Monitoring Governance in Eastern Monitoring Governance in Eastern Europe and Central AsiaEurope and Central Asia
Cheryl GrayCheryl GrayWorld BankWorld Bank
Two questions that active Two questions that active monitoring can help to answer:monitoring can help to answer: How to improve governance?How to improve governance?
(explanatory variables: inputs, outputs, (explanatory variables: inputs, outputs, and/or intermediate outcomes) and/or intermediate outcomes)
What has been achieved to date?What has been achieved to date? (outcomes; results) (outcomes; results)
What has monitoring in ECA shown? What has monitoring in ECA shown? ECA has seen a lot of progress (more than ECA has seen a lot of progress (more than
most regions), but more is still needed.most regions), but more is still needed.
“ “Business Environment and Business Environment and Enterprise Performance Survey” (BEEPS)Enterprise Performance Survey” (BEEPS)
Joint initiative with EBRDJoint initiative with EBRD 20,000 firms in 3 rounds (1999, 2002, 2005)20,000 firms in 3 rounds (1999, 2002, 2005) 26 transition countries26 transition countries 6 European comparators in ‘05: Ireland, Germany, 6 European comparators in ‘05: Ireland, Germany,
Greece, Portugal, Spain, Turkey (+ Korea and Greece, Portugal, Spain, Turkey (+ Korea and Vietnam)Vietnam)
Life in Transition surveyLife in Transition survey Economic and poverty dataEconomic and poverty data CPIACPIA Actionable indicators (DB, PEFA, others)Actionable indicators (DB, PEFA, others)
Many indicators are useful.Many indicators are useful.
Explanatory variablesExplanatory variables
Structure of government:•Legislative oversight• Independent and effective judiciary•Independent prosecution, enforcement•Sub-national government• Multilateral rules for trade, investment, aid
Political accountability:• Political competition, credible political parties• Transparency in party financing• Disclosure of parliamentary votes• Asset declaration, conflict of interest rules
Civil society voice and participation:• Freedom of information• Public hearings on draft laws•Free and competent media/NGOs
Competitive private sector:• Economic policy reform• Competitive restructuring of monopolies• Privatization• Transparency in corporate governance
Public sector management:• Meritocratic civil service with monetized, adequate pay• Budget management (coverage, treasury, procurement, audit)• Tax and customs• Sectoral service delivery (health, education, energy)• Decentralization with accountability
Governance
Improving governance requires Improving governance requires a multi-pronged approacha multi-pronged approach
(and each variable has its own monitoring tools).(and each variable has its own monitoring tools).
Changing the role of the state and reforming Changing the role of the state and reforming economic policies are key early steps.economic policies are key early steps.
Macroeconomic stabilizationMacroeconomic stabilization Price and trade liberalizationPrice and trade liberalization PrivatizationPrivatization Property rights and law reform (commercial, civil, Property rights and law reform (commercial, civil,
etc)etc) Adoption of modern tax structuresAdoption of modern tax structures Promotion of business entry and FDIPromotion of business entry and FDI Banking reformBanking reform
World Bank programs in the 1990s supported World Bank programs in the 1990s supported this transition to private market economies. this transition to private market economies.
The The business climatebusiness climate has improved. has improved.
0 25 50 75 100
South Asia
East Asia & Pacific
Latin America and Caribbean
Middle East & North Africa
Sub-Saharan Africa
OECD high-income
Eastern Europe and Central Asia
Percent of Countries that Made at Least One Reform in 2005
Source: Doing Business in 2007
But the ease of doing business But the ease of doing business still varies widely among countries.still varies widely among countries.
rank for ease of doing business1=best 175=worst
rest of the worldtransition countriesLithuania 16
Estonia 17
Uzbekistan 147
Bulgaria 54
Singapore 1
D.R. Congo 175
Source: Doing Business in 2007
Many ECA countries are gradually Many ECA countries are gradually improving improving transparency and accountabilitytransparency and accountability..
0 1 2 3 4 5 6 7 8 9 10
Conflict of Interest
Asset Monitoring
Public Procurement
Freedom of Information
Political Party Finance
Financial Audit and Control
Immunity
index of quality of institutions
1995
2003
Source: Monica Dorhoi, 2005. "Anti-Corruption Strategies and Fighting Corruption in Central and Eastern Europe". PhD Dissertation. Michigan State University
Businesses use Businesses use courtscourts quite heavily in ECA… quite heavily in ECA…
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Ireland
Turkey
Latvia
Hungary
Spain
Greece
Estonia
Portugal
Czech Rep.
Romania
Bulgaria
Slovak Rep.
Germany
Poland
Lithuania
Serbia
Slovenia
Percentage of firms that have taken a case to court in past 3 years
But many firms see the judiciary as But many firms see the judiciary as an obstacle to business.an obstacle to business.
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Serbia
Czech Rep.
Romania
Portugal
Poland
Bulgaria
Slovenia
Lithuania
Turkey
Slovak Rep.
Spain
Hungary
Latvia
Greece
Germany
Estonia
Ireland
Percentage of firms that see courts as obstacle
Courts are not seen as independent.Courts are not seen as independent.
1 2 3 4 5 6 7
SAM
Bulgaria
Romania
Lithuania
Poland
Slovak Rep.
Spain
Latvia
Czech Rep.
Hungary
Turkey
Greece
Slovenia
Estonia
Portugal
Ireland
Germany
No (heavily influenced)
Yes (entirely independent)
Most firms do not see courts as honest…Most firms do not see courts as honest…
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Serbia
Lithuania
Czech Rep.
Poland
Slovak Rep.
Bulgaria
Portugal
Latvia
Romania
Hungary
Slovenia
Turkey
Spain
Estonia
Ireland
Greece
Germany
Percentage of firms that see courts as honest and uncorrupted
……or affordable.or affordable.
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Ireland
Portugal
Czech Rep.
Serbia
Slovak Rep.
Slovenia
Spain
Hungary
Lithuania
Romania
Greece
Germany
Bulgaria
Poland
Turkey
Latvia
Estonia
Percentage of firms that see courts as affordable
Few firms think courts are quick…Few firms think courts are quick…
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Slovenia
Portugal
Czech Rep.
Serbia
Slovak Rep.
Bulgaria
Latvia
Poland
Ireland
Spain
Estonia
Lithuania
Romania
Greece
Hungary
Germany
Turkey
Percentage of firms that see courts as quick
……or can enforce decisions.or can enforce decisions.
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Czech Rep.
Portugal
Serbia
Poland
Latvia
Lithuania
Romania
Hungary
Slovak Rep.
Ireland
Bulgaria
Slovenia
Spain
Estonia
Germany
Turkey
Greece
Percentage of firms that see courts as able to enforce decisions
Results to dateResults to date
GrowthGrowth in ECA has been rapid in recent in ECA has been rapid in recent years after the initial collapse.years after the initial collapse.
-25
-20
-15
-10
-5
0
5
10
15
1990
1991
199
2
199
3
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
Annual real GDP growth, in %
SE Europe
Middle income CIS
Low income CISEU3 Baltics
EU5 Central Europe Serbia
Note: 2000-02 data for Serbia and Montenegro, from 2003 onwards – Serbia.
Poverty and vulnerabilityPoverty and vulnerability have fallen. have fallen.
Source: **Bank staff estimates based upon ECA Household Data Revised numbers for 2002-3 period based on a new countries coverage
CorruptionCorruption is falling for the region is falling for the region as a wholeas a whole
(though not yet to W. Europe levels)…(though not yet to W. Europe levels)…
2.7 2.62.4
1.8
1
2
3
4
5
6
1999 2002 2005
ind
ex
of
bri
be
fre
qu
en
cy
1=
ne
ve
r
6=
alw
ay
s
Transition Countries
Comparator Countries
Source: Anticorruption in Transition 3 – Who is Succeeding … and Why?
… … but not in all countries …but not in all countries …Bribe Frequency by country, Bribe Frequency by country,
2002-20052002-2005
0%
25%
50%
75%
100%
Geo Slk Bul Rom SAM Alb Kyr
pe
rce
nt
"fre
qu
en
t"
Source: Anticorruption in Transition 3 – Who is Succeeding … and Why?
… … and not in all sectors.and not in all sectors.Bribe Frequency by sector, 2002-2005Bribe Frequency by sector, 2002-2005
0%
5%
10%
15%
20%
Fire andBlg Insp.
Courts Customs Bus.Licenses
Taxes Gov.Contracts
per
cen
t "f
req
uen
t"
comparator countries
2005
transition countries
2002-2005
Source: Anticorruption in Transition 3 – Who is Succeeding … and Why?
European countries vary significantly.European countries vary significantly. (% firms viewing corruption as a problem for business)(% firms viewing corruption as a problem for business)
0%
25%
50%
75%
100%
Sln
Est
Slk
Lat
Hu
n
Cro Lit
Po
l
Bu
l
Ro
m
Cze
Mac Ir
e
Ger
Esp Gre
Tu
r
Po
r
2002 2005
Source: Anticorruption in Transition 3 – Who is Succeeding … and Why?
New private firms continue to pay New private firms continue to pay the most bribes.the most bribes.
0%
5%
10%
15%
20%
25%
30%
35%
small, new private,domestic, firms in the city
larger,older, state orforeign, firms outside of
the cityPe
rce
nt
of
firm
s s
ay
ing
th
at
bri
be
ry i
s f
req
ue
nt
transition countries 2002
transition countries 2005 comparators countries 2005
Source: Anticorruption in Transition 3 – Who is Succeeding … and Why?
Some broader aspects of Some broader aspects of rule of lawrule of law are also improvingare also improving..
Source: Anticorruption in Transition 3 – Who is Succeeding … and Why?
0%
25%
50%
75%
100%
Taxadministration
Customs andtrade
regulations
Uncertaintyabout
regulatorypolicies
Functioning ofthe judiciary
Corruption Street crime,theft anddisorder
Organisedcrime/mafia
Anti-competitivepractices of
others
Contractviolations
pe
rce
nt
sa
yin
g a
n o
bs
tac
le t
o b
us
ine
ss
EU8-2005 ECA-2002 ECA-2005
Some explanations?Some explanations?
Corruption is lower where courts Corruption is lower where courts are easier to deal with …are easier to deal with …
Alb
Arm
Aze
Bel
BiH
Bul
CroCze
EspEst
Geo
Ger
Gre
Hun
Ire
Kaz
Kyr
Lat
Lit
Mac
Mol
Pol
Por
RomRus
SAM
Slk
SlnTur
Ukr
Uzb
11
.52
2.5
3fr
eque
ncy
of b
ribe
ry a
t cou
rts
(BE
EP
S)
0 50 100 150overall ease of enforcing contracts (DB)
Source: BEEPS 2005/4; Doing Business 2005
… … and where taxes are simpler …and where taxes are simpler …
Alb
Arm
Aze
Bel
BiH
Bul
Cro
Cze
EspEst
Geo
Ger
Gre
Hun
Ire
Kaz
Kyr
Lat
LitMac
Mol
Pol
Por
Rom
Rus SAM
Slk
Sln
Tur
Ukr
Uzb
12
34
freq
uenc
y of
brib
ery
at t
ax
adm
inis
trat
ion
(BE
EP
S)
0 50 100 150overall ease of paying taxes rank (DB)
Source: BEEPS 2005/4; Doing Business 2005
… … where business licensing is where business licensing is streamlined …streamlined …
Alb
Arm
Aze
Bel
BiH
Bul
CroCze
EspEst
Geo
Ger
Gre
Hun
Ire
Kaz
Kyr
Lat
Lit
Mac
Mol
Pol
Por
Rom
Rus
SAM
Slk
Sln
Tur
Ukr
11
.52
2.5
3fr
eque
ncy
of b
ribe
ry to
ge
t lic
ense
s (B
EE
PS
)
0 50 100 150overall ease of dealing with licenses rank (DB)
Source: BEEPS 2005/4; Doing Business 2005
… … and where international trade is and where international trade is painless ...painless ...
Alb
Arm
Aze
Bel
BiH
Bul
Cro
Cze
EspEst
Geo
Ger
Gre
Hun
Ire
Kaz
Kyr
Lat
LitMac
Mol
Pol
PorRom
Rus
SAM
Slk
Sln
Tur
Ukr
Uzb
11
.52
2.5
33
.5fr
eque
ncy
of b
ribe
ry a
t cus
tom
s (B
EE
PS
)
0 50 100 150overall rank for trading across borders (DB)
Source: BEEPS 2005/4; Doing Business 2005
In sum: In sum:
A variety of specific indicators are helpful A variety of specific indicators are helpful in tracking governance influences and in tracking governance influences and outcomes at the country level.outcomes at the country level.• ““Actionable” policy and institutional indicatorsActionable” policy and institutional indicators• Economic and political indicatorsEconomic and political indicators• “ “Unbundled” corruption indicatorsUnbundled” corruption indicators
Indicators point to impressive progress in Indicators point to impressive progress in some ECA countries, driven by market some ECA countries, driven by market reforms and prospects for EU accession –reforms and prospects for EU accession –but more is needed.but more is needed.
www.worldbank.org/eca/act3www.worldbank.org/eca/act3
For a broader look at governance and economic reform For a broader look at governance and economic reform in ECA seein ECA see
www.worldbank.org/eca/econwww.worldbank.org/eca/econ
For details on corruption trends seeFor details on corruption trends seeAnticorruption in Transition 3 – Who is Anticorruption in Transition 3 – Who is
Succeeding … And Why?Succeeding … And Why?
The time required to enforce a contract is longer in The time required to enforce a contract is longer in Serbia than most other European countries…Serbia than most other European countries…
635
551 549
432
275
0
100
200
300
400
500
600
700
Serbia Bulgaria &Romania
EU-8 WesternEurope 5
Top 3
Da
ys
(Latvia, Finland, Norway)
But countries vary in ease of doing businessBut countries vary in ease of doing business
0 20 40 60 80 100 120 140 160
Uzbekistan
Ukraine
Croatia
Albania
Belarus
Georgia
Azerbaijan
Turkey
Serbia and Montenegro
Bosnia and Herzegovina
Kazakhstan
Kyrgyz Republic
Moldova
Macedonia, FYR
Russian Federation
Romania
Slovenia
Bulgaria
Poland
Hungary
Armenia
Czech Republic
Slovak Republic
Latvia
Estonia
Lithuania
Source: DB 2006
}in top 20 worldwide