georgia - performance and learning review of the...

PERFORMANCE AND LEARNING REVIEW

Document ofThe World Bank Group

FOR OFFICIAL USE ONLY

Report No. 108467-GE

INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT

INTERNATIONAL DEVELOPMENT ASSOCIATION

INTERNATIONAL FINANCE CORPORATION

AND

MULTILATERAL INVESTMENT GUARANTEE AGENCY

PERFORMANCE AND LEARNING REVIEW OF THE COUNTRY PARTNERSHIP STRATEGY FOR

GEORGIAFOR THE PERIOD OF FY14-FY17

The South Caucasus Country Management UnitEurope and Central Asia Region

The International Finance CorporationEurope and Central Asia Region

The Multilateral Investment Guarantee Agency

This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank Group authorization.

ABBREVIATIONS AND ACRONYMSAA Association Agreement IPF Investment Project FinancingADB Asian Development Bank JICA Japan International Cooperation AgencyASAs Advisory Services and Analytics LEPL Legal Entities of Public LawCLR Completion and Learning Review MCC Millennium Challenge CorporationCMU Country Management Unit MIGA Multilateral Investment Guarantee AgencyCPF Country Partnership Framework MoESD Ministry of Economy and Sustainable

DevelopmentCPPR Country Portfolio Performance Review MoLHS

AMinistry of Labor, Health, and Social Affairs

CPS Country Partnership Strategy MSME Micro, Small, and Macro EnterprisesCSO Civil Society Organization NBFI Non-Bank Financial InstitutionDCFTA Deep and Comprehensive Free Trade Area NBG National Bank of GeorgiaDPO Development Policy Operation NGO Non-Governmental Organization EBRD European Bank for Reconstruction and

DevelopmentNPL Non-Performing Loan

EC European Commission PEFA Public Expenditure and Financial Accountability ECA Europe and Central Asia PER Public Expenditure ReviewEIB European Investment Bank PFM Public Financial ManagementEU European Union PIU Project Implementation UnitEWH East-West Highway PLR Performance and Learning ReviewFDI Foreign Direct Investment PPA Power Purchase AgreementGCI Global Competitiveness Index PPP Public Private PartnershipGDP Gross Domestic Product RDP Regional Development ProjectGEL Georgia Lari SDC Swiss Agency for Development and CooperationGENIE Georgia National Innovation Ecosystem Project SDR Special Drawing RightGiZ German Federal Enterprise for International

CooperationSDS Socio-Economic Development Strategy 2020

GoG Government of Georgia SIDA Swedish International Development Cooperation Agency

GRM Grievance Redress Mechanism SOE State-Owned EnterpriseHMR Law on the Development of High Mountainous

RegionsTSA Targeted Social Assistance

IBRD International Bank for Reconstruction and Development

UHC Universal Health Care

IDA International Development Association UNFPA United Nations Population FundIEG Independent Evaluation Group at the World

Bank GroupUSAID United States Agency for International

Development IFC International Finance Corporation WBG World Bank GroupIFI International Finance Institution WDI World Development IndicatorsIFRS Internal Financial Reporting Standards IG DPOs Inclusive Growth Development Policy

OperationsIMF International Monetary FundIP Implementation progress

The World Bank Group Team

World Bank IFC MIGAVice President Cyril Muller Dimitris Tsitsiragos Keiko HondaCountry/Regional DirectorRegional Manager

Mercy Tembon Tomasz Telma

Jan Van Bilsen

Merli Baroudi

Task Team Leader Viktoria Siriachenko Sophie Devnosadze

Iulia MironovaThea Gigiberia

Persephone Economou

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The date of the last Country Partnership Strategy was May 2014. CURRENCY EQUIVALENTS

(Exchange Rate Effective as of November 18, 2016)Currency Unit = Lari

USD 1 =2.49 Lari

GOVERNMENT FISCAL YEARJanuary 1 to December 31

WEIGHTS AND MEASURESMetric System

PERFORMANCE AND LEARNING REVIEW OF THE COUNTRY PARTNERSHIP STRATEGY FOR GEORGIA

Contents

I. INTRODUCTION......................................................................1

II. MAIN CHANGES IN COUNTRY CONTEXT....................................1

III. SUMMARY OF PROGRAM IMPLEMENTATION.............................6

IV. EMERGING LESSONS............................................................13

V. ADJUSTMENTS TO CPS AND FUTURE ENGAGEMENT................14

VI. RISKS TO THE COUNTRY PARTNERSHIP STRATEGY.................15

TablesTable 1 Investment Project Financing Compliance with Citizen Engagement at Appraisal.........10

FiguresFigure 1. National Poverty Rates in Georgia Have Continuously Decreased Since 2010..............2Figure 2 Gender Gap in Labor Force Participation, 2014...............................................................9Figure 3 Average Gender Wage Gap (Female Salary/Male Salary)...............................................9

AnnexesAnnex 1: Updated CPS Results Matrix.........................................................................................16Annex 2: Matrix of Changes to Original CPS Results Matrix......................................................23Annex 3: Progress toward CPS Objectives...................................................................................32Annex 4: Macroeconomic Trends and Projections........................................................................38Annex 5: Extended Overview of Progress toward CPS Objectives..............................................39Annex 6: Gender in the Georgia Portfolio.....................................................................................46Annex 7: Citizen Engagement in the Georgia Portfolio (FY14-FY17).........................................47Annex 8: Country Survey Selected Findings.................................................................................49Annex 9: WBG ASA Products FY14-FY17..................................................................................50

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I. INTRODUCTION

1. This Performance and Learning Review (PLR) summarizes implementation performance of the Georgia Country Partnership Strategy (CPS) for FY14- FY17. The CPS was discussed by the Board of Executives Directors of the World Bank in May 2014 and was aimed at supporting the Georgian government’s efforts to end extreme poverty and boost shared prosperity in the country in a sustainable manner. It identified two priorities to unlock drivers of growth and inclusion: i) strengthening public service delivery to promote inclusive growth and ii) enabling private sector-led job creation through improved competitiveness. This PLR is based on a Country Portfolio Performance Review, a client engagement survey and extensive consultations with government officials, development partners, and civil society in a context that has significantly evolved since the CPS was initially approved.

2. The key finding of the PLR is that the strategic objectives of the CPS remain valid for the World Bank Group’s (WBG) engagement in Georgia and are broadly attainable during the remaining period of the CPS. Therefore, the PLR does not extend the CPS period. Key conclusions and observations include the following:

The CPS continues to provide a relevant framework to anchor WBG support for Georgia’s sustainable development program.

Delivery of planned lending and non-lending programs is largely on track and progress towards the CPS objectives is broadly satisfactory.

Changes in the country’s economic context since 2014 presented challenges but also opportunities to adjust the program to improve alignment towards delivery of results and outcomes.

The results framework has been adjusted, taking into account the evolving country context and bringing into focus outcomes that the WBG program can realistically achieve.

II. MAIN CHANGES IN COUNTRY CONTEXT

Changes to Poverty Reduction and Shared Prosperity

3. Overall, progress in poverty reduction and shared prosperity has been made. However inequality, unemployment and poverty in rural areas remain central to Georgia’s economic and sustainable development and poverty reduction challenge. Georgia’s poverty rate, estimated using the US$2.5/day purchasing power parity (PPP) poverty line, fell from 46.7 percent in 2010 to 31.5 percent in 2015 (Figure 1), and the mean consumption of the bottom 40 percent grew by 7.5 percent annually in the same period, exceeding the growth enjoyed by the population overall.1 However, with a Gini coefficient of 38.5 percent in 2015, inequality in Georgia remains higher than the regional average in Europe and Central Asia (ECA).

1 Consumption growth among the bottom 40 percent was 7.5 percent during 2010–2015 compared with 5 percent for the population as a whole.

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Figure 1. National Poverty Rates in Georgia Have Continuously Decreased Since 2010

20062007

20082009

20102011

20122013

20142015

2016f2017f

2018f1015202530354045505560

42.645.8

43.0 45.1 46.7 44.8 42.5

36.032.3 31.5

16.9

27.0

40.2

29.355927.450225.548

National TbilisiRest Urban Rural

Pove

rty H

eadc

ount

( U

SD 2

.5

per d

ay p

er p

erso

n , 2

005

PPP)

Source: World Bank staff elaboration based on harmonized version of 2006-2015 Integrated Household Survey. Poverty calculated using poverty line of USD 2.5 per person per day (2005 PPP). 2016-2018 national poverty rates are forecasts based on 2014 household consumption growth equivalent to projected GDP per capita growth, with a pass-through rate of 0.87 (Macro Poverty Outlook, Spring 2016 edition).

4. Poverty reduction has not only been driven by social assistance but also by increases in labor income. During the CPS implementation period, economic growth has resulted in improvements in living conditions across the entire income distribution, especially for those at the bottom of the income distribution. The main channels of transmission have been increased earnings, observed across all sectors of activity in the country (wages increased on average by 7 percent annually during this period, with rates of over 4 percent observed in all industries), and redistributive social policies, among which the means-tested targeted social assistance and old-age pensions are the most important components. Pension and social assistance reforms have been actively supported by the WBG through a series of Development Policy Operations (DPO), policy advice and analytical work.

5. Georgia made tremendous efforts to improve its business climate and the private sector’s capacity to contribute to labor income and poverty reduction. Reforms in the Information and Communication Technologies (ICT) sector have enabled Georgia’s economy to be more innovative and competitive. Legal and regulatory amendments, for example, encouraged greater competition in the ICT sector, resulting in roll out of high-speed 4G wireless broadband networks by private operators. A number of factors, including the reduction of corruption, deepening and diversification of the financial sector, and investments in hydro generation capacity, have also enabled the growth of tourism and other service sectors. The World Bank Group’s Doing Business 2017 Report noted Georgia’s substantive improvements in areas such as reliability of electricity supply, quality of land administration, minority investor protections, export and import documentary compliance, and the ease of paying taxes. Consequently out of 190 economies Georgia ranks 16th in Doing Business 2017, improving its position from 23rd in 2016.

6. Significant infrastructure investments have enabled the transportation of oil, gas and dry cargo between Western Europe and Central Asia thus moving Georgia towards its goal of becoming a trade and logistics hub. The main investments were concentrated in the

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East-West Highway (EWH), which carried over 60 percent of Georgia’s total foreign trade. This has had a significant impact on key macro and welfare developments over the medium and long term, resulting in an assessed increase in real GDP by 1.5 percent and 4.2 percent respectively 2. However, there is a growing recognition that sustainable development requires more profound changes in areas that are driving systemic transformations, changing behavioral patterns, moving up value chains, and developing human capital and skills.

7. Despite emphasis on strengthening the private sector particularly in urban areas, unemployment remains a major concern. Despite robust economic growth due to reforms and the decline of urban poverty, from 44 percent in 2006 to 21.8 percent in 2015,3 unemployment remains a significant public policy concern. The unemployment rate has remained persistently high at 12 percent during the CPS period despite a slight increase in the labor force participation from 66.7 percent in 2010 to 67.8 percent in 2015.4

8. Furthermore, growth of urban areas did not translate into positive spillovers as poverty levels in rural areas remain persistently high. Rural poverty declined slightly from 47 percent in 2006 to 40.2 percent in 2015. Self-employment in agriculture represents close to 70 percent of rural employment and 47 percent of total national employment (2015 IHS) even though agriculture represents only 9 percent of GDP due to the low productivity of the sector. However, very recently there have been incipient signs of creation of employment in manufacturing (such as agribusiness), mining, and services sectors for rural households, which is translating into a minor, but positive, role of diversification in alleviating poverty.5

Recent Economic Developments and Debt Developments

9. After a deterioration of the macro economic and fiscal parameters during the last two calendar years -due to external shocks and domestic policy decisions- the newly-elected government signaled a renewed commitment to sustainable macroeconomic policies at the end of 2016. The fiscal worsening was a result of a combination of external and domestic factors which led to the World Bank’s decision to delay both DPOs. The 2017 budget is signaling a decline in the deficit backed up by adequate revenue enhancement measures and a fiscal consolidation program - restoring fiscal discipline. The budget and the economic outlook are broadly assessed positively by the International Monetary Fund (IMF). The IMF concluded staff-level negotiations for a new Extended Fund Facility (EFF) in the amount of SDR201.4 million with the Government of Georgia in March 2017. The EFF supports the government’s economic program to achieve strong and more inclusive growth, preserve fiscal sustainability, reduce macroeconomic vulnerabilities, strengthen monetary and fiscal institutions, and improve financial and social safety nets.

10. The 2017 state budget shows a path in the right direction with a fiscal deficit down to 4.1 percent of GDP. The deficit is expected to be brought down further to 3.5 percent by 2019 from 4.1 percent in 2016. The declining deficit is backed up by revenue enhancement 2 Georgia: Assessing the Impact of East-West Highway Investments on Exports through Gravity Modeling. Transport and ICT Global Practice, Europe and Central Asia Region, June 20163 Poverty measured using a poverty line of USD 2.50/person per day (2005 PPP). 4 Georgia 2015 Poverty Assessment.5 Sinha et al. (2016) Impact of Structure of Growth and Income on Rural Poverty in Georgia. Paper Prepared by for the South Caucasus Programmatic Poverty Assessment TA FY2015-16.

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measures and a fiscal consolidation program. Revenue measures include increase in excises for fuel, tobacco and cars. The anticipated negative fiscal impact of the profit tax reform (“Estonian tax” model approved in 2016) will be partially mitigated through the revenue gains to be generated by increase of excises. On the expenditure side, the government approved a fiscal consolidation package in December which consists of the following amendments to the Budget Code stating that: (i) revenue projection ceilings defined by the MOF should not be exceeded by local self-governance entities (municipalities) without prior agreement with the MOF; (ii) local administrations are allowed to establish Local Entities of Public Law (LEPLs), State Owned Enterprises (SOEs) only if their activities are directly aligned with the activities of Local Governments (LGs); (iii) municipalities are requested to keep administrative expenditure including subsidies and wages below 90% of their 2016 level; (iv) All projects financed from the regional project implementation fund should strictly comply to pre-defined selection procedures and criteria. As a result of the combined legislated revenue and expenditure measures, the fiscal deficit is expected to decline restoring fiscal discipline. Meanwhile, the National Bank of Georgia (NBG) is pursuing its inflation targeting policy under the flexible exchange rate regime.

11. The macroeconomic policy framework, including the 2017 state budget and its outlook, is broadly assessed positively by the International Monetary Fund (IMF). The reform program including the World Bank DPO series is being implemented in close collaboration with the IMF. The IMF has concluded staff-level negotiations for a new Extended Fund Facility (EFF) in the amount of SDR201.4 million with the Government of Georgia. The EFF supports the government’s economic program to achieve strong and more inclusive growth, preserve fiscal sustainability, reduce macroeconomic vulnerabilities, strengthen monetary and fiscal institutions, and improve financial and social safety nets.

12. The renewed commitment to fiscal sustainability is an adequate and timely response to the 2015-16 fiscal deterioration. This fiscal worsening trend originated in a combination of external and domestic factors, which led to the decision to hold the disbursement of both World Bank DPOs. On the external front, subdued regional growth and depreciation of key trade-partner countries’ currencies following lower oil and commodity prices reduced worsened Georgia’s competitiveness. As a result, the current account deficit widened to 12.4 percent of GDP in 2016, following a weakening of exports and remittances performance coupled with a slow adjustment of imports. Foreign direct investment (FDI) has financed near 90 percent of current account deficit in the last three years. Consequently, growth slowed down from 4.6 percent in 2014 to 2.7 percent in 2016 with services becoming the dominant driver.

13. On the domestic front, counter-cyclical spending expansions supported economic growth but contributed to the worsening of fiscal indicators. The continuous increase in the Government fiscal deficit since 2013 was linked to an expansion of both capital and current spending from 30 percent to an estimated 33 percent of GDP between 2013 and 2016. Among the drivers of government spending was a significant expansion of social programs and public investment. For example, the introduction of universal health care (UHC) in 2013 led to an expansion of health spending from 1.6 percent of the GDP in 2013 to 2.9 percent in 2016. Increased social spending has made the budget more rigid, with less flexibility to make discretionary spending cuts to meet fiscal targets. Partly as a result, the fiscal deficit widened from 3.8 percent of GDP in 2015 to 4.1 percent in 2016, higher than the budgeted 3 percent.

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14. Public and external debt have grown noticeably. Georgia’s external debt is at moderate risk of debt distress. However, the significant level of external debt - 111 percent of GDP at the end of 2016 - combined with high levels of dollarization is an area of concern. Public debt has also risen from 35 to 45 percent of GDP between 2014 and 2016.

15. The National Bank of Georgia responded adequately to the shocks. As a result, the Lari depreciated by 28.5 percent in nominal terms during 2015, year-on-year, and another 4.3 percent in 2016, helping the economy adjust to the shock. To avoid volatility, the National Bank of Georgia (NBG) intervened in the foreign exchange market a few times in 2015 and 2016, with a net sale of $289 million in 2 years. Nevertheless, reserves were sustained at $2.8 billion by the end 2016 (covering about 3.9 months of imports of goods and services), compared with $2.5 billion in 2015. With low inflation, the NBG reduced its policy rate to 6.5 percent in September 2016 before tightening it back in January 2017 to 6.75 percent. This reversal was due to considerable pick-up in inflation expectations, reflecting sizable hikes of excise tax, rising energy prices, and a moderate pickup in underlying price dynamics. Prudent supervision reinforces the stability of the banking sector, with nonperforming loans amounting to 3.4 percent of all loans in December 2016. Despite the large depreciation, the high rate of dollarization, and structural vulnerabilities, the financial sector remains stable. Strict banking supervision, prudent lending and loan loss provisioning norms, along with proactive restructuring of household foreign currency loans and a high level of collateral coverage have helped banks to mitigate the negative impact.6

16. Growth is expected to recover in 2017 and in the medium-term. After the slowdown in 2015, growth is projected to average four percent a year over the medium-term, in light of greater policy certainty following the October 2016 parliamentary elections, confirmed political commitment to the ongoing reform program, foreign direct investment inflows and a modest improvement in the external environment in 2017. Nevertheless, downside risks remain such as a fairly concentrated banking sector, a high degree of dollarization, a large current account deficit and an uncertain external environment. Over the longer-term, benefits are likely to accrue from the Deep and Comprehensive Free Trade Area (DCFTA) regime which will improve market access and encourage FDI.

17. Poverty and disparities are expected to continue decline. The poverty rate, estimated using the $2.5/day PPP poverty line, fell from 46.7 percent in 2010 to 31.5 percent in 2015. The decline in poverty is expected to be through increased job opportunities among the less skilled, with expansion of construction activities supported by investments, the growth of tourism and services in general. The rise in real wages is likely to continue especially for salaried workers in urban areas. Increased pensions in 2016 also had a positive distributional effect amongst the extreme poor for whom pensions represent approximately 20 percent of income.

6 In order to maintain low NPLs and reduce borrower’s risks associated with a weakening Lari, the NBG announced a 10-point de-dollarization plan at the end of 2016. Under the program, each retail borrower that holds cumulatively $40,000 of loan or less, borrowed before January 1, 2015 has been given an option to convert their dollar-denominated liabilities into local currency at state subsidized exchange rate (market rate minus 20 tetri per dollar) before end-March, 2017. A budget subsidy of GEL65 million was allocated in 2017 to allow subsidized conversion. Going forward issuance of loans under GEL100,000 in foreign currency denomination has been restricted by the new regulation.

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New or Emerging Country/Development Issues

18. High rural poverty and unemployment pose important challenges to Georgia’s economic development and poverty reduction objectives. Changes in the design of social programs like Targeted Social Assistance would help increase labor-force participation at the lower end of the income distribution.

19. Skilled labor deficit in major high productivity sectors of the economy is also a challenge to accelerating economic growth. Skills development is limited by the low quality of education, which in the long run impacts economic growth and poverty reduction efforts. The challenge going forward will be to accelerate education reform, improve the quality of education with a focus on improving student learning outcomes overall and particularly in rural areas, and adopt more active labor market policies including job matching initiatives that ensure that the system produces skills needed in the labor market.

20. Georgia has a high exposure to environmental and climate-related dangers that would require strengthening disaster preparedness going forward. The 2015 flood event in Tbilisi demonstrated that Georgia continues to be vulnerable to climate and environmental-related shocks. Ten days of heavy rainfall in the Vere River Valley in July 2015 led to flash flooding and a large landslide of 1 million cubic meters. In total, more than 700 people were directly affected, with 19 deaths and 67 families displaced, and total economic damages were estimated at US$24.3 million, with about 90 percent of the losses borne by the transport and housing sectors. Unsustainable forest management practices add to susceptibility to the extreme weather impacts and climate change in general, and its improvement would be instrumental in climate-resilient development of the country.

III. SUMMARY OF PROGRAM IMPLEMENTATION

21. World Bank Group support to the government’s sustainable development program through the CPS FY14– FY17 has made a significant contribution. The overall lending envelope was approximately US$1.4 billion comprised of US$1.09 billion from the IDA and IBRD, US$ 325 million from IFC, and MIGA guarantees. (See Annex 10). IFC delivered investment program in line with the upper threshold of the CPS expectations, benefiting from favorable business environment in the country, local presence of investment and advisory staff, as well as proximity to Istanbul Operations Center. In addition to own account commitments, IFC mobilized significant resources including US$ 660 million from private sector partners and IFIs and US$77 million with the support of MIGA guarantees; IFC’s total long-term finance program delivered during the CPS period reached US$1.06 billion in seventeen new projects. IDA and IBRD delivered twelve operations amounting to US$716.8 million. Plans are underway to deliver two DPOs of US$100 million, which slipped from FY16. With this delivery, the total IDA/IBRD program for the current CPS period will amount to US$816.8 million (compared to US$823 delivered under the previous CPS in FY10-FY13). Actual IBRD lending volumes in FY17 will depend on country demand, overall performance, global economic and financial developments which affect IBRD’s financial capacity, and demand by other Bank borrowers.

22. Compared to the previous CPS period, the IFC portfolio became more diversified across sectors. Approximately 46 percent of the total new commitments supported investments

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in hydropower, followed by financial services with 36 percent of the total and the remainder in agribusiness, real estate, tourism, and private healthcare. IFC also supported approximately US$57 million worth of trade flows through its active trade finance lines in three local banks. IFC’s committed investment portfolio expanded by approximately 40 percent during the CPS period from US$341 million to US$450 million (of which 80 percent has been disbursed as of March 2017) making Georgia IFC’s fourth largest committed exposure in the ECA region. IFC financing for the two hydropower plants on Adjaristsqali cascade, which have been co-developed by IFC during the previous CPS period, accounted for the large part of this increase. As a result of this transaction, IFC’s portfolio in the energy sector has almost tripled reaching about 30 percent of the total committed portfolio.

23. In addition to the World Bank investment portfolio, there is an active program of four recipient-executed trust fund operations supporting the program. The recipient-executed trust fund portfolio amounts to US$17 million, 91 percent of which is undisbursed due to the young age of these operations. In particular, the Swedish International Development Cooperation Agency (SIDA) financed US$9.25 million to support Sustainable Wastewater Management; the Swiss Agency for Development and Cooperation (SDC) financed US$5 million for the Second Regional and Municipal Infrastructure Development Project, and the Japanese Social Development Fund financed US$ 2.5 million for Empowering Local Community Entrepreneurs.

24. Advisory Services and Analytics (ASA) underpinning the World Bank’s engagement, provided timely policy advice and technical assistance. The number of ASAs increased in FY 2014 compared to the previous CPS period, responding to the higher level of engagements requiring an increased knowledge base for the medium-term. They produced valuable information in key focus areas, such as climate change and disaster management, air pollution and forestry, green transportation, urban development, poverty assessment, and gender. Analytical products informed sectoral reforms and strategies for instance, public expenditure reviews (PER), country economic memoranda (CEM), Support for Education Sector Strategy, Georgia Urban Strategy, Georgia Energy Sector Strategy, and Georgia Pension Reform Technical Assistance (TA). In addition, the World Bank provided the Government of Georgia technical assistance to review and strengthen policies affecting internally displaced people. Country Social Analysis is also underway and will inform Government’s efforts in planning interventions aimed to reduce disparities for disadvantaged groups.

25. Advisory Services also continued to be an integral part of IFC’s program in Georgia. These projects supported improvements in investment climate and corporate governance, promoted greater access to finance, increased compliance with international food safety standards, and provided support for the structuring of a complex Public Private Partnership (PPP) project to build the 280 MW Nenskra Hydropower Plant.

Portfolio Performance Issues

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26. Overall the World Bank portfolio performance is satisfactory. The disbursement ratio has been steadily high (above 22 percent) throughout the CPS period. The independent evaluations of projects that were conducted for 18 months by the World Bank Group’s Independent Evaluation Group (IEG) confirmed the high quality of projects preparation, monitoring and evaluation, good performance by the borrower and the World Bank teams, and validated satisfactory outcomes of the evaluated projects.

27. Regular Country Portfolio Performance Reviews (CPPR), conducted jointly with the Ministry of Finance and respective line ministries continue to strengthen program implementation. These reviews have identified some common implementation challenges, including insufficient implementation readiness and poor quality of detailed designs. The Bank and Government of Georgia teams continue to work together to find ways to address challenges and strengthen implementation across the portfolio7.

28. IFC’s investment portfolio performed well during the CPS period. The only outstanding non-performing loan (NLP) as of the end of the previous CPS period has now been resolved, therefore there are no new NPLs in the current portfolio. IFC’s equity participation in two leading Georgian banks supported their ability to successfully list in London Stock Exchange and resulted in high return which significantly contributed to IFC’s overall profitability.

29. Furthermore, Georgia’s portfolio significantly contributed to IFC’s profitability, accounting for approximately 13 percent of IFC’s cash income in the ECA region during FY14-FY16.

Gender in the Georgia Portfolio

30. Two country gender assessments conducted in 2014 and 2016 showed that progress has been made towards achieving gender equality. However, more work needs to be done in the areas of demography, human capital, economic opportunities, voice and accountability.Georgia is committed to promoting gender equality through its constitution and through the adoption of the Law on Gender Equality. The DCFTA not only offers avenues for enhancing men’s and women’s economic opportunities, but also presents a significant opportunity to strengthen gender equality institutions in Georgia. Progress has been made in implementing this plan. In addition, the government is acting to employ females in government services that have traditionally been dominated by men (such as the police force and the military). However, women continue to lag behind men in labor force participation (Figure 2 and 3); a similar gap exists in the proportion of businesses managed or owned by women and men. A background study commissioned for the Gender Assessment estimated that in 2014, gender gaps in labor participation and entrepreneurship translated into a reduction in output equivalent to 11 percent of Georgia’s GDP per capita. Another challenge is the skewed sex ratio at birth. (Box1). For an extensive discussion on gender equality see Annex 6.

7 The Bank has also been working with government to foster higher level of competition for infrastructure projects (details are described in annex 10).

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Figure 2 Gender Gap in Labor Force Participation, 2014

Figure 3 Average Gender Wage Gap (Female Salary/Male Salary)

Georgia ECA OECD Lower middle income

30405060708090

female

% o

f pop

ulat

ion

ages

15

to 6

4

2008 2009 2010 2011 2012 2013 2014

46%42% 43% 40% 42%

36% 37%

Source for Figure 2: World Development Indicators, accessed in April 2016 and reported in Georgia Country Gender Assessment (June 2016)Source for Figure 3: Geostat, Women and Men in Georgia, 2015 and reported in Georgia Country Gender Assessment (June 2016).

31. The focus on gender equality has been central to World Bank Group’s support and has been systematically mainstreamed in projects across the entire portfolio. Since FY 14, all new projects have been gender informed in all three dimensions. IFC’s prioritized support to financial institutions which expand access to finance for women entrepreneurs. Three of the IFC client financial institutions provide customized gender finance products. In the course of the current CPS period outstanding portfolio of MSME loans provided by these institutions to women owned businesses more than tripled, having increased from approximately 21,000 to over 67,000.

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Box 1: Skewed Sex Ratios at Birth

Skewed sex ratios at birth is an area in which analytics has moved up the knowledge chain during the CPS. Since the 1990s, Georgia and the other two countries in the South Caucasus have been displaying extremely skewed sex ratios at birth comparable to India and China. If nature were to take its course, 106 boys would be born for every 100 girls. In the South Caucasus, the ratio is higher than this “natural” ratio: 113 in Armenia, 115 in Azerbaijan and 109 in Georgia. 8 out of 11 regions in Georgia show high sex ratios at birth. Georgia was part of the World Bank study “Missing Girls in the South Caucasus” that used quantitative and qualitative data analysis to investigate the reasons for skewed sex ratio at birth. The study found that parental preference for sons (aided by cultural norms), magnified by increasingly smaller families, availability of technology that facilitates prenatal sex detection, and prevailing perceptions of economic uncertainty are all important influencing factors. Finding a public policy solution to this issue is important because a deficit of young women can have negative ramifications for future population growth and social stability.

External Partnership

32. The World Bank Group has consistently worked with other development partners during the implementation of its program. In the first years of the CPS, the World Bank led annual donor meetings in the transport sector to exchange ideas and strengthen coordination on overall transport sector policy and road sector financing plans. In addition to the World Bank, key donors in the transport sector include the Asian Development Bank (ADB), the Japan International Cooperation Agency (JICA), the Millennium Challenge Corporation (MCC), the European Commission (EC), the European Investment Bank (EIB), and the Kuwait Fund, which have been financing (or plan to finance) different sections of Georgia’s road network. Under the Regional Development Project (RDP), the World Bank continues to work closely with SIDA, the EU, and the German Federal Enterprise for International Cooperation (GiZ), the United States Agency for International Development (USAID), and SDC on the three regional development projects covering the four largest regions of the country. In the energy sector, the WBG has been working with ADB, EBRD, and USAID. Furthermore, policy frameworks supported by development policy operations in the CPS have been coordinated with the International Monetary Fund (IMF), EU, United Nations Children’s Fund (UNICEF), ADB, and EBRD.

Citizen Engagement

33. The Bank promoted enhanced citizen engagement in the design, implementation and monitoring of projects during the CPS implementation period. All projects appraised in FY16 were fully compliant with both citizen engagement corporate requirements. Approximately 80 percent of projects approved in FY16 are now reporting on the beneficiary feedback. See Table 1 for the evolution of CE in project design and monitoring.8

Table 1 Investment Project Financing Compliance with Citizen Engagement at Appraisal

Beneficiary Feedback indicator

(% compliance)

Citizen-Oriented design (% compliance)

Pre-FY14 (4 projects still active) 0% 75%

FY14 (3 projects) 33% 100%

FY15 (2 projects) 50%* 100%

FY16 (5 projects) 100% 100%

Number of projects in portfolio (incl. pre FY14) currently compliant/not compliant with CE requirements.

7 compliant/7 not compliant.

13 compliant/1 not compliant

Social accountability mechanisms to improve information flows, strengthen communication channels, and enhance citizen engagement in municipal services are in the process of incorporation into the projects across the portfolio. For example, the Regional Municipal Infrastructure Development Project II (RMIDP II) expanded project Grievance Redress Mechanism to capture questions, comments and concerns raised by broader communities. At

8 A detailed report on the progress presented in Annexes 3 and 5

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municipal level, in addition to information sharing through community boards, the project envisages supporting participating municipalities to strengthen or set up a range of tools that promote citizen engagement such as Citizens Charters, Trust Groups, Hotlines, Population Liaison Focal Point, etc. Support to the municipalities is currently being piloted in three municipalities and the experience gained will help refine the approach before this is scaled-up to the other participating municipalities.

Progress toward Achieving CPS Objectives9

Pillar 1: Strengthening public service delivery to promote inclusive growth

34. Significant progress was made towards improving coverage and targeting of social assistance. Implementation of UHC reform has resulted in tangible benefits. Over 90 percent of the population is covered, including 52 percent women and 48 percent men (Annex 3, CPS Objective 2). In 2015, targeted social assistance (TSA) coverage of the poorest decile was estimated to be on average at 58 percent, with program beneficiaries equally split between men and women (Annex 3, CPS Objective 1). Following the UHC reforms supported by the IBRD interventions, IFC invested in the two leading private healthcare companies supporting their plans to expand outpatient services, enhance laboratory services, and introduce new specialized services. Pension and deposit insurance system reforms are underway for completion in 2017. However results in education are mixed. Targets were achieved on teacher effectiveness evaluation tools, but are yet to be achieved on the school-based quality assurance reforms (Annex 3, CPS Objective 3).

35. Support through the Inclusive Growth Development Policy Operations (IG DPO) series led to improvements in the budgetary and financial management systems. The reforms were anchored in public finances (modified cash basis International Public Sector Accounting Standards (IPSAS) and coverage of Legal Entities of Public Law (LEPLs) in the e-budget), social sectors (universal health coverage, upgraded standards for hospitals and primary health care, increased efficiency of pensions), and improvements in competitiveness (adoption and implementation of framework laws on competition, food safety and free movement of products, improved customs efficiency, increased power sector reliability and curricula and related improvements in general education). The Ministry of Finance produced modified cash-basis consolidated financial statements and reports aligned with international standards. In line with efforts to improve transparency, the ministry published them on its official website.10

Furthermore the government expanded the coverage of the budget to Legal Entities of Public Law (LEPL)11 while integrating accounts with the e-budget system. Since January 2015, all LEPLs have been integrated into the system, and all submissions go through e-budget.

36. As a result of interventions under the Youth Inclusion and Social Accountability project three pilot municipalities promoted activities involving inclusion of youth in social

9

10 The consolidated financial statements of the state budget organizations for the years 2012, 2013, 2014, and 2015 are published on the official website of the state treasury: http://treasury.gov.ge/550911 LEPLs are entities created under various ministries to provide specific public services for which they can charge service fees that 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 percent of the 2012 State Budget.

11

http://treasury.gov.ge/5509

accountability, and this led to more inclusiveness in decision making. (Annex 3, CPS Objective 6). There were some adjustments to few outcome indicators which are presented in Annex 2.

Pillar 2: Enabling job creation by the private sector through improving competitiveness

37. Progress with regard to areas of engagement in this pillar has been largely on track. Tourism development supported by Bank operations and IFC investments demonstrated good progress and are expected to result in positive spillover effects on rural communities. As a result of intervention of the IBRD financed Regional Development Project points of sales have increased by 25 percent in the Kakheti region. Tourism spending in targeted regions, as measured by increased tourism enterprise value-added tax receipts, increased by 230 percent between 2012 and 2015. Tourism employment in the Kakheti region increased by 92 percent (from 507 to 972) in the period 2012-14 as measured by an increase of the number of people employed in hotels and restaurants. IFC catalyzed private sector investments in the regions covered by IBRD’s regional development program. IFC provided loans to a dairy producer and a wine-maker from the Kakheti region and to a leading manufacturer of glass containers and bottles from Mtskheta-Mtianeti. To address growing demand for travel in Georgia, IFC supported expansion of hospitality infrastructure in affordable class segment in Tbilisi. Going forward, IFC will explore further opportunities to foster development of affordable class hotels across Georgia, as well as other areas of support for tourism development (e.g., improving transport infrastructure). Access, quality, and sustainability of key infrastructure has improved overall, with travel time from Tbilisi to the regions and within the regions significantly reduced (detailed results are presented in Annex 3, CPS Objectives 7 and 8).

38. Results in the energy sector have been mixed. Significant progress has been made in improving operating efficiency and the financial health of the sector, expanding generation capacity, and attracting private investments. The available capacity of the system increased from 1,200 MW in 1999 to about 3,600 MW in 2015. During the same period, collection rates for consumed electricity increased from 30 percent to almost 100 percent, and overall system losses were reduced from 30 percent to 10 percent. This performance led to an uninterrupted supply of electricity for 24 hours a day. The cumulative private investments in power generation have increased from negligible levels to about $1 billion, of which about one third was provided or mobilized through IFC projects. IFC projects are on track to contribute 274 MW of new hydropower generation capacity by the end of the CPS period, increasing the total installed hydropower capacity by about 10 percent since the end of 2013.12 However, slower than expected progress was observed on aligning the enhanced energy regulatory system and electricity market rules with EU Energy Policy under the AA and Energy Community Treaty Activities (see Annex 3, CPS Objective 8)

39. Reforms to enhance investment climate and expand access to infrastructure improved the country’s competitiveness. The programmatic Private Sector Competitiveness DPOs reinforced the government’s efforts to increase private sector competitiveness through financial sector deepening and diversification, and firms’ capacity to innovate and to export. These operations have also helped the government to further improve market access, strengthen 12 Total installed hydropower capacity was 2,667 MW in 2013 based on ADB’s Assessment of Power Sector Reforms in Georgia, 2015

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budget and customs management, and liberalize telecommunication and internet services. In a complementary manner, IFC advisory projects supported the government’s efforts to insure greater investor protection, to enhance investor servicing and aftercare, to further reduce compliance costs for businesses, to improve tax transparency, and to foster greater corporate transparency. Furthermore, IFC supported efforts to improve agriproducers’ compliance with international food safety standards and increase their access to new markets. The IFC Food Safety project provided assistance to the National Food Agency to improve food safety inspections and train approximately 80 private companies on international food safety standards. The impact of these activities is expected to materialize in the next strategy cycle with increased exports to the EU and other advanced markets. (Annex 3, CPS Objective 7).

40. Credit penetration increased during the CPS period, but access to finance by the Micro, Small, and Medium sized Enterprises (MSME) remained constrained. While domestic credit to the private sector expanded from 35 percent of GDP in 2012 to 50 percent of GDP in 2015, the share of MSMEs in the banking sector loan portfolio remained at a base line of 20 percent which roughly corresponds to the share of MSMEs in GDP. However, in absolute terms, the volume of MSME loans increased by approximately 45 percent during the CPS period. IFC investments and advisory services provided to banks and microfinance institutions were essential to maintain the credit flow to MSMEs. The number of MSME loans in the outstanding portfolio of IFC's client financial institutions has increased in line with the CPS objectives, and at the end of 2015 accounted for about half of the total volume of the outstanding MSME loans in the country. The share of non-bank financial institution assets in total private assets grew to 7.7 percent by the end 2015. However products and sources of funds diversification has been inadequate, and limited access to finance for SMEs is an area of continued challenge. (Annex 3, CPS Objective7).

41. Some progress has been made to match labor supply and demand. An on-the-job portal has been launched. However despite the development of an information system which provides an automatic matching possibility between a jobseeker and an employer, it has yet to become fully functional. Currently the Labor Market Information Management System (LMIS) (Worknet.gov.ge) launched modules of employers, vacancies, job seekers’ automatic connection and feedback. Development of statistical reporting module is in progress. Registration of job-seekers is also ongoing in the LMIS. The LMIS is expected to become fully functional in early 2017 (Annex 3, CPS Objective 9).

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IV. EMERGING LESSONSLessons Learned

Significant impact of major reforms can be achieved by reinforcing synergies between the World Bank engagement in the public sector and IFC operations in the private sector. For example, the UHC reform was largely supported by the World Bank operations aiming to expand UHC coverage to approximately 90 percent of the population. This, in turn, enabled private investments in the healthcare sector supported by IFC. The other example is the energy sector, where engagement by the World Bank in policy advice and investment in transmission followed by the IFC investment and advisory services in hydro power generation. In the remainder of the CPS period, the WBG aims to assist the Government in developing a new vision for energy sector development.

In the power sector the WBG will be discussing with the government how to design and implement a market model more closely aligned with the principles of the Energy Acquis. According to the WB’s assessment13 if the current Georgian power market model is not updated, operating the power system will lead to higher costs and higher impact on the bottom 40 percent of the population. For example, since 2014 the government has entered into power purchase agreements (PPA) to stimulate hydropower and achieve energy self-sufficiency through public-private partnerships. However, the associated contingent liabilities and risks have not been properly accounted for, which increased exposure to fiscal risks. While PPP frameworks balancing private and public sector risks are necessary and useful for Georgia (as witnessed by experiences from Colombia, Panama, Chile, Philippines, among others), the key issue for Georgia is to establish a predictable and level-playing Power Market. The government already has started accounting of fiscal risks and significant steps were taken to asses and disclose fiscal risks stemming from PPAs.

The portfolio has focused investments mainly on infrastructure sectors and the WBG has developed a strong reputation of success in them. Given current challenges it will be important to diversify and engage in new areas that are critical to accelerating economic growth and job creation. Approximately 70 percent of investments in the IBRD portfolio is in infrastructure sectors (roads, energy etc). Improving enabling environment and addressing the challenge of skilled labor deficit in high productivity sectors of the economy is an important area of engagement to accelerate economic growth and the WBG will be working with the government in these areas.

Challenges related to MSME’s access to finance need to be addressed through a combination of supply and demand side interventions. The majority of banks tend to perceive MSMEs as higher risk borrowers, but on the other hand low levels of MSMEs financial literacy significantly constrain their ability to use existing financial products.14 While IFC, through its investment and advisory services, helps build capacity within the

13 World Bank’s Georgia Power Policy Note of June 201614 Georgia: Neighborhood SME financing, EIB 2016

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banking sector to develop customized financing products and expand lending to MSMEs, it is not sufficient. To address structural issues constraining MSME’s access to finance in a programmatic way, the WBG is designing the Financial Sector Deepening and Inclusion Program, a multi-year technical assistance project which will support domestic capital market, implementation of the pension reform, contribute to the strengthening of the insurance sector, and promote responsible access to the financial services.

V. ADJUSTMENTS TO CPS AND FUTURE ENGAGEMENT

42. The original CPS pillars remain relevant to Georgia’s sustainable development program. The key areas of engagement of the WBG strategy and objectives identified in the Results Matrix remain valid. Minor modifications, introduced into the results framework and discussed in detail in Annex 2, reflect alignment with changes in policy or legislation adopted during the CPS period and with the results frameworks of the individual operations. The results framework has been updated to highlight lower-order outcomes that can directly be attributable to the WBG interventions. More specifically, several objectives were clarified in order to reflect that the WBG program provides contribution to much bigger Government’s reform efforts. Four outcome indicators were reformulated to rebound adoption of new legislation in public investment management and SOE areas (Annex 2, indicators under CPS Objective 4); and to improve results framework alignment with projects under implementation (Annex 2, indicators under CPS Objectives 7 and 8). Two outcome indicators were dropped: one due to the shift in government education policy (Annex 2, indicator under CPS Objective 3); and another due to the lag in reporting and delayed impact of the GINI project on the innovation capacity (Annex 2, indicator under CPS Objective 7). Three indicators were revised in terms of targets to better align the CPS results framework with the program design and individual project indicators (Annex 2, indicators under CPS Objective 8). Two added outcome indicators (on teacher quality and tourism employment) will better capture progress made under the respective CPS objectives. More details and explanations of the adjustments to the results framework are presented in Annex 2. There was no change in the mix of instruments because those in the CPS were largely adequate to respond to the changing country context. However, the DPO series have been truncated from three to two operations to better align with a changed country environment.

VI. RISKS TO THE COUNTRY PARTNERSHIP STRATEGY

43. The macroeconomic risks remain, although the sustainable macroeconomic framework and government’s commitment to fiscal consolidation and structural reforms reduces program implementation risks. Mitigating factors include the government’s renewed commitment to fiscal consolidation as evidenced by the 2017 budget and the requirement of macroeconomic adequacy for programs supported by donors. After 2016 elections government demonstrated its renewed commitment for the pursuit of reforms outlined in the Social Development Strategy 2020 to manage recent economic challenges and put together measures which will bring macroeconomic framework back on track. The prior actions for the budget support operations have been met, which reduces program implementation risks. The WBG has worked with the government to help mitigate risks through the policy advice, analytical support, and actions envisaged in budget support operations. Moreover, political risks identified in the

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CPS have not materialized due to the continued pursuit of reforms outlined in the Social Development Strategy 2020 and thus the overall risk rating remains moderate.

Risk Categories Rating1. Political and governance Moderate2. Macroeconomic Substantial3. Sector strategies and policies Moderate4. Technical design of project or program Low5. Institutional capacity for implementation & sustainability Moderate6. Fiduciary Moderate7. Environment and social Moderate8. Stakeholders Moderate

Overall Moderate

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Annex 1: Updated CPS Results Matrix

Country Development Goals (from the SDS) CPS Objectives CPS Outcome Indicators WBG Instruments

AREA OF FOCUS 1: Strengthening Public Service Delivery to Promote Inclusion and Equity

Improving the Social Assistance System While the Targeted Social Assistance (TSA) program is well-designed, its coverage and efficiency need to be improved, as currently less than half of the bottom income decile is covered, and some leakages remain.

CPS Objective 1: Contribute to expansion and strengthening of social protection system, in particular TSA and pensions

TSA Coverage of the poorest decile by TSA increases from 50 percent in 2013 to 60 percent in 2017; with equal coverage of men and women of the poorest decile

IDA/IBRD Lending:DPO-3 ( FY14)Series of Inclusive Growth and Private Sector Competitiveness DPOs (CPS Area 1, FY15-16-17)

AAA: Pension reform (FY14-17) TSA implementation and results assessment TA (FY14-17)South Caucasus Poverty, Equity and Gender TA (FY14-17)Country Gender Assessment (FY14)

The pension system in Georgia provides universal basic old age security to all elderly. Currently it lacks a firm indexation rule that would allow the basic benefit to maintain at least its purchasing power. In addition, a savings system, whether mandatory or voluntary, would provide adequate replacement of working age income.

Pension reform roadmap developed

Provision of accessible and high quality healthcareThe Government’s Universal Health Coverage (UHC) program started in 2013 aiming at equitable coverage of health services, as well as financial risk protection. However, reducing households’ out-of-pocket health expenditure, which is among the highest in the region at over 70 percent of total health spending, will need major effort in pharmaceutical price regulation and refining UHC benefit package based on evaluative and actuarial studies. Improving quality of medical service delivery will remain key challenges to succeed in improving health outcomes.

CPS Objective 2:

Support government’s efforts of expansion “universal health coverage (UHC)” program and institutionalization of health service quality assurance processes

UHC registration rate from 60% of the target population in July 2013 to 90% in 2017, with tracking of female registration rate

IDA/IBRD Lending:DPO-3 ( FY14)Series of Inclusive Growth and Private Sector Competitiveness DPOs (CPS Area 1, (FY15-16-17)AAA: UHC implementation and results assessment TA (FY14-17)Health service quality assurance review (FY14-15)Country Gender Assessment (FY14)IFC Investments: Two outstanding projects in private

healthcareImprove quality of education.Access to general education has been expanded quite successfully with gender parity, but the quality of education remains a pressing challenge, reflected by the low achievement level in international student

CPS Objective 3: Contribute to elaboration of essential knowledge base for general

Percent of teachers accumulating at least 1 credit according to the credit accumulation manual to increase from 21 percent in 2015 to 65 percent in 2018.

IDA/IBRD Lending:DPO-3 ( FY14) DPO 2 (FY17)Series of Inclusive Growth and Private Sector Competitiveness DPOs (CPS Area 1, FY15-16-17)

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assessment along with the unsatisfactory labor market outcomes of graduates. Furthermore, the new “free pre-school” policy will pose key implementation challenges in the near term. Its successful implementation will significantly contribute to narrowing the learning outcome gap of the children of disadvantaged

education and pre-school education

Teacher effectiveness evaluation tools developed & adopted

Institutional framework elaborated for early and pre-school education service delivery and quality assurance, including support to piloting of priority interventions.

AAA: Education TA for implementation of sector strategy (FY15)

Capacity Building For Georgia's National Examination Center

Effective Public Administration and Decentralization.While Georgia performs above average compared to middle income countries with respect to basic requirements and efficiency enhancing indicators of the World Competitiveness Index, there is a need to improve implementation and delivery of public services. Improving implementation and delivering public services to citizens more efficiently and with more accountability will require a focus on building the necessary mechanisms and capacity of Georgia’s public administration. Decentralization and the leading role of sub-national units in stimulating local economic processes are seen as very important factors for achieving national development. Continuing decentralization efforts will require a consistent approach and careful design in ensuring efficiency and effectiveness of public service delivery at the local government level.

CPS Objective 4: Support improvements in public investments and delivery of public services to citizens

Initiating the piloting of the newly approved PIM Guideline in Tbilisi Municipality for the selected projects with the estimated costs that are above GEL 5 million.

Increased number of published annual IFRS based financial statements of SOEs from 4 in 2013 to 8 in 2017.

Increased number of beneficiaries of improved municipal services and infrastructure from 0 at baseline to one million, of which 0.5 million are females.

IDA/IBRD LendingSeries of Inclusive Growth and Private Sector Competitiveness DPOs (CPS Area 1, FY15-16-17) Regional and Municipal Development Projects (FY09, FY14) AAA:PER, programmatic (FY14-17)Country Gender Assessment (FY14)PEFA (FY14-15)CEM, programmatic (FY14-17)Local Public Expenditure and Financial Accountability TA to support Govt.’s Public Financial Management strategy and strengthened SOE governance (FY14-15)Urban Strategy (FY15)Country Environmental Assessment (FY15)Procurement TA support (FY14-17)IFC Investments:Potential investment in water and wastewater utility

CPS Objective 5: Contribute to sustained progress towards the adoption of modern public sector and fiscal management systems

Quality and timeliness of annual financial statements (PEFA PI-25) Baseline: C+ Target: B; 2);

Effectiveness of internal audit (PEFA PI-21): Baseline: C+ Target: B)

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Youth Inclusion and Social Accountability Project (FY14, Trust Funds)

CPS Objective 6: Support efforts to strengthen participatory local development and greater social accountability

New pilot mechanisms for citizen engagement and feedback are put in place including (i) development of new forum for youth to engage with local government in the creation of joint action plans; and (ii) establishment of pilot beneficiary feedback mechanisms to provide feedback on municipal services.

Increased citizen satisfaction with municipal service provision and municipal response from 40% to 70%.

AREA OF FOCUS 2: Enabling job creation by the private sector through improving competitiveness

Improve Georgia’s investment and business environment, including in the regions.The extensive regulatory and business environment reforms implemented by Georgia so far have had modest impact on its competitiveness. Despite a consistent policy in market deregulation and liberalization, and high levels of FDI before the 2008 international economic crisis, the economy is still based on low technological sophistication, low levels of innovation, with a dearth of skills. As a result, the growth experienced over the past decade was not coupled with an increase in export competitiveness.Improving access to financeDespite Georgia’s third ranking in the 2014 Doing Business indicators in this regard, and its private credit registry that already covers close to half of the existing firms, surveys, businesses continue to cite access to finance as a key constraint.Supporting innovations and development of technologies, including in the regions.

CPS Objective 7: Contribute to addressing key legal, regulatory or institutional constraints for the private sector.

(a) Stronger regulatory framework: Business environment and

property rights protection enhanced with Georgia’s ranking in economic freedom (Heritage Foundation) improved from 34th position in 2012 and intellectual property rights enhanced from 129th position in 2013 (out of 130) as ranked by the International Intellectual Property Rights Ranking

(b) Increased innovation capacity: Increased Georgia’s innovation

index ranking from 73rd in 2013 (INSEAD-WIPO report)

Note: The next BEEPS survey will include the “gender module” that has

IDA/IBRD Lending:DPO-3 ( FY14)Regional Development ProjectsRegional and Municipal Development Projects (FY09, FY14)Series of Inclusive Growth and Private Sector Competitiveness DPOs(CPS Area 2, FY15-16-17)Georgia National Innovation Ecosystem Project (FY16)AAA:South Caucasus Poverty, Equity and Gender TA (FY14-17)ROSC (FY14-15)CEM, Programmatic (FY14-17)National Tourism Strategy (FY15)Urban Strategy (FY14)FSAP (FY14-15)Country Gender Assessment (FY14)

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According to BEEPS 2013 results, the percentage of firms which developed new products in the past three years has dropped from 35% in 2008 to 9% in 2013; over the same period 2008-2013, percentage of firms that spent any funds on R&D in the previous three years dropped from 16% to 4%.Georgia needs to improve infrastructure services and institutional capacity to support the development of tourism, cultural heritage sites, and agribusiness in the regions.

extra questions covering female-headed enterprises and allows for gender dis-aggregated data collection

(c ) Strengthening competition in key product markets

Georgia’s intensity of local competition improved from 123rd (out of 142 in 2012) in the Global Innovation Index

1. Increased access to finance : Increased access by SMEs to

bank financing with share of loans to SMEs in banks’ loans increased from 20 percent (baseline 2013)

Improved access of SMEs to more diversified products and sources of funds, with share of NBFI assets (including MFI, leasing, factoring and other formal financial sector lenders) in total private financial sector assets increased from 3 percent in 2013

Volume of outstanding loans to MSMEs in the portfolio of financial intermediaries supported by IFC increased by 50% from US$0.8 billion to US$1.2 billion

Increased financial penetration, with share of private credit to GDP from 30 percent in 2013.

2. Facilitate investment in the regions

IFC Investments:Financial Institutions Group outstanding investment portfolio comprised of 15 projects (incl. 9 targeting MSMEs) with 6 clients; Agri-business outstanding investment portfolio comprised of 3 projects, of which 2 new projects were disbursed during the current CPS period.Manufacturing outstanding investment portfolio comprised of 1 new project (glass bottles)Real estate outstanding investment portfolio comprised of 2 projects (affordable hotel and housing) committed during the CPS period, while two projects exited portfolio. IFC potential investment in the financial sector, manufacturing and servicesIFC Advisory Services:IFC Investment Climate Advisory Project (FY14-FY16; extended through FY17)SME Banking Advisory Project (FY13-14; continues through ECA wide project up to FY18)ECA Region Agribusiness Standards Advisory ( FY14-16; extended through FY17)ECA Region SME Resilience Advisory Project (FY13-FY17)ECA Region Corporate Governance Project (FY13-FY17)IFC Treasury Operations: Local currency bond issuanceMIGA Guarantees:

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through support to an improved investment climate and infrastructure.

Increased tourism related SMEs (points of sales) in renovated culture heritage sites and cities by 30 percent (from 248 to 323).

Growth of tourism employment in project region Kakheti as measured by increase of number of people employed in hotels and restaurants.

Increased tourism spending in targeted regions as measured by increased tourism enterprise VAT receipts

MIGA engagement in the energy and finance sectors

Development of infrastructure and maximum realization of Georgia’s transit potential.Developing roads and energy connectivity is allowing Georgia to benefit from its critical location between Europe and Central Asia, with the goal of maximizing its transit and trade potential. The focus of the Government’s efforts to date in transport has been on developing the East-West highway – the “back-bone” of growth in Georgia. Developing further this critical road will allow Georgia to lower transit costs and become more competitive as an international transit route.Improving energy independence, energy efficiency and increasing electricity exportsGeorgia’s energy sector is also taking off and the potential for renewable energy exports is promising. Over the last decade, the Government has successfully transformed the energy sector into a fast-growing one, bringing down energy prices in parallel with increased efficiency of the sector. The importance of consolidating this progress is

CPS Objective 8: Contribute to provision of infrastructure and services to facilitate growth.

Decreased travel time and vehicle operating costs in rehabilitated East-West Highway sections by 30% and 10% respectively.

Reduction of travel time in rehabilitated secondary and local roads sections by 47%.

Reduction in vehicle operating costs in rehabilitated secondary and local roads sections by 22% for cars and 27% for trucks.

Enhanced energy regulatory system and electricity market rules are implemented in line with EU Energy Policy applicable to Georgia under the AA and Energy Community Treaty.

Increased power supply and improved reliability of power grid infrastructure measured by

IDA/IBRD lending:DPO 3 ( FY14)Series of Inclusive Growth and Private Sector Competitiveness DPOs (CPS Area 2, FY15-16-17)East West Highway Projects (FY13, FY15)Secondary & Local Roads Projects (FY12, FY14, FY16)Energy Transmission Grid Strengthening Project (FY14)Irrigation and Land Management Project (FY14)AAA:Small Farmers TA (FY14)Georgia Energy Sector Review (FY14-15) CEM Programmatic (FY14-17)Green Transport AAA (FY15)IBRD/WBG Namakhvani HPP & Grid development

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highlighted by Georgian firms who cite reliable and affordable energy supply as a priority. Georgia’s hydro-power potential can also be a source of export revenues by providing clean renewable power to countries in the region. Implementing a market platform for electricity exports/trade and international standards for sustainable development of hydropower will be critical for exports and a reliable domestic energy supply.Developing agricultural infrastructureGeorgia needs to significantly improve agriculture infrastructure, especially irrigation, which was neglected for a decade. The land management and registration system also needs strengthening to support land consolidation, which small-holder farmers need to access markets

(i) A reduced number of electricity interruptions in the south-western part of the grid, particularly Batumi areas, measured by number of electricity interruptions at KV220(ii) Use of net transfer capacity at new back-to-back station increased from close-to-zero to 300 MW.(iii) Increased power generation capacity by 274MW

The area provided with improved irrigation services is at least 10,000 ha.

IFC Investments:Paravani HPP (active) InfraV Shuakhevi HPP (project development completed)Shuakhevi HPP (active, new)InfraV Koromkheti (project development, active, new)

IFC Advisory Services:IFC Energy Infrastructure Advisory Program ( FY14-18)IFC PPP transaction advisory for structuring Nenskra HPP

MIGA Guarantee in relation to Shuakhevi HPP, part of the Adjaristsqali cascade.

Ensuring workforce relevance to labor market requirements.With economic transformation in Georgia, some of the older sectors and industries died, shedding their labor force. New industries grew during the same period but have not been able to absorb the workforce as effectively and overall labor demand remains weak while skills mismatches persist. The majority of the work force – more than 55 percent – is employed in agriculture (mostly self-employed), which contributes only 8.2 percent of GDP and is characterized by family-based subsistence farming.

CPS Objective 9: Support development of improved framework for matching labor supply with demand

Procedure to match unemployed with training programs developed and implemented.

Labor Market information system is in place that will allow for evidence-based policy making

IDA/IBRD Lending:Series of Inclusive Growth and Private Sector Competitiveness DPOs (CPS Area 2, FY15-16-17)AAA:TA: Labor Market Information System design, implementation, and data analysis (FY14-17)Country Gender Assessment (FY14)South Caucasus Poverty, Equity and Gender TA (FY14-17)

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UHCAnnex 2: Matrix of Changes to Original CPS Results Matrix

Outcomes in the Original CPS Results Matrix Original Outcome Indicators Changes

AREA OF FOCUS 1: Strengthening Public Service Delivery to Promote Inclusion and EquityCPS Objective 1:Expanded and strengthened social projection system (TSA and pensions)

TSA Coverage of the poorest decile by TSA increases from 50 percent in 2013 to 60 percent in 2017; with equal coverage of men and women of the poorest decile Note: More detailed gender dis-aggregated data per decile will be developed during the CPS period

Objective clarified: [Contribute to expansion and strengthening of social protection system, in particular: TSA and pensions ]

Note removed, as the gender disaggregated data has been collected and presented in the Annex 3.

Pension reform roadmap developed No changesCPS Objective 2:

Expanded “universal health coverage (UHC)” program and institutionalization of health service quality assurance processes

UHC registration rate from 60% of the target population in July 2013 to 90% in 2017, with tracking of female registration rate Note: More detailed data on female registration and utilization of UHC will be developed during the CPS period

Objective clarified: [Support government’s efforts of expansion “universal health coverage (UHC)” program and institutionalization of health service quality assurance processes]Note removed, as the gender disaggregated data has been collected and presented in the Annex 3.

CPS Objective 3: Essential knowledge base for general education and pre-school education elaborated

School-based education quality monitoring database established (removed)


Institutional framework elaborated

Objective clarified: [Contribute to elaboration of essential knowledge base for general education and pre-school education]

Removed.Reason: Given the shift in the government policies with respect to school based quality assurance reform. The authorization of general education has been postponed till 2021.

No change

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for early and pre-school education service delivery and quality assurance, including support to piloting of priority interventions.

No changes

New indicator added: [Percent of teachers accumulating at least 1 credit according to the credit accumulation manual to increase from 21 percent in 2015 to 65 percent in 2018.] Reason: Given that the teachers’ performance is one of the most important determinants of the student outcomes the proposed measurable indicator was introduced to monitor progress on teachers’ advancement within the four categories.

CPS Objective 4: The identification, prioritization and implementation of public investments improve Strengthened capital budgeting

reflected in objective and transparent selection criteria for 50 percent of new projects in Tbilisi municipality (Baseline= zero).

Objective clarified: [Support improvements in public investments and delivery of public services to citizens

Changed to [Initiating the piloting of the newly approved Public Investment Management (PIM) Guideline in Tbilisi Municipality for the selected projects with the estimated costs that are above GEL 5 million]Reason: The PIM was adopted in 2016 introducing the threshold of 5 million Lari, which has set a very high threshold for majority of Tbilisi municipal project, making 50 percent target unattainable.

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Increased number of published annual IFRS based financial statements of SOEs with unqualified audit opinion from 4 in 2013 to 8 in 2017

Increased number of beneficiaries of improved municipal services and infrastructure from 0 at baseline to 2.4 million, of which 1.22 million females.

Changed to [Increased number of published annual IFRS based financial statements of SOEs from 4 in 2013 to 8 in 2017]Reason: i) at the CPS preparation stage the capacity of SOEs to comply with IFRS was overestimated. ii) new reporting requirements were introduced only in June 2016 by the Accounting and Audit Law.

The targets adjusted to 1 million people, of which 0.5 million femalesReason: The number of beneficiaries was overestimated at the CPS preparation stage. Moreover, the last census conducted in Georgia in late 2014 showed significantly less number of population (3.7 million) compared to previous period. of approximately 4.4 million.

CPS Objective 5: Sustained progress towards the adoption of modern public sector and fiscal management systems



Objective clarified: [Contribute to sustained progress towards the adoption of modern public sector and fiscal management systems

No change

No change

CPS Objective 6: Strengthening participatory local development and greater social accountability

Objective clarified: [Support efforts to strengthen participatory local development and greater social accountability]

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New pilot mechanisms for citizen engagement and feedback are put in place including (i) development of new forum for youth to engage with local government in the creation of joint action plans; and (ii) integrating tailored social accountability tools into water supply and sanitation services and local roads rehabilitation.


Bullet point ii) clarified:

establishment of pilot beneficiary feedback mechanisms to provide feedback on municipal services

No change

AREA OF FOCUS 2: Enabling job creation by the private sector through improving competitivenessCPS Objective 7: Key legal, regulatory or institutional constraints for the private sector are addressed, including in the regions

(a) Stronger regulatory framework: Business environment and property

rights protection enhanced with Georgia’s ranking in economic freedom (Heritage Foundation) improved from 34th position in 2012 and intellectual property rights enhanced from 129th position in 2013 (out of 130) as ranked by the International Intellectual Property Rights Ranking

(b) Increased innovation capacity: R&D investments (private and

public) increased from 0.1 percent of GDP in 2012

Objective clarified: [Contribute to addressing key legal, regulatory or institutional constraints for the private sector.

No change

Removed

Reason: Since it will not be impacted by the GENIE project in a time that can be measured for the CPS. Impacts will be

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Increased Georgia’s innovation index ranking from 73rd in 2013 (INSEAD-WIPO report)

Note: The next BEEPS survey will include the “gender module” that has extra questions covering female-headed enterprises and allows for gender dis-aggregated data collection

(c ) Strengthening competition in key product markets Georgia’s intensity of local

competition improved from 123rd (out of 142 in 2012) in the Global Innovation Index

(d) Increased access to finance: Increased access by SMEs to bank

financing with share of loans to SMEs in banks’ loans increased from 20 percent (baseline 2013)

Improved access of SMEs to more diversified products and sources of funds, with share of NBFI assets (including MFI, leasing, factoring and other formal financial sector lenders) in total private financial sector assets increased from 3

more in FY18 and beyond, and there is about a 2 year lag in reporting the data. It will not be replaced with other indicator also because of the time lag issue, and because the Global Innovation Index score covers this area.

No change

No change

No change

No change

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percent in 2013 Volume of outstanding loans to

MSMEs in the portfolio of financial intermediaries supported by IFC increased by 50% from US$0.8 billion to US$1.2 billion


(e) Facilitate investment in the regions through support to an improved investment climate and infrastructure.

Increased tourism related SMEs (points of sales) in renovated culture heritage sites and cities by 30 percent (from 248 to 323)

Increased tourist spending in targeted regions by 20 percent

No change

No Change

No Change

Changed to [Increased tourism spending in targeted regions as measured by increased tourism enterprise VAT receipts] Reason: This formulation is more accurate and more reliably measurable.

New Indicator added: [Growth of tourism employment in project region Kakheti as measured by increase of number of people employed in hotels and restaurants ]

Reason: to align with the Results Framework of the Regional Development Project and to measure jobs creation part

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of the indicator.

CPS Objective 8: Provision of infrastructure and services to facilitate growth


Reduction of travel time and vehicle operating costs in rehabilitated secondary and local roads sections by 20% and 30% respectively

Objective clarified: [Contribute to provision of infrastructure and services to facilitate growth.]

Targets revised: [Decreased travel time and vehicle operating costs in rehabilitated East-West Highway sections by 30% and 10% respectively] Reason: Target of 40% was too ambitious and is now aligned to targets as set in the roads projects. The highest reduction in travel time envisaged under EWH4 was 30%. The highest achieved is 32.5% on Sveneti-Ruisi section.

Indicator divided into two indicators and respective targets are revised:

[Reduction of travel time in rehabilitated secondary and local roads sections by 47%]

[Reduction in vehicle operating costs in rehabilitated secondary and local roads sections by 22% for cars and 27% for trucks]

Reason: Targets are revised to comply with the targets set in the respective roads projects: travel time reduction targets for SLRP2 and SLRP3 are 44% and 50% respectively which is around 47% if weighted for respective lengths of roads.

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Improved reliability of the power grid infrastructure is in place, measured by

(i) MW550 of added generation capacity

(ii) A reduced number of electricity interruptions in the south-western part of the grid, particularly Batumi areas, measured by number of electricity interruptions at KV220

(iii) Use of net transfer capacity at new back-to-back station increased from close-to-zero today to 300 MW.

There is an increase in agricultural productivity (15%) in at least 75 percent of the area where irrigation rehabilitation takes place.

Reduction in operating costs targets are 22% for cars and 27% for trucks.

No change

The indicator is reformulated: [Increase power supply and improve reliability of power grid infrastructure].

The target revised: [MW 274]

Reason: To reflect delays with the structuring of the Nenskra HPP project due to its complex nature.

No change

No change

The indicator is reformulated: [The area provided with improved irrigation services is at least 10,000 ha].

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Reason: The revised indicator better measures the results of the interventions envisaged in the CPS and aligned with the results of the irrigation project under implementation.

CPS Objective 9: Improved framework for matching labor supply with demand



Note: More detailed data on female labor force participation will be tracked during the CPS period

Objective clarified: [Support development of improved framework for matching labor supply with demand]

No change

No change

Note removed, as the gender disaggregated data has been collected and presented in the Annex 3.

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Annex 3: Progress toward CPS Objectives

Objectives Outcome Indicators Progress

AREA OF FOCUS 1: Strengthening Public Service Delivery to Promote Inclusion and EquityCPS Objective 1:Expanded and strengthened social projection system (TSA and pensions)

TSA Coverage of the poorest decile by TSA increases from 50 percent in 2013 to 60 percent in 2017; with equal coverage of men and women of the poorest decile

On track.Coverage estimated at 63% percent on average with the latest formula change. The data for 2015 has been received in September 2016 and it showed slight decrease to 58%, which may be due to the overall coverage changed, not only that of the poorest decile. Gender disaggregation: 29.0% of the population in the bottom decile covered were women, and 29.1% were men. The recent eligibility formula reform and it impact on 2016 data needs to be closely monitored.

Pension reform roadmap developed Achieved.Pension reform has been moving forward supported by the DPOs and technical assistance. Recently the Cabinet approved the Pension Reform Proposal, aligned with the WB recommendations and good international practices. However, number of steps needs to be taken by the government in order to progress with the implementation of the reforms and to meet the Government’s ambitious target of launching the new system in October 2017.

CPS Objective 2:

Expanded “universal health coverage (UHC)” program and institutionalization of health service quality assurance processes

UHC registration rate from 60% of the target population in July 2013 to 90% in 2017, with tracking of female registration rate Note: More detailed data on female registration and utilization of UHC will be developed during the CPS period

Achieved.The UHC program now covers over 90% of the population. Gender disaggregation: according to information provided by the SSA, share of women is 52%, men is 48%.

CPS Objective 3: Essential knowledge base for general education and pre-school education elaborated

School-based education quality monitoring database established (removed)


Not Achieved due to shift in Government policy. Indicator Removed (see details in Annex 2).

Achieved.The government has adopted the Teacher Recruitment, Professional Development and Career Advancement Scheme and supporting decrees on February, 20, 2015.

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Institutional framework elaborated for early and pre-school education service delivery and quality assurance, including support to piloting of priority interventions.

Achieved.Law was passed in 2016 for pre-school education; based on the requirements of the new law, specific regulations will be approved in April 1, 2017. Accordingly, Preschool Education Caregiver-Pedagogue’s Professional Standards and Early and Preschool Education National Standards have been already created in the Ministry of Education and Science of Georgia and will be presented to Government of Georgia for approval in near future. In addition, the professions of caregiver-pedagogue and caregiver will be reflected in the National Qualifications Framework

CPS Objective 4: The identification, prioritization and implementation of public investments improve

Strengthened capital budgeting reflected in objective and transparent selection criteria for 50 percent of new projects in Tbilisi municipality (Baseline= zero).

Increased number of published annual IFRS based financial statements of SOEs with unqualified audit opinion from 4 in 2013 to 8 in 2017

Increased number of beneficiaries of improved municipal services and infrastructure from 0 at baseline to 2.4 million, of which 1.22 million females.

In Progress. Indicator Changed to [Initiating the piloting of the newly approved PIM Guideline in Tbilisi Municipality for the selected projects with the estimated costs that are above GEL 5 million] . See details in Annex 2.

No Progress. Indicator Changed to [Increased number of published annual IFRS based financial statements of SOEs from 4 in 2013 to 8 in 2017]. See the details in Annex 2

On trackThe targets adjusted to 1 million people, of which 0.5 million females

CPS Objective 5: Sustained progress towards the adoption of modern public sector and fiscal management systems



Not yet measured.The Government is planning to undertake the PEFA self-assessment in the coming months. Thus these indicators will be assessed during the CLR stage.

CPS Objective 6: Strengthening participatory local development and greater

New pilot mechanisms for citizen engagement and feedback are put in place including (i) development of new forum for youth to engage

i) Achieved Inclusion of Youth in social accountability was promoted in three pilot municipalities and youth Municipal Action Plans were developed and implemented jointly with

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social accountability with local government in the creation of joint action plans; and (ii) integrating tailored social accountability tools into water supply and sanitation services and local roads rehabilitation.


Municipalities.ii) On Track, clarified [establishment of pilot beneficiary feedback mechanisms to provide feedback on municipal services]Not yet measured.The mechanism of measurement is still under development.

AREA OF FOCUS 2: Enabling job creation by the private sector through improving competitivenessCPS Objective 7: Key legal, regulatory or institutional constraints for the private sector are addressed, including in the regions

(a) Stronger regulatory framework: Business environment and property rights

protection enhanced with Georgia’s ranking in economic freedom (Heritage Foundation) improved from 34th position in 2012 and intellectual property rights enhanced from 129th position in 2013 (out of 130) as ranked by the International Intellectual Property Rights Ranking

(b) Increased innovation capacity: R&D investments (private and public)

increased from 0.1 percent of GDP in 2012

Increased Georgia’s innovation index ranking from 73rd in 2013 (INSEAD-WIPO report)

Note: The next BEEPS survey will include the “gender module” that has extra questions covering female-headed enterprises and allows for gender dis-aggregated data collection

(c ) Strengthening competition in key product markets Georgia’s intensity of local competition

improved from 123rd (out of 142 in 2012) in the Global Innovation Index

(d ) Increased access to finance: Increased access by SMEs to bank financing

On track. Georgia’s ranking has improved from 34th position in 2012 to 23rd with overall score of 72.6 in 2016 Index of Economic Freedom (Heritage Foundation). Georgia’s Ranking by the International Intellectual Property Rights improved to overall ranking of #95 (#125 on intellectual property) as of 2015

Not achieved. Removed.See the details in Annex 2.

Achieved.Georgia ranks 64 in the 2016 report compared to 73 in 2013. (http://www.wipo.int/edocs/pubdocs/en/wipo_pub_gii_2016.pdf).

Achieved. Georgia’s intensity of local competition improved and ranked #101 in 2015 Global Innovation Index.

In Progress. The share of SME loans in total banks’ loans

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with share of loans to SMEs in banks’ loans increased from 20 percent (baseline 2013)

Improved access of SMEs to more diversified products and sources of funds, with share of NBFI assets (including MFI, leasing, factoring and other formal financial sector lenders) in total private financial sector assets increased from 3 percent in 2013

Volume of outstanding loans to MSMEs in the portfolio of financial intermediaries supported by IFC increased by 50% from US$0.8 billion to US$1.2 billion


(e ) Facilitate investment in the regions through support to an improved investment climate and infrastructure.

Increased tourism related SMEs (points of sales) in renovated culture heritage sites and cities by 30 percent (from 248 to 323), generating jobs

Increased tourist spending in targeted regions by 20 percent

increased from 20% in 2013 to 22.6% in 2015.

Partially achieved. The share of NBFI assets in total private assets grew to 7.7 percent at end 2015. However, products and sources diversification has been limited. While banks had excess liquidity in 2014-2015 in response to lower market liquidity, the total private sector lending growth was modest at 6 percent in 2015 due to higher risks, tighter credit underwriting requirements and lower demand. At the same time, lower demand for corporate loans (2% growth in 2015) provided significant room for SME lending growth (26% in 2015) despite the negative environment. Lending by NBCI was largely constrained by much higher cost of funds and limited access to local currency liquidity.

Achieved. The total volume of MSME outstanding loans has expanded from US$0.8 billion to over US$1.2 billion, thus already exceeding the CPS target.

Achieved as of end 2015. Private credit to GDP was: December 2013 – 39%; December 2014 – 44%; December 2015 – 51%.

On track. Points of sales have increased by 25% in Kakheti region. Growth of tourism employment in project region Kakheti as measured by increase of number of people employed in hotels and restaurants that increased by 92% in the period 2012-14, as compare to a national average increase of 13% for the same indicator in the same period (these are GeoStat numbers).

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Achieved. The increased tourism spending in targeted regions as measured by increased tourism enterprise VAT receipts increased by 230% between 2012 and 2015 (data for 2016 are not yet available from the Tax revenue office).

CPS Objective 8: Provision of infrastructure and services to facilitate growth


Reduction of travel time and vehicle operating costs in rehabilitated secondary and local roads sections by 20% and 30% respectively


Improved reliability of the power grid infrastructure is in place, measured by

(iv) MW550 of added generation capacity

(v) A reduced number of electricity interruptions in the south-western part of the grid, particularly Batumi areas, measured by number of electricity interruptions at KV220

On trackTarget of 40% was too ambitious and is changed for 30 % as set in the roads projects. The highest reduction in travel time envisaged under EWH4 was 30%. The highest achieved is 32.5% on Sveneti-Ruisi section.On trackTargets are revised to comply with the targets set in the respective roads projects: travel time reduction targets for SLRP2 and SLRP3 are 44% and 50% respectively which is around 47% if weighted for respective lengths of roads. Reduction in operating costs targets are 22% for cars and 27% for trucks.

Making progress. However it is expected that only around 20% will be achieved by end FY17.

The indicator is reformulated: [Increase power supply and improve reliability of power grid infrastructure].

On trackAs of the end of FY16, 78 percent of the construction works for the 187MW Shuakhevi HPP have been completed; full completion is expected by the end of the CPS period. Construction of the 87 MW Paravani HPP is fully completed and the plant became operational in September 2014

On track and most likely will be achieved by end FY17.

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(vi) Use of net transfer capacity at new back-to-back station increased from close-to-zero today to 300 MW.

There is an increase in agricultural productivity (15%) in at least 75 percent of the area where irrigation rehabilitation takes place.

On track and most likely will be achieved by end FY17

The indicator is reformulated: [The area provided with improved irrigation services is at least 10,000 ha]. The revised indicator better measures the results of the interventions envisaged in the CPS and aligned with the results of the irrigation project under implementation.

CPS Objective 9: Improved framework for matching labor supply with demand



Note: More detailed data on female labor force participation will be tracked during the CPS period

On trackThe Worknet does not allow yet to match a jobseeker with the training program, the system provides automatic matching possibility between a jobseeker and an employer. However, prerequisite for jobseekers to involve in the state program is registration in Worknet. Thus, the Agency contacts and offers the program to the registered jobseekers in the worknet.

On trackCurrently the Labor Market Information Management System (LMIS) (Worknet.gov.ge) launched modules of employers, vacancies, job seekers’ automatic connection and feedback. Development of statistical reporting module is in progress. Registration of job-seekers is also ongoing in the LMIS. The LMIS is expected to become fully functional in early 2017. Detailed data on female labor force participation has been tracked during the CPS period: 2012 - 66.9%; 2013 – 66.2%; 2014 - 66.5%.

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Annex 4: Macroeconomic Trends and Projections

2013 2014 2015 2016e 2017p 2018p 2019p Actuals Projections

(Percent change, unless otherwise indicated)National Accounts GDP nominal (in billions of GEL) 26.8 29.2 31.8 33.7 36.2 38.8 41.7GDP nominal (in billions of USD) 16.1 16.5 14.0 14.2 13.7 14.9 16.0Real GDP growth 3.4 4.6 2.9 2.7 3.5 4.0 4.5Consumer price index (period average) -0.5 3.1 4.0 2.1 5.7 2.4 3.0GDP deflator -0.8 3.8 5.9 3.2 4.0 3.0 3.0GDP per capita (in ‘000 U.S. dollars) 3.6 3.7 3.8 3.8 3.7 4.0 4.3Gross investment (in percent of GDP) 24.8 29.8 32.1 31.8 33.3 34.9 35.7Gross national saving (in percent of GDP) 19.1 19.2 20.1 19.4 20.7 22.6 24.4

Unemployment rate (in percent) 14.6 12.4 12.0 (In percent of GDP, unless otherwise indicated)General Government Operations Revenues and grants 27.5 28.0 28.1 28.6 29.3 28.6 28.5Expenditure and net lending 30.1 31.0 31.9 32.7 33.4 32.4 32.4Overall fiscal balance -2.6 -2.9 -3.8 -4.1 -4.1 -3.8 -3.5Total public debt 34.7 35.6 41.4 44.9 44.8 45.5 46.0

(In percent of GDP, unless otherwise indicated)External Sector Current account balance -5.8 -10.6 -12.0 -12.4 -12.6 -12.2 -11.4 Exports of goods and services 44.7 43.0 44.5 44.1 49.2 48.1 48.1 Imports of goods and services 57.6 61.1 65.3 77.4 80.5 75.3 71.7FDI (net) 5.1 8.1 9.0 11.0 10.3 10.0 9.9Gross International Reserves (Months imports of goods and services) 3.4 4.0 2.8 3.0 3.1 3.4 3.6 (In millions of dollars) 2,823 2,699 2,521 2,756 2,929 3,271 3,711External Debt (incl. inter-company loans) 81.8 83.0 106.6 110.9 118.2 117.6 119.1Lari per US Dollar (period average) 1.66 1.77 2.27 2.37Source: Georgian authorities; and Bank and IMF staff estimates and projections.

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Annex 5: Extended Overview of Progress toward CPS Objectives

Pillar 1: Strengthening public service delivery to promote inclusive growth

1. Good progress has been made under the pillar one engagement areas, with objectives fully achieved on targeted social assistance, pension reform and Universal Health Coverage. Pension reform has been moving forward supported by the DPOs and technical assistance. Recently the Cabinet approved the Pension Reform Proposal, aligned with the WB recommendations and good international practices. The Proposal envisages the indexing of the basic pension and introduction of a savings pillar utilizing auto-enrollment techniques and a central, independent low cost approach to administration and management. However, number of steps needs to be taken by the government in order to progress with the implementation of the reforms and to meet the Government’s ambitious target of launching the new system in October 2017.

2. IFC delivered on its commitment to support private sector participation in the healthcare sector. In FY17, IFC supported investment program of two leading healthcare companies in Georgia aimed at expansion of its outpatient services, enhancing its laboratory services, and introduction of new specialized services. These engagements are expected to contribute to (i) greater efficiency in the sector through economies of scale and integrated delivery of healthcare; (ii) increased access to quality affordable healthcare as majority of healthcare services provided by these companies is provided through UHC; (iii) high quality job creation and enhanced clinical and nursing skills through the emphasis on training and continued education within the group which currently employ over 16,000 full time employees.

3. Progress in the education area has been mixed. Targets have been partially met as there has been a shift in the government policies with respect to school based quality assurance reform and the authorization of general education has been postponed till 2021. Currently the Government is elaborating a new conceptual framework for quality assurance in general education, which will make clear what type of standards and quality assurance mechanisms will be adopted for school based quality assurance. Therefore the indicator linked to the school-based education quality monitoring database is not relevant and will be removed. Additional outcome indicator to show tangible progress in terms of improving teacher quality, which is one of the key determinants for the overall quality of education is added. This indicator is related to the new Teacher Recruitment, Evaluation and Professional Development Scheme, recently approved by the government, to improve teacher quality. In the recent FY16 Georgia Country Opinion Surety Report, education was ranked second only to growth as the top priority for the country by nearly half of the respondents, which highlights the need for increased Bank focus in this sector.

4. Georgia has advanced significantly with respect to its budgetary and financial management systems since the previous PEFA assessment. 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

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transparency15. The next PEFA assessment will be launched in the end of 2016, and more precise assessment of progress in this area will be done at the stage of the Completion Report.

5. There is some limited progress on strengthened capital budgeting, with the outcome supported by the Programmatic Governance TA, the Regional Municipal Development Project, and the DPO. However, there is some risk that the indicator on capital budgeting will not be met due to the decline in public investment spending in recent years and the possibility that the threshold may be above the outlays for Tbilisi projects.

6. Progress on the inclusive growth agenda depends on policy reforms to strengthen the private sector’s competitiveness and productivity, thereby reducing the economy’s reliance on public investment as the main source of growth. Long-term growth prospects will depend on Georgia’s ability to leverage the benefits of membership in the DCFTA and the Association Agreement with the EU, both of which aims at improving market access and encouraging trade and FDI. However, the effects of entering into DCFTA will be realized over a longer time horizon (5-10 years), and it will only be possible to make a more conclusive assessment of its impact at that time.

7. The ongoing series of three annual Inclusive Growth Development Policy Operations (IG DPO) spanning 2015-17, is focused on supporting the government in its efforts to improve public service delivery and strengthen fiscal management to make growth more inclusive. The first operation in the series, IG DPO (US$60 million), was approved by the Board in April 2015. The second operation in the series is under preparation and the third has been truncated.

8. Early results and dialog with the authorities indicate that some progress has been made in achieving the development objectives outlined in the IG DPO. These include availability of budget and execution data for municipalities, legal entities of public law and non-profit legal entities on a real time basis, availability of financial data on SOEs, and improvements in maternal mortality rates. While current progress on policy reforms have been encouraging in the education sector and in the framework for civil services, others like the public investment guidelines and further reforms in the targeted social assistance program have shown slower progress.

9. However, initial data indicate that the outcome indicators associated with this DPO series are likely to be achieved by the target date of end-2017. The program is being implemented in close collaboration with the IMF. Slow progress on some of the policy actions and a deterioration in the overall macroeconomic framework put the DPO 2 approval contingent upon the progress made on the policy actions and the overall robustness of the macro framework.

Pillar 2: Enabling private sector-led job creation through improved competitiveness

15 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/5509

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http://treasury.gov.ge/5509

10. Progress with regard to areas of engagement in this pillar have been largely on track. During the CPS period, the WBG operations have helped the government further improve market access, strengthen budget and customs management, and enhance social programs fostering competitiveness and inclusive growth. This is evidenced by the Global Development Forum’s Global Competitiveness Index (GCI), in which Georgia advanced from 77th position in 2012-2013 (out of 144 economies) to 59th position in 2016-2017 (out of 138 economies).16 The country also enjoys a high ranking with respect to the World Bank’s doing business indicators. Out of 190 economies Georgia ranks 16 th in Doing Business 2017, improving its position from 23rd in 2016.17

11. The IFC has maintained strong focus on strengthening the financial sector and improving access to finance for MSMEs. The number of MSME loans in the outstanding portfolio of IFC’s client banks has increased from 110,000 at the end of 2012 18 to nearly 290,000 at the end of 2015. Concurrently, the total volume of MSME outstanding loans has expanded from US$0.8 billion to over US$1.3 billion, thus already exceeding the CPS target by approximately 10 percent. The IFC interventions in the financial sector aimed to tackle both supply and demand side constraints. To address the supply side constraints, IFC in total provided US$270 million of long term finance to four financial institutions, which included capital support, MSME and mortgage earmarked loans, and risk management products. To tackle the demand side financing constraints for MSMEs, IFC’s SME Resilience Advisory Project supported one of its client banks to launch an on-line training platform to promote SMEs’ awareness of financing products and increase their financial literacy. In parallel, the IFC SME Banking Advisory Project completed an SME diagnostic of the same client bank; discussions of the resulting recommendations are currently underway.

12. During the CPS period Georgia has made significant progress in enhancing the financial reporting system. The Parliament approved the new Law on Accounting, Reporting and Auditing in June 2016. The law aims to improve corporate reporting, accounting and audit quality in Georgia and brings the legislation in financial reporting and audit to close approximation to the European laws. The law addresses major issues, which include the entry into force of IFRS and IFRS for SMEs, the definition of Public Interest Entities (PIEs), and the introduction of the Service for Accounting, Reporting and Audit Supervision (SARAS), the establishment of the new financial reporting and audit registries, and certification of auditors.

13. The capital market saw significant growth of activities in 2015, largely driven by the issue of IFIs, including IFC, local currency and corporate bonds. The capital market development strategy, as supported by the DPO, has been approved and published by the

16 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 2016-2017, http://www3.weforum.org/docs/gcr/2015-2016/GCI_Dataset_2006-2016.xlsx 17 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 weight assigned to each topic. The rankings for all economies are benchmarked to June 2015. WDI (2016).

18 The latest available at the time of CPS preparation.

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

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

Government, with a number of reforms envisioned to improve investment climate and foster development of market infrastructure and instruments. Which is essential prerequisite for pension reform. The state securities debt market expected to grow in the light of the current fiscal situation and the need to have sound benchmark for further development of corporate debt market. On transactional side, IFC supported capital market development efforts by issuing its first local currency bond in Georgia to pave the way for other high quality issuers to come to Georgia’s domestic capital markets. In addition, IFC invested in a tradable Eurobond issued by its long standing client, one of the leading business groups in Georgia. Progress towards greater protection of the rights of minority shareholders, supported by IFC, is also contributing to capital market development.

14. To foster savings in the economy and enhance financial and social safety net, the authorities committed to reform pension provision and introduce deposit insurance system. The World Bank private sector competitiveness DPO 2 supported the pension reform strategy, which was approved by the Government in early 2016 and is expected launching contributory savings component in early 2018. The draft law on deposit insurance reform is being finalized by the authorities for further submission to the Government and Parliament, with the introduction of deposit insurance mechanism planned for January 1, 2018.

15. Further progress has been made to address legal and regulatory constraints for the private sector development. IFC supported improvements in investors’ protection, reducing compliance costs for businesses, and improving tax transparency. IFC Investment Climate Advisory Project supported the Revenue Service in implementation of transfer pricing audits and preparation for the review of the Global Forum on Transparency and Exchange of Information (GFTEI). As a result of project’s efforts, Georgia was determined to be largely compliant with the international best practice and passed the GFTEI review in February 2016. This project also helped Georgia’s National Investment Agency to implement investor aftercare program, which is expected to help the country attract more investment going forward.

16. To mobilize more businesses and rural inhabitants to participate in the innovation and knowledgebase economy the WB approved the Georgia National Innovation Ecosystem Project (GENIE) in March 2016. The project complemented the WBG activities in Georgia in competitiveness, innovation, and ICT. The Project was built on WBG advisory and analytical programs, including but not limited to Competitive Industries and Innovation Program (CIIP) technical assistance (2014-2017), which facilitated private sector efforts in developing and implementing competitiveness strategy and advancing innovation-led growth of key sectors of economy, ICT and employment (2014–2015), and ICT to support innovation and employment (2013–2014). However, the key achievements and outcomes will be visible most probably only during the next CPF period.

17. The Bank has supported major reforms on improving efficiency, competition, and access in telecommunication and internet services. Limited availability of high-quality broadband connectivity at prices that are affordable to the wider population and business community has been constraint for innovation and competitiveness. The Private Sector Competitiveness DPO1 supported legal and regulatory amendments that encouraged greater

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competition in the ICT sector. Thus three private networks have rolled out high-speed (fourth generation, 4G) wireless broadband networks and a fourth network, Beeline, secured a license for US$26.9 million, which also allows it to extend its network and deploy 4G technology. The amount of private investment in the telecommunication sector doubled between 2014 and 2015, growing from GEL 193 million in 2014 to GEL 413 million in 2015.

18. During the CPS period Georgia has made significant progress in implementation policies and investments that promote exporters integration into global trade. In particular, to promote streamlined and seamless import/export operations, Customs Clearance Zones (CCZ)19 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. 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).

19. To help domestic agro-producers access new markets, IFC supported efforts to increase their compliance with international food safety standards. There are two key bottlenecks which impede more dynamic entrance of Georgian producers to more sophisticated markets. First, they remain relatively small and their consolidation requires further strengthening of the land management system and progress with land registration reform. Second, the quality of Georgian produce often does not comply with food safety standards of EU market, which is only exacerbated by their small size. To address the compliance bottleneck, IFC Food Safety project provided assistance to the National Food Agency to improve food safety inspections and trained around 80 private companies on international food safety standards. The impact of these activities is expected to materialize in the next strategy cycle in the form of increased exports to the EU and other advanced markets, and subject to meaningful progress with land consolidation.

20. Significant progress has been achieved during the CPS period in tourism development. The World Bank financed the infrastructure and touristic attractions along the tourism circuity connecting Kakheti, (Regional Development Project RDP, US$ 60 million), Imereti (RDP II, SDR19.8), and Mtskheta-Mtianeti and Samtskhe-Javakheti (RDP III, $60 million). The number of international visitors has grown from over 560,000 in 2005 to nearly 5,500,000 in 2015. Specific results from the Kakheti RDP include an increase in the number of hotel beds in the targeted areas from 1,610 to 2,511; an increase in the number of tourism Small and Medium Enterprises (SMEs)/points of sales (souvenirs shops, restaurants, guest-houses and family houses) from 248 at the baseline to well above 3300, including a number of home owners who transformed part of their properties into a productive or service asset (hand-crafts workshop, souvenir shop, café, restaurant or guesthouse). IFC catalyzed private sector investments in the regions covered by IBRD’s regional development projects. IFC provided loans to a diary producer and a wine-maker from the Kakheti region and to a

19 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.

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leading manufacturer of glass containers and bottles from Mtskheta-Mtianeti. To address growing demand for travel in Georgia, IFC supported a client in building quality hotels, in affordable class segment, under the Ramada brand in Tbilisi. Going forward, IFC will explore further opportunities to foster development of affordable class hotels in Tbilisi and in other cities of Georgia.

21. The progress has been strong on regional development program implementation which is expected to have spillover effects on rural communities. The Regional & Municipal Infrastructure Development Project and its Additional Financing approved in 2016 focused on improving the quality and reliability of municipal infrastructure; supporting the tourism and agribusiness development; and creating an enabling environment to attract private sector investments. The Bank South Caucasus Programmatic Regional Development Study supported elaboration of the national tourism development strategy 2025 and suggested a longer South Caucasus tourism circuit linking tourism attractions in Azerbaijan, Armenia and Georgia.

22. Access, quality, and sustainability of key infrastructure has notably improved during the CPS period with travel time significantly reduced from Tbilisi to the regions and within the regions. Most of efforts concentrated around the completion of the-East West Highway Corridor (400 km) which carries over 60 percent of the total foreign trade and is seen as a central piece in the Government's strategy of transforming Georgia into a transport and logistics hub. This is to improve trade between Central Asia and the Far East on the one hand and Turkey and Europe on the other hand. Approximately 149 kilometers of the East-West highway corridor have already been upgraded of which 78 km were funded by the World Bank. Works are on-going to complete an additional 107 km by 2019 with the support of other IFIs.

23. The Bank is also supporting the government to bridging the rehabilitation backlog of its secondary road network. The Bank has contributed to the rehabilitation of around 1,240 km of secondary roads through three projects. The new secondary roads project approved in 2016 will complement the government’s efforts in the climate adaptation through assessment of road network vulnerability to climate and implementation of priority climate resilience measures.

24. During the CPS period some progress has been made in agriculture sector. The Government requested the Bank to lead the rebuilding of the irrigation sector and improving systematic land registration. The Agriculture Development Strategy (2015-2020) was approved in February 2015 and the agricultural budget allocations have significantly increased since 2012. While the rehabilitation of irrigation infrastructure has progressed modestly partly because of weak design capacity, the irrigated area has increased from 40,000 ha in 2014 to 44,181 ha in 2016 and major rehabilitation on approximately 52,000 ha is ongoing. Major institutional reforms supported by the Bank during the CPS included (i) the passing of legislation allowing pilot systematic land registration as a basis for a national program, and (ii) the development of a draft national irrigation strategy and ongoing work on the development of a Law on Amelioration. A long term commitment to agriculture will be needed for these developments to have a lasting impact on rural livelihoods.

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25. The Georgian power sector has been supported through the WBG policy advice, political risk insurance and investment operations. It has made significant progress in improving operating efficiency, financial condition of the sector, and attracting private investments. The available capacity of the system has increased from MW 1,200 in 1999 to about MW 3,600 in 2015, collection rates for consumed electricity increased from 30% to almost 100%, overall system losses reduced from 30% to 10%. All the above translated into an uninterrupted supply of electricity for 24 hours a day. The cumulative private investments in power generation has increased from negligible levels to around $1 billion, of which about one third was provided or mobilized through the IFC projects. These included the financing for 187 MW Shuakhevi Hydropower Plant (HPP) on the Adjaristsqali cascade (78 percent complete) and the 87MW Paravani HPP (became operational in 2014). MIGA provided the political risk insurance to one of the co-investors in Shuakhevi HPP. In addition, IFC acted as the lead financial and transaction advisor for the Government of Georgia for the 280MW Nenskra HPP designed to meet up to 12 percent of the total domestic demand and expected to be completed during the next CPF period. However, as the power system has expanded, a number of structural challenges have emerged. The World Bank’s Georgia Energy Sector Note identified the following key challenges facing the sector: (i) with the current demand growth the power sector will face about 250MW of capacity deficit to meet winter peak demand by 2021; (ii) ) selection of hydropower projects has not taken a least-cost framework into account as a result of which the World Bank expects that a substantial increase of electricity tariffs by 2023 will be required; and (iii) the cost of meeting contingent liabilities under the current stock of Power Purchase Agreement (PPA) is substantial. These issues will exert fiscal pressures in the economy. Their resolution in ways that are conducive for a transparent and predictable investment climate will be key to maintain the important progress the country has achieved in attracting private investment into the power sector.

26. The first in a series of three Programmatic Private Sector Competitiveness Development Policy Operations (DPOs) spanning 2015-17 in the amount of US$60.0 million was approved by the Board on April 28, 2015. The DPO series support the Government’s efforts to increase private sector competitiveness through second generation business environment reforms, financial sector deepening and diversification, and increasing firms’ capacity to innovate and to export. The Government has continued the implementation of the policy reforms outlined in the Program Document. The Second Private Sector Competitiveness DPO is currently being prepared and the third has been truncated.

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27. Annex 6: Gender in the Georgia Portfolio

The CPS recognized that Georgia faced a development challenge with regards to gender equality as reflected in statistics from the labor market (lower female labor force participation and notable gender wage gaps) and the population (more boy births than girl births). During the CPS implementation the analytical work on gender equality has progressed on two fronts: (i) querying and analyzing the evidence in order to understand the depth and complexity of gender inequalities in Georgia; and (ii) taking some of the analysis further up the knowledge chain to develop policy solutions and test them.

Two country gender assessments (2014 and 2016) analyzed the state of gender equality in the country in the areas of demography, human capital, economic opportunities, and voice and agency. Women continue to lag men in labor force participation; a similar gap exists in the proportion of businesses managed or owned by women and men. A background study commissioned for the Gender Assessment estimated that gender gaps in labor participation and entrepreneurship translate into a reduction in output equivalent to 11 percent of Georgia’s GDP per capita in 2014. In addition to gender segregation in sectors of employment and entrepreneurship and occupations, the gender assessments identified more subtle inequalities: a continued gender divide in fields of study chosen at tertiary level with a smaller share of young women than young men choosing technical fields of study which in turn shapes their future employment and earnings trajectories; dips in female labor force participation during child bearing and older years consistent with women’s greater share of care responsibilities for children and elderly; women’s average monthly salary is 37 percent less than men’s and this gender gap in earnings remains even after accounting for differences between male and female workers in their education levels and sector of employment.20

An area where the gender analytics in Georgia has moved up the knowledge chain during the CPS period is the topic of skewed sex ratios at birth. Since the 1990s Georgia and the other two countries in the South Caucasus have been displaying extremely skewed sex ratios at birth comparable to India and China. If nature were to take its course, 106 boys would be born for every 100 girls. In the South Caucasus, the ratio is higher than this “natural” ratio: 113 in Armenia, 115 in Azerbaijan and 109 in Georgia. Within Georgia, 8 out of 11 regions show high sex ratios at birth. Georgia was part of the World Bank study “Missing Girls in the South Caucasus”21 that used quantitative and qualitative data analysis to analyze the reasons for high sex ratio at birth. The study found that parental preference for sons (aided by cultural norms), magnified by increasingly smaller families, availability of technology that facilitates prenatal sex detection, and prevailing perceptions of economic uncertainty are all important influencing factors. Finding a public policy solution to this issue is important because a deficit of young women can have negative ramifications for future population growth and social stability.

20 In fact among high earners, only a small part of the gender gap in earnings can be attributed to such differences between male and female workers, suggesting that discrimination might be a factor.21 World Bank program financed by the Umbrella Facility for Gender Equality (TF014545). Main outputs and related resources for the program can be accessed at http://worldbank.org/en/events/2015/04/13/missing-girls-south-caucasus

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http://worldbank.org/en/events/2015/04/13/missing-girls-south-caucasus

http://worldbank.org/en/events/2015/04/13/missing-girls-south-caucasus

The strong focus on gender has translated into good progress in mainstreaming gender in projects across the entire portfolio. Since FY 14, all new projects have been gender informed in all three or at least one dimension.

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Annex 7: Citizen Engagement in the Georgia Portfolio (FY14-FY17)

Over the last decade Georgia has undergone a significant reform in local self-governance. The Organic Law on Local Self-Government (LSG) (2005) and the Law on Local Budgets (2006) strengthened central and local capacity to implement an integrated system of municipal budget monitoring and financial reporting.22 They also increased citizen expectation of transparency and greater voice in local development plans and resource allocation. Existing legislation provides for broad access to information. Moreover, by law any person is eligible to appeal to a public institution and obtain a response to his query. The implementation of these legal provisions, however, needs to be advanced. Accessing information and resolving grievances still largely depends on informal networks, which renders the existing legal CE mechanisms less effective for vulnerable groups.23

Pillar I of the current Georgia CPS 2014-2017 incorporates specific citizen engagement commitments. This Pillar prioritizes strengthening of public service delivery to promote inclusive growth. CE commitments are embedded in: (i) the DPO series, which aims to put in place better accountability mechanisms, including a role for citizen engagement and feedback; (ii) pilot programs testing innovating mechanisms for participatory local development (e.g., in a municipal services project, and a youth inclusion and social accountability project).

Notwithstanding the attention paid to ensuring BF indicators are now included in projects, the indicators are generally well aligned with the citizen engagement activities planned in the project, most are measured annually and provide a level of actionable information to the PIU. Efforts to measure the improvement with the citizen engagement process however remains limited. See Figure 1.

Figure 1: Improvement in the quality of citizen engagement activity in the Georgia Portfolio: FY14 - FY16

22 World Bank. 2012. “Fighting Corruption in Public Services: Chronicling Georgia’s Reforms” 23 World Bank. 2015. “Georgia: Social Accountability in Municipal Services.”

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Since the approval of the CPS, citizen engagement has been supported through: (i) consultations in IPFs and AAA; (ii) establishing beneficiary feedback mechanisms in projects; (iii) setting up of Project-level GRMs; (iv) incorporating participatory methods and ICTs to mobilize citizen engagement. Projects, such as RMIDP II and YISAP, discussed below have made social accountability a core part of their objectives. Still, challenges remain, namely with the effective functioning of GRMs and consistency in monitoring and recording of CE measures.

Georgia’s DPO series has incorporated a participatory approach to policy reforms. Specifically, the new Law on Civil Service, approved in October 2015, included extensive consultations with civil society, representatives of central and local governments, academia and international organizations.

The Regional Municipal Infrastructure Development Project II (RMIDP II) incorporates social accountability mechanisms to improve information flows, strengthen communication channels, and enhance citizen engagement in municipal services. At municipal level, in addition to information sharing through community boards, the project envisages supporting participating municipalities to strengthen or set up a range of tools that promote citizen engagement such as Citizens Charters, Trust Groups, Hotlines, Population Liaison Focal Point, etc. Support to the municipalities is currently being piloted in three municipalities and the experience gained will help refine the approach before this is scaled-up to the other participating municipalities.

The Youth Inclusion and Social Accountability Project (YISAP) improved beneficiary engagement by emphasizing use of ICTs for youth participation and involvement. While previous youth interventions had focused on developing physical infrastructure, prior evaluations had shown that youth in remote rural and/or mountainous locations faces obstacles with transport to be able to reach youth centers and participate in meetings and events; therefore YISAP prioritized use of social media for beneficiary engagement. Through a series of Social Media Campaigns, the Project engaged youth to identify community problems and solutions in an innovative, participatory manner using social media tools.

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Unrestricted feedback

Level of engagement

Number of activities

Frequency of feedback

Quality of CE activities in Georgia FY14-16

FY14 FY16

Corresponds with activities

Measures process

Provides actionable information

Frequency of measurement

Quality of BF indicators in Georgia FY14-16

FY14 FY16

The Georgia National Innovation Ecosystem Project (GENIE) envisions setting up an interactive beneficiary feedback platform where households, and small and medium enterprises, connected to broadband will be invited to provide feedback on the quality of service and help to improve it by reporting system outages and connectivity problems. Both feedback and responses will be posted online.

Other aspects, such as functioning and active use of Grievance and Redress Mechanisms, have been more challenging. Communication between citizens and authorities or PIUs tends to be verbal or using informal channels, which prevents consistent recording and monitoring of the GRM mechanism. The record of widely publicizing GRM contact information and timely response to grievances can also be improved.

For the remainder of the CPS period, the Georgia portfolio will strive to continue improving the quality of citizen engagement efforts.

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Annex 8: Country Survey Selected Findings

Questions Top Five Responses of Country Opinion Survey Respondents1st 2nd 3rd 4th 5th

Georgia’s Development Priorities

Education 45%

Economic Growth 35%

Public Sector Governance 23%

Job Creation/ Employment 22%

Global/Regional Integration 22%Private Sector Development 22%

Poverty Reduction Vehicles

Economic Growth 57% Education 49%


Private Sector Development 28%

Agriculture and Rural Development 21%

Sectors the WBG should focus most resources

Economic Growth 46% Education 39%


Agriculture and Rural Development 24%

Private Sector Development 20%Transport 20%Municipal, Urban and Regional Development 20%

WBG greatest value

Financial Resources 54%

Policy advise, studies, analyses 34.1%

Help to bring effective supervision to implementation of investment projects 26%

Technical Assistance 25%

Mobilizing 3rd party financial resources 12%

Donor Coordination 12%

Most Effective WBG instruments

Investment Lending 72%

Technical Assistance 37%

Capacity Development 23%

Knowledge Products/Services 20%

Multi0sectoral Approaches 19%

Increasing WBG Value

Increase the level of capacity development in the country 30%

Offer more innovative financial products 22%Reduce complexity of obtaining WBG financing 22%

Reach out more the groups outside of Government 21%

Ensure greater selectivity in its work 15%

Improve competitiveness of its financing compared to markets 14%Work faster 14%Collaborate more effectively with Government clients 14%

WB effectiveness (rating out of 10 maximum)

Transport 8.18

Economic growth 7.47 Energy 7.4

Municipal, Urban and Regional Development 7.26

Foreign Direct Investment 7.18

WBG as effective development partner (rating out of 10 max)

Being a long-term partner 8.57

Treating clients and stakeholders with respect 8.38

Collaboration with the Government 8.36

Straightforwardness and honesty 8.02

Collaboration with other donors and development partners 7.58

Source: FY16 Georgia Country Opinion Survey Report, the World Bank Group.

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Annex 9: WBG ASA Products FY14-FY17The World Bank ASA Products FY14-FY17

Project Name Global Practice Delivery DateFY14 TOTAL 8

EW

Georgia Urbanization Review Social, Urban, Rural April 5, 2014Georgia Public Expenditure Review-2 Macroeconomics & Fiscal June 28, 2014Policy Notes for the new Government Macroeconomics & Fiscal July 9, 2013Country Economic Memorandum - Sources of Growth Report Macroeconomics & Fiscal September 15, 2013Georgia Public Expenditure and Financial Accountability Assessment Governance November 2, 2013

TAGeorgia PPP High Level Policy Workshop Macroeconomics & Fiscal April 5, 2014ICT and innovation strategy in Georgia Transport & ICT April 21, 2014Georgia Payment System Modernizing Finance & Markets June 18, 2014

FY15 TOTAL 14

EW

Programmatic Country Economic Memorandum: Inclusive Growth Macroeconomics & Fiscal January 25, 2015Georgia - Financial Sector Advisory Program (FSAP) Update Finance & Markets April 20, 2015Report on Observance of Standards and Codes accounting and Audit Governance May 5, 2015Georgia Programmatic Public Expenditure Review Macroeconomics & Fiscal June 17, 2015Country Environmental Analysis Environment & Natural Resources June 25, 2015

PA Georgia Health Health, Nutrition, & Population June 30, 2015

TA

TA Support for Education Sector Strategy Education January 12, 2015Social Accountability Municipal services Social, Urban, Rural April 8, 2015Health Utilization & Expenditure Survey Health, Nutrition, & Population June 26, 2015Smallholders in agrifood value chains Agriculture June 29, 2015Service Delivery Quality Improvement Health, Nutrition, & Population June 29, 2015Connecting to work: ICT for employment Transport & ICT June 30, 2015Public Financial Management (PFM) Workshop Governance September 27, 2014

TE Training on E-Procurement System Governance July 12, 2014FY16 TOTAL 12

EW

Georgia Urban Strategy Social, Urban, Rural April 19, 2016Georgia National Tourism Strategy Social, Urban, Rural May 24, 2016Economic Impact of East-West Highway Phase 2 Transport & ICT June 28, 2016Georgia Energy Sector Strategy Energy & Extractives June 30, 2016Impacts of East-West Highway Corridor Transport & ICT August 23, 2015

KP Youth Voices – Georgia Social, Urban, Rural January 24, 2016

TA

Georgia Policy Review for IDPs Social, Urban, Rural February 13, 2016Tbilisi Flash Flood Response Social, Urban, Rural March 22, 2016S-J Regional Tourism Strategy Social, Urban, Rural May 24, 2016Green Freight Transport and Logistics Transport & ICT June 27, 2016Georgia Pension Reform Social Protection & Labor June 28, 2016

FY17

EWGeorgia: Forests and poverty analysis Environment & Natural Resources May 31, 2017Public Expenditure Review2016 Macroeconomics & Fiscal October 31, 2016Georgia Country Social Analysis Social, Urban, Rural December 7, 2016

PA Georgia Programmatic Public Financial Management (PFM) Task Governance April 27, 2017ASA to support Universal Health Care (UHC) in Georgia Health, Nutrition, & Population June 9, 2017

TA

GE Competitive Industries & Competitive Industries and Innovation Trade & Competitiveness April 14, 2017Enhancing Public Investment Management Governance April 23, 2017Advancing the DRM Agenda in Georgia Social, Urban, Rural May 31, 2017Georgia Financial Advisory Finance & Markets June 1, 2017Georgia SP&L Social Protection & Labor June 26, 2017

Total 44

IFC Advisory Projects FY14-FY17Project Global Practice or IFC Department PeriodGeorgia Investment Climate II Trade & Competitiveness GP FY14-FY17Nenskra HPP PPP Transaction Advisory Cross Cutting Advisory Solutions FY14-FY17ECA Corporate Governance Enterprise Risk & Solutions FY13-FY17ECA Agribusiness Standards (Regional) Manufacturing, Agribusiness & Services FY14-FY17ECA SME Banking (Regional) Financial Institutions Group FY13-FY17ECA SME Crisis Resilience Financial Institutions Group FY13-FY17Central Asia and Caucasus Energy Infrastructure Program Cross Cutting Advisory Solutions FY14-FY18Total 7

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Annex 10: IBRD Lending and IFC Investments FY14 – FY17

FY Proposed Program

Actual/Expected CPS proposed

Lending US$ m

Actual Lending and forecast US$

mApproval Date

FY14

Irrigation and Land Market Development Project 5/23/2014 50 50Transmission Grid Strengthening Project 5/13/2014 60 60Georgia Competitiveness and Growth DPO3 6/26/2014 92.8 92.8Second Regional and Municipal Infrastructure

Moved to FY15 30 -

Third Secondary and Local Roads Project Moved to FY15 75 -

Sub-Total IDA/IBRD 307.8 202.8Financial Markets

40-50 24.3

Real Sector 60-80 101.4Sub-Total IFC 100-130 125.7

FY15

Second Regional and Municipal Infrastructure 7/3/2014 - 30Third Secondary and Local Roads Project 7/3/2014 - 75First Programmatic Inclusive Growth DPO 4/28/2015 50 60Private Sector Competitiveness DPO1 4/28/2015 50 60

Innovation & ICT Moved to FY16 40 -

Regional Devt Moved to FY16 95 -

Sub-Total IDA/IBRD 235 225Financial Markets

20-40 70


FY16

East-West Highway Corridor Improvement 12/3/2015 140 140Third Regional Development Project 7/1/2015 50 60Second Regional Development Project - AF 4/4/2016 9Secondary Road Asset Management Project 3/18/2016 40Georgia National Innovation Ecosystem 3/18/2016 40

Programmatic Inclusive Growth DPO2 Moved to FY17 50 -

Private Sector Competitiveness DPO2

Moved to FY18 50 -

Sub-Total IDA/IBRD 290 289 Financial Markets

30-40 30


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FY17

Programmatic Inclusive Growth DPO2 4/28/2017 50East-West Highway Corridor Improvement AF

Moved to FY18 80

Programmatic Inclusive Growth DPO3 Truncated 60 Private Sector Competitiveness DPO3 Truncated 60

Agriculture Moved to outer years 60

Sub-Total IDA/IBRD 260 50Financial Markets

40-50 25


GRAND TOTAL IDA/IBRD

1092.8 766.8

GRAND TOTAL IFC (Actual) 250-350 324.9

Note: IFC Investments include own account

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