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Phone: (202) 4738743

Fax: (202)4773387

Project

Objective The main objective is to support the government’s economic reform program aimed at restoring macroeconomic stability and at promoting resumption of growth and improvement in living standards. The other objectives are to:

1. Provide budgetary support to maintain the level of basic public expenditures, in particular for wages and the social safety net;

2. Provide foreign exchange for the purchase of critical imports;

3. Improve the functioning of the foreign exchange market;

4. Provide a framework for assistance from other donor agencies.

Project

Description The reform program to be supported by the credit comprises three sets of policies:

a) those aimed at reducing and redefining the role of the public sector in the economy

b) those theta foster the development and increase efficiency of markets;

c) those that maintain a minimum social safety net through improved targeting of benefits.

Disbursement Fully disbursed

INSTITUTION BUILDING

Project Objective Assist the Georgian government in its efforts to move to a private market economy through strengthening public institutions on three functional areas: (a) financial sector, (b) economic management , (c) privatization and enterprise reform

Project Description 1. Financial Sector Reform (US$ 2.325 million)

(a) Financial Sector Infrastructure:

Consulting service and equipment:

-- to introduce and implement Broadly Adapted Financial Statement (BASF), and internationally acceptable accounting and auditing system;

-- to conduct diagnostic studies in five state-owned banks and make recommendation for steps to streamline the system;

-- review existing payment system and make recommendations for steps to streamline the system

2. Economic management (US$ 5.660 million)

(b) Economic Policy Formulation

Support will be provided to the Office of the Deputy Prime Minister (now Chief Economic Advisor to the President) to design a strategy for the restructuring and the reform of the government’s economic management agencies, particularly the Ministries of Finance and Economy, and to strengthen economic policy formulation and analyses.

(c) Statistical Services:

Consulting services, training, and equipment to assist the Committee for Social and Economic Information in

-- reviewing the methodology used for generating and maintaining national accounts and initiating steps to introduce the internationally acceptable System of National Accounts (SNA);

-- designing and conducting an improved household survey in the city Tbilisi

(d) Tax Administration:

-- computerization of tax offices; IDA pilot project for the modernization and computerization of the central State Tax Inspectorate (STI) and the Tbilisi City Inspectorate;

-- training of the STI staff.

(e) Treasure:

-- first phase: a central treasury function will be established in the Ministry of Finance and regional branch in Tbilisi;

-- second phase: regional Treasuries will be established throughout of Georgia:

-- IDA will finance computers for the establishment of the Treasury offices.

(g) Strengthening of Customs Administration:

Support will be provided to the Customs Committee in

(i) simplifying and reforming the organization and procedures of customs operations: (ii) modernizing customs management ;

(iii) training the customs staff in the customs management and the computerization;

(iv) computerizing customs clearance procedures, accounts, and statistics at Tbilisi headquarters and at the Tbilisi airport as the first pilot site.

(h) Aid Coordination:

-- Project will finance long-term external advisor and equipment to assist and train the staff of Aid Management Unit (AMU) in maintaining donor procedures, coordinating country’s external aid priorities consistent with the national development objectives, and communicating those with the external aid agencies.

-- Project will finance experts to assist the government staff in analyzing Sectoral information with the objective to design and develop project that will be acceptable to the donor community.

(i) Project Implementation: The project will finance:

-- an external procurement consulting firm to assist the PIU with the preparation of procurement an disbursement documents under this project, and to ensure that all procurement under the project follow the World Bank’s procurement guidelines

3. Privatization and Enterprise Reform (US$ 2.27 million)

(j) Support for Privatization:

-- one short-term senior level adviser to assist the Ministry of the state Property Management and the Office of the Chief Economic adviser to the President in reviewing the current privatization plan;

-- experts and equipment to assist in:

a) formulation the mass privatization program and the voucher scheme

b) the design and implementation of a public information campaign to support the mass privatization campaign;

c) provide training aimed at strengthening the institutional capabilities of SPM;

d) review and further development of a legislative framework for privatization.

Implementing Agency Alex Sikharulidze, Head of PIU, 42, Kazbegi ave.,

Phone: (99532)950865

Fax: (99532)950865

STRUCTURAL ADJUSTMENT TECHNICAL ASSISTANCE CREDIT (SATAC)

Project Objective To support the Government’s reform program to stabilize the economy and create the conditions for a resumption of growth and an improvement in living standards.

Project Description 1. Privatization and post-privatization (US$ 0.95 million)

(i) Continued support for the implementations of the privatization program and on support for the establishment of the share registries.

(ii) Introduction of cash auctions and an international tender program;

(iii) Strengthening of institutional capacities, elaboration of standard procedures, advise on structuring of transactions and bid evaluation, as well as legal assistance and licensing of private share registries.

(iv) Elaboration of operational guidelines, training of officials in securities market and in the starting-up of pilot registries.

2. Financial Sector ( US$ 0.78 million )

(i) Advisory services on supervisory issues as well as the development of training programs.

(ii) Audits if the three former state banks will be financed to dacilitate a realistic assessment of the financial position of each bank.

3. Energy sector reform ( US$ 0.86 million )

(i) Assistance in creating the capacity to monitor and manage payment performance, and in reviewing structural and tariff issues.

(ii) Assistance in reviewing the scope of the regulatory authority and its tariff policy functions.

4. Social Protection ( US$ 0.56 million)

(i) Assistance in the design of a program of social assistance which meets the needs of poor families that do not qualify under any existing program;

(ii) Facilitating the establishment of private pension schemes.

5. Resource mobilization and public information

( US$ 1.43 million)

(i) A program aimed at improving the revenue collection performance of the Customs Department through training, revision of procedures and controls, and anti-fraud measures;

(ii) A public information/education program on economic reforms, including mass media campaigns, round-tables/seminars on key issues, and the design of an education program focusing on skills in high demand in market economics

Implementing Agency Zaal Japaridze, Head of PIU, 12 Kazbegi Ave.

Phone: (99532) 950865

Ministry of Trade and Foreign Economic Relations

42, Kazbegi Ave.

Phone: (99532) 225186 / (99532) 389652

TRANSPORT REHABILITATION

Project Objective 1. To support policy reform in the transport sectoral and restructure its institutions to operate in a market economy.

2. To repair and maintain some of the most critical elements of the transport system.

Project Description (1) Institution Building Component (US$ 4.9 million):

(i) advice and support to teams preparing sector reforms;

(ii) technical assistance for the formulation of technical and legal framework necessary to the restructuring,

commercialization and privatization of sector entities;

(iii) managerial assistance for public and private transport enterprises;

(iv) a training program to update transport technical staff of the private and public sectors;

(v) project management.

(2) Investment Component ( US$ 13.2million )

(i) road maintenance program, including selected equipment and spares for road maintenance as well as emergency repairs and the necessary imported road building materials;

(ii) a railway sub-component, including bridge repairs and the required structural steel, track materials (ties, rails and fastenings), spares for locomotives, and communications and selected signaling equipment

Implementing Agency Gia Tsagareli, Head of PIU, 12 Kazbegi Ave.

Phone: (99532) 986385

Fax: (99532) 990461

STRUCTURAL ADJUSTMENT CREDIT (SAC)

Project Objective: The main objective is to consolidate stabilization, foster a strong and sustained growth recovery and reduce poverty.

The reform program aims at:

1. maintaining a tight monetary program supported by an improving fiscal position;

2. streamlining the Government sector and improving efficiency of public spending;

3. inducing a rapid adjustment of the productive sector to new market signals.

The other objectives are;

1. provide budgetary support to maintain the level of critical public expenditures;

2. provide foreign exchange for the purchase of critical imports;

3. provide a framework for financial assistance from other donor agencies.

Project

Description: 1. Maintaining a Tight Monetary Policy:

• reduce inflation to 20-25 percent in 1996 and strengthen the international position of NBG;

• increase the range of monetary instruments and enhance the capacity of the NBG to achieve monetary objectives.

2. Improving the Fiscal System:

• ensure sustainability of stabilization;

• increase tax revenue to 6.7 percent of GDP in 1996;

• reach a revenue to expenditure ration of 70 percent in 1996 and maintain budget deficit at 3-4 percent of GDP in 1996.

3. Streamlining of the Government Sector and Improving the Efficiency of Public Spending:

• to maintain critical public function within the framework of a tight expenditure program (expenditure maintained at about 13 percent of GDP in 1996);

• reforming government pay and employment;

• reforming the provision and financing of social services reforming social insurance and social protection;

• eliminating energy subsidies;

4. Fostering Adjustment of the Productive Sector:

• accelerating privatization;

• restructuring the financial sector;

• fostering export growth.

Disbursement: US$ 29.88 million

The disbursement of the loan is linked to agreed targets specified for each tranche release – to be met by the Georgian Government in implementing its structural reform program.

SECOND STRUCRUTAL ADJUSTMENT TECHNICAL ASSISTANCE CREDIT (SATAC II)

Project Description: The Government’s structural reform program outline in the Letter of development Policy was presented with the Second Adjustment Credit (SACII), $60 million (which closed in December 1998). To facilitate the timely implementation of structural reforms, the Government requested a program of technical assistance to support the design and implementation of reform measures in the key areas. The institutional capacity of the Government to implement structural reform measures has been successfully strengthened under the Institutional Building Credit (IBC) and the Structural Adjustment Technical Assistance Credit (SATAC). Lessons learned from these two technical assistance projects were incorporated in the design of SATAC II.

The Core objective of SATAC II is to enhance the capacity of the Georgian Government to implement the structural reform program supported by SAC II.

The technical assistance is divided into seven broad categories:

• judicial reform and anti-corruption initiative;

• financial sector;

• energy sector reforms;

• social protection

• health

• resource mobilization

• public information

1. The World Bank and IMF Cooperation in Georgia

1. The World Bank and IMF Partnership in Georgia’s Development Strategy

1. The IMF has taken the lead in assisting Georgia in enhancing macroeconomic stability. In this regard, the Fund has encouraged the authorities to pursue a prudent fiscal policy, including by increasing tax revenues and reducing domestic expenditure arrears. The IMF Board approved a new three-year program under the Fund’s Poverty Reduction and Growth Facility (PRGF) in January 2001. The first and the second reviews under the PRGF were completed in October 2001 and July 2002, respectively. Implementation of the 2002 macroeconomic program was broadly on track. Quantita­tive criteria and indicative targets were met, except for those on domestic arrears, fuel and excise tax collection and reserve money. At 2 percent of GDP, the fiscal deficit was slightly higher than programmed because of shortfalls in external financing, and revenue collection improved only slightly from 14.3 percent of GDP to 14.4 percent over the period. An IMF mission which visited Georgia in July 2003 to discuss completion of the postponed third review found that the fiscal pressures that emerged in early 2003 had continued, with tax revenue falling short of budget targets, and an accumulation of substantial new budget arrears. The IMF thus saw the need inter alia to introduce some tax reform measures, adjust electricity tariffs and revise the 2003 budget to close the fiscal gap. The authorities achieved the first two but were unable to secure parliamentary approval of a revised budget. The current PRGF will expire in the next several months and the IMF will soon be initiating discussions to assess prospects for a possible new three-year program to support Georgia’s EDPRP.

1. The World Bank has taken the lead in the policy dialogue on structural issues, focusing on: (i) strengthening public expenditure management; (ii) deepening and diversifying sources of growth, (iii) protecting the environment; and (iv) reducing poverty. The table on page 53 summarizes the division of responsibility between the two institu­tions. In a number of areas – for example the social sectors, rural development, environment, and infrastructure – the Bank takes the lead in the dialogue and there is no cross conditionality with the IMF-supported program. The Bank is also leading the dialogue on private sector reform, and Bank analysis serves as inputs into the Fund program. In other areas – energy, the financial sector, public expenditure management, and revenue and customs – both institutions work together. Finally, in areas like monetary policy the IMF takes the lead with little Bank involvement.

2. Areas in which the World Bank leads and there is no direct IMF involvement

3. Areas in which the Bank leads and there is no direct IMF involvement include the social sectors, infrastructure and environment.

• In the social sectors the Bank conducts annual updates of Georgia’s Poverty Assessment based on household data collected on a quarterly basis. The Bank’s focus has been to improve the budget execution of expenditures for health, education and poverty benefits and to raise the efficiency in the use of scarce public resources. Through the Social Investment Fund Credits IDA is focusing in particular on areas with high poverty levels to provide basic infrastructure to the poorest communities. A recently approved Self-reliance Fund Grant will help authorities address the complex issues related to internally displaced people. IDA is also supporting a dialogue with the Government on social protection reform that may lead to an IDA-supported project.

• In education the Education Adaptable Program Credit aims at improving the learning out­comes of primary and secondary students, through curriculum reform, development of an examina­tion system, training of teachers, provision of learn­ing materials, and development of capacity to make better use of Georgia’s physical, financial and human resources. While the investment needs of school buildings are substantially higher than is currently affordable for Georgia, the Social Investment Fund projects continue to assist in financing urgent repairs to school facilities in many communities.

• In health IDA Credits to support the Government in improving the health care financing system, exploring risk-pooling options, introducing a new system of primary health care and improving the focus of services funded through public funds on the poor and on priority public health interventions. In addition hospital restructuring has been supported by SAC 3 and the Structural Reform Support Credit.

• In infrastructure support is being provided through the Municipal Development and Decen­tralization Credit and the Social Investment Fund Credit. These projects are providing financing at the community level for critical infrastructure needs, primarily for school and health facili­ties heat­ing and repair, small hydropower schemes to provide electricity, drinking water and sanitation reha­bilitation, as well as transportation infrastructure rehabilitation.

• In rural development IDA credits have supported the development of private sector farming and agro-processing improvements, agricultural credit, irrigation and drainage, and agriculture research and extension. IDA has also been supporting the creation of local institutions such as rural credit unions and water users associations through its Credits.

1. Areas in which the World Bank leads and its analysis serves as input into the IMF program

2. The Bank has been leading the dialogue on structural reforms through SAC 3, approved by the Bank’s Board of Executive Directors in June, 1999, and closed in October, 2002. Despite considerable delays, the core conditions of SAC 3 were met, but their impact was reduced by poor governance. Institution building and technical assistance has been supported through the Structural Reform Support Credit, also approved by the Bank’s Board of Executive Directors on June 29, 1999. The Bank also leads in the areas of:

• Private sector development. SAC 3 supported improvements in the environment for private sector development, focusing on: (i) simpler licensing regulations; (ii) more transparent government procurement; (iii) reduced cost of entry for businesses; and (iv) privatization of state-owned commercial assets. IDA has also been supporting private sector participation in other areas such as energy, telecommunications, urban services and agriculture. The IMF has worked with the authorities to initiate audits of the 2002 accounts of three major state owned enterprises.

• Energy. The energy system is in poor condition, with unreliable supply, massive non-pay­ment and mounting debts. IDA has been working with other donors, including the IMF, to encourage more private management and ownership, and to implement a series of short-term action plans to improve the overall functioning of the sector. The IMF has also been focus­ing on improved payments for electricity.

• Public Sector Management. The Bank is supporting the development of a civil service reform program, while the Fund is providing technical assistance in support of tax and customs administration reform.

2. A

   Table A. The World Bank-IMF Collaboration on Georgia

   Area	Specialized Advice from the IMF	Specialized Advice from the World Bank	Key Instruments
   Macroeconomic Framework/ Management	Monetary policy, exchange rate, fiscal, and trade policies, economic statistics	Economic growth, expenditure allocations, economic statistics	IMF: PRGF performance criteria and benchmarks on monetary and fiscal targets. Bank: SAC 3 condition­ality
   Budget	Budget framework, tax policy and administra­tion, customs, debt man­agement, extra budgetary funds,	Budget formulation Country Procurement Assessment, Country Financial Accountability Assessment	IMF: PRGF performance criteria on overall fiscal balance and revenue collection. Bank: SAC 3 conditions on fiscal performance and budgetary provisions for health, education and social protection;
   Public Sector Reform	Public asset management, Proposals on audit of 3 problematic enterprises, civil service reform.	Civil service reform, anti-corruption agenda, decentralization.	IMF: PRGF Bank: Structural Reform Support Credit, project preparation.
   Social/Poverty		Poverty analysis; reforms in education, health, social protection; support to community driven development	IMF: PRGF Bank: Support through IDA Credits for Educa­tion, Health and Social Investment Funds, Social Protection study, SAC and ESAC conditions on pay­ment of poverty benefits and on hospital restruc­turing.
   Private Sector Development		Costs of Doing Business Surveys. Support for improved legislation and regulatory framework for private sector, and support for privatization and market liberalization.	Bank: SAC 3 conditions on business and regulatory framework and privatiza­tion, and on private sector participation in infrastruc­ture.
   Infrastructure		Private sector participation in infrastructure	Bank: Support though IDA Credits for Municipal Development, Roads, and Electricity Market Sup­port.
   Rural development		Reforms in agriculture, irrigation, forestry and, environment.	Bank: SAC 3 conditions on land reform. Support though IDA Credits for Forestry, Agriculture Research, Extension and Training, Irrigation and Drainage Community Development.

   
   reas of shared responsibility of the World Bank and IMF

3. The Bank and the Fund have been working jointly in the following main areas (supported by the Bank’s SAC 3 and Structural Reform Support Credit, several investment operations and the Fund’s PRGF):

• Poverty Reduction Strategy. Both institutions have been working closely with the Govern­ment to provide support to the development of the PRSP, through seminars and workshops, direct staff input, and a multi-donor Trust Fund to support the work of the PRSP secretariat..

• Budget Planning and Execution. The annual process-based Public Expenditure Reviews will provide the underpinnings for systemic changes in expenditure management, with the immediate aim being improved budget formulation in 2004. The IMF is focusing on Treas­ury reform within the Ministry of Finance.

• Financial Sector Reforms. The joint Financial Sector Assessment Program has supported: (i) strengthened banking and non-banking supervision; (ii) introduction of international accounting standards; (iii) and consolidation of banks through higher capital requirement ratios; and (iv) anti money-laundering legislation. The IMF has focused in particular on banking supervision.

• Debt Sustainability Analysis (DSA). Given Georgia’s heavy external debt burden, the Bank and the Fund conduct joint Debt Sustainability Analysis on a regular basis.

2. Areas in which the IMF leads and its analysis serves as input into the World Bank program

• Fiscal Framework. The IMF’s focus on prudent fiscal policy has served as an impor­tant framework for IDA’s work on public expenditure management.

1. Areas in which the IMF leads and there is no direct World Bank involvement

• Monetary Framework. The IMF closely collaborates with the NBG in the design and implementation of a monetary program that aims at remonetization of the economy, while keeping inflation low and the exchange rate of the Lari stable

• Economic Statistics. IMF technical assistance has been conducive to improvements in national accounts, price, monetary and government financial statistics.

1. The World Bank Country Assistance Strategy for Georgia

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