Figure 2: Quarterly Foreign Direct Investments, net

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1 RECENT ECONOMIC AND SECTORAL DEVELOPMENTS Growth and External Performance Economic activity has slowed down over the last few quarters amid increased uncertainty in Europe. Modest growth is expected in 2012 at around 1%. Following a relatively mild contraction in 2009 a result of sound macro fundamentals prior to the crisis and a resilient financial sector the recovery of economic activity gradually accelerated reaching 6 percent in mid-2011 giving hopes of a robust growth in the future. However, the renewed turmoil in the Eurozone took its toll on trade, capital flows, and impacted domestic demand in the second half of 2011, as growth fell thereafter to 0.2 percent, bringing the overall growth rate in 2011 to 3.2 percent. The harsh weather conditions in early 2012 and the surge in energy prices have further affected business activity. GDP growth in the first quarter of 2012 went into negative territory -1.4%. Economic activity is expected to pick-up somewhat in the second half of the year as macroeconomic policies aid the recovery and the external risks moderate. Figure 1: Quarterly Growth of GDP, Exports and Imports GDP (left axis) Exports (right axis) Imports (right axis) Prospects for outer years are generally more favorable but critically depend on the performance of key trading partners in the EU and the region. The impact of the developments in the Euro zone has so far been partially offset by stronger recovery of trade with other partners and some export diversification. Encouragingly, FYR Macedonia has been able to attract FDI even in this uncertain environment. However, a further slowdown in core euro area economies may undermine this scenario. The inflation rate remains low. After pickingup up in early 2011 due to higher world food and oil prices; prices stabilized in the second half of the year as global prices retreated. The inflation rate is expected to further decline in 2012 to around 2%, though higher oil prices and the recent increase in food prices globally and in the region could keep inflation slightly above target. The external current account deficit remains moderate. In 2011, the increased economic activity, solid exports and strong transfers resulted in current account surplus of 0.6% of GDP. However, the slow-down of the economy in the first half of 2012 resulted in a deficit of 6.9% of GDP. Overall, the external current account deficit is expected to reach around 5%-5.5% of GDP for the year reflecting the expected some pick-up in economic activity as well as higher energy prices. The financial account also is performing well. Capital inflows improved recently reflecting investments in real estate, finance, medical services, and auto industry with FDI doubling to above 4% of GDP in In 2012, further investments are planned in the energy sector, car parts and electronics. Significant inflows were also registered on loan financing, including the disbursement of the IBRD-guaranteed Euro 130 million loan for budget financing in December Drawing on the multilateral sources of finance and guarantees, coupled with nonguaranteed borrowing from international banks and restoration of direct investment inflows, helped finance the deficit and allowed a small increase in reserves. As a result, reserves increased to slightly below euro 2.1 billion in early 2012, or above 4 months of imports of goods, and have remained stable since. Short-term debt-to-reserve ratio remains comfortable at below 70 percent. Figure 2: Quarterly Foreign Direct Investments, net

2 Q2.08 Q3.08 Q4.08 Q1.09 Q2.09 Q3.09 Q4.09 Q1.10 Q2.10 Q3.10 Q4.10 Q1.11 Q2.11 Q3.11 Q4.11 Q The 2012 budget was consistent with the then prevailing external environment and expectations of growth. However, the slower-than-projected growth in early 2012 has again affected revenues so that the fiscal deficit in the first five months has already exhausted close to half of the annual plan. In response, the government adopted a Supplemental Budget with measures designed to cut expenditure by 4.5 percent in nominal terms to maintain the fiscal deficit target at 2.5 percent of GDP. The main measures included: (i) a reduction in capital expenditures, (ii) cuts in goods and services, and (iii) lower allocations for non-social transfers. Figure 3: Balance of Payments, in % of GDP 1,400 1,200 1, Current Account Deficit FDI and portfolio inflows, net FDI (net), by quarter Fiscal Sector Performance Loans, net Other capital Reserves Fiscal policy continues to be prudent. The fiscal deficit was maintained at 2.5% of GDP in 2011, an appropriate stance reflecting the position of the economy in the business cycle. The same deficit is being targeted in 2012 which should continue to stimulate economic activity in line with financing constraints and longer-term sustainability of public finances. The 2012 deficit will be financed by proceeds from the IBRDguaranteed loan disbursed in late-2011 as well as World Bank budget support operations and private debt issuance (to cover the remaining 2012 financing needs, but also pre-finance the 2013 budget, including the repayment of the Eurobond maturing in early 2013). However, fiscal policy will need to remain cautious. Somewhat optimistic growth assumptions are underpinning the 2012 budget. The fiscal policy was affected by slower than expected domestic activity. In early 2012 revenues were lower than expected, but expenditures had also increased more slowly. The targeted budget deficit of 2.5% of GDP may be difficult to maintain if the economy continues to underperform. The roll-over risks stemming from the repayment of the euro 175 million Eurobond maturing in early 2013 remain elevated given the tight international capital markets and relatively high spreads on the country s debt. This may require a larger adjustment in fiscal policies over the next few quarters in order to reduce the financing needs. Financial discipline in the economy needs monitoring and the government is taking steps to improve the discipline in the public sector. Over the medium-term, the fiscal accounts would need to be gradually adjusted as the economy approaches the potential growth rates. According to the Government work program for , the authorities are projecting moderate levels of fiscal deficits of around 2% 3% of GDP, projected to be reduced afterwards. At the same time the government debt is expected to reach 30% of GDP, a relatively moderate level compared to international standards. Given the volatility of the capital markets and the increased interest rate risks, financing will remain an issue in the near future. Against this background, debt sustainability, could be tested if the fiscal deficit was not reduced over the medium-term or if the current account widened significantly. The tax burden will remain modest, with relatively few taxes, moderate tax rates and improving administration. Total revenues, as percent of GDP, are projected to slightly increase over the medium term as consumption recovers and EU funds are used more efficiently. Control of expenditures, but more importantly, a shift in their structure, will support economic growth. Adjustments are

3 expected on wages and salaries as policies to control the wage-bill are extended through Reforms in the social sector should reduce leakage and improve targeting of spending. Ongoing and planned reforms in the health sector (including the full introduction of output-based financing) would increase efficiency in spending. The generated savings are planned to be directed towards productive capital spending which is expected to increase from around 10% of total spending to an average of 15% during Figure 4: Structure of public spending in 2010, in % of GDP Return on Average Assets (ROAA) around 0.4% in 2011 (this is largely due to increased provisions for non-performing loans). Non-performing loans (NPLs) peaked at 10.6% at the end of the third quarter of 2010, but have since fallen slightly and stabilized at slightly below 10% in 2011 and mid 2012, although they remain fully provisioned. With the loan to deposit ratio well below 1 and low external exposure, banks should be able to support a stronger pick up in credit activity and demand. Figure 5: Total deposits and Credit to Private Sector, in MKD Interest expeditures, 0.7% Other transfers, 5.4% Capital expeditures, 4.5% Wages and allowances, 5.0% Goods and services, 3.7% 250, , , ,000 50,000 Social spending, 10.3% Health spending, 4.6% Loans to private sector Deposits Monetary policy and Financial Sector Monetary policy has remained accommodative to the economic activity and the exchange rate peg. With prices stable and the external imbalance moderate, monetary policy was loosened during 2010 and Rates on Central Bank bills were lowered to 4 percent, while policies on reserve requirements and liquidity management were amended to stimulate credit activity. As of June 2012, credit to the private sector grew by around 8% - 9% y-o-y, while deposits grew by 8% - 10%, resulting in further improvement in the loan to deposit ratio. Interest rates continued to decline gradually, with rates on loans falling to 8.1%. The banking sector continues to be resilient and seems to be well placed to support the recovery when opportunities emerge. The Capital Adequacy Ratio in 2011 was 16.8% with most of it (14.3%) in Tier 1 capital. Liquidity is strong and the sector managed to attract FDI recently (additional equity from parent-banks and investment funds). However, profitability indicators remain below pre-crisis levels, with Poverty and Social Inclusion Poverty remains a challenge, especially in the current uncertain economic environment. Poverty is rather stagnant in the country. Living conditions failed to improve even during the period of strong growth prior to Furthermore, although the impact of the global economic crisis was less severe compared with most countries in the region and the recovery gained some momentum, living conditions deteriorated in 2009 and 2010 reflecting hardened access to finance and non-performing labor markets and 2012 had not brought any significant improvements given the stagnant labor markets and the surge in global food prices in the first half of the year. The official unemployment rate grew slightly from 31.2% in 2010 to around 31.9% in Main characteristics of the poor include: being unemployed, low education 1 This is a Labor Force Survey (LFS) measure of unemployment. It is widely acknowledged that the reported unemployment rate is probably overestimated. Alternative measures of the unemployment rate (either through using stricter filters in the LFS or using the HBS) suggest that the unemployment rate is most likely lower (around 25%).

4 attainment, number of children. To address the persistent poverty, the authorities have initiated a substantial reform of the social protection system (see the Social Policy section below for details). However, more meaningful reduction in the poverty rate would require stronger economic growth as well as policy measures to ensure that growth is inclusive. Figure 6: Absolute poverty, % of population Competitveness FYR Macedonia is working on improving its competitiveness by deepening regulatory reforms and strengthening the rule of law to encourage private investment. Progress has been made on business environment reform, including overhaul of the business registration system, streamlining legislation governing the regulatory regime, simplifying the licensing procedures, and increasing efficiencies in filing taxes. This is reflected in FYR Macedonia s 22 nd place in the Doing Business ranking, the best in Eastern Europe. However, a number of challenges remain, such as developing a more competitive and export-oriented enterprise sector, improving the transport and energy infrastructure, and increasing the skills level of the workforce. Improving the country s competitiveness is one of the main goals of the World Bank program. The World Bank and the Government agreed to a series of two development policy loans with a focus on competitiveness. The program is structured around three sectoral pillars that support the policy actions underway to foster private sector development in manufacturing, agribusiness and trade logistics and a crosssectoral pillar that supports new actions to improve the efficiency of the labor market and the supply of relevant skills. The program is underpinned by extensive analytic work conducted by the World Bank over the last year. This includes: the Modular Competitiveness Assessment (Trade Competitiveness Assessment and Sectoral Competitiveness Assessment) that is helping the Government better understand restraints to the competitiveness of its economy; the Agriculture Public Expenditure Review, which was requested by the Government to improve the targeting of subsidies and achieve strategic goals for agriculture and rural development; and the Job Creation and Employment Policy Note, which will assess the nature of the deficiencies and opportunities that exist in the labor market, including the supply and demand of skills by firms. Energy The Government is concerned about the growing reliance on imported fossil fuels and high energy intensity. Fossil fuels account for more than 80% of energy consumption in FYR Macedonia, and an increasing amount of this is imported, including all liquid fuel and natural gas. In the absence of investment in new energy sources, this trend will continue as demand grows while domestic production declines. Investing in the energy sector is important as more than half of FYR Macedonian firms indicated in a recent survey that electricity supply is a problem. The Government is committed to improving the power supply and strengthening the country s energy security. Improving energy efficiency is the first step in this direction FYR Macedonia consumes very little energy per capita but a high amount per unit of GDP. An immediate area of opportunity is to improve the efficiency of residential, commercial and public buildings, which account for up to 50% of the energy consumption. The authorities also want to exploit renewable energy sources, starting with hydropower, but also wind, solar and biomass. Other aims include increasing the use of natural gas and reducing the use of electricity in heating buildings. The World Bank supports the energy sector. The Energy Community of South East Europe (ECSEE) APL 3 has upgraded energy transmission infrastructure, promoted sound energy planning and regulation, reduced power losses and has increased the stability of the power system, mainly by strengthening the transmission

5 network. Additional financing for ECSEE APL 3 will support the extension of electricity transmission interconnection with Serbia. The ongoing GEF Sustainable Energy Project supports the Government in setting up a largescale national program to retrofit public buildings with the aim to improve energy efficiency. It provides capacity building for this national program, and at the same time finances energy efficiency measures in schools, kindergartens and hospitals. Social Policy FYR Macedonia is building an innovative and well-targeted social safety net. The existing system performs reasonably well by regional standards, but exclusion and leakage exist. The system contains too many programs, with overlapping objectives and beneficiaries. In addition, coverage of social assistance can be strengthened further, as it reaches only 43% of individuals in the poorest quintile. Among other factors, potential beneficiaries are subject to extensive means testing which limit the coverage, such as lack of proper documentation. This is especially true for Roma. In addition, the system is one of the least generous in the region and helps in moderating poverty but not in moving people out of poverty. Removing non-pension social transfers would increase poverty by few percentage points only. Pensions on the other hand provide an important buffer against poverty, helping around 11% of the population stay above the absolute poverty line. The Government launched a broad reform agenda to improve the effectiveness of the system. Information systems have been upgraded to allow better administration, monitoring and use of funds. The Government has also improved its definition and calculation of the benefits, and revised the terms of eligibility. At the same time, it has taken advantage of a relatively well-targeted means tested last-resort program Social Financial Assistance to introduce a conditional cash transfer (CCT) program, supported by the Bank. The CCT program helps to reduce the inter-generational transmission of poverty by linking benefits to the fulfillment of standards for secondary school enrollment and attendance. Authorities are considering extending the CCT benefits to other areas, particularly to improve outcomes in primary school, including through programs designed for mothers and children. Fig 8. Targeting Accuracy of Social Assistance 70% 60% 50% 40% 30% 20% 10% 0% Transport As a landlocked country, FYR Macedonia is particularly dependent on a well-developed road and rail network for its economic and social development. Key elements of this network are also part of the Trans-European transport network (Corridor 10, which goes from Austria to Greece and Turkey, and Corridor 8, which connects the Durres Port in Albania with the Black Sea ports in Bulgaria). Since its independence, the main challenges facing the Government were to reduce the economic distance to markets and lower the costs of transportation arising from the poor condition of the Corridor 10 road and major delays at key border crossing points. These challenges were addressed in the World Bank program, which focused on (i) improvements of road and rail facilities along the Corridor 10; and (ii) trade and transport facilitation actions to ease the movement of traffic through key border crossings. Fig 9. Secondary/Tertiary Road Network Condition Country Targeting Accuracy of Social Assistance: % of Total Benefits Received by Poorest Quintile (All Non-Contributory Transfers) Source: World Bank Analysis of Household Surveys, Various Years Road Condition % Good % Fair % Poor Albania 0% 5% 95% BiH 53% 23% 24% Kosovo 20% 6% 74% FYR Macedonia 29% 42% 27% Montenegro 18% 33% 50% Serbia 8% 18% 74%

6 The Bank program in transport has been guided by the country s EU accession needs which required aligning the transport legislation and improving the condition of the regional and local road network, bringing it up to the European standards. The program focused on supporting the transformation of the Macedonia Railways company into two new companies, improving their operational capacity and safety of operations and, quite importantly, setting up the conditions for the use of the railway infrastructure by other operators by establishing the regulatory framework for a multiple operator market in conformity with the European Union legislation. Fig. 10 Road Network in FYR Macedonia National roads Regional roads Local roads Total 909 km km km km Since 2007, the Government embarked on a large investment program in the road network, inviting participation of all IFIs, including the World Bank as the lead financier of the regional and local road network. The neglected regional and local road network has significantly deterioration due to poor maintenance. At the same time, this network was important for such sectors as agriculture, tourism and rural business development. The World Bank is investing in the rehabilitation of 290 km of regional roads and about 420 km of local roads. In parallel, it is supporting institutional strengthening activities to assist the Agency for State Roads to modernize its approach to management of the road network. EBRD and EIB have joined forces to help the Government finalize the construction of the road Corridor 10; and EBRD is continuing the rail rehabilitation on Corridor 10, building on the Bank s Railways Rehabilitation Project. Despite recently boosted investments (led by EBRD and EIB financing), more remains to be done, as the condition of the road network is still worse than that of the neighboring countries. The ongoing assistance in the regional road network by the World Bank and EBRD covers only about 7% of the assessed needs, and the rehabilitation program needs to continue to narrow the gap. In addition, many of the country s roads are vulnerable to ecological and climate change factors, and interventions are required to protect them from damage. Strengthening the capacity of the Agency for State Roads to manage its network is still at an early stage and capacity building will need to be deepened and extended to specifically cover public and private sector organizations used by the Agency in implementing its activities. Agriculture With an 11% share in the GDP, agriculture is the third biggest sector in the economy, following services and industry. In 2011, the sector provided employment to 18% of the workforce. Around 41% of the country s land area is agricultural land, of which one half is arable land. The land is very fragmented, with an average size of the private farms of approximately 1.7 ha and scattered in 1-3 plots. This leads to an inefficient use of the farm land. The total arable land has been decreasing, caused by migration of the population from villages to the cities and exploitation of the land for urban purposes and other non- agricultural activities. The main crops include cereals, industrial crops (mostly tobacco), fodder, fruit, including grapes, and vegetables (mainly early vegetable crops production). Agriculture exports include fresh and processed vegetables, wine and tobacco. Livestock production. Livestock has been declining over time. The biggest decrease was registered in sheep breeding, goat breeding and poultry farming. Livestock production is mainly carried out in the hilly and mountainous areas along the northern, western and eastern borders of the country. Fig 11. Trends in livestock in FYR Macedonia

7 Trend in the livestock Cattle Sheep Goats Pigs Bees The production and processing of organic products has increased. Significant growth has been recorded in the number of farmers involved in organic production (from 50 in 2008 to 320 in 2011). The same is true about the farm land for organic production that increased from 266ha in 2008 to 1.400ha in This reflects the country s strong potential in organic agriculture. The National strategy for agriculture and rural development for sets out six main priorities for the agriculture sector under the overarching goal of EU accession: (i) increasing the sector competitiveness; (ii) improving quality and food safety; (iii) better resource management; (iv) improving the living conditions in the rural areas; (v) reforming the regulatory and institutional framework; and (vi) implementing institutional reforms in the Ministry of Agriculture, Forestry and Water Economies. The Bank s Agriculture Strengthening and Accession Project provides assistance to strengthen the capacity of the Ministry of Agriculture to deliver rural development funds, and also supports the agriculture sector in an EU-compliant manner. This includes improving the Ministry s ability to formulate and implement effective policies and increasing the effectiveness of public expenditures in agriculture. In addition, it included support to strengthen or set up institutional structures necessary to access pre-accession assistance and for EU accession. Further, the project aims to strengthen veterinary capacity in order to help producers and agroprocessors meet food safety standards driven by changing consumer preferences and EU regulations. Lastly, the project supports completing the ongoing institutional reform of the irrigation sector that was initiated under the previous World Bank Irrigation Restructuring and Rehabilitation Project. Municipal Services Improving living standards of the population requires more effective and efficient public service delivery. Given the new institutional realities brought by the unfolding decentralization process, better performing municipalities are crucial to deliver this ambitious agenda. Municipalities provide key public services and infrastructure for citizens and local businesses. Municipal governments control over 7% of public spending (a figure that is likely to increase). Local authorities influence, shape, and maintain stable inter-ethnic relations at the level closest to citizens. Against this backdrop, FYR Macedonia faces the dual challenge of increasing investment in municipal services while tackling weaknesses in municipal performance and local capacity. To respond to these challenges, municipalities will have to make considerable investments in strengthening their ability to manage their services and the funds at their disposal. To take full advantage of the opportunities at hand, including resources that accompany EU pre-accession, municipal governments will have to fulfill a greater role for which they are insufficiently prepared. In doing so, municipalities are facing the challenges of weak institutional capacity to manage their investment responsibilities and the communal enterprises, many of which lack market-based strategies, and are not financially sustainable. The need for reform in the communal services sector is widely recognized in the country. The World Bank-financed Municipal Services Improvement project focuses on improving transparency, financial sustainability and delivery of targeted services under the responsibility of competitively selected

8 municipalities and their communal service enterprises, such as water supply, sanitation, and solid waste management, as well as energy efficiency, urban transport, and other services under municipal provision. It provides sub-loans to municipalities for investments in revenuegenerating public services and other high priority investment projects, as well as technical assistance grants for sub-project preparation, local capacity building for municipalities and Communal Service Enterprises, as well as national level institutional strengthening. Real Estate Cadastre Macedonia has a model cadastre system in the region. With the help of the World Bank the Government made great strides in reforming the real estate cadastre and property registration system. The Agency for Real Estate Cadastre has transformed itself from a technical organization focused on surveying to a service organization focused on customers. The coverage of real estate cadastre was increased from 43% in 2005 to 99.8% in 2011, and the increased efficiency and confidence in the registration system lead to the increase in using property as a financial asset. The Government is focused now on further enhancing the registration and cadastre services by upgrading the national data sets in terms of accuracy, completeness, and accessibility. The World Bank-financed project is helping the Agency for Real Estate Cadastre with: a) digitizing the existing cadastre maps and plans; b) providing this graphical information in a webbased geographic information system to facilitate access to information by citizens, the private sector and the public sector; c) upgrading the geodetic reference infrastructure to improve the accuracy and efficiency of surveying; and d) support the government to prepare a strategy and begin implementation of National Spatial Data Infrastructure. The World Bank investment also supports the Authority for Legal and Property Affairs to complete the privatization of urban land and legalization of illegally constructed buildings, as well as improve its capacity to deal with the assets in state property. Catastrophic Risk Insurance FYR Macedonia is highly prone to earthquakes and floods. The 1963 earthquake (6.1 MMI) killed more than 1,000 people and damaged 80% of the building stock in Skopje. Floods constituted 44% of natural and technological disasters between 1989 and Moreover, data from the last 20 years shows a steady increase in natural disaster incidence, flood severity, and flood intensity. These frequent catastrophes represent a significant strain on the Government s financial capacity to assist citizens and firms in regaining assets and productive capacity lost due to natural disasters. For example, the 1994 floods caused damage worth 77 times the amount allocated by the government for emergency response that year. In order to help mitigate the consequences of future catastrophes, FYR Macedonia is joining a regional program for catastrophic risk insurance. The program will support countries in South East Europe and Caucasus in their efforts to strengthen their insurance sector by providing access to reinsurance through joining Europa Re, a catastrophe reinsurance company, by financing their membership contributions to the Facility. Europa Re, in turn, will facilitate the growth of catastrophe risk insurance markets in member countries. The World Bank is financing the participation of FYR Macedonia in the program. The program also provides substantial technical assistance, which includes: (i) risk mapping and modelling for participating countries; (ii) design and pricing of appropriate catastrophe risk insurance products; (iii) small

9 weather monitoring stations to support parametric weather insurance; and (iv) technical assistance for regulatory and policy reforms to create an enabling market environment. The program will enable homeowners, farmers, the enterprise sector, and government organizations and agencies to purchase dependable catastrophe insurance coverage and/or weather risk insurance contracts at competitive prices. THE WORLD BANK PROGRAM IN FYR MACEDONIA FYR Macedonia joined the World Bank in Since then, the World Bank has provided more than US$1 billion in loans to support the country s transition to a market economy and build effective institutions, improve education, social protection and pensions, build and rehabilitate basic transport and energy infrastructure, and preserve natural and cultural heritage. The objective of the World Bank s Country Partnership Strategy with FYR Macedonia for fiscal years is to provide selective and targeted financial support and knowledge and advisory services in support of faster, more inclusive and greener economic growth. Because FYR Macedonia s future growth and development depends fundamentally on the pace of EU accession, virtually every intervention in the CPS is designed to help it prepare for the EU membership. The current program consists of 7 loans and one grant, totaling US$305 million. Fig 10. World Bank financed projects by sector 25% 34% 2% 8% 7% 15% 8% Social policy Agriculture Energy Cadastre To help the government cope with the consequences of the European crisis and to support the country s economic transition, the Government and the Bank are preparing two budget support operations aimed to: (i) strengthen the sustainability of public finances; (ii) improve the performance of social protection; (iii) improve the competitiveness of the economy; and (iv) strengthen the resilience of the financial sector. The portfolio also includes a Real Estate Cadastre and Registration project (US$15 million) for digitalization of cadastral maps, and securing land and real estate titles. The Agriculture Strengthening and Accession Project (US$20 million) aims to improve the delivery of government assistance to the agricultural sector in a manner consistent with the European Union's pre-accession requirements. In infrastructure, the Regional and Local Roads Program Support Project (US$105 million) is helping with the rehabilitation of the regional and local roads and provides institutional support to improve the management of roads. World Bank financing for the energy sector is through the ECSEE APL3 project (US$44 million) to strengthen transmission and dispatch and improve the efficiency of the transmission company MEPSO including an interconnection to Serbia. The portfolio also includes the Sustainable Energy Project financed by GEF (US$5.5 million) which assists in developing a sustainable market for Energy Efficiency and Renewable Energy by supporting the development of an enabling framework, institutional capacity, and financing mechanisms. The insurance market will be strengthened through the South East European and Caucasus Catastrophic Risk Insurance Facility (US$5 million) that will help increase access of homeowners, farmers, the enterprise sector and government agencies to financial protection from losses caused by climate change and geological hazards. Local development is assisted through the Municipal Services Improvement Project (US$25 million), which is helping to improve transparency, financial sustainability and delivery of targeted municipal services in selected municipalities. The World Bank is also active in the human development sector through the Conditional Cash Transfer Project (US$25 million).

10 Analytical and Advisory Activities (AAA) Over the last two years the Bank s AAA program shifted to just-in-time advisory work while still delivering core analytical reports. The fiscal year 2012 program includes a Green Growth assessment with the aim to help the government mainstream sustainable development and climate change issues into the macro-economic planning and decision-making framework. It also includes a competitiveness assessment, a review of public expenditures in agriculture, a labor market review, as well as support with the Open Government initiative.