Document of The World Bank FOR OFFICIAL USE ONLY Report No. 65028-UZ INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT INTERNATIONAL DEVELOPMENT ASSOCIATION MULTILATERAL INVESTMENT GUARANTEE AGENCY AND INTERNATIONAL FINANCE CORPORATION COUNTRY PARTNERSHIP STRATEGY FOR THE REPUBLIC OF UZBEKISTAN FOR THE PERIOD FY12-FY15 November 1, 2011 Central Asia Country Management Unit Europe and Central Asia Region International Finance Corporation Europe and Central Asia Region Multilateral Investment Guarantee Agency This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. The last Country Assistance Strategy was discussed by the Board on June 12, 2008 CURRENCY EQUIVALENTS Currency Unit = Uzbekistan Soum US$1 = 1,758 Soum (October 17, 2011) GOVERNMENT FISCAL YEAR (January 1 to December 31) WEIGHTS AND MEASURES Metric System ABBREVIATIONS AND ACRONYMS ADB Asian Development Bank IsDB Islamic Development Bank APL Adaptable Program Loan ISN Interim Strategy Note CAHMP Central Asia Hydrometeorology JICA Japanese International Cooperation Agency Modernization Project NGOs Non-governmental Organizations CAREC Central Asia Regional Economic MDGs Millennium Development Goals Cooperation MFN Most Favored Nation CAS Country Assistance Strategy MFRIT Ministry of Foreign Economic Relations, CAEWDP Central Asia Energy and Water Investment and Trade Development Program MIGA Multilateral Investment Guarantee Agency CBU Central Bank of Uzbekistan MOE Ministry of Economy CEDAW Convention on Elimination of All Forms of NQI National Quality Infrastructure Discrimination against Women ODA Official Development Assistance CIFA Country Integrated Fiduciary Assessment PEFA Public Expenditure & Financial Accountability CIS Commonwealth of Independent States PFI Participating Financial Institutions COM Cabinet of Ministers PFM Public Finance Management CPI Consumer Price Index PIU Project Implementation Unit CPIA Country Policy Institutional Assessment PPP Public-Private Partnerships CPPR Country Portfolio Performance Review PRSP Poverty Reduction Strategy Paper CPS Country Partnership Strategy RESP II Rural Enterprise Support Project ECA Europe and Central Asia RRA Rural Restructuring Agency FDI Foreign Direct Investment SDC Swiss Agency for Development & Cooperation FRD Fund for Reconstruction and Development SDR Special Drawing Right GAP Gender Activities Master Plan SME Small and Medium Enterprise GDP Gross Domestic Product SOEs State-owned Enterprises GNI Gross National Income SSC State Statistics Committee GPOBA Global Partnership on Output-Based Aid TA Technical Assistance GIZ Deutsche Gesellschaft für Internationale UN United Nations Zusammenarbeit (German Technical UNDP United Nations Development Program Cooperation UNECE United Nations Economic Commission for HDI Human Development Index Europe IBRD International Bank for Reconstruction and UNFPA United Nations Population Fund Development UNICEF United Nations Children‘s Fund ICT Information and Communications UNODC United Nations Office on Drugs and Crime Technology USAID United States Agency for International IDA International Development Association Development IDF Institutional Development Fund WBG World Bank Group IFAS International Fund for Saving Aral Sea WDR World Development Report IFC International Finance Corporation WHO World Health Organization IFIs International Financial Institutions WIS Welfare Improvement Strategy IFS International Finance Statistics WUA Water Users‘ Association IMF International Monetary Fund IBRD IFC MIGA Vice President: Philippe Le Houérou Dimitris Tsitsiragos Izumi Kobayashi Country Director: Motoo Konishi Tomasz Telma Ravi Vish Country Manager Takuya Kamata Task Team Fabrice Houdart Oksana Nagayets & Zafar Franciscus Johannes Linden Leaders Khashimov UZBEKISTAN: COUNTRY PARTNERSHIP STRATEGY, FY12-15 TABLE OF CONTENTS EXECUTIVE SUMMARY .......................................................................................................................... i I. INTRODUCTION ........................................................................................................................... 1 II. COUNTRY CONTEXT AND DEVELOPMENT AGENDA ...................................................... 1 A. Political and Regional Context .......................................................................................................... 2 B. Poverty Profile and Trends ................................................................................................................ 2 C. Recent Economic Developments ...................................................................................................... 4 D. Economic Prospects .......................................................................................................................... 7 E. Development Challenges and Opportunities ..................................................................................... 8 F. Government Priorities and Medium-Term Strategy ........................................................................ 10 III. BANK GROUP PARTNERSHIP STRATEGY ......................................................................... 12 A. Lessons Learned from previous CAS and Stakeholder Feedback................................................... 12 B. Proposed Bank Group Strategy ....................................................................................................... 14 C. Expected Results and Program of Lending and Analytical and Advisory Activities ...................... 16 Result Area 1: Increasing the efficiency of infrastructure.................................................................. 16 Result Area 2: Enhancing the economy‘s competitiveness ................................................................. 18 Result Area 3: Diversifying the economy ........................................................................................... 19 Result Area 4: Improving access to, and outcomes of social services ................................................ 20 D. Implementing the Country Partnership Strategy ............................................................................. 22 E. Partnerships and Donor Coordination ............................................................................................. 23 F. Monitoring and Evaluation.............................................................................................................. 24 IV. MANAGING RISKS ..................................................................................................................... 24 A. Country Risks .................................................................................................................................. 24 B. External Shocks ............................................................................................................................... 25 C. Risks to World Bank Group ............................................................................................................ 25 BOXES Box 1: Data Availability and Transparency Box 2: Gender in Uzbekistan Box 3: CPS Gender Strategy FIGURES Figure 1: Uzbekistan‘s economic performance, 1998-2010 Figure 2: Official inflation data, 1998-2010 TABLES Table 1: Uzbekistan‘s macroeconomic framework, 2009-14 ANNEXES Annex 1: Results Framework for the Uzbekistan CPS FY2012-2015 Annex 2: IBRD/IDA activities for FY12-FY15 (by Strategic Theme) Annex 3: Mapping of CPS Activities by Strategic Themes Annex 4: Development Partner Coordination Annex 5: CAS Completion Report Annex A2: Country at a Glance Annex B2: Selected Indicators of Bank Portfolio Performance and Management Annex B3(a): IBRD/IDA Program Summary Annex B3(b): IFC Investment Operations Program Annex B4: Summary of Non-lending Services Annex B6: Key Economic Indicators Annex B7: Key Exposure Indicators Annex B8(a): Operations Portfolio (IBRD/IDA and Grants) Annex B8(b): Statement of IFC‘s Held and Disbursed Portfolio Annex C: Uzbekistan Country Financing Parameters EXECUTIVE SUMMARY i. Recent Economic Developments. Uzbekistan has enjoyed robust gross domestic product (GDP) growth since the mid-2000s—averaging 8 percent annually according to official data―due mainly to three factors: first, favorable terms of trade, in particular the continued high world market prices of the country‘s key export commodities—copper, gold, natural gas and, since 2010, cotton; second, the government‘s macro-economic management, including its end-2008 stimulus; and third, limited exposure to international financial markets, which shielded it from contagion effects. ii. Economic Prospects. Overall growth is projected to continue around 7-8 percent annually during 2011-14, supported by net exports and a large capital investment program. World prices for Uzbekistan‘s principal exports are currently projected to remain favorable at least through the first half of the FY12-15 Country Partnership Strategy (CPS) period. The impact of recent increases in global food and energy prices is expected to be limited because of Uzbekistan‘s policy of self- sufficiency in both food grains and energy. Given the authorities‘ plans to finance up to two-thirds of their investment program from external sources, including loans, external debt is expected to increase gradually. iii. Development Challenges and Opportunities. The authorities‘ vision is for Uzbekistan to become an industrialized, high middle-income country by mid-century. Critical elements for such a transformation include: (a) increasing the economy‘s efficiency and competitiveness and reducing its dependency on a few commodity exports; (b) strengthening the financial sector to support private entrepreneurial activity; (c) diversifying production towards higher value-added activities where comparative advantage can be demonstrated; (d) creating jobs for the rapidly growing population of young educated people; and (e) improving governance, including access to information on government policies and their outcomes. iv. Government Priorities and Medium-Term Strategy. The authorities‘ approach toward achieving these goals is to continue the gradual transition to a more market-oriented economy, to ensure equitable distribution of growth between regions, and to maintain infrastructure and social services. Their medium-term growth and development strategy is reflected in a five-year Industrial Modernization and Infrastructure Development Program (2011-15) and in recently issued presidential decrees. These documents embody four cross-cutting development policy goals and priorities:  to increase the efficiency of infrastructure, especially of energy, transport, and irrigation;  to enhance the competitiveness of specific industries, such as agro-processing, petrochemicals, and textiles;  to diversify the economy and thereby reduce its reliance on commodity exports; and  to improve access to and the quality and outcomes of education, health and other social services. v. Bank Group Strategy. The strategy‘s principal goal is to support implementation of these four development policy objectives and priorities. It will continue with the two-track approach employed under the previous Country Assistance Strategy (CAS)—namely full or limited engagement, depending on the extent of agreement with the authorities on the direction of reforms in the policy areas or sectors concerned. In practice, this means that CPS support for increasing the efficiency of infrastructure and for human development and social inclusion—where government and Bank Group views broadly converge—will broaden and deepen the operational involvement and i related policy dialogue already in place from the previous CAS. Conversely, support for the government‘s industrial competitiveness and economic diversification agenda, where government and Bank Group perspectives differ, will be limited initially to analytical and advisory services. Overall, the CPS‘s framework and the program outlined below reflect the reform priorities that emerged from last year‘s dialogue with the authorities on the outcome of the 2009 country performance institutional assessment (CPIA). They are also broadly aligned with the Europe and Central Asia (ECA) region‘s three strategic pillars of competitiveness, inclusion, and climate change. vi. Bank Group Program. The provisional lending program comprises fifteen operations over the four years FY12-15, of which eleven will support reforms and investments for achieving sustainable growth, including more efficient energy use and diversification of exports. The total financial envelope will be about $1.3 billion, i.e. commitments averaging about $325 million annually. Besides new lending, the existing portfolio of investment projects will support the infrastructure efficiency and social inclusion elements of the government‘s strategy. Proposed analytical and advisory services will cover all four elements of the government‘s growth and development strategy. In addition, , the provisional list of analytical and advisory services includes a proposed joint strategy report ―Uzbekistan Vision 2030‖. This would lay out roadmaps to facilitate implementation of the authorities‘ industrial development, competitiveness and diversification agenda. vii. International Finance Corporation (IFC) Program. IFC will maintain its focus on private sector development through a combined investment and advisory approach. It will seek opportunities in the following priority areas: (a) direct investments in the real sectors, such as general manufacturing, services, and agribusiness; (b) strengthening access to finance for private sector through banks, especially by strengthening privately owned banks; and (c) encouraging private sector participation in infrastructure. viii. Risks. While the country‘s economic, political and social environment is currently stable, CPS implementation could be affected by a combination of risk factors. Regionally, these include deteriorating security conditions due to the situation in Afghanistan, and increasing tensions between Uzbekistan and its neighbors over regional issues—especially the management and use of trans- boundary energy and water resources. Domestically, they include the economy‘s vulnerability to possible external shocks affecting commodity prices and the anticipated inflow of foreign direct investment (FDI) and external loans to finance the large public investment program. The three main risks to CPS implementation are: (a) the significant political commitment required to confront bottlenecks currently blocking the efficient functioning of the economy and private sector development; (b) the lack of reliable data and related effectiveness of Bank Group policy advice; and (c) implementation delays and the potential for mis-procurement as a result of the authorities‘ contract expertise and price verification process. The program includes measures designed to manage or mitigate these risks. ii I. INTRODUCTION 1. The FY12-15 Country Partnership Strategy (CPS) builds upon the experience of the previous Country Assistance Strategy (CAS), which ended on June 30, 2011. The FY08-11 CAS, reflecting increased engagement following the FY06-07 Interim Strategy Note (ISN), adopted a two-track approach. This was defined as: full engagement, comprising both lending and analytical and advisory services in policy areas and sectors of common agreement on the path and pace of reform; and limited engagement, comprising only analytical and advisory services in areas where there was no, or incomplete consensus. It anticipated IDA15 financing in the range $375-450 million for FY08-FY11, with non-lending activities focused on key sector and thematic areas proposed by the government. Eight operations totaling $533 million were approved during the period, including a $110 million IBRD loan for energy in FY11—the largest sector investment loan to Uzbekistan to date. While this outcome exceeded expectations in mid-2008, it remains modest both in absolute terms and relative to the size of Uzbekistan‘s economy and population as well as the country‘s regional role and importance.1 2. Continuing the two track approach, the CPS proposes a program linked to the efficiency, competitiveness, diversification, and social equity elements of the government’s medium-term growth and development strategy. Thus, support for increasing the efficiency of infrastructure and for improving access to social services and its outcomes, where government and Bank Group views broadly converge, will combine new lending, within a $1.3 billion IBRD/IDA envelope, with related analytical and advisory services, technical assistance, and implementation of 10 operations currently underway. Conversely, support for the government‘s competitiveness and economic diversification agenda—where government and Bank Group perspectives differ—will be limited initially to policy dialogue and possibly technical assistance. IFC will maintain its focus on private sector development through a combined investment and advisory approach. II. COUNTRY CONTEXT AND DEVELOPMENT AGENDA 3. Uzbekistan is a lower middle-income, resource rich, doubly-landlocked country, strategically located in the heart of Central Asia. Its population of about 28.2 million (mid-2010), about half of whom live in urban areas, accounts for about forty percent of Central Asia‘s total. It is the world‘s sixth largest cotton producer 2 and fourth largest raw cotton exporter 3 . Other important commodities include natural gas, gold, copper and uranium. As the only country bordering five other Central Asian states including Afghanistan, Uzbekistan‘s economic and social development is important not only for its own young and rapidly growing population, but also for the management of the region‘s energy, water, and trade as well as for its political stability and security. 1 Uzbekistan did not fully utilize its IDA allocation in the past. Bank/IDA lending during the 14 years (FY94-07) preceding the previous CAS totaled $654.1 million—an annual average of $47 million or less than $2 per capita—of which $599.1 million was committed between FY94- 03 and $55 million between FY04-07. 2 National Cotton Council of America – Rankings, 2010. 3 UN COMTRADE database. 1 A. Political and Regional Context 4. Uzbekistan’s government and public administration have undergone important reforms, especially since the mid-2000s, but continue to be highly centralized. The influence and executive powers wielded by the Presidency and the Cabinet of Ministers (COM)—through numerous, sometimes internal, decrees and resolutions—are far reaching; and there appears little room for individual ministries or agencies to take even minor decisions or initiatives. Public accountability therefore remains weak and voice and participation in economic and social policy dialogue is limited. 5. Governance and transparency remain major challenges. The limited availability of key economic, financial, and social data, including consumer price indices (CPI), national accounts, and fiscal accounts4, significantly hampers the relevance, timeliness, and value of economic analysis and policy advice—both macro and sector-specific. It also undermines Uzbekistan‘s compliance with international standards and obligations and indirectly impedes FDI. The authorities recently indicated readiness to provide data for publication in the International Monetary Fund‘s (IMF‘s) International Finance Statistics (IFS) and undertook to improve national accounts statistics, but progress in implementing these commitments remains slow (cf. Box 1 in the next page).5 They have also improved public access to official information and data, including on-line through the State Statistics Committee‘s (SSC) website. Despite these advances, however, data availability remains selective. 6. Internationally, Uzbekistan’s relations with key bilateral development and trade partners—the European Union, Japan, Russia, the United States and, more recently, China— have continued to improve. On the other hand, its interactions with Central Asian neighbors remain weighed down by concerns over the management of the region‘s shared energy and water resources—exemplified by Uzbekistan‘s opposition to the construction of two large hydropower projects in the Kyrgyz Republic and Tajikistan that could affect the flow of water it requires for irrigation. Given upstream and downstream countries‘ differing interests as far as energy and water are concerned, regional cooperation in these two crucial areas—beyond the minimal bureaucratic and technical coordination needed to ensure effective functioning of their integrated infrastructure—is likely to remain difficult in the near term. B. Poverty Profile and Trends 7. Poverty has declined in recent years, due to rapid economic growth, government investments, and increased remittances from abroad. According to official data, poverty as measured by a national food-based norm of 2,100 kilo-calories per person per day declined from 27.5 percent of the population in 2001 to 19.5 percent in 2010. Rapid GDP growth, regular increases in public sector salaries, and increased remittances mainly from Russia (which peaked at an estimated 7 percent of GDP in 2008) were the main contributing factors. Although recent trends imply an accelerated decline in poverty since 2005, especially in rural areas, the elasticity of poverty reduction to GDP growth remains relatively low. Explanations include: the low productivity of agriculture which still employs one third of the population, but is subject to numerous implicit taxes; the high level of informality in the labor market; and the high and growing dependency within households 4 Uzbekistan provides CPI data, but not in accordance with the generally accepted methodology required under Article VIII, Section 5 of the IMF‘s Articles of Agreement. 5 An IMF-financed long-term resident statistical advisor is helping the authorities improve price and national accounts statistics. 2 (i.e. the small number of working adults relative to total household members) and regional divergences (i.e. richer regions growing faster). Box 1: Data Availability and Transparency The limited availability and poor quality of key economic, financial, and social data impedes a detailed, realistic assessment of the country‘s macroeconomic policies and structural reform performance. During the previous CAS, the authorities have made efforts to improve data quality and transparency and this Box summarizes progress achieved and challenges remaining in this important area. The main effort to improve access to information on public policies has been through the introduction of government-run websites. A wide range of economic statistics is now available on-line on the State Statistics Committee‘s (SSC) website. However, these data are often not aligned with international data dissemination standards. Specifically, until 2010, economic data had not been reported to any of the internationally recognized databases. Tangible progress was made in 2010 when the government published Financial Soundness Indicators on the International Monetary Fund‘s (IMF) website. The Bank and the IMF, together with other development partners, have launched a series of initiatives to assist the authorities in improving national statistics. Starting 2008, the IMF placed several long-term resident advisors in the SSC to provide technical assistance in improving the quality of balance of payments data, restructuring of the national accounts data collection system, revising the CPI methodology, and aligning the public financial reporting system with international standards. IMF technical assistance has also contributed to the improved quality of fiscal and monetary accounts and balance of payments. A financial statistics dataset is well advanced in terms of compliance with international standards and readiness for disclosure to the IMF. Reconciliation between fiscal and monetary data has been streamlined. In addition, the UNICEF and the Bank Group have been providing assistance to improve sampling and data collection practices and data analysis methodologies of household surveys, in particular for the 2011 Multi Cluster Indicators Survey (MICS)―a large household-level survey covering 20,000 households. It aims to facilitate verification of poverty-related statistics. In order to move public disclosure forward, the Bank Group engaged with the government on data transparency issues under the broader CPIA policy dialogue, linking data transparency with improvement in the overall governance environment. Partly as a result of these efforts, and those of the IMF an April 4, 2011 COM Resolution (# 2629) authorized initiation of preparatory work to publish economic data in the IMF‘s databases. Subject to the IMF‘s own procedures and timetables, the first publication is expected by early-2012. Nevertheless, actual progress towards improved data transparency remains slow. 8. In 2010, Uzbekistan ranked 102 out of 169 countries on the UNDP’s Human Development Index (HDI). Its score of 0.617 in the HDI‘s ‗medium human development‘ group of 42 countries, is below the ECA region‘s average of 0.717, but has improved from 0.588 in 2005. Uzbekistan has reached its United Nations‘ Millennium Development Goal (MDG) for maternal mortality and is on track for child (under five) mortality and reversing the spread of tuberculosis. Its MDG target for improving the quality of primary and basic secondary education while maintaining universal access is expected to be met. Reversing and halting the spread of HIV/AIDS by 2015, however, is unlikely, and halving poverty—from 27.5 percent in 2001 to 14 percent in 2015—will require maintaining high growth rates. A 2011 government COM resolution ―On additional measures for implementing the United Nations Millennium Development Goals in Uzbekistan‖ outlines tasks, measures, outcomes and responsible ministries for each MDG for the period 2011-15. 9. Uzbekistan’s national targets for gender equality and women’s empowerment are on track. It achieved gender equality in primary and general basic secondary and secondary vocational education in 2005 and is expected to improve gender balance in higher education by 2015. An 3 overview of opportunities and outcomes for women, using the upcoming 2012 World Development Report‘s (WDR) three-dimensional analytical framework, is summarized in Box 2 below. Box 2: Gender in Uzbekistan Endowments: Gender differences at the primary, secondary, and tertiary levels of the education system are small, but the educational attainment of employed women is on average higher than employed men. Access to prenatal and family planning services is high, with virtually all births attended by that of skilled health staff and 97 percent occurring in a health facility. According to official data, infant mortality is 11/100,000 births, but according to field surveys it may be three times higher. Importantly, there is no gender imbalance at birth. Contraceptive prevalence is about 65%. The total fertility rate has roughly halved since the early 1990s, from 4 to 2 live births per woman. Women‘s life expectancy exceeds that of men by 4 years. Access to economic opportunities: According to official data, 95 percent of both men and women of working age were employed in 2010, although according to survey data female employment is only 50 percent. Women account for about 45 percent of the labor force and over 65 percent of health and education system employees. They are under-represented in agriculture, construction, industry, and services, and only 25% of female entrepreneurs received credit in 2007. There is also evidence that women are benefiting less than men from the restructuring of shirkats into private farms: in 2007, only 7.2 percent of private farmers were women, according to Women‘s Committee statistics. Agency: Uzbekistan‘s Constitution and Family Code provide for equal rights and responsibilities for men and women. The State Committee for Women‘s Affairs—an officially registered non-governmental organization (NGO) comprising a nation-wide network of almost 80,000 primary organizations—coordinates and promotes women‘s activities. Its chairwoman is a Deputy Prime Minister. There is provision for mandatory nomination of female deputies for all administrative bodies at regional, district and township levels dealing with women‘s issues. As a result, nearly 400 women participate in decision-making at various levels of government, at the same time acting as head of the local branch of the State Committee for Women‘s Affairs. This structure extends down to the community level, where 10,000 women‘s adviser positions have been created. It was recently expanded to include full-time positions of Deputy Rectors in charge of women‘s issues at all higher education institutions. In terms of the political process, women remain underrepresented and, to address this issue, political parties set a quota of 30% for female candidates in elections. As a result, the number of women deputies in the national bi-cameral legislature increased from 9 percent to 17 percent in 2005. The Speaker of the Legislative Chamber (lower house) and the Vice-President of the Senate (upper house) are both women. Uzbekistan ratified the Convention on Elimination of All Forms of Discrimination against Women (CEDAW) in 1996. More recently, the government has evidenced increasing commitment to efforts to combat human trafficking. C. Recent Economic Developments 10. Uzbekistan has enjoyed robust GDP growth since the mid-2000s—averaging 8 percent annually according to official data. Its economy withstood the 2008-09 global financial crisis relatively well. Three factors explain these positive outcomes: first, favorable terms of trade, in particular continued high world market prices for the country‘s key commodities—copper, gold, natural gas and, since 2010 cotton; second, the government‘s macro-economic management, including its end-2008 stimulus equivalent to 4 percent of GDP, financed partly by the Fund for Reconstruction and Development (FRD)—a sovereign wealth fund established in 2006 to collect windfall gains from commodity-based revenues; and third, the country‘s limited exposure to world financial markets, which largely shielded it from contagion effects. Nevertheless, remittance inflows 4 fell by an estimated 30 percent in 2009, which most likely impacted the poorest, most vulnerable groups. 11. The 2010 consolidated balance, including FRD resources totaling $4.9 billion, posted a surplus equivalent to 2.2 percent of GDP. This enabled the government to continue its interventionist economic policies, including support for import substitution and export promotion. Specific measures included budget subsidies, tax holidays, preferential access to credit and foreign exchange, as well as duty-free imports of capital goods for enterprises in government-determined priority industries. The authorities intend to maintain these policies over the medium term, including a fiscal stance aimed at accumulating considerable FRD resources ($10 billion by 2014). 12. Uzbekistan has enjoyed large current account surpluses since 2004, owing to continued high prices for its commodity exports, remittances, and the authorities’ export promotion efforts. These surpluses, together with foreign exchange restrictions and net savings as a result of the government‘s tight fiscal policy, enabled the central bank to accelerate the accumulation of reserves, which had increased to $14.6 billion by 2010—equivalent to over 12.5 months of recorded imports, or 38 percent of GDP. Meanwhile, the authorities‘ zero net borrowing policy improved the country‘s debt indicators. External debt, 70 percent of which is public or publicly guaranteed, declined from 64 percent of GDP in 2001 to 15 percent of GDP in 2010, by which date the debt service to exports ratio had fallen to about 7 percent. 13. The spread between the official and (curb) market exchange rates in Uzbekistan remains considerable reflecting the existing restrictions in the availability of foreign exchange and trade. When export receipts declined in 2008, a spread between the official and curb market exchange rates re-emerged, averaging up to 40 percent during 2009-11 (cf. Figure 1 below). Although this may not jeopardize overall macroeconomic stability as long as strong internal and external surpluses continue, the central bank would decide when to exit from its exchange rate anchor if the balance of payments were to weaken. In this context, the existing level of reserves seems more than enough to satisfy the incremental demand for foreign exchange that would arise if current restrictions were removed. A more serious concern is the additional burden the wide spread imposes on private businesses that do not have preferential access to foreign exchange, increasing the cost of their imports and fueling imported inflation. It also inflicts an additional de facto tax on cotton and wheat producers under the state order or procurement system because government purchases of cotton and wheat are valued at the official exchange rate. 5 Figure 1: Uzbekistan’s economic performance, 1998-2010 Sectoral composition of GDP, % Sectoral contribution to GDP growth rates, % Budget performance, % of GDP External inflows and changes in international reserves 12.0 45 40 10.0 35 8.0 30 Consolidated Fiscal Balance (LHS) 25 6.0 20 Revenue (RHS) 4.0 15 Expenditure (RHS) 10 2.0 5 0.0 0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Debt ratios, % of GDP Exchange rate, soum/$1 (daily 1998-2010) 70 30 Debt service-to-export ratio (RHS) % 60 24.7 24.1 23.9 25 21.5 Debt-to-GDP ratio (LHS) 50 18.0 20 17.8 40 12.8 15 30 10.3 64.2 11.9 58.2 60.6 48.6 10 20 55.3 40.2 7.5 6.2 5.7 6.7 31.5 29.5 10 24.1 5 16.8 14.3 15.3 15.2 0 0 1998 2000 2002 2004 2006 2008 2010p Source: World Bank staff calculations based on official statistics 6 14. Although the reported inflation has shown a secular decline, price Figure 2: Official inflation data, 1998-2010 pressures remain. Prudent macroeconomic management, selective 50 price controls, and the soum‘s de facto peg to the US dollar all helped to lower inflation 40 which, according to official data, fell from 30 double digits through the early 2000s to less GDP deflator than 10 percent during 2004-10. According 20 to the State Statistics Committee (SSC), the CPI, official 10 CPI increased 7.2 percent year on year in 2010 (cf. Figure 2). Unlike in other 0 countries in Europe and Central Asia, 1998 2000 2002 2004 2006 2008 2010 imported food price inflation is not a major risk because Uzbekistan is essentially self- sufficient in key foodstuffs. However, high foreign exchange inflows combined with a Source: State Statistics Committee policy of nominal depreciation of the soum, high credit growth under the government programs, large increases in public-sector wages and social benefits, and the recent wide spread between the official and market exchange rates, are together creating inflationary pressures. Retail trade data indicate that actual inflation may be as high as 15 percent annually, twice the officially reported rate and similar to the International Monetary Fund‘s alternative CPI estimate. D. Economic Prospects 15. Overall growth is projected by the authorities to continue around 7-8 per cent annually during the strategy period, supported by commodity exports, domestic demand and investment. The government has embarked upon a $47.3 billion, five-year (2011-15) Industrial Modernization and Infrastructure Development Program; of which almost $26 billion, or about 60 percent is allocated to investments in oil and gas; over $5 billion, or about 11 percent to electricity; $2.6 billion, or roughly 6 percent each to chemicals and metallurgy; and the remaining 16 percent to construction materials, machine-building, textiles, transport, and other industries. The program, comprising 519 large investment projects, aims to increase industry‘s share of GDP from 24 percent in 2010 to 28 percent in 2015. Sources of financing have already been identified for about $30 billion, or 64 percent of the program, over two-thirds of which is expected to be funded by a combination of external loans and foreign direct investment (FDI), 25 percent by domestic investment and borrowing, and about 7 percent by the FRD. In this connection, external financing has already been secured for large projects in chemicals, hydrocarbons, and textiles—from China, India, Korea, Russia and Turkey—and about 23 percent of the program‘s projects are under implementation. While the program will not raise budget expenditures directly, it might increase public and publicly guaranteed external debt significantly, depending upon how much FDI can be mobilized. 16. Trends in commodity prices will be an important determinant of economic outcomes and performance in the short- and medium-term. Gold prices increased by about 26 percent on average in 2010, and are forecasted to increase by a further 16 percent in 2011, before trending down in 2012.6 Likewise, cotton prices are expected to remain much higher in 2011-12 than in 2005-09. The price of natural gas exported to Russia, after increasing by two thirds during 2008-09, is also projected to remain around its current level. Moreover, Uzbekistan will soon start selling natural gas 6 Source: Economist Intelligence Unit (EIU). 7 to China, thus diversifying its export market. As for imports, the impact of recently increasing world food and energy prices is expected to be limited because Uzbekistan is essentially self-sufficient in both food grains and energy. Table 1: Uzbekistan’s macroeconomic framework, 2008-14 Actuals Projections 2008 2009 2010 2011 2012 2013 2014 Population (million) 27.3 27.8 28.2 28.3 28.7 29.0 29.3 National Accounts Real GDP growth rates, percent 9.0 8.1 8.5 8.3 8.0 7.8 7.5 Annual average GDP, US$ million 27,934 32,818 38,974 46,114 53,344 57,239 63,285 Fiscal Balances (augmented Government, [incl. FRD]), US$ billion Revenues 42.8 37.4 37.1 38.9 39.0 38.9 38.9 Expenditures 32.1 34.2 34.9 36.0 35.3 35.6 35.5 Consolidated fiscal balance 10.7 3.2 2.2 2.9 3.7 3.4 3.3 BoP (in percent of GDP), US$ billion Current account 8.7 2.7 6.7 5.7 4.9 4.4 4.0 Exports, G&S 43.5 35.6 31.2 30.0 30.2 31.7 32.2 Imports, G&S 40.8 35.6 28.3 29.7 30.4 31.7 32.6 Gross reserves [incl. gold], 9.5 12.2 14.6 18.4 22.8 27.5 33.7 Relative prices CPI inflation rate (average),percent 7.4 7.8 7.2 7.7 7.5 6.9 6.5 Public debt External debt-to-GDP ratio 14.3 15.3 15.2 18.8 20.3 23.1 23.6 Source: Official Statistics and Bank staff estimates 17. External debt is projected to increase gradually during the next few years. The authorities‘ conservative foreign borrowing policy and favorable credit ratings provide ample room for additional borrowing in the medium term.7 Given their plans to finance the public investment program with foreign loans, external debt is expected to increase gradually from about 15 percent of GDP in 2010 to about 18 percent of GDP in 20158. Domestic public debt is small. Total domestic debt, including transactions between government accounts and the monetary sector, remains negative due to the accumulation of large fiscal savings at the central bank. Existing external public and publicly guaranteed debt is being serviced fully and there are currently no arrears. E. Development Challenges and Opportunities 18. To become a high middle-income country, Uzbekistan needs to continue to industrialize and expand domestic demand. As other middle income economies in Asia and Eastern Europe start experiencing increases in relative factor prices, their industrial structure will shift from lower- end labor-intensive manufacturing to higher value-adding manufacturing and associated knowledge 7 Cf. ADB and IBRD positive creditworthiness assessments and the EIU‘s ―B‖ credit rating, which is comparable to Croatia, Indonesia and the Philippines. 8 Both the IMF and the WB teams estimate that Uzbekistan debt at around 15 percent of GDP in 2010. However debt figures may be revised based on the GOU‘s recent official submission of debt statistics to DECDG for Global Development Finance report. According to this submission, Uzbekistan‘s external debt was estimated at around 19.6 percent of GDP in 2010. 8 services. When the lower-end industries start migrating out of these countries, Uzbekistan may be able to capture a substantial share, thanks to its cheap and abundant labor, relatively high skilled work force, low cost utilities and infrastructure and relatively large domestic market. Also, as one of the largest food producers in the region, some segments of its agriculture sector have potential to bring high growth and greater value added to the economy. 19. Critical elements for the transformation are to increase the efficiency and competitiveness of its economy. One of the critical issues for Uzbekistan‘s industrialization vision is to ensure that the country offers competitive factor prices, adequate services, and a hospitable investment climate. Sound infrastructure to support agglomeration and cluster development of manufacturing industries could also help reduce external costs such as supply logistics and market accessibility to firms. While existing labor costs and utility prices are competitive, Uzbekistan is one of the most energy inefficient countries in ECA: its consumption of energy per unit of GDP is three times the ECA average and of electricity per capita four times the CIS average. While its transport infrastructure is adequately maintained, it still takes 93 days on average to import goods, due not only to its doubly-landlocked geography but also to outdated customs procedures and related governance issues. As a result, Uzbekistan ranked 107 out of 155 countries for the customs-related sub- component of the Bank Group‘s Logistics Performance Index (LPI). Its tariff rates are high and there are other tariff-equivalent measures as well. All these barriers make Uzbekistan‘s current trade regime one of the most restrictive in the ECA region. However, the most recent (2009-10) Business Environment and Enterprise Performance Survey (BEEPS) data indicates a gradually improving trend. 20. Uzbekistan also needs a stronger financial sector so that it can support entrepreneurial activity. Although financial intermediation measured by broad money to GDP has doubled—from 10 percent in 2003 to 20 percent in 2010—it remains low for a country at this income level. The authorities recently increased the capital of the largest banks to strengthen the long-term resource base for investment and to mitigate the consequences of the global economic and financial recession. However, significant amounts of national savings, public and private, are not channeled for economic development, due to weak financial intermediation. Financing for private agricultural enterprises has also been limited, evidence of which includes the immediate oversubscription of agricultural credits by private farmers offered by a Bank-financed credit program. 21. Diversification of sources of growth based on private demand is key. Uzbekistan needs more private sector entrepreneurs. Its large firms are mainly state-owned enterprises even in non- strategic, non-mining sectors. Their performance and accountability receive little public scrutiny; they remain major sources of inefficiency and rent-seeking; and they have stifled transfer of new technologies and innovation. Uzbekistan has yet to see large-scale entry of new private enterprises or investment. The share of small and medium-sized enterprises in GDP is officially estimated at about 53 percent in 2010—up from an estimated 45 percent during the last decade; and its FDI stock per capita of $131 (2009)—one of the lowest within the CIS—is much less than the $1,023-$1,780 of the Caucasus countries, Russia, and Ukraine. In addition, small- and medium-sized private enterprises are not only agents of economic growth, but also of employment generation. 22. Diversification of production towards higher value-added activities and sub-sectors is also important. Compared to cotton, where state control over cropping patterns as well as input supply and output procurement remains substantial, horticulture can help private farmers move up the value chain and earn higher profit margins—in particular, in processing and exports. In textiles, garment production adds much higher value than yarn and textiles and requires advanced skills for marketing and sales. It also creates a greater number of jobs as well as a wider spectrum of 9 professional opportunities. Similarly, Uzbekistan‘s natural gas resources could be monetized by transforming them into petro-chemicals. 23. Uzbekistan’s social services—primary and secondary education, and primary health care—are well maintained. According to government statistics, over 65 percent of public budgets are allocated to social services and are in line with international standards on a per capita basis. Uzbekistan‘s long-standing National Education Program has resulted in a satisfactory physical infrastructure, broad provisions of learning materials and equipment, a 100 percent primary enrollment ratio, and 99 per cent adult literacy. Life expectancy at birth was 68 years in 2009, close to the world average and that of other regional CIS countries. However, inter-regional differences are one of the remaining challenges. 24. The growing population of young educated people will need employment. Between 2004-09, the working age population is estimated to have grown from 14.6 million to 16.8 million, while actual employment during the same period increased only from 9.9 million to 11.3 million (68 percent and 67 percent of the working age population respectively). Those who could not find employment at home, many from rural communities, migrated to find employment abroad. The number of Uzbek migrants in Russia and Kazakhstan is currently estimated at about 2 million, or about 12 percent of the country‘s working age population. While remittances, estimated at about $1.8 billion or 4.5 percent of GDP in 2010, help low income families maintain a minimal standard of living, more jobs need to be created within the country. In addition, structural changes in the economy will bring about changes in the nature of the skills development required in vocational and higher education. 25. Improving governance will help enhance the effectiveness of industrial development. The authorities‘ large scale medium-term program for industrial modernization and associated infrastructure development relies predominantly on state-owned enterprises (SOEs). The success of their SOE reform strategy will depend on SOEs‘ capacity for continuous change, leading to greater efficiency through the adoption of new technology, cooperation with foreign investors, and production of competitive products or public accountability for services. To achieve this objective, much stronger and more transparent governance and accountability structures are needed. 26. A final related challenge is the need to improve access to information on government policies and their outcomes, as well as on the living standards of the population. Despite the existence of several formal institutions, public accountability remains in practice limited. Reasons for this include: the de facto dependence of the legislative and judicial branches of government on the executive; a nascent mass media that remains essentially government controlled; a still nascent civil society. Moreover, the limited access and poor quality of key economic, financial, and social data impedes a detailed, realistic assessment of the country‘s economic policies and performance. While the government has recently taken initial steps towards improving data transparency and information sharing (cf. Box 1), substantial improvements in the quality of national economic statistics and the dissemination of economic data through internationally recognized channels remain a high priority. F. Government Priorities and Medium-Term Strategy 27. Uzbekistan’s strategic long-term development goal is to become an industrialized, high middle-income country by mid-century. The authorities‘ approach toward achieving this goal is to continue the gradual transition to a more market-oriented economy, to mitigate the potential negative consequences of external shocks, to ensure equitable distribution of growth across regions, and to maintain infrastructure and social services at an adequate level. Their long-term strategic development goal is clearly ambitious: it implies inter alia that the economy will need to grow at an 10 annual average rate of 8 percent for the next 20-30 years, with GDP per capita reaching about $6,500 by 2030 and over $13,000 by 2040. According to the 2008 Growth and Development study, only 13 countries have been able to sustain this high level of growth for such an extended period. 9 The same study also emphasizes that the transformation of a low income economy to a middle or high income one requires significant structural changes. 28. Against this background, the authorities’ medium-term growth and development strategy is reflected inter alia in: (a) the $47.3 billion, five-year Industrial Modernization and Infrastructure Development Program (2011-15); and (b) four recently issued presidential decrees. The latter cover the financial sector, industrial development, infrastructure, transport and communications, and economic reforms. These documents, together with President Karimov‘s statement at a government meeting to discuss 2010 outcomes and 2011 priorities, embody the following four cross-cutting development policy goals and priorities:  to increase the efficiency of infrastructure, especially of energy, transport, and irrigation;  to enhance the competitiveness of targeted, strategic industries, such as agro-processing, petrochemicals, and textiles;  to diversify the economy, in particular to reduce its reliance on commodity exports; and  to improve access to and the quality and outcomes of education, health and other social services, so that the benefits of overall growth are shared equitably by the entire population. 29. These goals and priorities are important prerequisites for continuing and sustaining longer-term growth. Their achievement, however, will ultimately depend on greater progress towards reducing the structural distortions inherent in Uzbekistan‘s gradualist, state-led development model and strategy. As noted in the preceding analysis of the country‘s development challenges and opportunities (paras.18-26), these include the issues discussed in the following paragraphs. 30. Industrial Development. The authorities have identified several strategic industries as priority candidates for industrial development and they plan to provide large scale financing. While certain industries are competitive, e.g. petrochemicals and higher-value added agro-processing, the comparative advantage of several others is less clear. More detailed assessments of these industries may be needed to ensure that Uzbekistan‘s true comparative advantages are realized, given the rapidly changing global economy. 31. Trade regime. As part of the diversification agenda, various measures are planned to encourage exports by small and medium-sized enterprises—such as the establishment of an export promotion agency and the adoption of international quality standards. The authorities have plans to gradually liberalize the trade regime—and to reduce transaction costs by streamlining customs procedures and reducing customs duties. But currently its trade regime remains one of the most restrictive in the ECA region 32. Private sector. As part of their competitiveness agenda, the authorities recognize the need to expand the private sector inter alia through protecting private property, reducing government controls, and minimizing the costs of doing business. However, there is still no clear implementation 9 The Growth Report—Strategies for Sustained Growth and Inclusive Development (Commission on Growth and Development) 11 plan for enhancing the private sector‘s role in the economy. In the absence of such a strategy and of much greater private sector development—including in agriculture, where liberalization of the state procurement system for cotton could increase incomes and unleash new opportunities for productivity growth in the rural economy—the authorities‘ competitiveness and diversification goals may be difficult, if not impossible, to achieve. 33. Financial sector. The authorities plan to implement various measures designed to further enhance the banking system and develop non-bank financial institutions. However, restrictions on access to foreign exchange and to local currency in cash remain major obstacles in Uzbekistan‘s business environment and investment climate. Until these constraints have been mitigated or removed, it may be difficult to attract the levels of investment required for the financing of the government‘s $47.3 billion industrial modernization and infrastructure improvement program, two thirds of which is supposed to be financed by foreign loans and foreign direct investment. 34. Social equity and inclusion. In health, the government‘s plans focus on achieving the MDGs and envision improvements in primary, emergency and specialized health care, preventive health measures, and a gradual transition to output-based financing. In education, the objective is to maintain high literacy rates, move to 12 years of mandatory free education, and improve the quality of primary, secondary and tertiary education (e.g. a new higher education development program that envisions improving laboratory equipment, curricula, and professors‘ salaries), while maintaining universal access to basic education. The authorities also envisage creation of millions of new jobs in small enterprises, mainly in rural areas, and in home-based businesses through labor contracting and improved provision of infrastructure and services. They also highlight the importance of refocusing social assistance so that it targets the poor, but provide few details as to how this will be done. 35. Governance and transparency. The authorities have issued decrees and made major statements which lay down principles for promoting the development of non-governmental organizations and assisting in the growth of the media. However, these documents provide few details about how goals such as reducing legal restrictions on information disclosure are to be achieved. III. BANK GROUP PARTNERSHIP STRATEGY A. Lessons Learned from previous CAS and Stakeholder Feedback 36. The FY08-11 CAS Completion Report rated CAS program results and Bank Group performance as moderately satisfactory. 10 This outcome mirrored the country‘s moderately satisfactory progress towards its development goals. Relatively strong performing areas included macroeconomic management, education, health, water supply and sanitation. Relatively weak performing areas included agriculture, governance, transparency and financial and private sector development. While the number of operations approved was in line with expectations in mid-2008, the total $533 million committed by end-FY11 was significantly higher. This was partly because Uzbekistan utilized more of its IDA allocation than expected and partly due to the resumption of limited IBRD lending in FY11 as well as the addition of two new energy operations. Analytical and advisory as well as technical assistance activities were implemented largely as planned, except for poverty analysis and the private sector. Portfolio performance remained moderately satisfactory. 10 Cf. Annex 5: Country Assistance Strategy Completion Report (CASCR), FY08-11 12 37. IFC focused on strengthening the private sector through several advisory projects. These facilitated technical improvements in the business environment, supported financial sector development, and promoted private sector participation in infrastructure. In addition, IFC invested $8 million in two financial sector projects, including a first equity investment in one of the country‘s few privately-owned banks. 38. The FY08-11 CAS incorporated several lessons learned from the preceding interim strategy (ISN) and more broadly from the Bank Group’s experience in Uzbekistan since the early 2000s. These included the following: (a) despite the slow pace of structural reforms and diverging views of the Bank and the government in several areas, a solid engagement through investment projects can create effective entry points for policy dialogue; (b) IFC‘s long-standing and constructive relationship with the government through advisory projects has not yet translated into significantly increased direct investments, due to the difficult business environment and the government‘s active engagement in private sector operations; and (c) given the country‘s limited capacity for project implementation, renewed attention needs to be paid to generic issues, such as the country‘s public procurement process and project management. 39. The outcomes recorded in the Completion Report have validated the accuracy and relevance of these lessons learned—especially as they relate to investment projects as entry points for encouraging structural reforms in some sectors where ESW engagement alone might be ineffective. Given their systemic nature, they have continued to inform the design and content of the FY12-15 CPS. In addition, four more detailed lessons emerge from experience since mid-2008:  the quality, relevance, timeliness, and value of the Bank‘s economic analysis and policy advice—both macro and sector-specific—remain constrained by the limited availability and poor quality of official economic, financial and social data;  the Bank‘s project cycle and the government‘s internal process for approving investment projects are still not well aligned, causing significant delays in credit or loan signing and effectiveness and thus in initial project implementation;  the failure to address fundamental policy differences during project design leads to poor portfolio performance. The credit for Energy Efficiency for Industrial Enterprises, approved in mid-2010 but which only became effective more than one year later, is the most recent example; and  the Ministry of Foreign Economic Relations, Investment and Trade‘s (MFRIT) procedures for contract expertise need to be streamlined. In particular, its often protracted process for ‗price verification‘ of contracts awarded following competitive bidding continues to complicate and delay the procurement process and, ultimately, project implementation. Early government action to address and resolve these issues will be an important prerequisite for effective and efficient implementation of this CPS. 40. Stakeholder consultations at the national and local level in March 2011 offered several important insights for the design and preparation of this CPS. Consultations were held with central and local government officials as well as with representatives of the private sector and civil society (including women‘s groups). Specific events included: meetings with key Ministers, both one-on-one and in groups; and meetings with local government officials and civil society groups and 13 the private sector in the city of Tashkent and in the regions of Bukhara, Fergana, Kashkadarya, Navoi, and Samarkand and Karakalpakstan. These consultations validated the importance of the goal of achieving growth with equity in Uzbekistan and provided support for the CPS four strategic objectives. Not surprisingly, support for the competitiveness and diversification agenda was strongest among the private sector and local government officials, while support for increasing the efficiency of infrastructure, improving access to social services, and the CPS governance and transparency objectives was strongest among representatives of civil society. Consultations at the sub-national level proved useful in providing an appreciation of the scope for tackling inter-regional disparities. B. Proposed Bank Group Strategy 41. The CPS’ principal goal is to support implementation of the efficiency, competitiveness, diversification, and social equity elements of the government’s medium-term development strategy. It will continue with the two-track approach employed under the previous CAS, i.e. full or limited engagement, depending on results achieved. In practice, CPS support for the result areas, where government and Bank Group views on sector-specific reforms and strategy broadly converge, will broaden and deepen the operational involvement and related policy dialogue already in place from the previous CAS. These programs, comprising full engagement, will thus maintain a high degree of continuity with the previous CAS. They include: (a) increasing the efficiency of infrastructure (energy, drainage, irrigation and water management, and, potentially, transport); and (b) human development and social inclusion (education, gender, health, poverty, and municipal services). Conversely, support for the government‘s industrial competitiveness and economic diversification agenda, where government and Bank Group perspectives differ, will be limited initially to analytical and advisory services and possibly technical assistance. Effective fulfillments of these agenda areas will require structural reforms related to trade, the financial sector, and the business regulatory environment as well as public sector management and institutions. Whether or not these limited activities lead to more comprehensive, full engagement will depend upon the Bank assessment of government intentions and progress in the reform areas concerned. Overall, the CPS‘ framework and the program outlined below reflect the reform priorities that emerged from last year‘s dialogue with the authorities on the outcome of Uzbekistan‘s 2009 country performance institutional assessment (CPIA). They are also broadly aligned with the ECA region‘s three strategic pillars of competitiveness, inclusion, and climate change. 42. A recently completed creditworthiness assessment reaffirmed Uzbekistan’s eligibility for IBRD lending. However, since its GNI per capita income exceeded the IDA operational cutoff for the first time only in 2010, Uzbekistan will retain its access to IDA resources for the entire FY12- 15 CPS period, with no explicit timetable for graduation. The creditworthiness assessment also recommended that the CPS focus on: (a) improved data transparency and reliability to enable the monitoring of credit risk; (b) measures to improve the business environment; and (c) reforms necessary to sustain high growth rates and diversify the economy away from a declining stocks of primary commodities. 43. The focus on investment lending and its emphasis on improving the business environment and on data transparency is consistent with the creditworthiness assessment’s recommendations. Planned lending is directed primarily towards investments and related reforms designed to increase the efficiency of infrastructure, to diversify the economy, especially agriculture, and to promote social inclusion and human capital development—all necessary conditions to sustain high rates of sustainable growth. Likewise, non-lending activities will focus on measures to improve the business environment and investment climate, to promote private sector development, and to 14 strengthen institutions for competitiveness, including continued progress in public information disclosure and data transparency. 44. The provisional IBRD/IDA lending program comprises sixteen operations over the four years FY12-15. Eleven would support reforms and investments for achieving sustainable growth and reducing reliance on primary commodities directly, including more efficient energy use and diversification of exports. The total financial envelope with be $1,350 million11, comprising $710 million IBRD and $640 million IDA, of which $540 million is the amount available to Uzbekistan during FY12-14 under IDA-16.12 Although much larger than the original IDA-only allocation in the previous CAS, this IBRD/IDA $325 million annual average would be in line with the actual outcome in FY11. Two operations—for Advanced Electricity Metering and Alat-Karakul Water Supply—are at an advanced stage of preparation for delivery in FY12. 45. Besides new lending, the existing, recently expanded portfolio of investment projects will support the infrastructure efficiency and social equity elements of the government’s strategy. Six of ten investment projects totaling $433 million, or 68 percent of the current $634.7 million portfolio, were approved during the last two years (FY10-11), including four for education, health, and municipal services. Given their significance in terms of direct support for implementation of sector-specific reforms in these areas, management and supervision of these operations will be an important component of the program, especially during the first two years. 46. Proposed analytical and advisory engagement would cover all four elements of the government’s growth and development strategy. Thus, in addition to project-related analytical and advisory services and technical assistance in the infrastructure efficiency and human development result areas, the provisional summary of analytical and advisory services includes a proposed joint strategy report—―Uzbekistan Vision 2030‖—that would lay out roadmaps to achieve selected key development goals. These goals include industrial development, the competitiveness and diversification agenda, as well as a series of policy notes designed to address comparative advantage and structural reform issues in specific industries selected by the government. In line with other similar ongoing exercises, such as ―China Vision 2030‖, particular attention will be paid to collaborative or joint analytical work with relevant Uzbek think tanks, with an emphasis—in addition to the planned vision report—on providing ‗just in time‘ policy advice and technical assistance to maximize the impact of analytical and advisory program. 47. Building upon the positive results achieved during the previous CAS, sector policy dialogue will address strategic issues and provide deeper analytical underpinning for planned lending operations. For the efficiency agenda, a water utility note will address sector-wide effectiveness and institutional issues, based on the preliminary findings of a recently completed fiduciary review, and provide the policy framework for proposed water supply and sanitation investment lending. In addition, a planned energy sector strategy review will analyze efficiency issues in a holistic manner as background for preparation of a proposed downstream electricity distribution project. As regards the diversification agenda, a horticultural sector study will explore practical options for developing higher value-added agriculture activities as the basis for preparation 11 Overall lending amounts will depend on the IBRD's lending capacity and demand by other borrowers as well as Government demand and performance in the course of the CPS period. 12 Depending upon its continued IDA eligibility, Uzbekistan‘s IDA-17 allocation is expected to be at least as much as under IDA-16, subject however to the total IDA resources available, the country‘s CPIA rating, the total number of IDA-eligible countries, the performance and assistance terms of these other IDA-eligible countries, and the terms of IDA‘s assistance, which are determined annually and based on the risk of debt distress. IDA allocations are denominated in SDRs, with the US dollar equivalent dependent on the prevailing exchange rate. 15 of a horticultural operation. A series of technical engagements in the financial and private sectors―innovation, quality infrastructure, information and communications technology, mortgage finance, and new business registration―have resulted in a proposed program of private sector development policy notes and a proposed credit access operation. However, the pace and scope of these analytical and advisory services will ultimately be determined by the government‘s own agenda, priorities, and political will. 48. Uzbekistan is a relatively small recipient of Bank Group-managed trust funds, with a $3.8 million portfolio and disbursements averaging about $800,000 annually. Well integrated into the country program, trust fund financing has proven especially instrumental in: (a) expanding the Bank Group‘s ability to provide advisory services; and (b) piloting activities for eventual mainstreaming (e.g. the Karakalpakstan silk development pilot, global partnership on output-based aid, and energy efficiency strategy for manufacturing). Additional trust fund resources for similar advisory services and pilot activities will be sought during the CPS period, although the main focus will be on implementation of the nine existing activities. 49. The strategy is consistent with regional strategies and programs for Central Asia. The Bank Group contributes to the sound management of water resources for both irrigation and power generation in Central Asia at the regional and country levels. As part of its regional approach, the Bank has initiated a comprehensive Central Asia Energy-Water Development Program (CAEWDP), which aims to improve diagnostic and analytical tools to help the countries in the region manage their water and energy resources, strengthen regional institutions, and stimulate investments, in coordination with other development partners. It includes assessments of Uzbekistan-Afghanistan- Pakistan regional electricity trade and United States Agency for International Development (USAID) funded work on a Regional Energy Markets Assistance Program. The Bank also works together with German International Cooperation (GIZ) and the United Nations Economic Commission for Europe (UNECE) on institutional strengthening of the International Fund for Saving the Aral Sea (IFAS). 50. IFC will maintain its focus on private sector development through a combined investment and advisory approach. It will seek opportunities in the following priority areas: (a) direct investments in the real sectors, such as general manufacturing, services, and agribusiness; (b) strengthening privately owned banks; and (c) encouraging public-private partnerships, especially in infrastructure. Through financial sector intermediaries, IFC will provide credit lines for small and medium sized enterprises to support job creation and diversification of the economy and will try to extend trade finance lines, a relatively new product, to facilitate private sector trade flows. On- lending by banks to SMEs will be enhanced by the financial infrastructure advisory project to further develop credit information sharing systems and facilitate the introduction of risk management certification as well as develop modern collateral registry jointly with the World Bank. Real sector investments may include projects with international joint ventures, especially in export-oriented projects, as well as projects that introduce modern technologies and increase domestic value-added. Infrastructure advisory work will continue. C. Expected Results and Program of Lending and Analytical and Advisory Activities Result Area 1: Increasing the efficiency of infrastructure 51. Activities in this result area will support sustainable growth through increased efficiency of energy, transport, and water resources management—in line with the 2010 Presidential Decree (1446) on Acceleration of Development in Infrastructure, Transport and 16 Communications Construction. In addition to completion of three ongoing operations—Enterprise Energy Efficiency phase I, Talimarjan Transmission, and Ferghana Valley Water Resources Management-Phase 1—the Bank plans to initiate new lending and associated analytical activities in electricity metering and distribution, in transport, and in water resources management. IFC‘s PPP work in infrastructure would also contribute to these government objectives. 1.1 Sustainable infrastructure development 52. Despite being one of only two double landlocked countries in the world, Uzbekistan’s strategic location between Asia and Europe makes it a key transit point for Central Asia. The transport sector‘s performance and contribution to the government‘s efficiency, competitiveness and diversification agenda is therefore an important component of its medium-term development strategy. Using international standards and practices, the government has initiated a series of measures aimed at improving the efficiency of transport operations and services while reducing costs and environmental footprint. Bank engagement—a proposed transport assessment (FY12-13) followed by a potential transport lending operation (FY15)—will be targeted towards improving the country‘s links with the global market place, increasing the efficiency of various transport modes, preserving the value of existing assets, and upgrading civil works and construction management practices to international standards. These activities will also address the transport system‘s environmental footprint and safety dimensions and, through seminars and the proposed transport assessment, knowledge sharing about international good practice. 1.2 Improving water resources management and climate change preparedness 53. Activities in this area will continue to focus on development of sustainable water management systems for irrigation and addressing associated land quality and drainage problems. With more than 85 percent of Uzbekistan‘s cropland dependent upon irrigation, in turn comprising about 10 percent the country‘s total land area, the availability of water and its efficient and sustainable use is arguably one of the country‘s most important development challenges. Bank support to upgrade and improve the efficiency of the irrigation and drainage network in selected districts will continue through two ongoing projects—Rural Enterprise Support Project (RESP) II and Ferghana Valley Water Resource Management-Phase I—and in FY13 a proposed South Karakalpakstan Drainage Project in northwest Uzbekistan, one of the country‘s poorest regions. 54. At the regional level, activities will continue to support ongoing Bank Group regional initiatives, such as the Central Asia Energy-Water Development Program (CAREC), CAREC‘s Energy Sector Coordinating Committee work program13, and the International Fund for Saving the Aral Sea (IFAS). These activities include the following: (a) an ongoing Uzbekistan-Afghanistan- Pakistan (UAP) electricity supply and trade study to assess the potential for regional electricity trade and, more broadly, regional integration of electricity markets in Central and South Asia; (b) strengthening mathematical modeling of water management in the Amu Darya and Syr Darya river basins under the ongoing CAREC work program; (c) strengthening Central Asia‘s weather, water, and climate services through the recently approved Central Asia Hydrometeorology Modernization Project (CAHMP); and (d) technical assistance and capacity building in water and energy resources management. Under these programs, opportunities exist to leverage Uzbekistan objectives and regional funding for both energy and transport infrastructure and water resources management. 13 As approved at the November 2009 CAREC Ministerial Meeting. 17 Result Area 2: Enhancing the economy’s competitiveness 55. Activities in this result area aim to support government priorities for enhancing the economy’s competitiveness. Since this will require significant reforms to reduce the structural distortions inherent in the government‘s development strategy, broadening and deepening the policy dialogue with the authorities will not only be a significant challenge, but also a prerequisite for meaningful CPS engagement in this area. Thus, unlike Result Area 1, where existing and planned investment lending accounts for a large share of targeted outcomes, analytical and advisory activities will be the main instruments for Bank engagement. Two areas are envisaged: (a) strengthening institutions and macroeconomic environment; and (b) enhancing the competitiveness of strategic industries and promoting exports. 2.1 Strengthening institutions and macroeconomic environment 56. The key instrument for the competitiveness agenda would be a joint strategy report “Uzbek Vision 2030�. This will be carried out early in the CPS period at the request of the government. The report will analyze the potential sources of high and sustained growth that could be exploited as it moves towards a more competitive, diversified economy. Policy recommendations will aim to maximize the potential of the economy to maintain real GDP growth and generate more jobs, focusing on macroeconomic management, international trade policy, the business environment and enterprise reform, and labor market policies. The report will be supported by regular macroeconomic policy dialogue, in conjunction with the IMF. 2.2 Enhancing the competitiveness of strategic industries and promoting exports 57. The government plans to promote export-oriented strategic industries as defined in the Presidential Decree (1442) on "Priorities for Industrial Development, 2011-2015‖. Although views between the Bank and the Government differ on how to reach this important objective, the Bank will develop a series of policy notes on the competitiveness or otherwise of selected industries, designed to provide the government and other stakeholders with a diagnostic analysis, including the constraints impacting a particular industry‘s competitiveness and suggest a roadmap for policy actions. IFC will seek to promote selected export-oriented industries by partnering with foreign investors planning to set up joint ventures in Uzbekistan. 58. Uzbekistan has made export diversification—particularly into production of higher quality goods—and technological upgrading a main priority of its development strategy. Upgrading the national quality infrastructure, which includes standardization, accreditation, certification and metrology, is a central part of this strategy. A modern and internationally harmonized national quality infrastructure (NQI) will give Uzbek firms the tools to surmount existing barriers to quality production and exports, and benefit from foreign technologies embedded in standards and in modern testing, measurement and certification procedures. In FY12, the Bank will continue to work closely with Uzstandard and relevant ministries to identify areas for technical assistance. It would eventually lead to greater contributions by the private sector to the export diversification while existing state-owned enterprises will continue to make a fair share of contributions until the private sector in the country develops to a larger extent. 59. The CPS will also provide support for initiatives by the Ministry of Economy (MOE) and the Ministry of Foreign Economic Relations, Investment and Trade (MFERIT) to promote exports. Proposed technical assistance will support the development of policies and programs 18 designed to promote an export-oriented economy, taking into account the lessons of international experience from Eastern Europe, East Asia and elsewhere. Specific areas will include the design and scaling-up of financial instruments to promote exports (trade finance, guarantees, credit lines for SMEs), carrying out an export process mapping to reduce the number, time and costs of export procedures, and contributing to the planned development and implementation of a ―one-stop-shop‖. IFC‘s direct lending to the real sector as well as on-lending to SMEs and trade finance lines through the financial intermediaries will also contribute to these objectives. Result Area 3: Diversifying the economy 60. In support of the government’s objective to diversify the country’s sources of growth, the CPS will help provide a comprehensive platform of assistance to support enterprise reform and modernization. Targeted areas of support include: business environment reforms; accelerating innovation and ICT development; and upgrading of the country‘s national quality infrastructure. In addition, the CPS will support selected value chains in agriculture and livestock by continuing to provide financing opportunities with particular focus on non-cotton related activities. In addition, it will support the formulation of a horticultural strategy (FY13), paving the way for a possible horticultural project (FY14). 3.1 Strengthening the foundations for private sector-led diversification 61. The Bank Group will continue policy dialogue on private sector development, the business environment and the investment climate. Through an investment climate reform advisory task, the Bank will assist in further developing an institutional and regulatory framework conducive to encouraging private sector-led diversification. The strategy objective is to develop a strategic engagement that can offer concrete recommendations and assistance for reforms that are implementable and that ultimately result in an improved business environment. In addition, the Bank Group will support private sector development in rural areas by scaling up activities under the ongoing RESP II. Following completion of its long-standing broad-based investment climate and business environment advisory work, IFC will contribute to private-sector led diversification through new forms of advisory projects more narrowly focused on the PPP agenda and financial infrastructure, as well as through possible direct investments in priority sectors. 62. Given the government's intent to attract increased FDI, and while the availability of political risk insurance for investments into Uzbekistan is still limited, there is a demand for MIGA's products. Sectors potentially suitable for expanded MIGA engagement in the course of CPS implementation are energy (oil and gas production and transportation) as well as foreign investment in health sector PPPs. 63. Uzbekistan’s banks continue to face challenges in meeting the needs of small and medium-sized enterprises. In addition to the ongoing RESP-II, which improves access to credit by small- and medium-sized agricultural enterprises, the Bank plans to prepare a possible microfinance operation towards the end of the CPS period. To support reforms in the area of financial access, the CPS will also provide targeted technical assistance to the Central Bank of Uzbekistan (CBU) to help improve a secured transaction system and increase the efficiency of credit information sharing in accordance with international good practices. IFC will continue supporting the privately-owned segment of the banking sector with targeted lending for SMEs and explore opportunities for providing trade finance to private companies. 19 3.2 Diversifying agriculture 64. Agriculture is the sector where efforts to diversify output and exports could produce results in the medium-term. Agriculture accounts for about 20 percent of GDP, 15 percent of export revenues, and still over one-third of employment. CPS interventions will focus on two key challenges: (a) diversifying agriculture away from cotton and wheat into other high value crops such as fruit and vegetables, as well as livestock; and (b) intensifying agricultural yields and productivity. These will be supported by additional financing for the credit-line component of RESP II, with a focus on crops other than cotton, as well as analytical and advisory activities to develop a horticulture strategy that would pave the way for preparation of a horticulture project. These activities will also help further develop Uzbekistan‘s domestic market and encourage a gradual shift from the cotton state order system and public intervention towards a more liberal and diversified agricultural sector. Result Area 4: Improving access to, and outcomes of social services 65. This result area will support the government’s objective to reduce regional and rural- urban inequities through promoting social inclusion and human capital development. To this end, the Bank would initially address the following government requests through recently approved lending (under the previous CAS) and studies: (a) improving the quality, and equitable access to early childhood education and basic education services; (b) providing more accessible quality and sustainable health services, especially in the rural areas, (c) continuing to improve the coverage and sustainability of potable water supply and sanitation services, and (d) improving the social protection system, especially the targeting of assistance to the most vulnerable groups. 4.1 Strengthening the quality of health and education and improving access to early childhood development 66. CPS support for health will comprise a combination of investment operations, technical assistance, and related analytical and advisory services to extend and deepen ongoing reforms. Thus, CPS activities will focus on secondary care, medical education, drug policies and implementation of a multi-sectoral public health strategy. Technical assistance and analytical work on the role of the private sector and output-based financing will continue throughout the CPS period. 67. CPS support for education will continue improvements in the quality of basic education and tackle access to and the demand for pre-school education. The ongoing second Basic Education Project supports efforts to improve the effectiveness of teaching and learning through: (a) targeted interventions in selected general secondary education schools and preschools in rural poor areas; (b) development of institutional capacity to assess student learning; and (c) adoption of predictable and transparent school budgets nation-wide. Pre-school coverage is only 16-20 percent and parenting programs are negligible. Through a proposed Early Childhood Education project, the CPS will include more flexible provision of preschools to increase enrollment, address parental perceptions of the importance of preschool education especially in rural areas, and carry out interventions that would increase the demand for pre-schooling. 4.2 Water Supply and Sanitation 68. Rehabilitating and expanding the country’s water supply and sanitation infrastructure remains a top government priority. In addition to the utilities‘ substantial investment and capacity needs in both urban and rural areas, a major challenge is to optimize their roles and capacities for developing and implementing a more effective and sustainable water strategy. This entails matching 20 financing mechanisms to sector priorities and strengthening its regulation and governance towards achieving higher efficiency and sustainability of public expenditure, while leveraging better management and performance of operators. CPS support will include ongoing work designed to strengthen water sector governance and capacity. This will include studies on financial and institutional aspects of water supply and sanitation and integrated management of water resources. It will also include lending for water supply (Alat-Karakul) and sewerage (Karakalpakstan)—with the latter to be integrated into two larger programmatic operations (Water & Sanitation Sector Investment Projects 1 & 2) that would establish rules of project engagement, give the government greater planning flexibility, and, at the same time, create accountability for quality of feasibility studies, project design, preparation, and outcomes. The indicative program also involves technical assistance for institutional capacity building and identification of potential sector reforms. 69. CPS support is also envisaged for integrated urban development projects in major cities. Municipalities suffer from a backlog of infrastructure investments, weaknesses in service provision, and inadequate or non-existent town development plans or strategies. Diversifying from the exclusive focus on water supply and sanitation, these integrated projects will address various municipal investment needs, including solid waste management, infrastructure including roads, public heating, information and communications technology (ICT), electricity, community-based heritage protection and tourism promotion. A first project is tentatively planned for FY15. The CPS also provides for a municipal services sector review. 4.3 Promoting social inclusion 70. Uzbekistan’s mahallah (community-based) social protection system is designed to benefit poor families. Over the years, however, targeting efficiency has weakened due to different patterns of economic development, such as the increasing role of informal sector earnings and remittances, and the delegation of additional responsibilities to the mahalla administration. Building on the achievements of the existing system, the Bank Group will help address these emerging challenges by introducing efficiency enhancing innovations (e.g. an electronic registry of beneficiaries, and proxy-means based identification criteria.). These activities will support evolving reforms aimed at effective implementation and results monitoring of these and other social protection policies and programs, as well as the management of the system as a whole. They will also allow for up-to-date information on the ability of the existing social protection system to identify and target the poor and for quick remedial interventions. Meanwhile, the Civil Society Development Fund managed by the Bank Group‘s Country Office in Tashkent awards 7-9 small grants annually for social empowerment and inclusion projects implemented by civil society organizations. Cross Cutting Result Area: Governance 71. Given the country’s challenging governance and transparency environment, the CPS will broaden and deepen the focus on these two areas started under the last CAS. First, it will continue support for development of Uzbekistan‘s public finance management system, based on international best practice and public expenditure and financial accountability (PEFA)-type benchmarks. Specifically, following the recently completed Country Integrated Fiduciary Assessment (CIFA), a full PEFA assessment will be undertaken in FY12. Second, building upon the 2009 governance assessment of primary health care services and the operational work under ongoing water supply and sewerage operations, the CPS will include activities designed to improve the governance, management, and performance of sector and project institutions, especially in water supply and sewerage and energy. Third, the CPS will continue policy dialogue and technical assistance aimed at improving public access to, and the quality of basic economic, financial, and 21 social data. In this context, a recently approved $40,000 project financed under the ‗Demand for Good Governance‘ window of the Development Grant Facility (DGF) aims to improve public oversight of government- as well as Bank Group- financed projects in Uzbekistan through creation of a countrywide monitoring and evaluation network of civil society organizations (CSOs). Benchmarks for progress in data transparency include: improved accounting and reporting systems; increased financial data disclosure; an operating external audit function, with adequate human capacity and using international standards; and improved internal controls and effective internal audit functions across key budget organizations. D. Implementing the Country Partnership Strategy 72. Inherent in the two-track, full or limited engagement approach successfully employed under the previous CAS is the continued need for flexibility in both program design and implementation. There are two main reasons for this. First, although Uzbekistan has weathered the global recession better than most countries, the still uncertain pace and scope of the global economy‘s recovery may impact its key commodity exports and thus its medium-term growth prospects. Second, while the authorities appear committed to the goals of their competitiveness and diversification agenda, whether there is commensurate political will for the difficult structural reforms required remains unclear. Thus, the lending program outlined above, in Annexes 3 and 4 and B3, and the summary of non-lending services listed in Annex B4, are both illustrative and subject to potentially significant change, especially in the second half of the period (FY14-15). 73. Thus, the CPS program will be reviewed annually and adapted as may be needed to ensure its continued consistency with the authorities’ medium-term development strategy. A CPS Progress Report in FY14 will assess the CPS‘ strategic direction, based on results agreed with the government and reflected in the results matrix. Meanwhile, in addition to routine implementation support and supervision of individual operations, the annual country portfolio performance review (CPPR) process will be resumed, focusing jointly with the government on ongoing or emerging systemic issues. Mid-term reviews of project implementation will assess any needs for restructuring to align project development objectives with ongoing CPS priorities, to enhance linkages to analytical and advisory services, and to implement monitoring and evaluation systems to monitor outcomes. Most attention will be given to the six relatively new operations that are likely to have the greatest impact on the strategy outcomes. 74. Given the recent and anticipated increase in the size of the portfolio, implementation support will be enhanced, in particular for procurement management. As noted earlier, dialogue is already underway with the authorities with the aim to streamline MFERIT‘s contract expertise process. If contract registration is not completed within an internationally accepted period, the Bank will apply its new (January 2011) Guidelines for Procurement and declare mis- procurement, as appropriate. In addition, procurement staff in the Bank Group‘s Country Office in Tashkent is being strengthened. Meanwhile, the authorities, specifically the COM, have already established enhanced monitoring procedures for implementation of Bank Group-financed projects. 75. The CPS program is consistent with the Bank’s Gender Strategy and Gender Action Plan (GAP) and seeks to promote analysis and ultimately operational activities focusing on women’s economic empowerment. The GAP also emphasizes the demand side of the gender equation by promoting closer operational collaboration with clients as well as expanding their capacity to design, implement and monitor gender-sensitive policies and programs. The CPS will address gender issues through existing and proposed new operations, capacity building, and by 22 including gender-disaggregated data in project monitoring and evaluation systems. Box 3 below outlines the five main activities that make up the gender strategy. Box 3: CPS Gender Strategy  Project interventions—For new projects, a gender expert will develop project-specific interventions, if analysis during social assessment indicates that the project is suitable for addressing gender issues. For ongoing projects, incremental interventions designed to strengthen their gender focus will include the following: o RESP-II will include additional focus on female farmers‘ participation in project-sponsored trainings (if necessary, by means of a quota); o RESP-II, Drainage, and Ferghana Valley Water Resources Management will seek to involve more women in the WUA decision-making process; o Basic Education—the teachers‘ training component will include additional efforts to promote gender sensitivity; o Talimarjan Transmission—based on an ADB-sponsored gender assessment and plan of action, the project will include gender-specific activities.  Capacity building—to help improve Bank staff and government officials‘ understanding of and sensitivity to gender issues, team members of the 2011 ECA Gender Assessment and 2012 WDR on Gender Equality and Development will be invited to make presentations in the Country Office in Tashkent. In addition, Project Implementation Unit (PIU) staff will be encouraged to arrange training in gender issues by gender experts.  CPS Progress Report—the FY14 CPS mid-term review and Progress Report will seek to provide gender- disaggregated data on all relevant ongoing and proposed operations.  CPS Monitoring & Evaluation—during implementation, a simple CPS monitoring and evaluation system will be developed to capture and analyze the gender impact of Bank Group activities.  Development partner coordination—during CPS implementation, the Bank Group will seek to coordinate and ultimately main-stream its gender-related activities with other development partners, especially the ADB, UNDP and UNICEF. E. Partnerships and Donor Coordination 76. Overall, official development assistance (ODA) to Uzbekistan, never very large, remains limited. Except for ADB, the multilateral institutions‘ exposure (including that of the Bank Group) is very modest and there are only a few bilateral and even fewer non-governmental agencies engaged, mainly in technical assistance. Consequently, conventional donor or development partner coordination and the Bank‘s role are not major issues and, except for the United Nations Country Team coordinated by UNDP in which the Bank participates, there is no formal donor-government coordinating body or framework. Annex 4 summarizes key development partner activities by sector and thematic area. 77. Meanwhile, Uzbekistan’s outreach to new and re-emerging development and trade partners in recent years has produced results. For example, investments in industry and infrastructure by China, Korea, and Russia among others have become important factors in the government‘s growth and development strategy. Moreover, the effectiveness and especially the fiscal impact of these investments in terms of medium- and longer-term operating and maintenance costs will need increasingly to be taken into account. In this latter connection, the Bank continues to work closely with the IMF on issues related to macroeconomic stability and economic management. At the same time, the IMF continues to provide technical assistance on improving the quality of national statistics and data transparency. 23 F. Monitoring and Evaluation 78. Expected outcomes of the CPS are expressed in the attached results framework attached at Annex 1. Based on discussions with the government and consultations with other stakeholders, it is organized around the CPS‘ four strategic objectives as well as the governance cross-cutting thematic result area. These objectives are then disaggregated into fourteen specific outcomes that the Bank Group expects to influence through the CPS as well as a larger set of intermediate outcomes or milestones that will be used to track progress periodically. The framework also identifies the CPS lending, advisory and analytical, and technical assistance interventions that are intended to contribute towards the achievement of CPS outcomes. 79. While the results framework is designed to monitor progress and measure outcomes, its application is intended to be flexible. It provides an initial sense of strategic direction for Bank Group assistance, but should be thought of as being open for change if evolving government priorities or external developments so warrant. Similarly, the mapping of planned financial and analytical activities by strategic theme (Annex 4) is intended to be flexible, especially for the outer years. For example, the detailed scope of activities related to the planned joint strategy report and ongoing poverty monitoring will be determined annually in consultation with the government. Overall monitoring will be annual: for macroeconomic and related outcomes, data will be obtained from the key economic ministries; for sectoral outcomes, through project supervision missions. These data will feed into a CPS Progress Report scheduled for FY14 and a CPS Completion Report scheduled for FY15. IV. MANAGING RISKS 80. The CPS entails risks to its implementation which will need to be mitigated and/or carefully managed. Consistent with past experience, the proposed approach, based on proactive risk management, includes three elements: warning signals—to detect problems at the earliest possible stage; initial responses—to mitigate their immediate impact; and risk reduction measures—to gradually reduce their likelihood and potential impact over time. A. Country Risks 81. While the country’s economic, political and social environment is currently stable, CPS implementation could be affected by a combination of factors. Regionally, these include possibly: deteriorating security conditions due to the situation in Afghanistan, and increasing tensions between Uzbekistan and its neighbors over regional issues—especially the management and use of trans-boundary energy and water resources. Several Bank Group activities, especially its Central Asia Energy and Water Development Program (CAEWDP), as well as focused efforts on transparency and sharing of information about the ongoing assessment studies for the proposed Rogun hydropower project, are intended to help mitigate this risk. Domestically, they include possible economic and social instability due inter alia to continued levels of inequality—already a stated government concern—exacerbated by weak public accountability and by civil society‘s limited participation in economic and social policy dialogue. These domestic risks will be monitored continuously, as well as in the context of the next nation-wide elections. Since these risks are in areas beyond the Bank Group‘s mandate, staff will liaise with key bilateral agencies as well as the UN Specialized Agencies to monitor political and security developments, and to assess their possible impact. The initial response to any country-wide deterioration of stability would be incremental, targeted scaling-down 24 of activities. The initial response to any localized deterioration would be suspension of activities in that locality. B. External Shocks 82. Although Uzbekistan’s economy proved more resilient than most others during the 2008-09 global recession, it remains vulnerable to external shocks affecting commodity prices and remittances. The Bank Group will therefore continue to monitor regional economic developments and, in the event of adverse events, be prepared to adjust the scope and focus of the program as needed. In addition, the government‘s agenda to increase competitiveness and promote increased productivity and diversification—as well as CPS program support in these areas— addresses this risk. The Bank Group will also monitor the country‘s vulnerability to national disasters, given its location in a relatively high risk area according to recent assessments. C. Risks to World Bank Group 83. The main risk to CPS implementation is the significant political commitment required to confront bottlenecks currently blocking the efficient functioning of the economy and private sector development. If this risk materialized, it would have negative implications for planned CPS outcomes in these areas, including IFC‘s ability to carry out direct investment in the private sector and, more generally, for planned CPS outcomes in these areas. In addition to working closely with other development partners and stakeholders to continuously assess policy reforms supported under specific projects, the Bank Group will also closely monitor CPS implementation. In case of adverse developments in overall policies, projects, or reforms, the Bank will adjust its engagement, for example by placing more emphasis on non-lending services in areas where reforms may have stalled. These mitigation measures could include the provision of hands-on support to address capacity issues through (e.g.) technical assistance, if requested, as well as maintaining policy dialogue with the authorities. 84. A second risk relates to the lack of detailed and reliable economic, financial and social data. This impedes the assessment of economic performance and social outcomes, hinders the preparation of economic projections, and undermines the credibility, relevance, and timeliness of Bank Group policy advice. Specifically, the proposed Uzbekistan Vision 2030 exercise as well as the analytical work needed to underpin the lending program will not be possible without better access to standard economic datasets (e.g. disaggregated national accounts, fiscal and monetary accounts, investments, etc.), improved information about government policies, and raw data on living standards (e.g. poverty, household budget surveys). In partnership with other development partners and particularly with the IMF, Bank Group staff will continue to work with the authorities on strengthening statistical institutions and on information disclosure, including on publication of data in the GFS and IFS in line with the government‘s commitments. Specifically, they will closely monitor implementation of COM Resolution 2629 of April 4, 2011, which authorized the initiation of preparatory work to publish economic data in the IMF‘s databases (cf. Box 1). 85. A third fiduciary and governance risk relates to implementation delays and the use of Bank Group resources. This includes the potential for mis-procurement as a result of the authorities‘ price verification process. The Bank Group will continue to closely monitor fiduciary aspects of project implementation through regular reviews and external audits. It will also keep track of delays due to the authorities‘ project expertise and price verification system. Its response in the event of continuing systemic delays in procurement will be to adjust the scope of its assistance program until a resolution is reached. As for risk reduction, the Bank Group will continue its support 25 for government efforts to improve governance and, in particular, to strengthen procurement and financial management capacity under the CPS‘ second result area. Dialogue between MFERIT, the Ministry of Economy, and the Bank will be maintained on the issue of project expertise price verification. In addition, the CPS will continue to identify and support demand-side governance interventions (as part of the proposed lending activities) to promote accountability to citizens. 26 Annex 1: Results Framework for the Uzbekistan CPS FY2012-2015 Outcomes to Which the CPS Constraints on which the Milestones and Progress Bank Group National Priorities Expects to Contribute CPS expects to focus Indicators Interventions and Partners1 STRATEGIC THEME I. IMPROVING EFFICIENCY OF INFRASTRUCTURE 1.1 Sustainable infrastructure development Improvement of - Energy: low Improved energy sector - Initial assessment on SPN: Enterprises Energy Efficiency energy efficiency quality of electricity efficiency: electricity market integration (UZEF), Talimarjan transmission supply; high energy usage - Reduced duration of with South Asia completed and project Improved per unit of GDP outages in South West Uzbekistan disseminated New IBRD: Advanced electric environmental productivity; high losses in from 92 hours per year to 48 hours metering project, Electricity management supply chain; low share of per year - Initial assessment on Distribution, Urban Integrated project, renewable in energy transport sector and its impact on UZEEF II, Transport project portfolio - Agreement on priority safety and the environment IDA/IBRD AAA: Energy Sector issues in power sector and strategic completed and disseminated strategy, Regional power market - Lack of private plan to deal with them adopted assessment (UAP), Transport Private sector investment - Knowledge sharing on Assessment development, - Electricity constraint to transport international good TFs: Cities Alliance Catalytic Fund, including PPP - Double- firms‘ ability to operate practice (e.g., asset management, Transport and Logistics in Central Asia landlocked nature of competitively have been construction standards, (Trade Facilitation Facility) Uzbekistan affects its significantly reduced (follow-up to concessions) IFC AS: structuring of first pilot PPP competiveness 2008 firm-level survey (baseline) transactions Improvement of IFC INV: PPP projects transport efficiency - Transport: high Development of infrastructure Key Partners: ADB, JICA, IsDB, and introduction of cost of transport; supply PPPs: CAREC, IWMI sustainable side constraints; increasing - Implementation of at least management ecological footprint; low one pilot PPP project the country safety standards of operations and Sustainable transport: infrastructure - Increased transport efficiency 1 SPN: Supervision of IDA ongoing operations, New IDA: New IDA financing , New IBRD: New IBRD financing, IDA/IBRD AAA: IDA/IBRD Analytical and Advisory Activities; TFs: IDA administered Trust Funds; IFC AS: IFC Advisory services, IFC INV: Potential IFC investment (subject to demand by partner investors) 27 Outcomes to Which the CPS Constraints on which the Milestones and Progress Bank Group National Priorities Expects to Contribute CPS expects to focus Indicators Interventions and Partners1 - Minimum ecological footprint of public and private transport - Increased safety of transport operations 1.2 Improve water management and climate change preparedness Improved water use - Inefficient use of Improved water resources - Technical and financial SPN: Central Asia Hydromet Project, water resources for management: and institutional support is Ferghana Valley Water Resources irrigation - Area of irrigated land with provided to 62 Water User Management Project, RESP II, South adequate water supply is increased associations in seven project Karakalpakstan Drainage - Inadequate by 40,000 ha\ districts New IDA: RESP II AF meteorological, climate, IDA/IBRD AAA: Water Utility Pricing and hydrological - Area of irrigated land with - Procedures on Policy Note information for decision adequate drainage is increased by emergency situations warnings at Key Partners: EC, GTZ, KfW, Japan, making 30,000 ha regional levels adopted JICA Disaster- and climate change- - Increasing data related risks reduced: received/sent by each NMHS - Improved accuracy of daily up to 600Mb/70Mb weather and seasonal river flow - forecasts; up to 90% accurate by Improved use of 2016. forecasts by users including agriculture, water resources, transport, and disaster risk reduction STRATEGIC THEME II. ENHANCE COMPETITIVENESS OF THE ECONOMY 2.1. Strengthened institutions and macroeconomic environment Better institutions - Restricted - Data transparency and data - Key economic and social IDA/IBRD AAA: Strategy Report through improved availability of key quality improved data including CPI, National "Uzbekistan Vision 2030", macroeconomic economic, financial, and Accounts and fiscal accounts are Macroeconomic Policy TA, CPIA- social data - Key economic data is in published in internationally management and driven Policy Dialog TA, PEFA - Key economic compliance with the generally accepted statistical periodicals more effective and data does not comply with assessment TA, Procurement TA, 28 Outcomes to Which the CPS Constraints on which the Milestones and Progress Bank Group National Priorities Expects to Contribute CPS expects to focus Indicators Interventions and Partners1 transparent the generally accepted accepted methodology - Regular and to the extent ROSC in international accounting and fiscal/budget policy methodology possible joint GOU/WBG auditing TA economic research is undertaken - Economic and - Develop Uzbekistan to inform Uzbekistan‘s Medium- social development Vision 2030 based on analytical term economic and social Strategy of Uzbekistan is underpinnings using lessons from development strategy not articulated in a international experience publicly available - Tax risk assessment is document developed and applied in tax - Efficiency of public administration - High level of resource mobilization improved informality and state - PEFA assessment overregulation conducted in 2012 and 2015 and - Improved transparency PEFA scores for - Fiscal and budget and public accountability in the Comprehensiveness and data is not publicly public finances through Transparency (P6, P7), Policy- available - Improved alignment Based budgeting (P11 and P12), between national priorities and procurement ( P19) improved in budgetary allocations 2015 compared to 2012 - Public - Increased Treasury - Coverage of single procurement is inefficient coverage Treasury account expanded to the FRD - Procurement law is - Improved Public adopted, small and private Procurement businesses access to public procurement improved 2.2 Accelerate market reforms through enhanced competitiveness in industrial sector Enhanced Industrial - Lack of industrial Stronger export competitiveness - Assessment of the IDA/IBRD AAA: Industrial Competitiveness competitiveness and productivity growth: constraints limiting export competitiveness policy notes - Adoption of new competitiveness and productivity - Weak capacity of instruments to support investment growth in strategic industries IFC INV: Direct financing for the real institutions supporting in strategic industries aligned with through Value Chain Analysis. 29 Outcomes to Which the CPS Constraints on which the Milestones and Progress Bank Group National Priorities Expects to Contribute CPS expects to focus Indicators Interventions and Partners1 industrial competitiveness international good practices sectors of the economy and development - Increased ICT usage in - Agreement on Industrial firms competitiveness reports TFs: Korean Trust Fund ICT4D recommending reforms and new instruments to support strategic Key Partners: Korea industries reached. STRATEGIC THEME III. DIVERSIFICATION 3.1 Strengthen the foundations for private-led diversification - Restrictive Enhanced regulatory policy - Diagnostic assessments IDA/IBRD AAA: Business Improved business environment frameworks and institutional in priority Doing Business areas, Environment TA, Financial Sector TA, infrastructure and hinders modernization, capacity for investment, private including recommendations about FSD Dialogue with CBU, Innovation institutions for economic growth FDI and sector development and trade: legal, regulatory and technical and Economic Diversification enterprise sector export competitiveness - Improved business areas for reform. New IDA: Private sector development environment as measured by the competitiveness enhancement - Outdated quality Doing Business indicators - Supporting TFs: Korean Trust Fund ICT4D; South- infrastructure (metrology, implementation of reforms and South Experience Exchange standards, technical - Legislation on standards, reorganization of the national Key Partners: DFID, IsDB, EBRD, regulations, quality metrology and accreditation is quality infrastructure institutions, USAID, GIZ certification) limits exports aligned with minimum including upgrading of services of high value-added international guidelines used by firms in strategic products industries - Adherence of Uzbekistan‘s - Limited ICT accreditation system with - Development and infrastructure and e- international guidelines and support to the implementation of Government services membership in the Metre an action plan for ICT Convention as a Member State or development aligned with the e- an Associate of the General Government master plan Conference on Weights and Measures 3.2 Diversification in the Agricultural Sector Increase - Low agricultural Increased investment and - 15% of farmers in RESP SPN: RESP II 30 Outcomes to Which the CPS Constraints on which the Milestones and Progress Bank Group National Priorities Expects to Contribute CPS expects to focus Indicators Interventions and Partners1 productivity of productivity employment in Agriculture II project areas have adopted best New IDA: AF to RESP II, Horticultural Agriculture sector: management practices on their development project - Improved agricultural farms IDA/IBRD AAA: Agriculture productivity in target areas as competitiveness strategy, Horticulture measured by yield of key products - Improved capacity of the strategy Baseline (ha/tons)-> Target PFIs staff by training 200 lending (ha/tons) officers in agricultural investment wheat 4.0 -> 5.04 lending cotton 2.00 -> 2.5 melon-gourds 11.8 -> 14.3 - Reduced post-harvest - Limited financial maize – 13.1 -> 15.7 losses by 20% through the support available for orchards–apple 4.3 -> 4.5 establishment of cold chain investments in high growth vineyards – 4.1 -> 4.3 facilities & services sectors - 20% of PFI‘s agriculture - Added values to the lending portfolio supports processed products through development of: (i) poultry; (ii) upgraded sorting, grading, livestock (iii) fishery; and (iv) processing and packing horticulture sectors equipment - Fruits and vegetable production acreages increased by 200,000 ha. STRATEGIC OBJECTIVE IV: IMPROVING ACCESS TO SOCIAL SERVICES 4.1 Strengthen quality of education and health services Improve the quality - Poor quality and Improved access to quality - Provision of learning SPN: Health III, Basic Education II of primary and relevance of education basic education services: materials and school based New IDA: Early childhood basic secondary - 100% of project teacher training to preschools, development Project education while - Low participation preschools and Grades 1-9 grades primary and secondary schools in IDA/IBRD AAA: Health Strategy TA maintaining of communities in have and are using core set of project schools Key Partners: ADB, UNDP, UNICEF, universal access policy/decision making teaching and learning materials [as JICA, BC, WHO, UNICEF, [National MDG2, processes having to do measured through an evaluation] - Implementation of at Target 2] with schooling least one national student 31 Outcomes to Which the CPS Constraints on which the Milestones and Progress Bank Group National Priorities Expects to Contribute CPS expects to focus Indicators Interventions and Partners1 - 50% of teachers at assessment of student learning - Low demand for sampled project schools where pre-school education learning materials acquired under - Launch of the project are used effectively in communication campaign aimed - Low pre-school classrooms at increasing demand for pre enrollment in rural areas schooling in the rural areas - Implementation and dissemination of results of national student assessment through the national media and newspapers Improve access to Poor quality of secondary Improved access to health - At least 50 Hospitals quality health care care services: Services: equipped with medical and waste at the primary level - Refurbished rayon level management equipment and at secondary - Poor infrastructure project health facilities with health care facilities and outdated diagnostic modern biomedical equipment - 3670 Urban polyclinics‘ and medical equipment at doctors receiving training under the rayon level secondary - Increased proportion of the 10-month training GP facilities hospitals following at least 20 program NCD treatment standards (Target - Inefficient 100% hospitals of intervention - Health personnel at resource allocation to areas) PHCs (6000 doctors and 57000 rayon hospitals based on nurses) receiving training under input-based norms (bed - outcome based hospital continuous professional and staff numbers), financing piloted in Fergana oblast education reflecting nominal capacity and not the level of - 50% of targeted services provided population with access to a basic package of health - Lack of quality preventive and curative - 2 National Health services against NCDs Accounts developed and published 4.2 Water Supply and Sanitation (WSS) and Integrated Urban Development 32 Outcomes to Which the CPS Constraints on which the Milestones and Progress Bank Group National Priorities Expects to Contribute CPS expects to focus Indicators Interventions and Partners1 - Inadequate access Increased household access to - Number of trained sector SPN: Bukhara & Samarkand Sewerage, Increased access to to safe water and sanitation safe drinking water and personal (sector administration, Sir Darya Water Supply water and services in urban and rural sanitation services in urban and utility and municipal New IDA: sanitation areas rural areas: management and staff) by 2013: Water Sanitation Sector Investment - Low capacity of - Number of households - 10% of BVK & SRVK staff; Project 1 & 2 sector institutions benefitting from improved WSS - 80% of Sir Darya VK staff New IBRD: - Inefficient WSS service and/or from improved Integrated Urban Project sector financing municipal infrastructure service - Enactment of action plan IDA/IBRD AAA: Water Supply and (46,680 households with metered derived from selected Policy Sanitation Utility Pricing Policy Note WS in Syr Darya region) Note recommendations TFs: WPP, Cities Alliance, Key Partners: SECO, EC, GIZ, KfW, - 2,000 & 4,000 new - Municipal Sector JICA households connected to public Strategy Note finalized, sewerage system in Bukhara & disseminated and discussed at a Samarkand respectively; workshop in FY13. Submitted to Cabinet of Ministers for - 280,100 people with comments and endorsement. access to improved water supply in Sir Darya region - Improved capacity of targeted WSS sector and local government institutions 4.3 Promoting social inclusion Reduce Poverty - Weak links Better targeting of social - Joint policy notes on the SPN: Rate between policy analysis assistance: outcomes Institute for Social New IDA: Social Safety Net and policymaking Low - Strengthening capacity of Research strengthening Credit targeting efficiency of the government think-tank(s) for - Analytical underpinning IDA/IBRD AAA: Social Policy existing Social Safety Net policy research and dissemination for PMT developed and ready for strengthening TA - Developing a Proxy piloting TFs: Key Partners: UNDP, UNICEF - Antiquated Means Testing (PMT) mechanism - Design of electronic processes used by karallas for targeting the poor registry is developed and ready in distributing SSN leading - Developing electronic for piloting 33 Outcomes to Which the CPS Constraints on which the Milestones and Progress Bank Group National Priorities Expects to Contribute CPS expects to focus Indicators Interventions and Partners1 to loss of productivity registry of SSN beneficiaries CROSS THEMATIC AREA: GOVERNANCE Increase the - Limited access to Enhanced regulatory policy - Improved accounting IDA/IBRD AAA: PEFA Assessment, efficiency of Public economic & financial frameworks and institutional and reporting system data sharing TA Financial information, and capacity for PFM: IDA/IBRD LEN/SPN: entire portfolio Management accounting and reporting - Coordinated Public - Increased financial data TFs: SAFE trust fund, Russian PFM do not sufficiently ensure Financial Management reform disclosure trust fund, IDF grant transparency of financial process that is informed by good Key Partners: ADB, Russia, SECO information international practice and - Functioning external benchmarking audit, with adequate capacity in - Legal & numbers and skills and using institutional framework for - Formal adoption of Public international standards internal and external audit Sector Accounting Strategy and its below international phased implementation, and based - Improved internal benchmarks on instructions for application of control with effective internal IPSAS and supported with training audit functions across key budget - External audit organizations capacity not adequate for - Internal control and audit carrying out effective framework developed under the - Legal and institutional financial audits, and use of WB IDF grant implemented structures for external audit and international standards internal audit established doubtful 34 Annex 2. IBRD/IDA activities for FY12-FY15 (by Strategic Theme) [TOTAL: $1,350 million—IBRD: $710 million1 - IDA16: $540 million – IDA17: $100 million2 ] (1) BY STRATEGIC THEME IBRD IDA TOTAL IMPROVING INFRASTRUCTURE EFFICIENCY3 Advanced Electricity Metering 110 Enterprise Energy Efficiency II 100 Electricity Distribution 100 Urban Integrated Development Project Unidentified 100 Transport Unidentified 100 Horticulture Pilot Project 100 IBRD Project Unidentified (Outer years) 100 710 710 INCREASING SOCIAL EQUITY/INCLUSION 4 Alat-Karakul Water Supply 50 Water Sanitation Sector Investment Project 1 50 Early Childhood Development 50 RESPII—Additional Financing 40 South Karakalpakstan Drainage Project 150 Water Sanitation Sector Investment Project 2 100 IDA Project Unidentified (IDA171) 100 540 540 ENHANCING COMPETITIVENESS Microfinance/credit access 100 100 710 640 1,350 (2) BY FISCAL YEAR IBRD IDA TOTAL FY12 Advanced Electricity Metering 110 Alat-Karakul Water Supply 50 RESPII Additional Finance 40 110 90 200 FY13 Enterprise Energy Efficiency II 100 South Karakalpakstan Drainage Project 150 Water Sanitation Sector Investment I 50 100 200 300 FY14 Microfinance/credit access 100 Early Childhood Development 50 Water Sanitation Sector Investment Project 2 100 Horticulture Pilot Project 100 Electricity Distribution 100 200 250 450 FY15 Urban Integrated Development Project 100 Transport Unidentified 100 IBRD Project Unidentified (Outer years) 100 IDA Project Unidentified (IDA171) 100 300 100 400 710 640 1,350 1 Overall lending amounts will depend on the IBRD's lending capacity and demand by other borrowers as well as Government demand and performance in the course of the CPS period. 2 Subject to Uzbekistan‘s continuing IDA eligibility in FY17 3 Energy, Transport, Drainage/Irrigation 4 Education, Health, Municipal Services 35 Annex 3. Mapping of CPS Activities by Strategic Themes Total IDA16 IDA17 IBRD $1350 m $540 m $100 m $710 m I. IMPROVING INFRASTRUCTURE Sustainable infrastructure development Thematic focus: (i) investment financing; (ii) scaling up of ongoing successful pilot activities (Energy efficiency); (iii) support to reforms (esp. sector management, PPP) Instruments: (i) sectoral investment loans; (ii) continuous TA throughout the period; (ii) sector reports Proposed activities Enterprises Energy Efficiency (UZEF) IDA SIL $28 m FY10-FY15 Ongoing project Talimarjan transmission project IBRD SIL $110 m FY11-FY16 Ongoing project Advanced electric metering project IBRD SIL $110m FY12-FY17 Pipeline Electricity Distribution IBRD SIL $100 m FY14 Pipeline UZEEF II IBRD SIL $100 m FY13 Pipeline Transport Unidentified IBRD SIL $100 m FY15 Pipeline Urban Integrated Development Project IBRD SIL $100 m FY15 Pipeline UAP-ES Assessment (Aka UAP 1,000) TA FY12-FY13 Continuation of existing work Energy Sector strategy ESW FY12 Transport Assessment ESW FY13 Improving water management and climate change preparedness Thematic focus: (i) continued investment in water and sanitation; (ii) support to sectoral reforms (esp. pricing) Instruments: sectoral investment loans Proposed activities Hydromet Regional Project IDA Reg $0 Ongoing project Ferghana Valley Water Resources Phase-I IDA SIL $66 m FY10-FY17 Ongoing project RESP II IDA SIL $68 m Ongoing Project South Karakalpakstan Drainage IBRD SIL $150 m FY13 Pipeline Aral Sea Initiative GEF $50 m FY15 Pipeline Water Resource Management Strategy ESW FY12-FY13 36 II. ENHANCE COMPETITIVENESS OF THE ECONOMY Strengthened institutions and macro-economic environment and promoting market efficiency Thematic focus: Maintain macroeconomic stability over the medium term Instruments: (i) Joint Strategy report �Uzbek Vision 2030� ; (ii) continuous dialogue during the period Proposed activities Data sharing and transparency TA Continuous Building on dialogue in previous period Macro-economic monitoring TA Continuous Joint Strategy report �Uzbek Vision 2030� ESW FY12-FY13 Joint with MoE and Chamber Commerce &Industry/ Institute of Forecasting Promoting market efficiency Thematic focus: Increased focus on specific sectors (including petrochemicals and textile) Instruments: analytical pieces on specific topics Proposed activities: Industrialization policy note ESW One a year Detailed look at key sector/one sector a year III. DIVERSIFICATION Strengthen the foundations for private sector development Thematic focus: (i) continued support to overall business environment reforms; (ii) support to reform of the financial sector Instruments: (i) Technical activities on investment climate and financial sector (2/3 years); (ii) focused financial intermediation / investment projects; Proposed activities Microfinance/Credit Access IDA LEN $100 m FY14 Pipeline Doing Business TA TA Continuous Innovation and growth TA TA Continuous Continuation of existing PREM work Financial sector TA TA Continuous To support the reforms through the period as needed Diversification of the agriculture sector Thematic focus: (i) financing and micro-finance for alternative agriculture; (ii) development of the horticulture sector Instruments: (i) ongoing projects; (ii) additional financing; (iii) one time reports on specific issue ; (iv) sector strategy report Proposed activities RESP II IDA SIL $68 m ends March 2015 Ongoing Project AF for RESPII IDA AF $40 m FY12 Pipeline / Credit Line top-up Horticulture strategy ESW FY12 Follow-up on earlier work on Agriculture sector diversification National Infrastructure Quality ESW FY13 37 IV. INCREASING SOCIAL EQUITY/INCLUSION Strengthen quality of education and health services Thematic focus: (i) Improving Basic Education and Early Childhood Development quality; (ii) Improving second-level care Instruments: (i) ongoing projects; (ii) investment financing; Proposed activities Health III IDA SIL $93 m FY11 Ongoing project Basic Education II IDA SPN $28 m FY12-FY15 Ongoing project Early childhood development Project IDA SIL $50 m FY14 Pipeline Water Supply and Sanitation Thematic focus: (i) Improving water supply and sanitation; (ii) Improving related public policy Instruments: (i) ongoing projects; (ii) investment financing (APL); (iii) policy note Proposed activities Bukhara and Samarkand Sewerage IDA SIL $55 m FY09-FY16 Ongoing project Syr Darya Water Supply IDA SIL $100 m FY11-FY17 Ongoing project Alat-Karakul Water Supply Project IDA SIL $50 m FY12 Pipeline Water Sanitation Sector Investment Project 1 IDA SIL $50 m FY13 Pipeline Water Sanitation Sector Investment Project 2 IDA SIL $100 m FY14 Pipeline Water Utility Pricing Policy Note ESW FY12 Promoting social inclusion Thematic focus: (i) scaling up welfare improvement monitoring activities; (ii) support to social safety nets reform; Instruments: (i) continuous TA throughout the period Proposed activities Poverty monitoring/ Analysis support TA Continuous Strengthen capacity for monitoring and budgeting V. GOVERNANCE CROSS-THEMATIC AREA Improve the effectiveness and efficiency of public finance management Thematic focus: Improve procurement and financial systems Instruments: PE and Financial Accountability (PEFA) Proposed activities PE and Financial Accountability (PEFA) TA FY12 Follow-up to CIFA 38 Annex 4. Development Partner Coordination Sector Donor Amount in Instrument* Loan/ Period currency Grant before 12 13 14 15 after Macroeconomic Analysis WB n.a. TA Grant x x x x x x GIZ n.a. TA Grant x x UNDP n.a. TA Grant x x x IMF n.a. TA Grant x x Public finance management Revenue/fiscal administration UNDP n.a. TA Grant x x Budget management UNDP n.a. TA Grant x x Expenditure management ADB $1.0 M TA Grant x x UNDP n.a. TA Grant x x Public expenditure review SECO CHF 2.0 M TA Grant x x EU n.a. TA Grant x x Statistics IMF n.a. TA Grant x Employment and enterpreneurship ADB $0.1 M TA Grant x x Microfinance ADB $100 M Proj Loan x x x EU n.a. TA Grant x x KfW Eur 19.8 M Proj Loan x x x Diversification/Industrialization UNDP n.a. TA Grant x x x WB n.a. TA Grant x x x x Private sector Development ADB $0.6 M TA Grant x x EU n.a. TA Grant x x GIZ n.a. TA Grant x x SECO CHF 0.7 TA Grant x x JETRO JPY10 M TA Grant x x OSCE Eur 0.6 M TA Grant x x ADB $250 M Proj Loan x x x Agriculture/Fisheries EU n.a. TA Grant x x GIZ n.a. TA Grant x x USAID $25 M Proj Grant x x China n.a. TA Grant x x OSCE n.a. TA Grant x x Irrigation and Drainage SECO (Swiss) $6.5 M TA Grant x x UNDP $4.0 M TA Grant x x SECO CHF3.0 M TA Grant x x x GIZ n.a. TA Grant x x JICA n.a. TA Grant x x KOICA $2.5 M TA Grant x China n.a. TA Grant x Transport ADB $900 M Proj loan x x x IsDB $2.4 M TA Grant x x EU n.a. TA Grant x x JICA $10 M Proj Loan x China n.a. TA Grant x x OSCE n.a. TA Grant x x Energy ADB $1.2 B Proj Loan x x x EU n.a. TA Grant x x JICA JPY27.2 B Proj Loan x x x x KOICA $2.5 M Proj Grant x x USAID n.a. TA Grant x x Water and sanitation ADB $450 M Proj Loan x x x ADB $0.2 M TA Grant x x x EU n.a. TA Grant UNDP n.a. TA Grant SECO CHF 6.5 M TA Grant x x JICA n.a. TA Grant x x KOICA $5.3 M TA Grant x 39 Annex 4. Development Partner Coordination (Continued) Habitat/Housing ADB $100 M Proj Loan x x x KfW n.a. Proj Loan x x x KOICA $2.5 M Proj Grant x Environment EU n.a. TA Grant x GIZ n.a. TA Grant UNDP n.a. TA Grant JICA $7.5 M Proj Loan x x x OSCE n.a. TA Grant x x GEF $5.3 M TA Grant x x Education ADB $0.4 B Proj Loan IsDB $190 M Proj Loan x x x EU n.a. TA Grant KfW Eur 20 M Proj Loan x x x UNICEF $20 M TA Grant x x x x x JICA $5 M TA Grant x x KOICA $7 M Proj Grant x China n.a. Proj Loan x x Health /others social sectors EU n.a. TA Grant x x GIZ n.a. TA Grant x x KfW $8.0 M Proj Loan x x x UNICEF $42.3 M TA Grant x x x x x WHO $2.1 M TA Grant x x UNFPA $8.9 M TA Grant x x x x x x JICA $13 M Proj Grant x KOICA $6.5 M TA Grant x USAID n.a. TA Grant x x China n.a. Proj Loan x x Governance WIS ADB $0.4 M TA Grant x x WB n.a. TA Grant x x Audit/Procurment UNDP n.a. TA Grant x x WB n.a. TA Grant x x Fight against coruption UNODC n.a. TA Grant x x x OSCE Eur 0.1 M TA Grant x x Public sector capacity building IsDB $0.5 M TA Grant x x EU n.a. TA Grant x x WB $0.06 TA Grant x UNICEF n.a. TA Grant x x x x x UNFPA $1.10 TA Grant x x x x KOICA n.a. TA Grant x x USAID n.a. TA Grant x x x OSCE n.a. TA Grant x x Civil society IsDB n.a. TA Grant x x EU n.a. TA Grant x x KOICA $0.1 M TA Grant x USAID n.a. TA Grant x x Gender ADB n.a. TA Grant x x UNFPA n.a. TA Grant x x x x x (*) legend : Proj: classic project BS: budget support T BS: targeted budget support T A: technical Assistance M: million B: billion Amounts are indicative and exchange rates may vary. 40 Annex 5. CAS Completion Report (CASCR), FY08-11 I. Executive Summary Background CAS Program Performance Bank Performance II. Progress towards Uzbekistan’s Development Goals III. Highlights of CAS Program Performance Pillar 1: Enabling Environment for Shared Growth Pillar 2: Increasing Economic and Income Opportunities in Rural Areas Pillar 3: Strengthening Human Development & Social Protection Pillar 4: Managing Environmental and Disaster Risks and Global Goods Provision CAS Program Results Rating IV. WORLD BANK GROUP PERFORMANCE CAS Design and Relevance World Bank Group Performance Rating V. KEY LESSONS AND SUGGESTIONS Attachments: I. Table 1: Summary of CAS Program Self-Evaluation II. Table 2: Planned Lending and Actual Deliveries III. Table 3: Planned Non-Lending Services and Actual Deliveries 41 I. Executive Summary Background i. The FY08-11 CAS marked the return to a standard assistance framework for Uzbekistan following the FY06-07 Interim Strategy Note (ISN) which, owing to concerns about development effectiveness and the country‘s governance, focused on technical assistance and minimal IDA lending for global public goods and social services. Reflecting slowly improving Bank-client relations and the need to calibrate different levels of activity to different degrees of government commitment, the CAS adopted a flexible, two-track approach, defined as: full engagement, i.e. lending, analytical and advisory services, and technical assistance, in policy areas and/or sectors of common agreement; and limited engagement, i.e. analytical and advisory services and/or technical assistance in areas where there was no, or incomplete consensus. The IDA15 allocation was expected to be about $375-450 million over the three years FY09- 11, similar to the allocation under IDA14 but significantly higher than the total $55 million actually committed between FY04-07. ii. Uzbekistan‘s economy withstood the global crisis relatively well—thanks to continued high demand for, and the prices of the country‘s commodity exports, the government‘s end-2008 fiscal stimulus, equivalent to 4 percent of GDP, and the financial sector‘s limited exposure to world markets— and the CAS program was thus little affected. While the number of operations approved was in line with expectations in mid-2008, the total $533 million committed by end-FY11 was significantly higher. This was partly due to the addition of two new energy operations late in the period. The program of analytical and advisory activities and technical assistance was implemented largely as planned CAS Program Performance iii. The Completion Report rates the achievements of outcomes foreseen in the CAS as moderately satisfactory. First, compared to the mid-2000s, the quality and scope of the Bank‘s dialogue and interaction with the government on macro-related policies (except for poverty) has demonstrably improved. Moreover, a substantial program of continuing analytical and advisory activities—including a planned country economic memorandum focused on competitiveness issues—is in place for the next two years. On the other hand, the Bank‘s influence and role in Uzbekistan remain limited, the bar was set deliberately low, and the authorities‘ ostensibly renewed confidence in Bank economic analysis and policy advice has not yet translated into better access to key economic, financial and social data—nor more generally to improved governance and transparency. Second, although IFC‘s advisory services contributed to several regulatory improvements in the business environment, they could not be expected to overcome long-standing systemic constraints to private sector development. Third, the program achieved significant results on the ground in rural development and improved water resource management, but had little apparent influence on broader agricultural policy reforms or on poverty and regional disparity reduction goals. The human development program, on the other hand, in addition to project-specific results, also contributed to and supported implementation of small-scale, but important pragmatic reforms in education, health, and water supply and sanitation. Bank Performance iv. CAS Design. Overall, the CAS was relevant and well aligned with the country‘s stated development priorities, although the links between broad-based strategic country goals and CAS-specific outcomes were sometimes tenuous or unclear. CAS outcomes, eschewing controversial or sensitive policies or reforms, were realistic—in fact, based largely on already agreed project-specific objectives, most were relatively undemanding and clearly intended to ensure achievement. The quality of the results framework, however, was uneven, inconsistent, and unclear in several areas. The CAS identified five 42 critical risks to implementation, of which three—fiduciary, development effectiveness, and regional cooperation—are ongoing and likely to continue into the next FY12-15 CAS and beyond. v. CAS Implementation. The flexible, dual track approach worked well, resulting inter alia in an almost doubling of the active portfolio—from six projects totaling $266 million in FY08 to ten projects totaling $633 million by end-FY11. Development impact, however, was modest, owing partly to the intentionally limited policy content of lending operations, partly to the client‘s avoidance of sensitive areas for collaborative economic and sector work (e.g. agriculture, governance, poverty), and partly to the gradual pace and narrow scope of Uzbekistan‘s structural reforms process. Moreover, despite the improved dialogue and closer relations, several long-standing operational and portfolio issues remain unresolved, such as procurement, especially contract registration, implementation delays, and project management. vi. Against this background, including the CAS‘ relatively modest, undemanding goals, the Completion Report rates the Bank‘s performance in terms of both design and implementation as moderately satisfactory. II. Progress towards Uzbekistan’s Development Goals 1. Uzbekistan’s overall macroeconomic results for the FY08-11 CAS period were broadly in line with the goals established in its first Welfare Improvement Strategy (WIS), 2007-10. With GDP growth exceeding 8percent in both 2009 and 2010 according to official data, its economy withstood the global economic crisis relatively well, the main impact being weaker demand for the country‘s manufactured exports and a marked decline in migrant workers‘ remittances—about 30 percent lower than their 2008 peak, when they were equivalent to 7 percent of GDP. Three factors together explain this outcome: first, the continued high world demand for, and prices of copper, cotton, gas, and gold, Uzbekistan‘s principal commodity exports, which account for 80 percent of the total; second, the government‘s end-2008 fiscal stimulus, equivalent to 4 percent of GDP, that included tax exemptions and reductions, increases in public sector wages, support to agriculture, commercial banks, and state-owned enterprises, and loans from the Fund for Reconstruction and Development (FRD); and third, the economy‘s limited exposure to international financial markets. In addition, prudent economic management before, during, and after the global downturn helped maintain growth and stability. On the other hand, progress towards reducing the structural distortions inherent in Uzbekistan‘s gradualist state- led development strategy—e.g. the restrictive trade régime, self-sufficiency, the underdeveloped financial sector, the difficult business environment, was limited. Moreover, despite some advances, governance, public accountability, and transparency remain major concerns as well. 2. Progress towards the other country development goals supported by the CAS varied. In particular, results for the main themes underlying the CAS program—private sector development, increased rural incomes, strengthened human development, and improved environmental and disaster risk management—were mixed and often unclear, owing at least partly to insufficient or poor quality data. Regarding private sector development, for example, while the authorities report an increase in the share of small- and medium-sized enterprises in GDP, from 42 percent in 2006 to 52 percent in 2010, there are no official data to indicate whether the broader private sector/GDP ratio improved proportionately 1 . Moreover, some private sector development indicators turned negative: for example, Uzbekistan‘s relative country ranking in Doing Business fell during the period―from 138/181 in 2009 to 150/183 in both 2010 and 2011—and its poor investment climate, specifically access to foreign exchange as well as local currency in cash, remains a major challenge2. Thus, even though the government expects to finance 1 According to Uzbekistan statistical conventions, the private sector and small- and medium-sized enterprises are synonymous. The private sector includes enterprises with less than majority private equity ownership. 2 Uzbekistan‘s absolute country-specific score, however, indicates modest progress over time—cf. paragraph 14 below. 43 up to two-thirds of its $47.3 billion, five-year (2011-15) industrial modernization and infrastructure development program with foreign direct investment and/or external loans, there is scant evidence of any real improvement in the country‘s overall business environment since 2008. 3. As for increased rural incomes and strengthened human development, project-specific indicators suggest continued progress in the delivery of essential social services—education, health, and water supply and sanitation. However, there are no up-to-date reliable data available to verify the officially reported declines in poverty, nor to show, for example, whether improved agricultural yields, especially of cotton and wheat, are translating into increased farmers‘ incomes. Likewise, it is unclear whether the better access to safe water and the reductions in infant and maternal mortality recorded in IDA-financed project districts are being replicated elsewhere in the country. In fact, given the still slow pace of reform in agriculture—with the ‗state order‘ for cotton at below market prices still firmly in place—and also in the public education and health systems, especially in rural areas, there is anecdotal evidence that unemployment and living standards have changed little during the period. III. Highlights of CAS Program Performance 4. The overall purpose of the CAS was to support implementation of Uzbekistan’s first WIS, 2007-10. The WIS, a comprehensive medium-term development framework, sought to maintain high rates of GDP growth and, in particular, to improve living standards, create a more competitive, diversified, and modern economy, enhance access to and the quality of public services, and reduce inter- regional disparities. Linked to these country objectives, the CAS‘ framework comprised four pillars: (a) an enabling environment for shared growth; (b) increased economic and income opportunities in rural areas; (c) strengthened human development and social protection through better service delivery; and (d) environmental and disaster risk management, and global goods provision. 5. This Completion Report compares results achieved with the outcomes foreseen in the CAS, as updated or revised in the FY10 CAS Progress Report (CASPR)3. It is based inter alia on: portfolio implementation performance reports; the last two Implementation Status and Results Reports (ISRs) and aide memoires of each active project and Implementation Completion Reports (ICRs) of two projects that closed during the CAS period; interviews with selected client counterparts; and self-assessments by the country team. Its initial findings informed the preparation of the FY12-15 Country Partnership Strategy (CPS). Pillar 1: Enabling Environment for Shared Growth 6. The first pillar envisaged two broad areas of engagement, with outcomes linked to the country‘s overall growth, poverty reduction, and macroeconomic management goals, namely: (a) institutional support for WIS implementation, including promoting good governance; and (b) private sector development, business environment and investment climate. Activities in these areas were facilitated by a mix of advisory and analytical services, policy dialogue, and technical assistance. 7. CAS support for WIS implementation focused on six pre-selected clusters of activity: (a) macroeconomic policy formulation; (b) poverty analysis; (c) monitoring and evaluation; (d) public financial management reform; (e) budget transparency; and (f) governance. According to the country team‘s self-assessment, outcomes for macroeconomic policy formulation, budget transparency, and governance were achieved and those for monitoring and evaluation and for public financial management 3 Uzbekistan: Country Assistance Strategy, FY08-11, May 14, 2008 (Report No. 43385-UZ) Uzbekistan: Country Assistance Strategy Progress Report, May 20, 2010 (Report No. 53764-UZ) 44 were partly achieved. There was little progress as regards poverty analysis, however. These results are discussed in more detail below. 8. Macroeconomic policy formulation. In addition to regular advice to decision makers, technical assistance was provided to the Ministry of Economy (MOE), the Institute for Macroeconomic Research (IFMR), and the Ministry of Finance (MOF) to strengthen these institutions‘ analytical and forecasting capacity through the use of new economic tools. Specific outputs included: an external debt management manual; an assessment of budget revenues; a review of the State Tax Committee‘s organizational structure; a guide for the publication of key economic data; a methodology for assessing the impact of external shocks such as the recent global crisis on Uzbekistan‘s economy, using a computable general equilibrium model (CGE) model, as well as mitigation measures and related policy dialogue; a survey of research and development institutions to assess the constraints to their upgrading and modernization; a methodology for assessing innovation potential in specific industrial sectors; and workshops and roundtables for preparation of a national strategy for innovation-based development. 9. Budget transparency. The increased frequency and expanded scope of MOF reporting during the period contributed to enhanced budget transparency and, indirectly, improved public finance management. Two specific results were achieved: (a) monthly and quarterly reports are now reconciled using the unified budget classification, allowing for comparison of approved and actual budgets; and (b) all extra-budgetary funds, except the Fund for Reconstruction and Development (FRD), are now incorporated into the treasury system. The treasury in turn introduced the new GFSM 2001-based budget classification for the 2011 budget cycle, albeit not yet in terms of published budget data. 10. Governance. Dialogue on governance and anti-corruption was initiated in the context of several anti-money laundering and counter-terrorism financing activities undertaken jointly with the UNODC. It was later broadened to include data transparency, banking system reforms and, more recently, industrial policies. Specific outcomes included: Uzbekistan‘s signature of the United Nations Convention against Corruption in August 2008; Uzbekistan‘s ratification of the OECD Istanbul Action Plan in March 2010; and the creation of a national anti-corruption strategy working group tasked with developing an action plan and assessing—jointly with OECD—the country‘s institutional capacity for combating corruption. Meanwhile, an assessment of the accountability, efficiency, and transparency of primary health care services was completed in mid-2009 as planned. 11. Monitoring and evaluation. A WIS monitoring and evaluation framework was developed and partially implemented, specifically the provision of hardware, software, and MoE staff training, including a September, 2008 study tour to Vietnam. In addition, a database of over 170 improved education and health indicators was prepared and integrated into the framework, financed by a small IDF grant to the MOE and the Ministries of Education and Health. However, the monitoring and evaluation unit is not yet formally incorporated into the MOE, nor is the framework integrated into other core ministries. Moreover, monitoring and evaluation units at the regional and district levels also need further capacity building. 12. Public financial management reform. Agreement was reached on a joint PEFA assessment that will be used to benchmark Uzbekistan‘s public finance management (PFM) system. Meanwhile, technical assistance was provided to support continued implementation of the MOF‘s treasury reform in two phases with the following outputs: (a) a draft instruction establishing the accounting framework and a draft unified chart of accounts consistent with international public sector accounting standards and aligned with the new GFSM 2001-based budget classification; and (b) an accounting framework for budget organizations, as well as the training of 50 staff. 13. Poverty analysis. There was no change in the authorities‘ policy regarding access to primary household budget survey data. Therefore, technical assistance for the newly established Institute for 45 Social Research focused on providing analytical support, knowledge sharing, and the organization of twinning arrangements between WIS working groups and overseas research institutes. Meanwhile, although a multiple indicator cluster survey (MICS) covering 20,000 households was formally launched in 2010, with UNICEF support, it will not be completed until September, 2011. Analysis of the results of this MICS is expected to provide some indication of trends in poverty-related outcomes. 14. CAS support for private sector development, business environment, and the investment climate was provided almost entirely by IFC. Advisory services, comprising four projects totaling almost $4.5 million (including Central Asia and Azerbaijan regional projects), promoted improvements in the business environment and financial sector. IFC‘s long-standing investment climate advisory project assessed the impact of proposed regulations affecting businesses and simplifying tax administration. In addition to advisory work on leasing and housing finance, a recently launched regional financial markets infrastructure advisory project focuses on the further development of credit information sharing systems and formal risk management education and certification. 15. IFC’s private sector development work comprised analytical and advisory services in five areas: (a) improved business environment (as measured by Doing Business); (b) public-private partnerships (PPPs); (c) leasing and housing finance; (d) tax administration; and (e) credit information sharing. According to the IFC team‘s self assessment, outcomes for leasing and housing finance and for improved business environment were achieved; and those for tax administration, credit information sharing, and PPPs were partly achieved. Regarding the business environment, although Uzbekistan‘s relative country ranking in Doing Business fell during the period, an alternative so-called ‗change score‘ that measures country-specific progress in absolute terms points to modest technical improvements over the past five years. These include: a 25 percent reduction in building permit fees; a new, simplified tax code, and reduced tax rates; a 30 percent reduction in mandatory business inspections; and, adoption of a regulation for cameral (off-site) control of businesses. Despite these positive results, the two main obstacles to an improved business environment and investment climate―limited access to foreign exchange as well as cash local currency―remain essentially unchanged since 2008. As for PPPs, between October 2009-2011, the Ministry of Health worked with IFC under a financial advisory services agreement for a proposed partnership involving medical diagnostic centers; in the end the Ministry of Health decided not to pursue this PPP scheme until a more complete health care reform is implemented. In addition, memoranda of understanding have recently been signed with Uzkommunkhizmat (UzK), the national utilities agency, and with the city of Tashkent for pilot partnerships in utilities and solid waste management respectively. In IFC‘s view, prospects for completing this PPP agenda are good, albeit not during the current CAS. 16. IFC invested $8 million in two financial sector projects during the period. This modest outcome, although an increase over the preceding (ISN) period, reflected the constraints affecting the country‘s private sector. A $3 million credit line to Uzbek Leasing is financing medium-term leases for industrial equipment and machinery for small- and medium enterprises (SMEs). A $5 million debt and equity financing to Hamkorbank, one of the country‘s few private banks, is accompanied by advisory services to strengthen management information systems (MIS), human resources, risk management and corporate governance practices. IFC portfolio clients in the financial sector provided almost 40,000 loans to small and medium-sized enterprises during 2008-2009 and held outstanding MSME portfolios of over $500 million at end-2009. Nonetheless, the country‘s relatively low private sector/GDP ratio, the small amount of private foreign direct investment, and IFC‘s own modest portfolio are together evidence that Uzbekistan‘s business environment and investment climate still require significant improvement. Pillar 2: Increasing Economic and Income Opportunities in Rural Areas 17. To support government efforts aimed at increasing economic and income opportunities in rural areas, reducing poverty, and lessening regional disparities—and consistent with the WIS‘ focus on rural 46 development and improved water resource management—the CAS relied on four ongoing operations: two Rural Enterprise Support Projects (RESP)—I & II, the Drainage, Irrigation & Wetlands Improvement Project, and the Fergana Valley Water Resources Management Project. Together, these were expected to produce three related outcomes: (a) increased yields of corn, cotton, wheat, fruits and vegetables; (b) enhanced farmers‘ access to credit and other financial services in seven provinces; and (c) strengthened capacity of water users‘ associations. 18. Based on recent ISRs and the ICR for RESP-I, all four projects‘ contributed directly or indirectly to achievement of these outcomes. For example, the Drainage, Irrigation & Wetlands Improvement Project enhanced the quality and potential productivity of 100,000 ha of land by investment in improved drainage and irrigation facilities. Likewise, in RESP-I districts, cotton and wheat yields increased on average by 15 percent and 27 percent respectively; farmers‘ access to credit and other financial services expanded significantly; and the capacity and viability of water users‘ associations, based on hydrographical rather than administrative boundaries, is now stronger. Whether these higher yields translated into increased rural incomes, however, is less clear: the ICR asserts that they helped reduce poverty, but offers no evidence. Although cotton farmers in RESP-I districts were allowed to sell their ‗above quota‘ output outside the national ‗state order‘ system—an opportunity explicitly designed to help increase their incomes significantly—the delay in issuing the enabling decree, the practical obstacles to ‗above quota‘ sales (virtually all cotton ginneries remain government-owned or controlled), and the small scale of the pilot scheme together meant that its results were inconclusive. At the same time, analyses of projects in other (non-RESP) districts suggest that farmers‘ incomes remain constrained by the long- standing systemic barriers to technological change and agricultural reform, such as continuing governmental controls over cropping patterns and the supply of inputs such as fertilizers and seeds, as well as other policies and practices that stifle innovation and risk taking. Thus, although CAS outcomes, actual and prospective, contributed to achievement of two of this pillar‘s three country goals—increased agricultural productivity and enhanced sustainability of irrigation and land improvement—their influence on farmers‘ incomes and, more broadly, their impact on poverty reduction in rural areas are uncertain. Finally, a water sector investment planning study that defined a methodology for prioritizing individual irrigation and drainage investment projects was completed in mid-2009 as planned. Pillar 3: Strengthening Human Development & Social Protection 19. To strengthen human development and social protection, the CAS targeted three broadly-defined sub-sectoral outcomes: (a) increased provision of safe water and sanitation; (b) improved health indices, specifically for infant and maternal mortality; and (c) enhanced basic education and learning, measured by the adoption of quality enhancing techniques, materials, and participatory practices. It supported government efforts in these three areas through five ongoing projects, two of which were completed during the period, as well as three new operations, supplemented by focused analytical and advisory services. 20. Improved Provision of Safe Water and Sanitation. CAS outcomes for increased provision of safe water and sanitation―measured by improved supply reliability, enhanced water quality, energy efficiency, cost recovery, and customer satisfaction under the now completed Bukhara and Samarkand Water Supply Project―were fully achieved. However, institutional development efforts to strengthen the two water utilities through a performance-based service contract with an international operator failed, with the ICR rating both project development objectives and Bank and borrower performance moderately unsatisfactory. Nevertheless, experience gained under this project helped inform a less ambitious design for the Bukhara and Samarkand Sewerage Project approved in FY10. Moreover, a Municipal Services Sector Study and a Water Supply and Sanitation Strategy Note helped sustain policy dialogue on investment and policy reform priorities and support preparation of three new projects (Syr Darya Water Supply, Alat-Karkul Water Supply, and Karakalpakstan Sewerage), of which one (Syr Darya Water Supply) was approved in late-FY11. 47 21. Improved Health Indices. Since the mid-1990s, reforms in Uzbekistan‘s public health system have focused on restructuring primary health care—specifically training of general practitioners, upgrading of rural clinics‘ infrastructure and equipment, and expansion in the scope of services provided—and establishing an emergency care network. These changes and other structural and health financing reforms supported by the 2nd Health Project, now nearing completion, have resulted in increased utilization of services and improved patients‘ satisfaction. They have also encouraged health system efficiency, as patients shift to lower-cost, outpatient services, and helped re-orient facilities towards local needs and improved accountability. The recently approved and much larger 3rd Health System Improvement Project will provide support for district hospital services improvement, primary health care development, and the quality of secondary health care, for ongoing health financing and management reforms, and for institutional strengthening for non-communicable diseases prevention and control. Meanwhile, although an intended CAS result—to increase the proportion of pregnant women receiving antenatal care during the first trimester—was not achieved, neither this result nor the planned CAS outcome—to reduce infant and maternal mortality further—were a particular focus of the CAS program, which was obviously concentrated more broadly on human and physical infrastructure investments, health financing and management reforms, and institutional development. Progress in these areas under the 2nd Health Project and as reflected in the ambitious scope of the 3rd Health System Improvement Project was evidently satisfactory. 22. Improved Basic Education and Learning. In 2007, Uzbekistan spent 7.5 of its GDP and 25 percent of its budget on education—well above the OECD average—with resources until 2004 concentrated mainly on measures to upgrade secondary vocational education. Since then, there has been a shift in focus to general education, specifically the School Education Development Program, 2004-09, which—coterminous with the Basic Education Project (BEP)-Phase 1—has supported rehabilitation and reconstruction of about 8,500 schools, provision of furniture, science and technology equipment and other learning resources, including teacher training, and increased teacher salaries. This focus on improved human and physical resources and the quality of education, as well as financing and structural reforms, produced positive changes in line with intended CAS results and outcomes. For example, per capita financing was introduced nationwide in 2010; standardized assessments of student learning for 4 th and 8th graders have been implemented nationwide; and 85 percent of BEP-Phase 1 project schools now have functioning school boards—the target for 2011. Meanwhile, BEP-Phase 2, approved in June 2009, builds upon and extends the capacity created under BEP-1. It also combines targeted interventions to poor, rural schools with interventions designed to encourage broader, systemic education reform. CAS outcomes for improved basic education and learning were thus achieved. Pillar 4: Managing Environmental and Disaster Risks and Global Goods Provision 23. The fourth pillar originally provided for a variety of analytical, advisory, and technical assistance activities in five areas: weather forecasting, adaptation to climate change, renewable energy, carbon finance, and communicable diseases. During the FY10 CASPR process, these were reduced to three: improved energy efficiency; reduced greenhouse gas emissions; and improved environmental and disaster risk management. At the same time, an energy efficiency project was added to the program. 24. Improved Energy Efficiency. Having declared the need to improve the energy efficiency of industrial enterprises as one of its key priorities, the government requested urgent IDA assistance for a pilot project support implementation of the necessary policy measures and, in particular, to finance investments in energy savings equipment and technology through three commercial banks. Thus, a $25 million Energy Efficiency for Industrial Enterprises operation—the first WBG operational commitment in Uzbekistan‘s energy sector—was added to the CAS program and approved in mid-2010, although one year later (mid-2011) it has still not yet been signed. If this pilot is successful, it is planned to develop a more ambitious operation, with a much larger credit line and the addition of more financial intermediaries. 48 25. Reduced Greenhouse Gas Emissions. Dialogue on Uzbekistan‘s participation in the Global Gas Flaring Reduction Partnership (GGFR) and Carbon Financing Mechanisms continues. Uzbekneftegaz, the national oil and gas company, confirmed its participation in the GGFR Partnership for 2010-12, aiming to reduce gas flaring from its oil production. A possible Clean Development Mechanism (CDM) Gas Flare Reduction Project under the Kyoto Protocol is also under preparation. 26. Improved Environmental and Disaster Risk Management. An energy sector vulnerability to climate change study has been initiated. A regional workshop took place in 2009 to launch regional disaster risk management (DRM) reports and to initiate the recently approved Central Asia regional hydro-meteorological program. Technical capacity was built in inventorying obsolete pesticide- contaminated burial sites; inventories and risk assessments were carried out; and recommendations for remediation were prepared for two priority burial sites. Finally, at the regional level, an independent assessment of the regional impact of Vakhsh River Basin development was initiated. CAS Program Results Rating 27. The Completion Report rates the achievements of outcomes foreseen in the CAS as moderately satisfactory. First, compared to the mid-2000s, the quality and scope of the Bank‘s dialogue and interaction with the government on macro-related policies (except for poverty) has demonstrably improved. Moreover, a substantial program of continuing analytical and advisory activities—including a planned country economic memorandum focused on competitiveness issues—is in place for the next two years. On the other hand, the Bank‘s influence and role in Uzbekistan remain limited, the bar was set deliberately low, and the authorities‘ ostensibly renewed confidence in Bank economic analysis and policy advice has not yet translated to better access to key economic, financial and social data—nor more generally to improved governance and transparency. Second, although IFC‘s advisory services contributed to several technical improvements in the business environment, it could not be expected to overcome the country‘s systemic constraints to private sector development. Third, the program achieved significant results on the ground in rural development and improved water resource management, but had little obvious influence on broader agricultural policy reforms or on poverty and regional disparity reduction goals. The human development program, on the other hand, in addition to project-specific results, also contributed to and supported implementation of small-scale, but important pragmatic reforms in education, health, and water supply and sanitation. IV. WORLD BANK GROUP PERFORMANCE 28. Reflecting slowly improving Bank-client relations and the need to calibrate different levels of engagement to different degrees of government commitment, the CAS adopted a flexible, two- track approach. This was defined as: (a) full engagement, i.e. lending, analytical and advisory services, and technical assistance, in policy areas and/or sectors of common agreement exemplified by strong government commitment and a successful Bank track record; and (b) limited engagement, i.e. analytical and advisory services and/or technical assistance in areas where there was no, or incomplete consensus on goals and where a road map of policies, programs, and sequencing remained to be agreed. 29. The IDA15 financial envelope was expected to be in the range $375-450 million over the three years FY09-11, similar to the allocation under IDA14 but significantly higher than the total $55 million actually committed between FY04-07. Lending was to focus on investments in: (a) public services affecting rural and urban populations directly that supported implementation of sector-specific reforms; and (b) activities that reinforced Uzbekistan‘s contribution to the global goods and climate change agenda and the promotion of regional cooperation. At the government‘s request, two significant adjustments were made at the time of the FY10 CAS Progress Report: the addition of three new operations in energy; 49 and, the resumption of IBRD lending up to $250 million for two of these three operations. Non-lending activities were to focus on key sector and thematic areas. 30. Eight operations totaling $533 million were approved during the period. Water supply and sewerage $143 million) and energy ($135 million) together accounted for 52 percent of the total, followed by agriculture and water resources management ($134 million, or 25 percent) and education and health ($121 million, or 23 percent). In terms of thematic priorities, strengthening human development and social protection received half of total commitments, with four operations totaling $264 million. Meanwhile, two operations totaling $134 million supported increasing economic opportunities in rural areas and two totaling $135 million the energy efficiency element of the environmental and disaster risk management and global goods provision pillar. Thus, CAS outcomes in terms of number of operations were broadly in line with expectations in mid-2008, but significantly exceeded in terms of amounts committed, with lending of $291 million in FY11—by far the largest to Uzbekistan in any single year.4 This was partly due to the addition of two new energy operations in FY10-11, including the $110 million IBRD loan for Talimarjan Transmission—the largest sector investment loan to Uzbekistan to date. Table 2—Planned Lending and Actual Deliveries, FY08-11—compares originally planned and actual lending. CAS Design and Relevance 31. Overall, the CAS was relevant and well aligned with the country’s stated development priorities—although the links between broad-based strategic country goals and CAS-specific programmatic outcomes was sometimes tenuous or unclear. However, the flexible, two-track approach was effective in helping ensure client commitment and ownership and facilitated program adjustment during implementation as intended. Planned outcomes, eschewing controversial or sensitive policies or reforms, were realistic—in fact, given that some were based on already agreed project-specific results, they were relatively undemanding and clearly intended to ensure achievement. In the circumstances, the fact that some were not, or only partly achieved is disappointing. The quality of the results framework was uneven, inconsistent, and unclear in several areas. Five critical risks to CAS implementation were correctly identified, of which three—fiduciary, development effectiveness, and regional cooperation— are ongoing and likely to continue into the next FY12-15 CAS and beyond. 32. Operationally, the dual track approach worked well, resulting in an almost doubling of the active portfolio during the period—from six projects totaling $266 million in FY08 to ten projects totaling $633 million by end-FY11. Policy impact, however, appears modest—owing partly to the intentionally limited policy content of lending operations, partly to the client‘s avoidance of sensitive areas for collaborative AAA (such as agriculture, governance, poverty), and partly to the gradual pace and narrow scope of Uzbekistan‘s structural reforms process. Moreover, despite the improved dialogue and closer Bank/IDA relations, key long-standing issues remain unresolved—e.g. data access, quality, and transparency; procurement (including contract registration); implementation delays; and project management. 33. Design of new projects/programs. RESP II and three new water supply and/or sewerage operations took into account lessons learned from preceding ICRs (RESP-I and WSSP), especially institutional development experience. Moreover, the potential for more programmatic approaches to (e.g.) future water supply and health operations, as well as education (ongoing), is under consideration. At the same time, the Bank‘s project cycle and the government‘s investment approval processes are still not well aligned, leading to long delays in signing, effectiveness, and initial implementation. Similarly, procurement remains subject to significant delays, partly due to the government‘s contract registration/price verification procedures, which also contravene Bank Procurement Guidelines. The 4 Bank/IDA lending during the preceding 14 years (FY94-07) totaled $654.1 million, i.e. an annual average of $47 million, of which $599.1 million was committed between FY94-03 and $55 million between FY04-07. 50 rapid increase in portfolio size and complexity during the period make resolution of these two long- standing generic issues even more urgent. 34. Relevance, quality, and dissemination of knowledge-based activities. Given the satisfactory outcome of analytical and advisory services and technical assistance under the first growth pillar (except for poverty analysis), knowledge-based activities were evidently highly relevant, of appropriate quality, and timely (e.g. just-in-time notes)—and driven by client demand. Linking these activities explicitly to the implementation of public investments (e.g. water supply and sanitation, health) or the resolution of particular policy reform issues (e.g. public financial management, private sector development)—as requested by client—ensured ownership and impact. However, access to, and the quality of key economic, financial, and social data remain problematical—despite apparent progress stemming from the 2010 CPIA process and the authorities‘ recently indicated readiness to provide data for publication in the IMF‘s International Finance Statistics (IFS)—and progress towards broadening the governance and transparency agenda and dialogue was limited. On the other hand, a priori agreement on the purpose and scope of planned knowledge-based activities guaranteed their relevance in terms of client interest. 35. Responsiveness to changing country circumstances, priorities and demands. The flexibility built into the CAS design was in the event fully exploited during the FY10 mid-term progress review (CASPR) process. At the government‘s urgent request, three new energy operations were added to the program and, with CFRCR‘s agreement, limited lending of up to $250 million on IBRD terms was approved. The results matrix was also revised and updated. 36. Effectiveness of overall donor assistances. Overall, official development assistance (ODA) to Uzbekistan, never very large, remains limited. Except for the ADB, the multilaterals‘ exposure (including that of the Bank) is very modest and there are only a few bilateral or non-governmental agencies engaged, mainly in technical assistance. Consequently, conventional aid coordination and the Bank‘s role are not a major issue. On the other hand, the growing impact of emerging new partners such as China, Iran, Korea, and Russia—especially the effectiveness and fiscal impact of their burgeoning investments in industry and infrastructure—will need increasingly to be monitored and taken into account. In this connection, it is unclear to what extent the aid efficiency and effectiveness agenda prescribed by the 2005 Paris Declaration on Aid Effectiveness and, more recently, the 2008 Accra Agenda for Action is being addressed by the small donor community in Tashkent, including by the Bank. 37. Effectiveness of dialogue and business relations with authorities. Compared to fraught Bank- client relations earlier in the 2000s, especially during the FY05-07 Interim Strategy Note (ISN) period, the policy dialogue and business dealings have improved steadily since 2007-08, one obvious measure of which is the CAS‘ overall moderately satisfactory outcome. However, CAS indicators and goals were modest by design and, despite the enhanced dialogue and relations, several long-standing generic issues— ultimately impeding the effectiveness of Bank Group assistance—remain unresolved. Moreover, despite best efforts, dialogue on regional issues, especially energy and water, remains difficult and ineffective. 38. Effectiveness of risk mitigation. Despite progress in mitigating some fiduciary risks—e.g. the ongoing public financial management technical assistance activities—procurement and other risks to development impact remain high and are likely to continue. On the other hand, the authorities‘ proactive efforts towards end-2008 to mitigate the consequences of the global financial crisis—and the Bank‘s intellectual support to the related macroeconomic policy dialogue—were evidently effective. Risks to regional cooperation remain, however, especially those relating to energy and water resources which may have indeed worsened. The proposed Central Asia Energy-Water Development Program (CAEWDP) is designed to manage and mitigate, if not reduce these longer-term risks. 51 World Bank Group Performance Rating 39. Taking into account the CAS’ relatively undemanding objectives, the Completion Report rates Bank Group performance as moderately satisfactory. This outcome mirrors the country‘s moderately satisfactory progress towards its development goals. Relatively strong performing areas included macroeconomic management, education, health, water supply and sanitation. Relatively weak performing areas included agriculture, governance, transparency and financial and private sector development. Eight operations totaling $533 million were approved during the period, of which three totaling $291 million (55 percent) in FY11 alone—by far the largest annual commitment to date. Except for poverty analysis and the private sector, analytical and advisory activities by the Bank were implemented largely as planned. Portfolio performance remained moderately satisfactory. These outcomes, including the resumption of limited IBRD lending in FY11, evidently validated the efficacy of the CAS‘ two-track approach. V. KEY LESSONS AND SUGGESTIONS 40. The FY08-11 CAS was prepared against the background of gradually improving relations, following the transitional assistance framework under FY06-07 ISN which had effectively limited the program to technical assistance and minimal lending for global goods and social services. During this period of virtual hiatus but also of reflection on the Bank Group‘s experience in Uzbekistan since the early 2000s—including the ineffective FY02-04 CAS—several systemic conclusions were drawn. They included the following: (a) that policy dialogue is effective only when demand-driven, specific, and clearly articulated—a finding that applies in many countries, but especially so in Uzbekistan; (b) that despite the challenging, often problematical policy environment, positive outcomes are still possible with appropriately designed, client-driven activities; (c) that investment projects are in general more effective ‗entry points‘ for policy dialogue and, ultimately, for encouraging reform than separate analytical and advisory activities or technical assistance; and (d) that to address the country‘s limited capacity for project implementation, renewed and systematic attention needs to be paid to several generic issues, such as the country‘s public procurement process and project management. 41. These conclusions informed the design and scope of the FY08-11 CAS and the outcomes recorded in this Completion Report—especially those relating to the first and third pillars—have clearly validated their accuracy and relevance. Looking ahead, three additional issues emerge from experience since mid-2008: (a) that the Bank‘s project cycle and the government‘s process for approving investment projects are still not well aligned, causing significant delays in signing, effectiveness, and initial project implementation—the Energy Efficiency for Industrial Enterprises operation being the most recent example; and (b) that the long-standing ‗price verification‘ process of the Ministry of Foreign Economic Relations and International Trade—not a legal, but a compliance and transparency issue—requires early resolution, especially given the planned expansion in Bank/IDA lending during the next few years; and (c) that the relevance, timeliness, and value of the Bank‘s economic analysis and policy advice—both macro and sector-specific—remains constrained by the limited availability and poor quality of Uzbekistan‘s key economic, financial and social data. Action to address these three issues will be an important prerequisite for effective and efficient implementation of the next FY12-15 CPS. Annexes: Table 1—Summary of CAS Program Self-Evaluation Table 2—Planned Lending and Actual Deliveries, FY08-11 Table 3—Planned Non-Lending Services and Actual Deliveries, FY08-11 52 CASCR Annex 1 Table 1: Summary of CAS Program Self-Evaluation1 PILLAR I: ENABLING ENVIRONMENT FOR SHARED GROWTH CAS Outcomes and Status and Evaluation Summary Lending and Non-Lending Lessons and Suggestions for new Outcome Indicators Activities that contributed to CAS Outcome (a) (a) Institutional support for WIS implementation and Promoting Good Governance (6) Macroeconomic policy Achieved―(a) FY10 CPIA process facilitated dialogue  Economic monitoring (TA) formulation informed by on debt management, tax policy & administration, non-  CPIA Policy Dialogue (TA) analytical research and banking financial institutions, and data transparency; (b)  Vulnerability Assessment (TA) international experience, TA strengthened macroeconomic analytical capacity  Innovation & Growth (TA) showing ability to respond related to mitigating impact of global crisis, and  Financial Sector Policy Dialogue adequately to internal or introduced analytical tools related to growth and (TA) external shocks innovation. GOU adopts techniques Not achieved―preparation of Multiple Indicator Cluster  Dialogue on Poverty and Social consistent with internat- Survey (MICS) underway since early 2010 (with Protection (TA) ional practice for House- UNICEF support), but execution under way only since hold Budget Surveys and 2011. Progress towards enhancing quality of poverty Labor Force Surveys analysis (for WIS II) limited to WBG analytical support. GOU establishes M&E Partly achieved―WIS monitoring framework developed  WIS implementation support system to assess WIS in Ministry of Economy (MoE), but not yet integrated (TA) implementation into other ministries. M&E unit established, but not yet  WIS Monitoring and Evaluation formally included in MoE. Database of over 170 M&E (IDF/TF) indicators created in MoE and in Ministries of Education and Health. 1 Data and assessments as of end-FY11 53 Public financial manage- Partly achieved―Ministry of Finance agreed to conduct  PEFA Self Assessment (TA) ment reform process first PEFA self-assessment with WBG methodological  External and Internal Audit benchmarked by PEFA- support, but agreement on independent review as well as (IDF/TF) type assessments results validation and disclosure pending. WBG (and IMF) continued support for implementation of treasury. Increased transparency in Achieved―not by publication of summary budget  CPIA Policy Dialogue (TA) public resource utilization, execution reports, but through more regular budget  Public Sector Management measured by publication reporting (monthly and quarterly) and greater Support (TA) of summary budget comprehensiveness (e.g. all extra-budgetary funds, except execution reports Fund for Reconstruction & Development incorporated in treasury system). Treasury system adopted GFSM 2001- based budget classification in 2011. Progress in dialogue on Achieved―CPIA policy dialogue broadened to include  Dialogue on Governance in governance, including data transparency, banking system reforms, and industrial Health Sector (TA) gradual extension from policy. Uzbekistan signed UN Convention Against  CPIA Policy Dialogue (TA) sector- specific to broader, Corruption in 2008, ratified OECD‘s Istanbul Anti-  AML/CFT (TA) common issues Corruption Action Plan in 2010, and set up working group to draft national anti-corruption strategy Partnerships: IMF, UNDP, ADB (b) Private Sector Development, Business Environment, and Investment Climate (6) Improved overall business Partly achieved―although its relative country ranking  Benchmarking through Doing environment, as measured fell from 138/181 in 2009 to 150/183 in 2010 & 2011, Business (TA) by annual Doing Business Uzbekistan‘s ‗change score‘ of 0.18 (on a scale of 0-  Private sector development surveys 0.54), which measures progress in absolute terms since dialogue (TA) 2006, ranked it 22 out of 87 countries for which ‗change  ROSC Dissemination (TA) scores‘ were calculated. Strengthened insurance Not achieved―  Strengthening insurance regulation and supervision supervision—FIRST initiative to promote and secure grant (TF) sound, stable insurance market Increased private particip- Partly achieved―pilot PPP for medical diagnostic  IFC/PPP Advisory ation in infrastructure centers under preparation, Presidential decision pending  Introduction of PPP Support projects since February, 2011. MOUs signed with (TA) Uzkommunkhizmat September 2010 and Tashkent Municipality April 2011 for pilot water supply & solid 54 waste management PPPs Leasing and housing fin- Achieved―value of lease financing increased from $265  IFC Advisory ance sectors developed in million in 2007 to over $770 million in 2009. Law on line with international best Realtors‘ Activities adopted and appraisal criteria for practice housing finance drafted, publicly discussed, and approved by Appraisers‘ Associations. Mortgage lending training program, mortgage borrowers‘ guide, and mortgage best practices developed Improved system for Partly achieved―credit information sharing increased credit information sharing by 1%. Adoption of law On Sharing Credit Information as measured by Doing expected to facilitate increased coverage Business indicator and by increased number of credit reports issued Simplified tax administra- Partly achieved―new Tax Code effective January 2008.  CPIA Policy Dialogue (TA) ion Discrepancies, mainly linguistic, between Uzbek and  IFC Advisory Russian texts of Tax Code eliminated by amending law Partnerships: IMF, EBRD approved December 20, 2009 PILLAR II: INCREASE INCOME AND ECONOMIC OPPORTUNITIES IN RURAL AREAS (3) CAS Outcomes and Outcome Status and Evaluation Summary Lending and Non-Lending Lessons and Suggestions for new Indicators Activities that contributed to CAS Outcome Increased productivity of farming Partly achieved―  Drainage, Irrigation and in area totaling 2 million ha, as  100,000 ha provided with improved irrigation Wetlands Improvement Project measured by higher yields of and drainage, of which 50,000 with water table (SPN) cotton, wheat, potatoes, fruits, up to 2 m below surface  Rural Enterprise Reform vegetables, silage corn  Cabinet of Ministers decree allows RESP II Project ―RESP II (SPN) project farmers to sell ‗above state quota‘ cotton  Policy Dialogue on within project area Agriculture (TA)  State procurement price for cotton increased 37% between 2009-10 55 Enhanced farm access to financial Achieved:  Rural Enterprise Reform services in 7 regions, as measured  RESP II participating banks finance Project ―RESP II (SPN) by 500 new microcredit lines agricultural machinery, greenhouses, equipment and materials for development of orchards, vineyards, animal husbandry, poultry and fisheries  RESP II participating banks disbursed $15.7 million to 185 beneficiaries to date Enhanced capacity and financial Partly Achieved:  Rural Enterprise Reform viability of Water Users‘ Project ―RESP II (SPN) Associations (WUAs), as measured by:  Increased maintenance conduc-  International consultant selected to design and ted by WUAs Baseline: 30% supervise civil works Target: 45%  RRA and SDC consultants completing  Increased fee collection financial and economic analysis of WUAs, Baseline: 15% with fee collection one of the main issues Target: 30% under review.  Financial & institutional sup-  Financial & institutional support provided to port to 84 WUAs re-structure 84 administratively managed WUAs into 62 canal-level management/hydrographic units PILLAR III: STRENGTHEN HUMAN DEVELOPMENT & SOCIAL PROTECTION THROUGH BETTER SERVICE DELIVERY CAS Outcomes and Outcome Status and Evaluation Summary Lending and Non-Lending Lessons and Suggestions for new Indicators Activities that contributed to CAS Outcome (a) Improved provision of water & sanitation (1) Improved access to safe, water Achieved―  Bukhara-Samarkand Water  Project design should be simple in a and sanitation in Bukhara and Supply Project (SPN) low-capacity context Samarkand project areas, as  Bukhara-Samarkand Sewerage  Projects should be measured by: Project (SPN) restructured/amended to reflect (a) Reliable water supply:  Access to reliable water supply increased to  Water Sector Policy Note changes in project designs or Baseline(2007): Bukhara— 98% in project areas (exceeding targets) (ESW) implementation arrangements 87%; Samarkand—48%  103 km of pipe replaced in Bukhara and 126  Water Sector Dialogue (TA)  Frequent TTL transitions should be (b) Enhanced water quality: avoided 56 Baseline (2007): % of km in Samarkand  International consultants may provide samples failing quality tests in  Shokhrud Water Treatment plant rehabilitation valuable services Bukhara—8%;Samarkand— completed and operational  Civil works oversight obligation by 40%  Mulyon water reservoir completed and the Borrower is critical and should be Target (2011):<5% operational built into the project contracts (c) Strengthened financial via-  Water quality sampling and testing program in  Monitoring should be adapted to bility, as measured by place in both Bukhara & Samarkand client‘s capacity; M&E plans and improved collections of water  Water quality improved in project areas―only collection of baseline data should be tariff: 3% of water samples tested failed chlorine completed by project appraisal Baseline (2007): Bukhara— residual standards (exceeding <5% target)  Fiduciary and procurement capacity is 67%; Samarkand—44%  Billing system installed in vodokanals (water essential to success of project Target(2011): Bukhara— utilities) in both Bukhara & Samarkand implementation 87%; Samarkand—80%  Collection rates improved―to 86% and 89% in Bukhara and Samarkand respectively (achieving targets) (b) Improved health indices (2) Enhanced access to quality health Not achieved―  2nd Health Project (SPN) care, as measured by:  National Flour Fortification (a) increased use of primary  Deterioration in utilization of antenatal care, Project (TA) health care services―% of and in levels of anemia in fertile women  Health System Improvement pregnant women receiving Project(LEN) antenatal care in first 12  Health and Education M&E weeks and Capacity Building Baseline (2007)— 85% (IDF/TF) Target (2011)—95%  Social Sectors‘ Public (b) % of CRHs using case-based  Initial steps in pilot Ferghana oblast, but no Expenditure Review (ESW) financing hospitals actually using case-based financing to Baseline (2007) : 0% date Target (2011): 100% (c) % of public health ex-  % of public health expenditures on primary penditures on primary health health care increased to 47% in 2009 (and per and out-patient care capita by $38 compared through 2009) Baseline (200)―43% Target (2011)—50% Reduced health risks from global Partly achieved― pandemic through  Central Asia HIV/AIDS Project (SPN) 57 (a) Improved HIV/AIDS prevent-  100% coverage of HIV+ pregnant women with ion & control, as measured ARV treatment. by: % of HIV-positive children  1,128 professionals trained in Drug born to HIV-positive mothers Consumption Harm Reduction Program Baseline (2007)―60% Target (2010)―85%  45 trainers and 298 chief epidemiologists trained to provide training on HIV/AIDS for % of HIV-positive pregnant general practitioners women receiving ARV prophylaxis  243 mahalla leaders in five pilot regions Baseline (2007)―90% trained in sensitizing population on HIV/AIDS Target (2010)―100% prevention % of HIV-positive women  132 HIV/AIDS laboratory staff trained in receiving ARV treatment HIV diagnostics quality assurance and control voluntarily: Baseline (2007)―70% Target (2010)―100%  Country framework developed for dealing with potential avian influenza outbreaks and (b) Improved seasonal flu pandemics  Avian Influenza Control prevention & control, as and Human Preparedness and  Human, institutional, physical capacity for measured by: Response Project dealing with potential avian influenza % of at-risk population outbreaks strengthened vaccinated  Increased public awareness about human- Baseline(2007)― 50% animal interface, not only for avian and Target (2010)―100% pandemic influenza preparedness, but also # of AI diagnostic tests Partnerships: ADB, FAO, for food safety and food security, poverty annually on animal and USAID, WHO, UNICEF reduction, and equitable growth human samples (c) Improved basic education and learning (1) 58 Schools adopt quality enhancing Achieved―  Basic Education Project techniques, materials and part- – Phase 1 (SPN) icipatory practices as measured  Basic Education Project by: –Phase 2 (SPN)  Education AAA (a) % of schools with core set of 100% of project institutions (pre-schools and educational materials avail- Grades 1―4) received core set of educational able materials―the former comprising Baseline (2007): 10% 53 items totaling $1.9 million and the latter Target (2011): 80% comprising 55 items totaling $4.5 million (b) % of retrained teachers in All teacher trainers have been trained on project schools SBTT―94 facilitators for schools and 71 for Baseline(2007): 5% preschools as well as 600< school and preschool Target (2011): 70% principals (c) % of project schools with 100 % of project schools have active boards active boards Baseline (2007): 75% National standardized test for grades 4 and 8 Partnerships: ADB, Target: (2011): implemented UNDP, UNICEF, SECO, KfW, JICA, JBIC PILLAR IV: ENVIRONMENTAL MANAGEMENT, DISASTER RISK MANAGEMENT, AND GLOBAL GOODS PROVISION (4) Status and Evaluation Summary Lending and Non- Lessons and Suggestions CAS Outcomes and Outcome Lending Activities that for new CAS Indicators contributed to Outcome Enhanced awareness of energy Partly achieved― savings & sources of renewable  Energy Efficiency workshops held for  Talimarjan Transmission energy in selected remote areas, commercial bank loan officers and (LEN) as measured by # of equipped enterprise staff in light industry, textiles,  Energy Efficiency for public service buildings in remote building materials, electrical equipment Industrial Enterprises areas  Metering strategy was reviewed by (SPN) international expert  Municipal Governance (TA) 59 Reduced greenhouse gas Partly achieved― emissions, as measured by:  Nine Clean Development Mechanism  Uzbekneftegaz Associated  Funding for preparation of CDM project  Emissions: (CDM) projects registered at UNFCCC Gases Recovery Project components should be supported by Baseline (2004): 121 m. tons Secretariat between 2009-2011 (Carbon Fund) investments in project implementation CO2  Uzbekneftegaz endorsed Global Gas Flaring  Global Gas Flaring  Intensity: Reduction Partnership and its Voluntary Reduction Partnership Baseline (2004): 2,686 tons Standard for Global Gas Flaring Reduction, (TA) CO2 per mln. 2000 ppp US$ and became Partner of GGFR GDP  Associated Gas Recovery Plan (AGRP) prepared and presented, September, 2010 Optimal adaptation strategies for Partly achieved― managing risks to energy sector of  Three workshops for over 100 energy sector  Agriculture vulnerability to changing climatic hazards professionals held on Climate Vulnerability, climate change (regional established Risk and Adaptation Assessments ESW/TA)  Recommendations for improving climate  Central Asia Hydromet resilience of energy sector developed and (LEN) proposed to government  Central Asia Energy-Water Development Program Analysis and prioritization of (TA) obsolete pesticide contaminated  Energy vulnerability to sites initiated climate change (ESW) Partnerships: ADB, UNDP, USAID, ICARDA, IWMI, SDC/SECO, KfW 60 CASCR Annex 2 Table 2: Planned Lending and Actual Deliveries (FY08-11) CAS PLANS (05/14/2008) STATUS (06/30/2011) US$ (M) US$(M) IBRD IDA IBRD IDA Rural Enterprise Support—Phase II 68 Cr. 44330 approved 06/12 /08 68 2008 Subtotal 68 Subtotal 68 Ferghana Valley Water Resources Mgt. 40 Forwarded to FY10 2009 Basic Education―Phase II 25 Cr. 45980 approved 06/23/09 28 Subtotal 65 Subtotal 28 Subtotal: FY2008-09 133 Subtotal FY2008-09 96 CAS PROGRESS REPORT PLANS (05/20/2010) STATUS (as of 06/13/2011) Bukhara & Samarkand Sewerage 55 Cr. 46330 approved 08/04/09 55 Ferghana Valley Water Resources Mgt. 66 Cr. 46480 approved 09/24/09 66 2010 Energy Efficiency Facility for Industr- 25 Cr. 47450 approved 06/17/10 25 ial Enterprises Subtotal 146 Subtotal 146 Syr Darya Water Supply 108 Cr. 48690 approved 03/01/2011 88 Talimarjan Transmission 170 Ln. 80090 approved 03/15/2011 110 Health System Improvement 93 Cr. 4896 approved 04/07/2011 93 2011 Alat-Karakul Water Supply 12 Forwarded to FY12 Advanced Electricity Metering 80 Forwarded to FY12 Subtotal 250 213 Subtotal 110 181 Subtotals FY2010-11: 250 359 Subtotals FY2010-11: 110 327 TOTALS FY 2008-11: 250 492 TOTALS FY 2008-11: 110 423 61 CASCR Annex 3 Table 3: Planned Non-Lending Services and Actual Deliveries (FY2008-11) CAS PLANS (05/14/2008) STATUS (06/30/2011) Governance Assessment of Health Sector Report No. 44530-UZ―Assessment of Primary Health Care Reform: Transparency, Accountability, and Efficiency―issued 05/20/2009 Hospital Sector Reform Policy Note completed 06/30/2008 Health and Nutrition Review Regional situational analysis (KYR, TAJ, and UZB) completed 03/08/11, jointly 2008 with UNICEF Water Sector Investment Planning Study Report—Methodology for Ranking Irrigation Infrastructure Investment Projects—sent to Ministry of Economy 06/09/09 Advice on Development of Treasury System Advisory TA provided to Ministry of Finance during FY08-09 Accounting and Auditing (ROSC) ROSC—Accounting and Auditing sent to Ministry of Finance 04/02/10 Private/Financial Sector Dialogue Welfare Improvement Strategy (WIS) TA Ongoing Governance Assessment of Municipal Services Ongoing―Institute of Social Research capacity development 2009 Growth and Poverty Dialogue TA Completed Assessing Vulnerability―Phase 1 Completed―Unified Chart of Accounts (Treasury) instructions submitted to Public Sector Management Support TA―Phase 1 Ministry of Finance 06/20/09 PROGRESS REPORT PLANS (03/31/2010) STATUS (as of 06/30/2011) Advice on Development of Treasury System Advisory TA to Ministry of Finance Assessing Vulnerability―Phase 2 Completed—e.g. estimating impact of global crisis using a CGE model; designing fiscal anti-crisis measures; methodology to assess innovation potential in selected industries, etc. 2010 Municipal Development and Governance Ongoing FY10-11 Growth and Innovation (TA) Ongoing FY10-11 CPIA Policy Dialogue Completed Financial Sector Development Policy Dialogue FIRST TA preparation mission (insurance) visited Uzbekistan 04/09 Private Sector Development Policy Dialogue Draft report—Role of National Quality Infrastructure in Uzbekistan’s 62 Modernization Strategy—discussed at in-country workshop 01/19/11 Municipal Governance TA Report―Improving Water Supply and Sanitation Services Delivery through Better Customer Relationship Management―delivered 06/25/10 Public Sector Management Support TA―Phase 2 Unified Chart of Accounts (Budget Organizations) submitted to Ministry of Finance 09/20/10 Insurance Sector Development Forwarded to FY12 Public Expenditure Review Basic & Pre-School Education―Policy Note Fruit and Vegetables―Policy Note Forwarded to early FY12 Country Integrated Fiduciary Assessment (CIFA) Completed― Innovation and Growth TA Contributed to 2011 Uzbekistan Innovation Fair and international conference on Innovation and SME development, Tashkent, April 2011 2011 Municipal Governance TA Collection and analysis of data for water utilities‘ performance benchmarks underway Audit Firms Review Follow-up TA UAP-ES Assessment TA Ongoing 63 Annex A2: Uzbekistan - Country at a glance Uzbekistan at a glance 10/31/11 Europe & Lower Key Development Indicators Central middle Uzbekistan Asia income (2010) Population, mid-year (millions) 28.2 404 3,811 Surface area (thousand sq. km) 447 23,549 31,898 Population growth (%) 1.4 0.3 1.2 Urban population (% of total population) 37 64 41 GNI (Atlas method, US$ billions) 35.9 2,746 8,846 GNI per capita (Atlas method, US$) 1,270 6,793 2,321 GNI per capita (PPP, international $) 2,910 12,609 4,784 GDP growth (%) 8.5 -5.8 7.1 GDP per capita growth (%) 7.0 -6.1 5.9 (most recent estimate, 2004–2010) Poverty headcount ratio at $1.25 a day (PPP, %) 46 4 .. Poverty headcount ratio at $2.00 a day (PPP, %) 77 9 .. Life expectancy at birth (years) 67 70 68 Infant mortality (per 1,000 live births) 57 19 43 Child malnutrition (% of children under 5) .. .. 24 Adult literacy, male (% of ages 15 and older) 100 99 87 Adult literacy, female (% of ages 15 and older) 99 97 74 Gross primary enrollment, male (% of age group) 100 100 109 Gross primary enrollment, female (% of age group) 99 98 105 Access to an improved water source (% of population) 82 95 86 Access to improved sanitation facilities (% of population) 67 89 50 Net Aid Flows 1980 1990 2000 2010 a (US$ millions) Net ODA and official aid .. 62 186 190 Top 3 donors (in 2008): Germany .. 0 9 32 Japan .. 1 82 20 United States .. 0 36 10 Aid (% of GNI) .. 0.5 1.4 0.6 Aid per capita (US$) .. 3 8 7 Long-Term Economic Trends Consumer prices (annual % change) .. 3.1 25.0 7.2 GDP implicit deflator (annual % change) .. 4.0 47.3 18.5 Exchange rate (annual average, local per US$) .. 0.0 236.6 1,586.5 Terms of trade index (2000 = 100) .. 119 100 221 1980–90 1990–2000 2000–10 (average annual growth %) Population, mid-year (millions) 16.0 20.5 24.7 28.2 2.5 1.8 1.3 GDP (US$ millions) .. 13,361 13,760 38,974 .. -0.2 7.1 (% of GDP) Agriculture .. 32.8 34.4 19.3 .. 0.5 6.4 Industry .. 33.0 23.1 32.8 .. -3.4 4.8 Manufacturing .. 22.1 9.4 13.1 .. 0.7 2.5 Services .. 34.3 42.5 47.9 .. 1.1 9.0 Household final consumption expenditure .. 61.4 55.4 51.9 .. .. .. General gov't final consumption expenditure .. 25.4 18.7 17.6 .. .. .. Gross capital formation .. 32.2 22.9 24.9 .. -2.5 10.4 Exports of goods and services .. 28.8 24.6 31.2 .. -3.7 17.5 Imports of goods and services .. 47.8 21.5 28.3 .. -7.4 18.0 Gross savings .. 6.7 24.5 31.6 Note: Figures in italics are for years other than those specified. 2010 data are preliminary. Group data are for 2009. .. indicates data are not available. a. Aid data are for 2009. Development Economics, Development Data Group (DECDG). 64 Uzbekistan Balance of Payments and Trade 2000 2010 (US$ millions) Total merchandise exports (fob) 2,935 10,841 Total merchandise imports (cif) 2,696 7,805 Net trade in goods and services 422 1,134 Current account balance 216 2,612 as a % of GDP 1.6 6.7 Workers' remittances and compensation of employees (receipts) .. .. Reserves, including gold 1,273 14,579 Central Government Finance (% of GDP) Current revenue (including grants) 36.8 32.5 Tax revenue 34.8 22.4 Current expenditure 29.4 31.5 Technology and Infrastructure 2000 2009 Overall surplus/deficit -2.5 2.2 Paved roads (% of total) 87.3 .. Highest marginal tax rate (%) Fixed line and mobile phone Individual .. .. subscribers (per 100 people) 7 66 Corporate .. .. High technology exports (% of manufactured exports) .. .. External Debt and Resource Flows Environment (US$ millions) Total debt outstanding and disbursed 4,633 5,938 Agricultural land (% of land area) 64 63 Total debt service 886 965 Forest area (% of land area) 7.6 7.7 Debt relief (HIPC, MDRI) – – Terrestrial protected areas (% of land area) .. .. Total debt (% of GDP) 33.7 15.2 Freshwater resources per capita (cu. meters) 647 608 Total debt service (% of exports) 26.0 7.0 Freshwater withdrawal (billion cubic meters) 59.6 .. Foreign direct investment (net inflows) 75 1,628 CO2 emissions per capita (mt) 4.8 4.3 Portfolio equity (net inflows) 0 0 GDP per unit of energy use (2005 PPP $ per kg of oil equivalent) 0.8 1.3 Energy use per capita (kg of oil equivalent) 2,058 1,849 World Bank Group portfolio 2000 2009 (US$ millions) IBRD Total debt outstanding and disbursed 217 284 Disbursements 31 5 Principal repayments 5 32 Interest payments 12 15 IDA Total debt outstanding and disbursed 0 83 Disbursements 0 28 Private Sector Development 2000 2010 Total debt service 0 0 Time required to start a business (days) – 15 IFC (fiscal year) Cost to start a business (% of GNI per capita) – 11.9 Total disbursed and outstanding portfolio 8 6 Time required to register property (days) – 78 of which IFC own account 8 6 Disbursements for IFC own account 2 1 Ranked as a major constraint to business 2000 2010 Portfolio sales, prepayments and (% of managers surveyed who agreed) repayments for IFC own account 1 1 Tax rates .. 18.1 Access to/cost of financing .. 16.0 MIGA Gross exposure 10 0 Stock market capitalization (% of GDP) 0.2 4.2 New guarantees 0 0 Bank capital to asset ratio (%) .. .. Note: Figures in italics are for years other than those specified. 2010 data are preliminary. 10/31/11 .. indicates data are not available. – indicates observation is not applicable. Development Economics, Development Data Group (DECDG). 65 Millennium Development Goals Uzbekistan With selected targets to achieve between 1990 and 2015 (estimate closest to date shown, +/- 2 years) Uzbekistan Goal 1: halve the rates for extreme poverty and malnutrition 1990 1995 2000 2009 Poverty headcount ratio at $1.25 a day (PPP, % of population) <2 .. 42.3 46.3 Poverty headcount ratio at national poverty line (% of population) .. .. 27.5 27.2 Share of income or consumption to the poorest qunitile (%) .. .. 9.2 7.1 Prevalence of malnutrition (% of children under 5) .. 18.8 7.9 4.4 Goal 2: ensure that children are able to complete primary schooling Primary school enrollment (net, %) 78 .. .. 88.0 Primary completion rate (% of relevant age group) .. 98 96 92 Secondary school enrollment (gross, %) 101 92 88 104 Youth literacy rate (% of people ages 15-24) 100 100 100 99.8 Goal 3: eliminate gender disparity in education and empower women Ratio of girls to boys in primary and secondary education (%) 94 .. 98 98.3 Women employed in the nonagricultural sector (% of nonagricultural employment) 46 44 43 .. Proportion of seats held by women in national parliament (%) .. 6 7 18 Goal 4: reduce under-5 mortality by two-thirds Under-5 mortality rate (per 1,000) 79 75 71 38 Infant mortality rate (per 1,000 live births) 65 62 59 34 Measles immunization (proportion of one-year olds immunized, %) 84 91 99 98 Goal 5: reduce maternal mortality by three-fourths Maternal mortality ratio (modeled estimate, per 100,000 live births) .. .. 24 30 Births attended by skilled health staff (% of total) .. 98 96 100 Contraceptive prevalence (% of women ages 15-49) .. 56 68 65 Goal 6: halt and begin to reverse the spread of HIV/AIDS and other major diseases Prevalence of HIV (% of population ages 15-49) 0.1 0.1 0.1 0.1 Incidence of tuberculosis (per 100,000 people) 68 .. .. 130 Tuberculosis case detection rate (%, all forms) 36 34 50 50 Goal 7: halve the proportion of people without sustainable access to basic needs Access to an improved water source (% of population) 94 .. .. 87 Access to improved sanitation facilities (% of population) 51 .. .. 100 Forest area (% of land area) .. .. 7.6 7.7 Terrestrial protected areas (% of land area) .. .. .. 1.9 CO2 emissions (metric tons per capita) 5.3 4.4 4.8 4.3 GDP per unit of energy use (constant 2005 PPP $ per kg of oil equivalent) 0.9 0.8 0.8 1.3 Goal 8: develop a global partnership for development Telephone mainlines (per 100 people) 6.8 6.8 6.7 6.7 Mobile phone subscribers (per 100 people) 0.0 0.0 0.2 59.1 Internet users (per 100 people) 0.0 0.0 0.5 16.9 Personal computers (per 100 people) .. .. .. 3.1 Education indicators (%) Measles immunization (% of 1-year ICT indicators (per 100 people) olds) 125 100 70 60 100 75 50 75 40 50 50 30 25 20 25 0 10 2000 2005 2009 0 0 1990 1995 2000 2009 2000 2005 2009 Primary net enrollment ratio (..) Ratio of girls to boys in primary & secondary Uzbekistan Europe & Central Asia Fixed + mobile subscribers Internet users education Note: Figures in italics are for years other than those specified. .. indicates data are not available. Development Economics, Development Data Group (DECDG). 66 Annex B2: Uzbekistan - Selected Indicators* of Bank Portfolio Performance and Management As Of Date 10/17/2011 Indicator 2009 2010 2011 2012 Portfolio Assessment Number of Projects Under Implementation a 6 8 10 10 Average Implementation Period (years) b 3.6 2.7 2.5 2.8 Percent of Problem Projects by Number a, c 0.0 12.5 10.0 10.0 Percent of Problem Projects by Amount a, c 0.0 4.2 4.0 4.0 Percent of Projects at Risk by Number a, d 16.7 25.0 20.0 20.0 Percent of Projects at Risk by Amount a, d 15.9 15.4 10.3 10.3 Disbursement Ratio (%) e 17.4 22.9 13.8 2.5 Portfolio Management CPPR during the year (yes/no) Supervision Resources (total US$) Average Supervision (US$/project) Memorandum Item Since FY 80 Last Five FYs Proj Eval by OED by Number 11 2 Proj Eval by OED by Amt (US$ millions) 425.8 93.6 % of OED Projects Rated U or HU by Number 30.0 0.0 % of OED Projects Rated U or HU by Amt 43.3 0.0 a. As shown in the Annual Report on Portfolio Performance (except for current FY). b. Average age of projects in the Bank's country portfolio. c. Percent of projects rated U or HU on development objectives (DO) and/or implementation progress (IP). d. As defined under the Portfolio Improvement Program. e. Ratio of disbursements during the year to the undisbursed balance of the Bank's portfolio at the beginning of the year: Investment projects only. * All indicators are for projects active in the Portfolio, with the exception of Disbursement Ratio, which includes all active projects as well as projects which exited during the fiscal year. 67 Annex B3(a): Uzbekistan - IBRD/IDA Program Summary1 a Proposed IBRD/IDA Base-Case Lending Program Strategic Rewards b Implementation b Fiscal year Proj ID US$(M) (H/M/L) Risks (H/M/L) 2012 Alat-Karakul Water Supply Project 50.0 H M Advanced Electricity Metering Project 110.0 H M RESP - Additional Financing 40.0 M M Result 200.0 2013 Enterprise Energy Efficiency II 100.0 M M South Karakalpakstan Drainage Project 150.0 M M Water Sanitation Sector Investment Project 1 50.0 M H Result 300.0 2014 Microfinance/credit access 50.0 H H Early Childhood Development 100.0 H M Water Sanitation Sector Investment Project 2 100.0 M M Horticulture Pilot Project 100.0 M M Electricity Distribution 100.0 M M Result 450.0 2015 Urban Integrated Development Project 100.0 H M Transport Unidentified 100.0 H M IBRD Project Unidentified (Outer years) 100.0 M M 1 IDA Project Unidentified (IDA17 ) 100.0 M M Result 400.0 Overall Result 1,350.0 1 Subject to Uzbekistan‘s continuing IDA eligibility in FY17 1 Overall lending amounts will depend on the IBRD's lending capacity and demand by other borrowers as well as Government demand and performance in the course of the CPS period. 68 Annex B3 (b): Uzbekistan - IFC Investment Operations Program 2008 2009 2010 2011 Original Commitments (US$m) IFC and Participants 4.25 5.20 0.45 IFC's Own Accounts only 4.25 5.20 0.45 Original Commitments by Sector (%)- IFC Accounts only Finance and Insurance 70.59 100 100 Wholesale and Retail Trade 29.41 Total 0 100 100 100 Original Commitments by Investment Instrument (%) - IFC Accounts only Equity 61.54 100 Loan 100 38.46 Total 0 100 100 100 69 Annex B4: Uzbekistan - Summary of Non-lending Services Product Completion FY Cost (US$000) Audience a Objective b Recent Completions Energy Dialogue TA 2007 105 GOV KG, PS Ferghana Valley TA 2007 111 GOV KG, PS Municipal Sector Review 2007 124 GOV KG, PS Poverty Assessment 2007 565 GOV KG, PS Private and Financial Sectors TA 2007 57 GOV KG, PS Programmatic PER 2007 130 GOV KG, PS Promoting Carbon Finance 2007 9 GOV KG, PS PRSP TA 2007 487 GOV KG, PS Tashkent CDM Forum 2008 14 GOV KG, PS Hospital Policy Note 2008 102 GOV KG, PS Poverty 2008 58 GOV KG, PS PSD/FSD Policy Dialogue 2008 42 GOV KG, PS Governance Assessment 2008 435 Bank KG, PS FSD Policy Dialogue 2009 55 GOV KG, PS ROSC A&A 2009 154 GOV KG, PS Debt and Tax Reforms 2009 154 GOV KG, PS Uzbekistan WSS Strategy 2009 54 GOV KG, PS Water Sector Investment Planning Study 2009 299 GOV KG, PS Advice on Development of Treasury system 2010 61 GOV KG, PS Assessing Vulnerability (TA) 2010 157 GOV KG, PS Assessing Vulnerability 2 2010 69 GOV KG, PS FIU Workshop in Tashkent, Uzbekistan 2010 25 GOV KG, PS FSD Policy Dialogue 2010 71 GOV KG, PS Mun. Sector Development &Governance 2010 85 GOV KG, PS PSD Policy Dialogue 2010 63 GOV KG, PS Uzbekistan Municipal Governance TA 2010 106 GOV KG, PS CIFA 2011 110 GOV KG, PS Dialogue on Pov/Social Safety Nets 2011 84 GOV KG, PS PSM Support 2011 63 GOV KG, PS FSD Policy Dialogue 2011 38 GOV KG, PS Private Sector Development Policy 2011 80 GOV KG, PS Underway CIFA Phase 2 - Dissemination & Follow up 2012 20 GOV KG, PS CPIA Policy Dialogue 2012 178 GOV KG, PS EE Strategy for Industrial Enterprises 2012 22 GOV KG, PS FIRST UZ Streng. Insurance Spn. 2012 71 GOV KG, PS Growth and Innovation 2012 408 GOV KG, PS UAP-ES Assessment 2012 34 GOV KG, PS UZ Doing Businesss Reforms 2012 83 GOV KG, PS Water Utility Pricing 2012 N/A GOV KG, PS Country Economic Memorandum 2012 N/A GOV KG, PS Industrialization Policy Note 2012 N/A GOV KG, PS PEFA 2012 N/A GOV KG, PS Agriculture Competitiveness Strategy 2012 N/A GOV KG, PS Poverty Monitoring/analysis Support 2012 N/A GOV KG, PS Planned Water Resource Management Strategy 2013 N/A GOV KG, PS Transport Assessment 2013 N/A GOV KG, PS Strategy Report "Uzbekistan Vision 2030" 2013 N/A GOV KG, PS Poverty Monitoring/analysis Support 2013 N/A GOV KG, PS National Infrastructure Quality 2013 N/A GOV KG, PS Industrialization Policy Note 2013 N/A GOV KG, PS Poverty Monitoring/analysis Support 2014 N/A GOV KG, PS Industrialization Policy Note 2014 N/A GOV KG, PS Poverty Monitoring/analysis Support 2015 N/A GOV KG, PS Industrialization Policy Note 2015 N/A GOV KG, PS ____________ a. Government, donor, Bank, public dissemination. b. Knowledge generation, public debate, problem-solving. 70 Annex B6: Uzbekistan - Key Economic Indicators Actual Estimate Projected Indicator 2005 2006 2007 2008 2009 2010 2011 2012 2013 National accounts (as % of GDP) Gross domestic producta 100 100 100 100 100 100 100 100 100 Agriculture 28 26 24 21 20 19 18 18 17 Industry 23 27 32 31 33 33 39 38 37 Services 49 46 44 48 47 48 43 45 45 Total Consumption 71 75 76 72 74 72 75 76 75 Gross domestic fixed investment 18 18 21 25 26 25 25 24 25 Government investment 3 3 3 3 3 3 4 4 5 Private investment 15 15 18 21 23 21 21 20 21 Exports (GNFS)b 38 37 40 44 36 31 30 30 32 Imports (GNFS) 29 31 37 41 36 28 30 30 32 Gross domestic savings 29 25 24 28 26 28 25 24 25 Gross national savingsc 34 28 28 34 29 32 30 29 30 Memorandum items Gross domestic product 14308 17031 22308 27934 32818 38974 46114 53344 57239 (US$ million at current prices) GNI per capita (US$, Atlas method) 530 600 720 900 1100 1280 1570 1820 2040 Real annual growth rates (%, calculated from 97 prices) Gross domestic product at market prices 7.0 7.3 9.5 9.0 8.1 8.5 8.3 8.0 7.8 Gross Domestic Income 7.0 7.3 9.5 9.0 8.1 8.5 7.5 5.8 4.7 Real annual per capita growth rates (%, calculated from 97 prices) Gross domestic product at market prices 5.8 6.0 8.1 7.1 6.2 7.0 7.7 6.8 6.5 Total consumption 3.4 8.3 5.2 3.8 5.7 3.8 12.7 5.5 2.8 Balance of Payments (US$ millions) Exports (GNFS)b 5416 6326 8851 12158 11679 12163 13830 16092 18141 Merchandise FOB 4757 5377 7692 10811 10495 10841 12302 14244 16058 Imports (GNFS)b 4101 5364 8150 11393 11698 11029 13694 16204 18123 Merchandise FOB 3310 4008 5798 8606 8376 7805 8996 10893 12378 Resource balance 1315 963 701 765 -19 1134 136 -113 19 Net current transfers 658 733 1224 1980 475 1705 595 623 448 Current account balance 1949 1550 1629 2432 878 2612 2626 2619 2523 Net private foreign direct investment 88 194 734 711 838 1628 1418 1410 1303 Long-term loans (net) -223 -371 -208 -108 -248 -569 1011 2135 2448 Official 16 -81 -9 38 246 270 1275 2119 2031 Private -239 -290 -199 -146 -494 -839 -264 16 417 Other capital (net, incl. errors & ommissions) -1065 191 0 922 411 -2559 -1219 -1686 -1638 Change in reservesd -748 -1564 -2155 -3958 -1879 -1112 -3835 -4477 -4635 71 Public finance (as % of GDP at market prices) e Current revenues 30.8 31.4 31.7 35.7 33.8 32.5 34.7 35.0 35.2 Current expenditures 25.7 26.5 27.1 28.6 30.9 31.5 31.9 31.0 30.9 Current account surplus (+) or deficit (-) 5.1 4.9 4.5 7.0 2.9 1.0 2.8 4.1 4.3 Capital expenditure 5.4 4.4 4.0 3.5 3.4 3.4 4.1 4.3 4.6 Monetary indicators M2/GDP 14.4 15.4 16.7 17.3 18.5 19.4 20.1 21.6 24.3 Growth of M2 (%) 54.2 39.0 46.9 35.6 39.9 34.6 27.1 29.9 34.4 Price indices( YR97 =100) Merchandise export price index 100.0 100.0 100.0 100.0 100.0 98.0 99.8 102.3 103.0 Merchandise import price index 103.3 106.6 110.6 119.2 122.2 104.8 111.0 119.9 128.9 Real exchange rate (US$/LCU)f 77.6 85.3 84.1 85.3 94.5 96.1 93.5 93.6 88.2 Real interest rates Consumer price index (% change) 6.5 6.8 6.8 7.4 7.8 7.2 7.7 7.5 6.9 GDP deflator (% change) 21.4 21.5 24.0 19.9 20.8 18.5 13.3 11.8 11.0 a. GDP at factor cost b. "GNFS" denotes "goods and nonfactor services." c. Includes net unrequited transfers excluding official capital grants. d. Includes use of IMF resources. e. Consolidated central government. f. "LCU" denotes "local currency units." An increase in US$/LCU denotes appreciation. 72 Annex B7: Uzbekistan - Key Exposure Indicators Actual Estimated Projected Indicator 2005 2006 2007 2008 2009 2010 2011 2012 2013 Total debt outstanding and 4282 4031 3923 3983 4909 5938 8661 10836 13249 a disbursed (TDO) (US$m) Net disbursements (US$m)a -242 -371 -208 -108 128 818 1011 2235 2448 Total debt service (TDS) (US$m)a 787 851 753 692 618 965 1517 1560 1408 Debt and debt service indicators (%) TDO/XGSb 69.8 57.3 39.6 27.6 37.5 43.1 48.8 52.7 57.5 TDO/GDP 29.9 23.7 17.6 14.3 15.0 15.2 18.8 20.3 23.1 TDS/XGS 12.8 12.1 7.6 4.8 4.7 7.0 8.5 7.6 6.1 Concessional/TDO 37.1 39.2 40.8 44.4 37.0 38.5 39.0 50.0 56.6 IBRD exposure indicators (%) IBRD DS/public DS 4.9 5.1 6.7 8.2 10.1 9.7 10.9 10.0 8.6 Preferred creditor DS/public 18.3 17.2 17.0 19.2 21.6 27.1 30.5 29.5 26.0 DS (%)c IBRD DS/XGS 0.5 0.5 0.4 0.3 0.4 0.4 0.3 0.2 0.2 d IBRD TDO (US$m) 299 316 317 313 284 249 221 182 141 Share of IBRD portfolio (%) 0 0 0 0 0 0 0 0 0 d IDA TDO (US$m) 11 26 43 55 83 236 343 583 677 a. Includes public and publicly guaranteed debt, private nonguaranteed, use of IMF credits and net short- term capital. b. "XGS" denotes exports of goods and services, including workers' remittances. c. Preferred creditors are defined as IBRD, IDA, the regional multilateral development banks, the IMF, and the Bank for International Settlements. d. Includes present value of guarantees. e. Includes equity and quasi-equity types of both loan and equity instruments. 73 Annex B8(a): Uzbekistan - Operations Portfolio (IBRD/IDA and Grants) CAS Annex B8 - Uzbekistan Operations Portfolio (IBRD/IDA and Grants) Closed Projects 13 IBRD/IDA * Total Disbursed (Active) 130.1 of w hich has been repaid 6.3 Total Disbursed (Closed) 165.2 of w hich has been repaid 222.9 Total Disbursed (Active + Closed) 295.3 of w hich has been repaid 229.1 Total Undisbursed (Active) 512.1 Total Undisbursed (Active + Closed) 512.1 Active Projects Difference Between Last PSR Expected and Actual Supervision Rating Original Amount in US$ Millions Disbursements a/ Development Implementation Project ID Project Name Fiscal Year IBRD IDA Undisb. Orig. Frm Rev'd Objectives Progress P107845 Basic Educ - Phase Two MS MS 2009 28 27.7 8.7 P112719 Bukhara & Samarkand Sewerage Project MS MS 2010 55 53.1 8.7 P009127 Drainage, Irrig & Wetlands Imprvmt S MS 2003 35 25 11.4 8.4 P118737 Energy Eff - Indust Enterprises MU MU 2010 25 26.6 3.3 P110538 Ferghana Valley Water Resources Mgt S MS 2010 65.544 58.3 8.3 P051370 Health 2 MS MS 2005 40 3.1 1.2 -0.2 P113349 Health System Improvement Project S S 2011 93 93.6 P109126 Rural Enterprise Support Project II S S 2008 67.96 38.6 8.5 P111760 Syrdarya Water Supply Project S S 2011 88 89.8 P119939 Talimarjan Transmission Project S S 2011 110 110.0 Overall Result 145 487.504 512.1 47.1 -0.2 74 Annex B8(b): Uzbekistan - IFC Committed and Outstanding Investment Portfolio (In USD millions) Committed Outstanding Commitment FY Institution LN ET QL + QE TOTAL LN ET QL + QE TOTAL 2001 SEF Parvina - - 0.09 0.09 - - 0.09 0.09 2001/ 2007/ 2010/ 2011 SEF Hamkorbank 3.13 2.98 - 6.10 3.13 2.98 - 6.10 1996/ 2001/ 2003/ 2009 Uzbek Leasing 2.01 0.54 - 2.55 1.31 0.54 - 1.85 Total Portfolio 5.14 3.52 0.09 8.74 4.44 3.52 0.09 8.04 As of September 30, 2011 75 Annex C. Uzbekistan Country Financing Parameters 76 55°E 60°E 65°E 70°E KAZ A KH S TAN K A ZA AZ TAN o To Atyrau Aral 45°N 45°N 2001 level of Aral Sea Sea 1990 level of Aral Sea Syr UZBEKISTAN Da 1960 level of Aral Sea ya r U s t y u r t Muynak P l a t e a u K A Z A K H S TA N K A R A K A L PA K S TA N K y z Amu A A y l K Dary D D u m a a a Nukus KY R GY Z d NAVO N O V O II o To PU B LI R E PUB L I C n Qyzylorda Toghi Adelunga Toghi Uchkuduk (4301 m) a o To o To l Qyzylorda NAMANGAN Bishkek w ANDIJON ANDIZHAN Urgench o Muruntau SYRDAR SYRDARYA KHOREZM L TASHKENT TASHKENT Namangan n TASHKENT TASHKENT T u r a Andizhan 0 50 100 150 200 Kilometers Syr D Amu m m ar Kokand ya Gagarin Fergana a a Da o To 0 50 100 150 Miles y DZHIZAK JIZZAKH Guliston r Kashi BUKHA A BUKHORO a a a 40°N 40°N Zer a Jizzakh Dzhizak FERGANA v shan Navoi Bukhoro Bukhara SAMARKAND This map was produced by the Map Design Unit of The World Bank. Samarkand The boundaries, colors, denominations and any other information shown on this map do not imply, on the part of The World Bank MENISTA KMENISTA TU R K MENISTA N Group, any judgment on the legal status of any territory, or any endorsement or acceptance of such boundaries. 60°E YA K A S H K A D A R YA AJI TAN TAJI KI S TAN Qarshi o To Khorugh UZ B EKI S TA N o To Mary Mar Denau SELECTED CITIES AND TOWNS SURKHANDARYA OBLAST (VILOYATI) CAPITALS NATIONAL CAPITAL Termiz ermiz Termiz RIVERS MAIN ROADS o To RAILROADS Kabul IBRD 33508R OBLAST (VILOYATI) BOUNDARIES A F G H A N I S TA N AK IS TAN PAKI S TAN MARCH 2009 INTERNATIONAL BOUNDARIES 65°E 70°E