Document of the World Bank FOR OFFICIAL USE ONLY Report Number: 71635 - MK INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT AND INTERNATIONAL FINANCE CORPORATION COUNTRY PARTNERSHIP STRATEGY PROGRESS REPORT FOR FORMER YUGOSLAV REPUBLIC OF MACEDONIA FOR THE PERIOD FY11-FY14 November 1, 2012 South East Europe Country Unit Europe and Central Asia Region International Finance Corporation Europe and Central Asia This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its content may not otherwise be disclosed without World Bank authorization. CURRENCY EQUIVALENTS GOVERNMENT FISCAL YEAR (Exchange Rate Effective October 25, 2012) January 1 to December 31 Currency Unit = MKD (Macedonian Denar) WEIGHTS AND MEASURES US$1 = MKD47.5 Metric System ABBREVIATIONS AND ACRONYMS AAA Analytical and Advisory IFC International Finance Corporation Activities APL Adaptable Program Loan IMF International Monetary Fund CCT Conditional Cash Transfer IPA Instrument for Pre-Accession CEFTA Central European Free Trade LFS Labor Force Survey CPS Country Partnership Strategy LPI Logistics Performance Index CPS PR Country Partnership Strategy NATO North Atlantic Treaty Progress Report Organization DPL Development Policy Loan NGO Non-Governmental Organization DUI Democratic Union for PBG Policy Based Guarantee Integration EC European Commission PER Public Expenditure Review ECA Europe and Central Asia Region PIC Public Information Center ECSEE Energy Community of South PPP Public Private Partnership ESIA Environmental and Social PSIA Poverty and Social Impact EU European Union REPARIS Road to Europe Program for Accounting Reform and FDI Foreign Direct Investment ROSC Report on the Observance of Standards and Codes FY Fiscal Year SEE South East Europe FYR Former Yugoslav Republic SEEC CRIF South East Europe Catastrophe Risk Insurance GDP Gross Domestic Product Risk Insurance Facility HBS Household Budget Survey SPIL Social Protection Investment Loan IBRD International Bank for TA Technical Assistance Reconstruction and Development IDF Institutional Development Fund VAT Value Added Tax WBI World Bank Institute IBRD IFC Vice President Philippe H. Le Houerou Dimitris Tsitsiragos Country Director Jane Armitage Tomasz Telma Country Manager Lilia Burunciuc Per Kjellerhaug Task Team Leader Denis Boskovski Gjergj Konda, Zoran Martinovski i COUNTRY PARTNERSHIP STRATEGY PROGRESS REPORT FYR MACEDONIA TABLE OF CONTENTS I.  Introduction ...................................................................................................................................... 1  II.  Country Context ............................................................................................................................... 2  III.  Development Challenges and Relevance of the CPS....................................................................... 4  IV.  Progress towards achieving CPS objectives and outcomes ............................................................. 6  V.  Modifications to the CPS and the way forward ............................................................................. 10  VI.  Risks............................................................................................................................................... 12  Boxes Box 1: Lukovo Pole project ....................................................................................................................... 10  Box 2: Gender issues will continue to be integrated into the program ....................................................... 11  Tables Table 1: FYR Macedonia medium-term macroeconomic framework .......................................................... 4  Table 2: WBG Active Portfolio, Actual and Planned Lending FY11-14 ..................................................... 9      Annexes Annex 1: Results Matrix ............................................................................................................................. 13  Annex 2: Gender Diagnostic in FYR Macedonia ....................................................................................... 19  Annex 3: Macedonia At-a-glance ............................................................................................................... 20  Annex B2: Selected Indicators of Bank Portfolio Performance and Management .................................... 23  Annex B3: IBRD/IDA Program Summary ................................................................................................. 24  Annex B3: IFC Investment Operations Program ........................................................................................ 25  Annex B6: Key Economic Indicators ........................................................................................................ 26  Annex B7: Key Exposure Indicators ......................................................................................................... 28  Annex B8 (IFC): Committed and Disbursed Outstanding Investment Portfolio ........................................ 29  Annex B8: Operations Portfolio (IBRD/IDA and Grants) .......................................................................... 30  ii I. Introduction 1. This Progress Report assesses the implementation of the FY11-FY14 joint Bank-IFC Country Partnership Strategy (CPS) for FYR Macedonia. The CPS focuses on three pillars: (i) faster growth by improving competitiveness; (ii) more inclusive growth by strengthening employability and social protection, and continued improvement of social programs; and (iii) more sustainable resource use and an analysis of options for “greener� economic growth. The CPS envisaged commitments of approximately US$104 million for the first two years, and a similar amount during FY13 and FY14, depending 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. The CPS was prepared in the wake of the global economic crisis and at the onset of deepening Eurozone instability. The strategy was developed to be flexible, and the subsequent support reflects this agility. The planned US$35 million Development Policy Loan (DPL) was converted into a Euro100 million Policy Based Guarantee (PBG) in FY12. The PBG, which was envisioned to help the Government access international capital markets on better terms, leveraged a total of Euro 130 million from lenders. This financing was critical in helping cover financing needs during difficult times. Moreover, the Bank in late 2011 increased available financing to FYR Macedonia explicitly to respond to the crisis, including US$50 million in FY12 to build on a successful municipal development project to support small infrastructure projects and preserve jobs, to provide a Public Expenditure PBG of US$200 million, and to double the amount of the planned second competitiveness DPL to US$50 million. 3. Modifications proposed to the CPS respond to the changed environment. The pillars of the strategy remain valid for the reminder of the CPS period. The Bank will continue to be selective given its limited resources and will remain flexible to adjust to changing economic and political realities. Policy based lending, topped up with crisis response financing, will aim to improve the efficiency of public sector spending and strengthen the country’s competitiveness. A selective program of sector investment lending will focus on sectors with maximum possible impact – energy infrastructure and skills – and it will continue addressing the client’s knowledge and capacity building needs. 4. The Government has achieved significant progress toward realizing CPS milestones and outcomes. Ongoing investment projects are meeting their development objectives. A strong knowledge program supported by IBRD, IFC and WBI has been an important part of the Bank’s partnership strategy, both in addressing the economic crisis, as well as supporting sector level reform programs. IFC’s program complemented IBRD’s efforts in private sector development. Details of progress to date and updated performance indicators are reflected in the Results Matrix (see Annex 1). 5. FYR Macedonia now benefits from considerable external support from the European Union (EU). The EU is the largest donor with an annual envelope of over Euro 100 million in grants. However, as in other accession countries, absorption of EU funds is slow. To date, of some Euro 619 million made available through the 2007-2013 Instrument for Pre-Accession (IPA), FYR Macedonia has contracted only Euro 140 million. Assisting the accession process remains the overarching objective of the CPS, and virtually all World Bank financed operations have been designed to help with the EU membership. 6. The risks identified in the CPS are still valid. Continued Eurozone and regional volatility, high unemployment, stagnant poverty, and slow EU accession continue to be the key risk factors. Moreover, slow growth and tepid job creation may further provoke social tensions, and undermine Government support to the reform program. Climate change and natural disasters also pose a risk to the country. The Bank will pay special attention to these risks through continued monitoring and dialogue with the authorities on the overall macroeconomic context, including any impact a delay in EU accession might have, as well as analysis of options for remedial measures and program adaptation, contingent on the need and government request. These risks suggest a continued need for a flexible approach from the Bank to 1 assist the country in weathering external shocks, and for the Bank to continue to work closely with other development partners, in particular the EU, for joint leverage. II. Country Context 7. FYR Macedonia’s political situation has been stable. The ruling coalition, which has been in power since 2006, consists of the two largest political parties from the ethnic Macedonian and ethnic Albanian political blocks (VMRO-DPMNE and DUI) and 13 smaller parties. In the 2011 early parliamentary elections, this coalition maintained a comfortable majority with 72 out of 123 seats in the Parliament. Most of the Mayors of the 83 municipalities belong to the ruling coalition. FYR Macedonia is one of the few countries in the Western Balkans which avoided major inter-ethnic conflicts and continues to manage the interethnic relations well. 8. The new 2011–2015 Government program maintains the same five priorities: (i) emphasis on economic growth and private sector development, (ii) integration into the EU and NATO, (iii) fight against corruption and economic crime, (iv) good interethnic relations on the basis of the Ohrid Framework Agreement, and (v) investments in education, science and a knowledge based society. 9. With more than 80 percent of the population supporting EU membership, EU accession remains the anchor of reform in nearly every area of public policy. The authorities are harmonizing national legislation with the EU acquis communautaire, with specific achievements in procurement, transport policy, customs, taxation and statistics. The European Commission’s 2012 Progress Report for FYR Macedonia concludes that the country continues to fulfill the criteria of a candidate state. On the political criteria, the report stressed that more progress was needed on improving the functioning of public administration and judiciary, ensuring the freedom of expression in the media, and implementation of the anti-corruption legislation. With respect to the economic criteria, it highlighted the progress made toward becoming a market economy and also highlighted the deterioration in the quality of fiscal governance and underlined the need to continue reforms to reduce structural weaknesses, particularly regarding high unemployment. 10. FYR Macedonia is a small, landlocked and trade-dependent economy, making it vulnerable to external shocks, in particular to the ongoing Eurozone crisis. Income per capita is around US$5,000 (or around US$11,600 in purchasing power terms) and is mostly generated by services (59 percent of Gross Domestic Product (GDP)). Industry accounts for around 28 percent of GDP while the share of agriculture is around 12 percent of GDP. Exports account for 56 percent of GDP but remain concentrated in few low value added products, though recent foreign direct investment (FDI) is rapidly changing the export composition. The EU is the largest export market (accounting for around 60 percent of exports in 2011) and an important source of foreign exchange inflow (more than half of FDI in 2011), a significant percentage of remittances as well as loan and credit financing. 11. Strong macroeconomic management has helped FYR Macedonia weather the ongoing turbulence better than most countries in the region. It experienced one of the mildest contractions of GDP in 2009 (less than 1 percent), and output expanded by 2.9 percent in 2010 and 2.8 percent in 2011. Economic growth accelerated further in the first half of 2011, but slowed subsequently and turned negative in early 2012 due to the Eurozone turmoil and the harsh winter. Investments were affected by the increased uncertainty, while deteriorating labor markets restrained private consumption. Public spending has also been constrained by the tight overall fiscal framework and underperforming revenues, which has resulted in emergence of public sector arrears. The authorities have publically committed to resolving this issue by early 2012 and are working with the Bank on this agenda as part of the Public Expenditure PBG. 12. Growth is projected at around 0.75 percent in 2012, but there are significant external downside risks. Achieving the projected growth rate requires improvements in external and domestic 2 demand as well as continued FDI inflows. While domestic demand stabilized recently, the external environment remains difficult. As of August 2012, export growth and industrial production remained in negative growth territory and business sentiments remained low. Encouragingly, the country has continued to attract FDI even in this uncertain environment. Government debt (at around 30 percent of GDP) is at comfortable levels and does not pose immediate concerns. The fiscal deficit is projected to be 3.7 percent of GDP in 2012 (see Table 1). Fiscal pressures are expected to increase in 2012 and 2013, due to the Government’s commitment to clear arrears, but also the recently announced increase in pensions. Monetary policy was eased in May 2012 in response to the slowdown; and core inflation remains low and reserves are stable and sound. 13. Growth rates so far have been insufficient to improve living conditions. Poverty was persistent even during the years of accelerating growth prior to the crisis. Living conditions have deteriorated since, with about a quarter of the population in 2010 living in absolute poverty. Significant improvements in poverty are not likely to have taken place in 2011 and 2012 given the stagnant labor markets and the surges in global food prices. The unemployment rate, which is among the highest in Europe, has fallen in recent years, to 31.6 percent in 2011 from 37.6 percent in 2005, but many of the jobs created were low-paid. Unemployment increased slightly in the first quarter of 2012 and more recent high-frequency indicators (wages, new labor contracts, etc.) suggest that the labor market continues to be weak. Higher social transfers budgeted for 2012 may not be able to fully offset the impact of the slow economic growth given weaknesses in targeting. 14. Prospects for outer years are generally more favorable but depend on developments in Europe and the realization of projected FDI inflows. Output growth is expected to accelerate in the medium term assuming Eurozone growth picks up and recent FDI continues to diversify the export basket. Fiscal policy is expected to be disciplined with potential gains anticipated from improved quality of spending. Monetary policy is also expected to continue to be responsive to pressures on the exchange rate while continued structural reforms will improve the responsiveness of the supply side. Table 1 presents the projected macroeconomic indicators for the medium term. 15. For the medium term, while imbalances are moderate, risks stemming from the uncertain external environment remain. It is expected that public and external debt levels remain sustainable over the medium-term. The fiscal framework targets a deficit that reduces slowly to 2.5 percent of GDP over the medium-term and further gradual fiscal consolidation afterwards. Government debt is expected to remain below 33 percent of GDP over the projection period, a comparatively moderate level. Still, while the gross financing requirements remain moderate, growing reliance on commercial borrowing is increasing market and roll-over risks. The current volatile and risk-averse European financial markets will likely make it more difficult to access finance over the short term. Similarly, the current account deficit is expected to average 5-6 percent of GDP over the medium-term and be largely financed through non-debt creating flows which should result in gross external debt stabilizing gradually at around 65 percent of GDP. The relatively small exposure to short-term capital flows further mitigates the risks. Nevertheless, the uncertain external environment may limit export growth and depress capital flows. The economy is also vulnerable to energy (oil and electricity) price shocks which can hurt the competitiveness of exports. Such shocks could put pressure on the pegged exchange rate, even though a recent analysis by the IMF suggests that the exchange rate is not misaligned. Mitigating factors include the build-up of foreign exchange reserves, moderate indebtedness levels and the proven commitment of the authorities to macroeconomic stability. 16. Risks in the banking sector continue to be moderate. With strong capital adequacy (17.4 percent), low loan-deposit ratio (around 0.9) and stable and fully-provisioned non-performing loans (around 10 percent of total loans), the banking sector remains sound. Domestic banks exposed to affected Eurozone countries, most notably Greece (two commercial banks, including the largest one) and Slovenia, 3 are largely locally financed and the institutional setup appears to be in place to ring-fence these banks from greater turbulence affecting mother banks. Table 1: FYR Macedonia medium-term macroeconomic framework 2008 2009 2010 2011 2012 2013 2014 2015 Actual Est. Projected National Accounts (% change) Real GDP growth 5.0 -0.9 2.9 2.8 0.75 2.0 3.0 3.5 Domestic demand growth 6.7 -2.9 -0.1 6.0 0.6 1.0 2.2 3.3 Gross Investment 4.7 1.0 -3.6 19.3 2.0 3.0 4.0 4.1 Fiscal Accounts (% GDP) Revenues 33.1 31.3 30.4 29.6 28.6 28.8 28.8 28.8 Expenditures 34.1 33.9 32.9 32.1 32.3 32.3 31.6 31.3 Balance -0.9 -2.7 -2.4 -2.5 -3.7 -3.5 -2.8 -2.5 Government debt 20.6 23.8 24.2 27.7 30.4 32.7 33.5 33.6 External Accounts* Exports (% change) -7.0 -15.7 24.2 10.5 5.0 8.0 9.8 12.0 Imports (% change) 0.0 -14.3 9.4 14.2 4.8 7.5 9.1 5.7 Current account balance (% GDP) -12.6 -6.4 -2.9 -2.7 -3.5 -5.0 -5.5 -5.2 Gross official reserves (EUR mil.) 1,495 1,598 1,715 2,069 2,271 2,178 2,456 2,775 Gross official reserves (months imports, EUR) 4.4 4.2 3.7 4.3 4.3 3.8 4.1 4.3 FDI (% GDP) 6.1 2.0 3.2 4.0 2.0 3.0 4.0 5.0 External debt (% GDP) 47.4 58.2 59.6 61.7 63.0 64.3 65.1 64.5 Prices Consumer prices (period average) 8.4 -0.8 1.5 3.9 2.8 2.5 2.0 2.0 Consumer prices (end of period) 4.1 -1.6 3.0 2.8 2.8 2.5 2.0 2.0 * Based on calculations in USD unless otherwise specified   III. Development Challenges and Relevance of the CPS 17. The biggest economic challenge confronting FYR Macedonia is high unemployment. At 31.6 percent, joblessness is especially high among the country’s youth and even higher for young women.1 Also, the labor market is characterized by low employment rates – among the lowest in Europe and only two-thirds of the EU-27 average – which reflect persistent and high unemployment rates and moderate-to- low labor force participation rates. There are significant constraints to employment and job creation, both on the demand and the supply sides of the labor market, which require a more thorough analysis to disentangle the various drivers of low employment rates and outline possible policy options. The Bank is currently carrying out analytical work toward this end. 18. Sustained macroeconomic stability during the continuing Eurozone volatility will be critical to ensuring an environment conducive to faster economic growth. A continued prudent policy framework would help keep the fiscal and external imbalances under control over the medium-term, ensure debt sustainability, and manage the risks of new shocks and crises. Key priorities going forward include reducing poverty, increasing the efficiency of the public funds, better prioritization of public expenditures, particularly the capital expenditures, strengthening public financial management and                                                              1 This is a Labor Force Survey (LFS) measure of unemployment. It is widely acknowledged that the reported unemployment rate is probably overestimated. Alternative measures of the unemployment rate either through using stricter filters in the LFS or using the household budget survey (HBS) suggest that the unemployment rate is most likely lower (around 25%). 4 dealing with the underlying arrears issues, and addressing the structural problems of the country’s labor market to ensure that economic growth rates also translate into employment generation. 19. FYR Macedonia has made significant progress in improving the business environment but it needs to continue with broader competitiveness reforms. Progress has been made on business environment reform, including overhaul of the business registration system, streamlining legislation governing the regulatory regime, simplifying the licensing procedures, and increasing efficiencies in filing taxes. This is reflected in FYR Macedonia’s 23rd place in the 2013 Doing Business ranking, the best in Eastern Europe. Further actions are required to safeguard the rule of law and control corruption. Continuation of reforms of social security contributions will help improving the wage competitiveness, but further reductions in labor taxation should be carefully analyzed not to endanger the sustainability of public finances. 20. Infrastructure bottlenecks still present a serious barrier for improving competitiveness. For a landlocked country, good logistics are critical. Yet, FYR Macedonia is ranked 95th out of 155 countries in the 2011 Logistics Performance Index (LPI), lagging behind most countries in the region.2 Despite increased investments in the rail and road network since 2008, including with the Bank and other donor assistance, transport infrastructure remains a constraint. The reduced fiscal space for road rehabilitation and maintenance is not helping to reverse the trend in road deterioration, and efforts to secure private sector involvement in roads have been unsuccessful. Significant new investment is required in the energy system to ensure an additional 3.2 GW of new generation capacity by 2051.3 The situation is even more serious in irrigation. Many years of underinvestment led to a sharp deterioration of existing irrigation infrastructure. The unmet irrigation demand could be as high as 60 percent in some river basins. 21. Better strategic planning of infrastructure investments is particularly important to ensure proper allocation of limited capital. This should be complemented through provision of appropriate conditions, including legislative improvements and capacity building for state institutions that would enable increased private sector participation through public-private partnerships (PPP). That should, however, also be followed by proper maintenance policy and financing which would ensure the sustainability of the infrastructure interventions. 22. The country is working to develop a more competitive and export-oriented enterprise sector. In a small open economy like FYR Macedonia’s, where domestic demand remains weak, firms must look to export markets for growth.4 Exports grew rapidly in the past decade, and in 2011 goods and services exports accounted for 54.6 percent of GDP. This dynamism may be at risk in 2012 due to the slow-down in the Euro area but FDI in export-orientated sectors gives reason to be optimistic for future export growth. Exports should also become increasingly diversified as FDI concentrates not just in commodities (metals and minerals) but also in light manufacturing, particularly auto components. However, until presently the export basket is still highly concentrated in commodities (metals and minerals) where value added is low and prices are vulnerable to global economic swings. The majority of exporters are still small firms that struggle to compete in export markets. Medium and large exporters in manufacturing sectors would need to use increasingly quality and innovation as a source of competitiveness. 23. A more competitive economy will require a more skilled and educated labor force. While access to education has improved, there appears to be a disconnect between the education system and private sector needs, as companies complain about the quality and availability of skills. Although a                                                              2  LPI, an edition of the World Bank’s Trade department, uses qualitative and quantitative measures to build profiles of logistics friendliness of countries. It measures performance along the logistics supply chain within a country and offers both the international and domestic perspectives. 3 Currently electricity supply is provided by lignite-fired plants (54.6%), hydro power (21.5%) and imports (20.6%). 4 Currently only 5 percent of firms export, but this group of firms generates 55 percent of the total sales revenue in the country. 5 number of reforms have been undertaken to help strengthen the capacity of domestic institutions to foster skills applicable to the EU market and increase the competitiveness of the labor force, significant challenges still remain, especially in higher education. First, the efficiency of the higher education system remains low with high drop-out and time-to-graduation rates. Second, quality assurance mechanisms need to be put in place. Third, further investments in the sector will be needed to ensure that higher education institutions are competitive in the regional and wider European context. Fourth, there are important gender gaps in higher education, with more women enrolled than men in tertiary studies. 24. The latest assessment notes the positive legislative environment for gender equality in FYR Macedonia; however, gender inequalities persist. An in-depth gender assessment for the country has been prepared to inform this CPSPR. Available evidence shows that some of the most salient gender disparities in FYR Macedonia are in labor markets, with large gender gaps in labor force participation rates (driven by low female labor force participation) and wages, with women at a disadvantage. Annex 2 presents a fuller picture of the gender situation in FYR Macedonia. 25. The current social protection system faces important challenges: (i) ensuring the financial sustainability of the pension system and (ii) improving the effectiveness of the social safety net. The sustainability of the pension system is threatened by the simultaneous reduction of contribution rates as part of the payroll tax reform and pressures to increase pensions. Although government spending on social safety nets is not excessive, the myriad of benefits limits the effectiveness of the system and poses a challenge for the limited capacity of the administration. In addition, coverage of social assistance can be strengthened further, as it reaches only 43 percent of individuals in the poorest quintile. Potential beneficiaries are subject to extensive means testing which limits the coverage since they lack the proper documentation (e.g., Roma). The Cash Benefits Management Information System and associated activities put in place under the Bank-supported program have been designed to address these and other shortcomings, particularly by consolidating programs and unifying information systems. 26. Climate change is already affecting FYR Macedonia, with profound implications. Data from the last 20 years reveal a steadily rising trend of natural disaster incidence, flood severity, and flood intensity. Also, climate change has increased the incidence of droughts and water shortages5. Of all 28 ECA countries studied as part of the World Bank report, “Adapting to Climate Change in Eastern and Central Europe,� only three have experienced more climate related natural disasters since 1990. At the same time, FYR Macedonia is near the bottom in the region in terms of capacity to adapt to these changes. Climate change and green growth considerations will have to be mainstreamed into the economic growth and competitiveness agenda of FYR Macedonia. 27. In light of the above challenges the CPS strategic objectives of improving competitiveness, strengthening the social protection and reducing the environmental risks remain relevant and are in line with the Government-led reform priorities. Continued attention to addressing economic and social vulnerabilities and building a robust foundation for competitiveness and sustainable growth remain vital to the county’s future prospects. IV. Progress towards achieving CPS objectives and outcomes 28. The Bank program continues to deliver strong development results during the current CPS period. More than 560 km of regional and local roads have been rehabilitated thus far under the ongoing Regional and Local Roads project. The real estate cadastre coverage reached 99 percent of the country with the help of the cadastre project and has contributed to tripling the number of registered mortgages. The backlog of court cases has been reduced in 22 out of 27 courts with the help of the judiciary project.                                                              5  Preliminary analysis of available data from the 1960 to 2000 period demonstrates that precipitation has declined by about 20 percent over these forty years, and flow in rivers has declined by approximately 30 percent, with a prognosis of an additional 20 percent over the next 40 years. 6 The transition rate from primary to secondary school increased to 95 percent from 85 percent and dropout rates decreased to 1.9 percent from 2.1 percent thanks to the Bank-supported interventions in education. The Water Assessment underpinned the development of the Government’s water strategy, and the cost recovery of the newly established Water Economies has been improving, with user fees collection reaching 70 percent. The Bank’s current portfolio includes eight investment projects with total commitments amounting to US$305 million. Overall, the portfolio is well performing, with a disbursement ratio above 26 percent in FY12. 29. The mix of development policy and investment lending and robust Analytical and Advisory Activities (AAA) fully support the three pillars of the CPS. The FY12 Policy Based Guarantee, which helped leverage Euro 130 million from private lenders, helped reduce future risks to stability by strengthening the sustainability of public finances. The financing crucially helped protect critical social protection programs for the most vulnerable, while at the same time providing space for the authorities to continue with needed reforms to these programs initiated through the Social Protection Implementation Loan (SPIL) and Conditional Cash Transfer (CCT) projects. The Bank also invested in priority areas for the Government such as the energy sector through additional financing for the Energy Community of South East Europe (ECSEE APL3) project, and by making it possible for FYR Macedonia to take part in an international insurance pool against catastrophic risks through the South East Europe and Caucasus Catastrophic Risk Insurance Facility (SEEC CRIF) project. The additional financing to the existing Municipal Services Improvement project, provided as part of the crisis response effort, is helping to preserve jobs at the local level and enable the municipalities to improve their infrastructure. The full list of activities delivered in FY11 and FY12 is presented in Table 2. The Bank program has also paid special attention to the EU acquis requirements. In particular, this has been reflected in support for agriculture, energy, transport, and customs operations. 30. The IBRD portfolio is consolidating and has moved from 14 projects in FY08 to eight by end FY12, and will continue to consolidate over the medium term. This is freeing up more room for analytical and advisory work, which is in high demand by this middle-income client. Although the portfolio has performed very well, maintaining the same level of performance over the remainder of the CPS period may be difficult as the Government is forced to restrain expenditures across a broad range of public investment, including under World Bank-supported projects. Indeed, the budget spending ceilings imposed by the Government in the first half of 2012 have forced the project teams of the cadastre, agriculture, and conditional cash transfer projects to downgrade, restructure and/or refocus some of the project activities and revise the outcomes. 31. The Bank is using its analytical expertise to engage with the Government through just-in- time assistance. Responding to the needs of the fast-changing environment and the requests of the client, the Bank prepared a series of just-in-time analytical and advisory products. Examples include a Competitiveness Assessment that is helping the Government better understand restraints to the competitiveness of its economy; the Comprehensive Water Sector Assessment that provided advice on how to cope with the water scarcity, and the Higher Education TA that provided knowledge and best practice examples on the sector financing and quality assurance. Good progress has been made in bringing accounting practices in line with those of the EU for both public and the private sector through the ROSC Accounting and Auditing work, the Public Sector Accounting capacity development technical assistance, as well as through the regional Road to Europe: Program of Accounting Reform and Institutional Strengthening (REPARIS). Responding to the emerging needs of the agriculture sector, the Agriculture and Climate Change sector note investigated the exposure and perils facing the agriculture sector to due to the effects of the climate change. In FY12/13 the Bank conducted a public expenditure review (PER) in agriculture to advise the Government on agriculture subsidy reform. Finally, the Bank has embarked on a ground-breaking Green Growth and Climate Change Analytical and Advisory Program described in more detail in paragraph 41 below. 7 32. FYR Macedonia also benefits from a number of innovative Trust Funds, currently amounting to about US$12.2 million. These trust funds are fully aligned with the CPS’s three pillars of competitiveness, inclusion and green growth. In particular, a GEF grant is helping develop a sustainable market for Energy Efficiency and Renewable Energy. Moreover, the Financial Sector Reform and Strengthening (FIRST) initiative is supporting an effort to liberalize the Insurance Supervision Agency with the aim of strengthening industry performance, bringing it in line with global best practices and ensuring that the regulatory framework is EU compliant. Work is also ongoing to identify opportunities in cultural heritage and tourism; and FYR Macedonia is part of a regional study to better understand the impact of tax and social benefits on labor market outcomes. A Crisis Preparedness initiative is underway to support the National Bank in establishing contingency planning for financial distress. Trust Fund resources are also financing work in the health sector, and the Swedish and Norwegian governments are supporting a major flagship study on Green Growth mentioned above. 33. IFC remains an active partner in the private sector, and its support is fully aligned with the CPS pillars. IFC supported the Government’s growth and competitiveness agenda though advisory services and financing of the banking and corporate sectors. As of September 2012, the committed portfolio includes six projects - four in the financial sector, one in the energy sector, and one in the telecom sector. Total IFC commitments amount to US$92.9 million, and the outstanding portfolio is US$86.4 million. During FY2011-2012, IFC provided a US$13.4 million long-term loan to a mid-sized bank to support the SME sector and a US$4.6 million long-term loan to support the electricity supply and distribution company. Under the Global Trade Finance Program, IFC provided a trade finance line to a bank with growing presence across the retail, corporate banking and SME lending. In addition, IFC has invested in three regional projects, which include FYR Macedonia. 34. In addition, IFC has allocated US$7 million in 10 advisory services projects out of which it has used about US$1.8 million so far. The Trade Logistics advisory program assisted in reducing trade constraints and aligning the rules linked to the Central European Free Trade Agreement (CEFTA) regional trade agenda to EU practices. The work on corporate governance and international standards and technical regulations contributed to increased corporate sales and exports. To improve energy sector efficiency and environmental sustainability, IFC has been assisting with the design and implementation of a PPP transaction for the Cebren and Galiste Hydropower project. IFC is also helping the Government to attract private sector participation in the health sector (dialysis) and road transportation (Corridor 8). To strengthen the integrated water management capacity in line with the EU Water Framework Directive, IFC helped the Government to improve the regulatory framework for waste management, strengthen the capacity at the local and national levels, and assisted municipalities to develop viable waste management projects. 35. A scaled-up communication program has helped to strengthen the Bank’s position in the country as a provider of cutting edge knowledge. The program included a new concept for the Bank’s Public Information Centers (PIC),6 which, in addition to traditional PIC activities, included regular public debates on economic issues, multiple report dissemination events and lectures to students. It also included a revamped website with increased and improved content and active use of social media to disseminate the results of the Bank work through stories and multimedia. The communication program has helped shape the policy reform agenda in many domains such as business environment, competitiveness, social assistance, skills, etc., all reflected in recent reform programs adopted by the Government.                                                              6 There are three PICs in FYR Macedonia. These are joint centers with two universities and the Central Bank. 8 Table 2: WBG Active Portfolio, Actual and Planned Lending FY11-14 Country Specific and Regional AAA Faster Growth: More Inclusive Growth: Greener Growth: Environmental Competitiveness  Employability and Sustainability and Climate Action  Social Protection  Ongoing investment projects (closing date) ECSEE APL3 FY14 Conditional Cash Transfer Sustainable Energy Project FY13 Real Estate Cadastre and FY14 Project FY14 (GEF) Registration Project Agriculture Strengthening FY13 Regional and Local Roads FY14 and Accession Project Project Municipal Services FY18 Improvement Project Operations approved in FY11-12 Additional Financing FY11 Policy Based Guarantee FY12 SEEC CRIF (US$5m) FY11 ECSEE APL3($19m) (US$130m) Additional Financing FY12 Municipal Services Impr. (US$50m) Planned Operations FY13-14 Competitiveness DPL FY13 Public expenditure PBG FY13 Lukovo Pole project FY13 (US$50m) (US$50m) (US$50m) Competitiveness DPL2 FY14 Skills project (US$24m) FY14 (US$50m) Country Specific non-lending AAA FY11-14 Higher Education Policy TA FY12 Labor Market Review FY12-13 Agriculture and Climate IDF Public Accounting FY11 Change FY11 Financial Sector IFC FY11-12 Skills Survey FY13 Comprehensive Water Real Sector IFC FY11-12 PSIA Health FY13 Assessment FY11 Accounting & Auditing PSIA Competitiveness FY13 Green Growth Analytical ROSC follow-up FY12 Reforms and Advisory Program Modular Competitiveness Public Sector IT FY14 (incl. TF) FY11-13 Assessment FY12 Poverty Assessment FY14 Reducing Vulnerability to IFC PPP Transaction Climate Change in Agric. Advisory (hydro power) FY12 TA FY12 IFC PPP Transaction IFC PPP Advisory Advisory (outpatient FY12 Services: waste hemodialysis) management in Drisla FY13 Agricultural PER FY12 -13 municip. FIRST (TF) FY12-13 IFC PPP Advisory FY13 Infrastructure Review FY13 Services: water mngt in Open Government. TA (TF) FY13 Ohrid/Struga municip. FY14 IFC Food safety advisory FY13 Energy Efficiency TA Statistics TA FY14 Regional Western Balkans Non-lending (AAA) FY11-14 Monit. & Evaluation (EC TF) FY12-13 Smart Safety Nets FY13 TA Scienc., R&D/Innov. (EC TF) FY12-14 Investment Climate IFC FY13-15 Program. Financial Sector Dev FY12-14 Public Fin Mgt/PEFA (EC TF) FY13-15 Trade Logistics IFC FY12-15 Health Finance FY14 Renewable Energy Advisory IFC FY12-15 Employment and Jobs FY14 Programmatic Gender Monit FY12-15 Energy Strategy FY14 Programmatic Poverty Monit. FY12-15 Climate Change FY14 Corporate Governance IFC FY12-17 9 V. Modifications to the CPS and the way forward 36. Although the pillars defined in the CPS remain valid, there have been important external changes which require an adaptation of the Bank’s program. These changes stem from the effect of the global economic and Eurozone crises on FYR Macedonia’s economy. During the remainder of the CPS period the Bank will support the Government by stepping up its support to help it respond to the crisis. This includes US$50 million which has already been committed for additional financing for a municipal development project; a Public Expenditure PBG (US$200 million); and topping up the second operation of a Competitiveness DPL series (US$50 million). The Public Expenditure PBG, which builds on successful reforms carried out under the Bank supported Public Expenditure DPLs and the FY12 PBG, will support the Government program to generate fiscal savings that could be re-directed to priority areas. The Competitiveness DPL series of two loans for US$50 million each (FY12 and FY13) will support the Government’s competitiveness and job creation agenda, building on an in-depth diagnostic provided by the AAA on competitiveness, labor markets and agriculture PER. 37. The Bank will continue to be selective in its support to the Government’s Box 1: Lukovo Pole project reform agenda. Selectivity is driven by the To help meet its growing energy needs and its renewable Government’s priorities, as well as by the energy targets, the Government plans to build the Lukovo principle of the Bank’s comparative advantage. Pole Water Storage and Renewable Energy project. The The Government has indicated that future Bank main objectives are to reduce the carbon intensity of the assistance is needed to support reforms in economy, improve the energy security through reduction education and energy infrastructure, and in import dependence, and reduce vulnerability to requested the Bank to start preparing the expected decline in rainfall by improving water storage capacity. Since the project site lies in a national park, the Lukovo Pole Water Regulation and Renewable World Bank provided a Project Preparation Advance to Energy project7 (FY13), which would help FYR Macedonia to support the preparation of an FYR Macedonia increase the share of Environmental and Social Impact Assessment (ESIA) renewable energy resources in its power aimed at ensuring that the highest standards are met generation and contribute to reducing its regarding natural resource management, biodiversity, and vulnerability to climate change (Box 1). The plant habitats. An independent Panel of Environmental Bank also plans to finance a Skills project with and Social Experts was formed to review the preparation a strong Innovation component in FY14 that of the ESIA and another independent Panel will review will aim to improve the relevance and quality the engineering designs regarding dam safety. The of higher education, thereby contributing to the Government and the Bank also embarked on extensive consultations with stakeholders, including NGOs, to hear strengthening of the overall country their views and concerns and keep them informed during competitiveness, as well as improve the all steps along the process.  employability of its youth. Table 2 provides a summary of the planned IBRD lending and IFC investment program for the remaining CPS period covering FY13-14. During FY10-14 IFC plans to invest about US$150 million in the real sector, financial sector, and infrastructure. IFC plans to continue and possibly expand its PPP Transaction Advisory services helping the Government to attract private sector financing in water supply and solid waste management, as well as in the power sector. 38. Strong partnership with the EU will remain a cornerstone of the World Bank program. FYR Macedonia’s EU accession remains the overarching objective of the CPS, with virtually all World Bank financed operations designed to support EU membership. EU pre-accession assistance is the largest source of financial support available to the country, amounting to some Euro 100 million per year in grants. These grants are available to all levels of government, private sector and civil society for legislation modernization, capacity building and infrastructure investments. However, as is the case in                                                              7 The World Bank support to this project is contingent on the outcome of the Environmental Impact Assessment currently underway and negotiations with riparian states. 10 many accession countries, absorption of the EU funds is slow. To date, of some Euro 619 million available from the 2007-2013 IPA, FYR Macedonia has contracted only Euro 140 million. 39. The Bank will work closely with the Government to improve strategic planning and help with implementation of IPA assistance. The revised structure of the second generation IPA assistance (2014-2020) will employ a sector wide approach and requires accession countries to develop sector strategies, which will serve as a basis for IPA financing. The Government has expressed interest in receiving Bank assistance with the development of sector strategies and in working jointly on designing and implementing projects financed with IPA funds under a fee-for-service arrangement. Potential areas of partnership include infrastructure, municipal development, and energy efficiency. The Bank is also partnering with the EC on the labor market work and inclusion issues, such as the Inclusive Employment and Development in the Western Balkans. Box 2: Gender issues will continue to be integrated into the program Gender issues will be integrated into the World Bank program through various activities. The FY12-13 Employment and Job Creation AAA will investigate gender disparities in the labor market and organize capacity building workshops on gender analysis. As a complement to this work, qualitative Poverty and Social Impact Analysis (PSIA) analysis is being undertaken to assess the impact of recent public policies on the key constraints to labor force participation and employment for both men and women. Additional PSIA analysis (FY12-13) is focusing on the possible impact of the agriculture subsidies reform and import tariff reform on farmers, accounting for the gender perspective. This ongoing analytical work will underpin the inclusion of the gender dimension into the Competitiveness DPL. The ongoing Conditional Cash Transfer project includes an important gender aspect, by piloting a payment modality that includes paying half of the cash benefit specifically to mothers. Furthermore, the ongoing Cadastre project measures sex-disaggregated data as part of its M&E system, which will become the basis for the analysis of the gender aspect of property ownership and transactions in FYR Macedonia. Finally, FYR Macedonia will benefit from a number of regional AAA with strong gender components, such as the Regional Smart Safety Nets, the Programmatic Poverty Analysis and the Western Balkans Gender Monitoring. 40. The Bank’s knowledge work will continue to play a prominent role in the Bank’s support to FYR Macedonia. The Bank’s AAA program will continue to be demand driven, providing economic, poverty and social analyses, as well as best practice examples and experience from other countries to aid the authorities in developing policy choices for future reforms. Ongoing AAA work includes the labor market review, an agriculture PER, a knowledge exchange on the Open Government Initiative and the Green Growth program. As for the future work, EC and World Bank will join forces in a partnership on Inclusive Employment and Development in the Western Balkans. A first phase will include in depth analytical work on Macedonia, as well as initial work towards a regional knowledge/learning network. The Bank is also planning to carry out an Infrastructure Review that will aim to help the Government prioritize future infrastructure investments. The WBI energy efficiency project will continue assisting the Government in setting up a National Program for energy efficiency in public buildings and identifying the optimal financing mechanism for these investments. The City-to-City component of the WBI-Austria Urban Partnership program will continue providing capacity building and support to municipal officials in improving municipal revenues and modernizing local expenditure management through a series of knowledge exchange dialogues among municipalities. The Open Government South-South Knowledge Exchange and the Public Sector IT activities will facilitate increased government transparency, improve access to information, and stimulate the development of technological skills, thus strengthening the country’s investment climate and competitiveness. FYR Macedonia will also benefit from regional AAA work on Employment and Job Creation, Health Financing and the Regional Energy Strategy, as well as from the multi-year Programmatic Poverty Analysis and Programmatic Gender Monitoring. 11 41. The pioneering work under the Green Growth and Climate Change Analytical and Advisory Support Program will continue to generate analyses and non-lending technical assistance to support FYR Macedonia in assessing the economic costs and benefits of a shift to greener growth. With this knowledge the Government will be able to prioritize implementation actions identified by the National Strategy for Sustainable Development and supplemented by the program’s recommendations. The program provides essential building blocks for integrating sustainability and green growth considerations into the mainstream economic growth and competitiveness agenda of FYR Macedonia. The program is co-financed by the Swedish and Norwegian governments. In addition, the Catastrophe Risk Insurance Facility program will develop risk models for different weather-related threats, and will help design appropriate insurance products for the citizens and institutions. IFC launched a project that will improve the renewable energy regulatory framework, provide support to private sector sponsors with renewable energy project designs and business plans, and support other financial institutions in the country to increase their knowledge and interest in renewable energy project finance. VI. Risks 42. Risks identified at the time of CPS preparation continue to be valid:  FYR Macedonia’s growth outlook is subject to uncertainties posed by the ongoing Eurozone crisis. ECA continues to be hard hit by the continued turmoil in the Eurozone. While FYR Macedonia’s fundamentals have been generally sound, risks to growth performance stemming from regional turmoil remain elevated and could impact debt sustainability and require further policy adjustment. In addition, failure of the Government to complete its announced commitment to resolve arrears build-up could undermine the solvency of the budget and limit the effectiveness of the fiscal policy. The Bank will help mitigate the impact of macroeconomic instability through increased budget support. In addition, the Bank will continue to analyze the risks through continued monitoring and dialogue on the overall macroeconomic and sector-specific issues, as well as through the analysis of options for remedial measures and program adaptation, contingent on need and government request.  Failure to resolve the differences with Greece over the FYR Macedonia’s constitutional name issue could slow EU accession and dampen public support for reforms. Although FYR Macedonia received the EU candidate status long before other countries in the Western Balkans, countries like Montenegro are already starting negotiations while the negotiations door is still kept closed for FYR Macedonia because of the unresolved “name issue.� However, the recently started High Level Dialogue between the EC and FYR Macedonia has injected new energy into the EU accession process. The Bank will continue monitoring the developments closely, including any impact a delay in EU accession might have on political and macroeconomic stability as well as on the Bank’s program.  Continued high unemployment may directly affect the social balance in the country, and undermine Government support to the reform program. The CPS is focused on employment generation and supports interventions in social protection and skills development with the aim of translating economic growth and the recent increases in labor participation into more and better jobs for all Macedonians. Improvements in these critical areas would likely contribute to the continued reduction of episodes of social tension and help consolidate the foundation for lasting social stability.  FYR Macedonia is vulnerable to natural disasters, including increasingly severe climate pressures. The country has suffered devastating earthquakes in the past and seismic activity remains common. Severe droughts are projected and aridity could affect agriculture. The Bank is engaged in analytical work in both the water and energy sectors and will be supporting the country through the regional Catastrophe Risk Insurance Facility. 12 Annex 1: Results Matrix Country Issues and Obstacles Outcomes the WBG Program is Milestones Progress to Date WBG Program Development Goals Expected to Influence Priority I: Faster Growth: Competitiveness Promote fiscal, Though debt levels are Maintain macroeconomic stability Pension reforms instituted to realize Pension and Disability FY11 macroeconomic, sustainable, financial through sound management of fiscal cost savings, including parametric Insurance Law adopted Development and financial sector vulnerabilities in the pension conditions, as indicated by: changes to the First Pillar. to improve the fiscal Policy Loan 2 stability and health systems could - General government debt sustainability of the threaten macroeconomic maintained below roughly 40% of pension system. FY12 Policy stability over the medium to GDP (baseline: est. 24% in 2009) Based Guarantee long term. - Arrears in the public health sector Health reforms to rationalize Centralized international maintained at or below 0.2% of spending and improve efficiency procurement for a list of The elevated global risks pose GDP (baseline: 0.3% in 2009] (revised). devices and drugs further challenges to the macro - Spending on pensions maintained at underway. stability. or below 9% of GDP Methodology for setting reference prices for registered drugs developed and revised FY11-14- reference prices adopted. Programmatic Western Balkan Corporate financial reporting Strengthen the transparency of Satisfactory progress noted in 2014 Financial Sector has improved but lags behind corporate financial reporting in line EC Annual Progress Report. TA EU practices. with EU standards. Professional body admitted to Professional body is FY11 Regional International Federation of formed and functional. REPARIS Accountants. Strengthen the Institutional support to The institutional framework for FDI By 2014: (i) A one-stop shop (i) Construction permits FY12 competitiveness and enterprises and FDI requires attraction and export promotion has service for issuing of licenses, are now issued directly Competitiveness business strengthening, enterprise and been enhanced and SME development construction permits, state aid and by the Technology DPL environment, particularly SME development programs are consolidated. aftercare has been established for Industrial Development focusing on programs are small and enterprises at the Technology Zones; (ii) Strategy for FY10 Additional investment in fragmented and export Industrial Development Zones; (ii) Export Promotion and Financing: Real enterprise promotion is nascent. A Strategy for Export Promotion Action Plan have been Estate Cadastre development, FDI and Action Plan has been adopted adopted. and Registration and exports, land and the first generation of programs Project administration, to support exporters are under judicial services, implementation; (iii) the SME access to finance, support programs at the Ministry of land, and skills Economy have been consolidated on development. the basis of a functional review (new). 13 Country Issues and Obstacles Outcomes the WBG Program is Milestones Progress to Date WBG Program Development Goals Expected to Influence Modest technological Increase the capacity to design and By 2014, the innovation system is An Innovation Strategy FY12 Western development and innovation implement technology and innovation strengthened by: (i) adopting an is being prepared with Balkan results in high reliance on low programs through the development of a Innovation Strategy; and (ii) OECD technical support Programmatic value added products more effective institutional framework reforms of innovation-related Innovation Study (commodities) in the export and regulations. institutions on the basis of a basket. functional review (new). Improve the efficiency and Strategy currently under FY06 Legal and Deficiencies in land transparency of land administration, as Strategy on national spatial data development. Judicial administration, including indicated by: infrastructure in line with EU Implementation limited public access to - Increase in land and real estate requirements developed by 2014. & Institutional geographic information and transactions (baseline: 93,240 in Support Project weak data sharing among 2009; target 120,000 in 2014). Cadastre maps digitized and posted Digitized maps cover agencies, reduce the efficiency - Increase in customer satisfaction with online (baseline: maps covering around 20% of the FY12 Science and transparency of real estate the efficiency of land administration 10% of territory digitized in 2010; territory. and Technology and property systems. (baseline: 3.7 rating on a 5-point target: maps covering 50% of TA scale in 2009; target; rating of 4 by territory digitized and posted online 2013). by 2014). IFC: Finance and Advisory Services Inadequate infrastructure and Improve the efficiency and services of Reduction in the number of days to This target has been Supporting weak institutional and the judiciary as indicated by: enforce a contract (baseline: 370 achieved. SMEs enforcement capacity in the - Decrease in the share of firms days in 2010 Doing Business judiciary erodes business reporting the judiciary as a problem Report; target: 60 days in 2014). FY12 National confidence, particularly in for doing business (baseline: 50% in Procurement commercial dispute resolution. 2008 BEEPS; target: 43% in 2011) Increase in the number of renovated This target has been Policy Study courthouses (baseline: 9 in 2010; achieved. Criminal court target: 11 in 2014), and build a new is pending. It should be FY11 Higher Criminal Court in the capital city. finished by end 2012. Education TA FY12 Limited capital for business Enhance access of SMEs to financing Financing provided to commercial Competitiveness development stymies growth of in key growth sectors. bank programs supporting SMEs, DPL enterprises in sectors with particularly in agribusiness, health, potential for expansion and and construction. exports. Though recent reforms have improved public procurement, capacity remains limited, particularly in enforcement and PPPs/concessions. 14 Country Issues and Obstacles Outcomes the WBG Program is Milestones Progress to Date WBG Program Development Goals Expected to Influence Improving higher education is Strengthen the sustainability of the Reforms to the quality assurance critical to building a skilled higher education system and quality system implemented and higher workforce, but an unsustainable assurance in line with EU standards. education financing model defined. financing model and weak quality controls undermine efforts to improve instruction and access. Process to obtain visa and work permits Amendments to the Law of Amendments to the Law Inefficiencies in the system of is simplified (baseline: 45 days; target: Employing Foreigners and on Foreigners and the issuance of visas and work reduction in the time required to improved cooperation between Law on Employment and permits to foreign high skilled process visa and work permits by, at government agencies (revised). Work of Foreigners have professionals make it difficult least, 10% by 2014). been enacted that make it for foreign investors to access easier for companies and bring needed skills sets for meeting certain criteria their operations. to obtain temporary residence permits and work permits. Improve Inadequate and substandard Improve the quality of the local and Select local and regional roads 284km of Regional roads FY08 Regional infrastructure to local and regional roads impair regional road network, as indicated by rehabilitated (baseline: 48 km of completed. & Local Roads catalyze economic growth, particularly in remote decrease in vehicle operational costs on regional roads rehabilitated in 2010; 280km of Local Roads Program Support growth, areas. rehabilitated roads (baseline: TBD; targets: 284 km of regional and 420 completed. Project particularly in target: 10% decrease by 2013) km of local roads rehabilitated by transport 2013). IFC PPP Advisory on Corridor 8 Rail and motorway delays and Facilitate regional trade by removing Upgrades to the passenger border Significant decrease in congestion at border crossings bottlenecks at border crossings, as crossing facility with Kosovo border crossing times FY07 Second along Corridor X, a key EU indicated by decrease in waiting time completed by 2013. achieved (entrance: 24 Trade & transport route, restrict for cars and buses at the border vehicles per hour; exit – Transport domestic and regional crossing point with Kosovo (baseline 31 vehicles per hour) Facilitation commerce. entrance - 6 vehicles per hour Project exit - 5 vehicles per hour and target: decrease in waiting time compared to FY06 ECSEE the baseline by end 2012 ). APL3 and FY11 Additional Outmoded electrical Strengthen FYR Macedonia’s energy Electrical transmission line Land acquisition process Financing infrastructure and inadequate security as indicated by reduction of completed between Stip in eastern is underway. connections to the SEE regional number and amount of energy FYR Macedonia and Nis in Serbia. IFC PPP Advisory power network threaten the interruption by 80% (baseline: 1480 This target has been on hydropower plans country’s energy security and minutes), and reduce substation Rehabilitation of twenty one 110kV achieved. long-term growth. operating and maintenance cost by 25% substations completed. IFC EVN for the unbundled stations by 2014. Investments 15 Country Issues and Obstacles Outcomes the WBG Program is Milestones Progress to Date WBG Program Development Goals Expected to Influence Strengthen Shortfalls in the delivery, Improve transparency, financial Increase in communal service FY09 Municipal municipal services transparency and financial sustainability and delivery of municipal enterprises participating in trainings Services and infrastructure sustainability of municipal services as indicated by: on municipal benchmarking Improvement services, including weak - Increase in targeted (baseline: 50% in 2010; target: No progress to date. Project (MSIP) institutional capacity and municipalities participating in public 100% in 2014). inadequate water and solid benchmarking exercises (baseline: 0% FY12 Additional waste services, undermine in 2010; target: 100% in 2014) Performance grants provided to 15% in July 2012. Financing to growth at the local level. - Increase in targeted targeted municipalities (baseline: 0 MSIP municipalities reporting improvements in 2010; target: 5 in 2014). in delivery of urban services (baseline: 0% in 2010; target: 20% by 2014) - Increase in targeted municipalities achieving increased revenue or cost savings (baseline: 0% in 2010; target: 15% by 2014. Priority II: More Inclusive Growth: Employability and Social Protection Increase FYR Macedonia’s 32.4% Lower the cost of businesses to employ Second stage of the Government’s FY11 employment, unemployment rate is workers as indicated by: payroll tax reform implemented. Development particularly among exacerbated by a relatively high - Decrease in Social Insurance Policy Loan 2 vulnerable groups labor tax wedge that Contributions, which represent a key (using official discourages formal component of the labor tax wedge FY09 employment and employment for low-wage (baseline: 28.4% of the gross wage in Conditional Cash unemployment earners, and unemployment 2009; target: 22.5% by 2014) Transfer Project baseline data) benefits that may inhibit job seekers. Strengthen the FYR Macedonia’s social Strengthen the targeting and coverage Database of social cash benefits Database has been FY04 Social efficiency of the protection system provides of FYR Macedonia’s social services as developed and in use to monitor the finalized. Protection social safety net, broad coverage. However, the indicated by: functioning of the social safety net Project including improved targeting of social assistance is - Increase in the targeting accuracy of and guide future reforms. targeting of cash suboptimal, and the the overall safety net (baseline: 50% Education campaign is FY09 benefits government lacks capacity to in 2010; target: 65% by 2014). Education campaign executed to under preparation. Conditional Cash administer a program providing - Increase in households in the poorest increase the awareness of the CCT Transfer Project conditional cash transfers quintile enrolled in the Government’s program among the poor. (CCT) supporting education CCT program (baseline: 0% in 2010; FY11 enrollment. target: 40% in 2014) Development Policy Loan II 16 Country Issues and Obstacles Outcomes the WBG Program is Milestones Progress to Date WBG Program Development Goals Expected to Influence Priority III: Greener Growth: Environmental Sustainability and Climate Action Strengthen Inadequate government Satisfactory results in enhancing Policy Notes assessing green growth Policy Notes are under Policy Notes in knowledge base for knowledge on ways to adapt government knowledge of approaches and climate change challenges in preparation, in Energy, Water, policymaking in policies and sectors to promote to manage the green growth agenda, diverse sectors developed and consultation with the Agriculture, green growth and “green growth� undermine particularly by adapting sectors to presented to the Government. Government Industry, climate action efforts to manage evolving constraints and opportunities. counterparts. Transport environmental threats and (multiple FYs) climate change. FY12 Green Underdeveloped insurance Increase in catastrophe insurance Shareholders Agreement Growth and market for natural and climate penetration to 5% by 2014 (baseline: with Europa Re Climate Change change related disasters. 2% in 2011) reinsurance company has Analytical Study been signed, and the FY12 SEEC project has become CRIF effective. Improve the Outmoded electrical Strengthen FYR Macedonia’s energy Electrical transmission line Land acquisition process FY06 ECSEE efficiency of the infrastructure and inadequate security by upgrading select domestic completed between (i) Skopje and is underway. APL3 and FY11 energy sector and connections to the SEE regional and regional transmission Tetovo, (ii) Stip and Serbian border. Additional environmental power network threaten the infrastructure. Financing sustainability, country’s energy security and Rehabilitation of twenty one 110kV Completed. particularly by long-term growth. substations completed. exploiting renewable energy and energy FY07 efficiency sources FYR Macedonia has prioritized Increase the share of the national Regulatory framework updated to Sustainable renewable energy and has much energy supplies derived from “new� facilitate renewable energy projects, Energy Project potential for wind, biomass, renewable energy sources (baseline: 0 including feed-in tariffs and rules on (GEF) and small hydropower, but in 2010; target: 6 MW by 2011, and 40 interconnection. legal constraints and MW by 2013). FY12 Lukovo insufficient incentives, Pole capacity, and financing limit their exploitation. Energy use in FYR Macedonia Improve the efficiency of FYR National Program for Energy Energy efficiency IFC: Regional is inefficient, but new Macedonia’s energy use as indicated Efficiency in buildings retrofits completed in 18 Advisory investments to boost efficiency by: implemented. municipal buildings; Services for are stymied by lack of country - Increase in energy saved (lifetime additional 13 buildings Small capacity, limited financing basis) attributable to new energy to be retrofit before end Hydropower vehicles, and poor awareness. efficiency projects, primarily in 2013. Plants public sector (baseline: 0 in 2013; 17 Country Issues and Obstacles Outcomes the WBG Program is Milestones Progress to Date WBG Program Development Goals Expected to Influence target: 100 GWh by 2014) Strengthen Managing water resources is Strengthen management of water Increase in number of established 12 “Water Economies� FY07 management of critical to addressing potential resources, particularly in agriculture, as and operating “Water Economies� established and Agriculture water resources in threats from climate change and indicated by improved cost-recovery in (baseline: 5 in 2010; target: 9 in operational. Strengthening line with EU resource and financial new “Water Economies�(baseline: 2014). and Accession directives constraints, particularly in varied rates (11-90%) of collecting user Project agriculture. Irrigation providers fees in 2010; 60% user collection rate Comprehensive assessment Working Note on are inefficient and financially in 2012) undertaken of water management Methods and Preliminary FY10 Water weak, and water policies challenges in diverse sectors, and Results of the Water Sector Capacity remain inadequately aligned recommendations developed taking Sector Analysis prepared Assessment (TF) with the EU acquis. into account threats from climate under Macedonia Green change. Growth and Climate FY09 Municipal Change presented to Services Government in July Improvement 2012 Project Strengthen the Updating agricultural practices Strengthen agriculture systems to Farm registry and land parcel IPARD accredited FY07 competitiveness of is critical to boosting growth comply with EU requirements, as identification system fully Paying Agency fully Agriculture the agriculture and accessing assistance under indicated by EU IPARD assistance paid established, and quarterly reports functional. Strengthening & sector, including the EU Instrument for Pre- to farmers in compliance with EU published on key agricultural data. Accession improvements in accession, but capacity to standards (baseline: initial IPARD Project the agricultural satisfy EU standards is limited. funding proposals being reviewed in subsidies and land 2010; target: IPARD payments FY12 market and Deficiencies in the functioning processed in compliance with standards Agriculture and adapting practices of the land market due to by 2011). Climate Change to climate change fragmented private land TA Program and EU holdings and weak management Improved management of state-owned The Government has adopted and requirements. of state-owned land represent a land (baseline: to be provided by implemented a Land Consolidation FY12 major constraint to investment MAFWE; target: 20% higher collection Strategy with actions to enhance the Competitiveness and constrain lending. of lease payments on state-owned land valuation of rural land that is market DPL by 2013. based and improved management of The system of agriculture state-owned land (new). subsidies does not support Stimulate productive agriculture productivity enhancement and investments by increasing the share of A Program on Agricultural application of good agricultural total subsidies allocated to structural Subsidies for 2013-2017 adopted practices. measures from 10 percent (baseline in (new) 2011) to 25 percent by 2013. 18 Annex 2: Gender Diagnostic in FYR Macedonia FYR Macedonia has narrowed gender gaps over time in many areas: average gender inequalities in education and health are relatively small in the country compared to regional averages. The sharpest gender disparities in FYR Macedonia, however, arise in access to economic opportunities, with women having poorer labor market outcomes than men and, in some cases, some of the poorest outcomes in the ECA region. Analysis undertaken under a Gender Diagnostic8 prepared to inform this CPS Progress Report provides additional insights into gender gaps in FYR Macedonia. GENDER GAPS IN ENDOWMENTS Education. FYR Macedonia has achieved, on average, gender equality in education; however, gender disparities remain for some population subgroups and for specific issues. Gaps in enrollment rates, in particular, still persist among ethnic Albanian, and secondary enrollment rates are particularly low for ethnic Roma boys and girls. Gaps in other areas relate, for example, to gender segregation in field of study at the tertiary level. In addition, women face specific constraints to undertake additional training, with family obligations being a key factor in this decision (19 percent of women compared to 1.5 percent of men). Related to this, a limited number of children are enrolled in pre-school education level, with women devoting a much larger fraction of their time to family and domestic activities (compared to men who devote a larger fraction to work). Health. Selected key health indicators suggest that there are no significant gender issues in these areas in FYR Macedonia. Maternal mortality is very low in the country and one of the lowest in ECA. Abortion rates halved between 2000 and 2010 but remain relatively high. Moreover, life expectancy in FYR Macedonia is higher than the regional average for both men and women (72 and 76 years, respectively), and particularly high for men in the context of a region with high adult male mortality (life expectancy for men in ECA is 66 years). GENDER GAPS IN ECONOMIC OPPORTUNITIES Labor markets and entrepreneurship. Gender disparities in labor markets are pronounced in FYR Macedonia. Female labor force participation is low and gender wage gaps persist. About 51 percent of women are active in labor markets compared to 78 percent of men and to the ECA regional average (62 percent). Women with low education level or who live in rural areas are less likely to participate in labor markets. Furthermore, there is a 26 percent wage gap (adjusted) between male and female earners. Female participation in self-employment and entrepreneurship is very low and fewer women decide to start-up a firm compared to men; the success rates and productivity, however, do not differ according to the gender of the entrepreneur. GENDER GAPS IN AGENCY Agency. Women’s participation in collective actions is limited, gender stereotypes are still pervasive and domestic violence is also an issue. Regarding social norms, women appear less likely to participate in collective actions but female political representation has improved over time. Furthermore, gender stereotypes on the role of women in the household prevail: for example, twice as many men than women (about 50 vs. 25 percent, respectively) agree with the statement that men should give priority to women if jobs are scarce. While data limitations on domestic violence prevent an in depth analysis, about a quarter of women aged 15-49 believed in 2005 that a husband is justified in beating his wife/partner in various circumstances. This belief is most commonly found among women in rural areas, without education, or among the Roma ethnic group. Several laws in FYR Macedonia grant gender equality, although enforcement is suggested as an issue in some cases. A new Strategy for gender equality in FYR Macedonia is underway, which will cover the period 2013 – 2017.                                                              8 World Bank (2012) “FYR Macedonia Gender Diagnostic: Gaps in Endowments, Access To Economic Opportunities and Agency�. 19 Annex 3: Macedonia At-a-glance Macedonia, FYR at a glance 10/5/12 Euro pe & Upper Ke y D e v e lo pm e nt Indic a t o rs M acedo nia, Central middle FYR A sia inco me Age distribution, 2010 ( 2 0 10 ) Male Female P o pulatio n, mid-year (millio ns) 2.1 405 2,452 75-79 Surface area (tho usand sq. km) 26 23,614 59,328 60-64 P o pulatio n gro wth (%) 0.2 0.4 0.7 Urban po pulatio n (% o f to tal po pulatio n) 68 64 57 45-49 30-34 GNI (A tlas metho d, US$ billio ns) 9.4 2,947 14,429 15-19 GNI per capita (A tlas metho d, US$ ) 4,570 7,272 5,884 GNI per capita (P P P , internatio nal $ ) 10,920 13,396 9,970 0-4 6 4 2 0 2 4 6 GDP gro wth (%) 1.8 5.7 7.8 percent of total population GDP per capita gro wth (%) 1.6 5.3 7.1 ( m o s t re c e nt e s t im a t e , 2 0 0 4 – 2 0 10 ) P o verty headco unt ratio at $ 1 .25 a day (P P P , %) <2 0 .. Under-5 mortality rate (per 1,000) P o verty headco unt ratio at $ 2.00 a day (P P P , %) 6 2 .. Life expectancy at birth (years) 75 71 73 60 Infant mo rtality (per 1,000 live births) 10 19 17 Child malnutritio n (% o f children under 5) 2 2 3 50 40 A dult literacy, male (% o f ages 15 and o lder) 99 99 96 30 A dult literacy, female (% o f ages 15 and o lder) 96 97 91 Gro ss primary enro llment, male (% o f age gro up) 89 99 111 20 Gro ss primary enro llment, female (% o f age gro up) 90 98 111 10 0 A ccess to an impro ved water so urce (% o f po pulatio n) 100 96 93 1990 1995 2000 2010 A ccess to impro ved sanitatio n facilities (% o f po pulatio n) 88 84 73 Macedonia, FYR Europe & Central Asia N e t A id F lo ws 19 8 0 19 9 0 2000 2 0 10 (US$ millio ns) Net ODA and o fficial aid .. 3 250 178 Growth of GDP and GDP per capita (%) To p 3 do no rs (in 2010): Euro pean Unio n Institutio ns .. 3 86 55 10 Japan .. 0 8 23 United States .. 0 37 20 5 A id (% o f GNI) .. 0.1 7.1 2.0 0 A id per capita (US$ ) .. 2 125 86 -5 Lo ng- T e rm E c o no m ic T re nds -10 95 05 Co nsumer prices (annual % change) .. 114.9 5.8 1.3 GDP implicit deflato r (annual % change) .. 93.7 8.2 2.2 GDP GDP per capita Exchange rate (annual average, lo cal per US$ ) .. 0.1 65.9 46.5 Terms o f trade index (2000 = 100) .. 98 100 106 19 8 0 – 9 0 19 9 0 – 2 0 0 0 2 0 0 0 – 10 (average annual gro wth %) P o pulatio n, mid-year (millio ns) 1.8 1.9 2.0 2.1 0.6 0.5 0.3 GDP (US$ millio ns) .. 4,472 3,587 9,189 .. -0.8 3.3 (% o f GDP ) A griculture .. 8.5 12.0 11.3 .. 0.2 1.9 Industry .. 44.5 33.7 27.8 .. -2.3 3.3 M anufacturing .. 35.7 20.7 15.6 .. -5.3 1.9 Services .. 47.0 54.2 60.9 .. 0.5 3.6 Ho useho ld final co nsumptio n expenditure .. 72.3 74.4 74.9 .. 0.1 4.3 General go v't final co nsumptio n expenditure .. 19.0 18.2 18.3 .. -0.4 0.5 Gro ss capital fo rmatio n .. 18.7 22.3 25.4 .. 3.6 4.8 Expo rts o f go o ds and services .. 25.8 48.6 47.3 .. 4.2 2.6 Impo rts o f go o ds and services .. 35.9 63.5 66.0 .. 7.5 3.8 Gro ss savings .. 9.3 22.4 19.9 No te: Figures in italics are fo r years o ther than tho se specified. .. indicates data are no t available. Develo pment Eco no mics, Develo pment Data Gro up (DECDG).   20 Macedonia, FYR B a la nc e o f P a ym e nt s a nd T ra de 2000 2 0 10 Governance indicators, 2000 and 2010 (US$ millio ns) To tal merchandise expo rts (fo b) 1,323 3,302 To tal merchandise impo rts (cif) 2,094 5,451 Voice and accountability Net trade in go o ds and services -642 -1,867 Political stability and absence of violence Current acco unt balance -103 -262 as a % o f GDP -2.9 -2.8 Regulatory quality Rule of law Wo rkers' remittances and co mpensatio n o f emplo yees (receipts) 81 388 Control of corruption Reserves, including go ld 700 3,008 0 25 50 75 100 2010 Country's percentile rank (0-100) C e nt ra l G o v e rnm e nt F ina nc e higher values imply better ratings 2000 (% o f GDP ) Source: Worldwide Governance Indicators (www.govindicators.org) Current revenue (including grants) 36.0 30.0 Tax revenue 32.6 26.3 Current expenditure 31.0 29.8 T e c hno lo gy a nd Inf ra s t ruc t ure 2000 2 0 10 Overall surplus/deficit 2.5 -2.5 P aved ro ads (% o f to tal) 63.8 57.6 Highest marginal tax rate (%) Fixed line and mo bile pho ne Individual .. .. subscribers (per 1 00 peo ple) 31 125 Co rpo rate 15 10 High techno lo gy expo rts (% o f manufactured expo rts) 1.2 2.9 E xt e rna l D e bt a nd R e s o urc e F lo ws E nv iro nm e nt (US$ millio ns) To tal debt o utstanding and disbursed 1,469 5,804 A gricultural land (% o f land area) 49 40 To tal debt service 138 669 Fo rest area (% o f land area) 37.7 39.6 Debt relief (HIP C, M DRI) – – Terrestrial pro tected areas (% o f land area) 4.8 4.9 To tal debt (% o f GDP ) 41.0 63.2 Freshwater reso urces per capita (cu. meters) 2,670 2,625 To tal debt service (% o f expo rts) 7.9 9.6 Freshwater withdrawal (% o f internal reso urces) 10.8 16.1 Fo reign direct investment (net inflo ws) 215 296 CO2 emissio ns per capita (mt) 6.0 5.8 P o rtfo lio equity (net inflo ws) 0 -4 GDP per unit o f energy use (2005 P P P $ per kg o f o il equivalent) 5.4 6.5 Composition of total external debt, 2010 Energy use per capita (kg o f o il equivalent) 1,331 1,352 IBRD, 315 IDA, 367 IMF, 0 Short-term, Other multi- Wo rld B a nk G ro up po rt f o lio 2000 2 0 10 2,054 lateral, 429 (US$ millio ns) Bilateral, 242 IB RD To tal debt o utstanding and disbursed 116 315 Disbursements 13 72 P rincipal repayments 3 11 Interest payments 7 3 Private, 2,397 US$ millions IDA To tal debt o utstanding and disbursed 249 367 Disbursements 38 0 P riv a t e S e c t o r D e v e lo pm e nt 2000 2 0 11 To tal debt service 2 11 Time required to start a business (days) – 3 IFC (fiscal year) Co st to start a business (% o f GNI per capita) – 2.4 To tal disbursed and o utstanding po rtfo lio 65 91 Time required to register pro perty (days) – 40 o f which IFC o wn acco unt 40 91 Disbursements fo r IFC o wn acco unt 8 32 Ranked as a majo r co nstraint to business 2000 2 0 10 P o rtfo lio sales, prepayments and (% o f managers surveyed who agreed) repayments fo r IFC o wn acco unt 0 0 A ccess to /co st o f financing .. 41.0 A ntico mpetitive o r info rmal practices .. 34.0 M IGA Gro ss expo sure 19 13 Sto ck market capitalizatio n (% o f GDP ) 0.2 28.8 New guarantees 19 12 B ank capital to asset ratio (%) .. 10.6 No te: Figures in italics are fo r years o ther than tho se specified. 4/5/12 .. indicates data are no t available. – indicates o bservatio n is no t applicable. Develo pment Eco no mics, Develo pment Data Gro up (DECDG).   21 Millennium Development Goals Macedonia, FYR With selected targets to achieve b etween 1990 and 2015 (estimate clo sest to date sho wn, +/- 2 years) M a c e do nia , F Y R G o a l 1: ha lv e t he ra t e s f o r e xt re m e po v e rt y a nd m a lnut rit io n 19 9 0 19 9 5 2000 2 0 10 P o verty headco unt ratio at $ 1 .25 a day (P P P , % o f po pulatio n) .. .. 4.3 <2 P o verty headco unt ratio at natio nal po verty line (% o f po pulatio n) .. .. 19.1 19.0 Share o f inco me o r co nsumptio n to the po o rest qunitile (%) .. .. 6.5 5.1 P revalence o f malnutritio n (% o f children under 5) .. .. 1.9 1.8 G o a l 2 : e ns ure t ha t c hildre n a re a ble t o c o m ple t e prim a ry s c ho o ling P rimary scho o l enro llment (net, %) .. .. 92 87 P rimary co mpletio n rate (% o f relevant age gro up) .. 97 100 92 Seco ndary scho o l enro llment (gro ss, %) .. 77 84 83 Yo uth literacy rate (% o f peo ple ages 15-24) .. 99 99 99 G o a l 3 : e lim ina t e ge nde r dis pa rit y in e duc a t io n a nd e m po we r wo m e n Ratio o f girls to bo ys in primary and seco ndary educatio n (%) .. 99 98 99 Wo men emplo yed in the no nagricultural secto r (% o f no nagricultural emplo yment) 38 39 42 42 P ro po rtio n o f seats held by wo men in natio nal parliament (%) .. 3 8 33 G o a l 4 : re duc e unde r- 5 m o rt a lit y by t wo - t hirds Under-5 mo rtality rate (per 1 ,000) 39 24 16 12 Infant mo rtality rate (per 1,000 live births) 34 22 14 10 M easles immunizatio n (pro po rtio n o f o ne-year o lds immunized, %) .. 97 97 98 G o a l 5 : re duc e m a t e rna l m o rt a lit y by t hre e - f o urt hs M aternal mo rtality ratio (mo deled estimate, per 1 00,000 live births) 16 14 15 9 B irths attended by skilled health staff (% o f to tal) 89 94 98 100 Co ntraceptive prevalence (% o f wo men ages 1 5-49) .. .. .. 14 G o a l 6 : ha lt a nd be gin t o re v e rs e t he s pre a d o f H IV / A ID S a nd o t he r m a jo r dis e a s e s P revalence o f HIV (% o f po pulatio n ages 1 5-49) .. .. .. .. Incidence o f tuberculo sis (per 100,000 peo ple) 81 58 41 21 Tuberculo sis case detectio n rate (%, all fo rms) 120 69 77 89 G o a l 7 : ha lv e t he pro po rt io n o f pe o ple wit ho ut s us t a ina ble a c c e s s t o ba s ic ne e ds A ccess to an impro ved water so urce (% o f po pulatio n) 100 100 100 100 A ccess to impro ved sanitatio n facilities (% o f po pulatio n) .. .. 88 88 Fo rest area (% o f to tal land area) 35.9 .. 37.7 39.6 Terrestrial pro tected areas (% o f land area) 4.2 4.7 4.8 4.9 CO2 emissio ns (metric to ns per capita) 5.6 5.5 6.0 5.8 GDP per unit o f energy use (co nstant 2005 P P P $ per kg o f o il equivalent) 6.4 5.0 5.4 6.5 G o a l 8 : de v e lo p a glo ba l pa rt ne rs hip f o r de v e lo pm e nt Telepho ne mainlines (per 1 00 peo ple) 15.0 17.9 25.3 20.1 M o bile pho ne subscribers (per 1 00 peo ple) 0.0 0.0 5.8 104.5 Internet users (per 1 00 peo ple) 0.0 0.0 2.5 51.9 Co mputer users (per 1 00 peo ple) .. .. .. 57.5 Education indicators (%) Measles immunization (% of 1-year ICT indicators (per 100 people) olds) 125 100 140 100 120 75 100 75 80 50 50 60 25 40 25 0 20 2000 2005 2010 0 0 1990 1995 2000 2010 2000 2005 2010 Primary net enrollment ratio Ratio of girls to boys in primary & secondary Macedonia, FYR Europe & Central Asia Fixed + mobile subscribers Internet users education No te: Figures in italics are fo r years o ther than tho se specified. .. indicates data are no t available. 4/5/12 Develo pment Eco no mics, Develo pment Data Gro up (DECDG).   22 Annex B2: Selected Indicators* of Bank Portfolio Performance and Management (as of October 12, 2012)   Indicator 2010 2011 2012 2013 Portfolio Assessment Number of Projects Under Implementation a 14 9 7 7 Average Implementation Period (years) b 4.0 4.1 5.0 5.1 Percent of Problem Projects by Number a, c 21.4 0.0 42.9 42.9 Percent of Problem Projects by Amount a, c 13.1 0.0 29.8 29.8 Percent of Projects at Risk by Number a, d 21.4 0.0 42.9 42.9 Percent of Projects at Risk by Amount a, d 13.1 0.0 29.8 29.8 Disbursement Ratio (%) e 17.3 30.5 26.1 0.2 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 36 6 Proj Eval by OED by Amt (US$ millions) 766.5 71.3 % of OED Projects Rated U or HU by Number 17.1 0.0 % of OED Projects Rated U or HU by Amt 5.8 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.                 23 Annex B3: IBRD/IDA Program Summary (as of October 12, 2012) Proposed IBRD/IDA Base-Case Lending Program Strategic Implementation Fiscal Proj ID US$(M) Rewards b b Risks year (H/M/L) (H/M/L) 2013 MK Competitiveness DPL 50.0 H L Public Expenditure PBG 200.0 H M Result 250.0 2014 LUKOVO POLE WATER REG & RENEWABLE ENERGY 70.0 H H MK Competitiveness DPL 2 50.0 H M Skills project 24.0 H L Result 144.0 Overall Result 394.0   24 Annex B3: IFC Investment Operations Program (as of October 12, 2012)   2010 2011 2012 Original Commitments (US$m) IFC and Participants 33.97 18.29 IFC's Own Accounts only 33.97 18.29 Original Commitments by Sector (%)- IFC Accounts only ELECTRIC POWER 25.22 FINANCE & INSURANCE 100 74.78 Total 100 0 100 Original Commitments by Investment Instrument (%) - IFC Accounts only Guarantee 1.28 Loan 100 98.72 Total 100 0 100 * Data as of August 01,2012                         25 Annex B6: Key Economic Indicators         26 Annex B6: Key Economic Indicators (continued)     27 Annex B7: Key Exposure Indicators   Actual Estimated Projected Indicator 2007 2008 2009 2010 2011 2012 2013 2014 2015 Total debt outstanding and 4174 4694 5696 5986 6286 6350 6732 7160 7418 a disbursed (TDO) (US$m) Net disbursements (US$m)a .. .. .. .. .. .. .. .. .. Total debt service (TDS) .. .. .. .. .. .. .. .. .. a (US$m) Debt and debt service indicators (%) TDO/XGSb 89.5 84.8 142.7 129.0 116.1 117.7 111.6 106.9 100.4 TDO/GDP 51.2 47.7 61.2 65.5 61.8 62.0 64.4 66.5 66.6 TDS/XGS .. .. .. .. .. .. .. .. .. Concessional/TDO 16.1 14.2 12.0 11.4 10.6 10.0 9.6 8.9 8.2 IBRD exposure indicators (%) IBRD DS/public DS 35.9 .. .. .. 13.5 .. .. 12.9 7.7 Preferred creditor DS/public 64.2 .. .. .. 56.6 .. .. 85.3 55.9 c DS (%) IBRD DS/XGS 3.1 0.3 0.4 0.3 0.5 0.5 0.6 0.6 0.5 d IBRD TDO (US$m) 193 237 271 315 334 351 354 343 320 Of which present value of guarantees (US$m) Share of IBRD portfolio (%) 0 0 0 0 0 0 0 0 0 d IDA TDO (US$m) 394 386 382 367 357 346 334 323 310 IFC (US$m) Loans Equity and quasi-equity /c MIGA MIGA guarantees (US$m) 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. 28 Annex B8 (IFC): Committed and Disbursed Outstanding Investment Portfolio (As of October 12, 2012) USD   Committed Disbursed Outstanding **Quasi Partici **Quasi Partici FY Approval Company Loan Equity Equity *GT/RM pant Loan Equity Equity *GT/RM pant 2008/12 Evn macedonia 43.54 0 0 0 0 43.54 0 0 0 0 1998 Macedonia telcom 0 9.94 0 0 0 0 9.94 0 0 0 2010 Nlb tutunska bk 26.21 0 0 0 0 26.21 0 0 0 0 2012 Ohridska banka 12.58 0 0 0 0 0 0 0 0 0 Total Portfolio: 82.33 9.94 0 0 0 69.75 9.94 0 0 0 * Denotes Guarantee and Risk Management Products. ** Quasi Equity includes both loan and equity types.                 29 Annex B8: Operations Portfolio (IBRD/IDA and Grants)       30 THE CITY OF SKOPJE Skopje serves as the 21°E To 22°E 23°E Municipality Capital for each of these To KOSOVO Nis This map was produced by the Map Design Unit of The World Bank. SUTO ORIZARI BUTEL Municipalities. Pristina SERBIA The boundaries, colors, denominations and any other information shown on this map do not imply, on the part of The World Bank GJORCE GAZI Group, any judgment on the legal status of any territory, or any PETROV BABA endorsement or acceptance of such boundaries. FORMER YUGOSLAV REPUBLIC OF SARAJ KARPOSH CHAIR Pelinci Pelinci MACED ONIA SKOPJE AERODROM To Staro Pernik KISELA CENTAR Nagorichane Rankovce VODA Kriva Lipkovo Vratnica Chucher- Sandevo Kumanovo Palanka BULGARIA SELECTED CITIES AND TOWNS . Tearce Kratovo Mts o v s k e Makedonska Jegunovce MUNICIPALITY CAPITALS* Arachinovo Osog Kamenica Tetovo SKOPJE NATIONAL CAPITAL 42°N Probistip Delcevo 42°N Zheino Ilinden To ca Bogovinje Blagoevgrad i THE CITY OF SKOPJE ni Brvenica Sopiste Petrovec ga Kocani Bre Sveti Obleshevo RIVERS Studenichani Vinica Nikole (Cheshinovo) Va Zelenikovo rd Vrapchishte Zrnovci MAIN ROADS ar Mt. Korab Karbinci (2,753 m) Gostivar Lozovo Pehcevo RAILROADS Veles Stip Malesevske Mts. Berovo MUNICIPAL BOUNDARIES INTERNATIONAL BOUNDARIES Chaska Rostusha Radovis (Mavrovo & Zajas Oslomej Gradsko ALBANIA Rostusha) *In most cases, the names of the municipalities Makedonski Debar Kicevo Rosoman are identical to their capitals. Where they Brod Konche Vasilevo differ, the municipality is shown in green italic. Centar Drugovo Negotino Vraneshtica Zupa Strumica Bosilovo Plasnica Dolneni Kavadarci Demir Kapija Cr Novo ni Krusevo Selo To D ri Prilep Petrich m Valandovo Belchishta Sopotnica Krivogashtani (Debarca) Star Dojran Vevcani (Dojran) Demir Hisar na Lake To Cr Bogdanci Elbasan Struga Dojran . Gevgelija Ohrid tn Mogila M Resen Lake FYR e GREECE MACEDONIA z Novaci Ohrid Bitola id 41°N 41°N N Lake Prespa Medzitlija 0 10 20 30 Kilometers IBRD 33438R2 0 5 10 15 20 Miles JULY 2009 To To Thessaloniki Korçë To Kozáni 22°E 23°E