Comprising 43 projects, the $5.6 billion of World Bank support to the region over the past fiscal year consists of $4.7 billion in commitments from the International Bank for Reconstruction and Development (IBRD) and $0.9 billion from the International Development Association (IDA).
In addition, the Bank’s Europe and Central Asia region produced important research and analytical work about critical issues in the region this fiscal year. It also signed 36 Reimbursable Advisory Service agreements with 13 countries in the region for a total amount of $47 million. These agreements provide technical advice to pension and education systems reform, public sector governance and institutional capacity-building, planning and management of infrastructure investments, and other issues.
“Europe and Central Asia was the region hardest hit by the 2009 global economic crisis, and remains the slowest to recover. Although a modest rebound has occurred since 2010, GDP growth grew just 2.2 percent in 2013, and is expected to be only 1.7 percent in 2014,” said Laura Tuck, World Bank Vice President for the Europe and Central Asia Region. “The World Bank supported clients’ needs over the past fiscal year with innovative, demand-driven operations. We also acted quickly and effectively to respond to urgent situations, such as the crisis in Ukraine, and the catastrophic floods in Bosnia and Herzegovina and Serbia in May.”
The World Bank Group stepped up its assistance in Ukraine to help stabilize the economy and support the delivery of critical public services. In May 2014, the Board approved a total of $1.4 billion in IBRD loans, including two large investment operations to improve municipal service delivery and a $750 million multi-sector Development Policy Loan (DPL). In addition, the Board approved a $250 million IFC investment project in support of a poultry private sector company. These four projects are part of the World Bank Group’s overall assistance to Ukraine announced in March 2014, which aims to provide up to $3.5 billion by the end of 2014.
In mid-May, Bosnia and Herzegovina (BiH) and Serbia were hit by the worst flooding in more than 120 years. By June 30, the World Bank had approved a $100 million credit for the Floods Emergency Recovery Project for Bosnia and Herzegovina to finance critical goods, such as fuel and electricity imports, as well as the reconstruction of local infrastructure. The project was prepared in record time in view of the dire situation in the country and is financed from the International Development Association’s (IDA) Crisis Response Window. The Bank is also working with the BiH authorities to strengthen flood protection and implement early warning systems, including through the $24 million credit for the Drina Flood Protection Project, which is improving flood management of the Drina River in and around the towns of Bijelijna and Goražde. This combined immediate response will support economic recovery in the affected areas.
In Serbia, the Bank has contributed to the joint Government, EU, UN, and World Bank Recovery Needs Assessment that is underway, and is in the process of restructuring its roads rehabilitation project to prioritize roads sections damaged by the floods. The Bank is also preparing an emergency recovery loan, as requested by the Government, to address urgent needs.
World Bank ECA Strategy
The ECA region’s strategy focuses on two main pillars: 1) competitiveness and shared prosperity through jobs, and 2) environmental, social, and fiscal sustainability, including through climate action. Governance and gender continue to be thematic priorities within interventions of both pillars.
Increasing competitiveness and shared prosperity through jobs
The Bank is supporting competitiveness and job creation in the region in many ways. It has increased access to finance for small- and medium-size enterprises in Bosnia and Herzegovina and Croatia; helped improve skills and increase labor market flexibility in the former Yugoslav Republic (FYR) of Macedonia; invested in infrastructure in Azerbaijan and Ukraine; strengthened financial sector regulations, the business environment, and policies conducive to innovation in FYR Macedonia and Serbia; and offered advice on innovation, trade, and logistics systems in Poland and Turkey.
The Bank published several important reports on the region during the fiscal year. The report Back to Work: Growing with Jobs in Europe and Central Asia examines why unemployment in ECA is high and job creation is weak, despite impressive reform efforts in many countries of the region and a decade of strong economic growth before the 2009 crisis.
The report Shared Prosperity: Paving the Way in Europe and Central Asia suggests a new approach to development that combines the quest for economic growth with a concern for the inclusiveness of that growth.
The region also launched its Diversified Development: Making the Most of Natural Resources in Eurasia report this fiscal year, produced in partnership with the Eurasian Development Bank. The report finds that having natural resources does not have to be a curse – it can be a blessing if countries ensure proper management of revenues, invest earnings in building up physical and human capital, and improve institutions.
Environmental, social, and fiscal sustainability, including through climate action
The Bank is supporting Armenia and Croatia in their efforts to improve the efficiency and fiscal sustainability of their safety net and pension systems. It is helping improve health care systems in Bulgaria, Croatia, Kosovo, Moldova, Romania, Tajikistan, and Uzbekistan. It is working to strengthen social cohesion by supporting community-driven development and social accountability in the Kyrgyz Republic and Tajikistan. In Romania, it is helping governments improve economic opportunities and public services for disadvantaged communities, including the Roma and unemployed youth.
The Bank works with countries in designing and implementing reforms to improve the efficiency and fiscal sustainability of their pension, social protection, and health care systems. Its report Inverting Pyramid: Pension Systems Facing Demographic Challenges in Europe and Central Asia documents how pension systems in the region are facing increasing pressures from aging populations and a shrinking labor force, and countries require comprehensive, long-term, and socially sustainable reforms to pension systems so that they can protect the elderly poor and future generations.
Climate adaptation and energy efficiency remain strategic priorities for Europe and Central Asia, the most energy-intensive region in the world. Greater energy efficiency delivers both environmental and economic gains. In Belarus, Bosnia and Herzegovina, and Turkey, the Bank is working to achieve these gains through policy reforms (such as energy pricing) and investments in both public infrastructure and private industry, including renewable energy and energy efficiency. Cumulative energy savings from the portfolio of Bank-supported projects in the region are equivalent to taking 1.4 million cars off the roads.
The Bank is also working with client countries as they adapt to climate change. It is supporting improved water resource management (flood protection, water loss reduction, irrigation efficiency) in Kazakhstan; climate-smart agriculture (switching to more resilient crops) in Tajikistan; and improved institutional capacity for better weather forecasting and climate change monitoring in the Russian Federation.
To facilitate the exchange of ideas and solutions for addressing climate change, the Bank holds an annual Central Asia Climate Knowledge Forum. The second forum, held in May 2014, concluded with a call from all five Central Asia countries for a regional program on climate resilience, to be prepared by the World Bank, in partnership with Central Asia countries and development partners. Additionally, the Reducing the Vulnerability of Albania’s Agricultural Systems to Climate Change reports examine the challenges and opportunities being created in the agriculture sector in Albania, the FYR Macedonia, Moldova, and Uzbekistan.
International Finance Corporation (IFC)
The International Finance Corporation (IFC) this year supported private sector development in ECA with $4.7 billion in commitments in 117 projects, including $1.2 billion in funds mobilized from its partners. IFC also delivered a solid advisory program worth $40 million with a focus on projects in IDA countries, fragile and conflict affected countries, and climate change.
“IFC had another strong year in Europe and Central Asia as the weak economic performance in the Eurozone and political instability in parts of the region continued to affect many countries and businesses in the region,” said Tomasz Telma, IFC Director for Europe and Central Asia. “IFC’s efforts to support private sector development focused on helping small- and medium-enterprises, developing capital markets, tackling climate change, boosting food security by supporting agribusiness, and increasing private sector participation in infrastructure.”
Highlights of IFC’s program addressing these regional priorities include:
The region’s businesses received strong support through increased access to finance. IFC provided $1.1 billion of financing to banks for on-lending to smaller companies, including almost €150 million as equity investment in Raiffeisen Bank International to be channeled to small- and medium-enterprises (SMEs) via subsidiaries across Central and Eastern Europe.
IFC continued to build and strengthen regional capital markets with several landmark deals, issuing the first foreign corporate bond in Armenia.
IFC committed over $600 million in transactions addressing climate change.
The region’s agribusiness sector received $400 million in commitments for projects aimed at boosting the region’s food production and increasing food security. This included the first $175 million commitment of IFC’s $250 million financial package to MHP, Ukraine’s leading poultry producer, which was raised amid challenging market conditions.
With public sector budgets strained, the development of public-private partnerships (PPPs) has been a priority for governments across ECA. IFC’s PPP advisory team is assisting the implementation of CASA-1000 in Central Asia, a transformational power transmission project to carry summertime hydropower surpluses generated in Kyrgyzstan and Tajikistan to Afghanistan and Pakistan.
IFC supported development of transport and municipal infrastructure, including two new tramway lines in Izmir in Turkey, improvements of heating systems in Timisoara and Botosani in Romania, and the award-winning transaction to build a new modern terminal at the Zagreb International Airport in Croatia.
IFC delivered impact in less-developed and frontier areas of the region, investing almost $600 million.
Multilateral Investment Guarantee Agency (MIGA)
During fiscal year 2014, the Multilateral Investment Guarantee Agency (MIGA) provided support for six projects with $1.6 billion in political risk insurance and credit enhancement coverage in Europe and Central Asia (ECA). Through these guarantees, the Agency continued to bolster the region’s financial sector – a strong focus for MIGA in ECA. MIGA’s landmark support to Hungary’s Exim Bank this year represented the first use of the Agency’s credit enhancement product for a bond issue.
“Support to middle-income countries is an important pillar of MIGA’s strategy,” said Keiko Honda, MIGA’s Executive Vice President and CEO. “Projects MIGA insures in the region increase banks’ ability to lend, diversify the kinds of financial services available to people and businesses, and attract new capital sources to keep industry moving forward.”