Improving Public Service Delivery

Improving Public Service Delivery

68. 
    Decentralization is progressing, but challenges remain. Urban areas in fYR Macedonia may eventually become centers of economic growth, private investment and job creation. Their efficient functioning is therefore critical to the agenda of generating employment, and managing the city economy essentially involves ensuring responsive local government and effective service delivery. Urban management is a particular concern in fYR Macedonia because of the uncharacteristically high rates of urban unemployment and urban poverty, implying missed opportunities.
    

69. 
    The government has made substantial progress in enacting the legislative framework for decentralization, as specified in the Ohrid agreement. New laws on Local Self-government, on Local Government Finance and on Territorial Reorganization were approved over the last years. Nevertheless, much remains to be done in terms of implementation. Eventually, municipalities will not only be responsible for communal services and public transport, urban planning and its implementation (including construction, permits and inspection), construction and maintenance of local roads, parks and sports facilities, but also for child and elderly care, and, most notably, for establishing, financing, and administering all primary and secondary schools. Recently-enacted laws on communal services confirm the municipalities’ responsibilities as owners of these local public enterprises and give the municipal governments wide-ranging rights in tariff-setting, investment decisions, and personnel matters. The regulations are unclear, do not encourage commercialized management, and improved efficiency in service delivery is necessary.
    

70. 
    More effective urban and municipal management is needed. Municipalities are increasingly at the front-line of confronting fYR Macedonia’s social and economic challenges. Progress in the urban and municipal agenda will therefore be crucial to the country’s success in sustaining economic growth and job creation, improving welfare for all citizens, and furthering integration into the European Union. Municipalities cannot succeed, however, without strong support from the central government, which sets the regulatory and legal conditions, helps ensure that the municipalities acquire and retain a secure financial status, and create an incentive structure for sound investment planning, essential to access future EU structural funds. Municipal financial management, including improving revenue mobilization, investment selection, allocation of fiscal transfers, the need for wider public participation, and mechanisms for inter-municipal collaboration need to be addressed. The provision of communal services requires significant reform to ensure financial sustainability and quality of services over the medium term. Renewed attention is also needed to the planning and management of urban land use, which is central to the efficiency and environmental quality of urban areas, and to the affordability of housing for the population and of real estate for businesses. Coordination among the municipalities is needed so that they can make the best use of scarce human and other resources, and achieve economies of scale in their administrative functions and services.
    

71. 
    More effective, accountable and fiscally sustainable health services are needed. Improving the governance, transparency and management of the health sector is critical for improving “value for money” and strengthening quality and efficiency in the delivery of health services. FYR Macedonia spends about 9 percent of GDP on health, which is higher than the average for EU10 countries and at the same level as OECD countries. Three percent of GDP consists of private payments, most of which occur on an informal basis. Health arrears threaten the fiscal sustainability of the sector. In addition to the fiscal and corruption risks posed by poor financial management within HIF, there are also concerns with the quality and accessibility of health services. Public opinion polls have consistently rated health services as “poor” or “very poor”, including a recent survey where over 58 percent of respondents chose one of those two ratings. Although health outcomes have improved –and are better than in countries with similar GDP per capita– substantial gaps still exist when fYR Macedonia is compared to EU countries.
    

72. 
    In education services, eventually to be delivered in a decentralized setting, major upgrading is required. FYR Macedonia uses its physical and human resources in primary and secondary education intensively. Schools are large on average, there is widespread use of two shifts, and pupil-teacher ratios at both primary and secondary levels are higher than elsewhere in Europe on average and are comparable at the tertiary level.
    

73. 
    Municipalities are already responsible for funding non-teacher recurrent costs of primary and secondary schools; and there are plans to decentralize teacher salaries sometime after July 2007. While this might make sense in the longer run, this represents a major risk to an education system where capacity is still underdeveloped at the municipal level and where education spending is already significantly inequitably distributed despite the fact that most funding comes from the central government.¹³ An effective equalization mechanism is needed. In addition, ways will need to be found to reverse a recent trend whereby the number of primary school pupils is falling but the number of teachers is increasing. The fiscal and physical implications of the introduction of mandatory secondary education must be properly planned as well. Moving ahead with decentralization, therefore, will require careful attention to all of these aspects, as well as careful analysis of various policy options.
    

74. 
    The Bologna agenda will have a major impact on fYR Macedonia’s tertiary education. In tertiary education, there remain significant challenges in the organization and governance of the system. Universities remain a loose confederation of faculties (a practice common across the former Yugoslav countries) resulting in significant inefficiencies and lack of cross-disciplinary work which is the norm in European countries. While fYR Macedonia has a significant number of students in private tertiary institutions, the regulatory framework for both public and private institutions is inadequate. Good evidence on the quality and practices of different institutions is not available and fYR Macedonia needs to catch up with regional neighbors on the development of standards in secondary and tertiary education, including a national qualifications framework.
    

75. 
    A new pension system has been introduced but the agenda is not complete. The new multi-pillar old age pension system creates a pension system that is relatively well adjusted to the demographic ageing and structural change (projected pension expenditures are expected to decline and future fiscal pressures will be lower), though some areas of the system still need to be addressed, such as level of fees, pension fund participation, strengthening of administrative and supervisory processes. In addition, it is necessary to complete the legislation with the framework for benefit payments. Disability, survivor and privileged pension systems are still based on rather lax criteria that allow misuse. On the administrative side, some improvements have been made in the Pension and Disability Insurance Fund (PDF) business processes and procedures and the establishment of the Pension Supervisory Agency (MAPAS). Work remains, however, on further improvements in administrative, regulatory and supervisory capacities of the pension institutions, as well as on the development of the policy-making and monitoring capacities in the Ministry of Labor.
    

76. 
    Social protection programs need further rationalization. FYR Macedonia’s small social assistance system includes a myriad of cash benefits and social services, and is burdened with legislative constraints and vacuums, a mismatch between legislation and implementation capacity, inadequate management procedures and practices and weak communication and network systems between the implementing institutions. To ensure successful decentralization of social services, management and governance in the Centers for Social Work (CSWs) need significant reform as well. To address these problems effectively, the government needs to put in place a clear outcome-based strategy for social protection. This would allow better technical quality of policy formulation, with proper attention for available policy options, human and financial costs implications, and a proper process of internal and external consultation.
    

77. 
    Social assistance programs can also be used to address inter-generation poverty cycles and inequalities. The latest Poverty Assessment (FY06) indicates that fYR Macedonia has not achieved sufficient progress on equality in schools due to low completion rates from minorities such as Albanians, Turks and Roma (especially girls). Participation in pre-primary education varies greatly by ethnic group, by region, by urban versus rural area, by income level, and especially by gender. Overall gross secondary school enrollment rates (around 65 percent) in fYR Macedonia are low by both regional and international standards. Other forms of deprivation in educational achievement exist in the form of sporadic school attendance, highly unequal quality of education or financial barriers to secondary (and tertiary) education. Although some key MDG-related indicators for health show achievements given the level of income (i.e. child mortality, maternal mortality and tuberculosis control), one of the key issues in the health sector in fYR Macedonia is severe under use of basic/primary health care services, especially among rural populations and vulnerable groups (such as the Roma). Taken together, these issues create an important outstanding agenda for ensuring full social inclusion, and the government intends to use incentives under cash benefits program more effectively to address these inequalities.
    

78. 
    FYR Macedonia has made significant progress in restructuring and liberalization of the energy sector. As a member of the Energy Community of South East Europe (ECSEE) Treaty, fYR Macedonia is supporting the full integration of the energy markets in the regional power market. The formally vertically integrated state owned monopoly –Electric Power Company of Macedonia (ESM)– had been unbundled in 2006 into separate generation (ELEM), transmission (MEPSO) and distribution (ESM) companies. The distribution company was privatized and a tender for the sale of Negotino thermal power plant is underway. Despite this progress, much remains to be done to improve sector efficiency and financial performance. Current electricity tariffs are still below full cost recovery and commercial losses in the power networks as well as poor payment discipline especially by large consumers and budgetary organizations remain a problem. Therefore, urgent attention by the government is needed to address the sector performance issues in order to sustain an affordable and efficient electricity supply necessary for economic growth. In this context, proper social protection mechanisms to provide affordable electricity supply to poor households are needed to mitigate increases in electricity prices that may be necessary for these prices to fully recover the cost of supply.
    

79. 
    Further reforms in road, rail, and aviation sectors are needed to enhance institutional accountability and allow liberalization of transport services. In the road sector, regulatory and institutional weaknesses and non-transparent priority programming result in increasing maintenance backlogs. In railways, transparent performance accountability of various services (passenger, freight, and infrastructure) will enhance financial viability, productivity, and effectiveness of operations and pave the way for a multiple operator market. The aviation sector requires further regulatory and institutional reforms to enhance efficiency of operations, routes, and airports.
    

V. World Bank Group’s Current Portfolio

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

80. 
    Since 1994, the Bank has actively supported the fYR Macedonia’s transition. Bank assistance was initially focused on ensuring a stable macroeconomic framework and building the foundations of a market economy, with a particular focus on reform of the financial and enterprise sector, agriculture, human development and infrastructure and energy. This assistance was delivered through a series of sector adjustment loans accompanied by investment lending. Since fYR Macedonia joined the World Bank in 1993, IDA and IBRD commitments to the country through 38 operations total approximately US$ 780 million. The Bank and the IMF have been instrumental in assisting the government in establishing the foundations for its public financial management (PFM) system. The recent acceptance of fYR Macedonia as an EU candidate country has meant a significant EC involvement in harmonization assistance for the Macedonian financial management and procurement laws, systems and processes with the requirements of the acquis. Since fYR Macedonia became a member of IFC in 1993, the country has received commitments of over $93 million in IFC funds and more than $25 million in syndications. Since fYR Macedonia became a member of MIGA, the Agency has issued over US$19 million in guarantee coverage. WBG assistance to the country during FY04-FY06 has been evaluated as satisfactory (see the CAS Completion Report, Annex 2). The proposed strategy both builds on the lessons of the previous CAS and relies on the existing portfolio of eight projects to achieve the expected outcomes and results in the next four years.
    

81. 
    Performance of the investment lending portfolio picked up following concerted efforts to address key issues and accelerate implementation. During the FY04-06 CAS period, the Bank worked with the government to deliver a high case program of $166 million, including $60 million for adjustment. The Bank also delivered a program of Economic and Sector Work (ESW) that contributed to policy dialogue during the CAS period. The 2003 Country Portfolio Performance Review (CPPR) identified almost half of the operations as being at risk in achieving their development objectives or being slow on implementation progress. By undertaking a strategic and decentralized management of the portfolio, the situation has greatly improved. Table 2 presents key portfolio indicators.
    

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

	FY03	FY04	FY05	FY06
Number of projects	8	11	10	10
Average age of projects (years)	3	3	3	2
Net Commitment Amount (US$)	151.3	155.8	84.4	121.9
Disbursement Ratio (%)	30.5	35	35	24
Disbursements in FY (US$)	16.7	19.4	10.7	7.0
Projects at Risk	2	0	0	0
Commitment at Risk (%)	29.4	0	0	0
Realism Index	50	N/R	N/R	N/R
Proactivity Index	100	100	N/R	N/R

82. 
    For projects closed between FY97 and FY06, IEG rated 85 percent of the project outcomes (by value) as satisfactory; 90 percent had substantial institutional development impact and 80 percent were considered to have likely sustainability.
    

83. 
    The 2005 Joint Portfolio Performance Review (JPPR) showed that the Bank’s lending program and analytic work were well aligned with key CAS objectives. This has produced significant benefits, including support for major reforms and institutional development programs in a number of high priority sectors. Several factors were identified as contributing to the success of the portfolio, including the close linkages between policy and investment operations, and between high quality analytic work and key policy reforms.
    

84. 
    Effective donor coordination on key reform issues has greatly contributed to helping to “soften” our IBRD loan terms, especially appreciated by the government to help finance technical assistance. Strengthened coordination with bilateral donors (especially the Dutch Government) has contributed to their involvement in co-financing projects in the education, irrigation, public finance, cadastre, community development and other sectors, sometimes bringing contributions larger than the loan amount (such as the education modernization project). Also Trust Funds to help financing technical assistance to implement key reforms included in our policy loans have been successful.
    

85. 
    Since FY05, all new projects are being implemented through existing government structures. The JPPR concluded that the implementation of projects through Project Implementation Units (PIUs) had reduced the potential impact of projects on institutional development and sustainability. As a result, the JPPR recommended that to the maximum extent possible, all new projects be implemented within existing government structures. When necessary skills (e.g., financial management, procurement, etc.) are lacking in the public administration, they will be externally contracted to assist in the project implementation. Such external consultants, however, will report in all cases to Project Directors or coordinators that are regular staff of concerned government agency or ministry. This implementation policy will continue for all new projects proposed under the CPS. It may take longer to build the implementation capacity, but the result is much more sustainable.
    

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