CLR Review Independent Evaluation Group Completion and Learning Review Serbia FY16-FY20 Country Partnership Framework May 13, 2022 Ratings CLR Rating CLRR (IEG) Rating Development Outcome: Satisfactory Satisfactory WBG Performance: Good Good I. Executive Summary i. This review of the World Bank Group’s Completion and Learning Review (CLR) covers the FY16-FY20 Country Partnership Framework (CPF) and its adjustments through the FY19 Performance and Learning Review (PLR). The CPF period officially ended in June 2020, but the COVID-19 pandemic delayed the preparation of the new CPF. The CLR covers the program through June 2020. ii. The WBG-supported program was broadly consistent with the government’s strategy and addressed major development challenges. It was based on two focus areas -- economic governance and the role of the state (focus area I) and private sector growth and economic inclusion (focus area II) -- with a cross-cutting theme of responding to climate change and reducing disaster risks. Program design was well sequenced, front-loading challenging fiscal consolidation reforms both to create fiscal space for later investments and to strengthen the government’s trust in its partnership with the WBG. The program’s alignment with WBG corporate priorities increased over time. Environmental sustainability, resilience, and inclusion challenges were initially overshadowed by continued fiscal stress and job losses following the 2008 global financial crisis and natural disasters. However, these issues became more salient as the program was implemented through engagement on energy sector reform, labor mediation interventions, and measures to mitigate potential short-term social and labor impacts of state- owned enterprise reforms. CLR Reviewed by: Peer Reviewed by: CLR Review Coordinator Judith Twigg and Juan Jose Fernandez-Ansola, Jeff Chelsky, Manager, IEGEC George Kanakis- Polenakis, Consultant, IEGEC Xiaolun Sun, CLRR Coordinator, IEGEC Consultants, IEGEC iii. IEG rates the CPF development outcome as Satisfactory. Of the ten objectives, six were Achieved, three were Mostly Achieved, and one was Partially Achieved. Under the first Focus Area, subsidies and guarantees to SOEs decreased. More than 500 SOEs were privatized, though some of the remaining companies are large. There was good progress in transforming the state-owned electric utility into a Joint Stock Company and improving its efficiency, and renewable energy generation capacity in wind was increased. The public railway company was unbundled into autonomous infrastructure, freight, and passenger companies, and subsidies to the freight company were eliminated. However, insufficient data was provided on improvements in public service delivery, public administration efficiency, or road transport efficiency. Work on the second Focus Area produced some strong improvement in the business climate. The largest investment in the WBG portfolio during the CPF completed Serbia’s three sections of Corridor X, a large north-south highway intended to improve mobility across the region. Results exceeded expectations for trading across borders, paying taxes, and dealing with construction permits, though improvement in resolving insolvency did not reach planned levels due to a low rate of asset recovery. The banking sector took important steps toward being better capitalized, liquid, and profitable. Land and property markets were made more efficient through digitization of data and processes. Strengthening of the National Employment Service led to improved institutional efficiency, but the available data on its contribution to smoothing labor market friction was inconclusive. iv. World Bank Group performance was Good. Program design was adequate and appropriately selective, addressing Serbia’s most binding development constraints in a focused way. The balanced suite of WBG interventions was capable of achieving the CPF objectives, with strong innovation in the use of Reimbursable Advisory Services (RAS). Front-loaded fiscal consolidation and state-owned enterprise (SOE) reforms helped create space for later investments. ASA activities filled knowledge gaps and served as a base for lending. Risks were well identified and mostly well mitigated. There were good parallel efforts across the three WBG institutions, with particular strength in improving the business climate, recovering distressed assets, and improving the regulatory framework on renewable energy between IFC and IBRD. There was also good cooperation between IFC and MIGA on the waste-to-energy project and in the financial sector. Coordination with development partners was strong, though there were some initial challenges in harmonizing processes for transport sector interventions. Safeguards compliance and fiduciary performance were satisfactory. The program adapted well to changing circumstances and priorities at the PLR stage, dropping an objective on closing skill gaps due to shortcomings with the associated project and introducing changes in the results matrix in response to implementation challenges and new opportunities in agriculture, mining, and the innovation agenda. The WBG responded rapidly and flexibly to new needs posed by the COVID-19 pandemic. However, given the importance of the human capital development agenda in Serbia, removing the skills objective at the PLR stage moderately decreased program relevance. In addition, there were shortcomings with the results framework. Some objectives were not adequately measured by the indicators due to a focus on outputs rather than outcomes or failure to measure all dimensions of an objective, and additional information was required to assess achievement. 2 v. Overall, the WBG provided good support to address Serbia’s development priorities. Development policy lending contributed to significant reduction in public expenditures through increased efficiency of the main power utility and lower subsidies and guarantees to state-owned enterprises, though the latter remains a work in progress. Investment loans recapitalized the Deposit Insurance Fund – the first-ever WBG operation that recapitalized a depleted public insurance fund -- and strengthened state-owned financial institutions, making the banking sector more liquid and profitable. Investments in real estate management produced more efficiency in construction permits and property registration and valuation. Complementary operations across WBG supported the construction of key roads and enhanced road safety. IFC advisory support produced priority improvements in the business and investment climate. RAS on results-based management helped improve coordination and monitoring of government programs. A Catastrophe Deferred Drawdown Operation (CAT DDO) strengthened reconstruction, recovery, and risk assessment for natural disasters. However, some dimensions of planned support for human capital -- social assistance beneficiaries’ activation, closing skills gaps, and service delivery improvements in health and other sectors – either did not materialize or did not produce measurable outcomes. vi. IEG broadly agrees with the CLR’s lessons, particularly on the long-term time frame required for implementation of complex transformation agendas, especially in areas where reform is politically sensitive, and the important role that demonstrable, significant improvements for beneficiaries can play in building not only sustainable institutions but also constituencies for reform. IEG notes that the program’s results framework did not provide comprehensive measurement of outcomes across all dimensions of each objective; an additional lesson from this CLR Review is therefore that close tracking of results and impact taking into account each element of every objective can better serve assessment of outcomes and learning. II. Strategic Focus Relevance of the CPF 1. Country Context. Serbia is a small, open, upper-middle-income country that aspires to reach European levels of prosperity. It started negotiations for European Union (EU) accession in 2014. Accession negotiations are currently ongoing. Major fiscal consolidation and other reforms beginning in 2014 helped restore macroeconomic stability following the global financial crisis in 2008, drought in 2012, and major floods in the spring of 2014, with economic growth increasing from -1.8 percent in 2014 to an average of 3.1 percent in the period 2015-2019. Growth reversed to -0.9 percent in 2020 due to the effects of the COVID-19 pandemic. The incidence of poverty, measured as income below the standardized US$5.5/day (2011 PPP), declined from 22.2 percent in 2016 to 17.4 percent in 2020, but Serbia’s Gini coefficient, 35.6 in 2017, placed it among the top three most unequal countries in the region. Poverty is higher in rural and thinly populated areas, and there are pockets of extreme poverty, particularly among the Roma population. The country’s main challenges center around completing the transition from a state- dominated to a private-sector driven economy, and moving from a consumption-based to 3 export-led growth model. While the government has advanced structural reforms, they have not been sufficient to accelerate convergence with EU living standards. Improvements in governance and institutions have stalled, holding back progress in providing equal opportunities and inclusion, boosting productivity and private sector development, and ensuring environmental stability and management of climate-related risks. 2. Government Strategy and CPF. The FY16-FY20 CPF straddled several consecutive government reform programs, which were organized around a common strategy centered on reducing the role of the state in the economy, maintaining prudent fiscal policies, and strengthening the role of the private sector. The 2015-2018 program, launched after the 2014 recession, targeted expenditure-based fiscal consolidation; it outlined an ambitious reform agenda aimed at restructuring state-owned enterprises, streamlining and improving the performance of public administration, improving the business climate, and strengthening financial stability. The 2018-2020 strategy sought to consolidate achievements in the fiscal area while supporting initiatives to boost growth, such as increasing public investment and decreasing the tax burden for low-income employees. The 2020-2022 program emphasizes economic strengthening and entrepreneurship, efficient and responsible government, environmental protection and green transformation, human capacity building, and improved protection of people’s health. In response to the COVID-19 pandemic, the government promptly enforced movement restrictions and lockdowns, deployed a robust stimulus package amounting to 13 percent of GDP, and made vaccines available more quickly than in most other European countries, softening the pandemic’s negative health and economic impacts. 3. Relevance of Design. The WBG program was consistent with the government’s strategy and addressed major constraints to development, pursuing an overall goal to support Serbia in creating a competitive and inclusive economy and, through this, to achieve integration into the EU. It was based on two focus areas -- (i) economic governance and the role of the state, and (ii) private sector growth and economic inclusion – with a cross-cutting theme of responding to climate change and disaster risks. The program addressed the most binding development constraints, supporting the top priorities expressed in the 2015 Systematic Country Diagnostic (SCD). 1 The cross-cutting theme was appropriate, given the high risks that natural disasters pose to economic development and the impact of climate change on the poor. The objectives were appropriate, with many of the objectives deliberately complementary to one another. Program design was selective, prioritizing areas with the most potential for high impact and strongest government reform championship; coordinated with development partners (and the EU in particular, which had the lead in agriculture and rural development); and well sequenced, front-loading fiscal consolidation and state-owned enterprise (SOE) reform, in an 1 The 2015 SCD identified two “foundational priorities”: (i) fiscal sustainability, financial and macro stability, and (ii) governance and institutional capacity; and five “priorities with highest impact on twin goals”: (i) SOE reform, (ii) business climate reform, (iii) labor market institutions, (iv) agriculture and self- employment, and (v) infrastructure. Four additional areas were identified as “other support priorities”-- water and sanitation, education and skills, health, and social protection. 4 effort to create fiscal space for later investments. A mix of instruments was deployed to support reforms and achieve institutional transformation, including DPLs, traditional investment loans, and several results-based financing operations in the form of investment loans and PforRs, as well as two Reimbursable Advisory Services projects and other relevant ASA to inform lending. Program design reflected lessons learned from the previous Country Partnership Strategy (FY12-FY15), including the need for close alignment with the objectives of the government and other key partners, and the importance of focus on a relatively concise set of outcomes. 4. The PLR maintained the two focus areas, while removing an objective on closing medium- and long-term skills gaps because of problems with the associated project. The PLR introduced a Reimbursable Advisory Services program (the first in the Western Balkans); realigned the program’s engagement on labor reform due to changing circumstances; added agriculture as an area for analytical work and lending, as the government requested WBG support to align with EU and other efforts; and added an operation in the mining sector, building on the Bank’s long-standing engagement on SOEs. The WGB responded quickly and flexibly to the COVID-19 pandemic by directing about 15 percent of its portfolio to crisis response, including three project restructurings, a drawdown from a Disaster Risk Management Catastrophe Deferred Drawdown Operation (CAT DDO), and a new US$100 million operation funded out of the Fast-Track COVID-19 Facility. Relevance of the program was diminished to a moderate degree with the dropping of the skills objective. 5. IFC proposed interventions supporting government priorities and country challenges. Addressing high non-performing loan (NPL) rates (23%) was expected to contribute to the improved functioning of the financial sector. Similarly, improvements in business climate would remove obstacles in soft infrastructure, allowing the private sector to unleash its development potential. Most importantly, improved efficiency in the power sector was expected to alleviate chronic deficiencies. Serbia was (and still is) one of the most energy- intensive countries globally due to its outdated energy infrastructure, high energy losses in transformation, transmission, and distribution, and low energy efficiency among end-users. Seventy percent of electricity generation comes from old coal-fired plants, making Serbia one of the largest greenhouse gas emitters per capita in Europe. Investments in the transport and utility sectors, including waste management, were imperative to the country’s development. IFC also supported a COVID-19 working capital financing facility. Results Framework 6. The results framework was streamlined, with just one or two indicators to measure achievement of most objectives. The indicators were measurable, with baselines and targets specified, and data were available for most indicators. However, in some cases, outputs rather than outcomes were measured, and in others, the indicators did not measure all dimensions of the objective. In many cases, supplemental indicators and/or additional evidence were required to demonstrate achievement. For example: 5 • For the second objective – more effective public administration and select service delivery improvements – there was no indicator that measured quality improvements in service delivery in any sector. • Under the fourth objective – more efficient public transport companies – the indicator for the road sector measured the length of roads with performance-based maintenance contracts, but not outcomes resulting from those contracts. • The fifth objective was originally measured by the number of SOEs in the Privatization Agency (PA) portfolio that were privatized; because these SOEs were not appealing to investors, the indicator was modified at the PLR stage to the number of companies in the PA portfolio resolved through asset and equity sales, but this indicator became obsolete when the government shut down the PA in 2016. Furthermore, the indicator counted the number of companies resolved without identifying their size or other significant characteristics. • The indicators under the tenth objective gauged success in employment facilitation through increases in the number of unemployed people who had found formal jobs, not taking into account possible changes in the overall population and/or number of unemployed people. 7. The PLR also dropped some unmeasurable indicators and modified others to reflect revision of IFC’s planned interventions. Alignment 8. The program implemented during the CPF period was broadly aligned with the WBG’s corporate priorities to reduce poverty and boost shared prosperity in a sustainable manner. Environmental sustainability, resilience, and inclusion challenges were overshadowed at the beginning of the period, in the aftermath of ongoing fiscal stress and job losses associated with the 2008 global financial crisis and natural disasters. However, these issues became more salient as the CPF was implemented. Climate risk mitigation was addressed through the engagement on energy sector reform and through the CAT DDO. Labor intermediation interventions were aimed at improving services for lower income groups, and the development policy lending series supported measures to mitigate potential negative short-term social and labor impacts of SOE reforms. Gender and other inequities were the topic of analytical work that (among other things) explored barriers to women’s labor market participation and access to education for Roma children, and informed employment facilitation activities that targeted women, youth, and Roma populations, as well as actions to improve women’s access to land. The skills objective that was dropped at the PLR stage focused on support for early childhood education that would have benefited women’s labor market access. 6 III. CPF Description and Performance Data Advisory Services and Analytics 9. A wide-ranging ASA program included 54 projects and remained active throughout the CPF period, filling knowledge gaps identified in the CPF and informing lending. For example, public financial management reviews, TA on public investment management and on rightsizing and restructuring of SOEs, and functional and vertical reviews of the agriculture, education, labor, health, and finance sectors underpinned lending to improve effectiveness and efficiency of the public sector. Development policy lending was underpinned by a District Heating Tariff Study and Poverty and Social Impact Assessment that identified the distributional impact of fiscal policies and energy use and reform. A Growth Agenda Country Economic Memorandum developed a package of policy recommendations to support the government in the implementation of growth-related reforms. The Serbia Reimbursable Advisory Services program, including a first RAS approved in the Western Balkans, engaged the WBG in support of results-based management; for example, just-in-time technical assistance was complemented by a RAS on strengthening corporate governance and mainstreaming results-based approaches for the public power utility. Key knowledge gaps were filled through analytic work that contributed to mainstreaming climate resilience in road transport management, as well as disclosing and publishing road accident data. 10. IFC approved three advisory projects during the CPF period. One addressed distressed assets, another focused on improving the investment climate, and a third dealt with power and district heating. Another two projects were active during this period (waste-to-energy and renewable energy). IFC reported that AS contributed to improvement of the regulatory framework resulting in an improved insolvency system, streamlined business procedures and an increased use of for renewables. Total funds managed by IFC reached US$19.8 million (US$13 million for the new projects). A PCR for the waste-to-energy advisory rates it successful. Lending and Investments 11. At the start of the CPF period, outstanding commitments amounted to US$784 million, consisting of six operations approved during FY13-FY15. They comprised investment loans spanning Focus Area I (SOE reform and health services delivery) and Focus Area II (roads, real estate management, and deposit insurance strengthening). An FY14 Floods Emergency Recovery project, responding to devastating floods in the spring of 2014, spanned both Focus Areas, with interventions to restore the power system and energy supply, agriculture, and flood protection infrastructure. 12. During the CPF period, IBRD commitments totaled US$ 1.519 billion across 19 projects. Well over twice as much was committed to Focus Area I (U$ 994.7 million) as Focus Area II (US$ 374.3 million). The different amounts reflected the presence of substantial budget support under the first focus area. Under Focus Area I, development policy lending (US$670 million) focused on public expenditure management and SOE reform; investment project lending (US$ 131.1 million) on improving public services, including health, early childhood 7 education, and digital governance; and two PforRs (US$ 193.6 million) on modernization of public administration and improving the management and sustainability of public infrastructure, primarily in transport and energy. Under Focus Area II, funds were committed entirely through investment projects for tax administration modernization, competition and jobs, entrepreneurship, real estate management, and connectivity (roads and railways). Two investment projects were supported that were not anticipated under the CPF: one for the agriculture sector (US$ 50 million), which was added at the PLR stage due to increased counterpart readiness, and a US$ 100 COVID-19 response project. Nine Trust Funded projects totaling US$ 27.8 million were active during the CPF period covering both Focus Areas, including projects on public sector rightsizing and restructuring, disaster risk management, open data, evidence-based policy making in the agriculture sector, research and innovation, and corporate financial reporting. 13. During the CPF period, ten operations (including two series of two-phase DPLs) disbursing a total of US$ 1.5 billion were closed and reviewed by IEG, all of which performed well. Performance at exit, measured by outcomes rated Moderately Satisfactory or higher (100 percent), was better than that for the Europe and Central Asia Region (83.9 percent, and 81.5 percent weighted by commitment value) and for the World Bank (78.9 percent, and 83.5 percent weighted by commitment value). There were four projects at risk (11 percent) at any point during the program, which compares favorably with 17 percent for the Europe and Central Asia Region and 21 percent for the World Bank as a whole. Of the four, three – Road Rehabilitation and Safety, Health, and Competitiveness and Jobs – were restructured to bring them back on track. Restructuring of the roads project included a reduction in scope resulting in cancellation of about 13 percent of the loan amount. The fourth, Enabling Digital Governance, entered problem status in May 2020, and an action plan is being prepared to improve its performance. 14. At CPF inception, IFC had financed US$ 682 million in 16 projects. US$610 million of this total was from its own account, and US$ 72 million was through mobilization from the commercial banks and three regional projects with a Serbia component, for a total of US$ 120 million. Four projects amounting to US$105.93 million, committed before the CPF period, remained active, contributing mainly to improving access to finance (67 percent) and supporting the food and beverage sector (29 percent). 15. During the CPF period, the IFC's own account financing reached US$ 291 million across four industry segments and seven projects (and US$ 30 million in a regional project), leveraging a total project size of US$ 796.7 million. The most significant participation was in infrastructure networks (airport project 41 percent), followed by sustainable power through wind power projects (33 percent), a waste-to-energy project (33 percent), and more accessible financial sector (6 percent). IFC's portfolio addressed development priorities on climate change and connectivity. Demand from the banking sector was lower than anticipated. 16. IEG reviewed six XPSRs mainly for projects committed before this CPF (but active in its duration), rating most of them as highly unsuccessful or unsuccessful (only one was rated 8 mostly successful). However, these ratings do not reflect the performance of IFC's current portfolio. Previously rated projects suffered from lack of country experience in project management, resulting in higher running costs than expected; high dependency on single client; and cost over-run due to changes in project scope. New projects were more mature, benefiting from additional country experience. 17. At the end of the CPF, MIGA had an exposure of US$ 798.3 million in six projects, mainly in the financial sector (86 percent of the total portfolio). MIGA offered capital optimization guarantees (US$ 689.4 million) to five international banks, freeing up capital that would otherwise be engaged in reserve, thus expanding access to finance. MIGA also provided political risk guarantees (US$ 108.9 million) to the waste to energy project. IV. Development Outcome A. Overall Assessment and Rating 18. IEG rates the CPF development outcome as Satisfactory. Of the ten objectives, six were Achieved, three were Mostly Achieved, and one was Partially Achieved. Under the first Focus Area, subsidies and guarantees to SOEs decreased. More than 500 SOEs were privatized, although some of the remaining companies are large and strategically important. There was good progress in transforming the state-owned electric utility into a Joint Stock Company and improving its efficiency, and renewable energy generation capacity in wind was increased. The public railway company was unbundled into autonomous infrastructure, freight, and passenger companies, and subsidies to the freight company were eliminated. However, insufficient data was provided on improvements in public service delivery, public administration efficiency, or road transport efficiency. Support for the second Focus Area produced some strong improvement in the business climate. The largest investment in the WBG portfolio during the CPF completed Serbia’s three sections of Corridor X, a large north-south highway intended to improve mobility across the region. Results exceeded expectations for trading across borders, paying taxes, and dealing with construction permits, although improvement in insolvency did not reach planned levels due to weak asset recovery. The banking sector took important steps toward being better capitalized, liquid, and profitable. Land and property markets were made more efficient through digitization of data and processes. Strengthening of the National Employment Service led to improved efficiency of that institution, but available data on its contribution to smoothing labor market friction was inconclusive. 19. Cross-cutting theme: Responding to climate change and disaster. The program included prompt support for Serbia’s recovery after the May 2014 floods, which caused damages and losses amounting to EUR1.7 billion. The Floods Emergency Recovery Project assisted in restoring power systems, protecting livelihoods of affected farmers, and strengthening capacity to respond to future disaster. A National Disaster Risk Management (DRM) Plan, a roadmap for systematic operationalization of the DRM program, was approved. The CAT DDO supported the building of an institutional environment to manage the physical 9 and fiscal impact of natural hazards and strengthen the associated legal landscape. IFC’s advisory and investment activities and MIGA guarantees in renewable energy, energy efficiency, and/or waste management have contributed to greening Serbia’s energy mix, reducing its overdependence on thermal plants and curbing its vulnerability to climate change. Analytical work contributed to mainstreaming climate resilience in road transport management. Objectives CLR Rating CLRR (IEG Rating) Focus Area I: Economic Governance and Satisfactory Satisfactory the Role of the State Objective 1: Sustainable public expenditure Achieved Achieved management Objective 2: More efficient public Mostly Achieved Mostly Achieved administration and select service delivery improvements Objective 3: A more efficient and Achieved Achieved sustainable power utility Objective 4: More efficient public transport Achieved Mostly Achieved companies Objective 5: Resolution of SOE assets in Mostly Achieved Achieved Privatization Agency Portfolio Focus Area II: Private Sector Growth and Satisfactory Satisfactory Economic Inclusion Objective 6: Priority business climate Achieved Achieved improvements Objective 7: More stable and more Mostly Achieved Mostly Achieved accessible financial sector Objective 8: More efficient land and Achieved Achieved property markets Objective 9: Enhanced transport Achieved Achieved infrastructure networks Objective 10: More efficient employment Achieved Partially Achieved facilitation B. Assessment by Focus Area/Objective Focus Area I: Economic Governance and the Role of the State 20. Focus Area I supported the government’s goal of improving the sustainability of Serbia’s fiscal position through progress on advancing privatization, reducing public subsidies and guarantees, and improving SOE governance. There was significant synergy across the five objectives. 10 21. Objective 1: Sustainable public expenditure management. The objective was supported by the First and Second Programmatic SOE Reform DPLs (FY15 and FY17), and the first and second Public Expenditure and Public Utilities (PEPU) DPLs. The former aimed to reduce state participation and levels of direct and indirect support to SOEs, enhance SOE performance, governance, and accountability, and mitigate the short-term labor and social impact on workers made redundant from public enterprises; the latter tackled the efficiency and sustainability of energy and transport sector public enterprises. 22. The assessment of performance on this objective’s indicator is as follows: Indicator Baseline (year) Target (year) IEG Validated Result IEG (year) Rating Reduction of public EUR 293 million (of 25 percent EUR 246 million Mostly expenditures through which 73 million for reduction (less (decrease of 16 Achieved lower direct subsidies SOEs in the PA than EUR 220 percent), with none and guarantees to SOEs portfolio) (2012-2013 million) (2019) to SOEs in the PA average) portfolio (2019) 23. Achieved. The CLR reports that subsidies outside the PA portfolio increased somewhat because toll collections were channeled to the budget and then returned to the Road Authority as transfers; for this reason, the indicator is not a good measure of progress. The country team provided additional verifiable information that subsidies (not including transfers to the Road Authority) were reduced to EUR 195.41 million in 2018 and EUR 206.46 million in 2019. Achievement on reduction of SOE subsidies and guarantees was also demonstrated through supplemental indicators. Annual guarantees for liquidity purposes were reduced from EUR 265 million (average 2012-2014) to zero in 2017, exceeding the target of less than EUR 50 million. The CLR states that no new guarantees for liquidity purposes were issued in 2020, and the last guarantee for capital investment was a single guarantee of EUR 20 million in 2019 for construction of a gas pipeline. Budget allocations for subsidies and soft loans to SOEs in the former PA portfolio were reduced from EUR 72 million in 2013-2014 to EUR 8 million in 2018, EUR 2.9 million in 2019, and EUR 2.5 million in 2020, exceeding the target of less than EUR 10 million. New tax obligations and contribution arrears by SOEs in the former PA portfolio were decreased from EUR 197 million in 2013 to EUR 10 million in 2017 and EUR 7.3 million in 2019, achieving the target of less than EUR 25 million in 2019. 24. Objective 2: More efficient public administration and select service delivery improvements. The objective was supported by the Modernization and Optimization of Public Administration PforR (FY16) and Disaster Risk Management DPL-CAT DDO (FY17), as well as ASAs covering reform of the justice sector, wage bill management, and open data. A RAS on results-based management helped develop a decision-making and implementation management dashboard system, introduced in 2017 as the main vehicle for coordinating and monitoring implementation of government programs. The PforR supported development of a 11 system for managing public sector staffing levels and monitoring the wage bill, and strengthening expenditure control and supervision of the government’s financial management system. The CAT DDO supported creation of a Public Investment Management Office to manage reconstruction and recovery projects and strengthened risk assessment capacity and the associated legal landscape. 25. The assessment of performance on each of the indicators is as follows: Indicator Baseline (year) Target IEG Validated IEG Rating (year) Result (year) Plan to strengthen the policy 2 (2015) 4 No Metcalfe Partially making and coordination (2019) Scale Achieved system prepared by end 2016 evaluation via proxy and implemented by 2020. undertaken. Metcalfe Scale rating 2 improved. Percentage of non-medical staff 30 percent of public 25 21 percent Achieved employed in public health health sector workers percent (2020) facilities are not medically trained (2013) 26. Mostly Achieved. No formal assessment using the Metcalfe Scale to evaluate policy making and coordination systems was undertaken. Supplemental information using the SIGMA policy management assessment tool is used as a proxy indicator, showing progress on the public administration service delivery and public service management dimensions, but insignificant progress on public administration efficiency (which was a central element of the objective). However, additional information provides some evidence of improved public administration efficiency. The public sector wage bill decreased from 11% of GDP in 2014 to 9.5% of GDP in 2019. There were no new budget arrears in 2020, a decrease from US$1.003 billion in 2013. The share of public procurement contracts with a value of over RSD5 million signed within 90 days of issuing of the bidding documents increased from 62% in 2016 to 93.9% in 2020. The Bank’s TA program produced horizontal and vertical functional reviews that led to adoption of action plans in six sectors: agriculture, social protection, education, finance, health, and environmental protection; implementation of these action plans, aimed at rationalization of expenditures and human resources in each sector, is ongoing. Although the indicator on health facility staffing captures one element of health sector service delivery, there are no verifiable measurements of service delivery quality improvement in health or other sectors. More generally, the CPF indicators only partially captured the scope of the objective, which 2 The Metcalfe Scale measures the degree of policy coordination in organizations on a scale of 1 to 9, with 1 representing the absence of coordination and 9 representing a unified policy-making system. 12 addressed a wide range of legacy problems in the Serbian public administration that hampered effective public service delivery. 27. Objective 3: A more efficient and sustainable power utility. The objective was supported by the PEPU DPL series, with actions on increasing tariffs while protecting vulnerable consumers and labor cuts at Elektroprivreda Srbije (EPS, the state-owned electric utility), both of which were critical to achieving targets set out in the EPS Fiscal Consolidation Plan (2015-19) to help transform the company into a commercially and financially viable utility. IFC contributed with AS regionally on improving the regulatory framework on renewable energy. It also worked on building awareness among developers and potential sponsors and addressed the insufficient know-how of relevant financiers. IFC also supported a PPP on an energy-from-waste facility for Belgrade to treat construction and demolition waste following remediation, closing and aftercare of the existing landfill and the construction of a new EU- compliant landfill. MIGA has supported with a relevant guarantee. IFC also financed two transformative projects (Alibunar 42 MW and Dolovo 158 MW wind power plants) to construct over 200 MW of renewable energy capacity; both started operation in September 2018. These two investments created a significant demonstration effect, paving the way for other renewable energy projects to access long-term financing from IFIs. Other IFC interventions were not captured through monitorable indicators in the results framework. 28. The assessment of performance on each of the indicators is as follows: Indicator Baseline Target (year) IEG Validated IEG (year) Result (year) Rating EPS corporate Collection Collection Collection Achieved governance and rates: 93 rates: 95 rates: 98.65 financial percent (2015) percent (2019) percent (2019) sustainability Distribution Distribution Distribution achieved. Collection losses: 14 losses: 12.1 losses: 11.22 rates increase and percent (2014) percent (2019) percent (2019) distribution losses decrease. Increase renewable 0 (2015) 100MW 397 MW Achieved energy generation (2019) (2020) capacity in wind 29. Achieved. Targets for collection rates and distribution losses were achieved, as they were for supplemental indicators: a legal roadmap for transformation of EPS into a Joint Stock Company was adopted, the debt-to-EBITDA ratio was kept below three, and the accumulation of SOE and budget institution arrears to EPS from its largest 20 debtors stopped. The target for renewable energy generation capacity was achieved in September 2018. 13 30. Objective 4: More efficient public transport companies. This objective was supported by the PEPU DPL series, which supported measures toward labor optimization of the railway companies and accountability of the public enterprise Roads of Serbia for performance standards and financing; the Corridor X Highway AF (FY17) and Road Rehabilitation and Safety (FY13) projects, which focused on improving the condition and safety of the national road network and improving transport efficiency on three sections of Corridor X (a key north- south European arterial route); the Western Balkans Trade and Transport Facilitation MPA (FY19), which is intended to enhance transport efficiency and predictability in Albania, North Macedonia, and Serbia through investments in Intelligent Transport and Electronic Data Interchange systems; and the ASA Mainstreaming Climate Resilience in Road Transport Management (FY18). 31. The assessment of performance on each of the indicators is as follows: Indicator Baseline Target (year) IEG Validated IEG (year) Result (year) Rating Serbia Railways Subsidies Serbia Serbia Achieved restructured and of RSD 10.4 Railways Railways cargo company billion restructured. restructured operating without (2014) (2015) Subsidies of subsidies RSD 0 (2019) Subsidies of RSD 0 in 2019. Roads maintained 0 km (2015) 3000 km 3000 km Achieved under (2019) (2021) performance- based maintenance 32. Mostly Achieved. Serbia Railways was restructured, and roads were maintained under performance-based contracts. The CPF indicators were not adequate to measure improved roads efficiency. While the elimination of subsidies to the rail freight company is a strong indicator of improved rail efficiency, the indicator for roads represents an output, as the length of roads maintained under performance-based contracts does not demonstrate actual reduction of maintenance costs or other results related to efficiency. The ICR Review for the Corridor X project indicates that road user costs on two WB-financed road sections were reduced by 23 percent and 13 percent between 2009 and 2019, but that improved road management could not be verified due to lack of evidence. Supplementary indicators and additional evidence (including the ICRR for the Public Expenditure and Public Utilities DPL series) for this objective demonstrate that Serbia Railways was unbundled into autonomous infrastructure, freight, and passenger companies; that the number of traffic units (passenger km and freight ton km) increased well above targets; and that there was improvement above targets in the number of 14 train km per staff (119% increase between 2015 and 2018, compared with a 15% target) and cargo tons per km of track (27% increase between 2015 and 2018, compared with a 15% target). 33. Objective 5: Resolution of SOE assets in Privatization Agency portfolio. This objective was supported by the First and Second Programmatic SOE Reform DPLs (FY15 and FY17), and an IFC ASA on improving the investment climate. The DPLs had a pillar on accelerating the restructuring and divestiture program for companies in the PA portfolio and selected SOEs operating in the commercial sector, through actions to enact and implement a new Privatization Law and amend the Bankruptcy Law to facilitate the disposal and restructuring of companies, assist the government to design and implement methods for privatizing the companies, and assist companies in the PA portfolio to manage potential environmental risks that were slowing the privatization process. 34. The assessment of performance on this objective’s indicator is as follows: Indicator Baseline Target IEG Rating (year) (year) Validated Result (year) Resolution of unproductive SOEs Baseline: 178 507 SOEs Achieved and state divestment from 640 (end resolved and commercial SOEs under the companies 2017) 78 still Privatization Agency. Number of in PA unresolved companies under PA portfolio portfolio as of 2018. resolved through asset and equity (2013) sales 35. Achieved. The objective captured the reduction of resources allocated to SOEs by containing subsidies and limiting guarantees of new loans. More than 500 companies were privatized, mostly through bankruptcies. The CLR reports that none of the largest and most problematic companies remain in the portfolio, and that the remaining portfolio includes several companies whose resolution is beyond the control of the Ministry of Economy (companies with assets located in Kosovo) and companies without well-defined legal status. The government shut down the Privatization Agency at the beginning of 2016, but stated that it intends to resolve all remaining enterprises in its portfolio. The IMF and United States Department of State reported in 2021 that the Ministry of Economy has been preparing the remaining companies for divestiture in 2020 and 2021, but that several of these companies are “large, strategically important” SOEs that are drivers of local economies. 36. IEG rates the outcome of WBG support under Focus Area I as Satisfactory based on the assessment of objectives 1-5 above. Focus Area II: Private Sector Growth and Economic Inclusion 37. Focus Area II supported the government’s goal of improving the quality of the business environment through reducing transaction costs, strengthening property rights, boosting 15 internal connectivity and regional integration through improvements in road transportation, strengthening the financial sector, and producing better matches in the labor market through institutional strengthening of the National Employment Service. 38. Objective 6: Priority business climate improvements. This objective was supported by the First and Second Programmatic SOE Reform Development DPLs (FY15 and FY17), which aimed to improve monitoring and corporate governance arrangements in the SOE sector; the Serbia Competitiveness and Jobs Project (FY16), which helped develop a strategic framework for investment and export promotion; the Western Balkans Trade and Transport Facilitation (FY19), which aims to reduce trade costs and increase transport efficiency in Albania, North Macedonia, and Serbia; and IFC advisory support to improve the insolvency legal framework, train judges and bankruptcy administrators on implementation, and establish a new bankruptcy agency to centralize all bankruptcy procedures and administration. IFC's regional environmental, social, and governance (ESG) AS offered training and awareness building on ESG-related issues for firms; support for improving the ESG-related regulatory framework; support for developing local ESG-pertinent institutional capacity; and encouragement for investors and banks to adopt ESG issues in their financing decision-making. IFC's Debt Resolution program supported legal and regulatory reform and capacity improvement of relevant institutions to deal with debt resolution, and the Western Balkans Agribusiness Competitiveness Program supported appropriate regulatory enhancements. These interventions were in line with the CPF’s specification of priority business climate issues – simplification of tax procedures, a reformed process for issuing construction permits, improved performance of the customs administration, and improved contract enforcement and insolvency mechanisms – to promote new investments and create jobs. 39. The assessment of performance on each of the indicators is as follows: Indicator Baseline (year) Target IEG Validated IEG Rating (year) Result (year) Improve Doing DTF: 62.57 (2015) 72 (2019) Ease of Doing Business (DB) Business: Distance to Frontier 73.49 (2019), (DTF), with a special 75.7 (2020) focus on trading across borders, Trading across borders: 72.13 (2015) 85 (2019) 96.6 (2020) paying taxes, Mostly resolving Paying taxes: 48.9 (2015) 64 (2019) 75.3 (2020) Achieved insolvency, and Construction permits: 29.14 (2015) 44 (2019) 85.3 (2020) dealing with construction permits Resolving insolvency: 57.9 (2015) 74 (2019) 67 (2020) 16 40. Achieved. Of four indicators targeted under the objective, three (trading across borders, paying taxes, and construction permits) were achieved, and one (resolving insolvency) was not achieved. Serbia’s overall Doing Business ranking improved from 91 in 2015 to 48 in 2019. This progress was due to substantive changes in the regulatory environment in key areas: starting a business, registering property, and dealing with construction permits. Serbia is now in 11th place globally when it comes to dealing with construction permits. IFC's digitalization project upgraded the e-Government platform and replaced time-consuming permitting and licensing procedures from a paper-based system to an electronic system. Planned amendments were made to the insolvency law and regulations and training campaigns were conducted for insolvency practitioners. Though improvement in resolving insolvency reached 67 instead of the targeted 74 (DTF) due to a low rate of asset recovery, the subcomponent of the Doing Business indicator on “strength of the insolvency framework”—which best captures IFC’s contribution to the objective -- gave the Law on Bankruptcy a score of 15.5 out of 16, and the 2020 Report cited it as “best practice.” 41. Objective 7: More stable and accessible financial sector. This objective was supported by the Deposit Insurance Strengthening Project (FY14), which recapitalized the Deposit Insurance Fund (DIF) and increased contribution to it via premiums from member banks, and the State-Owned Financial Institutions (SOFI) Strengthening Project (FY18), which supports a strategy for SOFIs to decrease fiscal costs, minimize the potential for soft budget support to SOEs, improve the performance of those institutions that the government chooses to retain, support the divestiture of all others, and develop a strategy for non-performing loan (NPL) resolution. ASAs included the Western Balkans Finance TA (FY16) and others covering government debt and risk management. IFC contributed to distressed assets resolution through its global Distressed Asset Recovery Program and helped finance the purchase of one NPL portfolio worth about US$250 million. Moreover, through its Debt Resolution Program (in partnership with Swiss Economic Cooperation and Development, SECO), it improved laws and regulations for the insolvency framework and created a secondary market for NPLs. IFC invested in a bank and a microfinance institution, thus somewhat contributing to better access to finance through various products, including small and medium enterprise (SME) finance, mortgage lending, microfinance, local currency lending, and trade finance. During COVID-19, IFC channeled US$14.5 million through the banks for a lending program directed to affected SMEs. IFC invested US$18.5 million in the European Fund for Southeast Europe, a collective debt investment vehicle for housing finance and on-lending to SMEs. IFC also invested in a newly created Real Estate Investment Trust focusing on retail property assets, and in a manufacturer of electric motors expanding its production in Serbia, leading to the creation of 1,100 new jobs. MIGA helped ease the capital pressure on banks by offering four guarantees, enabling faster loan growth of local subsidiaries. 42. The assessment of performance on each of the indicators is as follows: 17 Indicator Baseline (year) Target (year) IEG Validated Result (year) IEG Rating Reduction of share 22.5 percent Less than 18 5.5 percent (March 2019) Achieved of non-performing (2014) percent (2019) 3.9 percent (March 2021) loans in total loans provided Increased 15 percent of 29 percent of No data on indicator. Not availability of firm financing firm financing Verified Domestic credit to private enterprise financing coming from coming from sector by banks as coming from banks banks (2013) banks (2019) percentage of GDP: 40.97 (2013), increased to 42.0 (2019) and 45.46 (2020) Domestic credit to non- government increased by 10.1 percent in 2018, 9.5 percent in 2019, and 12.0 percent in 2020 43. Mostly Achieved. The share of NPLs was reduced significantly, and there is evidence of growing credit to enterprises, though there is no data on the specific indicator on percentage of firm financing coming from banks. 3 The CLR reports on supplemental indicators: no state- owned banks have negative profitability, as targeted, and the DIF was replenished and its balance sustained. This was the first-ever WBG operation that recapitalized a depleted public insurance fund. Domestic credit growth to the private sector exceeded GDP growth every year from 2018 forward. The banking sector is better capitalized, liquid, and profitable (average CAR 21.7 in December 2021, liquidity ratio 2.1, and ROE 7.3). However, debt recovery rates through out-of-court workouts and insolvency did not reach the targeted 40 percent, increasing from 29.3 percent in 2014 to 34 percent in 2018. In addition, IFC’s efforts and involvement in the privatization process for state-owned banks (in close collaboration with development partners) yielded results only after 2019, and the number of state-owned banks was reduced from six in 2017 to three in 2020. In 2020, total loan loss provisions increased by 12 percent and by an additional 1.9 percent in the first two months of 2021. Serbia implemented a comprehensive support package in 2020, which included financial sector support to increase credit growth in 2020, thereby playing a key role in mitigating the economic costs of COVID-19. In March 2021, 3Republic of Serbia: First Review under the Policy Coordination Instrument, December 21, 2021. Table 8, page 34. 18 credit growth reached 7.7 percent. Credit activity was supported by the National Bank of Serbia’s measures and the government guarantee scheme for bank lending to SMEs. 44. Objective 8: More efficient land and property markets. This objective was supported by the Real Estate Management project (FY15) and its AF (FY20), which is making investments to improve the efficiency, transparency, accessibility, and reliability of Serbia’s real property management systems, including through support for electronic information systems, as well as IFC investments in housing/mortgage lending and an ASA on improving the investment climate. 45. The assessment of performance on each of the indicators is as follows: Indicator Baseline Target IEG IEG (year) (year) Validated Rating Result (year) Improve DB DTF on construction permits 29.14 44 73.49 (2019), Achieved (2015) (2019) 85.3 (2020) Efficiency of property registration system, 48 (2015) 4 (2019) 3.3 (2021) Achieved measured as average number of days to complete recording of purchase/sale of property in the land administration system 46. Achieved. Targets were reached on construction permits. Progress was also made on property valuation, based on a modern regulatory framework adopted in 2016 and further refined in 2017, and the CLR provided supplemental data indicating that valuers are operating in accordance with new valuation standards. 47. Objective 9: Enhanced transport infrastructure networks. This objective was supported by the Corridor X Highway project (FY09) and its AF (FY17), the Road Rehabilitation and Safety project (FY13), the Public Expenditure and Public Utilities DPL series (FY17 and FY18), and the ASA Mainstreaming Climate Resilience in Road Transport Management (FY18). These investments covered road rehabilitation and safety works, institutional support for road safety, increased efficiency and traffic safety on three sections of Corridor X, and policy actions to improve the financial sustainability and efficiency of transport sector public enterprises and state-owned companies. Corridor X is the largest project in the Bank’s portfolio in Serbia. Advisory work helped the government to develop a methodology for assessing the vulnerability of the road transport network to climate-related risks. IFC supported modernization of the Belgrade airport through a landmark "Maximizing Finance for Development" (MFD) transaction, with a financing package of $207 million. The airport previously operated as an SOE. The project introduced international best practices in operations, narrowed the connectivity gap, and supported tourism development. The airport project is an example of successful private participation in infrastructure. MIGA is also 19 supporting this project with political risk insurance. The ECA Energy Solutions for District Heating IFC advisory supported relevant efforts. 48. The assessment of performance on each of the indicators is as follows: Indicator Baseline Target IEG Validated IEG (year) (year) Result (year) Rating Corridor X completed (km) 0 (2015) 46 km 46.2 km (2019) Achieved (2019) National roads rehabilitated with safety 0 (2015) 121 km 416.5 km (2019) Achieved measures incorporated (km) (2019) 49. Achieved. The target for completion of road segments of Corridor X was achieved, and more than three times the planned length of national roads was rehabilitated with safety measures incorporated. The main challenges in the transport sector included poor quality of the road and rail networks, limited maintenance, and safety issues. The government prioritized development of its section of the pan-European Corridor X, for which WBG led preparation and which was jointly financed with the European Bank for Reconstruction and Development (EBRD) and European Investment Bank (EIB). No indicator captured IFC's contributions to this objective. 50. Objective 10: More efficient employment facilitation. This objective was supported by the Serbia Competitiveness and Jobs project (FY15) and the First and Second Programmatic SOE Reform DPLs (FY15 and FY17). The Competitiveness and Jobs project aimed to improve the effectiveness and coordination of public programs to alleviate constraints to competitiveness and job creation, including investment and export promotion, active labor market programs, labor intermediation, and activation of social assistance beneficiaries. Strengthening the National Employment Service (NES), the major public institution in charge of smoothing labor market frictions, was the main focus of the objective. 51. The assessment of performance on each of the indicators was as follows: Indicator Baseline (year) Target (year) IEG Validated Rating Result (year) Number of active job seekers per 1,238 registered 800 active job 816 active job Mostly case worker unemployed seekers (2019) seekers (2020) Achieved (2014) 20 Increased number of registered 232,280 (2014) Not provided 218,854 Achieved unemployed who found a formal (2020)4 job Increased number of registered 122,491 (2014) Not provided 109,314 (2020) Not unemployed women who found Verified a formal job Increased number of registered 41, 598 (2014) Not provided 39,043 (2019) Not unemployed youth (age 15-24) Verified 34,591 (2020) who found a formal job Increased number of registered 1,592 (2014) Not provided 5,377 (2019) Not unemployed Roma who found a Verified 5,204 (2020) formal job 52. Partially Achieved. There was a decrease in the number of registered unemployed persons who found formal jobs, but the indicators are flawed. Framing these indicators in terms of numbers of persons does not take into account rising or falling employment and population levels; these indicators are therefore not valid measures of achievement, and indeed, the CLR notes that the unemployment rate fell from 19.2 percent in 2015 to 9 percent in 2020, almost guaranteeing that the number of registered unemployed who found jobs would also decrease (rather than increase, as targeted). The CLR provides additional data on the denominator for the total number of registered unemployed persons, enabling an assessment of achievement of that indicator, but disaggregated denominators are not provided for women, youth, or Roma. Systematic training and certification of NES workers led to 88.7 percent of its staff being certified as case workers by the end of 2020 (the CLR does not provide a baseline for this supplemental indicator). NES caseload management was improved though the target for active job seekers per case worker was not quite met, and the CLR states that regional variation in caseload was reduced, though data are not provided. 53. IEG rates the outcome of WBG support under Focus Area II as Satisfactory based on the assessment of objectives 6-10 above. V. WBG Performance Ownership, Learning, and Adaptation 54. The government showed broad commitment to the WBG-supported program, with some notable exceptions, and the WBG demonstrated learning ability and adaptation during 4 Due to changes in the denominator, this represented an increase in percentage of registered unemployed who found formal jobs, from 30 percent in 2014 to 43 percent in 2020. 21 program implementation. The government sustained focus on the main priorities in its 2020- 2022 reform program. However, changes arising from elections and high-level staff turnover impacted decision dynamics such that, at the PLR stage, there had been no progress reforming the social contribution system and labor market taxation law to incentivize part-time and low- wage employment. As a result, the program’s planned measures to support social assistance beneficiaries’ activation did not materialize, and the WBG shifted its efforts under the tenth objective almost entirely to enhancing the performance of the National Employment Services. Country systems were used extensively. As noted, the program adapted flexibly to changing circumstances by dropping the skills objective under the second Focus Area at the PLR stage and taking advantage of new receptivity by the government to add operations in agriculture, mining, and innovation and entrepreneurship. A newly-established Central Fiduciary Unit (CFU) within the Ministry of Finance took over all fiduciary functions for WBG-supported projects in 2017. With support from the Bank team, the CFU performed well, and the centralization of the fiduciary function saved approximately US$280,000 annually. Citizen engagement (CE) was robust, with gaps at the PLR stage eliminated by the end of the CPF period; the railway sector modernization project, for example, employed a wide variety of CE mechanisms including participatory planning, focus group discussions, satisfaction surveys, and a grievance redress mechanism. Risk Identification and Mitigation 55. Risks for the WBG-supported program were well identified, assessed as substantial, and largely well mitigated. External risk stemmed from the close linkage of Serbia’s economy with the economies of the EU and Southeastern Europe; a protracted slowdown there could jeopardize Serbia’s macroeconomic stability and growth performance. Serbia’s vulnerability to natural disasters created environmental risk that could again damage the economy and the well-being of vulnerable populations; it was clear that climate change was exacerbating this risk. Political risk emerged from the tension between Serbia’s EU ambitions and its relationships with other geo-strategic partners, most notably Russia. Key domestic downside risks included the difficulty of implementing the necessary structural reforms aimed at fiscal consolidation, including public sector wage reform and sensitive SOE reforms that formed the core of the IMF program and the WBG’s first Focus Area. Governance risk was assessed as high. Political stability was fragile, and although the legislative framework for anti-corruption and ethics in the public sector was in place and aligned with European good practices, implementation was uneven. Mitigation measures included a three-year Stand-By agreement with the IMF, prepared in close coordination with WBG staff; targeted capacity building support; increased use of government structures during implementation; and careful sequencing of projects to allow for identification and addressing of weaknesses and providing flexibility for course correction. The program’s risk-taking was warranted given potential development impact, particularly the importance of fiscal consolidation as a prerequisite to progress in other areas, and the program’s deployment of a mix of instruments, efforts at institution building, demonstration of improvements for beneficiaries, and flexibility in implementation helped to minimize the 22 likelihood of emergence of these risks and to facilitate effective response when risks did materialize. WBG Collaboration 56. WBG adopted a collaborative approach to the CPF that translated into parallel efforts during implementation of several development interventions. IBRD and IFC worked in parallel on the regulatory environment for renewable energy. MIGA supported this work with guarantees. Similarly, on business climate, parallel efforts of IBRD and IFC improved Doing Business indicators. Work on distressed assets from IBRD and IFC contributed to reducing NPL rates. MIGA supported IFC projects in energy and finance. On transport, the CPF intended to have IFC and IBRD cooperate on PPPs. Partnerships and Development Partner Coordination 57. There was effective coordination and collaboration with development partners, with widely shared objectives supporting key reforms and catalyzing financing. Given the prominence of the EU accession agenda, the WBG sustained that partnership over a wide range of areas during the CPF period. EU support and Instrument for Pre-Accession Assistance financing supported public administration reform area, specifically WBG vertical and horizontal functional reviews. The WBG used four DPLs in coordination with the IMF in support of fiscal consolidation and SOE reform. EIB and EBRD collaborated with the WBG on the first phase of the National Road Rehabilitation and Safety project, which led to the completion of Corridor X and its ability to withstand extreme floods. The PLR, however, notes that harmonization of procedures for co-financed activities in the transport sector caused significant delays and extra transaction costs for the Serbian government, requiring much effort to resolve issues and operationalize functional processes. The CLR does not provide information on the role the WBG played in improving coordination. Safeguards and Fiduciary Issues 58. Serbia achieved compliance with environmental and social safeguards during the CPF, with successful mitigation of all implementation challenges. One reported inspection panel case was later dropped when the local government resolved the issue with the complainants. Ten projects were closed and validated by IEG during the CPF in the trade and competitiveness, macroeconomics, finance, transport, water, and governance sectors. The CLR reports satisfactory safeguards performance throughout the portfolio despite some delays and staff turnover. ICRRs indicate that the projects teams initially experienced difficulties with safeguard policy requirements due to staff shortages and low capacity on the ground. With the support of Bank capacity enhancement activities, good stakeholder engagement, and beneficiary participation, performance improved and compliance was rated satisfactory in all operations by project closure. 59. One Inspection Panel case was closed without having been registered. On January 6, 2017, people from Serbia sent a request for investigation to the inspection panel claiming that they had suffered harm after their land was taken without compensation for the Bank-funded 23 Floods Emergency Recovery Project (P152018). The Inspection Panel did not register the claim because one of the complainants later reported that he had received his compensation from the local municipality. The case is now closed. Overall Assessment and Rating 60. Overall, IEG rates World Bank Group performance as Good. Design 61. Program design was adequate and appropriately selective, addressing Serbia’s most binding development constraints in a focused way. The CPF effectively drew lessons from the previous CLR, from intensive dialogue with the government on its reform program, and from extensive conversations with stakeholders conducted during the preparation of the 2015 SCD. The suite of WBG interventions was capable of achieving the CPF objectives, with strong innovation in the use of RAS. Well-conceived program sequencing front-loaded fiscal consolidation and SOE reforms, creating space for later investments. ASA activities informed lending activities. There was strong alignment with the Bank’s corporate priorities. Risks were well identified and mostly well mitigated. However, there were shortcomings with the results framework. Some objectives were not adequately measured by the indicators due to a focus on outputs rather than outcomes or failure to measure all dimensions of an objective, and additional information was required to assess achievement. Implementation 62. There were some good parallel efforts across the three WBG institutions, particularly in improving the business climate, recovering distressed assets, and improving the regulatory framework on renewable energy. IFC and MIGA collaborated well on the waste-to-energy project and in the financial sector. Despite some movement, rationalization and modernization of Serbia’s public administration fell short of expectations. Coordination with development partners was strong, though there were challenges in harmonizing processes for transport sector interventions. Project documents indicate that supervision was consistently well done, complete and candid reporting, and effective communication with counterparts and stakeholders. Safeguards compliance and fiduciary performance were satisfactory. Citizen engagement was adequate, though the PLR implies that there were missed opportunities to use CE to enhance performance. The program adapted well to changing circumstances and priorities at the PLR stage, dropping one objective and introducing changes in the results matrix in response to implementation challenges and new opportunities in agriculture, mining, and the innovation agenda; however, given the importance of the human capital development agenda in Serbia, removing the skills objective at the PLR stage moderately decreased overall program relevance. The WBG responded rapidly and flexibly to new needs posed by the COVID-19 pandemic. VI. Assessment of CLR 63. The CLR provided a coherent narrative of the program’s interventions, but there were some gaps in the evidence available to assess the achievement of WBG program objectives. 24 There was limited assessment of the direct and indirect pathways through which the program’s interventions were to achieve CPF objectives. For some of the objectives where results framework indicators were inadequate to assess performance, the CLR provided additional useful information. For the most part, discussion of risk assessment and mitigation was adequate, as was the explanation of the Bank’s dealing with safeguard and fiduciary issues. The CLR contained limited political economy analysis to explain resistance to SOE reform, and there was no discussion of the status or impact of the EU accession process during the CPF period. The CLR presented evidence and analysis of the design and implementation of IFC and MIGA interventions. VII. Lessons 64. IEG broadly agrees with the CLR’s lessons, particularly on the long-term time frame required for implementation of complex transformation agendas, especially in areas where reform was politically sensitive, and the important role that demonstrable, significant improvements for beneficiaries can play in building not only sustainable institutions but also constituencies for reform. IEG notes that the program’s results framework did not provide comprehensive measurement of outcomes across all dimensions of each objective. Additional lesson from this CLR Review are therefore that close tracking of results and impact taking into account each element of every objective can best serve assessment of outcomes and learning, and that the WBG should apply a more thorough filter to the activities it finances based on the prospects of getting good information on their impact. 25 Annexes Annex 1: Achievement of CPS Objectives Annex 2: Comments on Lending Portfolio Annex 3: Comments on ASA Portfolio Annex 4: Comments on Trust Funded Portfolio Annex 5: IEG Project Ratings Annex 6: Portfolio Status for Serbia and Comparators, FY16-20 Annex 7: Comments on IFC Investments in Serbia Annex 8: Comments on IFC Advisory Services in Serbia Annex 9: Comments on MIGA Guarantees Annex 10: Economic and Social Indicators for Serbia FY16-20 26 Annex 1: Summary of Achievements of CPF Objectives – Serbia CPF FY16-20 Actual Results IEG Comments Focus Area I: Economic governance and the role of the state Objective 1: Supporting sustainable public expenditure management Indicator 1: Reduction of IEG: Partially Achieved. Indicator revised at the public expenditures through 2019: 246 EURO PLR stage. Both baseline lower direct subsidies and • 80M EURO allocated to PERS and target for the first part guarantees to SOEs. • 123m EUR allocated to Railways of this indicator (on • 43m EUR allocated PE Resavica subsidies) were adjusted Direct subsidies (million Grand total: 246m EURO allocated to reflect the changes in Euro): subsidies to SOEs. reporting on subsidies in Baseline (average 2012- Source: 2019 State budget the budget. 2013): 293 million EUR (out of Page #107, line 22.0 001 451 allocates which 73m for SOEs in the PA subsidies to PERS in the amount of 9.4 Indicator now includes portfolio) billion RSD (80m EUR); Page #108 line direct subsidies to: Target (2019): 25% reduction Railroads, PE Resavica, 22.0 002 451 allocates subsidies to (less than 220 million EUR) Airport and PE Roads of Railways in the amount of 14.55 billion Serbia, plus soft loans RSD (123m EUR); Page #149 line 28.0 and subsidies to SOEs 4003 451 allocates subsidies to PE from the PA portfolio. Resavica in the amount of 5.1 billion RSD (43m EUR); no subsidies to Airport Note: The 2019 State budget does not include line item 21.0 158 410 4002 621 New supplementary with allocation for SOEs in PA portfolio, indicators added at PLR as in previous years. 2018 State budget stage: (i) Allocation from page #106, with 8.5 m EUR allocation, the budget for subsidies, while in 2017 it was 20m EUR). and (ii) decrease in gross tax contributions. Note: Government of Serbia 2021 Fiscal Strategy, Table 16, p. 58, shows subsidies without transfers to Roads of Indicator supported by Annual guarantees for liquidity First and Second Serbia at EUR 195.41 million in 2018 purposes (million Euro): and EUR 206.46 million in 2019. Programmatic State- Baseline (average 2012- Owned Enterprises 2014): 265 Reform Development Target (2019): less than 50 Policy Loan Projects IEG: Achieved (P127408, FY15); 2019: The 2019 State budget list of only (P149750, FY17); First a single guarantee for a 20.000.000m and Second Public EURO capital investment for the long- Expenditure and Public term construction loan distribution Utilities DPL (P155694, pipeline (Aleksandrovac - Brus - FY17) (P161184, FY18) Kopaonik - Raska - Novi Pazar – Tutin). At the PLR stage, the Dated 05.24.2019. Page #24, line 1.11 definition of public sector Source: 2019 State budget provided by wage bill was revised in the Country Team. 27 CPF FY16-20 Actual Results IEG Comments agreement between the Additional Evidence government and IMF. It Results Indicator B2: Reduction of includes the share of direct subsidies and reduction of taxes and social issuance of new guarantees for liquidity insurance contributions purposes for large SOEs: payable by employees. a. Direct subsidies for recurrent Wage bill to GDP ratio expenditures (million Euro) was revised for the Baseline (average 2012- 2014): 250 Target (2016): Less than 150 previous years: 8.8 to (DPL1 target was 10.4 in 2015, 8.3 to 9.8 less than 200) 2016, 8.1 to 9.5 2017. Actual (2017): EUR 170 Actual (2015): EUR 139 At the PLR stage, the language of the indicator b. Annual guaranties for liquidity purposes was revised to remove (million Euro): the linkage to the Fiscal Baseline (average 2012- 2014): 265 Strategy. No related Target: : 0 (DPL-1 target was less than annual decrees have 100 million) been adopted in previous Actual (2017): 0 years, however, this was Source: P149750 ICR. Page #9 not crucial to reductions Supplementary Progress IEG: Achieved of public sector Indicator: 2019: 350,000,000 <10m EURO employees. Allocation from the Budget for Source: 2019 State budget. Page #104, subsidies and soft loans to the line 1508.621is defined as credit Baseline and Actual SOEs in the former Privatization support to companies in the targets are based on the Agency portfolio privatization process. First and Second Programmatic State- Baseline: Additional Evidence Owned Enterprises 72 million EUR (2013-14 2020: IEG: Achieved Reform Development average): 2018: 8 million (Euro) Target: less than 10 million EUR 2017: 20 million (Euro) Policy Loans (P149750, (2019): Source: ICR (P149750) FY18 FY18) Page #32. *Verified for only year 2018. Supplementary Indicator: IEG: Not Verified. Decrease in gross tax and New tax obligations and social contribution arrears by SOEs in contributions arrears of the targeted the former Privatization Agency public enterprises were reduced from portfolio EUR 190 million baseline to EUR 10 million in 2017 and EUR 7.3 million in Baseline (2013): 197 million 2019. EUR Source: ICR (P149750) FY18 Target (2019): less than 25 Page #32. million Source : Tax Administration list of arrears 28 CPF FY16-20 Actual Results IEG Comments Supplementary Indicator: IEG: Not Verified. Freeze on public sector wage 2020: Based on IMF Country Report indexation in line with the No. 20/270 , a revision to the general agreement reached with IMF government employment framework governed by the Budget System law, which regulates an employment freeze, with exceptions managed through the Employment Commission, was delayed due to COVID. IEG is unable to confirm a wage freeze. Supplementary Indicator: IEG: Achieved. Freeze on public sector 2020: Pension indexation in line pension indexation in years in with Swiss formula. Pension growth which pension spending is linked to inflation and average wage expected to exceed 11 growth. This led to countercyclical percent of GDP pension increases in 2020 and 2021. Page #69, paragraph #13 Supplementary Indicator: IEG: Not verified. Attrition and targeted reduction 2016: The target was that at least 30 of public sector employees percent of workers made redundant from public enterprises had to be registered with the National Employment Service (NES) Baseline: Approx. 5,700 (2014) Target: At least 25,000 (cumulative 2015 and 2016) (DPL-1 target was 10,000 for 2015) Actual: 19,791 (2015) of which 6,366 were women, and the cumulative number for 2015-2016 was 25,378, of which 8,103 were women. Source: ICR (P149750) Page #31. Objective 2: More effective public administration & select service delivery improvements Indicator 1: A plan to strengthen IEG: Achieved via proxy. Indicator verified for the policy-making and The SIGMA Monitoring Report for Serbia 2016, and not target coordination system prepared by shows: year. end 2016 and implemented by . 2019: Public administration service 2020. delivery has been improving steadily from The indicator was 2 in 2017, and 3 in 2019, on a scale of 5. supported by the Metcalfe Scale rating improved Page #108, paragraph # 1. Serbia Wage Bill . 2021: Public administration efficiency Management Baseline (2015): 2 increased with the reduction in the number (P151243, FY17); on Target (2019): 4 of civil servants and the overall policy Modernization and development and coordination increased 29 CPF FY16-20 Actual Results IEG Comments slightly from 2.7 in 2017 to 2.8 in 2021 Optimization of Public (page #28). Administration PforR . 2021: In the area of public service (P155172, FY16); management significant improvement has Disaster Risk been recorded from 2.2 in 2017, 3 in 2019 Management DPL-CAT and 3.2 in 2021 (page. #62). DDO (P157489 FY17); Serbia Result Based Additional Evidence Management RAS 2016: The completion report confirms a Metcalfe score of 2 (out of 9). (P163203, FY16); Source: P158187. Page #3 MDTF for Justice Supplemental Indicator: IEG: Over-Achieved. Sector Support TF on 2019: Six plans adopted and implemented. Disaster Risk Right Sizing (Organizational Source: Agriculture , Social Protection, Management; rationalization) plans Education, Finance, Environmental Implementing Open Protection Data Plan for Serbia for at least 4 sectors designed (P110249, FY19) and implemented by (2019) Overall institutional architecture strengthened to manage EU Accession process Indicator 2: Reduce percentage IEG: Achieved. The indicator does not of non-medical staff employed in 2020: Health care institutions employed a measure improved public health facilities in Serbia total of health service delivery (by 15 percent) 22,094 (21%) non-medical staff, of which resulting from these 5,533 staff adjustments, and Baseline: 30 percent of public (25%) were administrative workers and there are no indicators sector health workers are not 16,013 on improved service medically trained (estimate (72%) were technical workers. delivery in other based on 2013 data) Source: Serbia Health Statistical Yearbook 2020. Page #63. sectors. The country Target: 25 percent team offered additional information on quality of health services that could not be verified. Objective 3: A more efficient and sustainable power utility 30 CPF FY16-20 Actual Results IEG Comments Indicator 1: IEG: Achieved At the PLR stage, the EPS corporate governance and 2019: 98.65% (average collection rate) indicator was revised to financial sustainability achieved Source: PUBLIC ENTERPRISE clarify and reflect ELEKTROPRIVREDA SRBIJE (EPS) realistic results and Consolidated Financial Statement increase the Collection rates increase from attributability of the 2019.pdf Page #93 93% (2014) to 95% (2019) results to the ongoing IEG: Achieved (distribution losses) Bank support to the Distribution losses decrease from 2019: 11.22% sector. Previously 14% (2014) to 12.1% by 2019 Source: Energy Community Country Report language: EPS (facts and figures) corporatization completed, and financial sustainability achieved. At the PLR stage, legal transformation was revised to suggest more adequate measurement and remove the target year so to retain it in the matrix for end CPF assessment. Previously Supplementary Indicator: Legal IEG: Achieved language: Debt/EBITDA transformation (roadmap for The roadmap for establishment of the EPS ratio below 3% by end establishment of JSC) of the EPS into a JSC is outlined in the EPS three-year of 2016. into a JSC by June 2019 business plan 2019-2021 At the PLR stage, the Supplementary Indicator: IEG: Achieved indicator no further Debt/EBITDA ratio below 3 (2016- 2019: 2.5% accumulation of SOE 2019, average) Source: EPS RAS, Strategic Risks In EPS. payables/arrears to EPS Page #98 was revised to suggest Supplementary Indicator: No IEG: Achieved. adequate measurement further accumulation of SOE and 2016: The reduction of new tax obligations and remove the target budgetary institutions and social contributions arrears was met. €5 year so to retain it in the payables/arrears to EPS million in 2017, from a baseline of €190 matrix for end CPF million (2010-2012). assessment. Previous Source: ICRR YF First SOE Reform language: No further DPL(P127408) Page #6 accumulation of SOE and budgetary institutions payables/arrears to EPS by end-2017. This indicator was supported by the RAS ‘Serbia EPS Results Based Management Project’, (P167033, FY22); 31 CPF FY16-20 Actual Results IEG Comments Public Expenditure and Public Utilities DPL series (P155694, FY17 and P161184, FY18); Serbia energy affordability TA (P158014, FY17); Serbia Power System Study And Re Integration Assessment AAA (P162942, FY18); Serbia Natural Gas Sector Analysis AAA (P159271, FY16) Serbia gas sector reform plan AAA (P157807, FY16) Indicator 2: IEG: Achieved. Indicator verified for year Increase Serbia’s renewable 2019: 8 wind power plants with the capacity 2020, and not the target energy generation capacity in of around 397,960 МW generating an year. wind by 100 MW increase in renewable energy, confirmed in the Report on the Implementation of the Baseline (2015): National Renewable Energy Action Plan of Wind energy: 0 MW the Republic of Serbia for 2018 and 2019. Target (2019): Page #6 under wind, and page #9. Wind energy: 100 MW Additional Evidence: Renewable energy generation capacity in wind: Actual (2020): 397 MW Source: International Renewable Energy Agency, Page #2. Objective 4: More efficient public transport companies 32 CPF FY16-20 Actual Results IEG Comments Indicator 1: Serbia Railways IEG: Mostly Achieved The restructuring of restructured and cargo company 2019: Serbia Railways restructured. Total Serbia Railways is an operating without subsidies. budget support to railway companies in output. The operation of 2018 declined to RSD 11.6 billion (or RSD the cargo company Baseline (2014): RSD 10.4 Billion 11.29 billion, close to the 11 billion target). without subsidies is an Target (2019): RSD 0 Source: ICR P161184. Paragraph #39. outcome. 2017-2018:Serbia Cargo business plan Indicator supported by 2020 with 2019 financial statement, the Public Expenditure page#22, shows a modest level of subsidies and Public Utilities DPL used for severance packages for redundant series (P155694, FY17 workers from 2017 to 2018. and P161184, FY18); 2019: Allocation for subsidies in the amount of 1 million EUR was not utilized (same Mainstreaming Climate report source as above). Resilience in Road Transport Management in Serbia (P162823, FY18);Road Rehabilitation and Safety Project (P127876, FY13); Corridor X Highway Project (P108005, FY10); Western Balkans Trade and Transport Facilitation MPA (P162043,FY19); Serbia Railway Sector Modernization (P170868, FY21) Supplementary Indicator:: IEG: Achieved. Establishment of autonomous infrastructure, freight and The three companies established are functioning as independent companies passenger companies. (property divided, first balance of payments submitted). Source: ICR P155694 P161184 series Table 4 Additional Evidence 2015: The GoS Railway Reform Steering Committee was established, and Serbian Railways was unbundled into three operating companies (passenger, freight, and infrastructure) plus a transitional company 33 CPF FY16-20 Actual Results IEG Comments Source: Serbia Railways Asset Management Plan Using Life Cycle Costs. Page #12 of the introduction Unable to verify number of traffic units per staff, Supplementary Indicator: IEG: Achieved but rather number of Number of traffic units (passenger 2017: 377 million passengers. passengers carried in km + ton km) per staff. Source: World Bank data on Railways). general. The indicator is a composite indicator that Baseline (2013): 206,500 measures passenger transport by rail (in At PLR stage, the Target (2017): 290,000 passenger-km) and rail freight traffic (in ton- indicator’s timeline was km). revised to reach the 2017: Number of passengers carried target is extended to (million passengers-km): 377 million. reflect the additional Source: WBG open data time needed for implementation of all Indicator 2: Roads maintained IEG: Achieved 2019: PBMC for 1,500km implemented and foreseen contracts. under Performance based maintenance reaches 3000 an addition PBMC for an additional 1,500km kilometers in implementation. Source: Specific Report Audit of Kilometers of roads under Achievement of DLIs for 2019. DLI3.6 and performance-based maintenance DLI3.7 , pages #11 and #14. in 2015: 0 Target for 2019: 3000 Additional Evidence 2021: Length of national roads maintained (Kilometers) Actual: 3,000.00 (05-May-2021) Source: P163760 - Sequence No : 07 FY18 Objective 5: Resolution of SOE assets in Privatization Agency Portfolio Indicator 1: Resolution of IEG: Achieved. Indicator changed in the unproductive SOEs and state 2017: Not able to obtain documentation on PLR to the “Number of divestment from commercial 178 companies resolved by target year remaining companies in SOEs under the Privatization because the government shut down the the PA portfolio by Agency Privatization Agency. 2019: <50” 2018: 507 companies were resolved Number of companies under PA Source: ICR (p. #12, Table 1) AT PLR stage, the portfolio resolved through asset 2021: 78 companies still unresolved. indicator was revised and equity sales: 178 by end 2017 Source: U.S State Department, 2021 from Commercial SOEs Investment Climate Statements: Serbia under the Privatization Agency Privatized. The objective was reformulated to reflect limited traction in privatizing a substantial portion of the SOEs in the Privatization Agency portfolio. The SOES were not appealing to 34 CPF FY16-20 Actual Results IEG Comments private investors mostly due to legacy issues including complex liabilities difficult to resolve through privatization. Verified for 2021, not target year. Indicator supported by First and Second Programmatic State- Owned Enterprises Reform Development Policy Loan Projects (P127408, FY15) (P149750, FY17); Serbia Improving Investment Climate IFC ASA (602258, FY18) FOCUS AREA II: PRIVATE SECTOR GROWTH AND ECONOMIC INCLUSION Objective 6: Priority business climate improvements Indicator 1: Improve Doing IEG: Achieved. In target year, the name Business Distance to Frontier 2019: Rank – 48, Score 73.49 (ease of doing of the Doing Business (DTF). business) distance to frontier score Source: DB 2019 has been changed to Special focus on: “ease of doing business Trading across Borders DTF: Additional Evidence score” to better reflect Baseline DB 2015: 72.13 2019: (i) Trading across borders (rank: the main idea of the Target DB2019:85 23, score: 96.64) – Achieved, (ii) (iii) measure—a score Paying taxes (rank: 79, score: 74.75)- indicating an economy’s Paying taxes DTF: baseline position to the best DB2015: 48.9 Achieved, (v) Resolving insolvency regulatory practice. Target DB2019: 64 (rank: 49, score: 60.78)-Not Achieved, (iv) Dealing with Construction Permits Overall DTF was Resolving insolvency DTF: (rank: 11, score: 84.42) – Achieved. achieved, but resolving Baseline DB2015: 57.9 Source: DB 2019, page #201 insolvency – one of the Target DB2019 :74 three areas of special Construction Permits DTF: focus – was not Baseline DB2015: 29.14; achieved. Target DB2019: 44 Indicator supported by First and Second Programmatic State- Owned Enterprises 35 CPF FY16-20 Actual Results IEG Comments Reform Development Policy Loan Projects (P127408, FY15) (P149750, FY17); Serbia Improving Investment Climate IFC ASA (602258, FY18) Supplemental Progress IEG: Achieved Indicator verified for Indicator: Amendments to the 2020: Resolving insolvency rank: 41, 2020, but not target insolvency law and regulations; Score:67 year. Compared to trainings and awareness Source: DB 2020. Page #4 Serbia’s 2015 DB campaign for insolvency insolvency rank (50), practitioners, courts and other 2016: Resolving insolvency rank: 41, the country’s rank Score: 67 improved per DB 2020 stakeholders by end 2015 Source: DB 2016 (41). Objective 7: More stable and more accessible financial sector Indicator 1: Reduction of share IEG: Achieved. At PLR stage, the of Non-Performing Loans (NPLs) 2019 (March): 5.5% supplementary in total loans provided. Source: Article IV (2019). Executive indicator no state- Summary owned banks with Baseline: 22.5 percent (2014) negative profitability Target: less than 18 percent (in Additional Evidence: was added. 2019) 2021: NPLs remained low (at 3.9 percent at end-March 2021) Indicator supported by Source: Article IV (2021). Page #14. Deposit Insurance Paragraph # 21 Strengthening Project (P146248, FY14); * The National Bank of Serbia reports that Western Balkans the country's Distressed Assets Resolution Finance TA (P152742, Strategy made significant progress in FY16); PforR on decreasing NPL rates. The banking sector Modernization of Pub. is well-capitalized, liquid, and profitable Admin. (P155172, (average CAR 21.7 in December 2021, FY16);Serbia Public liquidity ratio 2.1, and ROE 7.3). Finance Review ASA (P151518, FY16); Supplemental Indicator: No IEG: Achieved. Serbia - Government state-owned banks with negative No state banks have negative profits. Debt and Risk Mgmt profitability According to the total balance sheets, all AAAn(P129414 FY19); state banks produced profit (as of Risk financing 11/19/21). (P155582, FY18) Source: NBS Financial Statements of SOBs Verified for 2020, not Supplementary Indicator: IEG: Achieved. target year. Deposit Insurance Fund As of 31 December 2017, the DIF balance replenished, and balance was EUR 392.25 million, equaling 3.4 sustained percent of the insured deposits compared to the December 31, 2013 baseline. 36 CPF FY16-20 Actual Results IEG Comments Cumulative inflows into the DIF exceeded targets. Source ICRR P146248. Page #8 *First-ever WBG operation that recapitalized a depleted public insurance fund. Supplemental Indicator: IEG: Not verified. Increased debt recovery rate 2018: 34.0 Recovery rate (cents on the through out of court workouts dollar) and insolvency Source: DB 2018. Page #190 Indicator: proceedings Additional Evidence Baseline: 29.2 % (2014) *Dinarisation demonstrated steadily Target: 40% percent (2018) improving trends (dinarisation of household receivables had an upsurge from 35.1% in 2012 to 54.4% in January 2022, while dinar savings of households showed steady growth from 22% in 2018 to 12% in 2021). However, debt recovery rates through out-of-court workouts and insolvency did not reach the targeted 40 percent, increasing from 29.3 percent in 2014 to 34 percent in 2018. Indicator 2: Increased IEG: Mostly achieved. Indicator supported by availability of enterprise financing Domestic credit to private sector: First and Second coming from banks: 2013: 40.97 Programmatic State- 2019: 42.03 Owned Enterprises Percent of firm financing coming Source: WBG open data Reform Development from banks: Policy Loan Projects Additional evidence: (P127408, FY15) 2013: 15 percent 2020: 34.5 percent: DB 2020 (P149750, FY17); 2019: 29 percent Eurobank MTG/WCL Domestic credit to non-government: IFC investment (36797, 2018: 10.1, 2019: 7.1 (projection), 2020: FY16); Serbia 5.6 (projection) Improving Investment Source: Article IV 2019 Climate IFC ASA * Initially, credit was primarily directed to (602258, FY18) consumption, but after 2018, credit for firms started increasing Supplemental Indicator: Credit IEG: Achieved. growth exceeds GDP growth Domestic credit to private sector: from 2018 2013: 40.97 2019: 42.03 Source: WBG open data [GDP Growth (annual %) ] 2018: 4.495 37 CPF FY16-20 Actual Results IEG Comments Source: WBG open data * Domestic credit growth to the private sector exceeded GDP growth every year from 2018 forward. Objective 8: More efficient land and property markets Indicator 1: Improve Doing Achieved. In target year, the Business Distance to Frontier 2019: Rank – 48, Score 73.49 (ease of name of the Doing (DTF) doing business) Business distance to Source: DB 2019 frontier score has been Construction Permits DTF: changed to “ease of Baseline DB 2015: 29.14 Additional Evidence: doing business score” Target DB 2019: 44 Dealing with Construction Permits to better reflect the Actual: (2020 rank): 9 main idea of the measure—a score Score of dealing with construction permits indicating an (0-100) economy’s position to Actual (2020): 85.3 the best regulatory Source: DB2020 practice. Indicator supported by First and Second Programmatic State- Owned Enterprises Reform Development Policy Loan Projects (P127408, FY15) (P149750, FY17); Eurobank MTG/WCL IFC investment (36797, FY16); Serbia Improving Investment Climate IFC ASA (602258, FY18) Supplemental Indicator: IEG: Achieved. System for electronic issuing of 2019: Dealing with construction permits- building permit established and Serbia made dealing with construction applied permits faster by introducing an electronic application system. Source: DB 2019. Page #148 Indicator 2: Efficiency of IEG: Achieved. Verified for 2022, not property registration system target year. improved: Additional Evidence Days to complete recording of Indicator supported by Average number of days to purchase/sale of property: Real Estate complete recording of Actual (current): 3.30 (10-jun-2021) Management Project (P147050, FY15) and Real Estate 38 CPF FY16-20 Actual Results IEG Comments purchase/sale of property in the Source: Real Estate Management Management Project land administration system Project - P147050 - Sequence No : 12 Additional Financing FY15 (P168640, FY20) 2015: 48 2019: 4 Supplemental Indicator: IEG: Achieved. Rules, procedures, 2020: Available – (i) Publicly official methodologies and information statistics tracking the number of on property registration widely transactions at the immovable property and easily accessible and registration agency available, (ii) procedures operate for public to applicable fee schedule for accessing maps of land plots made publicly verify their information available online, (iii) list of documents that are required to complete any type of property transaction made publicly available online, (iv) format are past and newly issued land records kept at the immovable property registry of the largest business city of the economy available in digital form. Source: DB 2020. Page # 30-31 Supplemental Indicator: IEG: Achieved New supplemental Valuers operating in 2020: Valuers operating in accordance indicator added at accordance with valuation with the valuation standards. PLR stage. standards in compliance with Source: Real Estate Management Project international standards - P147050 - Sequence No : 12 FY15. Page # 4 Objective 9: Enhanced transport infrastructure networks Indicator 1: Corridor X IEG: Achieved. Indicator’s timeline completed 2019: The final length of highway E-75 revised at PLR stage was 5.6 km + 6.0 km + 26.3 km = 37.9 to reach the target is Kilometers to be completed by km. The final length of E-80 was 8.3 adjusted to the end 2019: 46 km.Total: 37.9 km + 8.3k = 46.2 extended closing date Source: ICR (P108005) Page #29 of the project Indicator 2: National roads IEG: Achieved. (September 30, rehabilitated 2019: 416.5 kilometers rehabilitated, 2019). exceeding the revised target of 389.80 km Kilometers to be rehabilitated (but well short of the original target of 800 with safety measures km), P127876. National Road Safety incorporated Strategy developed and launched in 2019. Indicator added at Source: ICR P108005. Page #29 PLR stage. Target: 121km (2019) 2019-2020: A Road Safety Inspection was done on a total of 1,016 km of the road network. Source: ICR. P127876. Paragraph #38. Indicator supported by Mainstreaming Climate Resilience in 39 CPF FY16-20 Actual Results IEG Comments Road Transport Management in Serbia (P162823, FY18) Public Expenditure and Public Utilities DPL Series (P155694, FY17 and P161184, FY18);Corridor Highway X project (P108005, FY09) Road Rehabilitation and Safety Project (P127876, FY13) Corridor Highway X project (P108005, FY 09) Objective 10: More efficient employment facilitation Indicator 1: NES services IEG: Achieved Indicator supported enhanced. 2020: According to the National First and Second Performance indicators: Employment Service Annual Report for Programmatic State- Number of active job seekers per 2020 (page #84) there were 816 job Owned Enterprises case worker: seekers per case worker. 90.03% of NES Reform Development staff has been certified as case worker by Policy Loan Projects 2014: 1,238 (registered the end of 2020. unemployed) (P127408, FY15) 2019: 800 (active job seekers) Indicator 2: Increased number IEG: Achieved. (P149750, FY17) of registered unemployed who Actual (2020): 218,854.00 Baseline:232,280.00 (31-Dec-2014) Serbia found a formal job. Target: 280,000.00 (31-Dec-2020) Competitiveness and Baseline: 232,280 (2014) Source: P152104 Sequence No : 12 Jobs (P152104, FY15); Figures based on P152104 New Growth Agenda Indicator 3: Increased number Not Achieved. Baseline: 122,491.00 (31-Dec-2014) Country Economic of registered unemployed Target: 145,000.00 (31-Dec-2020) Memorandum (CEM) women who found formal job Actual: 109,314.00 (30-Nov-2020) (P169068, FY20) Baseline: 122,491 (2014) Source: P152104 ISR #11. Page #9 Indicator 4: Increased number IEG: Achieved Baseline and target of registered unemployed youth Baseline Female: 19,100 (2014); Baseline based on Serbia (15-24) who found formal job: Male: 22,498 (2014); In 2019 50,726 unemployed youth Female: 19,100 (2014) 40 CPF FY16-20 Actual Results IEG Comments Male: 22,498 (2014) were registered with NES, with the Competitiveness and following transitioning to formal Jobs - P152104 jobs in 2019 and in 2020. 2019: 39.043 male 21.293 female 17.750 2020: 34.591 male 18.726 female 15.865 NES Evidence supplemental indicato Source: Indicator 5: Increased number IEG: Achieved. of registered unemployed Roma The number of Roma registered as who found formal job: unemployed has been increasing during the CPF period. In 2019 Female: 633 (2014) there were 29,266 registered unemployed Male: 959 (2014) Roma, up from 22,437 in 2015. But how many of them found formal job in 2019 and in 2020? 2019: 5.377 male 3.372 female 2.005 2020: 5.204 male 3.129 female 2.075 NES Evidence supplemental indicato Source: Supplemental Indicator: IEG: Achieved. Supplemental indicator Percentage of total NES staff 2020: 89.3% % of total NES staff that is revised at PLR stage to that is operating as certified case operating as certified case worker suggest more adequate worker Target (2020): 85% measurement of results Baseline (2014): 0 achieved. The previous Source: P152104 ISR #11. Page #7-9. language was the Number of Certified Case managers reaches 600. 41 Annex 2: Comments on Lending Portfolio IEG’s review found no differences in lending portfolio data vs. what is presented in the CLR. Annex 3: Comments on ASA Portfolio IEG’s review found no differences in ASA portfolio data vs. what is presented in the CLR. Annex 4: Comments on Trust Fund Portfolio IEG’s review found no differences in Trust-funded activities vs. what is presented in the CLR. Annex 5: IEG Project Ratings IEG Project Ratings for Serbia, FY16-21 Exit Total Proj ID Project name IEG Outcome IEG Risk to DO FY Evaluated 2016 P126229 YF Innovation Serbia 0.0 SATISFACTORY LOW 2016 P127408 YF First SOE Reform DPL 101.5 SATISFACTORY MODERATE Deposit Insurance Strengthening 2018 P146248 Project 173.1 SATISFACTORY # YF Second Programmatic SOE 2018 P149750 Reform DPL 96.9 SATISFACTORY MODERATE 2018 P155694 Public Exp. and Utilities DPL1 207.5 SATISFACTORY NOT APPLICABLE CORRIDOR X HIGHWAY 2020 P108005 PROJECT 375.5 SATISFACTORY # Floods Emergency Recovery 2020 P152018 Project 238.9 SATISFACTORY # PforR on Modernization of Pub. 2020 P155172 Admin. 63.5 SATISFACTORY # 2020 P161184 Public Exp. & Public Utilities DPL2 182.6 SATISFACTORY NOT APPLICABLE ROAD REHABILITATION AND 2021 P127876 SAFETY PROJECT 63.2 MODERATELY SATISFACTORY # Total 1,502.7 Source: Business Intelligence Key IEG Ratings as of March 24, 2022 IEG Project Ratings for Serbia and Comparators, FY16-21 RDO % RDO % Total Total Outcome Outcome Moderate or Moderate or Region Evaluated Evaluated % Sat ($) % Sat (No) Lower Lower ($M) (No) Sat ($) Sat (No) Serbia 1,502.7 10.0 100.0 100.0 33.7 40.0 ECA 19,016.1 174.0 81.5 83.9 35.3 42.5 World Bank 135,404.2 1,330.0 83.5 78.9 35.8 37.6 Source: WB Business Intelligence as of March 24, 2022 42 Annex 6: Portfolio Status for Serbia and Comparators, FY16-21 Avg Fiscal year 2016 2017 2018 2019 2020 2021 FY16-21 Serbia # Proj 8 12 13 14 13 12 12 # Proj At Risk 2 1 1 1 % Proj At Risk - - 15 7 - 8 11 Net Comm Amt ($M) 1,247 1,706 2,006 1,880 903 819 1,427 Comm At Risk ($M) 200 75 50 108 % Commit at Risk 10 4 6 7 ECA # Proj 197 202 204 215 228 236 214 # Proj At Risk 40 34 45 42 28 27 36 % Proj At Risk 20 17 22 20 12 11 17 Net Comm Amt ($M) 27,214 25,220 26,525 27,132 29,784 32,249 28,020 Comm At Risk ($M) 4,288 5,460 4,138 4,379 2,729 3,039 4,006 % Commit at Risk 16 22 16 16 9 9 15 World # Proj 1,398 1,459 1,496 1,570 1,723 1,763 1,568 # Proj At Risk 336 344 348 346 311 331 336 % Proj At Risk 24 24 23 22 18 19 21 Net Comm Amt ($M) 207,350 212,503 229,956 243,812 262,931 279,168 239,287 Comm At Risk ($M) 42,715 50,838 48,149 51,949 47,640 42,669 47,327 % Commit at Risk 21 24 21 21 18 15 20 Source: WB Business Intelligence as of March 24, 2022 Agreement type: IBRD/IDA Only Annex 7: Comments on IFC Investments in Serbia IEG’s review found no differences in IFC investment data vs. what is presented in the CLR. Annex 8: Comments on IFC Advisory Services in Serbia IEG's review found the following IFC advisory services that are not included in the CLR’s annex table: 43 Advisory Services Approved in FY16-21 Impl Impl Primary Total Funds Project ID Project Status Start FY End FY Business Area Managed by IFC 603482 2019 2024 PORTFOLIO REG 3.6 602258 2018 2021 PORTFOLIO REG 3.8 601333 2017 2020 COMPLETED INR 5.5 600610 2015 2020 COMPLETED CTA-PPP 3.4 595728 2013 2017 COMPLETED INR 3.4 TOTAL 19.8 Source: IFC AS Portal Data as of 7/31/21 Annex 9: Comments on MIGA Guarantees IEG’s review found no differences in MIGA guarantees vs. what is presented in the CLR. 44 Annex 10: Economic and Social Indicators for Serbia FY16-20* Serbia ECA World Series Name 2016 2017 2018 2019 2020 Average 2016-2021 Growth and Inflation GDP growth (annual %) 3.3 2.1 4.5 4.3 -0.9 2.7 0.6 1.8 GDP per capita growth (annual %) 3.9 2.6 5.1 4.9 -0.4 3.2 0.3 0.6 GNI per capita, PPP (current international $) 14,990 15,540 16,800 17,830 18,530 16,738.0 34,701.4 16,618.5 GNI per capita, Atlas method (current US$) 5,700 5,570 6,410 7,040 7,420 6,428.0 24,032.3 10,925.2 Inflation, consumer prices (annual %) 1.1 3.1 2.0 1.8 1.6 1.9 1.4 2.1 Composition of GDP (%) Agriculture, forestry, and fishing, value added (% of 6.8 6.0 6.3 6.0 6.3 6.3 2.0 4.1 GDP) Industry (including construction), value added (% of 25.8 26.1 25.5 25.6 24.9 25.6 23.2 26.5 GDP) Services, value added (% of GDP) 50.3 50.9 51.0 51.2 51.9 51.1 64.5 64.6 Gross fixed capital formation (% of GDP) 18.1 19.6 22.7 25.1 24.2 21.9 22.1 26.1 External Accounts Exports of goods and services (% of GDP) 48.5 50.5 50.4 51.0 48.2 53.6 43.5 27.9 Imports of goods and services (% of GDP) 53.3 57.1 59.1 60.9 56.5 26.3 40.2 27.2 Current account balance (% of GDP) -2.9 -5.3 -4.9 -6.9 -4.1 33.2 External debt stocks (% of GNI) 73.7 76.1 65.5 66.8 74.4 41.9 Total debt service (% of GNI) 15.3 11.8 11.5 14.1 9.7 8.9 Total reserves in months of imports 5.2 5.0 4.7 5.2 6.1 5.2 9.2 11.9 Fiscal Accounts /1 General government revenue (% of GDP) 40.7 41.5 41.5 42.1 41.3 41.4 35.2 General government total expenditure (% of GDP) 41.8 40.1 40.7 42.1 48.6 42.6 37.3 General government net lending/borrowing (% of -1.1 1.4 0.8 0.0 -7.3 -1.2 -2.1 GDP) General government gross debt (% of GDP) 68.8 58.6 54.4 52.8 58.4 58.6 32.4 Health Life expectancy at birth, total (years) 75.7 75.5 75.9 75.7 .. 75.7 77.8 72.5 45 Serbia ECA World Series Name 2016 2017 2018 2019 2020 Average 2016-2021 Immunization, DPT (% of children ages 12-23 92.0 95.0 96.0 97.0 .. 95.0 94.0 85.7 months) People using at least basic sanitation services (% 97.6 97.8 97.9 97.9 97.9 97.8 96.7 76.0 of population) People using at least basic drinking water services 93.8 94.1 94.5 94.9 95.3 94.5 98.2 89.3 (% of population) Mortality rate, infant (per 1,000 live births) 5.2 5.1 5.0 4.9 4.9 5.0 7.1 28.9 Education School enrollment, preprimary (% gross) 58.8 61.1 62.3 63.8 65.4 62.3 76.0 59.8 School enrollment, primary (% gross) 100.6 100.3 100.3 99.6 97.7 99.7 100.9 102.8 School enrollment, secondary (% gross) 96.2 95.5 95.1 94.5 92.2 94.7 105.0 75.8 School enrollment, tertiary (% gross) 62.1 66.5 67.2 67.8 68.1 66.3 71.9 38.7 Population Population, total (Millions) 7,058,322 7,020,858 6,982,604 6,945,235 6,908,224 6,983,048.6 917,553,674.6 7,600,039,871.0 Population growth (annual %) -0.5 -0.5 -0.5 -0.5 -0.5 -0.5 0.4 1.1 Urban population (% of total) 55.8 55.9 56.1 56.3 56.4 56.1 72.2 55.3 Rural population (% of total pop) 44.2 44.1 43.9 43.7 43.6 43.9 27.8 44.7 Poverty Poverty headcount ratio at $1.90 a day (2011 PPP) 6.4 5.4 .. .. .. 5.9 1.2 9.5 (% of pop) Poverty headcount ratio at national poverty lines 25.7 24.3 23.2 .. .. 24.4 (% of pop) Rural poverty headcount ratio at national poverty lines (% of rural pop) Urban poverty headcount ratio at national poverty lines (% of urban pop) GINI index (World Bank estimate) 38.8 36.2 .. .. .. 37.5 Source: Worldbank DataBank as of March 24, 2022 International Monetary Fund, World Economic Outlook Database, October 2022 *Data available until FY20 46