International finance corporation country partnership strategy



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Document of

The World Bank

FOR OFFICIAL USE ONLY


Report No. 38840-MK


INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT
AND
INTERNATIONAL FINANCE CORPORATION

COUNTRY PARTNERSHIP STRATEGY

FOR
THE FORMER YUGOSLAV REPUBLIC OF MACEDONIA

FOR THE PERIOD FY07-FY10
March 2, 2007

South East Europe Country Unit (ECCU4)

Europe and Central Asia Region (ECA)
Southern Europe and Central Asia

International Finance Corporation (IFC)


The date of the last Country Assistance Strategy was September 9, 2003.
CURRENCY EQUIVALENTS

(as of March 2, 2007)



Currency Unit

=

Macedonian Denar (MKD)

US$ 1.0

=

MKD 46.24



GOVERNMENT FISCAL YEAR

January 31st – December 31st



ABBREVIATIONS AND ACRONYMS


AAA

Analytic and Advisory Activities

ADR

Alternative Dispute Resolution

ALMP

Active Labor Market Programs

APE

Agency for Entrepreneurship Promotion

APL

Adaptable Program Loan

AS

Advisory Services

BEEPS

Business Environment and Enterprise Performance Survey

BERIS

Business Environment Reform and Institutional Strengthening

CARDS

Community Assistance for Reconstruction, Development and Stabilization

CAS

Country Assistance Strategy

CEFTA

Central European Free Trade Agreement

CEM

Country Economic Memorandum

CFA

CFAA


Country Fiduciary Assessment

Country Financial Accountability Assessment



CFPs

Country Financing Parameters

CPAR

Country Procurement Assessment Report

CPC

Commission for Prevention of Corruption

CPPR

Country Portfolio Performance Review

CPS

Country Partnership Strategy

CPSPR

Country Partnership Strategy Progress Report

CSW

Center for Social Work

DIF

Deposit Insurance Fund

DPL

Development Policy Lending

EBF

Extra Budgetary Fund

EBRD

European Bank for Reconstruction and Development

EC

European Commission

ECA

Europe and Central Asia

ECAA

European Common Aviation Area

ECSEE

Energy Community of South East Europe

EDI

Electronic Data Interchange

EIB

European Investment Bank

EIOP

European Investor Outreach Program

ELEM

Electric Power Generation Company

ESM

Electric Power Company of Macedonia

/Electric Power Distribution Company



ESW

Economic and Sector Work

EU

European Union

FDI

Foreign Direct Investment

FESAL

Financial and Enterprise Sector Adjustment Loan

FSAP

Financial Sector Assessment Program

FY

Fiscal Year

fYR

Former Yugoslav Republic

GDLN

Global Distance Learning Network

GDP

Gross Domestic Product

GEF

Global Environmental Facility

HACCP

Hazard Analysis of Critical Control Points

HBS

Household Budget Survey

HCI

Health Care Institution

HIF

Health Insurance Fund

IBRD

International Bank for Reconstruction and Development

ICR

Implementation Completion Report

IDA

International Development Association

IDF

Institutional Development Fund

IEG

Implementation Evaluation Group

IFC

International Finance Corporation

IFC AS

IFC Advisory Services

IMF

International Monetary Fund

IRRP

Irrigation Rehabilitation and Restructuring Project

IT

Information Technology

JPPR

Joint Portfolio Performance Review

LDP

Liberal Democratic Party

LJIIS

Legal and Judicial Implementation and Institutional Support Project

MAFWE

Ministry of Agriculture, Forestry and Water Economy

MAPAS

Pension Supervisory Agency

MDGs

Millennium Development Goals

MEPSO

Electric Power Transmission Company

MIGA

Multilateral Investment Guarantee Agency

MILES

Macroeconomy, Investment, Labor, Education and Safety framework

MIPD

Multi-Annual Indicative Planning Document

MK

fYR Macedonia, Macedonian

MKD

Macedonian Denar

MLSP

Ministry of Labor and Social Policy

MOH

Ministry of Health

MSE

Micro and Small Enterprises

NATO

North Atlantic Treaty Organization

NBRM

National Bank of the Republic of Macedonia

NGO

Non-Governmental Organization

OECD

Organization for Economic Cooperation and Development

OED

Operations Evaluation Department

PDF

Pension and Disability Insurance Fund

PDPL

Programmatic Development Policy Loan

PEP SE

Private Enterprise Partnership Southeast Europe

PER

Public Expenditure Review

PHC

Primary Health Care

PIT

Personal Income Tax

PIU

Project Implementation Unit

PPP

Public-Private Partnership

PSMAC

Public Sector Management Adjustment Credit

PSMAL

Public Sector Management Adjustment Loan

RECRP

Real Estate Cadastre and Registration Project

REPARIS

Road to Europe –Program of Accounting Reform and Institutional Strengthening

RIA

Regulatory Impact Assessment

ROSC

Report on Observance of Standards and Codes

SAA

Stabilization and Association Agreement

SAO

State Audit Office

SAP

Stabilization and Association Program

SBA

Stand-by Arrangement

SDSM

Social Democratic Union of Macedonia Party

SEE

South East Europe

SEED

Southern Europe Enterprise Development

SFRY

Socialist Federal Republic of Yugoslavia

SME

Small and Medium Enterprise

SOE

State Owned Enterprise

SSO

State Statistics Office

TA

Technical Assistance

TF

Trust Fund

TTFSE

Trade and Transport Facilitation in South East Europe

UF

Unemployment Fund

UN

United Nations

UNDP

United Nations Development Programme

USAID

United States Agency for International Development

USD

United States Dollar

VAT

Value Added Tax

VMRO-DPMNE

Internal Macedonian Revolutionary Organization – Democratic Party for Macedonian National Unity

WB

World Bank

WBG

World Bank Group

WHO

World Health Organization

WMO

Water Management Organization






World Bank

IFC

Vice President

Shigeo Katsu

Edward A. Nassim

Country Director

Orsalia Kalantzopoulos

Shahbaz Mavaddat

Task Team Leader

Sandra Bloemenkamp

Gjergj Konda



FORMER YUGOSLAV REPUBLIC OF MACEDONIA

Country partnership Strategy
Table of Contents



Executive Summary vii

I. Introduction 1

II. Country Context 1

A. Regional Context and Political Developments 1

B. Economic Developments Since the Last CAS 3

C. FYR Macedonia’s Poverty Profile 4

III. FYR Macedonia’s Long-Term Vision, Medium-Term Plans, and Outlook 6



A. FYR Macedonia’s Long-Term Vision and European Integration 6

B. The Medium-Term Economic Outlook 8

IV. FYR Macedonia’s Development Challenges 10



A. Accelerating Economic Growth and Job Creation 10

B. Improving Governance in fYR Macedonia 15

C. Improving Public Service Delivery 23

V. World Bank Group’s Current Portfolio 26



A. Past Bank Assistance and Quality and Management of the Existing Portfolio 26

B. Lessons Learned from the CAS Completion Report (CASCR) 28

C. FYR Macedonia’s Country Financing Parameters (CFPs) 29

VI. The World Bank Group Partnership Strategy 29



A. Key Features and Pillars of the Results Based Partnership Strategy 29

Pillar 1: Foster Growth and Job Creation, Increase Living Standards for All 30

Pillar 2: Public Service Delivery and Supporting Good Governance. 35

B. The Framework for Bank Assistance and Financing Scenarios 37

C. The Programmatic Development Policy Lending Program (PDPL) 40

D. Partnerships and Participation 40

VII. Results-Based Monitoring and Evaluation 42

VIII. Risks and Mitigation Remedies 43

IX. Concluding Remarks 44





Annexes

Annex 1: FYR Macedonia CPS FY07-FY10 Results Matrix 45

Annex 2: FYR Macedonia’s CAS Completion Report, FY04-FY06 56

Annex 3: IFC in fYR Macedonia 85

Annex 4: MIGA Assistance Program and Guarantee Outstanding Exposure 92

Annex 5: CPS Consultations and Outreach 94

Annex 6: Donor Assistance to fYR Macedonia by Program 96

Annex 7: FYR Macedonia Country Financing Parameters 97

Annex 8: FYR Macedonia’s Relations with the EU 98

Annex 9: Governance Activities in World Bank Program 102

Annex 10: EU Partnership Priorities and World Bank Assistance 104

Annex 11: Standard CPS Annexes 121

Annex 12: Fund Relations Note 131




Tables

Table 1: FYR Macedonia –Key Economic Indicators 8

Table 2: Indicators of World Bank Lending Portfolio (FY03 - FY06) 27

Table 3: Proposed ESW Program FY 2007-2010 37

Table 4: Proposed Lending Program FY 2007-2010 38

Table 5: Triggers for Lending 39



Figures

Figure 1: Labor market developments are critical to poverty alleviation in FYR Macedonia. 5

Figure 2: Major Obstacles to Firm Activity in fYR Macedonia, 2005 11

Figure 3: Customs Clearance Times Have Fallen in Kumanovo 17

Figure 4: Bribes at Customs Have Fallen Dramatically 17

Figure 5: Bribes for Business Licensing Have Fallen Dramatically 18

Figure 6: Bribes Related to Courts Have Fallen, Process of Enforcing Contracts Has Improved 19

Figure 7. Bribes Related to Procurement Have Not Fallen 22



Boxes

Box 1: Improving Governance in the Health Sector in fYRMacedonia 21

Box 2: Client Survey 41

Box 3: Anticipated Development Challenges which the CPS is Designed to Influence 43





The following World Bank staff contributed to the preparation of the CPS: James Anderson, Husam Mohamed Beides, David S. Bernstien, Gordon Betcherman, Zarko Bogoev, Denis Boskovski, Rajna Cemerska, Sarbani Chakraborty, Olav Rex Christensen, Bruce J. Courtney, William R. Dillinger, Gary J. Fine, Michele Gragnolati, Paulus A. Guitink, Dominic S. Haazen, Ardo Hansson, Bekim Imeri, Robert A. Jauncey, Peter Johansen, Christine Kessides, Andrew C. Kircher, Julian A. Lampietti, Toby Linden, Silvia Minotti, Bojana Naceva, Evgenij Najdov, Snjezana Plevko, Kirsten Burghardt Propst, Sarosh Sattar, Jasminka Sopova, Victoria Stanley, Erik van der Plaats and Jasminka Varnalieva.

The preparation team also includes Gjergj Konda, Margo Thomas and Zoran Martinovski from IFC, John R. Wille and Mario Marchesini from MIGA.



The CPS team acknowledges the strong support from OPCS colleagues (Erika Jorgensen and Poonam Gupta) and FINCR (Paul Levy).

FORMER YUGOSLAV REPUBLIC OF MACEDONIA

Country partnership Strategy



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