PROGRAM INFORMATION DOCUMENT (PID) CONCEPT STAGE June 13, 2011 Report No.: AB6630 Operation Name Governance and Growth PDPL Region EUROPE AND CENTRAL ASIA Country Albania Sector General public administration sector (35 percent), Tertiary education (20), Information technology (20), Irrigation & drainage (15), and Water supply (10) Operation ID P122138 Lending Instrument Development Policy Lending Borrower(s) GOVERNMENT OF ALBANIA Implementing Agency Ministry of Finance Albania Tel: (355-4) 222-8373 nhaldeda@minfin.gov.al Date PID Prepared June 6, 2011 Estimated Date of Appraisal December 9, 2011 Estimated Date of Board February 15, 2012 Approval Corporate Review Decision Following the corporate review, the decision was taken to proceed with the preparation of the operation. Other Decision {Optional} I. Key development issues and rationale for Bank involvement Over the past 12 years Albania has transformed from a low income to an upper middle income country. During 1998-2010 Albania’s economy grew at an average rate of 6 percent, higher than any other European country. At the same time, inflation remained subdued, and the exchange and interest rates were stable. Unemployment went down considerably (from 17 percent to 12.8 percent) and the poverty headcount rate halved from 25.4 percent in 2002 to 12.4 percent in 2008. The global economic crisis harmed Albania’s growth prospects, yet the authorities managed the pressures well and the economy, unlike most other European countries, continued to grow in 2009 and 2010, albeit at a slower pace. Becoming an upper middle income country has brought new and increasingly complex development challenges. Much of the growth over the past decade was attributable to a marked shift of workers from agriculture to services and manufacturing. This inter-sectoral redeployment of labor from low to higher productivity sectors was welcome, but it can only be a temporary means of converging to the income levels of the European Union. This inter-sectoral shift will eventually come to an end and increasingly growth will have to come from intra-sectoral productivity increases. Moreover, the post-crisis global economic environment will make the objective of sustaining rapid growth even more challenging. Consequently, much stronger efforts than in the past will be needed to eliminate the obstacles that are stifling productivity and investment, and to enhance the competitiveness of Albanian firms. II. Proposed Objective(s) The objective of the proposed Programmatic Development Policy Loan (PDPL) would be to: (i) strengthen governance and the business environment; and (ii) boost competitiveness of the private sector. The efforts to strengthen governance and the business environment would center on strengthening property rights, improving governance of water infrastructure, and improving the inspections system. To boost the competitiveness of the economy, this PDPL would support measures to improve the quality of the higher education system, and promote the expansion of ICT services. At the same time, some proposed reforms will also contribute to improving fiscal performance. The ultimate goal of the reaching the above objectives is to promote sustainable high economic growth in Albania. III. Preliminary Description The proposed reform agenda supported by this DPL includes the following: i. Strengthen governance and the business environment. Reforms proposed to be supported under this pillar will be targeted at strengthening property rights, enhancing the governance of water infrastructure, and improving the inspections system. This PDPL aims to strengthen property rights by supporting the adoption of an inter-sectoral strategy for property rights reform, in addition to parallel actions to be taken to clarify the role of each institution dealing with immovable property; strengthen accountability for policy implementation; complete the immovable property particularly in urban areas; accelerate the payment of compensation to restitution claimants; and improve the process for issuing construction permits. To improve the efficiency of water management this PDPL proposes to support measures aimed at devolving and rationalizing the management structure of the Durres water utility company. On inspections, this PDPL will support the implementation of the law on inspections, which is the most critical part of this reform. ii. Boost competitiveness of the private sector. Reforms will focus on improving the higher education system (and its link with the labor market) and on expanding ICT services. On education, this PDPL proposes to support key reforms aimed at improving higher education outcomes. DPL1 proposes to support the adoption of decision by the Government to require all (public and private) universities to be accredited within a defined period. Under PDPL2, the development of the management information system is proposed to be supported, as well as a pilot implementation of the new funding formula and graduate tracer studies in selected universities. Finally, PDPL3 proposes to support the finalization of the management information system development, the implementation of the new funding formula across all public universities, the carrying out of accreditation (in selected universities) and graduate tracer studies (in all universities). On ICT, the PDPL proposes to support the most critical reforms to achieving rapid expansion of ICT services including: issuing of 3G licenses and changes to telecom legislation (to be supported under PDPL1), the authorization of at least two additional wholesale carriers (under PDPL2), and a pilot implementation of universal (rural) access and completion of the digital switch over (PDPL3). IV. Poverty and Social Impacts and Environment Aspects Poverty and Social Impacts The proposed DPL is expected to have a positive impact on poverty and redistribution, once the policies supported by the operation become fully implemented. Restoring the conditions for sustained growth through a stable macroeconomic framework will help address concerns over the slowdown in poverty reduction over the last couple of years. The measures proposed to be supported by this PDPL in the area of improving the governance of property rights are not expected to have any adverse distributional consequences. The largest distributional impacts from measures supported by the water component of this PDPL can be expected to be those related to tariff increases for residential customers and possibly farmers (proposed to be supported under PDPL2). The two pilots to be undertaken under PDPL2 will include a monitoring and evaluation component which will allow evaluating possible distributional impact (to the extent that the Drainage Boards in the pilot areas decide to increase tariffs) and impacts in terms of quality of service delivered. As for education policy measures, moving to the new financing formula for tertiary education supported by this PDPL should mostly affect better off groups. Environment Aspects {To be completed.} V. Tentative financing Source: ($m.) Borrower 0 International Bank for Reconstruction and Development 25 Borrower/Recipient IBRD Others (specify) Total VI. Contact point World Bank Contact: Borko Handjiski Title: Country Economist Tel: (202) 473-0546 Fax: Email: bhandjiski@worldbank.org Borrower Contact: Nezir Haldeda Title: Deputy Minister of Finance Tel: Tel: (355-4) 222-8373 Email: nhaldeda@minfin.gov.al VII. For more information contact: The InfoShop The World Bank 1818 H Street, NW Washington, D.C. 20433 Telephone: (202) 458-4500 Fax: (202) 522-1500 Web: http://www.worldbank.org/infoshop