Document of The World Bank Report No: ICR00002513 IMPLEMENTATION COMPLETION AND RESULTS REPORT (IDA-48150, TF097613, TF097648, TF097759, TF012064, TF012065, TF012066) ON A GRANT IN THE AMOUNT OF EURO 56.6 MILLION (US$ 71.5 MILLION EQUIVALENT) AND IDA CREDIT IN THE AMOUNT OF EURO 5.1 MILLION (US$ 6.6 MILLION EQUIVALENT) TO THE REPUBLIC OF KOSOVO FOR A SUSTAINABLE EMPLOYMENT DEVELOPMENT POLICY PROGRAM I-II November 27, 2012 Human Development Sector Unit South East Europe Country Unit Europe and Central Asia Region CURRENCY EQUIVALENTS (Exchange Rate Effective as of November 27, 2012) Currency Unit US$ 1.00 = € 0.77 US$1.00 = SDR 0.65 GOVERNMENT FISCAL YEAR January 1-December 31 ABBREVIATIONS AND ACRONYMS AAA Analytical and Advisory Activities MEST Ministry of Education, Science and Technology BEEPS Business Environment and Enterprise PerformanceMLSW Ministry of Labor and Social Welfare Survey MOF Ministry of Finance BETA Business Environment Technical Assistance MTEF Medium-term Expenditure Framework CPA Central Procurement Agency MTI Ministry of Trade and Industry CPS Country Partnership Strategy NQA National Qualifications Authority DFID UK Department for International Development NQF National Qualifications Framework DPO Development Policy Operation PD Program Document EC European Commission PDO Program Development Objectives PEFA Public Expenditure and Financial Accountability ECA Europe and Central Asia PFM Public Financial Management EQF European Qualifications Framework PFM RAP PFM Reform Action Plan EULEX European Union Rule of Law Mission PIP Public Investment Program FDI Foreign Direct Investment PWP Public Works Program GDP Gross Domestic Product SBA Stand-by Arrangement IBRD International Bank for Reconstruction and Development SEDPO Sustainable Employment Development Policy IDA International Development Association Operation SEDPP Sustainable Employment Development Policy IFC International Finance Corporation Program IMF International Monetary Fund SMP Staff Monitored Program IPRR Immovable Property Rights Registration TA Technical Assistance ISN Interim Strategy Note UNDP United Nations Development Program KAA Kosovo Accreditation Agency USAID United States Agency for International Development LDP Letter of Development Policy VET Vocational Education and Training Vice President: Philippe H. Le Houérou Country Director: Jane Armitage Sector Manager: Roberta V. Gatti Task Team Leader: Mohamed Ihsan Ajwad ICR Team Leader: Mohamed Ihsan Ajwad ICR Main Author: Ewa Korczyc REPUBLIC OF KOSOVO Sustainable Employment Development Policy Program I-II CONTENTS A. Basic Information ........................................................................................................... ii B. Key Dates ...................................................................................................................... iii C. Ratings Summary .......................................................................................................... iii D. Sector and Theme Codes............................................................................................... iv E. Bank Staff ....................................................................................................................... v F. Results Framework Analysis .......................................................................................... v G. Ratings of Program Performance in ISRs ...................................................................... x H. Restructuring (if any) ..................................................................................................... x 1. Program Context, Development Objectives and Design ................................................ 1 2. Key Factors Affecting Implementation and Outcomes .................................................. 8 3. Assessment of Outcomes .............................................................................................. 15 4. Assessment of Risk to Development Outcome ............................................................. 38 5. Assessment of Bank and Borrower Performance ......................................................... 39 6. Lessons Learned............................................................................................................ 42 7. Comments on Issues Raised by Borrower .................................................................... 44 Annex 1. Bank Lending and Implementation Support/Supervision Processes................. 45 Annex 2. Beneficiary Survey Results ............................................................................... 47 Annex 3. List of People Consulted during ICR Preparation ............................................. 48 Annex 4. Summary of Borrower's Comments on Draft ICR ............................................ 50 Annex 5. Comments of Cofinanciers and Other Partners/Stakeholders ........................... 50 Annex 6. List of Supporting Documents .......................................................................... 51 Annex 7. Status of Indicative Triggers Specified in SEDPO-1 ........................................ 52 Attachment 1. Borrower’s ICR ......................................................................................... 54 MAP .................................................................................................................................. 63 A. Basic Information Program 1 First Sustainable Employment Country: Kosovo Program Name: Development Policy Operation IDA-48150,TF-97613,TF- Program ID: P112227 L/C/TF Number(s): 97648,TF-97759 ICR Date: 10/01/2012 ICR Type: Core ICR Lending Instrument: DPO Borrower: KOSOVO Original Total US$6.30M Disbursed Amount: US$32.25M Commitment: Implementing Agencies: Ministry of Trade and Industry Ministry of Finance Program 2 Second Sustainable Employment Country: Kosovo Program Name: Development Policy Operation TF-12064,TF-12065,TF- Program ID: P129327 L/C/TF Number(s): 12066 ICR Date: 10/01/2012 ICR Type: Core ICR Lending Instrument: DPO Borrower: KOSOVO Original Total US$44.56M Disbursed Amount: US$45.85M Commitment: Implementing Agencies: Ministry of Trade and Industry Ministry of Finance ii B. Key Dates First Sustainable Employment Development Policy Operation - P112227 Revised / Actual Process Date Process Original Date Date(s) Concept Review: 01/13/2009 Effectiveness: 01/31/2012 12/15/2011 Appraisal: 02/08/2010 Restructuring(s): Approval: 09/30/2010 Mid-term Review: Closing: 12/31/2011 01/31/2012 Second Sustainable Employment Development Policy Operation - P129327 Revised / Actual Process Date Process Original Date Date(s) Concept Review: 12/12/2011 Effectiveness: 05/14/2012 05/15/2012 Appraisal: 02/27/2012 Restructuring(s): Approval: 05/03/2012 Mid-term Review: Closing: 05/31/2012 05/31/2012 C. Ratings Summary C.1 Performance Rating by ICR Overall Program Rating Outcomes: Moderately Satisfactory Risk to Development Outcome: Substantial Bank Performance: Satisfactory Borrower Performance: Satisfactory C.2 Detailed Ratings of Bank and Borrower Performance (by ICR) Overall Program Rating Bank Ratings Borrower Ratings Quality at Entry: Satisfactory Government: Satisfactory Implementing Quality of Supervision: Satisfactory Satisfactory Agency/Agencies: Overall Bank Overall Borrower Satisfactory Satisfactory Performance: Performance: iii C.3 Quality at Entry and Implementation Performance Indicators First Sustainable Employment Development Policy Operation - P112227 Implementation QAG Assessments (if Indicators Rating Performance any) Potential Problem Program Yes Quality at Entry (QEA): None at any time (Yes/No): Problem Program at any Quality of Supervision Yes None time (Yes/No): (QSA): DO rating before Satisfactory Closing/Inactive status: Second Sustainable Employment Development Policy Operation - P129327 Implementation QAG Assessments (if Indicators Rating Performance any) Potential Problem Program No Quality at Entry (QEA): None at any time (Yes/No): Problem Program at any Quality of Supervision No None time (Yes/No): (QSA): DO rating before Satisfactory Closing/Inactive status: D. Sector and Theme Codes First Sustainable Employment Development Policy Operation - P112227 Original Actual Sector Code (as % of total Bank financing) Central government administration: 43 43 General industry and trade sector: 29 29 Other social services: 14 14 Tertiary education: 14 14 Theme Code (as % of total Bank financing) Education for the knowledge economy: 14 14 Macroeconomic management: 14 14 Other private sector development: 14 14 Public expenditure, financial management and procurement: 44 44 Social safety nets: 14 14 Second Sustainable Employment Development Policy Operation - P129327 Original Actual Sector Code (as % of total Bank financing) Central government administration: 32 32 General finance sector: 18 18 General industry and trade sector: 14 14 iv Other social services: 22 22 Tertiary education: 14 14 Theme Code (as % of total Bank financing) Education for the knowledge economy: 8 8 Improving labor markets: 14 14 Public expenditure, financial management and procurement: 35 35 Regulation and competition policy: 29 29 Social safety nets: 14 14 E. Bank Staff First Sustainable Employment Development Policy Operation - P112227 Positions At ICR At Approval Vice President: Philippe H. Le Houérou Philippe H. Le Houérou Country Director: Jane Armitage Jane Armitage Sector Manager: Roberta V. Gatti Jesko S. Hentschel Task Team Leader: Mohamed Ihsan Ajwad Anita M. Schwarz ICR Team Leader: Mohamed Ihsan Ajwad ICR Primary Author: Ewa Joanna Korczyc Second Sustainable Employment Development Policy Operation - P129327 Positions At ICR At Approval Vice President: Philippe H. Le Houérou Philippe H. Le Houérou Country Director: Jane Armitage Jane Armitage Sector Manager: Roberta V. Gatti Roberta V. Gatti Task Team Leader: Mohamed Ihsan Ajwad Mohamed Ihsan Ajwad ICR Team Leader: Mohamed Ihsan Ajwad ICR Primary Author: Ewa Joanna Korczyc F. Results Framework Analysis Program Development Objectives The original Program Development Objectives (PDO) as set out in the Program Document (PD) were: (i) to maintain a stable macroeconomic framework through strengthened budgetary and fiscal management, increased transparency and accountability of public expenditures, and (ii) to lay institutional and legislative foundations for sustainable employment and growth. The Sustainable Employment Development Policy Program (SEDPP) was designed to support the Government’s reform agenda under two pillars and six sub-pillars. These were derived directly from the Government’s reform agenda outlined in the Public Financial Management Reform Action Plan (PFM RAP) from November 2009 and the Employment Strategy adopted by the Government in December 2009. v Pillar I: Improvements in Public Financial Management Sub-pillar 1: Public Investment Management, Budget Preparation and Execution Sub-pillar 2: Wage Bill Management Pillar II: Laying the Foundation for Sustainable Employment Sub-pillar 3: Investment Climate Sub-pillar 4: Labor Market Policies, Institutions and Regulations Sub-pillar 5: Education, Skills and Training Sub-pillar 6: Social Protection Revised Program Development Objectives (as agreed to by original approving authority) The program development objectives did not change over the course of SEDPP. However, due to macroeconomic concerns and unplanned parliamentary elections, the disbursement of the first operation (SEDPO-1) was delayed until December 2011. Substantial progress in implementing the structural reforms justified merging the originally planned second and third operation into one final operation (SEDPO-2). This resulted in certain adjustments to the pillars. The final pillars of SEDPO-2 were: I. Macroeconomic Stability and Public Financial Management II. Investment Climate III. Labor Market IV. Education, Skills and Training V. Social Protection vi (a) PDO Indicator(s) First Sustainable Employment Development Policy Operation - P112227 Second Sustainable Employment Development Policy Operation - P129327 Original Target Actual Value Formally Values (from Achieved at Indicator Baseline Value Revised Target approval Completion or Values documents) Target Years Deviation of actual from budgeted capital and recurrent expenditure less than 10 Indicator 1: percent in more than one year between 2009 and 2012 and the variance in expenditure composition less than 5 percent in any year between 2009 and 2012. Current expenditures: Deviation of current 2009: 2.5% Deviation of current expenditures from 2010: 2.0% and capital budgeted was −12 percent 2011: −5.5% expenditures from in 2008, deviation of Capital expenditures: Value budgeted less than capital expenditures from 2009: −1.9% (quantitative or 10 percent and budgeted was −14.3 2010: 10% qualitative): variance in percent, and the variance 2011: −7.7% expenditure in expenditure Variance: composition less composition was 20.7 2009: 15.2% than 5 percent percent in 2008 2010: 6.5% 2011: 4.8% Date achieved: Comments (incl. % Met. achievement) The 2013 budget includes consolidated procurement to be launched in at least two Indicator 2: procurement categories in 2013. Budget for 2013 Value In 2009 consolidated Consolidated includes at least two (quantitative or procurement is not procurement is not consolidated qualitative): implemented implemented procurement items Date achieved: Not met. Comments The Government enacted the Public Procurement Law, adopted secondary legislation (incl. % to implement the law and adopted the Rules of Procedure for the Central Procurement achievement): Agency. However, the Government is moving slowly to address capacity constraints at the CPA and to move forward with centralized procurement. Indicator 3: Job classification completed for core civil servants working at the central level. Jobs are being classified according There is a job to the Regulation on Value There is no job classification for Jobs Classification; (quantitative or classification for civil civil servants by the the exercise is qualitative): servants in 2009 end of 2012 planned to be completed by December 2012 Date achieved: Not met. Comments The Government enacted the Law on Civil Service and adopted the Regulation on (incl. % Classification of Jobs in Civil Service specifying coefficients in the new civil service achievement): salary grid. DFID is working with central ministries to assist with this task and the World Bank will continue to monitor and support progress in this area through the vii Public Sector Modernization Project. The ICR timeline makes it impossible to assess if the exercise will indeed be completed by December 2012. Number of days to register a business reduced to fewer than 40 days in 2012, from Indicator 4: 58 days in 2009. Value (quantitative or 58 days in 2009 40 days in 2012 52 days in 2012 qualitative): Date achieved: Comments Partially met. (incl. % The number of days to register a business was reduced by 6 days, while the target was achievement): 18 days. Approximately 33 percent of the target was achieved. Banks’ leasing portfolio increased from zero in 2009 to at least €15 million at end - Indicator 5: 2012. Banks’ leasing Banks’ leasing Value Banks have no leasing portfolio is at least portfolio is €20.481 (quantitative or portfolio in 2009 €15 million at end- million as of July qualitative): 2012 2012 Date achieved: Comments Met. (incl. % The actual leasing portfolio is 33 percent higher than the portfolio targeted. achievement): Governance standards (single shareholder and borrower exposures, resident Indicator 6: board representation) of banks are strengthened. The April 2012 Law Governance on Banks has No governance standards standards (single strengthened (single shareholder and shareholder and governance standards Value borrower exposures, borrower exposures, through the (quantitative or resident board resident board introduction of single qualitative): representation) exist in the representation) are shareholder and law in 2009 strengthened by end- borrower exposures, 2012 resident board representation Date achieved: Comments Met. (incl. % The banking chapter has been finalized, CBK still working on secondary legislation for achievement): other financial institutions. Little implementation risk at present. At least 75 percent of planned measures in the Employment Strategy's Action Indicator 7: Plan for 2011 are completed. 75 percent of 92 percent of Value measures from the No Employment Strategy measures from the (quantitative or Employment in 2009 Employment Strategy qualitative): Strategy are are completed completed by 2012 Date achieved: Comments Met. (incl. % The actual number of measures from the Employment Strategy completed far exceeded achievement): the number targeted. viii At least 33 percent of public works participants are Category II Social Assistance Indicator 8: benefit recipients in 2011 and in 2012, up from less than 10 percent in 2010, with data on beneficiaries disaggregated by gender. 2011: 34.1 percent At least 33 percent Less than 10 percent of of public works 2012: 46.3 percent of Value public works participants participants are public works (quantitative or are Category II Social Category II Social participants were qualitative): Assistance benefit Assistance benefit Category II Social recipients in 2010 recipients in 2011 Assistance benefit and 2012 recipients Date achieved: Met. Comments Data on beneficiaries disaggregated by gender is available. In 2011: 1130 men (97 (incl. % percent) and 34 (3 percent) women; in 2012: 3119 men (98.4 percent) and 50 (1.6 achievement): percent) women were recruited to the public works program. Indicator 9: NQA initiates accreditation of at least 6 vocational training institutions in 2012. 11 vocational training Value 0 vocational training At least 6 vocational institutions are (quantitative or institutions accredited in training institutions accredited as of qualitative): 2009 are accredited October 2012 Date achieved: Comments Met. (incl. % Almost twice as many vocational training institutions have been accredited than achievement): targeted. All accredited public and private higher education institutions have established Indicator 10: internal quality assurance mechanisms as per the guidelines developed by the KAA. 100 percent of 100 percent of accredited public 0 percent of public and accredited public and and private higher Value private higher education private higher education (quantitative or institutions have internal education institutions institutions have qualitative): quality assurance have internal quality internal quality mechanisms assurance assurance mechanisms mechanisms Date achieved: Comments (incl. % Met. achievement): Monthly pension and family benefits have increased by at least €5 per month Indicator 11: compared to the level in 2008. €45 basic pension in Basic pension is €45 €40 basic pension in Value 2012; in 2012; 2008; (quantitative or €66 average monthly average monthly €61 average monthly qualitative): social assistance social assistance social assistance benefit benefit benefit is €66 in 2012 Date achieved: Comments (incl. % Met achievement): ix (b) Intermediate Outcome Indicator(s) N/A G. Ratings of Program Performance in ISRs First Sustainable Employment Development Policy Operation - P112227 Date ISR Actual Disbursements No. DO IP Archived (USD millions) 1 12/14/2010 Satisfactory Satisfactory 0.00 2 05/11/2011 Moderately Unsatisfactory Moderately Unsatisfactory 0.00 3 12/26/2011 Satisfactory Satisfactory 32.25 Second Sustainable Employment Development Policy Operation - P129327 Date ISR Actual Disbursements No. DO IP Archived (USD millions) 1 06/27/2012 Satisfactory Satisfactory 45.85 H. Restructuring (if any) N/A x 1. Program Context, Development Objectives and Design The Sustainable Employment Development Policy Program (SEDPP) was a programmatic series of two Development Policy Operations. The first operation was approved on September 30, 2010 and became effective on December 15, 2011; the second operation was approved on May 3, 2012 and became effective on May 15, 2012. The program supported a range of initiatives to promote sustainable employment and growth. 1.1 Context at Appraisal SEDPP was developed in the second half of 2008, as Kosovo embarked on a period of political and economic transition plagued by significant social challenges. Following its unilateral declaration of independence in February 2008, Kosovo developed democratic institutions and in September 2012 was released by the International Steering Group from an interim period of “supervised independence.” The European Union Rule of Law Mission (EULEX) continues to play an important role in Kosovo’s justice, police and customs systems. Kosovo joined the World Bank and the IMF in 2009. While a viable candidate for European Union (EU) membership—with a clear integration perspective contained in the October 2012 Feasibility Study—international recognition of Kosovo remains insufficient to ensure full UN membership in the foreseeable future (as of October 2012, Kosovo was recognized by 91 out of 193 UN member states). During the project preparation phase, the creation of sustainable employment opportunities, efforts to build the core functions of a public administration and measures to strengthen governance were of the highest priority to both Kosovar authorities and the international donor community. At the time of SEDPO-1 appraisal, Kosovo’s economic fundamentals appeared solid and the country registered fairly robust growth rates (above 6 percent annual growth between 2007 and 2008). Even at the time of the global financial crisis and the subsequent economic slowdown, Kosovo’s economy was growing above 4 percent annually (except for 2009, when the growth rate was around 3 percent). However, Kosovo’s growth profile was heavily tilted toward domestic demand, in particular public investment—financed by the state budget—and non-debt-creating capital inflows from donors and private consumption fueled by transfers from the Kosovar diaspora in Europe. Two central risks to the sustainability of such a growth model were identified in the Program Document. First, remittances from workers abroad were potentially volatile, especially in the context of the economic slowdown in Europe. And second, fiscal policy—which in Kosovo is the sole tool for macroeconomic management because the Euro is legal tender—was often hampered by lack of clarity on policy priorities and by ad hoc adjustments to the budget, all of which posed a threat to sustainable growth. As noted above, during the project preparation phase Kosovo faced considerable social challenges. Rapid economic growth had yet to yield significant improvements in living standards. With a GNI per capita of US$3,290 (Atlas method), a poverty rate close to 34 percent and a high unemployment rate coupled with low employment rates, Kosovo remained one of the poorest countries in Europe. In the early stages of SEDPP preparation, Kosovo was emerging from a post-conflict stabilization phase and moving toward a period of development that allowed for progress toward laying the foundation for long-term economic growth and poverty reduction. As such, the World Bank’s proposed partnership with Kosovo—outlined in the Interim Strategy Note from 2008–10—placed greater emphasis on longer- term development concerns rather than on post-conflict reconstruction, while the Government sought to replace fragmented donor-driven investment with coordinated budget support and associated technical assistance. In response to significant improvements in Kosovo’s public expenditures and budgeting 1 processes, the World Bank and the broader donor community decided during the Kosovo Donor Conference in July 2008 to offer Kosovar authorities a Development Policy Program. SEDPP, so far the largest coordinated donor effort in Kosovo, became the flagship vehicle for donor support. Devised to assist the Government with institutional development, the Program was financed with an IBRD trust fund in the amount of US$42.9 million in conjunction with 10 bilateral and multilateral donor contributions of around US$30 million.1 In addition, a US$6.6 million IDA credit was made available to Kosovo through the Crisis Response Window. Through SEDPP, which was based on Government-prepared strategies and action plans, the international community sought to assist Kosovo in its efforts to address key constraints on sustainable growth and employment generation. 1.2 Original Program Development Objectives (PDO) and Key Indicators The original Program Development Objectives (PDO) as set out in the Program Document (PD) were: (i) to maintain a stable macroeconomic framework through strengthened budgetary and fiscal management, increased transparency and accountability of public expenditures, and (ii) to lay institutional and legislative foundations for sustainable employment and growth. SEDPP supported the Government’s reform agenda under two pillars and six sub-pillars. These were derived directly from the Government’s reform agenda outlined in the November 2009 Public Financial Management Reform Action Plan (PFM RAP) and the Employment Strategy adopted by the Government in December 2009. The Government’s Strategy and the SEDPP pillars and sub-pillars correspond to the so-called MILES framework, which identifies the following five elements as key to job creation: (i) macroeconomic stability, (ii) investment climate, (iii) labor market policies, institutions and regulations, (iv) education, skills and training and (v) social protection policies that provide a safety net but encourage rather than impede a return to the labor market. Pillar I: Improvements in Public Financial Management Sub-pillar 1: Public Investment Management, Budget Preparation and Execution Sub-pillar 2: Wage Bill Management Pillar II: Laying the Foundation for Sustainable Employment Sub-pillar 3: Investment Climate Sub-pillar 4: Labor Market Policies, Institutions and Regulations Sub-pillar 5: Education, Skills and Training Sub-pillar 6: Social Protection The Key Indicators set out in the first Program Document were the following: Pillar I: Improvements in Public Financial Management 1 The 10 pledged donors include the Czech Republic, Denmark, Estonia, the European Commission, Finland, Italy, Norway, Sweden, Switzerland and the United States. 2 1. Improved performance in the following Public Expenditure and Financial Accountability (PEFA) indicators (compared to 2007 and 2009 assessments): PI-1 (aggregate expenditure outturn), maintenance of A score for PI-2 (composition of expenditure outturn), PI-12 (multi- year perspective in fiscal planning and budgeting) and PI-19 (procurement). 2. Capital budget execution is more than 90 percent of the approved allocation at the end of the program. 3. Unified and rule-based employee payroll management, measured by linking Human Resources Management Information System (HRMIS) and payroll to the Treasury system, and improvement in PEFA indicator PI-18 by 2012. Pillar II: Laying the Foundation for Sustainable Employment 4. Reduction in the percentage of firms indicating a problem in access to finance, from 55 percent to 45 percent. 5. Reduction in the percentage of firms indicating problems with business licensing and regulation, from 47 percent to 37 percent. 6. Increase in apartments registered with Kosovo Cadastre Agency to 1,000. 7. Employment Strategy and Action Plan are reflected in the Medium Term Expenditure Framework (MTEF). 8. Elements of the Employment Strategy and Action Plan requiring budgetary allocations are reflected in annual budgets. 9. Employment Strategy and Action Plan are implemented on the expected timetable. 10. National Qualifications Authority (NQA) initiates accreditation of vocational training institutions. 11. Kosovo Accreditation Agency (KAA) develops guidelines for internal Quality Assurance for all public and private higher education institutions. 12. Social assistance benefits keep up with inflation. 13. At least 2,000 beneficiaries in welfare-to-work programs. 1.3 Revised PDOs/Key Indicators and Reasons/Justification Throughout SEDPP, the program development objectives (PDOs) remained unchanged. However, macroeconomic concerns and unplanned parliamentary elections delayed the disbursement of the first operation (SEDPO-1) until December 2011. At the December 2011 Concept Note Review meeting for the subsequent operation it was decided that substantial progress in implementing the structural reforms justified merging the originally planned second and third operation into one final operation (SEDPO-2). This resulted in certain adjustments to both the pillars and the key indicators. Pillar I, Improvements in Public Financial Management in SEDPO-1, was changed to Macroeconomic Stability and Public Financial Management in SEDPO-2 to place more emphasis on the adequacy of the macroeconomic framework as a key pre-requisite to any structural reform program. Pillar II, Laying the Foundation for Sustainable Employment in SEDPO-1, was split into four pillars in SEDPO-2. These four new pillars—Investment Climate; Labor Market; Education, Skills and Training; and Social Protection—were sub-pillars in SEDPO-1. The rationale behind this change was to improve the transparency of the program document and policy matrix, as more prior actions than initially planned had to be accommodated in the second operation (for a detailed description of changes to the operation design, triggers and prior actions see section 2.1). 3 The final pillars for SEDPO-2 were: I. Macroeconomic Stability and Public Financial Management II. Investment Climate III. Labor Market IV. Education, Skills and Training V. Social Protection To illustrate changes in the structure and timing of SEDPP, the team revised the original Key Indicators. The number of Key Indicators was reduced from 13 in SEDPO-1 to 11 in SEDPO-2 to reflect consolidation in the Labor Market pillar, where multiple outcome indicators on separate measures from the Employment Strategy were replaced with a single indicator referring to the implementation of the overall Employment Strategy. Most of the changes in the Key Indicators were made to: (i) compensate for unavailable data (indicators related to PEFA assessments and BEEPS, which were not expected to be completed by the time of the ICR preparation); (ii) operationalize general outcome indicators to ensure that they were measurable and could be monitored and verified; and (iii) accommodate changes in the program design (see Table 1 for details). The final Key Indicators for SEDPP were the following: I. Macroeconomic Stability and Public Financial Management 1. Deviation of actual from budgeted capital and recurrent expenditure less than 10 percent in more than one year between 2009 and 2012 and the variance in capital and recurrent expenditure composition overall deviation less than 5 percent in any year between 2009 and 2012. 2. The 2013 budget includes consolidated procurement to be launched in at least two procurement categories in 2013. 3. Job classification completed for core civil servants working at the central level. II. Investment Climate 4. Number of days to register a business reduced to 40 days in 2012 from 58 days in 2009. 5. Banks’ leasing portfolio increased from zero in 2009 to at least €15 million at end-2012. 6. Governance standards (single shareholder and borrower exposures, resident board representation) of banks are strengthened. III. Labor Market 7. At least 75 percent of planned measures in the Employment Strategy’s Action Plan for 2011 are completed. 8. At least 33 percent of public works participants are Category II Social Assistance benefit recipients in 2011 and in 2012 up from less than 10 percent in 2010, with data on beneficiaries disaggregated by gender. IV. Education, Skills and Training 9. NQA initiates accreditation of at least six vocational training institutions in 2012. 10. All accredited public and private higher education institutions have established internal quality assurance mechanisms, as per the guidelines developed by the KAA. V. Social Protection 4 11. Monthly pension and family benefits have increased by at least €5 per month compared to the level in 2008.2 Table 1. Changes to the Key Indicators from SEDPO-1 to SEDPO-2 Key Indicators in SEDPO-1 Key Indicators in SEDPO-2 Comments Macroeconomic Stability and Public Financial Management 1. Improved performance in the following PEFA indicators (compared to 2007 and 2009 1. Deviation of actual from budgeted capital assessments): PI-1 (aggregate expenditure Unavailability of new PEFA assessment and recurrent expenditure less than 10 percent outturn), maintenance in A score for PI-2 forced the team to replace PEFA in more than one year between 2009 and 2012 (composition of expenditure outturn), PI-12 indicators with operational data on and the variance in capital and recurrent (multi-year perspective in fiscal planning and budget execution of capital and current expenditure composition overall deviation less budgeting) and PI-19 (procurement). expenditures, which correspond to PI-1 than 5 percent in any year between 2009 and and PI-2 from PEFA framework. 2. Capital budget execution is more than 90 2012. percent of approved allocation at the end of the program. Additional outcome indicator linked to public procurement prior action. It is 2. The 2013 budget includes consolidated used as an alternative indicator on procurement to be launched in at least two progress in the area of procurement to procurement categories in 2013. PI-19 from PEFA framework under SEDPO-1. Due to unavailability of new PEFA 3. Unified and rule-based employee payroll assessment the team had to revise the management, measured by linking of HRMIS 3. Job classification completed for core civil indicator. The new outcome indicator and payroll to Treasury system and servants working at the central level. better captures the progress in improvement in PEFA indicator PI-18 by 2012. implementing Civil Service Reform. Investment Climate 4. Reduction in percentage of firms indicating a Due to unavailability of new BEEPS data problem in access to finance from 55 percent to the team had to replace BEEPS 4. Number of days to register a business 45 percent. indicators with an indicator from Doing reduced to fewer than 40 days in 2012, from 58 5. Reduction in percentage of firms indicating Business. A new indicator better reflects days in 2009. problems with business licensing and regulation results achieved through the from 47 percent to 37 percent. implementation of the prior action. Volume of leasing portfolio reflects more accurately the impact of improving 6. Increase in apartments registered with 5. Banks’ leasing portfolio increased from zero property rights on access to finance than Kosovo Cadastre Agency to 1,000. in 2009 to at least €15 million at end-2012. number of registrations at Kosovo Cadastre Agency. 6. Governance standards (single shareholder New indicator to reflect a new prior and borrower exposures, resident board action. representation) of banks are strengthened. 2 The Key Indicator for the Social Protection pillar in SEDPO-2 PAD was incorrectly worded (Monthly pension and benefits for children in social assistance beneficiary families have increased by at least EUR 5 and EUR 5 per child per month, respectively, compared to the level in 2009). The mistake referred to (i) family benefits which are paid on “per family basis” rather than “per child”, and (ii) wrong reference year—2009 instead of 2008. The SEDPP team clarified that this was purely an editorial mistake. 5 Labor Market 7. Employment Strategy and Action Plan are reflected in the MTEF. 8. Elements of the Employment Strategy and 7. At least 75 percent of planned measures in Revised indicator operationalizes the Action Plan requiring budgetary allocations are the Employment Strategy's Action Plan for 2011 general outcome indicators from reflected in annual budgets. are completed. SEDPO-1. 9. Employment Strategy and Action Plan are implemented on the expected timetable. 8. At least 33 percent of public works Indicator moved from the sub-pillar participants are Category II Social Assistance Social Protection under SEDPO-1, as it benefit recipients in 2011 and in 2012 up from aligns better with public works programs less than 10 percent in 2010, with data on that are implemented under the beneficiaries disaggregated by gender. Employment Strategy and Action Plan. Education, Skills and Training 10. NQA initiates accreditation of vocational 9. NQA initiates accreditation of at least 6 training institutions. vocational training institutions in 2012. Revised indicators operationalize the 10. All accredited public and private higher general outcome indicators from 11. KAA develops guidelines for internal Quality education institutions have established internal SEDPO-1. Assurance for all public and private higher quality assurance mechanisms as per the education institutions. guidelines developed by the KAA. Social Protection 11. Monthly pension and family benefits have 12. Social assistance benefits keep up with Revised to operationalize and ensure increased by at least €5 per month compared inflation. better clarity. to the level in 2008. Indicator reformulated and moved to the Labor Market pillar, as it aligns 13. At least 2,000 beneficiaries in welfare-to- better with public works programs that work programs. are implemented under the Employment Strategy and Action Plan. 1.4 Original Policy Areas Supported by the Program The policy areas supported by SEDPP were: (i) Macroeconomic Stability and Public Financial Management Public finance reforms were intended to improve the quality and efficiency of public finances in Kosovo. During SEDPO-1 preparation, the Government was on the verge of completing the PEFA self-assessment to identify key bottlenecks to efficient public finance management in Kosovo. Poor budget preparation and execution, unclear public procurement processes and weak payroll management in the public sector were among the main weaknesses. The Government recognized that effective use of budgetary funds was essential to Kosovo’s economic development and greater credibility among international donors and investors. The Government sought to achieve this through improved budgetary planning and execution, in particular in the area of capital spending, more effective expenditure management including payroll expenditures, and more transparent public procurement processes. SEDPP facilitated meeting these objectives by supporting actions embedded in the PFM Reform Action Plan to improve the legal and regulatory frameworks for public financial management, budget and wage bill management as well as public procurement. 6 (ii) Investment Climate Structural reforms in the area of private sector development were pursued to improve the general investment climate and thereby increase domestic and foreign investment, which would in turn increase employment opportunities and incomes. Relative to other European countries, Kosovo is ranked low in Doing Business indicators, especially in the areas related to starting a business, operational licensing and permits, construction permits and contract enforcement. The 2009 Business Environment and Enterprise Performance Survey (BEEPS) presented similar findings, emphasizing the need for further business environment deregulation. In this policy area, SEDPP focused on reforms aimed at improving access to finance (SEDPO-1, SEDPO-2) and facilitating new business registration (SEDPO-2). (iii) Labor Markets Kosovo faced a two-fold labor market challenge—namely, the quantity and quality of jobs. With one of the lowest employment and highest unemployment rates in Europe, sustainable employment creation was a key factor influencing Kosovo’s development prospects. At the same time, it was important to ensure that the quality of existing jobs struck the right balance between worker protection and labor market flexibility. The Government had been promoting job creation directly through the Public Works Program for social assistance beneficiaries, through actions aimed at improving the effectiveness of the Public Employment Services and also indirectly through an adequate labor market legislative framework. SEDPP backed these objectives by supporting Government reforms aimed at developing new labor legislation governing employer-employee relations and implementing the Public Works Program in 2011 and 2012. (iv) Education Business sector surveys have indicated that inadequate levels of education and skills are among the top impediments for businesses to hire new workers. The Government’s efforts in these areas are concentrated on improving the quality and relevance of vocational training, adult learning and tertiary education. In this policy area, SEDPP focused on strengthening quality assurance mechanisms through the introduction of the National Qualifications Framework (NQF) as well as accreditation reviews for higher education institutions and vocational training providers. (v) Social Protection Prior to 2009, family benefits in Kosovo were kept at a constant level for six years, i.e. since 2003, and the level of pensions had not been adjusted since 2005. Social protection reforms were intended to improve the adequacy of safety net benefits for beneficiaries and provided incentives for beneficiaries to transition out of welfare into the workforce. In this context, SEDPP supported increases in social assistance benefit levels and coverage as well as measures aimed at facilitating welfare-to-work transitions. 1.5 Revised Policy Areas The policy areas were not revised. In SEDPO-1, these five policy areas were arranged under two pillars: Improvements in Public Financial Management and Laying the Foundation for Sustainable Employment. In SEDPO-2, the pillars were revised to reflect each of the five policy areas listed above. 1.6 Other Significant Changes Changes to the Schedule 7 Originally, SEDPP was envisioned as a series of three operations. The operations were tentatively scheduled for 2009, 2010 and 2011. Macroeconomic concerns and unplanned parliamentary elections delayed disbursement for SEDPO-1. In particular, expansionary fiscal policy and lack of expenditure prioritization undermined the credibility of the Government’s macro-fiscal framework. In addition, the unplanned parliamentary elections and a slow process of government formation further delayed SEDPO- 1. In such a context, the World Bank decided to withhold the budget support operation. Funding for SEDPO-1 was eventually disbursed in December 2011 following a correction in fiscal policy stance and a positive assessment by the World Bank and IMF teams. The SEDPO-1 disbursement delays did not compromise the momentum behind the Government’s structural reform agenda. The substantial progress made in meeting indicative triggers for SEDPO-2 and SEDPO-3 justified merging them into a single operation. This decision was also supported by practical considerations—any funds not disbursed by June 2012 would have required the World Bank and all 10 donors to extend the grant agreements, which would have been a lengthy and uncertain process given other competing claims on donors’ budgets. Changes to the Design As a result of the delayed disbursement schedule and significant progress on structural reforms, coupled with trust fund timing considerations, a management decision was taken to combine the second and third operations into one final operation. Adjustments were made in the program design to merge the key aspects of the planned SEDPO-2 and SEDPO-3, to reflect faster/slower progress in certain policy actions and, in some cases, to accommodate the changes in the Government’s priorities. For example, for PFM, investment climate and labor market reforms progressed according to schedule—or in some cases ahead of schedule—whereas there were delays in civil service reforms, pledge registry and active labor market programs. The focus shifted slightly in education, skills and learning as well as in social protection (for a detailed discussion on the changes to the program design see section 2.1 and Annex 7). 2. Key Factors Affecting Implementation and Outcomes 2.1 Program Performance SEDPP was designed as a programmatic series of three operations to be delivered annually, starting in 2009. However, as explained above, macroeconomic slippages and unplanned parliamentary elections stalled the declaration of effectiveness of SEDPO-1, delaying disbursement until the end of 2011. Because the structural reform agenda remained broadly on track, and due to practical and procedural considerations (see section 1.6), it was decided to merge the remaining two operations into one final operation. Merging the originally envisioned second and third operations resulted in certain changes to the program design (as described in section 1.6) and adjustments to the indicative triggers proposed in SEDPO-1 documentation for the later operations and the actual prior actions for the final operation. The programmatic nature of the DPO series allowed for adjustments in the indicative triggers to: (i) accommodate the pace of the Government’s reform process, (ii) accommodate changes in the Government’s reform priorities and (iii) ensure better clarity and transparency of the overall program. The Government continued to advance structural reforms as outlined in the SEDPO-1 PD. The SEDPO-1 documents outlined 22 indicative triggers for the proposed second and third operations. By the time SEDPO-2 was appraised, 14 of these indicative triggers had been completed and 9 of the most critical of them became prior actions for SEDPO-2. 8  Pillar I (Macroeconomic Stability and Public Financial Management): four indicative triggers to strengthen transparency and accountability were slightly re-worded and became prior actions;  Pillar II (Investment Climate): two indicative triggers to reduce barriers to firm entry were converted into prior actions;  Pillar III (Labor Market): two indicative triggers on passage of the Law on Labor and implementation of the public works program were converted into prior actions; and  Pillar V (Social Protection): the indicative trigger on developing a database of social assistance beneficiaries was converted into a prior action. In addition, five new prior actions were identified to reflect the reform momentum and re-orientation in the Government’s policy priorities. These prior actions, although not envisaged during SEDPO-1 preparation, were important, timely and complementary to achieving SEDPP objectives.  One prior action was added to Pillar I (Macroeconomic Stability and Public Financial Management) in the area of civil service reform. Progress in this area lagged due to weak technical capacity. As a consequence, none of the indicative triggers were completed by the time SEDPO-2 was appraised. To compensate for that, an intermediate step regarding adoption of the regulation on civil service job classification was introduced. While this prior action was met by the time the operation went to the Board, the accompanying key indicator regarding the implementation of the Regulation is not met at the time of the ICR (October 2012).  Two prior actions were added to Pillar II (Investment Climate) to improve credit reporting and strengthen the resilience of the financial sector. In this pillar the reform momentum was strong and only one indicative trigger (regarding pledge registry) was not completed by the time of SEDPO-2 appraisal. However, the Government remains committed to modernizing the pledge registry by the end of 2012. The World Bank–financed Real Estate Cadastre and Registration Project is supporting the Government’s efforts in this area.  Two new prior actions were introduced to Pillar IV (Education, Skills and Training) to increase the accuracy of qualifications signaling to employers and quality of vocational training. The reforms included in this pillar were re-focused from those indicative triggers outlined in SEDPO-1 documentation. The initial plan was to support the development of adult training programs. However, the Government’s initiative to include additional stakeholders in the consultation process stretched the timeframe of adult training programs beyond SEDPO-2. Two new prior actions, highly complementary to the PDOs of SEDPP, were included under this pillar in SEDPO-2. 9 Table 2. Schematic Illustration of Kosovo’s SEDPP Indicative Triggers and Prior Actions by Pillar SEDPO-1 SEDPO-2* SEDPO-3* SEDPO-2 SEDPO-2 Indicative Triggers (triggers New Prior Final Prior Prior Actions turned into prior actions) Actions Actions Macroeconomic Stability and 2 6 (2) 5 (2) 1 5 Public Financial Management Investment Climate 1 2 (1) 1 (1) 2 4 Labor Market 1 3 (2) 2 (0) 2 Education, Skills and Training 1 0 (0) 1 (0) 2 2 Social Protection 1 0 (0) 2 (1) 1 Total Prior Actions 6 11 (5) 11 (4) 5 14 Source: World Bank Notes: * refers to indicative triggers identified at the beginning of SEDPP; numbers in parentheses indicate the number of triggers that were transformed into prior actions. Overall program performance was smooth, with the Government committed to the reform program despite macro slippages and political concerns that disrupted the intended timeline for SEDPP. All prior actions for SEDPO-1 and SEDPO-2 were met on time. Table 3. Prior Actions for SEDPP First Sustainable Employment Development Policy Operation (SEDPO-1) List of prior actions from Legal Agreement Status Pillar I: Macroeconomic Stability and Public Financial Management The Recipient has approved the PFM RAP, in a form and manner satisfactory to the Association. Fulfilled The Recipient has enacted the Law on the Civil Service No. 03/L-149 and the Law on Civil Service Remuneration No. 03/L-147, with a completed analysis of cost implications, and published such laws in Fulfilled the Official Gazette dated June 25, 2010, all in a form and manner satisfactory to the Association. Pillar II: Investment Climate The Recipient has: (i) approved the Kosovo Cadastre Agency’s strategy and business plan; and (ii) enacted the Law on Leasing No. 03/L-103, dated July 17, 2009, and published the law in the Official Gazette, Fulfilled dated August 10, 2009; both satisfactory to the Association. Pillar III: Labor Market The Recipient has: (i) established a permanent inter-ministerial committee on sustainable employment; and (ii) approved an employment strategy. The Recipient’s inter-ministerial committee on sustainable employment has approved an action plan based on the employment strategy and included actions with Fulfilled budgetary implications for 2010 in the 2010 budget, all in a form and manner satisfactory to the Association. Pillar IV: Education, Skills and Training The Recipient, through the Kosovo Accreditation Agency, has completed an accreditation review of all Fulfilled private tertiary education institutions, in a form and manner satisfactory to the Association. Pillar V: Social Protection The Recipient’s Cabinet has taken a decision 02/51, dated January 23, 2009, to increase the level of social assistance and pension benefits to cover cumulative inflation since calendar year 2005, but without Fulfilled resorting to higher labor taxes, in a form and manner satisfactory to the Association. Second Sustainable Employment Development Policy Operation (SEDPO-2) List of prior actions from Legal Agreement Status 10 Pillar I: Macroeconomic Stability and Public Financial Management The Recipient, through the Public Procurement Regulatory Commission, has adopted secondary legislation to implement the Public Procurement Law No. 04/L-042, published in the Official Gazette on September 19, 2011. The Recipient has adopted the Rules of Procedure for the Central Procurement Fulfilled Agency to conduct consolidated procurement on behalf of the Recipient for selected procurement categories. The Recipient has introduced a monitoring and review system for financial and physical progress of Fulfilled capital expenditures starting in 2011. The Recipient has included all major capital projects (i.e. those to be financed with public funds and exceeding €1 million in cost) approved in the Recipient’s 2012 budget in the Public Investment Program Fulfilled database for 2012. The Recipient has introduced a mechanism requiring all Ministries to prepare program performance indicators with their budget submissions, and all Ministries have included program performance Fulfilled indicators with their respective 2012 budget submissions. The Recipient adopted the Regulation on Classification of Jobs in Civil Service No. 05/2012 on March 2, Fulfilled 2012, specifying the coefficients in the Recipient’s new civil service salary grid. Pillar II: Investment Climate The Recipient, through the Ministry of Trade and Industry and the municipalities, has established ‘one- Fulfilled stop shops’ for business registration in at least 22 municipalities. The Recipient has enacted the amended Law on Business Organizations No. 04/L-006, published in the Official Gazette on July 22, 2011, and the Law on Internal Trade No. 04/L-005, published in the Official Fulfilled Gazette on July 21, 2011, to reduce barriers to business registration. The Recipient, through the Governing Board of the Central Bank of Kosovo, has approved the Regulation Fulfilled on Credit Registry, dated February 24, 2012. The Recipient has submitted to its Parliament the draft Law on Banks, Microfinance Institutions and Non- Fulfilled Bank Financial Institutions. Pillar III: Labor Market The Recipient has enacted the Law on Labor No. 03/L-212, published in the Official Gazette on December Fulfilled 1, 2010, which regulates employment and labor relations. The Recipient, through the Ministry of Labor and Social Welfare, has implemented the Public Works Program of 2011, and has revised the operation manual for the Public Works Program of 2011 to Fulfilled promote labor market activation for Category II social assistance beneficiaries and the long-term unemployed. Pillar IV: Education, Skills and Training The Recipient, through the Steering Committee of the Kosovo National Qualifications Authority, has Fulfilled approved the National Qualifications Framework. The Recipient, through the National Qualifications Authority, has issued a call for accreditation Fulfilled applications from vocational training providers. Pillar V: Social Protection The Recipient, through the Ministry of Labor and Social Welfare, has digitized all social assistance Fulfilled registries. 2.2 Major Factors Affecting Implementation Most of the factors affecting implementation of SEDPP were positive and conducive to the program’s success. The most important of these factors were: the relevance of the program’s content; solid analytical underpinnings; comprehensive TA activities; donor coordination; and strong Government ownership. On the other hand, an unstable macroeconomic environment and political changes resulted in delays and necessitated changes in the program schedule and design. These factors are described in further detail below: 11 Relevance of Program’s Content SEDPP focused on areas of strategic importance for the authorities and donor community, including the World Bank. Promoting macroeconomic stability and sustainable employment are the areas where the World Bank had a track record of strong technical capacity and ample cross-country experience. SEDPP was built around the Government’s program, which drew on the MILES framework. This MILES framework guided the selection of prior actions, which were concentrated on core aspects of PFM, investment climate, labor market, education and skills and social protection. Comprehensive Program of Supporting TA Given Kosovo’s capacity constraints and relatively new institutions, it was crucial to support the reform initiatives with a corresponding TA program. SEDPP benefited from significant TA, provided by the World Bank and other donors that supported SEDPP implementation (see Table 7 for a non-exhaustive list of relevant TA). Solid Analytical Underpinnings of the Program SEDPP was grounded in a strong analytical framework. The World Bank and other donors carried out extensive analytical work in the areas covered by SEDPP. In particular, Poverty Assessments from 2007 and 2011, as well as Public Expenditure Reviews from 2007 and 2010, were central to determining the focus of the policy program. SEDPP contents were further informed by HD policy notes covering education, health, labor markets and social protection policies as well as Kosovo’s Youth Employment Study. In the area of investment climate, the program built on the Country Economic Memorandum of 2010, which discussed the importance of the investment climate to stimulate sustainable economic growth. Reforms supported in the PFM pillar benefited from PEFA self-assessment from 2009. The analytical work was crucial for the selection of the reform areas to be supported by SEDPP and for the design of specific policy reforms (see Table 4). Table 4. Analytical and Advisory Activities (AAA) in SEDPP Areas SEDPP Pillar Underpinning Analytical Work Kosovo - Public expenditure review (2010) Kosovo - Public expenditure and institutional review (2006) Macroeconomic Public Expenditure and Financial Accountability Assessment Report (2009) Stability and Public Public Expenditure and Financial Accountability Assessment Report (2007) Financial “Strategic and Macroeconomic Setting in Kosovo” in Unlocking Growth Potential: Management Strategies, Policies, Actions—A Country Economic Memorandum (2010) Kosovo - Country fiduciary assessment (2012) South East Europe Economic Reports Doing Business Reports BEEPS (2009) Investment Climate Doing Business in South East Europe (2008) “Enhancing Prospects for Private Sector–Led Growth” in Unlocking Growth Potential: Strategies, Policies, Actions—A Country Economic Memorandum (2010) 12 Youth in Jeopardy: Being Young, Unemployed, and Poor in Kosovo—A Report on Youth Employment in Kosovo (2008) Human Development Policy Notes on Labor Markets (2008) Labor Market “Improving Labor Market Outcomes in Kosovo” in Unlocking Growth Potential: Strategies, Policies, Actions—A Country Economic Memorandum (2010) “Migration and Economic Development in Kosovo” in Unlocking Growth Potential: Strategies, Policies, Actions—A Country Economic Memorandum (2010) Education, Skills, and Human Development Policy Notes on Education (2008) Training Human Development Policy Notes on Social Protection (2008) Western Balkans Programmatic Poverty Assessment: Consumption Poverty in the Republic of Kosovo in 2009 (2011) Kosovo Poverty Assessment: Promoting Opportunity, Security, and Participation for All Social Protection (2005) Kosovo Poverty Assessment—Volume 1: Accelerating Inclusive Growth to Reduce Widespread Poverty (2007) Kosovo Poverty Assessment—Volume 2: Estimating Trends from Non-comparable Data (2007) Coordination with Development Partners SEDPP has been the largest donor-coordinated effort in Kosovo to date. The program provided the opportunity to consolidate and coordinate external partners around a common, Government-owned program. SEDPP was co-financed by pledges from 10 bilateral and multilateral donors, and raised US$27 million in grant financing.3 The leveraging of resources also provided a stronger incentive for the Government to deliver on the agreed triggers, in addition to reducing transaction costs for the Government. At the same time, close donor collaboration went beyond SEDPP and allowed for better coordination in other areas as well, such as health policy. Strong Government Ownership The program was built around the Government’s own reform agenda—as prior actions and indicative triggers came directly from its strategic documents—ensuring the Government’s commitment to SEDPP. To this end, the Program was supported by high-level politicians in Kosovo and coordinated through the Inter-Ministerial Committee for Sustainable Employment, headed by the Deputy Prime Minister, and comprising: the Ministries of Trade and Industry; Finance; Labor and Social Welfare; Education; Science and Technology; and Public Administration. In addition, reforms in the area of Investment Climate were coordinated by the special Doing Business Task Force and the PFM agenda by the Government PFM Working Group. Unstable Macroeconomic and Political Environment SEDPP experienced successive delays due to macroeconomic concerns and unplanned parliamentary elections in 2010. After Kosovo’s declaration of independence in 2008, the Government introduced spending initiatives that put the macroeconomic framework at risk. A Stand-By Arrangement (SBA) was negotiated with the International Monetary Fund (IMF) in 2010 and the First Sustainable Employment Development Policy Operation (SEDPO-1) was submitted to the World Bank Board in September 2010. However, before the legal agreements could be signed, the governing coalition lost its majority and early 3 Multilateral donors: European Commission (US$6.6 million), USAID (US$2.8 million); bilateral donors: Government of the Czech Republic (US$1.4 million), Government of Denmark (US$1.9 million), Government of Estonia (US$0.26 million), Government of Finland (US$6 million), Government of Italy (US$3.8 million), Government of Norway (US$1.6 million), Government of Sweden (US$1.1 million), and Government of Switzerland (US$4.2 million). 13 elections were called. New spending initiatives in the pre-electoral period were not in compliance with the commitments the Government had made under the SBA. The Government and the IMF agreed on a six-month Staff Monitored Program (SMP) in July 2011, which was successfully implemented during the second half of 2011. Upon successful implementation of the SMP, which included agreement on the 2012 budget, SEDPO-1 was disbursed in December 2011. However, despite these delays, structural reforms supported by SEDPP continued throughout the entire Program period. 2.3 Monitoring and Evaluation (M&E) Design, Implementation and Utilization The ICR team assesses the Monitoring and Evaluation framework supporting SEDPP implementation to be broadly adequate. The specific comments to the design, implementation and utilization of M&E arrangements are laid out below. Monitoring Design The program document for SEDPO-1 indicated expected results of the program in two places: the Operation Policy Matrix and in the text of Table 9 outlining Objectives and Indicators. However, the two sets of results differ. On the one hand, the Operation Policy Matrix includes indicators related to Macroeconomic Stability, which are not featured in the Table with Objectives and Indicators; similarly, the Operation Policy Matrix includes an indicator on the planned increase in apartments registered with the Kosovo Cadastre Agency, which is not included in Table 9. On the other hand, Table 9 mentions an indicator related to the establishment of Centers of Competence, which is not included in the Operation Policy Matrix. Hence, there is no clarity as to which indicators were to be used in the final evaluation of results. The program document for SEDPO-2 improved the quality of Key Indicators and the Results Matrix; in particular it (i) established, through the Operation Policy Matrix, a single list of binding Key Indicators to be used for SEDPP monitoring, (ii) operationalized general outcomes indicators (made them measurable) to facilitate monitoring and evaluation and (iii) provided baseline values for key indicators. The design of some of the Key Indicators failed to take into account the timeline for the ICR preparation—target values of many indicators are set for the end of 2012 (civil service reform, consolidated procurement, public works program), complicating the assessment of outcomes in this ICR (for details about Key Indicators see section 1.3). Monitoring Implementation SEDPP was monitored through continuous dialogue with Government counterparts to assess progress and address potential bottlenecks. With many team members in the field, monitoring was done on an on- going basis and supported by complementary investment projects, TA (see Table 7) and analytical and advisory activities (AAA) (see Table 4) that aided the design and implementation of the reforms. SEDPP benefited from eight bilateral and two multilateral trust funds, which helped to underpin the policy dialogue on the reform program. Despite the lack of a strong formal M&E system, the Government was proactive in monitoring the areas critical to prior actions. For example, the SEDPP team was regularly updated on the Employment Strategy implementation progress. The Ministry of Labor and Social Welfare would prepare employment strategy progress reports and share them with the World Bank team. Similarly, the World Bank was also informed on the progress in the Public Works Program and progress in the implementation of the PFM RAP. Monitoring Utilization Regular monitoring facilitated discussions with the Government and helped to address potential problems with project implementation in a timely manner. The utilization of M&E arrangements was adequate. 14 2.4 Expected Next Phase/Follow-up Operation At the time of writing of this ICR (October 2012), there is no plan for the World Bank to prepare another development policy operation for Kosovo to support growth and sustainable employment. Taking into account the limited IDA resources available for Kosovo, the World Bank’s Strategy FY12–15 foresees a highly selective new lending program. A main focus of the new lending envelope is the energy sector with the aim of addressing Kosovo’s energy crisis in a comprehensive way, taking full account of environmental considerations and mitigating adverse impacts. As a follow up to SEDPP, the World Bank will provide technical assistance under the programmatic AAA to the Government to continue reforms in support of a stable macroeconomic framework and to create sustainable employment. 3. Assessment of Outcomes 3.1 Relevance of Objectives, Design and Implementation Rating: High Overall Relevance The ICR team assesses the overall relevance of objectives, design and implementation as high. The objectives of the program were highly relevant when the operation was appraised, and they remain relevant today. The objectives of the program were relevant at the time of SEDPP preparation. Maintaining a stable macroeconomic environment and promoting sustainable employment and growth were key objectives of the Government. In particular, supporting new and fragile institutions in their efforts to strengthen budgetary and fiscal management, improve accountability of public expenditures and create pro-growth institutional and legislative foundations were of utmost importance. These strategic directions were reflected in key Government strategies and documents, including the Employment Strategy and the PFM RAP. SEDPP supported key pieces of legislation developed based on those documents and focused on their implementation. SEDPP was supported by strong ownership within the government and among donors. The Government was fully committed to the program’s development objectives, which were closely aligned with Government programs and strategies. The international donor community, including the World Bank, endorsed Kosovo’s development priorities. The directions of Kosovo’s economic and social development were discussed and endorsed at the Donor Conference in Brussels in July 2008, when the decision was made to assist the Government with a budget support operation to strengthen institutional development and address key constraints on sustainable growth and employment generation. There was a broad consensus among external stakeholders (including the IMF, EC, USAID and other donors) that policy interventions focused on strengthening PFM and pursuing structural reforms in the areas of investment climate, labor market, education and social assistance were crucial for Kosovo’s growth prospects and EU aspirations. This direction was also in line with the World Bank’s strategic involvement in Kosovo as reflected in the pillars of the 2008–10 Interim Strategy Notes (Accelerating Broad-Based and Sustainable Growth and Strengthening Governance, Public Institutions and Social Cohesion). Although the program was not explicitly foreseen in the ISN, it nevertheless was fully consistent with World Bank interventions along the envisaged strategic pillars of engagement. 15 The objectives of SEDPP remain relevant today. The Government of Kosovo reconfirmed its strategy in the Economic Development Vision Action Plan 2011–14 (EDVAP) from mid-2011. The EDVAP specified medium-term reform priorities for the following: maintain macroeconomic and fiscal sustainability, improve the investment climate, develop public infrastructure, revitalize agriculture and develop human capital. The objectives of SEDPP remain central to the World Bank’s engagement in Kosovo, as emphasized in the FY 2012–15 CPS, which was presented to the Board in May 2012. The objectives of the program are relevant for the achievement of the World Bank’s strategic objectives under Pillar I of the new CPS, Accelerating Inclusive Growth and Employment Generation. The SEDPP design reflected proper diagnostics undertaken prior to the program preparation and reflected in the abundant AAA and TA (Table 4, Table 7). While SEDPP was concentrated on areas of strategic relevance for sustainable job creation, the operations’ design would have benefited from more selectivity. The extensive array of pillars and measures (e.g. a very broad PFM pillar) was sometimes difficult to manage both for the counterparts and the World Bank, especially at the implementation stage. 3.2 Achievement of Program Development Objectives Overall Achievement of Objectives Rating: Moderately Satisfactory SEDPO-1: Moderately Satisfactory SEDPO-2: Moderately Satisfactory Overall, according to the ICR team assessment, SEDPP Development Objectives were achieved albeit with some shortcomings. While SEDPP contributed to strengthening budget and fiscal management, increasing transparency and accountability of public expenditures, it did not succeed in maintaining a stable macroeconomic framework throughout the program. On the other hand, by supporting important legislative changes across many sectors, SEDPP helped to lay institutional and legislative foundations for sustainable employment and growth. The assessment of the macroeconomic framework and the progress achieved on the eleven Key Indicators linked to SEDPP pillars are the basis for evaluation of the Program’s performance. Macroeconomic Framework SEDPO-1: Moderately Unsatisfactory SEDPO-2: Satisfactory Kosovo’s economy weathered the external shock triggered by the global financial crisis and the subsequent economic slowdown in the Euro Area. Over the period of SEDPP, economic growth averaged around 4 percent (2008–2012). The country’s solid growth performance owed much to robust domestic demand, which was buttressed by higher government spending as well as remittances and non- debt creating capital inflows from the diaspora. At the same time, Kosovo’s small export base limited the impact of weak demand in trading partner countries. Provided the external situation does not deteriorate further, the outlook for Kosovo’s growth is positive—the GDP growth forecast in 2013–2015 is around 4 percent. Kosovo’s limited integration into cross-border financial markets helped to shield the financial sector. Despite being dominated by foreign banks (around 90 percent of total assets are under foreign- owned bank management), Kosovo’s financial sector remained stable during the 2008 financial crisis and in the post-crisis period. The key factors supporting the resilience of the Kosovar banking sector were: (i) a prudent funding structure, which predominantly relied on domestic deposits, (ii) limited 16 exposure to cross-border financial transactions and (iii) Central Bank measures to prevent the transfer of funds from local to parent banks. As a consequence, in 2012 Kosovo’s banking sector is liquid, well- capitalized and profitable. Average capital adequacy stood at 18 percent at end-April, compared to the regulatory minimum of 12 percent, while the share of nonperforming loans was at the moderate level of 6 percent. Banks had conservative credit-to-deposit ratios of about 80 percent and substantial excess liquidity. Kosovo’s fiscal position was strong at the beginning of SEDPP—later it deteriorated, but it has gradually improved since mid-2011.4 Kosovo started off with almost no public debt, sustainable social security systems, primary surpluses and sizeable cash buffers. From 2008, however, the government adopted an expansionary fiscal stance, reflecting inter alia an ambitious highway construction program and higher social spending. Kosovo’s macroeconomic framework went off-track. An SBA with the IMF in 2010 restored the confidence in the Government macro and fiscal plans, but soon thereafter political instability and an early election once again put the macroeconomic and fiscal framework at risk. Spending initiatives of the new government were not in compliance with the commitments under the SBA, which was consequently dropped. As a result, the fiscal deficit reached 2.6 percent of GDP in 2010, from a 7 percent surplus in 2007. In July 2011, the Government and the IMF agreed on a six- month Staff Monitored Program (SMP), once again allowing for a satisfactory rating of the macroeconomic framework. The fiscal deficit was reduced to around 1.9 percent of GDP and the authorities took further measures to strengthen budgetary planning and execution. Under the April 2012 SBA, the Government is committed to restoring a sustainable fiscal stance by 2014. Overall, the adequacy of Kosovo’s macroeconomic framework was not maintained throughout the SEDPP timeframe, although it was on track at the time of SEDPO-1 and SEDPO-2 appraisal. The IMF program went off-track twice under SEDPO-1, when expansionary fiscal policy triggered by political considerations put public finances on an unsustainable path. The credibility of fiscal policy was restored under SEDPO-2. In October 2012, the IMF reached a staff-level agreement on the Second Review under the SBA and concluded that macroeconomic and financial policies were broadly on track and that all quantitative performance criteria under the IMF’s program had been met. Progress on Key Indicators Out of 11 Key Indicators, eight indicators are met, one is partially met, and two are not met.  Eight indicators related to the Labor Market, Education, Skills and Training and Social Protection pillars are all met.  Two out of three indicators related to Investment Climate are met. The indicator related to the Doing Business Report—the number of days needed to set up a business—is partially met.  One out of three indicators related to Macroeconomic Stability and Public Financial Management is met. The indicator related to civil service reform is not met at the time of writing of this ICR (October 2012) and it is difficult to predict if the deadline for the completion of the job classification exercise (December 2012) will be met. The process is ongoing and the authorities from the Ministry of Public Administration, supported by DFID and the World Bank are working on its completion. The indicator related to consolidated public procurement remains unmet at the time of this ICR and appears to be at risk of not being met by the end of 2012. 4 In June 2011, Kosovo reached an agreement with the IMF on the Staff Monitored Program (SMP); in June 2012 the IMF Board approved a 20-month Stand-By Arrangement (SBA). 17 Table 5. Status of Key Indicators and Ratings by Pillar Number of key Met Partially met Not met Rating indicators Macroeconomic Stability and Public 3 1 2 Moderately unsatisfactory Financial Management Investment Climate 3 2 1 Moderately satisfactory Labor Market 2 2 Satisfactory Education, Skills and Training 2 2 Satisfactory Social Protection 1 1 Satisfactory Total Key Indicators 11 8 1 2 Moderately satisfactory Progress on the individual pillar objectives and World Bank contributions during SEDPP is detailed below. Pillar I: Macroeconomic Stability and Public Financial Management Rating: Moderately Unsatisfactory Overall SEDPP performance in Macroeconomic Stability and Public Financial Management was moderately unsatisfactory, with one area performing strongly while progress in the other two areas was slower. Within this pillar, SEDPP focused on public financial management (satisfactory), public procurement (moderately unsatisfactory) and civil service reform (moderately unsatisfactory). BOX 1 – PILLAR I: MACROECONOMIC STABILITY AND PUBLIC FINANCIAL MANAGEMENT Indicator Baseline value Target Actual Comments PUBLIC FINANCIAL MANAGEMENT Deviation of Deviation of current current Deviation of Deviation of actual expenditures: expenditures current and from budgeted 2009: 2.5 percent from budgeted capital Met. capital and recurrent 2010: 2.0 percent was −12 percent expenditures expenditure less than 2011: −5.5 percent in 2008, from budgeted Deviation of current expenditures was 10 percent in more Deviation of deviation of less than 10 less than 10 percent in 2009, 2010 and than one year capital capital percent more than 2011. between 2009 and expenditures: expenditures one year between 2012 and the 2009: −1.9 percent from budgeted 2009 and 2012 Deviation of capital expenditures was variance in 2010: 10 percent was −14.3 and the variance less than 10 percent in 2009 and 2011. expenditure 2011: −7.7 percent percent and the in expenditure composition less than Variance in variance in composition less Variance in expenditure composition 5 percent in any year expenditure expenditure than 5 percent in was less than 5 percent in 2011. between 2009 and composition: composition was any year between 2012. 2009: 15.2 percent 20.7 percent in 2009 and 2012. 2010: 6.5 percent 2008. 2011: 4.8 percent PUBLIC PROCUREMENT Consolidated Not met. The 2013 budget In 2009, Budget for 2013 procurement is not includes consolidated consolidated includes at least implemented. The Government enacted the Public procurement to be procurement is two consolidated Procurement Law, adopted secondary launched in at least not procurement Decision whether legislation to implement the law, and two procurement implemented. items. consolidated adopted the Rules of Procedure for the categories in 2013. procurement will Central Procurement Agency. 18 happen in 2013 has However, the Government is moving not been taken by very slowly to address capacity the time of the ICR constraints at the CPA and to move preparation. forward with centralized procurement. CIVIL SERVICE REFORM Not met. The Government enacted the Law on Civil Service and adopted the Regulation on Classification of Jobs in Civil Service specifying coefficients in Job classification Jobs are being There is no job There is a job the new civil service salary grid. completed for core classified classification for classification for DFID is working with central civil servants according to the civil servants in civil servants by ministries to assist with this task and working at the Regulation on Jobs 2009. the end of 2012. the World Bank will continue to central level. Classification. monitor and support progress in this area through the Public Sector Modernization Project. The ICR timeline makes it impossible to assess if the exercise will be completed by December 2012. SEDPP supported Government activities aimed at eliminating key weaknesses to effective public expenditure management in Kosovo. The PFM system hitherto had been characterized by: (i) low budget credibility due to major capital projects and salary expenditure commitments outside the MTEF; (ii) budget under-execution, especially for capital expenditures; (iii) insufficient linkage between strategic planning and budget preparation, including at the line ministry level; (iv) weak procurement capacity and low value-for-money results; and (v) poor payroll management owing to unbudgeted pay increases and the lack of a civil service pay grade structure that hindered effective wage bill planning and controls. Those weaknesses resulted in large deviations of current and capital spending outturns as compared to legislated budget amounts, and were among the factors that led to uncontrolled fiscal expansion in 2009. Over the course of SEDPP, the Government made strides in improving PFM quality and positive results were achieved. Following the PEFA self-assessment in 2009, the Kosovar Government drafted and endorsed the Public Finance Management Reform Action Plan (PFM RAP). With this Plan the Government took ownership of the financial management reforms. The plan covered a wide spectrum of PFM reforms organized around five platforms: (i) a credible and sustainable PFM policy-setting process; (ii) a credible budget development process, which delivers reliable and predictable resources; (iii) improved budget execution and controls, including internal controls and accountability; (iv) improved linkages between policy and priority setting, managing for program results and budget planning and implementation; and (v) integration of accountability, review and policy-setting processes with regard to both financial and program performance management. The approval of the Plan became a SEDPO-1 prior action and the subsequent implementation of its other key reform measures was chosen for SEDPO-2 actions. The measures from the PFM RAP have resulted in a significant improvement in the preparation and execution of the budget. Under the SEDPP timeframe, the budget planning processes benefited from: (i) the establishment of the Strategic Planning Office in 2010 under the Prime Minister’s Office to support links between the Government priorities and the MTEF; (ii) incorporation of forward estimates for the outlying years in MTEF ceilings and the budget circulars to strengthen the medium-term fiscal perspective; and (iii) completion of the strategic public expenditure review in 2011, which improved expenditure prioritization. Capital budgeting was strengthened by the new requirement to fully integrate 19 the Public Investment Program (PIP) processes with the MTEF and by the introduction of regular reporting on the progress of capital expenditures execution (both financial and physical). As part of this effort, all capital projects undergo rigorous and comprehensive analysis before they are submitted for the Cabinet’s consideration. An important outcome of SEDPP support was therefore more effective planning and execution of the budget, as reflected in a reduction in deviation and variance between the legislated budget and the actual execution (Figure 1). As a result, the credibility and predictability of fiscal policy increased, which are significant achievements in a post-conflict country with very new institutions. Figure 1. Deviation of Actual Current, Capital, and Overall Expenditures from Budgeted, 2007−2011 Current Capital Total 15 10 5 0 -5 -10 -15 -20 -25 -30 2007 2008 2009 2010 2011 Source: World Bank staff calculations based on Budget Execution Reports The Government has also made progress in increasing the performance orientation of the budget. SEDPO-2 supported the introduction of performance information into the budget documentation. In the course of the preparation of the 2011 budget, all budget holders were requested to prepare their expenditures in programmatic structure (i.e. develop a new program-based budget classification), and in 2012 they were required to present program performance indicators along with their budget submissions. While this information is still far from adequate for reporting on policy outcomes, it nevertheless represents an important step in improving PFM performance in Kosovo. Changes to the legal basis for procurement processes are now largely complete, but there are problems with implementation. The revised Public Procurement Law (PPL) from October 2011 significantly increased the compatibility of Kosovar procurement procedures with EU regulations. According to the World Bank’s assessment5, the current PPL adequately reflects the main principles of a sound public procurement system and is consistent with international good practices in public procurement. One of its key achievements was to transform the Public Procurement Agency (PPA) from an independent agency reporting to the Assembly (Kosovar Parliament), with mixed roles and responsibilities, to a centralized purchasing agency—the Central Procurement Agency (CPA)—within the MoF responsible for conducting centralized procurement. Centralized procurement was expected to result in substantial fiscal savings owing to economies of scale, and elimination of the current price distortions noted in contracts signed by different contracting authorities. Adoption of secondary legislation to the PPL and the Rules of Procedure for the Central Procurement Agency, both actions supported under SEDPP, represent vital steps toward conducting the first centralized purchase. However, the Government is moving very slowly to address capacity constraints at the CPA and move forward 5 Kosovo: Country Fiduciary Assessment, March 2012. 20 with centralized procurement. It is therefore unclear if the Government will carry out consolidated procurement in 2013. Implementation of the civil service reform has been slow, but some progress was made toward the end of SEDPP. The original goal was two-fold: (i) to establish legislative foundations for the creation of a professional civil service and (ii) to strengthen public sector wage bill management through grading reform and enhancements to the payroll processes. While SEDPP achieved the first objective, progress on the second has been slower. Nevertheless from the point of view of the operation design, the idea of supporting not only legislative changes, but also actual implementation, even if the latter was not fully successful, is still commendable. In the first stage, two Laws on Civil Servants and on Salaries of Civil Servants were drafted and passed by the Assembly in June 2010. Those laws provided the basic conditions for a stable, unified and professional civil service by defining the civil service, the rights and obligations of civil servants and establishing a uniform pay and grading structure. In the second stage, the Government sought to focus on the implementation of those laws. However, insufficient capacity in the Ministry of Public Administration (implementing agency) and lengthy elections processes led to implementation delays. In addition, concerns about fiscal sustainability and the substantial budgetary costs of the civil service reform put progress in this area on hold. Toward the end of SEDPP, the momentum increased with the approval of several articles of secondary legislation. The Regulation of Jobs in Civil Service, supported by SEDPO-2, established new pay and grading structures. Job classification for core civil servants is ongoing—currently the special commission, comprised of representatives from the Ministry of Public Administration and the Ministry of Finance, is collecting and reviewing proposals for jobs classification. The commission is expected to finalize its work by the end of December 2012, so that the new salary scales could apply from January 2013 onward. DFID is working with central ministries to assist with this task and the World Bank will continue to monitor and support progress in this area through the Public Sector Modernization Project. The ICR timeline makes it impossible to assess if the exercise will be completed by December 2012. The scope for further improvements to the PFM system in Kosovo is large. Looking ahead, the Government is planning a PEFA assessment for 2013 to assess progress to date and provide guidance for further reforms of the PFM systems. 21 Pillar II: Investment Climate Rating: Moderately Satisfactory In the Investment Climate pillar, the ICR’s assessment is that SEDPP performance was moderately satisfactory in achieving its outcomes and objectives of improving the business environment and turning Kosovo into a more attractive place for private sector–led investment. The specific interventions supported by SEDPP included removal of regulatory barriers to enterprise start-up and operations (moderately satisfactory), increasing options for access to finance (satisfactory), and safeguarding stability of the financial sector (satisfactory). BOX 2 – PILLAR II: INVESTMENT CLIMATE Indicator Baseline value Target Actual Comments Partially met. Number of days to The number of days to register a business register a business was reduced to fewer than 58 days in 2009 40 days in 2012 52 days in 2012 reduced by 6 days, while the 40 days in 2012, from target was 18 days. 58 days in 2009. Approximately 33 percent of the target was achieved. Met. Banks’ leasing portfolio Banks’ leasing Banks have no Banks’ leasing portfolio increased from zero in portfolio is at The actual leasing portfolio leasing portfolio is €20.481 million as of 2009 to at least €15 least €15 million is approximately 36 percent in 2009. July 2012. million at end-2012. at end-2012. higher than the portfolio targeted. No governance Governance Met. standards (single standards (single The April 2012 Law on Governance standards shareholder and shareholder and Banks has strengthened The banking chapter has (single shareholder and borrower borrower governance standards been finalized, CBK still borrower exposures, exposures, exposures, through the introduction working on secondary resident board resident board resident board of borrower exposures legislation for other financial representation) of banks representation) representation) and resident board institutions. Little are strengthened. exist in the law in are strengthened representation. implementation risk at 2009. by end-2012. present. Improving the business climate has been among the Government’s top priorities. Supporting investment climate reforms is one of the cornerstones of the Government’s December 2009 Employment Strategy and one of the key elements that is identified in the international experience to promote growth. In addition, the Action Plan for the Government’s strategic document—Economic Vision of Kosovo 2011–2014—includes direct references to Kosovo’s ambition of becoming one of the top 40 Doing Business destinations by 2014. This agenda has been supported by the highest level politicians in Kosovo, including the Prime Minister, and such political leadership has already translated into positive impact on the ground. In mid-2011, a special intergovernmental Task Force on Doing Business was established to coordinate reform efforts in this area. It consists of several sub-groups dedicated to selected aspects of the reform agenda (so-called indicator working groups), e.g., working group on Starting a Business or working group on Dealing with Construction Permits. While the Task Force provides political support for reforms and promotes Doing Business reforms within the Government, the Parliament and the public, the indicator working groups are responsible for technical work. Regulatory reforms have streamlined business procedures and improved the legal framework for investment. So far, the Government’s Doing Business Task Force has prepared a package of 12 laws to reduce the costs of setting up a business, unifying business registries and simplifying the licensing 22 system. Eleven laws have been passed (including on business organization, cadastre, reporting and auditing, establishment of immovable property right registers, external trade, management and control of state borders, construction and the customs code). The remaining law on execution procedure, which strengthens contract enforcement, is expected to be enacted before the end of 2012. The Law on Business Organizations and the Law on Internal Trade, both supported by SEDPO-2, simplified and accelerated business registration in Kosovo. In particular: (i) the centralized business registration office in Pristina was complemented with Municipal Business Centers serving as one-stop shops for businesses (by October 2012 there were 25 one-stop shops in Kosovo); (ii) work permits for entrepreneurs were eliminated; and (iii) registration fees and charter capital requirements for limited liability companies (LLCs) were reduced. The successes of the business regulatory reforms are reflected in the number of new businesses being registered, which in the first nine months of 2012 are 75 percent higher than in 2008 and 2009. While the Doing Business indicator—which is used in this ICR to evaluate the progress of regulatory reform—has shown less improvement than anticipated, the significant advancements in this area are apparent. Since the changes in the legal framework were introduced, registering businesses in Kosovo is cheaper, easier and quicker. This has already contributed to an increase in the number of new businesses in Kosovo. Business registration has increased steadily since 2010. In 2010, 936 new businesses were registered in Kosovo; in 2011, the number of newly registered entities increased by around 15 percent to around 1,070; and in the first 9 months of 2012, close to 1,400 new businesses were registered (an increase of 24 percent as compared to 2011), the majority of them being LLCs (Figure 2). Figure 2. Newly Registered Businesses in Kosovo 2008–Sept 2012 Limited Liability Company Joint Stock Company 1400 1200 1000 800 600 400 200 0 2008 2009 2010 2011 Jan-Sept 2012 Source: World Bank staff calculations based on information from the Ministry of Trade and Industry A market for leasing machinery and equipment has been established in Kosovo as a result of SEDPP. The Leasing Law of June 2009, supported by SEDPO-1, provided an attractive alternative for credit-constrained enterprises to obtain new machinery and equipment and continue business expansion without traditional bank borrowing. Currently, there are two financial institutions in Kosovo that provide individuals and businesses with leasing services. By the end of July 2012, the active leasing portfolio exceeded €20 million, from zero in mid-2009 and preceding years (Figure 3). Improvements to the functioning of Kosovo’s Cadastre Agency decreased uncertainty about property and land use rights. Weak property rights were identified as one of the key constraints to Doing Business in Kosovo. Uncertainty about land use rights particularly affected foreign investors who suffered informational disadvantages as compared to domestic investors. This was a direct consequence of war, when many land tenure documents were destroyed or removed to Serbia. As a result, only a 23 fraction of the land was registered in the Immovable Property Rights Registry (IPRR), often making the determination of ownership of a given property difficult. SEDPO-1 endorsed a strategy and business plan for Kosovo’s Cadastre Agency, which included advancements in the IPRR to improve the cadastre legal and institutional framework and provide better services for its clients. By launching the use of specialized IT solutions, Kosovo’s Cadastre Agency increased its effectiveness and streamlined the process of property registration, including registering apartments, which were not covered by official registration. This led to increases in the number of registered transactions from around 55,000 in 2009 to more than 74,000 in August 2012 (see Figure 4) and accelerated development of the property market in Kosovo. It also positively affected access to financing, as registered property could be used as collateral for obtaining credit. The value of mortgages registered in the new system increased from €540 million in 2010 to around €870 million in 2011. Further advances in this area are supported by the World Bank through the Real Estate Cadastre and Registration Project. Figure 3. Development of Leasing Portfolio, 2010– Figure 4. Transactions Registered in the IPRR, 2012, € millions 2009–Aug 2012, thousands 25 80 70 20 60 15 50 40 10 30 5 20 10 0 1Q 10 2Q 10 3Q 10 4Q 10 1Q 11 2Q 11 3Q 11 4Q 11 1Q 12 2Q 12 Jul 0 2012 2009 2010 2011 by Aug 2012 Source: World Bank staff calculations based on Raiffeisen Leasing Source: World Bank staff calculations based on BETA Monitoring and Factor Leasing data Reports and Real Estate Cadastre and Registration Project Progress Report 2 Amid the worries about insufficient financial sector supervision in the Euro Area countries in the run-up to the sovereign debt crisis, Kosovo’s Government made strides in safeguarding financial sector stability. 6 Although Kosovo’s financial sector has remained well-capitalized, liquid, and profitable throughout the escalation of the financial crisis, the legal framework for supervision and regulation had to be upgraded to further bolster the stability of the banking sector, which is the cornerstone of the overall macroeconomic stability. Several legal initiatives—Credit Reporting Regulation, Banking and Microfinance Law, both supported by SEDPO-2 and the Deposit Insurance Law—have strengthened stability and governance standards of financial institutions and enhanced the resilience of the financial sector. In particular, the Banking and Microfinance Law of April 2012 strengthened provisions for corporate governance within banks, introduced banks’ exposure limits to large borrowers and provided a comprehensive framework for efficient resolution of troubled financial institutions. The Deposit Insurance Law of June 2012 further streamlined procedures to deal with troubled banks, including permitting the use of resources from the deposit insurance fund for purchase and assumption transactions. Finally, the February 2012 Credit Reporting Regulation improved borrowers’ rights and access to individual credit history. 6 A stronger legal framework for financial regulation and supervision and equipping the central bank with the necessary funds for emergency liquidity assistance are among the key objectives of the I MF’s April 2012 SBA for Kosovo. 24 Within the SEDPP timeline, Kosovo’s overall business climate has improved, as indicated by the Doing Business rankings. In Doing Business (DB) 2012 Kosovo ranked 126 out of 183 countries. Since then its overall rank rose 28 places and according to the DB13 Kosovo was ranked 98. Kosovo made double-digit jumps in the categories of Protecting Investors, Starting a Business and Dealing with Construction Permits. In particular, the Doing Business Report recognized Kosovo’s progress in Starting a Business, where its position improved by 44 ranks due to eliminating the minimum capital requirement and business registration fee and streamlining the business registration processes. While there were basically no major negative shifts in the indicators, little or no improvement was made in Registering Property, Enforcing Contracts and Resolving Insolvency. 25 Pillar III: Labor Market Rating: Satisfactory In the Labor Market pillar, SEDPP actions were aimed at creating a legal and administrative framework conducive to effective functioning of labor market institutions as well as short-term measures aimed at creating employment opportunities. The Program performance was satisfactory in terms of achieving its outcomes and objectives. This reflects satisfactory performance in implementing Employment Strategy and satisfactory performance of the Public Works Program. BOX 3 – PILLAR III: LABOR MARKET Indicator Baseline value Target Actual Comments Met. At least 75 percent of 75 percent of No 92 percent of The actual number of planned measures in the measures from the Employment measures from the measures from the Employment Strategy's Employment Strategy Strategy in Employment Strategy Employment Strategy Action Plan for 2011 are are completed by 2009. are completed.7 completed far completed. 2012. exceeded the number targeted. Met. Less than 10 Data on beneficiaries At least 33 percent of public percent of 2011: 34.1 percent disaggregated by At least 33 percent of works participants are public works gender is available. public works Category II Social participants are 2012: 46.3 percent of In 2011: 1130 men participants are Assistance benefit recipients Category II public works (97 percent) and 34 Category II Social in 2011 and in 2012, up from Social participants were (3 percent) women; Assistance benefit less than 10 percent in 2010, Assistance Category II Social in 2012: 3119 men recipients in 2011 and with data on beneficiaries benefit Assistance benefit (98.4 percent) and 50 2012. disaggregated by gender.8 recipients in recipients (1.6 percent) women 2010. were recruited to the public works program. . Significant progress was made in terms of an improved policy framework. The Government set up an inter-ministerial committee on sustainable employment to develop an Employment Strategy and coordinate cross-sectoral reform efforts related to employment policies.9 The committee, supported by a technical working group, elaborated the Employment Strategy and the Monitoring Action Plan (supported by SEDPO-1), which became a central framework document guiding reforms in the employment sector. The strategy outlined the key labor market constraints to be addressed by 2012, particularly in the area of (i) investment climate, (ii) education, skills and training system, and (iii) labor market institutions, regulations and policies. Judging from the Government’s progress reports and close supervision performed on a continuous basis by World Bank staff, implementation of the strategic measures is largely on track (for detailed actions see Table 6). First, in the area of investment climate, the Government made significant progress on reforming the legal and regulatory framework for 7 The ICR team identified substantial progress on 23 out of 25 measures from the Employment Strategy, which represents 92 percent. 8 Social assistance is provided to vulnerable groups under two categories: Category I households are those households with no adult family members who are capable of working, and Category II households are those with at least one member of the household capable of working who is registered as unemployed with the Public Employment Services (PES), and with at least one child under the age of 5 or an orphan under the age of 15. 9 The Committee included the Deputy Prime Minister, the Minister of Finance, the Minister of Education, Science and Technology, the Minister of Labor and Social Welfare and the Minister of Trade and Industry. 26 businesses, supporting business infrastructure investment and access to finance. The Government made efforts to improve business infrastructure for the Business Park in Drenas and launched procedures for setting up a business incubator in the Gjakova municipality. Progress has been slower in the area of market information and skill base for small businesses (see also Section 3.2, Investment Climate). Second, in the area of education, skills and training, the Government has successfully implemented important measures aimed at increasing the quality of higher and vocational education and making the transition from school to the labor market easier. In particular, it established two Centers of Competence (CoC) to train students in the areas of construction and public administration. Currently, each of those CoCs has about 200 students. Two new CoCs focusing on nursery and trade are currently under construction (see Section 3.2, Education, Skills and Training). Third, significant measures were implemented in the area of labor market institutions, regulations and policies. Steps were taken to strengthen the legal framework (approval of the new Labor Code), create jobs through a targeted Public Works Program (PWP) and improve the functioning of the Public Employment Services (PES). In particular, the creation of the Registry of Unemployed represents an important step toward better labor market information and more effective services in the Employment Offices. The transition from paper- based records of unemployed to a fully digitized database helped to distinguish active job seekers from passive ones (the initial results show that around 95,000 registered unemployed are actively looking for a job, from 336,000 paper-based records). In the next few months, the software upgrade of the database will allow linking of job-seekers from the Registry of Unemployed with the vacancies from the employers’ database. The adoption of the Labor Code strengthened the legal framework. The Law (supported by SEDPO-2) was approved in November 2010. It represents a significant achievement of a new government to protect workers from exploitation while maintaining labor market flexibility in terms of hiring and firing. The approved version of the Labor Law was largely successful in balancing worker protection considerations, which were aggressively demanded by trade unions, and ensuring that the environment is conducive to job creation. On maternity benefits, though, the Labor Code is more generous than ILO recommendations, which may lead to lower female employment rates. The implementation of the Labor Law will require close monitoring and continuous capacity-building efforts by the Ministry of Labor and Social Welfare and Labor Inspectorate beyond the timeframe of SEDPP. To create immediate employment opportunities and encourage a transition from welfare or unemployment to work, the Government launched the Public Works Program. As part of the Employment Strategy, the Government established a targeted program to provide labor-intensive work opportunities for the poor. The PWP was launched in the second half of 2011. The project attracted considerable attention from local municipalities. Out of 96 project applications, 44 were selected for financing from 29 Kosovo municipalities. During the project preparation and execution phase, one project was cancelled due to delays with the tendering processes. Since certain savings were generated (the actual contract amounts were lower than expected), six additional projects were appraised. By December 2011, the MLSW allocated close to €3 million for this program. It generated temporary employment opportunities for about 1,800 people (including 1,200 recruited through Employment Offices, 34 percent of them being social assistance active and passive beneficiaries). Building on the success of the 2011 program, the Government continued the PWP in 2012. A similar budget envelope to 2011 (€ 3.0 million) enabled providing employment for 3169 people – around 46 percent of them being social assistance category II beneficiaries. 27 Figure 5. PWP Participants in 2011 and 2012 long-term unemployed SA beneficiaries other Apr-Dec 2012 35.5 46.3 18.2 Apr-Dec 2011 29.1 33.7 37.1 0% 20% 40% 60% 80% 100% Source: World Bank staff calculations based MLSW 28 Table 6. Status of the Government’s Employment Strategy Implementation Implementation Progress Policy Areas and Measures Comments as of October 2012 Improve the investment climate to enable the entry and expansion of firms 1. Business Infrastructure Infrastructure work for the Business Park in Drenas is largely completed. More than 90% of the available space is already sold to different investors. In addition, the Government has launched the Development of business parks, industrial zones and Progress process of setting up a new business incubator in the Gjakova municipality. In addition, approval of the business incubators Law on Economic Zones in April 2009 strengthened incentives for investors to settle their businesses in the economic zones. 2. Access to finance and cost of financing Establishment (operationalization) of schemes to No progress Lack of funding. improve SME access to finance Kosovo Cadastre Agency (KCA) is strengthened—its Strategy was approved. The software and hardware Strengthening of the Kosovo Cadastre Agency (KCA) Progress of the KCA were upgraded and the number of transactions recorded in the system increased significantly. 3. Poor market information and poor skill base of small businesses There was significant progress until end-2010, when there was funding attached, but no progress in Provision of training and counseling services Progress 2011. 4. Legal and regulatory framework for businesses Establishment of Doing Business Task Force. Advances in the area of dealing with construction permits, creation of “single window” service for construction permits and approvals, adoption of the umbrella Completing and improving the legal framework – concept on the permit system, establishment of the Expert Group on permit system reform and removal of business barriers (both at the local and Progress elimination of licenses, establishment of the Expert Group on reforms in inspection and risk central level) management, approval of 11 laws aimed at eliminating Doing Business barriers, signing treaties for Investment Protection and Promotion with Austria and Belgium-Luxembourg Union. 5. Strengthening institutional capacities Operationalization and development of institutional Progress 25 one-stop shops were established. mechanisms (one-stop shops) at the local level The Law on Export Promotion was approved. The business deregulation reforms led to significant decrease in the number of export and imports documents—for exports from 7 documents to 2 Develop and implement investment and export currently, for imports from 8 to 3. In addition, the Investment Promotion Agency (IPAK) moved to a Progress promotion measures new building to offer better services for foreign investors. IPAK has produced brochures and other promotional materials distributed to Kosovo embassies abroad, organized several B2B meetings and supported international fairs. Kosovo Agency for Standardization and Accreditation is in the process of adopting European and Completion of the quality infrastructure Progress international standards (EN, ISO/IEC) as well as certifying and training staff. Currently, the Agency has adopted more than 4,000 ISO based standards. 29 Implementation progress as Policy Areas and Measures Comments of October 2012 Education, skills and training 1. Vocational education and training (public) Two CoCs have been constructed and are training students in construction and Implementation of the MEST project for the economics/administration. Currently, they have around 200 students each. Two new CoCs are currently establishment of Centers of Competence (CoC) Progress under construction. They will be primarily focusing on the area of nursery/health and trade. In addition, and transformation of Vocational Education and three existing vocational schools (agriculture, food processing and technical) are being transformed Training schools into CoCs into CoCs. Equip schools with appropriate facilities Progress Apart from equipping CoCs with facilities, progress is limited to agriculture schools. Decentralization of authority from municipalities Legal framework for decentralization is established (The Law on Pre-University Education), Progress to VET schools implementation is on track. The Ministry of Education is reaching out to the private sector to facilitate transition between school and work through supporting internship programs. In addition, it launched a collaborative effort with Strengthening the link between school and work Progress the Chamber of Commerce to better identify the skills sought by employers. So far, progress with skill identification is limited to two areas: agriculture and construction. 2. Vocational Education and Training System Expand adult education and training opportunities Progress Adult training is provided by two certified institutions. Define and implement a national qualification framework in accordance with ISCED and the Progress National Qualification Framework was established and implementation initiated. European Qualification Framework Accreditation and licensing of VET training and Progress Accreditation of VET training institutions has been initiated; so far, 9 institutions were accredited. educational programs 3. Higher education Ongoing quality assessment and accreditation of Accreditation of higher education institutions is completed; their internal quality assessments are Progress higher education institutions strengthened. The ongoing EC project—Competence@University of Prishtina—aims at developing and advancing Development of curricula based on labor market Progress procedures and tools to assess the match between competences gained at the university and those needs required by the labor market. This area is supported by the project Higher KOS—Promoting Institutional Development in Higher Education and Research in Kosovo. The project focuses on (1) enhancing quality assurance mechanisms Increase the science and research capacities of Progress at public HE institutions; (2) improving the system of research promotion by developing capacities and higher education establishing a national research fund; and (3) developing quality management and governance of main stakeholders (MEST, universities). 30 Implementation progress as of Policy Areas and Measures Comments October 2012 Labor institutions, policies and regulations 1. Public Employment Services (PES) Following functional review, which identified weaknesses of the PES, the organizational structure was Reform and modernization of Public improved, PES hardware and software were upgraded, computer registry of the unemployed was Progress Employment Services created, employment counseling was streamlined—instead of three types of officers there is now only one who deals with all services (job search and counseling, training and employment). Establishment of a reliable national labor Progress LMIS is being developed, software is being tested, progress in on track. market information system 2. Labor Migration Supporting labor migration No progress No progress has been made. 3. Active Labor Market Programs (ALMP) Good progress on design and implementation of the Public Works Program; the MLSW has improved Expansion of Active Labor Market Programs Progress the primary and secondary legislative framework for implementation of the various active labor market (ALMP) programs. 4. Employment Protection Review of the Essential Labor Law Progress New Labor Law was approved. Following the approval of the Labor Law, the labor inspectorate was strengthened. The number of Further review of capacities of the labor labor inspectors increased from 50 to 55. In addition, there were improvements in the inspection inspectorate in order to ensure the Progress processes through enhanced collaboration with the Ministry of Finance (in the area of customs) and implementation of employment protection the Ministry of Internal Affairs. Further review of the labor inspectorate will be done with assistance legislation from the EU (EU Support to MLSW Project). 5. Moving Individuals from Social Assistance to Work Establishment of a functional system for the Integrated information system of the social work centers and employment offices was established. integration of the social assistance Progress Social assistance beneficiaries were targeted for the Public Works Program. beneficiaries into the labor market 31 Pillar IV: Education, Skills and Training Rating: Satisfactory With respect to the Education, Skills and Training pillar, SEDPP’s overall performance has been satisfactory. While the most important cause of unemployment in Kosovo is low labor demand, the lack of relevant skills limits the ability of many people to obtain employment and to perform the tasks required by employers. The specific policy actions supported by SEDPP were geared toward creating a framework to ensure the high quality of education services. BOX 4 – PILLAR IV: EDUCATION, SKILLS AND TRAINING Indicator Baseline value Target Actual Comments Met. 11 vocational Almost twice as NQA initiates accreditation of 0 vocational training At least 6 vocational training many vocational at least 6 vocational training institutions training institutions institutions are training institutions in 2012. accredited in 2009. are accredited. accredited as of institutions have October 2012. been accredited than targeted. 100 percent of All accredited public and 100 percent of 0 percent public and accredited public private higher education accredited public and private higher and private higher institutions have established private higher education institutions education internal quality assurance education institutions Met. have internal quality institutions have mechanisms as per the have internal quality assurance internal quality guidelines developed by the assurance mechanisms. assurance KAA. mechanisms. mechanisms. Under SEDPP, the Government has made significant progress in increasing and controlling the quality of education services. Building on the actions included in the Government’s Employment Strategy and Kosovo’s Education Strategic Plan (KESP), SEDPP supported the accreditation process of all of Kosovo’s higher education institutions (SEDPO-1, SEDPO-2) and contributed to the development of the quality assurance mechanisms for vocational training institutions (SEDPO-2). In the area of higher education, the Kosovo Accreditation Agency (KAA) successfully conducted the accreditation process of 13 providers of higher education and launched regular monitoring of the accredited units. In addition, all accredited institutions established internal quality assurance mechanisms in line with guidance received from KAA. Building on the success of the accreditation process of higher education institutions, SEDPO-2 put emphasis on strengthening the quality of vocational training institutions and supporting the school-to-work transition. The main idea was to create a framework for integrating qualifications provided for both young people and adults by different institutions within and outside formal education. As part of the process, the Government developed a National Qualifications Framework consistent with the European Qualifications Framework (EQF) and jointly with the National Qualifications Authority (NQA) set occupational standards and accreditation criteria for vocational training units. The accreditation process was rolled out and, by the end of May 2012, training providers were identified in the areas of agriculture, construction and business administration. Of 14 training providers, 11 were accredited (one private and 10 public), one provider was denied accreditation and the remaining two were asked to implement NQA recommendations and will be granted accreditation next year. The process is expected to lead to greater training opportunities for those whose skills do not match the current needs of the labor market and transparency of qualifications. In addition to providing signaling 32 to employers on qualifications of potential hires, the alignment with the EQF is expected to increase labor mobility in the long run. SEDPP’s focus on quality of education services was supplemented by a broad spectrum of education actions supported by the ongoing Institutional Development for Education Project . This World Bank–financed TA project is aimed at strengthening the organization and financing of the education system in Kosovo, building institutions and management capacities to promote quality improvements, creating conditions to introduce efficient design and reduce multiple shifts in Kosovo’s schools and strengthening management capacity at the institutional level for higher education. Pillar V: Social Protection Rating: Satisfactory In the Social Protection pillar, SEDPP supported the Government in increasing pensions and social assistance benefit levels to provide a better safety net for the poor, especially in the context of the global financial crisis. The Program outcome was achieved and allows for assessing this pillar as satisfactory. BOX 5 – PILLAR V: SOCIAL PROTECTION Indicator Baseline value Target Actual Comments €40 basic pension in €45 basic pension Basic pension is €45 in Met.10 Monthly pension and family 2008; in 2012; 2012; benefits have increased by at €61 average €66 average average monthly social least €5 per month compared monthly social monthly social assistance benefit is €66 to the level in 2008. assistance benefit. assistance benefit. in 2012. Low levels of pensions and social assistance benefits, as well as lack of adjustment mechanisms, have gradually eroded the adequacy of those basic benefits. Prior to the 2009 increase, family benefits in Kosovo were kept at a constant level for six years, i.e. since 2003, and the level of pensions had not been adjusted since 2005. While the inflation rate was moderate in recent years, the sharp increase in the food prices eroded real incomes, in particular those of pensioners and social assistance beneficiary families, as food constitutes a large share of their expenditures. In addition, the crisis-related slowdown in economic growth put more families in need of social assistance support. The generally low level of benefits (€35 per month for a single-person household with a maximum of €75 for a household with 7 or more members, and €40 per pensioner) and lack of adjustment mechanisms widened the gap for many beneficiaries between the poverty line and their consumption. In spite of the tight fiscal envelope, the Government decided to strengthen the social protection system by increasing the benefit levels. A €5 increase in the amount of family benefits helped to increase the average benefit from €61 in 2008 to €66 in 2012. At the same time, pension benefits increased from €40 in 2008 to €45. The Government’s decision to increase the benefit levels (measure supported by SEDPO-1) provided an additional safety net and helped to mitigate the adverse impact of the crisis-related slowdown. As a result of this decision, around 35,000 families, who were family 10 As noted in the ICR, the Key Indicator for the Social Protection pillar in SEDPO-2 PAD was incorrectly worded (Monthly pension and benefits for children in social assistance beneficiary families have increased by at least EUR 5 and EUR 5 per child per month, respectively, compared to the level in 2009 ). The mistake referred to (i) family benefits which are paid on “per family basis” rather than “per child”, and (ii) wrong reference year—2009 instead of 2008. The SEDPP team clarified that this was purely an editorial mistake. 33 benefit recipients, have benefited from increased transfers. The increase in pension benefits resulted in higher benefits for around 107,000 old-age pensioners and close to 20,000 disability pensioners. SEDPO-2 supported the Government’s efforts aimed at digitizing social assistance registries. The Ministry of Labor and Social Welfare put in place a new information system with data on social assistance beneficiaries. The database was linked with corresponding databases of tax and employment offices, which will help to better monitor the social assistance recipients. This digitized registry is a key reform in a country with limited data availability because it allows information on able-bodied social assistance recipients to be compared with the database of employment offices to support the welfare-to- work transition. In addition, the new data exchanges with tax offices will help to diminish the leakage of SA benefits to non-eligible people. The system has already identified around 1,400 families whose members were social assistance recipients, despite having a regular job with income. 34 3.3 Justification of Overall Outcome Rating Rating: Moderately Satisfactory SEDPO-1: Moderately Satisfactory SEDPO-2: Moderately Satisfactory According to the ICR team, the rating of the achievement of development outcomes of SEDPP is moderately satisfactory, albeit with considerable variation across subcomponents. The overall assessment is on balance positive, both because the program was significant and largely implemented as planned and because none of the measures supported by SEDPP have been reversed. By the end of the program, while the outstanding reform agenda remains significant, the institutional and policy foundations for future reforms are stronger in each of the pillars. The “moderate” label is therefore attached because the program’s achievements have at times been accompanied by macroeconomic concerns and implementation delays in two particularly challenging areas of civil service and procurement. 3.4 Overarching Themes, Other Outcomes and Impacts (a) Poverty Impacts, Gender Aspects and Social Development SEDPP was clearly intended to benefit the poor directly by creating employment opportunities for those currently out of work. In addition, the Program indirectly supported poverty alleviation through the implementation of the medium-term structural reforms to improve the business environment, strengthen the quality of vocational education and improve labor market institutions. The Program Documents for SEDPO-1 and SEDPO-2 rightly anticipated that the horizon of SEDPP is too short to have a quantifiable impact on poverty, gender and social development by the time of the ICR. While the gains are difficult to measure, the nature of the interventions supported by SEDPP anticipated small but positive impacts, particularly through the direct impact of changes to the social assistance system and the launching of a Public Works Program.  Reforms to the social protection system: SEDPP directly supported increases in the level of pensions and social assistance benefits. In the case of social assistance, the 2009 increase was the first one since 2003. The average benefit level increased from around €61 in 2008 to close to €66 in 2012. Around 35,000 families, comprising 150,000 individuals, have benefited from increased transfers. The PSIA projected that this would reduce poverty by 0.1 percentage points. The increase in pension benefits (by €5 per beneficiary) was estimated to have reduced poverty by 0.5 percentage points. Around 107,000 old-age pensioners and close to 20,000 disability pensioners benefited from the increase.  Public Works Program: A positive poverty impact occurred from increased labor activation for able-bodied Category II Social Assistance recipients. Increased activation through stricter work requirements, supported by expanded public works, provided immediate employment benefits for 625 poor individuals in 2011 and close to 400 by October 2012, at a pay rate higher than Category II Social Assistance benefits. Employment through public works also allowed these existing Category II Social Assistance recipients to expand their work experience and improve future employment prospects, while still allowing them to return to social assistance if unable to find longer-term employment. Reforms aimed at improving the business environment, strengthening links between education and the labor market and establishing labor market institutions have indirectly supported poverty alleviation and their impact is likely to materialize over the medium term. 35  Reforms to improve the business climate—such as the creation of one-stop shops for business registration, easing requirements for business start-ups and harmonizing business numbers across the Ministry of Trade and Industry (MTI), customs and tax administration—are expected to increase domestic and foreign business investment, which will in turn increase employment opportunities and raise incomes. Actions that emphasize easing business registration outside of Pristina should enhance their poverty-reducing impact. Given that female-owned firms have a more negative perception about the business climate in Kosovo (BEEPS, 2009), this reform should have a particularly positive impact on firms run by women entrepreneurs.  Reforms to vocational education training are likely to improve training opportunities and employment outcomes as workers build skills to meet labor force demands.  Reforms to labor market institutions, in particular the approval of the new Labor Code, provide reasonable protection for workers (e.g., prohibiting discrimination based on gender and disability, forced or compulsory labor, child labor, etc.) and at the same time do not increase the employers’ hiring and firing costs. (b) Institutional Change/Strengthening (particularly with reference to impacts on longer-term capacity and institutional development) The World Bank’s assistance to Kosovo under SEDPP supported numerous reforms aimed at institutional strengthening across SEDPP pillars. In fact, laying institutional and legislative foundations for sustainable employment and growth was a central element of the PDO with a strong emphasis on implementation. SEDPP was an effective vehicle to support inter-government coordination—a goal that is sought under many projects, but not very often achieved. The cross-sectoral nature of the Sustainable Employment operation provided the incentive for government agencies to coordinate efforts aimed at meeting the identified triggers. A number of inter-ministerial working groups were formed to coordinate reform momentum, e.g., the Sustainable Employment Committee, the Doing Business Task Force and the PFM Working Group. Building on the success of enhanced inter-ministerial collaboration achieved through SEDPP, the Council for Economic Development at the Prime Minister’s Office was formed as an advisory body responsible for economic issues. The development policy operations allowed the Government to establish its own priorities and supported Kosovo’s growing independence from the donor community. The Government’s ability to articulate its priorities, communicating them to both donors and civil society, and in turn gaining their support, were important steps in institution-building in this new and fragile state. Technical Assistance activities under the umbrella of SEDPP have had a more direct impact on institutional development than the budget support. The World Bank and other donors supported the authorities with technical assistance activities, which were designed to help implement legislative changes embedded in SEDPP (Table 7). 36 Table 7: TA Work in SEDPP Areas SEDPP Pillar Complementary TA work WB: Public Sector Modernization Project Macroeconomic Stability and Public EC: Improving the quality of public investment and preparing the grounds for EU funds Financial EC: Support for further improvement of IA and Public Governance project Management USAID: Economic Management for Stability and Growth Project WB: Business Environment Technical Assistance WB: Real Estate and Cadastre Project WB: Financial Sector Technical Assistance Denmark: Support on access to finance EC: Support on access to finance Investment Climate EC: Support on business regulation Norway: Support for land titling and property rights SIDA: Support for land titling and property rights Switzerland: Support on land titling and property rights USAID: Support on access to finance WB: Technical Assistance - Labor Code Revisions WB: Technical assistance for feasibility study to improve the impact of ALMP Labor Market EC: Support for capacity building in Ministry of Labor and Social Welfare and PES EC: Support for review and revision of employment and social benefit systems WB: Technical Assistance - Education Project Denmark: Support for Employment Promotion Program in agriculture and food processing Denmark: support for the program "Improving Employability of Youth" EC: Support for National Qualifications Framework Education, Skills and Finland: Support for institutional development for inclusive education Training Norway: Support for vocational education Sweden: Support for the development of Kosovo Education Strategic Plan and capacity building Switzerland: Support for Employment Promotion Program in agriculture Switzerland: Support for vocational education WB: Assessment of the fiscal and distributional impact of SA reforms Social Protection EC: Support for IT system for social benefits (c) Other Unintended Outcomes and Impacts (positive or negative) There were no known unintended consequences. 3.5 Summary of Findings of Beneficiary Survey and/or Stakeholder Workshops (optional for Core ICR, required for ILI, details in annexes) There were no beneficiary surveys or stakeholder workshops. 37 4. Assessment of Risk to Development Outcome Ratings: Substantial SEDPO-1: Substantial SEDPO-2: Substantial According to the ICR team assessment, the risk of either policy reversals or not maintaining the outcomes in the areas supported by SEDPP is substantial (although these risks have not materialized yet). The risks identified for SEDPO-1 primarily concerned macroeconomic and political stability as well as risks related to limited capacity in program implementation. This assessment turned out to be correct, as the risks largely materialized. The July 2010 IMF Stand-by Agreement was not enough of a counterweight to offset the political volatility induced by unexpected new elections, which undermined macro policy expectations and thus caused a protracted delay in implementing SEDPP. In addition, Kosovo’s limited capacity in program implementation could not be mitigated for larger, more complex program activities, such as the Civil Service reform. However, the flexibility of the Program approach permitted more institutional gains to be achieved, given the slower, more deliberate pace of reforms. A public information campaign was instrumental in explaining why some actions were taken and others postponed, especially in mitigating political demands for more benefits to be financed by labor taxes, which made it difficult for the Government to balance the need to maintain an environment conducive to employment generation against the need to satisfy political demands. Similar to SEDPO-1, the risks identified for SEDPO-2 centered around macroeconomic conditions. Kosovo’s uneven track record in fiscal management raised questions about medium-term macroeconomic stability, together with a contagion risk from the European growth slowdown. At that time those macroeconomic risks were mitigated by an April 2012 IMF SBA, which strengthened Kosovo’s fiscal sustainability and financial sector stability safeguards. Weak labor market institutions and MLSW capacity constraints were mitigated by cleaning and updating the unemployment registries, and by technical assistance for design and delivery of labor market programs that addressed the needs and constraints of active job-seekers. Another identified risk was that of governance and political structures being destabilized if faced with significant shocks. Consequently, actions to improve public financial management, specifically those supported by SEDPO-2 and the ongoing Public Sector Modernization Project, did improve transparency in information systems and helped attenuate some of the risks. As expected, some reforms to improve governance and transparency encountered capacity constraints and political resistance. For example, implementation of consolidated procurement was delayed by the Government despite enacting the Public Procurement Law, adopting secondary legislation to implement the law and adopting the Rules of Procedure for the Central Procurement Agency. While capacity at the Central Procurement Authority remains weak, the pace at which the Government has gone about addressing the capacity constraint is notably slow. Going forward, despite the moderately satisfactory performance of SEDPP, the risks to development outcomes must be regarded as significant. The biggest risk concerns the macroeconomic framework as fiscal discipline may be especially difficult to maintain in the run-up to parliamentary and presidential elections expected for the second half of 2013. The SBA with the IMF is expected to mitigate this macroeconomic risk. Other risks are expected to be mitigated by the SEDPP follow-up programmatic technical assistance. 38 5. Assessment of Bank and Borrower Performance 5.1 Bank Performance (a) Bank Performance in Ensuring Quality at Entry Rating: Satisfactory SEDPO-1: Satisfactory SEDPO-2: Satisfactory Overall, while the ICR team notes that there were certain shortcomings in SEDPP design, the quality at entry is rated as satisfactory based on SEDPP’s strong alignment with the Government program, the World Bank’s strong donor coordination and SEDPP’s grounding in sound analytical work and other forms of policy dialogue and technical support. The World Bank worked closely with the Government to identify reforms to be supported by SEDPP. Close alignment of the operation with the Government’s own reform agenda helped to ensure Government ownership and buy-in. The Program Development Objectives were well identified and remain valid. However, given Kosovo’s low institutional capacity and lack of experience in dealing with complex cross-sectoral issues, the Program would have benefited from more selectivity. The extensive array of pillars and measures, some of which were requested by donors to help strengthen institutions for future engagement on sustainable employment tasks, were sometimes difficult to manage both for the counterparts and the World Bank. In particular, efforts to address Kosovo’s perception on governance indicators led to a broad set of PFM reforms, including those related to civil service reform and procurement, which made it harder to provide support throughout the implementation process. Flexibility in the programmatic development policy operation instruments was crucial. As described earlier, SEDPP was designed as a programmatic series of three operations to be delivered annually starting in 2009. However, macroeconomic slippages and political factors (unplanned parliamentary elections) led to delays in declaring SEDPO-1 effective, delaying disbursement until the end of 2011. Because the structural reform agenda remained broadly on track, and because of the flexibility afforded by the programmatic development policy operation instruments, it was decided to merge the remaining two operations into one final operation. SEDPP was prepared in close collaboration with SEDPP donors. It was a joint effort of the World Bank and 10 bilateral and multilateral donors initiated at the Donors’ Conference in July 2008 in Brussels, where it was agreed to support Kosovo’s reforms through a budget support operation. Close partnership was ensured through the regular follow-up meetings during SEDPP preparation. This provided a harmonized approach and significantly reduced the Government’s transaction costs. In addition, quality at entry was ensured through a high level of consistency between the operation and areas of World Bank engagement, also underlined in the Interim Strategy Notes and later in the CPS. The program focused on areas of strategic relevance where the World Bank had an established track record of strong technical capacity and experience. Quality at entry benefited from strong diagnostic and analytical foundations, including extensive technical assistance, economic and sector work and other forms of policy dialogue. 39 (b) Quality of Supervision Rating: Satisfactory SEDPO-1: Satisfactory SEDPO-2: Satisfactory All prior actions were completed before the operations went to the Board, and the supervision of SEDPO-1 was embedded in the preparation of SEDPO-2. Supervision for SEDPO-2 was bundled with the preparation of this ICR. As a result, continuous dialogue with the Government and follow-up on triggers was possible for each operation. During implementation of the two operations, the World Bank prepared four Implementation Status Reports (ISRs). These reports were very informative—they focused on the monitoring and supervision of the reform progress on the ground and, in the case of SEDPO-1, policy actions for the subsequent operation. The aide-memoires from SEDPP identification, appraisal and supervision missions served as effective tools for outlining and monitoring next steps for the Government. The work was well-coordinated within the World Bank’s cross-sectoral team. The team members included World Bank staff working across sectors and offices. The collaboration was smooth and efficient. Over the course of SEDPP, a smooth transition to a new task team leader took place. The operation remained under the supervision of the Human Development group at the World Bank and the core SEDPP team remained in place. This transition did not affect the program’s performance. With many team members in the field, monitoring of progress toward key indicators was done on a relatively continuous basis. The process was supported by strong cooperation with line ministries (see section 5.2 b). Budgetary, legislative and economic data were provided by authorities and (when possible) verified in official disclosures. In addition, the dialogue with the Government was supported by ongoing technical assistance activities directly or indirectly supported by SEDPP (in particular through Business Environment Technical Assistance, Public Sector Modernization Project and Education Project). Close collaboration with the IMF and regular meetings with other donors supported the supervision process. (c) Justification of Rating for Overall Bank Performance Rating: Satisfactory SEDPO-1: Satisfactory SEDPO-2: Satisfactory SEDPP was a well-designed and implemented operation, as described above. The World Bank performance on both quality at entry and supervision were rated satisfactory. Correspondingly, overall Bank performance is rated satisfactory. 5.2 Borrower Performance (a) Government Performance Rating: Satisfactory SEDPO-1: Moderately Satisfactory SEDPO-2: Satisfactory 40 The Government was committed to the reforms supported by SEDPP. It took ownership of the reform agenda and mobilized donors’ support for its program. Two strategic Government documents— the Employment Strategy and the PFM Reform Action Plan—clearly set out the Government’s reform plans and road map for their implementation. In addition, stakeholders and civil society were consulted extensively in the formulation of the strategic documents. As such, they became the main reference points for supporting Kosovo’s development. Kosovo’s prolonged political transition process and temporary macroeconomic instabilities delayed SEDPO-1. As discussed in section 2.2, following the declaration of independence in 2008, the Government introduced spending initiatives that put the macroeconomic framework at risk. A Stand-By Arrangement was negotiated with the IMF in 2010 and SEDPO-1 was submitted to the World Bank Board in September 2010. However, before the legal agreements could be signed, the governing coalition lost its majority and early elections were called. New spending initiatives in the pre-electoral period were not in compliance with the commitments the Government had made under the SBA. The Government and the IMF agreed on a six-month Staff Monitored Program in July 2011, which was successfully implemented during the second half of 2011. Upon successful implementation of the SMP, which included agreement on the 2012 budget, SEDPO-1 was disbursed in December 2011. Despite those delays, the Government pursued the structural reform agenda and the key reforms supported by SEDPP were implemented as foreseen. During the SEDPP process, the Government formed an Inter-Ministerial Committee for Sustainable Employment to supervise the implementation of the reform program. The main counterparts at the Ministry of Trade and Industry and the Ministry of Finance facilitated communication with the other parties involved (Ministry of Education, Ministry of Labor and Social Welfare, Ministry of Public Administration, Centralized Procurement Agency) and provided the necessary leadership to pursue the reforms. Overall, the inter-ministerial coordination process was smooth across all agencies. At the end of SEDPP, the Government prepared a completion report and shared it with the World Bank (included as an attachment to this ICR). (b) Implementing Agency or Agencies Performance Rating: Satisfactory SEDPO-1: Satisfactory SEDPO-2: Satisfactory The performance of the coordinating ministries—the Ministry of Trade and Industry and the Ministry of Finance—is rated as satisfactory. Throughout SEDPP they provided the leadership required for: (i) meeting the agreed triggers/prior actions in a timely manner, (ii) monitoring effective implementation of the reform agenda and (iii) collecting data for evaluating results. Over the life-cycle of SEDPP, the World Bank and the implementing agencies worked closely together. The World Bank missions met on a regular basis with their counterparts. Typically, the World Bank team met with the Inter-Ministerial Committee for Sustainable Development at the beginning and end of each mission. The World Bank team also received regular progress reports from the Inter- Ministerial Committee on the implementation of the Employment Strategy. While these reports were prepared by a consultant financed by the donors to assist the Deputy Prime Minister through the entire SEDPP process, they were fully owned by the Government. The performance of other implementing agencies was also satisfactory. The bilateral meetings with the Ministry of Labor and Social Welfare, Ministry of Public Administration and the Ministry of 41 Education were held on a regular basis during SEDPP missions and accompanying technical assistance project meetings. Unlike in many cross-sectoral DPOs where line ministries see little advantage in being part of budget support operations, the Kosovar line ministries were interested in becoming part of the program, which they saw as a chance to support their reform initiatives. (c) Justification of Rating for Overall Borrower Performance Rating: Satisfactory SEDPO-1: Satisfactory SEDPO-2: Satisfactory Borrower performance is rated satisfactory. The rating reflects a satisfactory performance of both the Government and implementing agencies throughout the preparation and implementation of SEDPP. 6. Lessons Learned 1. Government ownership and commitment is necessary for the success of budget support operations. The SEDPP series was able to support specific, important, clearly defined prior reforms that were identified through substantial consultation with the development community, and the Government owned it completely, which explains its commitment to the Program. The Government’s ownership and commitment was shown by its ability to obtain parliamentary approval of the required legislation, despite short timeframes, especially for SEDPO-2, and its ability to maintain structural reform momentum even when the macroeconomic framework had gone off-track. 2. In countries with little or no experience with budget support operations, the underlying policy program should be selective and supervision and TA resources need to be dedicated to support implementation of the reforms, especially in the areas where capacity is low. While SEDPP concentrated on areas of strategic relevance for sustainable job creation in Kosovo, the extensive array of pillars and measures was sometimes difficult to manage both for the counterparts and the World Bank. SEDPP supported an ambitious and relevant program and rightly tried to follow-up through its implementation. Although very successful in meeting legislative prior actions, SEDPP did not achieve all of the more challenging implementation objectives, mainly because of the lack of capacity to implement some of the more complex program objectives. Particularly in the PFM area, the broad scope of reforms supported by SEDPP (components related to procurement and civil service reform) did not allow for sufficient support throughout the implementation process. 3. In post-conflict countries, where capacity is weak, development policy operations can be effective instruments when accompanied by a critical mass of technical assistance. SEDPP was able to support significant reforms that are expected to lay institutional and legislative foundations for sustainable employment and growth. It is important, however, to ensure that the commitment and willingness to reform is supported by the capacity to reform. This was the case in SEDPP, where there was substantial technical assistance provided by other World Bank operations and by other donors. Continued technical assistance will be essential to ensure further implementation of key SEDPP-supported measures such as civil service reform, and to develop the capacity for consolidated procurement. As in the case of SEDPP, the effectiveness of policy and institutional reform operations was enhanced by its complementarities with other World Bank–financed technical assistance operations and the efforts of other active donors in the reform areas, including USAID, the EU and the IMF. 42 4. Identifying good indicators to evaluate progress in a short-term DPO can be difficult, especially in countries with scarce data and limited capacity. The operation’s short timeframe made it difficult to find measurable and available indicators that could be clearly linked to the program-supported policy actions and used for the ICR. As a result, the progress on some of the ICR results, which refer to outcomes for 2012, was difficult to assess. 5. Coordinating a multi-donor trust fund is time-consuming and costly but can sustain a consolidated and impactful operation. SEDPP benefited from the financial participation of 10 different donors. Each of the contributing parties had its own unique processes and procedures that had to be closely followed. While this coordinated approach undoubtedly reduced transaction costs for the Kosovar authorities, it took considerable time and effort for the World Bank team to facilitate donors’ participation throughout all stages of SEDPP, from signing administrative agreements with the World Bank to reaching agreement on the contents of the policy matrix, regular reporting and finally obtaining their financial support for disbursement. The cost of donor participation (both in terms of staff time and budget) should be taken into account when planning a multi-donor budget support operation. While costly, donor coordination allowed for a consolidated and impactful approach. The counterfactual could have been a series of fragmented, smaller interventions. 43 7. Comments on Issues Raised by Borrower (a) Borrower/Implementing Agencies NA (b) Cofinanciers NA (c) Other partners and stakeholders (e.g. NGOs/private sector/civil society) NA 44 Annex 1. Bank Lending and Implementation Support/Supervision Processes (a) Task Team Members P112227 - First Sustainable Employment Development Policy Operation Responsibility/ Names Title Unit Specialty Lending Agim Demukaj Research Analyst ECSP2 Anita M. Schwarz Task Team Leader ECSHD Borko Handjiski Country Economist ECSP2 Caterina Ruggeri Laderchi Senior Economist ECSP3 Clelia Rontoyanni Special Assistant to the Vice President ECAVP Cora Shaw Consultant ECSS3 Cristobal Ridao-Cano Country Sector Coordinator ECSH4 Daniel Dulitzky Sector Manager ECSH1 Diomedes Berroa Senior Operations Officer LCSPT Flora Kelmendi Operations Officer ECSH2 Irina Astrakhan Sector Manager AFTFE Junghun Cho Senior Operations Officer MNC04 Kenneth Simler Senior Economist ECSP3 Kirsten Burghardt Propst Counsel LEGEM Lewis Hawke Sr Financial Management Specialist ECSO3 Nejme Kotere Team Assistant ECCKO Njeri Ida Muhoho Senior Financial Management Specialist ECSPS Ronald Hood Lead Economist ECSP2 Sachiko Kataoka Education Economist ECSHD Sachiko Miyata ET Consultant ECSPS Sreypov Tep Program Assistant ECSHD Valerie Oda Herzberg Country Economist ECSPE Vito Intini Consultant ECSPE William Dillinger Lead Public Sector Management ECSP4 Specialist Supervision P129327 - Second Sustainable Employment Development Policy Operation Responsibility/ Names Title Unit Specialty Lending Agim Demukaj Research Analyst ECSP2 Anita M. Schwarz Lead Economist ECSH3 Annie A. Milanzi Information Specialist ECSHD Arben Maho Procurement Specialist ECSO2 Blerta Qerimi E T Consultant ECSF1 Borko Handjiski Co-Task Team Leader ECSP2 45 Boryana Gotcheva Sr Social Protection Specialist ECSH3 Clelia Rontoyanni Special Assistant to the Vice President ECAVP Elvis Sulko Country Operations Officer ECCKO Flora Kelmendi Operations Officer ECSH2 Jose C. Janeiro Senior Finance Officer CTRLA Katelijn van den Berg Senior Environmental Economist ECSS3 Kenneth Simler Senior Economist ECSP3 Kirsten Burghardt Propst Senior Counsel OPSKL Levent Koro Consultant, Labor Economist ECSHD Lewis Hawke Sr Financial Management Specialist ECSO3 Mohamed Ihsan Ajwad Task Team Leader ECSHD Nejme Kotere Team Assistant ECCKO Norpulat Daniyarov Sr Financial Management Specialist ECSO3 Supervision (b) Staff Time and Cost 46 Annex 2. Beneficiary Survey Results There were no beneficiary survey and/or stakeholder workshops. 47 Annex 3. List of People Consulted during ICR Preparation Ministry of Trade and Industry Mr. Cuneyd Ustaibo, Deputy Minister Ms. Eljana Naka, Permanent Secretary Mr. Florent Bakija, Adviser Mr. Gazmend Mejzini, Executive Chief of Kosovo Business Registration Agency Ministry of Labor and Social Welfare Mr. Nenad Rasic, Minister of Labor and Social Welfare Mr. Bexhet Gagiqi, Adviser Mr. Hafiz Leka, Head of Employment Department Ms. Edita Krasniqi, Chief of Cabinet Mr. Shpetim Kalludra, Labor Information Department Mr. Muhamet Gjocaj, Director of the Social Welfare Department Mr. Mentor Morina, Social Welfare Department Public Works Program Working Group from the Ministry of Labor and Social Welfare Mr. Bexhet Gagiqi, Adviser Mr. Hafiz Leka, Head of Employment Division Ms. Besa Dodaj, Employment Division Ms. Antigona Spahiu, Employment Division Mr. Driton Dormaku, Finance Department Ms. Jehona N. Rexha, Vocational Training Division Mr. Halim Xhemalji, Employment Division Mr. Luan Kastrati, Procurement Department Ministry of Finance Mr. Bedri Hamza, Minister of Finance Mr. Menderes Ibra, Adviser 48 Central Procurement Agency Mr. Mursel Racaj, Executive Director of the Procurement Agency Mr. Behram Abazi, Director of the Department of Central Procurement and Special Projects Ministry of Public Administration Mr. Muhamet Latifi, Director of the Department of Civil Service Administration Ms. Valentina Hoxha, Consultant Ms. Hatmane Lufi, Chief of the Division of Human Resources Ministry of Education, Science and Technology Ms. Valbona Mjeku, Head of the Vocational Education Department IMF Mr. Jose Sulemane, Resident Representative Mr. Selim Thaci, Economist USAID Mr. William Lawrence, Senior Advisor Mr. Luan Gashi, Program Economist National Qualifications Authority Ms. Teuta Danuza, Acting Director 49 Annex 4. Summary of Borrower's Comments on Draft ICR Borrower had no comments to the World Bank’s ICR. Borrower’s ICR is provided as an attachment to this document. Annex 5. Comments of Cofinanciers and Other Partners/Stakeholders Cofinanciers/ Other Partners/ Stakeholders had no comments to the World Bank’s ICR. 50 Annex 6. List of Supporting Documents 1. World Bank, Program Documents: Report No. 52670-XK and Report No. 66565-XK. 2. World Bank, Kosovo: Interim Strategy Note for Republic of Kosovo for the period FY10–FY11, Report No. 49872-XK. 3. World Bank, Kosovo: Country Partnership Strategy for Republic of Kosovo for the period FY12–FY15, Report No. 66877-XK. 4. World Bank, Kosovo: Implementation Status & Results—First Sustainable Employment Development Policy Operation (P112227), Report No. ISR2379, Report No. ISR3221 and Report No. ISR5507. 5. World Bank, Kosovo: Implementation Status & Results—Second Sustainable Employment Development Policy Operation (P129327), Report No. ISR6958. 6. World Bank, Kosovo: Grant Reporting and Monitoring Report, TF012064. 7. International Monetary Fund, Republic of Kosovo: 2011 Article IV Consultation and the Initiation of a Staff-Monitored Program—Staff Report, August 2011. 8. International Monetary Fund, Republic of Kosovo: Staff Report for the First Assessment Under the Staff-Monitoring, December 2011. 9. International Monetary Fund, Republic of Kosovo: Request for Stand-By Arrangement - Staff Report, April 2012. 10. International Monetary Fund, Republic of Kosovo: First Review Under the Stand-By Arrangement, and Request for Modification of Performance Criteria—Staff Report; July 2012. 11. European Commission, Commission Staff Working Document, Kosovo under UNSCR 1244/99, 2009 Progress Report. 12. European Commission, Commission Staff Working Document, Kosovo under UNSCR 1244/99, 2010 Progress Report. 13. European Commission, Commission Staff Working Document, Kosovo under UNSCR 1244/99, 2011 Progress Report. 14. European Commission, Communication from the Commission to the European Parliament and the Council: Kosovo—Fulfilling its European Perspective, 2009. 15. Republic of Kosovo: Public Financial Management Reform Action Plan (PFM RAP), November 2009. 16. Republic of Kosovo: Employment Strategy 2010–12, November 2009. 17. Republic of Kosovo: Employment Strategy Progress Report for 2010 and 2011. 18. Republic of Kosovo: Public Works Program in Kosovo, Progress Report, April– December 2011. 19. Republic of Kosovo: Public Works Program in Kosovo, Progress Report, April– September 2012. 20. Republic of Kosovo: Real Estate Cadastre and Registration Project, Progress Report 2, January–August 2012. 51 Annex 7. Status of Indicative Triggers Specified in SEDPO-1 Indicative Triggers for planned second Status Indicative Triggers for planned third Status Comment operation operation Pillar I: MACROECONOMIC STABILITY AND PUBLIC FINANCIAL MANAGEMENT a) Budget Management Reforms Establishment of strategic planning unit in the Complete. Not a All major capital projects considered in the 2011 SEDPO-2 prior Implementation of budget Office of the Prime Minister to facilitate linking SEDPO-2 prior budget are included in PIP and MTEF. Capital action. management reforms has of strategic planning activities in line ministries action. budget plans for 2011 are consistent with progressed largely as to the MTEF. approved MTEF ceilings. originally expected. Requirement for incorporation and presentation Complete. Not a Pilot implementation of monitoring and Not complete. Not a of the recurrent costs of capital projects in the SEDPO-2 prior evaluation framework for selected programs, SEDPO-2 prior budget introduced by MEF budget circular. action. including tracking of performance targets. action. MEF submission of monitoring report on capital SEDPO-2 prior Budget expenditure monitoring by line ministries SEDPO-2 prior budget execution to the Government and action. and municipalities (as appropriate) incorporate action. Parliament. explicit budget distribution and expenditure monitoring for at least 100 service delivery units (including schools and primary health care facilities). System of forward estimates is established by Complete. Not a the MEF, incorporating three year estimates of SEDPO-2 prior receipts and expenditure for bodies funded from action. the Kosovo budget, which are updated annually. MEF has launched pilots of recommendations SEDPO-2 prior from Quick Gains Study reforms in at least two action. procurement categories. b) Civil Service Reforms The Ministry of Public Administration has Not complete. Not a The Ministry of Public Administration and the Not complete. Not a The Government is assigned newly defined grades for 20 percent of SEDPO-2 prior MEF have created a real-time link between the SEDPO-2 prior implementing civil the core civil service. action. payroll database and the Treasury system. action. service reforms, but weak technical capacity has led The Government has adopted regulation on Not complete. Not a to delays. annual personnel and payroll audits. SEDPO-2 prior action. PILLAR II: INVESTMENT CLIMATE The Recipient has established one-stop shop SEDPO-2 prior The Government has approved regulations aimed SEDPO-2 prior Implementation of provision of business services at the municipal action. at simplification and streamlining of business action. investment climate level in at least 8 municipalities. licensing and inspections. reforms has been strong 52 Indicative Triggers for planned second Status Indicative Triggers for planned third Status Comment operation operation The Ministry of Trade and Industry has taken Not complete. Not a and, in some respects, measures to modernize the pledge registry. SEDPO-2 prior exceeded original targets. action. Steps to modernize the pledge registry will be completed later in 2012. PILLAR III: LABOR MARKET The Inter-Ministerial Committee appropriates Complete. Not a The Inter-Ministerial Committee appropriates Complete. Not a All labor market actions funding for action plan in 2011 budget. SEDPO-2 prior funding for action plan in 2012 budget. SEDPO-2 prior have been completed action. action. except for an ALMP The Recipient has revised and enacted a new SEDPO-2 prior The Government has put in place a regular Not complete. Not a coordination mechanism; labor law and a law establishing the legal action. reporting mechanism for labor market indicators SEDPO-2 prior the latter has lagged framework for the design, implementation, and and ALMP programs and has taken some steps action. owing to human resource financing of labor market programs, while toward consolidation of small ALMP programs constraints. maintaining current low levels of labor taxes by establishing an annual coordination mechanism for ALMP. The Ministry of Labor and Social Welfare has SEDPO-2 prior designed and launched an expanded public action. works program to provide a safety net to the unemployed. PILLAR IV: EDUCATION, SKILLS AND TRAINING MEST/MLSW together have developed adult Not complete. Not a The Government decided training programs to be offered by vocational SEDPO-2 prior to include various schools or training centers. action. stakeholders in the development of adult training programs. This has led to a refocusing of SEDPO-2 reforms in Pillar IV into different areas (see new prior actions). PILLAR V: SOCIAL PROTECTION The Ministry of Labor has revised social Not complete. Not a Targeting performance is assistance eligibility to focus on general targeting SEDPO-2 prior quite good. Hence, the rather than on registration as unemployed. action. Government has focused on activating and The Ministry of Labor has developed, adopted SEDPO-2 prior monitoring social and implemented an IT system for monitoring action. assistance beneficiaries social assistance applications and beneficiaries. where progress has been strong. 53 Attachment 1. Borrower’s ICR The Government of Kosovo prepared the Borrower’s Completion Report and shared it with the World Bank on September 27, 2012. 54 55 56 57 58 59 60 61 62 MAP 63 IBRD 37048R KOSOVO KOMUNA/OPŠTINA CAPITALS* MAIN ROADS RRETH/OKRUG CAPITALS** RAILROADS NATIONAL CAPITAL KOMUNA/OPŠTINA BOUNDARIES RIVERS RRETH/OKRUG BOUNDARIES INTERNATIONAL BOUNDARIES * The first name is in Albanian and the second one is in Serbian. ** Names of the Rreth/Okrug are the same as their capitals. 20°00’ E 20°30’ E To 21°00’ E 21°30’ E Ibar Raška This map was produced by the Map Design Unit of The World Bank. The boundaries, colors, denominations and any other information 0 5 10 20 Kilometers shown on this map do not imply, on the part of The World Bank Group, any judgment on the legal status of any territory, or any endorsement or acceptance of such boundaries. 0 10 20 Miles IA S ER B I A Iba Leposaviq/ r Leposavic Leposavic ´ To Prokuplje SERBIA 43°00’ N To MITROVICA 43°00’ N Novi KOSOVASKA MITROVICA Lab Pazar Zveçan/ Zubin Potok/ Ibar Zvecan ˇ Podujevë/ Podujevë/ Zubin Potok Podujevo Mitrovicë/ Mitrovicë/ MONTENEGRO Mitrovica Kl Reka ina rska To Vushtrri/ Tula To H Berane o r Vucitrn ˇ Leskovac a j l o d g Istog/ P Sit a Istok PRISHTINË nic a Skenderaj/ Srbica PRIŠTINA Obiliq/ PEJA Obili ´ Obilic PRISHTIN PRISHTINË Pejë ´ Pec PEC´ Fushë Kosova/ Fushë PRIŠTINA Drenas/ Kosovo Polje Gr Klina ac Novobërdë/ Novobërdë/ Klinë/ Klinë/ Glogovac an ka Novo Brdo Klina Kamenicë/ Kamenicë/ Kamenica Beli Drim Sit GJILANI nic Deçan/ a Decani ˇ Miruša Lipjan/ Dr Daravica Lipljan GNJILANE Binacka eni 42°30’ N (2656 m) 42°30’ N ca Malishevë/ Malishevë/ Mališevo Gjilan/ G J A K O VA Shtime/ Gnjilane To Bujanovac ÐAKOVICA Rahoveci/ Orahovac Štimlje ac ka Gjakovë/ Gjakovë/ Bin Ferizaj/ Ðakovica Theranda/ Uroševac ga Toplu Suva Reka FE RIZAJI FERIZAJI Viti/ Beli PRIZRENI Vitina A L B ANI ALB AN IA A Drim URO ŠE VAC UROŠEVAC PRIZREN Shtërpcë/ Shtërpcë/ Kaçanik/ Štrpce Kacanik ˇ Prizren/ Prizren hë rd i Ba ini Bi To Dr st ric Tetovo a To Kukës Kukës a nin Dragash/ Dragaš la P KOSOVO To Šar 42°00’ N 42°00’ N Skopje FY R O F MA CEDO CEDONINIA A 20°00’ E 20°30’ E 21°00’ E 21°30’ E MAY 2012