The World Bank and Institution Building in the New Member States and Candidate Countries

1. The World Bank and Institution Buildingin the New Member States and Candidate Countries Financing Growth and Cohesion in the Enlarged EU Daniela Gressani, World Bank Brussels, November 24, 2005

2. Institutions are Keyto Good Policies and Good Implementation • The World Bank has continuously worked with client countries to strengthen institutions, both through lending and advisory services • This work has taken on a new urgency after the 1997-8 crises, which revealed clearly how institutional weaknesses could imperil economic stability even when good policies are in place • As a result, the World Bank has developed a comprehensive menu of instruments to support capacity building for policy formulation, implementation of programs and projects, and monitoring and evaluation of results

3. The Over-Arching Objective:More Efficient and Accountable Institutions In the economic and social sphere, this means institutions able to: • Provide access to basic services to all citizens • Support private sector development and job creation • Support social inclusion • Manage public resources honestly and without waste • Protect consumers’ and investors’ rights

4. The Focus of World Bank Supportfor Institution Building has evolved over time Support has been structured in three phases in the NMS and is following a similar pattern in the Candidate Countries: • In the earlier years of the transition from central planning, support focused on developing national institutions fundamental functioning markets • Leading up to EU accession, support shifted to facilitating the implementation of the acquis and complementary policies • Following accession, the focus is now on second-generation reforms, and on sectoral and sub-national institutions But there still remains some weakenesses even at the central level and even in the NMS

5. World Bank Instrumentsfor Institution Building To help countries achieve the goal of more efficient and accountable institutions, the World Bank has developed a menu of instruments within two broad categories: • Lending services – which ‘bundle’ the provision of funds for programs or projects with support from design through implementation to monitoring and evaluation of results • Advisory services – which provide technical, analytical, and policy support at the national, sectoral and sub-national level Institution building is embedded in both types of instruments, often their dominating feature

6. Support for National InstitutionsExamples of World Bank Activities • Medium term fiscal framework – to ensure consistency between macro stability and fiscal policy; and to create and manage the ‘fiscal space’ for growth-oriented expenditures (Poland public expenditure and institutional review) • Public sector management – to ensure efficient and honest management of public funds: support for budget, treasury, and debt management; revenue administration; public investment program; public procurement; accounting and financial management; civil service reform; e-government (Turkey report on observance of standards and codes in accounting and auditing, Croatia public procurement assessment) • Legal institutions for the market economy – to strengthen the formulation and implementation of economic legislation of business activities (Bulgaria adjustment loan), economic proficiency and management of courts (Romania judicial reform project), and delivery of services (Slovenia real estate registration)

7. Support for AccessionExamples of World Bank Activities • Formulation of National and Sectoral Development Plans – EU8 peer learning • Pre-accession institution strengthening – Bulgaria environmental strategy, Romania agricultural knowledge and information systems project • Post-accession support for implementation of EU programs – Poland post-accession rural support project, Slovakia “Leader” TA project • Knowledge economy and innovation support – Poland KE assessment, Slovakia TA for innovation

8. Support for Sector InstitutionsExamples of World Bank Activities • Financial Sector –Czech Republic insurance sector assessment, Hungary financial sector assessment, Slovenia banking sector assessment • Business Environment – global benchmarking with Doing Business Report, Lithuania and Poland investment climate assessments, EU8 corporate social responsibility review • Environment – Poland environmental funds review, Hungary nutrient reduction project • Agriculture –Turkey agricultural subsidization assessment • Labor and Social Protection – Romania social development fund, Slovakia human capital TA project, Turkey conditional cash transfers project • Health and Education – Lithuania, Romania and Turkey education projects, Slovakia health reform and TA projects • Infrastructure – Romania railways rehabilitation project, Poland roads maintenance project, Turkey municipal services project • Natural Disasters Management – Turkey Istanbul seismic risk mitigation project, Poland Odra river flood prevention project

9. Future Directions for World Bank Support for Institution Building • The first priority is to transfer the experience accumulated in supporting transition and accession in the NMS to the Accession Countries – intense program of knowledge sharing inside the World Bank, facilitation of peer learning between NMS and Accession Countries (EU8 National Development Plan peer learning, Prague fiscal policy workshop) • The second priority is to build on the existing strong relation with European institutions – EC, EIB, EBRD, CoEDB and others – to increase joint advisory and lending services (Poland flood prevention and roads maintenance projects)