Document of The World Bank Report No: ICR00004608 IMPLEMENTATION COMPLETION AND RESULTS REPORT (IBRD-87130) ON A DEVELOPMENT POLICY LOAN IN THE AMOUNT OF EURO 74.5 MILLION (US$80 MILLION EQUIVALENT) TO BOSNIA AND HERZEGOVINA FOR A PUBLIC FINANCES DEVELOPMENT POLICY LOAN April 5, 2019 Macroeconomic and Fiscal Management Global Practice Europe and Central Asia Region The World Bank (P149768) CURRENCY EQUIVALENTS (Exchange Rate Effective April 5, 2019) Bosnia and Herzegovina Currency Unit = Convertible Mark (BAM) 1.74359= US$1 0.41 = SDR 1 FISCAL YEAR January 1 – December 31 Director: Lalita Moorty Country Director: Linda Van Gelder Practice Manager: Gallina Andronova Vincelette Task Team Leaders: Olasupo Olusi and Sandra Hlivnjak ICR Team Leaders: Asli Senkal and Kiryl Haiduk Page 2 of 44 The World Bank (P149768) ABREVIATIONS AND ACRONYMS ALMBiH Bosnia and Herzegovina OIL Old Insolvency Law Agency for Medical Products and Medical Devices ASA Advisory Services and PA Prior Action Analytics BAM Bosnia and Herzegovina PEFA Public Expenditure and Financial Convertible Mark Accountability BD Brcko District PER Public Expenditure Review BiH Bosnia and Herzegovina PIMIS Public Investment Management Information System CBA Collective Bargaining PIO Pension and Disability Insurance Law Agreement CoM Council of Ministers PIP Public Investment Program CPF Country Partnership Framework PLR Performance and Learning Review DEMPA Debt Management Performance RS Republika Srpska Assessment DMF Debt Management Facility SOEs State-owned enterprises DMU Debt Management Unit SAA Stabilization and Association Agreement DPL Development Policy Loan SSCs Social Security Contributions EC European Commission EFF Extended Fund Facility EU European Union FBiH Federation of Bosnia and Herzegovina FC Fiscal Council GFF Global Fiscal Framework ICR Implementation Completion and Results Report INN International Nonproprietary Names ITA Indirect Taxation Authority MoF Ministry of Finance MoH Ministry of Health MTDS Medium-Term Debt Strategy MTEF Medium-Term Expenditure Forecasting NIL New Insolvency Law Page 3 of 44 The World Bank (P149768) Bosnia and Herzegovina Bosnia and Herzegovina: Public Finances DPL TABLE OF CONTENTS DATA SHEET A. Basic Information B. Key Dates C. Ratings Summary D. Sector and Theme Codes E. Bank Staff F. Results Framework Analysis G. Ratings of Project Performance in ISRs H. Restructuring 1. PROGRAM CONTEXT, DEVELOPMENT OBJECTIVES, AND DESIGN .................11 1.2 Original Project Development Objectives and Key Indicators .........................................18 1.3 Revised PDO, Key Indicators, and Reasons/Justification .................................................18 1.4 Original Policy Areas Supported by the Program.......... 18 2.3 Monitoring and Evaluation Design: Implementation, and Utilization .............................25 3.2 Achievement of Program Development Objectives ..... 30 3.3 Justification of Overall Outcome Rating 34 3.4 Overarching Themes, Other Outcomes and Impacts .........................................................35 (a) Poverty and Social Impact .............................................................................................................35 (b) Institutional Change/Strengthening ..............................................................................................35 (b) Quality of Supervision ....................................................................................................................36 3.5 Borrower Performance..........................................................................................................37 MAP Page 4 of 44 The World Bank (P149768) A. BASIC INFORMATION Bosnia and Country: Bosnia and Herzegovina Program Name: Herzegovina: Public Finances DPL Program ID: P149768 L/C/TF Number(s): IBRD-87130 ICR Date: 01/22/2019 ICR Type: Core ICR BOSNIA AND Financing Instrument: DPL Borrower: HERZEGOVINA Original Total US$80.00 million Disbursed Amount: US$91.81 million Commitment: Revised Amount: US$80.00 million Implementing Agencies: Co-financiers and Other External Partners: B. KEY DATES Revised / Actual Process Date Process Original Date Date(s) Concept Review: 11/19/2015 Effectiveness: 02/21/2018 03/31/2018 Appraisal: 01/04/2017 Restructuring(s): Approval: 03/23/2017 Mid-Term Review: Closing: 03/31/2018 03/31/2018 C. RATINGS SUMMARY C.1 Performance Rating by ICR Outcomes: Satisfactory Risk to Development Outcomes: Substantial Bank Performance: Satisfactory Borrower Performance: Satisfactory C.2 Detailed Ratings of Bank and Borrower Performance (by ICR) Bank Ratings Borrower Ratings Quality at Entry: Satisfactory Government: Satisfactory Implementing Quality of Supervision: Satisfactory Satisfactory Agency/Agencies: Page 5 of 44 The World Bank (P149768) Overall Bank Overall Borrower Satisfactory Satisfactory Performance: Performance: C.3 Quality at Entry and Implementation Performance Indicators Implementation QAG Assessments (if Indicators Rating Performance any) Potential Problem Quality at Entry Program at any time No None (QEA): (Yes/No): Problem Program at any Quality of Supervision No None time (Yes/No): (QSA): DO rating before Closing/Inactive status: D. SECTOR AND THEME CODES Original Actual Sector Code (as % of total Bank financing) Public Administration Central Government (Central Agencies) 38 38 Financial Sector Other Non-Bank Financial Institutions 12 12 Health Health 25 25 Social Protection Social Protection 25 25 Theme Code (as % of total Bank financing) Finance 13 13 Financial Infrastructure and Access 13 13 Credit Infrastructure 13 13 Human Development and Gender 25 25 Health Systems and Policies 25 25 Health Finance 13 13 Health System Strengthening 13 13 Labor Market Policy and Programs 25 25 Page 6 of 44 The World Bank (P149768) Labor Market Institutions 25 25 Public Sector Management 38 38 Public Administration 13 13 Public Assets and Investment Management 13 13 Public Finance Management 38 38 Debt Management 13 13 Public Expenditure Management 25 25 E. BANK STAFF Positions At ICR At Approval Vice President: Cyril E Muller Cyril E Muller Country Director: Linda Van Gelder Ellen A. Goldstein Practice Manager/Manager: Gallina Andronova Vincelette Gallina Andronova Vincelette Program Team Leader: Olasupo Olusi Olasupo Olusi ICR Team Leader: Asli Senkal ICR Primary Author: Asli Senkal Kiryl Haiduk F. RESULTS FRAMEWORK ANALYSIS Program Development Objectives (from Project Appraisal Document) The Program Development Objectives of the Development Policy Loan (DPL) are to support the policy and institutional efforts of Bosnia-Herzegovina (BiH) authorities to: (i) strengthen the medium-term management of public assets and liabilities for the improved transparency of public finances; and (ii) enhance regulatory frameworks to lower medium-term fiscal pressures related to public employment, insolvency, and pharmaceuticals. Revised Program Development Objectives (if any, as approved by original approving authority) The PDO was not revised. (a) PDO Indicator(s) Original Formally Target Values Actual Value Achieved at Indicator Baseline Value Revised Target (from approval Completion or Target Years Values documents) Page 7 of 44 The World Bank (P149768) Indicator1: Three-year projections of the total cost of prioritized public investment program (PIP) projects adopted in the respective FBiH, RS, and BiH institutions’ medium-term budget framework documents Value (quantitative or No Yes (2018 Yes qualitative) respective budgets) Date achieved 12/31/2015 01/01/2019 06/30/2017 Comments Achieved. PIP projects are made part of the budget framework documents in (incl. % respective institutions of FBiH, RS, and BiH. achievement) Indicator 2: Debt information reporting against the medium-term debt strategy (MTDS)-set debt management targets related to refinancing, interest rates, and foreign exchange risks made public annually on the respective Ministry of Finance (MoF) websites Value (quantitative or No (2015) Yes (2017) Yes qualitative) Date achieved 12/31/2015 12/31/2017 04/30/2017 Comments Achieved. In RS, an MTDS was adopted in December 2015, and in (incl. % FBiH and BiH, in 2016. achievement) Indicator 3: Reporting of budget users arrears to the FBiH MoF Value No (2015) FBiH MoF FBiH MoF presented (quantitative or presents to the to the FBiH Fiscal qualitative) FBiH Fiscal Coordination body Coordination an analysis of the body an status of FBiH analysis of the arrears as of 2015. status of FBiH arrears as of end-2017. Date achieved 12/31/2015 12/31/2017 04/04/2017 Comments Achieved. For FBiH budget users, data were collected using a template (incl. % developed with the support of the World Bank. The report was presented to achievement) the FBiH Fiscal Council in November 2015. Indicator 4: Reporting of health sector arrears by RS health facilities to the RS MoF Page 8 of 44 The World Bank (P149768) Value No (2015) RS Ministry of Reports on arrears (quantitative or Health presents submitted from 2017 qualitative) to the RS MoF onwards by RS Ministry an analysis of of Health. the status of the RS health sector arrears as of end-2017 Date achieved 12/31/2015 12/31/2017 07/10/17 Comments Achieved. RS Ministry of Health presented a report on arrears from on July 10, (incl. % 2017 and continues to report monthly. achievement) Indicator 5: Reduction in the BiH public wage bill (excluding wage arrears resolution) Value 11.5 percent of Not exceeding Budget execution (quantitative or GDP 11.0 percent of report of BiH qualitative) GDP Date achieved 12/31/2015 12/31/2017 12/31/2017 Comments Achieved. According to the BiH budget execution report for 2016 and 2017, the (incl. % public wage bill was 11.0 and 10.6 percent of GDP as compared to 11.5 percent achievement) in 2015. Indicator 6: Decrease in severance pay (for an employee with 30 years tenure) Value (quantitative or 10 times the Not to exceed 6 Not to exceed 6 times the qualitative) average of the times the average of the last three last three average of the monthly salaries before monthly salaries last three termination of contract before monthly termination of salaries before contract termination of contract Date achieved 12/31/2015 12/31/2017 11/09/2018 Comments Achieved. Changes in the Law on Employment in Public Organizations became (incl. % effective of December 17, 2017 in RS; changes in the Labor Law of FBiH made achievement) effective of November 9, 2018. Indicator 7: Commencing resolution of public enterprise insolvency cases under the new legislation Value 0 At least 3 cases 3 cases filed in RS (quantitative or filed by state- district courts qualitative) owned enterprises Date achieved 12/31/2015 12/31/2017 12/31/2017 Page 9 of 44 The World Bank (P149768) Comments Achieved. Bankruptcy proceedings were initiated against 3 state-owned (incl. % enterprises by the end of 2017 under the new Insolvency Law of RS, namely achievement) Banka Srpske a.d. Banja Luka, Robne rezerve a.d. Banja Luka, and Komunalno preduzece Lisina a.d. Sipovo. Indicator 8: Reduction in the maximum wholesale price of the top 20 prescription medicines by international nonproprietary names (INNs) as defined and published in the BiH Drug Agency Annual Report Value 162 million Not exceeding 141 million BAM (quantitative or BAM 146 million qualitative) BAM for the same volume as in 2015 Date achieved 12/31/2015 12/31/2017 12/31/2017 Comments Achieved. The calculations based on the 2017 report of the BiH Agency for (incl. % Medicinal Products and Medical Devices show that the pricing of the top 20 achievement) prescription medicines by INNs decreased from 162 million BAM in 2015 to 141 million BAM in 2017 for the same volume as in 2015. (b) Intermediate Outcome Indicator(s) Original Target Formally Actual Value Achieved at Values (from Indicator Baseline Value Revised Completion or Target approval Target Values Years documents) N/A Page 10 of 44 The World Bank (P149768) 1. PROGRAM CONTEXT, DEVELOPMENT OBJECTIVES, AND DESIGN The purpose of this Implementation Completion and Results (ICR) Report is to assess the reforms implemented and results achieved with the support of the Public Finances Development Policy Loan (DPL) for Bosnia and Herzegovina (BiH) in February 2017. This DPL was part of the Country Partnership Framework (CPF) for 2016– 20, approved on November 14, 2015, and was related to the first focus area on support for increasing the effectiveness and efficiency of the public sector. The operation was envisioned to be complementary to the ongoing technical assistance on pension reform and debt management, the planned work on state-owned enterprises (SOEs), the preparation of projects in the health sector (in Republika Srpska [RS]), and the BiH Employment Support Program, and well as on financial management and control in the public sector. In addition, the operation partially supported the second focus area of the CPF by creating conditions for accelerated private sector growth through improvements in the regulatory framework. The operation aimed to strengthen the medium-term management of public assets and liabilities for the improved transparency of public finances (Pillar I) and to enhance regulatory frameworks to lower medium-term fiscal pressures related to public employment, insolvency, and pharmaceuticals (Pillar II). 1.1 Context at Appraisal Deep-rooted structural weaknesses in BiH have surfaced following the 2008 financial crisis, when economic growth started to slow down. Since then, growth has been driven mainly by consumption. Private sector development has been hindered by rigid labor markets, high taxes, a poor investment climate, and a weak transport infrastructure. In 2013, BiH entered a cyclical recovery that came to a halt in 2014 because of massive flooding. The losses and damages from the 2014 floods cost the country close to 15 percent of GDP and damaged virtually all aspects of the economy, including firms in many sectors. The floods revealed that many households were vulnerable to weather shocks, particularly those involved in agriculture, which occupies around one in five working individuals, including those who produce for own-consumption. In May 2014, an off-budgetary fund was created to pay for reconstruction, financed by a 3 percent tax on gross pay. The Government’s liability associated with the flood event (the highest flow recorded in the past 50 years) amounted to more than US$680 million, equivalent to about 4 percent of the country’s GDP. According to a different measure, a once-in-25-year flood event is estimated to cause at least a 1 percent loss in government revenues.1 In 2015–16, the economy rebounded with a GDP growth rate above 3 percent. Inflation was negative, largely reflecting low inflation in the Euro area that was imported through the currency board arrangement (see table 1). Lower prices supported growth in real disposable income, reduced real input costs, and contained imports. Gradual fiscal consolidation since 2014 has helped to maintain fiscal stability, mainly through a continued restraint on current government spending. In 2012–14, BiH’s fiscal deficits averaged 2 percent of GDP, while public debt (including publicly guaranteed debt) amounted to almost 42 percent of GDP. The recovery continued in 2016, as real GDP growth reached 3.1 percent and further fiscal consolidation contributed to a decline in the public debt-to–GDP ratio. Capital spending was on a declining trend following a reduction in overall public spending, reversing the trend in debt accumulation. Between 2011 and 2015, public investment averaged 6.8 percent of GDP, a decline from an average of 8.3 percent in the 2001–11 period. Although these figures were largely above European Union (EU) averages, they should be viewed against the significantly larger developmental needs of BiH, which had a per capita income of US$4,200 (compared to US$39,000 in the EU). From 2011 to 2016, expenditure fell by 3.4 percentage points, bringing the size of the general government sector from 47 to 42.5 percent of GDP, which was still high relative to peers. More than two-thirds of the decline was attributable to the containment of current expenditures, 1International Commission for the Protection of the Danube River (ICPDR), “2010 Floods in the Danube River Basin: Brief Overview of Key Events and Lessons Learned” (Vienna: ICPDR, 2012), https://www.icpdr.org/main/sites/default/files/nodes/documents/icpdr_flood_report_2010.pdf. Page 11 of 44 The World Bank (P149768) significantly improving the Government’s position and stabilizing the public debt-to-GDP ratio. Due to this limited fiscal space, there was a strong need to improve public investment management. Although deficits remained relatively moderate, the fiscal sector was still characterized by a high tax burden, with room to increase spending efficiency. Yet, fiscal consolidation could not become more efficient if structural rigidities on the expenditure side were not addressed, especially the large public wage bill and the sizable—but poorly targeted—social assistance program. Substantial public sector spending at more than 40 percent of GDP, coupled with the persistent inefficiency of SOEs, added to the state’s large footprint on the economy. Pensions, social transfers, and public sector wages together amounted to close to one-third of GDP. The size and type of public sector arrears were poorly documented, calling for better controls on quality and on spending needs, particularly given the complexity of BiH’s financing mechanisms and its institutional setup. The main principles of the fiscal system are summarized in box 1 below. Box 1. Fiscal Planning, the Tax System, and Revenue Sharing in BiH Fiscal planning in BiH starts by creating a Global Fiscal Framework (GFF) (or a Global Framework of Fiscal Balance and Policies) for a period of three years, which serves as the basis for the development of the Medium- Term Expenditure Framework (MTEF) at the lower levels of government. The Fiscal Council coordinates the common fiscal policy issues in BiH2 in accordance with the Fiscal Law of 2008, including the adoption of the GFF. Given that key government functions, such as social policy, subsidies, health, education, and others, are performed at the subnational level, it is important that the two entities and the Brčko District (BD) reach an agreement on the GFF and the level of indirect tax revenues (made by the Indirect Taxation Authority at the BiH institutions level) allocated to the entities for the timely adoption of BiH institutions and entity budgets. Frequent delays in the formation of a government have led to delays in the adoption of the GFF and the budgets of BiH institutions and the Federation of Bosnia and Herzegovina (FBiH). Delays in budget adoption (at the BiH institutions level) and other political decisions necessary for budget spending have affected budget execution practices and slowed public procurement procedures, especially for large capital projects at all levels of government. Medium-term fiscal planning processes need to adhere to the budget calendar, including the timely adoption of the GFF. For the current cycle, this would mean that the 2020–22 GFF should be adopted by the end of May 2019. The Fiscal Council of BiH and the GFF are supposed to provide the main parameters (macro-fiscal projections, fiscal targets, and revenue sharing, as well as the direction of fiscal policy) for preparing the medium-term expenditure forecasts (MTEFs) that are developed annually by the four main government levels. In turn, MTEFs are the basis for each level’s individual annual budget, though an overall budget for the country does not exist. MTEFs mainly serve as a pre-draft of the next annual budget rather than as a multiannual framework with realistic forward estimates. Neither FBiH, RS, nor BD use the previous year’s estimate as a starting balance for the current year. The FBiH government adopts medium-term budgets only for the level of the central government without consolidating with the cantons and local self-governance units, as the cantons prepare their own MTEFs and consequently do not provide a consolidated fiscal framework for FBiH. Furthermore, even though all administrations produce public investment programs (PIPs), the costing and feasibility of projects included in these plans are not realistic, are not integrated with the MTEFs, and do not pay attention to the recurrent costs of public investments. In addition to the Fiscal Council legislation that regulates overall coordination, each of the 2See World Bank, “Bosnia and Herzegovina: Public Expenditure and Financial Accountability Assessment (PEFA)” (Washington, DC: World Bank, 2014), https://openknowledge.worldbank.org/handle/10986/20768, for more information on the Fiscal Council Law of 2008. The permanent members of the Fiscal Council are the chair of the Council of Ministers of BiH (chairing the Fiscal Council sessions), the prime ministers of RS and of FBiH, the minister of finance and treasury of BiH, and the finance ministers of RS and FBiH. The central bank governor and governor of Brčko District (BD) also attend as non-voting observers. Page 12 of 44 The World Bank (P149768) four main government levels has its own separate fiscal legislation and institutions for budget processes and procedures. Budget planning procedures and calendars are broadly similar at all four levels.3 MTEFs are prepared each year and adopted in early summer, serving as a pre-draft of annual budgets, which are prepared in the fall and adopted by the parliaments by year-end. At all levels, budgets include economic and organizational classifications, while budget requests also include program formats. Indirect Taxation. Indirect taxation is at the BiH level. Revenues from indirect taxation (value added tax [VAT], customs, excises, and road tariffs) are shared between BiH, the entities, and BD. In the entities, they are further distributed according to different formulas between the entity government, local self-governance units, and the public roads companies, and to the cantons in FBiH. The indirect taxation legislation prescribes that out of total revenues, the funds needed for BiH institutions are subtracted first (this is the amount defined in the Global Framework of Fiscal Balance and Policies), as well as revenues that are reserved for the refunding of indirect taxes. Then (based on a decision of the Office of the High Representative), BD gets 3.55 percent of the remaining funds, or a minimum of 124 million BAM. Using a formula derived from the final consumption data on VAT forms, the remaining funds are divided between the two entities: 64.26 percent for FBiH and 32.19 percent for RS (as of May 29, 2017).4 In practice, in the past years there have been political problems and delays in decisions about the amount that BiH institutions will receive from the indirect taxation revenues as well as disputes about final consumption data, with the consequent delays in decisions on the formula for sharing indirect taxation revenues between the two entities. From the funds available for each entity, the resources required for servicing the relevant foreign debt of the entities are subtracted, and the remaining funds are distributed among the government levels within the entities according to entity laws. In FBiH, 36.2 percent belongs to the FBiH government, 51.48 percent to cantons (based on population, area, number of students, and development level), 8.42 percent to local self-governance units (based on the same criteria), and 3.9 percent to the public roads’ companies. In RS, 72 percent belongs to the RS budget, 24 percent to the budgets of local governments (based on population, area, and number of students), and 4 percent to the “RS Public Enterprise for Roads”. Direct Taxation. Direct taxation is administered at the entity level. In RS, personal income tax is shared between the government and local self-governance units: the government receives 100 percent of income tax on copyrights and intellectual property, capital income, and capital gains; 75 percent of taxes on personal wages and allowances and income from independent work; and 100 percent of taxes on corporate profits. In FBiH, personal income tax is shared between the cantons and local self-governance units, with cantons receiving 65.54 percent and local self- governance units 34.46 percent (except in Sarajevo Canton, where the municipalities get only 1.79 percent). Corporate tax belongs to the cantons, except for that from the electricity distribution sector, post offices, telecommunications agencies, and gambling operations, which belongs to the FBiH government. New amendments to the Law on the Distribution of Revenues in FBiH that are currently in the process of being adopted by the parliament envisage a decrease in the cantons’ share of personal income tax to 59 percent and a simplification of the revenue sharing arrangement in the Sarajevo Canton. Property/real estate5 tax revenues (including taxes on the transfer of immovable property and rights) belong to local self-governance units in both entities. In addition, although in RS all private real estate is taxed, the transfer 3 The United Kingdom Department for International Development’s project, Strengthening Public Expenditure Management in BiH, provided technical assistance to help the finance ministries introduce broadly harmonized budget calendars and budget instructions, medium-term expenditure planning, and basic introductory principles of program budgeting at all levels. 4 www.new.uino.gov.ba/bs/Prihodi-2017. 5 In RS, this tax is called a tax on real estate. Page 13 of 44 The World Bank (P149768) of ownership has not been subject to taxation since January 2012, when the Real Estate Fiscal Register was established and began providing all the necessary information on the tax base for this type of tax. In FBiH, property tax is paid only on weekend homes and the sale of property—that is, the transfer of ownership. Information on the tax base for these taxes is incomplete, as it does not contain all the potential property/real estate that should be taxed, especially in FBiH. Other Revenues. In addition to indirect taxation revenue (which constitutes around 70 percent of the income of BiH institutions), other funds belonging to the institutions include administrative fees, revenue from state-level regulatory agencies (such as the Communications Regulatory Agency), and a share in the profits of the Central Bank of BiH. Other revenue available to the FBiH government includes administrative, service, and penalty fees from federal government institutions, as well as income from FBiH assets or natural resources, including from dividends and profit-sharing public enterprises. Cantonal governments, in addition to the tax revenues described above, also have administrative, service, and penalty fees from cantonal government institutions and revenue from their assets or natural resources. Local self-governance units in FBiH, in addition to the taxes and other revenue they share with the FBiH government, also have municipal/city administrative, service, and penalty fees, communal fees, water protection charges, levies on the use of assets or natural resources owned by the unit, sojourn taxes, and taxes on gambling operations. The RS government shares other revenue with local self-governance units: 70 percent of fees from the transfer of agricultural land, 50 percent of rent charges for government-owned land, 70 percent of concession fees for mineral raw materials, revenue from special water fees (with different shares for different types, most of which are shared in a ratio of 70 to 30 with local self-governance units), and 30 percent of revenue from confiscated assets. Other funds available to the RS government include administrative taxes and service and penalty fees from RS government institutions. Local self-governance units in RS, in addition to tax revenues, have municipal/city administrative and service fees as well as cash penalties and revenue from assets or natural resources. In both entities and in BD, revenue for extra-budgetary funds includes social contributions relevant to the specific fund and part of the indirect taxation revenue for public roads companies, as well as other road fees and transfers from the entity governments. Source: World Bank, “Bosnia and Herzegovina: Public Expenditure and Financial Accountability Assessment (PEFA) .” Following the elections in late 2014, the authorities adopted a comprehensive reform agenda in July 2015. The elections generated the impetus for reforms and a consensus subsequently emerged to address both fiscal and structural issues after years of policy stagnation.6 The authorities aimed to implement fiscal consolidation measures to gradually reduce the budget deficit and place public debt on a downward medium-term trajectory with a strong three-year fiscal consolidation program. They also aimed to conclude financial arrangements with the International Monetary Fund (IMF), the World Bank, and the European Commission (EC). In addition, to overcome the structural weaknesses, reforms were implemented in the following areas: labor legislation, public administration, public sector employment policy, the business climate and competitiveness, public enterprises, social welfare, health services, and the rule of law, all with the aim of fostering economic growth, creating jobs, and improving the efficiency of social assistance, while setting a path toward fiscal consolidation and macroeconomic stability. The document was agreed and endorsed by the BiH Council of Ministers (CoM), RS government, and Federation of Bosnia and Herzegovina (FBiH) government. Following the signing of the Report Agenda document, the BiH CoM adopted a Strategic 6World Bank, “Country Partnership Framework Bosnia and Herzegovina for the Period FY16–FY20,” Report 99616-BA (Washington, DC: World Bank, 2015), http://documents.worldbank.org/curated/en/752481468194999174/Bosnia-and-Herzegovina-Country-partnership-framework-for- the-period-FY2016-20. Page 14 of 44 The World Bank (P149768) Framework for BiH for the period 2015–18, and RS and FBiH developed detailed action plans to implement the reform agenda. Box 2. Country Context and Reform Agenda BiH has a complex constitutional setup that was put in place following the Dayton Peace Agreement of December 1995. Multiple reform efforts have been made to improve the economic links between FBiH and RS, but much more was needed for the country to achieve sustainable development and catch up with the EU. After years of policy stagnation, the BiH CoM, FBiH government, RS government, and the canton governments of Una- Sana, Posavina, Tuzla, Zenica-Doboj, Bosnia-Podrinje, Central Bosnia, Herzegovina-Neretva, West Herzegovina, Sarajevo, and 10 (West Bosnia Canton), as well as the BD government, recognized an urgent need to rehabilitate and modernize the economy with a view to: fostering sustainable, efficient, socially just, and steady economic growth; creating new jobs; increasing and more appropriately targeting social assistance; and creating a favorable and just social environment. The BiH CoM and the entity-level governments of FBiH and RS officially endorsed a medium-term reform agenda in July 2015 that today continues to serve as a blueprint for all structural reforms. Detailed and time-bound action plans are being implemented at all levels of government, with the support of international partners. The reform agenda has focused on six areas: fiscal sustainability and consolidation, business climate and competitiveness, labor market reform, the targeting of social assistance and pension system reform, public administration reform, and the rule of law. The World Bank Group (WBG) has been one of the leading partners in the first five of the six reform areas. The reform program endorsed by all levels of government explicitly mentioned the Public Finances DPL analyzed in this ICR as an important driver in the implementation of the reform agenda. Reform performance was strong during the first year, with particularly significant advances made in fiscal sustainability, the business climate, and the labor market. Still, the country has been plagued by governance and institutional dysfunction and political disagreements that have led to a slow pace in economic reform; delays in the formation of the BiH CoM, the FBiH government, and the governments of 10 FBiH cantons after the September 2016 elections; and highly fragile government coalitions. Despite the slow progress, a notable milestone was achieved in February 2018 when BiH submitted responses to the EC’s questionnaire on readiness for EU candidate status. In addition, the reform agenda continues to provide a framework for WBG engagement in BiH. During the recent Performance and Learning Review (PLR) consultations, the BiH CoM and the governments of FBiH and RS reiterated their continued commitment to the goals of the reform agenda. General elections in October 2018 also provided an opportunity to renew the impetus for reforms, but again, delays in forming a government now pose a risk that the elections results themselves may be blocked, threatening much-needed progress on the reform program. If a new World Bank operation is not in place soon, it may delay the Bank’s policy dialogue with the authorities even further and result in a missed opportunity to help the country maintain its reform momentum. Source: World Bank, “Country Partnership Framework Bosnia and Herzegovina for the Period FY16–FY20,” Annex 7. These plans had the full support of the EU, the World Bank, and the IMF, as well as bilateral donors. On June 1, 2015, BiH and the EU entered into a Stabilization and Association Agreement (SAA) as the main framework for bilateral relations to further prepare the country for future EU membership. The SAA was established to deepen political, economic, and trade ties through the establishment of a dedicated institutional framework. Following the SAA, in June 2016, BiH submitted an EU membership application. Tabling the application opened a long process of assessment and decision making in granting candidate status, followed by additional decision making on whether to open accession negotiations. In September 2016, the European Council invited the Commission to submit an Opinion on BiH’s application, which is currently under preparation. On September 7, 2016, the Executive Board of the IMF Page 15 of 44 The World Bank (P149768) approved a three-year extended arrangement, the Extended Fund Facility (EFF), which followed the Stand-By Arrangement with BiH of September 2012–June 2015, for roughly €553.3 million. The program had three main objectives: (i) raise growth potential and boost private sector employment by intensifying structural reforms that improve the business environment and attract investment; (ii) improve the composition and quality of public spending while gradually lowering public indebtedness; and (iii) revive bank lending and credit growth while safeguarding financial stability through financial sector reforms. This arrangement also sought to improve coordination and cooperation among the authorities in BiH to strengthen the single economic space. The fiscal side of the reform agenda focused on ensuring medium-term fiscal sustainability through revenue mobilization and expenditure cuts. Fiscal consolidation was aimed at decreasing public debt while creating room for public investment and reducing the size of the public sector in the economy. To support the fiscal sustainability agenda, public administration had to be reformed to ensure the quality of public service delivery. In addition, new laws on fiscal responsibility (in RS) and financial control and management (in FBiH) were to be enacted, and all levels of government planned to adopt public internal financial control. The BiH government also agreed to strengthen controls over lower levels of government, extra-budgetary funds, and public enterprises and to develop strategies to tackle the loss-making SOEs with a sizable stock of unpaid social security contributions (SSCs). The BiH Government also committed to implementing health sector reforms with financial and technical assistance from the World Bank, including a solution for arrears. The IMF EFF supported a number of fiscal consolidation measures that involved containing the wage bill, reducing employment in the public sector, and improving public investment management. The reforms supported by the World Bank DPL were closely aligned with the Government’s program and the CPF for BiH. The DPL was selective in targeting the Government’s reform program and concentrated on areas where the Bank’s technical assistance and policy support could add value: medium-term fiscal planning, debt management, and public investment; the recording of arrears for improved transparency; improvements in labor and insolvency legislation; and the regulation of drug prices to lower medium-term fiscal pressures. Although BiH’s fiscal stance has improved since 2015, a reduction in fiscal pressures over the medium term required structural changes. By better coordination in planning and executing fiscal policy among the multiple layers of fiscal management and realizing spending efficiencies, the DPL aimed to reduce fiscal risks and improve the transparency of public finances in BiH. The operation was therefore designed to recognize the interlinked nature of these challenges in public finance. Both pillars of the matrix noted above would ultimately contribute to reducing the fiscal risks and improving the transparency of public finances. These measures were closely linked to focus area 1 of the CPF in support of increased public sector efficiency and effectiveness. Page 16 of 44 The World Bank (P149768) Table 1. Selected Economic Indicators of Bosnia and Herzegovina, 2012–18 BOSNIA AND HERZEGOVINA 2014 2015 2016 2017 2018e Real GDP growth (percent) 1.1 3.1 3.1 3.1 3.0 Composition (percentage points): Consumption n.a. n.a. n.a. 0.0 3.6 Investment n.a. n.a. n.a. 0.0 0.5 Net exports n.a. n.a. n.a. 0.0 -1.0 Exports n.a. n.a. n.a. 0.0 1.7 Imports (-) n.a. n.a. n.a. 0.0 2.7 Consumer price inflation (percent, period average) -0.9 -1.0 -1.6 0.8 1.4 Public revenues (percent of GDP) 43.7 43.1 42.7 43.0 43.8 Public expenditures (percent of GDP) 45.8 42.5 41.5 40.4 44.3 Of which: Wage bill (percent of GDP) 11.9 11.5 11.0 10.6 11.0 Social benefits (percent of GDP) 17.0 16.5 15.9 15.2 18.0 Capital expenditures (percent of GDP) 4.3 2.0 2.4 2.4 4.9 Fiscal balance (percent of GDP) -2.0 0.7 1.2 2.6 -0.5 Primary fiscal balance (percent of GDP) -1.2 1.6 2.1 2.6 0.5 Public debt (percent of GDP) 42.0 41.9 42.4 36.1 35.1 Public and publicly guaranteed debt (percent of GDP) 43.1 43.2 43.3 38.0 36.7 Of which: External (percent of GDP) 34.7 35.0 35.9 30.6 29.8 Goods exports (percent of GDP) 25.0 25.2 25.7 29.8 29.9 Goods imports (percent of GDP) 53.8 50.3 49.4 53.3 53.5 Net services exports (percent of GDP) 6.1 6.7 7.0 7.2 7.4 Trade balance (percent of GDP) -22.7 -18.5 -16.7 -16.3 -16.2 Remittance inflows (percent of GDP) 10.3 9.0 9.1 8.4 8.3 Current account balance (percent of GDP) -7.3 -5.3 -4.7 -4.7 -4.9 Net foreign direct investment inflows (percent of GDP) 2.9 1.8 1.7 -2.1 -2.0 External debt (percent of GDP) 77.1 72.2 71.0 70.5 68.3 Real private credit growth (percent, period average) 4.1 2.3 4.2 4.9 n.a. Nonperforming loans (percent of gross loans, end of period) 14.0 13.7 11.8 10.0 n.a. Unemployment rate (percent, period average) 27.5 27.7 25.4 20.5 18.4 Youth unemployment rate (percent, period average) 62.9 62.2 54.5 45.8 n.a. Labor force participation rate (percent, period average) 43.7 44.1 43.0 42.6 n.a. GDP per capita, PPP (current international $) 11,164 11,526 12,173 12,875 13,200 Source: BiH authorities; World Bank staff estimates. Page 17 of 44 The World Bank (P149768) 1.2 Original Project Development Objectives and Key Indicators The operation had two pillars: Project Development Objective (PDO) 1/Pillar 1: Strengthen the medium-term management of public assets and liabilities for the improved transparency of public finances. Key Indicators of PDO 1: 1. Three-year projections of the total costs of prioritized public investment programs (PIPs) adopted in the respective FBiH, RS, and BiH institutions medium-term budget framework documents. 2. Debt information reporting on the debt management targets outlined in the medium-term debt strategy (MTDS) relating to refinancing, interest rates, and foreign exchange increases made public annually on the websites of the respective ministries of finance (MoFs). 3. Reporting of budget user arrears to the FBiH MoF. 4. Reporting of health sector arrears by RS health facilities to the RS MoF. PDO 2/Pillar 2: Enhance regulatory frameworks to lower medium-term fiscal pressures. Key Indicators of PDO 2: 5. Reduction in the BiH wage bill (excluding wage arrears resolution). 6. Decrease in severance pay for employees with a 30-year tenure. 7. Resolution of public enterprise solvency cases under the new legislation. 8. Reduction in the maximum wholesale drug price of the top 20 prescription medicines by international nonproprietary names (INNs) as defined and published in the BiH Drug Agency Annual Report. 1.3 Revised PDO, Key Indicators, and Reasons/Justification The PDO was not revised. 1.4 Original Policy Areas Supported by the Program The objectives under the two pillars were considered policy areas and were not changed. • Pillar I: Strengthen the medium-term management of public assets and liabilities for the improved transparency of public finances. Improving the quality of medium-term fiscal management was important to increasing the efficiency and transparency of public finances in BiH, as the country’s Public Expenditure and Financial Accountability (PEFA) 2014 report rating for fiscal planning was only a D+, and for the effectiveness of tax payment collection, a C+.7 In addition, the budget for capital spending was declining and improvements were needed in the efficiency of public investment spending. On top of that, the extent of the arrears in FBiH and RS were unknown. Accordingly, Pillar 1 supported the strengthening of medium-term fiscal planning, specifically through linking public investment management and debt management to medium-term fiscal planning, and through the stocktaking and recognition of budget arrears in FBiH and health sector arrears in RS to improve fiscal transparency. Page 18 of 44 The World Bank (P149768) • Pillar II: Enhance regulatory frameworks to lower medium-term fiscal pressures. The main goal was to contain fiscal pressures, as pensions, social transfers, and public sector wages together amounted to nearly one-third of GDP, while public sector spending in BiH was 44 percent of GDP. Coupled with public enterprises, this level of spending created a substantial state footprint on the economy. Not only was public spending structurally high, but the quality of and control over spending was weak. The second pillar supported lowering medium-term fiscal pressures by limiting the duration of collective bargaining agreements (CBAs) to no more than three years, introducing a maximum level of severance payments through changes in labor legislation, aligning insolvency procedures to international best practices, and adopting a Rulebook for Medications to regulate maximum wholesale prices through reference pricing. 1.5 Revised Policy Areas The Policy Areas were not revised. One of the prior actions related to pensions was dropped after the first appraisal mission. After the authorization to appraise, the team confirmed on January 20, 2017, that the BiH Government had completed eight out of the nine agreed prior actions. There was one outstanding prior action related to the adoption of amended pensions legislation by the FBiH House of Peoples. This measure was supposed to support the introduction of a new FBiH Pension and Disability Insurance Law (PIO) to establish a close link between contributions and benefits by introducing a point formula that proportionally awards the length of service and contributions paid in pension benefit calculation. The proposed valorization and indexation patterns were designed to (i) assure inter-generational fairness; and (ii) discourage an early exit from the labor market by tightening early retirement rules and the eligibility for disability and survivor pensions. On February 2, 2017, FBiH’s House of Peoples failed to enact the PIO law because of two amendments that were introduced by the Croatian National Party (HDZ) before the final vote: (i) increasing the base-point of the coefficient from 13.6 BAM to 14.3 BAM; and (ii) postponing implementation of the law until July 1, 2017. Other parties, as well as the FBiH government, judged that the two amendments would have imposed unacceptable fiscal costs, negating the benefits of the reform in the medium term. On February 6, the World Bank Country Director sent a memo requesting a “no- objection” to eliminating the adoption of the FBiH PIO as a prior action and the authorization to negotiate the DPL. According to the memo, the team deemed that the other eight prior actions were sufficiently strong to achieve the PDOs. Although that prior action, FBIH Parliament adopts the Pension and Disability Insurance Law, introducing pension point formula with clear valorization and indexation patterns, as well as tightening early retirement, disability and survivorship criteria, was dropped, the DPL still provided the impetus for the law and the World Bank continued to offer support (and the amendments were passed at a later stage on February 21, 2018). Following the Regional Operations Committee’s guidance on February 7, 2017, on the modifications to the proposed DPL program for BiH, the team reappraised the DPL and sent an appraisal memo to the Country Director on February 9 confirming that the macroeconomic conditions in BiH remained suitable for the DPL and indicating a plan for renewed negotiations on February 13, 2017. 7 https://pefa.org/sites/default/files/assements/comments/BA-May14-PFMPR-Public_1.pdf, p. x. Page 19 of 44 The World Bank (P149768) 1.6 Other Significant Changes There were no other significant changes. 2. KEY FACTORS AFFECTING IMPLEMENTATION AND OUTCOMES 2.1 Program Performance Table 2. Prior Actions Prior Actions Status PA1: The BiH CoM and the entity governments of Completed. PIP drafts approved by CoM and entity FBiH and RS each adopt their respective PIP for 2016– governments. Proposed PIPs adopted by CoM (adopted 18. in 32nd session adopted and confirmed in 38th session of CoM) and by the entity governments in December 2015. PA2: Entity governments of FBiH and RS and BiH Completed. FBiH MTDS approved by government in CoM each adopt MTDS. December 2015. BiH MTDS approved by CoM in April 2016. RS MTDS approved by government in December 2015. PA3: FBiH MoF introduces reporting requirements on Completed. Budget law amended in October 2015; arrears for budget users in FBiH. arrears reporting form designed and adopted by government in January 2016. PA4: RS government introduces reporting requirement Completed. Forms designed and government letter on health sector arrears. ordering reporting requirement issued. DPL team working with appointed RS team on final adjustments. PA5: FBiH and RS entity-level parliaments adopt Completed. Labor Law was amended in BiH in August changes to the labor law that invalidate current CBAs 2015, and new Labor Act was adopted in RS in January and limit the duration of new agreements to three years. 2016. PA6: FBiH and RS entity-level parliaments adopt Completed. Labor Law was amended in BiH in changes to the labor legislation to introduce a maximum August 2015, and new Labor Act was adopted in RS in level of severance payments. January 2016. PA7: RS parliament adopts and FBiH government Completed. RS National Assembly adopted law, public approves amendments to insolvency legislation aligned consultations undertaken. Parliamentary approval with international best practice. February 11, 2016. Published in official Gazette 16/16. FBiH government approves amendments to the insolvency legislation in its 78th session held on November 18, 2016. PA8: BiH CoM approves the updated Rulebook on the Completed. BiH CoM adopted the Rulebook on regulation of maximum wholesale prices for medicines. November 24, 2016. Page 20 of 44 The World Bank (P149768) Table 3. Program Performance Operation Approval Date Effectiveness Disbursed Closing Date Date Amount DPL 05/23/2017 05/31/2018 US$91,811,443.94 05/31/2018 The reforms, backed by the BiH Public Finances DPL, were successful in addressing several key areas identified by the Government’s reform agenda. The tackled a number of structural and institutional weaknesses related to public finance management and relieved some of the medium-term fiscal pressures through selective policy measures. 2.2 Major Factors Affecting Implementation Adequacy of the Government’s commitment. Following the elections in 2014, the BiH Government set up a new Reform Agenda (see box 2) in July 2015 that brought a consensus for reforms on both fiscal and structural issues for the first time at the BiH institutions level after years of policy stagnation. The reform agenda focused on six areas: fiscal sustainability and consolidation, the business climate and competitiveness, labor market reform, better targeting of social assistance and pension system reform, the rule of law, and public administration reform. The DPL concentrated on areas that were part of the Government’s reform agenda and where the World Bank could add value through policy actions and technical assistance, namely, medium-term budget planning (given BiH’s low score in the 2014 PEFA assessment) by linking debt management, the public investment program and budget framework papers, business climate reforms, and labor market restructuring. The Performance and Learning Review (PLR) (2019) notes that reform performance was strong during the first year of implementation, with particularly significant advances made in the areas of fiscal sustainability, the business climate, and the labor market institutions.8 Gearing the DPL toward the Government’s priorities was critical, and focused and selective actions brought results. The involvement of the prime minister’s office was also crucial to the effective coordination of the reforms and to government ownership, given the complex government structures in BiH involving two entities with different policy agendas and different developmental needs. There was also excellent collaboration between the entity and BiH MoFs, which added to ownership of the reforms at all levels. The selective approach and the common objectives across the entities. Given BiH’s complex government structure and the different priorities of the different institutions, the Bank team was selective in aligning DPL actions with the reform agenda. Developmental goals required a different calibration for each entity. Hence, the team set common policy objectives and tailored the prior actions to the needs of the entities, for example, in the case of Prior Action 3 (PA3) and PA4. PA1, PA2, PA5, PA6, and PA7, on the other hand were common across the two entities. In this environment, BiH-level reforms were difficult, as BiH institutions did not receive financial support through the DPL. PA1 and PA2 contained BiH-level actions but were more technical in nature and accompanied by extensive technical assistance. PA8 was also a BiH-level action that required a concerted effort to build ownership. However, the policy push through the DPL was crucial, given the importance of the measure in reducing fiscal pressures, promoting more transparency in drug procurement, and creating more efficient public service delivery. 8 World Bank, “Bosnia and Herzegovina Performance and Learning Review” (Washington, DC: World Bank, 2019). Page 21 of 44 The World Bank (P149768) Stakeholder involvement and the participatory process. During the preparation stage, the World Bank team collaborated with stakeholders from the private sector, civil society, and academia. The consultations with stakeholders included, but were not limited to, roundtables on pharmaceutical pricing and health care reforms, and workshops on the labor law. For PA7, the Bank provided capacity building in RS. New mechanisms made it possible to build the capacity of insolvency practitioners, a process that led to the improvement of the technical competence of such participants as bankruptcy judges and trustees (in total, 1,072 participants attended 41 trainings/roundtables organized by the RS Ministry of Justice, with support from the International Finance Corporation [IFC]). The DPL also benefited from the public dissemination of complementary country economic reports, regional economic reports, and media interest. However, at a broader level, during the ICR mission, the private sector representatives asked for more engagement and collaboration in driving the policy agenda in BiH, referring to both FBiH and RS, especially in relation to labor, social protection, and business climate reforms. Partnership with other development institutions. The strong partnership between the development partners, EU, IMF, U.S. Agency for International Development (USAID), and Swedish International Development Cooperation Agency (SIDA) was critical to achieving results. The SAA was one of the milestones as a first step in the EU accession process, followed by the candidacy submission in February 2016; the agreement was also an important anchor for the reforms. BiH also entered an IMF EFF program in September 2016 and completed the first review of the program in February 2018. Together with other objectives, the EU program focused on supporting implementation of the reform agenda. The IMF programs focused on fiscal sustainability through the containment of wages, the FBiH law on debt, and the better targeting of social assistance programs, among other measures, as well as financial stability and the restructuring of SOEs. There was strong coordination between the World Bank and the IMF. Although some of the structural benchmarks in the IMF EFF were met, a number were delayed and/or dropped following the first review. The coordination platform that was set up early on through the EU, IMF, and World Bank operations continues, as the Government wants to draw up a blueprint for further reforms and policy changes. More specifically, for PA8 the team carried out a public campaign including major support from the donor community. This enabled adoption of the rulebook which was a difficult measure to achieve both due to strong vested interest but also it was an BiH institution level action. Soundness of the Advisory Services and Analytics (ASAs) and technical assistance. The analytical underpinnings of the operation were strong, comprehensive, and up-to-date, particularly for the first pillar. The highly practical technical assistance was instrumental in bringing policy changes to a complex governmental structure. The team did considerable hands-on capacity building, especially for PA2, PA3, and PA4. For debt management, the Bank provided extensive technical assistance through the Debt Management Facility (DMF). For PA2, the Debt Management Performance Assessment (DEMPA) for BiH delivered in 2013 was crucial to documenting the strengths and weaknesses as well as developing an action plan for debt management both at the BiH institutions and entity levels. The DEMPA made clear that, although preparation of an MTDS was a legal obligation at the BiH institutions level, it was never adhered to. A follow-up to the DEMPA took place by means of reform plan support to FBiH in September 2015. The World Bank team continued to provide hands-on training on the MTDS for the RS, FBiH, and BiH MoF Debt Management Units (DMUs). The team organized joint workshops that assembled the DMUs from the entity and the BiH institutions for an MTDS. PA8 was based on a 2013 World Bank study, “Bosnia and Herzegovina: Rapid Review of Regulation, Selection, Pricing, and Procurement of Pharmaceuticals.” Page 22 of 44 The World Bank (P149768) Workshops on arrears and insolvency laws. The extent of the budget arrears was a black box, as the data were not collected at the cantonal level and not consolidated at the entity level in FBiH. The consolidation of arrears required several visits at the cantonal level and allowed the establishment of a strong baseline through World Bank technical assistance. On April 3, 2017, the World Bank held a workshop on arrears in Sarajevo with all cantonal MoFs. It also supported RS in building a template on arrears collection to address PA4. PA5 and PA6 were based on the findings of the Systematic Country Diagnostic (SCD) and the ongoing BiH Employment and Support Program (World Bank Project P152347). The team prepared detailed comments on the labor laws in FBiH and RS to ensure quality and also provided extensive technical assistance in drafting and harmonizing the insolvency laws in FBiH, RS, and Brčko District (BD). As stated earlier, the Ministry of Justice, with IFC support, held roundtables on capacity building for judges and trustees. The policy reforms were based on a World Bank report entitled, “Observance of Standards and Codes for the Insolvency and Creditor/Debtor Regimes (ICR ROSC).” In addition to providing technical assistance to the RS government in drafting the insolvency law, support was provided for FBiH (the law is currently undergoing a second reading under parliamentary procedures), and BD (submitted to the FBiH government by BD’s Judiciary Commission at the end of November 2018 for a first reading). Relevance of risks identified and adequacy of mitigating measures. The multi-layered administrative structure in BiH implies that the successful implementation of any economic policies requires cooperation and agreement among the participating governments. This leads to understandable time constraints related to coordination between the two entities and at the BiH institutions level. Accordingly, there should have been a more concerted effort to build consensus on the necessity of reforms and/or policy changes prior to implementation of the DPL or any other operation. Moreover, coordination was sometimes lacking even within entity institutions. Nevertheless, technical assistance programs did contribute to strengthening this coordination by helping to build a common ground for the reform program within and across the entity governments. Incorporation of lessons learned. The lessons learned from the previous DPL (First Programmatic Public Expenditure) ICR and the implementation of the previous Country Partnership Strategy were incorporated into the newer operation. The ICR noted that those DPL operations should have taken better note of the political economy context and the election cycles. This means that the programmatic approach is not the right approach when a shared medium-term strategy is lacking. The stand-alone operation of the more recent DPL allowed adequate time for preparation, implementation, and monitoring through hands-on technical assistance. This DPL also capitalized on the momentum on the Reform Agenda in cases where the BiH Government had put forward a common set of objectives, and on the IMF Stand-By program. The extensive use of ASAs previously also contributed to the quality of the operation. Although setting a common set of objectives was important, the need for focused and targeted (though not necessarily identical) policy and institutional measures at the entity and BiH institutions level was one of the takeaways from the previous operations. As such, the prior actions had common objectives across the entities that were also targeted according to the needs of the two entity governments. Where relevant and able to have an impact, the operation also had BiH institutions-level reforms. The continuous engagement of the local office. The engagement was not limited to missions, however. The local office staff consistently provided support through technical assistance and maintained a Page 23 of 44 The World Bank (P149768) continuous dialogue with government counterparts and donors. Ongoing interaction has strengthened the preparation and implementation of the operation. Assessment of Overall Design The prior actions were generally well designed, given the feasible (and often limited) prospects of achieving consensus across the entity governments at the time. The design covered common challenges faced by BiH institutions and entity-level governments, with potential value added to the implementation of the Reform Agenda in areas of World Bank expertise in line with the CPF but refrained from targeting every aspect of the reform program. The design also incorporated lessons learned from previous operations to choose selective and practical policy reforms that could deliver implementable results and were complementary to other World Bank operations and the IMF EFF. The operation was designed to ensure strong linkages between policy actions and objectives . The two- pillar design addressed the long-standing nature of the fiscal challenges. The first pillar focused on increasing fiscal efficiency by improving the public investment process through better fiscal transparency and fiscal planning, as public investment projects had to be incorporated into the respective PIPs. The MTDSs were developed and approved by the entities and BD and subsequently consolidated into the BiH MTDS; the debt strategies were also, at the BiH level, an essential tool for sound debt management. This was even more important for the MTDS at the BiH level, which appears to be one of the few nation-level strategies ever approved in BiH. Two key actions, the PIP and MTDS, were complemented with two prior actions on arrears as part of the steps needed to understand the scale of a problem that was previously barely visible due to reporting deficiencies. The lack of transparency on arrears has clearly undermined the efficiency of the fiscal planning process. The prior actions of the first pillar were crucial to improving the medium-term fiscal planning framework. These actions had sound analytical underpinnings, such as the 2014 PEFA that covered all the entities, a Public Expenditure Review (PER) and an institutional review, and several debt management assessments and technical assistance programs. PA4 was based on health service delivery reform and aimed to strengthen budget discipline in this area, given the largely unknown size of arrears stemming from unpaid taxes and SSCs due to overstaffing in the health sector. Although the continuity of PA1 and PA2 was ensured through extensive technical assistance, continuity for PA3 and PA4 was difficult to achieve due to the stand-alone nature of the operation and a slowdown in the reform process. The World Bank’s emphasis on the selected areas in Pillar 1 did raise awareness of these issues for both the government and donors. The second pillar was devoted to cross-sectoral reforms whose impact reaches beyond simply containing medium-term fiscal pressures. The prior actions were designed to address the pressures caused by suboptimal regulations and structural weaknesses in the labor market (PA5 and PA6), an insolvency regime that impeded the restructuring of underperforming SOEs and private firms (PA7), and unregulated drug prices, which were high and varied across the country. More specifically, PA5 and PA6 improved the principles of CBAs and helped to contain the pressures related to severance pay. PA7 was designed to assist creditors and debtors to engage effectively and on fair terms in a bankruptcy or restructuring procedure, thus allowing for debt recovery. Bankruptcy procedures were tilted toward liquidation, which led to inefficiencies in credit recovery and a loss of employment. However, the lasting Page 24 of 44 The World Bank (P149768) effects of this measure remain difficult to track, including possible indirect consequences, such as a reduction in the level of nonperforming loans through an improved insolvency or restructuring mechanism. In the second pillar, PA8 produced a strong impact and contributed to achieving a policy consensus between FBiH and RS. This action was specifically aimed at reducing the wholesale prices and price variances of pharmaceuticals in BiH, which were 20 percent larger on average than in comparator neighboring countries. In FBiH, the price for the same medicine varied significantly among cantons, and on average, FBiH paid more for the same medicine than RS (where most procurement is centralized) and often paid more than double the international price. Both entities paid more than necessary for both off- patent medicines and high-priced patented drugs. The reduction of pharmaceutical prices helped lower the cost of medicines and was thus expected to generate savings for the entities’ health insurance funds. This has strongly benefited the public, especially the socially vulnerable, such as pensioners in FBiH and RS.9 The PDOs were clearly formulated, while objectives were simple and clearly linked to the prior actions. The operation benefited from a simple design, with eight prior actions and eight results indicators that were drawn from hands-on technical assistance and were designed to have strong capacity-building effects. The design had a well-balanced composition of both technical and legal changes. The existence of prior actions at the BiH level was challenging, as BiH institutions do not benefit from the DPL financing (see box 1). However, the fact that the regulation of prices in wholesale drug procurement was achieved proves the importance of: being selective about reforms at the BiH institutions level, utilizing technical assistance, and concentrating on areas where World Bank has a comparative advantage. Public outreach was also instrumental in achieving results for reforms at this level. 2.3 Monitoring and Evaluation Design: Implementation, and Utilization The monitoring of the DPL was based on continuous dialogue with the entity governments. During the preparation stage, monitoring was carried out through extensive hands-on technical assistance activities and continued as the planning for the subsequent operation commenced after the disbursement of the Public Finances DPL. It was supported by complementary activities, such as Macro-Modeling Technic Assistance, a Debt Sustainability Analysis (DSA), a Debt Sustainability and Expenditure Arrears Recording, a DSA for Market-Access Countries, and capacity building for medium-term expenditure forecasting. The monitoring and evaluation (M&E) framework was grounded by close engagement with the local World Bank Group (WBG) office, which played an essential role. The complexity of a general government sector that consists of four units, the BiH CoM and the governments of RS, FBiH, and BD, required sustained efforts from WBG staff to address the lack of cohesion. Regular consultations held at the technical and policy levels helped to maintain the policy dialogue, which was appropriately aligned with the reform agenda. The DPL process helped the WBG to engage in an effective and productive partnership that strongly contributed to country-led development results and provided a sound umbrella of support for the ongoing policy reforms. These efforts were strengthened by effective public communication, which was particularly relevant for PA8. The fact that BiH lacked a state-level rulebook 9 Faktor, August 30, 2016. Page 25 of 44 The World Bank (P149768) on medicine prices, which results in high costs for drugs, was widely discussed in the media, with the participation of the WBG country manager. For PA1 and PA2, the results indicators were documented, and the respective evidence made available online, rendering monitoring simple and transparent. Extensive prior support on debt management and the close collaboration of the MoFs of FBiH, RS, and BiH made for effective monitoring. During the implementation of PA3 and PA4, the team provided hands-on technical assistance, including the development of templates that allow documenting and reporting. For arrears monitoring in FBiH, the World Bank team provided technical support on the collection of arrears at the cantonal level and on the presentation of the consolidated dataset to the Fiscal Council. The results indicator for PA3 was defined as “FBiH MoF presents to the FBiH fiscal coordination body an analysis of arrears at end-2017,” but this took place before the end of 2017. Also, the results indicator could have been better defined to ensure the continuity of the outcome, for example, by adding a requirement that a report on arrears be submitted annually and that the FBiH fiscal coordination body set up a facility to resolve these arrears. For PA3, the World Bank team prepared a template for arrears that is currently in use by the FBiH MoF for reporting on budget users arrears data at the cantonal and entity levels. The team continued to provide technical support through a World Bank-executed trust fund with a focus on Debt Sustainability and Expenditure Arrears Recording. Three key outputs were envisaged: (i) to continue improving the current setting of the debt management recording system at the entity level; (ii) to provide guidance on the organization and implementation of an expenditure arrears stocktaking exercise led by the authorities; and (iii) to provide just-in-time technical assistance on debt recording, documentation, reporting, and system monitoring. For PA4, the team prepared a template for the arrears, and discussions are continuing improving the template further. PA5 and PA6 had weaker links with the results indicators than other prior actions. The direct attribution of PA5 to the results indicator is difficult to trace, as other factors, such as the containment of wage increases or higher nominal GDP growth, have contributed to the reduction in the aggregate wage bill. Disaggregated micro-level data for the public sector were required to calculate the direct impact but were not available. The essence of PA5 was to amend the CBA for public sector workers, since limiting its duration to three years helps to contain the public sector wage bill measured as a share of GDP. A clearer definition of the wage bill would have been beneficial, that is, whether (i) it counts gross or net wages, or (ii) bonuses are included or excluded. Essentially, the decrease in the wage bill could have resulted from the overall reduction in expenditures that occurred in 2015–16 and helped improve the fiscal balance. Although there could be other, more direct factors attributable to the reduction in the public sector wage bill, the prior action itself reframed the public sector CBA to limit fiscal costs in the medium to longer term. The results indicator for PA6 is not sufficiently trackable, as the data for the number of actual and/or potential recipients of severance payments are not available. Moreover, the size of the problem that PA6 intended to tackle was not sufficiently described in the project document to justify the focus on severance pay for a certain category of senior workers. PA7 proposed changes in insolvency legislation in each entity to align the insolvency laws with international practice; however, the results indicator – “at least 3 cases filed by SOEs”—was the total number of cases filed in BiH. The result was formally achieved, as three SOEs in RS filed for bankruptcy. The immediate impact in FBiH is difficult to track, as a more immediate step was captured: government approval of the amendments and submission to the parliament. Page 26 of 44 The World Bank (P149768) The impact of this reform in FBiH could be evaluated only after the legislative changes were implemented, though the changes did lead to a potential harmonization of the insolvency framework in FBiH, RS, and BD. However, for RS, through the Debt Resolution BiH Project, the team collected data from five RS district commercial courts and noted that three SOEs had filed for reorganization. For PA8, both the World Bank and the BiH Drug Agency noted close collaboration through intense discussions. However, more still needs to be achieved regarding drugs and reference pricing. The Drug Agency does not have a health economist to closely monitor the results on a regular basis. There was a health operation that was initially being prepared but it was ultimately canceled. There was no follow-up on the results indicator after the appraisal. The indicator was defined as the value of the top 20 INNs (excluding the non-prescription medicines) and the calculation of the fixed volume in 2015 with 2017 prices. 2.4 Expected Next Phase/Follow-Up Operation A stand-alone DPL was the right choice given the complex institutional setup and the election cycles. However, although a stand-alone DPL was useful in addressing some of the selective structural and medium-term fiscal issues, a number of the reforms need follow-up measures if they are to have a lasting impact. The operation was a first step in providing a more consolidated view of fiscal management through the linking of public investments to financing sources and stocktaking of arrears. The MTDS has been very successful in developing a consolidated debt management strategy. Although the PIP was adopted and incorporated into the budget framework paper (BFP), and is documented online with a similar template, public investment management needs to be further improved, as the PIP is not used effectively for budget planning. There is also a need to further strengthen the link between the medium-term expenditure forecasting (MTEF) and the PIP. In a context of limited fiscal space and the continued under-execution of the capital budget, competing policy objectives will require improved efficiency and the prioritization of PIPs. According to a recent IMF study, the estimated 45 percent efficiency gap in public infrastructure in BiH is well above the average of emerging market economies.10 Consequently, targeted efforts are needed to fill this gap by improving efficiency in key public investment management institutions. Stocktaking on arrears in FBiH through the DPL raised awareness of the severity of the problem for the first time. Reforms in this area should continue, both in persistently monitoring consolidated arrears, starting with a clearance of arrears through an action plan and resolution, and in expanding the consolidation of arrears for SOEs and extra-budgetary funds. Similarly, although reporting continues in the health sector in RS, there is a need for a strategy for arrears clearance. The actions in the second pillar not only addressed fiscal issues but also had an impact on private sector development. PA5 and PA6 were important steps in reducing the burden on medium-term fiscal sustainability. Still, fully unlocking the growth potential of the economy and reducing the medium-term fiscal pressures in the face of large distortions in the labor markets require a reduction in the high tax wedge and burdensome labor regulations that goes beyond limiting the duration of CBAs. 10 T. Chaponda and others, “Bosnia and Herzegovina: Public Investment Management Assessment” (Washington, DC: Inte rnational Monetary Fund, 2018), http://donormapping.ba/pdf/IMF_Report_on_Public_Investment_Management_Asssessment_May_2018.pdf. Page 27 of 44 The World Bank (P149768) For the successful implementation of economic policies, a follow-up DPL would be useful, but entity governments must be strongly committed to the effort. A follow-up DPL could be useful in operationalizing and strengthening some of the achieved results noted above. A fiscal reform DPL Concept Note meeting was held on April 12, 2018, and the chair authorized the team to proceed with DPL preparation in order to maintain the spirit and momentum of the entity governments’ reform efforts and to prevent backsliding. The team was advised to keep it as a stand-alone operation, with the rationale that a programmatic operation would limit the flexibility to support reforms given the complex political environment. The proposed actions were related to arrears (health arrears in the case of RS), a regulatory framework for SOE monitoring and disclosure regimes in FBiH, SSC and personal income tax laws, public employment registries, and the introduction of a minimum wage, and they were a clear link between this DPL and deeper policy reforms, especially in public finance management. In short, a follow-up operation could bring value by providing continuity to the results achieved in the BiH Public Finance DPL. 3. ASSESSMENT OF OUTCOMES 3.1 Relevance of Objectives, Design, and Implementation Overall relevance: Substantial Relevance of Objectives: High The PDO was highly relevant for BiH and was closely linked to the comprehensive reform agenda. That agenda, which was adopted in July 2015, looked to the SAA between BiH and the EU as the foundation for the program but also to the DPL that was under preparation. The reform agenda and the SAA emphasized the value of fiscal sustainability and changes to labor legislation, as well as improvements in the business climate. The objectives of the operation remain highly relevant in the context of Country Partnership Framework for the period of FY2016-20. The CPF aims to support reform momentum, focusing on increasing public sector efficiency and effectiveness (one of the three focus areas), while ensuring that reforms are socially sustainable.11 The DPL objectives were clearly backed by analytics. The SCD prioritized a reduction in the size of the public sector, while ensuring fiscal sustainability, improving public service delivery, and creating conditions for accelerated private sector growth. Accordingly, debt management technical assistance (P151505 and P147094) noted the need to entrench the MTDS into the design and implementation of fiscal policy. This was also in line with the 2014 PEFA observation that the only previous debt sustainability analysis was the one prepared by the IMF within its Article IV Country Reports, which was done without the active participation of the authorities (other than data provision), who did not then use it in their strategic planning process. That analysis was also not linked to a specific government debt strategy in terms of future borrowing policies, despite the requirement of the debt law and international best practice, something that was clearly needed at every government level in view of the large infrastructure and public investment needs.12 The DPL raised awareness of the importance of better debt management both at an 11 http://documents.worldbank.org/curated/en/752481468194999174/Bosnia-and-Herzegovina-Country-partnership-framework-for-the-period- FY2016-20. 12 A lasting effect could be ensured if the law were to make an MTDS a legal requirement. Page 28 of 44 The World Bank (P149768) inter-ministerial level between entities and at the BiH institutions level, as well as among international donors. Arrears were growing, but their extent remained unknown. Information on arrears did not exist even at the cantonal level as they were not recorded in the cantons’ treasury systems. Consolidated data on arrears did not exist at the FBiH level for the same reason, but also because Federation treasury systems are not interfaced with cantonal treasury systems. Similarly, the extent of arrears in the health sector in RS were largely unknown. Uncovering the fiscal risks posed by arrears was crucial to the medium-term management of public liabilities through improved fiscal transparency. Arrears were partially related to labor market rigidities (identified both by the SCD and IMF Article IV 2015), as the indefinite duration of CBAs impeded job creation and led to more informality and wage premiums that were higher in the public sector than the private sector. These challenges resulted in the creation of a dual labor market of “insiders,” mainly public sector and SOE workers, and “outsiders,” mainly private sector and informal workers. In most countries in the region, CBAs are of limited duration, ranging from one to five years;13 BiH was the only one in which CBAs had an indefinite time frame. Most notably, less organized private sector workers (where the unionization rate is below 10 percent) are disadvantaged, and employers have stronger incentives to favor more adjustable and cheaper illegal workers over inflexible and costly formal employees. In the public sector, stiff constraints for employers on renegotiating wages and benefits limited the space for companies to respond to cyclical swings and economic shocks. Improvements in public investment management and links to its financing were crucial for fiscal transparency and the medium-term management of public assets and liabilities. The first DPL pillar was closely linked to focus area 1 of the CPF. The second pillar’s objectives were broadly set at enhancing regulatory frameworks to lower medium-term fiscal pressures through different interventions related to public employment, insolvency, and pharmaceuticals. As noted above, labor regulations were burdensome and placed significant costs not only on the public sector but also on private sector development. PA8 reflected the fact that BiH was one of the few countries in the region that had not incorporated reference pricing for drugs. Relevance of Design: Substantial In view of the lessons learned from the previous DPL, the newer operation was appropriately designed as a stand-alone DPL. This allowed enough time to prepare for a complex governance structure and allowed the team to take advantage of the adoption of the Reform Agenda. The prior actions supported the PDOs, as they were clearly linked to achieving the objectives via a broadly coherent results chain. The prior actions tackled the key issues to achieve the two primary objectives and were in general well articulated and calibrated to each entity’s needs. The team also reached out to civil society and development partners to build consensus around the reforms. PA2 in Pillar 1 had an especially well-articulated impact on integrating a consolidated MTDS for better medium-term fiscal planning and improved transparency, while PA3 and PA4 were necessary steps toward calculating and acknowledging the budget arrears contributions with the same objectives. Although the incorporation of the PIP into the BFPs was a necessary condition for medium-term budgeting and fiscal transparency, BFPs still do not serve as strategic 13 For information on worker participation issues in Europe, see https://www.worker-participation.eu. Page 29 of 44 The World Bank (P149768) documents for fiscal planning and a PIP is not necessarily driven by strategic prioritization. The impact of this reform was thus subdued. Also, the risk remains that the actions taken to address arrears will not be sustained and efficient procedures for their resolution will not be established. Relevance of Implementation: Substantial The implementation assistance provided by the World Bank was highly relevant across both pillars in a country with a complex governance structure, a lack of interfaced treasury systems, and a complicated institutional and political context. The World Bank team provided extensive support, especially on arrears consolidation, debt management, labor laws, and insolvency legislation in RS. In addition, support on pension reform was provided, but a related action was ultimately dropped prior to board approval. These measures were coordinated with the IMF and aligned with the diagnostics made by the Fund in its Article IV reports of 2014-15. 3.2 Achievement of Program Development Objectives The program achieved the PDO, as the authorities implemented the reforms in both Pillar 1 and Pillar 2. Pillar 1 outcomes aimed at strengthening the medium-term management of public assets and liabilities for the improved transparency of public finances. The inclusion of all public investment projects and an overall debt management framework that encompasses BiH institutions provided a structure for accomplishing these goals. The recognition of arrears by the respective institutions was the first step toward better management of public assets and liabilities, which had been an unknown area. However, further work needs to be done on the prevention and clearance of arrears. Pillar 2 aimed at enhancing regulatory frameworks to reduce medium-term fiscal pressures. Pillar 2 actions worked to achieve this objective through several sectoral reforms as well as through regulating drug prices, improving insolvency procedures, limiting the duration of CBAs, and capping severance payments for senior workers. The regulation of drug prices was the strongest action in this pillar and had immediate effects on fiscal pressures through a reduction in costs. Improvements in bankruptcy procedures have changed the insolvency framework to deal with the bankruptcies of SOEs, which tended to be socially and politically difficult. Changes in labor market institutions—particularly limiting the duration of CBAs—are important steps toward labor market flexibility, including by the containment of wage costs in the public sector. Pillar I: Strengthen the medium-term management of public assets and liabilities for the improved transparency of public finances. The outcomes were achieved, rating: substantial PA1: All four levels of government prepare a rolling three-year PIP, and the BiH MoF prepares a consolidated PIP at the BiH institutions level, along with a PIP for BiH institutions. All PIP proposals and funded investment projects are captured by the Public Investment Management Information System (PIMIS), which is maintained by the Sector for Coordination of International Economic Assistance. PIMIS is used for the management of public development investments and Page 30 of 44 The World Bank (P149768) provides all entity and BiH institutions budget users with online access to the planning and monitoring of all projects/programs that are defined in the strategic framework and the mid-term and annual. BiH issued an administrative instruction14 on January 28, 2016, to require all budget organizations to ensure that all projects in the PIMIS be aligned with the budget. The PIP database is designed to match public investment proposals with the development strategy for BiH once it has been endorsed. The Sector for Coordination of International Economic Assistance also maintains a donor-mapping database covering donor-funded projects in BiH. Three-year projections of the total cost of PIP projects are incorporated into the BFP for FBiH, RS, and BiH, but there is a need to improve the costing. In FBiH, the PIP, MTDS, and MTEF are linked. Although the three-year costing of projects is incorporated into the BFP, BFPs generally still do not carry a strategic relevance and the pipeline projects are not necessarily followed. There is a need for follow-up work in public investment management to make this framework more robust and efficient.15 PA2: Although the BiH institutions MoF has had an obligation to prepare an MTDS since 2005, according to the law on borrowing and guarantees, this obligation was not carried out until the country received World Bank technical support through the DMF and policy coordination through the DPL. Given the context, the solution had to be tailored to BiH, and MoF counterparts noted that without Bank support, this obligation would not have been met. The ministries were then set to plan a comprehensive strategy. The MTDS helped enhance debt management in BiH, where the scope for deficit finance is limited, as the Government has no access to foreign finance other than from international financial institutions and its ability to raise domestic debt is limited. Also, BD was included in the debt management scheme at the request of the BiH MoF, since the District has only the Finance Directorate and its participation in the total stock of external government debt is very low. The first strategy was published in 2016 and the most recent strategy in 2018, the third MTDS. The MoFs noted that World Bank support also helped to create more awareness of the importance of a coordinated strategy at the BiH institutions level for debt management, both for the government and the donors.16 PA3: In FBiH, the arrears problem is long-standing, and the entity still lacks a systematic approach to addressing it. Public sector arrears not only weakened fiscal discipline but also imposed fiscal risks, hindering the ability of the authorities to execute fiscal affairs prudently. FBiH had not clearly defined what constitutes arrears and there were no clearly stated deadlines after which outstanding obligations for the main categories of expenditure were overdue and considered to be arrears. In addition, there was no regular monitoring and reporting of arrears until January 2016. Better understanding of the scale 14 https://www.mft.gov.ba/bos/images/stories/budzet/gfo/Instrukcija%201%20za%20DOB%202017-%202019%20bos.pdf. 15 For BiH, the BFP can be found at: https://www.mft.gov.ba/bos/images/stories/budzet/2017/Dokument%20okvirnog%20proracuna%20Institucija%20BiH%20za%20razdoblje%2020 18.-2020.pdf. For FBIH: http://www.fmf.gov.ba/v2/stranica.php?idstranica=147&idmeni=15. For RS: http://www.vladars.net/sr-SP-Cyrl/Vlada/Ministarstva/mf/PPP/Pages/Dokument_okvirnog_budzeta.aspx. 16 The RS MTDS can be found at: http://www.vladars.net/eng/vlada/ministries/MoF/dm/Pages/default.aspx. The FBiH MTDS can be found at: http://www.fmf.gov.ba/v2/stranica.php?idstranica=161&idmeni=17. The BiH MTDS can be found at: http://www.mft.gov.ba/bos/images/stories/javni_dug/2015/Srednjorocna%20strategija%20upravljanja%20dugom%20BiH%20- %20BOS%20za%20web.pdf. Page 31 of 44 The World Bank (P149768) and subsequent resolution of arrears is central to improving the execution of fiscal policy and the quality of medium-term fiscal planning in FBiH. In collaboration with the authorities, the World Bank is preparing a program for a systematic approach to arrears data collection that is in the final stage of preparation and aims to prevent and clear the arrears in FBiH. With PA3, a first step has been accomplished by taking stock of arrears and recognizing their existence. During a workshop held on November 15, 2015, arrears data were presented to the fiscal coordination body with a clear outline of the problem in each canton for which budget users supplied data using the form developed under the World Bank technical assistance. Although the indicator states that arrears should be presented as of end-2017, the presentation to the fiscal coordination body was concluded in November 15, 2015, and the World Bank team managed to do an additional round of data collection, including tax authority data and data on a number of SOEs, to have a broader understanding of the overall problem in FBiH. New data were presented through a consecutive workshop held in April 2017 to cantonal and federal MoFs. Some cantons have also started to address the arrears issue. Hence, the indicator was considered met with the formal presentation to the fiscal coordination body and the subsequent workshop, but at an earlier date. PA4: A reporting system on the accumulated liabilities in the health sector of RS has been set up. Based on a decision of the RS government, the RS Ministry of Health and Social Welfare in March 2016 introduced a reporting requirement that publicly owned health facilities set up a regular reporting system of accumulated liabilities in the RS health sector. The reporting system is designed to capture health facilities’ financial performance data, including revenue, expenditures, liabilities, and investments, as well as some non-financial information, such as staffing and service provisions. report, which is regularly updated monthly, using an electronic database and administered by a team from the ministry, is internally shared with the RS MoF. The health sector arrears data (and respective power point presentation) as of December 31st, 2016 was also presented to the RS Cabinet on July 10, 2017 with the aim to commence prevention and resolution of health sector arrears.17 The RS Ministry of Health and Social Welfare and RS MoF have confirmed that collection of data on arrears occur on a regular basis and respective discussions are held between the two ministries. Pillar II: Enhance regulatory frameworks for lower medium-term fiscal pressures. The outcomes were achieved, rating: substantial PA5: The indefinite duration of CBAs posed challenges for BiH labor markets and the economy’s ability to adjust to economic shocks. It also created additional cost pressures because of the higher wage premium in the public sector compared to the private sector. Limiting the duration of CBAs has certainly contributed to the improved functioning of the labor market. Following the adoption of amendments to the entities’ labor laws,18 a general collective agreement was reached first in FBiH and 17 The Ministry of Finance shared material that was presented to the RS Cabinet with the ICR team. 18 The Labor Law in FBiH was published in the Official Gazette of FBiH No. 62/15; the Labor Law in RS is available at: http://www.narodnaskupstinars.net/sites/default/files/upload/dokumenti/zakoni/lat/usvojeni_zakoni/Zakon%20o%20izmj%20i%20dop%20Zako na%20o%20prekrsajima%20RS.zip. Page 32 of 44 The World Bank (P149768) later in RS in 2016, while most branch agreements concluded in both entities during 2016-2017It is possible that new CBAs have helped to contain the wage cost pressures in the public sector, but this is difficult to ascertain definitively, given the short time frame since the new agreements went into effect. In that period of time, the public sector wage bill could be affected by factors other than CBAs, such as specific actions taken to reduce wages in the sector. During 2015–16, expenditures were reduced to generate fiscal surpluses. The consolidated general government data for BiH19 show that the public sector wage bill did decline by 0.5 percentage points of GDP, remaining at 11 percent in 2016–18 compared to 11.5 percent in 2015 (the base year) and 12.1 percent in 2014. At the same time, nominal average net wages in the economy were growing at a rate of 0.9 percent in 2016 and 1.6 percent in 2017, while GDP was 3.1 and 3 percent, respectively. Thus, the result indicator cannot be fully attributed to limiting the duration of CBAs. PA6: Although respective changes to labor legislation were introduced, ultimately helping to reduce the costs of laying off senior-level public sector workers, the quantitative effects of this action are not directly trackable. The scale of the fiscal pressures stemming from public sector workers had not been quantified in a way that would ensure that this measure could tackle the source of the additional budget pressures. It would have been better to design a results indicator that would reflect the fiscal impact of the changes in the law, rather than the changes in the law which is the same as the prior action If amendments to the labor laws are oriented toward planned layoffs in the public sector, it would be useful if this were more explicitly specified. Moreover, if severance pay is decreased, it is important to ensure that sufficient risk-pooling instruments are available, such as retraining opportunities, early retirement schemes, and other social support measures. PA7: According to the data collected from RS district commercial courts, bankruptcy proceedings were initiated in three SOEs by the end of 2017 under the new Insolvency Law of Republika Srpska, namely, Banka Srpske a.d. Banja Luka, Robne rezerve a.d. Banja Luka, and Komunalno preduzece “Lisina” a.d. Sipovo. In terms of its impact on the business environment, the new Insolvency Law (NIL) in RS shortened the average duration of bankruptcy proceedings from 51 to 12 months, that is, by 425 percent for companies with assets that initiated bankruptcy proceedings under the NIL, and from 33 to 11 months, or 300 percent, for all companies—with or without assets—that initiated bankruptcy proceedings under the new legislation. The NIL thus facilitated a 203 percent growth in the number of solved cases during the observed period for companies that initiated bankruptcy proceedings under the new law. For the sake of comparison, the number of solved cases under the old Insolvency Law declined by 61 percent during the same observed period. In addition, the new law increased the average amount of realized assets by 10 percent (from 51 to 61 percent) by means of the realization of assets of the bankruptcy debtor that initiated bankruptcy proceedings under the NIL. The previous insolvency regime was tilted toward liquidations rather than reorganization. The legislative change led 19 According to the Central Bank of Bosnia and Herzegovina (CBBiH), general government includes consolidated administrative data collected from the MoFs of all levels of government, Social Security funds of all levels of government, and the entities’ Public Company for Roads and Public Companies for Motorways. Annual data for consolidated revenue/expenses include local-level governments (municipalities and towns) and the Public Company for Roads of all levels of government of FBiH, Public Company for Roads of RS, Public Company for Motorways of FBiH, and Public Company for Motorways of RS. Page 33 of 44 The World Bank (P149768) to the preservation of 538 jobs because of the successful restructuring proceedings (pre-bankruptcy settlements) of four companies. PA8: BiH was one of the few countries in the region that did not regulate wholesale pharmaceutical prices.20 A comparison of wholesale pharmaceutical prices in BiH in 2014 with prices in Croatia, Serbia, and Slovenia showed that prices in BiH were higher for many drugs. Price differences varied more than 150 percent in some cases, with an average price differential of roughly 21 percent due to the inadequate regulation of the market. In 2011, the BiH CoM adopted a rulebook to regulate the maximum wholesale prices of pharmaceuticals, but it was not implemented. A new rulebook, adopted by the CoM on November 24, 2016, regulated the prices of prescription drugs and some medicines with the aim of lowering prices by 10 percent. Reduced drug prices were expected to result in savings for the budget as well as the health insurance fund, which could then afford to provide more medicines to its insured clients. According to a report of the BiH Agency for Medicinal Products and Medical Devices for 2017, the price adjustments based on the rulebook have led to price decreases in the top 20 prescription medicines, according to their INNs, from 162 million BAM in 2015 to 141 million BAM in 2017 for the same volume of drugs, below the DPL target by 5 million BAM.21 In addition, the agency estimates overall drug consumption savings to be approximately 56 million BAM, equivalent to 11 percent of the public sector’s annual spending on drugs in 2017 (for non-prescription drugs, based on a fixed volume comparison between 2016 and 2017). 3.3 Justification of Overall Outcome Rating Rating: Satisfactory The PDOs were highly relevant, and the prior actions were closely linked to the PDOs. Out of eight prior actions, all results indicators are fully achieved. In short, the results of the Public Finances DPL program were attained and the overall targets in increasing public sector efficiency were achieved. The DPL and the strong ASA program strengthened the management of public assets and liabilities and improved the transparency of public finances by supporting the adoption of an MTDS and PIPs at the BiH institutions and entity levels and introducing reporting requirements on arrears for budget users in FBiH and health sector arrears in RS. The World Bank program also helped contain fiscal pressures by addressing structural challenges in public employment and public enterprises through reforms of the labor law, new bankruptcy procedures, and the adoption of regulations on pharmaceutical prices. For example, the cost savings resulting from PA8 enabled BiH to add more contemporary drugs that address some of the country’s leading causes of morbidity (for example, type 2 diabetes mellitus) to the list of the top 20 drugs, thereby making significant progress on improving the population’s access to medicines. PA8 was clearly a strong measure that will lead to important savings in the medium term. DPL Implementation was longer than expected due to a range of factors, including slightly optimistic time frames that were forced to confront the complexity of the domestic institutional environment. Nevertheless, targets were met on time. 20 https://www.radiosarajevo.ba/vijesti/bosna-i-hercegovina/cijene-lijekova/264172. 21 Forty-four medicines that were on the list in 2015, with a volume amounting to 2 million BAM, do not appear on 2017 list. For the purpose of matching/comparing data between the years, the value of particular medicines from 2015 was added to the 2017 total. Page 34 of 44 The World Bank (P149768) 3.4 Overarching Themes, Other Outcomes and Impacts (a) Poverty and Social Impact The policy actions supported by this operation were expected to have a positive impact on poverty reduction and shared prosperity over the medium term. It is difficult to ascertain and give credit to the impact of the prior actions, as the country’s higher economic growth since 2015 might have led to poverty reduction. Similarly, better medium-term fiscal planning could have contributed to more effective fiscal policy and hence a better allocation of fiscal resources. However, most of the actions are expected to have a medium- to long-term impact in the first pillar. The prior action on the regulation of pharmaceutical prices has generated positive social outcomes by increasing the affordability of many much-needed drugs, thereby indirectly benefiting the poor and vulnerable categories of the population. The policies supported by the DPL were not expected to have a significant impact on the environment. (b) Institutional Change/Strengthening The first pillar prior actions led to important contributions in terms of strengthening institutional capacities through improved medium-term fiscal planning. The 2014 PEFA report ratings for all four authorities were at only a D+ in relation to a multi-year perspective on fiscal planning, expenditure, and budgeting, which meant that the minimum requirements were not met. The DEMPA (2013) rated the first Debt Performance Indicator (DPI-1), the legal framework, at only a C, as the legal requirement to develop an MTDS was not adhered to. The MTDS provided a comprehensive framework for financing plans for both the entity governments and the BiH institutions to be implemented over the medium term to achieve the desired composition of the government debt portfolio. Similarly, the incorporation of the PIP in the BFP led to higher transparency in fiscal planning. Given the level of decentralization in the country, the MTDS helped construct a state-level umbrella strategy that was comprised of two entity-level strategies and one for BD. The World Bank offered further technical assistance to work with the authorities to develop the technical skills necessary to ensure that the appropriate debt department can carry out a DSA. PA8 improved the public procurement of drugs by providing a framework for the regulation of wholesale drug prices. 4. ASSESSMENT OF RISK TO DEVELOPMENT OUTCOME Rating: Substantial The risks to development outcomes are substantial. In 2015, the DPL was discussed in the context of the adoption of the reform agenda and served as a platform for structural reforms in BiH. However, reform momentum, which was strong during the first year of implementation and led to particularly significant advances in fiscal sustainability and the business climate, has recently slowed. A number of the reforms included in the DPL, such as improvements in public investment management and arrears clearance, require further progress if they are to have a significant impact. Continuity in these areas will not be sustained without a follow-up operation. Page 35 of 44 The World Bank (P149768) 5. ASSESSMENT OF BANK AND BORROWER PERFORMANCE (a) Bank Performance in Ensuring Quality at Entry Rating: Satisfactory “Quality at entry” measures the extent to which the World Bank identified, facilitated the preparation of, and appraised the operation to ensure that it was likely to achieve the planned development outcomes and was consistent with the Bank’s fiduciary role. The Bank’s response to BiH’s request for budget support was timely and adequate. Moreover, the DPL’s objectives were appropriate to the goals of improving the efficiency of public spending and containing fiscal pressures, particularly given the size of public spending and inefficiency issues. The recently endorsed reform agenda provided a window of opportunity to support difficult and meaningful reforms, and the choice of a DPL was the right one. This conclusion is also endorsed by the findings of the PLR. The choice of narrower and more focused content has ensured success. In this regard, a series of DPLs over a longer time span could pose a commitment risk in the context of BiH. The Bank realized from the start of DPL discussions that political buy-in and support from the public would be crucial to successful program implementation. Technical assistance activities helped focus on the bottlenecks and streamline the actions prior to their actual implementation. In that sense, the World Bank chose an appropriate strategy of keeping the PIP and MTDS on the agenda and actively engaging all stakeholders to address the shortcomings of the current system and develop the foundations of a more comprehensive medium-term fiscal framework. However, continuity could not be ensured for some of the actions, such as arrears clearance, as this was a stand-alone operation. The team recognized the risk at the onset. Despite the slow progress on reform implementation, the very recognition of arrears was an important step in the right direction. The World Bank’s engagement through the DPL and the extensive technical assistance ensured that it retained a seat at the table when the reform agenda was considered; it also enhanced the collaboration between entity governments, the BiH government, and donors. In many cases, the counterparts noted the raised awareness of public investment management, debt management, and arrears. The World Bank also had a comparative advantage in supporting the private sector–oriented reforms and the critical regulation of drug prices. (b) Quality of Supervision Rating: Satisfactory “Quality of supervision” refers to the extent to which the World Bank proactively identified and resolved threats to the achievement of development outcomes and the Bank’s fiduciary role. The World Bank followed the implementation of the prior actions very closely. There was very good coordination with the MoFs of the entity and BiH governments. Technical assistance to support key reforms was instrumental in achieving results and was also part of the M&E framework. The coordination with the prime minister’s office was also critical in tracking results and improving coordination between the different governments and within any one government. There was hands-on technical assistance for the first pillar. The IFC project on insolvency was instrumental in harmonizing laws across the entities. However, the operation did face risks from the unexpected changes to pension legislation; the team followed the developments closely, assessed the fiscal impact, and dropped this prior action. However, in the end, the Page 36 of 44 The World Bank (P149768) law was passed without any changes, thanks to the support provided by the DPL. Donor coordination (especially with the IMF) also helped increase the quality of supervision. However, for results indicators 5, 6, and 7, the M&E arrangements were inadequate, with a lack of clarity in terms of the definition, but also the attribution and documentation of the necessary calculations. (c) Justification of Rating for Overall Bank Performance Rating: Satisfactory The rating of the Bank’s overall performance confirms the decision by World Bank management to respond to the BiH Government’s request for support and enter a high-risk program that could potentially bring remarkable and sustainable results. The Bank team made efforts to mitigate the identified risks by: (i) having extensive discussions with all policy makers (at both the political and technical levels) on the need for and design of the reform program, and (ii) raising awareness among the different levels of government, the public, donors, and the international community on the importance of the DPL-supported reforms. The operation supported meaningful progress in several areas: improving medium-term fiscal management, reducing fiscal risks through increased transparency, and relieving medium-term pressures through selected reforms in labor regulations, insolvency, and the regulation of drug prices. Given the adequate preparation, identification, and supervision, the Bank’s performance on this DPL is rated satisfactory. 3.5 Borrower Performance This refers to the extent to which the borrower (including the government and implementing agencies) ensured quality of preparation and implementation and complied with covenants and agreements toward the achievement of the development outcomes. Government/Implementing Agency Performance 1. BiH Ministry of Finance and Treasury Satisfactory and Entity Ministries of Finance 2. FBiH Satisfactory 3. RS Satisfactory (a) Government Performance Rating: Satisfactory Complexities related to the government structure in BiH were largely overcome by a Reform Agenda that was endorsed by the BiH institutions and the entity-level governments. The coordination mechanisms set up by the MoFs worked well. Each entity ministry had formed DPL units to work with the Bank’s DPL team, which proved instrumental in achieving results that had a genuine impact. The DPL also contributed to improved coordination between the entities and the BiH institutions. Page 37 of 44 The World Bank (P149768) (b) Implementing Agency or Agencies Performance Rating: Satisfactory The main implementing agencies were the BiH MoF and Treasury, FBiH MoF, RS MoF, FBiH Ministry of Labor and Social Policy, RS Ministry of Health and Social Welfare, RS Ministry of Justice, BiH Drug Control Agency, and RS Ministry of Labor, War Veterans and Disabled People's Protection. For the relatively more technical reforms, results were achieved and continuity was ensured through the strong ownership of the implementing agencies, which led to improvements in medium-term fiscal planning through implementation of the MTDS and the incorporation of the PIP in the BFPs. These processes are currently incorporated in the budget calendars. However, the arrears consolidation in FBiH requires a more concerted effort to ensure continuity, particularly at the level of the cantons. Although some cantons have started to address a number of issues related arrears, others have not done so. The RS Ministry of Health continues to collect information monthly on the level of arrears, which should ensure that continuity of the results is achieved. The BiH Drug Agency closely follows the developments in the markets and publishes an annual report on the cost of drugs, though continuity is at risk due to understaffing. (c) Justification of Rating for Overall Borrower Performance Rating: Satisfactory There were effectiveness delays related to the complexity of the approvals needed by the various authorities in BiH. In practice, on average it took almost 11 months; in some cases, it took more than 18 months. It is difficult to rapidly meet administrative conditions for project effectiveness due to undoubtedly complex signing and ratification procedures at the entity and BiH institutions levels, which are often cited as the main reasons for effectiveness delays. Nevertheless, there were constraints to coordination between the two entities because of the constitutional setup, and there should have been more concerted efforts to build consensus on the necessity of these reforms. Moreover, coordination was sometimes lacking within entity institutions. Finally, despite the clear need to gain broader public support for the social pillar of the DPL, the authorities made only minor efforts to engage with the public, as they were more focused on reaching agreement with the beneficiaries than gaining popular support for the reforms. 6. LESSONS LEARNED The DPL was instrumental in improving fiscal sustainability in the BiH, thereby contributing to realization of selected elements of the Reform Agenda. The WBG has been a leading partner in five out of the six reform areas of the Reform Agenda in a politically challenging environment. Despite a reform slowdown due to fragile government coalitions and weak socioeconomic and political cohesion, reform progress resumed when BiH submitted responses to the EC’s questionnaire on readiness for EU candidate status. Irrespective of the slowdown, the Reform Agenda has continued to provide a framework for WBG engagement in BiH, which has been strengthened by interactions over the course of DPL preparation, monitoring, and evaluation. While the DPL as an instrument provided a major push for policy Page 38 of 44 The World Bank (P149768) changes, the policy dialogue that was created by DPL was also very crucial for the preparation and the implementation of the reform agenda. The quality of the operation depends on the technical assistance delivered. Technical assistance helped to build the necessary capacity for implementation of the prior actions and created a push for reforms by ensuring the necessary ownership of economic policy change. Debt management technical assistance (P151505, P147094) helped to entrench the MTDS into the fiscal policy planning framework. This activity expanded on the recommendations made in the 2014 PEFA report, including the need to integrate the MTDS into the strategic fiscal policy planning process. In the end, the MTDS for BiH was one of the very few national-level strategies that also provided a unifying policy framework. Technical assistance and sectoral work of the relevant Global Practices in BiH helped to strengthen WBG engagement on the appropriate policy and institutional changes, including at a time when a consensus over the reform agenda needed to be strengthened. A focus on the problems relevant to the general public, such as the cost of medicines, paved the way for public engagement as a factor of policy change. This observation is drawn from the achievement of PA8, which was pushed by the strong public campaign, in which the World Bank and the Country Manager played a visible role.22 The strong donor coordination to push for this important policy reform was a major factor in the adoption of the rulebook. The media had consulted with the World Bank experts and supported the necessity to adopt the rulebook to regulate pharmaceutical prices on the BiH market by referring to estimates of annual savings. Indeed, the absence of a state-level rulebook on the cost of medicines resulted in higher prices; indeed, BiH had lost more than 600 million BAM over the 2010–15 period. Moreover, the leaders of pensioners associations in BiH, representing about 660,000 people, demanded that the BiH CoM pass a rulebook on pharmaceutical prices, arguing that lower costs would benefit communities and health funds and help prevent mortality.23 The pensioners group reminded the Government that adoption of the rulebook had been delayed in the past, preventing BiH from receiving a DPL. These demands created a more enabling environment for policy change and induced its implementation. In BiH, the choice between a stand-alone versus a programmatic approach was influenced by the political and institutional context (see box 1 for details). The country’s political system is organized such that elections are held every two years, requiring that any reforms be adjusted to the general and municipal election cycles. Such an adjustment may compromise a DPL’s focus on results and can lead to an excessive use of the flexibility option (e.g., dropping essential triggers or accepting partially met triggers). Sufficient time is required for the actions to be calibrated to the needs of the entities, and the role of all stakeholders—not only the Government—should be adequately assessed in the design of reforms. Political complexity could make it difficult to arrive at an initial consensus on reforms, but political cycles, coupled with the presence of strong interest groups against reforms, could derail an entire reform program altogether. This rendered the stand-alone option to be the most suitable approach for BiH and a way to take advantage of a narrow window of opportunity to pursue reforms in a complex political environment. 22 Country Manager flagged that BiH has the most expensive medicines in the region, while adoption of rulebook on medicine remained the one remaining condition not met (FTV broadcast by Gordana Antonic). 23 Faktor, August 30, 2016. Page 39 of 44 The World Bank (P149768) It is crucial to identify the policy areas that are a common concern for the entities as a way to look beyond the political cycles. In this regard, the DPL relied on and contributed to advancing a new shared understanding of the need to move forward with structural changes in the field of public finance. The Reform Agenda, endorsed by the BiH CoM and the entity-level governments of FBiH and RS in July 2015, provided the necessary blueprint, while the DPL and its prior actions operationalized and put in place a set of important policy measures with the support of the World Bank and other international partners. As a result, the DPL became a policy framework anchor for the authorities and an engagement platform for other donors. This was clearly reflected in the Reform Agenda, which provided strong links to the DPL—and the World Bank support in general. Donor coordination on the rulebook (PA8) and the strong public outreach were also important in generating an additional impetus for change in a difficult and contested area. While common objectives are important, actions need to be calibrated to the needs of the entities. Due to a complex and multi-layered constitutional setup and different developmental needs in the entities, progress on the reforms differs. It is therefore problematic —and ultimately ineffective—to have the same prior actions for each entity. Rather, they need to be calibrated for each entity, addressing the entity- specific challenges and constraints, while being compatible with the broader set of actions at the BiH institutions level, where a more concerted effort to build consensus is required. The World Bank must be flexible in aligning its instruments to the reform commitment. The DPL successfully capitalized on the reform momentum in 2015 manifested in the adoption of the reform agenda. Early reform efforts supported through the DPL delivered positive results in moving long overdue reforms forward in public sector finance, the labor market, and the business environment. The lower-than- expected pace of reforms—and the low interest in them given the current fiscal surpluses—may shift attention to forms of support other than the DPL. Nevertheless, the DPL engagement clearly brought results in selective reform areas, ensured Bank engagement in other fields of expertise, and helped maintain a dialogue in key sectors. 7. COMMENTS ON ISSUES RAISED BY BORROWER/IMPLEMENTING AGENCIES/PARTNERS (a) Borrower/Implementing Agencies Page 40 of 44 The World Bank (P149768) The World Bank declared the loan effective on May 25, 2017, but the effective date was extended to February 21, 2018, and renewed on March 23, 2018. The DPL was ratified on January 17, 2018.24 The loan was withdrawn by RS Treasury Single Account on March 30, 2018. In RS, the majority of the prior actions (1,2, 5, 6, and 7) were achieved before loan effectiveness. The implementation delay was related to the fact that the adoption of the Ordinance on Medicines by the BiH CoM took longer than expected, resulting in the allocation of funds to RS in early 2018 instead of 2017, which diverged from RS’s budget plan for 2017. (b) Co-financiers There were no co-financiers. (c) Other partners and stakeholders No comments were received from the other partners. ANNEX 1: BANK LENDING AND IMPLEMENTATION SUPPORT/SUPERVISION PROCESSES 24 Published in the “BiH Official Gazette - International Agreements,” on February 15, 2018. Page 41 of 44 The World Bank (P149768) (a) Task Team members Responsibility/ Names Title Unit Specialty Lending Olasupo Olusi Senior Economist GMTE3 Task Team Leader Sandra Hlivnjak Senior Economist GMTE3 Task Team Leader Ashley Taylor Senior Economist OPSCE Macro-fiscal Zoran Anusic Senior Economist GSP03 Pensions Timothy Johnston Program Leader LLC8C Health Johannes Koettl- Senior Economist GSP05 Labor Broadmann Senior Financial Sector Igor Matijevic GFCE2 Insolvency Specialist Senior Social Protection Mirey Ovadiya GSP03 Labor Specialist Josefina Posadas Senior Economist GSP02 Labor Gianfranco Bertozzi Lead Financial Officer FABBK Treasury Maria Davalos Senior Economist GPV04 Poverty Luka Voncina Consultant GHN03 Health Boryana Gotcheva Consultant GSP03 Labor Senior Environmental Esma Kreso Beslagic GENEC Environment Specialist Social Development Social aspects, citizen Ifeta Smajic GSU03 Specialist engagement Mirjana Galonja Private Sector Specialist GFCE2 Insolvency Nejme Kotere Program Assistant ECCWB Administrative support Samra Bajramovic Program Assistant ECCBM Administrative support Administrative support Senad Sacic Program Assistant ECCBM Luz Meza-Bartrina Senior Counsel LEGLE Legal Luis Schwarz Senior Finance Officer WFACS Financial Specialist Page 42 of 44 The World Bank (P149768) (b) Staff Time and Cost Staff Time and Cost (Bank Budget Only) Stage of Project Cycle USD Thousands (including No. of staff weeks travel and consultant costs) Lending Total: 58.47 268,408.79 Supervision/ICR 7.16 41,439 Total: 65.63 309,847.79 ANNEX 2: BENEFICIARY SURVEY RESULTS ANNEX 3: STAKEHOLDER WORKSHOP REPORT AND RESULTS ANNEX 4: SUMMARY OF BORROWER'S ICR AND/OR COMMENTS ON DRAFT ICR ANNEX 5: COMMENTS OF COFINANCIERS AND OTHER PARTNERS/STAKEHOLDERS ANNEX 6: LIST OF SUPPORTING DOCUMENTS Page 43 of 44 The World Bank (P149768) MAP Page 44 of 44