World Bank Approves Third Development Policy Operation Supporting Policy Reforms
WASHINGTON, July 21, 2011 – The World Bank Board of Executive Directors today approved the US$ 40 million Third Development Policy Operation (DPO-3) for Georgia to support reforms directed at sustaining economic recovery and preparing for post-crisis growth. In addition to the macroeconomic and fiscal framework, the main policy reform areas supported include improving the efficiency and effectiveness of public finances, increasing the effectiveness of the social safety net, and enhancing external competitiveness.
DPO-3 is the final in a series of three operations providing direct budget support to back key objectives of the Government’s policy reform agenda to mitigate the impact of the economic downturn, facilitate recovery, and prepare Georgia for post-crisis growth. The DPO series, amounting to US$ 175 million in total, was prepared in the aftermath of the twin crises of the August 2008 conflict and the global economic downturn.
“The package of reforms backed by the DPO series has supported Georgia’s economic recovery in 2010 and 2011,” said Asad Alam, World Bank Regional Director for the South Caucasus. “The reforms have also helped ensure that 900,000 people are receiving medical insurance and 440,000 people are receiving targeted social assistance, as part of the social safety net for the poor and vulnerable.”
“Fiscal policy has moved from stimulus in 2009 to adjustment during 2010 and 2011,” said Faruk Khan, World Bank Senior Economist and Task Team Leader of the DPO program. “Fiscal adjustment provides an important anchor of macroeconomic stability but it is also being implemented in a manner that protects essential social and infrastructure investment expenditures.”
Economic recovery and growth have benefited from tax, customs, and trade-related reforms to strengthen competitiveness and bolster investor confidence. Substantially higher e-filings (from 1 percent in January 2009 to more than 85 percent by end-2010) and improved risk management at customs are helping to reduce the costs of tax compliance and trading across borders. Progress has also been made in identifying and implementing select trade-related reforms for improved access of Georgian products to international markets.
Public expenditure efficiency is benefiting from enactment of a new Budget Code and steps to improve the results orientation of the budget and strengthen capital budgeting. These reforms are enabling a greater share of public expenditures to be covered by improved performance indicators and they have also increased transparency and accountability for public investment programming.
On the social safety net, coverage was scaled up and benefits were improved while enhancing targeting effectiveness. The share of the poor and vulnerable receiving publicly subsidized health care has increased from about 20 percent in 2007 to more than 35 percent in 2010, while the share of the poorest tenth of the population receiving targeted social assistance increased from about 32 percent in 2007 to about 40 percent by 2009.
DPO-3 is an IDA credit with a maturity of 25 years, including a 5-year grace period. DPO-1 for the amount of US$ 85 million IDA was approved by the Board in July 2009. DPO-2, including an IDA credit of US$ 40 million and an IBRD loan of US$ 10 million, was approved by the Board in July 2010.
The DPO series is a central component of the World Bank’s Country Partnership Strategy (CPS) for Georgia covering 2010-2013. World Bank commitments to Georgia total approximately US$ 1.5 billion for 50 projects.