Download Evaluation An Evaluation of World Bank Assistance to the Transition Economies (also available in: Russian)

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Much of the Europe and Central Asia (ECA) Region faced unprecedented political, economic, and social change after the break-up of the Soviet Union. Challenges included deep economic distortions, major trade disruptions, and the absence of market-oriented institutions. GDP fell sharply at the beginning of the transition, as expected. However, while the transition recession in the Central and Eastern European countries was relatively shallow-less than 15 percent drop in GDP on average--the decline in the countries of the former Soviet Union (FSU) ranged from 18 to 76 percent, averaging more than 40 percent, and poverty and inequality increased sharply.
IEG 's Evaluation of Bank Assistance to the Transition Economies examines the development effectiveness of the World Bank's lending and non-lending assistance since 1989 in 26 transition countries of the ECA Region (excluding Serbia and Kosovo). It focuses on the Bank's role in supporting the transition and distills lessons of experience that may be useful for formulating continued assistance in this region and for countries undergoing similar, if less extreme, transitions in the future. The evaluation was carried out in partnership with the Swiss Agency for Development and Cooperation (SDC).

The World Bank's strategy in the transition countries was to promote macroeconomic stability and sound economic management; reorient and strengthen public sector institutions; build the basic institutions of a market economy and an enabling environment for private sector initiatives; and cushion the social cost of the transition. With the assistance of the Bank and other donors, many countries quickly accomplished price and trade liberalization. Small-scale privatization is virtually complete, and large-scale privatization is underway in most countries. Progress has been slower in financial and public sector reform, social protection, enterprise restructuring, and competition policy, but the trend is still upward. Eight countries have joined the EU. Much has been achieved, but much remains to be completed, especially in the FSU.

In assessing the effectiveness of Bank assistance, it must be recognized that the collapse of the Soviet Union and the ensuing transition took place with little warning and on an unparalleled scale. Political pressures compelled the Bank to move quickly and lend large amounts. Staff often had to act quickly, under difficult circumstances, and without relevant experience or country knowledge, learning along the way. IEG 's evaluation finds that overall Bank assistance to the transition countries has been successful, but there were mistakes early on when the true nature of transition was not fully understood. Not surprisingly, the Bank's evolving knowledge and the rapidly changing circumstances led to many mid-course corrections. The initial strategy was relevant, but its effectiveness was limited by an initial underestimation of the need to focus on poverty alleviation and good governance and the use of rapid privatization to promote private sector development without a supporting legal and institutional framework. In the FSU, lending based on the expectation of a short, shallow transition recession led to significant indebtedness. The Bank internalized the emerging lessons and shifted its emphasis accordingly: poverty monitoring and alleviation and good governance are now prominent objectives in both lending and analytical work, and the approach to privatization and PSD has evolved considerably.

The evaluation examines five areas in depth: private sector development, governance and public sector management, the financial sector, social protection, and energy. In addition to recommendations specific to these areas, the evaluation highlights the importance of holding lending at prudent levels in a new country context, or after a long hiatus in lending, while building a solid knowledge base, with convincing evidence of government and societal ownership of the assistance program. Analysis of governance and poverty monitoring should be early features of the assistance program, and a comprehensive long-term approach should be taken to developing strategies for institutional change and public sector reform. Active programs of stakeholder inclusion should be widely replicated and country assistance strategies used to bolster reform capacity.

Inputs to the evaluation included:

· The Country Assistance Evaluations carried out by IEG on transition countries.

· A series of background papers on countries, sectors and issues commissioned for this study.

· Project and sector level evaluations by IEG .

An entry workshop for the evaluation was held on May 15, 2002. Its objective was to seek guidance on the coverage and directions to be pursued by the study. The presentations and discussion covered a wide range of country and thematic issues.