Monitoring Governance in Eastern Monitoring Governance in Eastern Europe and Central AsiaEurope and Central Asia

Cheryl GrayCheryl GrayWorld BankWorld Bank

Two questions that active Two questions that active monitoring can help to answer:monitoring can help to answer: How to improve governance?How to improve governance?

(explanatory variables: inputs, outputs, (explanatory variables: inputs, outputs, and/or intermediate outcomes) and/or intermediate outcomes)

What has been achieved to date?What has been achieved to date? (outcomes; results) (outcomes; results)

What has monitoring in ECA shown? What has monitoring in ECA shown? ECA has seen a lot of progress (more than ECA has seen a lot of progress (more than

most regions), but more is still needed.most regions), but more is still needed.

“ “Business Environment and Business Environment and Enterprise Performance Survey” (BEEPS)Enterprise Performance Survey” (BEEPS)

Joint initiative with EBRDJoint initiative with EBRD 20,000 firms in 3 rounds (1999, 2002, 2005)20,000 firms in 3 rounds (1999, 2002, 2005) 26 transition countries26 transition countries 6 European comparators in ‘05: Ireland, Germany, 6 European comparators in ‘05: Ireland, Germany,

Greece, Portugal, Spain, Turkey (+ Korea and Greece, Portugal, Spain, Turkey (+ Korea and Vietnam)Vietnam)

Life in Transition surveyLife in Transition survey Economic and poverty dataEconomic and poverty data CPIACPIA Actionable indicators (DB, PEFA, others)Actionable indicators (DB, PEFA, others)

Many indicators are useful.Many indicators are useful.

Explanatory variablesExplanatory variables

Structure of government:•Legislative oversight• Independent and effective judiciary•Independent prosecution, enforcement•Sub-national government• Multilateral rules for trade, investment, aid

Political accountability:• Political competition, credible political parties• Transparency in party financing• Disclosure of parliamentary votes• Asset declaration, conflict of interest rules

Civil society voice and participation:• Freedom of information• Public hearings on draft laws•Free and competent media/NGOs

Competitive private sector:• Economic policy reform• Competitive restructuring of monopolies• Privatization• Transparency in corporate governance

Public sector management:• Meritocratic civil service with monetized, adequate pay• Budget management (coverage, treasury, procurement, audit)• Tax and customs• Sectoral service delivery (health, education, energy)• Decentralization with accountability

Governance

Improving governance requires Improving governance requires a multi-pronged approacha multi-pronged approach

(and each variable has its own monitoring tools).(and each variable has its own monitoring tools).

Changing the role of the state and reforming Changing the role of the state and reforming economic policies are key early steps.economic policies are key early steps.

Macroeconomic stabilizationMacroeconomic stabilization Price and trade liberalizationPrice and trade liberalization PrivatizationPrivatization Property rights and law reform (commercial, civil, Property rights and law reform (commercial, civil,

etc)etc) Adoption of modern tax structuresAdoption of modern tax structures Promotion of business entry and FDIPromotion of business entry and FDI Banking reformBanking reform

World Bank programs in the 1990s supported World Bank programs in the 1990s supported this transition to private market economies. this transition to private market economies.

The The business climatebusiness climate has improved. has improved.

0 25 50 75 100

South Asia

East Asia & Pacific

Latin America and Caribbean

Middle East & North Africa

Sub-Saharan Africa

OECD high-income

Eastern Europe and Central Asia

Percent of Countries that Made at Least One Reform in 2005

Source: Doing Business in 2007

But the ease of doing business But the ease of doing business still varies widely among countries.still varies widely among countries.

rank for ease of doing business1=best 175=worst

rest of the worldtransition countriesLithuania 16

Estonia 17

Uzbekistan 147

Bulgaria 54

Singapore 1

D.R. Congo 175

Source: Doing Business in 2007

Many ECA countries are gradually Many ECA countries are gradually improving improving transparency and accountabilitytransparency and accountability..

0 1 2 3 4 5 6 7 8 9 10

Conflict of Interest

Asset Monitoring

Public Procurement

Freedom of Information

Political Party Finance

Financial Audit and Control

Immunity

index of quality of institutions

1995

2003

Source: Monica Dorhoi, 2005. "Anti-Corruption Strategies and Fighting Corruption in Central and Eastern Europe". PhD Dissertation. Michigan State University

Businesses use Businesses use courtscourts quite heavily in ECA… quite heavily in ECA…

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Ireland

Turkey

Latvia

Hungary

Spain

Greece

Estonia

Portugal

Czech Rep.

Romania

Bulgaria

Slovak Rep.

Germany

Poland

Lithuania

Serbia

Slovenia

Percentage of firms that have taken a case to court in past 3 years

But many firms see the judiciary as But many firms see the judiciary as an obstacle to business.an obstacle to business.

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Serbia

Czech Rep.

Romania

Portugal

Poland

Bulgaria

Slovenia

Lithuania

Turkey

Slovak Rep.

Spain

Hungary

Latvia

Greece

Germany

Estonia

Ireland

Percentage of firms that see courts as obstacle

Courts are not seen as independent.Courts are not seen as independent.

1 2 3 4 5 6 7

SAM

Bulgaria

Romania

Lithuania

Poland

Slovak Rep.

Spain

Latvia

Czech Rep.

Hungary

Turkey

Greece

Slovenia

Estonia

Portugal

Ireland

Germany

No (heavily influenced)

Yes (entirely independent)

Most firms do not see courts as honest…Most firms do not see courts as honest…

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Serbia

Lithuania

Czech Rep.

Poland

Slovak Rep.

Bulgaria

Portugal

Latvia

Romania

Hungary

Slovenia

Turkey

Spain

Estonia

Ireland

Greece

Germany

Percentage of firms that see courts as honest and uncorrupted

……or affordable.or affordable.

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Ireland

Portugal

Czech Rep.

Serbia

Slovak Rep.

Slovenia

Spain

Hungary

Lithuania

Romania

Greece

Germany

Bulgaria

Poland

Turkey

Latvia

Estonia

Percentage of firms that see courts as affordable

Few firms think courts are quick…Few firms think courts are quick…

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Slovenia

Portugal

Czech Rep.

Serbia

Slovak Rep.

Bulgaria

Latvia

Poland

Ireland

Spain

Estonia

Lithuania

Romania

Greece

Hungary

Germany

Turkey

Percentage of firms that see courts as quick

……or can enforce decisions.or can enforce decisions.

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Czech Rep.

Portugal

Serbia

Poland

Latvia

Lithuania

Romania

Hungary

Slovak Rep.

Ireland

Bulgaria

Slovenia

Spain

Estonia

Germany

Turkey

Greece

Percentage of firms that see courts as able to enforce decisions

Results to dateResults to date

GrowthGrowth in ECA has been rapid in recent in ECA has been rapid in recent years after the initial collapse.years after the initial collapse.

-25

-20

-15

-10

-5

0

5

10

15

1990

1991

199

2

199

3

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

Annual real GDP growth, in %

SE Europe

Middle income CIS

Low income CISEU3 Baltics

EU5 Central Europe Serbia

Note: 2000-02 data for Serbia and Montenegro, from 2003 onwards – Serbia.

Poverty and vulnerabilityPoverty and vulnerability have fallen. have fallen.

Source: **Bank staff estimates based upon ECA Household Data Revised numbers for 2002-3 period based on a new countries coverage

CorruptionCorruption is falling for the region is falling for the region as a wholeas a whole

(though not yet to W. Europe levels)…(though not yet to W. Europe levels)…

2.7 2.62.4

1.8

1

2

3

4

5

6

1999 2002 2005

ind

ex

of

bri

be

fre

qu

en

cy

1=

ne

ve

r

6=

alw

ay

s

Transition Countries

Comparator Countries

Source: Anticorruption in Transition 3 – Who is Succeeding … and Why?

… … but not in all countries …but not in all countries …Bribe Frequency by country, Bribe Frequency by country,

2002-20052002-2005

0%

25%

50%

75%

100%

Geo Slk Bul Rom SAM Alb Kyr

pe

rce

nt

"fre

qu

en

t"

Source: Anticorruption in Transition 3 – Who is Succeeding … and Why?

… … and not in all sectors.and not in all sectors.Bribe Frequency by sector, 2002-2005Bribe Frequency by sector, 2002-2005

0%

5%

10%

15%

20%

Fire andBlg Insp.

Courts Customs Bus.Licenses

Taxes Gov.Contracts

per

cen

t "f

req

uen

t"

comparator countries

2005

transition countries

2002-2005

Source: Anticorruption in Transition 3 – Who is Succeeding … and Why?

European countries vary significantly.European countries vary significantly. (% firms viewing corruption as a problem for business)(% firms viewing corruption as a problem for business)

0%

25%

50%

75%

100%

Sln

Est

Slk

Lat

Hu

n

Cro Lit

Po

l

Bu

l

Ro

m

Cze

Mac Ir

e

Ger

Esp Gre

Tu

r

Po

r

2002 2005

Source: Anticorruption in Transition 3 – Who is Succeeding … and Why?

New private firms continue to pay New private firms continue to pay the most bribes.the most bribes.

0%

5%

10%

15%

20%

25%

30%

35%

small, new private,domestic, firms in the city

larger,older, state orforeign, firms outside of

the cityPe

rce

nt

of

firm

s s

ay

ing

th

at

bri

be

ry i

s f

req

ue

nt

transition countries 2002

transition countries 2005 comparators countries 2005

Source: Anticorruption in Transition 3 – Who is Succeeding … and Why?

Some broader aspects of Some broader aspects of rule of lawrule of law are also improvingare also improving..

Source: Anticorruption in Transition 3 – Who is Succeeding … and Why?

0%

25%

50%

75%

100%

Taxadministration

Customs andtrade

regulations

Uncertaintyabout

regulatorypolicies

Functioning ofthe judiciary

Corruption Street crime,theft anddisorder

Organisedcrime/mafia

Anti-competitivepractices of

others

Contractviolations

pe

rce

nt

sa

yin

g a

n o

bs

tac

le t

o b

us

ine

ss

EU8-2005 ECA-2002 ECA-2005

Some explanations?Some explanations?

Corruption is lower where courts Corruption is lower where courts are easier to deal with …are easier to deal with …

Alb

Arm

Aze

Bel

BiH

Bul

CroCze

EspEst

Geo

Ger

Gre

Hun

Ire

Kaz

Kyr

Lat

Lit

Mac

Mol

Pol

Por

RomRus

SAM

Slk

SlnTur

Ukr

Uzb

11

.52

2.5

3fr

eque

ncy

of b

ribe

ry a

t cou

rts

(BE

EP

S)

0 50 100 150overall ease of enforcing contracts (DB)

Source: BEEPS 2005/4; Doing Business 2005

… … and where taxes are simpler …and where taxes are simpler …

Alb

Arm

Aze

Bel

BiH

Bul

Cro

Cze

EspEst

Geo

Ger

Gre

Hun

Ire

Kaz

Kyr

Lat

LitMac

Mol

Pol

Por

Rom

Rus SAM

Slk

Sln

Tur

Ukr

Uzb

12

34

freq

uenc

y of

brib

ery

at t

ax

adm

inis

trat

ion

(BE

EP

S)

0 50 100 150overall ease of paying taxes rank (DB)

Source: BEEPS 2005/4; Doing Business 2005

… … where business licensing is where business licensing is streamlined …streamlined …

Alb

Arm

Aze

Bel

BiH

Bul

CroCze

EspEst

Geo

Ger

Gre

Hun

Ire

Kaz

Kyr

Lat

Lit

Mac

Mol

Pol

Por

Rom

Rus

SAM

Slk

Sln

Tur

Ukr

11

.52

2.5

3fr

eque

ncy

of b

ribe

ry to

ge

t lic

ense

s (B

EE

PS

)

0 50 100 150overall ease of dealing with licenses rank (DB)

Source: BEEPS 2005/4; Doing Business 2005

… … and where international trade is and where international trade is painless ...painless ...

Alb

Arm

Aze

Bel

BiH

Bul

Cro

Cze

EspEst

Geo

Ger

Gre

Hun

Ire

Kaz

Kyr

Lat

LitMac

Mol

Pol

PorRom

Rus

SAM

Slk

Sln

Tur

Ukr

Uzb

11

.52

2.5

33

.5fr

eque

ncy

of b

ribe

ry a

t cus

tom

s (B

EE

PS

)

0 50 100 150overall rank for trading across borders (DB)

Source: BEEPS 2005/4; Doing Business 2005

In sum: In sum:

A variety of specific indicators are helpful A variety of specific indicators are helpful in tracking governance influences and in tracking governance influences and outcomes at the country level.outcomes at the country level.• ““Actionable” policy and institutional indicatorsActionable” policy and institutional indicators• Economic and political indicatorsEconomic and political indicators• “ “Unbundled” corruption indicatorsUnbundled” corruption indicators

Indicators point to impressive progress in Indicators point to impressive progress in some ECA countries, driven by market some ECA countries, driven by market reforms and prospects for EU accession –reforms and prospects for EU accession –but more is needed.but more is needed.

www.worldbank.org/eca/act3www.worldbank.org/eca/act3

For a broader look at governance and economic reform For a broader look at governance and economic reform in ECA seein ECA see

www.worldbank.org/eca/econwww.worldbank.org/eca/econ

For details on corruption trends seeFor details on corruption trends seeAnticorruption in Transition 3 – Who is Anticorruption in Transition 3 – Who is

Succeeding … And Why?Succeeding … And Why?

The time required to enforce a contract is longer in The time required to enforce a contract is longer in Serbia than most other European countries…Serbia than most other European countries…

635

551 549

432

275

0

100

200

300

400

500

600

700

Serbia Bulgaria &Romania

EU-8 WesternEurope 5

Top 3

Da

ys

(Latvia, Finland, Norway)

But countries vary in ease of doing businessBut countries vary in ease of doing business

0 20 40 60 80 100 120 140 160

Uzbekistan

Ukraine

Croatia

Albania

Belarus

Georgia

Azerbaijan

Turkey

Serbia and Montenegro

Bosnia and Herzegovina

Kazakhstan

Kyrgyz Republic

Moldova

Macedonia, FYR

Russian Federation

Romania

Slovenia

Bulgaria

Poland

Hungary

Armenia

Czech Republic

Slovak Republic

Latvia

Estonia

Lithuania

Source: DB 2006

}in top 20 worldwide