Poverty reduction and economic management dePartment

euroPe and central asia region

The World Bank’s Poverty Reduction and Economic Management Department (ECSPE) in the Europe and Central Asia (ECA) Region handles the region’s work on economic

policy, public sector management and governance, social inclusion, and access to

equal economic opportunities. The ECA region comprises 30 highly diverse client

countries, with a total population of nearly 500 million people. The region spans

European Union (EU) member states and accession countries; middle-income countries

in the Commonwealth of Independent States and the Western Balkans; resource-rich

countries such as Russia, Azerbaijan, and Kazakhstan; and poor and fragile states such

as Tajikistan and Kyrgyzstan. Though ten of our clients have joined the EU, most continue

to remain active knowledge-sharing partners and/or recipients of lending services.

THE CHALLENGE Despite the significant diversity in ECA, policy makers in our client countries face some common challenges in the wake of the global economic crisis. The crisis has unveiled key short-comings of the European growth model, which are putting pressure on the region’s global competitiveness. These include weak fiscal positions, strained financial sectors, cumbersome business regulations, eroding labor force skills, sluggish pro-ductivity, and aging infrastructure. Policy responses to these challenges center around three common themes:

1 REfoRMS foR IMPRovED CoMPETITIvENESSThese reforms include restoring the health of public

finances, stabilizing the financial sector, improving the busi-ness climate, enhancing governance, and investing in infra-structure and education.

2 SoCIAL SECToR REfoRMS foR INCLuSIvE GRoWTH

The ECA region is home to the world’s highest levels of social expenditure. Now that most

ECA clients are cutting social spending as part of fiscal con-solidation efforts, the immediate challenge is to improve the coverage and targeting of this spending to ensure adequate safety nets for poor and vulnerable people.

3 ENERGy EffICIENCy AND CLIMATE ACTIoN foR SuSTAINABLE GRoWTH

Despite much progress in the past decade, ECA remains the most energy-intensive region in the world. Several countries in the region have defined energy efficiency strategies, targets, and/or reforms, in many cases in line with EU accession criteria. Analytical work is underway to better understand options for mitigating the effects of climate change and encouraging greener growth.

At ECSPE, we help our client governments understand the challenges posed by the current economic environment and formulate policy responses to address these challenges. Most importantly, our big-picture viewpoint allows us to help integrate various sectoral reforms with a view to improving competitiveness as well as sustainable and inclusive growth.

We offer our clients a wide array of options for working with us toward these goals, including budget support through development policy operations, investment lending for specific projects, analytical and advisory support for reform programs, and fee-based services for clients interested in a knowledge partnership.

ouR APPRoACH

DEvELoPMENT PoLICy oPERATIoNS Development policy operations involve a customized dialogue with the government to comprehensively address reform chal-lenges. This dialogue results in direct budget support provided by the World Bank to help implement the agreed-upon reform agenda. In Poland, for example, ECSPE has prepared a Development Policy Lending program for 2008–2010, totaling €2.975 billion and comprising three loans that aim to acceler-ate Poland’s convergence with EU living standards. After dra-matic changes in the external economic environment between the autumn of 2008 and the spring of 2009, the second and

third loans were customized to align with the government’s stepped-up efforts to mitigate the social cost of the economic slowdown and protect priority programs in education, health, and social assistance. Many of ECA’s higher- and middle-income clients, including Latvia and Romania, have turned to us for development policy support to address crisis-related issues. We also use development policy operations to assist our lower- and lower-middle-income clients, such as Tajikistan and the Kyrgyz Republic, in tackling their long-term program-matic development agendas.

INvESTMENT LoANS Investment loans finance projects to improve public sector management:

Public financial management, including financial management information systems (fMIS)ECSPE helps governments design public financial manage-ment reform projects to improve the strategic allocation of resources (to promote growth and reduce poverty), operational efficiency (to minimize waste and align spending with rev-enues), and fiscal discipline (to improve the credibility of the budget). Many of our current projects focus on developing core FMIS solutions to support budget preparation, execution, accounting, and reporting functions, linked with related public financial management systems (tax, customs, debt manage-ment, procurement, human resources and payroll, assets and

inventory). Some projects in the region are working to develop integrated FMIS solutions to support a broader spectrum of public financial management functions (including in Albania, the Kyrgyz Republic, Moldova, the Russian Federation, Turkey, and Ukraine).

Revenue administration reform

Collecting revenues more efficiently involves modernizing tax and customs administration by introducing modern risk management, shifting to a functional rather than geographic organization, customizing work with large taxpayers, and opti-mizing human resources and information technology systems. ECSPE has prepared and implemented revenue administration reform projects across the region, customizing solutions to higher-income clients (Czech Republic, Croatia), resource-rich

countries (Kazakhstan, Russia), middle-income countries (Ukraine, Armenia), and low-income clients (Tajikistan).

Public administration reformA well-functioning public administration is critical to com-petitiveness and socially inclusive growth. At ECSPE, we help our client governments assess and improve their institutional capacity for policy coordination, optimize the functioning of their ministries and agencies, and design and implement civil service reform packages. In Moldova, for example, the Public

Administration Reform Project facilitated the consolidation of central public administration bodies around key policy areas. As a result, the number of ministries was cut from 29 to 24 and the number of government agencies from 16 to 8. The reform also helped strengthen the capacity of the ministries’ policy units to elaborate priorities and align them with the Medium-Term Expenditure Framework supported through the parallel Public Financial Management Project. In general, the design of public administration reform projects is flexible and often includes civil service reform (as in Armenia and Tajikistan).

ANALyTICAL AND ADvISoRy WoRk Analytical and advisory work can either underpin ECSPE’s development policy and investment lending operations, or assist our client governments with customized diagnosis of the challenges they face and the policy responses best suited to addressing them.

Growth diagnosticsGrowth diagnostics help policy makers identify constraints to long-term sustainable economic growth and design policy reforms to promote sustainable, equitable, and inclusive growth. Country Economic Memoranda (CEMs) include com-prehensive cross-sectoral perspectives over the medium and long term, and emphasize institutional and structural reforms. Some CEMs focus on thematic issues such as savings, trade, or the business environment. Policy Notes and Economic Updates are shorter variants of CEMs, highly focused and timely, with more targeted and practical medium-term policy recommendations in areas such as public expenditure, trade

analysis, economic policy, urban development, and household stress testing. Shorter policy notes are ideally suited to solving a specific policy problem in a timely manner, especially during crisis and recovery phases.

Public expenditure analysisPublic expenditure analysis examines trends in public spend-ing, benchmarks them against patterns of expenditure in other countries, compares them with performance outcomes, and provides practical recommendations for increasing efficiency and improving performance. Public expenditure analysis can be customized. For example, the analysis can be conducted at the national or subnational (regional or municipal) level and can focus on specific sectors (such as education, health care, transport, energy, social protection, agriculture, justice, or public administration) where the government is interested in improving efficiency and results.

Equity and inclusion analysisAnalyzing equity, poverty reduction, and economic mobil-ity can help governments improve the design, implementa-tion, and impact of public policies. A better understanding of the determinants of welfare levels and changes can point to policies that generate greater improvements in overall living standards within a country, while also benefiting poor and vulnerable people. This analysis can focus on a variety of top-ics (including mobility and poverty trends; determinants of economic mobility, poverty, or social exclusion; and distri-butional impacts of economic policies such as tax and public spending or labor market reform) and deliver products ranging from issue-specific policy notes to comprehensive assessments.

Diagnostics for access to equal opportunitiesDiagnostics for access to equal opportunities can identify differences in access to resources and services among vari-ous population groups, highlighting trends and inequalities along specific socioeconomic dimensions. These diagnostics can outline effective mechanisms for the equal inclusion of men and women in selected government policies, and provide practical recommendations for achieving gender-sensitive policy outcomes. This type of analysis is a flexible product that can be customized to focus on specific sectors (such as educa-tion, health care, social protection, agriculture, or employment)

where the government is interested in maximizing the positive impact of its projects and policies.

Economic analysis of climate change and green growthEconomic analysis of climate change and green growth benchmarks an economy on key aspects of “greenness” and

“greening potential” in comparison with other countries. This analysis provides a toolbox of analytical approaches that can be combined to address the most important issues within the green growth agenda; fosters an economywide, macroeconomic approach to a cross-sectoral challenge; and provides practi-cal recommendations for key areas of action that will most efficiently advance climate change approaches and “greening.” The analysis is country-specific, focusing on issues that are of interest to the client government and relevant to the specific economy. It proposes a range of realistic options for short-term, medium-term, and longer-term actions to lower carbon use or increase the greening of growth, and refers to examples of relevant experiences and good practices from other countries.

fEE-BASED SERvICESThe above tools and approaches describe ECSPE’s engagement with countries where the World Bank has active lending pro-grams. The World Bank is also recognized as a leading devel-opment knowledge provider. Some of our higher- and upper-middle-income clients require development advice but do not wish to borrow from the Bank. In such cases, ECSPE provides fee-based services customized to meet individual client needs.

IN RoMANIA, ECSPE is engaged in a fee-based program of functional reviews focusing on public administration in twelve sectors. The reviews have helped guide structural reforms by providing operational recommendations on strate-gic management, organizational structure, sector governance, budgeting, and human resources management.

IN ThE CzECh REPUBLIC, ECSPE advised the government on the proposed merger of the collection functions of several agencies, including tax, customs, social security administrations, and health insurance companies.

IN KAzAKhSTAN, ECSPE leads the fee-based Joint Economic Research Program (JERP) to help the government formulate its reform agenda in the areas of highest national priority. In 2010/2011, the JERP’s technical assistance and analytical work focused on strengthening public finance man-agement and public administration, improving human devel-opment outcomes, mitigating macroeconomic and fiscal risks, and enhancing economic competitiveness. The JERP also includes well-regarded high-level brainstorming sessions for the government on key topics, including state-owned enter-prise debt management, proactive social safety net programs and policies to reduce informality, and intergovernmental fiscal relations.

ECSPE comprises approximately 115 World Bank staff mem-bers, including economists, applied microeconomists, and public sector, governance, and gender specialists. of these, about 45 are located in country offices throughout the ECA region. ECSPE carries out a large and diverse work program of lending and analytical work. The Department is composed of three macro-economic groups, two thematic groups on poverty and gender, and a group dedicated to public sector management.

ECSPE teams bring together a wealth of international experi-ence, sharing good practices from around the world, including oECD countries and emerging economies. This global expertise is combined with the in-depth country-specific knowledge and understanding brought by our local economists, who are an inte-gral part of our teams. This blend of global and local knowledge enables ECSPE to adapt global experience to the client country’s needs and circumstances, tailoring recommendations to account for the government’s priorities and political realities. We offer impartial, independent advice that policy makers can trust.

ECSPE AS PARTNER

ThE WoRld BAnK Europe and Central Asia Region 1818 h Street, nW Washington, dC 20433 USA

tel: (202) 473-1000 fax: (202) 477-6391 www.worldbank.org

For further information, contact Armanda Carcani at acarcani@worldbank.org or (202) 473-0241.