BUILDING EFFECTIVE,

ACCOUNTABLE, AND
INCLUSIVE INSTITUTIONS IN
EUROPE AND CENTRAL ASIA
Lessons from the Region
BUILDING EFFECTIVE,
ACCOUNTABLE, AND
INCLUSIVE INSTITUTIONS IN
EUROPE AND CENTRAL ASIA
Lessons from the Region
June 2020

EDITORIAL TEAM

Pedro Arizti
Daniel J. Boyce
Natalia Manuilova
Carlos Sabatino
Roby Senderowitsch
Ermal Vila
With support from William Gallagher
and Patricia Rogers.
© 2020 The International Bank for Reconstruction and
Development/The World Bank
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iv Building Effective, Accountable, and Inclusive Institutions In Europe And Central Asia
Table of Contents
ABBREVIATIONS AND ACRONYMS..................................................................................................................................................X

ACKNOWLEDGMENTS...................................................................................................................................................................... XI

FOREWORD...................................................................................................................................................................................... XIII

INTRODUCTION....................................................................................................................................................................................1
OVERVIEW............................................................................................................................................................................................ 2

CHAPTER 1: STRENGTHENING PUBLIC POLICY PROCESSES

I: THE PROCESS OF PUBLIC POLICY............................................................................................................................................. 8
IDENTIFICATION AND AGENDA SETTING: INTER-INSTITUTIONAL COORDINATION AND
STAKEHOLDER ENGAGEMENT.........................................................................................................................................................9
POLICY FORMULATION AND IMPLEMENTATION: NARROWING THE GAP................................................................. 10
POLICY EVALUATION...........................................................................................................................................................................12
II: STRENGTHENING PUBLIC POLICY PROCESSES - LESSONS LEARNED.......................................................................12
III: THE WAY FORWARD..................................................................................................................................................................15
CASE STUDY 1.1 - LITHUANIA: CHANGE MANAGEMENT AND THE PROJECT MANAGEMENT OFFICE..................16
CASE STUDY 1.2 - AZERBAIJAN: MONITORING AND EVALUATING THE PUBLIC POLICY PROCESS....................22
RESULTS BRIEF 1.1 - ALBANIA: GENDER-RESPONSIVE BUDGETING AS A TOOL FOR BETTER
POLICY FORMULATION...................................................................................................................................................................26
RESULTS BRIEF 1.2 - ROMANIA: GOOD PRACTICE IN PUBLIC POLICY-SETTING .......................................................28

CHAPTER 2: MANAGING PUBLIC RESOURCES............................................................................................................................. 31

I: PUBLIC FINANCIAL MANAGEMENT.........................................................................................................................................32
DOMESTIC RESOURCE MOBILIZATION.......................................................................................................................................33
PUBLIC EXPENDITURE MANAGEMENT.......................................................................................................................................39
PUBLIC PROCUREMENT.................................................................................................................................................................... 43
REFERENCES.......................................................................................................................................................................................... 46
II: PUBLIC ADMINISTRATION REFORM.......................................................................................................................................47
ADMINISTRATIVE REFORM TO BOOST PERFORMANCE.....................................................................................................47
HOW TO INNOVATE AND IMPROVE GOVERNMENT PERFORMANCE.......................................................................... 48
ADMINISTRATIVE SIMPLIFICATION: SHARED SERVICES AND RED TAPE................................................................. 50
INDIVIDUAL PERFORMANCE REFORM: PERFORMANCE-RELATED PAY................................................................... 50
REFERENCES...........................................................................................................................................................................................52

 v
 CASE STUDY 2.1 - POLAND: SEALING TAX GAPS...................................................................................................................54
CASE STUDY 2.2 - BULGARIA: SHARED ADMINISTRATIVE SERVICES............................................................................57

CHAPTER 3: GOVERNANCE OF SERVICE DELIVERY.................................................................................................................... 61

INSTITUTIONAL WEAKNESSES AS A SOURCE OF POOR SERVICE DELIVERY............................................................ 64
SERVICE DELIVERY REFORMS IN THE ECA REGION............................................................................................................ 66
CASE STUDY 3.1 - ALBANIA: CITIZEN-CENTRIC SERVICE DELIVERY...............................................................................68
CASE STUDY 3.2 - AZERBAIJAN: E-COURTS...........................................................................................................................73
RESULTS BRIEF 3.1 - ITALY: INNOVATIVE FRAMEWORK AGREEMENTS IN CENTRALIZED PROCUREMENT.....79

CHAPTER 4: PUBLIC-PRIVATE COLLABORATION AND ECONOMIC GOVERNANCE..............................................................83

THE VITAL ROLE OF GOVERNANCE...........................................................................................................................................87
KEY LESSONS FOR MANAGING PUBLIC-PRIVATE COLLABORATION............................................................................89
CASE STUDY 4.1 - TURKEY: PPP PROGRAM, COLLABORATION WITH THE PRIVATE SECTOR,
IMPACT ON SERVICE DELIVERY AND ITS GOVERNANCE STRUCTURES.........................................................................91
CASE STUDY 4.2 - LITHUANIA: MAKING OWNERSHIP OF STATE-OWNED ENTERPRISES SUCCESSFUL.......... 96
CASE STUDY 4.3 - UZBEKISTAN: THE STATE’S ROLE IN THE ECONOMY.................................................................... 102
CASE STUDY 4.4 - IRELAND: EXPERIENCE WITH PPPS: DEVELOPMENTS AND CHALLENGES...........................106

CHAPTER 5: DRIVERS AND ENABLERS OF POLICY EFFECTIVENESS.......................................................................................111

UNDERSTANDING AND ENGAGING WITH POLITICAL ECONOMY FACTORS IN ECA................................................ 113
USING POLITICAL ECONOMY ANALYSIS TO IDENTIFY PATHWAYS TO CHANGE...................................................... 115
INTERNATIONAL EXPERIENCE OF POLITICAL ECONOMY ANALYSIS............................................................................ 116
CONCLUSIONS.................................................................................................................................................................................. 117
CASE STUDY 5.1 - AZERBAIJAN: EXTRACTIVE INDUSTRIES TRANSPARENCY........................................................... 118
CASE STUDY 5.2 - UKRAINE: PROCESS OF BUILDING ANTI-CORRUPTION INSTITUTIONS................................... 122
CASE STUDY 5.3 - WESTERN BALKANS: PAR IN THE CONTEXT OF EU INTEGRATION.......................................... 125
CASE STUDY 5.4 - KOSOVO: POLITICAL WILL: A PRECONDITION FOR SUCCESS.................................................... 132

CHAPTER 6: THE PROMISE OF GOVTECH.................................................................................................................................... 139

REVENUE...........................................................................................................................................................................................140
PROCUREMENT................................................................................................................................................................................. 141
GOVERNANCE.................................................................................................................................................................................. 142
COMMERCE....................................................................................................................................................................................... 143
SECURITY...........................................................................................................................................................................................144
CONCLUSIONS................................................................................................................................................................................. 145
CASE STUDY 6.1 - TURKEY: ELECTRONIC PUBLIC PROCUREMENT...............................................................................146
CASE STUDY 6.2 - UNITED KINGDOM - DIGITAL TRANSFORMATION IN THE UK PUBLIC SECTOR.................... 149
CASE STUDY 6.3 - MOLDOVA: GOVTECH AND MODERNIZATION OF PUBLIC SERVICES...................................... 153

vi Building Effective, Accountable, and Inclusive Institutions In Europe And Central Asia
Figures
FIGURE 1-1. COMMON STEPS IN THE PUBLIC POLICY PROCESS.............................................................................................................. 9
FIGURE 1-2. TRUST IN PUBLIC ADMINISTRATION AMONG EU COUNTRIES.........................................................................................11
FIGURE 1-3. REGIONAL COMPARISON OF POLICIES AND INSTITUTIONS FOR IDA COUNTRIES.................................................13
FIGURE 1-4. REGIONAL COMPARISON OF PUBLIC SECTOR TRANSPARENCY AND GOVERNANCE..........................................14
FIGURE 1-5. KEY FACTORS, MEASUREMENT SYSTEMS, AND PERFORMANCE OUTCOMES..........................................................15
FIGURE 1.1-1. GDP PER CAPITA, % OF EU AVERAGE...................................................................................................................................16
FIGURE 1.1-2. CHANGE MANAGEMENT BEST PRACTICES IN THE EU....................................................................................................17
FIGURE 1.1-3. STEPS IN IMPLEMENTING CHANGE MANAGEMENT IN LITHUANIA.............................................................................18
FIGURE 1.1-4. PROJECT MANAGEMENT METHOD APPLIED TO IMPLEMENT CHANGES..................................................................19
FIGURE 1.1-5. VALUE CREATED DUE TO CHANGE MANAGEMENT....................................................................................................... 20
FIGURE 1.1-6. THE EFFECT OF STRUCTURAL CHANGE ON THE ECONOMY...................................................................................... 20
FIGURE 1.2-1. DYNAMICS OF THE IMPROVEMENT OF AZERBAIJAN’S POSITION IN INTERNATIONAL RANKINGS...............24
FIGURE 1.3-1. HEALTH CARE IN THE CITIZENS’ BUDGET..........................................................................................................................27
FIGURE 1.4-1. BETTER REGULATION STRATEGY MILESTONES...............................................................................................................28
FIGURE 1.4-2. COMMUNITY OF PRACTICE VALUES....................................................................................................................................29
FIGURE 1.4-3. GOVTECH AND THE RIA ROMANIA APP ...........................................................................................................................29
FIGURE 2-1. CPIA “EFFICIENCY OF REVENUE MOBILIZATION” RATING (1=LOW TO 6=HIGH)....................................................34
FIGURE 2-2. DOING BUSINESS RANKING ON THE EASE OF PAYING TAXES 2006-16...................................................................35
FIGURE 2-3. TAX REVENUE AS A PERCENTAGE OF GDP: AVERAGES FOR ECA AND OECD......................................................35
FIGURE 2-4. TAX REVENUE AS A PERCENTAGE OF GDP FOR ECA COUNTRIES............................................................................35
FIGURE 2-5. TADAT ASSESSMENT RESULTS IN ECA COUNTRIES (2015-2019).................................................................................37
FIGURE 2-6. MOST RECENT AVERAGE PEFA SCORES FOR ECA COMPARED TO PREVIOUS ASSESSMENTS........................41
FIGURE 2-7. AVERAGE PEFA SCORES BY REGION......................................................................................................................................41
FIGURE 2-8. AVERAGE PEFA SCORES FOR INDIVIDUAL ECA COUNTRIES (2016-FRAMEWORK).............................................41
FIGURE 2-9. AVERAGE PEFA SCORES FOR INDIVIDUAL ECA COUNTRIES (2011-FRAMEWORK)...............................................41
FIGURE 2-10. AVERAGE PUBLIC PROCUREMENT BENCHMARK (WORLD BANK, 2017B)............................................................ 44
FIGURE 2.1-1. VAT GAP IN POLAND (2010-2015).........................................................................................................................................54
FIGURE 2.1-2. VAT REVENUE, VAT GAP, AND VTTL IN POLAND (2014-2018)....................................................................................55
FIGURE 3-1. PERCENT OF RESPONDENTS SATISFIED WITH SOCIAL AND UTILITY SERVICES....................................................62
FIGURE 3-2. GOVERNMENT SERVICE INEFFICIENCY FOR FIRMS, AS REFLECTED IN TIME REQUIRED TO
START A BUSINESS...............................................................................................................................................................................................63
FIGURE 3-3. PERCENT OF RESPONDENTS SATISFIED WITH PUBLIC SOCIAL SERVICES (AVERAGE OF 8 SERVICES),
2010 AND 2016........................................................................................................................................................................................................63
FIGURE 3-4. ACCOUNTABILITY RELATIONSHIPS AND SERVICE DELIVERY..................................................................................... 64
FIGURE 3.5. CITIZEN SATISFACTION WITH SOCIAL SERVICES POSITIVELY CORRELATED WITH VOICE
AND ACCOUNTABILITY........................................................................................................................................................................................65

 vii
FIGURE 3-6. CITIZEN SATISFACTION WITH SOCIAL SERVICES POSITIVELY CORRELATED WITH GOVERNMENT
EFFECTIVENESS.....................................................................................................................................................................................................65
FIGURE 3-7. CITIZEN SATISFACTION WITH SOCIAL SERVICES IS POSITIVELY CORRELATED WITH CONTROL
OF CORRUPTION....................................................................................................................................................................................................65
FIGURE 3-8. E-GOVERNMENT INDEX, ECA................................................................................................................................................... 66
FIGURE 3.1-1. ADISA SERVICE CENTERS .......................................................................................................................................................70
FIGURE 3.2-1. COURT PULSE DASHBOARD WITH KEY PERFORMANCE INDICATORS (KPI’S).....................................................76
FIGURES 3.2-2. DATA ANALYSIS OF JUDGES’ CASELOAD USING COURT PULSE...........................................................................76
FIGURE 3.2-3. COURT PULSE DASHBOARD..................................................................................................................................................77
FIGURE 3.3-1. THE EVOLVING ROLE OF CENTRALIZED PROCUREMENT............................................................................................79
FIGURE 3.3-2. SUMMARY RESULTS OF FA PROCUREMENT................................................................................................................... 80
FIGURE 3.3-3. SPENDING IN ITALY THROUGH FCS AND FAS................................................................................................................ 80
FIGURE 4-1. NONFINANCIAL SOES PER MILLION POPULATION...........................................................................................................85
FIGURE 4-2. KEY REFORM ELEMENTS IN THE PUBLIC-PRIVATE INTERFACE..................................................................................86
FIGURE 4-3. COMPOSITE SOE GOVERNANCE INDEX ...............................................................................................................................88
FIGURE 4.1-1. AGGREGATE VALUE OF PROJECTS BY COUNTRY (EUR BILLIONS)..........................................................................93
FIGURE 4.1-2. TOP 10 PPP COUNTRIES, BY INVESTMENT(US$ MILLIONS).........................................................................................93
FIGURE 4.1-3. EXAMPLES OF PPP PROJECTS BY TURKISH COMPANIES........................................................................................... 94
FIGURE 4.2-1. PERCENTAGE OF INDEPENDENT BOARD MEMBERS AND POLITICAL APPOINTEES ON BOARDS................98
FIGURE 4.2-2. NUMBER OF SOES (2011-2019)..............................................................................................................................................98
FIGURE 4.2-3. INCORPORATION OF COMMERCIALLY ORIENTED STATUTORY SOES................................................................... 99
FIGURE 4.2-4. PROFITABILITY OF SOES (2010-2018).............................................................................................................................100
FIGURE 4.2-5. RETURNS TO THE STATE (2010-2018, IN EUR MILLION).............................................................................................101
FIGURE 4.3-1. CHALLENGES FACED IN STARTING SOE REFORM....................................................................................................... 103
FIGURE 4.3-2. THE STATE’S DOMINANT ROLE IN THE ECONOMY......................................................................................................104
FIGURE 4.3-3. GOVERNMENT ACTIONS TAKEN TO ADDRESS CHALLENGES.................................................................................104
FIGURE 5.2-1. EXAMPLES OF NABU’S PUBLIC OUTREACH.................................................................................................................... 123
FIGURE 5.2-2. AWARENESS CAMPAIGN “STUDENTS AGAINST CORRUPTION”............................................................................ 123
FIGURE 5.2-3. HISTORICAL CHALLENGES FACED BY THE MEDIA...................................................................................................... 123
FIGURE 5.3-1. PUBLIC ADMINISTRATION REFORM – KEY AREAS....................................................................................................... 126
FIGURE 5.3-2. INDICATORS FOR “POLICY DEVELOPMENT AND COORDINATION”.......................................................................127
FIGURE 5.3-3. INDICATORS FOR “PUBLIC SERVICE AND HUMAN RESOURCE MANAGEMENT”.............................................. 128
FIGURE 5.3-4. ACCOUNTABILITY INDICATOR........................................................................................................................................... 129
FIGURE 5.3-5. INDICATORS FOR “SERVICE DELIVERY”.......................................................................................................................... 129
FIGURE 5.3-6. INDICATORS FOR “PUBLIC FINANCIAL MANAGEMENT”...........................................................................................130
FIGURE 5.4-1. KEY STAKEHOLDER GROUPS OF THE CONSULTATION PROCESS.......................................................................... 136
FIGURE 6.3-1. KEY STAGES OF THE MODERNIZATION OF GOVERNMENT SERVICES PROJECT............................................... 156
FIGURE 6.3-2. SERVICE REENGINEERING PRINCIPLES ...........................................................................................................................157
Boxes
BOX 2-1. THE ROLE OF THE WORLD BANK AND OTHER DONORS.......................................................................................................39
BOX 4-1. INFRASTRUCTURE GOVERNANCE PRINCIPLES FOR MFD.................................................................................................... 90

Tables
TABLE 2-1. KEY DIMENSIONS AND ASPECTS OF PEM PERFORMANCE (PEFA SECRETARIAT 2016)....................................... 40
TABLE 2-2. WILSON’S (1989) TYPOLOGY OF ORGANIZATIONS ............................................................................................................51
TABLE 3.1-1. ADISA CENTERS THROUGH THE YEARS................................................................................................................................71
TABLE 3.2-1. COURT KPIS....................................................................................................................................................................................75
TABLE 5.4-1. COMPOSITION OF THE GOVERNMENT OF KOSOVO, 2002-2019................................................................................ 135
TABLE 5.4-2. RESULTS FRAMEWORK............................................................................................................................................................137
Abbreviations
and Acronyms
CIT Corporate income tax KPI Key performance indicator

CPIA Country Policy and Institutional Assessment M&E Monitoring and evaluation

CSO Civil society organization NGO Nongovernmental organization

DFID United Kingdom Department for International OECD Organisation for Economic Co-operation and
Development Development

EC European Commission PFM Public financial management

ECA Europe and Central Asia PPP Public-private partnership

EITI Extractive Industries Transparency Initiative SDG Sustainable Development Goal

EU European Union SOE State-owned enterprise

GDP Gross domestic product SIGMA Support for Improvement in Governance and
Management
GRB Gender-responsive budgeting
UN United Nations
IBP International Budget Partnership
UNDP United Nations Development Programme
ICT Information and communication technology
VAT Value-added tax
IDA International Development Association
VfM Value for money
IMF International Monetary Fund
WB World Bank
IT Information technology
Acknowledgments
This publication was prepared by a team of World Bank Governance Conference, held June 11-12, 2019, in Ankara,
Governance Global Practice staff and consultants (Europe Turkey.
and Central Asia Region - ECA), under the overall guidance
of Roby Senderowitsch and Daniel J. Boyce. The project was The editorial team would like to thank the office of the Europe
led by Ermal Vila and Natalia Manuilova, with support from and Central Asia Regional Vice President, Cyril Muller, whose
William Gallagher and Patricia Rogers. It also benefited from keynote speech delivered at the conference was adapted
thoughtful inputs and suggestions by Pedro Arizti. Additional into the Foreword of this book. The team is also thankful to
support was provided by Carlos Sabatino and Marielle Emma Ed Olowo-Okere, Global Director for the Governance Global
Wessin Severino. Practice, for his participation and guidance during this process.

The case studies are credited individually to their original The various chapters and case studies would have not come
authors, who presented them during ECA’s first Regional to fruition without the input and review of the following
contributors:

CHAPTER 1 CHAPTER 3
Strengthening Public Policy Processes Governance of Service Delivery
Authors Waleed Haider Malik and Clara Maghani Authors Moses Wasike and Anya Vodopyanov
CASE STUDY 1.1: LITHUANIA CASE STUDY 3.1: ALBANIA
Author Lukas Savickas Author Lorin Ymeri
CASE STUDY 1.2: AZERBAIJAN CASE STUDY 3.2: AZERBAIJAN
Author Vusal Gasimli Author Nail Huseynov
RESULTS BRIEF 1.1: ALBANIA RESULTS BRIEF 3.2: ITALY
Author Gentian Opre Author World Bank Governance Staff and Marco Sparro
RESULTS BRIEF 1.2: ROMANIA
Author Dragoş Negoiţă CHAPTER 4
Public-Private Collaboration and Economic
CHAPTER 2 Governance
Managing Public Resources Effectively Authors Natalia Manuilova and Ian Halvdan Ross Hawkesworth

Authors Zahid Hasnain, Jonas Arp Fallov, Rajul Awasthi, Nataliya CASE STUDY 4.1: TURKEY
Biletska, Knut Leipold and Wouter van Acker Author Sedef Yavuz-Noyan
CASE STUDY 2.1: POLAND CASE STUDY 4.2: LITHUANIA
Author Artur Gostomski and Grzegorz Poniatowski Author Marius Skuodis
CASE STUDY 2.2: BULGARIA CASE STUDY 4.3: UZBEKISTAN
Author Krasimir Bojanov Author Bakhtiyor Khaydarov
CASE STUDY 4.4: IRELAND
Author Lorena Meco
CHAPTER 5 CHAPTER 6
Drivers and Enablers of Policy Effectiveness Promise of GovTech
Authors Verena Fritz and Niki Palmer Authors Zohra Farooq Nooryar and Bartosz Jakub Solowiej
CASE STUDY 5.1: AZERBAIJAN CASE STUDY 6.1: TURKEY
Author Farid Farzaliyev Author Ahu Meryem Erdogan
CASE STUDY 5.2: UKRAINE CASE STUDY 6.2: UK
Author Victoria Savchuk, Artem Sytnyk and Denys Bihus Author Alex Segrove
CASE STUDY 5.3: WESTERN BALKANS CASE STUDY 6.3: MOLDOVA
Author Milena Lazarević Author Iurie Țurcanu
CASE STUDY 5.4: KOSOVO
Author Besnik Tahiri

The World Bank’s ECA Governance Conference and related materials have been supported with UK aid from the UK government;
however the views expressed do not necessarily reflect the UK government’s official policies.

This publication has also benefited from the experts and contributions from the Asian Development Bank (ADB).

The book does not reflect the official views of the World Bank, its Executive Board, member governments, or any other entity
mentioned herein.
Foreword
Governments and citizens around the world recognize that while responding to the expectations of a growing middle
“good governance” is essential for development. In fact, this class in many countries of the Region?
conviction is reflected in the definition of the Sustainable
Development Goals, which emphasize the need to promote Although the World Bank doesn’t hold the secret ingredient
peaceful and inclusive societies for sustainable development, to solve this equation, we’re aware that many of the building
provide access to justice for all, and build effective, account- blocks of the equation are known. We know, for instance, that
able, and inclusive institutions at all levels. effective institutions are critical for economic growth. Where
good governance prevails, economic growth is more likely. The
On the one hand, this is perhaps easier to do today than at any 2017 World Development Report on Governance and the Law
other point in history. The advances in technology that allow shows a clear positive correlation between aggregate mea-
us to gather and process data instantaneously are changing sures of governance and per capita income across countries.
relationships in societies, including those between public insti- This is consistent with international evidence, which shows a
tutions and citizens. Real-time access to information can lead clear and positive correlation between strong institutions and
to better-informed citizens, and the role that governments economic growth, and between strong institutions and inves-
once held as the central repository of information – and with tor confidence.
this the privilege to act (or not) on that information – is erod-
ing. The democratization of information is changing expec- We also know that when citizens can exercise their right to par-
tations and perceptions of public institutions, as well as the ticipate and access public information, they can become part
social contract upon which societies are built. More horizontal of the solution. In country after country we see the benefits
relationships are replacing the once very vertical relationships of citizen engagement and social accountability. Rather than
between governments and citizens, opening the space for establishing antagonistic relationships, governments, citizens,
new opportunities to better serve people and to demonstrate and businesses can find ways for collaboration, making posi-
institutional effectiveness. Transparency and contestability tive development outcomes more likely. Building more inclusive
are thus strengthened. societies can accelerate economic and sustainable growth.

On the other hand, govern- Accountable and transparent institutions can also foster inno-
ments must respond to cit- vation. According to the World Economic Forum, weak insti-
izens’ higher expectations tutions continue to hamper competitiveness. In contrast, open
with limited public resources. societies provide greater chances for intellectual develop-
And when these expectations ment and the emergence of new ideas, and they are positively
are not met, governments correlated with the dissemination of knowledge spillovers and
face discontent and diminish- enhanced competition.
ing trust in institutions. How
should societies organize The quality of public administration in general and the capac-
Cyril Muller themselves in the digital age ity to deliver effective services also have a direct impact on
Vice President
Europe & Central Asia to deliver goods and services citizens’ levels of satisfaction, and on the trust citizens have
World Bank in the most effective way, in their institutions. This finding is consistent across the whole
Region, regardless of income levels. A mother who wants processed and filed electronically, significantly reducing the
to vaccinate her child needs to trust that the vaccine will time for tax payments from 581 hours to 268 hours. As a result,
be effective. An entrepreneur who decides to create a new the Tax Administration Agency increased tax collection from
company expects that property rights will be respected and 16 ­percent to over 20 percent of GDP. In Azerbaijan, with the
that he will receive fair treatment under the law. For us in the support of the World Bank, the country’s busiest court began
World Bank, we see governance at the center of the develop- piloting an automated system for reducing the time it took to
ment agenda because our mission is to end extreme poverty process cases while also eliminating the possibility of human
and foster shared prosperity. When institutions are not effec- error. By partnering with several banks and a mobile phone
tive, all citizens suffer, but especially the poor, who depend operator, uncontested cases are now processed in one day
most on the provision of public services. When institutions or less by the automated system. Fast-tracking uncontested
are not inclusive, large segments of societies are excluded – a cases through the automated system freed up judges’ time to
­situation that can create social discontent. When accountabil- focus on litigating more complex and demanding cases.
ity is weak, the social contract – the “glue” that keeps societies
together – suffers as commitments become less credible and The challenges facing countries today require new approaches
trust in public institutions is eroded. for building institutions that can respond to the demands of
informed citizens. Today, more than at any point in the past,
Over the last decade, countries in Europe and Central Asia governments are expected to be able to effectively provide
have made major strides in strengthening governance. In services in a transparent and inclusive way and share data
Albania, through the implementation of a Citizen-centric and results virtually instantaneously. Civil society is constantly
Service Delivery Project, the country was able to improve exploring ways to use technology to better represent the
the quality of public services against customer-care stan- voices of citizens and hold public sector institutions account-
dards and reduce the scope for corruption. In Moldova, the able. The private sector must respond to increasing pressure
Expert-Group – a civil society organization with the support from clients, governments, and citizens to produce goods and
of the Global Partnership for Social Accountability – orga- services that are socially responsible and environmentally
nized parent and student engagement in planning and man- sustainable.
aging school resources in 80 schools, reaching over 50,000
students. More than 1,200 school administrators, teachers, This major shift in accountability, in which the burden of proof
parents, and mayors, organized in local coalitions, are hold- is increasingly on the providers of services – whether public
ing school administrations accountable by participating in or private – means that achieving and sustaining good gover-
public hearings, monitoring school budget spending, and nance will require adaptive institutions.
completing community scorecards. This approach is being
scaled up to all schools in the country. In Armenia, through Respectfully,
the implementation of an effective Tax Administration Reform
Program, 96 percent of tax services and documents are Cyril Muller
Introduction
Roby Senderowitsch Daniel J. Boyce
Practice Manager for Europe and Central Asia (West) Practice Manager for Europe and Central Asia (East)
Governance Global Practice at the World Bank Governance Global Practice at the World Bank

C
ountries around the world are facing the need to Other countries must overcome deep-seated governance
build effective, accountable, and inclusive institutions. weaknesses, such as those related to a long period of one-
There has never been a more important moment to party rule; and some have undertaken radical institutional
tackle this agenda, as countries grapple with increasing fra- transformation, such as from parliamentary to presidential
gility and migration flows, more complex service delivery rule or toward federalism.
requirements, and greater demands for transparency and
inclusion, all in a more resource-constrained environment. Overall, ECA has made remarkable progress toward good gov-
Moreover, the COVID-19 pandemic crisis has provided new ernance, but there have been failures that have added to per-
evidence of the need for effective, accountable, and inclusive ceptions of poor-quality services, corruption, and clientelism.
government responses. Governments’ capacity to respond to Notably, many of ECA’s middle- and higher-income countries
these complex challenges is understandably stretched, but should have been better equipped to respond to rising citi-
this has not limited the rise of citizens’ expectations. Instead, it zen demands. Instead, larger revenues were not used with the
has often increased tensions and, in some cases, has affected required efficiency and quality of spending to keep pace with
the trust between governments and their citizens. higher demand for public services. Weak economic growth
in the aftermath of the past decade’s financial crises further
Effective institutions are critical for ensuring the coverage and constrains countries’ fiscal capacity to improve infrastructure
quality of service delivery—a critical part of eliminating pov- and public services. While private sector provision of essential
erty and fostering shared prosperity. Institutions must also be services and innovation could help fill this gap, many coun-
accountable, to ensure that public expenditures are of good tries lack the conducive investment climate or institutional
quality and opportunities for corruption are minimized. Thus arrangements necessary to foster effective partnerships.
accountability is fundamental for establishing well-function-
ing democracies and building the necessary trust in pub- The World Bank’s Governance Global Practice has been sup-
lic institutions. Finally, inclusive institutions are essential for porting reforms across the region in collaboration with devel-
ensuring that everyone in society can benefit from economic opment partners, using three complementary and mutually
growth and sustainable development. reinforcing engagements to help bridge the accountability and
implementation gaps and restore trust. It engages first through
The governments of Europe and Central Asia (ECA) countries research and analytical work to understand the underlying fac-
are sophisticated reformers whose public sector officials have tors that can influence policymaking and effective implemen-
a notably strong technical capacity; however, it is also true tation; second, through policy dialogue with decision-makers in
that reform outcomes are often constrained by nontechnical governments, members of civil society, and the private sector
factors. Aspiring or current European Union (EU) members to open the channels of communication and ensure tailored
face pressure to live up to EU norms of good governance. solutions that meet the needs of diverse groups; and finally,
through funding and technical assistance for the design, imple- and Development—OECD—and the EU), UN Women, and the
mentation, and evaluation of public policies. Asian Development Bank — to organize ECA’s first Regional
Governance Conference, held June 11-12, 2019, in Ankara,
To understand the success factors that could shape the future Turkey. This book shares the critical lessons discussed at the
of ECA’s governance agenda, the World Bank joined forces conference by the more than 500 participants from govern-
with the region’s governments and leading development ment, international development partners, academia, the pri-
partners—the United Kingdom Department for International vate sector, and civil society. But even more, it captures the
Development (DFID), the European Commission, Support shared commitment to expand governance reforms and out-
for Improvement in Governance and Management (SIGMA, a lines a regional agenda to achieve effective, accountable, and
joint initiative of the Organisation for Economic Co-operation inclusive institutions.

Overview

This publication builds on the World Bank’s vast engagement creative and productive solutions to the provision of public
across ECA and on the 2019 Regional Governance Conference. goods, reframe the role of citizens, and improve the alignment
It consists of six chapters, each corresponding to one of of policies to outcomes such as the Sustainable Development
the governance areas around which governments across Goals (SDGs). Fostering a culture of pride in public service
the world organize their institutional functions. Each chapter delivery and investing in human capital are also essential for
contains background and analysis by World Bank specialists, effectiveness, and for creating public trust and confidence.
complemented by country case studies authored by regional
experts and policymakers (and a few Results Briefs, con- This chapter explores how better coordination and cooper-
structed by World Bank staff from presentations made at the ation, not only within the executive branch but also across
Regional Governance Conference). stakeholder groups, can result in improved processes of for-
mulating and implementing public policies. Four country case
Chapter 1, Strengthening Public Policy Processes, discusses studies are featured:
how societies find ways to determine national priorities and • Lithuania: a three-step process for government
engage in effective and inclusive policy formulation and planning focused on prioritization, leadership, and
coordination to address the needs of their people. A strong ownership.
public policy process is characterized by certain success fac- • Azerbaijan: a productivity- and results-based model
tors: it should be demand- and user-driven, and developed focused on smart performance indicators.
dynamically and collectively, and it should create sustained • Albania: using gender-responsive budgeting as a basis
value-added for social and economic prosperity. Because for policy formulation.
the policy process is by nature public, it requires the system- • Romania: a regulatory impact assessment centered
atic engagement of different levels and sectors of the public around public policy planning, coordination, and
administration with citizens, the private sector, media, state design, and an improved regulation strategy.
agencies, and other relevant stakeholders. The process starts
upstream with the informed and transparent identification Chapter 2 addresses the issue of Managing Public Resources
and prioritization of public issues and the development of a Effectively. Effective public resource management depends
participatory strategy that considers not only the end-­users, on strengthening core government systems in four areas:
but also the sectors and constituencies that could bring revenue mobilization, public financial management, procure-
innovation and add value, as well as the need for continuity ment, and public administration. Especially important is to
of ownership, support, and coordination among the political manage public resources—both people and money—in a stra-
leadership. This collective action approach can enable more tegic, transparent, and accountable way.

2 Building Effective, Accountable, and Inclusive Institutions In Europe And Central Asia
Many ECA countries have made progress in domestic resource which require improvement, and whether reforms have an
management to ensure predictable public financing for eco- impact. Creating an organizational culture that is receptive
nomic and social priorities and for attaining fiscal sustainabil- to performance information and a workforce that is capable
ity. Most have advanced various reforms, but while revenue of creatively handling such data is a prerequisite for public
collection is high compared to most developing regions, ECA administration innovations and reforms. The sustainability of
countries still have a long way to go to bring their tax policy these reforms and innovations should be a constant point of
and administration to OECD levels of equity and efficiency. attention for policymakers.
“Second generation” tax reforms are now required, address-
ing such issues as (a) VAT productivity, which is generally low The chapter reflects on the current public resource man-
because of fraud and evasion; (b) informality; and (c) ineffi- agement situation in ECA as compared to other regions and
ciencies in tax administration systems, which continue to hin- income groups (such as OECD countries) and explores dif-
der effective tax enforcement. ferent reform options, such as simplified administration and
performance-based incentives. The following country case
Public financial management (PFM) is concentrated on the studies are featured:
laws, rules, systems, and processes used by governments • Poland: tax administration reforms to improve legal
(and subnational governments) to mobilize revenue, allocate and regulatory frameworks, accelerate systemic
public funds, undertake public spending, account for funds, changes, and reverse revenue losses due to large-scale
and obtain audit results. As ECA countries seek to transform fraud.
expenditure plans and budgets into final audited government • Bulgaria: implementation of a shared administrative
accounts, the key reform areas they contemplate (or have services program to simplify and improve efficiency,
already introduced) are medium-term expenditure frame- cost-effectiveness, and timeliness in the delivery of
works, unified budgets, program and performance budgeting, public administrative services.
integrated financial management information systems, and
accrual accounting. Going forward they will need to consider Chapter 3 tackles the Governance of Service Delivery. There
such overarching PFM trends as automation, new manage- is an increasing need to make service delivery more effective,
ment practices, and devolution of responsibilities to line min- reaching all segments of the population with high quality – a
istries and agencies. necessary condition for building trust. As ECA governments
seek opportunities to improve their service delivery and citizen
The principles of good procurement are economy and effi- confidence, there is no single blueprint for reform. However,
ciency, fair competition, transparency, and growth in domes- some elements have proven critical: accountable, capable,
tic markets, but they can also be leveraged to support other and inclusive institutions, supported by a s­trategic vision;
policy objectives, such as support for small and medium, ­sufficient political and financial capital; investment in ­digital
environmentally friendly, and women-led enterprises. In ECA, technology; and monitoring and evaluation ­
mechanisms
while countries’ execution of procurement legislation is quite to track progress and make course corrections. Experience
good, further effort is required to move beyond process to shows that relatively small investments can bring large social,
strengthen planning and contract management, use of elec- economic, and fiscal payoffs.
tronic procurement and contract data, collaborative pro-
curement arrangements, and the overall integrity of public This chapter explores innovations in strengthening govern-
procurement. ment delivery systems through procedural streamlining,
digital technologies, improved public financial and human
Public administration reforms have also advanced in ECA resource management, and enhanced citizen accountabil-
to boost public sector organizational and individual perfor- ity and responsiveness. Three country case studies are
mance; however, performance measurement – targeting, featured:
selecting indicators, collecting data, and analyzing data – is • Albania: a shared services and digitization reform to
still a matter of concern. Data are needed to measure and the public service delivery apparatus to address ineffi-
assess which parts of the public sector are performing well, ciencies, rent-seeking, and excessive procedures.

Introduction 3
 • Azerbaijan: an extensive justice reform process, from Entities that remain in state ownership should be required to
the adoption of a new constitution to establishment of operate on market terms, adhere to established corporate gov-
an e-court infrastructure, while also developing unified ernance practices, and apply appropriate accountability rules.
standards. SOEs should be expected to meet a high standard of trans-
• Italy: introduction of innovative framework agree- parency and accountability and should be allowed to operate
ments in centralized procurement. as independently as possible on a commercial basis without
political interference. Proper corporate governance practices
Chapter 4, on Public-Private Collaboration and Economic require that SOEs have professional boards of directors that
Governance, presents alternative ways to ensure the produc- work to build strong companies with motivated management,
tive relationship between government and the private sector better performance, proper risk management, sound internal
that is needed for producing sustained growth and providing control, and improved economic accountability.
opportunities for all. Governments should consider the entire
toolbox of the public-private interface to scale up the invest- Working to implement these principles requires significant
ment in critical public services and infrastructure. Private mar- political commitment, administrative capacity, and patience.
ket operations, market participation by state-owned entities While the costs of reform are often easily identified, the bene-
(SOEs), concessions, public-private partnerships (PPPs), and fits usually take longer to appear, and the public beneficiaries
public investments are all instruments in a large toolbox for may be less vocal than rent-seeking special interest groups.
effective collaboration between the public and private sec- Experience shows that this is an area where substantial
tors. The selection of tools should be based on clearly formu- cross-fertilization from other countries is of benefit. While one
lated policies, applying value-for-money principles, while also size doesn’t fit all, lessons can surely be learned, and mistakes
being affordable to users and the public purse in a sustainable avoided. In this context, regional policy dialogues and peer
manner, and subject to cost-benefit analysis. learning become critical and should be encouraged.

A proper public-private interface allows the public and pri- This chapter reviews the role of governance and the public
vate sectors to work in tandem, addressing significant gaps administration in attracting private sector investments in pub-
in infrastructure, building effective mechanisms for service lic goods and improving the quality of collaborations. These
delivery. Building frameworks that allow for such an effective country case studies are featured:
collaboration between the state and private sector requires • Turkey: PPPs to support efficiency in infrastructure
proper legislation, capacity, and trust between the actors. investments.
• Lithuania: measures to address low returns on state-
Effectiveness, transparency, and accountability must be owned assets.
central to the way the public-private interface operates. • Uzbekistan: reform and privatization of SOEs to boost
Any ­mechanism selected – including PPPs and investments the economy.
via SOEs – should be properly managed, allowing the gov- • Ireland: transformation of a PPP program.
ernment to act as an active and professional owner of the
country’s resources and to ensure affordability, value for
­ Chapter 5 discusses Drivers and Enablers of Policy
money, and integrity. To be effective owners, governments Effectiveness, starting with a discussion on how to make pol-
must ­minimize the risk of failure by properly preparing and icies and services more effective and what main elements
planning ­
investment arrangements, assessing risks and societies need to consider when planning and implement-
­benefits, and searching for optimal solutions. ing reforms. The identification of societal problems, the for-
mulation of policies to address these issues, the allocation
Governments should limit their interventions to sectors of resources across competing demands, and the imple-
where state presence is necessary, while establishing a level mentation of specific solutions do not happen in a vacuum.
playing field for keen market competition in all other sec- The ultimate acceptance and impact of these measures will
tors. Government interventions should also be limited to the be determined by a multitude of underlying political econ-
country’s strategic priorities or to addressing market failures. omy factors. Fostering competition in markets and in politics

4 Building Effective, Accountable, and Inclusive Institutions In Europe And Central Asia
is crucial, as are measures to ensure that financial systems are Governments face many disruptive technological challenges
transparent and accountable. Yet even these well-accepted to their traditional governance systems and are realizing the
interventions designed to address state capture—one of importance of managing technology responsibly: with integ-
ECA’s most pernicious challenges—and enhance transpar- rity, authenticity, and accountability. No aspects of governance
ency or competition are likely to fail if the context and political will remain untouched by the unfolding impact of technolog-
economy are not taken into consideration. Global evidence ical advancements. Artificial Intelligence can process copious
suggests that understanding and analyzing the political econ- amounts of information and assist human decision-making
omy, supporting locally owned development strategies, and while reforming mundane and manual processes with deci-
using “politically smart” approaches to reform can be more sion automation. Quantum systems disrupt computation with
effective in the long run than “best practice” fixes to institu- unprecedented speed and scale, while distributed ledger
tions, laws, and policies. Success requires a clear theory of technology enables alternative currency markets that act as a
change based on home-grown solutions and strategies to hedge against fiat in unstable economies and in parallel pro-
navigate the vested interests that stand to lose out as a result vide distributed accounting systems that are revolutionizing
of transparency. Similarly, innovations in data and technology central banking, health care, procurement, agriculture, and
provide opportunities to change the nature of the debate and logistics in both the private and public sectors.
so advance transparency, but they also hold clear risks.
For governments to harness this technological acceleration in
This chapter explores the political economy factors that a practical way, policy reform and commitment must be at the
underlie reform processes, including overcoming state cap- forefront of the discussion. Long-term thinking and engage-
ture and rent-seeking, building government accountability ment with the private sector will be needed to bring about
and capability, and delivering incentive-compatible reforms. more holistic technology applications for the benefit of society.
Case studies featured:
• Azerbaijan: transparency in extractive industries to This chapter explores the transformative power of digital
build stakeholder dialogue, increase trust in govern- technologies in reform processes to facilitate data-driven
ment, and improve the investment climate. policymaking, thus strengthening core government systems,
• Ukraine: stakeholder engagement and the introduc- increasing the efficiency of service delivery, and improving
tion of punitive measures to address corruption. transparency and accountability. The following case studies
• Western Balkans: public administration reform as wit- are featured:
nessed by civil society organizations in the context of • Turkey: a reform of the public procurement system,
EU integration. from the establishment of the Public Procurement
• Kosovo: a reform package of laws on public adminis- Authority to the passing of the Public Procurement
tration reform, government, and inspections to address Law and the Electronic Public Procurement Platform.
clientelism and corruption. • UK: a digital transformation of the public sector.
• Moldova: replacement of antiquated public services
Finally, Chapter 6 focuses on the Promise of GovTech and how with an e-Transformation strategy to improve access
technology can support all public sector efforts, discussing to modern online services with e-signatures.
both the advantages and risks associated with technology.

Introduction 5
Debate in the House of Commons of the United Kingdom, London, UK.
Photo: ©UK Parliament/Jessica Taylor
CHAPTER 1

Strengthening Public
Policy Processes
Waleed Haider Malik Clara Maghani
Senior Public Sector Specialist Consultant
T
his chapter investigates the nature and complexity of the identification to policy formulation and discusses the gaps that
public policy process, drawing on experiences from the may exist between intent and the results ultimately achieved.
ECA region to identify opportunities for improvement in This chapter then proposes ways to strengthen the public policy
both the process and its outcomes. After proposing a definition process for a positive impact on economic and social develop-
of the public policy process, the chapter lays out various prob- ment, shares international examples of attempts to improve pub-
lems that need to be addressed from the early stage of issue lic policy processes, and extracts lessons learned.

I: The Process of Public Policy

Public policy can be described as a cyclical process by which and economic growth; responsible consumption and produc-
governments translate their political vision into programs and tion; peace, justice, and strong institutions; climate action; and
propositions to deliver outcomes.1 It is typically reflected in the preservation of oceans and forests. At the regional level,
a set of laws, regulations, and services that a state offers as the European Union (EU)—the political and economic union
a public good to its citizens2 and that provide a solution to of 27 member states—sets out regional policy agendas and
a policy problem, that is to say, a dissatisfaction regarding a strategies that member states approve and then implement
certain need, demand, or opportunity for public intervention.3 at the national level.
Ultimately, public policy aims to boost economic performance,
protect citizen rights, promote public service delivery, and What does public policy entail? If public policy is viewed as
achieve desired development outcomes and results through both an output and an outcome, translating a political vision
successful implementation. into action is a complex and confusing process into which an
infinite variety of ingredients are poured, generally without a
While public policy is typically a domain of nations, it can also definitive beginning or end.5 Those involved in the public pol-
be developed at the international and regional levels to set icy process tend to follow a procedure that is generally bro-
global and regional goals. For example, the United Nations ken down into six phases, starting with the identification of a
(UN) 2030 Agenda for Sustainable Development, which was public issue and proceeding to agenda setting, formulation,
adopted by all UN member states in 2015, provides a shared legitimization, implementation, and evaluation of the policy
policy and strategy for peace and prosperity and calls on each (see Figure 1-1).
member state to act accordingly at the national level. At the
heart of the 2030 Agenda are the 17 Sustainable Development Who are the key actors? In modern societies, the public policy
Goals (SDGs), which address 17 policy areas4 ranging from process involves many actors, each with different interests, val-
eradicating poverty to good health; education; decent work ues, perceptions, and policy preferences.6 First, regardless of

1 United Nations Policy Brief, Issue 1, December 2012, available at: https://repositorio.cepal.org/bitstream/handle/11362/38380/1/PolicyBriefIssue1December2012​
_en.pdf
2 Public policy has several definitions: for example, Khan, Anisur Rahman, “Policy implementation: some aspects and issues,” Journal of Community of Positive
Practices, 2016, pp.3-12, defines it as a country’s “broader framework to operationalize a philosophy, principle, vision or decision, mandate etc. which are trans-
lated into various programs, projects and actions”; Anderson, J.E., “Public policy making-an introduction,” Boston: Houghton, 2010, calls it a “purposive course
of action followed by an actor or set of actors in dealing with a problem”; and Stewart, Hedge, and Lester, “Public policy: an evolutionary approach,” Nelson
Education, 2008, view it as a “pattern of government activities or decisions that are designed to remedy some social problems.”
3 See Dente, Bruno, “Understanding Policy Decisions,” Springer Briefs in Applied Sciences and Technology, Springer International Publishing, 2013, pp. 1–27.
4 The 17 policy areas are no poverty; zero hunger; good health and well-being; quality education; gender equality; clean water and sanitation; affordable and
clean energy; decent work and economic growth; industry, innovation, and infrastructure; reduced inequalities; sustainable cities and communities; responsible
consumption and production; climate action; life below water; life on land; peace, justice and strong institutions; partnerships for the goals. For more informa-
tion, see https://sustainabledevelopment.un.org/?menu=1300
5 S. J. Buck, “The Public Policy Process,” in Understanding Environmental Administration and Law, 3rd ed., Island Press, 2013.
6 P. A. Sabatier, “Theories of the Policy Process,” pp. 1-2, Boulder, CO: Westview, 1999.

8 Building Effective, Accountable, and Inclusive Institutions In Europe And Central Asia
FIGURE 1-1. IDENTIFICATION AND AGENDA SETTING:
Common steps in the public policy process INTER-INSTITUTIONAL COORDINATION
AND STAKEHOLDER ENGAGEMENT
Identifying As noted above, each of the actors that form part of the public
public issues
policy process expresses different demands and policy issues
that it actively promotes to keep them on the policy agenda
M&E Agenda Setting and in the public debate. However, policymakers cannot pos-
sibly respond to each and all of these demands. How, then, do
policymakers prioritize policy issues?

Implementation Formulation
In Romania, the General Secretariat of the Government was
established to promote greater inter-institutional coordina-
Legitimization tion among all stakeholders involved in the public policy pro-
cess. To facilitate the process, the Government put in place a
web portal on which all ministries publish their annual initia-
the policy domain, all three branches of government (legisla- tives, which in turn are consolidated into an Annual Working
tive, executive, and judicial) generally take part in the ­process. Plan. The consolidation of the ministries’ priorities helped
The executive branch proposes and formulates policies, the make an early impact assessment and, importantly, allowed
legislative branch decides upon them, and the judiciary inter- the formulation of priorities on a Government-wide level. The
prets and controls their implementation based on the rule of prioritization process conforms to a filtering mechanism that
law. Today, however, the state is no longer the only party to the revolves around the policy priorities that the Government has
public policy process. Citizens and other s­ takeholders—from set out—in Romania, policies that have a social, budgeting, or
the private sector to organizations, think tanks, the media, environmental impact.
academia, and so on—are not only involved in policymaking
but have also become a source of agenda setting. According In Lithuania, the Government introduced a change man-
to one scholar: agement process aimed at addressing insufficient inter-­
Public policy has undergone some rather fundamental institutional coordination, while emphasizing each ministry’s
changes over the past couple of decades in terms of policy leadership in and ownership of the agenda-setting process.
design, selection of policy instruments and the role of the A three-step process allowed the Government to (a) pick
State in society more broadly. [...] It appears as though the
priorities (800 policy issues were narrowed down to 30);
main sources of policy change are either economic or related
(b) establish a project management office to ensure owner-
to voters’ demands. [...] The so-called shift from government
to governance [...] refers to a tendency [...] to produce and ship and avoid outsourcing; and (c) form a monthly steering
deliver public service in concert with the market and civil soci- committee at the highest political level to increase project
ety. [...] Thus the governance perspective highlights concerted ownership. The Government encouraged line ministries to
action, shared resources and negotiation as an alternative to prioritize by increasing their budget allocations according
the state-centric model.7
to their ability to propose priority projects.

Impactful public policies and their implementation on the This approach was used in the United Kingdom in the late
ground are central to social and economic welfare. However, 1990s as the British Government established a modernization
international experience shows that there is no perfect policy, agenda centered around an evidence-based policy process.
and gaps may appear between policy intent and outcomes. The Government adopted a new approach to policymaking
It is therefore necessary to understand the success and fail- that was predicated on finding out “what works.” Among the
ures of public policies by elaborating on the factors that affect tools used, a Performance and Innovation Unit was created
the process and its complexity. to “improve the capacity of Government to address strategic,

7 B. G. Peters and J. Pierre, Handbook of Public Policy, SAGE, 2006.

Chapter 1 Strengthening Public Policy Processes 9

cross-cutting issues and promote innovation in the develop- to encourage men and women to participate in the deci-
ment of policy,” with the goal to be “forward looking [...] to sion-making process. For example, Albania’s Ministry of
deliver outcomes that matter, not simply reacting to short Finance actively sensitized Government officials and dissemi-
term pressures.” 8
nated gender-­disaggregated data to push for gender equality.

POLICY FORMULATION AND Policy formulation therefore requires stakeholders’ concerted

IMPLEMENTATION: NARROWING THE GAP action, consultation, and assessment of solutions. Without these
elements, a policy is almost doomed to fail for lack of agree-
Once priorities are agreed on and the public policy agenda is ment on its intended impact and possibly on its usefulness. For
set, solutions to problems are shaped and elaborated during instance, a few years ago, to inform the policymaking process,
the policy formulation phase. As one scholar cautions about Norway put in place StatRes, a program aimed at providing sta-
formulating public policy: tistical information about the use of resources and the results
There is a need to think carefully about the interactions of poli- achieved by various ministries and state agencies. Consolidated
cies and means of coordinating policies to create more effective, data were to be collected from the various ministries’ existing
if more complex, responses to policy problems. For example, data banks and published every year. However, the program was
if government wants to improve the quality of health for its
shut down only three years later: the data collected by StatRes
population, the obvious area for investment is in hospitals and
were already available within each ministry, so the consolidated
other aspects of the “healthcare industry.” On the other hand,
however, improving nutrition or enhancing opportunities for data bank was irrelevant. Although a need might have existed,
exercise may actually produce greater health benefits.9 the lack of concerted action on a government-wide level and the
failure to engage users in the conception and formulation of the
For instance, if during the public issue identification phase, policy resulted in an obsolete product.
gender gaps were identified as a public policy priority and
set on the public policy agenda, the policy formulation phase The question, therefore, is, how can policymakers decrease
would attempt to answer the question, Which solutions can the risks of failure between the formulation of a policy and
be used to effectively reduce gender inequality in society? its implementation on the ground? Implementation, the most
practical stage of policymaking, is reflected in concrete mea-
To answer this question, various ministries of finance have sures that are put into practice by all stakeholders involved,
used high-impact fiscal policy to achieve gender equality. from public entities to private partners and service recipients.
Following the lead of the Council of Europe and the UN, coun- Resources are allocated, responsibilities are assigned, and
tries such as North Macedonia, Bosnia and Herzegovina, and subregulations are enacted to guide the procedural and prac-
Albania adapted their public financial management strategies tical process of policymaking.
to gender-responsive budgeting (GRB). This involved ensur-
ing that women and men received an equal share of public Competent staff and civil servants are key to delivering quality
resources through programs designed to consistently take public services and the intended results; indeed, having them
their respective needs into account. Through gender-respon- in place is a precondition for implementation. Evidence shows
sive fiscal policies, an institutional environment was created that low levels of trust limit the government’s ability to attract
that incorporated gender-related strategic objectives into and retain good civil servants, in turn hindering the implemen-
policies and programs. In the process, gender analysis was tation of public sector reforms. According to the Eurobarometer
used as the main policy formulation tool, involving govern- (2018), about 59 percent of Europeans trust the public adminis-
ment officials, civil society, gender advocates, academia, tration in the EU . However, many European countries fall below
and local communities. Countries that adopted GRB main- the EU average, including Greece (18%), Italy (22%), Croatia
streamed these policies to inform and educate officials and (22%), and Spain (38%) (see Figure 1-2). About 54 percent of

8 Cabinet Office: The Government’s Expenditure Plans 1999-00 to 2001-02, available at https://www.gov.uk/government/publications/cabinet​
-office-the-governments-expenditure-plans-1999-00-to-2001-02.
9 B. G. Peters and J. Pierre, op. cit.

10 Building Effective, Accountable, and Inclusive Institutions In Europe And Central Asia
FIGURE 1-2.
Trust in public administration among EU countries

100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
Greece
Italy
Croatia
Bulgaria
Latvia
Cyprus
Spain
Portugal
Romania
Slovenia
Poland
Czech Republic
Slovak Republic
Lithuania
European Union
United Kingdom
France
Ireland
Hungary
Estonia
Belgium
Austria
Malta
Netherlands
Sweden
Denmark
Germany
Finland
Luxembourg
the EU population view public service delivery as either very artificial intelligence to shape policies based on monitoring
or rather bad—but the proportion is much higher in Greece and evaluation results, to bridge the knowledge gap between
(89%), Italy (80%), and Croatia (79%). These indices point to government bodies, including state-owned enterprises, and
the need to promote human resource development, including businesses. Albania, in the framework of its GRB policy, intro-
adjustments to working conditions, a better performance man- duced performance-based indicators in medium-term budget
agement system, and organizational streamlining efforts that programs and focused on objectives, outputs, and outcomes.
bring public services closer to citizens and businesses, all while To ensure effective implementation, support is consistently
establishing a culture of service delivery in the public function. provided at both the local and ministerial levels.

Together with competent and dedicated staff, and political It is also essential to have a detailed planning process in which
leadership and ownership, (as we will see in the Albania and important factors are identified: barriers to implementation,
Lithuania case studies), political will is also key to timely and such as resistance to change and dilatory tactics,10 lessons from
effective implementation of public sector reforms. True com- successes and failures, and incentives systems that govern
mitment from stakeholders and decision-makers, especially relationships among actors and players engaged in the imple-
for cross-cutting issues, is essential. Thus citizen engagement mentation process. In Poland, change management was under-
and the involvement of civil society organizations are again taken in the framework of a tax administration reform aimed at
necessary to reflect the voices of all segments of society and sealing tax gaps and increasing tax collection and VAT com-
ensure coordination, collaboration, and commitment. pliance. Poland’s National Revenue Administration (NRA) was
created in 2017, the result of a detailed planning process that
On the practical side, perhaps one of the most critical features endeavored to incorporate variables in the implementation of
of good policy implementation is the formulation of outcome-­ the reform, including a timeframe for modernizing IT and infra-
oriented and evidence-based policies, whose implementation structure and for building staff skills. The NRA functioned as
will necessarily focus on results. In Azerbaijan, fiscal policy an implementation body in charge of collecting budget reve-
moved from a productivity-based to a results-based model nues, while providing efficient service delivery and support to
built around smart-performance indicators. Azerbaijan used citizens through competent staff, streamlined procedures, and

10 Some examples of administrative red tape that cause delays: (a) forms, processes, and procedures that are needlessly complex—for example, the tax system
with its large number of exemptions, exceptions, and other complexities; (b) processes that are slow and expensive; and (c) political use of administrative
procedures as a means of political control—for example, an organization in which competing executives can impede each other by not approving things or not
processing requests in a timely manner.

Chapter 1 Strengthening Public Policy Processes 11

 POLICY EVALUATION
overall oversight of tax and customs services. The reform was
successful and resulted in not only the intended VAT revenue Once implementation has begun, continuous monitoring and
increase, but also positive spillovers on the market. evaluation are required to ensure that it is on track and will
produce the intended outcomes. Policy evaluation is key to
Narrowing the gap between policy formulation and implemen- holding governments accountable, and it entails involving
tation requires careful analysis of issues and the development independent stakeholders including the media. For instance,
of appropriate strategies to turn the process toward the out- the Central Planning Bureau in the Netherlands, an indepen-
puts and outcomes of public policy. But it also requires con- dent think-tank that is part of the Ministry of Economic Affairs,
stant communication with all stakeholders involved, including provides publicly available recommendations, based on its
staff, on the objective, purpose, and intended outcome of the political and economic analysis of public policies, that are sub-
policy. As Norway’s example above indicates, policy imple- sequently adopted in the law or translated into amendments.
mentation must not only be user-driven, develop dynamically, The technical quality of the bureau’s recommendations, in
and ensure constant dialogue between concerned stakehold- addition to their effective implementation, earns them strong
ers, it must also create value-added. Top-down, bottom-up, public credibility. Using indicators and international good
­evidence-based, or other approaches need to be considered practices as evidence of the effectiveness of measures is also
and deployed separately or in combination during different essential. However, ensuring accountability and transparency
stages of the policy implementation process.11 In addition, new while also making governments follow recommendations
public management approaches and techniques inspired by also implies engaging with technically sound media, includ-
the private sector, such as outsourcing of functions and intro- ing independent media. Media provide substantial scrutiny
duction of competition, regulation, and autonomy may be also of public affairs, but also facilitate open and fair debates on
considered. It may also be useful to consider recent innovations, public issues to help educate both citizens and government
such as a “whole-of-government” approach to reducing the officials on successes and failures.
administrative burden, and tools for administrative simplifica-
tion, such as one-stop shops and process re-engineering.12

II: Strengthening Public Policy Processes -

Lessons Learned
Part I highlighted six guiding principles for a strong public through the full process is key to successful and trust-
­policy process: worthy public policy.
• Public trust is a both the purpose and the result of a • Fostering a culture of public service delivery and
good public policy process. investing in human capacity are essential to narrowing
• Public policy is a demand- and user-driven process that the gap between policy formulation and implementa-
responds to prioritized needs based on transparent criteria. tion, and to creating an enabling environment of public
• Because public policy is a dynamic process that is trust and confidence.
the result of concerted action, shared resources, and • Detailed planning processes are essential to identify
negotiations, the active engagement of stakeholders and tackle barriers to implementation early on, such

11 For details on (a) the bottom-up model, see Pulzl & Treib, “Implementing Public Policy”, Handbook of Public Policy Analysis: Theory, Politics and Methods,
2007, pp.89-107, which describes an everyday problem-solving approach; and (b) the top-down model, see Meter and Horn, “The policy implementation
process a conceptual framework”, Administration and Society, 1975, pp.445-488, which describes the six variables that link policy and performance: (i) policy
standards and objectives; (ii) resources; (iii) intergovernmental communication and enforcement activities; (iv) characteristics of implementing agencies;
(v) economic, social, and political conditions; and (vi) disposition of the implementers.
12 See, for example, http://www.oecd.org/site/govgfg/39609018.pdf

12 Building Effective, Accountable, and Inclusive Institutions In Europe And Central Asia
 as resistance to change and dilatory tactics adopted 2.6, compared to 3.4 in LAC, 3.0 in EAP, 2.8 in SAR, and 2.7 in
by stakeholders, and to achieve successful institutional SSA (see Figure 1-3). In IDA countries in ECA, a regional com-
transformation. parison of policies and institutions indicates a mixed record on
• Political will, leadership, and ownership are essential to public sector management and transparency. In particular, ECA
getting things done. obtained a score of 3.2 compared to 3.3 in LAC, 3.1 in SAR and
EAP, and 3.0 in SSA (see Figure 1-4). How can governments
Three lessons learned emerge from the preceding section that build on transparency, accountability, and efficiency to create
can help to guide the public policy process. an inclusive public policy process that raises public trust?

Lesson 1. Transparency and accountability are pivotal to rais- Issue identification and agenda-setting should be based
ing public trust and confidence and to strengthening public on users’ demands but prioritized on the basis of transpar-
policy processes. ent criteria so that all parties to the process understand
the choices made. IT infrastructure and GovTech13 play a
For instance, the ECA Region displays policy gaps with respect major role in reducing red tape and allowing businesses
to the quality of public sector governance. According to the and citizens to assess the processes. For instance, biomet-
World Bank’s 2018 Country Policy and Institutional Assessment ric registration, verification, and payment systems in India’s
(CPIA), on the “public sector transparency and governance” National Rural Employment Guarantee Scheme reduced
indicator the ECA region (3.2) compares fairly well with the leakages of funds by 35 percent. In Indonesia, electronic
East Asia and Pacific Region (EAP, 3.1), the South Asia Region tendering of contracts increased procurement competi-
(SAR, 3.1), the Sub-Saharan Africa Region (SSA, 2.9), and the tiveness and the quality of roads. And in São Paulo, Brazil,
Latin America Region (LAC, 3.3). On “transparency, account- one-stop computerized service centers enabled citizens
ability and corruption in the public sector,” however, ECA scores to receive birth and death certificates with much shorter

FIGURE 1-3.
Regional comparison of policies and institutions for IDA countries

Regional Comparison: Policies and

Institutions for IDA countries
4.0

3.5

3.0

2.5

2.0

1.5

1.0
Sub-Saharan Africa EAP ECA LAC SAR

Economic Management Cluster Policies for Social Inclusion

Structural Policies Public Sector Management and
Transparency in Public Sector

13 GovTech is a whole-of-government approach to digitization that promotes simple, accessible, and efficient government. It promotes the use of technology to
transform the public sector, improve service delivery to citizens and businesses, and increase efficiency, transparency, and accountability. GovTech is a pillar of
the Digital Economy Framework, providing necessary technology to foster economic growth, reduce poverty, and boost shared prosperity.

Chapter 1 Strengthening Public Policy Processes 13

FIGURE 1-4.
Regional comparison of public sector transparency and governance

3.8

3.6

3.4

3.2

3.0

2.8

2.6

2.4

2.2

2.0
Sub-Saharan Africa EAP ECA LAC SAR

Property Rights & Rule-based Govern. Quality of Public Admin.

Quality of Budget. & Finan. Mgt. Transpar., Account. & Corrup.in Pub. Sec.
Efficiency of Revenue Mobilization Public Sector Management and
Transparency in Public Sector

service times than typical government offices could offer. Such reforms involve creating a strong public service deliv-
These new technologies offer opportunities for policy- ery culture in the public function.14 If success is to be achieved
makers to deploy new solutions to address development and the implementation gap reduced, genuine empowerment
policy problems and potentially achieve transformational and professional development of public officials are essential.
impacts. A strong human capacity that focuses on delivering quality
public goods and results on time will boost public trust and the
Public policy information, including objectives and outcomes, government’s ability to attract and retain good civil servants.
should be accessible and user-friendly. To that end, gov-
ernments increasingly create scorecards and dashboards Lesson 3. Inter-institutional coordination and stakeholder
that capture the information most relevant to the readers, and citizen engagement are necessary throughout the entire
such as expected results. Citizen engagement tools must process, from the issue identification stage to the agenda
be used through the entire process to increase public trust. setting, implementation, and evaluation stages.
This includes feedback and complaints mechanisms (e.g., in
Portugal, complaints books are available at public and private Whether it is a law reform initiative involving the parliament,
service providers) and regular public hearings. or an effort by construction industry representatives to sim-
plify construction procedures and boost job creation, all pol-
Lesson 2. Citizen-centric reforms imply creating value-added icy interventions require concerted efforts to engage, listen to,
for citizens and recipients of public services. and involve stakeholders. The government must then institute
measures and guidelines to perform these functions effectively.
It is good practice to map out stakeholders and see how policy

14 A service culture is built on elements of leadership principles, norms, work habits, vision, mission, and values. Culture is the set of overriding principles accord-
ing to which management controls, maintains, and develops the social process that manifests itself as delivery of service and gives value to citizens and busi-
nesses (customers). Inculcating these values and shifts in mindset requires knowledge, skills training in such areas as public speaking and customer relations,
and appropriate incentives to motivate public officials. https://www.servicefutures.com/four-key-elements-service-delivery-system.

14 Building Effective, Accountable, and Inclusive Institutions In Europe And Central Asia
FIGURE 1-5.
Key factors, measurement systems, and performance outcomes

AN EFFECTIVE
PERFORMANCE PERFORMANCE
KEY FACTORS
MEASUREMENT OUTCOMES
SYSTEM

Stakeholder involvement Commitment and More honesty and

and engagement in the understanding of transparency in
process performance indicators reporting results
A strong learning and Higher motivation to Improved performance
evaluating culture achieve results and effectiveness
Requisite managerial Greater use of Innovation and new
discretion to achieve performance strategies for improving
results information for feedback performance
and learning

Source: Swee C. Goh (2012), “Making performance measurement systems; more effective in public sector organizations.”

changes may affect them, positively (beneficiaries) or nega-

tively (e.g., vested interests that may block changes).15

III: The Way Forward

There is no one magic formula for strengthening a country’s and other key stakeholders. Consequently, effectively engag-
public policy process. It is a process that is unique to each ing stakeholders at different levels and sectors of the public
nation, with its specific strengths and needs. Nevertheless, a administration, citizens, and others can help in identifying and
common thread stands out: a strong public policy process prioritizing public needs, and can narrow the gap between
should be demand- and user-driven, develop dynamically and policy formulation and implementation. Fostering a culture of
collectively, and create sustained value-added for social and public service delivery in the public function and investing in
economic prosperity. It begins with the informed and transpar- human capital are essential to narrowing the gap, as is creating
ent identification and prioritization of public issues, to which a an enabling environment of public trust and confidence. This
coordinated policy formulation and implementation process collective action approach opens the way to the elaboration of
supported by political leadership and ownership ought to more creative and productive solutions to public goods pro-
bring high-impact solutions. Considering that the process is by vision, helps reframe the role of citizens beyond being simply
nature public, it implies the systematic and constant engage- sources of user demand, and can enable public sector leader-
ment of citizens, the private sector, the media, state agencies, ship and ownership to achieve the SDGs.

15 Stakeholder analysis in the public sector typically involves six steps and, when implemented, appropriately secures the buy-in that is needed for strengthening
policy processes. First, assemble a cross-functional group of public officials with a range of perspectives on the service being provided by the agency. Two,
give context and define the purpose and scope of the stakeholder analysis and explain how the results will be used. Three, present data and information that
underpins the policy reform that is being contemplated—for example, results of a SWOT analysis, PESTLE analysis, or relevant rules and regulations. Four,
define criteria for the prioritization of the different stakeholders in terms of their interest in and influence on the policy change that is being planned. Five,
carry out a similar exercise with citizen groups and industry experts. Six, based on these internal and external perspectives prepare a stakeholder matrix (with
influence on the vertical axis and interest on the horizontal axis) and develop engagement and communication plans.

Chapter 1 Strengthening Public Policy Processes 15

CASE STUDY 1.1

Lithuania: Change Management and

the Project Management Office
LUKAS SAVICKAS, FIRST DEPUTY CHANCELLOR AT THE OFFICE OF THE GOVERNMENT OF LITHUANIA

CONTEXT
experienced before. It soon became apparent that significant
Following accession to the European Union in 2004, Lithuania measures would be needed to reinvigorate growth. In partic-
recorded an unprecedented growth in GDP. This growth, how- ular, the newly elected Government realized that during the
ever, was significantly disturbed by the financial crisis which years of unprecedented growth in national income, the citi-
occurred not long afterwards. Apart from the recession period, zens of the country had formed high expectations and projec-
the historical record of Lithuania’s year-on-year GDP growth tions for the future. In 2016, the new Government of Lithuania
showed that in general it was far greater than the EU average. came to understand that structural reforms must be taken
These conditions created an environment in which, compared and must be reflected in the new Government plan for the
to the EU average, the national income per capita gap contin- years leading up to 2020.
ually decreased. For instance, in a decade Lithuania went from
barely 55 percent to 75 percent of the EU average GDP per cap- Initially, the Government drafted a plan of nearly 800 all-em-
ita (Figure 1.1-1). Living standards increased dramatically. bracing measures. It soon became clear that while this plan
was extremely ambitious, it would benefit from a stronger
However, in recent years, Lithuania’s GDP per capita stopped focus on key steps needed to address the challenge. Therefore,
accelerating. It seemed that the organic growth of the larg- the Government decided to initiate a package of six structural
est Baltic State lost its momentum. Between 2014 and 2016, reforms.
Lithuania’s GDP per capita remained flat at 75 percent of the
EU average (Figure 1.1-1)—something the country had not The European Commission (EC), the International Monetary
Fund (IMF), and the Organisation for Economic Co-operation
and Development (OECD) have always given Lithuania a
FIGURE 1.1-1.
GDP per capita, % of EU average hand, making valuable recommendations about measures to
address various problems. Nevertheless, it was up to Lithuania
itself to decide on the course of action. Before drafting the
80
75 75 75 exact shape of structural reforms and the ways they would be
73
70
70 66 implemented, the following challenges were identified:
63
60 60 • Lack of active leadership in planning and implement-
60 56
55
ing reforms. The responsibilities were seen to be insti-
50
tutional, not personal.
40 • The preparation for systemic changes would take
extended periods of time and risk losing political
30
momentum.
20 • Public servants were not equipped with the necessary
skills and competences to implement large-scale and
10
complicated projects. The same competences and
0 skills needed to ensure daily functions would be used
2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

for project implementation.

16 Building Effective, Accountable And Inclusive Institutions In Europe And Central Asia
FIGURE 1.1-2.
Change management best practices in the EU

United
Kingdom

Key findings:
Finland
• Execution
Portfolio management
• Performance:
Implementation of
projects and programs
• PMO as a competence center
• International project Denmark
management standards

• Lack of effective inter-institutional cooperation. teams; in general, the leadership would no longer be institu-
• Insufficient coordination of strategic changes at the tional but personal. At the same time, the implementation of
Government level. changes would no longer be ad hoc but would follow a very
clear and strict order prescribed in the project plans. A steer-
The Government came to realize that it would need to address ing committee was set up, consisting of the Prime Minister,
both the reforms themselves and their effective management the Chancellor of the Government, ministers, and the advisor
in the public sector, and it came to the strategic decision to to the Prime Minister. The function of this committee was to
implement broad change management in the public s­ ector. control risks, approve necessary funding, and evaluate the
To save time and resources, the Government researched created value of the projects.
other countries’ best practices for dealing with significant
changes—primarily those of the UK, Finland, and Denmark A completely new unit, the Project Management Office, was
(see Figure 1.1-2). Similar findings in all of these cases reas- established in the Office of the Government. Its role was
sured the Government that the direction of change manage- to adopt and apply project management standards to all
ment chosen for Lithuania was on the right track. future changes in Lithuania’s public sector, provide all the
necessary training to and consultations with public servants,
IMPLEMENTED ACTIONS and act as the competence center for best project manage-
ment practices. In this step, great emphasis was put on the
The implementation process started with understanding Project Management Standard, which would take the best
and identifying Lithuania’s key priorities for the near future. globally acknowledged practices from the private sector
From the 795 actions listed in the Government Program and apply them to the needs of the public sector. Not only
Implementation Plan, 33 were considered to be of the greatest did the Standard describe the way the project management
importance and were prioritized. These 33 priorities were con- methodology should be applied, but it also provided ready-
verted into 44 projects, which together formed the Strategic made templates and forms to be used for creating project
Project Portfolio owned by the Prime Minister himself. plans, monthly status reports, and project change requests.
The main information about each of the projects—project
It became clear that the desired changes would have to be owner, deadline, key milestones, expected benefits—was
linked to project owners, project managers, and project published online, creating the environment of transparency

Chapter 1 Strengthening Public Policy Processes 17

and implied responsibility for the delivery of the promises clearly distinguishable from daily operational management
made to society. and cyclical or functional activity. In theory, the new model
could be applied by dividing all actions of any institution
As the main components of the change management system into two parts: daily operation and projects (or programs),
in Lithuania were all in place, it was time to make the sys- whereby projects were understood as actions/events that
tem operational, and to oversee its implementation through have a beginning and an end, and a unique result at the con-
monthly steering committee meetings, where the status of clusion of the work (see Figure 1.1-4).
the strategic portfolio was evaluated on the basis of the time-
line, budget, scope, and risks of the strategic projects that RESULTS
composed the portfolio. (Figure 1.1-3 summarizes the steps in
this process.) The task of dealing with all the changes in the public sector
was, in fact, not an easy one, since Lithuania’s public sector had
Even though the system was primarily created to address and very limited project management capacity at that time. The
effectively manage strategic projects from the portfolio of the biggest challenge for the newly formed Project Management
Prime Minister, it became a very effective and handy tool to Office was not the administration of the projects, but rather
implement all changes in the public sector, whether related the need to continuously persuade public servants as well as
to IT, infrastructure, or any other area. Thus, the system was providing them training and consultations in the ministries.

FIGURE 1.1-3.
Steps in implementing change management in Lithuania

STEP 1

UNDERSTAND
PRIORITIES STEP 2
33 priorities were selected out of FORM PROJECTS
795 actions in the Government AND PROGRAMS PORTFOLIO
Program Implementation Plan 4 types: change, infrastructure, IT, defense

FORM A
STEERING COMMITTEE
STEP 3 Main functions: control risks, provide
funding, projects, evaluate value created
STEP 4

ESTABLISH PROJECT
STEP 5 MANAGEMENT OFFICE
Main functions: maintain standards, provide
PUBLISH MAIN DATA ONLINE training and consultations, improve processes,
Key milestones, responsible persons (owners), evaluate projects portfolio status, manage projects
issue and expected benefits

EVALUATE PORTFOLIO STATUS

MANAGE RISKS AND EVERY MONTH STEP 6
SOLVE PROBLEMS 4 components: time, budget, scope and risks
Providing training and
STEP 7 consultations if needed

18 Building Effective, Accountable And Inclusive Institutions In Europe And Central Asia
FIGURE 1.1-4.
Project management method applied to implement changes

Vision
mission

Long term
strategy
Project management
method applied to
implement changes
Strategic planning

Planning and Planning and managing

managing of activity project portfolio

Daily operation Program and project management

management (handling change request)

Institution resources

It was also important to see the new change management • The newly established Steering Committee met each
system as a component. month and supervised the implementation of strategic
projects regarding their planned schedule, budget and
Despite all the challenges, the following significant accom- scope, and associated risks.
plishments were achieved: • As the result of the successful implementation of
• For the first time, responsible project owners and proj- change and portfolio management processes, six
ect managers—rather than just an institution—were structural policy reform programs were added to the
appointed to facilitate and drive forward each of the strategic project portfolio.
44 strategic projects.
• The Government established the Project Management The most tangible accomplishment of the change man-
Office to ensure a uniform Project Management agement system was the fact that, at the end of 2018,
Standard across the public sector and to accumulate 77 percent of the actions prescribed in the Government
expertise and project management know-how. Implementation Plan, and 98 percent of the projects in the

Chapter 1 Strengthening Public Policy Processes 19

Strategic Project Portfolio, had been implemented without been ­projected to materialize as a result of the structural
any delay (see Figure 1.1-5). reforms:
• By 2025, almost 26,000 jobs will have been created
Looking not at the form of the change management and secured.
system but at its results, the following outcomes have
­ • 14 of the 18 recommendations submitted to Lithuania
were implemented or at least partly implemented with
FIGURE 1.1-5.
the Reform Package.
Value created due to change management
• Between 2025 and 2027, the reforms will increase the
GDP by around 2% or €1.2 billion (see Figure 1.1-6.)
GOVERNMENT
STRATEGIC
PROGRAM LESSONS LEARNED
PROJECT
IMPLEMENTATION 100%
PORTFOLIO
PLAN
Throughout this process of institutionalizing project manage-
In total–795 75% In total–44
actions (Project and ment and change management methodologies, it became
programs) apparent that ensuring personal responsibility is crucial. It is
(2017–2020
period) 50% (2017–2020 also important to set frequent and publicly accessible mile-
period)
stones that can not only be monitored by the steering com-
77% 25% 98%
mittee, but also closely followed by civil society.
according to according to
the plan the plan
0% One of the lessons learned is that in the initial stage of set-
ting up a change management system in the public sector,
strong political support is needed. Moreover, it is important

FIGURE 1.1-6.
The effect of structural change on the economy

The effect of structural change on the economy

Impact of reforms on GDP

(compared to the scenario) if there were no reforms

1600 2,5 % Thanks to the ongoing reforms,

Lithuania will have
2,01 % 2,03 % 1,98 % an estimated 26,000
1,88 % 1,90 %
1200 1,82 %
1,73 % 1,9 % new jobs by 2025
1,67 %
1,42 %

800 1,10 % 1,3 %

0,65 %
400 0,6 % 14 of the 18 recommendations
0,25 % submitted to Lithuania were
fully or partly implemented
0 0,0 % with the Reform Package
2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030
GDP, at current prices, million EUR GDP change compared to non-reform scenario, %

20 Building Effective, Accountable And Inclusive Institutions In Europe And Central Asia
to continuously develop in-house competence to ensure management tool is being designed and developed to curb
that the implementation of the reforms is as flawless as pos- the number of digital forms that need to be filled in and to
sible. Internal communication is vital to minimize resistance ensure that all necessary information is entered, controlled,
to the newly established system, while external communi- and stored online. In addition, official project management
cation is important to curb resistance to the reforms being legislation is being drafted to ensure that all the operations
implemented. And finally, to reach a sustainable result, it is and procedures associated with the change management
important to address the risk of political cycles and ongoing system have the legal backing of the Government. Finally, the
institutional resistance, and to manage resources efficiently. Government of Lithuania is ready to share its competences,
know-how, and network with academia to make sure that the
In the future, the change management system will continue universities incorporate this project management case and
to evolve to embrace the entire public sector. A project knowledge in the curricula of their study programs.

Lietuva (Lithuania)
Photo: © Vlada /Adobe Stock

Chapter 1 Strengthening Public Policy Processes 21

CASE STUDY 1.2

Azerbaijan: Monitoring and Evaluating

the Public Policy Process
VUSAL GASIMLI, EXECUTIVE DIRECTOR, CENTER FOR ANALYSIS OF ECONOMIC REFORMS AND COMMUNICATION, AZERBAIJAN

CONTEXT
new strategic course allowed the country to “transform the
Reforms: Starting Point challenges into opportunity” without prejudice to the social
well-being of the people, while implementing all social pro-
Azerbaijan has historically been important thanks to its cen- grams planned by the Government.
tral location at the crossroads of Europe, its political stability,
its rich hydrocarbon resources, and its investment-enabling On December 6, 2016, the President adopted strategic road-
environment. A country that gained independence imme- maps for the development of 12 sectors of the economy
diately after the dissolution of the Soviet Union, Azerbaijan (finance, agriculture, tourism, transport, logistics, etc.), laying
has successfully fostered the recovery of all sectors of the the foundation for new economic reforms. This created link-
economy and has implemented its development strategy. The ages between the current, medium, and long-term socioeco-
fundamental elements of that strategy are to ensure macro- nomic development plans, which aim to reduce the effects of
economic stability, complete the transition to a market econ- the global economic crisis on the country. As a key priority of
omy, and create resources, such as an effective oil program, to these reforms, the country has identified a new model of eco-
enable medium- and long-term development. Consequently, nomic development. The proposed reforms have also laid the
over the past two decades, Azerbaijan has combated poverty, grounds for improving the business-enabling environment
achieved dynamic socioeconomic development, promoted and set off drivers of economic development by creating
human capital development, and increased the GDP by more higher-quality, more efficient, and more inclusive institutions.
than 10 times. It was also one of the country’s primary policy
16
The new model relies on competitive exports and on sustain-
objectives to achieve inclusive economic growth and sustain- able and inclusive economic growth.
able economic development, moving from being a resource
economy (which is a major obstacle for oil- and gas-produc- However, for historical and political reasons, the implementa-
ing countries) to being a knowledge economy. tion of the country’s reform agenda was not easy and with-
out challenges. With the leadership and determination of the
In recent years an abrupt fall in oil prices in the global com- President of Azerbaijan, the country overcame such destabi-
modity exchanges has created serious challenges for the lizing obstacles and successfully implemented a new program
Azerbaijani economy. The devaluation of national curren- of reforms over the past three years.
cies in all major trading partners increased pressure on the
Azerbaijani manat and on the stability of the economy. In The challenges that the reform agenda needed to address
response, Azerbaijan has made it a top reform priority to included the insufficient integration of data among agencies,
develop a business-enabling environment and improve the the length of time implementation of the initiatives would
diversification options of the national economy, launch- take, the need for technical and legislative solutions to build
ing measures to ensure the sustainable development of a single database of information systems, and the need for
the non-oil sector and to reduce the economy’s reliance on transparency and inclusive services related to the ongoing
the oil sector ahead of schedule. The ongoing reforms and the reforms.

16 https://data.worldbank.org/country/azerbaijan?view=chart

22 Building Effective, Accountable And Inclusive Institutions In Europe And Central Asia
IMPLEMENTED ACTIONS Main Aspects of Monitoring and Evaluation

Implementation and Monitoring Mechanisms for Reform The Center carries out annual M&E of the strategic roadmaps,
Programs as well as midterm and periodic analyses of them, providing
the highest level of accountability by submitting the annual
In developing new mechanisms to implement the reform reports to the President. It also makes the reports available to
programs, the Government involved various segments of the the public and posts them on its website.
society—businesses, public associations, nongovernmental
organizations, academic centers, and others—in the develop- Another innovation that is worth highlighting is the intro-
ment process. These mechanisms were designed to improve duction of results-based assessment. Until 2017 the M&E of
the exchange of information between Government agencies the strategic roadmaps used performance-based criteria,
and to build a transparent, effective, and credible environ- but the country moved to a result-based assessment fol-
ment in monitoring and evaluation (M&E). For this purpose, lowing the President’s August 2018 decision on approval of
on April 20, 2016, the President established the Center for the guidelines for the medium-term expenditure framework.
Analysis of Economic Reforms and Communications (the Given that results-based evaluation is a complex process and
Center). The Center’s primary role is to monitor, evaluate, was introduced as a new approach in the country, it was first
and communicate the activities undertaken in the reform implemented in pilot projects while the associated evaluation
programs, carry out macro and microeconomic analysis philosophy was being promoted across the agencies. While
and research to ensure sustainable economic development, the evaluation of strategic roadmaps at this stage relies on
develop projections for mid-range and longer periods, and performance-based mechanisms, the roadmaps have identi-
provide unified communication of the reforms to various fied specific targets, target indicators, initial deliverables, aver-
segments of society. As an M&E institution, the Center aimed age deliverables, and impact indicators to be accomplished by
to develop a framework and methodology of evaluation and 2020. In this regard, strategic roadmaps have played a very
ensure that M&E activities were implemented transparently important role in Azerbaijan’s transition to the result-based
so that all stakeholders, particularly implementing agencies, governance concept.
could work with confidence. Working groups were estab-
lished to make interagency coordination and communica- Another role the Center played in the implementation of the
tion more effective, and the Center hosted regular meetings country’s reform agenda was to ensure effective communica-
of the working groups – attended by senior executives from tion of the reforms. It was important to make reforms inclusive,
Government agencies – to review and analyze implementa- explore public perceptions, and introduce proper promotion
tion progress and challenges. activities. In the past reforming countries have sometimes
failed to bring the reform process to completion because of
Having successfully monitored the strategic roadmaps, the such factors as failure to measure the actual results of their
Center has taken over the evaluation of other state programs reforms, to recognize that steps taken at an early stage had
as part of its mandate: self-employment programs, special some possible side effects, and that some reforms produce
state programs on development of digital payments, long- results only after a longer period of time. It is therefore of
term employment strategies, food safety programs, and other vital importance to communicate to the public on ongoing
Government programs. reforms, provide it with full and complete information about
the expected results, and receive and analyze reform propos-
The Center is committed to introducing digital platforms for als from various segments of society.
M&E reform activities in Azerbaijan and is continuing its efforts
to leverage the potential of “big data.” That effort will ensure Key elements of this communication strategy include
that countrywide reforms are implemented on the digital plat- government
­ agencies, the wider public (businesses,
form and that adequate and flexible interagency coordination ­diplomatic missions, consulting firms, etc.), academic ­centers,
in the implementation and monitoring of the strategic road- and the media. The communication process uses several
maps is maintained through the electronic portal. tools—reports, press conferences, TV speeches, social media

Chapter 1 Strengthening Public Policy Processes 23

broadcasts, live meetings in the capital and regions, and so on. the Heritage Foundation, Azerbaijan progressed from 91st to
The Center involved respected institutions such as the United 60th place since initiating the reforms (see Figure 1.2-1).19
Nations and the World Bank in the development of the stra-
tegic roadmap methodology and reduced the asymmetry of The country’s business reforms kept the focus on inclusive
information on reforms by organizing numerous discussions development in areas such as procurement, e-court, getting
and visits in the regions. electricity, construction permits, property registration, real
estate encumbrance, electronic invoices, Green Corridor,20
RESULTS and online export application. The country has introduced a
number of mechanisms (Azexport.az and Digital Trade Hub
Under the guidance of the President, Azerbaijan achieved Platforms, trade missions, export missions, trading houses,
stabilization in 2017, revival in 2018, and a high growth rate in export subsidies, etc.) to expand the scope of e-commerce and
2019, thanks to the flexible reaction to economic processes address challenges faced by export businesses. The reforms
and the selection of a proper economic course. Having expe- also included activities such as e-visa; country branding, logo,
rienced a 3.1 percent decrease in GDP in 2016, however, in the and slogan; a tourism marketing strategy; participation of
first eight months of 2019 Azerbaijan realized a GDP growth tour operators in tourism exhibitions; and the establishment
rate of 2.4 percent. Moreover, inflation fell from 12.9 percent in of tourism representative offices of Azerbaijan abroad. At the
2017 to 2.6 percent in the first eight months of 2019.17 same time, the country implemented such activities as devel-
opment of higher education in the agriculture sector, estab-
The reforms included such activities as the introduction of lishment of dual degree programs, development of shipping
budget guidelines, a medium-term expenditure framework, a services, and export missions to target countries to promote
Government indebtedness strategy, monetary programs, tax the “Made in Azerbaijan” brand at a global level.
and customs reforms, the privatization agenda, an employ-
ment strategy, an unemployment insurance system, and pilot Over the years, Azerbaijan has continued its efforts to
health insurance—successful reforms in eight key sectors improve the country’s transportation and logistics capabili-
of the economy. With all these business reforms, the World ties, establish an effective transport and transit network with
Bank’s Doing Business report ranked Azerbaijan in the world’s other countries in the region, strengthen the transport and rail
top 10 reforming countries, moving it from 80th place in 2015 network connecting Europe and Asia, and launch the Baku-
to the world’s 25 most favorable economy for enabling busi-
th
Tbilisi-Kars railway, the Astara- Astara Railway, and the
ness in 2019.18 According to the Economic Freedom report of Absheron Logistics Center. Azerbaijan has also simplified the

FIGURE 1.2-1.
Dynamics of the improvement of Azerbaijan’s position in international rankings

“Doing Business” “Economic Freedom”

25
32
2 8 57 7 60
63 65 1 67
68
23
91

2016 2017 2018 2019 2016 2017 2018 2019

Doing Business Report Economic Freedom Report

17 https://www.stat.gov.az/news/macroeconomy.php?page=1
18 https://www.doingbusiness.org/content/dam/doingBusiness/media/Annual-Reports/English/DB2019-report_web-version.pdf
19 https://www.heritage.org/index/country/azerbaijan
20 https://customs.gov.az/en/sahibkarlar-ucun/green-corridor/

24 Building Effective, Accountable And Inclusive Institutions In Europe And Central Asia
process of providing electricity to construction sites, launch- M&E processes. Because there is no common approach and
ing the “one-stop-shop” principle for issuing construction and method to set up these systems, each country needs to deter-
operation permits electronically via the online portal. Thanks mine its own development and evaluation focus. Azerbaijan
to these reforms, Azerbaijan evolved from an energy import- institutionalized the M&E of the reform agenda, marrying the
ing country to an energy exporting country. best international practices and local conditions.

Considering small and medium-sized businesses as one of the It is important to introduce incentives and stimulatory pol-
driving forces of economic development and improved access icies in M&E processes, and the system needs to be both
to financial resources, Azerbaijan has established a new simple and clear. Effective performance of these systems
institution – the Small and Medium Business Development depends on developing human capital and sustainable
Agency—to support them. It has also established the State leadership, which are critical in addressing the difficulties
Agency for Antimonopoly and Consumer Market Supervision encountered in data exchange (data collection, validation,
and a special online portal for obtaining licenses and permits. and analysis) and maintaining objective, impartial evalua-
For the first time in its history, Azerbaijan established a private tion systems. The role of the political leadership is another
credit bureau, a real estate encumbrance registry, and a mort- important element that influenced the reform process. The
gage and credit guarantee mechanism. introduction of top-down and bottom-up reform cycles and
continuous support of the reforms by the country leadership
With the Presidential decree “On Additional Measures to have positively affected the success. As a case in point, on
Address Non-Performing Loans Extended to Physical Persons the last working day of 2018, the President signed 45 regula-
in the Republic of Azerbaijan,” Azerbaijan made reforms to tory documents, of which 20 were laws and 25 were decrees
reduce the numbers of nonperforming loan portfolios in the and executive orders.
country, achieving a 4 percent decrease in the volume of non-
performing loans in just two years.21 As a result, Azerbaijan In conclusion, the country’s improved economic performance
has developed an effective mechanism for addressing trou- in the aftermath of crises in the world oil prices, and inter-
bled loans, which was a burden for the banking sector and national institutions’ positive evaluation of Azerbaijan’s eco-
the country. nomic achievements, attest to the fact that Azerbaijan has
been able to establish strong enough institutional mecha-
LESSONS LEARNED nisms to pursue countrywide reforms. Adoption of interna-
tional practices and increased transparency and inclusiveness
Azerbaijan’s reforms and new institutions gave the country in the introduction of new public services are among the key
new opportunities and knowledge. To start, it was essential to factors that guaranteed the sustainability of Azerbaijan’s
properly understand the political and institutional context of reforms model and institutions.

Photo: © Simone D. McCourtie / World Bank

21 https://uploads.cbar.az/assets/504e06f81edcc01efe6c50357.pdf

Chapter 1 Strengthening Public Policy Processes 25

RESULTS BRIEF 1.1

Albania: Gender-Responsive Budgeting

as a Tool for Better Policy Formulation
GENTIAN OPRE, DIRECTOR OF BUDGET ANALYSIS AND PROGRAMMING DEPARTMENT, MINISTRY OF FINANCE AND
ECONOMY, ALBANIA

CONTEXT
Health Care for All
In the late 2000s, Albania embarked on a new era of design-
ing more effective and inclusive policies. In recent years, many In one concrete example of the new way of thinking, Albania
countries have learned the benefits of this long-overdue idea. featured something everybody needs and wants—better health
First, it made sense to embed the idea in the proper legal care. And not only better care, but more of it, and especially
framework. In one section, the pamphlet talks about offering more care targeted to women’s (and families’) needs. Figure
services for women—for example, free check-ups for 475,000 1.3-1 depicts the “health care area” of the Citizen’s Budget. In
citizens, half of whom were female. There was also a strong one section the pamphlet talks about offering services for
increase in the number of health consultations for mothers women—for example, free check-ups for 475,000 citizens, half
and their children. of whom were female. There was also a strong increase in the
number of health consultations for mothers and their children.
Starting with the Right Legislation
The top left of the pamphlet reads:
First it made sense to embed the idea in the proper legal “We support the possibilities of a better life. The 2019 budget
framework. As early as 2008, Albania introduced a new is investing to secure access to better public services for all
organic law that made program budgeting mandatory citizens.”

and added performance-based indicators in medium-term For the first time, GRB has been included as a tool to explain
budget programs that focused on goals, objectives, and the different social impacts in the lives of men and women in
outputs. As a result, gender-responsive budgeting (GRB) the budget planning for 2019 in the Citizens’ Budget.
found a footing.
The system, which was mainstreamed in 2019, is mandatory
The involvement of civil society was essential. This and performance-based. Support is currently offered to local
involvement has been mainly in the form of training and governments and ministries to ensure awareness and effective
the provision of tools such as monitoring and evaluation implementation with the support of UNWOMEN, the World
(M&E) practices that increased government engagement, Bank, and the EU. The objective is to expand the program into
fostered a proactive attitude, and created openness to
­ all Government programs using tools such as a management
alternatives not tried or perhaps not even thought of system with key performance indicators at the outcome level,
before. Civil society organizations (CSOs) regularly held and tools that associate outputs and costs with one another
public hearings to improve the institutionalization p
­ rocess in an integrated manner.
and actively engage all levels of government with the
budget. RESULTS

Particular attention was given to educating and ­instructing Progress has been steady and impressive, according to the
ministries to include and disseminate gender-­disaggregated rankings of international organizations. The number of pro-
data as part of the effort to advocate for gender equality. grams that include GRB increased from 9 to 33 between 2015

26 Building Effective, Accountable And Inclusive Institutions In Europe And Central Asia
FIGURE 1.3-1.
Health care in the Citizens’ Budget

NJË VËSHTRIM PËR QYTETARËT 9

1 KONSOLIDIMI I SHËRBIMEVE
PUBLIKE THEMELORE
Mbështesim më shumë
mundësi për një jetë më
të mirë. Buxheti 2019
investon për të siguruar
akses në shërbime
cilësore publike për të
gjithë qytetarët
SHËNDETËSIA

Shëndet për të gjithë

Buxheti 2019 vijon politikat parësor në konsultoret e Infrastrukturë më e mirë në çdo
për mbulimin universal me gruas dhe fëmijës, duke skaj të vendit:
shërbim cilësor, diagnostikimin ofruar shërbim cilësor dhe □ Fuqizimi i spitaleve rajonale
dhe parandalimin e gjithëpërfshirës për më dhe rijetësimi i materniteteve
sëmundjeve dhe shtimin e shumë se 50% të nënave □ Rehabilitimi dhe pajisja
gamës së medikamenteve të të reja dhe mbi 80% të e plotë e 100 qendrave
rimbursueshme. Investimet në foshnjave vajza e djem shëndetësore
infrastrukturën shëndetësore □ Trajtimi me recetë □ 20% më shumë investime në
për të siguruar aksesin e rimbursimi për mbi 475 shëndetësi se më 2018
qytetarëve në shërbime mijë pacientë në vit □ Modernizim i QSUT më
themelore ku dhe kur t’u spitalin e ri të kirurgjisë
nevojitet janë prioritare: Rritja e numrit të pacientëve të dhe vijimin e ndërtimit të
trajtuar: spitalit të ri të sëmundjeve të
E gjithë vëmendja për njerëzit: □ nga 6.4 milionë në brendshme & pediatrisë.
□ Shërbimi i kontrollit bazë 6.7milionë vizita në
(check-up) falas për 475 kujdesin parësor deri më Mjekë për Shqipërinë:
mijë pacientë në vit, 50% 2021 □ 1 milard lekë për rritjen e
burra e 50% gra □ nga 290 mijë më 2018, pagave për 18,415 punonjës
□ Mbi 45% më shumë gra në 310 mijë pacientë të në shëndetësi:
mbi 35 vjeç që përfitojnë trajtuar për vitin 2019 e 330
nga shërbimet falas të mijë më 2021 Sigurimet shëndetësore:
depistimit të kancerit të □ 200 pacientë më shumë □ 41,9 miliardë lekë, ose 2,4%
gjirit dhe më shumë raste që përfitojnë nga paketat e e PBB nga 40,4 miliardë lekë
të kancerit të gjirit të kardiokirurgjisë në 2018
trajtuara □ Nga 170 mijë seanca dialize □ Financim mbi 100
□ Përmirësimi i ofrimit të në 2018, në 234 mijë në vitin miliardë lekë për barnat e
shërbimit shëndetësor 2021 rimbursueshme

LESSONS LEARNED
and 2020. In addition, GRB budget outputs have increased to
6.3 percent of total budget expenditure. Achieving the full awareness of all civil servants at all levels
about genderrelated issues is still a work in progress. More
An important message is that higher levels of participation awareness and, of course, greater understanding would sup-
and contribution by CSOs and communities in the budget port further progress.
processes are very important. Publication and understanding
of the Citizens’ Budget goes a long way toward engaging cit-
izens and ensuring success.

Chapter 1 Strengthening Public Policy Processes 27

RESULTS BRIEF 1.2

Romania: Good Practice in

Public Policy-Setting
DRAGOŞ NEGOIŢĂ, DIRECTOR, GENERAL SECRETARIAT OF THE GOVERNMENT OF ROMANIA

CONTEXT
are meant to foster and environment and set a tone in which
An Important Role in Government the practice will flourish.

Romania’s General Secretariat of the Government (GSG) has The GSG emphasizes the coordination of all stakehold-
come to take a leading role in strengthening public policy pro- ers. Among the tools it uses to strengthen the public policy
cesses. This case focuses on GSG’s management of one of the process, the Annual Working Plan is developed using a web
important policy processes, regulatory impact assessments portal on which all ministries must publish their annual ini-
(RIAs). tiatives. Consolidating the initiatives in advance helps create
an early impact assessment and coordinates strategies on a
The main function of the GSG is to prepare the weekly Government-wide level, moving away from the previous ad
Government meeting, ensure interministerial coordination hoc decision-making process.
and the coordination of several regulatory agencies and
authorities, and design and implement the Better Regulation Digitization and Involvement of GovTech
Strategy (see Figure 1.4-1).
The GSG’s success in fostering and managing the Annual
The GSG assists ministries and the central Government with Working Plan and other efforts did not rely solely on people
RIAs—providing training, monitoring compliance with regula- and their management skills or on the values embraced in the
tions, putting in place quality control mechanisms, and pre- Community of Practice. IT infrastructure and GovTech played
paring regular intra-Government meetings. To promote better a major role in reducing red tape and enabling businesses and
knowledge exchange, an RIA Community of Practice was cre- citizens to assess all processes.
ated in which all ministries can share their experience through
online meetings and other tools. The Community of Practice Before beginning the digitization process, Romania involved
has adopted values that guide the interactions and commu- both the private and public sectors in an effort to simplify
nication of its members (see Figure 1.4-2). The six core values some aspects of the bureaucracy. In the two-pronged initial

FIGURE 1.4-1.
Better Regulation Strategy milestones

2012 – The
baseline
2005 – First 2008 – First 2015 – 2019 –
measurement 2014 – Second 2015 – Revised
2003 – Impact Better Focus on
of the Better Regulation methodology
Establishing the Assessment Regulation implementation
administrative Strategy for Impact
Public Policy Unit standards and Strategy and support to
costs followed by (2014 – 2020) Assessment
requirements (2008 – 2013) ministries
a simplification
process

28 Building Effective, Accountable And Inclusive Institutions In Europe And Central Asia
approach, discussions were first held with all relevant minis- digitization; otherwise, the same things would still be performed
tries to identify, quantify, and reduce red tape for businesses; in several different ways, but just digitally instead of the old way.
and second, businesses were involved to assess cost. This
approach resulted in reducing red tape by 70 percent. Observations on Romania’s Success

Simplification started with the analysis of the processes and This experience is an excellent example of the combin-
of the impact of the processes on citizens and businesses. ing of two Governance Conference themes, Strengthening
Standardization and simplification needed to happen before Public Policy Processes and GovTech. GovTech is, of course,
a cross-cutting theme. In today’s environment, it can hardly
be imagined that large-scale government change initiatives
FIGURE 1.4-2. would be successful without it.
Community of Practice values
IT infrastructure and GovTech can play a major role in reform
Community implementation. IT can help reduce red tape, level the playing
values field for stakeholder collaboration, and allow businesses and
Objectivity Integrity citizens to assess the processes (see Figure 1.4-3 for an exam-
ple of the RIA Community of Practice).

Respect and
Transparency care for society The GSG combined good management practices, judicious
use of web portals and other IT systems, a community of prac-
tice, and the involvement of the private and public sectors to
Responsibility Trust achieve its success.

FIGURE 1.4-3.
GovTech and the RIA Romania Community of Practice

Chapter 1 Strengthening Public Policy Processes 29

Photo: © Jutta Benzenberg/World Bank
CHAPTER 2

Managing Public
Resources
PART I PART II
Jonas Arp Fallov Zahid Hasnain
Senior Public Sector Specialist Senior Public Sector Specialist

Knut Leipold Wouter van Acker

Lead Procurement Specialist Consultant

Nataliya Biletska
Senior Public Sector Specialist

Rajul Awasthi
Senior Public Sector Specialist
S
carcity of resources is an endemic constraint for gov- This chapter focuses on how governments manage their re-
ernments in ECA countries and across the globe. sources, what the main issues are in ECA countries, and how
Policy goals, objectives, and ideas for new initiatives the World Bank is providing assistance to improve the efficien-
are rarely short of ambition – whether for improved education, cy and effectiveness of resource management. The chapter is
better health care, a more competitive economy, or a more divided in two parts. Part I focuses on public financial man-
sustainable environment – but governments often lack the fi- agement (PFM), including domestic resource mobilization
nancial and human resources to carry them out. In some cases, (DRM), public expenditure management (PEM), and pro-
the capacity to raise sufficient domestic revenues is lacking, curement. Part II discusses public administration reforms to
but governments are also bound by constraints on spending boost public sector performance at both the organizational
to keep government deficits and debt at sustainable levels. and individual levels, including performance measurement,
Faced with such resource constraints, governments typically innovative practices to improve performance, and the impact
follow two complementary courses of action: they focus on of administrative simplification. Finally, it looks at the issue of
mobilizing further resources through new taxes, higher tax performance-related pay as an example of a reform at the in-
rates, and more efficient revenue collection; and they attempt dividual level.
to get the most out of the resources they have through better
financial and human resource management, capacity building,
and organizational development.

I: Public Financial Management

PFM refers to the set of laws, rules, systems, and processes used • Efficiency: budgets are allocated in accordance with
by governments (and subnational governments) to mobilize rev- government priorities (allocative efficiency), and
enue, allocate public funds, undertake public spending, account the amount and quality of services delivered are
for funds, and obtain audit results (Lawson, 2015). maximized within the resources available (technical
efficiency).
Good PFM systems and institutions can play a critical role • Transparency: the budget and other financial
in the design and implementation of national policies. If documentation is publicly accessible, and public par-
done well, PFM connects available resources, delivery of ser- ticipation in key PFM processes is both enabled and
vices, and achievement of government policy objectives and encouraged.
ensures that revenue is collected efficiently and used ap-
propriately and sustainably (PEFA Secretariat, 2016). PFM Over the past decades, PFM has undergone considerable
has been equated with the “plumbing” of the public sector development as a practice field. Expenditure pressures have
and the political system. While many decision-makers do led to increasing demands on efficiency and resulted in such
not know the details of how the PFM system operates, they innovations as technological development and new organiza-
recognize that when PFM systems are broken or inadequate, tion and management practices. The following are some key
problems will inevitably surface, and the political system will trends in PFM:
demand to have them fixed. • Automation. As is explained in the chapter on GovTech,
“big data” and new technologies mean that govern-
The overall objectives of PFM can be explained as follows: ment IT systems are increasingly integrated, and the
• Fiscal sustainability: aggregate levels of tax collection scope, quality, and security of data are greatly en-
and public spending are consistent with fiscal targets, hanced. These new technological possibilities have
and do not generate unsustainable levels of public debt. transformed PFM by automating financial controls

32 Building Effective, Accountable, and Inclusive Institutions In Europe And Central Asia
 that were previously done manually and enabling ad- flows are finite and fluctuate over time, they are insufficient
vanced risk management and monitoring systems. to close the financing gap in low- and middle-income coun-
• Devolution. Transactional functions are increasingly tries. DRM is thus key for ensuring predictable public financing
being devolved from ministries of finance and other for economic and social priorities and for attaining fiscal
central finance agencies to line ministries and agencies. sustainability.
Some specialized functions – such as core treasury,
tax administration, and customs functions – are in- Taxation is a primary revenue source for governments and
creasingly moved out from the central finance agency thus the main focus of DRM. Taxation includes both tax policy
departments to separate agencies. This change makes and administration. Tax policy is about shaping a statutory tax
a split between policy and administration and provides system. It entails establishing a legal framework that defines
these agencies with the necessary autonomy to carry the mix of taxes, tax rates and tax bases, and rules for assess-
out their operations independently and efficiently. ing tax liability and exemptions. Key points of attention in
• New management practices. Modern public sec- evaluating tax policies include whether a country is overly re-
tor practices that are inspired by “New Public liant on particular taxes, what may be the distortionary effects
Management” theory has also affected PFM. New bud- of the taxes used, and whether the tax system is transparent
get practices have focused on providing responsible and fair. Tax administration plays a crucial role in determining
managers more flexibility in executing their budgets the real (effective) tax system, as it concerns the effective-
while strengthening their accountability for achieving ness, efficiency, and transparency of tax collection within the
results. statutory framework.

The combined effect of these trends is a gradual transforma- DRM does not pertain only to the central level of government.
tion of the roles of some of the key actors. Notably, ministries of Over the past few decades, following increasing fiscal de-
finance or other central finance agencies gradually spend less centralization, there has been an increase in expenditure and
time on detailed checking of compliance with budget admin- revenue collection at the regional, municipal, and even city
istrative rules and more time on defining overall parameters levels in many low- and middle-income countries (UNECA,
and monitoring against them. At the same time, the central fi- 2018; World Bank, 2017a). It is therefore pertinent to include
nance agencies are gradually assuming a more important role all levels of government in designing the policies and proce-
in setting agendas and shaping policy across the government, dures for DRM.
including building knowledge and skills to analyze cross-cut-
ting policy issues relating to all sectors of the economy. Improving the tax administration may have spillover effects
on other policy areas and policy issues. As an example, the
DOMESTIC RESOURCE MOBILIZATION introduction of unique taxpayer identification numbers has
facilitated interoperability and data sharing with other public
The fundamental goal of domestic resource mobilization is to registries and has strengthened municipal governments and
“achieve revenue sufficiency for sustained economic and so- commercial banks (World Bank, 2017a). A well-functioning
cial development” (World Bank, 2017a). Governments’ ability tax administration can be of great help to the judicial branch
to finance public expenditures depends on their ability to mo- in investigating and reducing financial crimes. Its databases
bilize domestic revenue. Therefore, in low- and middle-income can also assist in economic policymaking through bankruptcy
countries mobilization and effective use of domestic resourc- analysis and sectoral tax income analysis. Reforming and im-
es are central for achieving sustainable development, ending proving the tax system can therefore affect the public sector
extreme poverty, and boosting shared prosperity. Other com- more broadly, and lead to good returns on investment.
mon financing options for governments in these countries
are borrowing and official development assistance. Excessive Most of the countries in the ECA region are fairly advanced,
public borrowing, especially in international currencies, of- and the tax reforms they need to engage in for the com-
ten leads to the growth of public debt, which undermines ing years can be characterized as “second-generation.”
fiscal sustainability. And as official development assistance Improvements in the World Bank’s Country Policy and

Chapter 2 Managing Public Resources 33

FIGURE 2-1.
CPIA “efficiency of revenue mobilization” rating (1=low to 6=high)

4.5
0.4
3.5
0.3
2.5
0.2
1.5
0.1
0.5
0
ia d ia o va ic n an
en an rg ov do bl ist
a
ist
a vina o s
ol pu jik k
Ar
m i
sn o Ge Ko M Re a be
T
Bo rzeg yz Uz
He yrg
K
2005 [YR2005] 2010 [YR2010] 2014 [YR2014]

Source: World Bank CPIA database and staff calculations.

Institutional Assessment (CPIA) are indicative of a positive There are several obstacles to exploiting the full potential of
trend in the overall efficiency of revenue mobilization in the DRM.
region.1 Between 2005 and 2014, most ECA countries re-
mained stable or saw an increase in their CPIA “efficiency of Poor VAT productivity. The value-added tax (VAT) is among
revenue mobilization” rating, which assesses both tax policy the key sources of tax revenue in ECA countries, but VAT pro-
and tax administration aspects. Armenia was the only excep- ductivity2 is generally low because of problems of fraud and
tion during this period (see Figure 2-1). evasion. In some countries in the ECA region, VAT noncompli-
ance and high rates of VAT fraud and evasion lead to derogation
Between 2011 and 2020, all ECA countries also experi- of revenues, not just in VAT but also down the chain. Typically,
enced a significant improvement in the ease of paying VAT productivity across the low- and middle-income countries
taxes. The regional average improved by 35 percent. This in the region is low, on average 48 percent (46% when the two
change shows that the tax administrations of all ECA econ- small “outliers” of Montenegro and Bosnia and Herzegovina
omies have been performing better since 2006 and have are excluded).3 VAT productivity in Russia, Azerbaijan, and
become more business-friendly over this time by success- Kazakhstan is among the lowest in ECA, perhaps because these
fully reducing the administrative burdens of tax compliance countries’ large revenues from the petroleum sector may have
(Figure 2-2). reduced the incentive to improve the productivity of VAT. In the
ECA region, countries with lower per capita GDP tend to have
However, many different issues continue to limit ­governments’ higher VAT productivity. This implies that there may be signif-
capacity, efficiency, and effectiveness in mobilizing further icant tax loopholes in resource-rich countries. Improving the
domestic resources. As Figure 2-3 shows, there is a ­significant administration of the VAT should be of great importance for
gap between ECA countries and OECD countries in tax resource-rich countries, especially now, with oil prices expect-
­revenue mobilization—a gap in the range of 12-20 ­percentage ed to remain low for the foreseeable future. A broadening of
points of GDP (Figure 2-4). the tax base, better compliance, and better VAT administrative

1 The latest data sample of ECA countries available on the database is very small, covering only Armenia, Bosnia and Herzegovina, Georgia, Kosovo,
Kyrgyz Republic, Moldova, Tajikistan, and Uzbekistan.
2 VAT productivity is defined as VAT collected as a percentage of GDP, divided by the standard VAT rate.
3 USAID Collecting Taxes Database 2012/2013.

34 Building Effective, Accountable, and Inclusive Institutions In Europe And Central Asia
FIGURE 2-2.
Doing Business ranking on the ease of paying taxes 2006-16

100 300
90
80 250
70 200
60
50 150
40
30 100
20 50
10
0 0

m ia
ec z o

s .

M ene va
Az m ia
ba a
Be ijan
s
lg H

C atia
A us

kh ia
Ky Ko tan

e ro

M s)

Ta erb o
. P co u a

Sa b . ( s )

jik ia
Tu tan
Uz Ukr ey
ki e
an
Ka Geo ve.

er (R a
Cr aria

No M Mo tein
en p
ru
er eni

et w ssi
St Mos R ani

be ain
Li rgy sov

S in
Bu Bi

Ro don
za rg
Ar an

ht Re

n Ru
s u
ac g
EC ypr

rth ont ldo

rk

st
a
la

ar
s

is
o
b
Al

DB2011 DB2016 DB2020 Percentage change (right axis)

Source: Doing Business database and staff calculations.

Note: The percentage change in the Doing Business score for Belarus 2011-20 is 2,058%.

FIGURE 2-3. FIGURE 2-4.

Tax revenue as a percentage of GDP: averages Tax revenue as a percentage of GDP for ECA
for ECA and OECD countries

40 40%
35 35%
30%
30
25%
25 20%
20 15%
15 10%
5%
10
0%
5
Cr nia
rz kra a
Ka era tan

Az Bela an
Uz rba rus
rth R kist n

e ia
yz ol ia
pu a

Se nia

o e
m a
kh n

Ge tia

a
n aji CD

lg ia
Al blic
M om an

He U a r i
Re dov

Ar vin

gi
eg in
be ija
za tio

rg M don

Bu rb
ac an
st

oa
e
ba
sia T OE

or
d s
Fe ki

0
e

OECD ECA
d

2000 2010 2017

Ky
No

an
s
Ru

ia
sn
Bo

Source: World Development Indicators Database – World Bank Group, and OECD Global Revenue Statistics Database.

performance are areas on which countries with low VAT pro- global average (36% on average between 1999 and 2007 in
ductivity need to focus. ECA countries, compared with the global average of 33%). The
problem is especially acute in some countries: for example, in
Economic informality. Most of the economies in the ECA region Azerbaijan and Georgia the size of the shadow economy is es-
have high rates of economic informality (or shadow econo- timated at 48.6 percent and 51.5 percent, respectively, in 2017
my) as a percentage of GDP. According to the Schneider et (Medina and Schneider, 2019). Any sustainable improvement
al. (2010), the average size of the shadow economy as a per- in tax-GDP ratios will be possible only with a concerted effort
centage of “official” GDP is larger in the ECA region than the to reduce the rate of informality.

Chapter 2 Managing Public Resources 35

In the past two decades, many countries in ECA (Armenia, payment of taxes; accurate reporting in declarations; effec-
Bulgaria, Kyrgyz Republic, Poland, Ukraine, and others) ad- tive tax dispute resolution; efficient revenue management;
opted simplified tax regimes for small and medium-sized and accountability and transparency (TADAT, 2015 and 2019).
enterprises and sole proprietors to lower their compliance ECA countries for which the completed TADAT Performance
burden and encourage them to move their informal activi- Assessment Reports are publicly available include Armenia,
ties into the formal economy. Some ECA countries (Armenia, Belarus, Georgia, Kyrgyz Republic, Tajikistan, and Ukraine.
Croatia, Russian Federation, Serbia, Tajikistan, and others) in-
troduced fiscal cash registers, and some have implemented Results of the available TADAT assessments in ECA
or started implementation of e-invoicing (Armenia, Croatia, (Figure 2-5) indicate that tax administration systems in these
Kazakhstan, Poland, Russian Federation) to tackle the shadow countries generally perform well in the following areas:5
economy. Although the levels of economic informality in ECA
countries have decreased in recent years—the average size Supporting voluntary compliance. To facilitate voluntary com-
of the shadow economy in ECA declined from 31.8 percent pliance, the tax administrations regularly provide a range of
in 2007 to 29.6 percent in 2017—the large shadow economy taxpayer information materials tailored to different taxpayer
remains a challenge for many countries in the region.4 segments, including through the website, publications, semi-
nars, dedicated taxpayer service staff in local tax offices, and
Tackling the shadow economy calls for a multipronged other communication channels. They also have taken proac-
strategy: tive measures to reduce taxpayer compliance costs and seek
• Sharpen tax administrations’ tools to detect and punish feedback from taxpayers on services provided.
tax evaders (electronic cash register systems, e-invoic-
ing and invoice matching, sectorial approach, “big Timely filing of tax declarations. Filing of taxes is the perfor-
data”-based risk profiling and audits, legal framework mance area in which some ECA countries show good results
providing for information collection and prosecution); in the TADAT assessments, and others not so good results.
and Armenia, Belarus, and Ukraine have attained significant im-
• Create conditions that encourage businesses to stay provements, with high on-time and e-filing rates for VAT,
out of the shadows (incentives to move toward a cash- corporate income tax and pay-as-you-earn amounts withheld
less economy, measures to reduce the complexity of by employers and modest on-time and e-filing rates for per-
the tax regime). sonal income tax. Georgia has reached high e-filing rates for
these core taxes, yet on-time filing of tax returns is low. The
While many ECA countries have made major strides in tax Kyrgyz Republic still needs to make significant progress in
administration reforms, inefficiencies in the tax administration both on-time filing and e-filing rates.
systems continue to hinder effective tax enforcement. Recent
assessments of the performance of the tax administration sys- Timely payment of taxes. Following international best prac-
tems in several ECA countries pinpoint areas where significant tice, the tax administrations in these ECA countries rely on the
improvements have been achieved and where weakness- use of electronic payment methods, withholding at source,
es persist. These assessments use a Tax Administration and advance payment systems. However, countries such as
Diagnostics Assessment Tool (TADAT), which benchmarks Georgia and Ukraine continue to have significant uncollectible
a country’s tax administration system to international best tax arrears, most more than one year old.
practices in nine performance areas: integrity of the regis-
tered taxpayer base; effective risk management; supporting Effective tax dispute resolution. The tax administra-
voluntary compliance; on-time filing of declarations; on-time tions in ECA countries generally have a well-established

4 Ibid.
5 The spider chart with TADAT assessment results in ECA does not include Tajikistan since the TADAT assessment in Tajikistan was based on the 2019 TADAT
methodology, which includes a few revisions of the 2015 TADAT methodology. The review of the results of the TADAT assessments in ECA refers to the
­performance of the tax administration system in Tajikistan where relevant.

36 Building Effective, Accountable, and Inclusive Institutions In Europe And Central Asia
FIGURE 2-5.
TADAT assessment results in ECA countries (2015-2019)

POA1
POA9 Integrity of the
Accountablity and Registered
Transparency P9-28 P1-1 A
P1-2 Taxpayer Base
P9-27 P2-3
B+
P9-26 P2-4

B POA2
P2-5 Effective Risk
P9-25 Management
C+

P8-24 P2-6
C

POA8
D+
Effective
P8-23 P3-7
Revenue
Management D
POA3
Supporting
P8-22 P3-8 Voluntary
Compliance

P7-21 P3-9

P7-20 P4-10

POA4
POA7 P4-11 Filing of Tax
P7-19 Returns
Tax Dispute
Resolution
P6-18 P5-12

P6-17 P5-13 POA5

POA6 P6-16 Payment of Obligations
P5-14
Accurate Reporting in P5-15
Declarations
Armenia Belarus Georgia Kyrgyz Republic Ukraine

administrative review process for dispute resolution, which Poor integrity of the registered taxpayer base. This is a funda-
is independent of the audit function, graduated, and used mental problem that many ECA countries have struggled to
by taxpayers. The tax administrations publish information on resolve. Most ECA countries have put in place tax IT systems
the dispute resolution process on their websites. However, as that rely on the centralized taxpayer registration database
the available TADAT reports for ECA report, administrative and enable the assignment of a national taxpayer identifica-
reviews tend to be completed within statutory timelines that tion number to each registered taxpayer and the validation
are longer than the international best practice benchmark of of these identification numbers. However, the tax administra-
30 calendar days. tions in ECA often lack processes to ensure the accuracy of
the registration database, which therefore has a large number
At the same time, the available TADAT assessment re- of inactive but registered taxpayers. As the available TADAT
sults in ECA show important systemic weaknesses in tax assessments have reported, Belarus stands out as the only
administration: country that has established procedures for verifying the
accuracy of the information held in the taxpayer registration

Chapter 2 Managing Public Resources 37

database and uses large-scale automatic cross-checking with VAT refunds, tax expenditures, and tax losses carried forward.
other Government databases for identifying active and inac- Most ECA countries have well-developed revenue accounting
tive taxpayers. The tax administration practices in Armenia systems, which interface with the Treasury IT systems or the
and Tajikistan involve regular initiatives and reporting of out- integrated financial management information system (IFMIS).
comes to detect business and individuals who are required to However, the revenue accounting systems are generally sub-
register but have failed to do so, but the other ECA countries ject to limited external and internal audits. Except in Belarus,
have implemented such initiatives only to a limited degree. VAT refund processing in ECA countries for which the TADAT
assessment results are available is inadequate, because of the
Inadequate risk management. Risk management in ­
tax lack of risk-based verification of VAT refunds and fast-track
­administration in ECA countries is mainly limited to tax audits; procedures, or the significant time taken to pay (or offset)
most often it does not cover all tax administration core func- VAT refunds, or both.
tions and all taxpayer obligations, such as registration, filing,
payment, and reporting of taxes. The results of the available Underdeveloped accountability and transparency. The tax
TADAT assessments in ECA show that most countries lack a administrations in ECA have initiated reforms to ­i­mprove
systematic approach to identifying and gathering compliance accountability and transparency, but robust pillars of good
risks, and their risk assessment process is not well structured. governance in this area are still lacking in many countries
Some tax administrations in ECA countries (Belarus, Georgia, in the region. Among ECA countries for which TADAT as-
Tajikistan) prepare plans to improve compliance, but these sessment results are available, Ukraine stands out as the
plans do not identify all taxpayer segments, compliance obli- country that has put in place a comprehensive account-
gations, or main tax types and do not include clear mitigation ability system in the tax administration, including internal
activities around the identified taxpayer segments and set assurance mechanisms to support integrity and internal
out how the effectiveness of such mitigation activities will control, external oversight, and transparency in reporting
be evaluated. In Georgia and Ukraine, the tax administrations on financial and operational performance, strategic plans,
have created risk units, but the development of a compliance and action plans. An emerging trend among the tax ad-
management program is still in its early stages. ministrations in ECA is to rely on independent perception
surveys to monitor public confidence in the tax administra-
Limited verification and monitoring of inaccurate r­ eporting in tion, but greater transparency is needed in reporting the
tax declarations. Most tax administrations in ECA have com- results of such surveys.
prehensive tax audit programs, but the impact of the audits
on taxpayer compliance has not been evaluated. Belarus, To increase the effectiveness and efficiency of the tax ad-
Georgia, and Tajikistan have implemented centralized large- ministration systems in ECA countries, further reforms will be
scale automated cross-checking of data to verify the accuracy needed in the following areas:
of reporting in tax declarations, with some limitations in access
to data from third parties. The tax administrations in Belarus, Improving the use of ICT for data collection and ­taxpayer
Georgia, and Ukraine have used public and private rulings risk profiling and strengthening capabilities in the use of risk
to encourage accurate reporting in tax declarations, yet no management methods for auditing. One of the benefits of ad-
cooperative compliance approaches have been developed vances in ICT technology in recent years has been the ability
in ECA countries. In addition, the tax administrations in ECA to use it to collect data on taxpayers’ financial transactions
do not monitor the extent of revenue losses from inaccurate and to use data mining methods to create risk profiles of tax-
reporting. payers. Upgrading ICT systems and bringing in cutting-edge
technologies could help achieve more effective tax enforce-
Lack of efficient revenue management. In most ECA coun- ment. New and better software and risk engines have been
tries inputs from the tax administrations to the government developed that can sharply increase the capacity of tax ad-
budget process relate only to tax revenue forecasting. The ministrations to spot risks and more effectively prevent tax
tax administrations in some countries—Belarus, Tajikistan, avoidance and evasion.
and Ukraine, for example—also monitor and provide inputs on

38 Building Effective, Accountable, and Inclusive Institutions In Europe And Central Asia
International tax capacity building in transfer pricing and standards and processes to ensure that the budget is imple-
other international tax avoidance methods. Lawyers and tax mented as intended, including cash planning and forecasting,
professionals are constantly developing new and innovative
­­ budgetary controls, internal control and audit, and treasury
tax avoidance methods, and it is always a ­challenge for tax operations; (c) accounting and reporting, ensuring that ap-
administrations to keep up. The ECA region lacks the highly propriate accounting records are maintained and reported in
skilled tax auditors who can foil the attempts of large multi- support of decision-making; and (d) audit and legislative over-
national companies and international e
­ nterprises at ­exploiting sight to ensure that expenditures are independently reviewed
tax loopholes to avoid tax, and sometimes hiding ­incomes in and any recommendations for improvement are followed up.
offshore tax shelters. ECA countries are i­ncreasingly interest-
ed in international taxation topics; since June 2014, the World Using the Public Expenditure and Financial Accountability
Bank team has organized three events in this area. (PEFA) assessment, which is the most widely used and
accepted framework for measuring PFM performance inter-
PUBLIC EXPENDITURE MANAGEMENT nationally, the PFM system in ECA countries can be assessed
against seven dimensions (Table 2-1).
PEM involves the use of expenditure plans and budgets to
achieve public policy outcomes – including aggregate fiscal As Figure 2-7 shows, overall, ECA countries perform ­relatively
discipline, allocative efficiency, operational efficiency,6 trans- well compared to countries in other regions, with higher
parency, and accountability. The institutions, systems, and average scores on all dimensions. This outcome is likely to
work processes involved can be broadly grouped into four some extent correlated with the higher share of middle- and
areas: (a) budget formulation, including all processes from high-income countries in ECA than in other regions. Within
budget planning up to the legislature’s approval of the bud- ECA, slight progress has also been recorded on most dimen-
get proposal; (b) budget execution, which consists of a set of sions when comparing the latest to the previous assessments

BOX 2-1.
The Role of the World Bank and Other Donors

There are four ways in which the World Bank and other donor for improving tax design and administration. The World Bank
­agencies can contribute in the area of revenue mobilization in can also help tax administrations develop strategies to tackle
ECA: the shadow economy. The Bank organized an international con-
• Carry out tax diagnostics to take stock of performance ference (TAXGIP 2015) on international tax issues and is also
and identify the need for technical assistance. providing targeted technical assistance to several countries in
• Organize international conferences that bring together in- the region. Similarly, in the area of risk management, the Bank
ternational experts and participants from client countries has published a manual and is providing technical assistance
on specific topics of interest to the region’s ministries of to countries in the region. To help improve the effectiveness
finance and tax administrations. The regional network, and efficiency of tax administration using technology, the Bank
TAXGIP,a is the best vehicle for this. has been financing lending operations in Armenia, Kazakhstan,
• Provide specific, targeted technical assistance to client Moldova, Montenegro, Serbia, and Tajikistan that support the
countries on their problems relating to tax policy and modernization of ICT systems and technologies.
administration. Countries in the ECA region (as Figure 2.3 showed) still have
• Provide financing for tax administration reform projects. a long way to go to reach the average OECD level of revenue
mobilization. Progress is being made, however, in part because
On VAT administration, the World Bank has already been the World Bank and other development partners continue to
working with various countries in the region, exploring options support multiple reform efforts across the region.
a. Tax Practitioners Network to Exchange Global Innovative Practices.

6 See Asian Development Bank: http://www1.worldbank.org/publicsector/LearningProgram/anticorrupt/GovernanceBrief-Issue.pdf

Chapter 2 Managing Public Resources 39

TABLE 2-1.
Key dimensions and aspects of PEM performance (PEFA Secretariat 2016)

DIMENSION GOOD PRACTICE BENCHMARK

Budget credibility The budget is realistic and implemented as intended.

Transparency of Information on PFM is comprehensive, consistent, and accessible to

public finances users. This is achieved through comprehensive budget classification,
transparency of all government revenue and expenditure including
intergovernmental transfers, published information on service
delivery performance, and ready access to fiscal and budget
documentation.

Management of assets Effective management of assets and liabilities ensures that public
and liabilities investments provide value for money, assets are recorded and
managed, fiscal risks are identified, and debts and guarantees are
prudently planned, approved, and monitored.

Policy-based fiscal The fiscal strategy and the budget are prepared with due regard
strategy and budgeting to government fiscal policies, strategic plans, and adequate
macroeconomic and fiscal projections.

Predictability and control The budget is implemented within a system of effective standards,
in budget execution processes, and internal controls, ensuring that resources are obtained
and used as intended.

Accounting and reporting Accurate and reliable records are maintained, and information is
produced and disseminated at appropriate times to meet decision-
making, management, and reporting needs.

External scrutiny and audit Public finances are independently reviewed, and there is external
follow-up on the implementation of recommendations for
improvement by the executive.

(Figure 2-6). While the differences in average scores are mod- several have introduced MTEFs: Armenia, Bulgaria, Georgia,
est, ECA countries do well in the comprehensiveness and Romania, Serbia, and others. However, MTEFs are in many cas-
transparency of the budget and in accounting and reporting, es in the early stages of development, with little integration
and less well in policy-based budgeting. The average scores to the annual budget process and poor quality of out-year
for individual countries are highest in Georgia and Moldova, estimates.
both scoring an average of 3.5 out of a maximum 4, while
Tajikistan, Uzbekistan, Ukraine, Serbia, Belarus, and North Unified budgets. Unifying capital and current budget ele-
Macedonia all have average scores of 2.5. ments in one harmonized budget process, resulting in one
set of budget documentation coordinated by one budget au-
PEM reform is an ongoing theme to equip ECA countries thority, has long been recommended by the World Bank, IMF,
to improve their performance while taking into account the and other international donors. The rationale is to avoid un-
megatrends described above. The following are some of the healthy institutional rivalries between central planning and
key reform areas that ECA countries are considering or have finance agencies, make sure recurrent cost implications are
introduced. taken into account in investment decisions, and enable gov-
ernments to make the necessary trade-offs among all types
Medium-term expenditure frameworks (MTEFs). Many coun- of expenditures when deciding on the use of fiscal space. The
tries have supplemented the annual budget with a three- to experience of ECA countries is quite mixed in this respect.
four-year budget outlook to improve expenditure planning. Some countries – Belarus, Kyrgyz Republic, Russia – maintain
The rationale for such MTEFs is that several transactions are a dual budget system with a capital budget coordinated by a
multiyear in nature, and there is a need for more predictability Ministry of Economy or Planning and a recurrent budget led
in planning. Many ECA countries have embraced this idea, and by a Ministry of Finance. Some other countries, like Turkey,

40 Building Effective, Accountable, and Inclusive Institutions In Europe And Central Asia
FIGURE 2-6. FIGURE 2-7.
Most recent average PEFA scores for ECA Average PEFA scores by region
compared to previous assessments
Budget Credibility
Budget Credibility 4.0
3.5
4.0 3.0
3.5 External scrutinity 2.5 Comprehensiveness
3.0 2.0
2.5 Comprehensiveness and audit 1.5 and transperancy
External scrutinity 2.0 1.0
and audit 1.5 and transperancy
0.5
1.0 0
0.5
0

Policy based
Accounting and Policy based Accounting and budgeting
reporting budgeting reporting

Predictability/control of
Predictability/control of budget execution
budget execution
ECA-recent assessements ECA-previous assessements EAP ECA LAC MENA SAR SSA

Note: PEFA scores are converted to numbers with the maximum score Note: PEFA scores are converted to numbers with the maximum score of
of A=4 and the minimum score of D=1. A=4 and the minimum score of D=1.

FIGURE 2-8. FIGURE 2-9.

Average PEFA scores for individual ECA countries Average PEFA scores for individual ECA countries
(2016-framework) (2011-framework)

4.0 4.0

3.5 3.5
3.0
3.0
2.5
2.5
2.0
2.0
1.5
1.5 1.0
n

vo
ia

va

ia

ia
ic

ija

ru
bl

1.0
rb

en

on
so
do

la
ba
pu
Se

ed
Ko
Be
ol

er
Re

Ar
M
an
an
a

an

ne

ac
Az
ni

gi

gr

M
st

ist

st

yz
ba

ra
or

ne
kh

ki

rth
jik

rg
Uk
Ge
Al

te

be
za

Ky
Ta

No
on

Uz
Ka

Note: PEFA scores are converted to numbers with the maximum score of Note: PEFA scores are converted to numbers with the maximum score of

A=4 and the minimum score of D=1. A=4 and the minimum score of D=1.

have taken steps to place the institutional responsibilities should be combined with reforms to improve organizational
for the capital and current budgets under one roof, although capacity.
the procedures and documentation are still not unified. In
other cases, such as Bulgaria, Romania, Serbia, and several Program and performance budgeting. Responding to
of the Balkan countries, the budgets are unified. However, the need for a more policy-based budget and for cen-
unification is not always a recipe for success if the Ministry tral finance agencies to exercise a stronger role in setting
of Finance is not fully capable of taking on the responsibili- agendas and shaping policy across the government, coun-
ties transferred from central planning agencies; therefore, it tries have become increasingly interested in program and

Chapter 2 Managing Public Resources 41

performance budgeting. For example, the 2018 OECD Survey payroll, e-procurement, project accounting, and fixed assets
on Performance Budgeting found that 30 countries out further enhances the controls, accuracy, and reliability of in-
of 35 surveyed practiced some form of performance bud- formation for resource management.
geting, up from 24 countries in 2011. While budgets in most
countries have historically been detailed line-item budgets The implementation of an IFMIS affects the entire PFM system
under economic and administrative classifications, the more and is therefore an important opportunity to ensure that all
policy-relevant program budget classifies the budget by PFM functions live up to good international practice. A key
programs and activities. In the documentation, program al- lesson from IFMIS reforms in recent decades is thus the need
locations are often combined with nonfinancial information to base the new system on reformed legal and regulatory
such as indicators and targets to inform decision-makers frameworks and reformed business processes. Some ECA
about the desired results of the programs and create a base- countries, such as Armenia, Moldova, Russia, and Belarus have
line for monitoring and ex post evaluation of performance. already invested – or are planning to invest – in modernizing
A distinction is often made between performance-informed the technological infrastructure for PFM reforms through in-
budgets, which make performance information available to tegrated systems. Other countries appear to maintain a more
facilitate a dialogue about performance, and the much rarer fragmented information system landscape.
performance-based budgets, which attempt to create a direct
link between the performance and the size of current and fu- Accrual accounting. Public sector accounting has in most
ture allocations. Several ECA countries have introduced some countries traditionally been cash-based, designed to record
form of performance budgeting, although the tool is still un- payments and measure the cash position of various levels of
der development. Experience shows that achieving a positive government. An expenditure would be recorded at the time
impact with program budgeting depends to a large extent on when a bill was paid and a revenue when funds were received.
the ability to implement the performance orientation beyond While monitoring and control of cash remains fundamental,
the budget documentation itself by initiating corresponding it has increasingly been recognized that a modern account-
changes in all stages of the budget process, including spend- ing system should also reflect costs and incomes at the time
ing reviews and ex post monitoring and audit practices, and in they accrue—that is, at the time of changes in the values of
corresponding management rules and processes. assets and liabilities, irrespective of when the cash transac-
tion takes place. This is inspired by the principles of private
Integrated financial management information systems (IFMIS). and nonprofit sector accounting. As an example, significant
The early generations of information systems supporting PFM costs accrue in relation to the depreciation of public assets
were often fragmented, with individual systems designed for such as buildings, roads, structures, or equipment, which are
each PFM function or stage of the PFM lifecycle—for example, not recorded in a cash-based system but show up in the in-
individual systems for planning, budget formulation, treasury, come statement of an accrual system. At the macro level, an
accounting, audit, and so on. Technological development has accrual system arguably gives a more comprehensive picture
allowed such systems to be integrated or interfaced, enabling of the state of public finances based on a full set of financial
a much more efficient processing of financial transactions. At statements – income statement, cash statement, and balance
its core, an IFMIS allows for the processing of budget execu- sheet. At the micro level, it can provide for transparency and
tion-related financial transactions and a set of controls that more information about the financial consequences of various
ensure budget compliance. A well-functioning IFMIS makes transactions. Some countries have also found that it facilitates
it easier to attain the planned fiscal deficit targets that are operational efficiency and performance orientation in PFM
necessary for ensuring macroeconomic stability, ensure through the ability to better match the timing of costs, activ-
compliance with the International Public Sector Accounting ities, and results.
Standards, and lay the foundations for enhancing the effi-
ciency and effectiveness of service delivery (World Bank Accrual accounting has been introduced in several OECD
2020). While the core elements of an IFMIS relate to budget countries in line with accrual-based international accounting
execution and treasury operations, the integration of the core standards but is still primarily an aspiration in most ECA coun-
with non-core modules like planning and budget formulation, tries. One of the obstacles has been the scale and scope of the

42 Building Effective, Accountable, and Inclusive Institutions In Europe And Central Asia
transformation in terms of systems modernization, training, whether to go for a “big bang” or a more drawn-out incre-
7
and capacity building. mental reform process – and must be considered thoroughly
in light of the absorptive capacity of key officials. Then comes
Budget comprehensiveness and transparency. Several the consideration of the sequencing of reforms to make sure
international initiatives have been launched in recent
­ reform elements are implemented in the right order, in light
years to improve comprehensiveness and transparency, of their interdependencies as well as the need for appropriate
such as the Global Initiative for Fiscal Transparency and governance and change management arrangements to en-
the International Budget Partnership. Key frameworks sure leadership, buy-in, and communication.
have been developed to measure the transparency of fis-
cal information, notably the Open Budget Index (OBI) PUBLIC PROCUREMENT
prepared by the International Budget Partnership and
the Fiscal Transparency Assessment prepared by the IMF. In 2015, the share of public procurement in GDP was 13.4 per-
Transparency reforms include a variety of initiatives, such cent on average for EU-countries (EC, 2018). Because of the
as improving the comprehensiveness of documentation size of public procurement, reforms in this area have a signif-
and making it more accessible for CSOs and the public at icant impact on a country’s fiscal position and other aspects
large through such measures as publishing citizen budgets, of the economy.
establishing open public finance data portals, facilitating
budget dialogues through pre-budget statements, and The core principles in procurement refer to economy and
­improving the conditions for legislative oversight. efficiency, competition (equal opportunity for all bidders),
and transparency, as well as encouragement of the devel-
Transparency reforms have had some tailwind in ECA in re- opment of domestic markets. Reflecting the international
cent years. The 2017 OBI scores are thus above the global trend of using public procurement as a strategic function to
average but still below the average for OECD countries (IBP, contribute to sustainable development outcomes, economic
2018). Some countries—Albania, Georgia, and Turkey—have growth, and job creation, in 2016 the World Bank introduced
demonstrated significant progress from 2015 to 2017, but a new Procurement Framework that, in addition to these
there are also countries where progress has halted (Bulgaria, principles, highlights value for money. The overall vision of
Hungary, Russia, Serbia) or the situation has even regressed the Framework is “to support Borrowers to achieve value for
(Azerbaijan, Bosnia). money with integrity in delivering sustainable development”
(World Bank, 2016).
While the reform agenda described above is technically de-
manding, it would be a misconception to regard PEM reforms Besides fiscal aspects, public procurement can be used to at-
as merely a technical reform discipline. Mastering the techni- tain a variety of policy objectives. For example, it can aid in
cal reform aspects is a necessary but not sufficient condition fostering innovation, encouraging and rewarding responsible
to succeed with PFM reforms. Equally important are reform business conduct, supporting small and medium businesses,
enablers such as organizational and individual staff capaci- encouraging environment-friendly businesses and business
ty, intra-institutional coordination, and information systems, practices, supporting women-led businesses, and supporting
which have been highlighted in Bank-led functional reviews inclusive growth (OECD, 2017).
of central finance agencies or public finance functions in line
ministries and agencies. Consider the encouragement of environment-friendly busi-
ness practices. It might be difficult to compel businesses
The management of the reform process itself is also criti- to stop investing in fossil fuels through direct legislation.
cal. The approach to reform is a first critical consideration. However, it can be made a prerequisite for competing for
Different approaches have their pros and cons – for example, government contracts that a company must document

7 The Bank-managed PULSAR program, supported by the Government of Austria and the Government of Switzerland, is supporting several ECA countries with
knowledge-sharing and technical activities related to public sector accounting. See pulsarprogram.org.

Chapter 2 Managing Public Resources 43

that at least 50 percent of its electricity comes from renew- member states and encourages them to analyze the available
able sources. Given the size of public procurement, this can electronic procurement and contract data as a basis for in-
be a strong incentive for companies to make their business formed decision- and policymaking. The horizontal enabling
­practices more environmentally sustainable. conditions for the EU funding period 2021-27 highlight the im-
portance of this approach by including “effective monitoring
In public procurement, what is going well in ECA, and what mechanisms of the public procurement market” (EC, 2018b).
could be done better? In 2017 a World Bank i­nternational
benchmark on public procurement practices scored ­countries Following the guidance of the EC, EU countries increasingly
on the quality of regulation in six procurement ­
areas: use the available electronic procurement and contract data for
needs a­ ssessment, call for tender, and bid ­preparation; bid spending and performance analytics at the national and agen-
submission; bid opening, evaluation, and award; content
­ cy levels. The World Bank has provided advisory services in
and ­
management of procurement contract; performance this area in a number of countries, including Bulgaria, Croatia,
­guarantee; and payment of suppliers (see Figure 2-10). and Romania. Non-EU countries also follow the directions set
by the EC in the area of public procurement. For example, a
Figure 2-10 shows that a lot is going well in ECA; some coun- great deal of progress has been made in the area of e-procure-
tries even score better on this benchmark than the OECD ment, with successful implementations in Georgia and Ukraine
average. Nonetheless, there is still room for improvement. and in most countries in Central Asia and the Western Balkans.
Besides, the benchmark is an assessment of regulations;
for a complete picture, it should be supplemented with an In addition to the use of modern technology and data an-
­assessment of how the regulations work in practice. Having a alytics, collaborative procurement arrangements can yield
separate entity to oversee decisions to withhold performance better outcomes. Most ECA countries use centralized pur-
guarantees, for example, does not tell us anything about how chasing to aggregate the demand for standard supplies,
this entity is functioning. works, and services into framework agreements, from which
contracting agencies can purchase the required amount, typ-
To better measure the functioning of public procurement sys- ically through an electronic catalogue. Prominent examples
tems, the EC mandates the use of e-procurement in the EU include the centralized purchasing agencies BBG in Austria

FIGURE 2-10.
Average public procurement benchmark (World Bank, 2017b)

90
80
70
60
50
40
30
20
10
0
Cr an
Ar tan

er ia

n
te s
Ta gro

S a
Re ia

eg ne
M ina

ia Ge va
rth de ia

ed n
Al ia
Ko ia
Bu vo
Ro aria

EC akh ia

O e
D
av n
He Uk lic
u

ti

ag
ija

ac o

A sta

EC
Az en

yz erb

No Fe org

on

z n
b
on r

so
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oa

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ov

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44 Building Effective, Accountable, and Inclusive Institutions In Europe And Central Asia
(https://www.bbg.gv.at/en/), CONSIP in Italy (https://www​ Integrity in public procurement is defined as “the use of
.consip.it/), and SOCPP in Croatia (https://sredisnjanabava​ funds, resources, assets and authority, according to the
.gov.hr/). intended official purposes and in a manner that is well in-
formed, aligned with the public interest, and aligned with
Joint procurement across countries is another form of collabo- broader principles of good governance” (OECD, undated,
rative procurement. A good example is the Joint Procurement p. 6). The integrity of public procurement is critical for all
Agreement (JPA) among 26 European member states to ECA countries. Given the amount of funds and market pow-
procure medical countermeasures. “The JPA determines the er associated with government procurement, corruption and
practical arrangements governing the mechanism; defines the fraud can have a significant impact on the government’s fis-
decision-making process with regard to the choice of the pro- cal balance and the functioning of the economy as a whole.
cedures; and organizes the assessment of the tenders and the The OECD has set out a number of principles to improve in-
award of the contract” (EC, 2020). tegrity (OECD, 2009, pp. 18-19):
• Providing an adequate degree of transparency in the
One issue that all ECA countries have on their agenda is the entire procurement cycle to promote fair and ­equitable
professionalization of procurement as a strategic function treatment for potential suppliers.
that delivers better services and sustainable outcomes. This • Maximizing transparency in competitive tendering
includes focusing more on procurement planning and con- and taking precautionary measures to enhance in-
tract management than on just the procurement process tegrity, in particular for exceptions to competitive
itself. For example, the EC provides guidance in this area, and tendering.
all member states dedicate a considerable share of their ef- • Ensuring that public funds are used in procurement
forts to the development of procurement as a profession. The according to the purposes intended and that procure-
EC guidance points out that an effective professionalization ment officials meet high professional standards of
policy should be based on an overall strategic approach to knowledge, skills, and integrity.
reach three complementary objectives: • Putting in place mechanisms to prevent risks to
• Developing the appropriate policy architecture for integrity in public procurement, including encour-
professionalization. aging close cooperation between the government
• Improving the training and career management of and the private sector to maintain high standards
procurement practitioners—those involved in the of integrity.
procurement of goods, services, and works, as well as • Monitoring public procurement to detect misconduct
auditors and officials who are responsible for review- and apply sanctions accordingly,
ing public procurement. • Establishing a clear chain of responsibility togeth-
• Providing tools and methodologies to deliver smart er with effective control mechanisms, handling
procurement, such as e-procurement tools, guidelines, complaints from potential suppliers in a fair and
manuals, templates, and cooperation tools, with corre- timely manner, and empowering civil society organiza-
sponding training, support and expertise, aggregation tions, media, and the wider public to scrutinize public
of knowledge and exchange of good practice (EC, 2017). procurement.

Chapter 2 Managing Public Resources 45

References

Expenditure, P., & Accountability, F. (2016). Framework for assessing (2009). OECD Principles for Integrity in Public Procurement. Paris:
public financial management. Available at: https://www. OECD Publishing.
pefa.org/sites/default/files/PEFA_2016_Framework_
(2017). Public Procurement for Innovation - Good Practices and
Final_WEB_0.pdf
Strategies.Paris: OECD Publishing.
EC (2017). Recommendation (EU) 2017/1805 on the professionalisa-
(2018). Domestic Revenue Mobilisation. A new database on tax levels
tion of public procurement. Available at:
and structures in 80 countries. Paris: OECD Publishing.
https://eur-lex.europa.eu/legal-content/EN/TXT/
TADAT (2016). Performance Assessment Report: Kyrgyz Republic.
PDF/?uri=CELEX:32017H1805&from=EN
(2019). Field Guide, April 2019 Version. Washington DC: IMF.
(2018a). Government Procurement: Data, Trend and Protectionist
Tendencies. Available at: https://trade.ec.europa.eu/ UNECA (2018). State of Urbanization in Africa: The Role of Cities
doclib/docs/2018/september/tradoc_157319.pdf in Domestic Resource Mobilization. New York: United
Nations.
(2018b). Council of the European Union. ‘I’ Item Note. Available
at: https://data.consilium.europa.eu/doc/document/ Medina, L., & Schneider, F. (2019). Shedding Light on the Shadow
ST-15428-2018-INIT/en/pdf Economy: A Global Database and the Interaction with the
Official One.
(2020). Joint Procurement Agreement to procure medical counter-
measures. Available at: Schneider, F., Buehn, A., & Montenegro, C. E. (2010). New estimates
for the shadow economies all over the world. International
https://ec.europa.eu/health/preparedness_response/
Economic Journal, 24(4), 443-461
joint_procurement_en
World Bank (2016). Bank Policy. Procurement in IPF and Other
International Budget Partnership (IBP).(2018)”Open budget survey
Operational Procurement Matters. Available at:
2017.
https://policies.worldbank.org/sites/ppf3/PPFDocuments/Forms/
Lawson, A. (2015). Public Financial Management. GSDRC Professional
DispPage.aspx?docid=4002&ver=current
Development Reading Pack no. 6. Birmingham, UK:
GSDRC, University of Birmingham. (2017a). Strengthening Domestic Resource Mobilization. Moving
from Theory to Practice in Low- and Middle-Income
OECD (Undated). OECD Recommendation of the Council on Public
Countries. Washington, DC: World Bank Group.
Procurement. Available at: https://www.oecd.org/gov/
public-procurement/OECD-Recommendation-on-Public-
Procurement.pdf

46 Building Effective, Accountable, and Inclusive Institutions In Europe And Central Asia
II: Public Administration Reform

Reforms to the public administration can come in many dif- an organizational level, and we examine the issue of perfor-
ferent forms and have many different goals. Changes to mance-related pay as an example of a reform at the individual
administrative procedures and practices, improvements in level. Finally, the chapter concludes with case studies from the
personnel management, and new and increased use of in- Ankara conference.
formation technology are all types of public administration
reform. All of these can have a profound impact on a govern- ADMINISTRATIVE REFORM
ment’s performance, efficiency, and effectiveness. Given ECA TO BOOST PERFORMANCE
countries’ large wage bill, improving the government’s per-
formance can have a large effect on the government’s fiscal Measurement: Data-informed Policymaking and
position as well. Implementation

ECA countries have undergone extensive administrative Public administration reform should be underpinned with
reforms in the past three decades. During the 1990s these high-quality data and high-quality analysis. On the basis
reforms focused on democratization, and the creation of re- of such data, governments can choose what to reform and
gions and municipalities with significant degrees of autonomy how to reform it. From the 1980s through the 2000s, the
formed an important leg of these efforts. ECA as a region is NPM movement has made data the center of policymaking
thus very familiar with decentralization as a specific flavor and public management, and as a result, the measurement
of public administration reform. The early 2000s, at least for of performance has been integrated into the foundation of
Eastern ECA countries, brought forth many reforms in the the public sector’s functioning. In other words, measuring
capacity-building efforts connected to the EU membership performance has become a core task of governments (Van
process. This included establishing a formal civil service (cod- Dooren et al., 2011). Although ECA countries have not fol-
ifying recruitment procedures and the promotions, duties, lowed a single model for administrative reform since the early
rights, and responsibilities of public servants), introducing 1990s, there has been an overall increase in the introduction
financial management and control, and creating regional of performance measurement schemes throughout all levels
self-government. Finally, in the later years of the 2000s and of government in most countries (Nemec, 2008). Given the
2010s, the focus was on New Public Management (NPM) re- big leaps that have been made in budgetary methods, fi-
forms, diminishing direct state control, and implementing nancial control, and quality management over the past three
market- and network-based instruments. In the areas of digi- decades, there is a lot of potential in this region with regard to
tization and technology the region has made important steps increasing state capacity through performance measurement.
forward, as well (Nemec, 2008). Therefore, the introduction of performance measurement
instruments is not the main issue for ECA countries; the real
In this section we discuss reforms to boost public sector per- issue is the use of the data they produce. Before we dive into
formance on both the organizational and the individual levels. the topic of performance data use, however, we briefly set out
First and foremost, public administration reforms should the fundamentals of how to measure performance.
be underpinned by good data, so we focus on the issue of
measurement: How can we find out which parts of the pub- Van Dooren et al. (2011) distinguish four elements of
lic sector are performing well, which parts need a boost, and ­performance measurement:
whether reforms have impact? Second, once underperform- 1. Targeting. There must be agreement on what to
ing departments or units have been identified, we discuss how ­measure in the first place. Agreement can be reached
governments innovate and reform departments and practices, in various ways—for example, by using a management
to improve performance. We then discuss how administra- model (such as the Balanced Scorecard or Common
tive simplification can affect government performance on Assessment Framework) or by specifying a program

Chapter 2 Managing Public Resources 47

 logic (meticulously describing the theory of change management system, but later analysis showed that
behind a policy). this (no doubt expensive) system was used only spo-
2. Selecting indicators. Knowing exactly how to measure radically (Nakrošis, 2007). This shows an important
the selected topic is an art form. The indicators must difference between a measurement culture, and a per-
be precisely defined, understandable for users, well formance culture. The former is focused on measuring,
documented, relevant, timely, and feasible. It is im- but not on the ultimate goal: increasing the govern-
possible to measure everything, so the measurement ment’s capacity to deal with societal issues. Data might
designers must be ready and prepared to make com- not be used at all, or they might be misused, or even
promises. Finally, as a warning notice: the availability of abused, in this context. A performance culture, on the
high-quality data is often assumed, but rarely accom- other hand, indicates a shared focus on increasing the
plished in practice (Bouckaert & Peters, 2002). public sector’s performance through the use of data
3. Collecting data. The necessary data can be found (Radnor, 2008). Research has shown that it is the
through many sources—for example, existing or new culture of performance that bears the lion’s share in
registries, surveys, self-assessments, external ob- establishing performance-oriented behavior, not just
servers, and so on. The World Bank Bureaucracy Lab the instruments and top-down orders. This is true, for
combines both surveys and administrative data to example, in the Kyrgyz Republic and Armenia (World
analyze performance on a micro-level. This could be Bank, 2003; Gabrielyan & Selimyan, 2008). In the next
data on, for example, productivity (e.g., how many section we will look at What constitutes a performance
passports does an embassy produce, and how fast?), culture, leading to capacity building, innovation, and
comparing personnel turnover and sick leave between reform.
departments (Indicating better and worse managers,
working environments, workloads, etc.), or highly ac- HOW TO INNOVATE AND IMPROVE
curate and differentiated data on the public wage bill. GOVERNMENT PERFORMANCE
4. Analyzing data. The analysis of performance data
should go beyond descriptive analysis and include sta- To base reforms and innovations on data, we first must
tistical tests to investigate causal relationships—that make sure that the data are actually used. Secondly, given
is, the strength of correlations and differences. The that the data are used, we will look at how innovation can
outcomes of these analyses should be either held up be spurred.
against a previously established norm or broken down
into relevant subcategories (gender, regions, educa- Performance data have been shown to help break through
tional level, etc.) to make comparing the data easier. routine thinking and to create opportunities to learn and al-
ter the status quo (Moynihan, 2008a, 2008b). Consequently,
For successful performance measurement, these four ele- the single most important link between performance data on
ments together should lead to data that are technically sound the one hand, and administrative reform and innovation on
(well measured), functional (measuring things helpful to pol- the other, is performance data use (Moynihan et al., 2012). To
icymakers and public servants), and legitimate (everyone is create this link, we need a culture of learning and innovation
on board with the measurement, there is trust between stake- that is based on the gathering and analysis of performance
holders, and the outcomes will be accepted) (Bouckaert & data (Folz et al., 2009; Van Acker, 2017). An important risk
Halligan, 2008). to the work culture posed by using performance data must
be mentioned: greater reliance on performance data calls into
5. Having well-measured performance data is a neces- question previously held trust: once trusted, now performance
sary but insufficient condition for reforming public must be proven. Without proper dialogue and explanation
administrations. Having the measurement instruments of what the performance measurement will be used for, this
is one thing, using the data is another. The World could lead to distrust between the central and local levels,
Bank (2006) showed that Lithuania had established between ministries and agencies, between politicians and the
a planned, implemented, and reviewed performance administration, and so on (Bouckaert, 2008). Surely, trust is a

48 Building Effective, Accountable, and Inclusive Institutions In Europe And Central Asia
necessary component of efficient and effective management. thinking, suspending judgment, risk-taking, confidence,
After all, autonomy to let managers manage is a cornerstone openness to new experience, perseverance, communication,
of NPM reforms. An equilibrium between trust and perfor- empathy, and emotional intelligence (Kruyen & Van Genugten,
mance management control is possible, but it must be a focus 2017). These personal attributes could (a) be measured in the
from the initial stages of introducing performance manage- recruitment procedure of new public servants, and (b) lead
ment in earnest (Bouckaert & Halligan, 2008). to innovative work behavior once new employees are hired.
The recruitment process should thus be integral to an organi-
Performance data can be used to spur innovation in admin- zation’s effort to become more innovative and to improve its
istration reform and boost government performance in three performance.
ways: through management practices (innovative climate),
through hiring (innovative work behavior), and through Innovative work behavior is commonly defined as “all in-
looking outside one’s window (collaborative innovation). An dividual actions directed at the generation, processing
innovative climate has been defined as “employees’ percep- and application/implementation of new ideas regarding
tion of the degree to which an organization supports and ways of doing things, including new product ideas, tech-
encourages its staff to take the initiative to explore creative nologies, procedures or work processes with the goal of
ideas that foster innovation within the organization” (Chan, increasing the organizational effectiveness and success”
Liu, & Fellows, 2014, p. 2). (Bos-Nehles et al., 2017, p. 382). The personal antecedents
of creativity are important in the initial phase of innovative
Such a climate is essential to an organization’s ability to inno- work behavior: the creation or generation of novel ideas.
vate and improve its productivity and performance, whether However, hiring creative people is useless unless they have
in the private or the public sector (Arundel et al., 2015). An the room to experiment and implement these ideas. Hence,
organization’s innovation climate is, to a great extent, de- the innovation climate is essential for the two final steps
pendent on management practices: it is based on whether of innovative work behavior: idea championing, and idea
the organization’s strategy explicitly includes innovation as implementation. Both (hiring) creative employees and cre-
a goal, whether its structure is flexible and provides degrees ating an innovative climate are necessary but insufficient
of freedom to its staff, whether there is an innovation sup- in and of themselves to create the innovation needed to
port mechanism (think of slack money or slack time), whether boost government performance.
there is open communication, and finally, whether innovative
work behavior (risk-taking, continuous learning, idea generat- Looking inside the organization to innovate is a start, but
ing, etc.) is encouraged and rewarded (Martins & Terblanche, looking outside might be even more effective. Collaborative
2003). Furthermore, research through the World Management innovation involves both the government and its private sec-
Survey has shown that the quality of management practices tor and civil society counterparts in designing new ways of
is the main force behind innovation and productivity (Bloom doing things. For many government organizations, collaborat-
and Van Reenen 2007). Such management practices include ing with their colleagues from other departments might be
performance tracking and review, the quality of targets, link- just as much a challenge as collaborating with actors outside
ing consequences to both poor and good performance, and of the government. Exchanging experiences, insights, and
attracting, retaining, and dealing with human capital. All these ideas with other actors can create an environment in which
issues are thus highly dependent on the (top) leadership of the usual ways of thinking are broken down, and room is
the organization and the (middle) management of the differ- created for novel ideas (Sørensen & Torfin, 2017). Involving
ent units. It is thus the leadership’s responsibility to create the citizens (customers), civil organizations, and businesses in the
environment in which innovative work behavior can flourish. idea-generation, decision, and implementation process can
How innovative specific employees are, can differ significantly lead to radically new ways of doing things and have the addi-
from person to person. tional benefit of creating a much larger basis of support and
ownership. The case study of Poland’s tax reform, discussed
As we all know, different people show different levels of later in this chapter, is a good example of a reform in which
­creativity. More creative people show higher levels of divergent dialogue with partners plays an important role.

Chapter 2 Managing Public Resources 49

To recap: performance measurement is a moot exercise if many of the issues mentioned above (such as decreasing the
the data it produces aren’t used. Using these data is strongly wage bill and increasing innovative capacity). Finally, studies
linked to the culture in a given organization: if it has a cul- have shown several factors to be influential in successfully im-
ture of learning and innovation, the data can be the basis for plementing shared services (Borman, 2010)
innovations and reforms to boost the organization’s perfor- • The appropriate focus of the SSC should be on
mance. Such a culture rests on the innovative climate that is high-volume, routine activities with little requirement
necessary for ideas to be given the room to be tested, and for employee decision-making.
that attracts creative personnel. Finally, working with actors • High performance of the SSC relies on the obligatory
outside of the government can enhance the innovative poten- use of its services by all counterparts.
tial of the government. Next we will discuss some (hurdles to) • Leadership is the most-cited direction-related factor
organizational and individual performance reforms. for success.
• A solid IT system underpinning the SSC is important
ADMINISTRATIVE SIMPLIFICATION: for success.
SHARED SERVICES AND RED TAPE
Red tape, or “a rule that remains in force and entails a compli-
Simplifying governmental work is one option in improving ance burden, but serves no objective valued by a given stake
government performance, as it can streamline administrative holder group” (Bozeman, 2000, p. 83) produces effects that
processes and leave public servants to focus on their core ac- are the opposite to those mentioned above for shared services
tivities. Two topics related to administrative simplification are and SSCs. It throws up barriers to innovation and flexibility, in-
the introduction of shared services and the reduction of red creases (compliance) costs, and diverts the attention of public
tape. Both are discussed briefly below. sector employees away from their core tasks. Even though
the concept of red tape is well known, and sometimes even
Shared services have been a long-standing concept in the synonymous with the public sector, there are surprising few
private sector and have been incorporated in the public sec- high-quality, empirical studies illustrating its effects on orga-
tor since the early 2000s. An example could be the creation nizational and individual effectiveness. The studies that have
of a single unit responsible for payroll processing or IT sup- been done show several effects. One is an overall decrease in
port for all, or at least a significant number, of government organizational effectiveness (Brewer & Walker, 2010; Pandey et
agencies, departments, and organizations. Although there is al., 2007). Pandey and colleagues also find that the effect of red
no consensus on what exactly constitutes a shared service, or tape is strongly dependent on the culture within an organiza-
shared service center (SSC), there are several agreed common tion: an organization characterized by a developmental culture
denominators (Schulz & Brenner, 2010): “emphasize[s] flexibility (as opposed to control), readiness, and
• The consolidation of back-office processes and ser- adaptability in the face of change and put[s] high value on or-
vices among a group of organizations. ganizational growth” (p. 404). Red tape has a significantly lower
• Cost-cutting as a major driver behind shared services effect on organizational performance in such organizations. A
implementation initiatives. related finding is that a high perception of red tape is a strong
• A focus on internal “customers” (units, departments, impediment to change leadership and change efforts (Van der
and employees). Voet, 2016). This finding implies that for reform to be success-
• Aligning processes, where possible, with needs of ex- fully implemented, it could be well worth the time to carry out
ternal customers (citizens, NGOs, etc.). a red tape analysis first and then see where burdensome rules
and procedures could be streamlined and diminished.
Reducing costs, increasing innovative capacity, and a­ llowing
the public and civil servants to focus on core operations are INDIVIDUAL PERFORMANCE REFORM:
mentioned as several of the benefits for the public sector in PERFORMANCE-RELATED PAY
introducing shared services and SSCs (Janssen & Joha, 2006).
All three of these can be directly related to increasing gov- Performance-related pay (PRP) is simultaneously one of
ernment performance and service delivery, and are linked to the most popular and most notorious performance-related

50 Building Effective, Accountable, and Inclusive Institutions In Europe And Central Asia
 back-draft, and the importance of choosing the right extin-
reforms in the academic literature. A 2012 literature review guisher. Therefore, they will often oppose counting fires as if
on PRP brought together the results of 110 studies on the ef- they are all alike” (p. 30).
fects of PRP (Hasnain et al., 2012). Most of the evidence points
towards a positive effect of PRP for so-called public sector Even in suitable organizations, however, PRP comes with
“craft jobs”: “jobs where the outputs are more readily observ- some downsides and risks. It might be easy and attractive for
able, such as teaching and health care jobs” (p. 28) The effect public servants to “game the system.” Teachers, for example,
of PRP for public sector “coping jobs” (jobs where the outputs might be tempted to give each of their students a passing
are not readily observable, such as policy advice and gener- grade, if it will get them a performance bonus. Furthermore,
al public administration) is decidedly less strong. In general, when one part of the employees receives a bonus but others
one can say that the better output measurement and perfor- don’t, this might cause resentment among staff and crowd
mance assessment are, the better performance pay works. out intrinsic motivation. Finally, when the performance mea-
A World Bank study showed that PRP might especially have surement is seen as not legitimate or ill-designed, it might
an impact on the management level of public sector organiza- lead to perverse consequences (e.g., undeserving people re-
tions (World Bank, 2014). ceiving a bonus, and deserving people being left out) (World
Bank, 2014).
Wilson (1989) provides a good typology of organizations
based on the observability of their outcomes and outputs, and In summary, much work has already been done on public ad-
in effect a typology of public sector organizations where PRP ministration reform in ECA countries, and there still more to be
might work (Table 2-2). done in the future. Performance has had ECA’s attention over
the past several decades, but the use of performance data is
Following this typology, PRP would be appropriate in pro- still a matter of concern. Creating a culture that is receptive
duction organizations, and perhaps, if designed and adjusted to performance information, and a workforce that is able to
correctly, also in procedural and craft organizations. Coping creatively handle these data, is a prerequisite for innovations
organizations, however, provide a rather unsuitable environ- and reforms (such as well-designed PRP, for example) in the
ment for this type of performance instrument. Van Dooren public administration. Moreover, the sustainability of these re-
and colleagues (2011) warn readers about using this sort of forms and innovations should be a constant point of attention
typology as a ready-made blueprint: for policymakers. The remaining part of this chapter consists
of two case studies: a tax administration reform in Poland and
In practice, most people find their own organization and
the introduction of shared services in the Bulgarian public
policy sector hard to measure. An outsider may judge the
work of a fire patrol to be easy to measure – i.e. extinguishing administration. These cases show the potential of public ad-
fires as quickly as possible. Firemen however will see the ministration reform in ECA, as well as some of the obstacles
complexity of a big conflagration, the risk of flashovers and and pitfalls of reform processes.

TABLE 2-2.
Wilson’s (1989) typology of organizations (adapted from Van Dooren et al., 2011)

OUTCOMES OBSERVABLE

YES NO

Outputs Production organizations Procedural organizations

observable
Yes Examples: mail services, tax collection, Examples: mental health, counseling, military
sanitation, vehicle registration, revenue (peacetime), youth penitentiary.
collection.

Craft organizations Coping organizations

No Examples: field inspections, military (wartime), Examples: diplomacy, intelligence, research.
doctors, forest rangers.

Chapter 2 Managing Public Resources 51

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Administration, 95(3), 825-841.
centers. Transforming Government: People, Process and
Gabrielyan, C., and Selimyan, G. (2008). Public Management Policy 4(3): 210-219.
Reforms: Armenia. In G. Bouckaert, J. Nemec, V. Nakrošis,
Sørensen, E., and Torfin, J. (2017). Metagoverning Collaborative
G. Hajnal, and K. Tonnisson (Eds.), Public Management
Innovation in Governance Networks. American Review of
Reforms in Central and Eastern Europe, pp. 27-51.
Public Administration, DOI: 10.1177/0275074016643181.
Bratislava, Slovak Republic: NISPAcee.

52 Building Effective, Accountable, and Inclusive Institutions In Europe And Central Asia
Van Acker, W. (2017). What Makes Innovations Survive? An Wilson, J.Q. (1989). Bureaucracy: What Government Agencies
­investigation into public sector innovations in six Do and Why They Do It. New York: Basic Books.
European countries. Leuven, Belgium: The Public
World Bank (2003). Understanding Public Sector Performance
Governance Institute.
in Transition Countries: An Empirical Contribution.
Van der Voet, J. (2016). Change Leadership and Public Sector Washington, DC: World Bank Group.
Organizational Change: Examining the Interactions
________ (2006). Report on Strategic Planning and Policy
of Transformational Leadership Style and Red Tape.
Management in Lithuania and Latvia. Washington,
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660-682.
________ (2014). Pay Flexibility and Government Performance.
Van Dooren, W., Bouckaert, G., and Halligan, J. (2011). Performance
A Multicountry Study. Washington, DC: World Bank Group
Management in the Public Sector. New York: Routledge.

Chapter 2 Managing Public Resources 53

CASE STUDY 2.1

Poland: Sealing Tax Gaps

ARTUR GOSTOMSKI, DIRECTOR OF LARGE BUSINESS DEPARTMENT, MINISTRY OF FINANCE OF THE REPUBLIC OF POLAND
GRZEGORZ PONIATOWSKI, VICE PRESIDENT, CENTRE FOR SOCIAL AND ECONOMIC RESEARCH (CASE)

CONTEXT between 2010 and 2015, approximately PLN 40 billion, or

25 percent of the revenue, was lost because of VAT noncom-
The economic crisis in 2008 posed a serious challenge to the pliance (see Figure 2.1-1). Tax revenues were lost to large-scale
public finances of most EU member states. Despite the reces- fraud, more specifically missing trader and carousel fraud, and
sion in all other EU economies, the Polish economy performed also to forms of evasion (e.g., underreporting, non-filing), tax
well during the crisis. And in contrast to most of the EU mem- avoidance (e.g., misalignment of rates), errors, omissions, and
ber states, the tax base in Poland increased every year during bankruptcies.
that period.
The problem of VAT fraud was particularly pronounced, af-
This positive news did not prevent Poland from experiencing fecting not only public finance but also companies and market
fiscal problems, however. An early symptom of the problems competition in various sectors. As the Government’s interim
arose when tax collections, specifically VAT receipts, became solutions (such as reverse charge) had limited effectiveness, it
highly volatile. Four times between 2008 and 2015, Poland became clear that the fight against fraud required fit-for-pur-
experienced year-over-year declines in annual VAT revenue. pose means – solutions that would eliminate large-scale fraud
As the economy was expanding and statutory tax rates had to avoid negative impacts on business.
not been reduced, the decline in revenue was an indicator of a
growing issue of VAT noncompliance. IMPLEMENTED ACTIONS

According to the European Commission, Poland’s VAT gap— A reform of existing tax services was the starting point for
the difference between the liability under full compliance and larger reforms aimed at collecting tax revenues for the budget.
revenue—became one of the highest in the EU. Each year
To improve effectiveness and create synergies, Poland
FIGURE 2.1-1.
merged the customs and tax administrations into one body,
VAT Gap in Poland (2010-2015)
the National Revenue Administration (NRA), which became
operational in March 2017. The establishment of the NRA had
200 27.06% 26.61% 30 the following specific objectives:
24.44% 24.30%
21.85% 21.93% 25
150 a. Establish a consistent special Government adminis-
20 tration that would be in charge of collecting budget
100 15 revenues.
10 b. Provide more efficient service and support for tax-com-
50
5 pliant persons, including business operators, that are
0 0 properly performing their tax- and customs-related
2010 2011 2012 2013 2014 2015
obligations.
VAT Revenue (PLN bln)
VAT Gap (PLN bln) c. Strongly improve the efficiency and success rate in
VAT GAP (%) quickly discovering and counteracting tax fraud and
recovering outstanding tax and customs duties.
Source: European Commission (2018). d. Enhance the efficiency and accuracy of inspections.

54 Building Effective, Accountable And Inclusive Institutions In Europe And Central Asia
 e. Achieve higher professional status of personnel, In 2018, the highest growth rate in tax revenues—16.2 percent,
­guaranteeing better performance. well above the nominal economic growth rate—was achieved
f. Streamline handling of tax matters. from corporate income tax (CIT) (the state budget, including
g. Improve the system for ensuring the financial safety shares of local government units), yielding an increase in re-
of the state and the proper organization of customs ceipts of PLN 6.2 billion. In total, from 2016-18, CIT receipts
protection of Poland’s eastern border (which is at the increased by PLN 11.4 billion—that is, by 34.8 percent—and
same time the eastern border of the European Union). significantly exceeded the effects expected from the intro-
duction of the General Anti-Avoidance Rule.
Reorganization was the starting point. At the same time, in
2017, several pieces of legislation—introducing changes to RESULTS
VAT and excise legislation—were initiated to strengthen the
position of fiscal services against fraudsters’ aggressive tax As of 2016, VAT revenue started increasing strongly. By
planning. Reforms continued in 2018: the implementation of 2018 the downward trend had been reversed, and VAT col-
a voluntary split payment for VAT, a law to prevent the use of lections had increased by 36.9 percent over the 2015 level.8
the financial sector for tax fraud, a register of public receiv- The increase in tax revenue significantly outran the country’s
ables, an on-line cash register, and a package focusing on the economic growth – the second source of increasing VAT col-
tobacco product trade. As a result, in 2018: lections. In Figure 2.1-2, the lines of VAT liability and revenue
a. 288 million illegal cigarettes were seized, for a total val- have converged, showing a gradual reduction in forgone rev-
ue of PLN 202 million. enue. Increased compliance led to a decline in the nominal
b. 226 tons of tobacco and dried tobacco were seized, for value of the gap from PLN 40 billion in 2015 to PLN 21 bil-
a total value of PLN 107 million. lion in 2018, providing substantial fiscal leeway to the budget.
c. Illegal activities decreased from 19 percent of the total Various indicators—for example, the decline in trade statistics
production volume in 2015 to 12.3 percent in 2018. anomalies—showed increasing compliance that was largely
due to the diminishing scale of fraud.
In 2018 the scope of the Standard Audit File was extended
to micro-companies (some 1.5 million taxpayers), and an
amendment of the framework tax law is now being prepared.
FIGURE 2.1-2.
A number of changes were made in corporate income tax to VAT revenue, VAT gap, and VTTL in Poland
increase tax revenue. The social security premiums payment (2014-2018)
system was simplified, a measure that also contributed to
higher revenue. While the implementation of some new re- 250
quirements faced organizational and technical issues, the
200
measures appear to be functioning as intended overall. For in-
stance, the share of entities failing to send standard audit files 150

regularly declined during 2018 from over 5 percent in January 100

to 2.4 percent in November.
50
40 40 33 25 19
0
Regarding standard audit files, in 2018 the NRA analyzed
2014 2015 2016 2017 2018
more than 1.5 billion purchase transactions and 5.5 billion sale
VAT Gap (PLN billion) VAT Revenue (PLN billion)
transactions. During the first quarter of 2019 the NRA ana- VTTL (PLN billion) VTTL (PLN billion, fast estimates)
lyzed 423.4 million purchase transactions and 1.4 billion sale
transactions. Source: Authors, based on EC (2018).

8 Source: Eurostat.

Chapter 2 Managing Public Resources 55

The increase in VAT compliance has had positive effects on Changing the tax system is about more than changing leg-
more than tax revenues. Positive impacts in the form of fair islation. During the planning process it is equally important
market competition have eased the pain of those economic to allow the necessary time for changes in the IT systems
operators who were afraid of measures introduced by the and infrastructure and for staff training. The time necessary
Government. Moreover, better availability of information for providing information and, when necessary, training is a
has had a positive impact on the compliance costs borne substantial factor when considering implementation time and
by companies and has allowed audits to become less strin- effectiveness.
gent. Overall the number of audits has dropped by one third,
from 29,560 in 2015 to 18,492 in 2017. At the same time, the Some changes can be implemented in parallel and inde-
effectiveness of audits has also sharply increased: the share pendent of one another, and should be identified as early as
of audits that found irregularities increased by 83.3 percent possible in the planning process to optimize overall imple-
between 2015 and 2017. The availability of information has mentation time.
also resulted in increasing the pace of VAT refunds; the refund
time dropped by over 18 days between the first semester of In the change management process communication is one of
2015 and the second semester of 2017.9 the critical factors. Inside the organization, employees should
know what will happen, what the change will mean for them,
Other positive effects of the institutional reforms are yet to and how they will be involved. And outside the organization,
come. The increased compliance strengthens the fairness and the NRA is to support legal business and the fight against
equity of the tax system, in which every party pays what it fraudsters.
owes. This is a key driver of trust in the system, which will likely
strengthen tax morale. Another lesson: Invest in people. The best legislation will not
implement itself, and the best IT systems will be only as good
LESSONS LEARNED as the people who operate them.

Change management is a complex process, especially in large Political support for legislative changes is a must for a time-
organizations like the NRA (NRA has more than 59,000 em- ly and planned process of introducing changes to the legal
ployees). The most important lesson: the more detailed the system. Very often this factor is underestimated, when in
planning, the thinner the margin for mistakes. That is to say, reality during parliamentary proceedings the best projects
avoid shortcuts and do not count on things automatically can undergo substantial changes that will seriously limit
happening the way they were intended to happen. their impact.

9 Source: Ministry of Finance; see http://pie.net.pl/wp-content/uploads/2019/01/Raport-LUKA-VAT.pdf.

56 Building Effective, Accountable And Inclusive Institutions In Europe And Central Asia
CASE STUDY 2.2

Bulgaria: Shared Administrative Services

KRASIMIR BOJANOV, DIRECTOR, “MODERNIZATION OF THE ADMINISTRATION” DIRECTORATE, COUNCIL OF MINISTERS,
BULGARIA

CONTEXT functions between ministries without causing undue disrup-

tion to the day-to-day functions of government.
Bulgaria’s public administrations are divided into general ad-
ministration (general administrative support, including human There are different approaches to the implementation of the
resources management, or HRM), financial management (FM), shared services principle. The first option is to ensure the co-
property management, information technology (IT), legal, ordination and interaction of different administrative bodies
and specialized administrations responsible for discharging functioning within one or several ministries. Under this model,
the specific competencies of the administrative body. The units would be set up for the provision of shared services to
public administration’s model of organization and functioning the participating administrations. The second approach envis-
is characterized by high costs, divergent practices, and weak ages the centralized provision of shared services for the entire
coordination of activities. public administration. It would require the creation of single
centralized units serving all other administrative structures,
Currently each administrative body maintains its own staff and a robust information management system. Such changes
for the performance of general administrative tasks. There is would require amending and supplementing the current legal
scope to reap economies of scale and reduce the duplication framework. A methodological framework is needed to guide
of functions and inefficiencies. Several back-office functions the effective utilization of the opportunities that shared ser-
are currently provided in a siloed manner through small units vices will provide for optimizing administrative work.
that are not able to achieve a critical mass and deliver qual-
ity services. In addition, IT systems and solutions are lacking, IMPLEMENTED ACTIONS
there is a strong perception that administrative support
services are of low quality, and there are tensions between Administrative reform was given high priority at the polit-
the public administration staff who are tasked with general ical and strategic level through the adoption of the Public
administrative support and the specialized, subject matter Administration Development Strategy 2014-2020. The strat-
staff. The Government’s vision is to eventually establish a egy aimed at finding the best reform “driver” and prioritized
Government-wide system for the delivery of some of the gen- a few selected areas, including FM and accounting, HRM, and
eral administrative support services. property management. In May 2017, the Government commis-
sioned an advisory services project from the World Bank to
The Council of Ministers has developed and endorsed two assist with the introduction of shared services.
concepts aimed at enhancing the efficiency and effectiveness
of the organization and functioning of the general administra- The shared services project had an inception report and the
tion units: (a) standardization of the general administration following deliverables:
within the structure of the central administration, and (b) in- 1. A baseline report that provided a detailed assess-
troduction of shared services. ment of the current status of HRM and FM processes
in Bulgaria’s public sector, a discussion of the legal
The first step toward this vision is the establishment of shared amendments needed to introduce shared services, and
services within each ministry, followed by sharing back-office a summary of how shared services were established

Chapter 2 Managing Public Resources 57

 and currently function in three EU countries, the agreements for each of the selected HRM and FM busi-
Netherlands, Estonia, and Finland. ness processes.
The baseline report included a substantial annex on 5. A monitoring and evaluation mechanism to monitor
IT aspects, covering multiple issues connected with shared services units’ achievements, and a compre-
the introduction of shared services: the state of IT hensive ex-post evaluation report of the organizational
infrastructure, migration to cloud-based services, model for shared services.
e-governance, digital transformation, and so on. The 6. A change management program and comprehensive
Bulgarian State E-Governance Agency, while not a communication plan.
formal beneficiary under the project, appreciated the
advice and implemented several of the recommenda- RESULTS
tions outlined in the ICT report.
2. A property management report providing the The project was successful in introducing the principle of
Government with several options for the manage- shared services in the work and organization of Bulgaria’s
ment of public property. The Government appreciated central administration. Project-related activities – assess-
the report and has already implemented some of the ments, analysis, advice, capacity building, and implementation
smaller recommendations made by the World Bank support – provided by the World Bank team proved that the
team. introduction of shared services enhances the efficiency and
3. A pilot implementation report, the core analytic out- effectiveness of administrative support activities within the
put detailing the proposed model for establishing the administration. The World Bank team, in close collaboration
pilot shared services units and offering proposals for with its Government counterparts, developed a method-
reengineering high-level business processes in each ological framework for the introduction of shared services in
of the two pilot administrations, recommended legal Bulgaria’s public sector, leveraging lessons learned from the
amendments, and proposals on necessary upgrades to introduction of shared services in other EU member states;
the IT systems. developed detailed proposals for legal amendments; and sup-
In addition, the World Bank team delivered detailed ported the practical implementation of the shared services
pilot-specific analytical reports assessing the state of principle in two pilot administrations. The experience of the
the FM processes, HRM processes, and IT aspects of two pilot administrations was that with shared services, HR
the administrative bodies nominated to pilot the intro- and FM experts are relieved of non-core, technical, transac-
duction of shared services: the Bulgarian Food Safety tional, and ancillary functions, and freed to focus on their key
Agency and the Ministry of Health. These reports were functions.
not formal deliverables but were provided to enhance
the understanding of the shared services princi- The key recommendations provided by the World Bank team
ples and support the Government’s decision-making under the two stand-alone reports delivered at the beginning
process. of the project, ICT and property management, have been
The World Bank also submitted a brief on the ex- largely implemented by the Government.
perience of five EU member states concerning the
introduction of shared services, as well as an advisory LESSONS LEARNED
piece detailing international best practice on the crite-
ria for selecting public bodies to pilot shared services Introducing shared services is a highly collaborative process
reforms. that requires proper and timely sequencing of the reform
4. A performance management framework report, actions to be taken by the Government and the World Bank
providing comparative benchmarks for shared ser- team. The interactive nature of the partnership calls for open
vices units, detailed proposals for functional models and effective communication to avoid a mismatch in expec-
for introducing shared services, and recommended tations on the delivery of analytic and advisory inputs by the
legal amendments, including model service-level World Bank team and the Government.

58 Building Effective, Accountable And Inclusive Institutions In Europe And Central Asia
The provision of administrative services in a shared ser- a shared service setting. The necessary legal amendments
vices setting is dependent on the availability and wide use should be enacted before introducing the reform.
of HRM and FM information systems within the adminis-
tration. The Government’s HR management information The most valuable lesson is the need to win the “hearts and
system had missing functionalities and needed to be up- minds” of public administration staff. Introducing shared ser-
graded to run the business processes reengineered in the vices is a comprehensive reform that requires changing the
course of project implementation. Responding to this mindset within the administration to introduce a service cul-
urgent need, the Government and the World Bank team ture, introduce performance indicators, and track unit and
consulted with the original system vendor and expanded individual staff performance. The interactive nature of the
the scope of the analytical output to detail the required up- partnership enabled a shift in perceptions about the shared
grades to the system. On the basis of the team’s guidance, services reform and significantly increased acceptance of the
the Government will initiate a procurement process for the concept. Special attention was given to change management
recommended upgrades. actions, information sharing, and capacity building. As a re-
sult, the acceptance of the reform among staff doubled, and
Another lesson learned is the need to capture the the Government has ownership of the reform and is commit-
Government’s responsibility for authorizing the necessary ted to continue implementing the shared services principle in
legal or institutional changes to move the reform forward. the work and organization of its administration.
Reform implementation depends on enacting amendments
allowing the provision of administrative support services in

Sofia, Bulgaria. Photo: © iStock/ Nikolay Pandev

Chapter 2 Managing Public Resources 59

View of downtown Astana, the capital of Kazakhstan.
Photo: © Gulbakyt Dyussenova / World Bank
CHAPTER 3

Governance of Service
Delivery
Anya Vodopyanov Moses Wasike
Public Sector Specialist Lead Financial Management Specialist
G
lobally, governments play a critical role in the provision All need to have the right resources, capabilities, and incen-
of social services – and citizens have high expecta- tives to deliver well.
tions. Despite a steady growth in private service deliv-
ery, governments continue to play a vital role because they Over the last decade, ECA countries have made major strides
offer services that markets often cannot, including services to in improving public service delivery, but gaps remain. A useful
remote and sparsely populated regions and vulnerable com- proxy for service quality, accessibility, and efficiency is citizen
munities. As economies grow and mature, citizens also come satisfaction. The Life in Transitions Survey (LiTS) measures
to expect more from their governments. This is particularly citizen satisfaction with services in all ECA transition coun-
the case in the sophisticated and high-tax economies of the tries, including Central Europe and Baltics (CEB), South-
ECA region, where citizens strive for OECD-level service and Eastern Europe (SEE), Central Asia (CA), Eastern Europe
living standards. Both the civil service and downstream pub- and Caucasus (EEC), Russia, and Turkey.1 The LiTS suggests
lic providers, including hospitals, schools, and state-owned a mixed picture. For services such as primary education and
enterprises, play a critical part in the service delivery chain. documents administration, most ECA countries perform

FIGURE 3-1.
Percent of respondents satisfied with social and utility services

Primary and
Documents secondary education Health Traffic police Courts
100
90
80
Percentage of respondents

70
60
50
40
30
20
10
0
SEE

SEE

SEE

SEE

SEE
Turkey
CEB
Russia

CA
EEC

Turkey
CEB
Russia

CA
EEC

Turkey
CEB
Russia

CA
EEC

Turkey
CEB
Russia

CA
EEC

Turkey
CEB
Russia

CA
EEC
Fixed telephone Pipeline gas Electricity Water Heating Postal services Roads
100
90
80
Percentage of respondents

70
60
50
40
30
20
10
0
SEE

SEE

SEE

SEE

SEE

SEE

SEE
CEB
Russia

CA
Turkey
EEC

CEB
Russia

CA
Turkey
EEC

CEB
Russia

CA
Turkey
EEC

CEB
Russia

CA
Turkey
EEC

CEB
Russia

CA
Turkey
EEC

CEB
Russia

CA
Turkey
EEC

CEB
Russia

CA
Turkey
EEC

Source: Life in Transitions survey, 2016. Yellow line - Western Europe. Brown Line - Transition Countries, proportion either “satisfied” or “very satisfied” users.

1 CEB includes Croatia, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Slovakia, and Slovenia. SEE comprises Western Balkans, Bulgaria, Cyprus, Greece,
and Romania. CA is Kazakhstan, Kyrgyz Republic, Tajikistan, Turkmenistan, Uzbekistan, and Mongolia. EEC is Belarus, Moldova, Ukraine, and 3 Caucasus republics.

62 Building Effective, Accountable, and Inclusive Institutions In Europe And Central Asia
well relative to Western European comparators;2 however, significant inefficiencies in this area, as measured by the time
for other services, such as courts, health, roads, and utilities, required for completing administrative procedures to start a
there is a wide spread in results and many countries are below business (Figure 3-2). Change across time has been uneven.
Western Europe averages (see Figure 3-1). Some countries have made remarkable improvements in
recent years, while others have remained unchanged or have
A mixed picture also emerges when considering the effi- regressed, suggesting that improvements in service delivery
ciency of services for businesses. Many countries show have not kept up with public expectations (Figure 3-3).

FIGURE 3-2.
Government service inefficiency for firms, as reflected in time required to start a business (days)

90
80
70
60
50
40
30
20
10
0

Estonia
BiH
Poland

Montenegro
Greece

Russia

Belarus

Hungary

Kosovo

Georgia
Romania

Bulgaria

N. Macedonia

Slovenia

Turkey
Ukraine

Latvia
Lithuania

Armenia
Italy

Germany

Cyprus

Serbia
Kazakhstan
Albania

Moldova
Azerbaijan
Tajikistan
Croatia

Uzbekistan
Slovak Rep.

Kyrgyz Rep.

Source: World Bank Doing Business, 2018.

FIGURE 3-3.
Percent of respondents satisfied with public social services (average of 8 services), 2010 and 2016

90
80
70
60
50
40
30
20
10
0
Montenegro
Slovak Rep.
Bulgaria
Mongolia

Poland

Estonia
Armenia
BiH

Russia

Lithuania
Kyrgyz Rep.

N. Macedonia
Tajikistan

Turkey
Hungary

Moldova
Belarus

Slovenia
Georgia
Latvia
Kazakhstan
Ukraine

Romania
Albania

Serbia

Croatia
Uzbekistan

2010 2016

Source: Life in Transitions Survey, 2016.

2 Founding EU members.

Chapter 3 Governance of Service Delivery 63

Institutional Weaknesses as a Source of Poor
Service Delivery

Gaps in service delivery stem from several factors. One frequent FIGURE 3-4.
factor is insufficient funding, but funding is only one piece of Accountability relationships and service delivery
the puzzle, as service delivery often falls short even when suffi-
cient funding is available. For sophisticated reformers like ECA
The state
countries, the main driver is often institutional weakness – and
indeed, evidence from ECA and from countries around the Politicians Policymakers

world shows that the best service outcomes require capable, Long route
inclusive, and accountable institutions. Capable institutions of accountability

Co
m
(often resulting from performance-oriented recruitment and

ice

pa
Vo

ct
management practices, as discussed in Chapter 2) are critical
to improved quality and efficiency of service delivery because Short route
Citizens/clients Providers
they ensure that the most qualified and motivated staff are
Client power
hired to deliver services. Institutional inclusiveness is important Coalition/inclusion Management
for ensuring broad citizen access to services. And accountabil- Non-poor Poor
Services
Frontline Organizations
ity is critical to good service delivery as it incentivizes provid-
ers to be productive, efficient, and client-oriented. Indeed, one Source: World Bank 2004.
could say that accountability (and transparency) is the over-
arching institutional driver of good service delivery because it The importance of institutions for service delivery in ECA
sets the right incentives and can endogenously improve insti- is confirmed by data showing that citizens are more satis-
tutional capacity and inclusiveness as well. The link between fied with service delivery when there are high levels of voice
accountability and governance is well documented and most and accountability (Figure 3-5), institutional capacity (gov-
clearly explained in the flagship World Development Report, ernment effectiveness) (Figure 3-6), and institutional inclu-
Making Services Work for Poor People (World Bank 2004). siveness, measured by control of corruption (Figure 3-7).3
Effective, responsive, accountable institutions help ensure
The 2004 World Development Report provides a widely that the right services are delivered to the right people, in
accepted framework for understanding the importance of the most fiscally prudent and economically and socially
accountability relationships in a triangle of service provid- beneficial manner. The data also show a broad spread in
ers, citizens, and policy makers (Figure 3-4). Service deliv- institutional quality in ECA countries, which directly affects
ery is affected both by the “long route of accountability,” service experience. Some countries—Estonia, Latvia, Slovenia,
whereby citizens elect policymakers who influence service and Georgia—have closed the gap with EU countries on voice
providers through policy and compacts, and the “short route and accountability, government effectiveness, and control of
of accountability,” whereby citizens directly influence service corruption, and these institutional achievements have been
providers through feedback and by “voting with their feet.” rewarded with high citizen satisfaction with public services
The channels are mutually reinforcing, and both rest on the and trust in the state. Meanwhile, some other ECA countries
ability of citizens, as key users of public services, to give feed- lag behind. In this group, government investments in service
back on their service experience and to hold service providers delivery could see meager returns because citizens may not
accountable through voice or client power.

3 Control of corruption serves as a good proxy for institutional inclusiveness because it reduces the incidence of a practice (corruption) that diverts resources
from services and rations, and charges informal fees for, service delivery, all of which reduces access, particularly for the poor and vulnerable.

64 Building Effective, Accountable, and Inclusive Institutions In Europe And Central Asia
 FIGURE 3.5. FIGURE 3-6.
Citizen satisfaction with social services positively Citizen satisfaction with social services positively
correlated with voice and accountability correlated with government effectiveness

85 85
% respondents satisfied with public service

% respondents satisfied with public service

80 EST 80 EST

75 LAT 75 LAT
SLK SLK
SLV UZB ROM
70 UZB LIT ROM
70 LIT
SLV

65 65 RUS GER
RUS BUL GER CRO
KOS POL GEO KOS BUL POL GEO
60 CRO 60
CYP HUN CYP
ARM HUN ARM
GRE GRE
55 MGL 55 MGL
ITA ALB ITA ALB
SER KAZ
50 KAZ 50 SER
AZE MNT UKR
UKR AZE MNT MAC
TAJ MAC KYR TAJ KYR
45 BiH BEL 45 BiH BEL

40 MOL 40 MOL

35 35
–2.0 –1.5 –1.0 –0.5 0 0.5 1.0 1.5 2.0 –1.5 –1.0 –0.5 0 0.5 1.0 1.5 2.0

Voice and accountability score Government effectiveness

Note: Composite of 8 public social services: traffic police; processing official Source: Life in Transitions Survey 2016, Worldwide Governance
documents; civil courts; primary or secondary public education; vocational ­Indicators 2016.
public education; public health care; unemployment benefits; and other
social security benefits.

appreciate service provision if it is rife with corruption and not FIGURE 3-7.
responsive to user needs and feedback. Citizen satisfaction with social services is
positively correlated with control of corruption
Governments in ECA are coming under growing pressure to
raise the efficiency, accessibility, and quality of public services 85
% respondents satisfied with public services

for social, economic, and fiscal reasons. Citizens of ECA’s 80 EST

sophisticated economies have high expectations about the 75

SLK LAT SLV
quality and level of public service delivery, and meeting 70 UZB LIT ROM
those expectations is critical to maintain citizen trust and GER
65
POL
avert social discontent. Several ECA countries that could not RUS
BUL
CRO
60 KOS HUN GEO
meet such expectations have experienced popular unrest in ARM
GRE CYP

the past. Economic considerations are also central. Quality 55 MGL

ITA
AZE ALB SER
education, health care, and transport can make citizens 50 MNT
KAZ
TAJ UKR BiH MAC
KYR
healthier, more educated, and better connected to markets, 45 BEL

and therefore more productive. Faster and more responsive 40 MOL

administrative services reduce the cost of doing business

35
and attract investment. Productive citizens and businesses –1.5 –1.0 –0.5 0 0.5 1.0 1.5 2.0
drive growth and reduce brain drain, an important constraint Control of corruption in gvt
in some ECA countries. Finally, fiscal constraints make it
imperative for governments to consider ways to invest in Source: Life in Transitions Survey 2016, Worldwide Governance Indicators
2016.
more efficient service delivery—for example, through tech-
nology and innovation in management practices.

Chapter 3 Governance of Service Delivery 65

Service Delivery Reforms in the ECA Region

Many ECA countries recognize these imperatives and have As ECA governments look forward to opportunities to
embarked on reforms. Some have taken very decisive steps to improve their service delivery and citizens’ confidence, it is
strengthen the institutional prerequisites for effective services clear that there is no single blueprint for reform, but there
delivery. A number have also coupled these steps with invest- are some core ingredients. Every country has a unique set
ments in digital technologies to reinforce transparency, effi- of endowments and challenges, and solutions must be tai-
ciency, and a performance culture. The 2019 ECA Governance lored to them. But even though the recipes differ, the basic
Conference profiled some of the innovative reforms. In ingredients are usually the same: accountable, capable, and
Albania, the World Bank-supported Citizen-Centric Service inclusive institutions, supported by a strategic vision, suf-
Delivery Project boosted citizen satisfaction and trust in a ficient political and financial capital, investment in digital
range of public services by increasing provider transparency technology, and monitoring and evaluation mechanisms to
and accountability and by reducing the scope for corruption. track progress and make course corrections, at a minimum.
Italy, Albania, and Azerbaijan implemented e-services and Generating even these basic ingredients is not an easy task
e-procurement systems with measurably positive effects on and requires time and learning, but experience shows that
the efficiency and quality of service delivery and on the trans- relatively small investments can bring large social, eco-
parency and efficiency of procurement and public investment nomic, and fiscal payoffs. Many of the “success cases” pro-
management. The key ingredients for the success of these ini- filed in this volume also struggled initially and benefited
tiatives were simple: feedback mechanisms for citizens and substantially from World Bank technical assistance and
businesses to express their needs and keep providers respon- learning from peers. One of the more feasible entry points is
sive and accountable, and digital technologies to speed up advances in digital government readiness, especially if cou-
delivery and improve data for decision-making and oversight. pled with corresponding reforms in accountability incentives

FIGURE 3-8.
E-Government Index, ECA

1.0

0.9

0.8

0.7

0.6

0.5

0.4

0.3

0.2

0.1

0
Latvia

Netherlands
Turkmenistan

Azerbaijan
Armenia
Uzbekistan
Albania
Turkey
BiH
China
Georgia
N. Macedonia
Moldova
Ukraine
Romania
Belarus
Bulgaria
Andorra
Montenegro
Slovakia
Serbia
Poland

Cyprus

Kazakhstan
Greece
Malta
Ireland
Portugal
Italy
Hungary
Croatia
Lithuania
Russia
Monaco
Slovenia
Belgium
Spain
Iceland
Austria
Estonia
Luxembourg
Germany
Switzerland
Finland
Norway
Sweden
France
Denmark
UK
Tajikistan
Kyrgyzstan

Czech Rep.

2012 2018

Source: United Nations 2012, 2018.

66 Building Effective, Accountable, and Inclusive Institutions In Europe And Central Asia
and managerial and service culture at the provider level. As The challenge for each country is to find the approach and
the Albanian and other cases show, the transition to digital sequence that is appropriate for its unique circumstances.
government can dramatically improve service delivery by In all cases reforms will need to strengthen the institutional
increasing transparency, efficiency, client orientation, and foundations, and will require broad partnerships – between
oversight. Although many ECA countries have seen improve- the government, civil society, private sector, and other part-
ments on this front in the last decade, many are still far from ners. The World Bank’s Governance Global Practice has sup-
the frontier (Figure 3-8). ported many governments along this challenging journey.
The country cases profiled in this chapter provide some
Improvements in service delivery are a net benefit to society examples of these successful partnerships and models for
and economy, and they are feasible. Relatively small invest- ways governments can strengthen institutions for improved
ments can bring large social, economic, and fiscal payoffs. public delivery.

Lights illuminate a bridge in Skopje, North Macedonia.

Photo: © Tomislav Georgiev / World Bank.

Chapter 3 Governance of Service Delivery 67

CASE STUDY 3.1

Albania: Citizen-Centric Service Delivery

LORIN YMERI, EXECUTIVE DIRECTOR, AGENCY FOR THE DELIVERY OF INTEGRATED SERVICES IN ALBANIA (ADISA)

CONTEXT Others, who had benefited from petty bribes and corruption
in exchange for favors, did not want to give up their
For many years, Albanian citizens who needed a public informal income. They also resented added scrutiny of their
service would likely go to dingy and cluttered bureaucratic performance. At the institutional level, each of the involved
offices to get assistance, contending with long lines, confusing agencies – from property registration to health insurance –
procedures, and unclear instructions. Public services were had separate ways of doing business. Also, staff in each
marred by an entrenched institutional culture that showed office operated with little regard to what happened in other
little regard for the customer and provided only a token departments. An engrained bureaucratic culture ran counter
opportunity for citizen feedback. There was no transparency. to customer care standards that are more prevalent in the
Citizens were never certain about the documentation they private sector. Public service delivery was often considered an
would be asked to present when requesting a service, nor did afterthought, as was illustrated by the considerable number of
they know what to expect in terms of procedures. The barriers institutions that had no dedicated service windows or service
to public services – multiple visits, difficult-to-find offices clerks.
without service windows, delays, unjustified denial of services
– contributed to a faltering trust in Government institutions. Time-consuming and convoluted processes were considered
the normal way of work, even if they made no sense. In some
Albania needed change. Reform of public services became cases, for example, citizens were asked to bring in notarized
one of the Government’s six priorities in September 2013. copies of documents issued by the very same institutions to
Piecemeal changes would not suffice. Since 2014, the which they were applying for the new service. A commitment
Government of Albania has pursued a groundbreaking reform to standardization and harmonized procedures, putting citi-
that reinvents the way public administration delivers services zens in the center, was a dramatic shift from existing norms
to its citizens. The reform relies heavily on innovation and the and would need buy-in from civil servants at all levels.
use of IT to improve standards, procedures, and the organi-
zation of service delivery. In its first three years, it has already At the institutional level, the key stakeholders involved in the
made inroads to combat corruption, foster a customer-care implementation of the citizen-centric services reform are
culture, enhance public access, and increase efficiency in the ADISA, the National Agency for Information Society (NAIS),
Albanian public administration. It remains a core priority also and the institutional public service providers as needed. To
in the reform Government’s second term. The reform cham- detail objectives, principles, and key interventions for the
pion is the Agency for the Delivery of Integrated Services in implementation of the strategic vision and harmonization of
Albania (ADISA). activities among all actors involved, the Albanian Government
has prepared a long-term policy document on the provision
The objective of the public service delivery reform was to of citizen-centric services by central Government institutions
create an administration that focused primarily on the needs of in Albania.
citizens. While the goal was clear, the path to getting there was
not. The job ahead was enormous, with multiple challenges to From the outset, the reform of administrative services for citi-
tackle. Resistance to change from within the administration was zens and businesses has received the support of international
a test from the start. Some Government agencies and offices development partners such as UNDP, EU, World Bank, the
perceived their authority being questioned or diminished. Italian Government, and other donors.

68 Building Effective, Accountable And Inclusive Institutions In Europe And Central Asia
IMPLEMENTED ACTIONS
ADISA, the principles and channels of public service delivery,
The process of designing the reforms involved tapping into the rules for developing public service models, the rules for
the experiences of EU member countries, other European cooperation among different institutions (including local gov-
countries, and even countries in Asia that had had exten- ernment), and the rules for organizing service windows and
sive involvement with citizen-centric public service delivery the functioning of ADISA.
reforms. The government of Albania (GoA) visited countries
like Georgia and Azerbaijan because they had carried out ADISA is the institution behind the FO-BO separation. It
public service delivery reforms. Knowledge from local and serves both as the “brain” behind the citizen-centric services
international businesses in Albania also served as an invalu- and the “face” of those services. It is the brain that sets the
able source of ideas for shaping the reform. Those with standard design for and monitors the services across all rele-
well-established customer care practices, such as banks and vant Government offices. It is also the public face of the ser-
retail companies, provided insights into what works. vices, which means that it establishes and manages customer
care service windows in the ADISA Centers.
The GoA borrowed from Georgia the idea of a one-stop shop
and the notion of how to create a user-friendly space. That But these reforms were not without some challenges:
model provides citizens with some of the major services a. No definite list of public services delivered by institu-
they need in one place, instead of requiring them to go from tions. Consequently, there was a need to codify and
one institution to another to get those services one by one. accurately name the services for each institution.
However, Albania’s unique situation required home-grown b. The absence of information on public services, a condi-
approaches as well. tion that created ambiguity and possibilities of misuse
of the funds of the citizens and companies.
With local innovations and international good practices under c. The need to standardize requirements, unify application
review on the design front, reform management structures procedures, and establish the legal basis for the reform.
had begun to take shape as well. d. Not just changing the mentality about service delivery,
but also raising citizens’ awareness of their rights as
The fast-paced reform included important milestones—for beneficiaries of public services.
example, completion of the first inventory of central govern- e. The expansion of the network of ADISA Integrated
ment administrative services and their classification and cod- Service Centers (ISCs) throughout the Albanian
ification according to best EU practices; the establishment territory.
of ADISA as a dedicated agency to guarantee customer care
standards in service delivery to citizens and businesses; the RESULTS
set-up of a citizen feedback mechanism; the revamping of the
e-Albania portal; the initiation of a standardization and simpli- In the ISCs, ADISA provides FO services for a number of central
fication process in service delivery and piloting of front office Government institutions, thus giving citizens and businesses
(FO) and back office (BO) separation, with FO management fast, easy, and transparent access to public services. Setting up
by ADISA; and the opening of a nationwide Call Centre for ISCs has entailed a fundamental change in how Albanian state
information on services. institutions interact with citizens. Eight regional ISCs had been
established by February 2020, and Elbasan was scheduled to
ADISA is the designated institution responsible for citi- open in March 2020, and Kamez and Vlora later in the year. In
zen-centric public service delivery models and standards smaller municipalities ADISA offers its services by colocation
established under Council of Ministers Decision of 22 October with municipal one-stop centers. Currently ADISA is colo-
2014. Its purview was expanded under Law No. 13/2016 on cated in the municipalities of Maliq, Belsh Patos, and Divjaka
Public Service Delivery at the Front Office level. This core law and Librazhd. Colocated centers in Malësi e Madhe, Kukes -
defines the rules for provision of public services by removing Kolonje, Pogradec, Rroskovec, and Mat are currently under
administrative barriers and offering fast, efficient, transparent, development and predicted to open in 2020. To ensure access
and higher-quality service. It identifies and defines the role of to even the most remote rural areas, ADISA will use converted

Chapter 3 Governance of Service Delivery 69

vehicles. Mobile units will be piloted in the counties of Tirana ADISA website, the ADISA Mobile App, or the e-Albania online
and Shkodra as of September. Separating the FO interface with portal. In addition, ADISA has established a unique phone
the public from the BO operations was one of the biggest shifts number for citizens to obtain information on services. Before
in the reform. This move put an end to direct contact between people even leave their homes, they can now get preliminary
applicants and the officials processing the paperwork, cutting information about public services from that new national
opportunities for corruption and helping focus the work of the phone number.
BO staff on their core processing responsibilities.
While the new FO system gained momentum, reengineering
Queue management, welcoming premises where citizens are of the BOs of 10 key institutions began in January 2016 under
treated with respect, a complaint management system, and an ADISA-administered project. The mapping of targeted
simplified procedures in service windows are some of the services had started more generally soon after the inventory
standards at each ADISA Center. Centers are also equipped process in March 2015. It involved analyzing and remapping
with clear directions, parking facilities, waiting areas, chil- workflows from application time to the delivery of services,
dren’s playrooms, and ramps for people with disabilities. to save time and lower the administrative burden for citizens
and businesses. As a result, some 450 public services have
ADISA has created new standards for application forms. As a undergone a major analysis of the three main components:
result, 315 application forms for 35 institutions have been stan- procedures, legal, and IT.
dardized to ensure a unified approach to service delivery in all
state institutions. In addition, ADISA prepared user-friendly ser- In 2017, recognizing that innovation is the key pillar of pub-
vice passports for each administrative service to simplify and lic service transformation, ADISA established an Innovation
standardize information about them. The service information Lab – ADISALab. ADISALab is designed to provide capac-
passports ensure that citizens have a s­ tandardized reference ity building and good practices to promote continuous
to everything that is required to apply for a ­service, including improvement in service delivery, and to support the nec-
the documents that are needed, the fees that must be paid, essary change in the institutional and management culture
and the deadlines for filing. Standardized and easy-to-under- through set-up assistance, training, and mentoring. This
stand information is now available to the public for more than activity will enhance the sustainability of the reform and
915 public services, with the r­emainder under preparation. help ensure its longevity.
(Some ISC offerings are summarized in Table 3.1-1.)
The ADISA FO customer standards have contributed to
For the first time, citizens receive information in a well- BO implementation of uniform processing procedures.
structured and predictable manner. They can find instructions Separation of duties has meant that BO institutional staff can
through several means: the in-person service windows, the focus entirely on performing their processing responsibilities.

FIGURE 3.1-1.
ADISA Service Centers

Source: Agency for the Delivery of Integrated Services in Albania (ADISA), 2019.

70 Building Effective, Accountable And Inclusive Institutions In Europe And Central Asia
TABLE 3.1-1.
ADISA centers through the years

2016 2017 2018 2019

ISCs and colocations 2 5 6 14

Number of services offered 311 343 380 449

Number of information passports 420 497 892 1073

Number of application forms 98 115 296 333

Number of citizens served 196,996 480,176 514,259 812,570

The service delivery reform has reduced the possibilities for The functioning of ISCs and other service channels would
bribes to expedite procedures and cut through red tape, not be complete without rigorous performance monitoring
and standardization of processes has precluded the need and assessment to help identify ways to constantly improve
for such petty corruption. In the past, processing speed the activity of ISCs/service channels against objectives and
and transparency received the lowest ratings from citizens, targets. ADISA’s performance assessment of service channels
followed by fairness and appropriate office locations. Now, aims at improving public service delivery to citizens and
with the overhaul of the application processes at ADISA increasing the overall satisfaction of service users.
service windows, citizens are expressing high levels of
satisfaction. LESSONS LEARNED

In 2016 a Baseline National Survey found that 51 percent of Some important factors have contributed to the continued
citizens were satisfied or very satisfied with the services they progress in the citizen-centric service delivery reform in Albania:
received from all state institutions they had contacted during • Strong political will at the highest levels of the
the last 12 months. By 2018, the World Bank’s midterm assess- Government has been essential.
ment found that the share of similarly satisfied citizens had • A critical aspect of support was securing funding for
risen to 65 percent. the reform outside of the state budget. This included
an early pledge from the World Bank and the donor
The ADISA standardized services are on a par with those pool fund implemented by the GoA in partnership with
offered at bank or telecom windows. Citizens have indicated UNDP, with key contributions from the UN, the Italian
that the customer care at ADISA Centers is comparable to government, and Austria.
what they usually receive at a private company rather than a • The establishment of the legal framework provided the
public institution. ADISA has set improved standards of ser- grounding for the whole process.
vice delivery, ensuring equal access to public services to per- • Trying new approaches and using incubators to test
sons with disabilities in all the ISCs. new initiatives proved effective in refining the model
and building buy-in from relevant constituents,
Surveys conducted both before and after the reform pro- including citizens and public administration staff.
cess began have measured the level of citizen satisfaction • The governance structure and citizen review mecha-
with Government services. The more recent surveys aimed nisms have ensured that expansion occurs organically
to identify strengths and weaknesses; set further objectives and in line with a staged approach under the overall
for improving the quality of service delivery; measure citizen reform agenda.
satisfaction with information points, reception, accommoda-
tion, the application process, and the BOs; and obtain data Resistance to change from within the administration was a
on improvements achieved by ADISA in all ISCs. The survey’ test from the start, as some Government agencies and offices
results show greater citizen satisfaction since ADISA took perceived their authority being questioned or diminished. To
over the administration of the FOs. drive home the importance of the changes in their day-to-day

Chapter 3 Governance of Service Delivery 71

work, civil servants were reminded from the start that they too by other Government bodies providing over-the-counter
were citizens who needed the same services as everyone else. services. ADISA needs the support of the Government to
They were asked to put themselves in the customers’ shoes. It increase its oversight role to ensure that other Government
was important to identify partners in the administration who institutions comply with the public service quality require-
would help make sure that the reform was being understood ments and standards.
and accepted.
ADISA and NAIS should pursue a quality management system
The transformational shifts in the way the state serves its citi- policy by gradually aligning the ISCs’ organization, processes,
zens will continue over the coming years as it is embedded in the and documents, with the principles and requirements of ISO
long-term policy on the delivery of citizen-centric public services. 9001- 2015. ISO 9001 is a worldwide recognized system, which
sets quality management standards to be implemented by
Now that ADISA has strengthened capacities and achieved service delivery organizations that wish to acquire a label of
tangible results, it needs to establish and implement a qual- excellence.
ity management framework in all the ISCs and invest efforts
in ensuring that quality assurance tools are also introduced

City of Tirana. Albania. Photo: © Flore de Préneuf / World Bank.

72 Building Effective, Accountable And Inclusive Institutions In Europe And Central Asia
CASE STUDY 3.2

Azerbaijan: e-Courts
NAIL HUSEYNOV, MONITORING AND EVALUATION MANAGER, AZERBAIJAN JUDICIAL SERVICES AND SMART
INFRASTRUCTURE, MINISTRY OF JUSTICE

CONTEXT finds that courts that are not well managed often cite a lack
of resources as the main reason for delays in reaching court
Azerbaijan is vigorously pursuing a strategy to meet high level decisions. Dakolias concludes that if the courts are well man-
of democratization, protect human rights, uphold the rule of aged, an increase in case inflow may even result in cases being
law, and develop a market economy, with the intention of rais- resolved faster. Dimitrova-Grajzl et al. (2012)5 found that in
ing these areas to European standards. Azerbaijan’s admis- Slovenian local courts there is little correlation between the
sion to the Council of Europe in 2001 has brought the nation number of cases resolved and an increase in the number of
closer to European democratic values, which stipulated large- serving judges. Mitsopoulos and Pelagidis (2007)6 report the
scale reforms in the judicial system. same result for courts in Greece. On the financial side, the
OECD reported in 20137 that there is no apparent link between
The courts faced a dramatic fourfold increase in civil and court budgets and the length of court proceedings. Therefore,
criminal case inflow (from 40,000 cases in 2000 to 192,000 adding resources does not necessarily resolve the problem; in
in 2013) that was largely due to rapid and intense economic fact, it may even compound it.
development and the comprehensive mechanisms available
to the public and Government through judicial remedies. Another incomplete response has been the strong global
The Government of Azerbaijan made a logical response to tendency to introduce information and communication
the increase, increasing the number of courts by 15 percent, technologies (ICT) in the courts to improve system efficiency.
doubling the number of judges, and increasing court staff However, in 2013 the OECD presented findings based on its
by 75 percent. These measures had a short-term effect, cross-country international experience that provided a rather
but it soon became obvious that a structured and strategic weak correlation (r=0.18) between the productivity of judges
approach was needed to tackle demand issues, and to insti- and the ICT justice budget. In other words, purely technical
tute performance management in courts to address the effi- introduction of ICT is not an adequate approach to achieve
ciency and effectiveness of court services and operations. increased productivity. Nevertheless, a sound judicial information
system, with a Court Case Management System (CMS) as its core
Increasing the number of judges was a very typical system feature, needs to be recognized as a necessary precondition –
response to address a large backlog of cases, an increase in a cornerstone upon which any and all managerial tools in the
case inflow, or long court proceedings. Although insufficient judiciary can build to enhance efficiency and effectiveness.
resources may be a major cause of long court proceed-
ings, a number of studies have found that employing more Interestingly, the same OECD report (2013) found a strong
judges has little impact on the length of court proceedings. positive correlation (r=0.57) between the productivity of
4
In a study of the judiciary of 11 countries, Dakolias (1999) judges, defined as number of cases resolved per judge, and

4 Dakolias, M. (1999). Court performance around the world: a comparative perspective. The World Bank
5 Dimitrova-Grajzl, V., Grajzl, P., Zajc, K., & Sustersic, J. (2012). Judicial incentives and performance at lower courts: Evidence from Slovenian judge-level
data. Review of Law & Economics, 8(1), 215-252
6 Mitsopoulos, M., & Pelagidis, T. (2007). Does staffing affect the time to dispose cases in Greek courts?. International Review of Law and Economics, 27(2),
219-244
7 Palumbo, G., Giupponi, G., Nunziata, L., & Mora-Sanguinetti, J. S. (2013). Judicial performance and its determinants.

Chapter 3 Governance of Service Delivery 73

an increase in the production of statistics.8 In other words, endless debates without the ability to make diagnostics and
there is much wisdom in the saying “You can’t manage what discover the root cause(s) of a problem. They would not be
you don’t measure” (which has been attributed to both able to identify the courts that need support, or those that
W. Edwards Deming and Peter Drucker), and it helps explain are overfunded and those with excessive human resources.
why the recent explosion in digital data in the judiciary is Judicial administrators would not be able to perform their
so important. Because of digital data, court presidents (and core functions and competences adequately and fairly (such
judges) can measure, and hence know, profoundly more as allocation of court budgets, allocation of judges, and
about their courts, and directly translate that knowledge into evaluation and promotion of judges).
improved decision-making and performance.
Following the research on international best practices, a set of
IMPLEMENTED ACTIONS 12 KPIs was established, 10 of which were obtained from the
existing CMS (see Table 3.2-1).
But the question is, what to measure, and how? How to estab-
lish a performance management system in the courts? Various In addition to introducing these KPIs and associated formulas
international examples of performance management systems for calculations, a Court Pulse was developed to monitor the
in the judiciary—those in Austria, Bosnia and Herzegovina, trends in each of the KPIs and report them at the level of court
Slovenia, Singapore, Australia, and the United Arab Emirates— president (see Figure 3.2-1). Much as the clinical measurement
were assessed and analyzed to find the best solution that of pulse rate, temperature, respiration rate, and blood pres-
could be applicable to courts in Azerbaijan. A few striking sure indicates the state of a patient’s vital body functions, the
findings follow: Court Pulse provides unprecedented insight into the status of
• Performance management in courts must cover the core functions of the court and judicial functions by deliv-
three dimensions: (a) time, (b) quality, and (c) cost ering data on individual KPIs on a monthly basis and providing
efficiency/productivity. alerts for corrective action if the target values for the KPIs are
• A formalized set of key performance indicators (KPIs) not met.
and corresponding target values covering the three
dimensions must be introduced at all decision-making Court Pulse provides three types of insight: descriptive, which
levels. reports on past values; current status, which presents current
• Existing ICT systems need to be adjusted to incorpo- KPI values; and deviation, which shows how far the value of
rate the performance management system that is rep- the KPI is from the targeted value.
resented by the set of KPIs and their target values. a. Court Pulse provides a visual measurement of the KPIs,
• While simple descriptive statistics are sufficient to comparing the actual and target values and reflect-
define KPIs for time and quality, more robust and ing their status through traffic-light colors: green for
sophisticated statistical methods are needed to intro- acceptable and red to warn that a target was not
duce KPIs for cost efficiency/ productivity. reached.
b. Deviation is presented as distance in percent of actual
In essence, sound evidence-based policy- and decision- from target.
making in the area of judicial administration would be c. The history (trend) is presented as a line or a bar chart.
impossible without addressing all three dimensions of the It is up to the user to decide the granularity of the data
performance management system. Without addressing the displayed.
cost efficiency/productivity dimension, judicial administrators d. There are three banding types: Increasing is better,
would only describe symptoms of a problem (backlogs, Decreasing is better, and Closer is better. Each KPI
excessive length of court proceedings), entering into should be classified in one of the three banding types.

8 Judicial Performance and its Determinants - ECO/CPE/WP1(2013)4. The types of statistics examined are cases by case type, type of plaintiff/defendant, and
monetary value of the claim; clearance rates by case type; pending cases and backlogs by case type; average length of proceedings by case type and stage
of proceeding; average number of hearings by case type; average number and length of adjournments by case type; resolved cases by method of disposition;
percentage of appeals; and judges’ workload.

74 Building Effective, Accountable And Inclusive Institutions In Europe And Central Asia
TABLE 3.2-1.
Court Key Performance Indicators (KPIs)

COURT KEY PERFORMANCE INDICATORS (KPIS) DATA SOURCE

Time

1. Case clearance rate CMS

2. Age of pending cases (% of open cases within timeframes) CMS

3. On-time case processing (% of cases closed within timeframes) CMS

4. Rate of postponed court hearings CMS

5. Rate of cases closed in two court sittings or fewer CMS

Quality

6. Rate of successfully appealed cases CMS

7. Rate of pending to disposed cases CMS

8. Satisfaction of court users Periodic survey

9. Hours of permanent education of judges Human Resource Module

10. Number of total and successful complaints and of challenges to a judge Judicial-Legal Council,CMS

Cost efficiency / productivity

11. Cost per case (mathematical modeling) CMS - All courts of same
instance

12. Human resources per case (mathematical modeling) CMS - All courts of same
instance

e. Status is calculated for the last (latest) value and Court Pulse eliminated black-and-white reports in favor of
target. dynamic, colorful, complex visuals with easily discernible prob-
f. Deviation can be calculated as percentage or as rela- lem areas and successful operations. CMSs previously pro-
tive or absolute number. duced cumbersome and overly detailed reports; now, reports
are insight providers, digesting information and giving court
RESULTS presidents just-in-time information for operational and stra-
tegic decision-making. This strategic change in focus means
Stakeholders had to fundamentally rethink how the analy- that there is a new role for analytics in courts. Consistent with
sis of data can create value for themselves and other parties the increased speed of data processing and analysis, Court
in the proceedings. Classic annual reports are too detailed, Pulse dashboards are embedded in day-to-day operational
showing information that is already obsolete and thereby pre- and decision-making processes, dramatically increasing their
venting any action to identify the cause of the problem and speed and impact, and making it harder for decision-makers
mitigate the risks in a proactive and timely way. Therefore, (court president and judges) to avoid using analytics – which
the decision was made to introduce and implement the Court is usually a good thing, because decisions are now based on
Pulse system, which is based on international best practices. evidence, not on historical precedents.

Chapter 3 Governance of Service Delivery 75

FIGURE 3.2-1.
Court Pulse Dashboard with Key Perfomance Indicators (KPI’s)

FIGURES 3.2-2.
Data Analysis of Judges’ caseload using Court Pulse

76 Building Effective, Accountable And Inclusive Institutions In Europe And Central Asia
FIGURE 3.2-3.
Court Pulse Dashboard

Courts can now recognize a host of related challenges and that need attention. This has produced a management revolu-
proactively respond with new capabilities, strategies, and tion that dramatically improves both performance and strategic
priorities. At obligatory monthly meetings court presidents management, increasing the proactive roles of court president
and judges use the Court Pulse dashboard to analyze KPIs as strategic leader and of judges as effective and efficient lead-
and deviations from the target values, discover the causes ers in their courtrooms. Thus the ability to see what was pre-
of deviations, and agree on corrective actions. For example, viously invisible improved operations, court client experience,
if time-related KPIs begin to deteriorate on the Court Pulse and strategy. The power of Court Pulse is being used to support
dashboard, the court president uses the drill-down function the common goals of improved quality, shorter time for case
to examine which judges and which cases are trailing with the processing, and improved cost efficiency/productivity.
case processing. The president then discusses the causes with
heads of departments, and together they agree on corrective Another important corollary effect relates to how data are
actions (such as providing support in dealing with difficult organized to service Court Pulse. Court Pulse does not limit
cases, additional training, new court expert, etc.). In this way, the ability of Ministries of Justice or of academics, social sci-
deviations from set targets are tackled jointly, proactively, entists, and legal experts to use the monumental amount
transparently, and fairly. of data in research on various subjects—for example, on the
quality and fairness of services to disadvantaged groups or
With Court Pulse, the court redesigned its core processes detailed evaluation studies for the whole system. This is possi-
and adjusted them to data-driven strategies. The Court Pulse ble because data is warehoused in a way that allows distilling
dashboard gives a panoramic view of the court’s operations “big data” into actionable specific information. Thus, even if
and environment, while drill down functions allow for a more some of the data are not used for the dashboard, other data—
granular view at the level of the department or individual judge. such as age, gender, region of provenance, type of case—can
Ultimately, using the simple visual interface of Court Pulse to be extracted and correlated for strategic sector wide investi-
deliver complex statistical models makes invisible factors vis- gations (for example, types of crimes most prevalent among
ible to decision-makers and facilitates the discovery of areas people aged 16-18, disaggregated by gender and region).

Chapter 3 Governance of Service Delivery 77

LESSONS LEARNED
Even advanced court administrations of countries that do not
We believe that this scheme is extremely important and could use a dashboard could benefit from Court Pulse, which would
be used by judicial administrators in other countries. This further streamline the reporting functions of the performance
solution can significantly improve and simplify performance management system. It can also give countries a way to com-
management, e-decision, and e-policymaking in the judiciary. bine data science and ICT, resulting in a revolution in court
Court Pulse represents the top of the iceberg of the com- management and significantly improved service to citizens.
plex ICT system. The scientifically produced and embedded
quantitative performance management system covers the Also, as a part of any change, all those who will be affected
dimensions of time, quality, and cost efficiency/productivity, should know what the change will mean for them, and how
introducing a mature and standardized decision-making pro- they can benefit. To achieve the best results, any system
cess in the courts. changes should be accompanied with sufficient informational
support and trainings.

New courthouses in Azerbaijan financed by the World Bank aim to make the judiciary process faster and more efficient. Photo: © Allison Kwesell / World Bank.

78 Building Effective, Accountable And Inclusive Institutions In Europe And Central Asia
RESULTS BRIEF 3.1

Italy: Innovative Framework Agreements

in Centralized Procurement
IMPLEMENTED ACTIONS
A contribution by authors of the World Bank Governance
Practice, with case details provided by Marco Sparro, Head of In one concrete example of the new concept, Consip used
Economic Analysis and Sustainable Development Unit, Consip the FA method to establish contracts for computer desktop
S.p.A., Italy ­outsourcing. The computer “desktop” consisted of integrated
­management of the workstation, including software licens-
CONTEXT ing, hardware rental, standard maintenance, and service via
a ­service desk.
Consip, the Italian central purchasing body (CPB), is a public
company that is wholly owned by the Ministry of Economy Because the procuring entities were large public entities with
and Finance. Its mission is to foster efficient and transparent very heterogeneous needs, the eventual awards called for
use of public resources by providing public entities with tools customization to take place at the “call-off” stage – the pro-
and skills that will enable them to make public purchases eas- curing entities made the four contract awardees compete for
ily and efficiently. the business by adapting their tenders in quality, price, and
additional hardware services.
This case illustrates how Consip evolved procurement methods
from its “classic” model of Framework Contracts (FCs), which As a result of this procurement (see Figure 3.3-2), one of
are single-award procurements, to a new more flexible the traditional goals (under the FC method) of cost savings
concept of Framework Agreements (FAs), which are multiple- was achieved. But in addition, the procuring entities got
award procurements. FAs, part of the evolution of centralized a higher level of product customization than they might
procurement, provided in Italy such benefits as greater impact have under the traditional FC method, and the number
on the market, more involvement of small and medium of awardees was increased. The benefits did not come
enterprises (SMEs), and sustainability (see Figure 3.3-1). without some effort, however: the customization process
was seen to be more cumbersome and took longer, and it
The figure illustrates (from left to right) how earlier goals like also required the procuring entities to have a higher skill
cost savings – which are still very valid – have been augmented level to adapt their tenders to achieve the desired level of
by additional goals such as a conscious effort to attract more customization.
SMEs to the bidding process. And increasingly, sustainability
is recognized as an important goal.

FIGURE 3.3-1.
The evolving role of centralized procurement

Traditional Recent

Bargaining power • Impact on the

• Saving • E-procurement market, SMEs
Specialized skills • Transperency • Quality • Sustainability
• Streamlined process • Efficient solutions
e-proc • Innovation

Chapter 3 Governance of Service Delivery 79

FIGURE 3.3-2. FIGURE 3.3-3.
Summary results of FA procurement Spending in Italy through FCs and FAs

4,500
• Reduced cost for desktop management
4,000
• Increased flexibility and customization compared
3,500
with FCs
3,000
• Higher number of awardees useful on such an
2,500
innovative market
2,000
1,500
• Cumbersome process for specific contracts award, 2012 2013 2014 2015 2016 2017 2017
high skills, long time and effort required to FCs FAs
procuring entities

RESULTS LESSONS LEARNED

The Italian experience highlights that centralized procurement A CPB can make the most of specialized skills, but its impact is
is powerful but needs to be handled with care. This experi- limited without skilled customers. Therefore, it is important to
ence showed that there is no singe optimal solution that fits provide buyers with guidance and training and involve them
all circumstances. The best (centralized) procurement design in decision-making. In the example, buyers needed skill and
depends on decisions about the goals and desired outcomes a lot of effort to award the contract. Educating and working
of the procurement. with the buyers will take additional time that must be factored
• What is the goal? Is it cost savings, high quality, into the procurement plan.
involvement of SMEs, innovation? Is it desirable to have
a multiple-award structure? Overall, the CPB in Italy is on the right track. At Consip the
• What are the market conditions? Both the demand value of procurements conducted through FA methods has
and supply-side matter! In the example, demand came increased each year, particularly in 2017 and 2018. FAs are
from large public entities with highly heterogeneous now a significant share of the nearly €4.5 billion value of
needs, and supply came from about 10 national and recent public procurements in Italy.
multinational firms, working with local partners.

80 Building Effective, Accountable And Inclusive Institutions In Europe And Central Asia
Palazzo Montecitoro, seat of the Italian Chamber of Deputies, Rome, Italy.
Photo: © iStock/YingYang
Rehabilitation of the Intumak Dam on the Nura River, Kazakhstan.
Photo: © Shynar Jetpissova / World Bank
CHAPTER 4

Public-Private
Collaboration and
Economic Governance
Natalia Manuilova Ian Halvdan Ross Hawkesworth
Senior Financial Management Specialist Senior Governance Specialist
 Economy or state asset managers and operators must ensure

A
that the decision-making process works in a holistic and coor-
dinated manner, moving toward the same objective – effec-
chieving the Sustainable Development Goals tive, efficient, and transparent performance of publicly owned
(SDGs) will require large increases in social and assets and better service delivery for users.
economic infrastructure, which the IMF estimates
at 4-15 percent of GDP by 2030. The World Bank’s “Beyond Despite significant reforms that have reduced the state’s role
1
the Gap” publication also refers to the need for combining in European economies over the past decades, in the coun-
investment in infrastructure with governance improvements tries of Europe and Central Asia (ECA) the state continues to
and the use of technology to build the needed sustainable play an important and often dominant role in economic devel-
infrastructure at a lower cost. Few countries have sufficient opment and people’s lives, especially in utilities, health, trans-
public resources to close the social and economic infrastruc- portation, finance, and natural resources. Many countries have
ture gap. Therefore, it is prudent for them to galvanize pri- been implementing ambitious reforms to reduce the state
vate financing and know-how by building an effective and footprint in their economies, improve the efficiency of SOEs,
fair public-private interface that can enable financing, conces- and crowd in private capital to narrow the infrastructure invest-
sions, public-private partnerships (PPPs), and so on, as well ment gap, but SOEs remain significant according to many
as strengthen state-owned enterprises’ (SOEs’) governance, metrics, including their contribution to GDP, share of overall
operation, and access to finance. employment, and share of total investments (Figure 4-1).

It is becoming increasingly clear across the ECA region, and In ECA, the state continues to provide the population with
around the world, that to ensure sustainable growth, the essential public services that would not be available from pri-
public and private sectors must leverage their key strengths vate providers. The rationale for SOEs to provide such public
and acknowledge their interdependence. A ­
productive goods and services relates mostly to the presumed lack of a
public-private interface is one that achieves ­
­ efficient, functioning market for these services, advantages of scale,
­equitable economic growth through the optimal use of and information asymmetry that would undermine users’
­private sector strengths (capital, expertise), public sector ability to hold providers accountable. However, poor service
tools (public interest focus, regulation, public spending), delivery and SOEs’ failure to provide effective infrastructure
and civil society influence (independent, people-centric, are cited in surveys around the world as major constraints to
agenda setting). investment and economic growth. In addition, poor service
delivery tends to affect poor people disproportionately, as
Governance affects results. Countries need reforms to households with sufficient means can turn to alternative, pri-
enable effective cooperation between the public and vate sources—for instance, by acquiring their own generators
private sectors—reforms such as revisions to the legislative for power, using private schooling, buying bottled drinking
frameworks that create and foster an operating environment water.
that is conducive to effective public-private collaboration,
with fair and transparent distribution of costs and benefits. It is often suggested that the private sector has intrinsic
advantages over the public sector in certain areas, largely
While there are issues particular to each sector of the econ- because of its profit-driven incentives and its ability to tap
omy, the fundamental questions of the role of the public and market forces for innovation, leverage, and scale. At the
private actors are to a great extent cross-cutting, and they same time, governments need to ensure that public services
require a whole-of-government approach. They often, but not are appropriately offered to citizens in an equitable manner.
always, center on decisions about asset creation, operation, Governments safeguard against market failures and must
or divestiture. Thus central ministries such as Finance and ensure inclusiveness, which often means subsidizing certain

1 “Beyond the Gap: How countries can afford the infrastructure they need while protecting the planet.” World Bank, 2019. https://openknowledge.worldbank​
.org/handle/10986/31291

84 Building Effective, Accountable, and Inclusive Institutions In Europe And Central Asia
FIGURE 4-1.
Nonfinancial State-Owned Enterprises (SOEs) per million population

Source: Reassessing the Role of State-Owned Enterprises in Central, Eastern, and Southeastern Europe. IMF, 2019.

services to make them affordable to the vulnerable. This context has been shown to be worthwhile on a large scale
suggests that public-private collaboration could be a path to when the governance has been right, as the Turkey case
achieve public goals with private-sector efficiency and effec- study in this chapter attests.
tiveness. It should be noted, however, that private sector
involvement is not a panacea; there have been mixed experi- A government should therefore carefully assess what role
ences from sector to sector and from country to ­country.2 At the public and private sectors should have with respect to
the same time, the use of private finance in a development delivering public services in light of its strategic development

2 Eduardo Engel, Ronald D. Fischer, and Alexander Galetovic, “When and How to Use Public-Private Partnerships in Infrastructure: Lessons From the
International Experience,” NBER Working Paper No. 26766/2020; Burger, P. and Hawkesworth, I., “How To Attain Value for Money: Comparing PPP and
Traditional Infrastructure Public Procurement,” OECD Journal on Budgeting, Volume 2011/1.

Chapter 4 Public-Private Collaboration and Economic Governance 85

direction and the national context. To do this, the government process and sequencing it properly are the most critical
needs to define the state’s ownership role in in various sectors, steps to reduce state capture and minimize corrupt practices.
while balancing legitimate public interests, the country’s Engaging with political parties and with economic and civil
long-term strategic interests, the current efficiency and society actors in a complex reform process may provide the
effectiveness of SOEs, and SOEs’ social functions. Finding the necessary checks and balances to achieve the reform objec-
right balance for an effective public-private interface entails tives. Similarly, good experiences, challenges, and lessons
addressing two major issues: learned from around the region may provide useful guid-
• Ensuring that when a private party participates in ance and enable reformers to avoid common mistakes. A key
­sectors that were previously fully controlled by the issue in all countries is ensuring that public sector actors with
state, it does so in a productive, fair, and transparent appropriate capacity – skills, know-how, and resources – are
manner; and available to steer the reform and interact with highly experi-
• Creating the environment and mechanisms for SOEs enced private actors.
to become profitable, effective, and accountable to the
government and the public. The key pillars of such reforms are legislation, equal
treatment, governance and oversight, transparency and
­
A transparent, capacitated, and inclusive reform process can disclosure, public consultation, and capacity building
help achieve the reform objectives. Structuring the reform (see Figure 4-2).

FIGURE 4-2.
Key reform elements in the public-private interface

• Establishing a cohesive • Ensuring equal treatment • Implementing good

legislative framework for public and private corporate governance
allowing private sector entities implementing practices and
participation in public public services and strengthening financial
services and infrastructure projects oversight over SOEs
infrastructure in a
transparent and fair way

Equal Governance
Legislation Treatment and Oversight

• Enforcing a high degree • Sustaining an effective • Building capacity in the

of transparency and communication campaign government and
disclosure from both, with the public via CSOs implementing agencies,
public and private parties and media learning from peer
engaged in public countries' lessons, and
services and sharing good practices
infrastructure

Transparency Public Building

and Disclosure consultation Capacity

86 Building Effective, Accountable, and Inclusive Institutions In Europe And Central Asia
The Vital Role of Governance

Good governance is a necessary condition to ensure the Turkey: the Turkish case study highlights that careful project
provision of accessible public services and infrastructure. selection based on a clear economic justification is central to
Data show that better governance results in more efficient delivering results.
spending and better growth outcomes at the national and
subnational levels of government.3 Several studies4 estimate SOEs play a key role in the economy of many ECA coun-
that improvement in infrastructure management could lead tries, so improving their governance and performance is high
to substantial efficiency enhancements and enhanced infra- on the policy agenda. Key objectives in this reform process
structure productivity over the life of assets. Conversely, should include (a) improving service delivery to citizens and
poor governance is a major reason why infrastructure proj- local businesses; (b) enhancing the country’s financial and
ects fail to meet their timeframe, budget, and service delivery ­fiscal sustainability; (c) ensuring a level playing field in domes-
objectives. Unfortunately, countries that need infrastructure tic markets so the private sector can compete and develop;
investments the most are also those in which the governance (d) maximizing finance for development; (e) reducing the
of infrastructure frameworks is less effective. This challenge risk of corruption, which is often associated with weak cor-
demands a strengthening of the entire institutional architec- porate governance; and (f) increasing transparency about
ture of government to deliver the right strategic infrastruc- the role and resources of SOEs. Poor governance and low
ture on time, within budget, and in a manner that commands accountability of SOEs limit private and public investment in
the confidence of all stakeholders. It raises questions such infrastructure projects and breed inefficiency. The Lithuania
as how the public sector should prioritize, plan, budget, and Uzbekistan case studies in this chapter explain how two
assess, deliver, and regulate infrastructure. One key and often countries carried out SOE reforms.
neglected dimension to this is to develop a coherent strategy
with respect to how to use SOEs and the private sector to Weak corporate governance—such as an overall lack of
supplement traditional public works. 5
transparency and accountability, or insufficient separation of
ownership, policymaking, and regulatory functions—creates
An infrastructure governance gap, rather than a financing room for increased state capture and corruption in SOEs.
gap, is hindering increased private sector participation in The financial relations between SOEs and the state are
infrastructure. More specifically, several risks and challenges often not fully transparent, thus facilitating the extraction
threaten the creation of legitimate, effective, and efficient of rents to the benefit of insiders and political groups.
infrastructure assets. Most of these risks can be mitigated Types of ­corruption that are particularly common in SOEs
by implementing good governance practices—a message include (a) corruption related to the procurement of infra-
that has been coming through many research papers and structure or services, (b) the misappropriation of company
through consultations and discussions with private sector assets, (c) undue benefits given to individuals in leadership
lenders, construction companies, sovereign wealth funds, ­positions, and (d) employment of relatives or politically affil-
institutional investors, civil society groups, and government iated individuals.6
officials, including during the governance conference orga-
nized by the World Bank in 2019. One example of a success- SOE performance in delivering services has several
ful PPP program that has delivered good results is found in dimensions. The first aspect of performance is access to

3 OECD (2013), Investing Together: Working Effectively Across Levels of Government, OECD Publishing, Paris; Abdul d Abiad et al. (eds) (2015),
The Macroeconomic Effects of Public Investment: Evidence from Advanced Economies, IMF Working Paper No. 15/95.
4 IMF (2015), Making Public Investment More Efficient, IMF Policy Paper; A. Rajaram et al (eds.) (2014), “The Power of Public Investment Management:
Transforming Resources into Assets for Growth,” Directions in Development, Washington, DC: World Bank.
5 Hawkesworth, I. “Policy Guidance for Public Governance of Infrastructure” in Helmut K. Anheier (Ed.) The Governance Report. (2016). Oxford University Press.
6 OECD (2018) Ownership and Governance of State-Owned Enterprises: A Compendium of National Practices.

Chapter 4 Public-Private Collaboration and Economic Governance 87

services, which determines whether or not the services— Poor service delivery results from numerous factors. The major
for example, connectivity to the water network or the factors are poor governance and ineffective management, but
electricity grid, access to basic bank accounts or public other causes can include weak regulatory frameworks, inad-
transportation—are available in certain parts of a country equate oversight, outdated technological capabilities due to
or to certain populations. A second aspect is the reliability insufficient investment in human and physical capital, and
of service provision. In many countries, most electricity is so on. State support to SOEs through the provision of inputs
generated, transported, and distributed by an SOE. Many of on favorable terms (for example, below-market prices) or to
these SOEs struggle to provide electricity continuously, and meet their liabilities (including through bailouts) often con-
blackouts are frequent. In the water sector, in extreme cases, tributes to inefficient management. Achieving higher levels of
poor SOE performance can lead to water shortages. A third economic activity and delivering good-quality public services
aspect is the quality of the goods and services delivered— requires substantial improvements in the productivity and
for example, the speed of Internet connections provided by performance of existing SOEs.
a state-owned telecommunications operator. A final aspect
is the affordability of the services for customers when the The SOE Governance Index developed by the IMF7
SOE operates as a monopoly, as in the case of the cost of demonstrates that there is significant room for improvement in
public transportation. implementing better governance practices among ECA SOEs.
8

FIGURE 4-3.
Composite SOE Governance Index

EST
LVA
SVN
KOS
LTU
MDA
ALB
ROU
BGR
MKD
SVK
HUN
POL
MNE
SRB
CZE
HRV
UKR
BIH
BLR

0 2 4 6 8 10 12 14
Ownership policy Overaight framework Fiscal links

Source: Reassessing the Role of State-Owned Enterprises in Central, Eastern,and Southeastern Europe (IMF, 2019).
Note: Score is out of a maximum of 16.5. Higher values denote closer adherence to WB toolkit,8 OECD guidelines.

7 https://www.imf.org/~/media/Files/Publications/DP/2019/English/RRSOECESEEEA.ashx
8 http://documents.worldbank.org/curated/en/228331468169750340/Corporate-governance-of-state-owned-enterprises-a-toolkit

88 Building Effective, Accountable, and Inclusive Institutions In Europe And Central Asia
The index compares policies in place with OECD guidelines.9 As public or private, domestic or foreign, face the same set of
might be expected, the EU member states have higher scores rules and policies. To achieve this, governments’ ownership
than non-EU members, because of their stronger institutional of SOEs and their engagement in SOEs’ operational
development, higher transparency requirements related to ­activities, i­nfluencing price-setting or other involvement
budgetary support, and a more mature degree of corporate in the marketplace, in fact or in law, must not confer an
governance development. undue competitive advantage on any actual or potential
market participant. Competitive neutrality solutions
Reforms aimed at improving governance and a­ ttracting need to complement the enforcement of competition
private finance into the delivery of public services laws, as well as investment, trade, and innovation policies
­(including infrastructure) must be based on the principle of that ensure a level playing field for SOEs and the private
­competitive neutrality—that is, that all companies, whether sector.10

Key Lessons for Managing Public-Private Collaboration

To scale up investment in critical public services and infrastruc- money, and integrity. To be effective owners, governments
ture sectors, Governments should consider the entire toolbox must minimize the risk of failure by properly preparing and
of the public-private interface. The selection of collaborators planning investment arrangements, assessing risks and bene-
should be based on clearly formulated policies and value-for- fits, and searching for optimal solutions.
money principles, be affordable to users and to the public
purse in a sustainable manner, and be subject to cost-benefit It is critical that governments limit their interventions to
analysis. Private market operations, SOE market participation, those sectors where the government’s presence is neces-
concessions, PPPs, and public investments are all instruments sary to achieve the country’s strategic priorities or address
in a large toolbox for effective collaboration between the pub- market failures, while establishing a level playing field for
lic and private sectors. (The Ireland case study in this chapter keen market competition in all other sectors. Entities that
describes a program that is heavily dependent on PPPs.) remain in state ownership should be required to operate on
market terms, adhere to established corporate governance
A proper public-private interface allows the public and pri- practices, and apply appropriate accountability rules. In
vate sectors to work in tandem, addressing significant gaps such an environment SOEs should be held to a high level
in infrastructure, building effective mechanisms for service of transparency and accountability and should be allowed
delivery, and right-sizing the state footprint in the country. to operate as independently as possible on a commercial
Building frameworks that allow for such an effective collab- basis without political interference. Proper corporate gover-
oration between the state and private sector requires proper nance practices require that SOEs have professional boards
legislation, capacity, and trust between the actors. of directors that work to build strong companies with moti-
vated management, better performance, proper risk man-
Effectiveness, transparency, and accountability must be agement, sound internal control, and improved economic
central to the way the public-private interface operates. accountability.
Any mechanism selected – including PPPs and investments
via SOEs – should be properly managed, allowing the gov- One way to approach the public-private interface is for gov-
ernment to act as an active and professional owners of the ernments to holistically assess the health of the current state
country’s resources, and should ensure affordability, value for of play. A point of departure for such work could be the World

9 https://www.oecd-ilibrary.org/governance/oecd-guidelines-on-corporate-governance-of-state-owned-enterprises-2015_9789264244160-en
10 OECD (2012). Competitive Neutrality Maintaining a Level Playing Field Between Public and Private Business.

Chapter 4 Public-Private Collaboration and Economic Governance 89

 BOX 4-1.
Infrastructure Governance Principles for Maximizing Finance for Development (MFD)

Principle 1: Develop a strategic plan. Principle 6: State-owned enterprises should operate on

market terms and use private sector finance and partici-
Principle 2: Ensure that projects are prioritized, afford- pation to fulfill their mandate most efficiently.
able, and delivered in an efficient way, balancing financial
and nonfinancial considerations. Principle 7: Ensure a high degree of transparency across
the investment cycle.
Principle 3: Design a process that agnostically guides
the decision on how to provide the infrastructure service, Principle 8: Direct public participation should be sought
and the role of the private sector, prioritizing value for on a proportionate basis at all key stages of the invest-
money. ment cycle.

Principle 4: The government should ensure that the infra- Principle 9: Measures to promote social, gender, and envi-
structure services are delivered. ronmental sustainability should be implemented across
the investment cycle.
Principle 5: Regulators of infrastructure should ensure
that private operators maximize efficient operation and Principle 10: Mechanisms to protect and promote integ-
receive a reasonable return on investment, and that public rity should be incorporated comprehensively across the
welfare is maximized in the long term. investment cycle.

Bank’s Infrastructure Governance for Maximizing Finance for beneficiaries may be less vocal than rent-seeking special
Development Framework (2019), which aims at building an interest groups. Experience also shows that this is an area
enabling environment to foster an effective public-private where substantial cross-fertilization from other countries is
interface (see Box 4-1). of benefit. While one size doesn’t fit all, lessons can surely
be learned, and mistakes avoided. In this context regional
Working to implement these principles requires signifi- policy dialogues, the structured sharing of information and the
cant political commitment, administrative capacity, and creation of communities of practice of like-minded reformers
patience. While the costs of reform are often easily iden- will be important and an obvious task for national, regional
tified, the benefits usually take longer, and the public and multilateral development partners to commit to.

90 Building Effective, Accountable, and Inclusive Institutions In Europe And Central Asia
CASE STUDY 4.1

Turkey: PPP Program, Collaboration with

the Private Sector, Impact on Service
Delivery and its Governance Structures
SEDEF YAVUZ-NOYAN, HEAD OF PUBLIC-PRIVATE PARTNERSHIP DEPARTMENT, PRESIDENCY OF STRATEGY AND
BUDGET, PRESIDENCY OF REPUBLIC OF TURKEY

CONTEXT
which widened the scope to include many sectors: the Law
Turkey’s public-private partnerships (PPPs) date back to the for Implementation of Investments and Services by the Build
Ottoman Empire. A cable car funicular, which was in operation Operate-Transfer Model. The aim of the BOT law was to real-
in 1875 and is still in operation in İstanbul, is a good example ize investments and services with high investment value and
of PPPs in the Ottoman Empire. The first law on PPPs dates high technology through the PPP model. In 1994, another law,
to 1910.11 Contemporary Turkey’s PPP adventure began in the the Privatization Law, was enacted, and it included the trans-
1980s as Turkey switched to a totally liberal economy. Now fer-of-operating-rights (TOR) model. Thus, in the 1980s and
part of the global game, Turkey aimed to make a leap in terms 1990s many energy, airport, port, marina, and motorway facil-
of industrialization for exports, and it focused its develop-
12
ities projects were undertaken using BOT and TOR. Turkey’s
ment plans accordingly. More industrialization and export expectations from PPPs were to mobilize private funds, ben-
necessitated investment in infrastructure, especially energy efit from the private sector’s expertise and efficiency, develop
infrastructure. To meet the increasing demand for energy, innovative solutions, improve cost-effectiveness in providing
power plants were needed in a short time, and the country public services and investments, provide a high standard of
had a limited budget. PPPs were seen as the solution for services, and increase people’s access to services.
this important infrastructure gap, and the first law for PPPs
in contemporary Turkey—the Law on Authorization of Other In the 2000s, Turkey began to use PPPs for mega-projects,
Institutions than Turkish Electricity Authority for Electricity especially for transportation projects using BOT and for health
Production, Connection, Distribution and Trading—was pub- campuses using the build-lease-transfer (BLT) model. Most
lished in 1984 for energy investments. This law allowed of the mega-transportation projects aimed to make Turkey
energy infrastructure projects to be implemented through the a regional hub and connect the country’s important produc-
build-operate-transfer (BOT) model. tion and consumption centers, which together accounted
for 50 percent of the country’s GDP13 and 70 percent of
The next PPP law, in 1998, was for motorways and motor- total exports.14 The health campuses were an attempt to
way facilities to be implemented through BOT. The success- achieve quality health service, which was defined in the 10th
ful use of BOTs also prepared the way for a BOT law in 1994, Development Plan15 as 28 qualified beds per 10,000 people.

11 KÖİ Mevzuatı 2015, Ministry of Development of the Republic of Turkey, http://www.sbb.gov.tr/wp-content/uploads/2018/10/Kamu-%C3%96zel-

%C4%B0%C5%9Fbirli%C4%9Fi-Mevzuat%C4%B1-2015.pdf, visited 11.10.2019.
12 Dilbaz Alacahan, N., 2008, “1980 Sonrası Türkiye’de Kalkınma Planlarındaki Ekonomik Hedeflerin Gerçekleşme Düzeyleri,” Sosyal Bilimler Dergisi 1: 19-31.
13 Turkish Statistical Institute, “GDP by Cities,” Newsletter, http://www.tuik.gov.tr/PreHaberBultenleri.do?id=30888, visited 11.10.2019.
14 Turkish Exporters Assembly, https://www.tim.org.tr/tr/ihracat-rakamlari.html, visited 11.10.2019.
15 10th Development Plan (2014-2018) of the Republic of Turkey, http://www.sbb.gov.tr/wp-content/uploads/2018/11/Onuncu-Kalk%C4%B1nma-
Plan%C4%B1-2014-2018.pdf, visited 11.10.2019.

Chapter 4 Public-Private Collaboration and Economic Governance 91

As a result, by 2018, Turkey was ranked first16 in Europe in The HPC Secretariat fell under the Ministry of Development,
terms of contract value signed by PPPs, and fourth among which at the same time was responsible for the preparation
developing countries in the world.17 of 5-year development plans, medium-term programs, and
annual public investment programs. This structure ensured
IMPLEMENTED ACTIONS that PPP projects were assessed against Turkey’s macroeco-
nomic targets and sectoral priorities and passed through the
PPPs are used for public investments and public services. same assessment mechanism as the traditional public invest-
However, the PPP model is much more complex than tradi- ment/services projects. Moreover, mechanisms for PPPs’
tional public procurement in many ways. First, it is a long-term approval by public institutions were also defined by legislation
contract that includes operation, and this longer timeframe for every stage of the projects.
decreases the predictability of the conditions during the con-
tract life. And second, it has three partners: the public, the spon- After the start of the Presidential System in 2018, the author-
sors (private sector), and the lenders—three sides that must be ity to approve PPPs passed to the President. The duties of
in coordination with each other over a long time. This compli- the Ministry of Development and the Directorate General
cated structure must be managed well. The main pillars should of Budget in the Ministry of Finance were transferred to the
be established so that uncertainties are reduced. Turkey set up newly created Presidency Strategy and Budget. The Ministry
the main pillars as legislation, institutional setup, and incentive of Finance and the Undersecretariat of the Treasury merged to
mechanisms. Political support backed all of these pillars. form the Ministry of Treasury and Finance. The assessment of
PPP projects is now performed by the Presidency of Strategy
Turkey first laid the foundations of a good legal system in and Budget and the Ministry of Treasury and Finance. Thus,
which PPP projects could be undertaken. As was summarized although the names have changed, the assessment mecha-
in the Context section, Turkey developed its legislation nism is the same as before the Presidential System began.
to meet new needs. The legislation set out the rules for
open and transparent bidding, contracting, and the general Legislation also defined the incentives to be applied to PPPs,
procedures to be followed. This was important to improve the to increase the perception of predictability for the private
predictability of the market for investors. In addition, in 1999 sector in terms of risk allocation. Tax incentives, expropria-
the constitution was changed to facilitate the smooth flow tion incentives, shadow toll mechanisms, demand guarantees,
of PPPs, opening the way for PPPs to be realized by private availability payments and debt assumption mechanisms, and
contracts. This change was a sign of strong political support. step-in rights were defined in the legislation. In addition, inter-
national arbitration is allowed. These incentives were designed
Turkey's PPP legislation also facilitated the set-up of PPPs. to increase the private sector’s willingness to invest in proj-
Traditional public procurement projects had a different ects, some of which are very large-scale greenfield projects.
approval mechanism from PPP projects. Before the advent of
the new Presidential System (which has been in force since Turkey did not set up all these pillars in their complete form
July 2018, replacing the Parliamentary System), the High at one time. As the scope of the PPPs grew, new sectors were
Planning Council (HPC), headed by the Prime Minister and added, and experience accumulated, additions were made to
comprising ministers appointed by the Prime Minister, had the the legislation. We are still learning from our experiences. One
authority to approve the PPP projects. Legislation had given example concerns institutional capacity. In the early days of
the HPC the option of asking for assessments by the Ministry PPPs, the PPP contracts were followed by traditional units in the
of Development, the Ministry of Finance, the Undersecretariat line institutions. Over time, many institutions—especially those
of the Treasury, and any other public institution, if necessary. with large-scale PPPs—have recognized how different PPPs are

16 Market Update, Review of the European PPP Market in 2018, European PPP Expertise Centre, 2019, https://www.eib.org/attachments/epec/epec_market​
_update_2018_en.pdf, visited 11.10.2019.
17 World Bank Group, Private Participation in Infrastructure Database Featured Rankings, 1990 to 2018, https://ppi.worldbank.org/en/snapshots/rankings, visited
11.10.2019.

92 Building Effective, Accountable And Inclusive Institutions In Europe And Central Asia
from traditionally procured public projects, and the extent to 2019 prices.18 The highest contract value belongs to the airports,
which each project needs good contract management over a including the Istanbul Airport, which has been in operation since
long time span, and so many have created a dedicated unit for October 29, 2018. These numbers make Turkey one of the lead-
PPP projects. Efforts to provide better risk allocation between ing countries in PPPs in the world (see Figures 4.1-1 and 4.1-2).
the public and the private sector are continuing. Every contract
may show a new challenge to be overcome in the next contract. The average Turkish PPP contract value is high when com-
There is always another sector coming up for PPP and another pared to the contracts of other countries. Turkey has focused
way of doing things by PPP. Being flexible and adapting to especially on large-scale greenfield projects for the last 10
changing conditions are important in this context. The need for years. Some of these projects are already operating success-
capacity building, especially for the public institutions that are fully—for example, the 427 km Gebze-Orhangazi-İzmir motor-
newcomers to PPP, and experience-sharing between institu- way project, the 148 km North Marmara Motorway Project
tions has become clearer. Studies for standardized documents (Odayeri-Paşaköy Part), the Eurasian Tunnel (under the
and capacity building have begun to fulfill these needs. Strait), 10 health campuses with 13,375 beds, and 12 airports
with 267 million passenger capacity (see Figure 4.1-3). One of
RESULTS the significant achievements of Turkey is that it has been suc-
cessful with these mega-projects with no direct public capital
With more than 30 years’ experience, Turkey has a successful contribution—that is, using only private investment.19
track record in PPPs. The PPP models that are in use in Turkey
are BOT, TOR, build-operate (BO), and BLT. As of the middle of This success led to the creation of Turkish “brands” on PPPs,
2019, Turkey has used PPP for a total of 246 projects, of which and Turkish firms began to export their know-how abroad.
218 are in operation and contributing to the Turkish economy. Turkish firms now undertake airport, port, and highway PPP
The total investment cost of the PPP projects is US$67.5 billion in projects in many countries around the world.20

FIGURE 4.1-1. FIGURE 4.1-2.

Aggregate value of projects by country19 Top 10 PPP countries, by investment20(US$ millions)
(EUR billions)

Brazil 391,664
Turkey
India 264,726
France China 194,276
Turkey 144,099
Netherlands
Mexico 87,611
Germany
Russian Federation 73,178
United kingdom Indonesia 67,152

Belgium Philippines 56,929

Malaysia 51,857
Serbia
Colombia 46,696
Ireland
0 100,000 200,000 300,000
Austria Investments
Spain

0 1 2 3 4 5 6

18 PPP Projects in Turkey, Presidency of the Republic of Turkey, Presidency of Strategy and Budget, https://koi.sbb.gov.tr/Main_EN.aspx, visited 11.10.2019.
19 Market Update, Review of the European PPP Market in 2018, European PPP Expertise Centre, 2019, https://www.eib.org/attachments/epec/epec_market_
update_2018_en.pdf, visited 11.10.2019.
20 World Bank Group, Private Participation in Infrastructure Database Featured Rankings, 1990 to 2018, https://ppi.worldbank.org/en/snapshots/rankings, visited
11.10.2019.

Chapter 4 Public-Private Collaboration and Economic Governance 93

LESSONS LEARNED
the contract designed is not adaptable to these changes,
Turkey has learned a great deal about PPPs. First, we learned the PPP project may become a burden for the public. It is
the expectations of the private sector. Sponsors and lenders much harder to cancel a PPP project, because there is also a
search for political stability and political will for these com- creditor in the equation. These kinds of examples emphasize
plicated, long-term projects. Rule of law is another important the importance of well-designed contracts and good con-
need of the private sector. Under the rule of law, unwanted tract management. The public also learned that no project
surprises are less likely to occur, and issues can be elabo- is cost-free even if it is a PPP. If not designed right, PPPs can
rated without putting anyone at an unjust disadvantage. be more costly than traditional public procurement. The risk
Macroeconomic stability is also important, as the private allocation between public and private must be done in a bal-
sector operates the projects, and demand, payment condi- anced way. Therefore, it is important to prioritize projects on
tions, and risks all depend on the macroeconomic situation. sound socioeconomic, financial, legal, and technical grounds.
Dispute resolution mechanisms are important for the risk Not all projects are suitable for PPP. Economic and financial
perception of the private sector, as conflicts must be adjudi- sustainability of a project is important, and PPPs should be
cated through sound mechanisms. International arbitration is used where they bring value for money. Thus, a good prepa-
especially important for less developed and developing coun- ration phase is very important for deciding whether to use
tries. Transparency is as important as all these issues. It boils a PPP model for a project, and it accounts for half of the
down to the fact that the private sector undertakes projects success of the PPP projects.
for profit, so things that increase the likelihood of profit are
important for the private sector. In the end, PPPs are partner- Turkey is one of the world’s pioneer countries in the PPP
ships (as the name clearly indicates); for a PPP project to be area, and it has been successful on many fronts. However,
successful, this partnership must work well.21 22 there is always room for improvement, and we are still learn-
ing from our experiences. Turkey’s 11th Development Plan,
The public also learned that understanding PPPs is import- which was approved by the National Assembly in July 2019,
ant. PPPs differ from traditional public procurement in many emphasizes the areas for improvement. One of the targets
ways. The long time a PPP covers includes many risks, not is a new framework that will ensure more flexibility in scope
only for the private sector but also for the public sector. and models and more common procedures. The importance
Unqualified service or an investment that is not completed of value for money and optimum risk-sharing are emphasized.
on time is still considered a sin of the public sector even if Another target is to carry out an impact assessment of PPP
the project is a PPP. If the technology changes radically and projects that are in operation to measure the effectiveness of

FIGURE 4.1-3.
Examples of PPP Projects by Turkish Companies

Source: Georgia Tblisi Airport, operated by TAV21 Source: Marsaxlokk Malta, operated by Yılport22

21 Tbilisi Airport, http://www.tbilisiairport.com/en-EN/about-tav-airport/media-centre/page/photo-gallery, visited 11.10.2019.

22 Marsaxlokk, Malta, https://www.yilport.com/tr/medya/galeri/Marsaxlokk-Malta/522/795/0, visited 11.10.2019.

94 Building Effective, Accountable And Inclusive Institutions In Europe And Central Asia
the realization of public investments. The plan also empha- Turkey is now an upper-middle-income developing country.
sizes the aim of strengthening the institutional structure for Committed to achieving the SDGs, Turkey—like the rest of the
executing the national PPP policy by considering the coun- world—needs infrastructure investment to develop and increase
try’s macro-fiscal balance and investment policies. the welfare of its citizens. To bridge the infrastructure gap, it
continues to use PPPs with different scales and scope and more
focus on creating greater impact for the welfare of people.

Photo: © Kubat Sydykov / World Bank.

Chapter 4 Public-Private Collaboration and Economic Governance 95

CASE STUDY 4.2

Lithuania: Making Ownership of

State-Owned Enterprises Successful
DR. MARIUS SKUODIS, VICE-MINISTER OF THE ECONOMY AND INNOVATION OF THE REPUBLIC OF LITHUANIA

CONTEXT
aggregate SOE portfolio reporting (annual and interim
External observers often describe the development of the gov- reports), which the Government had not used before.
ernance of Lithuania’s state-owned enterprises (SOEs) over
the past several years as revolutionary. This view is especially As a second step, the Government focused on ownership pol-
supported by the reforms implemented around the country’s icy. The Ownership Guidelines, adopted in 2012, defined com-
accession to the Organisation for Economic Co-operation and mon principles and requirements for the governance of SOEs,
Development (OECD) in 2018, which could be reasonably seen including standards for strategic management (strategic
as one of the main factors behind the major changes in the plans, monitoring of strategy implementation, setting profit-
country’s corporate governance framework in general and its ability targets), establishment of boards and committees, and
23
SOE sector, in particular. introduction of independent board members (large fully cor-
poratized SOEs that had the legal form of private or public
At the end of 2015, Lithuania had 128 directly owned SOEs, yet limited liability companies were required to have at least one-
it ended 2018 with only 61. As of this writing, the number had third independent board members from that time). To ensure
decreased further to 51, well on the way to the Government’s the consistent and professional governance of SOEs, the
target of 34. Similarly, at the end of 2015 the share of inde- Government also established the Governance Coordination
pendent members sitting on SOE boards was only 13 percent, Center.
but at the end of 2018 it reached 56 percent. Lithuania also
started 2018 with no people of political confidence appointed As a third step, in 2015 the Government went further and
to boards, although at the end of 2015 there were 63 (19% of all defined board nomination principles for statutory SOEs
board members at that time). In addition to these, there were (state enterprises that have no shares).24 It adopted Board
other significant changes. Lithuania’ SOE reforms could be Nomination Guidelines that introduced a standardized pub-
seen as a significant leap forward in an evolutionary process lic nomination process and nomination committees and set
that dates to 2010 and was divided into a number of distin- the requirement that in large state enterprises at least one-
guishable steps. third of board members must be independent. Also in 2015
Lithuania’s OECD accession negotiations were opened, and
To increase SOEs’ returns to the state, Lithuania started the they later had a large impact on the content and process of
SOE reform in 2010 with transparency and disclosure. Its first corporate governance reforms.
step was to adopt the Guidelines for Ensuring Transparency of
SOEs (Transparency Guidelines), establishing common stan- Because the largest changes related to the governance of
dards on the disclosure of SOE-related data, information, and SOEs took place around the accession to the OECD, this case
documents, and setting requirements for SOE websites and study discusses some of the key achievements, including gov-
annual reports. The Transparency Guidelines also introduced ernance professionalization around the pre-accession period

23 Skuodis, M. (2018), Lithuania‘s Membership in the OECD: Benefits Are Already Here, Lithuanian Foreign Policy Review 34: 39.
24 One of three legal forms of SOEs in Lithuania, besides private or public limited liability companies. See OECD (2018), Corporate Governance in Lithuania, OECD
Publishing, Paris, p. 50.

96 Building Effective, Accountable And Inclusive Institutions In Europe And Central Asia
and SOE portfolio optimization, that became the focus of the was transferred to a separate public institution under the
Government after joining the OECD. Ministry of the Economy and Innovation, the monitoring and
forecasting agency. However, this improvement in the institu-
IMPLEMENTED ACTIONS tional structure alone would not have allowed achievement of
the key objective. It was also decided to double the Center’s
The OECD-accession-related reforms of Lithuania’s SOE sec- 2018 budget and increase the number of staff (or analysts).
tor focused on four main areas recommended and required by Moreover, the Government strengthened the Center’s advi-
the OECD: (a) strengthening the state’s ownership function, sory role by making its input in certain decisions of SOE share-
(b) improving board autonomy, (c) streamlining SOEs’ legal holders mandatory—for instance, assessing their draft letters
and corporate forms, and (d) ensuring that SOEs are subject of expectations. All these changes contributed to the Center’s
to high-quality accounting and transparency.25 The actions ability to fulfil its functions more effectively. Even so, it remains
taken in each area are discussed below. difficult for the Center to attract and retain professionals, who
are always welcome to join private sector companies or SOEs.
Strengthening the ownership function. To strengthen the
state’s ownership function, the Government focused on its Increasing the operational independence of SOE boards. In
SOE-coordinating institution, the Governance Coordination response to the OECD recommendation on improving board
Center. The Center was established in 2012 as the autonomy, in 2017 the Government upgraded related provi-
Government’s analytical unit for all activities related to the sions in the Board Nomination Guidelines adopted in 2015.
governance of SOEs, which could be divided into five main The new Guidelines standardized nomination procedures for
areas: (a) activities to ensure the establishment of profes-
26
all SOEs regardless of their legal form and included changes
sional collegial bodies (advising on and directly participating related to the composition of the boards of directors. First,
in board member selection procedures); (b) safeguarding following the best practices of the OECD, it was decided to
the proprietary interests of the state (evaluating shareholder increase the share of independent members in all SOE boards;
letters of expectations written for individual SOEs, SOE strat- the share was raised from at least one-third to no less than
egies, and strategic plans and their implementation); (c) col- one-half. Second, OECD membership also required barring
lecting and analyzing information (analytical reports on SOE the old practice of appointing politicians (people of political
performance and disclosure of SOE data); (d) consulting the confidence) to serve on boards, thereby eliminating direct
Government, responsible ministries, municipalities, SOEs, political influence. The extent of changes can be seen in
municipality-owned enterprises (MOEs) and other stakehold- Figures 4.2-1.
ers in the area of corporate governance; and (e) promoting
good corporate governance practices (developing the SOE The practice of appointing politicians was broadly discussed
Good Corporate Governance Index and organizing other at the highest political level. In the context of the substan-
activities). It should nevertheless be noted that these func- tially increased independence of SOE boards, individual
tions were initially narrower and expanded only over time (for members of the Seimas (Lithuanian Parliament) increasingly
instance, the Governance Coordination Center initially did not expressed doubts about the Government’s ability to ensure
participate in board member selection process, evaluate let- proper governance of its SOEs without having a majority
ters of expectations, or analyze the performance of MOEs). in their governing structures. Since the changes had to be
implemented in a relatively short period of time (by January
Initially the OECD recommended increasing the Center’s 2018), the Government also faced the challenge of finding the
independence, since it was originally established within one needed number of independent professionals willing to join
of the SOEs, state enterprise “Turto bankas,” a centralized its SOEs; consequently, it attempted to attract not only inde-
manager of state-owned real estate. Therefore, the Center pendent Lithuanian professionals living in the country, but

25 For instance, OECD (2017), Letter to the Ministry of the Economy on the Accession review of Lithuania in the Corporate Governance Committee (3 November
2017) and the Working Party on State Ownership and Privatisation Practices (24 October 2017), 1 December 2017, p. 2.
26 Governance Coordination Centre (2019a), “Activities.” Available at: https://vkc.sipa.lt/en/apie-mus/veiklos-sritys/ [Accessed 12 October 2019].

Chapter 4 Public-Private Collaboration and Economic Governance 97

FIGURE 4.2-1.
Percentage of independent board members and political appointees on boards in Lithuania

The percentage of independent The percentage of political

board members appointees in boards
60 56% 20 19%

50 15%
15
40 33%
30 10
20 17%
13% 4%
5
10
0%
0 0
2015 2016 2017 2018 2015 2016 2017 2018

also foreigners and Lithuania’s diaspora living abroad. These political decisions, thus subordinating the needed legislative
changes took place in parallel with the implementation of an changes to the much broader political goal.
ambitious plan of optimizing the SOE portfolio and streamlin-
ing SOEs’ legal and corporate forms. Besides the mergers of a number of SOEs into fewer legal
entities, other changes in the size of the country’s SOE port-
Streamlining SOEs’ legal and corporate forms. As expected, folio were reached by privatizing smaller entities, liquidating
the objective of optimizing the SOE portfolio generated them after transferring their publicly important functions to
ardent political debates. As Figure 4.2-2 shows, in a relatively other public institutions, or reorganizing them into public
short period of three years the number of SOEs in the coun- agencies or budgetary institutions. However, besides optimiz-
try’s portfolio decreased by more than half, from 128 at the ing the portfolio of private/public limited-liability SOEs, the
end of 2015 to 61 at the end of 2018. According to the most Government also faced the relatively much larger challenge of
recent plans approved by the Government, by the end of 2020 optimizing its portfolio of statutory enterprises that are sub-
the size of the Lithuanian SOE portfolio is expected to shrink ject to separate regulation from limited liability companies.
further. The list of such state enterprises encompassed the majority
of large SOEs, including such strategically important SOEs as
The largest drop in the number of SOEs took place as a result Lithuanian Airports and the Klaipeda Sea Port Authority.
of consolidating 11 road maintenance companies into one
entity, State Enterprise Road Maintenance (in the last quar-
ter of 2017), and the merger of 42 state forestry enterprises FIGURE 4.2-2.
and the State Forest Management Institute into one State Number of SOEs (2011-2019)
Forestry Enterprise (at the beginning of 2018). Regarding the
forestry reform, external observers found it surprising that the 200
Forest Law actually defined the exact number of 42 state for-
149
estry enterprises. At the same time, the political resistance to 137 137
150 131 128
changes in the forestry sector was so high that the required 118
108
decisions in the national Parliament to remove the related
100
legal provisions even presented a significant challenge to the
61
stability of the coalition Government. It could be argued that 51
the notably strong political consensus for joining the OECD by 50
mid-2018 was the key factor allowing the delivery of the for-
estry reform—that is, the OECD accession recommendations 0
were used as an important argument to support the necessary 2011 2012 2013 2014 2015 2016 2017 2018 2019

98 Building Effective, Accountable And Inclusive Institutions In Europe And Central Asia
Given the fact that from the corporate governance per- auditing, and transparency standards for SOEs. Following
spective the globally common legal forms of private/pub- the OECD best practices, in 2016 the Government reviewed
lic limited liability companies are considered to be superior the Transparency Guidelines regulating the disclosure of
to those of statutory enterprises, the OECD recommended SOE-related data and for large SOEs made all provisions of
the full incorporation of commercially oriented statutory the Transparency Guidelines mandatory (the earlier require-
SOEs. As a result, the Government decided to convert seven ment was to “comply or explain”). One of the changes for
state enterprises into private/public liability companies, and large SOEs—which also affected the newly created Road
in five cases decided to retain the current legal form (see Maintenance and State Forestry Enterprises—was the man-
Figure 4.2-3). In this regard, the OECD also initiated inter-­ datory application of the International Financial Reporting
institutional discussions about whether to eliminate the legal Standards (IFRS). Moreover, to better separate commercial
form of state enterprise altogether, but at the time of this activities and public policy assignments implemented by
writing concrete decisions have not yet been taken; discus- SOEs, it was decided to review the accounting and disclo-
sions are likely to continue only after the implementation of sure policy of public policy assignments. The Governance
the Government’s SOE portfolio optimization and ownership Coordination Center also increased its soft pressure through
centralization plan. more intense dissemination of its annual monitoring tool,
the SOE Good Corporate Governance Index, developed and
Ensuring that SOEs are subject to high-quality accounting renewed annually with the aim of finding out how SOEs
and transparency. The final group of main OECD recom- implement national legislation and globally recognized good
mendations pertained to ensuring high-quality accounting, governance practices.27

FIGURE 4.2-3.
Incorporation of commercially oriented statutory SOEs

2016 Q4 118 SOEs

Consolidation of 42 forestry and

11 road maintenance state
enterprises

2018 Q1
66 SOEs

40 Limited
26State
liability
enterprises (SEs)
enterprises

SOE ownership
revision

22 Limited 7 Limited
2020 Q4 5 State
liability liability
enterprises
enterprises enterprises

Target –SOE portfolio of 34SOEs

27 See Governance Coordination Center (2019b), ‘SOE Good Corporate Governance Index’. Available from: https://vkc.sipa.lt/en/valdysenos-indeksas/ [Accessed
12 October 2019].

Chapter 4 Public-Private Collaboration and Economic Governance 99

RESULTS fulfillment of the state’s expectations, and so on. It could also
be observed that the recent changes in corporate governance
One of the key motives for the initiation of the SOE sector practices, including increased transparency, amplified public
reform in 2010 was the findings of the first aggregate review pressure for all Lithuanian SOEs to generate returns, in addi-
of Lithuanian state-owned commercial assets in 2009. tion to successfully implementing public policy assignments.
It showed that the majority of SOEs performed poorly and
their financial return on equity in 2009 was significantly lower LESSONS LEARNED
than that of SOEs in other European countries, not to mention
private sector companies operating in comparable economic Five major sets of lessons have been learned from the changes
sectors. The background of extreme economic contraction of in the governance of Lithuania’s SOE sector since 2010 and
15 percent of GDP that Lithuania experienced in 2009 created the significant reforms around Lithuania’s accession to the
an additional push for demanding higher returns. OECD in 2018.

Have all the SOE governance reforms had an impact on SOE First, the implementation of corporate governance reforms
returns? As Figures 4.2-4 and 4.2-5 show, from 2010 to 2018 revealed the importance of data and of an independent coor-
the profitability of Lithuania’s SOE sector increased signifi- dinating institution for the country to ensure the professional
cantly, as did returns to the state. However, it is too early to governance of its SOE sector, which would consistently follow
reach any final conclusions. First, the profitability of SOEs national standards and best global practices. This is also the
and their returns to the state may be affected by other fac- key answer to sceptics’ questions about the capacity of the
tors such as economic events, decisions to sell part of their state to govern its SOEs, whose boards consist largely of inde-
assets, and decisions of the Government. Second, SOEs oper- pendent professionals.
ating in monopolistic sectors could in theory easily increase
(subject to price regulations) their profitability and returns at Second, given the fact that revolutionary changes are typ-
the expense of consumers. Nonetheless, observers already ically hard to implement, it is important to note that small
note the impact of better governance on SOE performance steps can be very effective. In Lithuania, the reforms of the
in general (besides the financial results): increased disclo- SOE sector started in 2010 and by 2015–2018 the country
sure and transparency, clearer strategies and targets, better was already prepared to implement the best global practices

FIGURE 4.2-4.
Profitability of SOES (2010-2018)

350 6.2
304
280 5.5%
300 5.2
5.1%
227 226
250
207 4.2
4.4% 4.4%
3.9%
200
146 3.2
150 2.8%
115
2.2
100 2.1%
64
1.2% 1.2
50 21

0.4%
0 0.2
2010 2011 2012 2013 2014 2015 2016 2017 2018
Normalised net profit, m. EUR Normalised Return on Equity (ROE), %

100 Building Effective, Accountable And Inclusive Institutions In Europe And Central Asia
FIGURE 4.2-5.
Returns to the state (2010-2018, in EUR million) to regularly update a special committee chaired by the Prime
Minister and seek quick decisions.

202
181 Finally, it is important to acknowledge that the initial ambition
169
150 for the reforms might be higher than the actual results, since
140
104
certain decisions might need higher approval than that of the
Cabinet of Ministers (for example, the approval of Parliament)
55
45 45 and could face unexpected challenges. In a constantly chang-
ing environment, it is sometimes wise to adapt the course and
2010 2011 2012 2013 2014 2015 2016 2017 2018 initial targets. In Lithuania this could be illustrated by several
Atypical taxes to the state changes that were made in the Government’s SOE portfolio
Dividends and profit contributions to the state optimization and ownership centralization plan. Thus, while
the general course of moving to a smaller SOE portfolio con-
(rather than start from the beginning). The initial ambition – tinues, it remains to be seen whether the recently approved
even if not fully realized – could therefore be useful for provid- targeted number of SOEs in the country’s portfolio will be
ing a momentum for changes in the future. reached.

Third, Lithuania’s accession to the OECD in 2018 in general What is currently on the Government’s agenda in the area
and the pre-accession negotiations since 2015, more specif- of its SOEs? First, building on the recent changes, one of the
ically, constituted an especially powerful external factor for Government’s key objectives is to ensure the consistent imple-
reforming its SOEs and implementing sometimes politically mentation of existing decisions and common governance
difficult corporate governance reforms. In addition to using practices by all SOEs. It is therefore focusing on increasing
the OECD’s strong expertise, the proponents of changes could the centralization of governance. Besides further reduction in
build their arguments on the need to follow the OECD regula- the number of enterprises, Lithuania is also planning to reduce
tions and global practices. The political consensus to join the the number of ownership entities. Second, with a view to fur-
OECD no later than 2018 was also one of the key drivers of the ther professionalization of board nomination procedures, the
exceptional pace of reforms, which in some cases surprised Government has recently decided to involve headhunting
even the OECD team. agencies in candidate search, evaluation, and formulation of
shortlists for evaluation committees. Finally, the Governance
Fourth, while the ultimate goal of joining the OECD helped to Coordinating Center has started a new function of monitoring
sustain political attention, it also helped that the SOE reform Lithuanian MOEs (250 as of end-2018). It has recently pub-
in Lithuania was implemented using the Government’s newly lished the first aggregate report on their performance and
established strategic project management practice. It pro- is focusing on increasing consultations on good governance
vided an additional channel for the Ministry of the Economy practices.
and Innovation, the key coordinating institution of the reform,

Chapter 4 Public-Private Collaboration and Economic Governance 101

CASE STUDY 4.3

Uzbekistan: The State’s Role in the Economy

BAKHTIYOR KHAYDAROV, HEAD OF STATE-OWNED ENTERPRISES DEPARTMENT, STATE ASSETS MANAGEMENT AGENCY,
REPUBLIC OF UZBEKISTAN

CONTEXT d. Lack of a strategy for SOE reform and criteria for con-
tinued ownership of SOEs.
Until recently, all enterprises and factories in Uzbekistan were e. Weak cooperation with international financial
state-owned in an environment with an almost nonexistent organizations.
private sector. The antimonopoly regulation, the state assets f. Lack of good international practices in attracting pri-
management, and the securities market regulation functions vate investors, including by selling state properties via
were concentrated in one body—a major conflict of interest. IPO and SPO.

As background, at the time of Uzbekistan’s independence in IMPLEMENTED ACTIONS

the early 1990s, the Government embarked on a course of
reducing the state’s share of the economy. The privatization Starting in 2016, under the leadership of newly elected
of state enterprises was to be implemented in three stages: President Shavkat Mirziyoyev, the Government of Uzbekistan
Stage one (1992-1994) – small state properties embarked on an ambitious economic modernization program

Stage two (1994-1998) – medium-sized properties to reinvigorate growth and benefit all Uzbek citizens. On
February 7, 2017, the Government issued its 2017–2021 National
Stage three (1998 to present) – large properties
Development Strategy, which reflects a clear intention to build
Figure 4.3-1 illustrates the many challenges the Government a private-sector-led market economy. It is a market-oriented
faced in carrying out the SOE reform over the years. However, reform program with five priority policy areas: enhance state
most recently, the Government faced the following problems and public institutions, secure the rule of law and reform the
and challenges in reducing its footprint in the Uzbek economy: judicial system, promote economic development, foster social
development, and ensure personal and public security.
a. Absence of a single government agency exercising
the shareholders’ rights over SOEs. At the beginning Starting in 2018, Uzbekistan began developing its strategy
of 2018, only 21 percent of the SOEs were overseen by on ownership and reform of its significant SOE sector. In
the State Competition Committee, and the remaining January 2019, the State Assets Management Agency (SAMA)
79 percent were subordinated to the line ministries was established by the decision of the President, with the
and other state bodies. As a result, it was impossible ­following objectives:
to pursue a unified policy for the ownership and man- • Implementation of the common state policy on
agement of SOEs. ­effective management of state assets.
b. Conflict of interest at the State Competition • Introduction of modern methods and practices of
Committee, which concentrated the functions of anti- ­corporate governance in SOEs.
monopoly regulation, management of SOE and state • Development and implementation of programs aimed
assets, and securities market regulation. at financial recovery and improved efficiency of SOEs.
c. The need to review and reform SOEs’ activities to • Ensuring an open and transparent mechanism for the
allow them to react to market trends, to address their privatization and leasing of state assets.
high dependence on tax and customs benefits, and to
phase out targeted aid to individual SOEs.

102 Building Effective, Accountable And Inclusive Institutions In Europe And Central Asia
FIGURE 4.3-1.
Challenges faced in starting SOE reform

No single state
body exercising the
01
shareholders’
Single body with rights at SOEs
conflict of interests
regulating:
(i) antimonopoly, 02
(ii) state assets
management and
(iii) securities market
Urgent need to reform
03 SOEs governance
and business models

No strategy for
04
reforming SOEs

Weak
05 cooperation with
international
organizations

No opportunities to apply
good practices models
06
of selling SOEs: by
IPO and SPO

Addressing the newly formulated mandate and previously Uzbekenergo, NAC Uzbekistan Airways, and Navoi
existing limitations, the Government took the following steps Mining and Metallurgical Plant.
in the SOE reform agenda: • New methods of privatization initiated, such as IPOs
• To eliminate the conflict of interest in the State and SPOs. In 2018, for the first time, Uzbekistan held
Competition Committee, two separate agencies an IPO/SPO for the glass factory JSC Kvarts and JSC
were created to implement state policy: one for cap- Kukon mehanika zavodi.
ital markets development and one an antimonopoly • Cooperation with international financial institutions is
committee. expanded, with the aim of building institutional capac-
• An Internet site was launched to contain corporate ity, obtaining credit ratings, and attracting institutional
information, reports, and main facts about state- investors. Uzbekistan has increased its cooperation with
owned joint-stock companies - www.openinfo.uz. the World Bank, the Asian Development Bank, and the
• An SOE strategy was prepared, setting out reforms European Bank for Reconstruction and Development.
to the ownership and management of SOEs; defining
criteria and justification for holding shares in SOEs; SOE Governance and Management Reforms Update
unbundling functions of the owner and the regulator,
where applicable; and requiring the implementation of A new corporate governance code for SOEs was adopted and
modern corporate governance and management prac- its implementation launched in 412 SOEs. The code requires
tices in SOEs. that, starting in March 2019, one member of SOE boards must
• SOE reforms started in energy, transport, mining, be independent. SOEs interviewed potential candidates and
and other sectors aimed at the largest SOEs: JSC announced their selections.

Chapter 4 Public-Private Collaboration and Economic Governance 103

FIGURE 4.3-2.
The State’s dominant role in the economy

Government’s coordinating role in transitioning the economy

at the first stages of independence

Poor private sector - all enterprises were in state ownership

Lack of investments and private FDIs; government funding

Historically formed model of state dominance, aimed at

protection of low income people

FIGURE 4.3-3.
Government actions taken to address challenges

State assets Corporate information

management portal launched
agency (SAMA) 01 (www.openinfo.uz)
established
02

Cooperation with 06
international
Strategy on SOE
organizations is
03 ownership, management
developing for having
and reforms developed
credit ratings, attracting
institutional investors

05
04

New methods in SOEs in energy, transport,

privatization mining and other industries
(IPO, SPO) being reformed
are being introduced

104 Building Effective, Accountable And Inclusive Institutions In Europe And Central Asia
 RESULTS
A corporate financial information portal was launched
(www.openinfo.uz) to increase the transparency of SOEs. In • Corporate Governance Code developed based on
parallel, the central Government training center was estab- OECD Guidelines on Corporate Governance of SOEs
lished to train the existing and potential management cadre (2016)28; the Code is being implemented at 412 state-
for SOEs. owned joint-stock companies.
• Successful launch of the corporate financial informa-
The key challenges remaining include the low level of exper- tion portal, with more than 25,000 information mes-
tise and capacity, and weak cooperation with international sages posted by SOEs.
financial institutions. • Key performance indicators developed in 2015 are
implemented in 1,404 SOEs.
Ongoing Sale of State Assets • Successful IPO of JSC Quarty.
• In general, the following measures/results have also
SAMA is implementing a sale of state assets through a variety taken place in Uzbekistan:
of methods, such as open competitive bidding. Direct sale is » Liberalization of foreign currency.
also possible, subject to appropriate approval: » Liberalization of trade import tariffs
• Investment over US$1.0 million - the decision is made reduced, roadmap for WTO accession
by local governments (the khokims). developed.
• Investment over US$50.0 million - the decision is made » Improved
 investment and business
by the Government Commission. climate:
­ Uzbekistan rating in Doing
Business improved from 166 (2012) to 76
The following methods are widely used to sell/privatize state (2018).
assets: » Tax reform approved, introducing equal

• Determined value provided by a valuation company. competitive conditions and r­
educing
• Privatization at “zero” redemption value, in which administrative interference in the economy.
case the asset is sold with specific investment
obligations. LESSONS LEARNED
• Auction at initial price of UZS 1. This method saw 444
listings of empty state-owned real estate auctioned via As the father of American philosophy of government, Peter
an electronic trading platform. Of these, 310 were sold Drucker, said, “What gets measured gets managed.”
for a total of UZS 11.2 billion (ca. US$1.2 million) with
investment obligations of another UZS 172 billion, and Uzbekistan has adopted good corporate governance prac-
creating over 3,400 new jobs. tices based on OECD recommendations. To achieve more
progress in SOE reform, Uzbekistan now needs to develop
The following benefits and preferences are offered to potential a mechanism for monitoring SOEs’ performance in a timely
investors during privatization to attract a larger base of investors, way and evaluating their implementation of these governance
including foreign investors: (a) installment payments for up to 36 innovations.
months (depending on the amount of payment); (b) discounts,
when paying the purchase price within one month (equal to the Capacity building is key to reform implementation. Therefore,
Central Bank refinancing rate of 16%); and (c) additional issue Uzbekistan is expanding its cooperation with international
of shares, to direct the funds from the sale of shares to pay off financial institutions and will look to peer countries to learn
company debts, capital costs, and current assets. from their successful SOE reforms.

28 https://www.oecd-ilibrary.org/governance/oecd-guidelines-on-corporate-governance-of-state-owned-enterprises-2015_9789264244160-en

Chapter 4 Public-Private Collaboration and Economic Governance 105

CASE STUDY 4.4

Ireland: Experience with PPPs:

Developments and Challenges
LORENA MECO, INFRASTRUCTURE SPECIALIST, WORLD BANK

CONTEXT
for capital-intensive infrastructure projects, adding 38 PPPs
The Irish Government began using PPPs in the late 1990s; the to the portfolio. Ireland saw itself in the company of a small
Irish economy was experiencing rapid growth, but the country but growing group of countries with a significant proportion
was not able to meet its infrastructure needs fast enough. In (over 15%) of public investment spending for infrastructure
1999 the Government launched a National Development Plan being procured through PPPs.30
for €26.6 billion in investments, of which the majority would
be allotted to social and economic infrastructure. Of this mas- THE PROGRAM
sive program approximately €1.85 billion of investment would
be under the PPP scheme. In January 1998 the Irish Business and Economic Council
and the Construction Industry Federation presented the
After a wave of project cancellations in 2008, the Government Government with a proposal for a PPP program to tackle
needed to reestablish a PPP market. During the 2012 financial Ireland’s increasing infrastructure deficit. The main constraint
crisis, the Government passed a stimulus package to leverage that a PPP program would address was the human and
about €1.4 billion of private financing in the health, education, financing resources, requiring a private sector solution that
justice, and transport sectors.29 However, although govern- was managed and planned by the public sector.
ments undertake PPP projects to deliver services through
off-balance-sheet financing, it is important to assess the The Government rightly chose to tread carefully in taking
framework and processes for such process, and the results on a PPP program and began with an initial group of eight
they achieve—that is, their value for money (VfM). pilot projects announced at the end of the 1990s. After the
initial success stories, policymakers were largely on board
The PPP program in Ireland changed over the years and can with the use of PPPs as a procurement method, and the
be broken down into two eras: (a) the pilot program, which portfolio expanded rapidly to 134 PPPs by 2003.31 In 2000,
started in 1999 with the National Development Plan and other relevant stakeholders, such as civil society organiza-
expanded year after year as PPPs started showing results, and tions, trade unions, and political parties opposed to private
(b) the post-2012 framework for PPPs. sector mobilization in public infrastructure, were folded into
the “social partnership” agreement called the Program for
In the Multi-Annual Capital Investment Framework of 2008- Prosperity and Fairness, which had an explicit commitment
2012, PPPs accounted for 16 percent of planned public invest- to the PPP model from all relevant stakeholders. This con-
ment. The economic crisis led to 24 project cancellations. sensus-based policymaking approach informed the over-
However, the stimulus plan of 2012 showed the Government’s all PPP framework on the larger infrastructure planning,
continuing commitment to the PPP procurement method

29 Journal of Comparative Policy Analysis, 2015, Vol. 17, No. 5, 467–480, http://dx.doi.org/10.1080/13876988.2015.1023018
30 Burger, P. and Hawkesworth, I., How to attain value for money: comparing PPP and traditional infrastructure public procurement. OECD Journal of Budgeting,
2011, pp. 1–56.
31 Journal of Comparative Policy Analysis, 2015, Vol. 17, No. 5, 467–480, http://dx.doi.org/10.1080/13876988.2015.1023018

106 Building Effective, Accountable And Inclusive Institutions In Europe And Central Asia
preparation, and implementation processes as well as on lifecycle, which in theory allows for a data-rich public sector
individual projects. benchmarking exercise to prove the hypothetical case for the
traditional procurement method vis-à-vis the PPP option cho-
The formal framework, aptly named A Framework for PPPs, sen. However, access to these assessments and benchmarking
was launched in November 2001, and it clearly set out the is difficult, since contracting authorities are not obliged to dis-
objectives, scope, institutional arrangements, and processes close them on a public platform. This is a huge missed oppor-
for implementing Ireland’s PPP program. Through the frame- tunity for Ireland, since by regulation it has the responsibility
work the Government explained the justifications for the use to conduct such assessments but it has no central authority or
of PPPs, with a focus on the efficiency (both cost and speed) process to aggregate the data and transparently disclose to the
of PPPs in service delivery, overcoming supply-side con- public the value-added provided by PPPs.
straints, and provision of value for money through optimal risk
allocation. RESULTS

PROJECT GOVERNANCE CHALLENGES A VfM assessment on 15 projects was conducted with data
and evidence drawn from parliamentary queries and reports
Project Preparation Lags and Pipeline Expansion published by the Comptroller and Auditor General (C&AG).
The analysis shows VfM estimates ranging from negligible to
One universally recognized downside of PPP projects is 47 percent over a public sector comparator. Parallel analyses
the high transaction costs, possibly attributable to the lon- carried out by auditing entities refute some of these optimis-
ger procurement process and negotiation between parties tic findings, citing errors in timing and discounting of pay-
(public and private). If the project is to be successful, the ments and residual value of the assets (in one case schools)
benefits must outweigh these costs. By 2003 the critical at the end of the contract. Although a case could be made
mass of the PPP portfolio was a liability in the eyes of the that initial assessments were less sophisticated and with time
private sector, which saw drawn-out tendering processes the methodology was fine-tuned, as was capacity to conduct
and low deal quantities (only 23 projects had been pro- such assessments, an obvious solution would be to provide
cured by 2012). 32
more transparency on the assessments and the methodology
used to conduct them.
The ambitious PPP program the Government had sought
to establish fell victim to rapid expansion matched with low In all cases the analysis was done ex ante, and several variables
public sector capacity to see the projects through the proj- changed after the PPP was procured (initial assumptions were
ect lifecycle (complex long-term contracts and risk alloca- therefore subject to change and affected VfM calculations).
tion mechanisms). In a 2014 publication, Reeves et al. shed The general lack of comprehensive framework for disclosure
some light on the tendering periods for PPPs in Ireland: seems to be a problem along the PPP project lifecycle. The
tendering periods were about 3 years on average, and they lack of publicly available data has led to doubt about the
could go up to 58 months in more complex projects (such as effectiveness of the PPP program.
waste to energy). 33

A database with PPP project data is curated by the central

Value for Money and Transparency Challenges PPP Unit within the Department of Finance. As of April 2013,
the database contained 97 PPP projects with an investment
Given Ireland's long track record with PPPs, it is now able to value of approximately €5.4 billion that were either com-
look back and assess whether, and to what degree, PPP proj- pleted or under procurement. Most of the portfolio was in the
ects have provided VfM. The Department of Finance officially water and wastewater sector. The greatest impact and the
requires four VfM assessments at different stages of the project majority of investment value went to the road network, which

32 Idem
33 Idem

Chapter 4 Public-Private Collaboration and Economic Governance 107

saw the road deficit reduced. While looking at overall public their experience in the delivery of significant building
investment in Ireland, it is encouraging to see that unlike sim- infrastructure,” according to Enterprise Ireland CEO Julie
ilar cases in other developed countries such as the UK, the Sinnamon. The experience Irish companies would gain by
PPP program was complementary to sustained major capi- working on these projects will build their repertoire and
tal investment by the public procurement method, therefore expertise so that they may have an edge in future projects,
proving by proxy the case for PPPs’ additionality to infrastruc- both domestically and internationally.
ture spending. The pipeline of planned projects has a stronger
focus on social infrastructure such as health and education. Global Financial Crisis and Balance Sheet Treatment of PPPs

LESSONS LEARNED PPPs’ off-balance-sheet nature has had its allure in Ireland,
especially for delivering projects and services in the context
To date the PPP portfolio consists of seven regional court- of a fiscal crisis and entry into the “Troika,” the program of
houses, 14 primary care health centers, and eight high financial assistance between the EU, IMF, and EC. This element
schools. Two more schools and a university are under con- of PPPs creates perverse incentives for contracting authori-
struction. The pipeline includes more investments in social ties that are looking to optimize their public service delivery
infrastructure, including a social housing program, tertiary in a constrained fiscal space. This could give rise to a balloon-
education, as well as health and justice PPPs. In fact, many of ing portfolio of contingent liabilities stemming from PPPs
the reforms that were implemented focused on delivering a unless proper safeguards are put in place to account for them
predictable project pipeline in more acceptable timeframes through a transparent methodology that is codified in regu-
than previously experienced. In that regard, since 2006 the lations for all contracting authorities to follow. This approach
Government of Ireland has given a procurement and con- would also provide transparency for the general public and
tract management mandate to the structuring agency other agencies controlling public finances.
NDFA, which has shown greater capacity for project prepa-
ration and implementation. Given Ireland’s weakened borrowing position, in the
relaunched PPP program post-2012, financing from sources
Additionally, the NFDA and contracting authorities have such as the European Investment Bank (EIB) played a more
innovated on ways to increase interest in projects and important role, as these sources could accept lower returns
enhance the capacity of the construction sector companies, in supporting PPP projects. In total the EIB is supporting 24
which is limited. For example, the “meet the buyers” events approved projects through the European Fund for Strategic
for the first tranche of the Social Housing PPP in the City Investments, with €1 billion in total financing that will trigger
of Dublin “provided opportunities for Irish construction €5.1 billion in total investment financing.34
services to pitch for business, which ultimately grows

34 Investment Plan: Ireland. (2020, February 2). Retrieved February 6, 2020, from https://ec.europa.eu/commission/strategy/priorities-2019-2024/
jobs-growth-and-investment/investment-plan-europe-juncker-plan/investment-plan-results/investment-plan-ireland_en

108 Building Effective, Accountable And Inclusive Institutions In Europe And Central Asia
Wind Park near Kavarna, Bulgaria. Photo: © Ivelina Taushanova/World Bank.
Seaport in Bulgaria.
Photo: © iStock/ pbnew
CHAPTER 5

Drivers and Enablers of

Policy Effectiveness
Verena Fritz Niki Palmer
Senior Public Sector Specialist Consultant
G overnance is not a purely technical exercise. Every
part of the policymaking process – from formu-
lation and agreement to revenue generation and
implementation – depends on a complex system of interre-
lated parts, all shaped by people with distinct incentives, con-
legal changes. With the right direction even under-resourced
and badly capacitated institutions can be propelled to deliver.
The opposite is also true: seemingly capable and responsive
institutions can fail to maintain the pace and requirements of
policy implementation if political will fades or is lacking from
straints, and commitments. The factors that influence policy the outset.
development are to a large extent dependent on context, and
are driven by a range of calculations of power, position, and Fundamentally, the promotion of greater government
opportunities, balanced alongside issues like stability and accountability and transparency in ECA requires an in-depth
public good. Even the most cursory look across the coun- appreciation of the underlying factors that shape policymak-
tries of Europe and Central Asia (ECA) reveals a large variety ing and dictate implementation. The World Development
of governance forms and functions that reflect the motiva- Report 2017, Governance and the Law, underscores that there
tions of local political and economic elites. Some are based should be no technical blueprints for development; efforts to
on highly centralized systems, with power tightly controlled transplant systems and practices from one context to another
and with very limited devolution to local levels, while others often fail to address the specific problems and to offer con-
have greater decentralization. Some have established politi- textually appropriate solutions. Rather than providing best
cal competition and regular elections and have a vibrant civil practice technical solutions, which are unlikely to navigate
society, while others have retained or re-created more limited local vested interests and have been proven to have limited
opportunities for public debate, and at best limited space for impact over time, externals like the World Bank can better
competition. develop responses to governance challenges through exam-
ining both technical and nontechnical political economy
The types of governance systems at work in ECA directly ­factors. The World Development Report 2017 also underlines
affect whether policymaking is transparent and policymakers that governance is essential for the formulation and imple-
accountable. The interaction between state institutions and mentation of effective policy across sectors. Accordingly,
private firms also influences policy and in turn has shaped political economy and governance play key roles across the
governance. State capture—that is, the efforts of firms to various development areas – economics, public financial
shape the laws, policies, and regulations of the state to their management, social protection, and environment, for exam-
own advantage by providing illicit gains to public officials—is ple – revealing a need to integrate these considerations into
particularly pernicious across low- and high-income countries sector-based work.
in ECA. Using this form of grand corruption, “capture firms”
(see Hellman and Kaufman, 2000)1 block policy reforms that This chapter illustrates how to recognize and develop an
might undermine their influence; therefore, capture econo- understanding of the political economy factors that affect
mies have become not just a symptom but a cause of gover- policy effectiveness by concentrating on common causes
nance failures in ECA. of governance failures in ECA, particularly state capture. It
looks at the importance of asking why rather than just pre-
Many factors, including political conditions and degrees of scribing what needs to change. Before policymakers formu-
state capture, as well as such aspects as culture and natural late technical reforms intended to enhance policy processes,
resource base, play a role in determining whether policy is it advocates that they explore how underlying factors shape
likely to be adopted and, if so, what elements are implemented. the “rules of the game” and motivate stakeholders. Finally, the
These factors also determine “political will,” or the specific chapter considers how political economy analysis can lead to
motivations of certain powerful political actors that condition identifying pathways toward change in ECA and also looks at
whether they will champion or oppose policy, regulatory, or international experience in this regard.

1 Hellman, J. S., Jones, G., & Kaufmann, D. (2000). Seize the state, seize the day: State capture, corruption, and influence in transition. The World Bank.

112 Building Effective, Accountable, and Inclusive Institutions In Europe And Central Asia
Understanding and Engaging with Political Economy
Factors in ECA

As the various themes in this book illustrate, a wide range of commodity prices, and the progressive effects of climate
political economy factors potentially affect policy effective- change. Structural factors work in combination with one
ness in ECA. Although there are similarities among countries, another and interact with institutional and stakeholder factors.
each context exhibits different combinations of factors, and For instance, in an environment that is resource-constrained,
therefore varying opportunities and challenges for raising with high levels of unemployment, a legacy of an authoritarian
income and increasing the inclusivity and resilience of econ- political culture and clear signs of state capture, policy-set-
omies. Countries with stable institutions and stable political ting is likely to lack accountability and (fiscal) transparency.
processes, for instance, have more predictable policies, while Factors like these driving deficits in accountability are unlikely
in countries where, and at times when, institutions and pol- to be solved without major political changes. However, politi-
itics are in flux, policies and their implementation are likely cal pragmatism could lead to incremental reforms motivated
to become more unpredictable. Political economy factors by civil society mobilization on issues like unemployment.
influence the likelihood that certain policies will (or will not) Structural factors can be constant, like geographic location,
be supported by elites and adopted by politicians as much and they can be a source of exogenous shocks, for instance
as they condition what will prove popular and what poli- when global prices for commodities drop, or when a coun-
cies will be opposed or reversed by certain interest groups try dependent on rain-fed agriculture is hit by a drought. The
in wider society. They shape the way the private and pub- extent to which the state is well established, the government’s
lic sectors address issues and formulate responses, as well revenue base, and the sustainability of public finances can all
as the degree to which the general public participates in influence how well a country is equipped to deal with exoge-
policymaking. nous shocks.

Political economy factors are also dynamic and likely to Institutional factors. Consideration of institutional factors
change over time. Appetite for policy reform will fluctuate, presents another layer of information and can shine light on
as will levels of opposition, factors that together affect the how solutions would fit into an existing institutional landscape,
implementation of external support. It is also worth bear- as well as help identify potential bottlenecks and problems.
ing in mind that the international community is subject to These factors include not just the range of formal laws and
its own set of political economy factors; the imperative to policies that shape societal norms, but also the many infor-
spend certain amounts of money, for instance, influences mal practices that influence how, in practice, processes work
the behavior of donors supporting governance reforms. and deals get done. Institutional factors can help to determine
In general, it is helpful to assess political economy factors why it is that despite the adoption of anticorruption leg-
by dividing them into three categories—structural factors, islation in a given context, and the set-up of new oversight
institutional factors, and stakeholder factors—and then con- organizations, corruption actually remains widespread. In
sidering their interactions. ECA contexts’, institutional factors can be used to determine
the types and degree of state capture as well as to clarify an
Structural factors. Structural factors are those deep-seated understanding of the drivers and influences that maintain and
issues that shape society in a given context, and that are out- deepen capture. Some research has suggested that state cap-
side the direct control of individuals. Historical legacies that ture differs by function, with key distinctions between “party
have shaped political conditions are important to consider, state capture” to reassert political monopoly and “corporate
as are factors like the natural resource base, demographics, state capture,” in which public power is exercised primarily for

Chapter 5 Drivers and Enablers of Policy Effectiveness 113

private gain.2 In situations where capture has taken place – for and accountability. Though this second group of people often
political or economic gain, or both – ­public p
­ olicy tends to be tend to be in lesser positions of power and influence, there are
an instrument of these vested interests and ­ambitions, with likely to be far more of them; the majority of people lose out in
adverse consequences for ­transparency, accountability, and situations of state capture, with very few reaping large-scale
the rule of law. benefits. Groups such as small and medium-sized enterprises,
consumers, and citizens’ advocacy organizations are all los-
Depending on the levels of linguistic, ethnic, and cultural diver- ers in capture economies. There may also be politicians who
sity in a country, institutional factors may differ from region to are excluded from the budget process and citizens receiving
region, as both local practices and as localized development substandard public services who will have vested interests in
challenges play a role in influencing how (and sometimes, if) increasing participation in policymaking and fiscal transpar-
policy is implemented at subnational governance levels. For ency. These actors, though less powerful, may have politically
example, regional differences between northern and southern smart strategies that could be promoted and supported,
areas are well known to shape policy effectiveness in Italy.3 such as advocating for greater investment in audit processes
Culturally specific informal rules and traditions can lead to for- or wider awareness of existing rights and laws concerning
mal policy being adapted to more comfortably fit the needs of budgetary transparency. Mobilizing coalitions for change to
local people. This often occurs in countries where policy deci- address issues like transparency and accountability can be
sions are made centrally, with limited subnational input, and more effective than working solely with the people who own
tend to follow “one-size-fits-all” formulas. Informal rules and the formal responsibility for implementing reforms. Locally
practices that influence how decisions are made and actions led solutions are more likely to be based on an understanding
taken can also reflect a shadow or illicit economy, rent-seeking of the formal and informal “rules of the game” governing how
agreements, and expectations of illicit financial gain attached policy processes actually work in reality, rather than in theory.
to doing certain things and not others. In some cases, the
expectation of illicit gain is so habitual and widespread – and Stakeholder factors. Considering different perspectives is a
sometimes necessary to protect against poverty – that trying step toward conducting stakeholder mapping, which is useful
to change these informal practices can lead to popular revolt for more closely considering the dynamics between different
and risk destabilizing society. State capture, a form of grand (groups of) people with an influence over policymaking and
corruption, can also help build on a complex web of small- policy implementation. Depending on the sector, the location,
er-scale corruption, in the form of kickbacks, bribes, and illicit and the subject matter, these stakeholders are different. At
benefits. This web ultimately helps to insulate the perpetra- the national level – where policy is likely to be formulated,
tors of capture from adherence to formal rules and laws. approved, and potentially entered into law – the influence of
stakeholders on one another and on the policymaking process
Captured economies are a major impediment to consistent will look markedly different from a similar mapping at more
and good-quality policymaking. High degrees of capture local levels, where policy is operationalized. At these levels
force a vicious circle, in which attempts to increase trans- stakeholders may include a wider range of nongovernment
parency or change policy are suppressed by the vested actors like religious leaders or community leaders. The inter-
interests that are benefiting from illicit payouts from private play between public and private sectors will be particularly
firms. When analyzing these kinds of issues, it is important instructive, particularly when looking at who motivates policy
to consider multiple perspectives. It may be straightforward and why.
to identify the power-holders who benefit from opaque pol-
icy processes that, by virtue of the fact that they are hidden In capture economies the interpersonal connections between
from public view, enable public funds to be misused, skimmed well-positioned stakeholders in the private and public sectors
off, or transferred to political supporters, but it is also possi- is all-important: “The capture economy rewards connections
ble to find those who would benefit from greater oversight over competence and influence over innovation; it is fueled

2 Innes, A. (2014). The Political Economy of State Capture in Central E Urope. JCMS: Journal of Common Market Studies, 52(1), 88-104.
3 See, e.g., Putnam, Robert D. (1994). Making Democracy Work: Civic Traditions in Modern Italy. Princeton University Press.

114 Building Effective, Accountable, and Inclusive Institutions In Europe And Central Asia
by private investments in politics that weaken the state and Political economy analysis can also be used to identify past
undermine the provision of basic public goods” (Hellman instances in which reforms have worked, and why they have
and Kaufman, op. cit.). In these situations, corrupt influence is worked. Crises and public scandals are often drivers of change,
directed at those who form rules, laws, and regulations; buy- creating opportunities for coalitions of reform-minded advo-
ing votes, bribing officials to enact favorable regulations, and cates to break through “business-as-usual” political realities,
bribing judges to follow bias rather than the rule of law are all or, at a minimum, incentivizing incumbents to seek some
classic signs of state capture. Stakeholder analysis can help changes so as to appear less self-interested. In politically lib-
to map not just who may be under the influence of capture, eral contexts, opposing political parties, often encouraged by
or vulnerable to corruption, but also why they are. Investing civil society groups, may favor reforms to improve oversight
in analysis of what motivates invested stakeholders, their and accountability, to gain the support of new sets of con-
incentives and disincentives, can be illuminating, particularly stituents. In illiberal environments there may be other ways
as incentives can be very simple, but also surprisingly com- to incentivize greater transparency; the more that is known
plex. Money, for instance might be singularly motivating, but about the connections, relationships, and incentives underly-
it can be tempered by adherence to certain religious beliefs, ing capture, the better the understanding of how change may
influenced by the desire for a legacy, or seen through a lens come about.
of prejudice.

Using Political Economy Analysis to Identify Pathways

to Change

It may be tempting to conclude that in some contexts, espe- Certainly, there is enough evidence to suggest that techni-
cially those with high levels of state capture, the opportunities cal methods like strengthening formal audit bodies, improv-
to support effective policymaking and implementation are ing government procurement, and contracting and drafting
few and far between. And this may well be the case; realism greater legal protections against monopolistic practices have
about what can be achieved is necessary. Yet an apprecia- limited utility on their own. Unless the right incentives are
tion of the underlying factors that have prevented reforms, in place, it is likely that technical measures will have limited
blocked transparency initiatives, and stifled attempts to impact on issues like transparency, because there are just too
increase accountability can be used to prioritize and inform many powerful vested interests keeping transactions out of
further engagement. Increasing transparency in a capture view or finding ways around formal requirements. Although
economy, for instance, may be more or less likely depend- generic solutions might be well known, how to ensure that
ing on a range of socioeconomic trends. For example, would reform measures are adopted and implemented, given the
incremental change in a context’s structural factors, or a sud- inevitable political economy restraints, is often not obvious
den and dramatic event, be more likely to produce a shift? and not likely to be solved by copying technical solution that
Similarly, would a change in the relationships between formal might have worked elsewhere. Yet it may be possible to iden-
and informal institutions or in support for civil liberties make a tify scenarios in which one intervention, or a combination of
difference to the way institutions work? Could different types several, is more likely to bring about change. What is crucial
of action from interest groups – inside the country or inter- is continuing to ask why it is realistic to expect change, given
national – make a difference? Formulating a theory for why it the underlying factors at play, as is continuing to analyze and
would be realistic to expect change, as well as a plausible idea engage with these factors as they shift over time.
of what the mechanism for change might be, is invaluable
before considering the implications for governments, devel- Looking “behind the façade” at deeper issues can raise chal-
opment agencies, and other interested parties. lenges. Thinking beyond the “what,” or the form governance

Chapter 5 Drivers and Enablers of Policy Effectiveness 115

reform might take, and explicitly engaging with the func- Political economy analysis focuses primarily on the potential
tions of governance – what is expected and why – should drivers and enablers of policy effectiveness at the country
lead to an explicit acknowledgement that politics matter. level, but it is also important to acknowledge that country-level
Although it is now generally well recognized that politics governance dynamics are shaped by cross-border and trans-
matter, embedding politically smart approaches into pro- national influences, including on issues like corruption, tax
gramming continues to be a challenge. At times, there is also evasion, illicit trade, and violent extremism. Moreover, reform
a disconnect between the expectations of internal reformers ideas as well as ideas about how to capture the state or par-
and those of external organizations like the World Bank with ticular sectors and business opportunities are also very much
regard to the feasibility or necessity of particular reforms. shared across borders. Governance challenges have become
Inevitably there is always some tension between the specific global in nature, and solutions often require cooperation
political economy conditions in a given country and those across borders. It is possible to extrapolate themes from sev-
of a donor. However, greater clarity between donors and eral country-based political economy analyses (PEAs) to look
funding recipients can lead to a much greater degree of real- for regional trends. It is also feasible to look across contexts
ism about what can be moved forward, with international at a single issue, like what drives reluctance regarding cross-­
support, and what cannot. Of course, understanding that border cooperation. On state capture in particular, data have
politics matter is no guarantee that consensus for change shown how foreign investors become part of the problem of
will be forged between elite groups, or that citizens will be state capture; a potential action to remedy this is to change
empowered and institutions made more capable – there is their incentives and promote social responsibility by for-
no silver bullet. Yet, an appreciation of political economy eign-based corporations where they invest. Combining inter-
factors makes it more likely that routes forward on issues national actions with locally led measures to address capture
like accountability, transparency, and anticorruption can be economies might be particularly useful in shifting incentives.
identified and used to strengthen the theories of change Similarly, the multiple uses – as well as risks – of technology,
that inform reform processes. particularly in terms of the open sharing of data across bor-
ders and boundaries, are also well worth analyzing.

International Experience of Political Economy Analysis

PEA can be considered at numerous levels and has been used unintentionally builds the political capital of another. In 2016
to inform international development interventions across the World Bank’s Independent Evaluation Group conducted
­sectors. Many international donors use PEA in their program- research on the role of PEA in improving the design of devel-
ming, often in conjunction with a risk-mitigation and -man- opment policy operations. It found unequivocally that PEA
agement approach. However, it is common for PEA to be improved such operations and, conversely, that “the lack of
commissioned by international organizations to help them PEA to support politically sensitive and difficult actions tends
choose from among predefined options for development to reduce the effectiveness of operations.” Yet, to establish
assistance. More optimal is using PEA to determine “politi- many financial mechanisms, including trust funds and pay-
cally smart” overall development priorities, followed by more ment by results vehicles, the amount of technical analysis
specific development problems. In this sense PEA remains required at the design stage and the certainty on results
underused. expected over a multiyear period work against an adaptive,
politically astute approach.
Accordingly, the majority of analytical work undertaken
when interventions are in the planning stage remains heav- Moreover, PEA can also enhance dialogue between ­stakeholders.
ily technical. Reform proposals often do not identify whether PEA shared between donors often enhances “politically smart”
a proposal threatens the interests of a certain group, or working and can contribute to important conversations on how

116 Building Effective, Accountable, and Inclusive Institutions In Europe And Central Asia
to make programming more adaptable to changing dynamics. realistic terms of reference, and working with the consultants
A shared understanding of political economy factors can also to ensure that their initial outputs “speak” to the World Bank’s
enhance the likelihood that analysis will be updated, and that operational and policy engagement.4 Once analysis is ready for
further dialogue based on political economy will take place. dissemination, it is important to use opportunities for discussion
More sensitive, and more difficult to manage, is discussion on while also protecting sensitive information. In many cases PEA
PEA with the government and other domestic stakeholders. is produced for internal, closed-door discussion before a less
PEA is often sensitive and should be considered so, in terms sensitive version is then adapted, disseminated, and discussed
of both how it is managed and commissioned, and how it is with a range of stakeholders. These later steps are important to
disseminated. Commissioning should involve finding the right maximize the potential impacts of the insights gained, and to
international and/or local consultants, developing clear and influence the debate.

Conclusions

The generic formulas to correct issues like transparency, design appropriate reform interventions. Adapted solutions,
accountability, and civil society participation in policymaking building on existing constituencies for change and promoting
are well known and widely used. Yet the likelihood that these strategies that can navigate vested interests, are more likely to
measures will have an impact is limited because underlying succeed. Combinations of interventions – potentially support-
political economy factors influence whether any attempt at ing domestic stakeholders who lose out as a result of state
reform will be taken up and have the expected impacts. Even capture while also backing efforts on social responsibility in
in the case of state capture – one of the most pernicious prob- international firms – can be better routes forward. Evidence
lems facing the realization of resilient and inclusive economies from around the world underlines that understanding and
in ECA – the formulas to address this kind of corruption are analyzing the political economy of a context, supporting
well known. Fostering competition in markets and in pol- locally owned development strategies, and taking on board
itics seems crucial, as are measures to ensure that financial politically smart approaches to reform can be more effective
systems are transparent and accountable to the public. Yet in the long run than pursuing “best practice” fixes to govern-
interventions designed to enhance transparency or support ment departments, laws, and policies.
competition often do not gain full traction because of political
economy factors. Without first looking at the context, analyz- The case studies in this chapter explain how Azerbaijan,
ing the various structural, institutional, and stakeholder fac- Ukraine, the Western Balkans, and Kosovo approached vari-
tors, and formalizing a theory of change, it is very difficult to ous aspects of policy effectiveness.

4 The internal SharePoint site: https://worldbankgroup.sharepoint.com/sites/gge/peg/Pages/index.aspx also has further useful information, including a roster of
potential consultants.

Chapter 5 Drivers and Enablers of Policy Effectiveness 117

CASE STUDY 5.1

Azerbaijan: Extractive
Industries Transparency
FARID FARZALIYEV, HEAD OF THE EXTRACTIVE INDUSTRIES TRANSPARENCY COMMISSION’S SECRETARIAT, STATE OIL
FUND OF THE REPUBLIC OF AZERBAIJAN (SOFAZ)

CONTEXT
From the very beginning, Azerbaijan set itself an ambitious
The Extractive Industries Transparency Initiative (EITI) was agenda and thus achieved a lot of “firsts” in EITI. It was the
launched at the World Summit for Sustainable Development first country to join the EITI in 2003, the first to publish an
in Johannesburg in September 2002 to promote the open and EITI report in 2005, and the first “EITI compliant” country in
accountable management of oil, gas, and mineral resources. 2009. Becoming EITI compliant is not the endpoint of good
Guided by the belief that a country’s natural resources belong oil sector management, it is the beginning; Azerbaijan contin-
to its citizens, the EITI established a global standard based on ued to make a difference by putting multi-stakeholder efforts
the “publish what you pay, publish what you receive” principle, together to advance the process as much as possible. In total
which requires countries to publish timely and accurate infor- 20 EITI reports were reconciled and published in Azerbaijan
mation on key aspects of their natural resource management: (covering 2003-2015, including semiannual reports for
how licenses are allocated; how much companies are paying in 2004-2010). The latest reports fully covered all extractive
tax, royalties, and social contributions; and where this money revenues in the country and addressed all disclosure require-
5
ends up in the government at the national and local levels. ments of the EITI Standard 2016. It is no coincidence that
Therefore, the EITI creates a coalition of governments, com- the EITI Board considered Azerbaijan’s latest EITI report to be
panies, investors, international organizations, and civil society. one of the best and acknowledged that Azerbaijan has made
It is designed to ensure that all people see results from the great progress and showed continuous leadership on regular
extraction of their natural resources through transparent, effi- and comprehensive EITI reporting.
cient, and sustainable management of the resource incomes.6
By doing so, the EITI seeks to strengthen public and corporate Azerbaijan took steps to support a positive environment for
governance, promote understanding of natural resource man- the smooth implementation of the initiative in the country.
agement, and provide the data to inform reforms for greater These steps and achievements received high international
transparency and accountability in the extractives sector. appreciation, such that in 2007 the Azerbaijan State Oil
Fund was granted the United Nations Public Service Award
In Azerbaijan, recognizing the need for transparency and in the category of “improving transparency, accountability
accountability in the extractives sector, and to stimulate for- and responsiveness in the public service” for the successful
eign investment, bolster financial independence, and above implementation of EITI. Furthermore, to give strong backing
all gain the trust of Azerbaijani society, the President of the to the EITI process and raise awareness at the international
Republic, Mr. Ilham Aliyev, declared the Government’s deci- level the Government of Azerbaijan initiated and tabled the
sion to join EITI in 2003 at the International EITI Conference in United Nations General Assembly Resolution on EITI, which
London. In doing so, Azerbaijan volunteered to become a first was unanimously adopted by all members of the General
pilot country in EITI implementation. Assembly on September 11, 2008.7

5 Extractive Industries Transparency Initiative (EITI), https://eiti.org/who-we-are#aim-of-the-eiti

6 http://eiti.org/
7 http://www.eiti.az/index.php/en/the-un-public-service-award-handed-out-to-the-state-oil-fund-of-azerbaijan

118 Building Effective, Accountable And Inclusive Institutions In Europe And Central Asia
IMPLEMENTED ACTIONS
• information on all revenues generated by the
In 2013, the Azerbaijani Government made reforms to domes- Government from the use of natural resources, and
tic legislation regulating grant operations and the activities • payments made to the public budget by local and
of nongovernmental organizations (NGOs). These reforms foreign companies operating in the Azerbaijan’s
can be seen as the starting point for disagreements between extractives industry and in other relevant areas related
the EITI Board and the Government, and they led to concerns to the country’s extractives industries.
in the EITI community. While the Government considered
legislative changes necessary to improve the grant regis- The Decree established the Commission on Transparency in
tration process, local NGOs saw the changes as an addition Extractive Industries (Commission), which is responsible for
to their workload. In April 2015 the EITI Board downgraded coordinating the activities of state bodies and other entities
Azerbaijan from “EITI Compliant” to “EITI Candidate” s­ tatus in this field through participation in public policymaking to
because of “poor civil society engagement in the imple- ensure transparency and accountability in the extractives
mentation ­process” and determined corrective actions for industry.9 The role of Secretariat of the Commission for
Azerbaijan.8 The Government made substantial efforts during arranging the Commission’s daily activities and carrying out
the “­
corrections period.” In 2016 the Board agreed that the secretariat function was assigned to the State Oil Fund of
Azerbaijan had made meaningful progress in implement- Azerbaijan.10
ing the 2016 EITI Standard, with considerable improvements
across several individual requirements compared to the first Since its inception, the Commission has prioritized the inter-
validation in 2015, and maintained its “Candidate” status. The national transparency principles in the implementation of its
Board assigned several new corrective actions that were to routine activities set by the Decree. In this regard, from 2017 to
be implemented by the time of the subsequent EITI Board the present (October 2019) it has accomplished the following:
meeting. However, in 2017 the EITI Board – despite opposition • organized 11 meetings with the participation of civil
from the Azerbaijani Government and some domestic NGOs – society organizations (CSOs), extractive companies,
decided to suspend the country from the initiative, conclud- and international organizations;
ing that not all of the corrective actions were fully completed. • created a new website to regularly inform the popula-
The Government reluctantly accepted this decision, leaving tion about extractives industry data, raise awareness
the initiative, but announced its ongoing commitment to the about the Commission’s activities, and reach out to
­principles and philosophy of EITI. the citizens easily with a view to fostering the public
debate;
RESULTS • prepared and disclosed three Extractive Industries
Transparency (EIT) reports covering the years
The Azerbaijani Government declared its support of all inter- 2016-2018;
national efforts to ensure transparency and accountability in • signed an Agreement on Cooperation with extractive
the extractives industry regardless of its membership in EITI, companies.
and its ongoing intention to uphold international standards.
On April 5, 2017, the President signed a decree “On additional Engaging CSOs along with the other stakeholders in the
measures to increase accountability and transparency in the process was one of the Commission’s priorities. Commission
extractive industries” (the Decree), which stipulates that the members, including the Chair, highlighted their position, reit-
following are disclosed in full and in accordance with interna- erating (as per the Decree11) that civil society will be uncon-
tional standards: ditionally involved in the process, particularly at all stages of

8 https://eiti.org/news/azerbaijan-downgraded-to-candidate-country
9 http://files.hssk.gov.az/documents/Statute_Commission.pdf.
10 http://files.hssk.gov.az/documents/Decree_1315.pdf.
11 Article 1.8: “Involvement of all relevant parties, including state bodies, extractive industry companies, international organizations, financial institutions, inves-
tors and non-governmental organisations into the process of implementation of transparency in this area must be ensured”, Article 4.6: “The Commission is
tasked to work in partnership with non-governmental organizations, private sector and independent experts at all stages of the reporting.”

Chapter 5 Drivers and Enablers of Policy Effectiveness 119

EIT reporting, and will play a major consultative role as it did Demands for increased transparency from international
before. Therefore, to allow CSOs to participate effectively in investors and finance providers are growing. Thus, to provide
the EIT process, an open public registration was conducted additional transparency, the Commission is working on a sec-
through which 45 CSO members were registered to actively ond project called “mainstreaming”—a move toward meeting
participate in the EIT process, meetings, and events. CSO international standards and requirements through routine
members are also represented in the Working Group that was and publicly available company and Government reporting,
formed to improve EIT Reports during each reporting process rather than through outdated stand-alone reports. By moving
and regulate EIT activities. EIT disclosures out of bulky annual EIT reports and into ongo-
ing Government and company systems, mainstreaming could
Azerbaijan’s attempts to improve transparency and account- provide civil society and other stakeholders with information
ability in the extractives industries have been recognized by that is more timely, relevant, and useful. The process of moving
international funders; the Commission is currently working on away from reports, where data can be locked in printed or PDF
two major projects covering beneficial ownership disclosure tables, also provides opportunities to present EIT information
and EIT mainstreaming that are supported by international in formats that are easier to access and use for a­ nalysis. The
financial institutions. move toward mainstreaming in Azerbaijan began in 2016. At a
roundtable held in February 2017, the Azerbaijani Government
In 2017, the Commission and the Asian Development Bank confirmed its position and announced its readiness for the
(ADB) developed terms of reference for support of a launch of EITI mainstreaming with the technical support of the
Roadmap for Beneficial Ownership Disclosure. The project World Bank. However, as a result of the country’s withdrawal
12
is expected to be completed by mid-2020. Beneficial from EITI in 2017, EITI mainstreaming project was temporarily
ownership disclosure is an important step in building trust and suspended. Nevertheless, the Commission decided to initiate
confidence in the integrity of the extractive industries sector discussions of the relaunch of EIT mainstreaming project with
for citizens, government, industry players, and domestic and the European Bank for Reconstruction and Development.
international providers of finance. Even though there is no
single global standard of beneficial ownership disclosure, LESSONS LEARNED
in general it refers to persons who directly or indirectly
ultimately own and derive financial benefit from a company or The lessons from EIT implementation in Azerbaijan reveal that
13
commercial activity. Establishment of a beneficial ownership providing transparency in the extractive industry helps build
disclosure regime through implementation of the Roadmap multi-stakeholder dialogue. This lays the groundwork for the
will allow Azerbaijan to demonstrate continued leadership in creation of a cooperation framework in which companies,
the area of transparency concerning the extractives sector interested parties, and civil society can work together with
and to avoid corruption and tax evasion by unaccountable the Government to find mutually beneficial solutions. This is
corporate entities. Moreover, by allowing stakeholders to gain already a significant step forward, since such cooperation is
access to information on who is investing in the extractives substantially necessary not only to prepare annual EIT reports
industries, it will enhance the governance of the sector and but also to bring significant political and economic advan-
inevitably prevent undesired activities. The project focuses tages in the long term.
on the upstream and midstream extractive industries and
covers at a minimum those companies that are involved in EIT implementation in Azerbaijan initially enhanced confi-
the exploration, development, extraction, and export of oil, dence building and trust in the Government by addressing
gas, and other minerals, as well as companies that invest in, doubts about payments and revenues. Resource-rich coun-
or enter into, engineering, procurement, and construction, tries have significant socioeconomic potential, but large
operation and maintenance, or other long-term service endowments of natural resources can also reduce pressure for
contracts in relation to any of those activities. transparency and can lead to conflicts. Constant disclosure of

12 http://hssk.gov.az/az/ownership.
13 http://files.hssk.gov.az/beneficialownership/911-BO_inception_report.pdf

120 Building Effective, Accountable And Inclusive Institutions In Europe And Central Asia
payments and revenues can help to increase trust in the gov- payments and Government revenues from oil, gas, and mining.
ernment about the allocation of revenues. This increased transparency sends a clear signal that a gov-
ernment is committed to high standards. It also strengthens
Finally, EIT implementation in Azerbaijan contributed strongly accountability and can promote greater economic and politi-
to a better investment climate. Investors regularly evaluate a cal ­stability. All of these factors can enhance the prospect of
number of risks—economic, financial, or, increasingly, politi- investment returns from companies operating in participating
cal—that could affect their investments. The Commission aims countries.
to improve governance by verifying and publishing company

Oil drilling platform in Caspian sea.

Photo: © iStock/ Sergey Burlov

Chapter 5 Drivers and Enablers of Policy Effectiveness 121

CASE STUDY 5.2

Ukraine: The Process of Building

Anti-Corruption Institutions
VICTORIA SAVCHUK, HEAD OF COMMUNICATIONS, ANTI-CORRUPTION ACTION CENTRE

ARTEM SYTNYK, DIRECTOR OF NATIONAL ANTI-CORRUPTION BUREAU OF UKRAINE

DENYS BIHUS, EDITOR-IN-CHIEF, BIHUS.INFO (INVESTIGATIVE JOURNALISM AND ANALYTICAL SYSTEMS

FOR JOURNALISTS AND NGOS)

CONTEXT
During this time, nongovernmental organizations (NGOs) like
In Ukraine, corruption was seen as a way of life. The lack of the Anti-Corruption Action Center (ANTAC) continued to
effective punishment generated an atmosphere of impunity cooperate with different stakeholders, including parliamen-
in society, and law enforcement agencies and courts did not tarians and officials from Government departments. ANTAC
provide a solution, but became part of the problem. At first, members used their expertise, communicating with different
there was no sincere political will to fight corruption. Ukraine’s target audiences, and organizing direct action campaigns.
former President Petro Poroshenko was publicly opposed A variety of means were used to stem the tide of entrenched
to establishing a separate, independent High Anticorruption corruption: news agencies, the public “court of opinion,” and
Court in Ukraine, even though he later sought to use it to investigative journalism. The interaction and strong will of
boost his own political capital. civil society, the media, international partners, reformers, and
others led to some positive results.
One of the aims of the “revolution of dignity” in Ukraine was
to finally break the vicious cycle of corruption, making it not ANTAC sees its primary objective as the creation of an envi-
the rule but the exception. Success came when many differ- ronment for officials and politicians in which corruption is not
ent stakeholders come together to tackle the issue of rampant profitable because of the high material and reputational price
corruption in Ukrainian society. of punishment. To achieve this goal, ANTAC employs various
expertise, cooperates with different stakeholders from the
IMPLEMENTED ACTIONS Parliament and the government, and raises awareness for
different target audiences through direct action campaigns.
Anticorruption advocates in Ukraine wanted to create an envi- It also collaborates with international partners and pushes for
ronment for officials and politicians in which corruption would the use of conditionalities. Core to its operation has been find-
not be profitable because of the high price of punishment. It ing the right synergies among international partners, NGOs,
was decided to focus on creating new agencies to fight grand the media, and reformers inside and outside the country. The
corruption. Immediately after the revolution in 2014, a new ANTAC website can be viewed at http://antac.org.ua/en.
infrastructure of anticorruption agencies was created, and it
succeeded in addressing the problem. System of Asset Declarations. ANTAC championed the cre-
ation of independent anticorruption institutions, including
Anticorruption advocates created a “sandwich effect”—that is, an electronic system of asset declaration (e-declarations) for
Ukrainian civil society and international partners came together public officials. E-declarations showed the difference between
to exert unprecedented pressure on both the presidential public officials’ incomes and wealth and gave rise to poten-
administration and Parliament. Ukraine’s foreign partners—the tial investigations. Two million open access e-declarations
World Bank, the International Monetary Fund, the European against Ukrainian public officials were logged. Ukrainian offi-
Union, and others—reinforced the anticorruption message. cials declared their modest Government salaries and millions

122 Building Effective, Accountable And Inclusive Institutions In Europe And Central Asia
of dollars in cash, gold bars, and luxury watches, dozens of
FIGURE 5.2-1.
offshore companies, or expensive wine collections. Examples of NABU’s public outreach

National Anti-Corruption Bureau of Ukraine (NABU). NABU,

Public Relations
created in 2015, is a Ukrainian law enforcement agency that
investigates corruption in Ukraine and prepares cases for
Based on trust, transparency and
prosecution. It has investigatory powers but cannot indict cooperation
suspects. It employs 700 people. So far, NABU has brought Society's influence on staff selection and
200 cases to the courts, leading to the indictment of more civil control over NABU through the Public
oversight Council
than 300 people, including Members of Parliament, Ministers,
Heads of State, the Fiscal Service of Ukraine, the Accounting Effective cooperation with the media: every
sixth NABU case is based on journalistic
Chamber, the State Audit Service of Ukraine, state-owned investigations or contains facts published in the
enterprises, and judges. However, NABU operates in a dif- media
ficult environment that is characterized by court sabotage,
Educational activities for youth in order to
resistance by other law enforcement agencies, attempts promote zero tolerance against corruption
to limit its institutional and functional independence, and
decriminalization of illegal enrichment. In this environment,
careful public relations has become an extremely import-
FIGURE 5.2-2.
ant tool to foster trust, transparency, and cooperation (see Awareness campaign “Students Against
Figure 5.2-1). Corruption”

Students Against Corruption. Campaigns focused on soci-

ety’s younger members help to create a change in perception
among the next generation of citizens, some of whom will Raising awareness
form the next group of leaders. It sends the message that the campaign
future is one of little or no corruption (see Figure 5.2-2). • 21 universities
• 17 cities
• 4,000 students
Investigative journalism. In addition to the challenges and
problems discussed above, society’s faith in positive change, STUDENTS AGAINST CORRUPTION Ukraine, 2017–2018
enabled by the media, has been low. The historical position of
the media in Ukraine was not an easy one – they faced a num-
ber of challenges that were strongly rooted in society and are
FIGURE 5.2-3.
still evident today, such as the fear of retaliation. Figure 5.2-3 Historical challenges faced by the media
presents the “baseline” from which new efforts to change
began.
Baseline
• Solid hierarchy of power. Lack of any political or “corrupt”
Despite the challenges, a number of actions have been taken
competition.
not only to change the public’s negative perception of the • Paucity of data and of the possibilities to analyze it.
media as an enabler of the oligarchy, but also to reinforce their • Lack of reaction by the law enforcement and the executive
authorities.
role as a denouncer of corruption and state capture. Teams • The society’s faith in changes and the media as their enabler
that conduct journalistic investigations have been expanded, is low.

and journalists take part in the public councils of state agen-

cies, including the vetting of candidates for state authorities.
Investigative journalists work on making the data in state Another important effort has been to work with public opin-
registers public, and on the basis of these data, services have ion, eradicating the term budget money (no one’s money) and
been created for journalists and NGOs. introducing the notion of taxpayers’ money (your money).

Chapter 5 Drivers and Enablers of Policy Effectiveness 123

This has included engaging citizens to participate in analytical anticorruption advocates want to reboot all the criminal jus-
or investigative projects. Law groups have been created to act tice agencies in Ukraine.
as an intermediary (translator or liaison) between journalists
and law enforcement to facilitate a more effective reaction to After the adoption of new laws, ANTAC, along with other
the investigations. organizations and media, started following the implementa-
tion of reforms and the selection procedures at new agencies.
These projects have included the participation of specialized Alongside the already working instruments, there is still a
investigative journalists, IT experts (in development, system- need to look for new ones. ANTAC sees the resistance to pos-
atization, and data analysis), lawyers, representatives of state itive changes and the need to relaunch part of the institutions
agencies (unofficially), and experts in various aspects of the as the new challenges in the anticorruption agenda in Ukraine.
economy.
For two years, Ukrainian civil society and international part-
Thanks to the work of the journalistic teams, 192 proceedings ners were fighting to promote the essential role of the Public
have been initiated by various agencies over 18 months. There Council of International Experts in the process of selecting
has been constant reaction by state agencies, even without the the High Anticorruption Court judge. In the end, six well-rec-
commencement of criminal proceedings. More than 30,000 ognized international experts worked in Ukraine, analyzing
people are taking part in volunteer projects; the most popular and banning notorious candidates. As a result, 40 percent of
open data projects were undertaken by NGOs. The estimated the candidates withdrew from the competition for the High
amount of taxpayers’ money saved exceeds 1 billion hryvnias. Anticorruption Court.
The journalistic investigations triggered the commencement
of proceedings against the head of the National Guard, the On September 5, 2019, Ukraine’s High Anticorruption Court
head of NACP, deputy head of Foreign Intelligence, deputy finally started its work and began considering cases of
head of SBU, and several Members of Parliament, including Ukrainian top officials. Ukrainian society expects that the new
heads of committees, and so on. court will follow the rule of law and not carry out “business-
as-usual.” Ukrainians demand that judges deliver fair sen-
RESULTS tences to people who are convicted of corruption.

After five years of action on corruption, how has Ukraine LESSONS LEARNED
changed? There are new anticorruption agencies, a new
anticorruption court, a number of open registries, and a sys- Anticorruption advocates in Ukraine learned that cooperation
tem of asset declarations. Efforts led by ANTAC have gen- between domestic and international stakeholders is crucially
erated significant results. More than 196 court cases against important. It is also important to control the process of reform
top officials have led to 31 convictions, and 2 million e-dec- implementation and test new approaches.
larations against public officials have been submitted. After
NABU and the Special Anticorruption Prosecutor’s Office The new anticorruption institutions are small agencies,
were launched, 224 corruption cases against top officials and they do not replace the entire prosecution, police, and
reached court. ­judiciary. But they serve as an oasis for change in criminal
­justice in Ukraine.
Ukraine’s previously untouchable corrupt politicians are
now being charged. For instance, Ukraine’s tax agency chief The new institutions are not ideal, but still much better than
and a key ally of the ex-prime minister found themselves in all other Ukrainian law enforcement agencies. And reform
court after NABU investigated corruption schemes in which is an ongoing process; these agencies have people who are
they were involved. While the new institutions could still be independent professionals ready to deliver justice – they are
improved, they are much better than the other Ukrainian law Ukraine’s future law enforcement elite. And with time, they will
enforcement agencies. And the process is ongoing; in time, reboot all criminal justice agencies in Ukraine.

124 Building Effective, Accountable And Inclusive Institutions In Europe And Central Asia
Case Study 5.3

Western Balkans: Public Administration

Reform (PAR) in the Context of EU Integration
MILENA LAZAREVIĆ, PROGRAM DIRECTOR, EUROPEAN POLICY CENTRE

CONTEXT
for several years now, but since 2014 these reforms have
At the Thessaloniki Summit in 2003, the EU reiterated the proceeded under a new framework developed by the EC,
European perspective of the Western Balkans region, based with the support of SIGMA/OECD:14 The Principles of Public
on its satisfying accession criteria, including institution-build- Administration.15 These principles are now the main frame-
ing and rule-of-law reforms. Since then, despite a common work guiding and monitoring administrative reforms in the
mantra that reforms need to be implemented for the sake Western Balkan countries and Turkey,16 guiding them in
of the citizens and not the EU, the integration process has the direction of s­uccessful transformation into EU mem-
remained the main driver of reforms directed at increased bers.17 The principles define the scope of PAR through six
openness, transparency, and accountability of the govern- key areas (see Figure 5.3-1).
ments and public administrations in the region. Considering
that effective and efficient public administration is a prereq- Against this background of EU standards and guiding prin-
uisite for proper implementation of EU policies at the national ciples, six Western Balkan think tanks, gathered within the
level, this area has become increasingly prioritized as part of regional Think for Europe Network, have started an initiative
the accession dialogue with the Western Balkan countries. The for independent, external, civil society monitoring of PAR in
increased focus has come partly as a consequence of lessons the region. The rationale for this initiative, called WeBER, is
learned from the 2004-2013 enlargements, which revealed that only by empowering local nongovernmental actors and
the weaknesses of internal governance mechanisms in former strengthening participatory democracy at all levels can the
communist/socialist countries. same pressure on the governments to continue implement-
ing the often painful and inconvenient administrative reforms
Consequently, the European Commission (EC) has pro- be maintained post-accession. The overall objective of the
moted public administration reform (PAR) as a fundamen- WeBER project has been to increase the relevance, participa-
tal area of reform on any country’s path to EU membership tion, and capacity of civil society organizations (CSOs) and
(along with rule of law and economic governance). Countries media in the Western Balkans to advocate for and influence
of the Western Balkan region have been conducting PAR the design and implementation of PAR. Besides monitoring

14 SIGMA (Support for Improvement in Governance and Management) is a joint initiative of the OECD and the European Union. Its key objective is to strengthen
the foundations for improved public governance, and hence support socioeconomic development through building the capacities of the public sector,
­enhancing horizontal governance and improving the design and implementation of public administration reforms, including proper prioritization, sequencing
and budgeting. More information is available at: http://www.sigmaweb.org/
15 Principles of Public Administration, SIGMA/OECD, http://www.sigmaweb.org/.
16 A separate document, The Principles of Public Administration: A Framework for ENP Countries, has been developed for the countries encompassed by the
European Neighborhood Policy (ENP): http://bit.ly/2fsCaZM.
17 SIGMA conducts regular assessments of the progress made by the Western Balkan countries’ governments in fulfilling the principles. Across-the-board
­assessments (for all six key areas) are conducted once every two years, and in between smaller-scale assessments are done for specific chapters evaluated as
critical by SIGMA. For more information on SIGMA assessments, visit www.sigmaweb.org.

Chapter 5 Drivers and Enablers of Policy Effectiveness 125

FIGURE 5.3-1.
Public administration reform – key areas

Policy Public Service

Development and Human Service Public Financial
Accountability
and Resource Delivery Management
Co-ordination Management

Strategic Framework of Public Administration Reform

PAR, WeBER has also developed a regional civil society on specific knowledge and experience accumulated in the
­platform for consultations on PAR—the WeBER Platform— region’s civil society. Simultaneously, the WeBER exercise
gathering over 130 CSOs from across the Western Balkans. aims at building CSOs’ capacities for and skills in conducting
The platform has fostered evidence-informed policy dis- external reform monitoring based on combinations of quan-
cussions between civil society, governments, and interna- titative and qualitative data, gradually allowing for widening
tional and regional organizations. Additionally, a region-wide the scope of monitoring, as the countries’ EU integration pro-
WeBER Small Grant Facility has enabled 33 locally based and cess proceeds. Post-accession, the objective is for the CSOs
grassroots organizations to monitor and engage in PAR in to continue their external monitoring in a more holistic way,
their local communities. considering that SIGMA’s mandate is expected to expire in
the Western Balkans once the countries accede to the EU.
The European Commission’s independent evaluation In such a changed environment, comprehensive civil soci-
recognized WeBER as one example of good practice in ety monitoring of PAR will serve to maintain the pressure
“long-haul efforts to bring in structural changes in an
­ and momentum for EU-compliant reforms of the region’s
­institutional ­environment that has recently become fairly administrations.
acute and ­difficult (deterioration of the effectiveness of
public ­administration, etc.).”18 The monitoring approach developed by WeBER is fully quan-
tified, based on 23 compound indicators, and specifically
IMPLEMENTED ACTIONS designed to measure the transparency, openness, account-
ability, and citizen-friendliness of the public administration.
Civil Society Monitoring of PAR – the PAR Monitor In other words, through a set of indicators, WeBER measures
the citizen-facing aspects of the EU’s Principles of Public
The purpose of PAR monitoring by WeBER is to help guide Administration. The monitoring approach is also based in local
the governments in the region toward successful EU acces- knowledge, strongly relying on information provided by CSOs
sion and membership. The monitoring approach has been and on citizens’ perceptions and the views of civil servants
devised around the PAR requirements defined under the employed in the region’s administrations. Rather than taking
EU’s enlargement policy, Principles of Public Administration, a holistic view of each of the principles, the PAR Monitor is
as the common denominator of PAR reforms in the region, based on the selection of principles that are most relevant
which have therefore been used as the building blocks of the to the purpose of the project, and its indicators are designed
PAR Monitor Methodology. Pre-accession, WeBER’s mon- to focus on the citizen-facing aspects of the selected princi-
itoring serves to support the nongovernmental sector in ples. The first round of monitoring, conducted in 2017/2018,
supplying complementary evidence to SIGMA/OECD, relying included the following data sources:

18 European Commission, Mid-term Evaluation of the Civil Society Facility for the Western Balkans and Turkey, 1 December 2017, https://ec.europa.eu/neighbou​
rhood-enlargement/sites/near/files/csf_evaluation_report_wbt_dig.pdf

126 Building Effective, Accountable And Inclusive Institutions In Europe And Central Asia
 • Public perception survey, conducted between October of PAR; however, this chapter provides only a short summary
15 and November 30, 2017 of the results for a selection of indicators from the five sub-
• Survey of civil servants, conducted March-April 2018 stantive areas.20
• Survey of CSOs, implemented April-June 2018
• Desk analysis, including analysis of the institutions’ All indicators are expressed on a scale from 0 to 5 (integers
websites only)—the same measurement scale that the SIGMA/OECD
• Information obtained based on freedom of informa- monitoring methodology applies, to facilitate comparing the
tion requests made to the institutions findings of these two monitoring systems. Behind the final
• Semi-structured interviews and focus groups with indicator values, for each indicator there is a total point score
CSOs that represents the sum of points awarded for each of its ele-
ments (i.e., subindicators). The final value for an indicator is
RESULTS determined using a conversion table. The individual elements
are based on either qualitative or quantitative data, but all
A Selection of Indicator Results have assigned numerical values, which allows for quantifying
all indicators.21
The PAR Monitor 2017/2018 package comprises six national
monitoring reports and one regional, comparative report.19 The PAR Monitor reports offer detailed interpretations of the
Its results have been widely promoted through the Regional indicator results and provide recommendations based on
WeBER Platform, as well as through individual advocacy the identified deficiencies in each of the national monitoring
meetings targeting specific institutions at the national, reports. The governments’ implementation of these recom-
regional, and EU levels. The reports contain an abundance of mendations would lead to improved indicator values in sub-
data and information about the 23 indicators in the six areas sequent monitoring rounds.

FIGURE 5.3-2.
Indicators for “policy development and coordination”

Indicator 2PDC_P5_I1: Public availability of Indicator 2PDC_P6_I1: Transparency of

information on government performance the government’s decision-making

Albania Albania
5 5
4 4
Serbia 3 BiH Serbia 3 BiH
2 3 2 1
1 1 2
0
0 0 0 1
1 0
2
3 3
Montenegro Kosovo Montenegro 2 Kosovo

Macedonia Macedonia

19 PAR Monitor 2017/2018, www.par-monitor.org.

20 The results of the two indicators in the area “Strategic Framework of PAR” are not presented here. Moreover, for the other five areas, only a selection of indi-
cator results is offered. The full monitoring reports are available at www.par-monitor.org. The website also features an interactive PAR Scoreboard, visualizing
both the WeBER data and the data from the 2017 SIGMA/OECD monitoring reports.
21 The detailed methodology is available on the WeBER website: www.par-monitor.org.

Chapter 5 Drivers and Enablers of Policy Effectiveness 127

FIGURE 5.3-3.
Indicators for “public service and human resource management”

Indicator 3PSHRM_P2_I2: Performance of tasks Indicator 3PSHRM_P3_I1: Openness,

characteristic for civil service outside of transparency and fairness of recruitment
the civil service merit-based regime into the civil service

Albania Albania
5 5
4 4
Serbia 3 2 BiH Serbia 3 2 BiH
2 2
1 1 2
1 1 1
0 0
1 1
1
2
1 1
Montenegro Kosovo Montenegro Kosovo

Macedonia Macedonia

1. Policy Development and Coordination 2. Public Service and Human Resource Management

The two indicators selected for this area (see Figure 5.3-2) The monitoring of the first indicator (3PSHRM_P2_I2) in this
focus on reporting practices and decision-making transpar- area (see Figure 5.3-3) focuses on the extent to which widely
ency at the top government level (i.e., council of ministers/ applied temporary engagement procedures in central state
cabinet level). The first indicator (2PDC_P5_I1) looks at the administrations undermine the general, merit-based civil ser-
extent to which information about the government’s per- vice regime. Through 10 individual elements, this indicator
formance is open and available to the public, through seven combines WeBER’s expert review of legislation, documents,
individual elements (subindicators). It relies on the analysis and websites with its analysis of government administrative
of the most comprehensive websites through which the gov- data and the results of semi-structured interviews with rele-
ernment communicates externally and covers a period of vant stakeholders and representatives of governmental insti-
two annual reporting cycles. Other aspects analysed include tutions in charge of the human resource management policy.
the understandability of communication practices, and It also includes the measurement of civil servants’ perceptions
whether communications contain specific types of informa- through the online survey of civil servants.
tion and data; descriptions of concrete results; and the online
availability of reports on key whole-of-government planning The second indicator (3PSHRM_P3_I1) measures the open-
documents. ness, transparency, and fairness of recruitment into the civil
service through public competitions, a particularly critical
The second indicator selected for this chapter (2PDC_P6_I1) aspect of human resource management in the public admin-
measures the transparency of decision-making by the gov- istration because of its public-facing character. This indica-
ernment through a combination of the perception informa- tor, composed of 11 subindicators, examines both the extent
tion and the analysis of relevant government websites. Its to which merit is taken into account in these competitions
five elements examine the completeness, citizen-friendliness, and how attractive or burdensome they are to people out-
timeliness, and consistency of information on the decisions side of the administration. The analysis of recruitment doc-
taken by the cabinets, as provided by the government web- umentation and information on websites is balanced with
sites (monitoring covering each government session in the perceptions of civil servants and the public gained from per-
last quarter of 2017). ception surveys.

128 Building Effective, Accountable And Inclusive Institutions In Europe And Central Asia
FIGURE 5.3-4. ministries, a ministry with a general planning and coordination
Accountability indicator function, a government office with a center-of-government
function, a subordinate body to a minister/ministry, and a gov-
Indicator 4ACC_P2_I2: Proactive informing of ernment office in charge of delivering services. The individual
the public by public authorities types of information assessed in the indicator are analysed
Albania through 18 subindicators, with the last indicator looking at the
5 pursuit of an open data policy by the public authorities.
4
Serbia 3 2 BiH 4. Service Delivery
3 2
1 2
0 The first indicator (5SD_P1_I1) in this area (see Figure 5.3-5)
1 0 1
is fully perception-based and is measured by using a public
Montenegro Kosovo perception survey in all Western Balkan countries. Through
11 subindicators, it focuses on how citizens perceive service
delivery in practice. It includes questions on various aspects
Macedonia of importance to service users, such as awareness of service
and knowledge about how to use them, efficiency in delivery,
3. Accountability digitization, and feedback mechanisms.

This indicator (Figure 5.3-4) focuses on how administration The second indicator (5SD_P3_I1) measures the availability of
bodies inform the public, by monitoring the comprehensive- citizen feedback by combining results of a public perception
ness, timeliness, and clarity of the information disseminated survey with the analysis of websites of service providers. In the
through the official websites of seven sample institutions. public perception survey, citizens were asked about the possi-
Information is assessed against two groups of criteria – basic bilities they have to provide feedback on the quality of services,
criteria, looking at whether the information is complete and about the ease of use of the channels for providing feedback,
up to date, and advanced criteria, analysing accessibility and about their and civil society’s role in monitoring service deliv-
citizen-friendliness (except for the open data element). The ery, and about whether such efforts result in improved service
sample of seven administration bodies consists of three line delivery. The indicator comprises six elements.

FIGURE 5.3-5.
Indicators for “service delivery”

Indicator 5SD_P1_I1: Public perception of Indicator 5SD_P3_I1: Public perception and

state administration’s citizen availability of information on citizens’ feedback
orientation regarding the quality of administrative services

Albania Albania
5 5
4 3 4
Serbia 3 BiH Serbia 3 2 BiH
4
2 2
1 2 1
1 1
0 0
2
3 3
4
Montenegro Kosovo Montenegro 2 Kosovo
3

Macedonia Macedonia

Chapter 5 Drivers and Enablers of Policy Effectiveness 129

5. Public Financial Management countries’ progress. Although the accession process is pro-
moted as a merit-based one, the Western Balkan countries’
The first selected indicator (6PFM_P5_I1) in this area (see practices with regard to the openness, transparency, account-
Figure 5.3-6) measures the extent to which key budgetary ability, and citizen-friendliness of their administrations do
documents are transparent and accessible to citizens, based not necessarily support that claim. The countries that are the
on seven individual subindicators (elements). It looks also at front-runners in the EU integration process (Montenegro and
the scope of budgetary information available in these docu- Serbia) have not emerged as the front-runners in specific PAR
ments and at how this information is presented and adapted reforms measured by the WeBER.
to audiences such as civil society or the interested, non-expert
public. Primary sources are the Internet portals of the minis- Another lesson learned from the monitoring exercise relates
tries in charge of finance and the data available on these web- to the importance of identifying and promoting individ-
sites, but also official governmental portals (including open ual reform champions, which can indeed be found in each
data portals where they exist). ­country. With civil servants often working in difficult environ-
ments, with little political support, recognition of efforts to
The second indicator (6PFM_P16_I1) is used for monitoring bring about tangible change and improvement in the systems,
the supreme audit institution’s practices of external commu- even if it concerns a single institution, does a great deal to
nication and cooperation with the public. It looks at whether support the efforts to reform the administrations.
there is a strategic approach, and it analyzes the means of
communication and the application of citizen-friendly tools Concerning challenges that the monitoring exercise encoun-
and approaches to audit work. The measurement of the com- tered, a major one was to assure regional comparability of
plete indicator combines the analysis of SAI documents and data. To address this challenge up front, throughout the
websites and interviews with supreme audit institution staff research and analysis process, the researchers from the six
through six subindicators. think tanks collaborated intensively, holding weekly quality
assurance meetings to facilitate unified approaches in the
LESSONS LEARNED application of the monitoring methodology. As an addi-
tional measure of regional quality assurance, a senior expert
The monitoring results across the six PAR areas have revealed conducted regional cross-checking of all results. Moreover,
surprising trends, with important implications for both the EU individual indicator results in each country were sent to the
aspirants and the European Commission’s reporting on the contact points in the administration for fact checking. In

FIGURE 5.3-6.
Indicators for “public financial management”

Indicator 6PFM_P5_I1: Transparency and Indicator 6PFM_P16_I1: Supreme Audit

accessibility of budgetary Institution’s communication and cooperation
documents with the public pertaining to its work

Albania Albania
5 5 4
4 4
Serbia 3 2 BiH Serbia 3 BiH
2 2
2 1 2 2 1
1
0 0
1 0
1
3
4
Montenegro Kosovo Montenegro Kosovo

4
Macedonia Macedonia

130 Building Effective, Accountable And Inclusive Institutions In Europe And Central Asia
addition to the challenges associated with ensuring maxi- analysis and survey data. All partners agreed that indicators
mum regional comparability of findings, in some cases there relying exclusively on survey/perception data were not infor-
were challenges with data collection, particularly with data mative enough.
obtained from the administrations. For example, in some cases
ministries of public administration were reluctant to dissemi- Finally, the overall lesson learned from this exercise is that
nate the online survey to civil servants across the administra- domestic, bottom-up pressure for reform can indeed be stim-
tion (Montenegro), or the response rate by civil servants was ulated through external reform monitoring by civil society.
very low despite the responsible ministry’s genuine efforts Even when disputing monitoring results and expressing dis-
to spread the survey invitation (North Macedonia). Finally, in satisfaction with the results, governments still reacted and, in
some cases, monitoring results were disputed by the relevant some cases, have already taken measures to address some
ministries in cases where they showed backsliding or lagged of the specific recommendations (offered in the six national
behind the region’s nominal EU accession front-runners PAR Monitor reports). The comparative results showed above
(Montenegro and Serbia, in particular). At the same time, in stimulated discussions among the governments, particularly
Bosnia and Herzegovina, for example, the WeBER monitoring during the final regional project conference, and there is
results have been frequently quoted as an important source already some evidence that peer pressure was created. The
of information and recommendations for the state adminis- expectation is that for the second round of monitoring the
tration’s efforts to improve transparency, citizen-friendliness, governments will attempt to do more to address the weak-
accountability, and so on. nesses identified in the first round of PAR Monitor reports
and improve their scores on the indicator scales. Combined
A second monitoring round is planned for 2020, and fund- with the top-down monitoring and conditionality by SIGMA/
raising for the continuation of this exercise is ongoing. In OECD and the EU, these domestic efforts to call governments
terms of what could (or should) be done differently the to account for the quality of the administration can in the long
second time around, a key conclusion was that some indi- run yield important results in terms of the sustainability of
cators would need to be revised to better balance hard data reforms.

Chapter 5 Drivers and Enablers of Policy Effectiveness 131

CASE STUDY 5.4

Kosovo: Political Will: A Precondition

for Success
BESNIK TAHIRI, FIRST DEPUTY PRIME MINISTER OF THE REPUBLIC OF KOSOVO

CONTEXT
The Agenda 2030, a global action plan anchored around
Kosovo, which became independent in 2008, is one of five P’s – People, Planet, Prosperity, Peace, and Partnership –
the youngest countries in the world. It has a population of seeks to strengthen sustainable peace by advocating for the
1,920,079 and a territory of 10,889 square kilometers. Kosovo’s bold and transformative steps that are needed to achieve
story of building institutions and establishing an efficient civil the Sustainable Development Goals (SDGs). Fully embrac-
service is instructive. In the 1990s, when principles of good ing the concept, Kosovo has expressed a voluntary com-
governance were introduced—accountability, transparency, mitment to achieve the SDGs by adopting a resolution
and efficiency—Kosovo had no established system. At that in the Kosovo Assembly and establishing the Council for
time, the Serbian regime had dismissed the majority of the Sustainable Development within the Assembly. The political
population from public institutions, leaving Kosovo adrift, commitment to the implementation of the SDGs also lies in
without an administration. the executive branch, as the establishment of the Council
for Sustainable Development was supported by the Prime
After the war concluded in 1999, Kosovo operated under Minister’s Strategic Planning Office. Furthermore, the NDS
the administration of the United Nations Mission in Kosovo. includes a range of interventions that are closely aligned
During this time, international bodies helped establish dem- with the European agenda and the SDGs; this is also men-
ocratic institutions and election processes; however, given tioned in the first report on the implementation and results
the presence of numerous perspectives and voices, this was of the NDS.
a confusing time. When Kosovo declared its independence
in 2008, public administration reforms were not a priority; Currently, one of the Government’s main priorities is public
instead, Kosovo’s agenda was focused on political issues such administration reforms and improvement of the civil service.
as recognition and membership in the United Nations, World The civil service in Kosovo is composed of 80,988 workers,
Bank, and so on. 37,551 at the central level and 43,437 at the local level. Not
having a regulatory framework has for many years had a neg-
More recently, the signing of Kosovo’s EU Stabilization and ative effect on the public sector. Today, through the reform
Association Agreement in 2016, and the subsequent introduc- agenda, the Government has introduced an advanced struc-
tion of the European Reform Agenda (ERA) and the Economic ture and legal framework that not only improves civil service
Reform Program, have laid the path for transformative processes but also adheres to good governance principles. Facilitated by
and a change of objectives. EU integration, as an overarching the National Coordinator for State Reforms (NCSR) Office, the
priority, is supported by all major political parties in Kosovo Government has introduced three major reform interventions:
and has been one of Kosovo’s key development drivers. This (a) a package of laws on public administration reform, which
endeavor is in accord with the National Development Strategy includes the Law on Organization and Functioning of State
(NDS) 2016-2021, the Government’s commitment to implement Administration and Independent Agencies, the Law on Public
the EU Stabilization and Association Agreement, and its prior- Officials, and the Law on Salaries, (b) the Law on Government,
ities as set by the ERA and other accession-related processes. and (c) the Law on Inspections.

132 Building Effective, Accountable And Inclusive Institutions In Europe And Central Asia
IMPLEMENTED ACTIONS
adopted in timely manner. The roles of the central and local
Reform Process government departments, donors, and all development part-
ners are crucial to ensure that institutions have sufficient
The Government’s objective is to introduce reform processes capacity for a coherent approach to implementation.
that develop sustainable policies to be implemented by a neu-
tral, rational, professional, and functional public administration. Package of Laws on Public Administration Reform. The key
The reforms take into consideration a number of models and reforms of the public administration reform are related to
organizational structures, which, in principle, establish a nec- the package of legislation on state administration, public
essary link with political power. Reform processes establish a officials, and salaries, and rationalization of agencies under
balance between the quality of policymaking and the profes- the Government and Assembly. The package of public
sionalism of the public administration for the implementation administration laws opens a new chapter on state admin-
of public policies, with a focus on sustainable development. istration by clearly establishing the hierarchy, structure,
Reforms in the policymaking process set a particular tone of and organization of the public administration. With the
interaction with development partners. The roles of actors support of international experts and a wide stakeholder
involved in the process are related to each other as they inter- consultation process, public administration reform laws lay
vene in a consolidated way in the process of making public the foundations for a stable and effective form of public
policies. administration.
• The Law on Organization and Functioning of State
Through reform processes, Kosovo has created a structure of Administration and Independent Agencies defines the
institutional functioning with high standards of governance. rules for the organizing and functioning of the state
This structure includes parameters that guarantee efficient administration and independent agencies established
and functional governance, full independence of the admin- by the Assembly. More specifically, this law sets clear
istration based on hierarchy and merit-based salaries, high rules for the entire ministerial system and public ser-
standards of meritocracy and competition in recruitment, vice administrations by defining their role in the minis-
and well-structured agencies that are in the process of being terial system. Furthermore, it provides an appropriate
fully operational. The key pillars of the reform process are institutional organization by setting the criteria for the
Public Administration Reform; Effective Functioning of the establishment, management, and accountability lines
Government and Executive Agencies; Functional Reforms for independent agencies.
in Local Government; and Inter-Institutional Coordination • The Law on Public Officials creates a legal framework
and Harmonization of the Agenda with Developing Partners. for the employment of public officials based on prin-
These pillars are described below. ciples of meritocracy, moral integrity, impartiality, and
consistency. The law outlines general rules for the
Public Administration Reform admission of public officials, administration, person-
nel planning, personnel files, and an integrated sys-
The first pillar consists of the actions that come from ERA tem for managing human resources. One of the most
and Agenda 2030, specifically good governance and the rule beneficial aspects of this law is that it prevents the
of law. The NCSR has supported the process of drafting the occurrence of three major issues in the recruitment
package of laws on public administration reform (Law on process in Kosovo – political favoritism, nepotism,
Salaries, Law on Public Officials, and Law on Organization and clientelism. To avoid corrupt behavior during
and Functioning of State Administration and Independent recruitment, the Law on Public Officials has intro-
Agencies). In the same action plan that derives from ERA, duced a new form of test-based examination, intro-
the NCSR has supported the process of completing the Law duced a new evaluation format that is 70 ­percent
on Financing Political Parties. It is of paramount importance based on unseen material, and eliminated traditional
that the legislation and related policy reform processes are one-on-one interviews.

Chapter 5 Drivers and Enablers of Policy Effectiveness 133

 • The Law on Salaries determines the system of salaries formats of government, one with 12 ministries and the
and awards for functionaries and public officials. The other with 15.
law establishes a homogeneous payroll system for all • Recognizing the importance of addressing the busi-
employees in the public sector by defining rules to ness inspections regime, the Law on Inspections aims
determine salaries and their components. The Law on at improving coordination and establishing a set of
Salaries is based on a set of new rules that establish unified procedures on business inspections that must
a transparent and equal pay system by implementing be applied by all inspection bodies. This law has four
the principle of the same wage for the same work. The major objectives: (a) defining principles and unique
law classifies civil servants by positions, pay grades, rules that should be followed in the inspections pro-
and grades, clustering salaries into coefficients 1 to 12 cedures, (b) establishing the Inspector General’s Office
distributed to 54 levels and salary groups. As a result to coordinate the inspections, (c) reducing the number
of this law, the public sector has been downsized from of inspection authorities, and (d) improving training
8,000 to less than 1,700 titles, for which the lowest sal- and establishing clear inspections procedures.
ary is €322 and the highest is €2390.
• With the aim of addressing key challenges of the pres- Government and Executive Agencies Functioning Reform
ent and future Governments, the Law on Government
aims at restructuring the government, setting and This second pillar of the reform process is related to the
limiting the number of ministers and deputy minis- reform in the inspections field, and the reduction of the num-
ters, standardizing decision-making and policymaking ber of permits and licenses from 480 in 2015 to 456 in 2018.
procedures, and preventing potential misuse of official More specifically, with this law 52 percent of the permits and
mandate. As Table 5.4-1 shows, there has been a con- licenses have changed their legal form, 22 percent have been
stant increase in the number of ministries in Kosovo changed in the deadline for response, 15 have been changed
through different governing periods. This growth in the application form, 35 have been changed in the required
of the structures of government and governmental documentation during the application, and 74 permits and
officials has resulted in the duplication of portfolios, licenses have been removed to be substituted with 50 other
overlapping of responsibility, lack of accountability, permits and licenses. While strengthening the simplification
negative budgetary implications, and inefficient use of and efficiency of institutional structures in service, the law has
resources. managed to improve the climate for investment and doing
• The Law on Government addresses these issues by business. The Government aims to approve and implement
defining the governing principles of the Government as the program to reduce the permits and licenses further by 10
the executive branch, guided by the principles of trans- percent.
parency, efficiency, and effectiveness. It also defines
the mandate and composition of the Government, Functional Reforms in Local Government
the appointment and termination of members of the
Government, and the Government’s powers in resig- The third pillar in the reform process includes a functional
nation. The purpose of this law is to create a proper review of local governance that arose out of ERA and the
legal system that provides for (a) more effective and SDGs. Kosovo accelerated its implementation of the Strategy
efficient institutional coordination, (b) more efficient for Local Self-Government (2016-2026) and has taken steps
public spending, and (c) enhanced accountability regarding sustainable financing and local economic devel-
and work efficiency in the public administration. After opment based on another strategy, the Strategy for Local
broad internal and public consultations, the working Economic Development (2019-2023). During this period, the
group on this law, chaired by the National Coordinator NCSR has supported the completion of changes on the Law
for State Reform, has proposed a cap on the num- on Local Government Finance and the process of drafting and
ber of ministries—or more specifically, two potential consultation on the Law on Allocation for Use and Exchange

134 Building Effective, Accountable And Inclusive Institutions In Europe And Central Asia
 RESULTS
of Immovable Property of Municipalities, and has analyzed
policy changes and basic and sectorial legislation that affect See Table 5.4-2 on page 137.
local governance. In this area, the Office of the NCSR has
consolidated and led dialogue and consultation through the LESSONS LEARNED
Government-Municipality Consultative Forum. Accompanied
by the Prime Ministers, the NCSR has coordinated meetings Through the process of introducing vital state reforms, Kosovo
and visits to municipalities where they have discussed munic- learned two main lessons: first, political will is a precondition
ipalities’ requests. The role of NCSR was also vital in commu- for reforms, and second, a consultative process is the key
nicating these requests to line ministries and the cabinet and to success. Kosovo has seen many attempts from previous
proposing solutions to the issues. Governments to address problems in state administration;
however, in the absence of political will, none of these was suc-
Inter-Institutional Dialogue and Harmonization of the Agenda cessful. The willingness of political actors to push these agen-
with Development Partners das forward during the mandate of the present Government
immensely helped the development of the reform processes
The fourth pillar encompasses the dialogue and cooperation in Kosovo (Figure 5.4-1 captures some of the key stakeholders
between institutional actors (e.g., Office of the Prime Minister of the consultation process).
and NCSR) and development partners (including civil society
organizations, or CSOs) toward achieving the common devel- The second lesson is that a broad consultation process is one
opment goals. As key institutional bodies, they have advocated of the main drivers of success. Consultations are delicate and
for a policymaking process that is comprehensive, transpar- must be taken seriously. Initially, as Government represen-
ent, and open, to ensure that the reform process finds broad tatives, it is important to consult internally. For the author’s
political and public consensus. The NCSR has overseen the team, this meant numerous meeting with ministries, repre-
reform process and facilitated legislative changes with the sentatives of the office of the Prime Minister, heads of depart-
support of decision-makers, professional teams, and local and ments, even international organizations such as EU, UNDP,
international experts. The agenda between institutional actors World Bank, and others. These stakeholders brought to the
and development partners was harmonized and further com- table different perspectives and ideas that complemented our
plemented by the recent initiative undertaken between the reform processes. Public consultation is also essential in devel-
Ministry of European Integration and the UN Kosovo Team oping reform agendas. During this form of consultation, it is of
(UNKT). The expected establishment of the Kosovo Sustainable paramount importance to incorporate civil society, given their
Development Coherence Fund, with the contribution of multi- research capacities and expertise in societal problems. For
lateral development partners and the Government, will have a instance, in Kosovo’s case, CSOs played a vital role in providing
multiplier effect of aligning policy and programmatic support research on specific articles, such as those on gender balance
for Kosovo’s EU accession and simultaneous achievement and participation. Before introducing a law in the parliament,
of the SDGs. This would be achieved under the framework of government representatives should also consult members of
the NDS (2016-2021), and in light of the Government’s com- parliament to make sure their viewpoints are carefully scru-
mitments to implement the EU Stabilization and Association tinized and that they are supporting the process of reforms.
Agreement and other accession-related processes. Throughout the whole process of reform, it is important to stay
focused, be positive, and trust yourself. Having these qualities
will help you pave the way toward change and success.

Chapter 5 Drivers and Enablers of Policy Effectiveness 135

FIGURE 5.4-1.
Key stakeholder groups of the consultation process

Image 1. Internal Consultation; Image. 2. Consultation with civil society organization; Image 3. Consultation with legal experts ; Image 4. Consultation with
­development partners. Source: Government of Kosovo, 2019.

TABLE 5.4-1.
Composition of the Government of Kosovo, 2002-2019

GOVERNING PERIOD NUMBER OF MINISTERS NUMBER OF DEPUTY NUMBER OF DEPUTY

PRIME MINISTERS MINISTERS

2002 - 2004 12 0 0

2004 - 2007 14 1 30

2007 - 2010 15 2 42

2010 - 2014 18 5 52

2014 - 2017 19 3 57

2017 – Current 21 5 75

136 Building Effective, Accountable And Inclusive Institutions In Europe And Central Asia
TABLE 5.4-2.
Results Framework

FIELD RESULTS ACHIEVED IN PROCESS RESULTS

Public Approval of the Law Package for Public Administration Efficient implementation of the Law Package of
Administration Reform: the Public Administration Reform:
Reform – Law on Organization and Functioning of Public
– Drafting of the package of the
Administration and Independent Agencies
administrative instructions.
– Law on Public Officials
– Law on Salaries. Consultation on the Law with Parliamentary
Commission Law Approval
Approval in the first reading of the Law for Financing the
Political Parties

Government and Leading the interministerial group for the Law on Drafting of the Draft Law on Government:
Executive Agencies Government: – Rationalization of the executive
Functioning – Working group meetings, including the Agency for structures
Reform Gender Equality, to ensure alignment with the Law – Efficiency of the executive
on Gender Equality and international human rights
Drafting of the Draft Law on Inspection Field:
standards and best practices
– Improvement of climate for doing
– Meetings with CSOs including women CSOs and
business
networks
– Rationalization of inspections
– Public discussion

Leading the reform group in the inspections field ;

– Working group meetings, including the Agency for
Gender Equality, to ensure alignment with the Law
on Gender Equality and international human rights
standards and best practices
– Coordination with Ministry of Trade and Industry
and World Bank
– Professional analysis of the reform process
– Draft-law process

Functional Approval of the Law on Prishtina Support of Government for Implementation of the
Reforms in Local Law on Prishtina
Law on Allocation for Use and Exchange of Immovable
Government
Property of Municipality Consultative meetings with municipalities and
other government actors, including municipal
Approval of concept-document for Local Government gender officers
Finances
Drafting of the Law on Local Government
Agenda coordination in efficient coordination of Finances:
implementing the Local Self-Government Strategy – Defining the financing competencies
(2016-2026) – Firefighters; some fields of inspections
– Sustainable financing of social services
and domestic violence shelters
– Measures that derive from Kosovo
Report by European Commission

Government decisions related:

– Economic zones
– Transfer of properties for use to
municipalities
– Specific request from municipalities

Inter-institutional Agenda coordination for good governance and sustainable Drafting of the concept document “Policy
coordination and economic development Development Dialogue with Partners – PDDP”
harmonization of
Drafting the action agenda
the agenda with
development
partners

 137
Youth Resource Hubs in Pristina and Mitrovica offer training facilities and free internet access and provide information for students and
youth organizations in the areas of education reform, conflict management, community service, and human rights. Republic of Kosovo.
Photo: ©Lundrim Aliu / World Bank
CHAPTER 6

The Promise of GovTech

Zohra Farooq Nooryar Bartosz Jakub Solowiej
Senior Financial Management Specialist Consultant
T
oday, political, global, and—increasingly—technolog- Govtech reform nurtures stability and abundance. Nations
ical forces are advancing government reforms. As must account for their resource use with increasing ­efficiency
a primary driver of reforms, technology is satisfying if they are to grow and achieve equilibrium. Emerging Govtech
increasing demands for accountability, efficiency, and perma- solutions enable electronic ­
government (eGovernment)
nence in all aspects of government, offering new opportuni- systems to scale beyond geopolitical boundaries through
ties but also presenting new challenges. unity and interdependence. This is evident today among the
nations that specialize in trade, finance, and energy resource
Technology affords nations the promise of automation, accel- production at a global scale.
eration, and authority by accountability. Undeniably, nations
investing in Govtech are at the forefront of commerce and Nations can no longer wonder whether Govtech will or
trade—for example, the UK, Estonia, Canada, Singapore, and won’t transform their role in the global economy. The choice
Malaysia. Their citizens enjoy the benefits of accountabil- is only a matter of when and how. This chapter discusses
ity and authenticity, while their government policy impact five primary reform groups that affect all aspects of civic
extends far beyond their respective borders. In the coming systems: Revenue, Procurement, Governance, Commerce,
decade, nations with a focus on accountability and authentic- and Security.
ity will emerge as the backbone of global stability.

Revenue

Governments are accounting for corruption and improving entirely redundant, persistent, and archival across geogra-
the general management of financial resources through novel phies. Built well, DLTs are very useful, durable, and resilient.
technological reforms. Traditionally, accounting ledgers track For example, Estonian government tax systems use a unified
the flow of government revenue into pensions, subsidies, and ledger allowing citizens and businesses to reconcile income
investments. International standards subsidized in part by the taxes owed with push-button simplicity. The Estonian eGov-
World Bank Group assist with guidelines and best practices ernment infrastructure operates their DLT system for revenue
for government accounting. Yet traditional revenue systems management. Estonia’s entire Govtech accounting system is
continue to rely on manual processes of planning, account- digital and unified.
ing, and reconciliation. Manual resource planning has a crit-
ical flaw: human error. Manual ledgers prevent the accurate To fully capitalize on eGovernment methodologies, nations
and timely audit of transactions between parties operating on must unify their internal systems and processes at immense
different timescales with different technologies. Today these scale. Big data systems capable of managing exabyte scale [1
challenges are being addressed with blockchain technologies billion gigabytes] are enabling reforms in nations with large
and a focus on accountability, authenticity, and security. populations, saving billions of dollars and countless lives in
the process. Cloud and hybrid computing environments are
While not a panacea, distributed ledger technologies (DLTs) replacing mainframes and other fragmented data storage
provide systems of account at unprecedented scale. DLT systems that require mainframe computing systems, which
provides participants a “chain” of transactions in a ledger secure long-term revenues for providers at the expense of
authenticated by consensus. DLT’s transaction management long-term flexibility for governments. Today’s on-demand
protocols operate smoothly by consensus among widely cloud server systems offer governments computing services
independent untrusted stakeholders. Public, private, and commoditized to offer low total cost of ownership per unit
hybrid ledgers operate well across distributed computing of storage and computation. Furthermore, open source soft-
networks in a variety of physical environments. Accounting ware systems now automate manually intensive processes
transactions on government DLT systems are therefore at immense scale on commodity hardware. By automating

140 Building Effective, Accountable, and Inclusive Institutions In Europe And Central Asia
and unifying manual processes, accounting systems can now Overall, revenue system reforms offer measurable benefits to
manage departmental data uniformly throughout a nation. governments that are willing to unify today’s fragmented sys-
These systems are called “data fabrics.” tems. The undeniable benefits of unity come at a cost, how-
ever: many such systems require several years of assessment,
Data fabrics offer unity and uniformity in process over a dis- prototypical implementation, and iterative rollouts to properly
tributed geography by sharing common access to data. They encompass the full scope of governance in revenue systems
allow globally distributed applications to crunch big numbers. management. Most importantly, they require cooperation.
Such is the case for Aadhaar in India, which is providing iden- However, once deployed, their development continues indefi-
tity management to citizens. Using biometrics unique to the nitely over many cycles.
individual rather than paper documents that can be forged,
citizens of India may claim government benefits to ensure
fully accountable distribution of government revenues.

Procurement

International trade reforms are restructuring supply chains and management of resources to the end consumer, with clear
for governments, producers, and consumers worldwide. gains in value. As an example, today’s industrial agriculture
Procurement is a common target for corruption, denying operations monitor equipment, fertilizer, water, climate, and soil
countries and their people the value they need. All too often yields for nearly every industrial crop. Farmers can anticipate
among developing nations, a lack of procurement account- yields and restrict the application of costly materials using sta-
ability brings foreign investment to a halt, stifling aid that tistical analysis with a high degree of precision.
has the potential to develop life-improving infrastructure.
Oversight from global aid organizations is partially responsi- Accountable procurement leads to better value. DLT systems
ble for reform. On the opposite end of the spectrum, more provide a backbone for collecting archival transaction data
affluent nations rely on accountable systems to procure within advanced supply chain systems. Producers that pro-
resources for GDP growth. vide stakeholders with transparent information see gains in
the value of their goods in global markets that are directly cor-
Accountable supply chains offer the benefits of transparency related with accountability. Consumers are especially sensitive
across markets. Emerging agricultural supply chains allow to value-­added perception when producers provide access to
farming operations to monitor resources and production at food supply chain data. For example, government-subsidized
incredible levels of detail. The advent of the Internet-of-Things commodities that make use of Quick Response codes allow con-
(IoT) has revolutionized supply chain management most of sumers to scan and discover the product history—for example,
all. IoT systems enable interdependent computing devices to facts about origin, transport, and handling from the source to
collect, aggregate, monitor, and report logistics data into mas- the market shelf. Soon it may no longer be sufficient to iden-
sive streams of information. Data scientists with access to this tify origin alone with a “made in” label. Products with traceable
information “fire-hose” train artificially intelligent machine histories will continue to replace those with black-box origins.
learning systems. AI systems allow for comprehensive analysis The data generated in commodity production and distribution
of immensely complex systems that are far too large for man- will serve as the ledger for added value on the market shelf. An
ual computation, facilitating procurement of equipment and organic fruit will be distinguished by its historic ledger rather
resources with a zero-waste goal. Minimizing waste correlates than by brand alone. Although this may sound like an expensive
with a gain in domestic production yields relative to the expense undertaking, it is not. The technology is already in use today and
of production. In addition, it protects the environment. Moreover, it scales horizontally across products (that is, it does not need to
IoT information pipelines provide accountability for the sourcing

Chapter 6 The Promise of GovTech 141

be reinvented for every type of product on the market); only the across sectors. DLT affords aid organizations and
labelling changes at the end point for consumers. governments alike the ability to monitor transaction data
in real time and make decisions based on present states,
The ability to access information in real time is another accessed with push-button convenience from Internet-
important aspect of Govtech procurement system reform. connected devices. Real-time accountability will replace
Resource procurement extends well beyond commodity delayed audit and reconciliation. Bad actors will face barriers
goods. Military, infrastructure, humanitarian, and health to corruption that will effectively make corrupt practices
services will capitalize on the same patterns in commodity a thing of the past.
supply chain management as DLT matures and proliferates

Governance

Legislative reforms are coupling technology with enforce- systems of oversight enable responsible ­
spending on
ment and consequently surfacing conversations around investments.
ethics reform. As Govtech reforms spawn a new generation
of innovation, we must think carefully about the role that There is no denying the value of the Govtech market to pri-
we want emerging technologies to play among citizens vate corporations. Estimates of the total value of the global
and governments, taking into consideration degrees of Govtech sector fall between $502 billion and $1.2 trillion
accountability, data usage, privacy, and ethics. Private inno- annually. Such valuations attract large budgets for ambitious
vation of Govtech systems requires oversight to ensure the projects at a massive scale. However, smaller investments can
development of accountable systems through accountable yield effective improvements to public sector technologies.
means. At the same time, the rapid innovation in private Governments can take advantage of small private firms for
tech is a cornerstone of high-growth potential and profits. experimental developments and expand over a longer period.
We will need to seek an equilibrium between growth and This creates a small- to mid-size business marketplace for
governance. innovators at the fringes of big-tech giants. It also diversifies
the market for innovation, leading to a healthier ecosystem
More money does not necessarily mean more advanced of standards and best practices as common trends emerge
technologies and better results. Private corporations have an through many successful development cycles.
obligation to shareholders to advance returns on investment.
As governments face pressure to direct funding into innova- Overall, good governance of Govtech has a ripple effect with
tion, they risk spawning a generation of powerful start-ups global impact. Sound, small-scale technology investments
whose thirst for revenue exceeds their desire for introspec- yield knowledge that is also applicable to large-scale sys-
tion and oversight. To address this issue, ­governments are tems. As governments establish trust with citizens and pri-
forming Data Ethics and Innovation committees that engage vate sector innovators, the impact will expand across borders
in regulatory discourse, establish independent oversight, for- as nations share common solutions to problems around the
mulate Govtech policy, and design systems for sandboxing world.
potentially disruptive technological advances. Responsible

142 Building Effective, Accountable, and Inclusive Institutions In Europe And Central Asia
Commerce

Governments are aiming reforms at legacy banking sys- consideration since 2018 use a form of wholesale central bank
tems that suffer from fragmentation. Central bank regulation digital currency (W-CBDC). The first entails common mes-
reforms are enforcing more accountable commercial transac- saging protocols and ISO standards between central banks
tions as cross-border payments grow steadily. Cross-border within countries—the current standard. The second requires
payments demand costly verification and settlement periods, that ­foreign governments open “nostro” accounts that rec-
which causes delays and reduces the overall value of trans- oncile via their home currencies within domestic banks
actions. Data standards, protocols, and manual processes and share a common digital ledger worldwide. Commercial
require costly data conversions that often require further man- operators may opt to implement DLT. However, here con-
ual intervention. Moreover, governments are feeling added ventional payment and settlement remain vulnerable to the
pressure to invent novel solutions for global capital markets changing demands and operating constraints common to
because of varying regulations in anti-money-laundering, current systems (i.e., human working hours, validation, and
counter-terrorist financing, know-your-customer, and reform- policy consensus). The third model incorporates W-CBDCs
ing capital financing requirements. Thus, the long-standing as tokens for interoperable exchange between banks within
fundamental “correspondent banking” model for high-value and between jurisdictions. This evolution in commerce allows
payments in cross-border commerce is being replaced by improvements that alleviate many of the issues that plague
more unified tokenization models common to DLT. commercial transactions across all banking systems world-
wide. In particular, transactions may settle on a peer-to-peer
Banking systems are evolving through advances in technol- basis 24-7 and operate in parallel with existing RTGS plat-
ogy standards adopted by many countries and managed forms. Because the operating standard requires that Nostro
within a sophisticated international governance framework. W-CDBC accounts share a common ledger, accountability by
Central banks are reforming legacy real-time gross settlement consensus is enforced. Despite the clear benefits, however, the
(RTGS) infrastructures that are at the core of the global cen- implications are unprecedented and therefore require impact
tral banking system. By using International Organization for analysis.
Standardization (IOS) messaging standards, the SWIFT global
payment initiative delivers harmonization in cross-border The future of a digital, universal, and national central banking
payments systems. However, standardized messaging is lim- currency is hopeful despite the inherent challenges. However,
ited to specific jurisdictions, and these standards are focused the idea that a tokenized currency may facilitate trading for
only on specific aspects of cross-border payments. purposes other than transactions concerns regulators deeply.
For example, speculation and hoarding could affect price,
Therefore, a consortium of international banks uniting under and thus the utility of the token. Therefore, there will need to
the Monetary Authority of Singapore and the Association be intrinsic protections within the operating infrastructure.
of Banks in Singapore is developing a decentralized token- This is the cutting edge being implemented by the creators
based platform for cross-border exchange. This includes a of Jasper-Ubin, an open source project in the UK, Canada,
more comprehensive network of standards that conform to Singapore, and Malaysia.
the Principles for Financial Market Infrastructures. This system
is designed to protect the integrity of commerce between Reforms are also introducing positive changes for citizens.
not only nations, but also the citizens of participating nations, Microfinancing reforms that leverage big data systems are
leading to better use of financial resources. helping support access to finance, particularly for women
and those outside the formal banking sector. The Grameen
Currency is a medium of exchange for goods and services. At Banking System provides access to micro-loans via mobile
least three primary models of cross-border exchange under phones connected through software applications. The

Chapter 6 The Promise of GovTech 143

Grameen system will inevitably turn to DLT for accountabil- benefits of accountability and authenticity within all these
ity and authentication of transactions over the long run, bor- systems cannot be understated.
rowing lessons learned from central banking systems. The

Security

Security reforms are paramount in an increasingly connected promise of DLT and blockchain in classical computing terms
world where political interests are fragmented. Whether or may advance significantly with the advent of quantum com-
not nations decide to unite to confront mutual interests, the puting. Recently, Google—with validation and support from
security of information remains a top priority. Today comput- the US Energy Department National Laboratories, NSF,
ers and people are more connected by the Internet than ever NASA, NIST, Defense Department, and many other US fed-
before. Humanity is navigating unprecedented levels of misin- eral agencies—announced proof of quantum supremacy:
formation as our connectivity indiscriminately gives everyone that is, engineers asserted that a quantum machine will
a voice. It is estimated that the Internet generates over 2 exa- compute in 300 seconds what a classical machine takes
bytes of data per day (approximately 1 billion gigabytes), and 10,000 years to do. Quantum supremacy also means that
90 percent of all data in existence today were created since large quantum machines will eventually decipher our current
2016. All aspects of human operations are exposed to influence encryption models in seconds. This is just evolution at work;
by anyone with Internet access, regardless of their motive. inevitably new quantum encryption standards will emerge
Security extends beyond lock and key in this age; it is import- to protect information.
ant for governments to be able to protect classified intelli-
gence, election systems, and free speech. At the same time, it For the near future, quantum will remain expensive and
is no longer sufficient to think of security as data encryption highly specialized. Although the US and China are leading
behind firewalls; security now means authenticating data from the efforts toward a quantum future, the countries are not
their inception to ensure full integrity at their consumption. working together. The US is providing public funding in
cooperation with private entities to encourage innovation
Authenticity is the pinnacle of security. Historically, govern- while leaving bureaucratic oversight and assurances in the
ment records were stored in vaults where only those with hands of private entities. In contrast, China maintains that
clearance could access archived data. With digitization, vaults innovation is the result of government funding, public man-
evolved into computing systems commonly stored in govern- dates, and bureaucratic plans. The US Government maintains
ment offices, under desks, and inside utility closets at worst, that it will not determine how to apply the newfound knowl-
and at best in dedicated server farms—refrigerated data edge through administrative committees, but this does not
centers with thousands of hardware servers. Today’s govern- prevent governments from leveraging this technology for
ments can easily encrypt data in short order, but attackers still the advancement of their international influence among
manage to decipher encrypted archives. Governments such as developing nations.
Estonia capitalize on DLT, which links one block of encrypted
transactional data with the next in a blockchain. To sabotage Security in big data also requires significant consideration.
any block of data, an attacker must also change all the blocks Governments are unifying departments and provisioning
linked after the compromised block. And because every par- computing resources across large geographic regions and
ticipating computer has a copy of all the linked blocks—called municipal boundaries using big data systems. Whether data
a ledger—any attack on the government blockchain fails for are stored in-cloud or on-premises, access control to data
lack of consensus. Thus, the blockchain can serve as a struc- is a large part of the security puzzle. In big data operations,
ture of authenticity for government record-keeping. The enterprise resource planning plays a major part in the daily

144 Building Effective, Accountable, and Inclusive Institutions In Europe And Central Asia
operations. The widely distributed networks of account and technologies were sometimes used nefariously. Resistance
the archives that accompany them are secured with access then gave way to acceptance. This pattern may be con-
control policies that must allow for a variety of individual sidered inevitable with any new way of doing things. For
and group roles. Many of these systems may operate behind Govtech, security is at the cusp of a reformation. It is inev-
government firewalls, sheltered from the Internet. Therefore, itable that DLT will take advantage of quantum computing
access control and encryption protect data from unautho- across large scale geographies, potentially enabling the
rized internal sources. ability to authenticate the origin and consistency of infor-
mation at an unprecedented scale and with unparalleled
Historically, every disruptive technology ever invented accountability. This will allow data proliferation at a global
began with simple proofs that escalated exponentially. Fear scale for the benefit of all.
and resistance to change stifled initial adoption as new

Conclusions

Govtech reform must embrace the ongoing technological existential reality and carry out computation at unprece-
evolution. New forms of thinking and broader unifying per- dented speed and scale. Distributed Ledger Technology is
spectives are emerging in government and commerce, and providing two channels of transformation: enabling alterna-
advances in technology are improving man-made systems. tive markets for currency that acts as a hedge against fiat in
Technology is helping humans to stabilize our global economy unstable economies, while in parallel providing distributed
despite ongoing struggles with climate and our human plane- accounting systems that are revolutionizing central banking,
tary impact. Rather than label technology as something supe- health care, procurement, agriculture, and logistics in both the
rior to and separate from humanity, we may embrace it as a private and public sectors.
consequential stage of development in a mutually beneficial
relationship between humans and computers. Governments There are no aspects of governance that will remain untouched
are realizing the importance of managing technology respon- by the unfolding impact of these technological advances.
sibly: with integrity, authenticity, and accountability. If governments are to remain fully qualified to apply these
advances in a practical and pragmatic way, policy reform
Forward-thinking governments face many disruptive forces to and commitment must be at the forefront of the discussion.
their traditional governance systems. Although the underly- In considering evolving governance practices, governments
ing economic mechanics remain relatively unchanged—trust, must act with an open mind, a keen eye on the private sector,
trade, competition—the mechanisms evolving out of the tech- expansive long-term thinking, and a growth-oriented mind-
nology sector (AI, quantum computing, DLT) are changing the set. In all cases, considerations of authenticity and account-
playing field significantly. Artificial intelligence will transform ability lie at the heart of Govtech reforms.
our ability to process copious amounts of information and
will assist human decision-making while reforming mundane The case studies in this chapter explain how Turkey, the UK,
and manual processes with decision automation. Quantum and Moldova have applied technical solutions to some of
systems will change our understanding of information as today’s service-delivery challenges.

Chapter 6 The Promise of GovTech 145

CASE STUDY 6.1

Turkey: Electronic Public Procurement

AHU MERYEM ERDOGAN, PUBLIC PROCUREMENT AUTHORITY OF TURKEY

CONTEXT information technology, started working on electronic tools

to facilitate the correct implementation of procurement
The establishment of an electronic public procurement sys- transactions, which led to the establishment of the Tender
tem in Turkey and the operation of the procurement plat- Information System in 2003.
form are carried out by the Public Procurement Authority
(PPA), established by the Public Procurement Law (No. IMPLEMENTED ACTIONS
4734) in 2002. The PPA has administrative and financial
autonomy. It is a public authority with legal personality, With the aim of better utilizing electronic tools in public pro-
and a regulatory and supervisory body in the public pro- curement, the legal and technical infrastructure for estab-
curement area. Besides being responsible for the regula- lishing an electronic public procurement platform (EPPP)
tion and review of procurement procedures, the PPA has was initiated in 2009. In 2010, the platform became opera-
other duties such as providing training to stakeholders, tional and began to fulfill its core activities, particularly the
compiling and publishing statistics on public procurement, preparation and publication of tender documents and tender
running the e-procurement system, and publishing public notices. In 2013, electronic submission and evaluation of bids
procurement bulletins. was made possible for some contracts. In 2015, it became
compulsory for domestic vendors to register on the platform
One of the reasons for preparing this new law was to adapt to participate in public procurements, and notifications to
to international instruments on public procurement such as vendors began to be sent through the EPPP. The contracting
EU Public Procurement Directives and WTO Agreement on authorities, natural persons who are citizens of the Republic
Government Procurement. The law establishes the principles of Turkey, and legal entities established under the laws of the
and procedures to be applied in procurements by all public Republic of Turkey must register with the EPPP. In 2016 elec-
entities and institutions governed by public law or under pub- tronic submission of tenders and vendors’ self-declarations
lic control or using public funds. The basic principles of the about their qualifications started. E-auction was included
law are transparency, competition, equal treatment, efficient in 2018, and the scope of electronic tender submission was
use of resources, reliability, public supervision, confidentiality, expanded in 2019.
and fulfilment of needs appropriately and on time. Among
the main objectives of the PPA are to have an effective and Transactions conducted on the EPPP. A wide range of pro-
efficient public procurement system and to ensure the sus- cedures and transactions are carried out on the EPPP. The
tainability of this system. To improve the public procurement contracting authorities conduct or register all transactions,
system, electronic procurement tools are used at various from the beginning of the procurement to the announce-
stages, from the preparation of the tender documents to the ment of contract award results.
evaluation of the tenders.
Tenders must be registered on the platform, and a separate
Work to establish an electronic public procurement system tender registration number is assigned to each one. Any
began with the “e-Transformation Turkey Project,” published transaction related to the tender uses this number. Once the
in 2003. The PPA, as one of the public institutions that use tender is registered, tender documents—specifications, a

146 Building Effective, Accountable And Inclusive Institutions In Europe And Central Asia
draft contract, and other standard documents—are prepared. for the contracting authorities to use e-tendering on all pub-
Then a tender notice is prepared and published in the Public lic procurements.
Procurement Bulletin via EPPP. The tender document is acces-
sible on the EPPP, as are addenda and clarifications to tender In 2018 the electronic auction was introduced to the public
documents. A tender commission that is responsible for car- procurement system. This e-procurement tool may be used,
rying out all the processes in the tender is established and at the discretion of the contracting authorities, after the initial
registered on the EPPP. evaluation of tenders. In e-auction, the tenderers who sub-
mitted valid tenders are allowed to compete in the electronic
The applications or tenders received from vendors are environment over the new tender prices or new non-price ele-
recorded on the platform, and necessary records are pre- ments. All matters related to the application of e-auction must
pared for the evaluation of the tenders. To facilitate the be specified in the tender notices and the tender documents.
thorough evaluation of tenderers, the platform is designed E-auction can be used in the procurement of goods, services,
to obtain information about their qualifications from other and works when an open procedure or a restricted procedure
relevant electronic systems. The PPA has established is applied. At every stage of the e-auction, information about
­cooperation with relevant institutions and organizations to current rankings is instantly communicated to the tenderers;
obtain information related to the participation and qualifi- however, the identities of the tenderers are not disclosed
cations of the tenderers directly from them; protocols on during the auction.
integration have been signed with such relevant institu-
tions as the Social Security Institution, Ministry of Finance, Various pieces of information about the performance of con-
banks, Council of Higher Education, Union of Notaries, and tracts is recorded on EPPP to facilitate good management,
so on. and to provide data for later analysis. In this regard, EPPP
captures information such as additional/deducted works/
Contracting authorities must also use EPPP to inquire services/goods, price adjustments, termination of contracts,
whether vendors are on the blacklist (a list of those who and contract transfers. Inquiries about contract transfers and
are prohibited from participating in tenders). Contracting preparation and recording of work experience certificates can
authorities’ notifications to tenderers are made through the also be processed through EPPP.
EPPP. Finally, i­nformation about cancelled public procure-
ment procedures and the results of contract award decisions LESSONS LEARNED
are also recorded on this platform. Access is provided free
of charge. With the establishment and operation of the EPPP, Turkey saw
significant benefits. Conducting public procurement processes
RESULTS through the EPPP accelerates the procurements compared
to traditional procurement procedures carried out through
In 2016, electronic submission of bids, together with ten- printed documents. It reduces the risk of making a technical
derers’ self-declarations about their qualifications, was mistake and improves legal compliance. It also improves com-
allowed for public contracts below a certain threshold. This petition and transparency, as it facilitates vendors’ access to
improvement made it much easier to submit tenders, which information on public procurement procedures.
are formed, signed, and sent via EPPP. At the beginning,
­e-­tendering was limited to certain procurement procedures E-procurement generates important savings for both the
and to contracts below a certain value. Because the contract- contracting authorities and the tenderers. The contracting
ing authorities and the tenderers appreciated the new sys- authorities are no longer obliged to prepare the tender docu-
tem, other useful amendments were made in the following ments in paper, so they avoid printing costs. Communication
years. One such improvement was the elimination of the con- with tenderers in an electronic environment saves time
tract value limit and procurement method, making it possible and money for contracting authorities. Important savings

Chapter 6 The Promise of GovTech 147

in contract prices are achieved, too. In addition, managing One last lesson: in the process of introducing e-procurement,
procurement procedures on EPPP simplifies the tasks of comprehensive training should be provided to stakehold-
the contracting authorities. For tenderers, use of the EPPP ers and training content should be continuously updated to
reduces the cost of tendering; they can submit their ten- ensure the effective use of e-procurement. Information and
ders in electronic form, saving time and transportation costs communications technologies advance quickly, so the techni-
compared to paper-based procurement. cal infrastructure should be modernized regularly.

Photo: © World Bank.

148 Building Effective, Accountable And Inclusive Institutions In Europe And Central Asia
CASE STUDY 6.2

United Kingdom - Digital Transformation

in the UK Public Sector
ALEX SEGROVE, HEAD OF INTERNATIONAL DELIVERY, GOVERNMENT DIGITAL SERVICE

CONTEXT
A Single Government Website
In 2010 the UK government had over 1,800 websites, and the
government’s annual IT costs were £16 billion – 1 percent of the The first thing GDS did was build what eventually became
country’s total economy. Citizens found it hard to interact with GOV.UK, the single website for all of government. GDS formed
the government online, to find the information they needed, a core team and in just 12 weeks delivered an “alpha” or mini-
and it was unclear that value for money was being delivered. mum viable product of a new, single website for government.
Politicians on all sides recognized that the UK needed to make
a change. To deliver what was included in the first iteration, the team
put user needs first, and focused the alpha on the top 100
The then-Minister for the Cabinet Office, Francis Maude, asked user needs. If it didn’t meet a need, it wasn’t on GOV.UK. The
Baroness Martha Lane Fox, in her role as UK Digital Champion, UK was able to close all ministerial and agency websites and
to conduct a review of the main Government website of move the most useful and used content onto GOV.UK, and
the time, Directgov. A “Strategic Review of Directgov” was traffic was redirected to the single website. GOV.UK and GDS’s
later published as a four-page letter titled “Revolution not mandate to close the old websites catalyzed organizational
evolution.” change and transformation throughout the government.

Fox had higher ambitions for the UK, saying, “You asked me IMPLEMENTED ACTIONS
to oversee a strategic review of Directgov…I have not reviewed
Directgov in isolation, but as part of how the government can 25 Exemplars, User Needs, and Design Principles
use the Internet both to communicate and interact better
with citizens and to deliver significant efficiency savings from After the success of GOV.UK, GDS began to focus on digitizing
channel shift.” services. It gave itself 400 working days to transform the first
25 major public services, building digital “exemplars” so good
The UK Government Digital Service (GDS) was created and that people would prefer to use them. Some of the early trans-
given responsibility for digital in government. GDS now helps formed services were Register to Vote, Your tax account, View
the government work better for everyone by leading the your license information, and Renew a patent online.
digital transformation of public services. “Everyone” means
citizens, departments, and civil servants. GDS is accelerating GDS worked directly with teams in departments to do this,
the development of a culture of digital transformation right building the skills of civil servants and educating service
across the government, taking digital further than just individ- teams about user needs and design principles. Again, the first
ual transactions. By harnessing the power of technology and and most important focus for this work was putting users first.
doing things digitally, the government has already produced The team developed the Design Principles to provide clear,
services that are simpler, clearer, and faster for users and sig- consistent design, user experience, and brand clarity for those
nificantly cheaper to run. developing sites for the single GOV.UK domain to ensure that

Chapter 6 The Promise of GovTech 149

everyone across government understood what putting user grow the digital economy, prevent cybercrime and
needs first really meant. identity fraud, and enable digital transformation in
government.
The Design Principles were the start, and continue to be the • A dedicated team within GDS manages the GOV.UK
foundation, of GDS’s effort to design digital services so well Platform as a service-cloud-hosted infrastructure,
that users prefer to use them. The Service Manual made it including networking, storage and compute resources,
easy for service teams to find, use, and share the styles, com- and services like platform-level logging, monitoring,
ponents, and patterns they need to design and build user and alerting. They are built to be shared across gov-
interfaces. ernment. The toolkit of components aims to make
services easier and cheaper to run, minimize supplier
GDS’s best-known work on standards is the Government lock-in, and minimize impact on operational processes.
Service Standard, a set of 18 criteria that services have to They help departments meet the Service Standard by
meet to go live on GOV.UK. The standard means that a cross-­ testing them with users time and time again on their
government agreement on what good services look like is in behalf.
place, and the quality of services on GOV.UK remains high.
Reforming Spending on IT and the Market
Government as a Platform
Meanwhile, government technology suppliers were all big
While preparing the exemplar program, GDS worked with companies based overwhelmingly in southeast England.
departments from across the government, gaining insights Fewer than 20 companies controlled over 90 percent of all
into certain things that were common across government. It contracts. Buying technology or digital services in govern-
became overwhelmingly apparent that the government faced ment was hard and time-consuming, and historically some
certain challenges: there was repeated need for updating suppliers were able to take advantage of overlong contracts
people on the status of their application/passport, taking and with government, to the disadvantage of smaller suppliers.
making payments, proving someone’s identity, and hosting
canonical data. The solution was to establish the Digital Marketplace, a set of
frameworks with common terms and conditions that make
The team realized that fixing digital services one by one was procurement simpler, for buyers and for sellers. Digital Data
not going to be fast enough; they had to give departments and technology spending controls were established to help
the tools to transform their own services. Along with the ser- the government stop unnecessary expenditure, deliver value
vice standard, GDS decided to create digital components that for money, and deliver sustainable reform.
addressed these common problems to make things run more
easily and quickly. GDS developed several common tools— RESULTS
called Common Platforms—that are available for the whole
public sector. After seven years, GOV.UK remains the single government
website for the UK. Successive Ministers for the Cabinet Office
• GOV.UK Pay, a common payments platform, is a secure have said the ambition for digital government is “to transform
way to pay for government services online, making it the relationship between citizens and state.” GOV.UK is where
easier and more efficient for the government to pro- the relationship actually happens; it is the interface between
cess payments and saving time and effort for service citizens and state. GOV.UK helps people to understand gov-
teams across government. ernment by making content simple and user journeys intuitive.
• GOV.UK Verify is the safe and secure way for citizens It helps users to self-serve, which of course helps government
to prove their identity to government online. It also to avoid costly contact and casework. GOV.UK also helps gov-
supports the wider opportunity for digital identity to ernment understand people. Serving millions of users every

150 Building Effective, Accountable And Inclusive Institutions In Europe And Central Asia
day, GOV.UK gives GDS teams and departments valuable suppliers in 2009 there are now over 4,000 suppliers across
insights on what people need to do and how their needs can the UK, over 90 percent of which are small and medium-sized
be better served. enterprises (SMEs). GDS’s user-centered, design-led, data-
driven, and open approaches created commercial routes to
By 2020, the UK government will have delivered at least 86 market for digital, data, and technology products and ­services.
digital services, including a new digital mortgage service This has allowed GDS to:
and an online divorce service. These services are designed to
improve the interaction between government and the people • Lower the barriers to entry to encourage a more
it serves. Each of these services has been developed putting diverse range of suppliers.
user needs first by using the Design Standards and following • Design out as many points of friction as possible, by
the GDS Technical Code of Practice. understanding and meeting the needs of buyers and
suppliers.
The Digital Marketplace has transformed the government • Democratize procurement and contracting by engag-
technology supplier landscape. From as few as two dozen ing with civil society early and often.

Photo: © iStock/ anandaBGD

Chapter 6 The Promise of GovTech 151

Spending controls have helped the UK government stop The UK is a world leader in digital government, and since 2016
unnecessary expenditure and build a smarter, cross- has consistently ranked in the Top 5 of the UN E-Participation
government approach by leveraging central expertise Index, the OECD Digital Government Index, and the
and transparency, generating crown insight, identifying E-Government Development Index. The Digital Service
duplicative spending, and identifying potential for re-use. Standard is seen as an exemplar of best practice worldwide,
This helps organizations deliver (a) value for money—for and countries such as Australia and the USA, and local gov-
example, supporting an organization to deliver an IT project ernment digital, have chosen to base their standards on it.
for less cost, without reducing its scope; and (b) sustainable
government reform, such as ensuring the alignment of a LESSONS LEARNED
new digital service to the government’s Digital Strategy.
• Start with user needs, not government needs. Services
GDS recognized that digital skills were not widespread designed around users and their needs:
among UK civil servants. Since the launch of GOV.UK, GDS – are more likely to be used.
has developed the Digital, Data and Technology Profession – help more people get the right outcome for
Capability Framework, which defines the roles in ­government them – and so achieve their policy intent.
and the skills needed to do them, from data science to ­content – cost less to operate by reducing time and
design. Today there are 17,000 digital, data, and technology money spent on resolving problems.
professionals working in government across different • Make things open, it makes things better. Open source,
departments; 800 of them work at GDS. GDS Academies open data, open standards, open communities, open
have trained over 10,000 civil servants with courses on agile, markets, open culture. An open approach means that
product management, delivery management, and user- things are easier to share across government, are eas-
centered design. ier to maintain and to scale for future use, are less
dependent on single third-party suppliers, and provide
GDS estimates that it has enabled departments to realize over better value for money.
£1 billion in benefits—including over £350 million in 2018/2019 • Build teams, capabilities, and products – not projects.
alone—by scrutinizing government’s digital and IT spend- Build skilled, multidisciplinary teams and allow them
ing requests, through the application of cross-government to approach problems in a way that meets users’ real
spending controls. needs. Resource these teams to continue to work on
their products.
The UK has over 6000 suppliers for digital in government, • Solve problems once – allow service teams to solve
located around the country. Over 91 percent of them are unique problems. Shared components make it easy
SMEs. The G11 Framework has 4201 successful suppliers, for government organizations to assemble services.
91 percent of which are SMEs. The Digital Outcome and Ongoing iteration of these tools based on user research
Specialist 4 Framework has 3475 suppliers, 94 percent of will ensure that systems do not fall into a legacy state.
them SMEs. • Transform procurement to make the playing field level.
The GDS Digital Marketplace has made becoming a
GOV.UK Notify has sent nearly 600 million notifications supplier simpler and faster, so that businesses of all
(letters, texts, emails) for 1,400 services in central and local sizes can work across the public sector.
government and the National Health Service. GOV.UK Pay has • Checks, balances, standards, and guidance allow trans-
processed 4.27 million payments worth over £182 million on formation efforts to scale across government. These
behalf of 430 public sector organization. GOV.UK Verify has tools enable consistency of user experience and keep
over 5 million users registered to access services securely and content and service quality high.
is stopping fraud across government.

152 Building Effective, Accountable And Inclusive Institutions In Europe And Central Asia
CASE STUDY 6.3

Moldova: GovTech and Modernization

of Public Services
IURIE ȚURCANU, CHIEF INFORMATION OFFICER, GOVERNMENT OF MOLDOVA

CONTEXT
processes, delivery of multichannel public service, a common
The history of electronic governance in the Republic of Moldova government technology platform, consolidation of data cen-
began in 2010 when the Government became aware that it ters, implementation of digital governance enterprise archi-
was behind in the use of modern technologies and decided to tecture, implementation of the interoperability framework,
implement a comprehensive program of technological mod- provision of information security, provision of IT capacity
ernization of the public administration. The Government sought building in the public sector, selection of smart investments in
the World Bank’s help in financing this process. In late 2010 the IT in the public sector, and, of course, the creation of a favor-
Government set up the e-Government Center, the main infor- able regulatory framework.
mation office for the country. In September 2011 the Strategic
Program for Government Technological Modernization was The program that produced e-Transformation was more con-
approved and given the name e-Transformation. cise and pragmatic than its predecessors. At the time of the
earlier program the state’s information resources contained
e-Transformation has several priority directions: promotion of insufficient information about public services. No one knew
open governance principles, digitalization of public services, exactly how many public services the state provided, and
reengineering of public services, improvement of operational most of the available information was full of errors and incon-
sistencies. Only a few simple electronic services were avail-
able online. Information about public services was scattered
through several so-called portals, each with its own style and
manner of presenting information. For example, it was not
possible for consumers to pay for services online; the only
way to pay was at the bank’s counter and then to present
the receipt at the service provider’s counter. The possibility of
requesting public services online was very limited

IMPLEMENTED ACTIONS

One of the first e-governance components developed as part

of e-Transformation was the Public Service Portal, conceived
as the main point of convergence for access to public ser-
vices online. Initially it contained information about more than
580 public services. Service providers keep the information
on the portal updated, and along with service information the
portal contains links so users can make requests online for
electronic services.

As part of the e-Transformation project, the e-Governance

Agency developed and put into operation a set of centralized

Chapter 6 The Promise of GovTech 153

government microservices, which are provided to public payment without having to deal with the complexity of bank-
authorities as Software-as-a-Service (SaaS) services to help ing and payment card infrastructure.
develop sectoral e-services.
Another useful microservice is the journaling service, MLog.
Each of these microservices performs a specific function- MLog records all important business events occurring in vari-
ality necessary for the operation of electronic services. For ous information systems in a separate centralized event log for
example, government MPass authentication service is used non-repudiation and for further analysis of data. Also, MLog is
to authenticate and authorize users in information systems. used to inform citizens who accesses their personal data.
MPass replaces all authentication pages based on username
and password authentication of connected e-services, thus The implementation of centralized government services in the
upgrading them with strong authentication based on elec- form of microservices has several benefits. First, the reuse of
tronic identity with digital certificates. services increases the overall reliability of the e-government
infrastructure, as fixing functionality or security problems in
The MSign signature government service upgrades connect a centralized service directly fixes it in all sectoral services
e-services with the possibility of applying digital signatures connected to the microservice. Second, the provision of cen-
to electronic documents and electronic transactions. Each tralized services is more economically efficient, as it leads to
time a public e-service needs to accept a signed document, much lower management and maintenance costs, especially
it passes the control to Msign which makes sure that the when using application virtualization technologies for deploy-
user signs the document appropriately with any available ment automation and granular scalability. Third, and this is a
signing device. very important issue, the centralized implementation of ser-
vices contributes to an efficient functional extensibility – sec-
Thus, used for authentication and digital signing, the elec- toral services must not change every time we introduce new
tronic identity is the key to providing consistent and reliable functionalities into centralized services. For example, to add
e-services. To make it more accessible, in 2012 the Republic new ways to pay for public services, there is no need to mod-
of Moldova became one of the first countries in the world ify all sectoral services integrated with the MPay service.
to implement Mobile eID,, for which it used the innovative
public-private partnership (PPP) model. In recognition of At the same time, to be able to host efficient and secure elec-
Moldova’s embracing technologies as an opportunity to tap tronic services, the Government has implemented the shared
the potential of mobile phones to improve government ini- government technology platform MCloud based on cloud
tiatives, the Government of Moldova was awarded the Best computing paradigms and technologies. MCloud is a full-
m-Government Award by the GSMA during the 2013 Mobile fledged cloud that has all the characteristics and most of the
World Congress in Barcelona. core features of a typical cloud, implemented on the scale and
for the needs of public administration in Moldova. To leverage
Like MPass and MSign, the government payment service the potential and cost-efficiency of public clouds, Mcloud is
MPay is a centralized service that can collect payments for being hybridized.
e-services from their users with any means of payment—bank
cards, e-money, i-banking, cash, and others. Using MPay, pub- In 2014 the Government launched the interoperability plat-
lic service providers can collect fees, taxes, and other types of form MConnect. This platform is the core of the technology

154 Building Effective, Accountable And Inclusive Institutions In Europe And Central Asia
layer of the national data exchange framework, built on the Government more prepared to provide high-quality electronic
1
principles of the European Interoperability Framework. public services. In consideration of the progress already made,
MConnect is based on an intelligent service bus that is highly in 2018 the Government requested the assistance of the World
configurable and can effectively exchange data between Bank in implementing a comprehensive Modernization of
connected institutions. Following the implementation of the Government Services Project.
data exchange platform and drawing on the results of a ded-
icated pilot, Parliament adopted a law on data exchange and Modernization of Government Services Project
interoperability, setting out a clear and simple institutional
model for data exchange. 2Modernizing public services means rethinking them to make
them citizen-centric and remotely accessible. The Government
One of the key success factors for the sustainability of digital decided to stop investing in digitization of inefficient public
transformation in Moldova was the ability of the e-­­Governance services which just transposes paper-based processes into
Agency to balance between implementing services that are digital. Before digitization, the services must undergo a com-
visible to citizens and businesses and those that are equally plex reengineering exercise. Broadly speaking, the modern-
or even more important but are not directly visible to end-­ ization process consists of four stages (Figure 6.3-1).
users. Focusing exclusively on politically attractive services
leads to a symptomatic and siloed approach to e-governance, The first stage is the rationalization of public services. At this
incurring high sustainability risks on the long run. Thus, along stage, all outdated services are discontinued and similar ser-
with the microservices and centralized platforms, during the vices are consolidated.
e-Transformation project several sectoral e-services were
implemented in close partnership with relevant public author- The second stage is the reengineering of services—that is, fun-
ities. Some of the implemented e-services can be considered damentally rethinking and radically reshaping processes to
quick wins that have a high degree of impact, have many significantly improve service performance indicators, includ-
users, already have the business processes defined, and have ing cost, accessibility, and speed of provision. At this stage,
all the infrastructure needed for service provision. a service is taken from the list of services remaining after
the rationalization stage and remodeled according to a gov-
Since the provision of electronic services cannot be conceived ernment-approved reengineering methodology. As part of
without data in electronic format, two important data sources reengineering, the underlying business processes are stream-
were digitized: the archive of civil status documents with more lined and optimized, and unnecessary documents are elimi-
than 14 million paper documents, and the archive of cadastral nated. The process begins with a multilateral analysis of the
documents with more than 20 million documents. Digitization current service model that covers functional aspects (value to
was not limited to scanning documents, but also included citizen), technological aspects (technology components used
indexing to make them searchable and available upon request. to provide the service), legal aspects (the regulatory frame-
work for the service), operational aspects (resources involved
Increased attention has been paid to creating ICT capacity in in daily provision of the service), and other related aspects.
the public sector. During the e-Transformation project more This model is known as the AS-IS model. Then, using special
than 5000 civil servants from all state authorities were trained techniques, the TO-BE model of the service with streamlined
in various digital transformation topics, such as the devel- and optimized business processes is developed. The TO-BE
opment of software products for the public sector, project model also describes the functional, technological, legal,
­management, and cybersecurity. operational, and economic aspects.

Implemented digital platforms and services, digitized admin- Service reengineering is based on the following five principles:
istrative data sources, and trained public servants make the citizen-centricity, omnichannel service delivery, simplification

1 Manoil, Vlad; Turcanu, Iurie; Bujoreanu, Luda. 2018. Moldova Mobile ID Case Study (English). Washington, D.C.: World Bank Group. http://documents.worldbank.
org/curated/en/279851545919735993/Moldova-Mobile-ID-Case-Study
2 European Interoperability Framework (EIF). 2017. https://ec.europa.eu/isa2/eif_en

Chapter 6 The Promise of GovTech 155

FIGURE 6.3-1.
Key stages of the modernization of Government Services Project

RATIONALIZATION REENGINEERING DIGITIZATION DELIVERY

Eliminate obsolete Administrative Business process Multiple delivery

services streamlining automation channels

Consolidate related Business process Mechanisms to apply Deliver central

services optimization and deliver services services locally
online
Identify life scenarios Eliminate un-necessary Customer-centered
and business events documents Mechanisms to check delivery
application status
Review and simplify Review and simplify Quality and delivery
general legal specific legal Inter-agency data standards
framework framework exchange
Continuous
improvement

COORDINATION AND PROGRAM/PROJECT MANAGEMENT

MONITORING AND CONTROL

COMMUNICATION, TRAINING AND MARKETING

RESULTS
and standardization, minimum documents required for the
provision of the service, and use of IT solutions. The efficient use of platforms and services developed in
the e-Transformation project, as well as techniques for ser-
After reengineering, the service moves into the third stage, vice enhancement applied as part of the Modernization of
digitization (see previous figure). Digitization involves auto- Government Services Project, contribute to highly satisfac-
mating business processes, developing mechanisms for online tory results in the development, the provision, and especially
service request and delivery, checking the status of service the use of electronic public services. The development of
requests, and automating data exchange with relevant admin- sectoral services has become simpler and faster, and citizens’
istrative data sources. confidence in online services has significantly increased. Thus,
the adoption rate is over 75 percent for all electronic services
The fourth and the last stage in the process of service modern- developed in projects. At the same time, because of the auto-
ization is service delivery. Delivery of the modernized service mated data exchange between state organizations, the num-
relies on the use of multiple delivery channels of the citizen’s ber of permit acts has gradually decreased from about 470 in
choice, high accessibility to the service, compliance with the 2015 to about 130 in 2019.
service level agreement (SLA), and continuous improvement
of the service. Some state institutions have completely excluded paper in
their service provision. For example, business reporting to the
Since the service modernization process is a complex one, tax authority is exclusively electronic, and the number of elec-
it requires efficient coordination and change management tronic signatures is about 2.2 million each month.
at all stages. Also, it relies on efficient monitoring and con-
trol mechanisms as well as communication, promotion, and Most public services can be paid for with any payment instru-
capacity development. ment available in the country—bank cards, online banking,

156 Building Effective, Accountable And Inclusive Institutions In Europe And Central Asia
electronic money, and cash. The fees collection costs for pub- Use of open standards. One of the mistakes governments
lic services have decreased by 83 percent, from about MDL make is to develop their own standards for different techno-
23 million in 2013 to about MDL 4 million in 2019. logical components, such as their own cryptography for digital
signature, their own data exchange protocols, data retention
Because of the development of electronic services and the formats, and so on. This approach appears to offer a security
diversification of digital electronic identity tools, the cost for advantage, but it can easily lead to technical incompatibilities
the digital signature kit decreased from about US$100 in 2010 and technological isolation, and subsequently to high costs of
to about US$10 in 2019, and the number of e-identity sub- developing and maintaining digital solutions.
scribers increased from 50 in 2010 to about 200,000 in 2019.
At the same time, the transaction cost for mobile signature Reuse of services, platforms, and infrastructures. For the effi-
(which is a legally qualified advanced signature) starts at cient development of digital services, it is necessary to reuse
about US$0.01. existing infrastructures, platforms, and services. For example,
in Moldova, the implementation of the Mobile eID was pos-
Since 2014 the government’s MCloud platform has gener- sible because of the reuse of existing public key infrastruc-
ated savings of more than US$10 million. The electricity cost ture, while the implementation of MPay relied extensively on
for data centers and server equipment has been reduced by existing inter-banking data exchange. Ignoring these existing
about 40 percent. infrastructures would have made the development of those
services very difficult or even impossible.
LESSONS LEARNED
Leverage the power of partnerships. The digital agenda of the
Enterprise architecture plays a very important role in imple- public administration is complex, and its implementation requires
menting digital transformation. The lack of a comprehensive a great deal of effort and time. A good practice is to publish the
view of electronic governance leads to inconsistency prob- agenda and let other partners follow in digitizing services. The
lems in the implementation of electronic services and infor- e-Governance Agency established trusted relationships with
mation systems, and subsequently to poor quality of services, many nongovernment and private organizations that were will-
with high maintenance costs. ing to contribute to the process in the areas of their expertise.

FIGURE 6.3-2.
Service reengineering principles

CITIZEN CENTRICITY
Service by default,

01 Proactivity
Trust the citizen

OMNICHANNEL DELIVERY MINIMUM DOCUMENTS

Delivery using integrated one- Do not ask for documents

02 stop-shops, online, call center,

kiosks. Possibility to chose the
preferred channels
04 which exist in official data
sources

USE IT SOLUTIONS
SIMPLIFICATION AND Online submission and

03
STANDARDIZATION

05
delivery Check
Unified experience status online Data
Predictability exchange

Chapter 6 The Promise of GovTech 157

LEARN MORE
www.worldbank.org/ECAGovernance