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Public Sector and Institutional Reform in Europe and Central Asia

August 14, 2013



The effectiveness and efficiency of a country’s public sector is vital to the success of development activities in the Europe and Central Asia (ECA) regions. PSIR focuses on ensuring sound financial management, an efficient civil service and administrative policy, efficient and fair collection of taxes, and transparent operations that are relatively free of corruption all contribute to good delivery of public services.

Our Approach

In line with the operations of the bank, PSIR offers clients a wide array of options towards achieving ECA’s strategic goals of improving competitiveness as well as sustainable and inclusive growth. These goals can be achieved through development policy operationsinvestment project financinganalytical and advisory supportreimbursable advisory or fee-based services and south-south learning for clients interested in knowledge partnership.

PSIR South-South learning

The Bank has actively supported peer learning networks in the region and these have proved excellent tools for disseminating knowledge and building capacity. With the support of other development partners, the PEMPAL, TAXGIP and JUSTPAL networks were created to help countries to share experiences and learn from each other.

  • The Public Expenditure Management Peer Assisted Learning (PEMPAL) creates a network of public expenditure management professionals in various governments in the ECA region. These professionals benchmark their PEM systems against one another and pursue opportunities for ‘peer’ learning, increasingly understood to enhance knowledge transfer. PEMPAL hosts three communities of practice on budget, treasury and internal audit.
  • Tax Administrators Exchange for Global Innovative Practices (TAXGIP) is a peer learning network of tax administrators, providing opportunities for the exchange of knowledge and good practices and sharing experiences with tax professionals.
  • Justice Sector Peer-Assisted Learning (JUSTPAL) is a network that facilitates cooperation and cross-fertilization between justice practitioners from across the globe. JUSTPAL offers an innovative multilateral instrument capable of catalyzing country-driven improvements to justice systems and thereby supporting improvements in service delivery, access to justice, investment climate and governance.

PSIR as a Partner

ECA PSIR has the strongest and most distinctive public sector lending and advisory program in the Bank. The program includes a portfolio of 19 investment projects ($700 million committed), 42 grants ($62 million committed) and 8 active reimbursable assistance agreements. PSIR is built around five business lines: public finance; decentralization; public sector management; governance and anti-corruption; and justice. PSIR has 32 staff of which 12 are locally recruited staff.


Public Financial Management (PFM)

PFM can be described as the process whereby governments maintain fiscal discipline, allocate resources in line with public policy objectives and ensure efficient, effective and accountable use of public funds. It covers all phases of the budget cycle, including budget preparation, treasury and cash management, procurement, internal audit, financial accounting and reporting, and external audit, as well as revenue administration.

PFM systems are strong contributors to good governance, improved public service delivery, greater transparency and accountability, and reduced levels of corruption. In addition, well-functioning revenue and customs administrations, as well as open and competitive procurement, are important factors contributing to a supportive environment for investment and growth of the business sector.

The World Bank is providing support for public finance management reform in several countries in the ECA Region and covers the full range of PFM issues; from tax and expenditure policies, through the design of institutions and legislation, to modernizing business processes and control systems, strengthening independent oversight of public finances and improving performance management.

This support is provided in the form of PFM health checks (PEFA assessments), problem solving diagnostics such as public expenditure reviews, technical advice to improve system performance, investments in information systems and capacity building, and budget support tied to reforms in public financial management.  

In addition to its bilateral assistance the Bank manages resources provided by the governments of Russia, Switzerland and UK as well as the EU in support of PFM reforms.  This includes PFM projects in Kyrgyzstan and Tajikistan, an $18m Trust Fund dedicated to PFM Reforms in ECA countries.

Decentralization and Local Government

Local governments are important players in the ECA region. Subnational spending amounts to 10 to 40 percent of general government spending and subnational governments are the principal providers of urban infrastructure services, including water supply, district heating and public transport as well as providing basic education and primary health services in many ECA countries.

PSIR focuses on overarching structural issues using analytical work as the primary instrument for dissemination of ideas and recommendations. In recent years, PSIR has prepared reports on local finance and expenditure issues in Albania, Bulgaria, Kazakhstan, Kosovo, Latvia. Lithuania, Poland, Romania, Serbia and Tajikistan. Some of these have resulted in significant reforms, such as Serbia’s recent changes to tax sharing and local tax policies.

Public Sector Management

Work on public sector management in EU member states has expanded rapidly over the last three years through the use of Reimbursable Advisory Services (RAS) agreements. PSIR provides assistance on cross-cutting issues such as public investment management, human resources, monitoring and evaluation.

The focus is on sector reforms in education, health, social protection and agriculture, rationalizing institutional arrangements and aligning them with policy objectives. PSIR plays a facilitating role, linking reviews to the budget process and advising on reforms that will increase flexibility in the civil service.

Public Sector Management reforms also focus on planning and policy process, performance management and measures aimed at improving monitoring and evaluation. PSIR finances support to these core government functions through investment lending in Moldova, Multi-Donor trust Funds in Kyrgyzstan and Tajikistan, and an EU-financed Trust Fund for the development of monitoring and evaluation systems in the Western Balkans and Turkey.

Governance and Anti-corruption

Governance and anti-corruption activities are an explicit priority in the Bank’s country programs in Central Asia. These activities respond to the poor performance of these countries against measures of corruption perception but also to these governments’ development agenda.

Alongside its efforts to support national authorities’ anti-corruption strategies, PSIR has supported efforts to integrate governance and anti-corruption issues across the portfolio. PSIR has developed internal political economy assessment tools and has generated a series of country-level briefs for country-team’s internal use. In Albania, PSIR has helped the country team apply a governance filter for all operations and it has introduced a governance checklist for operations in Tajikistan.

PSIR has helped the Kyrgyz government develop and implement a comprehensive anti-corruption program with DPO, lending and non-lending technical assistance. In Tajikistan, the governance agenda has been financed through a Governance and Partnership Facility Grant, covering a range of core government reforms and demand side interventions including strengthening of parliamentary oversight and supporting Monitoring and Evaluation capacity of Tajikistan NGOs.


The World Bank supports countries to address the challenges facing justice sector institutions. These challenges vary widely across different countries. Investments will typically go into improving the judicial infrastructure; ICT based case management systems, improved financial and human resource management systems, work process engineering, capacity building and technical assistance for aspects ranging from evaluation of judges to court performance measurement and management, from budgeting to the establishment of sustainable legal aid systems. Our assistance is tailored toward the specific needs of each country.

The Bank assists to improve the efficiency of client’s justice systems, service delivery and access to justice. PSIR provides analytical support and advisory services through innovative Judicial Public expenditure and Institutional Reviews and Justice Sector Functional Reviews. Investment projects are used to upgrade judicial infrastructure, develop ICT based case management systems, improve financial, human resource and performance management systems, and establish sustainable legal aid systems. Access to justice provides an entry point to raise the profile of gender-related justice issues.

There are active and pipeline justice sector projects in Russia, Azerbaijan, Kazakhstan, Croatia and Romania and grants and advisory services in Armenia, Romania, Serbia and Turkey.