Overview

All economies in Europe and Central Asia—except Turkey and the former Yugoslav Republic of Macedonia—grew during 2001.

Overall, the Commonwealth of Independent States (CIS, comprising Armenia, Azerbaijan, Belarus, Georgia, Kazakhstan, the Kyrgyz Republic, Moldova, the Russian Federation, Tajikistan, Turkmenistan, Ukraine and Uzbekistan) grew at 6.6 percent.The Russian Federation and Ukraine, the last economies to emerge from the unexpectedly long “transition recession,” grew at 5 percent and 9.1 percent, respectively. Perhaps the most significant change since early 2000 is that the “transition recession” in the CIS has clearly ended. Despite a worldwide economic slowdown, we have seen remarkable economic recovery and dynamism over the last two years, especially in Russia, Kazakhstan and Ukraine, the three largest countries of the CIS.

The countries of Central and Eastern Europe – Albania, Bosnia and Herzegovina, Bulgaria, Croatia, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, the former Republic of Macedonia, Poland, Romania, the Slovak Republic, and Slovenia – grew, on average, by 3.5 percent. In Turkey, however, markets responded somewhat more slowly than expected to reforms, resulting in an output decline of 6.5 percent.

The resumption of growth has begun to reduce poverty in several countries in the CIS and Central and Eastern Europe. Recent household data from Bulgaria, the Kyrgyz Republic and Russia indicate that economic recovery has significantly reduced poverty without worsening inequality. The incidence of poverty, however, has not yet declined in countries where growth has been more narrowly based, such as Armenia and Georgia. In Turkey, macroeconomic crises have pushed more people into poverty, especially in the urban areas. The prevalence of poverty — although now generally declining as a result of the region’s continuing growth—ranges from under 5 percent to over 50 percent of the population.

Europe and Central Asia remains highly diverse, both in terms of per capita income and global integration. Per capita income ranges from $10,070 in Slovenia to $170 in Tajikistan. While many countries, especially those in Central Europe and the Baltics, are firmly headed toward European and global integration and graduation from Bank borrowing, others still struggle with long-simmering tensions and the constraints of geography.
(click on chart to enlarge)


World Bank Assistance

Europe and Central Asia’s diversity is reflected in the evolution of the Bank’s assistance program.

EU Accession Countries
To accommodate a rapidly changing relationship with the advanced EU accession countries, the region developed a partnership framework for phasing and prioritizing support to these countries, the Proposed Framework for World Bank Group Support to EU Accession Candidate Countries of Central and Eastern Europe.

Southeast Europe
In Southeast Europe the regional strategy continued to evolve from postconflict stabilization and reconstruction to structural reform and institutional development. The Federal Republic of Yugoslavia’s eligibility for Bank lending was restored, and a major program of adjustment and investment lending was successfully launched. The Bank’s postconflict program of assistance to Kosovo continued.

CIS -7 Countries
The seven IDA-eligible CIS countries—Armenia, Azerbaijan, Georgia, the Kyrgyz Republic,Moldova, Tajikistan, and Uzbekistan, known as the CIS-7—along with bilateral donors, neighboring countries, and four international financial institutions (including the World Bank, International Monetary Fund, European Bank for Reconstruction and Development [EBRD], and Asian Development Bank) launched a collaborative international effort to accelerate growth and poverty reduction through intensified development and reform efforts and the strengthened involvement of the international community.

Turkey, Ukraine and Russia
The deepening of reforms in the region’s larger economies, while increasing the need for Bank financial assistance in Turkey and Ukraine, is shifting the demand for Bank services toward analytic and advisory activities in Russia.

Building the Climate For Investment

š

Most countries in Europe and Central Asia are relatively well endowed, for their income levels, with physical and human capital. The most serious constraints on growth and poverty reduction lie in policies and institutions that distort the framework for economic decisionmaking. This is reflected in comparative ratings of business environments, in which countries in Europe and Central Asia typically fare poorly. The Bank is tackling the underlying policy and institutional constraints through support of systemic reforms, which include maintaining macroeconomic stability, legal reform, and improved corporate governance; sectoral reforms such as utility regulation and pricing, and better functioning labor and financial markets; and selective investments in industrial restructuring and infrastructure. To focus on achieving results in the field, the Bank has been financing systematic enterprise surveys that track changes in the business environment both at the country level (in Bosnia,Moldova, Russia, and Ukraine) and at the regional level, together with EBRD, with the Business Environment and Enterprise Performance Survey.

š

Improving Public Sector Governance

š

Countries in Europe and Central Asia, particularly the CIS, also fare relatively poorly on governance indicators. To improve public sector performance, the Bank has supported reforms to encourage voice, transparency, and accountability through decentralization in Russia, Ukraine, Central Europe, and Southeast Europe. It has supported reforms to enhance participation and competition in public service delivery and to marshal the power of data to monitor outcomes with expenditure tracking surveys in Albania and Macedonia. It has supported the strengthening of government institutions through tax and customs reforms in Kazakhstan, Russia, and Ukraine, and through country financial accountability assessments in Albania and Azerbaijan.š It has promoted the adoption of new technologies with support to e-government (applying information and communications technologies to improve government functioning) efforts in Russia and Ukraine. Finally, it has supported anticorruption programs in Armenia, Bosnia and Herzegovina, Kazakhstan, the Kyrgyz Republic, Romania, and the Slovak Republic. Empowering Poor People A rural enterprise support project in Uzbekistan is providing better quality farm extension services to Uzbek women such as these who rely on agriculture for their livelihoods. š Empowerment presents a special challenge in much of the Europe and Central Asia region, where traditions and institutions of voice and accountability generally are still nascent. The Bank's support for improving the investment climate and its support for improving public sector governance both have strong empowerment dimensions. The Bank is also promoting empowerment through emphasizing broad participation in the preparation of Poverty Reduction Strategy Papers (PRSPs). Three countries completed their interim PRSPs (I-PRSPs) during fiscal 2002: Azerbaijan, Bosnia and Herzegovina, and the Kyrgyz Republic. In addition, Albania completed a full PRSP, the first in the Europe and Central Asia region. In total, nine countries have prepared I-PRSPs or full PRSPs (click here for details). The Bank is supporting PRSP implementation using a mixture of country-specific instruments. Direct poverty reduction lending focused on improving the risk management capability of the poor in postconflict countries such as Bosnia and Herzegovina and the Federal Republic of Yugoslavia, and in economic crisis situations such as in Turkey. Many new operations will use community-driven development approaches to confront economic and social risks in a participatory manner, including multisectoral social funds in Bulgaria, the former Yugoslav Republic of Macedonia, Romania, Tajikistan, and Ukraine. These operations increasingly target persistent poverty among the long-term unemployed and ethnic minorities. š š Global Priorities š Fighting Communicable Diseases The number of people living with human immunodeficiency virus/acquired immune deficiency syndrome (HIV/AIDS) in Europe and Central Asia has dramatically increased to 1 million over the past decade, with one-quarter of infections occurring in the past three years. Tuberculosis (TB) is also on the rise, with approximately 250,000 new cases each year, many of which are multidrug-resistant. Due to the links between the two diseases, the Bank is providing technical and financial support for the development of standalone projects in Europe and Central Asia that aim to tackle the epidemics in Belarus, Moldova, Russia, and Ukraine. The Bank will also provide support to TB and AIDS activities in the context of health sector projects in other countries in the region. Protecting the Environment Ozone-depleting substance phaseout work was completed in Russia under a GEF operation that began in the late 1990s. Projects in Croatia, Romania, and Ukraine were added to the Bank's GEF portfolio, and implementation of a forestry project commenced in Russia. Support was provided to establish effective public-private partnerships for improved environmental performance in Bulgaria; to deal with inherited environmental problems in Albania and Turkey; to use economic instruments and manage public finances for enhanced environmental protection in the Republic of Serbia, Federal Republic of Yugoslavia, and Ukraine; and to help EU accession candidates to identify cost- effective investment strategies to comply with EU environmental standards. š Improving Information and Knowledge The Bank has initiated a dialogue with EU accession candidates to help the countries develop strategies to increase their international competitiveness through more effective use of knowledge and technology in both the public and private sectors. Approaches taken in these countries could provide lessons and experience throughout the region. The Bank has also begun to implement a broad-based program for the establishment of a Global Development Learning Network (GDLN). In addition to the distance learning center established in Ukraine last year, four additional centers became affiliated with the GDLN in fiscal 2002: two in Turkey and one each in Russia and the Federal Republic of Yugoslavia. Work has also commenced on the establishment of an additional 10 to 12 centers in eight countries in the region. International Financial Architecture The Bank was an active participant in the Financial Sector Assessment Program, with assessments completed during the fiscal year in Croatia, Georgia, and Latvia, and six additional assessments initiated for completion in fiscal 2003 and 2004 in Bulgaria, the Kyrgyz Republic, Lithuania, Russia, the Slovak Republic, and Ukraine. As part of the review of standards and codes incorporated in these assessments, evaluations of the legal and institutional framework for dealing with money laundering and terrorist financing are now being incorporated in the analyses. The Bank has also hosted, with the World Bank Institute, the first regional dialogue-involving five countries in the region-on issues related to combating money laundering and terrorist financing š

World Bank Lending

The Bank’s Europe and Central Asia region operations during fiscal 2002 continued to emphasize investments, policy reforms, and institutional development needed to underpin sustained growth and poverty reduction in transition and postconflict countries, and an accelerated structural reform program in crisis-stricken Turkey.

Lending during the year (inclusive of four special financing operations) reached $5.5 billion (of which $0.6 billion were IDA and $4.9 billion were IBRD). Significant additions were made to the region’s Global Environmental Facility (GEF) portfolio with seven new projects totaling $31 million.

On the nonlending front, several major activities were completed, including a retrospective report on the transition experience in Europe and Central Asia, a regionwide survey of the gender impacts of transition, and an analysis of the potential fiscal impacts of EU accession on EU accession candidate countries.


IBRD and IDA Commitments and Disbursements, Fiscal 2002
Portfolio of projects under implementation as of June 30, 2002: $16 billion
(in nearest US$ millions)

	IBRD	IDA							Total
Total FY02 New Commitments	3,393.9	429.8							3,823.7
Total FY02 Disbursements	4,894.7	628.9							5,523.6

IBRD and IDA Lending by Theme, Fiscal 2002
Share of total of $5.5 billion