1. R EGIONAL S TRATEGY 2012 Europe and Central Asia (ECA) 1 R EGIONAL U PDATE Supporting our clients to build the foundations of long-term growth and competitiveness

2. I. Strategic Framework The three strategic pillars (competitiveness, inclusion, climate action) remain highly relevant with renewed emphasis on governance II. Operational Response Lending expected to be higher than pre-2009 owing to higher demand, complemented by improved disbursements and a strong Analytical and Advisory Assistance (AAA) program 2 R EGIONAL U PDATE 2 OUTLINE OF THE PRESENTATION

3. 3 R EGIONAL U PDATE 3 I. S TRATEGIC FRAMEWORK

4. Create Opportunities for Growth Target the Poor and Vulnerable Strengthen Governance Promote Global Collective Action Manage Risk and Prepare for Crises Deepened Reforms for Improved Competitiveness Social Sector Reforms for Inclusive Growth Climate Action for Sustainable Growth World Bank Group (WBG) Priorities Addressing ECA Challenges ECA Strategic Pillars Drivers of pre-crisis growth (capital flows and strong export growth) are unlikely to return quickly Social inclusion and equity issues will be tougher to address in a period of fiscal consolidation Need to improve energy efficiency and reduce vulnerability to climate change will remain medium-term priorities I. STRATEGIC FRAMEWORK ECA REGIONAL STRATEGY IS ALIGNED WITH WORLD BANK GROUP PRIORITIES 4

5. 5 Scale up and Diversify Financial Products Customize Knowledge Services Develop Closer Regional Partnerships Sub- Regional Approaches ECA Strategy – 3 pillars and 4 instruments – remains highly relevant to support the region in addressing short-term and long-term challenges Past engagement has made the Bank better prepared to step up financial and analytical support in response to spillover from eurozone crisis: Better starting position owing to renewed and deeper policy engagement in most vulnerable countries On-going and planned technical assistance, including crisis monitoring Flexibility to top up Development Policy Loans (DPLs) and credit lines Closer engagement with EC, IMF and other partners on crisis-response I. STRATEGIC FRAMEWORK ECA STRATEGY REMAINS HIGHLY RELEVANT with renewed emphasis on governance Focus on Competitiveness, Inclusion and Climate Change with renewed emphasis on governance

6. 6 6 GovernanceGovernanceGovernanceGovernance I. STRATEGIC FRAMEWORK - IMPROVED GOVERNANCE IS AN IMPORTANT CROSS-CUTTING THEME SUPPORTING THE THREE PILLARS Sound macro-fiscal and public financial management Good governance for improved business climate and innovation Stable and well-regulated financial intermediation Cost-effective investments in energy and transport infrastructure Education and training systems more accountable for relevant skills Increasing employment and reforming labor markets Ensuring access to quality public services in health and education Modernizing safety nets through better coverage of the poor and stronger monitoring and control Closing gender gaps in access to economic opportunities Helping countries meet remaining MDGs (health MDGs most at risk) Social Sector Reforms for Inclusive Growth Deepened Reforms for Improved Competitiveness Climate Action for Sustainable Growth Economically sound adaptation investments Incentives for energy efficiency Investments in renewable energy

7. Bilateral Donors I. STRATEGIC FRAMEWORK GROWING REGIONAL PARTNERSHIP ESPECIALLY WITH THE EU AND RUSSIA European Union European Union o Closer partnership with the EU since the 2009 crisis o EC/EMPLOY– Programmatic Trust Fund for Bank Advisory Services on EU2020, starting in FY12 with poverty mapping in EU-10 o EC/IPA Trust Fund for Research and Innovation in the Western Balkans o Memorandum of Understanding (MoU) signed with EIB and EBRD for Programmatic Fee-based Services (FBS) in Romania and Bulgaria International Financial Institutions (IFIs) o New Vienna Initiative with EC, EBA, EBRD and EIB o Full associate membership of Western Balkans Investment Framework with EIB and EBRD o Growing Cooperation with CEB o Memorandum of Understanding (MoU) with Eurasian Development Bank and EurAsEc Anti-Crisis fund o Ongoing cooperation with ADB Multilateral Donors Emerging Donor - Russia o Close partnership with Russia as an emerging donor o Russian Multi-Donor Trust Fund for Public Expenditure Management and Peer- Assisted Learning (PEMPAL) in ECA o Russian Trust Fund for Policy and Project Capacity Development in ECA o Russian Statistical Capacity Building Fund Traditional Donors o Traditional donors are exiting ECA but contribute to Multi-Donor Trust Funds (MDTFs) o Austria, Netherlands, Sweden, Switzerland, USAID, UK DFID EU and Russian contributions to ECA Trust Funds by Fiscal Year $ million 7

8. Central Asia: Management of Energy and Water Development of Central Asia Energy and Water Program; Continued country level dialogue Central Asia: Management of Energy and Water Development of Central Asia Energy and Water Program; Continued country level dialogue Vienna Center Helping to improve the business environment through improvements in corporate reporting (REPARIS) New banking and financial sector initiative Vienna Center Helping to improve the business environment through improvements in corporate reporting (REPARIS) New banking and financial sector initiative 8 South Eastern Europe Supporting regional dialogue and solutions in Energy, Transport, Water Management, and Disaster Management South Eastern Europe Gas Ring South Eastern Europe Supporting regional dialogue and solutions in Energy, Transport, Water Management, and Disaster Management South Eastern Europe Gas Ring Central and South Eastern Europe Analytical work on Roma inclusion; Support for Roma Education Fund and “Decade of Roma Inclusion”; Working closely with the EC, including on monitoring EC funded programs that benefit Roma through FBS Danube Region Water and Wastewater program Vienna Initiative II building on Vienna Initiative 2009 Central and South Eastern Europe Analytical work on Roma inclusion; Support for Roma Education Fund and “Decade of Roma Inclusion”; Working closely with the EC, including on monitoring EC funded programs that benefit Roma through FBS Danube Region Water and Wastewater program Vienna Initiative II building on Vienna Initiative 2009 Caspian to Black Sea Transit Corridor Coordinating donor and government road investments Regional power trade Caspian to Black Sea Transit Corridor Coordinating donor and government road investments Regional power trade I. STRATEGIC FRAMEWORK..AND A CONSISTENT USE OF SUB-REGIONAL APPROACHES CIS – Migration and Remittance Peer Assisted Learning Network MIRPAL - Community of Practice on management of labor migration and remittances CIS – Migration and Remittance Peer Assisted Learning Network MIRPAL - Community of Practice on management of labor migration and remittances

9. 9 R EGIONAL U PDATE 9 II. O PERATIONAL RESPONSE

10. STRONG DEMAND FOR FINANCIAL SERVICES New Commitments by Instrument New IDA/IBRD Commitments Innovative Use of Instruments o Policy Based Guarantees o Policy Based Guarantees in Serbia and Macedonia that leverage lending headroom to support macro stability and fiscal consolidation o Results Based Lending o Results Based Lending in Romania for Social Assistance Reform Innovative Use of Instruments o Policy Based Guarantees o Policy Based Guarantees in Serbia and Macedonia that leverage lending headroom to support macro stability and fiscal consolidation o Results Based Lending o Results Based Lending in Romania for Social Assistance Reform Projected lending FY12-13 in high case = $15.8 b $ Billion 10

11. 11 II. OPERATIONAL RESPONSE LENDING IS FOCUSED ON SUPPORTING COMPETITIVENESS Lending Shares by Country Management Units (CMUs) Lending by Strategic Pillar Innovative Operations o Russia - Financial Education and Financial Literacy o Latvia - Special DPL on Safety Net and Social Sector reform o Turkey – Environmental Sustainability DPL and Renewable Energy and Energy Efficiency loan o Ukraine - Energy Efficiency Credit Line Innovative Operations o Russia - Financial Education and Financial Literacy o Latvia - Special DPL on Safety Net and Social Sector reform o Turkey – Environmental Sustainability DPL and Renewable Energy and Energy Efficiency loan o Ukraine - Energy Efficiency Credit Line FY08FY11 competitiveness Percent

12. AAA Shares by CMU, FY 11 12 Analytical & Advisory Assistance (AAA) Expenditures as a Share of All Funds Regional Flagships on Growth (Golden Growth) Innovation Energy Efficiency (Lights Out?) Regular economic reports (EU-10, Western Balkans, Russia) Sub-regional study on Benefits of Roma Inclusion Poland – “Green” Country Economic Memorandum (Transition to a Low Carbon Economy) Russia – PPP – St. Petersburg Airport Romania – Functional reviews Selected High Impact AAA AAA by Knowledge Product II. OPERATIONAL RESPONSE - KNOWLEDGE IS A STRENGTH OF THE REGION, GROWING DEMAND FOR TECHNICAL ASSISTANCE SERVICES Percent

13. III. OPERATIONAL RESPONSE - ECA IS BOTH A CONTRIBUTOR TO AND A USER OF GLOBAL KNOWLEDGE ON DEVELOPMENT ECA Knowledge Strengths -Consequences of aging -Competitiveness and innovation -Fiscal reform in the social sectors -Social insurance and safety nets -Public sector management and reform -Financial sector reform -Corporate accounting and reporting -Energy efficiency Jobs WDR -Complementary regional jobs report -Country level employment AAA -Country level skills and innovation AAA Gender WDR and Conflict WDR -Complementary regional gender report -Selected “drill-down” AAA on gender (Turkey) -Selected “drill-down” AAA on conflict (Kyrgyzstan) 13

14. 14 Fragile and poor Country level: Support for demand-side governance and budget transparency (Kyrgyz, Tajikistan) Sector level: Institutional reforms to improve governance in agriculture (Tajikistan) TA to improve transparency and predictability of social spending (Uzbekistan) Project level: Governance checklist applied to every project at mid-term review (Tajikistan) Fragile and poor Country level: Support for demand-side governance and budget transparency (Kyrgyz, Tajikistan) Sector level: Institutional reforms to improve governance in agriculture (Tajikistan) TA to improve transparency and predictability of social spending (Uzbekistan) Project level: Governance checklist applied to every project at mid-term review (Tajikistan) Russia and other resource rich countries Sector level: Advisory work on sovereign wealth fund management (Kazakhstan) Diagnostics on regional business climate (Russia) Procurement reform (Russia) Russia and other resource rich countries Sector level: Advisory work on sovereign wealth fund management (Kazakhstan) Diagnostics on regional business climate (Russia) Procurement reform (Russia) Ukraine and the South Caucuses Country level: Governance a central theme of Country Assistance Strategies (CAS) (Ukraine) AAA – Governance reforms case study (Georgia) Sector Level: DPLs which support fiscal transparency and regulatory reform (Armenia, Georgia) Project level: Transport portfolio fiduciary review (Georgia) Ukraine and the South Caucuses Country level: Governance a central theme of Country Assistance Strategies (CAS) (Ukraine) AAA – Governance reforms case study (Georgia) Sector Level: DPLs which support fiscal transparency and regulatory reform (Armenia, Georgia) Project level: Transport portfolio fiduciary review (Georgia) EU and Western Balkans Country level : Governance focused AAA to improve government effectiveness (Romania functional reviews) Sector Level: Financial sector stress tests and capacity building (Latvia) Technical Assistance (TA) to improve transparency and predictability of social spending (Latvia, Romania) Justice sector AAA (Croatia) Project level : Civil society monitoring of Bank financed projects (Albania) EU and Western Balkans Country level : Governance focused AAA to improve government effectiveness (Romania functional reviews) Sector Level: Financial sector stress tests and capacity building (Latvia) Technical Assistance (TA) to improve transparency and predictability of social spending (Latvia, Romania) Justice sector AAA (Croatia) Project level : Civil society monitoring of Bank financed projects (Albania) III. OPERATIONAL RESPONSE..AND SUPPORT FOR GOVERNANCE REFORMS HAS BEEN SCALED UP.. Region Governance and Anti-Corruption (GAC) outcomes tracked through indicators such as BEEPS, Doing Business, Life in Transition Surveys, etc. Governance filters in CGAC countries (Albania, Tajikistan) Governance Ratings have shown improvement

15. 15 II. OPERATIONAL RESPONSE ….ACHIEVING RESULTS ON THE GROUND http://www.worldbank.org/eca/countrysnapshots EU Members Policy reforms: Fiscal: Budget consolidation (Romania) Financial: Strengthened banking system resilience (Latvia, Romania) Social: Strengthened social safety nets (Romania, Latvia) Other results: Bulgaria: 300km of roads repaired and functioning; Roads Asset Management System established Russia and other resource rich Policy reforms: Fiscal: Strengthened oil fund management (Kazakhstan) Financial: Strengthened banking system resilience (Kazakhstan) Other results: Russia: PFM reform with three-year budget framework; more efficient tax administration; treasury single account Russia: Improved public service delivery through one-stop-shops, waiting times cut by 65% Azerbaijan: Center for Accounting and Audit Training established IDA/Blend Policy reforms: Fiscal: Improved fiscal management and protection of social expenditures (Armenia, Georgia) Social: Strengthened social safety nets (Armenia) Other results: Armenia: Improved water delivery and quality, and customer service: 332,000 households in the capital have running water 21 hours a day, up from 6. Moldova: Number of days required to register a new company decreased by 31% from 20 days (2005) to 14 (2010) Other MICs Policy reforms: Fiscal: Budget consolidation (Serbia, Croatia) Financial: Strengthened banking system resilience (Turkey) Social: Strengthened safety nets (Albania) Other results: Bosnia and Herzegovina: 37 land registry offices renovated and equipped; over 1.6 million property folios digitized Fragile (Kyrgyzstan) Policy reforms: Fiscal: Improved fiscal management and protection of social expenditures Financial: Strengthened banking system resilience Social: Strengthened social safety nets Other results: 1,500 villages with access to improved social and economic infrastructure

16. I. Strategic Framework The three strategic pillars (competitiveness, inclusion, climate action) remain highly relevant with renewed emphasis on governance II. Operational Response Lending expected to be higher than pre-2009 owing to higher demand, complemented by improved disbursements and a strong Analytical & Advisory Assistance (AAA) program 16 R EGIONAL U PDATE 16 CONCLUSIONS