Completion Report. Project Number: Loan Number 2664 September Georgia: Social Services Delivery Program

Transcription

1 Completion Report Project Number: Loan Number 2664 September 2011 Georgia: Social Services Delivery Program

2 CURRENCY EQUIVALENTS Currency Unit lari (GEL) At Appraisal At Program Completion (12 August 2010) (9 August 2011) GEL1.00 = $ $ $1.00 = GEL GEL ABBREVIATIONS ADB Asian Development Bank DMF design and monitoring framework FDI foreign direct investment GDP gross domestic product IMF International Monetary Fund JNA joint needs assessment LEPL legal entity of public law MOES Ministry of Education and Science MOF Ministry of Finance MOLHSA Ministry of Labor, Health, and Social Affairs NOTES (i) (ii) The fiscal year (FY) of the government and its agencies ends on 31 December. In this report, "$" refers to US dollars. Vice-President X. Zhao, Operations 1 Director General J. Miranda, Central and West Asia Department (CWRD) Director D. Kertzman, Public Management, Financial Sector, and Trade Division, CWRD Team leader Team members L. Schou-Zibell, Senior Economist, CWRD L. Llamanzares, Operations Assistant, CWRD G. Luarsabishvili, Associate Economics Officer, Georgia Resident Mission C. Nazario, Associate Project Officer, CWRD In preparing any country program or strategy, financing any project, or by making any designation of or reference to a particular territory or geographic area in this document, the Asian Development Bank does not intend to make any judgments as to the legal or other status of any territory or area.

3 CONTENTS BASIC DATA Page I. PROGRAM DESCRIPTION 1 II. EVALUATION OF DESIGN AND IMPLEMENTATION 2 A. Relevance of Design and Formulation 2 B. Program Outputs 3 C. Program Costs 9 D. Disbursements 9 E. Program Schedule 10 F. Implementation Arrangements 10 G. Conditions and Covenants 10 H. Performance of the Borrower and the Executing Agency 10 I. Performance of the Asian Development Bank 10 III. EVALUATION OF PERFORMANCE 11 A. Relevance 11 B. Effectiveness in Achieving Outcome 11 C. Efficiency in Achieving Outcome and Outputs 12 D. Preliminary Assessment of Sustainability 12 E. Impact 12 IV. OVERALL ASSESSMENT AND RECOMMENDATIONS 13 A. Overall Assessment 13 B. Lessons 13 C. Recommendations 13 APPENDIXES 1. Partial Design and Monitoring Framework with Summary Results Figures and Tables Status of Compliance with Loan Covenants Overall Assessment of Social Services Delivery Program 24 i

4 BASIC DATA A. Loan Identification 1. Country 2. Loan number 3. Program title 4. Borrower 5. Executing agency 6. Amount of loan 7. Program completion report number Georgia 2664 Social Services Delivery Program Georgia Ministry of Finance $100 million PCR: GEO 1259 B. Loan Data 1. Appraisal Date started Date completed 2. Loan negotiations Date started Date completed 3. Date of Board approval 4. Date of loan agreement 5. Date of loan effectiveness In loan agreement Actual Number of extensions 6. Closing date In loan agreement Actual Number of extensions 7. Terms of loan Interest rate Maturity (number of years) Grace period (number of years) Not required 19 August August September September October October March November London interbank offered rate (LIBOR) based rate, and 0.30% fixed spread 15 years 3 years 8. Disbursements a. Dates Initial Disbursement 8 November 2010 Effective Date 28 October 2010 Final Disbursement 8 November 2010 Original Closing Date 31 March 2011 Time Interval 0 Time Interval 5 months

5 ii b. Amount ($ million) Category Original Allocation Amount Canceled Net Amount Available Amount Disbursed Undisbursed Balance C. Program Data 1. Program Cost ($ million) Cost Appraisal Estimate Actual Foreign exchange cost Program Performance Report Ratings Ratings Implementation Period Development Objectives Implementation Progress From 30 September 2010 to 31 March 2011 Satisfactory Satisfactory D. Data on Asian Development Bank Missions Name of Mission Date No. of Persons No. of Person-Days Specialization of Members a Consultation 2 10 February a,b,c,d,e,f Fact-finding July c,d,e,g a a = principal financial sector specialist, b = senior economist (public financial management), c = senior economist, d = senior economic officer, e = senior country coordinating officer, f = associate economic analyst, g = counsel.

6 I. PROGRAM DESCRIPTION 1. On 21 September 2010, Asian Development Bank (ADB) approved the Social Services Delivery Program to help the Government of Georgia sustain essential public expenditures on social services delivery and social protection. 1 The program utilized $100 million from ADB s ordinary capital resources. The loan was disbursed in a single tranche upon declaration of the loan s effectiveness on 28 October By mid-2010, economic recovery in Georgia from the combined economic impacts of the August 2008 war and the global financial crisis was underway. There were early indications of economic strengthening as reflected in Standard & Poor s upgrade of the long-term sovereign rating to B+ in April 2010, which provided a positive outlook for economic recovery. However, while a July 2010 projection of real gross domestic product (GDP) growth for 2010 was 4.5% (an increase from 2.3% in 2008 and 3.9% in 2009), 2 economic recovery was slower than anticipated as revenue shortfalls continued to hold back public spending. Foreign direct investment (FDI) was also slow to rebound following a steep decline in domestic and foreign investment from 17.1% of GDP in 2007 to 12.2% in 2008 and 7.1% in FDI inflows in the first quarter were weak ($76 million), but preliminary data showed an improvement in the second quarter ($197 million) of 11% year on year. For the first half of 2010, however, preliminary flows were down 6.4% year on year. Projected FDI inflows for 2010 were 6.5% of GDP. The public deficit was projected to narrow to 6.3% of GDP in 2010 after having widened from 4.3% of GDP in 2007 to 6.3% in 2008 and to 9.2% in At the same time, the share and levels of social sector and social assistance expenditures in the budget which significantly mitigate the incidence of poverty in Georgia were expected to be maintained at adequate levels (Appendix 2, Table A2.1) The program aimed to help the government provide sustainable and inclusive social sector financing. Its intended outcome was to finance and leverage key reforms being undertaken by the government to strengthen public expenditure management and improve the efficiency, effectiveness, and gender-responsive delivery of social services and social protection. The outputs of the program were (i) effective and gender-equitable coverage of social services, (ii) initiatives to support retirement needs, (iii) inclusive allocation of resources for education and health and establishing standards, and (iv) sound management of public resources for social services delivery and social protection. 4. The program complemented ADB s earlier emergency loan of $70 million following the 2008 war with the Russian Federation and $80 million in quick-disbursing financial support to mitigate the adverse impact of the global financial crisis in It ensured continuity in maintaining critical public expenditures for social services delivery and social protection. ADB support focused on ensuring that essential public expenditure primarily pensions were paid. 1 ADB Report and Recommendation of the President to the Board of Directors: Proposed Loan to Georgia for the Social Services Delivery Program. Manila. 2 International Monetary Fund Georgia: Ninth Review Under the Stand-By Arrangement and Request for Waiver of Nonobservance of Performance Criterion Staff Report; Staff Supplement; Press Release on the Executive Board Discussion; and Statement by the Executive Director for Georgia. Washington, D.C. (June). 3 Expenditures in 2010 were GEL537.8 million for education, GEL329.2 million for health, and GEL1,495.8 million for social protection. Education spending accounted for 7.4% of total state budget expenditures in 2010, health for 4.6%, and social protection for 20.7%. Low inflation means increases have been substantial in real terms. In addition, the basic pension rose to GEL80 in January ADB Report and Recommendation of the President to the Board of Directors: Proposed Loan to Georgia for the Emergency Assistance for Post-Conflict Recovery. Manila; ADB Report and Recommendation of the President to the Board of Directors: Proposed Loan to Georgia for the Growth Recovery Support Program. Manila.

7 2 The 2009 quick-disbursing financial support to mitigate the adverse impact of the global financial crisis was exceptional, given the continued impact of the global financial crisis leading to a decline in revenue collection. 5. The three mentioned programs were anchored in a joint needs assessment (JNA) and designed to help Georgia address emergency needs arising from the 2008 war, sustain key budget expenditures, and help cushion the fall in fiscal revenue. 5 The International Monetary Fund (IMF) provided a Stand-By Arrangement designed to help Georgia address short-term balance-of-payments problems arising from the war. The program supplements ADB projects to promote municipal services and water supply and sanitation. ADB has been involved in policy dialogue with the government (while discussing previous programmatic operations) since late 2008 on pension reforms as part of a regional study on private pensions and on social service delivery reforms. II. EVALUATION OF DESIGN AND IMPLEMENTATION 6. ADB responded swiftly and effectively to the government s request to address a range of quality and quantity concerns in the delivery of social services. A. Relevance of Design and Formulation 7. The program was highly relevant during its design, formulation, and appraisal. It responded to the government s request for support to maintain essential expenditures on social services delivery and social protection while promoting greater effectiveness in service delivery and efficiency in financing benefits. It was consistent with (i) ADB s interim operational strategy for Georgia approved in January 2008, 6 (ii) the country s development objectives as outlined by the government, 7 (iii) the JNA approved in October 2008, (iv) the JNA progress report approved in June 2009, (v) the JNA second progress report approved in June 2010, (vi) the IMF Stand-By Arrangement approved in October 2008, and (vii) the World Bank s Poverty Reduction Support Operation. 8 The interim operational strategy recognized the need for ADB to be responsive to rapid changes in country circumstances. Under the strategy, ADB coordinated with other development partners on the JNA and on responses to its findings, including this program. Consultations through close cooperation and shared information, as well as stakeholder ownership and participation, were strong in the program s design, formulation, and appraisal The JNA identified three major areas for development partner support: (i) rapid restoration of confidence, including support for the countercyclical budget policy; (ii) social needs, including social protection; and (iii) critical investments, including infrastructure investments to revive economic growth. The policy objectives of the World Bank's programs 5 United Nations and World Bank Georgia Joint Needs Assessment. Tbilisi (9 October); United Nations and World Bank Georgia Joint Needs Assessment, a Progress Report. Tbilisi (30 June); United Nations and World Bank Georgia Joint Needs Assessment, a Second Progress Report. Tbilisi (15 June). 6 ADB Georgia: Interim Operational Strategy Manila. 7 Government of Georgia, Ministry of Finance Basic Data and Directions for Tbilisi. This includes priorities on public sector spending including social protection and education. 8 The World Bank Poverty Reduction Support Operation, Phase 4 was approved on 2 October The government in 2010 allocated $869 million to the Ministry of Labor, Health, and Social Affairs, or 23.7% of the overall budget, reflecting a 66% increase in nominal terms over This included $631 million for social programs, of which $487 million was allocated to state pensions and compensations. The Ministry of Education and Science received an allocation of $305.2 million, which included voucher funding for public schools and other education expenditures (footnote 1).

8 3 included (i) enhancing the efficiency and effectiveness of public administration and public investment programs, (ii) improving access to social services, and (iii) creating an environment conducive for private sector development. The European Union was engaged in targeted budget support linked to the JNA and, in undertaking macro-financial management, exceptional financing and sectoral budget support operations. The IMF has a Stand-By Arrangement to ensure macroeconomic, fiscal, and external sector stability. 9. The program remained highly relevant during implementation and at completion. It recognized the need for fiscal support to ensure that social sector and social assistance programs were delivered, essential social expenditures were met, and critical social services and protection were maintained at a sustainable level that preserves the broader safety net for the poor and socially vulnerable. Measures complemented those undertaken by other development partners. 10 The JNA estimated a financing gap of $450 million for 2009 and that in the full third post-war phase (the 18 months from April 2010 to September 2011) development partner support was likely to exceed JNA requirements (Footnote 5, Second Progress Report). While the essence of the JNA priorities continued to be valid during the remainder of 2010 and beyond and deserving of support, the major new priority related to the need for fresh fiscal support over this period in light of the still-weak international recovery and the need to support social and investment activities through the budget. ADB s financing of $100 million equivalent in 2010 is reasonable considering estimated fiscal adjustment costs 11 attached to the policy reform agenda for public expenditures and fiscal development; education sector development; insurance and contractual savings; and secondary, tertiary and higher education. It filled part of the financing gap, with the balance coming from other development partners, including the World Bank, European Union, and United States. 12 B. Program Outputs 10. The program had four outputs, as outlined in para. 3. The performance targets identified in the design and monitoring framework (DMF) were met. The outputs were fully achieved and have been sustainable. 1. Deliver Effective and Gender-Equitable Coverage of Social Services 11. This output sought to deliver more effective and gender-equitable coverage of Social Services through improved outreach to potential beneficiaries. It comprised two actions, to (i) implement the medical insurance program for the poor by the social service agency, and (ii) improve gender equality in education and health care. The share and levels of social sector and social assistance expenditures in the budget signals the importance the government attaches to delivering adequate services of high quality See linked document 5, Development Coordination in ADB Report and Recommendation of the President to the Board of Directors: Proposed Loan to Georgia for the Social Services Delivery Program. Manila. 11 See linked document 3, Project Classification Summary in ADB Report and Recommendation of the President to the Board of Directors: Proposed Loan to Georgia for the Social Services Delivery Program. Manila. 12 The JNA Second Progress Report estimated total funding needs for the public sector from October 2008 to March 2010 at $2.2 billion and for the banking sector at $700 million. Development partner commitments over the period totaled $2.5 billion for the public sector and $673 million for the banking sector. Disbursements to the public sector amounted to $1.1 billion and to the banking sector $446 million. Development partners were encouraged to continue providing fiscal support through longer-term lending and grants to the government in order to avoid excessively crowding out fiscal space as the country pursued implementation of the Brussels pledge in the context of the ambitious fiscal consolidation program supported by the IMF Stand-By Arrangement (footnote 5). 13 Footnote 3.

9 4 a. Implement Medical Insurance Program for the Poor by the Social Service Agency 12. To improve the outreach of social services under the program, the government implemented the administration of the medical insurance program for the poor through the Social Service Agency. 14 This includes data on internally displaced persons as a result of the 2008 war and for children living in children s educational establishments, small family-type homes, and boarding schools (including for orphans and uncared-for disabled children). Greater efficiency in managing information about social service beneficiaries and in targeting social services delivery was enabled as was more effective coverage of beneficiaries, and in particular of poor beneficiaries. In 2010, the number of poor beneficiaries increased to the targeted 71.5% from 68% in 2009, attributable to a reduction of exclusion errors in the Targeted Social Assistance data base. 15 In addition, the percentage of extremely poor among beneficiaries of social services and protection is projected to increase from 73% in 2010 to at least 76% in b. Improve Gender Equality in Education and Healthcare 13. To improve gender equality in education and health care under the program, the government adopted the Law of Georgia on Gender Equality. 16 The law provides for the realization of equal rights, freedoms, and opportunities for men and women, and it supports eliminating and eradicating discrimination. The law (i) ensures full and equal access to health care and social assistance without discrimination; (ii) provides specific support for maternity care, family planning, and protecting women s reproductive rights; 17 and (iii) supports equal conditions in general, vocational, and tertiary education. 18 This law also requires collection of sex-disaggregated data in official statistical reports. Under the program, greater efficiency in collecting sex-disaggregated data was enabled as well as more effective sex-disaggregated coverage of select social services delivery and social protection data. Such data is available on public websites, including those of the Social Service Agency, the National Statistics Office of Georgia, the Ministry of Education and Science (MOES), as well as from other relevant ministries. 19 In 2011, the Ministry of Economic Development will publish both a statistical booklet and an analytical version of Women and Men in Georgia for The publication will be prepared under the United Nations Development Programme s Gender and Politics Programme in the South Caucasus. A reference book, On Utilization of Gender Statistics, will also be published. Moreover, in May 2011, Parliament approved an action plan for implementing gender equality. 20 With the publication of select sex-disaggregated data, the DMF s performance target was fully achieved. 14 Decree of the Government of Georgia #218, 9 December Minister Andrew Urushadze, parliamentary presentation: "Annual presentation of the Minister of Labor, Health and Social Affairs to the Parliament of Georgia, 25 March 2011" Law of Georgia on Gender Equality. N March Resolution of the Parliament of Georgia from 5 May 2011 On Approving the Action Plan for Implementation of Gender Equality includes targets for analyses of (i) access by the population to quality reproductive health care services and information, including inclusion of a module on reproductive health care services in the curriculum training for village doctors; and (ii) the regulatory framework for the health care field, including relevant legislation in terms of gender. The state medical services program includes Mothers and Children Health Program for which GEL4,727 was budgeted in 2010 and GEL4,406 in Ministry of Finance of Georgia. 18 According to the National Statistics Office of Georgia, during 2009/2010, 47.6% of students in secondary educational facilities were women and 55% of students in higher educational facilities were women. 19 Data relevant to the program includes that for helpless families registered in the Social Service Agency Database, state pension beneficiaries, and recipients of financial support to receive training for certification examinations. 20 No I Resolution of the Parliament of Georgia On Approving the Action Plan for Implementation of Gender Equality. Tbilisi (5 May 2011).

10 5 2. Develop Initiatives to Support Retirement Needs 14. This output sought to promote opportunities for income security after retirement through initiating a structured dialogue on retirement needs, and through a broader investment policy for private pension funds. The current old-age pension system is financed by the state budget. Male citizens over the age of 65 and female citizens over the age of 60 are provided with an oldage pension and a bonus based on length of employment. It is part of a broader program that includes pensions for the disabled and war veterans, as well as targeted social assistance to the poor. The basic monthly pension is GEL80 (about $50). A total of 839,493 (19% of the total population) had in 2009 reached retirement age, of which 12.5% were women and 6.6% were men. Approximately 14.9% of the population receives an old-age pension. 21 The longer-term picture for pensioners shows a rise in old-age pensioners from 2006 onwards. 22 Expenditures for pensions account for approximately 63.4% of spending on social protection; % of total expenditures for health care, education, and social protection; and 13.2% of the total state budget (Appendix 2, Table A2.2). Sustainability will depend on factors including fiscal and institutional capacity, income distribution and demographic change. a. Review Changing National Retirement Needs 15. To address changing national retirement needs, the Ministry of Labor, Health, and Social Affairs (MOLHSA) engaged in policy dialogue under the program on the long-term impact of pension costs for men and women, the aging population, and budgetary implications arising from these changes. This followed up on an earlier pension assessment by ADB. Discussion focused on (i) the implications that continuation of the existing policy of universal age-based pensions will have on the state budget in years; (ii) the need to discuss alternative ways for financing, such as private pension funds and other schemes ; (iii) the capacity of commercial banks or insurance companies to manage private pension funds; (iv) the investment direction of pension schemes; and (v) how financial results of a pension scheme need to be reflected in pension accumulation. On 1 September 2011, the government increased the basic pension for both men and women to GEL100 ($60). This is in line with its long-term objective to increase the basic pension to about $100. With initiation of the structured dialogue in the government, the DMF performance target was fully achieved. b. Implement Broader Investment Policy for Private Pension Funds 16. To support further development of private pensions under the program, Parliament enacted amendments to the Law on Non-State Pension Insurance and Provision. 24 These enable private pension funds to diversify their investment options and promote information disclosure. Specifically, the amendments contribute to greater disclosure as pension documents are to indicate the investment direction of a pension scheme and how financial results of a pension scheme are reflected in pension accumulation. In addition, the National Bank of Georgia approved a rule on minimum information requirements for non-state insurance and 21 Old-age pensioners comprise 14.9% of the population while other pensioners account for 3.9%. Other pensioners include those paid for disability, military service, or as survivors (to those under 18 in case of a breadwinner s death or for an orphaned child). 22 National Statistics Office of Georgia, Social Services Agency. Data accessed February Social protection includes pensions and state financed insurance. 24 On Introduction of Additions and Amendments to the Law of Georgia on Non-State Pension Insurance and Provision. 23 March

11 6 provision agreements. 25 With the enactment of amendments to the Law on Non-State Pension Insurance and Provision and approval of minimum information requirements for non-state insurance and provision agreements, the DMF s performance target was fully achieved. 3. Facilitate Inclusive Allocation of Resources for Education and Health and Establishing Standards 17. This output sought to facilitate inclusive allocation of resources for education and health while establishing standards for health care facilities and professional standards for teachers. a. Design Health Services to Reflect Health Care Needs 18. The long-term sustainability of the health care system has come under pressure as medical services have been unable to meet demand from a population increasingly beset by non-communicable diseases and with lengthening life expectancy at birth. 26 The program built on previous government measures to transition the health care system in Georgia from large, state-owned hospitals predominantly focused on providing specialist-based curative care to inpatients to a health care system in which the private sector is the primary provider of services, with financing coming from a combination of state-financed and private health insurance. 19. For health services to better reflect health care needs, under the program the government adopted revised minimum service standards for service providers (hospitals, outpatient care, and medical laboratory services) participating in the government s medical insurance program 27 and developed a quality assurance program for pharmaceuticals. The revised minimum service standards are to increase access to health services and their quality to better meet health care needs. They encompass (i) service protocols and procedures; (ii) facilities for hygiene, disinfection, and waste material; (iii) maintenance of adequate medical documentation; and (iv) qualification requirements for medical staff. The resolution became effective 1 September The quality assurance program for pharmaceuticals is to ensure product adequacy and safety and to protect consumers from unlicensed products or products not meeting Georgia s quality requirements. 28 Measures implemented include (i) administrative control over the distribution chain and acquisition of pharmaceutical product samples from sellers, and (ii) laboratory examination of the acquired samples. In addition, to ensure administrative control over distribution and acquisition of drugs for the purpose of consumer protection, an electronic interlinked pharmaceuticals network was established and regimes for parallel imports and automatic certification of medications became fully effective. 29 The State Regulation Agency for Medical Activities provides visual inspection, whereby it verifies the status of packaging-marking, usability, right to distribution, and observance of legal requirements. The Georgian National Agency for Standards, Technical Regulations, and 25 National Bank of Georgia. Order no. 133/01 On Approval of the Rule for Defining the Minimum Requirements for Agreements on Non-State Pension Insurance and Provision. Tbilisi (22 October 2010). 26 For women, from 74.2 years in 1990 to 80.8 years in 2011; and for men from 66.5 years in 1990 to 73.8 years in Central Intelligence Agency. World Fact Book, Georgia (accessed July 2011). 27 Resolution #29 of the Government of Georgia On Approval of Minimal Service Standards for Medical Service Providers Participating in the State Insurance Programs Tbilisi (2 February 2010). 28 Decree #60/6 of MOLHSA On Approval of the State Control Assurance of the Quality of Medical Supplies. Tbilisi (2 March 2010). 29 MOF Georgia Social Services Delivery Program Completion Report and Loan Covenants. Tbilisi (June); Order #344/n of MOLHSA On Rules and Conditions for Verification of Validity of the Fact of Allowing Pharmaceutical Products on the Markets Subject to Control. Tbilisi (23 October 2009).

12 7 Metrology opened a modern lab on standards. 30 In 2011, the Prime Minister approved a State Health Care Program 31 for 2011 with the purpose to create financial guarantees for availability of medical services for target groups and to ensure fulfillment of tasks faced by public health. With adoption of the minimum standards for health care facilities, the DMF performance target was fully achieved. b. Improve Quality of Teachers and Access to Education for Students from Socially Vulnerable Families 20. Since 2003, the government has undertaken wide-ranging education reforms, including (i) the introduction of a per capita funding scheme for schools, (ii) increased school autonomy through decentralization, (iii) improved curricula and teachers salaries, and (iv) school construction and rehabilitation. At the same time, learning outcomes, benchmarked through international comparative achievement tests including the Progress in International Reading Literacy Study 32 and the Trends in International Mathematics and Science Study, are below the scale average 33 and teacher proficiency varies across schools and regions. In the FY2010 budget, the MOES allocated resources for vouchers and textbooks to improve the quality of teachers and access to education for students from socially vulnerable families. 21. To improve the quality of teachers under the program, MOES implemented the adopted professional standards for teachers by launching a voluntary certification of teachers; 34 and disbursed 16,959 vouchers to finance training for 12,347 teachers to help them meet certification requirements for subjects included in certification exams during At least 50% of the teachers receiving vouchers were female, as approximately 90% of the entire teacher pool of 70,000 in Georgia is female. To improve access to education for students from socially vulnerable families, MOES provided GEL8.1 million in FY2010 to purchase textbooks for at least 50,000 schoolchildren from families below the poverty line. At least 50,000 such students in grades 1 to 12 received all subject textbooks free of charge. In addition, MOES allocated GEL1.073 million ($583,000) for financing students accepted into accredited higher education institutions for the academic year. From socially vulnerable families, 476 students will receive grants. 35 With the implementation of standards for teachers, allocation of funds for textbooks, and distribution of vouchers and grants, the DMF s performance targets were fully achieved. 30 MOF Georgia Social Services Delivery Program Completion Report and Loan Covenants. Tbilisi (June). Decree of the Government of Georgia #1140 On Approving of Governmental Program on Adopting Legislative Reforms and Technical Regulations in the Field of Standardization, Accrediting, Compliance Assessment, Technical Regulations and Metrology. Tbilisi (25 August 2010). 31 Resolution #77 of the Government of Georgia On Approval of 2011 State Health Care Programs. Tbilisi (15 February 2011). 32 Georgia ranked 37th among 45 countries in the distribution of average reading achievement. (Progress in International Reading Literacy Study International Report. Boston). 33 According to the US Department of Education s Trends in International Mathematics and Science Study results for 2007, Georgia ranked 33rd among 48 countries in the distribution of 8th grade average mathematics scores and 27th among 36 countries in the distribution of 4th grade average mathematics scores. (accessed 10 May 2010). 34 MOES Order No. 403 On Determination of Dates for Conducting Parts of Teachers Certification Exams of Tbilisi (31 May 2010); MOES Decree No On Approval of the Regulations on Teachers Certification and Model of the Teachers Certificate. Tbilisi (4 December 2009). 35 Decree of the Government of Georgia #227 On determining the amount and conditions of financing students accepted in the academic year in higher educational institutions at the first stage of higher academic education program or higher vocational education program by state educational grant under the welfare program.

13 8 4. Develop Sound Management of Public Resources for Social Services Delivery and Social Protection 22. This output sought to enhance delivery of social services and protection through improved transparency and internal audit. It built on previous efforts by the government to address public financial management weaknesses raised in a 2008 report 36 and on the ensuing annual action plans developed and implemented for the Ministry of Finance (MOF) 37 and National Center of State Internal Control 38 toward the efficient use and strategic allocation of public resources. a. Improve Transparency 23. To enhance transparency and resource management, under the program MOF expanded the coverage of selected legal entities of public law (LEPLs) 39 from 28 to 111 through a more comprehensive monitoring framework and completed a report on budget execution for the fiscal year As required on an annual basis, LEPLs submit their consolidated balance sheets to MOF. These are monitored by MOF to ensure effective planning and budget processes, and to enable more efficient management of public resources and delivery of social services and social protection. In addition, MOF established a comprehensive database on LEPLs for monitoring purposes and adopted a program to strengthen disclosure in state procurement. The latter included special forms to be submitted monthly by the state procurement agency (footnote 37). Quarterly and annual reports on the 2010 budget execution for the 111 LEPLs were prepared and submitted to Parliament along with 2010 state budget execution reports. Under the Public Finance Management Reform Action Plan 2011, 41 the number of LEPLs required to report to MOF is planned to increase to 160. With the increased coverage of budget execution reports from 111 LEPLs, the DMF performance target was fully achieved. b. Improve Internal Audit of General Management, Control, and Risk Management Efficiency 24. To improve internal audit, under the program Parliament enacted the Law on State Internal Audit and Inspection in March This law provides for the establishment of internal audit units and financial management and control functions in ministries. Its enactment strengthens internal audit and inspection and can help improve service delivery. 42 To implement this law, the National Center of State Internal Control was established 43 as an LEPL under MOF and a pro forma charter for internal audit units (prepared based on international standards and 36 World Bank and European Commission Georgia: Public Expenditure and Financial Accountability. Tbilisi (November). 37 Government of Georgia, MOF Public Finance Management Reform Action Plan Tbilisi. (accessed 1 July 2010). 38 Government of Georgia, MOF State Internal Audit Action Plan Tbilisi; Government of Georgia, MOF Internal Audit Progress Report Tbilisi; and Government of Georgia, MOF Strategic Concept for Reforms of Internal Financial Control within the Public Sector of Georgia. Tbilisi (March). 39 LEPLs are public bodies established to implement specific programs or functions such as donor-funded programs. 40 MOF Annual Report of Legal Entities of Public Law, #04-01/ Tbilisi (30 July ) ADB was engaged in policy dialogue on state internal audit and inspection during under close coordination with the World Bank and European Union. 43 Resolution #215 of the President of Georgia On Establishment of the Legal Entity of Public Law - National Center of State Internal Control. Tbilisi (7 April 2010); Decree of the Government of Georgia #111 On Approval of the Legal Entity of Public Law - National Center of State Internal Control. Tbilisi (24 April 2010).

14 9 best practices 44 ) was distributed to at least 10 ministries toward establishing their own internal audit units. The National Center of State Internal Control, in coordination with the European Commission, developed a recommended model draft charter for internal audit services of the ministries in conformity with the requirements of the Law on State Internal Audit and Inspection. A Harmonization Unit of Internal Audit and Risk Assessment was established within MOF to supervise coordination among internal audit departments in line ministries and to develop standards, 45 a code of ethics, 46 manuals, and guidelines 47 to assist auditors in creating relevant reports. The Ethics Code, developed according to international standards, was inaugurated in September In 2009, the government had issued a policy paper on public internal financial control toward unifying internal financial and auditing mechanisms under one umbrella In line with the Law on State Internal Audit and Inspection and in accordance with international standards, under the program MOLHSA 49 and MOES 50 have established internal audit units. With enactment and implementation of the Law on State Internal Audit and Inspection and the establishment of internal audit units in MOES and MOF, the DMF s performance target was fully achieved. C. Program Costs 26. A loan of $100 million was provided under the program from ADB s ordinary capital resources to support the government s reform priorities, finance social benefits for socially vulnerable and weak groups, and sustain inclusive economic growth. Health, education, and social protection comprised 32.7% (or about $1.3 billion) of the total state budget for FY2010. By achieving the outputs as outlined in II.B. of this report, the government maintained critical expenditures for education, health, and social protection (of which 63.4% or about $500 million was allocated to pensions) while implementing key reforms that contributed to improving the efficiency and effectiveness of financing these activities and delivering services (footnote 9). Approximations of expenditures under the program included about $21 million allocated to public expenditures and fiscal development; $45 million to health programs; $30 million for education sector development; $300,000 for insurance and contractual savings; and $3.3 million for secondary, tertiary, and higher education (footnote 11). This filled part of the funding gap as identified in the JNA (para. 9). D. Disbursements 27. The $100 million loan was disbursed in a single tranche to help the government meet essential expenditures under the state budget. It was released following compliance with the policy actions for the program and after the loan agreement was declared effective. 44 International standards include those of the Institute of Internal Auditors, as well as International Financial Reporting Standards. The Ethics Code was based on the standards of the International Organization of Supreme Audit Institutions. 45 Decree of the Government of Georgia #1015 On Approving Standards of Internal Audit. Tbilisi (30 July 2010). 46 Decree of the Government of Georgia #1016 On Approving the Code of Ethics for Internal Audit. Tbilisi (30 July 2010). 47 Decree of the Government of Georgia #1014 On Approving Methodology of Internal Audit. Tbilisi (30 July 2010). 48 Government of Georgia, MOF Public Finance Management Reform Action Plan Tbilisi Order of MOLHSA #219/n On Approval of the Regulation of Internal Audit Department of the Ministry of Labor, Health, and Social Affairs. Tbilisi (23 July 2010). 50 Resolution of the Government of Georgia #191. On Introduction of Modifications in Resolution #37 dated 21 May 2004 of the Government of Georgia On Approval of the Regulations of the Ministry of Education and Science of Georgia. Tbilisi (15 July 2010).

15 10 E. Program Schedule 28. The loan was disbursed in a single tranche on 8 November The loan was declared effective on 28 October The financial closing date of the loan was 8 November The closing date indicated in the loan agreement was 31 March F. Implementation Arrangements 29. MOF was the executing agency for the program. 51 MOES, MOF, MOLHSA, and the National Bank of Georgia were the implementing agencies. ADB was provided the necessary documentation clarifying that the amount of expenditures for delivery of social services and social protection exceeded the budgeted amount at the time of loan negotiations. In addition, the government has made good progress in implementing public financial management reforms. Loan proceeds were used to pay for items procured in ADB member countries, other than the items specified in the list of ineligible items and imports financed by other bilateral and multilateral sources. MOF s implementation arrangements were adequate to deliver the specified output and outcomes. G. Conditions and Covenants 30. All the covenants in the loan agreement were complied with (Appendix 3). H. Performance of the Borrower and the Executing Agency 31. The performance of the borrower and MOF is rated highly satisfactory. The government (i) exhibited commitment to reforms, (ii) made significant progress in improving public financial management and delivery of social services and social protection, 52 and (iii) maintained essential expenditures for social services and social protection (footnote 9). The government, in consultation with development partners, responded swiftly to the slower than expected economic recovery following the 2008 war and the global financial crisis. As a result, key expenditure items were executed as budgeted while total spending was increased for health, education, and social protection and especially for the poor and socially vulnerable. In addition, the government acted swiftly to achieve loan effectiveness and to allow disbursement of loan proceeds in 4 days after loan approval. The government provided a project completion report in February I. Performance of the Asian Development Bank 32. ADB s performance is rated highly satisfactory. ADB promptly and effectively responded to the government s request for support to maintain essential expenditures on social services delivery and social protection while promoting greater effectiveness in service delivery and efficiency in financing benefits. ADB managed its relationship with the government and other stakeholders and proactively managed implementation of the program in regard to approvals, disbursement, and monitoring. It monitored implementation of the program, specifically progress 51 On 10 November 2010, the loan proceeds in the amount of $100 million were deposited into the Foreign Currency Account of the Treasury Service of the MOF at the National Bank of Georgia. The loan proceeds were converted to lari at the official exchange rate (USD/GEL ) as of 11 November 2010 and GEL million was credited to the Treasury Single Account at the National Bank of Georgia. MOF Social Services Delivery Program (2664-GEO) Completion Report and Loan Covenants. Completion Report. Tbilisi (February). 52 The decree On the Public Finance Management Reform Action 2011 was issued by MOF on 1 April

16 11 made in developing and improving delivery of social services and social protection and in improving management of public resources. III. EVALUATION OF PERFORMANCE A. Relevance 33. The design of the program is highly relevant in terms of consistency with (i) ADB s interim operational strategy for Georgia (footnote 6) (ii) the country s development objectives as outlined in the government s basic data and direction for (footnote 7), (iii) the JNA approved in October 2008, (iv) the JNA progress report approved in June 2009, and (v) the second JNA progress report approved in June 2010 (footnote 5). The program is highly relevant in regard to the appropriateness of the financing instrument, which is anchored on the IMF Stand-By Arrangement with the government. 34. The outputs are highly relevant in achieving the program s intended outcome to help the government implement in tandem with other development partners support more effective, efficient, and gender-responsive delivery of social services and protection programs with immediately high expenditure execution rates. The number of socially vulnerable with equitable access to education increased. 53 Regarding equitable access to improved health care services, the number of people living under the poverty line receiving publicly funded health insurance increased from 790,640 in January 2010 to 885,325 in December 2010 and stood at 834,981 in May Public financial management was strengthened with the establishment of internal audit units in 12 ministries and in the Chancellery of the Government of Georgia The program achieved key components of DMF. Coverage of the poor and vulnerable is expected to improve and contribute to a lower poverty incidence. With respect to 60% of the median consumption, poverty incidence decreased from 21.1% in 2008 to 21.0% in 2009; with respect to 40% of the median consumption, poverty incidence decreased from 9.5% 2008 to 8.8% In addition, the number of helpless families registered in the Social Service Agency Unified Database increased from 539,256 in 2009 to 545,619 in Gross national savings as a percent of GDP rose to 4.1% in 2009 and stood at 5.4% in Projected gross national savings for 2011 is 5.7% of GDP. Of the total state budget, expenditures for health, education, and social protection totaled 32.4% in 2009, 32.7% in 2010, and are planned for 32.6% in 2011 (footnote 2). This is in line with the performance target of around 32% of the total state budget. B. Effectiveness in Achieving Outcome 36. The program is rated as highly effective in achieving its outcome. By helping the government implement reforms to deliver more effective, efficient, and gender-responsive social services and protection with immediately high expenditure execution rates, the program helped the government maintain sustainable and inclusive social sector financing and effectively execute the 2010 budget. 53 As reported by the National Statistics Office of Georgia, the number of women enrolled at higher educational facilities by the beginning of the year increased from 13,430 in 2009/2010 to 14,449 in 2010/2011 while the number of men enrolled rose from 9,855 men to 11, Social Service Agency. (accessed 24 July 2011). 55 National Center for State Internal Control. (accessed 24 July 2011). 56 National Statistics Office of Georgia. GeoStat.ge (accessed 24 July 2011). 57 According to the Social Service Agency, helpless families are those with rating scores of less than 70,001. Such families have a right to use the state health insurance program. (accessed 24 July 2011).

17 12 C. Efficiency in Achieving Outcome and Outputs 37. The program is rated highly efficient in achieving its outcomes and outputs. The underlying business process and design of the program was efficient in helping the government achieve the anchor of the project: more effective, efficient, and gender-responsive delivery of social services and protection programs. The program design enabled immediate deployment of financial resources under the program. The program provided for cost-effective use of funds. The program cushioned the impact of revenue shortfall on social sector expenditures by ensuring (i) effective and gender-equitable coverage of social services, (ii) initiatives to support retirement needs, (iii) inclusive allocation of resources for education and health while establishing standards for education and healthcare, and (iv) sound management of public resources for social services delivery and social protection. Under the program, the government was in full compliance with loan covenants on key expenditure items. D. Preliminary Assessment of Sustainability 38. The program is rated sustainable. It was a short-term stopgap measure to help the government and people of Georgia weather slower than anticipated economic recovery from a double crisis. It was anchored on the JNA of 2008, the two JNA progress reports, and the IMF Stand-By Arrangement. The JNA was successfully implemented. Twelve policy actions were identified and were carried out. The government exhibited political commitment to carry out policy actions as outlined in II.B. herein. In addition to agreed upon policy actions, (i) the government on 1 September 2011 raised the old-age pension to GEL100, with another substantial increase being considered in 2012 (footnote 2); (ii) a framework has been established for modern medical and professional standards 58 as well as rules for obtaining permits to practice in the medical profession; (iii) under the Public Finance Management Reform Action Plan the number of LEPLs required to report to MOF is planned to increase to 160; and (iv) pilot audits of three line ministries MOLHSA, MOES, and the Ministry of Infrastructure and Regional Development commenced in May It also has been proposed that all teachers should be certified by Backed by the steady implementation of economic reforms in which the government has exhibited continued commitment to maintaining essential expenditures in particular on health care, education, and social protection the program has allowed the government to narrow its budget deficit. Fiscal performance improved from a deficit of 9.2% of GDP in 2009 to 6.6% in 2010 and is expected to improve to 3.6% in 2011 (footnote 2). The faster deficit reduction reflects an improvement in projected revenues owing to one-off factors (settlement of past tax arrears) and higher tax buoyancy (related in part to improved compliance owing to simplified tax procedures, such as use of a web portal and online payment) (footnote 2). Real GDP grew by 6.4% in 2010 while FDI growth slowed to 4.3% of GDP, down from 6.1% of GDP in FDI is projected to increase in 2011 to 5.2% of GDP (footnote 2) (Appendix 2, Table A2.1). In addition, in April 2011, the government issued a $500 million Eurobond. The proceeds were to be used to redeem, through voluntary exchange, $435 million of the $500 million Eurobond maturing in 2013, thus reducing significantly the external debt rollover of E. Impact 58 Decree of the Government of Georgia #385 On Approving Provisions Concerning Rules and Conditions of Licensing Medical Activities and Permits for Inpatient Establishments. Tbilisi (17 December 2010). 59