The World Bank Group in Georgia
Overview
This Country Program Evaluation assesses the performance and effectiveness of the World Bank Group’s support to Georgia in achieving the country’s development objectives. It evaluates how the Bank Group program adapted to changing conditions and priorities from FY 2014 to FY23, starting with the country’s graduation from financing by the International Development Association, the 2014 Social-Economic Development Strategy of Georgia—Georgia 2020 strategy, and accession to the European Union (EU) Deep and Comprehensive Free Trade Area. The Country Program Evaluation focuses in depth on three areas of engagement—support for development of the private sector, connectivity infrastructure, and human capital.
In the decade leading up to the evaluation period, Georgia pursued economic reforms to attract critical investments for becoming a regional trade and transport hub. This period was marked by an ambitious reform program with a focus on economic liberalization and a strong role for the private sector, fiscal discipline, and moderate taxes. These reforms—often supported by the Bank Group—resulted in significant improvements in the country’s rankings for business climate and economic freedom. With a small domestic market, strengthening ties with the EU presented an opportunity for Georgia to benefit from an economic convergence that had helped other countries in the region grow (Gill and Raiser 2012). Georgia invested in several large infrastructure projects with the goal to become a regional transport hub, upgraded its energy system, and started pursuing policies of alignment with the EU’s acquis communautaire (the body of EU legislation).
Ambitious economic reforms went hand in hand with efforts to improve human development and strengthen social protection systems. A targeted social assistance and pension program helped reduce absolute poverty. In the decade before 2014, poverty declined from 34.4 percent to 23.5 percent, with poverty concentrated in younger populations as older Georgians disproportionately benefited from transfer payments (World Bank 2011). A universal health coverage system, primarily relying on private service delivery, was established in 2013. The system led to broad access, but its use remained low because of high out-of-pocket expenses. Although Georgia had broad access to primary and secondary education, quality issues persisted with teacher and curriculum standards, and gaps remained in access to preprimary and tertiary education.
Growing geopolitical tensions and internal political polarization have challenged Georgia’s reform progress in recent years. Georgia’s political landscape is relatively stable, with broad consensus on market-centric economic policies. However, internal tensions have increased in recent years, and reform progress in the areas of judicial independence, media freedom, and fighting organized crime has been partially reversed (figure 1.2), leading the EU to identify priorities to be addressed as part of Georgia’s accession process. In an armed conflict with the Russian Federation in 2008, the country lost control of two regions, and Russia’s invasion of Ukraine in 2022 led to an influx of more than 168,000 Russian and Ukrainian migrants (Geostat 2024b).
Figure 1.2. Worldwide Governance Indicators by Component, 2014–22
Figure 1.2. Worldwide Governance Indicators by Component, 2014–22
Source: Worldwide Governance Indicators (database).
Strategy and Program Implementation
The Bank Group’s strategy adapted well to Georgia’s development needs (figure 2.1) and was well coordinated with other development partners. Strategy and policy dialogue were informed by sound analytic underpinnings and were consistent with the identified factors that determine success in EU accession: enhancement of institutional quality, competitiveness in an open-trade environment, improvements in human capital, and high investment rates (Żuk et al. 2018). The strategy was well adapted to the Bank Group’s role as a major partner, accounting for 13 percent of such funding (OECD 2024a). In most sectors, the World Bank focused on introducing innovative elements and sought to engage in a programmatic manner (box O.1).
Figure 2.1. Evolution of Country Strategies During the Evaluation Period
Figure 2.1. Evolution of Country Strategies During the Evaluation Period
Source: Independent Evaluation Group.
Note: CPF = Country Partnership Framework; CPS = Country Partnership Strategy; TSA = targeted social assistance.
Bank Group lending operations were successful in achieving their objectives. Out of the 14 lending operations that closed during the evaluation period and the self-evaluation of which was validated by the Independent Evaluation Group, 6 projects were rated satisfactory, 7 projects were rated moderately satisfactory, and only 1 project was rated moderately unsatisfactory. Projects generally achieved intended outputs, with shortcomings in the ability to measure some outcome indicators. Therefore, Bank performance was rated at least moderately satisfactory for all projects. The performance of the International Finance Corporation projects was more mixed, with projects approved before the evaluation period performing less well than those approved during the evaluation period—a fact that was recognized in the various strategy documents.
Figure 2.3. Evolution of World Bank Lending, FY14–23
Figure 2.3. Evolution of World Bank Lending, FY14–23
Source: Independent Evaluation Group (as of December 8, 2023).
Note: Trust fund projects are excluded. ASA = advisory services and analytics; CPF = Country Partnership Framework; CPS = Country Partnership Strategy; DPF = development policy financing; IPF = investment project financing; PforR = Program-for-Results.
Box O.1. Evolution of the World Bank Group Programs
World Bank Group engagement implemented the lessons of the 2009 Georgia Country Assistance Evaluation, which found that the program lacked focus and recommended stronger prioritization (World Bank 2009). Since then, the program has been continuously adjusted to ensure broad relevance. Intensified dialogue with the government and development partners has increased the cohesiveness of the program.
The Bank Group operates in an environment in which other development partners frequently offer funding with higher concessionality. The Bank Group adjusted to this by focusing on areas of comparative advantage in line with the government demand for its global knowledge and in-house analytic capacity. For example, in the financial sector, the Bank Group moved from standard micro, small, and medium enterprise financing to more innovative and knowledge-intensive projects (see chapter 3). In transport, the Bank Group’s support evolved from investment lending for the East-West Highway program to subnational transport projects with a focus on innovative elements to emphasize road safety and maintenance (chapter 4). In the energy sector, the Bank Group focused on complementing private sector investments in energy generation with World Bank investment in transmission infrastructure (see chapter 4). For human capital development support, the World Bank supported reforms through advisory services and analytics, which subsequently led to lending engagement, including a programmatic Program-for-Results (see chapter 5).
Source: Independent Evaluation Group.
The Bank Group program successfully used a range of instruments to help increase competitiveness, growth, and job creation. World Bank engagement helped improve the business climate by providing analytic, advisory, and policy support for the establishment by the European Bank for Reconstruction and Development and the Georgian government of the Investors Council, the Georgian Competition and Consumer Agency, and Enterprise Georgia, among other institutions. Reforms supported by technical assistance helped strengthen economic integration by contributing to the adoption of the requirements of the EU Deep and Comprehensive Free Trade Area. The Bank Group’s work advanced the innovation agenda with analytics, policy support to establish Georgia’s Innovation and Technology Agency, and investment lending to create an innovation ecosystem (figure 4). Bank Group engagement in the financial sector complemented the work of other partners by focusing on capital market development and providing advisory support for expanding and greening the financial sector. During the evaluation period, financial access increased, and dollarization declined. Support for tourism helped boost growth in targeted regions, whereas work in agriculture complemented a larger EU engagement. As a result, the Bank Group program successfully contributed to improved economic outcomes: unemployment fell from 23 percent in 2014 to 16.4 percent in 2023, and GDP per capita grew at an annualized rate of 4.4 percent during the period (figure 1.1). Exports increased as share of GDP, and exports to the EU started growing at an annualized rate of 14.2 percent between 2018 and 2022.
Figure 3.2. Average Annual Financing Provided to Financial Sector Projects by Major Development Partners
Figure 3.2. Average Annual Financing Provided to Financial Sector Projects by Major Development Partners
Source: OECD 2024b.
Note: ADB = Asian Development Bank; CPF = Country Partnership Framework; CPS = Country Partnership Strategy; EBRD = European Bank for Reconstruction and Development; EIB = European Investment Bank; EU = European Union; OPEC = Organization of the Petroleum Exporting Countries.
The Bank Group’s support effectively contributed to improved infrastructure and increased trade by using programmatic and innovative approaches. The World Bank provided early support for the East-West Highway project as a backbone infrastructure for international transport connectivity, which subsequently crowded in funding from other development partners. It supported innovations, such as improved asset management, results-based approaches, and road safety, while supporting a program in secondary and rural roads. Between 2014 and 2019, external trade by road grew at an annualized 6.1 percent, and between 2015 and 2021, road-based transit trade grew by 14 percent annually. The Bank Group’s support for energy followed a broad sector programmatic approach aiming to mobilize private financing for generation and ensure grid sustainability. It responded to emerging contingent liabilities arising from power purchase agreements and worked with other partners to help resolve the issues. Engagement in the sector contributed to a sizable net energy export toward the end of the evaluation period (figure 4.2). Support for telecommunications combined with reforms to enable private sector coverage with targeted investment financing for rural broadband access in close cooperation with the EU.
Figure 1.1. Development GDP Growth and GDP per Capita, 2011–22
Figure 1.1. Development GDP Growth and GDP per Capita, 2011–22
Source: World Development Indicators (database).
The Bank Group’s regular investments in analytic work and the switch to results-based programmatic support helped improve the efficiency and effectiveness of education and health care systems. The World Bank’s analytic and advisory engagement facilitated the move toward investment project financing that rehabilitated rural schools and provided access to preprimary education. Policy lending promoted education reforms to improve teachers’ qualifications and curricula, and health sector reforms to improve various dimensions of the universal health coverage system. The International Finance Corporation made two investments complementary to the World Bank’s engagement in the health sector, financing the expansion of health care and production of pharmaceuticals. The Georgia Human Capital Program provided results-based funding to improve education quality and the efficiency of the health care system, allowing the channeling of funding toward priority areas. As a result, Bank Group programs contributed to Georgia closing the gaps in learning outcomes as measured by the Programme for International Student Assessment. Health metrics have been improving, and the share of out-of-pocket expenditures in overall health care spending has decreased.
Figure 4.2. Energy Imports, Exports, and Balance
Figure 4.2. Energy Imports, Exports, and Balance
Source: Monthly Energy Statistics Indicators, National Statistics Office of Georgia, https://www.geostat.ge/en/modules/categories/87/monthly-energy-statistics-indicators.
Note: GWh = gigawatt-hour.
The Independent Evaluation Group offers the following lessons based on the evidence and analysis in this Country Program Evaluation:
- Prioritizing Bank Group support around the move toward deeper regional integration was an effective anchor for key reforms for economic convergence. In Georgia’s case, there were notable successes in aligning support with the EU acquis communautaire. This created the basis for economic integration and resulted in a significant increase in trade with the EU. At the same time, Georgia had increased access to financing from European bilateral partners and institutions, such as the European Investment Bank and the European Commission, that supported critical investments in economic development and convergence enabling the Bank Group to be explicitly more selective in areas where its advisory services and analytics and operations had more of a comparative advantage and complementarity.
- Pursuing a selective and adaptive approach in a country with high implementation capacity and institutions, strong coordination among development partners, and access to a wide range of external resources can allow the Bank Group to exercise significant influence in areas of comparative advantage and global expertise. In Georgia, this entailed building relationships based on strong analytic and advisory activities, scaling back the World Bank’s own investments and leveraging other partners, and identifying opportunities to focus on developing more innovative engagements.
- A stronger focus on outcome-based programmatic approaches helped build local capacity and crowd in partner financing. For example, the innovative Georgia Human Capital Program identified government priority programs and shifted to a more outcome-based way of financing. This approach presented an opportunity to advance relevant sector agendas, foster local ownership, and provide a mechanism to coordinate partner engagement.