Document of The World Bank Report No: ICR00002035 IMPLEMENTATION COMPLETION AND RESULTS REPORT (IBRD-47320) ON A LOAN IN THE AMOUNT OF US$ 9.8 MILLION TO THE FORMER YUGOSLAV REPUBLIC OF MACEDONIA FOR A SOCIAL PROTECTION IMPLEMENTATION PROJECT January 30, 2012 Human Sector Development Unit Department for South-East Europe Europe and Central Asia Region CURRENCY EQUIVALENTS (Exchange Rate Effective January 30, 2012) Currency Unit: Macedonia Denar (MKD) US$ 1.00 = MKD 46.75 MKD 1.00 = US$ 0.0214 FISCAL YEAR January 1 – December 31 ABBREVIATIONS CAS Country Assistance Strategy MLSP Ministry of Labor and Social Policy CB MIS Cash Benefits Management and NBRM National Bank of Republic of Information System Macedonia CCTP Conditional Cash Transfers Project NEB National Employment Bureau (= CEM Country Economic Memorandum Employment Agency) CFAA Country Financial Accountability NGO Non-governmental Organization Assessment PAD Project Appraisal Document DPL Development Policy Loan PBG Policy Based Guarantee EUR Euro PCN Project Concept Note FYR Former Yugoslav Republic PDIF Pension and Disability Insurance GDP Gross Domestic Product Fund HBS Household Budget Survey PDO Project Development Objective HD Human Development PERTAP Pension Reform and Technical HIF Health Insurance Fund Assistance Project IBRD International Bank for PIU Project Implementation Unit Reconstruction and Development PMU Project Management Unit ICR Implementation Completion Report PRO Public Revenues Office IFR Interim Financial Report PSMAC Public Sector Management ILO International Labor Organization Adjustment Credit IRI Intermediate Results Indicator PSMAL Public Sector Management ISR Implementation Status and Results Adjustment Loan Report QER Quality Enhancement Review IT Information Technology SPIL Social Protection Implementation M&E Monitoring and Evaluation Loan MAPAS Macedonian Agency for Supervision SSAC Social Sector Adjustment Credit of the Capitally Funded Pension SSO State Statistics Office Insurance SWC Social Welfare Center MIS Management Information System TA Technical Assistance MKD Macedonian Denar US$ United States Dollar Vice President: Philippe H. Le Houérou Country Director: Jane Armitage Sector Manager: Kathy Lindert Project Team Leader: Snjezana Plevko ICR Team Leader: Rajna Cemerska Implementation Completion and Results Report –Table of Contents  B. Key Dates .................................................................................................................... i  C. Ratings Summary ........................................................................................................ i  D. Sector and Theme Codes ........................................................................................... ii  E. Bank Staff ................................................................................................................... ii  F. Results Framework Analysis ...................................................................................... ii  G. Ratings of Project Performance in ISRs .................................................................... v  H. Restructuring (if any) ................................................................................................ vi  I. Disbursement Profile ................................................................................................. vi 1. Project Context, Development Objectives and Design ................................................... 1  1.1 Context at Appraisal ............................................................................................. 1  1.2 Original Project Development Objectives (PDO) and Key Indicators ................. 3  1.3 Revised PDO (as approved by original approving authority) and Key Indicators, and reasons/justification.............................................................................................. 3  1.4 Main Beneficiaries ................................................................................................ 4  1.5 Original Components ............................................................................................ 4  1.6 Revised Components ............................................................................................ 6  1.7 Other significant changes ...................................................................................... 6  2. Key Factors Affecting Implementation and Outcomes .................................................. 7  2.1 Project Preparation, Design and Quality at Entry ................................................. 7  2.2 Implementation ................................................................................................... 10  2.3 Monitoring and Evaluation (M&E) Design, Implementation and Utilization .... 12  2.4 Safeguard and Fiduciary Compliance ................................................................. 15  2.5 Post-completion Operation/Next Phase .............................................................. 16  3. Assessment of Outcomes .............................................................................................. 17  3.1 Relevance of Objectives, Design and Implementation ....................................... 17  3.2 Achievement of Project Development Objectives .............................................. 18  3.3 Efficiency ............................................................................................................ 21  3.4 Justification of Overall Outcome Rating ............................................................ 23  3.5 Overarching Themes, Other Outcomes and Impacts ........................................ 23  3.6 Summary of Findings of Beneficiary Survey and/or Stakeholder Workshops ... 25  4. Assessment of Risk to Development Outcome ............................................................. 25  5. Assessment of World Bank and Borrower Performance .............................................. 26  5.1 World Bank Performance ................................................................................... 26  5.2 Borrower Performance ........................................................................................ 27  6. Lessons Learned............................................................................................................ 28  7. Comments on Issues Raised by Borrower/Implementing Agencies/Partners............... 29  Annex 1. Project Costs and Financing .......................................................................... 31  Annex 2. Outputs by Component ................................................................................. 32  Annex 3. Economic and Financial Analysis ................................................................. 36  Annex 4. World Bank Lending and Implementation Support/Supervision Processes . 39  Annex 5. Beneficiary Survey Results ........................................................................... 41  Annex 6. Stakeholder Workshop Report and Results................................................... 41  Annex 7. Summary of Borrower's ICR and/or Comments on Draft ICR ..................... 42  Annex 8. Comments of Cofinanciers and Other Partners/Stakeholders ....................... 64  Annex 9. List of Supporting Documents ...................................................................... 64  MAP .............................................................................................................................. 65  A. Basic Information Macedonia, former Social Protection Country: Project Name: Yugoslav Republic of Project Project ID: P074358 L/C/TF Number(s): IBRD-47320 ICR Date: 01/30/2012 ICR Type: Core ICR GOVERNMENT OF Lending Instrument: SIL Borrower: MACEDONIA Original Total USD 9.80M Disbursed Amount: USD 9.45M Commitment: Revised Amount: USD 9.80M Environmental Category: C Implementing Agencies: Ministry of Labor and Social Protection Cofinanciers and Other External Partners: B. Key Dates Revised / Actual Process Date Process Original Date Date(s) Concept Review: 10/07/2003 Effectiveness: 09/01/2004 09/01/2004 Appraisal: 03/01/2004 Restructuring(s): 06/14/2010 Approval: 05/13/2004 Mid-term Review: 12/02/2006 02/02/2007 Closing: 06/30/2009 05/31/2011 C. Ratings Summary C.1 Performance Rating by ICR Outcomes: Moderately Satisfactory Risk to Development Outcome: Moderate Bank Performance: Moderately Satisfactory Borrower Performance: Moderately Satisfactory C.2 Detailed Ratings of Bank and Borrower Performance (by ICR) Bank Ratings Borrower Ratings Quality at Entry: Moderately Satisfactory Government: Satisfactory Implementing Quality of Supervision: Moderately Satisfactory Moderately Satisfactory Agency/Agencies: Overall Bank Overall Borrower Performance: Moderately Satisfactory Performance: Moderately Satisfactory i C.3 Quality at Entry and Implementation Performance Indicators Implementation QAG Assessments Indicators Rating Performance (if any) Potential Problem Project Quality at Entry No None at any time (Yes/No): (QEA): Problem Project at any Quality of No None time (Yes/No): Supervision (QSA): DO rating before Moderately Closing/Inactive status: Satisfactory D. Sector and Theme Codes Original Actual Sector Code (as % of total Bank financing) Compulsory pension and unemployment insurance 80 80 Other social services 20 20 Theme Code (as % of total Bank financing) Other public sector governance 17 17 Other social protection and risk management 33 33 Public expenditure, financial management and 17 17 procurement Social risk mitigation 33 33 E. Bank Staff Positions At ICR At Approval Vice President: Philippe H. Le Houerou Shigeo Katsu Country Director: Jane Armitage Orsalia Kalantzopoulos Sector Manager: Kathy A. Lindert Hermann A. von Gersdorff Project Team Leader: Snjezana Plevko Snjezana Plevko ICR Team Leader: Rajna Cemerska-Krtova ICR Primary Author: Rajna Cemerska-Krtova F. Results Framework Analysis Project Development Objectives The objectives of the project were to improve the effectiveness and efficiency of the social protection system through improved administration and long-term sustainability of the pension system and improved targeting and administration of cash benefits. ii Revised Project Development Objectives (as approved by original approving authority) (a) PDO Indicator(s) Original Target Formally Actual Value Values (from Revised Achieved at Indicator Baseline Value approval Target Completion or documents) Values Target Years Indicator 1 : Improved financial solvency and administrative efficiency of the pension system. 85% (the PAD Value target value) quantitative or 76.3% instead of 95% 92% Qualitative) was a typo error in the LA Date achieved 05/13/2004 05/31/2011 05/31/2011 Comments (incl. % Over-achieved achievement) Indicator 2 : Improved targeting of social assistance benefits (in % by quintile) 3% increase in 5.4% increase in I - 17.49, II - 17.93, III- targeted targeted social Value 11.64, IV - 12.20, V - social benefits that benefits that quantitative or 10.08, VI - 6.90, VII reaches the bottom reaches the bottom Qualitative) - 7.52, VIII - 5.82, IX - quintile of the quintile of the 4.68, X - 5.73 population population Date achieved 06/01/2004 05/31/2011 05/31/2011 Comments (incl. % Over-Achieved. achievement) (b) Intermediate Outcome Indicator(s) Original Target Actual Value Formally Values (from Achieved at Indicator Baseline Value Revised approval Completion or Target Values documents) Target Years Indicator 1 : Improved rate of collection of pension contribution Value (quantitative 76.3% 85% 92% or Qualitative) Date achieved 05/13/2004 05/31/2011 05/31/2011 Comments (incl. % Over-Achieved achievement) Indicator 2 : Increased number of pension benefits request processed within 30 days Value The data was not 90% 98.5% (quantitative available iii or Qualitative) Date achieved 05/13/2004 05/31/2011 05/31/2011 Comments (incl. % Over-Achieved. achievement) Number of PDF/MLSP/MAPAS staff trained to use actuarial models of the Indicator 3 : pension system and conducting analysis of the pension system Six staff members 7 experts trained in three different during the project, 3 institutions are No pension model existed staff members Value expected to be and there was no staff remain (at PDIF) (quantitative trained using the trained in pension involved in or Qualitative) model and modeling actuarial modeling conducting for the pension pension policy system analysis Date achieved 05/13/2004 05/31/2011 05/31/2011 Achieved. There were seven staff who acquired training in actuarial analysis, Comments however, the three staff of the PDIF are licensed actuaries using the actuarial (incl. % analysis and pension system modeling for the purposes of pension policy achievement) evaluation and identification of policy options for the decision making Reduced overall administration costs of the disability pension assessment Indicator 4 : procedure Value MKD 2.7 million MKD 2.5 million (quantitative MKD 5.3 million less or Qualitative) Date achieved 05/13/2004 05/31/2011 05/31/2011 Comments (incl. % Achieved. achievement) Number of MAPAS staff trained to perform on-site and off-site supervision; Indicator 5 : NBRM Custody Unit (CIS) developed and capacities built in custodial practices Both MAPAS and CIS are fully operational; 8 staff members of Neither MAPAS nor the Value MAPAS trained in NBRM Custody (quantitative supervision and 5 6 Department existed at the or Qualitative) CIS members in beginning of the project NBRM Custody Department trained in custody services Date achieved 05/13/2004 05/31/2011 05/31/2011 Comments Achieved, although two staff members who obtained training, left MAPAS for (incl. % other jobs achievement) Increased number of social assistance beneficiaries in lowest deciles Indicator 6 : iv 1.47% and 3.81% 5% more decrease in the I - 17.04, II - 14.99, III- households in the number of Value 10.91, IV - 10.83, V - bottom quintile of households in (quantitative 8.92, VI - 6.06, VII - the bottom quintiles I or Qualitative) 6.74, VIII - 5.58, IX - population and II of the 4.07, X - 4.75, Total 8.98 receiving social population assistance benefits receiving social assistance benefits Date achieved 05/13/2004 05/31/2011 05/31/2011 Comments (incl. % Not Achieved achievement) Indicator 7 : Reduction of social worker time spent on social benefit administration To be determined on the basis of the Value This was not measured at conducted analysis The target value has (quantitative the beginning of the of staff time spent not been set or Qualitative) project on social benefit administration Date achieved 05/13/2004 05/31/2011 05/31/2011 Comments (incl. % Not Achieved achievement) G. Ratings of Project Performance in ISRs Actual Date ISR No. DO IP Disbursements Archived (USD millions) 1 06/15/2004 Satisfactory Satisfactory 0.00 2 12/22/2004 Satisfactory Highly Satisfactory 0.54 3 06/03/2005 Satisfactory Satisfactory 0.62 4 06/01/2006 Satisfactory Satisfactory 2.03 5 09/13/2006 Satisfactory Satisfactory 3.45 6 04/03/2007 Satisfactory Satisfactory 4.03 7 01/31/2008 Satisfactory Satisfactory 5.08 8 12/24/2008 Satisfactory Satisfactory 6.14 9 06/30/2009 Satisfactory Satisfactory 6.53 10 08/31/2009 Satisfactory Satisfactory 6.88 11 05/18/2010 Moderately Satisfactory Satisfactory 7.10 12 12/25/2010 Moderately Satisfactory Moderately Satisfactory 8.94 13 06/13/2011 Moderately Satisfactory Satisfactory 9.38 v H. Restructuring (if any) ISR Ratings at Amount Board Restructuring Disbursed at Restructuring Reason for Restructuring & Approved Restructuring Date(s) Key Changes Made PDO Change DO IP in USD millions Extension of Closing Date, increase disbursement percentage of eligible 06/14/2010 N MS S 7.10 expenditures to 100%, and reallocate funds within categories of Schedule 1 I. Disbursement Profile vi 1. Project Context, Development Objectives and Design 1. The Social Protection Implementation Project was approved on May 13, 2004. The Loan Agreement was signed on July 25, 2004 and became effective on September 1, 2004. The Project built on the Government’s social protection and pension reform efforts, supported by World Bank-financed investment and development policy lending operations. The project was also expected to support the Government in meeting the policy conditionalities of the Public Sector Management Adjustment Loan (PSMAL), the adjustment operation prepared in parallel with the Project. 1.1 Context at Appraisal 2. The Former Yugoslav Republic of Macedonia (FYR Macedonia) was among the economically least developed of the former Yugoslav republics. Although its economy contracted even further in the years immediately following independence in 1991, the country made significant progress in macroeconomic stabilization and structural reforms during the 1995-1999 period. In that period, the economy experienced an average annual positive GDP growth rate of 2.9 percent, inflation was reduced to 2.2 percent, and fiscal deficit declined to 0.2 percent. These positive trends were interrupted by the Kosovo crisis (in 1999) and civil conflicts (in 2001) that resulted in a significant decline of industrial production and a severe deterioration of the fiscal balance. 3. At the time of appraisal in 2004, economic growth had slowed and investment was sluggish. The fiscal deficit of the general budget rose to 5.7 percent of GDP due to a significant increase in security-related expenditures, larger transfers to social funds, new public sector hiring, higher public wages and exceptional financing to compensate losses suffered in the wake of failed Ponzi schemes Although real GDP grew by 3.1 percent in 2003, significant challenges remained to achieve macroeconomic stability, a functioning market economy, sustained growth, and ultimately higher living standards for the people of FYR Macedonia. 4. At the time of appraisal, social assistance was characterized by weak administrative capacity and a complex and fragmented system of social cash benefits. Social transfers1 at around 12.5 percent of GDP for most of the first half of the 2000s, before falling to about 11 percent in 2005, were modest compared to the South East Europe average of around 14 percent of GDP. 2 The system had developed in a piecemeal fashion, with little consideration given to linkages between programs or administrative efficiency. By 2002, there were as many as 0.5 million people (25 percent 1 Includes pension spending, the Health Insurance Fund’s administrated social transfers, social protection- non contributory transfers, and unemployment transfers. 2 Public Expenditure Policies in South East Europe, p. 20. 1 of the population) living in families that received some form of social assistance benefits. The efficiency and the effectiveness of those programs, however, remained low: programs were not well targeted; inclusion and exclusion errors were high. The 2005 Poverty Assessment found that social transfers were responsible for reducing the poverty headcount from 35 to 22 percent of population in 2003; it also found, however, that social assistance programs provided greater coverage to the non poor than to the poor3. The assessment also found that even though the Government was making efforts to improve targeting efficiency of the means-tested social assistance program, these efforts were hampered by inadequate benefit administration and delivery, lack of proper monitoring of eligibility, and limited incentives for the beneficiaries to leave the system. 5. The pension system also needed reform. In 2002, total pension expenditures were 10.8 percent of GDP, and the Pension and Disability Insurance Fund (PDIF) required budget transfers of approximately 3 percent of GDP in addition to its direct contribution revenues. Moreover, the structural deficit of the PDIF was expected to grow in the future as a result of worsening system dependency ratios, generous benefit assessment and indexation rules, as well as the relatively easy access to occupational early retirement and disability status. To address these issues, the Government embarked on a comprehensive reform of the pension system. The reform included parametric policy changes, along with efforts to improve administration through improved system of contribution collection, record-keeping and internal controls, and strengthening of institutional capacity in the areas of strategic planning, business process development, human resource management and communication. In addition to the parametric adjustments to the public pension system, legislation was passed in 2000 to implement a structural reform introducing a mandatory funded (“second�) pension pillar. This pillar was designed to be mandatory for new entrants to the labor market and to be voluntary for persons who were already in the workforce. The implementation of a two-pillar system faced a number of significant challenges including creating the fiscal space necessary to accommodate the transitional deficit, creating adequate financial instruments for investment of the accumulated assets, and ensuring that the institutional framework established would be both cost-effective and consistent with sound governance principles and long-term financial return objectives. 6. The World Bank 2003-2006 Country Assistance Strategy (CAS) included three development objectives of direct relevance to this operation: (i) support to the public sector management reform program, (ii) building human capital, and (iii) protecting the most vulnerable. The CAS noted as important elements the need for “improving the efficiency, effectiveness, quality of services and coordination of major social protection programs, including pensions�, further “institutional strengthening of 3 While in 2002 the social assistance transfers were received by 47 percent of non-poor beneficiaries, and by 53 percent of poor, in 2003 this ratio worsened with transfers were received by 51.2 percent non-poor and by 48.8 percent poor beneficiaries. Poor are people who are in the lowest income group (in the lowest quintile). 2 major institutions of the pension system� and “reforming the social safety net which had been lacking coordination at the system level.�4 7. The preparation and the design of the new investment operation – the Social Protection Implementation Project - built on the achievements of the previous reform efforts of the Government in the areas of public sector management and social protection. Prior to the approval of the Project, the World Bank had supported FYR Macedonia by providing technical advice through several World Bank-financed investment projects as well as through adjustment (development policy) lending and Analytical and Advisory Activities5. The project was expected to assist the Government in finalization of the social policy reform agenda supported under the PSMAL, the adjustment operation prepared in parallel with the Project. 1.2 Original Project Development Objectives (PDO) and Key Indicators 8. The development objectives of the Project were to improve the effectiveness and efficiency of the social protection system through improved administration and long-term sustainability of the pension system and improved targeting and administration of cash benefits. The development objectives as well as the performance indicators were the same across the main text of the PAD, Annex 3 of the Project Appraisal Document (PAD) (Results Framework and Arrangements for Results Monitoring) and the Financial Agreement. However, for regular monitoring, a subset of different indicators was selected and tracked in the Implementation Status and Results Reports (ISR). The indicators used for the purpose of this ICR are those used in the ISRs. 9. A full review of the Project documentation revealed that there was a minor discrepancy between the PDO as set out in the PAD and the PDO in the Loan Agreement: the term targeting was consistently referred to in the PAD, but was missing from the Loan agreement. The latter was identified during the December 2008 full review of the Project’s documentation and was documented in the Sector Manager’s comments filed in the Project’s ISR no. 8, archived on December 24, 2008. 1.3 Revised PDO (as approved by original approving authority) and Key Indicators, and reasons/justification 10. The Project Development Objective was not revised. The PDIs were not formally revised, but they are stated differently in the PAD Annex 3 (Results Framework and Arrangements for Results Monitoring) and the ISRs. 4 Country Assistance Strategy for the Former Yugoslav Republic of Macedonia , August 14, 2003. 5 The Project built on these previous Bank operations and analytical work, including the FY 1998 Social Sector Adjustment Credit (SSAC), FY1999 Pension Reform Technical Assistance Project (PERTAP); FY99 Poverty Assessment, FY00 Public Expenditure and Institutional Review, FY02 Public Sector Management Adjustment Credit (PSMAC). FY03 Country Financial Accountability Assessment and FY03 Country Economic Memorandum. 3 11. In the Social Assistance component (Component 2), the intermediate indicators described in the PAD and intended for tracking the achievement of the PDO were not monitored during implementation - instead, a subset of indicators was selected for regular monitoring in the ISR. Although this practice was common at the time, it remained an obstacle for monitoring performance and assessing final results. The detailed findings linked to the adjustments made and the ICR team’s assessments are elaborated in section 2.3 - Monitoring and Evaluation (M&E). 1.4 Main Beneficiaries 12. The direct beneficiaries of the Project under the Pension Administration component included the Ministry of Labor and Social Policy (MLSP), PDIF and its branch offices, the private pension sector's regulatory agency Macedonian Agency for Supervision of the Capitally Funded Pension Insurance (MAPAS), and the National Bank. 13. Under the Social Assistance component, the investments targeted a number of specific departments/units at MLSP such as the Social Protection Department, Child Protection Department, IT Department, Policy Evaluation Unit, Financial Department, Social Inspection Department, and the social welfare centers (SWCs). 14. In addition, the ultimate project beneficiaries were the households at the bottom of the income distribution and future pensioners. Taxpayers - through improved compliance and recordkeeping - would also enjoy the benefits of a more stable pension system, which would require fewer ad-hoc revenue or expenditure side adjustments to maintain its fiscal sustainability. 1.5 Original Components 15. The Project included three components: (i) Pension System Administration (hereinafter referred to as the Pension Administration component); (ii) Social Protection Program Support (hereinafter referred to as the Social Assistance component); and (iii) Project Management, Monitoring and Evaluation. COMPONENT 1: PENSION SYSTEM ADMINISTRATION (US$ 7.99 million) 16. This component aimed at improving the long-term sustainability of the pension system through improving the administration and efficiency of the existing pension system institutions; increasing the efficiency and effectiveness in collection of pension contributions through the introduction of monthly pension contribution record- keeping on the individual basis; building regulatory and supervisory capacities in the newly formed MAPAS agency and custodial capacities in the National Bank of the Republic of Macedonia (NBRM); and improving public knowledge of the pension system through an extensive public education campaign. 17. Sub-component 1: Governance and management reform in the PDIF through implementation of sound business plans/processes and improved financial management 4 practices, improved human resource management, development and implementation of internal and external communication strategy for the PDIF, as well as strengthening policy and actuarial analysis capacities in the PDIF. It also supported the design and the implementation of an improved pension contribution collection system and the introduction of individual accounts for pension contributors. 18. Sub-component 2: MAPAS Development of: (i) the regulatory framework needed for proper functioning of the funded pension system; (ii) the design and implementation of the MAPAS business processes and MAPAS capacity building; and (iii) enhancement of public understanding of the funded pension system. 19. Sub-component 3: Capacity Building at MLSP for Pension System Analysis, Policy Development and Public Education, including: (i) identification of policy options and preparation of draft pension legislation; (ii) capacity building for pension system analysis and the development of future policy options; and the (iii) preparation and implementation of the integrated pension reform public education campaign, including organization of training, workshops and seminars, printing and distribution of the education materials, and other activities as needed. 20. Sub-component 4: Pension system custody (of second pillar pension assets) capacity development at the NBRM in: (i) identification of business processes and adequate organizational structure for the development of Custodial Department; (ii) preparation of rules and regulations related to custody over the second pillar pension assets, their evaluation, record-keeping and other custody-related activities; and (iii) provision of specialized training of the Custody Department staff on the issues relevant to the Department’s activities. COMPONENT 2: SOCIAL PROTECTION PROGRAM SUPPORT (US$ 2.58 million) 21. This component supported the implementation of social assistance reforms and the development of technical and organizational capacities for policy formulation and mechanisms to improve resource management and service delivery in the MLSP and its strategy departments. 22. Sub-component 1: Policy framework for streamlined, cost effective and better targeted cash benefits, implementation of local social planning and deinstitutionalization of social work services, and establishment of inspection, supervision and quality assurance functions. In particular, the sub-component was aimed at supporting the formulation of social assistance policy; models for the decentralized management of social protection, interface between the cash benefit regime and labor market measures managed by the National Employment Bureau (NEB); design of technical and organizational options for reform and the formulation of operational structures for monitoring and reviewing cash benefits and social work services; and establishment of a consolidated inspection and quality assurance function. 5 23. Subcomponent 2: Information management systems and IT capacity strengthening of the institutions and departments in charge of administration of cash benefits, the delivery of social services and the interface between cash benefits managed by SWCs and active employment measures managed by the NEB. The sub-component was designed to ensure support for the design and implementation of business plans/processes related to the development of integrated system for administration of social protection programs; harmonization of data systems across key institutions and the development of IT data transfer systems and communication links between the MLSP and other institutions within the social protection system, including data protection and security system upgrade of the equipment and data communications networks; as well as training on sound information management practices and communication and information technology development. COMPONENT 3: PROJECT MANAGEMENT, MONITORING AND EVALUATION (US$ 0.51 million) 24. This component ensured effective administration and implementation of the project by supporting the operations of a Project Management Unit (PMU) which reported to the Minister of Labor and which was responsible for all the day-to-day project implementation activities, including procurement, disbursement, and accounting functions. 25. The Policy Unit in the MLSP and the PMU were jointly tasked with ensuring the effective monitoring and evaluation of project activities, achievements and outcomes during and after project implementation. The Policy Unit originally was staffed with two full-time staff and the project was aimed at supporting capacity building of this Unit through Government financing of one more full-time staff and through World Bank financing of two additional staff for an initial period of two years, to be transferred in mid-2006 to the Government budget. 1.6 Revised Components 26. Project components were not revised. There were, however, several reallocations of the Loan proceeds among the Project sub-components which are mentioned in the Section 1.7 below. 1.7 Other significant changes 27. There were two amendments to the Loan agreement:  The first amendment, approved on January 26, 2009, extended the Loan’s Closing Date by twelve months to June 30, 2010. The extension was approved to allow the Borrower to complete the development of the software for: (i) the Pension Payout, (ii) Financial Management Information System and Document Management System for the PDIF; (iii) core business functions of the MAPAS; (iv) the Cash Benefit MIS. It also allowed the procurement of IT hardware for the MLSP and the SWCs, and the networking equipment for establishing the linkages among the MLSP, SWCs, Employment Agency, and the PDIF. In addition, Schedule 1 of the Loan agreement was amended to reflect the reallocation of the 6 Loan proceeds within categories of expenditures, including increase in goods and consultant services, and reduction in training and incremental operational costs.  The second amendment, approved on June 15, 2010, extended the Closing Date of the Loan by a further eleven months to May 31, 2011, to allow completion of the two critical software packages, (i) the Pension Payout software, and (ii) the software solutions for the Cash Benefit MIS, which were essential for the full accomplishment of the PDO. The amendment also included increasing the disbursement percentage of eligible expenditures to 100% due to the difficulties encountered by the Ministry of Finance to provide timely counterpart funds contribution to some activities; and reallocation of funds within categories including increase in goods and consultants services and reduction in training. The disbursement percentage for the incremental operating costs was not changed and it remained 25% from the World Bank Loan proceeds and 75% from the Government contribution. 28. The restructuring did not involve the introduction of new activities, or revisions of the project development objectives, outcomes, design, or scope. 2. Key Factors Affecting Implementation and Outcomes 2.1 Project Preparation, Design and Quality at Entry Rating: Moderately Satisfactory Soundness of background analysis 29. The Project preparation and Project’s design including its objectives and defined components were based on extensive research, studies and policy discussions between the World Bank and the Government which took place over several years preceding the Project approval. The goals and means of the project reflected international best practice as adapted to local circumstances. The background analysis, used as a critical input into the Project’s preparation, was grounded in the previous policy and technical assistance work supported by the Social Sector Adjustment Credit (SSAC), the Pension Reform Technical Assistance Project (PERTAP) and the Public Sector Management Adjustment Credit (PSMAC). 30. The support provided through the PERTAP was a critical factor which led to impressive achievements in the implementation of successive governments’ pension reform agenda. The PSMAC, as a one tranche operation, supported the medium-term strategy of the Government in public sector management, including the fiscal sustainability of the pension system. Other parallel analytical work and technical evidence came out of the assessments prepared by the World Bank Financial Sector Assessment Program team in 2003 which addressed issues related to the Macedonian financial markets as one of the key requirements for the implementation of the new pension system and the introduction of the second pension pillar. 31. The Project initially envisaged inclusion of reforms in social protection and health. While the reforms in both sectors were perceived important, they were at different stages of preparation, and this was seen as a major challenge for successful 7 preparation of the Project. The team, therefore, decided to seek guidance through a Quality Enhancement Review (QER). The QER was carried out on July 16, 2003. The QER commended the two sectoral teams for the decision to seek their guidance at an early stage of project preparation and highlighted the substantial risks associated with preparation and implementation of such a complex project. The QER proposed three alternatives: (i) a human development (HD) policy/adjustment loan in support of the second phase of the Public Sector Management Adjustment Loan (PSMAL); (ii) an HD investment loan focused on the introduction and application of modern information systems in social protection and health; and (iii) separation of the two sectoral components into two different operations: a social protection investment loan, focusing on information systems with linked technical assistance (TA); and a multi-sectoral (including health TA activities) TA loan linked to PSMAL II. Subsequently to the QER, at the Project Concept Note (PCN) Review meeting of October 7, 2003, the decision was taken to split the Project into two separate health and social protection projects. The total financing allocated for the joint project was divided between the two projects providing US$7.5 million the Social Protection Implementation Loan (SPIL). Since this amount could not cover all the activities that the Government was planning to implement in the areas of pensions and social protection, the World Bank management and the Government agreed to increase the loan amount to US$9.8 million. Quality of design 32. The Project preparation was supported by a Policy and Human Resource Development (PHRD) grant in an amount of US$397,320. The Grant financing allowed the team to contract high level experts who engaged in pension policy review and research, short-term and long-term pension system modeling, pension system administration, review of the available technical support and information and communication systems, development and staff training, etc. Social protection specialists were hired to help the Government to fix the multiple inconsistencies between the different databases used in the process of administration of the cash benefits, defining the eligibility criteria for the benefits which existed at that time, etc. Their outputs, reports and recommendations were based on the thorough review of the system of social protection benefits supported by the available statistics at that time and the related institutional, legal and regulatory framework. The Project’s design succeeded in capturing the main issues and problems confronted by the Government to ensure improved performance of its functions in delivering programs and services in pensions and social assistance/welfare areas. The choice and definition of the indicators, though, did generate some issues around the design of the Project’s results framework that are discussed in section 2.3 of this Implementation Completion and Results Report (ICR). 33. Alignment of the Project’s design with the CAS (2003-2006): the Project design and specifically its PDO reflected one of the development objectives of the CAS which called for “improving the efficiency, effectiveness, quality of services and coordination of major social protection programs, including pensions� and required further “institutional strengthening of major institutions of the pension system� and “reforming the social safety net which had been lacking coordination at the system level�. 8 34. The Government was initially interested in a Project designed to reflect only the pension system reform requirements. Nevertheless, growing awareness about the need for initiation of social assistance cash benefit reforms led to inclusion of a social assistance dimension into the PDO. The Project’s design ultimately reflected both dimensions, the pension and the social assistance, with attention initially, at the design stage, given to the Pension Administration component, at the expense of the Social Assistance component. 35. The design of the Pension Administration component followed a detailed road map of pension reform activities and related milestones, the so called Critical Path Analysis. The Project team used this as a management and supervision instrument throughout the Pension component preparation and also later during the component implementation. 36. The design of the Pension Administration component reflected properly the needs of the pension system. Administrative improvements were needed to support the already enacted parametric reforms and the planned structural reforms, i.e., the introduction of mandatory and voluntary fully funded pension pillars. Along with the development of a legislative framework for the funded pillars, the Project was to support design and development of a new system of collection of contributions and record- keeping by the PDIF ahead of the introduction of the second fully funded pension pillar. Governance and management reforms aimed to improve collection performance and financial management at the PDIF required subsequent changes. The latter entailed reforms in PDF’s accounting, budgeting and internal controls in compliance with international standards and revisions to the pension legislation. 37. The Project design also reflected appropriately the high priority needs of the Government to confront effectively the abuse of the disability pensions; thus the design included work on the disability insurance system modifications. Furthermore, the new second pillar legislation required strengthened regulatory capacity of the newly introduced institutions (such as Pension Supervision Agency) and further elaboration of the mechanics of the second pillar, including custodial functions, development of necessary rules and regulations, continued public education, etc., as well as a plan for financing transition costs, a wider range of investment instruments available for pension funds, etc. Lastly, the public education campaigns at different stages of Project implementation were planned to ensure that the public is well aware of the pension system reforms. The design of the Project reflected all these priorities accordingly. 38. In the Social Assistance component, too, the most serious challenges were identified and reflected adequately in the design of this component. These challenges included a complex set of issues related to tightening the benefits eligibility for improved targeting, reforms in the benefits administration and establishment of vertical and horizontal interfaces between the MLSP and the SWCs, and the MLSP and other key institutions in the system such as PDIF, Employment Office, Health Insurance Fund (HIF), Tax Office, etc. It also included reforms in the legal and regulatory framework governing the child benefits, improving inspection and quality assurance functions of the MLSP, improving the interface between the social assistance benefits and monitoring the employment status of beneficiaries, etc. 9 39. Notwithstanding the solid preparatory work on the design of this Project component, and the comprehensive approach to the social safety net reform, the ICR team assesses the design of this component as rather ambitious, from both design and implementation aspects. An issue which should have been better understood at the time of Project design was the considerable institutional capacity constraints faced by the Government. While the MLSP Pension team and the institutions of the pension system were relatively better staffed and had already gained experience in the system reform, the capacity of the MLSP social assistance team at that time was rather modest. It could not have been realistically expected that capacity constraints would disappear given the scarcity of trained specialists and financial constraints which limit government agencies' ability to attract experts. This design shortcoming haunted the project during its implementation and is largely to blame for the underperformance of the Social Assistance component. Lessons learned 40. The following lessons learned from previous operations were incorporated into the design of the Project: (i) the need for strong Government ownership and subsequent involvement of the respective Government agencies in the Project implementation; this played a crucial role in ensuring the Project’s success and sustainability; (ii) the need for realism and flexibility of the implementation timetable supported by project management instruments such as a detailed critical path analysis; (iii) paying due attention and respect to the political economy of the planned pension and social assistance reforms through incorporating and executing public education campaigns; (iv) adherence to the parametric reforms in the pension system preceding the Project and development and application of subsequent pension modeling tools used for identification of the next generation of the pension system reform; (v) completion and operational readiness of the Project implementation arrangements during the Project preparation which ensured that implementation could start with no delays. Risk assessment 41. Most of the risks were well identified, and the subsequent mitigation measures were adequate. Nevertheless, the risk related to the Information Technology capacities of the client agencies to effectively design, procure and implement IT software solutions was under-rated. In this context, World Bank experience with IT procurement suggests that the length of time needed for implementation of the Project was also under- estimated. Likewise, the capacity constraints, reflected in the lack of full understanding of the complexity of the social protection policy actions and interventions financed through the Project, were underestimated. 2.2 Implementation Rating: Moderately Satisfactory 42. Overall, the Project was successful in delivering most of the outputs anticipated under the Project’s components, particularly in the case of the Pension 10 component. The delays in implementation which led to two extensions of the Project’s closing date by 23 months were partially resolved, with both dimensions of the PDO successfully achieved. 43. The Project’s ISRs rated the quality of implementation either Highly Satisfactory or Satisfactory. The only time when both the progress towards achievement of the PDO and the overall implementation progress were rated Moderately Satisfactory, was when the likelihood of achieving the PDO indicator of improving the targeting of social assistance was put at risk by the need to re-tender the selection of the developer for the strategically important Cash Benefit Management Information System (CB MIS) software. The contract with the first supplier for the CB MIS, after two extensions, was terminated in March 2010 in spite of the fact that the original contract completion date was November 15, 2009. The contract was terminated due to incapacity of the contractor to finish the work. The second attempt for the selection of the system developer that took place in May 2010 failed. Only the third selection was successful. Timely identification of procurement problems by the team, appropriate team’s advice to the Government and subsequent actions taken by the Government reduced the risk of repeated problems with the third round of bidding and allowed for the selection of a contractor for the task. Nevertheless, the delays caused by the first two failed procurement attempts could not be fully compensated. The Cash Benefit MIS software could be neither completed nor tested prior to the Project closing date. The World Bank team and the Government agreed to transfer the remaining unfinished contractual obligations for the completion of the Cash Benefit MIS software to the new related investment operation – the Conditional Cash Transfer Project (CCTP). Fortunately, soon after the closing of the SPIL Project the CB MIS was operationally accepted. The CB MIS is soon expected to start to deliver the anticipated outcomes related to improved administration efficiency and, ultimately, improved targeting of the cash benefits. Factors that positively influenced implementation 44. One positive factor was the strength of the Project Implementation Unit (PIU) managed by a Project Director who was a senior and experienced official of the MLSP. The PIU was the successor of the SPIL Project Preparation Unit with staff hired to ensure adequate preparation of the necessary project documents for the procurement of goods and services for the first year of the project so that project implementation could begin without any delay. With the Project of high strategic priority and strong government ownership, and the Project director and PIU with a good track record, the Project was able to get off to a strong start. 45. The effective implementation arrangements were reinforced by several additional structures established as standing working bodies representative of decision makers and other participating institutions in Project implementation, including: (i) Steering Committee for Pension Reform, which provided leadership and facilitated the cross-sectoral activities necessary for the successful implementation of the pension reform; (ii) Pension Reform Working Group, consisting of representatives of the MLSP, Ministry of Finance, NBRM and directors of the PDIF, MAPAS, and the PIU Pension Coordinator; and in later stages of Project implementation unit; (iii) Social Protection Working Group consisting of representatives of various MLSP departments and representatives of the Ministry of Finance and the State Statistics Office (SSO), 11 directors of the Employment Agency and Institute for Social Activities. The meetings of the working groups were devoted to assisting the PIU in implementation of different stages of contract management; in particular the working groups would review, comment and clear terms of reference for new upcoming tasks or review deliverables from ongoing tasks or tasks under completion, and the meeting notes were shared regularly with the World Bank team. Although, according to some ISRs, the meetings of the working groups were not that frequent throughout the lifetime of the Project, they remained a good instrument by which the Government extended its direct support to Project implementation. Factors that impeded implementation 46. Both Project components involved policy work and ensuing legislative action. For this purpose, technical assistance of international and local consultants was sought and, consequently, hired. In the case of the Pension Administration component, this work proceeded smoothly without any implementation delays. Within the Social Assistance component, implementation of technical assistance activities as inputs into legislative action required intensive efforts on the World Bank team’s and the Government’s side to ensure selection of the most optimal policy options and their translation into legislative action under a required timeframe. However, institutional capacity constraints in the MLSP delayed implementation. Eventually, the new Law on Social Protection was adopted with a twelve months delay. 47. The Project components also had a heavy focus on development of new business processes, software development to support these new processes and procurement and installation of IT hardware for their implementation. Some of these complex interventions hampered the Project implementation and led to delays which ultimately had to be resolved by allowing more time for implementation and extension of the closing date. In the case of the first large tender aimed at procuring a supplier to develop the Cash Benefits MIS, the originally selected company failed to deliver the software. The MLSP, terminated the contract with that supplier and made a decision to re-launch a new bid. The new invitation for bids was announced on May 21, 2010. The second ICB, however, ended with an attempt of misrepresentation of information in the process of the bid evaluation. This was revealed by the World Bank team and immediate corrective actions were taken while the case was reported to the World Bank’s Integrity department. These delays required two extensions of the closing date of 23 months and the transfer of the remaining tasks for the completion and operationalization of the Cash Benefits MIS from the SPIL to the CCTP project. 48. In summary, while the implementation difficulties due to procurement and capacity constraints adversely affected implementation, there was continuously strong commitment at the top level of successive governments, at the level of the lead line ministry, the MLSP, and the Project Director and the PIU to facilitate communications among the various institutions and other actors and to implement the reform program. 2.3 Monitoring and Evaluation (M&E) Design, Implementation and Utilization 12 Rating: Moderately Satisfactory Design 49. In general, the Project indicators were relevant and measurable. The PAD included a comprehensive set of PDO and intermediate outcome indicators. However, as discussed below, several outcome indicators did not reflect well the PDO and project components. For example, for measuring the achievements of the Pension Administration component, the Project established both quantitative and qualitative indicators. Some indicators - such as the number of employees trained in using actuarial models or the number of MAPAS employees trained in supervisory practices - are quasi- quantitative: the exact numeric targets are presented as evidence of delivery of project objectives, but there were no explanations in the PAD or the ISRs as to why the selected target values would indicate that the objectives were substantially met. 50. The outcome indicators selected for the pension part of the PDO - improved effectiveness and efficiency of the social protection system through improved administration and long-term sustainability of the pension system - were not entirely appropriate for translating the PDO into relevant and measurable outcomes. 51. In terms of effectiveness (improved administration of the pension system), the interim result indicators (disability assessment costs, benefit assessment processing times) adequately measure some facets of the system's administrative performance, but were insufficient to measure all aspects of efficiency. 52. The indicator "increased number of pension benefit requests processed within 30 days" is appropriate and measurable. At the same time, the target value attached to the indicator (90%) did not take into account that awarding disability pensions is a long process and obtaining records from other ex-Yugoslav republics remains time- consuming, lengthening average processing times as long as people with cross-country service histories continue retiring. As confirmed by the client, the indicator was reported on the basis of old age pensions and survivor pensions only, and only for cases where all documents were readily available. This approach is viewed as appropriate, as it filters out factors external to PDIF. Meeting the target for this group is an important achievement. 53. It is unclear what information the intermediate outcome indicator "reduced overall administrative cost of the disability assessment procedure" was supposed to provide in relation to the effectiveness or efficiency of the disability assessment system. The disability assessment system was ineffective largely because it failed to filter out fraudulent uptake, but reducing administrative costs has little indicative value as to the reliability of the assessment regime or the quality of regulations. In terms of disability, the indicator which could have measured progress is the change in disability uptake as a percentage of relevant demographic strata. If the inflow of new beneficiaries could be curtailed through policy and administrative reforms, the actual cost of administration becomes secondary. It must also be noted that data on this indicator was not compiled by the PDIF and was not monitored during Project implementation. In the ISRs there is no indication that this issue was addressed during supervision missions. 13 54. Regarding the achievement of the pension part of the PDO, the indicator "the numbers of MAPAS staff trained in supervisory practices and of MLSP, MAPAS, PDIF staff trained in operating actuarial models," was chosen as a proxy for improved effectiveness. It is unclear what the optimal number of trained personnel would be and whether a small shortfall compared to the target value would be a sign of failure. What is important is that these institutions are able to perform the functions described in the PAD - in other words, the indicators should measure output (for example actuarial reports and analyses, on-site supervision and supervision reports per annum) which would be achieved through these inputs (staff trained). 55. The outcome indicator "improved financial solvency of the pension system" is a much narrower concept than sustainability: whereas the solvency of a public pension scheme is important from the perspective of annual deficits, in itself it reveals little about the overall financial position of a system. Indeed, it is possible to improve the solvency of a pension scheme, in the short to medium run, and worsen its sustainability at the same time. For this reason - and also to foster the usage of more relevant fiscal indicators (such as the system's unfunded liabilities) - complementing this flow indicator with a balance sheet indicator may have better measured the policy objective of improving the public pension scheme's sustainability. 56. For the social assistance part of the PDO - improved effectiveness and efficiency of the social protection system through improved targeting and administration of cash benefits – the quantitative and qualitative outcome indicators chosen provided an appropriate framework for monitoring the progress and measuring outcomes; they were both relevant and measurable. 57. In relation to targeting, the quantitative outcome indicator for the PDO, increased share of Social Assistance expenditure going to the bottom two deciles (bottom quintile) by at least 3%, has been consistently monitored in the ISRs starting from the sixth ISR onwards. 58. For the quantitative intermediate results indicator (IRI) – increased number of social assistance beneficiaries in the lowest deciles, the target value was at least 5% increase of the SA beneficiaries in the bottom quintile. While the target value was expressed in quintiles, data was received in deciles, although this did not hinder monitoring outcomes. 59. The largest portion of the social assistance part of the results framework in the PAD consisted of qualitative indicators relating to the administration part of the PDO, for which the data were not collected due to their initial unavailability but also due to the initial relatively lower priority attached to the Social Assistance component activities in the early stages of Project implementation. The qualitative indicators were observable and measurable. If used, they could have established the causal links between the Project’s inputs, activities, outputs, and intended outcomes. These untracked qualitative indicators would have tracked and shown the degree of readiness and (near) completion of the unified Cash Benefits MIS (CB MIS) as one of the main deliverables attributable to the interventions financed under the Social Assistance component. 60. One quantifiable and measurable interim indicator, the reduction of social worker time spent on social benefits administration, was introduced into the ISR results 14 framework at the time of the Mid-Term Review, which took place in February 2007, with a view to measure the impact of the introduction of the new unified CB MIS and the centralized data registry on administrative efficiency. However, no study was conducted to set the baseline and the target value of the indicator. The actual value of this indicator would become evident only after the CB MIS becomes fully functional, expected to take place beyond the lifetime of this Project. 2.4 Safeguard and Fiduciary Compliance Financial management Rating: Satisfactory 61. Financial management arrangements were Satisfactory throughout most of the implementation period. Audit opinions on annual project financial statements were clean, identifying no issues. Quarterly financial reports (IFRs) were submitted to the World Bank in a timely manner and the reports were assessed to be reliable, with a few exceptions in the early stages of implementation when, due to accounting software deficiencies the reports contained some inaccuracies (certain items and figures not reconciling etc.) which were resolved once the initial problems with the software were “fine-tuned�. In general, the accounting system was acceptable, although it needed some adjustment in the early phases of implementation in order to be fully reliable and accurate. Appropriate internal controls and procedures were instituted for the project and applied in practice. The financial management function was properly staffed throughout implementation by a qualified and experienced specialist. The Designated Account opened in the National Bank of Macedonia was properly administered. Disbursements under the Loan proceeded according to plan. By the closing date US$ 9,445,518.04 equivalent had been disbursed or 96.46% of the loan proceeds. Procurement Rating: Moderately Satisfactory 62. Goods and consulting services were procured in accordance with the “Guidelines for Procurement under IBRD Loans and IDA Credits� published by the Bank in January 1995 and revised in January and August 1996, September 1997 and January 1999 (the Guidelines) and “Guidelines: Selection and Employment of Consultants by World Bank Borrowers� published by the Bank in January 1997 and revised in September 1997, January 1999 and May 2002 (the Consultant Guidelines), as provided in the Loan Agreement. The Loan Agreement provided that some packages be post reviewed but, at the request of the Project Director of the PMU and in agreement with the project team, all procurement packages were prior reviewed, including specialized trainings, workshops, study tours, and conferences financed under the project. 63. For all procurement, irrespective of value, the Borrower used the Bank’s standard bidding documents for goods and Request for Proposals for consulting services, including the Bank’s regional sample documents, standard form of consulting contracts and standard bid evaluation report forms. This facilitated the Bank’s review of procurement documents. 15 64. The procurement staff in the PIU received additional training in Procurement of IT Systems organized by the World Bank in Sarajevo, Project Management in a World Bank-funded Project, Control of Project Delivery, Procurement and Financial Management Procedures organized by International Labor Organization (ILO) Center in Turin; and Selection and Recruitment of Consultants in WB-financed project organized by ILO Center in Turin. 65. Procurement was rated Satisfactory for the most part of the life of the project until the latter part when it was rated Moderately Satisfactory. The Bank sent a strong message to the Client regarding the deteriorating quality of bid evaluation reports and the clear attempts of the bid evaluation committee to manipulate the evaluation process for a number of packages under the project. This led to the Bank's repetitive message for submission of revised bid evaluation reports, which created delays in awarding and signing of contracts. The situation was further aggravated by the delay in completing the procurement activities for two packages: procurement of additional hardware equipment for the MLSP and the SWCs, and the development of CBMIS. The problem encountered with the procurement of CBMIS is discussed in detail in paragraph 2.2 (Implementation). Although the problems were eventually resolved, it caused delays in overall implementation resulting in two extensions of the Loan Closing Date, i.e. to June 30, 2010 and then to May 31, 2011. 66. Despite the problems described above, all other packages were procured and contracts completed. There was no misprocurement case under the project. Procurement plan was updated as required, and procurement notices and contract awards were published as prescribed in the Guidelines. 2.5 Post-completion Operation/Next Phase 67. The SPIL has provided an investment framework for continuation of the pension reform initiated by the Government and, as such, has paved the way for further reforms towards ensuring sustainability of the pension system in future. Support to the Government’s efforts to preserve the long-term sustainability of the pension system, in the absence of a follow-up pension reform investment operation, has continued through the DPL 1, disbursed in April 2011, and a recently negotiated Policy Based Guarantee (PBG). Policy dialogue linked to these two interventions has encouraged the Government to introduce a number of measures to reduce the costs of the overall system. Through tightening the eligibility criteria for survivor pensions, reduction of valorization coefficients, reducing fees for various agencies, slowing down the originally planned reduction in pension insurance contributions, and other policy measures, sustainability of the pension system improved and it provides better incentives for labor force participation and contribution compliance. At the same time, the policy dialogue in this field will need to be maintained to prevent policy reversals and to convey emerging best practices, especially in the field of private pension products (2nd and 3rd pillar). 68. The SPIL has strategically laid the ground for continued efforts towards further strengthening of the social safety net, supported by a new investment operation – the Conditional Cash Transfer Project (CCTP). Approved in 2009, the CCTP continues 16 to support investments for further strengthening the effectiveness and the efficiency of the social safety net through introduction of conditional cash transfers, further improvements in the administration, oversight, monitoring and evaluation of social assistance transfers and their linkages to building national human capital. The key elements of the CCTP are directly attributable to the technical assistance activities financed by the SPIL. It is expected that the CCTP will build on and extend the improvements in the social assistance system started by SPIL, including the broadening of its coverage, achieving greater targeting efficiency and consequently harmonizing and consolidating still overlapping social assistance programs/benefits. The ways to achieve these goals were paved by the new reformed legal and regulatory framework, supported by the Project. The greater objectives of the Social Safety Net reform were addressed by the investments financed by the Project such as the recently established network between the MLSP and the SWC, and the Cash Benefits MIS, whose full functioning is expected to start under the new follow-up CCTP intervention. The real intended outcome, however, had to await the completion of the system. 3. Assessment of Outcomes 3.1 Relevance of Objectives, Design and Implementation 69. The relevance of objectives, design, and implementation are rated High. 70. Overall, the objectives and design of the pension parts of the project were timely and fully appropriate for the circumstances of FYR Macedonia, addressing all issues relevant to the successful implementation of the pension reform. Indeed, the project achieved more than its original objectives. The technical assistance and policy advice provided helped to establish the next steps in developing the private pension sector and put in place the instruments necessary for further policy decisions (e.g. portfolio choice, continuing institutional changes in disability assessment and rehabilitation, benefit guarantees in the presence of various payout modalities to make sure that no annuity purchased at retirement remains un-serviced for reasons of bankruptcy, insolvency or any other reason, etc). 71. The inter-related objectives of fiscal sustainability and administrative efficiency of a pension system are crucial to serve the long-term policy objectives of old age income adequacy and equity. In small, open economies like FYR Macedonia, fiscal prudence is particularly important since the pool of public revenues, which can be turned to augmenting insufficient pension contributions, is limited. By the time of the Project's design, the Government had already decided to reform its pension system by introducing parametric adjustments to the traditional social security pension scheme and establishing both a privately managed, defined contribution, fully funded –mandatory - second pillar and a voluntary 3rd pillar operating along principles similar to those of the 2nd pillar. The Project's primary aim was to assist the implementation of the reforms through policy advice and intensive technical assistance. The Project’s design, its components, instruments and objectives chosen were fully relevant to this primary aim of the Project. 17 72. The objectives and the design of the Social assistance part of the Project were relevant and consistent with the development priorities of both the Government and the World Bank. Their relevance has grown over time as confirmed by the Program of the current Government, the National Strategy on Alleviation of Poverty and Social Exclusion (2010-2020). The Project provided a framework for a systemic approach to the reform of the social safety net by: (i) introducing a comprehensive definition of income for the assessment of the eligibility for social assistance benefits, (ii) the development of secondary regulations (“the rulebooks�), endorsed on the basis of the new Law on Social Protection, and (iii) ensuring that the social transfers are directed towards the most vulnerable. The Government has pursued reforms in this area and the results are being achieved. 73. The high relevance of the objectives, design and the implementation of the Social Assistance component has been re-confirmed by the fact that the sectoral reforms – policy and technical assistance advice and related investments, all supported by the Project - paved the way for the introduction of new and innovative social protection programs such as the Conditional Cash Transfer program and the Energy Poverty program, both legislated by the Law on Social Protection. The CCTP program aims to positively affect the human capital in the country and reduce the inter- generational transmission of poverty by directly linking social assistance cash transfers with human capital development; the Energy poverty program serves as a mitigation measure against the impact of the energy prices on the poor. The efficient targeting and administration of both programs, the CCTP in particular, as well as further reforms of the social cash benefits, would be impossible or at least ineffective in the absence of the CB MIS developed under the SPIL Project. 3.2 Achievement of Project Development Objectives 74. This evaluation rates achievement of PDO as Moderately Satisfactory based on the Project achieving both outcome indicators and most of its intermediate indicators. The Moderately Satisfactory rating reflects the average of Satisfactory rating for the Pension administration part of the PDO and the Moderately Satisfactory rating for the Social assistance part of the PDO. 75. Pension System Administration The development objective was to improve the efficiency of social protection through improved administration and long-term sustainability of the pension system. This objective was achieved through (a) improved efficiency and transparency of contribution collection, (b) faster, cheaper, more transparent and efficient administration of PDIF operations, especially in relation to benefit assessment, eligibility and payout controls, (c) further reforms in addition to those already in place at the beginning of the project (2004), especially in terms of disability pensions and special entitlements, (d) building analytical capacity enabling MLSP and PDIF to propose, evaluate, quantitatively assess potential changes to pension policy and systemic parameters, (e) enabling MAPAS to regulate and supervise the private pension industry and (f) assisting NBRM in performing its temporary functions as custodian to newly established pension schemes until the commercial banks were able to assume that function.. 18 76. More efficient administrative procedures in pension benefit assessment and payment controls as evidenced by application processing times and disability assessment costs. The Project sought to make the eligibility control and benefit assessment more client-friendly by shortening processing times and reducing reliance on paper-based records unless evidence had to be obtained from abroad. These objectives were achieved through investing in new networking hardware and software enabling PDIF staff to access contribution histories and other relevant data without delay and by providing training for and monitoring of client relation transactions. As a consequence, the time necessary to process benefit applications and verify eligibility decreased from an average of 60 days to 15 days, with over 90 percent of applications processed within 30 days and 98 percent within the legal deadlines (which are more relaxed than the project's objectives). Control over payment termination was also improved by regular cross- referencing of Ministry of Justice databases (citizens' registry) and PDIF beneficiary data. Results were achieved: the share of old age applications processed within 30 days of receiving documentation exceeded the 90 percent target value. 77. The Project also aimed to make the disability assessment procedures more efficient by reducing the number of stages the applicant has to submit to and more cost- effective by relying on experts employed or contracted solely by the PDIF. These goals were achieved - reducing the direct costs of disability assessment by half and reducing the time an applicant had to wait for the award of disability benefits - and, in addition to the primary outcome of faster and cheaper disability assessment, also made it possible to apply the revised eligibility criteria of disability. More efficient disability assessment improves targeting of benefits and thereby also renders the public pension system fiscally more sustainable. 78. Contribution collection improved, exceeding the target (85%) specified in the PAD. Improvements took place in two ways. First, the system of registering contributors and contributions as well as verifying monthly contribution payments against forms had to be automated. This was necessary partly to improve collection rates and make enforcement more effective, but also to prepare PDIF for batching and transferring information and funds to private pension funds in time and without errors. Later it was agreed that a unified collection regime was necessary to further simplify the submission of tax and contribution returns and to permit the Public Revenues Office (PRO) the cross checks and unified audits needed for high participation and compliance. Unified collection was not part of the original project design; however, the outputs of the project were fully utilized by the PRO and in the creation of a large tax payers' bureau. 79. The collection reform entailed the introduction of electronic submission of contribution returns, prepared with audited software conducting automatic cross-checks and permitting wage payment orders on condition of meeting all related tax payment obligations. The reform also introduced new business procedures allowing PDIF to identify risks (such as when contribution returns indicated a drop in total employer contribution liabilities) and to act on the information obtained. As a result of these developments, collection rates increased from 76.3% in 2004 to 92% in late 2010. This positive outcome directly served the overall development objective - improved sustainability of the pension system - and the outputs produced under the project were crucial to the outcome. 19 80. In terms of privileged pensions (occupational early retirement and accelerated service time accrual), the project assisted in changing the basic principles of the system and introducing an updated list of jobs which entitle employees to such privileges. Together, these outcomes -and the project's outputs supporting them- are expected to gradually reduce public pension spending, improve system dependency ratios and give incentives for a higher labor force participation rate. 81. The creation of an operational NBRM custodian unit was crucial to the pension reform. Custodian institutions - typically commercial banks - are important for protecting pension fund members' interests. They are also important in enforcing investment and accounting regulations, controlling investment activities, and providing information, from a source independent of pension funds, to the regulator. At the start of the Project, there were no financial intermediaries in FYR Macedonia requiring custody services. Thus, there were neither regulations, nor institutions that could offer such services. As a temporary solution, it was agreed that the National Bank would act as custodian for the newly established pension funds. The NBRM's role as custodian also meant that all -cash and securities- accounts of the pension funds were managed by NBRM and it was also the central bank's role to contract and control overseas sub-custodians. This sub- component was a success insofar as the hardware, software and training provided enabled NBRM to fulfill its role until commercial banks were licensed to offer custody services in 2009. The objective was fully achieved and is viewed as a fixed cost of introducing private pension schemes given the constraints presented by FYR Macedonia's capital market development. Social Protection Program Support 82. The PDO under this Project’s component was to be achieved through improved (i) targeting and (ii) administration of the cash benefits, as two aspects of a social assistance policy and administration reform supported by the Project. 83. It is clear from the PAD that the core content of the Project supported activities, and the associated qualitative performance indicators in the Project’s Results Framework, were focused on improving the benefits administration as the primary outcome of the Social Assistance component of the Project, and were less focused on targeting. Improvements in targeting, although monitored and measured by a quantitative outcome indicator, increase share of Social Assistance expenditure going to the bottom two deciles (bottom quintile) by at least 3%, have emerged as an indirect result of improvements in the benefits administration supported by the Project rather than arising from any direct Project activities. For evaluation and attribution purposes, the objective ‘improved targeting’ was assessed and interpreted as an outcome of the chain of Project financed activities and results, which include the initial technical assistance inputs leading to reforms in the legal and regulatory framework governing the social safety net. The new Law on Social Protection and its respective implementing regulations, supported by the Project, endorsed a revised methodology for determining income for benefit eligibility, which led to improved income calculation, reduction of inclusion and exclusion errors and ultimately resulting in improved targeting. The Project continued to finance improvements in the institutional systems, capacities and infrastructure, including technical specifications for the business processes that improved benefits administration, network equipment for horizontal and vertical connectivity among the MLSP and the 20 SWCs; IT hardware and finally the IT software which, for reasons already discussed, could not be completed during the lifetime of the Project. 84. The part of the development objective relating to targeting - increase share of social assistance expenditure going to the bottom two deciles (bottom quintile) of the population by at least 3% - was fully achieved given that the actual increase of this indicator is over 5%. The share going to the top quintile also decreased, so the PDO indicator – improved targeting - has been met. 85. The quantitative intermediate results indicator No. 6 – increased number of social assistance beneficiaries in the lowest deciles, with the target value set at at least 5% increase of the SA beneficiaries in the bottom quintile, was not met. The reasons leading to such a result are mixed: the Project successfully supported the gradual improvements in the legal and regulatory framework resulting in harmonization of the definition and consistency of cash benefits, at the same time, improvements in the income calculation caused more restrictive eligibility requirements hence gradual reduction in the number of households receiving the social assistance cash benefits. 86. As mentioned previously, the qualitative indicators relating to improved administration of the cash benefits, were not tracked. These indicators were broadly formulated implying existence of institutional systems which had not been developed in the earlier stages of the Project’s implementation. Nevertheless, these untracked qualitative indicators have been partially achieved under the Project as the unified CB MIS was nearly brought to its completion. The final operationalization of the CB MIS and the outcomes expected from its use, however, were not completed prior to the end of the Project and had to be transferred to the CCTP. 3.3 Efficiency 87. As indicated in the PAD and as is often the case with social protection projects, neither economic nor financial rates of return are directly observable. In the absence of counterfactual information, it is not possible to determine the extent to which improved pension revenue collection is attributable to the project vs. other institutional, macroeconomic or regulatory factors. 88. However, indirect evidence suggests that the efficiency impact of the pension Administration component is Substantial and has contributed to strengthening the sustainability of pension system financing. As an immediate result of the reformed contribution collection system in 2006, the number of insured people registered in the PDIF increased from 348,500 at the end of 2005 to 394,882 by the end of 2006, a 13.3 percent increase which cannot be fully explained by the pick-up in economic activity (GDP growth accelerated from 4.4 percent in 2005 to 5 percent in 2006). As a result, the revenues of the PDIF increased by 9 percent in 2005. Strong results were also achieved in later years with revenues growing by 10 percent and 16.6 percent in 2007 and 2008, respectively. Furthermore, the pension system introduced through the SPIL operation was largely used to implement the highly successful payroll reform in 2009 which streamlined wage contracting, introduced greater transparency in labor relations and simplified wage payments. The number of insured people further increased as a result of this reform (despite GDP contracting in 2009 due to the global 21 economic crisis and recovering very gradually in 2010). As a result, the number of contributors at the end of 2010 stood at 466,280, or 33.8 percent above the baseline value (2004). The efficiency gains from the payroll reform was used to start the process of gradual reduction in the social insurance contribution rates which reduces the burden on the real sector. It also helped to moderate the impact of the crisis on the real sector and is expected to ensure that labor costs remain competitive going forward. However, the rate reduction is also putting a strain on PDIF’s finances which combined with the uncertain external economic environment would require a prudent approach to pension policies in the future. 89. The management and control systems introduced in the PDIF have improved the administrative procedures in the institution resulting in improved services to insurees as well as reduced possibilities for fraud and corruption. While there are no precise measurements of the reduced time-costs of clients in FYR Macedonia, the customer satisfaction survey of the Public Revenues Office (the agency that took-over the integrated collection of contribution and personal income tax in 2009) revealed that only 5 percent of companies in 2009 found “completing and filing tax records� a problem, down from 10 percent in 2007 which can be at least partially attributed to the SPIL-supported reform of collection of contributions6. According to the State Statistics Office, 2.2 percent of employees did not receive their wages in 2011, compared to 15.6 percent in December 2005 prior to the start of the reform. Additional benefits from the pension system reform could be expected from the development of the financial sector as a result of the functioning of the private pension funds. These funds accumulated savings of around 3 percent of GDP by late 2011 which can be used as a stable and predictable source of financing for the financial sector. 90. The efficiency gains from the Social Assistance component are expected over the medium-term. The SPIL helped develop instruments and policies that could set the stage for significant efficiency gains in the social protection area. More specifically, the Project financed the development of software solutions for the CB MIS aimed at cutting administrative time and costs, and created the conditions for design and implementation of policies leading to a harmonized definition of income and improved targeting accuracy, which should reduce the cost of the social assistance system. However, the CB MIS efficiencies will only be felt once this system is operational, which will materialize beyond the lifetime of the Project. 91. The operationalization of the CB MIS would allow better understanding of the effectiveness of social assistance policies and better information to support decision making about the future development of the social assistance system, including the options for possible harmonization of eligibility criteria between cash benefits programs. It would be important to ensure that savings generated as a result of the CB MIS efficiency gains remain in the social assistance area to improve the capacity of the social safety net to protect against poverty. 6 Public Revenue Office 2009 Annual Report. Available at: http://www.ujp.gov.mk/files/attachment/0000/0345/Godishen_izveshtaj_na_UJP_za_2009.pdf 22 3.4 Justification of Overall Outcome Rating 92. The Project’s overall outcome rating is considered Moderately Satisfactory. It is based on the overall Project’s achievements attributable to the intervention under both Pension Administration and the Social Assistance components. The Moderately Satisfactory rating reflects the average of Satisfactory rating for the Pension administration part of the PDO and the Moderately Satisfactory rating for the Social assistance part of the PDO. Such ratings were due to the following reasons. 93. The Project directly supported the achievements of the pension administration reform initiated by the Government. It was highly relevant, it achieved its objectives and this is why the ICR team rated this dimension of the PDO as Satisfactory. 94. The Project supported the Government’s comprehensive social safety net reform. It was relevant and achieved improvements in the targeting. Nevertheless, the overall outcome rating for the social assistance part of the PDO is Moderately Satisfactory, due to the delayed start of the activities related to development of the software solutions for the CB MIS and protracted procurement process. Despite two extensions of the Project’s closing date, completion of the CB MIS system had to be transferred to the follow up operation, the CCTP, where the anticipated results are expected to materialize in the near future. 3.5 Overarching Themes, Other Outcomes and Impacts (a) Poverty Impacts, Gender Aspects, and Social Development 95. While the Project was not designed explicitly as a poverty reduction operation, its ultimate objective was to contribute to poverty reduction and significant positive impacts can be expected over the medium-term. The Project design focused on the administration and efficiency of the country’s pension and social assistance systems. Given the importance of pensions for poverty alleviation for a significant part of the population, the improvements achieved in the system are critical to the ability of the pension system to support the vulnerable. In the absence of Project supported reforms the budgetary transfers necessary to ensure regular payment of pensions would have been higher hence would have caused redirection of the public resources from other priorities. 96. The reforms in the social assistance area that were initiated under the operation and that will be implemented over the medium-term should also have a considerable poverty impact as targeting of the social safety net improves. The fact that the share of social assistance expenditure going to the bottom two deciles (bottom quintile) of the population has been increased during the Project’s implementation while at the same time the share going to the top quintile has decreased indicates that the Project has improved targeting. It is expected that the improved efficiency in the system resulting from the SPIL-supported reforms will generate savings that will be used to strengthen the ability of social transfers to protect the vulnerable. 97. The operation did not impact gender inequalities. 23 (b) Institutional Change/Strengthening 98. The main objectives of the Project were institutional strengthening and modernization as a means of assisting the implementation of policy reforms already legislated or planned. These objectives have been achieved. In fact, rendering MAPAS operational was largely achieved by the Project itself. PDIF is able to perform its core functions faster, more reliably and more transparently than before the Project. The IT infrastructure and operational procedures have improved and allow for real-time interchange of data and the reliance on a unified contributor registration and tax collection system. These are crucial preconditions for better contribution compliance and more effective enforcement which, ultimately, contribute to the rule of law, the emergence of a taxpayer mentality and more sustainable public finances. The Project improved analytical capacities in three institutions: (i) PDIF, (ii) MAPAS, and (iii) MLSP and exercised a marginal but positive impact on a fourth (NBRM). These capacities are maintained and used by policymakers. 99. Building actuarial analytical capacity is crucial for informing policymakers of the likely fiscal and welfare consequences of legislative proposals as well as for estimating the impact of the changing macroeconomic, labor market and financial sector conditions. Knowledge transfer was achieved through the development and training in the use of an actuarial model. MAPAS, PDIF and MLSP staff received training (although by the end of the Project only PDIF and MAPAS were able to retain trained staff due to wage differentials among public agencies and the increasing private sector demand for actuarial expertise). Today, both PDIF and MAPAS regularly use the model for actuarial projections and are capable of changing the parameters of the model as legal amendments require. 100. Although MAPAS was established before the 2nd pillar commenced operations, it had to be built mostly as a green-field project. There was no technical capacity in the country to supervise pension funds and the financial sector was not advanced enough to function as a pool of knowledge to rely on. Through investment in hardware, software, intensive consultation with experts, study tours and training course, the Project created a regulator with staff well-prepared to regulate and supervise the industry created by the reform. The Project also assisted in creating the necessary by- laws and legal amendments, the result of which is a regulatory framework mostly in line with international best practice. 101. Establishment of the network between the MLSP and the social welfare centers (SWCs) improved the communications between the key agencies and strengthened the institutional capacity and infrastructure required for more effective administration of the social assistance benefits and other social protection programs. This positive institutional change can be directly attributed to the Project. The Cash Benefit MIS is expected to contribute considerably to the enhanced capacities of the SWCs’ staff to manage the processes of application, rights determination, assigning cash benefits, payments, etc. Yet, the real achievement of the intended outcome has to await the completion of the system, which could not be fully attributed to the Project itself. As discussed earlier, the finalization of the software solutions for the 24 CB MIS in an advanced stage had to be handed over to another World Bank- financed operation, the CCTP, for its final completion and implementation. (c) Other Unintended Outcomes and Impacts (positive or negative) n/a 3.6 Summary of Findings of Beneficiary Survey and/or Stakeholder Workshops n/a 4. Assessment of Risk to Development Outcome Rating: Moderate 102. Overall, the main outcomes of the Pension component appear sustainable, however, there are risks which the Government will need to monitor and mitigate:  The PRO will need to ensure that all information necessary for maintaining up-to- date eligibility records are received by PDIF to ensure contribution compliance.  The Government's objective of increasing competitiveness through lowering labor taxes needs to be considered in light of the pension system's financial sustainability and welfare adequacy.  Reducing contribution rates also creates risks for pension fund members through higher expenses and resulting lower net returns on contributions made, and places the decision of those members who opted into the multipillar system, in a different context as the expected second pillar benefits will become smaller in comparison to the parameters originally introduced by the reform. Second pillar savings may no longer be sufficient to compensate for pension rights forgone at the time of joining the new system. Thus, a change that appears parametric may alter the pension policy dialogue and may contribute to future policy reversals.  MAPAS and PDIF will need to ensure that they can retain their skilled staff and institute a training schedule, which enables the relatively quick training of new staff to avoid loss of analytical capacity. MLSP does not have any actuaries at the moment and needs to rely on PDIF in terms of analyzing policy options. This compromises the Ministry's own policymaking functions, especially in cases when such policy options are considered which do not coincide with the pension fund's institutional interests. 103. The success of the structural pension reform depends, to a large extent, on the efficiency of the newly created 2nd pillar; to operate at low costs and be able to provide payout products without generating undue upfront loads (deductions at the time of annuity purchase). Meeting these conditions can be promoted by regulations and supervision but without robust, liquid, deep financial markets, competing financial service providers the pension industry cannot fulfill its promise. 104. The greatest risks to the success of the 2nd pillar remains the lack of domestic securities other than public debt, the absence of other financial services companies competing for provider and advisory services. There are no annuity 25 products available yet and when they start being marketed it is likely that only a limited number of providers will offer these contracts. Policymakers and regulators could become captive to industries solely created to serve the instrument (private pensions) of a social policy objective (operating a pension mandatory pension system). To offset these risks, the Government may need to consider how pension funds, and later annuitants, could rely more heavily on foreign investments, foreign financial service providers and products. 105. The main risk associated with the development outcomes of the Social Assistance component is that the CB MIS does not become operational and effective and so does not lead to the anticipated improvements in the effectiveness and efficiency of the benefits administration and therefore also the targeting of the social cash benefits. As discussed in other sections of this ICR, the CB MIS, in an advanced stage, was transferred to another World Bank- financed operation, where it is expected to achieve its intended development impact. 5. Assessment of World Bank and Borrower Performance 5.1 World Bank Performance World Bank Performance in Ensuring Quality at Entry Rating: Moderately Satisfactory 106. Performance of the World Bank teams in ensuring Quality at Entry is rated Moderately Satisfactory for reasons presented in more detail in section 2.1. In strategic terms and given the importance which the Government attached to this Project, the World Bank’s support was adequately framed within the country assistance framework. A preparation facility, the PHRD, was secured, as well as complementary support through development policy lending. Other positive pre-effectiveness activities included several pre-appraisal reviews which led to clear definition of the planned sets of development outcomes, and corresponding fiduciary arrangements. These positive aspects of the World Bank performance at this stage would normally deserve Satisfactory rating, however some inconsistencies in the Results framework, addressed in Section 2.3, led the ICR team to rate the World Bank performance as Moderately Satisfactory. Quality of Supervision Rating: Moderately Satisfactory 107. The World Bank team’s performance in terms of the quality of supervision is rated Moderately Satisfactory. On the positive side, the World Bank team was genuinely focused on ensuring the development impact of the activities financed under the Project. The latter was rendered possible given that the team was stable with very few changes in its composition and with a proper skill mix which provided hands-on attention, timely identification of technical and implementation problems and quick reactions in providing appropriate advice aimed at effective resolution of emerging issues. The World Bank team developed a strong partnership with the Government counterparts creating the grounds for dialogue and open discussion about policy, 26 technical and implementation issues affecting both development outcomes and project implementation. 108. The adequacy of the supervision inputs and processes was satisfactory. The team was pro-active, practicing regular supervision visits and closely following up in between such visits with the counterparts, mobilizing promptly country and sector management whenever their attention and support would be required. Procurement and financial management oversight were an integral part of the supervision visits throughout implementation. 109. Some of the ISRs could have been more candid and realistic in capturing the weaknesses in the implementation and capacity constraints and the likely impact of the protracted procurement process on achievement of the objectives. The existence of a different set of indicators in the ISRs as compared to the PAD, some of which were introduced at a late stage of implementation, did not result in the formal revision of the monitoring framework for the Project. Justification of Rating for Overall World Bank Performance Rating: Moderately Satisfactory 110. The ICR team rates the overall World Bank performance as Moderately Satisfactory for the reasons described above. 5.2 Borrower Performance Government Performance Rating: Satisfactory 111. The Government performance is rated Satisfactory. This rating is based on continued and strong Government commitment and support for the Project which was deemed by the successive governments as a Project of high strategic relevance. Regardless of the actual level of absorptive capacities, the governments undertook full responsibility and demonstrated full ownership over the Project’s activities. Apart from some delays in passing essential laws (like in the case of the Law on Social Protection), overall whenever Government’s actions, legislative, regulative, personnel or other type of actions/decisions, were required, the government would move rapidly to create conditions for resolution of the practical problems in Project’s implementation. Worth mentioning are the positive effects achieved through the regular portfolio monitoring organized by the Government and the World Bank, addressing the short and medium-term implementation milestones, key bottlenecks and actions to be taken by both the Government and the World Bank in the portfolio implementation, including the SPIL. The actions were discussed at regular Government sessions while the conclusions of these discussions—in the form of a Government decree—were communicated to the line ministry and the World Bank. The leadership, oversight and advisory role of the Ministry of Finance was also conducive to the ICR team’s conclusion to rate the Government’s performance Satisfactory. Implementing Agency or Agencies Performance Rating: Moderately Satisfactory 27 112. The implementing agency’s performance is rated Moderately Satisfactory. For most of the implementation time, the MLSP through its pension and social protection departments demonstrated unquestionable commitment to the Project and the overall reform agenda supported by the Project. The Pension and the Social Protection working groups were meeting on a regular basis and their participation and contribution to the process of managing the Project supported activities secured a stronger buy in for the reforms. Several changes of ministers and other high level MLSP officials did not affect the continuity, political commitment and ownership of the Project. As discussed in other sections of this ICR, however, the capacity constraints particularly featured by the Social Protection Department had affected the Project’s implementation. 113. The implementation arrangements coordinated by the PMU worked well. The PMU had a good track record from the preparation stage. The PMU staff were thoroughly professional, committed to the Project objectives and headed by an experienced and skilled Project Director. Since the Project’s objectives, particularly under Component 1, entailed participation of a number of agencies in implementation, the Project Director and the PMU helped to get these structures functioning together. In addition, the Project Director and the PMU successfully coordinated the expert based working groups responsible for managing the technical work, timely resolution of related implementation issues and monitoring progress of the Project’s components. 114. The predominant part of the PMU’s work was related to their fiduciary responsibilities and these were performed well. These functions, including procurement, were pursued professionally, with knowledge and integrity. In many cases, the bidding documents and processes were prepared during the preparation stage, thus allowing accelerated procurement procedures. At some point in the implementation, however, the task team observed some irregularities in the regular procurement procedures, including some failed attempts for mis-representation of facts relevant for bid evaluation procedures. The World Bank task team’s observations were brought to the attention of the Government and the World Bank management followed by clear specification of remedial actions after which this practice was eliminated. These temporary setbacks led the ICR team to rate the Implementing agency’s performance Moderately Satisfactory. Justification of Rating for Overall Borrower Performance Rating: Moderately Satisfactory 115. Based on the reasons described above, the ICR team rates the overall Borrower’s performance as Moderately Satisfactory. 6. Lessons Learned 116. The time required for successful completion of projects of this scope and level of complexity needs to be more conservatively assessed. The high demand on the limited human capacities and staff resources was a challenge, which from time to time impinged upon effective implementation. In the pension area, an experienced, but small 28 team was responsible for managing a large number of very complex tasks and assignments simultaneously and under great time pressure. In the social assistance area, a less experienced team was expected to manage: (i) a large internationally hired technical assistance contract, and (ii) the team of the contracted consulting company, where there were some delays and confusion around the directions and the content of the proposed reform measures. ECA’s experience with the procurement of large, complex IT projects suggest that they are often contentious and are rarely concluded quickly. 117. The priority given to the pension administration part of the Project led to delays in the social assistance part of the Project. Such delays in the Social Assistance component were due to the predominant focus of the Government on the launching of the second pension pillar and the massive preparatory activities leading to this task. As discussed in various sections of this ICR, the Government and the MLSP, as line ministry in charge of the pension policy and pension system administration, followed a well defined reform activity schedule with strictly determined milestones and adhered fully to this high priority agenda. Although the activities constituting the two dimensions of the PDO were managed separately, the predominant focus on the pension part of the Project did absorb the Ministry’s human resources available for managing the high priority, policy-oriented, and externally-financed pension reform activities. In addition, at the time of the Project design and appraisal, awareness of the need for initiating the major social safety net reform was still in a developing stage. When implementation of the Social Assistance component started, other delays were encountered around the selection of appropriate policy choices which had to be legislated and regulated to provide the grounds and inputs for designing the new system for benefit administration. As discussed earlier, the selection process of the contractor to develop the software had to be repeated three times due to: (i) lack of capacity of the selected company to complete the assignment; and (ii) misrepresentation of facts related to the bidding process. 118. A partial reform of tax collection - in this case, pension contribution collection - is not necessarily a hindrance to a major tax policy and tax administration reform. Indeed, the modernized contribution collection system, the design and implementation of which were supported by the Project, made it easier to establish an integrated tax collection agency. This was possible not only by the quality of the collection processes, reporting and control processes, but also because these systems were designed taking into account the requirements of other labor tax and contribution collection systems and could, as a consequence, be integrated with relative ease into the Tax Authority's information systems. 119. In the course of tax administration reforms that integrate all collection activities under the tax authority, care must be taken to ensure that no information is lost. Information which is of little importance to the tax authority, but is crucial for verifying pension eligibility and assessing benefit levels, should be collected, organized and forwarded accurately and in a timely manner to the Pension Fund. 7. Comments on Issues Raised by Borrower/Implementing Agencies/Partners 120. The MLSP provided comments on the draft ICR, received on January 25, 2012. They are attached to this ICR in the Annex 7. Most of the comments are taken into account in the finalization of this ICR. One comment which was not taken into 29 account relates to the statement that the data necessary for monitoring the PDO indicator no.2, “increased share of Social Assistance expenditure going to the bottom two deciles (bottom quintile) by at least 3%�, was provided from the beginning of the Project. This is true, but this data was explicitly reflected for the first time in the sixth ISR (internal WB document). Therefore, the related paragraph in this ICR does not contradict the MLSP’s statement. Another comment which was not taken into account is about the claim that the MLSP SPIL team has never been informed about inclusion of the Intermediate Results Indicator no.7, the reduction of social worker time spent on social benefits administration, into the Project’s Results Framework. As noted in paragraph 60, this indicator was introduced into the Project’s (and the ISR’s) Results Framework at the time of the Mid-Term Review and subsequently reflected in the Aide Memoire, from February, 2007. 30 Annex 1. Project Costs and Financing (a) Project Cost by Component (in USD Million equivalent) Appraisal Actual/Latest Percentage of Components Estimate (USD Estimate (USD Appraisal millions) millions) 1. PENSION SYSTEM 7.22 6.50 90.03 ADMINISTRATION 2. SOCIAL PROTECTION 2.35 3.15 134.04 PROGRAM SUPPORT 3. PROJECT MANAGEMENT, 0.46 0.74 160.87 MONITORING AND EVALUATION Total Baseline Cost 10.03 10.39 Physical Contingencies 0.43 0.00 0.00 Price Contingencies 0.622 0.00 0.00 Total Project Costs 11.082 10.39 Front End Fee 0.098 0.05 0.00 Total Financing Required 11.18 10.44 93.38 (b) Financing Appraisal Actual/Late Type of Estimate st Estimate Percentage Source of Funds Cofinancing (USD (USD of Appraisal millions) millions) Borrower 1.38 0.998 72. 32 % International Bank for 9.80 9.445 96.38 % Reconstruction and Development 31 Annex 2. Outputs by Component Component and Outputs planned at Appraisal Actual Outputs Subcomponent Component 1 -Pension System Administration Subcomponent 1 - Governance TA for review and re-design of business New processes functional, assessment times shortened, paperless and management reform of processes internal procedures and reporting standards established PDF Hardware, software and training in support of Hardware, software functional, staff in central and regional offices new business processes trained in their usage TA for review and reform of collection New collection system functional, monthly individualized records processes, underlying IT platforms received. Free contribution reporting software distributed to enterprises. Ex-ante and ex-post controls for reporting and payment accuracy in place. Actuarial models adapted to FYR Macedonia, A main model and two supporting model (for disability and staff trained in their use occupational early retirement) developed and delivered, PDIF staff trained and regularly using the models. TA in database management, data and Database management system is operational (Oracle), security and application security consistency procedures, back-up databases and policies are in place. TA for the analyses of disability policies and New disability policies legislated, assessment procedures administrative processes of disability shortened, made more client-friendly and cheaper. assessment TA for the analysis of privileged pension New policies legislated, updated, itemized list issued, eligibility (occupational early retirement) policies control is rule-based. 32 Component and Outputs planned at Appraisal Actual Outputs Subcomponent Subcomponent 2 - Pension TA for developing regulatory framework for Regulations developed and promulgated regarding registration and Supervision Agency 2nd and 3rd pillar pension sectors licensing, investments and custodianship, accounting and assets Development valuation, recordkeeping and reporting, communications and marketing practices. Capacity building through training and study Supervisors trained and regularly conducting document review, off- tours in order to build knowledge and expertise, site and on-site supervisions, issuing guidelines and regulations. supervisory processes established Subcomponent 3 - MLSP MLSP pension policy unit staff trained in the MLSP employs no actuaries but relies on PDIF actuarial unit. Capacity Building for Pension use actuarial modeling System Analysis, Policy Development and Public Education Public information strategy developed to Public information strategy was successfully implemented resulting support pension reform and individual choice in a close-to-optimal age distribution of pension fund members. regarding the monopillar vs. multipillar pension system. Subcomponent 4 - Pension TA to establishing the custody unit and NBRM Custody unit established in 2006 System Custody Capacity Development at NBRM Hardware and software to enable investment Hardware and software procured and operated between 2006 and and cash account management for private 2009. pension funds Training NBRM custody unit staff in the Custody unit operated successfully between 2006 and 2009, fiduciary, control, accounting, reporting and satisfying MAPAS regulatory requirements and establishing sub- transactional aspects of custody services. custodian relations as requested by private pension funds. 33 Component and Outputs planned at Appraisal Actual Outputs Subcomponent Component 2 – Social Protection Program Support Sub-component 1 – Technical Assistance for analysis of Social (i) New Law on Social Protection (2009) and implementing Strengthening of social Protection and Child Protection legislation and regulations governing: protection administration of proposed reform solutions  Definition of countable income for purposes of determining cash benefits and services the eligibility criteria for social cash benefits ;  Harmonization and introduction of common means test for the following social benefits: Social Financial Assistance, Permanent Financial Assistance and Financial Assistance for orphans in the age group 18-26;  Simplification of calculation on social benefits through introduction of the nominal amount of the benefit instead of percentage of average salary;  Redefinition of disability benefits;  Reduced frequency of on-site visits  Introduction of new innovative programs targeting the poor on program basis (CCTP, Energy poverty, etc.) (ii) Amendments to the Law on Child protection Technical Assistance for analysis of Major inputs into the Strategy for development of the social Decentralization and Deinstitutionalization of protection for the period 2011-2021, in reference to social services with proposed policy options decentralization & deinstitutionalization sections of the Strategy Technical Assistance for improved financial Payment process was redesigned to reflect the simplified management and payment of cash benefits in procedures and subsequent administrative structures for coherent both MLSP and the SWCs management of cash benefits 34 Component and Outputs planned at Appraisal Actual Outputs Subcomponent Capacity building of the Policy Evaluation Unit, Number of staff and local consultants trained Established under another social protection intervention financed by the World Bank (SSP) Sub-component 2 : IT support for the Social protection programs Technical Assistance for developing technical Technical standards have been successfully developed and used for standards and technical specifications for development of the software solutions for the Cash Benefit MIS procedures for interconnections and data sharing between the MLSP and other relevant institutions Technical Assistance for developing technical Technical specifications were successfully developed specifications for procurement of the network equipment Network equipment and communication Active and passive network equipment were procured and installed capacity in the MLSP and the SWCs, and internet connection was established Technical Assistance for development of Business processes for all cash benefits mapped and developed , technical specifications for procurement of the including business processes for financial management and security Cash Benefits MIS Development of the Cash Benefit MIS CB MIS, for the largest part can be considered developed though some functionalities still need to be completed. The unfinished software modules are expected to be completed under the another ongoing World Bank financed investment operation – the CCTP IT Capacity building for the needs of the MLSP Staff and local consultants were hired and trained for the positions of IT specialists overseeing the functioning of the IT hardware and software 35 Annex 3. Economic and Financial Analysis 1. Implementation of the SPIL began in 2004, at a time when growth in FYR Macedonia began to intensify reflecting the macroeconomic consolidation following the turbulences during 2001-2002 and the buoyant global demand. GDP growth averaged 4.5 percent during 2004-2005 and accelerated further to around 5.5 percent during 2006- 2008. Still, relatively prudent macroeconomic policies kept macroeconomic imbalances moderate compared to other countries in the region. As a result, the impact of the 2008- 2009 crisis on FYR Macedonia was relatively mild. The sharp contraction in exports and capital inflows was off-set by a generally adequate policy response and a resilient banking sector, resulting in a GDP contraction of only 0.9 percent in 2009. The 2010 recovery was slow (growth of 1.8 percent) as investor and consumer confidence recovered very gradually. Economic activity picked-up more strongly in the first half of 2011 with growth reaching 5.2 percent. However, growth is expected to moderate in response to the most recent global economic turmoil. Macroeconomic policies remained prudent with FYR Macedonia running a modest fiscal deficit level of -2.5 percent of GDP in 2010. The ability of the authorities to manage pension system finances and social protection spending has played an important role in their ability to keep fiscal risks moderate even during the crisis. 2. Living conditions did not respond to the improved performance of the economy prior to the 2008-2009 global economic crisis and have probably deteriorated since. Even though there was a considerable drop in the unemployment rate (down from 37.4 percent in 2004 to 32.3 percent in 2010) it appears that the jobs created were neither skilled nor well paid. As a result, poverty affected around a quarter of the population in 2009 and inequality increased. 3. The SPIL project supported improvements in the administration and sustainability of the country’s pension system. The reforms in the pension system were triggered by ineffective revenue collection, record-keeping and administration in the system prior to the reform as well as the growing risks to the long-term sustainability of the pension system. At the same time, the system encouraged informality and resulted in high labor costs and distorted labor market outcomes. 4. The objective of the Pensions Administration component was: (i) to strengthen the governance and management of the PDIF (including the reform of the pension contribution collection system); ii) to set-up and build capacity in the Pension Supervision Agency; iii) to build capacity in key institutions for pension system analysis and policy development, and iv) to develop the pension system custodian function. 5. As is often the case with social protection projects, economic and financial rates of return are not directly observable. In the absence of counterfactual information, it is 36 not possible to exactly determine the extent to which improved revenue collection is attributable to the project vs. other institutional, macroeconomic or regulatory factors. 6. However, indirect evidence suggests that the economic and financial impact of the Pension Administration component is significant and has contributed to strengthening the sustainability of pension system financing. As noted in the Economic and Financial Analysis presented in the ICR,, the fiscal gains linked to the reformed contribution collection system were most substantial. As an immediate result of the reformed contribution collection system in 2006, the number of insurees registered in the PDIF increased from 348,500 at the end of 2005 to 394,882 by the end of 2006, a 13.3 percent increase (which cannot be fully explained by the pick-up in economic activity as GDP growth accelerated from 4.4 percent in 2005 to 5 percent in 2006). As a result, the revenues of the PDIF increased by 9 percent in 2005. Strong results were also achieved in later years with revenues growing by 10 percent and 16.6 percent in 2007 and 2008, respectively. Furthermore, the pension system introduced through the SPIL operation was largely used to implement the highly successful payroll reform in 2009 which streamlined wage contracting, introduced greater transparency in labor relations and simplified wage payments. The number of insurees further increased as a result of this reform (this despite GDP contracting in 2009 due to the global economic crisis and recovering very gradually in 2010). As a result, the number of contributors at the end of 2010 stood at 466,280, or 33.8 percent above the baseline value (2004). The efficiency gains from the payroll reform was this time used to start the process of gradual reduction in the social insurance contribution rates which moderated the impact of the crisis and is expected to ensure that labor costs remain competitive going forward. However, the rate reduction is also putting a strain on PDIF’s finances which combined with the uncertain external economic environment would require a prudent to pension policies in the future. 7. On a more micro level, the systems introduced in the PDIF have improved the administrative procedures in the institution resulting in improved services to insurees as well as reduced possibilities for fraud and corruption. Administration and operating costs of the PDIF in 2010 were 5 percent lower in real terms compared to 2004 largely due to more efficient payment procedures. In addition, the newly established systems identified number of cases of fraud and corruption. 8. While there are no precise measurements of the reduced time-costs of clients in FYR Macedonia, the customer satisfaction survey of the Public Revenues Office (the agency that took-over the integrated collection of contribution and personal income tax in 2009) found that 5 percent of companies in 2009 found “completing and filing tax records� a problem, down from 10 percent in 2007 which can be at least partially attributed to the SPIL-supported reform of collection of contributions. At the same time, the percent of unpaid wages declined. At the same time, and as noted in earlier sections, the duration of PDIF procedures has been shortened thus reducing costs and improving access for insurees. Finally, there was a considerable improvement in payment discipline. According to the State Statistics Office reports, 2.2 percent of employees did not receive their wages in July 2011, compared to 15.6 percent in December 2005 prior to the start of the reform. Additional benefits from the pension system reform could be expected from 37 the development of the financial sector as a result of the functioning of the private pension funds. These funds accumulated savings of around 3 percent of GDP by late 2011 which can be used as a stable and predictable source of financing for the financial sector. Finally, the importance of a functional pension sector actuarial unit cannot be underestimated. The unit has been able to regularly update the actuarial model and has been actively used over the last five years in designing the policy reforms. 9. The SPIL project also supported reforms in the social protection area, focusing on the information management systems and IT capacity strengthening as well as developing a policy framework for streamlined, cost effective and better targeted cash benefits. 10. The economic and financial gains from this component are expected over the medium-term. The SPIL helped develop instruments and policies that could set the stage for significant improvements in the social protection area. The existence of significant leakage in social transfers identified through the Household Budget Survey suggests that the economic and financial gains from improved targeting could be substantial. According to the 2009 Poverty Assessment, around 50 percent of total social protection spending benefited the non-poor. While improved targeting cannot eliminate all leakage (categorical transfers will remain in the future), significant gains are possible. 11. However, reaping these gains would only be possible if the reform efforts are continued. The early signs are encouraging with the Ministry of Labor and Social Policy being well advanced with activities to develop a comprehensive strategy for the social safety net reflecting the results of the functioning of the CBMIS. This could involve consolidation of benefits, harmonization of eligibility criteria etc. It would be important to ensure that savings generated remain in the social assistance area to improve the capacity of the social safety net to protect against poverty. 38 Annex 4. World Bank Lending and Implementation Support/Supervision Processes (a) Task Team members Responsibility/ Names Title Unit Specialty Lending Xiaoqing Yu Sr. Economist ECSHD Team Leader Snjezana Plevko Sr. Economist ECSHD Team Leader Jan Bultman Sr. Health Specialist ECSHD Team Member Rajna Cemerska Operations Officer ECSHD Operations Anna Wielogorska Sr. Procurement Specialist ECSPS Procurement Maria Gracheva Operations Officer ECSHD Operations Rossen Papazov Financial Management Officer ECSPS Financial Management Laurie Joshua Consultant ECSHD Social Protection Nikolai Soubbotin Senior Counsel LEGEC Legal aspects Nicholay Chistyakov Senior Finance Officer LOAG1 Loan aspects Gyorgy Novotny Project Management (Consultant) ECSHD Project Management Nadejda Mochinova Program Assistant ECSHD Administrative Support Supervision/ICR Snjezana Plevko Sr. Economist ECSHD Team Leader Zarko Bogoev Operations Officer ECSS2 Procurement Rajna Cemerska Operations Officer and ICR Team ECSH3 Operations and Leader Primary ICR Author Anna Wielogorska Sr. Procurement Specialist ECSPS IT Procurement Ireneusz Smolewski Sr. Procurement Specialist ECSO2 IT Procurement Benedicta T. Oliveros- Procurement Analyst ECSO2 Procurement Miranda Olav Rex Christensen Senior Public Finance Specialist ECSPS Public Finance Aleksandar Crnomarkovic Financial Management Specialist ECSO3 Financial Management Imelda Mueller Operations Analyst ECSHD Project Processing Julie Rieger Counsel LEGEM Legal aspects Nicholay Chistyakov Senior Finance Officer CTRLN Loan aspects Egli Ilic Finance Analyst CTRLA Disbursement Bojana Naceva Education Specialist ECSHD Project Officer Penelope Williams Senior Operations Officer ECSHD Quality Artan Saliu Information Analyst ECCMK IT systems/CBMIS Dragan Shahpaski Consultant IT systems/CBMIS Csaba Feher Consultant ECSHD ICR co-author Betty Hanan Consultant ECSHD ICR Reviewer Augustina M. Nikolova Senior Program Assistant ECSHD Administrative Support Katerina Timina Program Assistant ECSHD Administrative Support Jasminka Sopova Program Assistant ECCMK Administrative Support 39 (b) Staff Time and Cost Staff Time and Cost (World Bank Budget Only) Stage of Project Cycle USD Thousands (including No. of staff weeks travel and consultant costs) Lending FY02 8 29.95 FY03 37 196.38 FY04 36 159.89 FY05 0.00 Total: 81 386.22 Supervision/ICR FY05 33 88.27 FY06 34 78.99 FY07 34 96.19 FY08 14 50.10 FY09 12 0.00 FY10 25 79.07 FY11 33 101.98 FY12 7 10.59 Total: 192 505.19 40 Annex 5. Beneficiary Survey Results (if any) n/a Annex 6. Stakeholder Workshop Report and Results (if any) n/a 41 Annex 7. Summary of Borrower's ICR and/or Comments on Draft ICR The Social Protection Implementation Project has been approved by the World Bank’s Board of Directors on May 13, 2004 The US$ 9.800.000, 00 equivalent Loan became effective on September 1, 2004. The closing date of the Loan is May 31, 2011. The objectives of Social Protection Implementation Loan are: 1. to improve the effectiveness and efficiency of social protection system through improved administration and long-term sustainability of the pension system and 2. improved targeting and administration of cash benefits. 1.1. DESCRIPTION OF PROJECT COMPONENTS The project has three components: 1) Pension System Administration, 2) Social Protection Program Support, and 3) Project Management and Monitoring and Evaluation. During the course of the project there were no significant modifications of the components. Component 1: Pension System Administration This component improved the long-term sustainability of the pension system through improving the administration and efficiency of the existing pension system institutions; increasing the efficiency and effectiveness in collection of pension contributions through the introduction of a monthly pension contribution record-keeping on the individual basis; building regulatory and supervisory capacities in the newly formed MAPAS and custodial capacities in the NBRM; and improving public knowledge of the pension system through an extensive public education campaign. Component 2: Social Protection Program Support Component This component supported the implementation of social protection reforms and the development of technical and organizational capacities for policy formulation and mechanisms to improve resource management and service delivery in the MLSP and its strategic departments. In particular, this component supported the development and refinement of overall strategic goals, institutional mandates, financial and business planning; strengthen information management and technological capacities in social protection institutions; harmonize data systems across key MLSP departments and social protection institutions; established key indicator data to support policy formulation and monitoring of program implementation; and capacity building for decentralization modeling, policy feed-back and communication with the public. Component 3: Project Management, Monitoring and Evaluation This component ensured effective administration and implementation of the project by supporting the operation of a Project Management Unit (PMU) which reports to the Minister of Labor and Social Policy and the Project Director and it is responsible for all the day-to-day project implementation activities, including procurement, disbursement and accounting functions. This component ensured effective monitoring and evaluation of project activities, achievements and outcomes during and after project implementation. The monitoring is performed by the Project Management Unit with assistance of the Policy evaluation unit. 42 1.2 MAIN PROJECT BENEFICIARIES The main project beneficiaries are:  Ministry of labor and Social policy of RM  Pension and Disability Fund of RM  Agency for Supervision of Fully funded pension Insurance  National Bank of the Republic of Macedonia  Social Welfare Centers 2. PROJECT DESIGN AND IMPLEMENTATION 2.1 INSTITUTIONAL ORGANIZATION The implementing agency for this project is the Ministry of Labor and Social Policy (MLSP). In order to achieve the goals of the project, the following bodies were formed that were accountable to the MLSP: 1. Pension Reform Implementation Council; 2. Pension and Social Protection Working groups, responsible for the entire policy management of the project; 3. Project Management Unit to coordinate the project activities. - Pension Reform Implementation Council – has been established during preparation of the Project. It comprises the Minister of Labor and Social Policy, Minister of Finance, Governor of NRBM, Director of PDI Fund, Director of MAPAS, Chairperson of the Security Exchange Commission and Pension Reform Coordinator. The Council gave guidance to and supervised the Project implementation in order to assure that project activities fit to the National Pension Reform Policy objectives. - The Pension Reform working Group was chaired by the Pension Reform Coordinator, and includes the Project Director, the directors of the PDI Fund and MAPAS and the representative from the MLSP, MOF, NBRM and Securities Exchange Commission. Pension Reform Working Group works under direct guidance and supervision of the Pension Reform Council. -The Social Protection Working Group was established with the objective to coordinate the preparation and implementation of the improvements in social protection programs. The Head of the Department for social protection chaired the Group for Social Protection, and included the Project Director, the State Advisor, and the Heads of all units within the MLSP Department for Social Protection, the director of the National Employment Bureau (NEB), the Institute for Social Affairs (ISA), the State statistical Office and the representative of the MOF. - Project Management Unit – has been established within the MLSP and is the main coordinating and executive body for the Project. In order to be able to implement the Project within the specified timeframe and budgets and meeting the project objectives, the PMU apart from the Project Director is staffed with the following functions: - project manager and coordinator for the pension system administration component, - coordinator for the social protection program support, 43 - two procurement managers7; - and financial manager. Other Agencies involved in the Project Implementation – Besides the MLSP, the following agencies were involved in project implementation: - Centers for Social Work, - Agency for supervision of Fully Funded Pension Insurance (MAPAS), - Pension and Disability Insurance Fund, - National Bank of the Republic of Macedonia, - National Employment Bureau and - Institute for Social Affairs. 2.2 OVERALL PROJECT RESULTS AND ACHIEVEMENTS  Component 1 “Pension System Administration�, Sub-component 1- Governance and management reform in the PDI Fund of Macedonia Results achieved: The activities funded through SPIL Project supported the PDI Find of Macedonia in implementation of the new business processes for support of the second pension pillar, solving the realised rights and payment of pensions. The process of issuance digital codes established procedure on detailing the database of the Fund for all active obligors for superannuation and their employees/insured. Digital signature was introduced for monthly MPPP data and the same is expanding in the exchange of data and XML messages between the institutions in the Second pillar. In 2008 system for united collection of social contributions and personal tax was prepared and designed in 2008. All necessary elements of organisational, material and information aspect were organised and implemented in the Fund for the purpose of successful start of this process, but the institution was changed that followed to use this system, pursuant to the law amendments. By implementation of the process for digital delivery of the monthly data for MPPP, their control and generation of the declaration for superannuation, PDI Fund of Macedonia as well increased the control and matching of the data with the payments made. Project objective No. 1- Enhancement of the management with PDI Fund of Macedonia through implementation of business plans and processes as well as promotion of financial business management SPIL project contributed in achievement of the PDF's strategic aim for establishment and implementation of sound and effective business processes. New business processes of the PDI Fund of Macedonia were implemented for the purpose of support of the monthly application for individual pension contributions for employees. IT surrounding has been established for the purpose of implementation of effective business processes for support of the second pension pillar: 7 During the project implementation the number of procurement managers working on the project was decreased to one. 44  Purchase and installation of hardware equipment for continuation of automation of business processes. The installation of the equipment increased the service quality provided by PDI Fund of Macedonia to their clients. This equipment together with the installed communication equipment enabled internal connection in unique WAN network including appropriate performances and capacities thus contribution to increase of the efficiency of business processes as well as the satisfaction of clients.  Purchase of software licenses thus providing the realization of the strategy for gradually introduction of ORACLE technology in the area of software development environment and organization of databases. The usage of these advanced and modern technologies as well the entire openness of the system by introduction of Internet technology for digital delivery at MPPP enforced the need of data protection. Consultant was engaged through SPIL Project who developed the strategy for data and information protection. PDI Fund of Macedonia started the adjustment of the performances of the databases and the development of appropriate applications pursuant to the strategy.  Purchase of UPSs and generator for the purpose of providing continuous autonomous function of IT system thus enabling the PDI Fund of Macedonia to increase the capacities in providing services to clients and in case of termination of electricity network. The equipment provides self-reliance of 2 hours in the functioning of subsidiary units and full reliance of IT sector in the PDI Fund of Macedonia. This is of special importance in the process of delivery of MPPP and generation of declarations for superannuation.  According to the reviewed plans for implementation of the reforms, the design of the new business processes for registration of insured and obligors for superannuation, receipt of monthly data MPPP and contribution collection as well the software development was completed in the first half of 2006. For the purpose of optimizing the performances of ORACLE database as well as minimising the time for processing pursuant to the business demands consultant was engaged who made the adjustment of parameters and performances at weekly and monthly level.  Purchase and installation of hardware equipment used for replacement of technologically obsolete equipment and continuation of the automation of business technologically relating the part of solving the pension rights and payment. The installation of the equipment increased the service quality provided by PDI Fund of Macedonia to their clients.  Consultancy firm was engaged that prepared functional specification for developing software for automation of business processes for making decision on realised rights from pension and disability insurance and payment of the pensions and other fees deriving from this insurance.  Software for automation of business processes for making decision on rights realized and payment of pensions in Oracle environment was developed. This software being in use from 01.01.2011 integrated high level of harmonisation and control of data for pension payment for the purpose of elimination of all threats for baseless pension payment.  For the purpose of establishment modern system for physical protection and surveillance of the facilities, the equipment, protection of the employees and the documents a consultant has been engaged who drafted the strategy for physical protection and construction of the processes and procedures for active and proactive safety measures. In the frames of this project functional and technical specification of the necessary equipment was prepared for integrated system for video surveillance in the new object in Skopje and in all subsidiary unit of the Fund.  Modern equipment purchased and installed for integrated system for video surveillance thus increasing the level of active protection of the Fund property, control of the access to 45 the FUND documentation and facilities. Conditions were created for documenting and analysis of safety incidents in all Fund facilities.  In the period 2005-2007 a consultant was engaged who helped the Fund in the projection, analyses and progress of the entire administrative reform of the Fund. The assistance was especially significant in strengthening the capacity of the Fund in management of the international consultants engaged in projects funded by SPIL and the Holland Grant as well as the analysis and evaluation of the results from their work.  Consultant was engaged for the purpose of making assessment of the progress in administrative reforms, design of the new business processes for registration of the insured, membership in the second pillar, the payment and control of the contribution as well as distribution of the contribution for the first and second pillar at personal account of the insured. This consultant was engaged for the purpose of providing objective assessment of the preparedness of the Republic of Macedonia for implementation of the second obligatory pension pillar in the projected time periods. The design of the business processes, the functional specifications, drafting of the technical documentation and the development of business processes for the necessary software was supported by Grant of the Holland Government that administered part through the Ministry of Finance and part through the Ministry of Labour and Social Policy. Project objective No. 2- Improvement of the rate for contribution collection  The percentage of the contribution collection was increased for the period up to the end of 2008. In this period the PDI fund had the obligation for collection of contribution and from 01.01.2009, this obligation was transferred to the Public Revenue office. Project objective No. 3- Development and implementation of strategy for internal and external communication of the PDI Fund of Macedonia The implementation of the reform caused change in the way of functioning of the PDI Fund of Macedonia as well as of clients of the PDI Fund of Macedonia, in particular in the use of IT technologies for delivery of encrypted monthly MPPP data. The knowledge transfer from the office of the PDI Fund of Macedonia to all considered parties was realised through:  Established connections with other institutions for ON-line exchange of official encrypted data  Extensive training of the employers (bodies of state administration and public enterprises, accounting bureaus and other legal entities) regarding the use of client software as well training of employees in the PDI Fund of Macedonia for use of the new technologies and providing additional assistance for the obligors.  All obligors were given manuals for filling up of the MPPP form through client software, information for application of data in the primary file as well as guidances for use of client software for check of annual contributions on salaries. Accompanied by the manuals a CD of client software was distributed, as well as software for use of digital code for encryption of MPPP data and software for automatic installation;  Multilanguage portal was set up with user oriented interface for easy and simple use of the given functionalities, monitoring and availability of the contents and the portal was used by PDI Fund of Macedonia for presentation of information and document in digital form and by client for downloading the client software and the published documents for its update. 46  IT and communication equipment was purchased thus setting up call contact centre for direct communication with the obligors. Thus enabled all issues of obligors in the preparation and encryption of the monthly MPPP data. The system as well established feedback communication with the obligors for the purpose of analysing the reasons for not-delivery of MPPP in the testing phase. After the expiry of the contract for renting the contact centre, the same was transferred in the facilities of the PDI Fund of Macedonia thus providing continuity in the direct communication with all interested parties, obligors and employees.  The entire strategy for public relations was developed by specialised marketing agency. This led to increased awareness of the public regarding the great significance of the total pension reform. Project objective No. 4- Promotion in human resource management One of the priority aims was realization of the tasks that derived from the analyses of human resources in the Fund.  Program for training of employees in PDI Fund of Macedonia was realised for the purpose of improvement of the skills and knowledge in the area of management.  Wider program was realized for continuous training of IT staff for acquiring knowledge in Oracle platform and developing environment operation, Microsoft operational systems and CISCO communication platform.  Software was purchased and installed for the purpose of making harmonization of the data for each employee in the Fund, integration of the data in the system for access control thus providing preconditions for efficient planning and management of human resources. Principles and methodologies for human resource management are built in according to the modern trends and demands in this area. Project objective No. 5- Strengthening the capacity of the PDI Find of Macedonia for actuary analyses and policy creation. Developed actuary models for pension system. Consultant was engaged who trained the employees of the PDI Fund of Macedonia, MAPAS and MLSP for development of options for further policy changes. Project objective No.6- Analyze current pension policies and practices and identify options for their improvements. New legal decisions on disability pension and perquisite working life were adopted  Consultancy firm was arranged that made analysis of the policy of disability and perquisite working life including their comparison with the best EU practises. Based on the analysis the consultants provided options and recommendations for harmonisation with EU standards, options and recommendations for improvement of the existing definition of the disability, perquisite working life and the procedure on deciding. Part of this project was as well devoted to promotion of the capacity of the PDI Fund of Macedonia for analysis, research and cost projection. All this helped the PDI Fund of Macedonia to prepare the recommendations to the Ministry of Labour and Social Policy for possible amendment of the legal regulation. The amendments will contribute the monitoring of the results regarding the reduction of the growth rate of the number of disability pension users. 47  Component 1 “Pension System Administration�, Sub-component 2- Pension Supervision Agency (MAPAS) Development Results achieved: Project objective No. 1- Development of the regulatory framework needed for proper functioning of the funded pension system According to the Law on Mandatory/Voluntary Fully Funded Pension Insurance MAPAS passes secondary regulations relevant to the second and third pillar of the pension system. MAPAS regularly prepares and adopts secondary regulations that are now mostly directed towards enhancement and improvement of the system. Most of the new proposals or amendments to the original secondary regulations have been derived from the practical implementation of the second and third pillar. After five years from the implementation of the fully funded pension insurance, MAPAS is following closely all the movements, needs, alerts of the second and third pillar and changes the legislation accordingly, always putting as a top priority the best interests of the pension funds members. Under the SPIL project in 2006 a local consultant was hired as a Local Technical Assistance to support for legislative and regulatory framework for MAPAS. The Consultant reviewed the existing structure, status, responsibilities and reporting responsibilities of MAPAS and made analyses and recommendations for possible changes that would strengthen the ability of MAPAS to perform its supervisory and regulatory functions in line with the best practices in order to achieve maximum protection of pension funds members. SPIL supported the establishment of the on-site supervision in MAPAS by financing an international expert in the 2006 and 2007. The expert wrote the first Manual on On-site Audit of Pension Companies, Pension Funds and the Custodian as guidelines for the procedures that the supervisor should follow when performing the on-site control. In 2007, with the contribution from the Dutch Grant, MAPAS worked with an international Pension Implementation expert, who wrote a White Paper on the Third Pillar design. The White Paper was further developed by domestic institutions and transformed into regulation. The expert also assisted MAPAS in its development, and particularly with the proposal of overall MAPAS strategy, budget, financing, staffing and human resource policy. The expert established the basis for reports and bulletin preparation, as one of the crucial follow-ups of the fully funded components. The expert prepared an extensive report with projections on paid and accrued contributions for the next 10 years in the second pillar. In 2008, MAPAS worked with one of the most renowned international consultants on the analyses of the capital and financial markets in the Republic of Macedonia. This consultant was also supported by a local expertise. The in-depth analyses of the consultant consisted of proposals for changes in the legislation regarding the investments of the pension funds. Then in 2011, a consultant was hired to assist the Ministry of Labor and Social Policy and MAPAS with the preparation of key Secondary Regulation needed for the Law on Payment of Fully Funded System Pension Benefits. As the fully funded components of the system are maturing, the institutions have to be prepared for the payout phase. Therefore, SPIL covered the entire development of this phase, from the design, through the Law (under MLSP as a SPIL beneficiary) and the secondary regulations. Also, another consultant was hired to Review on Regulation for the chart of accounts, the form and the content of basic and additional financial statements of pension funds, with recommendations for changes in accordance with IAS and IFRS. 48 The overall impression is that in the entire period of implementation of SPIL its support was crucial for the development of the vital pieces of legislation that supported the establishment of the system as well as its improvement and enhancement. Project objective No. 2- design and implementation of the MAPAS business processes and MAPAS capacity building Business processes and IT SPIL project has significantly contributed in building of IT capacity of MAPAS. The equipping of MAPAS with the initial hardware and software from the SPIL project started in 2005 and then, over the years, it further enhanced with up-to-dated hardware and additional software for the third pillar. With the first IT procurement, MAPAS equipped the data base center with servers and other hardware necessary for hosting the IT system for controlling the second pillar. This is equipment that enables the center to function according to relevant domestic and international standards and rules for data base centers, including fire protection, burglary, deionization, constant electricity supply and maintenance of constant temperature and humidity. The package included also procurement of SW licenses for protection of the system. After finalizing the business process the process of creating and developing of software solutions/modules began. By means of international tender realized through SPIL project a company was selected to develop the most important part of the MAPAS IT System- the off-site supervision software. The development of the SW was crucial for the successful implementation of the second pillar and for successful operation of MAPAS on daily basis, enabling a day-to-day supervision of the Pension Companies. Additional procurement of software took place in 2009, in order to complement the existing software with modules for third pillar supervision. This software was built upon the platform of the existing software in order to provide compatibility and in order for both components to function as one. SPIL organized international tenders for procurement of hardware equipments for MAPAS that will enable the hosting of application, operational and data part of IT system. Besides servers this equipment includes archiving and protection of data, licenses for the operational system and for the data base management system, as well as PCs for MAPAS employees. The HW is projected and dimensioned to enable continuous and quality functioning of the IT system and a continuous flow of the business processes. SPIL supported continuous hardware updating of servers as well as user equipment in order to provide MAPAS with the utmost technology for performing its complex and sophisticated supervisory role. Another IT procurement also realized through SPIL was the Digital leased line with Internet connection. This procurement enabled adequate access of the institutions involved in the second pillar to the MAPAS system through a public Internet connection with a precisely dimensioned capacity that enables continuous functioning of MAPAS business processes and control of the Pension Companies. Capacity building Today, MAPAS is an institution composed of young professionals working on very sophisticated and new matter, with already acquired expertise through specialized trainings and courses. Large part of the staff training was realized through SPIL by participation on local and international seminars and courses specialized in pension reform, pension supervision and financial markets. 49 One of the most useful components was the Capacity Building of MAPAS, performed by the consulting house from Chile – PrimAmerica. This was a tailor made training in supervision of Pension Companies and pension funds performed by several consultants, all experts in the relevant area, with extensive practical knowledge in supervision. Such types of trainings give MAPAS a significant transfer of knowledge deriving from practical experience crucial for understanding the specifics of supervision. Recently, MAPAS had an international consultant that trained Control sector staff on practical aspects of pension fund accounting with accent on application of the IAS 39, 32, 21 and IFRS 7. This was a very specialized training, which gave the MAPAS employees a real practical insight and expertise in how to further strengthen the supervision of pension funds. One of the most important contributions of SPIL in terms of capacity building was that from the local IT experts hired through SPIL one of them, after the expiration of his SPIL engagement, remained as a regular employee of MAPAS. Actually, the implementation period of SPIL was in the years when MAPAS was financially still weak, so, the largest and most important portion of the staff training was realized through SPIL. In this regard, MAPAS employees could always participate on the most important seminars, conferences and technical meetings in the pension area, happening all over the world. Throughout the entire implementation period of SPIL, a total of 21 employees had been trained in: pension supervision, capital markets, IT, PR, financial analysis etc. Project objective No. 3 - enhancement of public understanding of the funded pension system. Starting from the second half of 2005 MAPAS intensified the activities on informing and educating the public on the pension system reform. Part of the activities was covered from SPIL and included: Outsourced call center with a toll free number where citizens called to be informed on the second pillar membership process. The Contractor provided MAPAS with very useful information on the types of questions from the callers which was a significant input for MAPAS on structuring its consequent activities on informing the public and working for better protection of the interests of the pension funds’ members. In the period from the end of 2007 until mid 2009, MAPAS took active participation in the Public Educational Campaign of the Ministry of Labor and Social Policy.  Component 1 “Pension System Administration�, Sub-component 3- MLSP Capacity Building for Pension System Analysis, Policy Development and Public Education The Social Protection Implementation Loan played a crucial role in the MLSP capacity building in respect to the preparation of the pension legislation and development of pension system Achievements Project objective No. 1- Identification of policy options and preparation of draft pension legislation 1.1 Design of the voluntary pension system In 2006 the mandatory fully funded pension system become operational, and the SPIL project enabled introducing of the voluntary fully funded pension insurance (third pillar), through financing of international consultant that defined the legal and the regulatory aspects of the third 50 pillar. The consultant prepared draft third pillar pension law that was afterwards adopted by the government steering committee. This law is in line with the EU directives and with the other normative aspects related to voluntary pension system. The consultant also prepared list of needed secondary regulation and outlined its content. In order to asses the impact of the voluntary system on the macro economy and the State budget, another consultant was hired that made the assessment of the economic impact. The Law was adopted by the Parliament in January 2008 and the voluntary pension system become fully operational in 2009. 1.2 Design of Law on pension payment modalities for the fully funded pension system In order the fully funded pension system to be legislatively covered in all its aspects, though the SPIL project an international consultant was hired that prepared detailed design of pension benefits payout options and benefit providers in the mandatory and voluntary fully funded system. The consultant has also prepared draft Law on pension payment modalities and list of secondary regulation. The Draft Law was presented to the pension companies, insurance companies, Agency for supervision of insurance and it is expected to be adopted by the Government by the end of 2011. 1.3 Creating a multiple fund scheme in the second and third pillar of the Pension System The creating of the multiple fund scheme in the second and third pillar of the Pension System will increase the expected value of the pensions that members will receive. A recent tendency in the mandatory individually funded systems is the introduction of plans that offer investment options to their members. The general objective of this project is to enable members to choose the optimal investment portfolio compatible with their risk and return preferences in line of lifecycle pension saving. At the same time the Law enables, MAPAS and Ministry of Labor and Social Policy to prescribe that Pension Company may manage more than one Pension Fund. Through the SPIL project an consultant was engaged that analyzed and described the different types and number of pension funds for mandatory and voluntary fully funded pension insurance (multi- funds) and different types of portfolio composition in each type of fund; analyzed the influence of multi-funds on the individual persons in line with lifecycle pension saving and defined the number and types of pension funds (mandatory and voluntary) in which individual person can be a member of; described the minimum profitability regulations and the safety mechanisms according to fund type; and gave inputs and key points for changes of the Law on mandatory fully funded pension insurance and Law on voluntary fully funded pension insurance regarding introduction of multi-funds. Also the consultant prepared a list of needed secondary regulations and an outline their contents. Project objective No. 2- Capacity building for pension system analysis and the development of future policy options The SPIL project helped with the strengthening of the MLSP’s Unit for analysis, planning, and evaluation capacity. This unit has specific purpose of supporting the Ministry in taking important decisions by preparing technical analyses and statistics. For the needs of the pension system analysis an local consultant was engaged. The consultant made analysis of data regarding the pension insurance programs of the Ministry and its comprising bodies, prepared projections on functioning and implementation of the programs in this area in cooperation with the actuarial unit established within the PDF; prepared budgeting the pension programs, monitored indicators defined under the SPIL and other data analysis as needed for the Ministry of labor and social policy. 51 The SPIL project provided financing of training courses that strengthen the capacity of the MLSP’s employees in pension and disability insurance area. Also the companies that implemented public campaigns for the pension reform provided training for the employees from the MLSP, MAPAS, and PDI Fund that strengthen their capacities on public relations. Project objective No. 3- Preparation and implementation of the integrated pension reform public education campaign, including organization of training, workshops and seminars, printing and distribution of the education materials, and other activities as needed The SPIL project supported the whole pension reform through financing two public campaigns that educated the public of the new reformed three pillar system. In 2006 the first public campaign was implemented in order to educate specific targeted groups about the new reformed two pillar pension system. The implementation of the second pillar of the reformed pension system had significant impact on a large part of the Macedonian population. A systematic public education and communication campaign was integral part of the reform itself and key to its successful implementation. The main goal that was achieved by this campaign was explaining the Macedonian citizens how the two-pillar system works; develop public awareness and understanding of the purposes and operating principles of private pension companies and their pension funds; understanding of the benefits of private pension fund membership; understanding of the rights of pension fund members, and informing the citizens of the type of factors which they should take into account when choosing between pension funds. In 2008-2009 a public campaign was implemented in order to educate the public about the reformed three-pillar pension system. In April 2011 the MLSP and the World Bank organized one day International Conference on Pension Reforms and Future Challenges. The Conference marked the completion of one of the most successful World Bank projects in the Republic of Macedonia – SPIL (Social Protection Implementation Loan), which played a crucial role for the pension reform in the Republic of Macedonia. At the same time the Conference celebrated the fifth anniversary of the implementation of the fully funded pension insurance in the Republic of Macedonia. The number of participants on the Conference reached 120, where the majority was from Macedonia but also there were representatives from other countries in the region (Serbia, Kosovo, Montenegro, Albania, Croatia and Turkey). The Conference had positive media coverage as well. This Conference was an important event for Macedonia not just because it marked the fifth anniversary of the implementation of the fully funded pension insurance but also because it gathered the expertise of the pension field. A lot of important discussions were developed on the future of the multi-pillar pension systems, what are the potential risks that these types of systems are facing and what are the experiences of countries that are more advanced in the reforms.  Component 1 “Pension System Administration�, Sub-component 4- Pension system custody capacity development at the NBRM The SPIL project supported the development of the Custody Department within the National Bank of the Republic of Macedonia (NBRM) for the custody over the second pillar pension assets. National bank of the Republic of Macedonia was assigned a task to be custodian of the mandatory private pension funds with changes in the Law on NBRM and the Law on Mandatory Fully Funded Pension Insurance in June 2004. This function was new not only for the NBRM, but in Macedonia in general, because at that moment there were no custodians to pensions nor investment funds. Therefore, implementation of this function was a challenging task in order to establish new regulation and new systems in the country, as well as to train people to perform this 52 function. The basis that was established with implementation of this function in NBRM was later used in the establishment of custodian units in commercial banks. Achievements Project objective No. 1- Custodian unit established within NBRM In order to perform custodian function, NBRM decided to open a new unit in the Payment Systems Department. This department had most knowledge in the field, because it already: - Maintained accounts for banks and process denar payment orders, - Maintained OTC settlement system for treasury bills and bonds, - Had connection with the Central Securities depository, and - Performed settlement of the transactions with foreign reserves of the NBRM, and the custodian where it will perform all custodian functions to private pension funds. With this solution, employees already had experience in custodian services (for NBRM as a custodian's client) and NBRM could combine employees for more flexible and efficient operations of the custodian unit. Project objective No. 2- Custody Information System implemented The activities in the field of the technical assistance to the NBRM included identification of custodian business processes, preparation of rules and regulations related to custody of the private pension funds, record keeping and other custody-related activities. Within the SPIL project, the following activities were finished successfully in order for the new Custody Information System to function: technical assistance for development of technical specification for Custody Information System and its subsequent testing, procurement of Custody Information System and training of the custody staff for the usage of the system. In order to give legal power to the new CIS system, the following activities were finalized by NBRM: - Draft Contract with the companies which will manage pension funds and - Custodian operational rules. Also, NBRM made a simulation of future operations, which was discussed with the selected pension fund companies and MAPAS. It was latter proven that this analyses helped in the smooth start of the operations in January 2006, without any delays or unsettled orders. Project objective No. 3- NBRM Custody Department staff trained in custody issues People who perform operations related to the custodian were educated through above mentioned courses supported by SPIL project. Also, people shared the knowledge between themselves after the training. Besides the SPIL funded training, people were trained internally for all custodian functions. All this helped in building the personal capacity of the NBRM staff related to custodian.  Component 2 “Social Protection Program Support Component �, Sub-component 1- “Policy framework for streamlined, cost effective and better targeted cash benefits, implementation of local social planning and deinstitutionalization of social work services, and establishment of inspection, supervision and quality assurance functions� 53 Although the process of achieving the goals of the Social protection component has started with little delay that was caused with the design of the component the predetermined goals are fully achieved. Achievements Project objective No. 1- Development of policy framework for streamlined, cost effective and better targeted cash benefits Achievement of the goals within the first sub-component was supported through hiring of several international and local consultants. As a result of the daily cooperation and commitment of the consultants and employees in MLSP’s relevant sectors, Institute for Social Affairs, Social Work Centers, Project Management Unit as well as the working sub groups, that were established in order more effective cooperation with consultants, in 2007 the Amendments of the Social Protection Law and in 2009 the new Law for Social protection were adopted. Also during last five years several amendments of the Child Protection Law were adopted Adoption of the new Socal protection law represented a legal framework for achievement of the specified project goals and improvement of the entire system of social protection. Within the new Law significant changes on the cash benefits system have been introduced. Those changes contribute in the decreasing of the administration cost and better targeting of the cash benefits: 1) simplification of the calculation of the cash benefits; 2) introduction of the common means test that will simplify administration procedure and contributed in decreasing of the administration cost;3) frequency of home visits on the socal protection beneficiary have been reduced which resulted in administrative cost’s savings;4) establishment of the legal framework for implementation of different programs from social protection area ( conditional cash transfers, energetic poverty etc.; 5) the amount of the benefits that were previously based on the average monthly salary paid per employee in the R. Macedonia in the previous year and were given as a percentage of the average salary , in the new law are set as nominal amounts which will be adjusted on yearly basis with the increase of the living expenditures for the previous year published by the State Statistical Office in January for the current year; 6) in order to improve targeting i.e. the SP rights are focused to the most vulnerable groups, the incomes and the SP and CP rights that are considered as a income for each SP right are revised; 7)for some rights that are intended for the individuals with impairments or handicap, the means test was totally omitted , with this changes at the same time the administrative cost which are evidently decreased and the number of the beneficiary is inconsiderably increased; 8) MLSP has adopted new rule books for each SP rights; 9) Based on the World Bank suggestion the amount for Parental allowance – the right within Child Protection Law , is considered as family/household income when that family/household applies for other SP/CP rights. The consultants and the MLSP representatives tried to make an analysis of the cash benefits and their combination, but due to lack of relevant data base it was concluded that this analysis should be performed after establishment of the new software decision. Decreasing of the administrative costs and the better targeting of the cash benefits were the main goals that should be achieved with the adoption of the Amendments of the Child Protection Law. Amendments of the Child Protection Law were adopted in 2004, 2005, 2008 and 2009. In the year 2010, a fair copy was made on the Law on Child Protection. With these Amendments significant changes in the Child Protection Law have been introduced . The changes are as follows: 1) administration of the CP benefits, that was previously carried out 54 by the Local child protection units, have been transferred to the SWCs and that contributed to administrative cost savings and at the same time the cooperation between the specialized departments that administrated social protection and child protection cash benefits have been strengthened and the entire social protection system became more accessible for the users of different benefits as all cash benefits are administrated in one facility; 2) In accordance with the law, the right to child allowance is available for all children that live in family which incomes are under the threshold set by the Law ( due to the budget constraints, this provision of the law will be implemented after the accession of the R. Macedonia to the European Union) within this provision the right to child allowance becomes available for all children irrespective of the employment status of the parents; 3) the right- One of assistance for the new born baby, the means test was totally omitted , with this change at the same time the administrative costs are evidently decreased and the number of the beneficiary is unchanged; 4) The amount of the benefits that were previously based on the average monthly salary paid per employee in the R. Macedonia in the first half of previous year and was given as a percentage of the average salary , now is set as nominal amount which will be adjusted on yearly basis with the increase of the living expenditures for the previous year published by the State Statistical Office in January for the current year; 5) the incomes and the CP and SP rights that are considered as an income for each CP right are revised, in order to improve targeting i.e. streamline the CP rights to the most vulnerable groups, etc. The new laws on one hand simplify the system and on the other hand they strengthen the law framework which inevitably leads to a decrease of the administrative costs and improvement of the targeting. The simplification of the laws additionally will enable development of appropriate software solution and streamline the CP rights to the most vulnerable groups to which these benefits are most necessary as well as reduction of the time spent on benefits administration and will decrease the overburdeness of social workers and will allow greater dedication to the prevention. Project objective No. 2- Design of plans for local self-planning and de-institutionalization for social work services Decentralization and deinstitutionalization of the socal services that are implemented within MLSP also was supported by the SPIL project through hiring of international consultants. The Law framework for implementation of the entire process decentralization in Republic of Macedonia is given in the Law on Local Self Government (2002) and the Law on financing of the units of local self-government (2004). In line with these laws the Social Protection Law and Child protection Law provide legal framework for decentralization and deinstitutionalization in the social area. The process of decentralization thought which the responsibilities and the functions from the Ministry should be transferred to the municipalities has begun in 2004. The first steps in the movement toward initiating decentralization have been undertaken with the transfer of management responsibility for homes for the elderly and kindergartens to municipalities. The process has continued with the introduction of the new non institutional forms- “day care centers “, commissioning of NGOs to provide care services under contracts and possibilities for the communities to provide social services and social care and to prepare and submit the plans to MLSP. Ministry of Labor and social policy has prepared Program for development of Social Protection 2011-2021 (Strategy) that is adopted in 2010 and many domestic and international organizations have positive opinion. Having in mind that the decentralization is long-term process most of the 55 recommendations are already incorporated in the Strategy. The ultimate goal is decentralization of the existing services and development of the new forms of institutional and non institutional services in accordance with local needs and priorities. Some of the recommendations have been incorporated in the Law on Social Protection 2009. The registration, licensing and discipline of social services professionals are incorporated in the Law. The MLSP has formed Committee for licensing within ISA that will be responsible for licensing and discipline of social services professionals. The Social Protection Law set the framework for the associations of citizens, NGOs to have the possibility to provide socal services; some of them have partial financial support by MLSP. In order to assure the quality of the services that are provided by the associations of citizens and NGOs, the MLSP has set the minimum criteria that should be met by the service providers in order to be registered in the Register within MLSP. The quality standards for many social areas have been adopted and some of them are in the draft version. Adopted quality standards are published on the MLSP’s web side so they become available to the users of the social services as well as to the social services providers; capacity building of the qualified staff continues through training, workshops as well as wider pluralization of the possible service providers (religious organization and religious groups) are anticipated within the Law. In parallel with the process of decentralization the MLSP has been implementing the process of deinstitutionalization. The consultant has a positive opinion in respect to the deinstitutionalization process in Macedonia and has emphasized that the effective deinstitutionalization is a long – term process, burdened with challenges and difficulties, both practical and ethical. The process of decentralization can be accomplished successfully within the context of a broader social services strategy, and the processes of deinstitutionalization and decentralization should be two linked elements. In accordance with the recommendation the deinstitutionalization process is implementing with precautions and must be long term sustainable. Also MLSP within the deinstitutionalization’s plans and their implementation should put emphasis on the positive rights of adults and children that need care, to receive that care as possible within the community. The process of deinstitutionalization in the Republic of Macedonia has begun in the middle of the 90-ties, but since 2000 it has been intensified. The starting point was the opening of the day care centers. Up till now there are 32 daily care centers for daily and temporary care of the children, elder, persons with impairment and other categories. In accordance with the National strategy for deinstitutionalization ( 2008-2018) the process of deinstitutionalization has continued with the new forms of non institutional protection – organized living with support for an individuals over 18-teen years of age with mental impairments . Up till now the MLSP has opened 15 living units with 66 users/beneficiaries that have previously been situated in the Special Institute� Demir Kapija�. This form of protection provides high quality of the social care services, at local level in their place of living that will facilitate beneficiary integration and their acceptance by the community. Project objective No. 3 - Improvement of the financial management framework for payment of cash benefits and Project objective No. 4 Establishment of new business processes for administration and payment of different kinds of social benefits; Improvement of the financial management for payment of the cash benefits and creation of new business processes for payment of different social allowances by contracting one international and one local expert was supported by the SPIL Project. Although the contract with the international consultant was terminated we can say that there has been significant improvement in the budgeting and payment system for the cash benefits that is additionally 56 improved with the new software solution that enables complete automatization and consolidation of the financial management system (the budgeting and monitoring process as well as budget execution, payment process, accounting and payment of the cash benefits) between the MLSP and the SWCs. This type of system in place will enable timely detection of problems and timely undertaking of corrective measures. This type of solution will promote the budgeting since it will be based on correct data and analysis, will promote the payment process, will shorten the necessary time, minimize the possible mistakes and decrease the overburdeness of the employees. MLSP is also in the process of changing the payment method that is currently done through the Post Bank and Macedonian Post and has the intention of using transaction accounts for the payment of the major part of the cash benefits (not including those benefits intended for the people that are no able to withdraw these financial means from their transaction accounts). Project objective No. 5 -Inspection, supervision, monitoring and quality assurance of cash benefits as well as social services The introduction of social inspection, supervision and insurance of the quality of the financial benefits as well as the social services was supposed to be supported by the SPIL project by engagement of an international consultant. Despite the multiple intents for contracting such consultant, the interested consultants did not possess the required experience resulting in the MLSP having to withdraw this activity. Regardless this not being done through the SPIL project, in January 2007 the MLSP, that is, the Social Protection Department within the MLSP has established the Unit for Social Inspection with few employees. The Unit for Social Inspection has mandated functions: to supervise the work of the SWCs and other social institutions in order to ensure implementation and enforcement of the relevant laws. The Unit for Social Inspection has outgrown in Department for Social Inspection. From the abovementioned we can conclude that the functioning of this department has a direct influence on achievement of the goals of this subcomponent, meaning improvement of the targeting through minimization of the possible abuse in two directions: inclusion of households/families/individuals in need of social protection and exclusion of households/families/individuals that have become beneficiaries through some fraud or that have failed to comply with the law regulation. Taking into consideration the above mentioned, it is obvious that the predetermined goals within the first subcomponent are achieved. Although the overall situation of the achievements is not obvious at this point, as the software solution that should include all the cash benefits, the financial management in the SWC and the MLSP as well as the statistical reporting and integration of all that has been acquired so far, hasn’t been completely developed. This software solution is not yet fully developed due to the termination of the Contract with the companies that were to develop this software, which resulted in shortening of the deadline for the development for the new Consortium due to the project ending, but the segments of the whole (software solution) are well elaborated and all that is needed is they to be structured into new software solution that will improve the targeting, decrease the possible abuse, decrease the time spent on the social benefit administration, decrease the overburden on the employees in the SWC, enable reorganization of the staff, improve the control and create appropriate data base that will be the basis of the analysis needed for the amendments of the laws and also the analysis of the cash benefits and their combination, all of this supported by the CCTP Project by engagement of an international consultant. Although not anticipated at the beginning, within the first component other activities were realized and proved to be necessary. Namely, the following was supported and financed: 57 digitalization of the files on the social benefits, hiring of one local consultant in the Unit for Evaluation of Polices. The need for the digitalization of the data on the social benefits arouse during the project implementation. Taking into consideration that the cash benefits are administrated in different data bases and significant part of these are administrated manually, the digitalization of the data was a prerequisite for the new software solution. A company was hired to develop the forms for the data entry and additionally developed the interim solution for the CCTP EG administration which was reviewed and approved by the World Bank.  Component 2 “Social Protection Program Support Component �, Sub-component 2- “Information management systems and IT capacity strengthening� Achievements: Project objective No. 1 - Harmonization of data system across key institutions through development of data and technology standards, strengthening of the IT support capacity of key institutions, up-grade equipment and data communications network to enable data sharing and enhance framework for data flows among key departments and agencies and Project Objective No. 2 -Strengthening of information management infrastructure and information technology capacity of key institutions and departments. Primary an IT consultant for development of technical standards, technical specifications, procedures and activities that should support the implementation of modern, sustainable, flexible informational systems for the MLSP and SWC and other institutions that will intercommunicate the data in future was hired. During the consultant engagement, the consultant along with the MLSP staff, the Pension Disability Fund, the Employment Agency, the State Revenue Office and others developed around 80 technical standards. The international consultant for business analysis with the support from the local consultant and in cooperation with the IT Unit, the Financial Department, The Social Protection Department, the Policy Evaluation Unit, the PMU and the SWC have prepared the technical specification for the development of the software solution for the cash benefits and at the same time the local consultant for the network design in cooperation with the IT Unit have prepared the technical specification for the procurement of the network equipment for the MLSP and the SWC. On the basis of the technical specification for development of the MIS for the cash benefits, companies were selected (Joint Venture) for development of the software solution which in accordance with the contract was supposed to be developed by the end of January year 2010. Despite the dedication of the MLSP staff, the companies have failed to develop and deliver even a single module of the complex software solution. This has not been caused by the MLSP in any way but by other factors the MLSP couldn’t influence on. This claim is supported by the fact that despite the termination of the contract for the development of the software solution, with the companies by the MLSP, neither of them asked for arbitration by the authorized mediator nor have they initiated a court procedure which is a common practice. Because of this MLSP had to open new procurement procedure. In December, 2010, a new contract was signed with another Consortium that due to the termination date of the project (25 of May 2011) were to develop the software in very short time. Both, the MLSP and the Consortium were aware of the time limitation on the development of such significant and complex system on one hand and on the other its importance from the very beginning making the realization of the MIS their top priority. The 58 MLSP has formed 26 working groups composed by MLSP and SWC representatives. The responsibilities of the working groups members are day to day cooperation, communication and monitoring of the development of the software sub-modules thus ensuring timely and quality software development. However, despite the dedication of the teams, it was concluded that the time framework is a great obstacle for the testing and the operational acceptance of certain modules and of the system as a whole. This situation was realized by the MLSP as well as the World Bank representatives and an appropriate solution for overcoming of this situation was encountered. This meant that one part of the Contract is transferred to the CCT Project, and an Amendment with the Consortium for the time extension of the contract by the 20th of August 2011 followed. This time extension provides the time necessary to perform the testing and the acceptance of the remaining modules of the system as a whole. On the basis of the technical specification for procurement of network equipment, a company was contracted for procurement and installation of the active and passive network equipment for the SWCs and the MLSP. The network equipment is installed in the SWC and the MLSP but an amendment for this contract is being prepared that will include additional SWCs that have not existed at the time of the preparation of the technical specification and the signing of the contract. The network equipment is installed and functioning in the SWCs and the MLSP, was used in the digitalization process of the cash benefits files in the SWCs and is currently used for the administration of the CCT and social services. Equipping of the SWCs and the MLSP with the necessary IT equipment was done by the SPIL project in two turns. For this purpose, 466 PCs, 101 scanners, 7 fax machines, 5 projectors, 411 printers were procured and other IT equipment. This provided appropriate IT equipment for the SWC employees that will use the new software solution. Also 5 servers were procured that are currently placed in the data center of the MLSP and are being used for the new software solution. The connection between the SWCs and the MLSP is supported by internet connection for all the SWCs and their local units. In order to strengthen the IT unit in the MLSP that has only one employee, two other IT consultants were engaged in this component and since recently both of them made part of the permanent MLSP staff. The above given shows that the goals set in the second component are fully achieved – the effectiveness and the efficiency of the social protection system have been increased by simplifying the system and introducing the approach of equalness in the new legal acts. The targeting has been improved which is a process that can always be improved. The achievement of this goal can be presented as simplified as possible through the number of the social financial assistance beneficiaries in the period 2004-2010 ( The number of Social Financial Assistance in December 2004 was 66 940 households this number in December 2011 is decreased to 45138 households). Strategies for social protection have been adopted. The decentralization and deinstitutionalization processes have started and they have been positively assessed by the domestic and by the international public. The Social Inspection Department has been formed that contributes to the increase of the effectiveness and the efficiency of the social protection system as a whole as well as proper targeting of the social benefits towards the most vulnerable groups. The MLSP and the SWCs have been equipped with various technical equipment. The MLSP and the SWCs have been connected and a unique data base for them has been created. This unique data base shall decrease the possibility for any kind of abuse and will increase the control and will also enable the performing of interconnection of the data bases of the rest of the relevant institutions in the future. 59 This interconnection with the data bases of the rest of the relevant institutions and data exchange will minimize the possibility of abuse but will also alleviate the document provision process for the applicants since the number of required documents they will need to submit themselves that support their financial and health status shall decrease substantially. This unique data base shall serve as basis for the creation of policies and analysis as well as combination of the financial benefits in order to improve the social protection system. Despite the fact that the SPIL project has fully accomplished the predetermined goals in the social protection area there is always space for improvement. That is why the Government of Republic of Macedonia and the World Bank have signed new Loan Agreement that will finance the Conditional Cash Transfer Project and the achievements of the SPIL Project shall serve as a solid basis for the activities of the planned activities under the Conditional Cash Transfer Project. 1. CRITICAL ANALYSIS OF THE ACTIVITIES UNDERTAKEN BY THE WORLD BANK, AND TECHNICAL ASSISTANCE Assessment of the WB performance during SPIL preparation and implementation: The World Bank took important role during the SPIL implementation. The Bank provided the PMU, the MLSP and the other involved agency’s staff with great assistance in achieving the government’s goals. The WB helped the MLSP to make strategy for achieving the plans, and provided continuous encouragement, and knowledge during the implementation of the goals. The solutions of most of the problems which rose during the implementation came as a mutual effort to the involved agencies and the WB staff. 2. LESSONS LEARNED Team effort and management support When reforming system that reflects several institutions, the clear role of each institution in the reform is critical. Assigning team comprised of representatives from all the institutions, who have clear vision about the goals, strong commitment and management support, is key for success of this kind of reforms. On the other hand it is also critical to have PMU staffed with qualified persons that coordinate all the work, and make sure that the institutions have all the needed support. Stability for success: The PMU staff was not changed during the project. Management Information system- Developing a system that will automate the business processes requires strong commitment from the management and delegated authority to the designated team that works with the development company, to make decisions on a daily basis about the content of the software. Although the business processes are part of each contract for software development, some of the details need to be defined during the development, and here it is critical that the assigned team has knowledge and a authority to make decisions about the details of the software. Although, the development of software for government institutions should take phase approach i.e. separate software development by institutions, because building a massive system that covers a several institutions in a same time is very risky and difficult, at the end the separate software should be connected, covering all the institutions that need to exchange data. Only on this way we will modernize the system and automate the business processes that at the end will provide quality services to the citizens, and true management control to the government. 60 The letter from the Borrower 61 Comments from MLSP to the Draft Implementation Completion and Results Report (ICR) of the Social Protection Implementation Loan 4732 – MK 1. Point 28, section 1.7 “Other significant changes�, built 2 The second amendment includes increasing of disbursement percentage of eligible expenditures to 100 % only for the disbursement category goods, consultants and training. The percentage of disbursement category for the incremental operating costs was not changed and it remained 25% from the World Bank funds and 75% from Government contribution 2. Point 43 from the section 2.2 “Implementation� The delays in the development of the CB MIS were not caused only by the one failed procurement attempt (in the ICT it is stated that there were two failed procurement attempts), but also because of the contract termination with the first selected contractor. Namely, according to the contract signed with the first selected contractor the CB MIS should have been developed till 15.11.2009. Afterwards two time extensions of the contract have been signed, according to which the CB MIS should have been developed till 15.03.2010. The contract has been terminated on 24.03.2010 when it was obvious that the contractor will not develop the software. The selection process for the new contractor took app. 7 months with one failed procurement attempt in the middle. 3. Point 47 from the section 2.2 “Implementation� The delays in the CB MIS development were not the only cause for the two extensions of the project closing date. The details of the time extensions are presented in point 28 of this ICR. 4. Point 58 from the section 2.3 �Monitoring and Evaluation (M&E) Design, Implementation and Utilization� The dates for quantitative outcome indicator for the PDO, “increased share of Social Assistance expenditure going to the bottom two deciles (bottom quintile) by at least 3%�, have been provided on a regular basis to the World Bank SPIL team by MLSP from the beginning of the project. Why these data are not monitored in the World Bank ISRs from the first ICR stays unclear for the MLSP. 5. Point 60 from the section 2.3 �Monitoring and Evaluation (M&E) Design, Implementation and Utilization� The MLSP SPIL team has never been informed that during the Mid-Term Review the new indicator “the reduction of social worker time spent on social benefits administration� has been introduced. About this action the MLSP was informed during the first ICR team visit. 6. Point 64, section 2.4 “Safeguard and Fiduciary Compliance�, The trainings listed within point 64 from the section 2.4 “Safeguard and Fiduciary Compliance�, are not attended only by the procurement staff within the PIU, i.e. the PIU members attended the following trainings: 62 The procurement staff within the PIU attended the following trainings:  Procurement of IT systems organized by the World Bank in Sarajevo  Selection of consultants organized by ILO center in Turin  Procurement of works and equipment organized by ILO center in Turin The component coordinators within the PIU attended the following trainings  Procurement of IT systems organized by the World Bank in Sarajevo  Project management in a World bank funded Project organized by ILO center in Turin  Selection of consultants organized by ILO center in Turin  Human Resource Management organized by CS Global in Skopje  Design and Implementation of Effective Social Safety Nets, organized by the World Bank in Washington DC  Evaluating the Impact of Development Programs organized by the World Bank in Sarajevo The financial staff within the PIU attended the following trainings  Financial management procedures organized by ILO center in Turin  Financial management organized by the World bank in Zagreb 7. Point 65, section 2.4 “Safeguard and Fiduciary Compliance�, The comment is same as for the point 47 8. Annex 1. “Project Costs and Financing�, (a) Project Cost by Component (in USD Million equivalent) The table shown in Annex 1 part (a) “Project Cost by Component (in USD Million equivalent)� should be revised to read as follows: Components Appraisal Actual/latest Percentage Estimate Estimate of (USD millions) (USD millions) Appraisal 1.PENSION SYSTEM 7.22 6.50 89,99% ADMINISTRATION 2.SOCIAL PROTECTION PROGRAM 2.35 3.15 134,04% SUPPORT 3.PROJECT MANAGEMENT, 0.46 0.74 160,87% MONITORING AND EVALUATION Total Baseline Cost 10.03 10.39 Physical Contingencies 0.43 Price Contingencies 0.622 Total Project Costs 11.082 Front and fee 0.098 0.05 Total Financing Required 11.18 10.44 93,38% 63 Annex 8. Comments of Cofinanciers and Other Partners/Stakeholders n/a Annex 9. List of Supporting Documents 1. World Bank, 1999, Poverty Assessment “Focusing on the Poor� (Report No. 19411- MK) 2. World Bank, 2003, Country Assistance Strategy (Report No. 26513-MK) 3. World Bank, 2003, Country Economic Memorandum “Tackling Unemployment� (Report No.26681-MK) 4. World Bank, 2003, Project Concept Note (PCN) 5. World Bank, 2003, Minutes of PCN Review Meeting 6. World Bank, 2003, Quality Enhancement Review (QER) 7. World Bank, 2004, Country Financial Accountability Assessment (Report No. 28258- MK) 8. World Bank, 2004, Project Information Document 9. World Bank, 2004, Minutes of Decision Review Meeting 10. World Bank, 2004, Minutes of Negotiations 11. World Bank, 2004, Project Appraisal Document (Report No. 27880-MK) 12. World Bank, 2004, Loan Agreement – Loan IBRD no. 4732-MK and subsequent amendments: January 2009, June 2010. 13. World Bank, 2003 – 2011 Aide Memoires and Management Letters 14. World Bank, 2003 – 2011 Various important official correspondence 15. World Bank, 2004 - 2011 Implementation Status and Results Reports (ISRs) 16. World Bank, 2005, Poverty Assessment for 2001-2003 (Report No. 34324-MK) 17. World Bank, 2007, Country Partnership Strategy (Report No. 38840-MK) 18. World Bank, 2008 – Public Expenditure Review (Report No. 42155-MK) 19. World Bank, 2009, Poverty Assessment “Poverty, Jobs and Firms: An Assessment for 2002–2006� (Report No. 48510-MK) 20. World Bank, 2009, ICR for Programmatic Development Policy Loan 1, 2 and 3, (DPL Series No.1) (Report No. ICR00001117-MK) 21. World Bank, 2009, Program Document for the First Programmatic Development Policy Loan, (DPL Series No.2), (Report No. 50883-MK) 22. World Bank, 2010, Country Partnership Strategy (Report No. 54928-MK) 23. World Bank, 2010, Report on the Social Safety Nets in the Western Balkans (Report No. 54396-ECA) 24. World Bank, 2011, ICR for the Programmatic Development Policy Loan 1 (DPL Series No.2) (Report No. ICR00001958) 25. Various Consultant Reports 26. Various documents related to the Conditional Cash Transfers Project 27. Borrower’s Contribution to ICR 28. Borrower’s Comments to draft ICR 64 THE CITY OF SKOPJE Skopje serves as the 21°E To 22°E 23°E Municipality Capital for each of these To KOSOVO Nis This map was produced by the Map Design Unit of The World Bank. SUTO ORIZARI BUTEL Municipalities. Pristina SERBIA The boundaries, colors, denominations and any other information shown on this map do not imply, on the part of The World Bank GJORCE GAZI Group, any judgment on the legal status of any territory, or any PETROV BABA endorsement or acceptance of such boundaries. FORMER YUGOSLAV REPUBLIC OF SARAJ KARPOSH CHAIR Pelinci Pelinci MACED ONIA SKOPJE AERODROM To Staro Pernik KISELA CENTAR Nagorichane Rankovce VODA Kriva Lipkovo Vratnica Chucher- Sandevo Kumanovo Palanka BULGARIA SELECTED CITIES AND TOWNS . Tearce Kratovo Mts o v s k e Makedonska Jegunovce MUNICIPALITY CAPITALS* Arachinovo Osog Kamenica Tetovo SKOPJE NATIONAL CAPITAL 42°N Probistip Delcevo 42°N Zheino Ilinden To ca Bogovinje Blagoevgrad i THE CITY OF SKOPJE ni Brvenica Sopiste Petrovec ga Kocani Bre Sveti Obleshevo RIVERS Studenichani Vinica Nikole (Cheshinovo) V Va Zelenikovo rda Zrnovci MAIN ROADS d d Mt. Korab Vrapchishte Karbinci r (2,753 m) Gostivar Lozovo Pehcevo RAILROADS Veles Stip Malesevske Mts. Berovo MUNICIPAL BOUNDARIES INTERNATIONAL BOUNDARIES Chaska Rostusha Radovis (Mavrovo & Zajas Oslomej Gradsko ALBANIA Rostusha) *In most cases, the names of the municipalities Makedonski Debar Kicevo Rosoman are identical to their capitals. Where they Brod Konche Vasilevo differ, the municipality is shown in green italic. Centar Drugovo Negotino Vraneshtica Zupa Strumica Bosilovo Plasnica Dolneni Kavadarci Demir Kapija Cr Novo r ni n Krusevo Selo To D D ri Prilep Petrich m Valandovo Belchishta Sopotnica Krivogashtani (Debarca) Star Dojran Vevcani (Dojran) Demir Hisar na Lake To Cr Bogdanci Elbasan Struga Dojran . Gevgelija Ohrid tn Mogila M Resen Lake FYR e GREECE MACEDONIA z Novaci Ohrid Bitola id 41°N 41°N N Lake Prespa Medzitlija 0 10 20 30 Kilometers IBRD 33438R2 0 5 10 15 20 Miles JULY 2009 To To Thessaloniki Korçë To Kozáni 22°E 23°E