Regional Strategy 2012

1. Regional Strategy 2012 Europe and Central Asia (ECA) Supporting our clients to build the foundations of long-term growth and competitiveness Regional Update

2. OUTLINE OF THE PRESENTATION I. Strategic Framework The three strategic pillars (competitiveness, inclusion, climate action) remain highly relevant with renewed emphasis on governance II. Operational Response Lending expected to be higher than pre-2009 owing to higher demand, complemented by improved disbursements and a strong Analytical and Advisory Assistance (AAA) program Regional Update 2

3. i. Strategic framework Regional Update 3

4. I. STRATEGIC FRAMEWORK ECA REGIONAL STRATEGY IS ALIGNED WITH WORLD BANK GROUP PRIORITIES World Bank Group (WBG) Priorities Create Opportunities for Growth Target the Poor and Vulnerable Strengthen Governance Promote Global Collective Action Manage Risk and Prepare for Crises ECA Strategic Pillars • Deepened Reforms for Improved Competitiveness • Social Sector Reforms for Inclusive Growth • Climate Action for Sustainable Growth Addressing ECA Challenges Drivers of pre-crisis growth (capital flows and strong export growth) are unlikely to return quickly • Social inclusion and equity issues will be tougher to address in a period of fiscal consolidation Need to improve energy efficiency and reduce vulnerability to climate change will remain medium-term priorities 4

5. I. STRATEGIC FRAMEWORK ECA STRATEGY REMAINS HIGHLY RELEVANT • ECA Strategy– 3 pillars and 4 instruments – remains highly relevant to support the region in addressing short-term and long-term challenges • Past engagement has made the Bank better prepared to step up financial and analytical support in response to spillover from eurozone crisis: • Better starting position owing to renewed and deeper policy engagement in most vulnerable countries • On-going and planned technical assistance, including crisis monitoring • Flexibility to top up Development Policy Loans (DPLs) and credit lines • Closer engagement with EC, IMF and other partners on crisis-response Focus on Competitiveness, Inclusion and Climate Change with renewed emphasis on governance with renewed emphasis on governance

6. I. STRATEGIC FRAMEWORK - IMPROVED GOVERNANCE IS AN IMPORTANT CROSS-CUTTING THEME SUPPORTING THE THREE PILLARS • Sound macro-fiscal and public financial management • Good governance for improved business climate and innovation • Stable and well-regulated financial intermediation • Cost-effective investments in energy and transport infrastructure • Education and training systems more accountable for relevant skills Deepened Reforms for Improved Competitiveness Governance • Increasing employment and reforming labor markets • Ensuring access to quality public services in health and education • Modernizing safety nets through better coverage of the poor and stronger monitoring and control • Closing gender gaps in access to economic opportunities • Helping countries meet remaining MDGs (health MDGs most at risk) Social Sector Reforms for Inclusive Growth Climate Action for Sustainable Growth • Economically sound adaptation investments • Incentives for energy efficiency • Investments in renewable energy 6

7. I. STRATEGIC FRAMEWORK GROWING REGIONAL PARTNERSHIP ESPECIALLY WITH THE EU AND RUSSIA Multilateral Donors • European Union • Closer partnership with the EU since the 2009 crisis • EC/EMPLOY– Programmatic Trust Fund for Bank Advisory Services on EU2020, starting in FY12 with poverty mapping in EU-10 • EC/IPA Trust Fund for Research and Innovation in the Western Balkans • Memorandum of Understanding (MoU) signed with EIB and EBRD for Programmatic Fee-based Services (FBS) in Romania and Bulgaria • International Financial Institutions (IFIs) • New Vienna Initiative with EC, EBA, EBRD and EIB • Full associate membership of Western Balkans Investment Framework with EIB and EBRD • Growing Cooperation with CEB • Memorandum of Understanding (MoU) with Eurasian Development Bank and EurAsEc Anti-Crisis fund • Ongoing cooperation with ADB Bilateral Donors • Emerging Donor - Russia • Close partnership with Russia as an emerging donor • Russian Multi-Donor Trust Fund for Public Expenditure Management and Peer-Assisted Learning (PEMPAL) in ECA • Russian Trust Fund for Policy and Project Capacity Development in ECA • Russian Statistical Capacity Building Fund • Traditional Donors • Traditional donors are exiting ECA but contribute to Multi-Donor Trust Funds (MDTFs) • Austria, Netherlands, Sweden, Switzerland, USAID, UK DFID EU and Russian contributions to ECA Trust Funds by Fiscal Year $ million 7

8. I. STRATEGIC FRAMEWORK ..AND A CONSISTENT USE OF SUB-REGIONAL APPROACHES • CIS – Migration and Remittance Peer Assisted Learning Network • MIRPAL - Community of Practice on management of labor migration and remittances • Vienna Center • Helping to improve the business environment through improvements in corporate reporting (REPARIS) • New banking and financial sector initiative • Central and South Eastern Europe • Analytical work on Roma inclusion; Support for Roma Education Fund and “Decade of Roma Inclusion”; Working closely with the EC, including on monitoring EC funded programs that benefit Roma through FBS • Danube Region Water and Wastewater program • Vienna Initiative II building on Vienna Initiative 2009 • South Eastern Europe • Supporting regional dialogue and solutions in Energy, Transport, Water Management, and Disaster Management • South Eastern Europe Gas Ring • Central Asia: Management of Energy and Water • Development of Central Asia Energy and Water Program; Continued country level dialogue • Caspian to Black Sea Transit Corridor • Coordinating donor and government road investments • Regional power trade 8

9. II. Operational response Regional Update 9

10. II. OPERATIONAL RESPONSE STRONG DEMAND FOR FINANCIAL SERVICES New IDA/IBRD Commitments $ Billion • Innovative Use of Instruments • Policy Based Guarantees in Serbia and Macedonia that leverage lending headroom to support macro stability and fiscal consolidation • Results Based Lending in Romania for Social Assistance Reform New Commitments by Instrument $ Billion Projected lending FY12-13 in high case = $15.8 b 10

11. II. OPERATIONAL RESPONSE LENDING IS FOCUSED ON SUPPORTING COMPETITIVENESS Lending by Strategic Pillar • Innovative Operations • Russia - Financial Education and Financial Literacy • Latvia - Special DPL on Safety Net and Social Sector reform • Turkey – Environmental Sustainability DPL and Renewable Energy and Energy Efficiency loan • Ukraine - Energy Efficiency Credit Line competitiveness Percent Percent Lending Shares by Country Management Units (CMUs) FY08 FY11

12. II. OPERATIONAL RESPONSE - KNOWLEDGE IS A STRENGTH OF THE REGION, GROWING DEMAND FOR TECHNICAL ASSISTANCE SERVICES Analytical & Advisory Assistance (AAA) Expenditures as a Share of All Funds Selected High Impact AAA • Regional Flagships on • Growth (Golden Growth) • Innovation • Energy Efficiency (Lights Out?) • Regular economic reports (EU-10, Western Balkans, Russia) • Sub-regional study on Benefits of Roma Inclusion • Poland – “Green” Country Economic Memorandum (Transition to a Low Carbon Economy) • Russia – PPP – St. Petersburg Airport • Romania – Functional reviews AAA by Knowledge Product AAA Shares by CMU, FY 11 Percent 12

13. III. OPERATIONAL RESPONSE - ECA IS BOTH A CONTRIBUTOR TO AND A USER OF GLOBAL KNOWLEDGE ON DEVELOPMENT

14. III. OPERATIONAL RESPONSE ..AND SUPPORT FORGOVERNANCEREFORMS HAS BEEN SCALED UP.. • Region • Governance and Anti-Corruption (GAC) outcomes tracked through indicators such as BEEPS, Doing Business, Life in Transition Surveys, etc. • Governance filters in CGAC countries (Albania, Tajikistan) • Russia and other resource rich countries • Sector level: • Advisory work on sovereign wealth fund management (Kazakhstan) • Diagnostics on regional business climate (Russia) • Procurement reform (Russia) • Ukraine and the South Caucuses • Country level: • Governance a central theme of Country Assistance Strategies (CAS) (Ukraine) • AAA – Governance reforms case study (Georgia) • Sector Level: • DPLs which support fiscal transparency and regulatory reform (Armenia, Georgia) • Project level: • Transport portfolio fiduciary review (Georgia) • EU and Western Balkans • Country level : • Governance focused AAA to improve government effectiveness (Romania functional reviews) • Sector Level: • Financial sector stress tests and capacity building (Latvia) • Technical Assistance (TA) to improve transparency and predictability of social spending (Latvia, Romania) • Justice sector AAA (Croatia) • Project level : • Civil society monitoring of Bank financed projects (Albania) • Fragile and poor • Country level: • Support for demand-side governance and budget transparency (Kyrgyz, Tajikistan) • Sector level: • Institutional reforms to improve governance in agriculture (Tajikistan) • TA to improve transparency and predictability of social spending (Uzbekistan) • Project level: • Governance checklist applied to every project at mid-term review (Tajikistan) Governance Ratings have shown improvement

15. II. OPERATIONAL RESPONSE ….ACHIEVING RESULTS ON THE GROUND • Russia and other • resource rich • Policy reforms: • Fiscal: Strengthened oil fund management (Kazakhstan) • Financial: Strengthened banking system resilience (Kazakhstan) • Other results: • Russia: PFM reform with three-year budget framework; more efficient tax administration; treasury single account • Russia: Improved public service delivery through one-stop-shops, waiting times cut by 65% • Azerbaijan: Center for Accounting and Audit Training established • Other MICs • Policy reforms: • Fiscal: Budget consolidation (Serbia, Croatia) • Financial: Strengthened banking system resilience (Turkey) • Social: Strengthened safety nets (Albania) • Other results: • Bosnia and Herzegovina: 37 land registry offices renovated and equipped; over 1.6 million property folios digitized • Fragile (Kyrgyzstan) • Policy reforms: • Fiscal: Improved fiscal management and protection of social expenditures • Financial: Strengthened banking system resilience • Social: Strengthened social safety nets • Other results: • 1,500 villages with access to improved social and economic infrastructure • EU Members • Policy reforms: • Fiscal: Budget consolidation (Romania) • Financial: Strengthened banking system resilience (Latvia, Romania) • Social: Strengthened social safety nets (Romania, Latvia) • Other results: • Bulgaria: 300km of roads repaired and functioning; Roads Asset Management System established • IDA/Blend • Policy reforms: • Fiscal: Improved fiscal management and protection of social expenditures (Armenia, Georgia) • Social: Strengthened social safety nets (Armenia) • Other results: • Armenia: Improved water delivery and quality, and customer service: 332,000 households in the capital have running water 21 hours a day, up from 6. • Moldova: Number of days required to register a new company decreased by 31% from 20 days (2005) to 14 (2010) more country results http://www.worldbank.org/eca/countrysnapshots 15

16. CONCLUSIONS I. Strategic Framework The three strategic pillars (competitiveness, inclusion, climate action) remain highly relevant with renewed emphasis on governance II. Operational Response Lending expected to be higher than pre-2009 owing to higher demand, complemented by improved disbursements and a strong Analytical & Advisory Assistance (AAA) program Regional Update 16