Georgia: Economic Management and Competitiveness Program: COVID-19 Crisis Mitigation

OBJECTIVE

The Program’s objective is to mitigate the significant negative economic and social impacts caused by the COVID-19 pandemic and sustain the momentum of the Economic Management and Competitiveness Program (EMCP) of reforms adopted by the Government of Georgia (GoG) prior to the pandemic. The EMCP’s reforms are designed to sustain rapid growth, and ensure greater inclusion, job creation and resilience by:

i) strengthening economic management through improving the efficiency of public resource use; and

ii) enhancing competitiveness by introducing evidence-based policy making, promoting more competitive markets, diversifying the financial sector, improving teacher deployment and remuneration with a view to ensuring a more qualified workforce over the long term, and strengthening investment promotion.

DESCRIPTION

The operation is proposed under the COVID-19 Crisis Recovery Facility (the Facility) of AIIB and co-financed with the World Bank (WB) under a supplemental financing for the Economic Management and Competitiveness Development Program (EMCP) to help the Government of Georgia (GoG) cover an unanticipated financing gap that has arisen due to the impact of the COVID-19 outbreak and to sustain the momentum on the EMCP-supported reform program.

On March 26, 2020, the WB approved an initial IBRD loan of EUR45 million in support of the EMCP under its Policy on Development Policy Financing (DPF Policy). The loan was disbursed in May 2020, and the EMCP has remained on track. However, the abrupt outbreak of the COVID-19 pandemic has created a large and unanticipated financing gap while significantly constraining the GoG’s financing sources. In order to enable it to sustain the momentum of its EMCP, the GoG has therefore requested supplemental financing from the WB, as well as financing from AIIB. The WB Board approved a COVID-19 Supplemental IBRD loan of EUR45 million for the EMCP on June 30, 2020. AIIB will co-finance the WB’s supplemental loan, thereby providing critically needed support to help the GoG to cover this financing gap.

The financing of EUR45 million by AIIB under this operation is part of a broader AIIB – WB co-financed emergency package, which also includes the COVID-19 Emergency Response Project for which AIIB is providing USD100 million equivalent.

ENVIRONMENTAL AND SOCIAL INFORMATION

The Loan will be a parallel co-financing with the WB as lead co-financier, and the Program’s environmental and social (ES) risks and impacts have been assessed in accordance with the WB’s Policy DPF Policy. AIIB’s Environmental and Social Policy (ESP) was designed to apply to investment projects and has no provisions for its application to DPF operations. Therefore, as permitted by the decision of AIIB’s Board of Directors set forth in the Decisions to Support the COVID-19 Crisis Recovery Facility, the WB’s DPF Policy will apply to this operation in lieu of AIIB’s ESP. This will ensure a harmonized approach to addressing the environmental and social risks and impacts of the Program.

In accordance with the DPF Policy, the WB has reviewed the measures under the Program to determine whether they are likely to have significant negative social impacts or result in increased poverty (especially for the poor and vulnerable groups) or to cause significant negative effects on the country’s environment, forests and other natural resources. The activities included in the Program are expected to yield positive social impacts in the medium to long-term. Improved fiscal risk management and more transparent public procurement and investment systems are amongst the expected social benefits. The Program’s actions are not expected to carry environmental risk; on the contrary, some actions are expected to have positive impacts on the environment. More effective policy implementation is expected with stronger requirements for ES assessments for public investment projects and introduction of regulatory impact assessments requiring an assessment of the impact of proposed policies on the environment.

In the immediate term, the Loan will help to finance the Government’s robust health, social protection and economic response, thus helping to protect lives and livelihoods. This will support some of the poorest and most vulnerable Georgians to cope and recover from the current health and economic crisis. By preserving the reform momentum, over the medium to long term, gains from improved economic management are expected to increase fiscal space that could be allocated to address emerging priorities, enhance fiscal stability, and improve access to public service emergency programs. Implementation of the Program is expected to contribute to gender equality in Georgia in the medium and longer term by including a series of measures to reduce economic disparities between women and men.