Highlights

The World Bank Group provided relevant analytic support that was responsive to Georgia’s priorities, and the Bank Group diagnostic informed policy lending to address key constraints in health and education.

The International Finance Corporation made two investments complementary to the World Bank’s reform engagement, financing the expansion of health care provision and production of pharmaceuticals.

Investment project financing in education focusing on rehabilitating rural schools and providing access to preprimary education is under implementation and on track to deliver results by FY 2026. World Bank support for health-related COVID-19 measures was found to be very responsive and informed by global learning.

The Georgia Human Capital Program was designed as a results-based sectoral approach to crowd in additional financing. Since inception, it has mobilized significant contributions from Agence Française de Développement and is on track to meet disbursement-linked indicators.

Evidence for higher-level outcomes shows that Georgia has been closing the gap in Programme for International Student Assessment results compared with the Organisation for Economic Co-operation and Development average. The country has been improving on various health metrics, and the share of out-of-pocket expenditures in overall health care spending has decreased.

Human capital development needs featured prominently in Bank Group analytic products. Earlier products, such as the 2013 and 2014 CEMs, focused on education in the context of labor market skills, whereas health was discussed in the context of improving the affordability, fiscal impacts, and governance of the UHC system implemented before the start of the evaluation period. Human capital featured prominently in the 2018 SCD. Both the 2019 Operationalizing the Jobs Agenda in Georgia and the 2022 CEM provided more detailed analysis regarding the role of skills in the labor market. Strong analytic work emphasizing human capital was complementary to the Bank Group’s larger focus on supporting economic transformation and underpinned the shift toward an increase in investment lending and the use of a programmatic PforR to address sector constraints.

Education

Georgians had broad access to primary and secondary education but faced quality challenges. Gaps persisted in access to preprimary and tertiary education and in general access in rural areas. The education system faced quality issues, with various iterations of the Programme for International Student Assessment study finding large gaps in proficiency compared with the Organisation for Economic Co-operation and Development average (figure 5.1).1 The study also identified significant disparities by socioeconomic status and location. Based on a series of surveys, the 2014 CEM identified issues of relevance and quality related to higher education that led to a skills mismatch, with 60 percent of graduates being unemployed or underemployed (World Bank 2014b). Female labor force participation remained low at 58 percent, with low levels of support to households with responsibilities such as childcare and older adult care cited as factors adversely affecting female labor force participation.

Development of the right skills among workers was considered central to increasing labor productivity and creating conditions for firms to grow. Limited participation of employers in defining curricula, gaps in vocational education and training infrastructure, and low teacher qualification reduced the quality of vocational education. In addition, perception of vocational education in Georgia has been low. This contributed to an insufficient availability of skilled workers (which was identified as a factor leading to low levels of innovation and entrepreneurship) and unemployed youth being unable to meet the needs of an increasingly digital economy. According to the Enterprise Surveys, the share of firms reporting an inadequately educated workforce as an obstacle grew from 4 percent in 2008 to 23 percent in 2023, when it surpassed access to finance as the second-biggest obstacle (World Bank 2023a). Among medium-size firms, skills gaps were identified as the single largest concern. In 2020, the Ministry of Education and Science of Georgia, in collaboration with the Georgian Chamber of Commerce and Industry, launched the Skills Agency to address the issue.

Figure 5.1. Programme for International Student Assessment Trend in Performance for Georgia

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Figure 5.1. Programme for International Student Assessment Trend in Performance for Georgia

Source: OECD 2023.

Note: OECD = Organisation for Economic Co-operation and Development.

The Bank Group provided relevant analytic support to identify policy priorities for education, with a focus on improving curricula and teachers’ performance. Support for the education sector provided a series of actionable policies for the Ministry of Education and Science’s national education sector strategy and an action plan (World Bank 2014c) and the government’s 2017–21 Unified Strategy for Education and Science (Ministry of Education and Science of Georgia 2017). The 2019 jobs diagnostic provided a comprehensive review of policy options, including improvements to the business environment and export promotion (World Bank 2019a). The Georgia Social Protection and Labor Technical Assistance included a component analyzing labor supply and demand challenges, providing the foundation for a labor market information system and a series of relevant surveys. In interviews, government counterparts stated that keeping the World Bank engaged through ASA and dialogue was an important factor in benefiting from technical expertise and global knowledge, even in areas where the World Bank did not provide financing.

Policy lending contributed to the implementation of critical education sector reforms. Prior actions primarily supported improvements to the quality of schooling. The 2014 Growth and Competitiveness DPO 3 supported curriculum reform for all levels of education, a monitoring system for the application of the framework, and an evaluation framework for school principals. Reforms were implemented, but IEG rated the effectiveness of these prior actions as modest because of the absence of relevant outcome measures. The Inclusive Growth DPO series (2014–17) and the 2020 Economic Management and Competitiveness DPO series aimed to strengthen teacher recruitment by raising qualification requirements, introducing a professional career advancement program, improving remuneration, and increasing the use of a new preschool curriculum. The Inclusive Growth DPO further supported the introduction of a labor force survey that formed the basis for the government’s efforts to improve matching of labor supply and demand. The effectiveness of these prior actions was rated as substantial.

During the CPF period, the program shifted toward an increased focus on human development interventions. In 2019, the World Bank approved the Georgia Innovation, Inclusion, and Quality (I2Q) project—the first investment finance project in education since 2007. I2Q has the objectives of expanding preschool access and improving the quality of education and learning environments with a broad range of activities.2 The project is expected to be completed in fiscal year 2026, as envisaged by appraisal, and is on track to achieve its outcomes, having already exceeded the target for students with access to improved learning environments. The project was followed by the 2022 Georgia Human Capital Program—a $400 million programmatic PforR project covering health, education, and social protection. The program is based on a comprehensive theory of change and relies on four DLIs.3 Agence Française de Développement supported the Georgia Human Capital Program with €100 million in cofinancing.

The World Bank engagement in education was well sequenced and contributed to increasing focus on strategic priorities, such as better financing structures. Reforms were successfully implemented, but it is too early to fully judge their outcome, particularly in the context of learning disruptions caused by school closures in response to COVID-19. The Programme for International Student Assessment scores are comparable to those of countries with similar income levels. They showed an improving trend between 2014 and 2022, narrowing the gap with the overall average (figure 5.1), despite disruptions caused by COVID-19. I2Q and the Georgia Human Capital Program are currently under implementation and are set to deliver relevant project-level outcomes; however, higher-level learning outcomes will require time to materialize.

Health

The UHC program, introduced in 2013, had a very high uptake, leading to cost overruns and affordability issues. Service delivery in Georgia is dominated by the private sector with 90 percent of hospitals and 70 percent of primary care facilities being privately owned. The introduction of the UHC led to increased utilization of services, resulting in budget overruns, which contributed to a widening fiscal deficit. Gradual rollout and coverage limits, such as a $6,000 annual cap on emergency care coverage, in a system with limited availability of primary care leading to reliance on emergency medicine, resulted in high out-of-pocket health expenditures that disproportionally affected the poorest households. More than 10 percent of households encountered high health expenses (World Bank 2018a). Although health expenditures doubled to 8.5 percent of GDP between the introduction of the UHC and 2015, government spending remained relatively low compared with the peer countries.

The World Bank delivered targeted analytics focusing on health care delivery and efficiency improvements. The Georgia Service Delivery Quality Improvement ASA prepared a comprehensive set of policy options related to aspects of service delivery and pricing and was integrated into the Health Utilization and Expenditure Survey and the Health System Strengthening Project. Public Expenditure Reviews in 2015 and 2017 recommended strengthening the Social Service Agency and increasing UHC drug coverage and made recommendations to improve the efficiency of the health sector (World Bank Group 2015, 2017). This work program was further complemented by the 2018 Health Sector Support ASA, which provided analysis and recommendations on procurement and referencing pricing in the sector.

The Bank Group’s policy lending for health addressed relevant issues and was implemented successfully. Policy reforms as part of the 2013–14 Growth and Competitiveness DPO series targeted improvements in standards for primary and hospital care, expansion of access for children and pensioners, and increase in access to primary and emergency care. The 2015–17 Inclusive Growth DPO series supported reforms to promote the rational use of medicine and improvements to maternal and neonatal care. The reforms in the health sector supported by both DPO series were successfully implemented and achieved their results. Although the Implementation Completion and Results Report Reviews rate relevant components as substantial, they mention a scarcity of indicators that would allow judgment of progress toward more substantive outcomes.

IFC engaged in the health sector, complementing World Bank support for a system primarily relying on private service delivery. In 2016, IFC extended two loans to support private health care delivery. The proceeds of these loans supported the expansion of health care service delivery and the pharmaceuticals sector. Investments were intended to complement the World Bank’s reform effort in view of a health care sector dominated by private delivery (IFC 2018). Although IFC highlighted these projects in case studies, they did not lead to replication or scale-up.

The Bank Group’s effort to reengage with investment lending in the health sector was successful despite challenges. The World Bank aimed to engage in investment lending in the sector, but projects, such as the Georgia Health Care System Strengthening Project proposed in the CPF, did not materialize.4 Reengagement with investment lending started with the Georgia Emergency COVID-19 Response Project—the first investment project approved since 2003. It included a comprehensive set of measures to respond to the COVID-19 crisis by detecting cases and strengthening case management. The project was assessed as highly responsive to country needs by IEG and reports that it achieved all four project development objectives. The $214.5 million project included $100 million in cofinancing from the Asian Infrastructure Investment Bank and an additional financing of 34.5 million approved in 2021. The Georgia Human Capital Program (also discussed in the Education section of this chapter) includes a series of DLIs aiming to (i) rationalize health care reimbursements by standardizing diagnosis-related groups, (ii) reduce pharmaceutical costs, (iii) rationalize the use of services, and (iv) increase efficiency through the introduction of digital records and service delivery.

Bank Group support has contributed to improvements in addressing health sector priorities. Out-of-pocket expenditures dropped from 66 percent of total health care expenditures in 2014 to 46.8 percent in 2020 (figure 5.2). However, the overall proportion of households spending more than 10 percent of their household income on health care expenditures remained high at 31.4 percent (above other upper-middle-income countries in the region reporting data during the period)—a slight increase since the 2015 figures. Maternal mortality rates targeted by the Inclusive Growth DPO series dropped from 27.7 per 100,000 in 2013 to 13.1 per 100,000 in 2018 (World Bank 2020a).

Figure 5.2. Overall Out-of-Pocket Expenditure and Share of Households with Out-of-Pocket Health Care Expenditures of More Than 10 Percent

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Figure 5.2. Overall Out-of-Pocket Expenditure and Share of Households with Out-of-Pocket Health Care Expenditures of More Than 10 Percent

Source: World Bank Open Data.

External and Internal Coordination

The Bank Group’s support for the human capital development agenda complemented other development partners. In the 10 years before International Development Association graduation, approximately three-quarters of support for human capital was financed by grants. This share decreased to 57.4 percent during the CPS period and to 21.9 percent since the adoption of the CPF. Traditional partners, such as Germany, the United States, and the EU, relied on grant funding, primarily in vocational and tertiary education and in social protection. During the CPF cycle, engagement in these areas was complemented by lending from ADB and EBRD (figure 5.3). The World Bank’s focus on kindergarten through grade 12 education and health system strengthening was largely complementary to the engagement of other development partners, whereas support for social assistance overlapped. The World Bank’s role in responding to COVID-19 was primarily as a first mover to support the government with personal protective equipment, testing, and the immediate social response, whereas other development partners stepped in during subsequent phases. Collaboration between the World Bank and IFC was focused on complementary engagement in the health sector.

Figure 5.3. Support for Human Capital by Strategy Period

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Figure 5.3. Support for Human Capital by Strategy Period

Source: OECD 2024b.

Note: ADB = Asian Development Bank; AIIB = Asian Infrastructure Investment Bank; CPF = Country Partnership Framework; CPS = Country Partnership Strategy; EBRD = European Bank for Reconstruction and Development; EU = European Union.

Findings

The World Bank’s persistent engagement informed by relevant ASA has contributed to an increased focus on support for human capital development in Georgia. The World Bank persistently engaged in the sector through ASA, even at a time when there was limited demand for lending, highlighting the importance of the sector for Georgia’s long-term prospects. A responsive approach to the incoming government, addressing issues identified with the UHC system by providing a mix of policy lending and ASA, and support for reforms in education paved the way for more substantive lending engagement later in the evaluation period.

ASA addressed relevant constraints in the education sector, whereas investment lending targeted gaps in services. Technical assistance support for the education sector strategy was relevant and contributed to a division of labor, with the World Bank focusing on quality and inclusion in kindergarten through grade 12 education and other development partners supporting tertiary and vocational education. Supported reforms were associated with a reduction of the gap in the Programme for International Student Assessment scores compared with the Organisation for Economic Co-operation and Development average. I2Q aimed to improve access to preprimary education and school infrastructure in rural areas, focusing on relevant gaps identified by ASA.

The Bank Group program in health was responsive and targeted Georgia’s needs, focusing on improved financial viability and service quality. ASA at the beginning of the evaluation period identified key constraints to the financial viability of the system and ways to address these issues and improve service delivery. Although support helped reduce the overall reliance on out-of-pocket expenditures, it was less effective in reducing the share of households spending an appreciable amount of their income on health care. IFC’s involvement in supporting service delivery presented a good example for complementarity at the sector level but could have benefited from replication in a more systematic way to allow for the creation of markets.

The innovative Georgia Human Capital Program continues to focus on priorities and is shifting to a more outcome-based way of financing. Based on Georgia’s track record across various sectors in implementing programmatic solutions, the approach presents an opportunity to advance relevant sector agendas, foster local ownership, and provide a mechanism to coordinate partner engagement.