up to claim of our comparative advantage
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Finance is not the only way for the
Bank to provide support
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Bank instruments, both lending and non-lending, contribute to
multi- and cross-sectoral work:
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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 (sectorwide); 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
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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?
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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
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must be addressed across sectors
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The need for good
governance
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Good governance defined as “the traditions and
institutions by which authority in a country is
exercised (Kaufman, Kraay)
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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:
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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
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Management and performance
Anticorruption
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National anticorruption initiatives
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clear rules for and audits by enforcement agencies
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community oversight (local level)
Affordability improvements
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charging formal fees with exemptions
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reorganizing staffing and performance with rewards systems
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seeking alternative financing options
Accountability tightening
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embedding accountability at every level of the system
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contracting out services and overseeing performance
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calibrating performance through clients satisfaction surveys
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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
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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
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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 shortterm 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
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The view of the Shareholders
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The view of the EU8
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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
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
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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
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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:
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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
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On-going examples include coal sector
restructuring, Odra flood protection, both in
Poland – Key aspects include:
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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
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‘Umbrella Facility’ created to respond quickly
and flexibly to support institution building
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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
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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
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In very high demand by EU8, including by
countries that have already graduated with
focus on shared learning
Four areas are most in demand:
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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
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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
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such as the EU8
Next Stage – Graduation
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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
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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
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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
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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
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Unsustainable growth
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Few structural reforms
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Fiscal policy risked high
deficits
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Current account deficit high
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Indebtedness high
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Monetary policy good
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Inflation 12% in 2000
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Exchange rate depreciation
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Interest rates high
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FDI low
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High unemployment
2005
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Sustainable growth path
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Structural reform agenda
well advanced
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Reforms now sharply
reducing fiscal deficit
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Current account
manageable
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Debt substantially reduced
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Monetary policy good
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Ex. rate appreciation
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Interest rates low
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FDI very high
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Unemployment still high
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Economic Changes
(1998-2006)
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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 Environment
WB&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
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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
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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
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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
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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
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Introduction of low nominal rates
- 19% corporate tax
- 19% unified VAT on all goods and services – without any
exceptions
- 19% flat individual income tax
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Shift from direct to indirect taxes
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Social System Reform, Goals:
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“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
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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
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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
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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
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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
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Social inclusion of society (poverty reduction, human
development); role of the non-governmental sector
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Improving public sector performance (EU funds)
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