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- Date
World Bank Country Manager in Albania Tahseen Sayed on Public–Private Partnerships in Albania
We will support Government in accelerating private sector growth through policy, technical and advisory work such as being done under this workshop and through World Bank financing to support Albania ... Show More + in areas such Competitiveness and Jobs, and development of sustainable tourism. We will also work with Government in its legal and regulatory reforms to address the major constraints to private sector growth. At the same time, we intend to ramp up IBRD engagement on addressing infrastructure constraints – mainly in energy and transport sectors. Today's event on PPPs needs to be viewed in the broader context of this World Bank Group engagement.PPPs offer the private sector the opportunity to engage in areas which have traditionally been seen as part of public sector domain. These areas can benefit from the private sector's capacity to innovate, leading to an increased efficiency and in offering a better value for money. PPPs have been successfully used in a number of OECD countries and in Central and Eastern Europe. While each country's story is unique, there are some lessons which can be drawn for Albania to outline the principles for well-designed PPPs:Albania is a country with a huge economic potential, due to its demographics, geographic location and natural endowments. Public – Private Partnerships can serve as an effective instrument to bring private sector investment and for using private sector efficiency to deliver better results. They are often seen as benefiting both public and private sectors – the reasoning is that both sector share specific qualities and if those qualities are combined, they lead to better results. And risk sharing is a major consideration in combining these qualities. Typically there is contractualization of risks in a very precise manner to attract private sector financing.The process requires:(i)An ability to reorganize sectors around such risks – by itself a complicated process requiring specialized expertise which public sector typically needs to develop; (ii) Adequate development time : a key lesson from global experience is that a badly prepared PPP rarely succeeds ( as it does not attract private sector interest ) and some patience is needed as preparing a PPP takes time – by some reckoning two years or longer (from concept to start of construction);(iii) A fit for purpose environment from the legal perspective ( such as PPP law/ PPP institutions), an overall investment climate attractive to investors , an ability to attract long term bank financing , and an ability for specific sectors to be organized in such a way that private sector investment can happen;(iv) Careful focus on sectors -- most PPP takes place in infrastructure sectors (such as energy transport, water and sanitation, telecom) and to a lesser extent in what are generally called soft sectors ( such as health).(v) Attracting investors is likely to require a portfolio approach (a pipeline of projects is more attractive to investors). Smaller countries may have limited projects to develop. Right screening for projects is important, with a clear understanding of which project should be undertaken as PPP or not.Underlying all this is the necessity of maintaining a transparent management of the procurement process.Finally, I would like to say a few words on fiscal risks. Selecting a PPP versus a traditional public investment needs to be based on a cost-benefit inquiry and value-for-money comparisons. Experience shows that the government could indeed encounter larger fiscal costs with a poorly designed PPP, especially those related to resorting to guarantees to secure private financing or contract renegotiations. Guarantees are a crucial element in negotiating a PPP. They are necessary to hedge the private sector from risks which cannot be predicted such as exchange rate risks. However, at times guarantees may not be scrutinized in the same detail as a traditional public expenditure is during a budget process. Hence, Government needs to carefully examine the degree of risk transfer related to the PPP projects and to be mindful of potential contingent liabilities arising from them. In Albania's case greater fiscal transparency and proper disclosure of contingent obligations is particularly important as fiscal consolidation is a top priority of the Government.Let me wish you a very successful workshop leading to productive outcomes. I would like to thank the Government and WBG teams who have worked very hard to organize this event. Show Less -
Romania: The Environment Provides Great Value That Should Not Be Ignored
Q: What are these values you mention? And what are the negative consequences, exactly?A: These values refer to the damages caused by economic activity to us through air, water and soil pollution, thro... Show More + ugh the destruction of ecosystems, and the depletion of our forests and other habitats. The negative consequences are premature mortality, illnesses, reductions in the income from activities that depend on the natural environment, such as tourism, recreation etc.Q: Why is climate change a game changer for Romania? Why is it important for Romania to have a strategy dedicated to climate change?A: It is really important for Romania to recognize that climate change will have major impacts on the country. As temperatures increase steadily over the rest of this century, agricultural yields for different crops will change, with some of them declining quite a lot by 2100. In addition, rainfall patterns will alter, with lower precipitation in the summer and some possible increases in the winter. These changes will be accompanied by an increase in the frequency of extreme events – more droughts and floods. Also, global warming implies a rise in the sea level and an increase in storm surges, making coastal towns liable to increased flooding. The degree to which these things happen is not pre-determined. If the world succeeds to reduce greenhouse gas (GHG) emissions significantly, then there will be less warming and a smaller increase in extreme events. But some changes are inevitable and your country has to prepare for them. As a member state of the European Union, Romania also has significant obligations to reduce GHG emissions. These reductions will imply some costs as we move away from a carbon intensive economy, but they also have benefits, as lower burning of fossil fuels reduces air pollution, and benefits public health. The new infrastructure that goes with a shift to low carbon also creates jobs and can be an impetus to economic growth.Q: Beyond strategy, what are the other important factors in terms of climate change that Romania needs to pay attention to?A: The thinking is increasing towards "green growth" – ways in which we improve living standards and create employment while at the same time reducing our use of fossil fuels and switching to renewable sources of energy. There is a lot of work on this. A central feature is the role of city development and land use planning in the future so that it reduces the need for travel, and supports low carbon mobility such as walking and cycling. Energy efficiency in the building sector is also of great importance and a lot can be done on that.Q: Tell us what needs to be done so that more people become aware of the impact of climate change on their lives and on the future of their children?A: Climate change is not something only for governments to address. It is for people to start changing their mindsets so they think of ways to reduce their carbon footprint, and encourage their children to think of these factors as well. Education and awareness and very important, and lifestyle changes need leaders from society. Reducing the use of cars, increasing public transport and walking and cycling all have a role to play. Well, we can all do little things, like not driving for short journeys when it would be possible to walk or cycle, and it would be better for us; reducing energy consumption by switching off electric devices when they are not in use but in stand-by mode; cancelling our carbon footprint by supporting programs of afforestation, where we can get a formal credit for each ton of carbon captured. Show Less -
World Bank Country Manager in Romania Elisabetta Capannelli on Poverty Alleviation in Romania
Your Excellencies,Dear Ministers,Distinguished guests,I am happy to join you today at the launch of the Norway grant 'Programme for Poverty Alleviation in Romania. The World Bank is a very active play... Show More + er in this area of the world and a long standing partner of Romania. This is a good opportunity to discuss the challenges of poverty alleviation with our counterparts in the Government of Romania, our Norwegian friends, and with the experts and stakeholders present here.We share the view that poverty is one of the most important challenges for our societies today. Poverty, extreme poverty especially is not only a personal drama for millions of families around the world. Poverty, social exclusion and lack of opportunities are all major determinants to a country's instability, economic and political backwardness, all lead to a huge loss of creative potential.Significant progress has been achieved in the last several decades in fighting poverty in the world. The share of population living on less than US$1.25 a day (the international definition of poverty) has fallen from 30% in 2000 to 10% in 2009.Unfortunately, after 2008, progress in alleviating poverty has stalled in many regions of the world as the economic growth - which is the natural antidote to poverty – stagnated due to the crisis. Worse still, increasing income inequalities enhanced the problem of relative poverty even in developed countries. There are 80 million people in the European Union that live under the poverty threshold, defined at 60% of the national median income. These are unacceptable figures.Romania has made major progress in the last 25 years to fight poverty and promote measures that alleviate it. However, the country still registers the highest poverty rate in the European Union. Over 21% of Romanians live below the national poverty threshold. Three-quarters of the poor have been poor for at least three years, which means that poverty is persistent. Poverty is also persistent across generations - children born in poor families have fewer opportunities for a better life, partly because they do not attend school, or if they do attend they drop out of school early.Lacking the basic skills required for getting a job as young adults they join their parents and communities in informal employment, inactivity and at times delinquency. To further complicate matters, many poor families have a precarious health and therefore reduced labor ability, while their medical coverage is inadequate.Poverty is also concentrated in rural areas and in the Eastern part of the country. The Roma population has a ten-time higher risk of being in poverty than the general population in Romania. There is a significant number of deprived communities in which all of these problems come together, making it very hard for the poor to break the exclusion cycle. Sustained and integrated external support targeted to these communities is a must.I visited several times marginalized and deprived communities and I really feel that the large number of people there deserve better. Birth circumstances should not dictate the fate of the children in poor communities in Romania.Alleviating poverty and promoting social inclusion requires a lifecycle approach. Because children who grow up in poor households face a higher risk of poverty in the future, breaking the intergenerational cycle of poverty makes it essential for the government to adopt programs that can tackle both child and adult poverty in the same household simultaneously.First - it is critical to equip all Romanian children with the education, skills, and experience they need to achieve their full potential, including as contributors to the country's future economic success.Second - it is equally important to ensure that every adult has the opportunity to fully participate in the economic, social, and cultural life of their community. Whether or not parents are employed has huge implications for their children's prospects – both in terms of the income they generate and the example they create.As a country with an aging and shrinking population, Romania cannot afford to tolerate that a single child is deprived of opportunities. Extra measures have to be taken to enhance access to quality education especially for children from disadvantaged background.Our experience from Romania, Europe and the world provides clues as to the ingredients of successful poverty alleviation policies. A holistic approach is required for the poor in Romania.To name a few:Quality early childhood development services - this includes programs for parents of children below the age of 3 as much as quality preschool programs for children between the age of 3 and 6 to prepare them effectively for primary school.Quality primary and secondary general education which is mindful of the specific challenges of poor kids resulting from household background and poverty - this includes the need to adequately resource and staff schools with large shares of poor and disadvantaged children and using Roma education mediators.Adequate housing and access to basic infrastructure services are urgently required.Quality health services catering to marginalized communities, adequately staffed with experienced and well trained personnel.High quality employment services with the capacity to effectively support the most disadvantaged job seekers.Social work outreach into marginalized communities to better understand the nature and dimensions of deprivation and to better integrate necessary services.Romania is lacking in these areas due to reasons of inadequate policy, low capacity and resource constraints. However, the forthcoming National Strategy on Social Inclusion and Poverty Reduction provides a candid assessment of shortcomings and a strong commitment to tackle multiple challenges. Growth cannot be achieved without this.We at the World Bank feel privileged to have had the opportunity to advise the Romanian Government in preparation of the new National Strategy and being able to support Romania on critical reforms and investments in education, health and social protection.One major conclusion of our work is that the Romanian Government's objective of reducing the population at risk of poverty by 580,000 people - as committed in view of the EU2020 Strategy - is not easy to achieve, excluding the optimistic scenario of high growth.Active policies - such as those mentioned above - are required to increase the employment and wage rates of the poor and improve social protection for the poorest quintile of the population.The World Bank's twin goals are to reduce extreme poverty and boost shared prosperity. Throughout our activity in Romania - technical assistance and lending - the World Bank has committed to foster sustainable income growth for the bottom 40% of the population and support poverty reduction in key sectors and areas of intervention such as education, social protection, labour market, health, social inclusion, aging population, etc.We will continue to partner with you all and with the Government of Romania to achieve such objectives.I look forward to today's interventions and discussions to help us improve our understanding of the issues, challenges and solutions applicable to alleviating poverty in Romania. Thank you very much! Show Less -
Mamta Murthi Welcoming Remarks on Fiscal Equalization Transfers in Poland
Ladies and Gentlemen,Thank you all very much for coming here today. I want to thank the Ministry for allowing us to partner with them on this very important issue that will be discussed here today. In... Show More + addition to the members from the Ministry of Finance, I'd like to thank representatives of subnational governments, individual local government units, international experts, and others who are assembled here. I hope we will have very good, detailed and fruitful discussions on this very important topic.As the World Bank we have worked in a number of countries on issues connected with fiscal equalization and we find it a very important area because it speaks to our core mandate. Our core mandate is about ensuring that there is access to good quality public services that provide equality of opportunity for all citizens, and making sure that there is an intergovernmental fiscal framework that ensures access to good quality public services is very central to that. Hence this topic that we are discussing today is at the core of our mandate.It's an important and challenging topic, I suppose I don't need to say that. It's an important and challenging topic for a number of reasons. Perhaps the most important reason is that any system of intergovernmental transfers not only has to meet technical requirements - it has to be efficient, it has to be sustainable - but at the same time it also needs to be politically acceptable, and so this tension between political acceptance and efficiency and sustainability is what makes the topic so interesting and challenging. We really see three aspects, or three questions, that any discussion on these issues needs to address. I'm not an expert so I will speak about these three questions in very simple terms, you will have experts who will discuss it in much greater depth than I can. But there are really three basic questions. Who should be involved, which level of government should be involved in equalization? What is it that needs to be equalized? And how should equalization be achieved?The first question: the WHO? Are we talking about horizontal redistribution – one subnational government passing on to another subnational government, or is there an intermediation role that can usefully be played by the central government or the federal government, so the WHO should play the role in equalization is a very important question. Then, the second one on WHAT should be equalized? Is it equalization of revenues, is it equalization on the basis of costs of producing services, is it equalization based on differences in needs? Understanding exactly what needs to be equalized is a very important question in order to arrive at the solution. Finally, there is the question of HOW to equalize. This is a very technical question, exactly how is the equalization achieved. So these three questions are questions that I hope we can deliberate based on the existing context in Poland.Just to give you a flavor of how these questions play out, at the moment one of the more hotly debated issues is on the so-called Robin Hood tax. I wish I could say it in Polish but I can't but I believe by the end of the day I will be able to say it. But clearly there is a challenge because it affects the incentives of subnational governments who actually collect the tax if the marginal rate of taxation is very high. There's also the question of the timeframe, and this relates to the HOW question. There's a timeframe over which the revenues are measured. And if you have a downturn and you are measuring revenue capacity with a lag then you could be in a situation when a subnational government has to pay out a lot at the time when it has to meet the needs of its own constituents. So these are the very detailed, technical questions that very quickly come up in discussing any reform, and we are hopeful that a discussion of the experiences from other countries will help throw light on the reforms that need to be undertaken here in Poland.Finally, let me emphasize that we see things as a two-way street. At the World Bank we like to believe we are a learning institution and we learn as much from individual countries and the way they approach problems as we learn from talking amongst ourselves. And so we very much see this as an opportunity in which by understanding how Poland reaches conclusion on the course forward we will learn more about this topic and this is knowledge that we can share with other countries where we are working. With that let me conclude and wish everybody a very good discussion. Show Less -
Laura Tuck's Remarks at the Launch of "Turkey's Transitions"
On a recent trip to Istanbul, I participated with Turkish Undersecretary of the Treasury Dagdas in the launch of the World Bank's new "Turkey's Transitions" report. The report examines Turkey's experi... Show More + ence in the transition from a lower middle-income to an upper middle-income economy, and looks at what has worked well and what needs to change. It holds valuable lessons for other emerging market economies on the way to high income status, and is part of an effort in the World Bank Group to better record and facilitate access to development knowledge residing in the experience of our clients as well as our own staff. For more on the report, please see the infographic, video interview and feature story. Below are my remarks at the event. Opening Remarks for Launch of the "Turkey's Transitions" ReportDear Undersecretary Dagdas, Excellencies and Honorable Guests from around the region, Ladies, and Gentlemen,It is my great pleasure to be with you on this occasion – the launch of a new report on "Turkey's Transitions" and the lessons it holds for other emerging market economies on the way to high income status. For 2000 years, travelers have come to Istanbul to learn, to trade, and to exchange ideas. Today, Istanbul is once again one of the main crossroads in the international flow of goods, services, and knowledge. It is thus a fitting venue for the launch of this report.I want to start by expressing my thanks to the Turkish authorities for hosting us here today, and, in particular, to our colleagues in the Under-secretariat of the Treasury, who have been excellent partners in the preparation of this book. I also want to thank warmly our international guests who have made the effort to come here and reflect jointly on the relevance of Turkey's experience for their own countries. I look forward to the panel discussion later this afternoon.The rise of the emerging markets is changing the global development landscape. For many developing countries the most pertinent development experiences, come not so much from the industrialized countries of Western Europe and North America, but from the dynamic emerging market economies. Development knowledge today is shared in real time between practitioners and policy makers facing similar challenges. Our report on lessons from Turkey's development experiences is part of an effort in the World Bank Group to better record and facilitate access to development knowledge residing in the experience of our clients as well as our own staff. The presence of so many high-level guests from other countries I believe demonstrates that this effort is worthwhile.Our Country Director for Turkey, Martin Raiser, has already shared the main findings of the report with you. Let me just pick out three key messages that particularly resonated with me.First, Turkey's economic rise is ultimately a story of successful international integration. The experience of Europe and Central Asia Region demonstrates the power of economic integration, through trade and financial linkages, to bring about convergence in living standards. The European Union's enlargement project has been fundamental to the unique record of regional convergence within Europe – a phenomenon we have called the "convergence machine". Turkey has been part of this machine and has benefited from its trade and financial linkages with Europe. The challenge for Turkey today is how to build on the foundations of its economic integration with the European market to increase the country's global presence and competitiveness. As I know from discussions with policy makers from around the region, this is a challenge Turkey shares with many other European countries. Improving competitiveness is thus one of the core objectives of the World Bank Group in its work in the Europe and Central Asia Region.Second, Turkey's growth has gone hand in hand with poverty reduction and better access to services for the less well off. In other words, Turkey's prosperity has been shared. The Report contains a rich analysis of Turkey's experience in achieving universal access to health care and widening access to education. It also contains important lessons in how to ensure that economic growth goes hand in hand with job creation – which in turn is a key channel for spreading the benefits of growth across the population. The growth of cities has played an important role in improving income opportunities and access to services for the poor in Turkey. Turkey's successful urbanization experience may be particularly valuable for many countries in Africa as well as MENA. But while Turkey's progress is impressive, serious inequalities remain. For us in the World Bank, one of the most important aspects of our partnership with Turkey is to help ensure that the progress in shared prosperity is sustained and extended and that remaining pockets of vulnerability are closed. Third, the Report points to the challenges that upper middle income countries like Turkey face to complete the transition to high income status. I am not sure I find the term "Middle Income Trap" helpful – there is no reason for countries that adopt the right policies to remain trapped. But the right policies include difficult institutional reforms, such as strengthening the rule of law and arm's length market regulation, decentralizing decision making, and introducing performance based management in the public sector. The call for structural reforms is not new. But our analysis suggests there is some urgency for Turkey – as for many other emerging as well as advanced economies – to move on with implementation of structural reforms. The Government's 10th National Development Plan and the recently announced Transformation Programs contain many good ideas for these reforms.Our partnership with Turkey reaches back several decades. In the course of this partnership we have learned a lot. With this Report and today's discussion we want to share this knowledge with you. We are grateful to the Government of Turkey for giving us this opportunity and to all of you for your comments and feedback on this work. Finally, let me thank the World Bank team for putting this event together and preparing what I believe will remain an important reference work on Turkey's development experience for years to come.Thank you for your attention. Show Less -
Remarks by Ellen Goldstein, World Bank Country Director for Southeast Europe at the Signing of the Albania Power Sector Recovery Project
The latter problem was a barrier which needed to be resolved swiftly and reasonably in order to put Albania's energy sector in order. A protracted legal battle over sector governance would... Show More + have been an insurmountable obstacle in attracting new investment to the sector—including investment financed by the World Bank. I want to commend the Government for understanding the urgency of resolving this dispute and for moving with speed to begin addressing the most pressing problems of the sector. Fixing the power sector is one of the most important foundations for increased investment, growth and job creation in Albania. Unreliable power supply is seen as a top constraint to doing businesses here. Today, cumulative losses in the energy sector—which are financed by Government--total some 55 billion lek. That amount would be expected to rise above 80 billion lek by 2018 if serious reform is not undertaken now. That is 80 billion lek that otherwise could be spent by Government to finish priority roads, improve the quality of education or procure essential drugs. So it isn't just about business: fixing the power sector is necessary so that Government can redirect resources toward priority public services like education, health and water supply.The historic problem of the Albanian power sector—including the so-called CEZ dispute—has been a lack of accountability. How can the sector sustain itself if half the electricity is stolen? How can citizens trust their Government if public agencies don't pay their own bills? Mutual accountability is the key to finally turning around Albania's bankrupt and inefficient energy sector. Government must be held accountable for investing wisely in the sector, paying its bills to power utilities, pursuing those who steal electricity and protecting the poor and elderly through a well-targeted energy safety net. Utilities must be held accountable for reliable and affordable service delivery. And households and firms must be held accountable for using energy efficiently and for paying for what they use. I am encouraged by recent reforms aimed at clamping down on abuses of the system and instilling a culture of accountability. Maintaining an arbitrary threshold of 300 Kilowatt Hours has served only to fuel abuse by both households and businesses. The decision to move to a unified tariff for all household use is commendable, as is Government's allocation of resources to an improved safety net that ensures access to energy for the poor, disabled and elderly. Early reforms are already producing results: collection rates have increased and losses have declined from 45 percent in early 2013 to around 35 percent today. In India, Northern Delhi Power and Light was able to reduce losses from above 50 percent to less than 15 percent over several years. If India can do this, so can Albania!Reforms will need to be sustained for the next four to five years. The $150 million Power Sector Recovery Project signed here today will support Government with medium-term investments and technical advice to reduce losses, improve governance and restore investor confidence in the sector. Confidence in the financial sustainability of the sector is the key to unlocking billions of dollars of investment in Albania's hydropower potential. Increasing generation capacity will gradually reduce reliance on imports and lower the cost of providing electricity to consumers.Putting the power sector on a sustainable path is an essential element in creating a business environment that is attractive to investors and generates jobs for young Albanians. But it doesn't stop there. Government has also begun reforms to bring a mediocre business environment up to global standards. In the World Bank's 2015 Doing Business Report launched last week, Albania rose for the first time into the top half of the global ranking for ease of doing business. Albania rose 40 places in one year, thanks to reforms in starting a business, registering property and obtaining construction permits. Albania still has significant work to do in areas such as land titling and contract enforcement—but it has been a promising showing over the past year, and complements nicely the work underway in the energy sector.Investors also expect a stable and well-managed macroeconomic and fiscal environment. This is an area where Government has shown considerable courage in confronting the severe imbalances that emerged after the Eurozone crisis and which have hindered economic recovery in Albania. Stabilizing public debt, clearing public arrears, reducing fiscal deficits, reforming pensions and improving public service delivery are creating the conditions for higher private investment and growth. International ratings agencies have upgraded Albania based on Government's commitment to this medium-term macro-fiscal stabilization. This year alone, Government has cleared 26 billion lek in arrears, with another 9 billion expected by year's end. Economic growth is now on the rise which should continue if reform momentum is maintained.I am seeing notable progress in the past 14 months on some of Albania's highest priorities. Much has been accomplished, and—even more importantly—the momentum for further reform is strong. Albania has become a leading reformer in the Balkans, and the granting of EU candidate status reflects this increasing momentum. It speaks to the relationship of trust that is emerging between Government and citizens, and to a sense of mutual accountability for building Albania's future within Europe. As we see in the Balkans and beyond—delaying reform only exacerbates difficult problems, increases the pain of adjustment and undermines economic recovery and future prosperity. So, please, embrace reform today. Show Less -
Launch of Doing Business 2015: Opening Remarks by Marina Wes
Your Excellency Ms Prime Minister, Members of the Economic Council, Ladies and Gentlemen,I would like to sincerely thank the Prime Minister for hosting us in the Chancellery for the launch of the 2015... Show More + Doing Business report. The Doing Business Report has been produced by the World Bank Group since 2004, and provides an assessment of the investment climate in 189 countries around the world.In the current era of subdued global growth and depressed investment levels, a good investment climate is particularly important. Those countries that perform best on the World Bank's Doing Business ratings tend to be those that make the most progress in growing competitive firms; firms that invest and provide jobs across the economy.The Doing Business rankings launched today are based on a revised methodology and a more comprehensive and expanded data set. Poland is ranked 32nd out of 189 countries globally. This is a remarkable performance, supported by reforms in recent years – which have been further reinforced over the past year.However, with many countries in Europe and around the world trying to attract investment and create jobs, continued efforts will be needed if Poland is to remain at the top. The Government has already identified a few areas in which to focus efforts in the coming period, including in construction permits, in simplifying firm registration, and in improving tax administration and tax compliance.At the World Bank, we very much look forward to continuing to work with the Polish Authorities in a broad range of areas (doing business, innovation, flood management, fiscal decentralization, social inclusion, road safety, climate policy modelling - just to name a few). We also see a growing number of countries around the world interested in learning from Poland's experiences and successes – and which see Poland as a global partner. We believe there is an opportunity for Poland to further enhance its international standing, and we stand ready to work with you in distilling and disseminating any "Polish lessons." Show Less -
Jan-Peter Olters: Remarks at the 2014 Finance Fair
This interest rate differential vis-à-vis any benchmark country—be it Germany or Montenegro—reflects the additional "risk premium" that banks perceive and charge on loans. It comprises essentially thr... Show More + ee types of perceived extra risk, viz., (i) the business climate (collaterals, contract enforcement, or property rights); (ii) business conduct (high degree of informality, lack of financial transparency, or the lack of viable business plans); and (iii) the Damocles' sword faced by foreign-owned banks in Kosovo of being merged by their respective headquarters into the group of troubled banks elsewhere in Eastern Europe and confronted with corporate strategies to deleverage out of (perceived) high-risk markets. Faced with this particular set of constraints, the banking sector in Kosovo has, in fact, adapted well to the existent environment, focusing its activities on remaining healthy, liquid, profitable, deposit-based, and with portfolios that contain but manageable risks.It is apparent why banks in Kosovo have been conservative in their lending decisions; and these have served the sector and the economy well in recent years, especially if compared to the experiences made in neighbouring countries. At the same time, demands on the banking sector, by the public and polity alike, have been increasing to contribute (even) more to the country's development. For financial institutions to be in a position to do support the "macroeconomic" development objective, the "microeconomic" aspects (of an underlying business case) have to be in place as well—thereby begging the overarching question as to whether, for banks, there is an optimal degree of risk-taking.The inherent costs of a banking sector that is too willing to take risks are well-understood and, given the recent financial history, well documented. The opposite case, when banks are too risk-averse, has similarly clear macroeconomic consequences, posing the risk of asphyxiating an economy's innovation and growth potential. The corresponding "vicious cycle" starting with (i) weak businesses and unknown start-ups; (ii) leading to considerable hesitation among banks to lend; (iii) as manifested in banks' requiring for loans with (overly?) short-term maturity, if granted at all, high collaterals and high interest rates; (iv) which leaves the private sector with reduced rates of returns on its investments; (v) cementing their financial vulnerability; and (vi/i) leaving them still weak and unattractive to the banking sector. In this context, banks would need to ask themselves whether extending loan maturities would not effectively reduce default risks, as loan repayment profiles become more closely aligned with investments' (expected) revenue and amortisation profiles.There are considerable options to assess the extent, to which banks' risk exposures could be reduced further so as to allow for a tangible reduction in the real cost of credits. One could add a whole array of other potential changes to the banks' conduct, all sound from a business perspective and desired from an economic policy-making point-of-view, but let me just mention one: the delayed modernisation of the insurance sector could be accelerated by linking it explicitly to mortgage lending, offering to insure borrowers against incapacitation, unemployment, and death. This would not only protect the interests of both contracting parties but also open doors for the diversification of insurance products.Evidently, demands to the banking sector for lower interest rates and more favourable conditions to the private sector must not come at the expense of increased vulnerability and fragility to the financial sector—the macroeconomic costs alone would be far too high and detrimental to the development objective motivating said requests. But a debate of this nature, in the context of the Finance Fair, does warrant the question of whether it would not also be in the financial sector's interest to move towards the edge of, or go beyond, the current comfort zone. It is true for all market participants in the financial and private sectors: unrealised opportunities (if viable) are very costly to the country and its citizens' socio-economic welfare. Show Less -
Media Teleconference on Carbon Pricing with World Bank Group President Jim Yong Kim and Vice President and Special Envoy for Climate Change Rachel Kyte
DR. KIM: The UN Secretary General's Climate Summit will take place here in New York tomorrow. More than 120 Heads of State and Government are expected to attend this historic event.Today, ... Show More + ahead of the summit, I'm pleased to announce a powerful development that reveals the great commitment and impatience from governments and companies to move now to fight climate change – and not wait until it's too late.Today we are announcing that 73 national and 11 regional governments and over one thousand companies and investors support putting a price on carbon. Together, these government supporters represent 52 percent of global GDP, 54 percent of global greenhouse gas emissions, and almost half the world's population.The supporters include emitters like China, Russia and the European Union, and growing economies like Indonesia, Mexico, and South Africa.Many already have carbon pricing in place or are preparing to implement it. Others, including the Philippines and many small island developing states support carbon pricing because they know that without such action, climate change will have devastating impacts on their populations and on their economies.Companies such as LG Electronics, National Grid and Westpac have already integrated a "shadow" price on carbon into their business strategies to improve decision-making for the future. They know that this will help avoid risks and find opportunities that can increase energy and resource efficiency, reduce CO2 emissions, and give them a competitive edge.The World Bank Group is working with clients, both countries and companies, to put in place effective policies that will price carbon as a necessary step on the path to low carbon growth.I am proud to announce that to support the leadership of these countries and companies, the World Bank Group and the We Mean Business Coalition will be convening a "carbon pricing leadership coalition."This new leadership coalition will work to advance carbon pricing solutions after the summit ends tomorrow, and up to Paris in 2015. They will be sharing experience, research, and best practices and spurring action across their sectors, supply chains and with their neighbors and allies.Up to now many people have said, "Well, carbon pricing is important but it's difficult, it's complicated, it's not the only solution." All these things are true, in part or in full, but today these countries and companies are sharing a preparedness to do what's needed to speed the economic transition.The science is clear, the economics compelling and the politics sometimes difficult. But today we see that the politics aren't quite so difficult after all, and manageable, when there is leadership.Thank you very much. We are open to your questions.QUESTION: Hello Mr. Kim, thanks for doing this. I have two questions if I may, can you go a little bit more into detail on what the initiative you announced today means for the time going to Paris; what are you going to do, the specifics? The second question I have is if you put a price on carbon, definitely you get some kind of revenues, especially for governments, and I am just wondering, do you have any proposal for what to do with these revenues? Would you be in favor of doing tax cuts in other areas if you raise carbon taxes?DR. KIM: Let me introduce some perspectives on it, and then I'll ask our Vice President Rachel Kyte to get into some of the details. I think the most important thing is we have to really understand what a sea change this represents.We've never had a statement like this on carbon pricing. We've certainly never had a statement where representatives of nearly half the world's population, more than half the world's GDP, have come together and said we are determined to make a path to a real price on carbon.I think this is by far the most definitive and clear signal that we're moving in the right direction. So when we started talking to governments and companies about this, there was a lot of hesitation. Something happened over the last few months that got us to where we are today.The most important thing to remember, given where we were a year ago, even six months ago, having this kind of statement makes a huge difference in efforts to get something done at COP21.I just want people to understand how hesitant people were, and governments and businesses were, before this statement, and the importance and the sea change this represents. And for some of the details Rachel Kyte will now jump in.RACHEL KYTE: So two things, on your first point, so we've got a number of governments who are already pricing carbon, either through taxes or through emissions trading systems or through other fiscal policies that reveal an effective price on carbon. We've got countries who want to see this progression, who know that they want to move in this direction, and are asking for help.Secondly, inside this leadership coalition, we have a thousand companies from every corner of the earth, from all sectors of the economy, and what we want to do now with this group of self-selecting leaders; together with the We Mean Business coalition, is to start rolling up our sleeves and start working, government and business together, on how to bring carbon pricing forward in as many jurisdictions as possible, and to look at the many different ways in which that can be done.We are agnostic, as the World Bank Group, about how that can be done – it can be done in many different ways, but we're not agnostic on that it should be done, and the earlier that it is done the greater the possibility of spurring investment in cleaner growth and in resilience and moving away from an exposure to carbon in the economy.On your second point around taxes, I think that if you speak to a number of the businesses in the coalition then obviously tax rights are fundamental to their competitiveness. What they are seeking is fair treatment and predictable treatment in all the jurisdictions in which they work. And I think there is a conversation going on within the business community as well as within the economic community about whether or not we should be taxing what we burn rather than taxing what we earn, as the Europeans say.What is the tax regime for a world where we want to drive carbon out of the economy? That is the conversation that has started already and pricing carbon becomes one of the effective first steps as we try to drive carbon out of our economic growth going forward.QUESTION: And the World Bank does not have any position on that? What to do with the tax revenue?RACHEL KYTE: No, the World Bank Group works with our clients hand-in-hand, looking at the structure of their economy, looking at the choices that they need to make, and looking at the way in which they want to grow going forward, so we don't have a once size fits all answer to that question. We are working with countries that want to introduce taxes, we're working with countries that want to introduce trading systems, and we're working with countries that want to use other fiscal policy measures and reduce harmful subsidies and other instruments of choice.So the message from us is not that there's one way to do this, obviously we're in fiscal conversations with all of our clients. But the point today is that putting a price on carbon is an important first step, a necessary if insufficient step, towards driving carbon out of the economy.QUESTION: Is it a matter of concern for you that the U.S. is not on the list? How do you think you can move forward without the full cooperation of the world's largest economic power?DR. KIM: Thanks for the question Jeremy. So first of all, there are several states in the United States on the list, and many of course American companies on the list. And President Obama himself has made a very clear statement supporting carbon pricing. You know the complexities of getting a nation state like the United States to sign onto an agreement through the various legislative channels are frankly a little bit beyond me, but we know that despite the fact that as a country they haven't signed on, in so many other ways, American citizens, American states, and the president of the United States himself have been very positive about this statement.QUESTION: If I can follow up, how do you explain that they didn't sign? How do you explain this reluctance?DR. KIM: You know, I don't know Jeremy, but it's a good question that you should ask them directly Show Less -
Jan-Peter Olters' Remarks at the Kosovo Investment Reform Workshop
Once Kosovo manages to form a new Government and re-focus its attention from procedural tactics to socio-economic development strategies, the overarching challenge will consist of defining—and impleme... Show More + nting—a set of policies that would help to accelerate economic growth, ensure its sustainability over a prolonged period of time, and lift an increasingly growing proportion of the population out of poverty, unemployment, and a lack of professional perspectives. This is a very complex task, but one that is possible to achieve—one that has been realized by other countries before.In the 2008 Growth Report, in which a most distinguished group of economists, policymakers, and development leaders analyzed common features of the world's most dynamic economies, the authors highlighted one particularly important feature of commonality among them."Growth of 7 percent a year, sustained over 25 years, was unheard of before the latter half of the 20th century. It is possible only because the world economy is now more open and integrated. This allows fast-growing economies to import ideas, technologies, and know-how from the rest of the world. One conduit for this knowledge is foreign direct investment, which several high-growth economies actively courted. … Sustainable, high growth is catch-up growth. And the global economy is the essential resource."I have started with these observations to highlight that Kosovo faces, ultimately, two distinct challenges, viz., to (i) stimulate a domestic debate on the inherent benefits (and risks) from a closer integration with the rest of the world; and (ii) deepen the ongoing reform agenda to ensure that the country becomes a destination for economic activities, that is attractive for domestic and foreign businesses alike.For products and services "made in Kosovo" to be competitive on the local market, in the region, and in Europe and the rest of the world, the new Government will have to continue and deepen its reform agenda aimed at improving economic governance, strengthen the business and investment climate, and instil confidence into the private sector that this country has a dynamic, integrated economy with the legal, institutional, and physical infrastructure needed to convince potential investors that there is a better business case to establish a production site in Kosovo than anywhere else in the region and the worldIn this challenge, the World Bank Group has been supporting Kosovo to improve the business climate and make it easier for both foreign and domestic investors to do business in Kosovo. Not least the results in the annual Doing Business survey that Minister Nikaj mentioned, but also hard data on the number of registered, tax-paying businesses point to the fact that Kosovo has been moving in the right direction. Among many other things, the World Bank Group has been—and will be—working with governments on the central and municipal levels to (i) clarify and make transparent all administrative procedures, permits, and licenses that businesses need to receive in order to operate in Kosovo; (ii) simplify the procedures for issuing work permits for foreign employees; (iii) strengthen the investment promotion department of the Kosovo Investment and Enterprise Support Agency to conduct an Investor Perception Survey, the results of which can be very helpful to guide policy-making; and (iv) support the Business Registration Agency in facilitating the process of registering a business.After the dust of the current post-electoral process will have settled, it is important for Kosovo's authorities to re-assemble and collaborate on a coherent vision for development objectives and the types of private-sector investment sought to be attracted. On that basis, it becomes easier to design and implement policy responses to help achieve those objectives. On that note, with special thanks to my colleagues from IFC, we hope that the Investment Reform Map will provide a useful framework to develop this vision and implement important reforms that will facilitate more investment in Kosovo. Show Less -
Mamta Murthi Speech on Investments and Jobs at Sixth Cohesion Forum
Distinguished guests, Ladies and GentlemenThank you for inviting me today to this panel on delivery quality and achieving better performance in cohesion policy. Let me start with saying that the... Show More + World Bank sees restoring of European's citizens confidence in the future as a top priority for the upcoming years. While it is a top priority for all parts of Europe, today I will speak from the perspective of the 11 countries of Central and Eastern Europe that I cover as part of my duties at the World Bank.Cohesion Policy is similar, in many respects, to the objectives of the World Bank in developing countries and emerging markets. As with Cohesion Policy, the World Bank aims through its instruments to improve conditions for growth and jobs, to help reduce poverty and increase shared prosperity. We work at both the country level - with national and sub-national authorities - and at EU level - with the European Commission and other European partners.It is worth noting that all member states that joined after 2004 have benefited from both the World Bank's advisory services and its financial support prior to and at beginning of accession. The World Bank is still active in many of these countries, substantially supporting cohesion policies in PL, RO, BG, and HR and, more recently, since the crisis of 2008, providing technical support to countries like Cyprus and Greece. Throughout the focus of the World Bank is to support policy and institutional changes rather than financing per se.For the purposes of today's discussion, I would like to share our experience from our work in Central and Eastern Europe, as I believe that even though specific mechanisms and institutions vary between the Bank and the EU, some main lessons on what's worked and what could be changed going forward, might be useful to share, and in some cases, to apply in many countries in EuropeThere are three main observations to highlight from World Bank experience, or to put it differently three main ways in which the results focus of policies can be enhanced.First, strengthening a country's macroeconomic fundamentals provides the basis for sustained engagement to reduce poverty and improve shared prosperity.Second, the development and implementation of sustainable government strategies to guide and improve the quality of policy making and performance is extremely important.Third, ex ante conditionalities related to enhancing the capacity of intermediary bodies or implementing agencies can support faster and more effective implementation.Given the time constraints and the experience and expertise of today's audience, I would like to be very specific and give you a few examples of the World Bank's work and experience in support of each of these observationsLet me turn to my first point: strengthening a country's macroeconomic fundamentals.I believe we can all agree that enhancing macroeconomic resilience, through sound fiscal and financial systems, is necessary for growth, employment creation and shared prosperity. Besides reducing the cost of access to finance, this also allows a country to make more appropriate choices in terms of allocating domestic and EU resources efficiently, developing medium-term strategies that are translated into good investment plans and budgets, and hence better performance.To this end, the World Bank has used budget support lending operations to support policy reforms in Poland, in Romania and in Croatia. The policy reforms supported include a reduction of general government fiscal deficit and debt levels (such as in Poland, Croatia), strengthening of fiscal management and SOE performance (for example, Romania and Croatia), and improvements the environment for doing business and the functioning of markets (all three).In each area the World Bank has provided considerable technical assistance to support the reform agenda.Importantly, we do not see these operations as one-off interventions, but as a key part of an ongoing engagement in each country, which evolves and can be tailored to specific external and domestic circumstance. It is this ongoing engagement that enables the World Bank to support structural reforms that need several years/EU semester cycles to accomplishNaturally we are coordinated with the EU's new economic governance framework.Now, my second point. The development and implementation of sector strategies to guide and improve the quality of policy making is extremely important.World Bank experience recognizes that general prescriptions often fail and that growth and employment creation policies need to be tailored to each country, be time-specific and provide a link between country objectives, sector strategy and key reforms.The existence of sector strategies means that investment carried out by state or local governments is defined under the same umbrella, whether funded by EU sources or national sources. In some cases, development of sector strategies as an ex-ante conditionality can be helpful in shifting the focus from absorption to selecting investments in an integrated manner with other investment not funded by EU. Of course, development of sector strategies can require technical support. The World Bank is involved in support of sector strategies in many sectors in Romania, as well in Bulgaria, Croatia and Poland In Poland the World Bank has built on its work to support the business environment mentioned previously to assist the Government to achieve greater efficiency and coherence from its regional and national innovation policies and programs. We have also provided inputs to strengthen the forthcoming national Smart Growth Operation Program.In Bulgaria, we provided inputs into the new Water Supply and Sanitation Strategy and are now helping the Government to strengthening the functions and capacity of the water sector regulator. In Romania, the World Bank is supporting the development of the government's Strategies for Active Ageing and for Lifelong Learning and its National Strategy on Social Inclusion, particularly for the Roma population.Third and finally ex ante conditionalities related to capacity of sectors, intermediary bodies or implementing agencies can support faster implementation, and provide government's with the tools they need.Irrespective of beneficiary specific capacity, government agencies and ministries need to have strategic planning capacity, be able to articulate policies and manage their budgeting and implementation.In the absence of requisite capacity, countries may decide to allocate money to the investment priorities for which less effort is needed to comply with the related ex-ante conditionalities within the specified timeframe, or to target resources at the beneficiary which has the most capacity irrespective of the impact. There is therefore a balancing act between absorption and impact.In order to support more effective use of funds, the World Bank is working with authorities to strengthen their administrative capacity and the planning/programming capacity.In Romania, we are helping to strengthen institutional and human capacity in the agencies and local governments responsible for investment in the main regional infrastructure, as well as in public investment management at both central and regional levelsIn Bulgaria we are strengthening the planning and programming capacity of the road agency, which is one of the main beneficiaries of EU funds for regional and some TEN-T programs, complementing EIB support.In Croatia, we have provided technical assistance to enhance selected institutions readiness for entry into the EU, raising their awareness of the opportunities and challenges of efficiently utilizing EU funds. We have also been strengthening water institutions for many years. We are also providing, through a lending instrument, support to strengthen the government's capacity to monitor effective health sector policiesHaving described how we work and the main lessons, let me describe what we work on and turn to the issue of thematic concentration. What we have observed is, while growth-enhancing policies coupled with investments are important for job creation but their efficiency varies across European regions and depends on the phase of the business cycleOur experience shows that Sustained market orientated reforms pay off in terms of greater job creation and increased productivity (for example Poland and the Baltics), harnessing the potential of entrepreneurship – the so-called 'Gazelles' - is also very important to boosting job creation (for example innovation support in Poland).Much more emphasis on skills is needed as many workers, especially younger and older workers, are ill prepared to succeed in today's dynamic labor market because they lack the skills that employers needHigh labor taxes and the design of pensions and social benefits often discourage employment, and multiple barriers exclude many women, minorities, youth, and older workers from the labor marketWorkers often fail to move to places with stronger job creation potential within their own countries, making it difficult to connect them with jobs in more vibrant regions.Much greater attention is needed to all these areas, especially skills and mobility.Today, I wanted to give you a set of practical examples of what the World Bank has been doing in Central and Eastern Europe and what are the main lessons from our experience.Our essential observations are three: strengthening a country's macroeconomic fundamentals provides the basis for sustained engagement to increase growth and jobs and increase shared prosperity; it is extremely important to develop but more importantly implement a set of sustainable government strategies that link country circumstances and objectives to key reforms; and ex ante conditionalities related to enhancing capacity - tailored to country circumstances – are important for cohesion policy. In the case of this programming period countries have been slow to define their needs. This can hamper effective use of resources if not addressed quickly.Overall much greater attention needs to be paid to the issue of skills and mobility that was previously the case.Thank you for your attention. Show Less -
The Institutional Analysis of the Financial Supervisory Authority
Mr. President Negritoiu,Ladies and gentlemen,Welcome to the World Bank office for the World Bank – Financial Supervisory Authority signing of the Miscellaneous Advisory Services Agreement on an Instit... Show More + utional Analysis of the Authority's Functional Organization and Supervisory Approach. I would like also to thank the press for responding to our invitation to the ceremony.Under the new leadership, the Authority is undergoing a process of reorganization, integration and consolidation. This is in order to operate more effectively as a supervisory agency, and to modernize its approach and methods.Against this backdrop, the Authority requested the World Bank technical assistance for a high level institutional review and reform recommendations. The Bank is ready to help and bring best-in-class global expertise on institutional review, business architecture, and integrated non-banking supervision of the three markets covered by the Authority: securities, insurance, and private pensions.The Authority faces several challenges. Therefore, it needs a new institutional strategy and vision to guide its reform. This implies there is need for a significant change in corporate culture, and approach towards its core functions. To ensure that management and staff focus their thinking on regulation and supervision to meet the upcoming market need is particularly important. This is important both in terms of EU and international practices, as well as in terms of assuring that the Romanian financial markets develop unimpeded, but with appropriate safeguards.One of the most notable challenges is the harmonization of its regulatory and consistent supervisory approaches across the different sectors of the non-bank financial system.Besides this harmonization, the Authority also requires upgrade and modernization of its regulatory approach, and a reorientation of its supervisory methods from strictly compliance-oriented to risk-based supervisory tactics.Also, we should not forget the context: the European Union is currently going through a comprehensive institutional reform of the financial markets. Romania should be able not only to absorb changes initiated at Commission level but also to contribute to shaping the new regulatory environment and the Financial Services Authority is a key dialogue partner.Several of these reforms will be greatly facilitated via the modernization and updating of the Authority's IT capabilities and overall business architecture, which should also reduce the number of internal transactions, compliance checks, approvals, reviews and controls, that are currently used to conduct the daily business.Last but not least, it is of the utmost importance that the Authority has a continuous and collaborative dialogue with the supervised financial industries, recognizing that they can provide a valuable role in identifying market needs, risks, and ideas for both market development and effective supervision.The work will provide a short term assessment and recommendations toward the Authority's reorganizational needs. It will include a roadmap for implementing an institutional restructuring that will i.) generate organizational efficiencies, and ii.) emphasize on common areas of professional collaboration to result in a more functionally integrated institution of the former three supervisory authorities.We look forward to provide the Authority with the needed evidence-based solutions. We are looking forward to continue the very good collaboration we already started together. And I would like to emphasize that the reform efforts under the new presidency are extremely important for these three sectors of Romania's economy. Show Less -
Remarks by the Country Manager at the Review of Albania's Pharmaceutical Policy Workshop
Ladies and Gentlemen,Albania's health outcomes are relatively strong by regional standards (such as: life expectancy at birth which reached 77 years by 2011 (80 for women and 74 for men), favora... Show More + bly comparing with other countries in the region); though key performance indicators are mixed (for ex: according to the 2008 Demographic and Health Survey (DHS), infant and neo-natal mortality were 18 and 11 per 1,000 live births, respectively, both of which are slightly higher than comparable statistics for other countries in South-Eastern Europe). A critical issue is that financial protection of households against high out-of-pocket payments (OOP) is relatively weak, and quality of care remains a significant concern.In 2013, Albanian public spending on health amounted to 2.6 percent of GDP, the lowest among countries in the region. Out of pocket expenditures accounted for as much as 55 percent of total expenditures on health (the highest among countries in the region) of which 45% was spent on pharmaceuticals. Hence the role of pharmaceuticals is critical.The goals of pharmaceutical reform are the same as those of health sector reform: equity and access, quality, and efficiency. However, because of differences in financing and provision of services, certain problems such as inequity may be more severe within the pharmaceutical sector.The Albanian Ministry of Health is embarking on health sector reforms. The World Bank is working closely to prepare a program of support under an upcoming Health Reform Project, which is seeking to (i) improve efficiency and quality of hospital services delivery; (ii) augmenting Health Management Information System (HMIS); and (iii) improve the Health Financing System, including design and piloting of innovative pharmaceutical policies (i.e: restructuring the existing reimbursed drug list, generic promotion and prescription, and piloting expanded coverage of outpatient drug benefit package).In parallel, the Ministry on its own initiative is undertaking an ambitious reform of the pharmaceutical sector aiming to rationalize expenditure, improve reimbursement decision-making and increase access to medicines (some reform measures have already been implemented: wholesale and retail markups were decreased and VAT is no longer charged on medicines as of April 2014). The World Bank provided technical assistance for reviewing the Pharmaceutical Policy, bringing in the experience of other countries. Today's technical workshop has been organized to discuss the findings with you.While the benefits of spending on medicines are increasingly being understood, the key test is translating that understanding into policy action. Unmanaged spending runs the risk of contributing to fiscal problems for future generations, while too little spending runs the risk of Albania's population being less healthy and less productive as it ages. Spending on medicines provides social and economic benefits that need to be recognized in any discussion about future policy and spending decisions.A key public policy challenge is how to ensure that the well-being of Albanians and the Albanian economy is enhanced to the maximum extent possible from the technological advances being made with medicines while maintaining an appropriate level of fiscal control. New medicines offer both valuable new treatments as well as improvements on existing treatments that allow for more appropriate care in response to the needs of individual patients. This can reduce both the incidence of associated downstream treatment issues and the overall cost of care.Let me share three key issues in pharmaceuticals highlighted in the Review Paper:First, Price comparisons to other Western Balkan countries (Serbia, Macedonia, Croatia) reveal that Albania, particularly if its economic context is taken into consideration, has significant potential to reduce prices of medicines. Second, Supply-side constraints still remain a major obstacle to achieving substantial reductions on medicine prices, which undermines the access of large groups of populations on expensive medicines. Evidence shows that hospitals face continuous lack of medicines and procuring medicines for hospitals still remains a challenge.Third, Potential regulatory measures of both supply and demand side can be implemented in a short – medium time. The objective would be to reduce high rates of co-payments, generate savings and ensure value-for-money for public health expenditures on medicines, increase access for lifesaving medicines, control the growth of expenditures on medicines, guarantee rational prescribing on medicines. What could be some measures to move towards addressing these issues? A top priority is the development of a comprehensive framework, capturing key technical aspects of pricing and reimbursement policy including regulation for prescribing and dispensing. This would avoid wasting of scarce resources and allow the government to control the growth of pharmaceutical expenditures.The Paper provides recommendations on both supply and demand side and these will be presented today for discussion. If these are taken on board, their successful implementation would require i) a sound legal basis, ii) political will, iii) enforcement capacity, iv) management skills and v) systems to collect data for measuring both the baseline and impact of a given measure.The World Bank remains available to provide continued technical support as Albania moves to reform this important part of the health sector.Thank you. Show Less -
Q&A: Bosnia and Herzegovina Emergency Recovery Project
What is the objective of the Floods Emergency Recovery Project?The Floods Emergency Recovery Project is a key element of the World Bank Group's immediate response to the devastating floods that took p... Show More + lace in Bosnia and Herzegovina in May 2014. The Project objective is to meet critical needs and restore functionality of infrastructure essential for public services and economic recovery in affected areas in the aftermath of the worst flooding to hit the country in recorded history.The higher level objective to which the project seeks to contribute is to restore Bosnia and Herzegovina to a growth path following the floods. While the economic impact of the floods is yet to be fully assessed, short-term growth prospects are expected to be compromised. Nonetheless, international experience suggests the resumption of growth, albeit from a lower base, once reconstruction gets fully underway. This project will ensure that such reconstruction does get underway and set a basis for resumed economic growth.What will this project finance?The project will finance emergency disaster recovery goods, and the rehabilitation of key public service infrastructure such as transport, energy, and rural development.The Project consists of three components:The first component, $40 million for emergency disaster recovery goods, will finance the purchase of goods urgently needed during the recovery phase, including:Logistical goods, like water, land, and air transport equipment; spare parts; and communications equipment.Reconstruction goods, such as construction materials, construction equipment and industrial machinery (including trucks, dozers, excavators), and prefabricated houses.Emergency and medical supplies and equipment - food and water containers, chemicals and equipment for water purification and sanitation of land, buildings, and other structures, basic food commodities, cleaning and hygienic supplies, mud and water pumping equipment, equipment and furniture for emergency shelters and accommodations, moisture removal equipment, emergency vehicles and supplies, and waste management and disposal equipment.Goods relating to energy and power, like petroleum and fuel products, power purchases, power transmission and distribution equipment, mining equipment and pumps to remove water from mines, controls, monitoring and measurement equipment, emergency power generators, and other electrical equipment.Agricultural equipment and immovable productions systems such as greenhouses, milking parlors and auxiliary installations, sorting and packaging equipment, inputs such as seedlings for perennial crops, orchards, and wine yards, as well as seeds and fertilizer for reseeding of fields - but not pesticides. Concentrated animal forage and fodder stocks that were destroyed by floods will also be provided, as well as livestock.Any other good or commodity deemed essential for recovery, as agreed in advance by the Association.The second component, $57 million for the rehabilitation of key public infrastructure, will finance the rehabilitation or reconstruction of high priority, public service delivery infrastructure in the worst-affected areas. This component is designed under a framework approach in which activities will be identified in a demand-driven manner, based on the on-going Recovery Needs Assessment. The project will put particular emphasis on Rural Development, Energy, Transport, and Water and Sanitation activities, however, other public services (education, health) will be considered on a case-by-case basis.The third component, $3 million in support for project implementatio and capacity building, will finance the management of the Project and any support needed for the identification and implementation of sub-activities. The component will also provide technical assistance and capacity building to help ensure future improved disaster resilience.Who will implement the Project?Given the importance of delivering quick results, implementation will be based on existing structures, mechanisms, and capacities built up through on-going World Bank projects (agriculture/rural development, irrigation development, flood protection, and forestry) within the line ministries for agriculture, forestry, and water management. The project activities will, therefore, be implemented by existing Project Implementation Units (PIUs) in each entity, with the RS Unit also responsible for the Brčko District part of the project. The PIUs will work in close coordination with other line Ministries, under the overall guidance of a Steering Committee*. The project will be implemented over the period of four years.How will investments be prioritized?The project will establish the eligibility criteria for allocation of resources to the most affected areas. The Project's Operations Manual will outline the detailed eligibility criteria based on the findings from the Recovery Needs Assessment. The multi-sectoral Steering Committee will review proposals from local governments and ensure that the proposed subprojects are also in line with the priorities outlined in the Recovery Needs Assessment and availability of funding from other sources. Ministries of finance are expected to play a key role in guiding the operations of the Steering Committees, and have a final say on allocation of resources between the sectors.Furthermore, most local governments have community consultation mechanisms developed to prioritize capital investments. These mechanisms are expected to be utilized in identifying subprojects to be financed under this project.How will proper use of funds be ensured?All World Bank projects are implemented under strict fiduciary and safeguard policies, assuring that the funds provided by the Bank are used only for the intended purpose.What are the financing terms, and how will the funds be allocated?The total cost of the project is US$100 million, to be financed entirely through an IDA Credit from the Crisis Response Window. The following terms will apply: maturity of 25 years, a grace period of 5 years, a 1.25 interest charge, and with principal repayable at 3.3 percent per annum for years 6-15 and 6.7 percent per annum for years 16-25.The funds will be allocated equally between the two entities at 47.5 percent, and 5 percent for the Brčko District.What is an International Development Association (IDA) – Crisis Response Window?One of the priorities outlined as special themes within IDA16, is strengthening the capacity of IDA countries to deal with exogenous natural or economic shocks. To address the impact of such crises in a timely, structured, and transparent way, and provide additional financing to respond to the crisis, a separate Crisis Response Window (CRW) has been created within IDA16. The primary objective of a CRW is to provide IDA countries with additional resources that will help countries respond to severe economic crises and major natural disasters, and return to their long-term development paths.In case of natural disasters, the CRW would target events that are exceptionally severe. Financing from the CRW shall be part of a concerted international response, and it shall only be accessed as a last resort. Therefore, while all IDA countries could potentially be eligible for CRW support, actual access to CRW resources would be linked to country-specific circumstances (e.g. magnitude of crisis impact, access to alternative financing sources, etc.). The final decision on CRW financing should be made by the World Bank's Board of Executive Directors based on evidence of the severity of crises and absence of alternative support mechanisms.*Note: Both entities and Brčko District are in the process of setting up coordination mechanisms for the floods recovery response. Assuming that those mechanisms are put in place in a timely manner, they could serve as the steering committees for this project. If not, an ad-hoc project steering committee will be put in place in each. Show Less -
Q&A with Saroj Kumar Jha, Regional Director for Central Asia, on the World Bank's agriculture sector policy in Uzbekistan in the context of child and forced labor concerns
Saroj Kumar Jha, World Bank Regional Director for Central Asia, explains the World Bank's overall agriculture sector policy in Uzbekistan, the Bank's position on child and forced labor, and measures t... Show More + hat the Bank undertakes to prevent and eliminate child and forced labor in the projects that it supports.Q. What is the World Bank's position on child and forced labor in Uzbekistan?Saroj Kumar Jha: The World Bank does not condone forced labor in any form and takes seriously the reports of such practices in the cotton production system of Uzbekistan. We believe that the most effective way to address the issue in Uzbekistan is to use a holistic approach through continuous country dialogue and collaboration with international agencies and donors, sector analytic work and policy dialogue, and specific project-level interventions.Q. What is the World Bank's overall agriculture sector policy in Uzbekistan?Saroj Kumar Jha: The Bank has been consistently advocating and supporting the diversification of agricultural production in Uzbekistan towards higher-value added activities, such as fruit, vegetables, dairy, etc., and away from cotton production. This is done through analytical and advisory services as well as projects. Diversification is an important part of our Country Partnership Strategy with Uzbekistan. The goals of the Bank-financed agriculture sector projects are aligned with the strategy objectives of assisting the country to diversify agriculture to high value crops, intensify agricultural yields and productivity, increase the efficiency of infrastructure, and enhance the economy's competitiveness. As a result of this engagement, among others, the area under cotton production has declined steadily over the past 15 years. Q. How does the Bank work with other donors and development partners to address the issue of forced and child labor?Saroj Kumar Jha: The World Bank is collaborating with the UN, ILO, and other development partners in an active dialogue with the Uzbekistan Government on the child and forced labor concerns. As a result of the joint donor dialogue with the government and continuous pressure from international community, the ILO was allowed to monitor cotton harvesting in 2013. As part of our on-going dialogue with ILO on child and forced labor issues we consulted with them on the design of the Terms of Reference for the Third Party Monitoring and Feedback Mechanism, which will be implemented in several Bank operations in Uzbekistan. Together with the ADB, we are also working with the authorities to mechanize the cotton harvest and help the government achieve its goal of 100% mechanization by 2016.We were happy to see on May 27, 2014 that the Cabinet of Ministers of Uzbekistan approved the decree#132 on measures to strengthen adherence to ILO conventions, and cooperating with ILO, WB and ADB on various measures. The Bank is also maintaining an active dialogue with several international CSOs, such as Human Rights Watch, Open Society Foundation, BIC, Cotton Campaign, and others, as well as some local CSOs in Uzbekistan. Q. What specific project interventions can prevent use of forced and child labor in World Bank-funded projects?Saroj Kumar Jha: Overall, all standard World Bank bidding documents contain a prohibition of using child/forced labor in contracts financed under any World Bank projects. In addition, all projects that could potentially relate to cotton production in Uzbekistan include measures to prevent and fully eliminate the occurrence of child and/or forced labor in the project areas. These include, for example, requirements that the government complies with national legislation that prohibit the use of child and/or forced labor; implementation of a Third Party Monitoring and Feedback Mechanism that focuses on child and/or forced labor issues in connection with the project activities or within the project area; a requirement that local authorities fully collaborate with the Third Party Monitoring and that actions to ensure compliance will be taken promptly; a clear land use strategy that eliminates incentives for using child and/or forced labor in the entire project area; training, awareness raising and outreach activities on labor legislation and the regulations on child and/or forced labor. Such measures are also reflected in binding project covenants in the Financing Agreements.Q. What are the proposed Third Party Monitoring and Feedback Mechanism and how will they work in Uzbekistan?Saroj Kumar Jha: The World Bank Group is committed to ensuring that its projects are not doing any harm, and that in Uzbekistan in particular the projects are not contributing in any way to the use of forced and/or child labor. To ensure regular monitoring of any issues related to the potential use of forced/child labor in the project areas, the World Bank has agreed with the Government of Uzbekistan to implement Third Party Monitoring (TPM) and Feedback Mechanism (FBM) within the project portfolio. We have also worked closely with the ILO and consulted with them on the Terms of Reference for TPM and FBM.The following projects will initially be covered by TPM and FBM in Uzbekistan: Second Rural Enterprise Support Project and its Additional Financing, GEF project on Sustainable Agriculture and Climate Change Mitigation, Horticulture Development Project, South Karakalpakstan Water Resource Management Improvement Project, and Improving Pre-primary and General Secondary Education Project.A variety of tools will be employed to ensure meaningful and comprehensive monitoring and feedback collection, such as periodic site visits, surveys/questionnaires, focus group discussions, ICT-enabled approaches, etc.Q. How can the Bank ensure that Third Party Monitoring and Feedback Mechanism are independent and inclusive?Saroj Kumar Jha: The agencies working on TPM and FBM in Uzbekistan will be contracted based on internationally-accepted criteria for implementing best practice third party monitoring and feedback mechanisms.To ensure full independence, they will conduct periodic unannounced site visits to the agricultural fields during the harvest season. The sites will be selected based on certain criteria to ensure that they are representative of each projects and its beneficiaries and cover all project areas. To complement feedback from the beneficiaries, the agencies will also engage with credible local stakeholders who are knowledgeable about any potential forced labor matters (i.e. local authorities, civil society organizations, journalists, academia, others) to solicit their views and opinions regarding any evidence on the use of forced labor that might be associated with the projects.To ensure that project beneficiaries and local population at large understand TPM and FBM and use these tools effectively, there will be special learning modules developed and awareness raising campaigns implemented. Show Less -
Opening Remarks at the Conference on Corporate Governance Practices in State Owned Enterprises
Distinguished representatives of public agencies and organizations, esteemed participants, I would like to welcome you to this conference, organized jointly with the World Bank, and I greet all o... Show More + f you with respect.As the Undersecretariat of Treasury we spare no effort in raising awareness of SOEs about corporate governance principles and about extending the implementation of these principles.We have organized this conference within the framework of that perspective.The national and international experts and executives who have come from around the different parts of the world within the scope of this conference will tell us about different aspects of state owned enterprises during four sessions and will present us with a comprehensive perspective.With these opening remarks, I would like to touch upon the place of SOEs within our economy, the importance of corporate governance in SOEs, and what we have done in this field to date.Esteemed Guests, the leading status of SOEs in the Turkish economy has remained constant for several years - especially in capital-intensive sectors. In the mid-1980's, within the scope of Decree Law 233, there were 48 enterprises. The ratio of gross sales revenue of these SOEs to overall GDP was over 20 per cent. As a result of privatization, there are currently 18 SOEs and 3 affiliated partnerships within the scope of the Decree Law and there are 6 actively operating enterprises with a more than 50 per cent public share within the privatization portfolio. According to 2012 data, the gross sales revenue of SOEs and enterprises in privatization portfolio has been 120 billion TL and the ratio to GNP is 8.5 per cent. It is targeted that SOEs and enterprises in privatization portfolio should realize an investment total of 9.5 billion TL in the year 2014. Such data illustrate that, despite the privatization strategy, SOEs still have a significant impact on the economy of our country.One of our basic priorities is to have the existing SOEs operate in line with the principles of efficiency and productivity without causing a burden to the public.One of the most important conditions to make this happen is to have these enterprises operate in accordance with the principles of corporate governance.It is obvious that the SOEs will only be able to adapt to the increasing local and global scale of competitiveness by transforming basic principles of transparency, accountability, and responsibility into their corporate culture and by internalizing corporate governance principles. Esteemed Guests, as you know, the concept of corporate governance has been on the agenda primarily within the framework of problems that multi-party companies experience. In unlisted companies the concept of corporate governance is relatively new. OECD Guidelines on Corporate Governance were prepared in 2005 and disclosed to public - this is the first concrete study conducted in this field. These Guidelines, in sum, the importance of ensuring an efficient legal and regulatory framework for public enterprises, the State acting as a knowledgeable and active enterprise owner, professionalization of Boards of Directors of SOEs, and improving transparency were underlined. At this point I would like to mention that corporate governance principles are not static, solid principles written in stone. These principles can differ according to economic circumstances of the countries, development levels and legal systems. When management approaches and understandings change, such principles can be re-arranged in parallel with thesechanging conditions and needs. Accordingly, the OECD has been involved in revising the 2005 Guidelines on Corporate Governance in 2014 by taking into account the latest developments in the world in order to meet current requirements. We support the participatory approach adopted by the OECD in this respect and we are actively involved in these efforts.In this scope, in 2013 we hosted the Fifth Regional Roundtable of Task Force on Corporate Governance of SOEs in the Middle East and North Africa. We are highly pleased to contribute to the efforts undertaken at this international platform.As Undersecretariat of Treasury, we closely follow developments in the field of corporate governance practices in state owned enterprises and we spend maximum effort in reflecting these practices into our internal arrangements. In this scope I would like to share some of the steps taken in recent years.In 2013, in accordance with the Turkish Commercial Code and provisions of relevant legislation with the purpose of establishing a transparent management and audit systems, we initiated efforts to establish an efficient internal control system in SOEs. We made it mandatory for SOEs and affiliated partnerships to establish an internal control system compatible with international standards. SOEs are required to prepare relevant action plans by the end of June this year and they will complete the effort to establish an internal control system by the end of June 2016. In this scope we held informative meetings for SOEs and completed training activities.We organized a training program on international financial reporting standards for the personnel of Court of Accounts, SOEs, and Undersecretariat of Treasury in collaboration with the World Bank. Through this action, we contributed to the preparedness of SOEs and regulatory and auditory agencies of SOEs for the independent audit practice to be initiated in the year 2015.We have undertaken a pilot study in two selected SOEs, together with the World Bank. Through this project we aim to ensure the successful fulfillment of the liabilities attributed to enterprises by legislation in the field of internal control and independent audit.By taking into account the international best practices, the Undersecretariat of Treasury's Shareholder Policy Document will be presented to the relevant institutions and organizations for review and is expected to be shared with the public in 2015. The aim of the Treasury's shareholding, the role of the State in corporate governance, and the implementation of ownership policies, will be clarified by this document. In this way, we will be able to fulfill one of the issues recommended by the corporate governance principles of the OECD.I would like to mention that we will continue our efforts on placing SOEs within a framework that is compatible with international corporate governance principles. I believe the support provided by you as distinguished stakeholders of the SOE system - especially the Ministry of Development, Ministry of Finance, Presidency of Privatization Administration and line ministries - will continue as well. I would like to emphasize the importance of the valuable contributions made by you, the distinguished managers and executives of SOEs.Distinguished participants, Decree Law 233, which is the basic legal framework on Public Owned Enterprises in Turkey, is a regulation dating back to 1984.It became obvious that the point was reached wherein the radical structural changes and the transformation process of the Turkish economy necessitates a redesign of the legal structure pertaining to public owned enterprises.A legislative regulation to respond to the current needs and possible future requirements - one that is compatible with international good practices covering not only the SOEs but other public owned enterprises - is now an urgent and significant need that has to be met. As mentioned earlier, partial steps have been taken in this respect. But we need to consider these efforts under a more integrated approach and finalize these immediately.I would like to underline that progress can only be attained in this field with the participatory, flexible, and self-sacrificing attitude of the parties involved.I hope this conference will enlighten the steps that need to be taken in this direction and will be a tool for conducting a comprehensive evaluation of our existing practices within the framework of international best practices and what has to be done in this respect in the near future.In conclusion, I would like to thank the World Bank for the contributions provided to our efforts in the field of corporate governance practices in SOEs and would like to express my pleasure in being involved in close cooperation with the World Bank on such issues. I would like to thank my colleagues and the World Bank staff - who have worked hard to bring this conference into being - as well as the distinguished speakers - who will share their valuable experiences in this field - and you the distinguished participants. I would like to greet all of you with respect. Show Less -
Elisabetta Capannelli's Speech on the Insolvency and Creditor/Debtor Rights Assessment for Romania
Good morningMinister Cazanciuc,Chairman Ciuca,President Bordea,Ladies and Gentlemen,I am happy to be here today and participate in the presentation of the Insolvency and Creditor/Debtor Rights assessm... Show More + ent for Romania. This study was prepared by the World Bank (WB) as part of a wider framework of Reports on the Observance of Standards and Codes.This event illustrates well the multiple roles of the World Bank and the impact the Bank's work can have on our client countries institutional improvement.The Standards and Codes Initiative was launched 15 years ago as a joint effort by the International Monetary Fund (IMF) and the World Bank. It aimed at strengthening the international financial architecture and promoting greater financial stability at both domestic and international levels through development, dissemination, adoption and implementation of international standards and codes. It focused on areas such as transparency, financial sector regulation and supervision, and market integrity. Over the last fifteen years hundreds of standards assessment reports have been prepared and made public by the IMF and WB. For Romania, such prior reports covered Accounting and Auditing, Corporate Governance, Data Dissemination, Fiscal Transparency and Banking Supervision.Some of these reports were prepared in the early 2000s and require update but they fulfilled a very important role at the time of their completion. As they provide a benchmark for assessing national rules and practices, and allow identify vulnerabilities, and guide policy reforms. For example, the Accounting and Auditing report supported Romanian authorities and professional bodies in modernizing domestic accounting practice, while the Banking Supervision report helped the National Bank of Romania improve the regulatory framework.These reports also contribute to enhanced transparency and multilateral surveillance at the international level. They help better identify weaknesses that may contribute to economic and financial vulnerability and foster market efficiency and discipline.The Insolvency and Creditor/Debtor Rights Regime assessment in Romania, which is being presented today, was initiated as a technical assistance financed by the World Bank for the Ministry of Justice. We compared the insolvency and creditor debtor regimes in Romania with international best practices and complemented an assessment of the internal legislation on insolvency performed by the Insolvency Code consortium.Both reviews were prerequisites for a sound reform of the insolvency legislation.The International Monetary Fund also acknowledged the need for reform in the Insolvency regime in the Letter of Intent agreed with the Romanian Government.I must say that the assessment proved to be especially timely.The economic and financial crisis that affected Romania in 2009 raised the proportion of non-performing loans in Banks' portfolio to critical levels and hence increased the number of insolvencies, requiring the country to provide a new, urgent response to the issue of insolvency.As a result, the Ministry of Justice also initiated in 2013 a new insolvency law that was demanded for some time by many of the stakeholders present in the Romanian market. The World Bank specialists' team had the opportunity to comment on the draft legislation and I was happy to see that is Insolvency and Creditors Rights Report and our comments on the draft law, added substance to the professional debate in the Parliament commissions where the new legislation was examined.Clearly, the impact of the recommendations on the Observance of Standards and Codes can take many years to be fully felt.In Romania's case, most of our expert's team recommendations have been taken on board by the Authorities and we expect to see soon the effects of an improved legal and regulatory framework for enterprise credit.In particular, the financial sector would be strengthened by the implementation of reforms to the insolvency, pre-insolvency and risk management frameworks, and this could help tackle the high level of non-performing loans.But a better regulatory framework is only the first step towards an effective insolvency process and much depends on the implementation and constant modernization of the institutional setup, based on feed-back from the practice.The effectiveness of the insolvency process also depends on other institutions which, in order to be effective, need to reform and enhance their mutual collaboration.In particular, the land registry needs important improvements, the auction process for claims enforcement is unnecessarily lengthy, courts are often over-burdened and need more training, especially on basic accounting, finance and economics. The World Bank is already involved in some other major reform projects, such as that of the cadaster system. This could have a positive impact on the insolvency process.The event today is a first step for the dissemination and training of some of the main stakeholders, but certainly much remains to be done.In conclusion, I would like to thank the organizers: the Ministry of Justice – Mr. Minister and his technical team led by Mr. Judge Motiu, and the Judicial Commission of the Chamber of Deputies, Mr. President Ciuca.I would also like to extend my gratitude to all stakeholders that have provided comments to the report thus ensuring a balanced assessment. Allow me to quote a few, the Romanian Banking Association, The Superior Council of Magistracy, the National Bank of Romania, the Ministry of Public Finance, the Cadaster Agency and of course the business environment representatives. The Report on Standards and Codes and the next steps recommended in the action plan of the report, create the conditions for continuing the comprehensive reform in the legal framework, aimed at providing Romania with a friendly business environment, adapted to the EU single market. I invite you to carefully review and discuss today the recommendations, with a particular focus on implementation. Show Less -
Energy Mineral Operations: Sustainability and FDI
Lignite - FDI and Sustainable DevelopmentNatural resource wealth—it can be a blessing, or it can become a curse.As economic history has shown, too many resource-rich countries have, unfortunately, end... Show More + ed up accursed, with the populations suffering—rather than benefiting—from abundant oil and mineral deposits stored under the surface of their territory.Rather than destiny, the path that a country takes is political choice that can be influenced by multiple stakeholders in government and parliament, in industry and the population at large.In Kosovo, the abundance of non-renewable natural resources is a reality—one that represents a key ingredient of, and significant risk to, Kosovo's socio-economic development potential.Kosovo is very rich in mineral deposits.The 10.9 billion tons of proven, exploitable lignite reserves alone represent—at current consumption levels—more than 1,300 years of secure supply.In addition, the country has abundant deposits of ferronickel, lead, zinc, magnetite, and other ores that—if developed—could make a major contribution to employment and exports.For the most part, however, Kosovo's potential has been largely left untapped.And this has not remained unnoticed.Kosovo's unexploited resource abundance has raised commercial interests by quite a few potential investors, which have been approaching the Government with unsolicited proposals of natural resource-based investments that—on paper—promise large-scale investments with considerable benefits to citizens and the Government.With a view on ensuring social welfare in a sustainable manner, which—in the case of extractives—tends spans over decades, if not centuries, it must be a government's role to weigh carefully the potential benefits and risks of any investment, especially in the extractives, and even more so, if it concerns unsolicited proposals.In any country, including Kosovo, a responsible minister—in the absence of a national consensus on, and a political commitment to, an overarching development strategy for the natural resources—would be overtaxed in making a rational decision on an investment plan and, especially, among competing investors' proposals, typically involving some type of government co-contribution in terms of fiscal incentives and/or the taking over of known and/or unknown, current and/or future environmental liabilities.How can one weigh the benefits and risks of a given investment proposal—and that relative to others—if overarching socio-economic development objectives are not well defined; how can one manage corresponding risks and social impacts?Partly for this reason, the incoming Parliament and Government will have an opportunity to outline, over a medium- to long-term horizon, a strategy with accompanying policies that places related objectives into the context of the externalities that the country is willing to accept in return—thereby responding to the question of how Kosovo should benefit from its abundant reserves of lignite and other minerals?Of the various demands on Kosovo's lignite reserves, the only ones that, currently, are contained in a Government strategy are those related to the generation of electricity from Kosovo A (up until its decommissioning), Kosovo B, and the New Kosovo Power Plant (once it replaces the 50-year-old Kosovo A power plant).From the perspective of the Government, managing the various demands on Kosovo's natural resources has become considerably more difficult after the mining law has been amended last year, waiving competitive tender procedures not only to "ensure energy security" but also to allow for "considerable direct investments."At the World Bank, we believed that the earlier, more restrictive provisions, which were in line with international practice, had provided the Government with sufficient flexibility to react to potential crisis situations, whereas the revised stipulations have broadened the scope of potential sole-sourcing beyond the needs of reacting to a crisis situation.Facilitating the permission of non-competitive private-sector investments in the extraction of energy minerals, whether for coal-fired power plants or for other purposes, willreduce the transparency in the management of natural-resource extraction and revenues;presuppose the ability to ensure due process in awarding concessions and licenses for extractive industry activities;impact the functioning of the underlying price discovery mechanism (i.e., the need to establish that concessions were given at "fair" price), thereby risking the public's perception of corruption that has motivated investment interests and/or the awards of concessions; andaffect the public perception of the reasonableness of the balance between the economic interests of, and the revenues earned by, private investors and the social and environmental costs borne by the government and the public at large.Unsolicited proposals and non-competitive tendering procedures for power generation projects are even more delicate, not least because they affect a regulated market.In such instances, Government will need to provide the justification and establish reasonableness of (i) any subsequent tariff increases; and/or (ii) the contingent liabilities that the government may accept for facilitating such investments.Against this backdrop, there are two principal approaches to ensuring policymakers' abilities to make a rational decision in favor or against a given investment proposal.First, re-requiring competitive bidding processes to all investments except those prevent an energy crisis provides the public, investors, and policy-makers with assurances of an ultimately prudent, rational, and even-handed approach to the exploitation of Kosovo's natural resources, balancing all stakeholders' interests.Second, if that route is not chosen, the country can fill the currently existing ambiguity with a broadly shared vision—ideally a broad consensus—for the development of, and the benefits from, its natural resource wealth.To increase overall transparency and increase the likelihood that the population at large will benefit from corresponding investments, Kosovo could follow the examples of Albania and the United States in agreeing to develop its own extractive industries within the standards defined by the Extractive Industries Transparency Initiative (EITI), a global coalition of governments, companies and civil society working together to improve openness and accountable management of revenues from natural resources.The guiding principle of EITI membership—strengthening transparency to enshrine governmental and corporate accountability—is the understanding that natural resources, such as oil, gas, metals, and minerals, belong to a country's citizens, seeking to ensure—by avoiding the socio-environmental pitfalls present in this sector—that the extraction of these resources leads to economic growth and social development.In such an environment, proposed private sector-financed investments would either be consistent with such a development framework or they would not.If Kosovo succeeds in taking advantage of its natural resource wealth, in a careful, sustainable manner, with a view to balancing social welfare with, in particular, environmental costs, its natural resource wealth has every potential to be a blessing for the country and its citizens.It is just important not to forget that, for a considerable number of countries, this very wealth has led to what has been termed the "resource curse", referring to a phenomenon, in which countries with an abundance of natural resources of non-renewable resources (minerals and fuels) end up having less economic growth and worse development outcomes compared to countries with fewer natural resources.Nobody would benefit from the latter outcome. 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Vienna Western Balkans Conference 2014
One of the key challenges in both countries is the flooding of mines that supply coal to their main power plants. In Serbia, flooded mines supply the coal needed for about one third of the country's p... Show More + ower generation, and one of these mines is currently under 60 meters of water. It could take nine months to pump and repair this mine, making the import of fuel or electricity a priority. While the short-run impact of the floods is clearly negative, flood recovery and reconstruction can be expected to boost growth later in 2014 and into 2015. Accelerated and sustained growth in the Western Balkans is critical. Citizens of these countries aspire to living standards on par with those of the European Union, and this is natural. The EU is the largest economic bloc in the world - larger than the economies of the US or China - and economic integration with Europe for these countries is key to their prosperity. This is true regardless of the timing of their formal membership in the European Union. Governments in the Western Balkans aim to accelerate growth to raise people's incomes closer to EU levels, that is - to achieve income convergence with the EU. In the decade before the global financial crisis, they made fantastic progress toward income convergence.Their economies grew faster than those of EU countries, narrowing the income gap. But, this process of income convergence has ground to a halt since the global financial crisis, leaving per capita incomes in the Western Balkans at only 30 percent of EU levels. The Western Balkan countries experienced a double dip recession between 2008 and 2012, with only a modest recovery of about 2 percent in 2013. Reaching EU income levels will require decades of strong growth (an estimated 6 percent per annum to reach convergence by 2040). Reaching these kind of growth rates will require truly deep and sustained economic reforms. Besides the income gap with the EU, these countries face social challenges. About one-third of households in the Western Balkans live in moderate or extreme poverty - with an average of 9 percent living in extreme poverty. These rates are more than double those of the new EU member states, and we have evidence of increasing poverty in all countries since the crisis. On average, about one in four economically-active individuals is unemployed. And only about half of the working age population participates in the labor force. This is an extremely low level by European and global standards. Persistently high unemployment rates, chronic unemployment and inactivity disproportionately affect youth, low-skilled workers and vulnerable groups. The countries of the Western Balkans have the highest youth unemployment rates in the world. This is a serious concern, as it creates the risk of a lost generation of workers. If this generation can't be integrated into the labor force - despite its higher educational attainment and "new economy" skills - these countries could lose the opportunity to benefit from their most productive generation to date. In designing their economic reforms, authorities in Western Balkan countries will need to look beyond current economic challenges and take into account their national demographic trends. In all countries except Kosovo, populations are shrinking and aging. Western Balkan countries rank among the highest in the world for exporting people. One quarter of the people from Southeast Europe lives outside their home countries - compared to three percent in the rest of the world. Emigration and an aging population complicate the aspirations for both rapid economic growth and fiscally sustainable social protection systems - including pensions. Within this context, the World Bank has pursued a dialogue with the countries of the Western Balkans on economic reforms focused on four priorities:First, restoring macroeconomic and fiscal stability;Second, improving competitiveness and connectivity;Third, enhancing skills and labor productivity especially for youth, andFourth, strengthening governance and reducing corruption. Let me briefly touch on each of these areas.There are no quick fixes to restore macroeconomic and fiscal stability in the Western Balkans. Acute fiscal constraints won't allow for an additional stimulus response. Especially Albania, Montenegro, and Serbia find themselves with high levels of public debt - over 60 percent of GDP - and in vulnerable budgetary positions. Finance ministers in the region are in an unenviable position, as fiscal consolidation efforts will have to take place against considerable social pressures on public salaries, pensions, and social assistance. And, these countries can't afford to sacrifice the priority public investments they need for growth and convergence. Strengthening macroeconomic stability and fiscal sustainability will require decisive consolidation efforts. Careful prioritization of government spending and improved targeting of social assistance will be needed to make sure that scarce resources support economic growth and employment, and protect the most vulnerable members of society. This is going to be a tough path to follow, but some are courageously taking it on. I have been impressed by the efforts of the Albanian Government to tackle medium-term fiscal consolidation, reduce public sector arrears, introduce important financial management reforms, and address the deep underlying problems in the public utilities. The second priority for economic reform is to improve competitiveness and connectivity. The countries of the Western Balkans would be well served by a long-term growth model anchored in domestic productivity gains and export-led growth. In all six countries, low rates of employment reflect their narrow production base and high external deficits. Goods and services made in the Western Balkans are often not competitive, even on domestic markets. Firms tend to be constrained by deficiencies in public infrastructure, institutions, and the implementation of laws. Enhancing competitiveness will require a range of reforms. These include things like strengthening the financial sector and dealing with high levels of non-performing loans to restore credit growth to the private sector. They also include the restructuring of state-owned enterprises, increasing labor market flexibility - while protecting workers' safety and rights - and improving the investment climate. Key investments in energy and transport infrastructure will also be needed to get the benefits of integration with European markets. Some countries in the region have pursued investment climate reform with vigor, hoping to unleash the potential of their private sector. Macedonia has been one of the top reformers in removing administrative barriers to businesses. Last year it ranked in the top 25 countries worldwide - ahead of many EU member states - on the World Bank's Ease of Doing Business Index. Private investment has increased since the reforms, and we are starting to see net gains in skilled employment. The third reform priority for economic recovery in the Western is enhancing skills and labor productivity. Prolonged unemployment of youth can delay or prevent the accumulation of on-the-job skills and permanently reduce their future employment prospects and earnings. This translates into a risk that today's unemployed youth will become less productive later in life, which in turn can be expected to have a negative impact on economic growth. Enhancing skills and labor productivityare key steps. Kosovo, where youth unemployment is the highest, has made significant progress in broadening access to education and putting in place systems to improve learning outcomes.The final priority for economic reforms focuses on strengthening governance and reducing corruption across sectors and institutions. The Western Balkans continues to lag significantly behind EU member states on all major indictors of governance. Relevant reforms include measures to strengthen the independence and quality of regulatory and oversight bodies, and streamlining regulations and administrative processes to reduce opportunities for rent-seeking behavior. Effective governance will also require public procurement systems that foster competition, financial management practices that are transparent and subject to regular audits, a meritocratic civil service, and transparency and accountability at every level of government. Specific governance reforms can lead to large gains. Serbia's recent reform of its pharmaceutical procurement, for example, has saved 25 million Euros - or 27 percent of its annual budget for purchasing medications. These four priorities for economic reform may seem daunting but, without them, convergence with the EU is likely to remain elusive. Unfortunately, the financial crisis proved to be a missed opportunity for the Western Balkans, as reforms in the immediate aftermath were weak. Now that economic recovery is underway, it is a good time to re-launch and intensify the actions needed to put the economies of the Balkans on a path to sustained growth and convergence with the EU. The recent devastation of the floods only increases the urgency of actions to stimulate growth and employment in Serbia and Bosnia and Herzegovina. Coordinated international action to support rapid recovery and reconstruction from the floods is necessary. At the World Bank, we are working closely with the European Union and the United Nations to conduct comprehensive Damage and Loss Assessments in both countries. Teams in critical sectors like power and transport are already on the ground. We have invoked emergency procedures that allow rapid reallocation of undisbursed funds from our portfolios totaling around 640 million Euros across the two countries. These procedures also allow us to retroactively finance critical expenditures made today by Governments as they shift from relief to recovery. We are also preparing an emergency recovery operation for Bosnia and Herzegovina of around 70 million Euros from our soft-lending Crisis Response Window. This operation would finance critical goods (like fuel or electricity imports) and reconstruction of local infrastructure. Finally, we just approved in May the Drina River Flood Protection Project in Bosnia and Herzegovina, and hope to scale up our support for longer-term flood protection and disaster risk management in the Western Balkans. This immediate response is designed to mitigate the negative impact of the floods on social welfare, and put flood-affected countries back on a reform path aimed at faster growth and greater job creation. This is the path that will allow the Western Balkans to achieve their aspirations of European integration and improve the lives of their citizens. Show Less -
Harnessing SME potential in Europe and Central Asia: the contribution of the World Bank Group
Honored Ministers, government officials, and representatives of the European Commission, Distinguished participants! I would like to warmly welcome you to the annual ministerial conference of the Cent... Show More + re for Financial Reporting Reform.I am very pleased to be in Vienna, which is now hosting several units and programs of the World Bank Group – the Centre for Financial Reporting Reform - CFRR, the Centre for Financial Sector advisory Services - FinSAC, the Danube Water program, the Country Unit for Southeast Europe, the Investment Climate Department, and the Urban Partnership Program.I would like thank the European Commission and the governments of Austria, Luxembourg, and Switzerland for their generous financial support for the CFRR programs. Thanks to the support of our partners, many of your countries have benefited from the Road to Europe Program of Accounting Reform and Institutional Strengthening or REPARIS, which works with the countries of the Western Balkans. We have also been able to we have been able to expand the technical assistance provided by the CFRR to the Eastern Partnership countries through the Strengthening Auditing and Reporting in the Countries of the Eastern Partnership program.The REPARIS and STAREP programs are an important part of the World Bank Group's support for the efforts of the Balkan countries and Eastern Partnership countries to help improve their competitiveness, accelerate growth, and create more jobs. Since the 2009 crisis, the economies of Eastern Partnership countries and the Balkans have seen a slow recovery which has created few jobs. Unemployment remains high in the region, especially in the Balkans where it averages 26% on average, and where youth unemployment rates are the highest in the world. The strategy that guides our work in the region therefore strongly focuses on policies and investments aimed at creating jobs. Our analytical work shows that employment is the most important factor that helps households rise out of poverty and improve their lives.The World Bank's Europe and Central Asia region has recently published a report called Back to Work, which looks at the drivers of job creation in the region before and after the crisis. The report finds that a small number of young, innovative firms create most of the new jobs. These firms tend to be SMEs or firms that start as SMEs and grow quickly. Such firms are active in different sectors of the economy, from ICT to more traditional sectors such as manufacturing and construction.These dynamic firms are more likely to emerge and thrive in economies that have a supportive business environment. For example, advanced reformers such as Poland and Turkey have done much better in terms of firm and job creation than slower or late reformers. The evidence shows that transparent, efficient, and consistently enforced regulations are particularly important to the success of new firms and SMEs - given that startups and SMEs are more affected than larger firms by onerous regulations and administrative barriers. Fair competition, access to high-quality infrastructure, and an efficient judicial system are also key factors associated with the emergence and growth of SMEs. The countries of Europe and Central Asia have done well overall in improving their business environment. In the past two years, almost three quarters of ECA economies introduced regulatory reforms in at least one area measured by the World Bank Group's Doing Business report. Still, ECA economies have much scope for further improvement. The average ranking for these countries in the ease of doing business indicator is 68th - out of 189 economies. This is better than other developing regions, but worse than OECD economies where the average ranking is 28. Our research has found that countries with a better business environment also have higher rates of entrepreneurship. This means that people who have the idea to start a new business are more likely to actually set one up and to succeed in countries where the costs of doing business, including starting and closing a business, are low. In the countries of emerging Europe, these costs are still higher than in advanced economies. As a result, many people who would like to start a business are discouraged by the high costs and regulatory barriers.These factors are why support for reforms aimed at improving the business environment will continue to be a key element of the Bank Group's programs in ECA countries. At the same time, our programs will also support other critical elements needed for a competitive economy such as energy and transport infrastructure, and reforms that aim to improve the skills and flexibility of the labor force.I would now like to turn to the role of the financial sector, which we believe is also essential for SMEs and the broader economy to flourish. Unfortunately, the financial sector in emerging European economies has still not fully recovered from the crisis. Since the onset of the crisis in mid-2008, ECA economies have lost almost $300 billion in external financing, equal to 6.6% of GDP. This is due primarily to the withdrawal of mostly West European banks. The outflow continues today, but it is at a slower pace than before. In the Balkans, banking systems are still fragile. NPLs are the highest in the world: 24% in Albania, and 20% in Romania and Serbia. Banks' efforts to mend their balance sheets have made them wary of lending to the private sector and SMEs in particular. Credit growth to the private sector remains negative in the Balkans and very low in Eastern Partnership countries. Firms - and SMEs in particular - continue to have difficulty getting access to credit. SMEs in ECA rely disproportionately on financing from the banking sector, as -- in most countries --they are not able to raise equity or debt financing by tapping the financial markets directly. Unfortunately, the credit crunch since the crisis has driven many new, dynamic firms out of business and has made it extremely difficult for new firms to emerge and grow. To some extent, weak economic growth prospects also dampen firms' appetite for investment and their demand for financing. Nevertheless, we have reason to believe that firms' demand for financing currently exceeds the financial sector's ability or willingness to issue credit. In fact, we are seeing increased demand for financing from the IFC, the private sector arm of the World Bank Group, in a number of countries in the region.Since the crisis, the World Bank Group has aimed to expand SMEs' access to finance with credit lines and guarantee instruments in several countries, including Bosnia and Herzegovina, Croatia, Romania, Serbia, and Turkey. Support for SMEs is a significant part of the World Bank Group's portfolio, averaging around $3 billion a year in lending and investment commitments, expenditures on TA, and gross exposure for MIGA. Since November 2012, the World Bank Group has combined its efforts in this area with those of the EIB and the EBRD under the Second IFI Joint Action Plan, which has so far provided over $34 billion in financing. Our work also includes support for systemic reforms to bolster the stability of the financial sector and its ability to provide effective financial intermediation to the private sector as a whole and to SMEs in particular. A lot of the technical work supporting our policy dialogue and policy lending operations in this area is done here in Vienna, by our Center for Financial Sector Advisory Services - FinSAC- thanks to the generous financial support of the Austrian Government. FinSAC provides technical assistance to countries in the region to improve macro-prudential regulation and supervision, and also to facilitate bank recovery and resolution as well as the reduction of NPLs. An example would be the technical assistance for a streamlined legal framework to resolve NPLs in Montenegro. FinSAC's work also contributes to the coordination efforts among banking sector regulators and banks under the Second Vienna Initiative.The programs of the CFRR address another essential dimension of firms' access to debt and equity financing. Accurate financial reporting enables creditors and investors to assess risks and make informed decisions. Accurate financial reporting reduces the costs to the banking sector of obtaining information on SMEs' finances. It can thereby help expand SMEs' access to finance and reduce their cost of borrowing. Reliable financial information is also a precondition for the development of domestic capital markets, which can help mobilize domestic savings and help SMEs diversify their sources of financing. Reliable and internationally comparable financial information encourages foreign investors to consider Foreign Direct Investment and portfolio investments in SMEs and new firms that they might otherwise have found too risky.We are pleased that countries participating in REPARIS and STAREP have undertaken many reforms to strengthen their regulatory frameworks, even though much remains to be done. Partner countries have demonstrated a high level of awareness of the importance of reliable financial reporting for business confidence. Restoring business confidence will be critical for stimulating investments in SMEs. The CFRR works closely with the EU and national regulators in EU candidate, pre-accession countries, and Eastern Partnership countries to promote regulations based on the EU principle of "think small first". This approach very much coincides with the World Bank Group's view of good regulatory practice, which aims to create a level playing field in the market without imposing onerous compliance requirements on firms - and on SMEs in particular.REPARIS supports the efforts of the countries of the Western Balkans to transpose EU legislation in the area of corporate financial reporting and with the implementation of relevant regulation, which is a key condition for accession. Since October last year, STAREP has been assisting the countries of the Eastern Partnership in applying international financial reporting standards and thereby help firms in these countries improve access to finance and investment.We look forward to continuing our collaboration with all our partners, including the CFRR donors and beneficiary countries, to ensure that the CFRR programs are effective in supporting the efforts of regulators, accounting and auditing professionals, and firms throughout the Balkans and Eastern Partnership countries.We believe that, as the European economy recovers, these efforts will help restore investor confidence and boost the financial sector's ability of the financial sector to provide the financing that firms, especially SMEs, need to grow their business and strengthen the economic and social recovery.Thank you for your attention. Show Less -