Speeches & Transcripts

Mamta Murthi Speech on Investments and Jobs at Sixth Cohesion Forum

September 8, 2014

Mamta Murthi 6th Cohesion Forum Brussels, Belgium

As Prepared for Delivery

Distinguished guests, Ladies and Gentlemen

Thank 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 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 Europe

There 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 observations

Let 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 accomplish

Naturally 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 levels

In 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 policies

Having 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 cycle

Our 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 need

High 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 market

Workers 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.