The Government of Georgia and the World Bank Sign the Financing Agreement for the US$ 40 million Third Development Policy Operation
TBILISI, September 15, 2011 – The Government of Georgia and the World Bank today signed the Financing Agreement for 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. The agreement was signed by Dimitri Gvindadze, the Minister of Finance of Georgia and Asad Alam, World Bank Regional Director for the South Caucasus. The Operation was approved by the World Bank Board of Executive Directors on July 21, 2011.
DPO-3 is the final in a series of three operations providing financial support for the key objectives of the Government’s policy reform agenda. 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. In addition to a satisfactory 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.
“Through the Development Policy Operations, the World Bank has supported the far‑reaching and successful reforms implemented by Georgia in recent years,” said the Minister of Finance, Dimitri Gvindadze. “This year, we will receive the third budget support installment of the DPO series totaling $40 million on highly concessional IDA terms, in recognition of the significant strides made in advancing results-oriented budgeting, strengthening the social assistance programs, upgrading customs infrastructure, and further streamlining customs procedures.”
“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.”
“Economic growth rebounded to 6.4 percent in 2010 and growth of about 5.5 percent is projected for 2011,” said Faruk Khan, World Bank Senior Economist and Task Team Leader of the DPO program. “Tax, customs, and trade-related reforms backed by the DPO series have helped strengthen competitiveness and bolster investor confidence, while effective fiscal policy has provided an important anchor of macroeconomic stability.”
Substantially higher electronic tax filing (from 1 percent in January 2009 to more than 85 percent by end-2010) has helped reduce tax compliance costs for businesses, while improved risk management at customs has helped reduce the costs of customs clearance 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-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. DPO-1 for the amount of US$ 85 million IDA was approved by the Board in July 2009.
World Bank commitments to Georgia total approximately US$ 1.5 billion for 50 projects.