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Completion Report

Project Number: 43496 Loan Number 2664 September 2011

Georgia: Social Services Delivery Program

CURRENCY EQUIVALENTS

Currency Unit – lari (GEL)

At Appraisal At Program Completion (12 August 2010) (9 August 2011)

GEL1.00 = $0.5434 $0.6033 $1.00 = GEL 1.8403 GEL1.6575

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) The fiscal year (FY) of the government and its agencies ends on 31 December.

(ii) 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 L. Schou-Zibell, Senior Economist, CWRD Team members 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.

CONTENTS

Page

BASIC DATA i

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 15 2. Figures and Tables 20 3. Status of Compliance with Loan Covenants 22 4. Overall Assessment of Social Services Delivery Program 24

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 2010 20 August 2010 21 September 2010 29 September 2010 29 October 2010 28 October 2010 0 31 March 2011 8 November 2010 0 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

Final Disbursement

8 November 2010

Time Interval 0

Effective Date

28 October 2010

Original Closing Date

31 March 2011

Time Interval

5 months

ii

b. Amount ($ million) Category

Original

Allocation

Amount

Canceled

Net Amount

Available

Amount

Disbursed

Undisbursed

Balance

01

100

0

100

100

0

C. Program Data

1. Program Cost ($ million) Cost Appraisal Estimate Actual

Foreign exchange cost 100 100 2. Program Performance Report Ratings Implementation Period

Ratings

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 Membersa

Consultation

2–10 February 2010

6

54

a,b,c,d,e,f

Fact-finding

19–23 July 2010

4

20

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.

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 2010.

2. 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 2009. 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 2009. 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).3

3. 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 2009. 4

1 ADB. 2010. Report and Recommendation of the President to the Board of Directors: Proposed Loan to Georgia for

the Social Services Delivery Program. Manila.

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.

2 International Monetary Fund. 2011. 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 2010.

4 ADB. 2008. 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. 2009. Report and Recommendation of the President to the Board of Directors: Proposed Loan to Georgia for the Growth Recovery Support Program. Manila.

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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 2008–2009 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.9

8. 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. 2008. Georgia Joint Needs Assessment. Tbilisi (9 October); United Nations and

World Bank. 2009. Georgia Joint Needs Assessment, a Progress Report. Tbilisi (30 June); United Nations and World Bank. 2010. Georgia Joint Needs Assessment, a Second Progress Report. Tbilisi (15 June).

6 ADB. 2008. Georgia: Interim Operational Strategy 2008–2009. Manila. 7 Government of Georgia, Ministry of Finance. 2007. Basic Data and Directions for 2008–2011. 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 2008. 9 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 2007. 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).

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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 costs11 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.13

10 See linked document 5, Development Coordination in ADB. 2010. 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. 2010. 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.

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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 2011.

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 2008–2009.” 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

14 Decree of the Government of Georgia #218, 9 December 2009.

With the publication of select sex-disaggregated data, the DMF’s performance target was fully achieved.

15 Minister Andrew Urushadze, parliamentary presentation: "Annual presentation of the Minister of Labor, Health and Social Affairs to the Parliament of Georgia, 25 March 2011". http://www.myvideo.ge/?video_id=1261225

16 Law of Georgia on Gender Equality. N 2844. 26 March 2010. 17 Resolution of the Parliament of Georgia from 5 May 2011 “On Approving the 2011–2013 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 2011. 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. 4672-I. 2011. Resolution of the Parliament of Georgia “On Approving the 2011–2013 Action Plan for Implementation of Gender Equality.” Tbilisi (5 May 2011).

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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 old-age 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;23

40.8% 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 10–15 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

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).

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

22 National Statistics Office of Georgia, Social Services Agency. Data accessed February 2011. 23 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 2010. http://www.parliament.ge

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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 2011. 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

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).

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

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 2011. 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. 2011. 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).

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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 Study32 and the Trends in International Mathematics and Science Study, are below the scale average33

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 2010. 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 2010–2011 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. 2011. 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. 2006. 2006 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. http://nces.ed.gov/timss/table07_1.asp (accessed 10 May 2010).

34 MOES Order No. 403 “On Determination of Dates for Conducting Parts of Teachers’ Certification Exams of 2010.” Tbilisi (31 May 2010); MOES Decree No. 1101 “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 2010–2011 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”.

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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 report36 and on the ensuing annual action plans developed and implemented for the Ministry of Finance (MOF) 37 and National Center of State Internal Control38

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 2010.40 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 2010. 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 established43

36 World Bank and European Commission. 2008. Georgia: Public Expenditure and Financial Accountability. Tbilisi

(November).

as an LEPL under MOF and a pro forma charter for internal audit units (prepared based on international standards and

37 Government of Georgia, MOF. 2010. Public Finance Management Reform Action Plan 2010. Tbilisi. www.pfm.ge (accessed 1 July 2010).

38 Government of Georgia, MOF. 2009. State Internal Audit Action Plan 2010. Tbilisi; Government of Georgia, MOF. 2009. Internal Audit Progress Report 2009. Tbilisi; and Government of Georgia, MOF. 2009. 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. 2010. Annual Report of Legal Entities of Public Law, #04-01/11576. Tbilisi (30 July ). 41 www.mof.ge/1102 42 ADB was engaged in policy dialogue on state internal audit and inspection during 2008–2009 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).

http://www.pfm.ge/�

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best practices44) 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 guidelines47 to assist auditors in creating relevant reports. The Ethics Code, developed according to international standards, was inaugurated in September 2010. In 2009, the government had issued a policy paper on public internal financial control toward unifying internal financial and auditing mechanisms under one umbrella.48

25. In line with the Law on State Internal Audit and Inspection and in accordance with international standards, under the program MOLHSA49 and MOES50

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. 2009. Public Finance Management Reform Action Plan 2010. Tbilisi. www.pfm.ge 49 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).

http://www.pfm.ge/�

10

E. Program Schedule

28. The loan was disbursed in a single tranche on 8 November 2010. The loan was declared effective on 28 October 2010. The financial closing date of the loan was 8 November 2010. The closing date indicated in the loan agreement was 31 March 2011. 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 2011.

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 1.7672) as of 11 November 2010 and GEL176.72 million was credited to the Treasury Single Account at the National Bank of Georgia. MOF. 2011 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 2011. www.mof.ge/1102

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 2008–2009 (footnote 6) (ii) the country’s development objectives as outlined in the government’s basic data and direction for 2008–2011 (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 2011.54. Public financial management was strengthened with the establishment of internal audit units in 12 ministries and in the Chancellery of the Government of Georgia.55

35. 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% 2009.56 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 2010.57

Gross national savings as a percent of GDP rose to 4.1% in 2009 and stood at 5.4% in 2010. 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 11,635.

54 Social Service Agency. www.ssa.gov.ge (accessed 24 July 2011). 55 National Center for State Internal Control. www.ncsic.ge (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. www.ssa.gov.ge (accessed 24 July 2011).

http://www.ssa.gov.ge/�

http://www.ncsic.ge/�

http://www.ssa.gov.ge/�

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 201159

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 2011. It also has been proposed that all teachers should be certified by 2014.

39. 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 2009. 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 2013. 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 www.mof.ge/1102

13

40. The intended impact of the program—sustainable and inclusive social sector financing—is likely to be achieved. As discussed in para. 35, good progress is being made under impact indicators identified in the DMF: (i) decreased incidence of poverty, (ii) increased gross national savings as a percentage of GDP, and (iii) maintained spending for social services delivery and protection.

IV. OVERALL ASSESSMENT AND RECOMMENDATIONS

A. Overall Assessment

41. The program was implemented as planned and is rated highly successful. It allowed the government to (i) provide more effective delivery of gender-equitable coverage of social services, (ii) review retirement needs and support the development of private pensions, (iii) enhance management of public resources for social services and protection, and (iv) facilitate inclusive allocation of resources for education and health as well as establish standards for health and education. The intended outcome of the program to deliver more effective, efficient, and gender-responsive social services and protection was achieved. The number of socially vulnerable with equitable access to education increased, the number of people living under the poverty line receiving publicly funded health insurance grew, and 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 longer-term impact of the program is likely to be achieved. In tandem with support from other development partners, the program helped Georgia increase or maintain budget expenditures for social services and social protection; gross national private savings increased in 2010 and are projected to increase by 5.8% of GDP in 2013 (footnote 2), well above the performance target of 1.8% of GDP; and the poverty incidence improved in 2009 to 21% and is expected to improve to 19% in 2013 with improved coverage of poor and socially vulnerable The program was delivered with immediately high expenditure execution rates. B. Lessons

42. Two important lessons have emerged from the program: (i) Socially responsible budget. Rapid disbursements into a budget that is socially

responsible and sound in macroeconomic terms provide an efficient channel for supporting sustainable and inclusive public spending, including social sector financing.

(ii) Loan size determination. The projected budgetary financing requirement provides the rational for determining the loan size for budget support attached to a policy reform agenda, and it rests on unfunded fiscal “adjustment” costs of reform, including both recurrent and capital expenditures.

C. Recommendations

1. Program Related

43. Future monitoring. Although program implementation is completed, ADB should continue its policy dialogue with the government to leverage reforms, in particular in regard to ensuring sustainable and inclusive economic growth. One avenue for such policy dialogue is

14

through the Regional Technical Assistance for Financial Sector Development in Central and West Asia for 2011–2013 (in relation to pension reforms). 60

44. Covenants. The loan covenants of the program are appropriate and should be maintained in their existing form. 45. Further action or follow-up. As a single tranche operation, implementation of the program is complete. 46. Additional assistance. The program has been completed, and all policy actions have been carried out and loan covenants have been complied with, thus providing for sustainable and inclusive social sector financing. To further build on achievements under the program, the government has agreed to participate in regional technical assistance for financial sector development (footnote 60). 47. Timing of the program performance evaluation report. For an accurate evaluation of the program, a program performance audit report should be prepared about 4–5 years after the project completion report. This would allow the economy to recover. This audit should not be confined to the original indicators in the design and monitoring framework.

2. General

48. Two follow-up actions will help on this program as well as similar ones in the future. The first is to have better collection of timely and critical data on public finances and the financial sector for pre-identified countries. Second, ADB should ensure that the government takes an active role in the design and implementation of the DMF, including measurement of performance targets. Where there are capacity gaps, ADB could consider providing technical assistance. Borrowers should also have a better understanding of ADB’s requirement for governments to provide detailed program completion reports to enable the government’s feedback to be reflected in the ADB report.

60 ADB. 2010. Financial Sector Development in Central and West Asia. Manila (December).

Appendix 1 15

PARTIAL DESIGN AND MONITORING FRAMEWORK WITH SUMMARY RESULTS

Design Summary Performance

Indicators/ Targets Monitoring

Mechanisms Assumptions and

Risks Impact Sustainable and inclusive social sector financing

Planned: Improved coverage of the poor and vulnerable resulting in lower poverty incidence from 22.1% in 2008a to 19% in 2013b

Result: With respect to 60% of the median consumption, poverty incidence decreased from 21.1% in 2008 to 21% in 2009; with respect to 40% of the median consumption, poverty incidence decreased from 9.5% 2008 to 8.8% 2009.a

Number of helpless families registered in the Social Service Agency Unified Database increased from 539,256 in 2009 to 545,619 in 2010. Planned: Gross national private savings as a percentage of GDP increases from –3.4% in 2008 to 1.8% in 2013. Result: Gross national private savings increased to 4.9% of GDP in 2009 and to 3.2% of GDP in 2010.b Planned: Budget expenditures for health, education, and social protection maintained at around 32% of total state budget. Result: These expenditures equaled 32.7% of total state budget in 2010.c

ADB’s country performance assessments National Statistics Office of Georgia

Assumptions Macroeconomic stability Government gives priority to social services for the socially vulnerable. Risks Foreign direct investment does not return to pre-crisis levels. Inability to finance measures to improve social services delivery

Outcome More effective, efficient, and gender- responsive delivery of social services and protection programs

Planned: Socially vulnerable have equitable access to education. Result: Government supports state educational grants for higher education under the welfare program. Planned: Population has equitable access to improved health care services.

Government budget (MOF) National Statistics Office of Georgia

Assumptions Good development partner coordination Implementing ministries remain committed to social services delivery reforms. Risk Institutional capacity to

16 Appendix 1




Risks Result: Number of people living under the poverty line receiving publicly funded health insurance increased to 790,640 in January 2010, 885,325 in December 2010, and 834,981 in May 2011.d Planned: Public finance management strengthened with establishment of internal audit units in relevant ministries. Result: Internal audit units established in 12 ministries and in the Chancellery of the Government of Georgia.e

develop and implement reforms affected by the economic crises.

Outputs 1. Effective and

gender-equitable coverage of social services

Planned: Increased percentage of poor among beneficiaries of social services and protection from 68% in 2009 to 71.5% in 2010.c

Result: Percentage of poor among beneficiaries of social services and protection increased from 68% in 2009 to 71.5% in 2010.c Planned: Collection of sex-disaggregated data in official statistical reports under the provisions of the Law on Gender Equality when operationalized Result: Sex-disaggregated data to be published in at least three official publications in 2011.

ADB’s country performance assessment National Statistics Office of Georgia Copy of signed Law on Gender Equality

Assumption Reforms completed in a timely manner and the recommendations supported by participating ministries.

2. Initiatives to support retirement needs

Planned: Structured dialogue within the government on long-term impact of changing pension costs for men and women Result: Structured dialogue in the government initiated. Planned: Implementation of the Law on Non-State Pension Insurance and Provision Result: Amendments to secondary legislation to the Law on Non-State Pension

Minutes of MOLHSA meetings

Appendix 1 17




Risks Insurance and Provision approved.

3. Inclusive allocation of resources for education and health and establishing standards

Planned: Minimum standards for health care facilities adopted. Result: Revised minimum service standards adopted. Decree on standards for health care facilities issued. Quality assurance program for pharmaceuticals developed. Planned: Professional standards for teachers adopted. Result: Professional standards for teachers implemented (certification of teachers launched through the decree on certification process issued 31 May 2010). Planned: At least 470 grants awarded for tertiary education to students from socially vulnerable families. Result: 476 grants awarded under state educational welfare program. Planned: Textbooks allocated to at least 50,000 schoolchildren from families below the poverty line. Result: At least 50,000 schoolchildren from socially vulnerable families in grades 1 to 12 received all subject textbooks free of charge. Planned: Approximately 12,000 teachers received financial support for training for certification examinations (at least 50% of the beneficiaries are women). Result: As of August 2010, 12,347 teachers had received vouchers for training, at least 11,000 had taken the trainings (of the teacher pool of 70,000 at least 50% are women).

Government resolutions on standards of health care facilities MOES records of grants awarded and teachers who received financial support

18 Appendix 1




Risks 4. Sound

management of public resources for social services delivery and social protection

Planned: Transparency enhanced with increased coverage of report on budget execution from 28 to 111 LEPLs. Result: A more comprehensive monitoring framework of LEPLs Implemented. Comprehensive database of LEPLs established in MOF. Disclosure in state procurement strengthened. Planned: Internal audit systems and procedures established in accordance with international standards. Result: Harmonization Unit of Internal Audit and Risk Assessment established.c Policy paper on public internal financial control approved by government.c Financial audit manual developed.c

MOLHSA and MOES established internal audit units

MOF report on budget execution MOLHSA and MOES decrees establishing their internal audit units

Activities Budget financing gap co-financed. Implementation of joint needs assessment monitored, with regular reports.

The $450 million financing gap estimated in the joint needs assessment for 2009 continued to be valid during the remainder of 2010 and beyond. ADB’s financing of $100 million equivalent in 2010 filled part of the financing gap. Joint needs assessment completed 9 October 2008. Joint needs assessment progress report issued 30 June 2009. Joint needs assessment progress report issued 15 June 2010.

Inputs ADB loan: $100

Appendix 1 19




Risks million equivalent, from ordinary capital resources

ADB = Asian Development Bank; FY = fiscal year; GDP = gross domestic product; LEPL = legal entity of public law; MOES = Ministry of Education and Science; MOF = Ministry of Finance; MOLHSA = Ministry of Labor, Health, and Social Affairs. a Poverty data from National Statistics Office of Georgia. b Data from International Monetary Fund. 2011. Georgia: 2011 Article IV Consultation. Washington, D.C. (April). c Data from Georgia Ministry of Finance. d Data from Social Service Agency. e Data from National Center of State Internal Control. Source: Asian Development Bank.

20 Appendix 2

FIGURES AND TABLES

Table A2.1: Macroeconomic Indicators 2007–2015

Table A2.2: Georgia: Social Sector Expenditures 2004–2011

Item 2007 2008 2009 2010 2011 2012 2013 2014 2015Nominal GDP (millions of lari) 16,994 19,075 17,986 20,791 23,577 26,428 29,345 32,430 35,839Real GDP annual change (%) 12.3 2.4 -3.8 6.4 5.5 5.3 5.0 5.0 5.0Consumer price index (%) 11.0 10.0 1.7 7.1 11.6 7.2 6.0 5.8 5.5

General government (% of GDP)Annual change in revenue ... 30.7 29.3 28.2 28.5 26.5 26.3 26.1 26.1 Tax revenues ... 24.9 24.5 23.4 24.9 24.0 24.0 24.0 24.0Current expenditures ... 28.5 30.1 26.0 24.1 23.0 22.7 22.2 22.2Capital expenditures ... 8.6 8.4 8.8 8.0 6.7 6.5 5.9 5.6Overall balance ... (6.3) (9.2) (6.6) (3.6) (3.3) (2.9) (2.0) (1.7) Total public debt 22.3 27.6 37.3 39.1 36.8 37.6 37.0 35.5 34.8

Investment and saving (% of GDP)Investment and saving 25.7 21.5 15.3 15.0 16.5 17.0 17.5 18.0 18.0 Public 3.4 4.3 6.9 7.1 6.5 5.7 5.8 5.4 5.6 Private 22.3 17.2 8.5 7.9 10.0 11.3 11.7 12.6 12.4Gross national saving 6.1 (1.1) 4.1 5.4 5.7 7.3 9.4 11.2 12.2 Public 4.2 2.2 (0.8) 2.2 4.4 3.4 3.6 3.9 3.9 Private 1.8 (3.4) 4.9 3.2 1.4 3.9 5.8 7.3 8.3Saving and investment balance (19.7) (22.7) (11.9) (12.6) (13.2) (12.6) (11.6) (10.7) (9.6)

External sectorExports of goods and services (% of GDP) 31.1 28.7 29.8 34.8 36.7 37.4 38.6 38.8 38.9Imports of goods and services (% of GDP) 57.9 48.9 52.2 53.8 52.5 51.8 51.0 50.2 50.5Gross international reserves (millions of $) 1,361 1,480 2,110 2,263 2,795 2,669 2,669 2,715 3,005Foreign Direct Investment (% of GDP) 17.1 12.2 6.1 4.3 5.2 5.4 5.7 5.5 5.5... = data not available; () = negative data.Sources: Ministry of Finance of Georgia and International Monetary Fund.

Actual Projections

Projection2004 2005 2006 2007 2008 2009 2010 2011

Health care (GEL thousand) 147,362 147,716 199,169 235,580 285,993 291,189 329,223 320,044 Education (GEL thousand) 65,292 59,172 332,611 379,252 418,666 488,430 537,844 555,010 Social protection (GEL thousand) 364,258 555,238 600,350 778,172 1,145,587 1,410,922 1,495,845 1,587,010 of which pensions 254,980 388,667 420,245 544,720 801,911 894,801 923,825 987,472 of which state financed insurance … … 15,366 37,260 80,453 132,773 147,258 136,160 Total expenditures (GEL thousand) 576,912 762,126 1,132,131 1,393,004 1,850,246 2,190,541 2,362,912 2,462,064 Total state budget (GEL thousand) 1,930,210 2,618,557 3,822,513 5,237,131 6,758,832 6,913,107 7,233,001 7,562,003

Health care (% of state budget) 7.6 5.6 5.2 4.5 4.2 4.2 4.6 4.2Education (% of state budget) 3.4 2.3 8.7 7.2 6.2 7.1 7.4 7.3Social protection (% of state budget) 18.9 21.2 15.7 14.9 16.9 20.4 20.7 21.0 of which pensions 13.2 14.8 11.0 10.4 11.9 12.9 12.8 13.1Total expenditures (% of state budget) 29.9 29.1 29.6 26.6 27.4 31.7 32.7 32.6

Health care (% of GDP) 1.5 1.3 1.4 1.4 1.5 1.6 1.6 1.4Education (% of GDP) 0.7 0.5 2.4 2.2 2.2 2.7 2.6 2.4Social protection (% of GDP) 3.7 4.8 4.4 4.6 6.0 7.8 7.2 6.7 of which pensions 2.6 3.3 3.0 3.2 4.2 5.0 4.4 4.2 of which state financed insurance ... ... 0.1 0.2 0.4 0.7 0.7 0.6Total expenditures (% of GDP) 5.9 6.6 8.2 8.2 9.7 12.2 11.4 10.4Total state budget (% of GDP) 19.6 22.5 27.7 30.8 35.4 38.4 34.8 32.1… = data not available.Source: Ministry of Finance of Georgia July 2011.

Actual

Appendix 2 21

Table A2.3: Approximations of 2010 expenditures under the program

($ million) Classification Amount Public expenditure and fiscal management 21.0 Health 45.0 Education 30.0 Insurance and contractual savings 0.3 Secondary, tertiary and higher education 3.3 Total 99.6 Note: Approximations as indicated in the Project Classification Summary linked to ADB. 2010. Report and Recommendation of the President to the Board of Directors: Proposed Loan to Georgia for the Social Services Delivery Program. Manila. Source: ADB staff calculations.

22 Appendix 3

STATUS OF COMPLIANCE WITH LOAN COVENANTS Loan 2664-GEO: Social Services Delivery Program

Covenant Loan Agreement Status of Compliance 1. The Borrower shall cause the Program to be carried out with due diligence and efficiency and in conformity with sound administrative, financial, environmental, and social practices.

Section 4.01 (a) Complied with.

2. The Borrower shall make available, promptly as needed, the funds, facilities, services, and other resources which are required, in addition to the proceeds of the Loan, for the carrying out of the Program.

Section 4.02 Complied with.

3. The Borrower shall ensure that the activities of its departments and agencies with respect to the carrying out of the Program are conducted and coordinated in accordance with sound administrative policies and procedures.

Section 4.03 Complied with.

4. The Borrower shall maintain, or cause to be maintained, records and documents adequate to identify the Eligible Items financed out of the proceeds of the Loan and to indicate the progress of the Program.


5. The Borrower shall enable ADB’s representatives to inspect any relevant records and documents referred to in paragraph (a) of this Section.

Section 4.04 (b) Complied with. No actions have been required. Government PCR was submitted February 2011.

6. As part of the reports and information referred to in section 7.04 of the Loan Regulations, the Borrower shall furnish, or cause to be furnished, to ADB all such reports and information as ADB shall reasonably request concerning the implementation of the Program, including the accomplishment of the targets and carrying out of the actions set out in the Policy Letter.


7. Without limiting the generality of the foregoing or Section 7.04 of the Loan Regulations, the Borrower shall furnish, or cause to be furnished, to ADB semiannual reports on the carrying out of the Program and on the accomplishment of the targets and carrying out of the actions set out in the Policy Letter.

Section 4.05 (b) Complied with. Government PCR was submitted February 2011.

Appendix 3 23

ADB = Asian Development Bank; MOES = Ministry of Education and Science; MOF = Ministry of Finance; MOLHSA = Ministry of Labor, Health, and Social Affairs; NBG = National Bank of Georgia; PCR = project completion report. Source: Asian Development Bank.

8. Implementation Arrangements. The MOF shall be the Program Executing Agency. The Program shall be implemented by the MOES, the MOF, the MOLHSA and the NBG.

Schedule 5, para. 1 Complied with.

9. Policy Actions and Dialogue. The Borrower shall ensure that all policies adopted and actions taken under the Program, as set forth in the Policy Letter and the Policy Matrix, shall continue to be in effect for and beyond the duration of the Program.


10. The Borrower shall keep ADB informed of policy discussions with other multilateral and bilateral aid agencies that may have implications for the implementation of the Program and shall provide ADB with an opportunity to comment on any resulting policy proposals. The Borrower shall take into account ADB’s views before finalizing and implementing any such proposal.


11. Governance and Anticorruption. The Borrower, through the MOES, the MOF, the MOLHSA and the NBG, shall comply with ADB’s Anticorruption Policy (1998, as amended to date). The Borrower, consistent with its commitment to good governance, accountability and transparency and pursuant to applicable national legislation, agrees: (a) that ADB reserves the right to investigate directly, or through its agents, any alleged corrupt, fraudulent, collusive or coercive practice relating to the Program; and (b) to cooperate with any such investigation and extend all necessary assistance for satisfactory completion of such investigation.


12. Monitoring and Review. The Borrower and ADB shall carry out review of the Program, particularly with respect to the outcome and output indicators and follow-up actions for the Program.

Schedule 5, para. 5 Complied with. Desk review conducted with support of Georgia Resident Mission including information gathering via e-mail correspondence and telephone conversations.

24 Appendix 4

OVERALL ASSESSMENT OF SOCIAL SERVICES DELIVERY PROGRAM

Criterion Weight (%)

Definition under ADB Guidelines

Rating Description

Rating Value

Program Rating

Score

Relevance 20 Relevance is the consistency of a project’s impact and outcome with the government’s development strategy for the country, and Asian Development Bank’s strategic objectives at the time of approval and evaluation and the adequacy of the design.

Highly relevant Relevant Partly relevant Irrelevant

3 2 1 0

3 0.6

Effectiveness 30 Effectiveness describes the extent to which the outcome, as specified in the design and monitoring framework, either as agreed at approval or as subsequently modified, has been achieved.

Highly effective Effective Less effective Ineffective

3 2 1 0

3 0.9

Efficiency 30 Efficiency describes, ex post, how economically resources have been converted to results, using the economic internal rate of return, or cost-effectiveness, of the investment or other indicators as a measure and the resilience to risk of the net benefit flows over time.

Highly efficient Efficient Less efficient Inefficient

3 2 1 0

3 0.9

Sustainability 20 Sustainability considers the likelihood that human, institutional, financial, and other resources are sufficient to maintain the outcome over its economic life.

Most likely Likely Less likely Unlikely

3 2 1 0

2 0.4

Overall assessment

Highly successful: Overall weighted average is greater than or equal to 2.7. Successful: Overall weighted average is greater than or equal to 1.6 and less than 2.7. Partly successful: Overall weighted average is greater than or equal to 0.8 and less than 1.6. Unsuccessful: Overall weighted average is less than 0.8.

Highly successful

2.8

Source: Asian Development Bank.

PCR: Georgia: Social Services Delivery Program€¦ · FDI inflows in the first quarter were weak...

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