Continue improving the use of public resources and performance monitoring in the provision of affordable and quality health service

B. The Framework for Bank Assistance and Financing Scenarios

118. 
     The need for Bank lending is significant over the next four years but is subsequently likely to wind down as fYR Macedonia moves toward EU Accession and eventual graduation. The volume of the proposed lending envelope under the CPS is significant. The proposed base case lending envelope equals the high case lending envelope of the 2003-2006 CAS. This level accommodates the government’s intention to work closely with the WBG on key areas of the reform agenda in order to accelerate conversion towards EU standards and to help building the capacity to access EU pre-accession funds and implement associated programs. At the end of the CPS period, however, it is expected that the country will have gained access to significant EU pre-accession funds, reducing subsequent borrowing significantly.
     

119. 
     Actual lending will be determined by the pace of reform in key sectors. A lending program sufficient to support progress under the two main pillars of the CPS is warranted by the pace of reforms thus far, combined with fYR Macedonia’s creditworthiness and stable, albeit low, growth. The base case includes both investment and development policy lending, and envisages two or three new loans per year, for a total of US$220 million over the four years CPS period. Under the high case scenario, the base case lending program could be augmented by two additional investment loans, adding US$60 million to the lending envelop for the period. The base case requires continued satisfactory macroeconomic performance, satisfactory progress in creating a conducive business environment and satisfactory portfolio performance. The high case scenario requires strengthened macroeconomic performance, further progress in creating a conducive business environment and good portfolio performance. It also requires actions to increase market competition and to increase payment discipline in the energy sector, to ensure that the policy environment is appropriate to proceed with additional investments in competitiveness and energy. Specific actions listed in the table of triggers (table 5) would form the basis for judgment by the Region as to whether policy performance is appropriate for moving between cases.
     

120. 
     If base case triggers are not met. In the event that regional events affect the security situation and overall developments in fYR Macedonia, the Bank, in a supporting macroeconomic and policy environment, will reorient assistance to focus on investments to support social cohesion. In the event that internal factors result in a sustained deterioration in macro economic stability, a serious discontinuation or reversal in the implementation of key reforms, or if the quality of the portfolio performance seriously deteriorates, the Bank will not proceed with significant new lending. Instead, the program will focus on implementation of ongoing operations and ESW/TA activities. Only very limited lending for global public goods (for example avian flu) or direct poverty alleviation investments would be considered in that case.
     

121. 
     The program, as well as the priorities for analytical work in the last two years of the CPS, will be assessed in the FY09 CPSPR. Developments in fYR Macedonia are changing rapidly. The mid-term CPS Progress Report (CPSPR FY09) will assess performance against CPS results. The outcomes and milestones reflected in the results matrix (Annex 1) will be used to assess progress in implementing the reform agenda. The development of indicators in a number of areas will continue during the CPS implementation, and the results matrix will likely be updated at the time of the CPS progress report. The structure and sequencing of the lending program, especially for FY10, will be reviewed in light of fast evolving developments and changes in priorities. This will depend on implementation progress under the current legal and judicial and land registration projects, as well as on potential emerging of new priorities. For example, the government has already indicated that it may want to consider requesting the Bank’s support to help build the institutional framework for meeting EU requirements in the environmental area. The government has also indicated interest in building on current health sector investments with support for an e-health program. Ultimately, trade-offs will have to be considered to ensure that priorities are determined given the lending slots and volumes that may be available. During the CPSPR, the authorities and the Bank will also start discussing priorities for assistance beyond the CPS period, as this may have implications for lending preparation and ESW in the outer years of the CPS period.