THE GOVERNANCE FILTER IN ALBANIA’S FY06 CAS

1. THE GOVERNANCE FILTER IN ALBANIA’S FY06 CAS Nadir Mohammed Country Manager, Albania Course on Governance and Anti-Corruption, 23-26 April 2007

2. OUTLINE • Rationale for the introduction of the Governance Filter (GF) • How was the GF developed? • What is the GF and what are its Guiding Principles? • How will the GF be Implemented? • Challenges facing its implementation

3. WHY A GOVERNANCE FILTER (GF)? • Bank Diagnostics(QAG of AAA, QAG of portfolio, CEM, CAS Completion Report, Clients Survey, etc.) • Governance Surveys(BEEPS, TI, WBI Governance Indicators, Government own surveys such as ARCS, USAID Surveys, Recent Opinion Polls, etc.) • State capture, pervasive corruption, weak enforcement of the rule of law, limited government effectiveness and inadequate regulatory quality are the main factors inhibiting private sector development, effective service delivery and overall economic development.

4. THE FORMULATION OF THE GF • CT Work:a year of discussions, consultations and debate within the CT (facilitated by Brian Levy of PREM) and with Government, donors and other stakeholders; • Stakeholder analysis at macro and sectoral levels; • Detailed analysis of the Bank’s own experience in Albania in all sectors.

6. THE GF GF is composed of 4 key Guiding Principles: • Seek greater transparency in the use of public resources. • Support increased autonomy and de-politicization of key public sector counterpart organizations. • Analyze the formal (and likely future) roles of local governments, and develop capacity -- and local mechanisms of accountability -- to enable local governments to effectively take on these roles. • Strengthen mechanisms for advocacy and increased involvement of citizens (including nongovernmental stakeholders) to encourage improved performance of public service delivery and policy-making bodies.

7. GOVERNANCE FRAMEWORK IN ALBANIA’S 2006 CAS 006

8. EXAMPLES FROM IDA PORTFOLIO • Transport sector(Unsolicited bids and projects identified outside NSSED, inefficient O&M despite large WB program). Under the GF, sector strategies, public spending and its efficiency, PIP in the sector will be assessed and monitored. • Irrigation(unit costs for irrigation work from Government budget often 7 times those realized through WB projects). Under the GF, efficiency in the use of public resources and institutional reforms (no PIUs) will be addressed.

9. BUILDING ON GOOD EXPEREINCES IN OUR PORTFOLIO • Demand for Good Governance(success stories from implementation of bottom-up approaches such as WUAs, FMOs, Microcredit, Communal user rights in forests, community work). • Civil Service Reforms and autonomy of market regulators(CSC, BoA, ERE, Telecom, Competition Authority, etc.) • Progress in Decentralization(PRSCs, Education, Health, fiscal decentralization) and the successes of Tirana Municipality.

10. IMPLEMENTATION OF THE GF • Rather than treating Governance as a pillar or sector in the CAS, the introduction of the GF will: • Demonstrate the importance of good governance in the sustainability and impact of development interventions; • Take opportunities to improve governance (AAA, Lending, dialogue); • Ensure that interventions will have explicit anticipated outcomes and performance indicators related to governance; • Deepen support for an efficient and transparent public sector; • Focus on governance structures at local and sectoral levels in addition to the core central systems; • Strengthen of governance within the Bank portfolio; and, • Increase the emphasis on aspects of governance beyond the public administration by facilitating more effective ‘voice’ (feedback and monitoring) in service delivery.

11. IMPLEMENTATION OF THE GF • Successful implementation of the GF will require the participation and commitment of all team members because it requires coordination across sectors and within sectors. • Special role of the CMU and resource persons. • Role of Partnerships with other donors and stakeholders. • Preparation of Guidelines for the Implementation of the GF spelling out key operational implications, organization and sequencing of AAA, etc.

12. EXAMPLES FOR OPERATIONALIZATION OF THE GF • AAA * Programmatic (PER, Poverty, CFAU, PEFA updates) * Sector emphasis mirrors operations * IGR, Brief sectoral GONs, ICR, IDF for Decentralization, CO outreach activities • Lending * PCN, PAD, Covenants * Supervision (PIP review, monitoring of results) * DPL • Policy Dialogue and Donor Coordination

13. MEASURES TO ENSURE GOOD GOVERNANCE WITHIN BANK’S OWN PORTFOLIO • More decentralization and building fiduciary management capacity in the to CO. • Support to the auditing, procurement, supervisory and regulatory agencies. • Vigorous investigation and follow-up to any allegations of fraud and corruption in projects through INT and public disclosure of the results. • Capacity and risk assessments for projects at appraisal to determine appropriate procurement thresholds for prior review. Extensive post reviews are conducted by procurement staff to ensure compliance. New Measures to be implemented during the CAS Period to Minimize Corruption Risks: • Diligent and consistent application of the GF. • Further consolidation of the portfolio. • Close linkages between the AAA program and lending support. • Discontinue further support to sectors or agencies that do not make satisfactory progress towards necessary reforms and remedial measures. • Frequent use of pre-emptive audits. • Increase the assistance to implementing agencies particularly in the case of difficult and significant (e.g., multiple packages, high value contracts) tenders. • Implementation of the revised procurement guidelines which promote greater transparency in the bidding process by application of new disclosure policy.

14. CHALLENGES FACING THE IMPLEMENTATION OF THE GF • Monitoring and Evaluation(including results framework and CAS milestones). • Resources (e.g., additional work on governance, AAA, training and learning, etc.). • Risks(unfunded mandate, high expectations, reputational risks, rigidity in the program, delays in project preparation, etc.). • Partnerships (e.g. EC, Civil Society) and Joint activities with Government officials and donors.