Modern Skills for Better Jobs Sector Development Program, Subprogram 1

Report and Recommendation of the President to the Board of Directors

Project Number: 52339-001 November 2020

Proposed Programmatic Approach, Policy-Based Loan for Subprogram 1, and Project Loan Georgia: Modern Skills for Better Jobs Sector Development Program

Distribution of this document is restricted until it has been approved by the Board of Directors. Following such approval, ADB will disclose the document to the public in accordance with ADB's Access to Information Policy.

CURRENCY EQUIVALENTS (as of 28 October 2020)

Currency unit – lari (GEL) GEL1.00 = €0.26251 or $0.30966 $1.00 = GEL3.0785 or €0.84832 €1.00 = GEL3.80940 or $1.17960

ABBREVIATIONS

ADB – Asian Development Bank CBTA – competency-based training and assessment COVID-19 – coronavirus disease GDP – gross domestic product IMF – International Monetary Fund LIBOR – London interbank offered rate MOESCS – Ministry of Education, Science, Culture and Sport NQF – national qualifications framework P3F – post-program partnership framework PAM – project administration manual PIU – project implementation unit PPP – public–private partnership SSO – sector skills organization VET – vocational education and training WBL – work-based learning

NOTE

In this report, “$” refers to United States dollars.

Vice-President Shixin Chen, Operations 1 Director General Werner Liepach, Central and West Asia Department (CWRD) Director Rie Hiraoka, Social Sector Division (CWSS), CWRD

Team leader Eisuke Tajima, Principal Education Specialist, CWSS, CWRD Team members Mary Margareth Bernus; Associate Financial Management Officer; Portfolio, Results, Safeguards and Gender Unit (CWOD-PSG); CWRD Nurlan Djenchuraev, Senior Environment Specialist, CWOD-PSG, CWRDa Baurzhan Konysbayev, Principal Counsel, Office of the General Counsel Norman LaRocque, Principal Education Specialist, CWSS, CWRD Gladys Ann Maravilla, Operations Assistant, CWSS, CWRD Ma. Isabel Martin, Senior Project Officer, CWSS, CWRD Hiranya Mukhopadhyay; Principal Public Management Specialist; Public Management, Financial Sector, and Trade Division; CWRD Sona Poghosyan, Social Development Specialist (Safeguards), CWOD-PSG, CWRD Thomas Robinson; Procurement Specialist; Procurement Division 1; Procurement, Portfolio, and Financial Management Department Mary Alice Rosero, Social Development Specialist (Gender and Development), CWOD-PSG, CWRD Tamar Tsiklauri, Project Analyst, Georgia Resident Mission, CWRD Peer reviewer Fook Yen Chong, Senior Social Sector Specialist (Skills Development), Human and Social Development Division, Southeast Asia Departmentb a Outposted to the Pakistan Resident Mission. b Outposted to the Indonesia Resident Mission.

In preparing any country program or strategy, financing any project, or by making any designation of or reference to a particular territory or geographic area in this document, the Asian Development Bank does not intend to make any judgments as to the legal or other status of any territory or area.

CONTENTS

Page PROGRAM AT A GLANCE I. THE PROPOSAL 1 II. THE SECTOR DEVELOPMENT PROGRAM AND RATIONALE 1 A. Background and Development Constraints 1 B. Policy Reform Agenda and ADB’s Value Addition 5 C. Impacts of the Reform 7 D. Development Financing Needs, Summary Cost Estimates, and Financing Plan 9 E. Implementation Arrangements 10 III. DUE DILIGENCE 11 A. Technical 11 B. Economic and Financial Viability 12 C. Sustainability 12 D. Governance 12 E. Poverty, Social, and Gender 13 F. Safeguards 13 G. Risk Assessment and Risk Management Plan 13 IV. ASSURANCES 14 V. RECOMMENDATION 14

APPENDIXES 1. Design and Monitoring Framework 15 2. List of Linked Documents 18 3. Development Policy Letter 19 4. Policy Matrix 24

Project Classification Information Status: Complete

PROGRAM AT A GLANCE 1. Basic Data Project Number: 52339-001 Project Name Modern Skills for Better Jobs Sector Department/Division CWRD/CWSS Development Program, Subprogram 1 Country Georgia Executing Agency Ministry of Education, Borrower Georgia Science, Culture and Country Economic Indicators https://www.adb.org/Documents/LinkedD Sport (MOESCS) ocs/?id=52339-001-CEI Portfolio at a Glance https://www.adb.org/Documents/LinkedD ocs/?id=52339-001-PortAtaGlance 2. Sector Subsector(s) ADB Financing ($ million) Education Secondary 35.00 Technical and vocational education and training 35.00 Total 70.00

3. Operational Priorities Climate Change Information Addressing remaining poverty and reducing inequalities GHG reductions (tons per annum) 0 Accelerating progress in gender equality Climate Change impact on the Low Strengthening governance and institutional capacity Project ADB Financing Adaptation ($ million) 0.00 Mitigation ($ million) 0.00

Cofinancing Adaptation ($ million) 0.00 Mitigation ($ million) 0.00 Sustainable Development Goals Gender Equity and Mainstreaming SDG 1.4 Gender Equity (GEN) SDG 4.4, 4.5 SDG 5.1, 5.5 Poverty Targeting SDG 8.6 General Intervention on Poverty SDG 10.2 4. Risk Categorization: Complex . 5. Safeguard Categorization Environment: B Involuntary Resettlement: C Indigenous Peoples: C . 6. Financing Modality and Sources Amount ($ million) ADB 70.00 Sovereign SDP - Program (Regular Loan): Ordinary capital resources 50.00 Sovereign SDP - Project (Regular Loan): Ordinary capital resources 20.00 Cofinancing 0.00 None 0.00 Counterpart 16.00 Government 16.00 Total 86.00 Currency of ADB Financing: Euro

Source: Asian Development Bank This document must only be generated in eOps. 25082020170702091703 Generated Date: 10-Nov-2020 13:14:29 PM

I. THE PROPOSAL

1. I submit for your approval the following report and recommendation on (i) a proposed programmatic approach, (ii) a proposed policy-based loan for subprogram 1, and (iii) a proposed project loan, all to Georgia for the Modern Skills for Better Jobs Sector Development Program. The program supports the Government of Georgia’s efforts to improve the quality and relevance of, and access to, vocational education and training (VET) in Georgia. Two key areas of focus will be to increase the participation of women in nontraditional fields of VET and in the labor market, and encourage stronger involvement of the private sector in VET.

II. THE SECTOR DEVELOPMENT PROGRAM AND RATIONALE

A. Background and Development Constraints

2. Economic context. Georgia enjoyed a 4.7% average annual rate of gross domestic product (GDP) growth and kept its annual fiscal deficit equal to about 1.0% of GDP during 2011−2019.1 It halved its poverty rate from 38.8% in 2007 to 20.1% in 2018. GDP grew by 5.1% in 2019 but is expected to fall by 5.0% in 2020 because of the coronavirus disease (COVID-19).2 It is also estimated that, because of COVID-19, the unemployment rate could increase from 11.6% in 2019 to 31.5% in 2020. Restrictions on economic activity across almost all industries3 put many people at risk, either by downward adjustments to income or working hours, or by losing their jobs. A preliminary estimate suggests that, in 2020, roughly 385,000 people or about 23.4% of the employed face a high risk of job displacement.4 As a response to the sharp increase in the fiscal deficit in 2020, the authorities adopted a medium-term plan to gradually bring the fiscal deficit to 3% by 2023.5 The ratio of public debt to GDP stood at 44.5% in 2019. The International Monetary Fund (IMF) assessed public debt as remaining at sustainable levels over the medium term.6

3. Labor market context. The population has declined considerably since 1990 and is expected to continue doing so because of low birth rates and continued net emigration, the latter because of a lack of well-paying jobs in the country. For now, employment in low-productivity agriculture remains relatively high. 7 Agriculture accounts for almost half of employment but contributes less than 10% to GDP. Most labor resources are locked in low-productivity jobs that require low-level skills. Future economic growth supported by technological advancement and global market demands will therefore require (i) efforts to improve the skills of the workforce to increase productivity and employment, and (ii) measures to boost growth in emerging and high- demand industries. And while the overall unemployment rate has fallen considerably—from 17.2% in 2012 to 11.6% in 2019—thanks to improvements in the country’s business environment, youth unemployment is at 30.4%,8 and the share of 15–29-year-olds who are not in employment,

1 International Monetary Fund (IMF). Georgia Country Data (accessed 24 August 2020). 2 Asian Development Bank (ADB). Economic Indicators for Georgia. 3 The tourism sector, which contributed 11.6% of GDP in 2019, was severely hit by travel restrictions and recorded a 58.6% decline in international visitor trips in March 2020, year on year. 4 L. Pavlenishvili et al. 2020. The Social Impacts of COVID-19—Case for a Universal Support Scheme? Tbilisi: International School of Economics at TSU Policy Institute. 5 Ministry of Finance of Georgia. 2020. Basic Economic and Financial Indicators (baseline scenario). Annexed to State Budget 2020 (post-COVID-19 version). 6 IMF. 2020. Georgia: Sixth Review under the Extended Arrangement and Requests for a Waiver of Nonobservance of Performance Criterion, Modification of Performance Criteria, and Augmentation of Access-Press Release; Staff Report; and Statement by the Executive Director for Georgia. IMF Country Report. No. 20/149. Washington, DC. 7 IMF. 2019. Georgia: Selected Issues. Washington, DC. 8 Government of Georgia, National Statistics Office. 2020. Distribution of Population by Economic Status and Age Groups. Tbilisi.

education, or training is 30.6%.9 Young women are more likely to be in this group than young men.10

4. Sector context. VET is part of the education sector11 and comprises basic, secondary, and higher vocational education; associate degree programs; and short-term training and retraining courses. Students generally enter VET after grade 9 or grade 12. Most are enrolled in formal, institute-based VET programs at lower levels of the national qualifications framework (NQF). VET provision also includes government-sponsored training and retraining for adults. In 2019, some 90 VET institutes delivered formal programs to more than 11,850 enrollees.12 VET enrollments have fallen by 27.0% since 2017, because of the introduction of longer-term competency-based training and assessment (CBTA) programs. Private VET institutes play an important role in Georgia, representing almost 60.0% of all VET providers, although only 33.9% of total VET enrollments. They are largely funded by tuition fees and are concentrated in Tbilisi and other urban centers where people can afford to pay the tuition fees. Since 2019, however, they have been receiving government funding for students enrolled in programs covering priority fields.

5. In public VET institutes, almost one-third of students are enrolled in engineering (36%), followed by business administration (14%), services (13%), and information and communication technology (10%). In private VET institutes, 39% are enrolled in health-related programs (including pharmaceuticals), followed by business administration (17%) and engineering (11%). The gender distribution of enrollments reflects the program offerings of public and private VET institutes. In 2019, 62% of private enrollees were women, while only 41% of public enrollees were women. In 2019, VET institutes cumulatively employed about 5,300 teachers, 72% of them women. Female teachers have higher qualifications than male ones (footnote 10).

6. VET is largely publicly funded. During 2017−2020, state spending on VET increased from GEL37.8 million to GEL66.5 million, in line with the government’s intention to boost spending on education from 3.8% to 6.0% of GDP by 2022.13 VET spending increased across all categories: voucher programs, institutional and targeted programs, training and retraining programs, and capital investment. State spending on VET represents 4.9% of the government’s education budget,14 less than half the share of the higher education sector. VET applicants who meet the entrance requirements get their full tuition covered at public VET institutes, and in priority study fields at private institutions.

7. Challenges in skills development. In 2018, the government adopted a new Law on Vocational Education15 that revised the NQF, strengthened VET quality assurance, and expanded the network of public VET providers, including through public–private partnerships (PPPs). Despite these efforts, the VET system still falls short in three areas: (i) quality and relevance of VET; (ii) access to, and participation in, VET; and (iii) policy and institutional framework for VET. The lack of market-relevant skills affects both workers and employers by constraining earnings

9 Government of Georgia, National Statistics Office. 2020. Labour Force Statistics. Tbilisi. 10 R. Li et al. 2019. OECD Reviews of Evaluation and Assessment in Education: Georgia. Paris: Organisation for Economic Co-operation and Development (OECD). 11 Technical and Vocational Education and Training (TVET) is a subsector of the education sector. Some ADB developing member countries officially call this subsector as TVET, while others including Georgia use VET. 12 Ministry of Education, Science, Culture and Sport (MOESCS). Education Management Information System Data. Unpublished. 13 Agenda. 2019. Georgian PM Explains How Gov’t Will Spend Quarter of State Budget on Education. 8 March. 14 Government of Georgia. 2019. Funding for Education Sector by 2022 Will Reach 6% of GDP, i.e., Quarter of the State Budget, States Prime Minister of Georgia. Tbilisi. 15 Government of Georgia. 2018. Law on Vocational Education. Tbilisi.

potential, productivity, innovation, corporate growth, and job creation, all of which hinders investment and a shift from low- to high-productivity sectors.16

8. Quality and relevance of training. The quality and relevance of VET programs are key concerns. Although Georgia ranked 46th on the skills pillar of the Global Competitiveness Index 2019, it fared poorly on key training components such as (i) extent of staff training, (ii) quality of VET, (iii) skills set of graduates, and (iv) ease of finding skilled employees.17 An inadequately educated workforce is also identified as one of the top five obstacles for innovators in Georgia by the Business Environment and Enterprise Performance Survey.18 In addition, one in five firms sees the lack of workers with solid digital skills as a major or severe problem that constrains their growth (footnote 7). In addition, although the employment rate for VET graduates rose by 4 percentage points during 2015−2017, a 2017 tracer study showed that the employment rate in 2017 was about 58%–64% for men and 55% for women.19 While some institutes perform well, quality is variable. The measured unemployment rate for those with a VET education was 11.1% in 2018, slightly below that of higher education graduates (12.9%).

9. A mismatch exists between the skills required in the labor market and those produced by the VET system. The Skills Towards Employability and Productivity survey by the World Bank highlighted the lack of adequate problem-solving and technical skills in employees. It also showed that employers were dissatisfied with the supply of skilled workers and found it difficult to hire workers with the skills they needed. The biggest demand was for middle-skilled workers rather than high-skilled workers (footnote 7). Beyond the educational background, employers are primarily looking for job-related skills, followed by positive personality traits. They generally believe that the educational system is not responding to the labor market needs.20 While firms need workers with low- and mid-level technical skills, the education system produces mostly graduates with higher education qualifications and graduates lacking soft and generic skills.21

10. The ability to deliver high-quality training is hindered by such factors as poor quality of the teaching workforce, as well as outdated facilities that are often not adequate for emerging skills areas. Low teacher salaries and the lack of teachers’ professional development hamper the ability to attract and retain high-quality teachers. Part-time work among teachers is common.22

11. Limited access and participation. A second key concern is the low VET participation rate—enrollments total less than 3% of young people aged 15–24, or only about 10% of the participation rate in higher education. A main reason is that higher education is seen as superior to VET for acquiring skills. Annual admissions to VET have declined since 2017 because of a fundamental change in the training approach—transition from general training to CBTA—and an increase in program duration from 6–12 months to an average 18 months. The small size of the TVE system limits the impact it can have on individuals’ economic opportunities, on firms’ access to skilled labor, and on the economy more generally. Substantial gender segregation is visible in program choices and the labor market (footnote 8). Men tend to work in better-paying traditional

16 World Bank. 2015. Skills Gaps and the Path to Successful Skills Development. Washington, DC. 17 World Economic Forum. 2019. The Global Competitiveness Report 2019. Geneva. 18 World Bank. Enterprise Surveys Data for Georgia. Washington, DC. 19 MOESCS. 2017. Tracer Study of VET Graduates. Tbilisi. 20 U. Bardak. 2020. Policies for Human Capital Development Georgia: An ETF Torino Process Assessment. Turin, Italy: European Training Foundation. 21 Government of Georgia, Ministry of Economy and Sustainable Development. 2017. The Survey of Business Demand on Skills. Tbilisi; and World Bank. 2017. Skills Gaps and the Path to Successful Skills Development. Washington, DC. 22 Sector Assessment (Summary): Education (Technical and Vocational Education and Training) (accessible from the list of linked documents in Appendix 2).

4 male domains such as engineering and construction, while women engage primarily in low-wage areas such as health care and social work.23

12. Access to VET is limited by several factors. The unified admission examination required for entering government-funded VET institutes creates an academic barrier to weaker students who often come from poorer backgrounds. 24 This is exacerbated by the large presence of private VET institutes (para. 4), which are not affordable for many (footnote 22). Moreover, the network of VET providers spans only 37 of 69 municipalities, and is largely concentrated in the capital, Tbilisi.25 The small size of the system limits its ability to have a positive impact on individuals’ economic opportunities, and the country’s ability to diversify its economy.

13. Policy and institutional framework. A core weakness of the current policy and institutional framework is the limited engagement of the private sector in the development and planning of VET, especially in developing occupational standards which is the basis for VET curriculum. Private input was possible through the vocational education committees with employer representation that were created under the National Center for Education Quality Enhancement in 2014 to develop occupational standards and VET curricula. These committees operated until 2017 but are no longer functional. The new VET law (footnote 15) envisages the creation of privately led sector skills organizations (SSOs) to drive the development of occupational standards. The 2018 law on PPP 26 established a framework to institutionalize cooperation between VET institutes and the industry, but the use of PPPs remains limited. Because of a funding framework that favors public VET institutes, the capacity of private colleges is underused. Poor students cannot afford the tuition and other fees, so private VET institutes are generally only found in urban centers.

14. Strategic alignment. The program is aligned with the government’s key economic strategies: (i) Georgia 2020,27 the country’s overarching socioeconomic strategy, which names skills enhancement as a key socioeconomic development goal; (ii) the Government Programme 2019−2020,28 which lists education and economic growth as priority reform areas; and (iii) the Regional Development Programme of Georgia 2018−2021, which prioritizes human resources.29 The country partnership strategy, 2019–2023 of the Asian Development Bank (ADB) for Georgia includes the development of human resources through support for education.30 The proposed program is listed in ADB’s country operations business plan, 2020−2022.31 It supports three of ADB’s seven operational priorities under its Strategy 2030: (i) reducing poverty and inequalities, (ii) accelerating progress in gender equality, and (iii) strengthening governance and institutional capacity.32 The proposed program will also complement the planned Sustainable Water Supply

23 ADB. 2018. Georgia Country Gender Assessment. Manila. 24 Currently, VET entrance examination administered by the central government mainly assess students’ marks on academic subjects. It is similar to entrance examination of general schools. A student who is good at practical skills and/or good at certain subjects might fail the examination, because of his/her poor marks on overall academic subjects. Discussion on examination reforms are on-going to develop tailor-made entrance examinations by the VET institutes. 25 46 out of the 52 private institutes are located in the 3 big cities: Tbilisi, Kutaisi and Batumi. 26 Government of Georgia. 2018. Law of Georgia on Public–Private Partnerships. Tbilisi. 27 Government of Georgia. 2014. Socio-economic Development Strategy of Georgia: “GEORGIA 2020”. Tbilisi. 28 Government of Georgia. 2019. Government Programme 2019−2020. Tbilisi. 29 Government of Georgia. 2018. Regional Development Programme of Georgia 2018−2021. Tbilisi. 30 ADB. 2019. Country Partnership Strategy: Georgia, 2019–2023—Developing Caucasus’s Gateway to the World. Manila. 31 ADB. 2019. Country Operations Business Plan: Georgia, 2020–2022. Manila. 32 ADB. 2018. Strategy 2030: Achieving a Prosperous, Inclusive, Resilient, and Sustainable Asia and the Pacific. Manila.

and Sanitation Sector Development Program by providing skilled trainees in water engineering,33 while its focus on tourism complements current technical assistance to the tourism industry.34

15. Modality. ADB and the government selected the sector development program— consisting of a policy-based component and an investment component—because of the parallel needs for development financing, policy reforms, and project financing to meet infrastructure, equipment, and capacity requirements. The modality is appropriate because (i) the government has increased its emphasis on human capital development since 2017 and shows strong will for VET reforms; (ii) the program's holistic and integrated approach translates into balanced policy reform and much-needed investment in VET; (iii) the modality strengthens sustainability outcomes by removing structural barriers to VET development; and (iv) it provides a strong tool to ensure that the planned increase in education spending yields better outcomes. The policy and investment components are mutually reinforcing—investments help operationalize reforms in the short term, and policy reforms increase the long-term sustainability and effectiveness of project outputs. The policy-based lending component is in the form of a programmatic approach with two subprograms that support the government’s VET reform agenda. This approach is preferred because it will allow (i) the formulation and implementation of stronger reform initiatives, and (ii) adjustments to the proposed reforms should there be any changes in the government’s VET strategy.

B. Policy Reform Agenda and ADB’s Value Addition

16. Policy reform agenda. Georgia’s VET system requires a significant improvement in its quality and relevance and a broadening of access. The program will support the government in removing critical constraints in line with the Unified Strategy for Education and Science 2017−2021,35 which commits the government to increasing the number of skilled graduates by (i) aligning VET with labor market needs, (ii) ensuring broader access to VET, and (iii) promoting VET as a skills development pathway. Subprogram 1 begins the task of introducing concrete reforms in line with the goals outlined in the Unified Strategy, such as implementing a revised NQF; increasing access by launching a formal system of adult training; strengthening the governance of VET institutes and the system as a whole; improving teaching; reinforcing quality assurance; stepping up spending on VET; boosting the engagement of the private sector in the development of occupational standards and work-based learning (WBL); introducing PPPs; and extending the government’s voucher program to students enrolled in priority programs of private VET institutes. The second subprogram builds on the reforms of the first one in terms of teaching improvements, private sector engagement, PPPs, and broader access. It also deepens reforms in areas such as the development of a gender policy.

17. Policy-based and project loan links. The policy reforms will sustain the government’s VET reform agenda, complement investments under the project loan, and generate sustainable improvements in the performance of the VET system. They will help assure that project investments translate into more effective VET, and labor market and economic outcomes. Project investments are essential to support the implementation of the reform initiatives and are used for purchasing equipment and for strengthening operation and maintenance capacity, all of which will contribute to greater operational efficiency of the VET system in Georgia. Policy measures such as greater private involvement in VET through SSOs and PPPs, an increase in VET budgets,

33 ADB. 2020. Georgia: Sustainable Water Supply and Sanitation Sector Development Program. Manila. 34 ADB. 2019. Regional: Sustainable Tourism Development in the Central Asia Regional Economic Cooperation Region. Manila (TA 9776-REG). 35 Government of Georgia, Ministry of Education, Science, Culture and Sport. 2017. Unified Strategy for Education and Science 2017−2021. Tbilisi.

approval of a governance framework for skills hubs, and an extension of public voucher funding to private institutes will make the VET system more entrepreneurial and VET more responsive to market demands, which is critical to stronger performance.

18. Subprograms 1 and 2 and post-program partnership framework. Subprogram 1 covers several major reform areas, including revision and improvements of the NQF, quality assurance, adult education, and private sector involvement. It also includes the piloting of PPPs, as well as two actions related to fiscal issues—increase in teacher salaries and more spending on VET. Subprogram 1 also helps formulate the concept for the governance of skills hubs, which is needed to implement skills hubs under reform area 1. Subprogram 2 covers most of the same issues. It (i) extends these policy actions in some cases including PPPs; (ii) formalizes approvals of concepts or intermediate decisions in other policy areas (e.g., skills hubs, WBL, and occupational standards); (iii) introduces new reforms (e.g., VET gender policy, VET system governance); and (iv) implements policies approved under subprogram 1 (e.g., NQF). A post- program partnership framework (P3F) will be implemented during 2022−2026 to provide an avenue for future engagement with the government, ADB, and other development partners on key policy reform issues. Some policy actions in subprogram 1 are fundamental administrative processes and will translate into changes in practices under subprogram 2 and during the P3F period. They ultimately lead to improved performance and outcomes of the VET system, and eventually bring changes in the classrooms and beyond. The selected method drives substantial progress throughout the programmatic approach and helps smooth the implementation of the P3F.36

19. ADB’s value addition. The program represents ADB’s first engagement in the education sector in Georgia. Its design was informed by ADB’s extensive experience in VET across Asia, in such diverse countries as India, Indonesia, the Kyrgyz Republic, the People’s Republic of China, and Viet Nam.37 Two overarching lessons derived from it are the need for political and financial commitment to raising the quality of VET, and the importance of private sector involvement, not least in planning, financing, and curriculum development. Other lessons from previous ADB projects and broader VET experience are the importance of (i) mobilizing students to pursue VET; (ii) incorporating entrepreneurship into programs; (iii) recruiting and training qualified teachers; (iv) providing career guidance and good labor market data to improve decision-making; (v) taking measures to increase women’s participation; (vi) combining in-class training and WBL; (vii) imparting soft skills; and (viii) using recognized quality standards, testing, and certification processes. The program incorporates these lessons through both its program actions and project initiatives.

20. Development coordination. The largest development partner for Georgia's VET efforts is the European Union, which has supported the system since 2008, followed by Germany's Gesellschaft für Internationale Zusammenarbeit (GIZ), the United Kingdom’s Good Governance Fund, the United Nations Development Programme, the Millennium Challenge Corporation, and

36 A policy reform working group, headed by MOESCS and with development partners as members, will refine the policy actions for subprogram 2 and continue as the focal point for the development and implementation of the P3F. 37 ADB. 2009. Good Practice in Technical and Vocational Education and Training. Manila; ADB. 2017. India: Odisha Skill Development Project. Manila; ADB. 2013. People’s Republic of China: Hunan Technical and Vocational Education and Training Demonstration Project; Independent Evaluation Department. 2013. Performance Evaluation Report: Vocational and Technical Education Project in Viet Nam. Manila; ADB. Independent Evaluation Department. 2020. Performance Evaluation Report: Vocational Education Strengthening Project in Indonesia. Manila; ADB. 2020. Project Result/Case Study: Gaining Skills for a Better Life in the Kyrgyz Republic. Manila; IMF. 2018. Georgia: Selected Issues. IMF Country Report. No. 18/199. Washington, DC; and OECD. 2018. The Role of Technical and Vocational Education and Training (TVET) in Fostering Inclusive Growth at the Local Level in Southeast Asia. Local Economic and Employment Development (LEED) Papers. No. 2018 (01). Paris.

the United States Agency for International Development. German development cooperation through KfW is developing a center of excellence in construction and logistics in Tbilisi. Two development partner coordination groups operate under the Ministry of Education, Science, Culture and Sport (MOESCS)—one covering all levels of education, one covering VET.38 These provide an avenue for ADB to work with the IMF and other partners to further elaborate VET objectives. The government is committed to reforms under the IMF’s Extended Financing Facility to support the country’s long-term economic performance. The IMF will supervise the compliance with performance criteria and structural benchmarks that help sustain the medium-term macroeconomic stability. ADB and the IMF have continuously liaised during the program design. ADB also collaborated with the IMF in 2018 in preparing a document on Georgia’s labor market and education system that set out the challenges facing the education and training system and possible directions for reform (footnote 7).

C. Impacts of the Reform

21. The program is aligned with the following impact: inclusive economic growth strengthened (footnote 27). The effect of the reform is: a responsive VET network promoting excellence in skills development strengthened. The proposed program reform areas are: (i) quality and relevance of VET in priority economic sectors improved; (ii) access to, and inclusiveness of, the VET system increased; and (iii) institutional framework strengthened through increased private participation in VET.39 (All policy actions for subprogram 1 have been completed). The program's policy-based and investment components cover all reform areas. The impact of the project will be: labor productivity and competitiveness of the economy enhanced; its outcome will be: VET institutions and program aligned with evolving labor market needs.

22. Reform area 1: Quality and relevance of VET in priority economic sectors improved. The reforms under this area will improve the quality and relevance of VET through better programs and diversification of revenues. Subprogram 1 policy actions include (i) development of a concept for the governance framework for skills hubs, which aims at strengthening links with international education and industry partners in adopting corporate principles to improve responsiveness and institutional efficiency; (ii) augmented voucher program, to include a 30% rise in remuneration for VET teachers to recruit and retain qualified teachers; (iii) increase in VET budget by about 23% starting from January 2020;40 (iv) approval of a revised NQF; and (v) approval of VET authorization standards and procedures. Subprogram 2 policy actions involve (i) approval of the governance framework for skills hubs (concept developed in subprogram 1); (ii) approval of a regulatory framework for VET teachers’ competencies, induction, and in-service professional development; (iii) approval of revised entrepreneurship modules, as part of a national VET standard in line with the European Entrepreneurship Competence Framework; and (iv) adoption of a regulation for a revised VET funding framework, including the introduction of performance-based funding for VET institutes.

23. The project component will finance the establishment of two innovative skills hubs in existing VET institutes in Kutaisi and Telavi to deliver high-quality and relevant training in seven priority economic sectors.41 The skills hubs will display sector leadership and innovation, develop

38 Development Coordination (accessible from the list of linked documents under Appendix 2). 39 The design and monitoring framework is in Appendix 1. 40 The increase was to upscale the VET programs (all the budget components, including expansion of voucher program, institutional and targeted programs, and training programs). 41 Priority economic sectors are (i) electronic engineering, (ii) information and communication technology, (iii) medical and pharmaceutical production, (iv) fashion and design, (v) water engineering, (vi) furniture production and carpentry, and (vii) services (hospitality and tourism).

8 national and international links, and support other VET institutes. The program will finance improved gender-sensitive facilities; updated equipment; training in entrepreneurship, languages, and soft skills; student placement services; capacity building; and support for income-generating activities. The hub locations were chosen based on (i) their proximity to economic growth nodes, (ii) alignment of programs with priority economic sectors, (iii) government priorities, and (iv) the condition of facilities and equipment. Skills hubs will have increased public and private funding. The program will develop new or revise existing CBTA programs at NQF levels 4 and 5. The program steering committee will be able to propose changes to the prioritization of economic sectors and VET programs to reflect changes in economic circumstances or government priorities. The project will also support the introduction of income-generating activities in skills hubs.

24. Reform area 2: Access to, and inclusiveness of, VET system increased. This reform area will increase access to VET and expand its scope to earlier levels of education. The subprogram 1 policy actions involve approving (i) a new regulatory framework for adult education, including program development, eligibility to deliver programs, and rules for student enrollments; (ii) VET enrollment rules and procedures for youth and vulnerable groups supported by a more equitable funding scheme; and (iii) revised rules and procedures for the recognition of nonformal learning. Subprogram 2 policy actions include (i) further expansion of VET delivery in secondary schools; and (ii) development of a VET gender equality policy, and guidelines and approval of a 5-year action plan in 2022 to put this policy into effect.

25. The project component will support the introduction of VET in 20 secondary schools to deliver CBTA VET programs at NQF levels 3 and 4 in priority economic sectors, by upgrading facilities, providing equipment, supporting curriculum development, and building capacity. It will also (i) formulate a VET gender policy and guidelines, (ii) undertake social marketing of VET, and (iii) establish a career guidance and counseling system.

26. Reform area 3: Institutional framework strengthened through increased private participation in VET. These reforms will strengthen the VET institutional framework by taking measures to increase private participation in the system. Subprogram 1 policy actions include (i) approval of MOESCS regulations on the transfer of responsibility for the development of occupational standards and the coordination of WBL with industry-led SSOs; (ii) piloting a VET PPP by authorizing collaboration with a private construction company and a privately operated college in Western Georgia, to offer VET programs in construction; and (iii) extended eligibility for the government voucher program to private VET providers for some students enrolled in priority programs. Subprogram 2 policy actions include (i) approval of a policy on occupational standards and coordination of WBL with industry-led SSOs; (ii) creation of a skills authority with (a) responsibility for VET system governance, (b) a charter providing for private sector and government participation in decision-making, and (c) 50% female representation on its board; (ii) approval of occupational standards developed by SSOs and (iii) approval of the PPP program documents for at least one additional VET PPP transaction (baseline: 3).

27. The project component will establish SSOs in seven priority economic sectors, responsible for the development of occupational standards and WBL in VET. The government will (i) encourage private participation in SSOs, (ii) finance specialized training in priority economic sectors, and (iii) pilot an innovative model of privately managed VET programs.

28. Response to COVID-19. The project design includes several measures to mitigate the impact of COVID-19, such as boosting sectors and programs that are effective in responding to a pandemic or in contributing to economic recovery (e.g., information and communication technology, and pharmaceutical and medical production). The project will finance the introduction

9 of e-learning and the retraining of workers in hard-hit sectors to help them acquire new skills and find work in areas with increasing employment opportunities and higher value addition.

D. Development Financing Needs, Summary Cost Estimates, and Financing Plan

29. The government has requested €67,865,600 in financial assistance in the form of a programmatic approach, comprising two regular policy-based loans from ADB’s ordinary capital resources: €42,416,000 for subprogram 1 in 2020, and €25,449,600 for subprogram 2 in 2022 (indicative). The total financing gap for fiscal year 2020 is considerable at $1.613 billion, based on a fiscal deficit of 8.5% of GDP in 2020 (footnote 6).42 Total budget support in 2020 is expected to be $1.782 billion, $169 million more than the financing gap.43 Total ADB budget support in 2020 will tentatively be $530 million, or 32.9% of the total financing gap. The proposed budget support through subprogram 1 in 2020 will help bridge about 3.0% of the total financing gap.

30. The policy-based loan amount is justified by the government’s development financing needs. The loan for subprogram 1 will have a 15-year term, including a grace period of 3 years; an annual interest rate determined in accordance with ADB’s London interbank offered rate (LIBOR)-based lending facility; a commitment charge of 0.15% per year; and such other terms and conditions set forth in the draft loan agreement. Based on the annuity repayment method with 30% discount factor, the average maturity is 12.1 years, and no maturity premium is payable to ADB.

31. The investment project is estimated to cost €30,539,520 (Table 1). Detailed cost estimates are in the project administration manual (PAM).44

Table 1: Project Investment Plan (€ million) Item Amounta A. Base Costb 1. Quality and relevance of VET in priority economic sectors improved 13.28 2. Access to, and the inclusiveness of, VET system increased 12.29 3. Institutional framework strengthened through increased private participation in VET 1.29 Subtotal (A) 26.86 B. Contingenciesc 3.16 C. Financial Charges During Implementationd 0.52 Total (A+B+C) 30.54 VET = vocational education and training. a Prices as of 23 February 2020. Numbers are rounded to the nearest hundred. b Includes taxes and duties of €3.0 million, which will be fully exempted by the government. The amount of taxes and duties does not represent an excessive share of the project cost.

42 The financing gap is to be closed primarily through loans and grants from development partners. ADB put together a comprehensive package of support in response to the government’s official request for assistance submitted on 26 March 2020. ADB approved COVID-19 Active Response and Expenditure Support ($100 million), fiscal resilience and social protection ($200 million), and water supply and sanitation ($80 million), and is also preparing education ($50 million), and policy-based loans for energy ($100 million), for an expected total disbursement of $530 million in 2020 subject to approval. In addition, budget support from other development partners in 2020 totals $1,252 million: (i) $205 million from Agence Française de Développement, (ii) $150 million from the Asian Infrastructure Investment Bank, (iii) $223 million from the European Union, (iv) $294 million from German development cooperation through KfW, (v) $200 million from the IMF, and (vi) $180 million from the World Bank. 43 The government sought budget support from development partners in excess of its expected financing needs. Although $1,782 million was discussed with development partners, only $1,157 million was signed by 24 August 2020, of which only $615 million has been disbursed so far. As such, some of these budget support programs may be cancelled or postponed to 2021. 44 Project Administration Manual (accessible from the list of linked documents in Appendix 2).

10 c Physical contingencies are computed at 5.0% for civil works and goods. Price contingencies are calculated based on escalation rates for domestic and international costs estimated for Georgia. The annual escalation rate for international costs is estimated at 1.6% for 2021, 1.7% during 2022−2023, and 1.8% during 2024–2027. The annual escalation rate for domestic costs is estimated at 3% during 2021−2027. d Includes interest and other charges on all sources of financing. Source: Asian Development Bank estimates.

32. The government requested a regular loan of €16,966,400 from ADB’s ordinary capital resources to help finance the project component. The project cost includes goods (equipment and furniture), civil works, training, consulting services, project management, physical and price contingencies, and interest during construction. It will have a 23-year term, including a grace period of 14 years; an annual interest rate determined in accordance with ADB’s LIBOR-based lending facility; a commitment charge of 0.15% per year (interest and other charges during construction to be capitalized in the loan); and such other terms and conditions set forth in the draft loan agreement. Based on the straight-line repayment method, the average maturity is 18.75 years, and the maturity premium payable to ADB is 0.20% per annum. The government will finance €7,634,880 in civil works, equipment and furniture, training, workshop, survey, and curriculum development; and in-kind assistance of €5,938,240 in the form of office accommodation, office supplies, maintenance and repairs, environmental monitoring and social due diligence reports; and taxes and duties. The financing plan is in Table 2.

Table 2: Summary Financing Plan Amount Share of Total Source (€ million) (%) Overall program Asian Development Bank Ordinary capital resources (regular policy-based loan) 67.87 69.0 Ordinary capital resources (regular project loan) 16.97 17.2 Government of Georgia 13.57 13.8 Total 98.41 100.0 Sector development program (subprogram 1 and project) Asian Development Bank Ordinary capital resources (regular policy-based loan) 42.42 58.1 Ordinary capital resources (regular project loan) 16.97 23.3 Government of Georgiaa 13.57 18.6 Total 72.96 100.0 a Government counterpart funding applies only to the project loan. Numbers are rounded to the nearest hundred. Source: Asian Development Bank estimates.

E. Implementation Arrangements

33. The implementation arrangements are summarized in Table 3. Procurement financed under the project loan will follow the ADB Procurement Policy (2017, as amended from time to time) and Procurement Regulations for ADB Borrowers (2017, as amended from time to time). Value for money will be achieved by reducing risk and improving the quality of procurement and its performance. Through competitive selection, local suppliers may offer cost-effective and innovative solutions. The civil works tender will be packaged to attract regional bidders to the sites of construction, thereby reducing the need for costly mobilization of equipment to the sites. Goods tenders will be marketed to local and international suppliers and will be packaged to attain economies of scale.

Table 3: Implementation Arrangements Aspects Arrangements Implementation perioda Programmatic approach (policy-based lending): Project loan: Subprogram 1: March 2019–30 September 2020 December 2020– Subprogram 2: October 2020–June 2022 December 2026 Estimated completion date 30 September 2020 (SP1) 30 June 2022 (SP2) 31 December 2026 Estimated loan closing date 31 March 2021 (SP1) 31 December 2022 (SP2) 30 June 2027 Management (i) Oversight body Program steering committee chaired by the deputy minister, MOESCS Members: MOESCS, MOF, Ministry of Economy and Sustainable Development, representatives of industry and professional associations (ii) Executing agency Policy-based loan: MOF Project loan: MOESCS (iii) Key implementing Policy-based loan: MOF and MOESCS Project loan: MOESCS agencies (iv) Implementation unit MOESCS will establish a project implementation unit Procurement Open competitive bidding (nationally 23 contracts (est.) $6.0 million advertised): works Open competitive bidding (nationally 30 contracts (est.) $11.16 million advertised): goods RFQ: goods 3 contracts $0.12 million RFQ (non-consulting services) – high- Multiple contracts $1.0 million quality specialized training Consulting services - QCBS (90:10): architectural design and 145 person $2.52 million construction supervision firm months (key - CQS: language training (2 firms), soft experts) skills (2 firms), e-learning (1 firm), social marketing (1 firm), labor market (1 firm) - LCS: Audit firm (1) ICS: PIU staff (nationally advertised) 1,060 person- $2.32 million months ICS: nationally and internationally 243 person- $2.89 million advertised months Consulting recruitment readiness: the architectural design and construction supervision firm will be advertised, and requests for proposal will be issued prior to ADB Board of Directors approval. Retroactive financing and Advance contracting for recruitment of key PIU staff and the architectural design advance contracting and construction supervision firm; and for procurement of PIU equipment, furniture, and vehicles. The government has not requested retroactive financing. Disbursement The loan proceeds will be disbursed following ADB's Loan Disbursement Handbook (2017, as amended from time to time) and detailed arrangements agreed between the government and ADB. ADB = Asian Development Bank; CQS = consultant’s qualifications selection; ICS = individual consultant selection; LCS = least-cost selection; MOESCS = Ministry of Education, Science, Culture and Sport; MOF = Ministry of Finance; PIU = project implementation unit; QCBS = quality- and cost-based selection; RFQ = request for quotation. a The front-loading of resources in ADB’s PBL is based on the government timeline for sector reforms. Source: Asian Development Bank.

III. DUE DILIGENCE A. Technical

34. The program will finance skills hubs and secondary schools offering VET. These will have improved features compared with other VET providers, such as renovated classrooms and workshops, updated equipment, and gender-inclusive design. Skills hubs will operate under new governance arrangements, such as greater management autonomy and accountability, which will ensure the sustainable use of facilities and equipment. SSOs will strengthen the role of the private sector in VET. All facilities will meet or exceed national construction codes.

B. Economic and Financial Viability

35. Reforms to education and enhanced sector management, including in VET, can help produce a better-skilled workforce and support more robust and inclusive growth. Shifts in employment from low productivity and/or low-wage sectors to high-productivity and/or high wage sectors can be a key driver of labor productivity growth and economic development (footnote 7). The project will generate economic benefits from (i) increased enrollments, graduation, and employment rates for long (1.5–3.0 years) and short (less than 1 year) VET courses in skills hubs and secondary schools; (ii) a small increase in graduation and employment rates for long and short courses in conventional VET institutes; and (iii) a wage premium for employed graduates from skills hubs. More effective VET will lift the lifetime incomes of skills hub graduates, given the wage premium over those without VET.45 The economic internal rate of return is conservatively calculated at 8.9% based on a discount rate of 6%.46 Increased women’s employability will also be the project’s benefit. It is somewhat sensitive to changes in graduation and employment rates for long courses in skills hubs and secondary schools, and to lower wage premiums. It is less sensitive to smaller increases in graduation and employment rates for short courses. The project remains economically viable under all these scenarios. It does not generate revenue so a financial viability analysis is not required.

C. Sustainability

36. Program sustainability is rated high. ADB and individual VET consultants will provide capacity building and guidance to staff of MOESCS, Educational and Scientific Infrastructure Development Agency, Municipal Development Fund, and the project implementation unit (PIU). This will include training on ADB procurement regulations, disbursement procedures, financial management, and safeguards monitoring and management. The VET consultants will also prepare a sustainability strategy for the design and management of education infrastructure and equipment. The financial analysis concluded that the project’s recurrent cost impact on state budget expenditures will be very small and hence fully manageable from a fiscal perspective.47 The government has assured ADB that it will make up for any shortfall in the finances required for the project component.

D. Governance

37. Financial management and procurement risk assessments, and strategic procurement planning were conducted. Key findings are in the risk assessment and risk management plan.48 The assessed pre-mitigation financial management risk is substantial mainly because MOESCS staff lack experience with ADB’s financial management requirements and procedures. To address this, the PIU will engage qualified financial management staff who will be trained in ADB’s financial management procedures and requirements. Other risks relate to accounting and internal control (lack of financial management or accounting guidelines), internal audit (formal internal audit qualifications of staff), and financial reporting (procedural issues in preparing the ministry-level consolidated annual financial statements).

38. The project procurement risk is moderate. It can be mitigated by (i) engaging a procurement specialist in the PIU; (ii) customizing the national e-procurement system to meet the requirements of ADB's procurement regulations; (iii) conducting roadshows for local construction

45 I. Badurashvili. 2019. Skills Mismatch Measurement in Georgia. Turin, Italy: European Training Foundation. 46 Economic Analysis (accessible from the list of linked documents in Appendix 2). 47 Financial Analysis (accessible from the list of linked documents in Appendix 2). 48 Risk Assessment and Risk Management Plan (accessible from the list of linked documents in Appendix 2).

13 companies to highlight program activities and attract more bids; (iv) undertaking advance contracting; and (v) developing the capacity of the State Procurement Agency Dispute Resolution Board, which reviews appeals on ADB-financed procurements. ADB’s Anticorruption Policy (1998, as amended to date) was explained to and discussed with the government and MOESCS. The policy requirements and supplementary measures are described in the PAM (footnote 44).

E. Poverty, Social, and Gender

39. The program will increase the opportunities for skills development and thereby boost the employability of VET graduates, lift their lifetime incomes, and reduce disparities. It integrates inclusive measures to enhance VET access for women, ethnic minorities, people with disabilities, and other vulnerable groups. Women have fewer opportunities than men in accessing educational programs and employment in fields that are in high demand in the labor market (paras. 3 and 11). In general, women earn 40% less than men.49 The program is categorized as gender equity theme, and includes gender-responsive design features such as (i) set-up of gender-inclusive skills hubs; (ii) training programs for women and vulnerable groups; (iii) CBTA-based VET programs that prioritize women’s access to skills development in high-demand areas; and (iv) expanded awareness-raising campaigns on VET and gender-sensitive career guidance programs.50

F. Safeguards

40. Environment (category B). MOESCS prepared a consolidated draft initial environmental examination in line with ADB’s Safeguard Policy Statement (2009). The examination showed that the construction and renovation of workshops, classrooms, and utilities under the program will have site-specific temporary environmental impacts, including air and water pollution, noise, solid waste, and occupational and community health and safety. A generic environmental management plan and its mitigation and monitoring programs will be part of the bidding documents for civil works.

41. Involuntary resettlement (category C). Skills hubs and secondary schools will be established in existing compounds with available land. The renovation of existing buildings and the construction of new facilities will take place on institute- or school-owned land, which is free of encumbrances. No third-party land users were identified, and project works will not adversely affect business or livelihood activities. In case of any changes in selected subproject sites or other changes at the detailed design stage, a safeguards due diligence report was prepared and will be updated to confirm the absence of land acquisition and resettlement impacts.

42. Indigenous peoples (category C). The program has been classified as category C for indigenous people’s safeguard. There are no indigenous people’s communities in the project area or in the country in general, as defined in the ADB’s Safeguard Policy Statement for operational purposes. Accordingly, no indigenous peoples planning documents are required.

G. Risk Assessment and Risk Management Plan

43. Major risks and mitigating measures are summarized in Table 4 and described in detail in the risk assessment and risk management plan (footnote 48).

49 World Economic Forum. 2020. Global Gender Gap Report. Geneva. 50 Gender Action Plan (accessible from the list of linked documents in Appendix 2).

Table 4: Summary of Risks and Mitigating Measures Risks Mitigation Measures MOESCS lacks experience with ADB-funded projects, Provide the project implementation unit’s finance manager including ADB’s financial management requirements and accountant with training on ADB financial and procedures. management requirements and procedures.

Staff of MOESCS’s Internal Audit Department do not Develop and implement a training program for Internal have adequate qualifications. Audit Department staff. MOESCS and the Educational and Scientific Engage qualified project implementation unit staff and Infrastructure Development Agency lack experience consultants, introduce appropriate procurement systems, with ADB-funded procurement. Government and train procurement staff on procurement and the procurement templates do not meet ADB recruitment of consultants. requirements. A new PIU structure is established within MOESCS Advance recruitment of PIU staff. Provide capacity building which lacks experiences with ADB funded projects to MOESCS and PIU staff and establish coordination mechanism in MOESCS. ADB = Asian Development Bank; MOESCS = Ministry of Education, Science, Culture and Sport; PIU = Project Implementation Unit. Source: Asian Development Bank.

IV. ASSURANCES

44. The government has assured ADB that the implementation of the program shall conform to all applicable ADB policies, including those concerning anticorruption measures, safeguards, gender, procurement, consulting services, and disbursement as described in detail in the PAM and project documents. The government has agreed with ADB on certain covenants for the program, which are set forth in the loan agreements.

V. RECOMMENDATION

45. I am satisfied that the programmatic approach, policy-based loan, and project loan would comply with the Articles of Agreement of the Asian Development Bank (ADB) and recommend that the Board approve (i) the programmatic approach for the Modern Skills for Better Jobs Sector Development Program; (ii) the policy-based loan of €42,416,000 to Georgia for subprogram 1 of the Modern Skills for Better Jobs Sector Development Program, from ADB’s ordinary capital resources, in regular terms, with interest to be determined in accordance with ADB’s London interbank offered rate (LIBOR)-based lending facility; for a term of 15 years, including a grace period of 3 years; and such other terms and conditions as are substantially in accordance with those set forth in the draft policy-based loan agreement presented to the Board; and (iii) the project loan of €16,966,400 to Georgia for the Modern Skills for Better Jobs Sector Development Program, from ADB’s ordinary capital resources, in regular terms, with interest to be determined in accordance with ADB’s LIBOR-based lending facility; for a term of 23 years, including a grace period of 14 years; and such other terms and conditions as are substantially in accordance with those set forth in the draft project loan agreement presented to the Board.

Masatsugu Asakawa President

16 November 2020

Appendix 1 15

DESIGN AND MONITORING FRAMEWORK Country’s Overarching Development Objective Inclusive economic growth strengtheneda

Data Sources and Performance Indicators with Targets and Reporting Results Chain Baselinesb Mechanisms Risks Effect of the By 2027: Reform a. At least 65% of VET graduates of a. Project- Economic growth A responsive project-supported skills hubs in priority administered tracer too slow to create VET network economic sectors, of whom at least study jobs and self- promoting 50% are women, are employed or self- employment excellence in employed 6 months after graduation opportunities for skills (2020 baseline: no project skills hub VET graduates. development graduates).c strengthened b. At least 80% of employers express b. Project- satisfaction with program graduates administered 6 months after graduation employer (2020 baseline: no recent employer satisfaction survey satisfaction surveys under CBTA). Reform Area 1: Key Policy Actions Quality and Program: relevance of 1a. MOESCS revised and approved a new 1a. MOESCS decree Change in VET in priority national qualifications framework by government’s economic 2019 (2018 baseline: no national policy sectors improved qualifications framework covering all commitment to levels of education). VET reform and improvement 1b. Government revised and approved because of output-oriented VET authorization 1b. MOESCS decree change in policy standards and procedures by 2020 priorities or (2019 baseline: no output-oriented political changes authorization standards).

Project: 1c. Two VET institutes upgraded to skills hubs, incorporating gender- and PWD- 1c. PIU reports inclusive design features, in seven priority economic sectors by 2024 (2020 baseline: no skills hubs).d

1d. At least 5% of skills hubs’ budget generated from non-MOESCS funds by 1d. Skills hubs’ 2026 (2020 baseline: no skills hubs). financial reports Reform Area 2: Program: Access to, and 2a. Government approved a new regulatory 2a. Government inclusiveness of, framework for adult education, including Ordinance, VET system program development, eligibility to Ministerial Order increased deliver programs, and rules for student and Decree enrollments by 2019 (2018 baseline: no regulatory framework).

2b. MOESCS approved new VET enrollment rules and procedures by 2b. Ministerial Order 2020 (2019 baseline: no equitable enrollment rules).

16 Appendix 1

Data Sources and Performance Indicators with Targets and Reporting Results Chain Baselinesb Mechanisms Risks 2c. MOESCS approved revised rules and procedures for the recognition of 2c. MOESCS decree. nonformal learning by 2020 (2019 baseline: limited recognition of nonformal learning).

Project: 2d. 20 project-supported secondary schools 2d. NCEQE report on authorized by NCEQE to provide VET VET authorization programs by 2024 (2020 baseline: applications 8 secondary schools).d

2e. 20 project-supported secondary schools 2e. PIU reports providing gender-sensitive career guidance within new VET programs by 2026 (2020 baseline: no schools offering such career guidance).

2f. At least 2,000 people (1,100 women, 2f. Education 500 minorities, 200 special education management and needs) complete short-term VET by information system 2026 (2020 baseline: not applicable). data

2g. Gender-sensitive social-marketing 2g. PIU reports campaign to promote VET and entry of women into nontraditional courses conducted by 2023 (2020 baseline: no such campaign). Reform Area 3: Program: Institutional 3a. MOESCS extended eligibility for the 3a. Government Change in framework government funded voucher program to resolution government’s strengthened include private VET providers for policy through students enrolling in priority programs commitment to increased private by 2020 (2019 baseline: no state VET reform and participation in funding for private VET providers). improvement VET because of Project: change in policy 3b. Seven SSOs in priority sectors with 3b. Charters and priorities or 40% female members operational by reports of political changes 2022 (2020 baseline: no SSOs). established SSOs

3c. At least one public–private partnership 3c. Contract or similar for the private management of an agreement on institute or programs in place by 2026 outsourcing (2020 baseline: no such partnership).

3d. At least 500 individuals (50% women) 3d. PIU reports completed training in specialized internationally recognized programs by 2026 (2020 baseline: not applicable).

3e. At least 21 occupational standards developed or revised by SSOs with 3e. PIU reports participation of employer

Appendix 1 17

Data Sources and Performance Indicators with Targets and Reporting Results Chain Baselinesb Mechanisms Risks representatives by 2026 (2020 baseline: no SSOs).

Key Activities with Milestones Reform area 1: Quality and relevance of VET in priority economic sectors improved 1.1 Build capacity and establish two skills hubs covering seven priority economic sectors by Q4 2022. 1.2 Rehabilitate and equip skills hub facilities related to CBTA, IGA, and e-learning by Q1 2023. 1.3 Obtain authorization for the new programs and launch delivery by Q2 2023. 1.4 Assess potential for, build capacity for, and operationalize IGAs in two skills hubs by Q1 2023. 1.5 Recruit language firm(s) and launch language programs for the students of skills hubs by Q3 2023. 1.6 Operationalize youth centers at skills hubs and their branches at schools by Q3 2024. Reform area 2: Access to, and inclusiveness of, VET system Increased 2.1 Conduct consultations and develop the VET gender policy by Q2 2022. 2.2 Build and equip VET facilities in 20 schools and 15 schools by Q1 2023, and 5 schools by Q1 2024. 2.3 Provide capacity building for school leadership and train teachers by Q1 2023. 2.4 Obtain approval and start delivering VET programs by Q3 2023 in 15 schools (Q3 2024 in 5 schools). 2.5 Operationalize career guidance system in skills hubs and secondary schools by Q1 2023. 2.6 Deliver short-term in-demand job skills training for women and targeted vulnerable groups by Q4 2024. 2.7 Obtain approval by NCEQE for up to 30 short-term programs by Q3 2024. 2.8 Implement VET gender policy in two skills hubs and 20 secondary schools by Q3 2023. 2.9 Contract external provider and launch VET gender-sensitive social marketing campaigns by Q3 2021. Reform area 3: Institutional framework strengthened through increased private participation in VET 3.1 Reach out to sector stakeholders and establish seven SSOs in priority economic sectors by Q4 2021. 3.2 Engage SSOs in development or revision of occupational standards by Q1 2022. 3.3 Deliver specialized, internationally accredited training to 500 professionals by Q3 2024. 3.4 Issue request for proposals for private management of VET institutes or departments by Q1 2023. Program Management Activities Key PIU staff commence work by Q1 2021. Advertise by Q4 2020, and mobilize by Q2 2021 the architectural design and construction supervision firm. Advertise civil works procurement by Q4 2021 and commence civil works by Q2 2022. Implement contracts and complete civil works from Q3 2022 to Q1 2024. Advertise training equipment and furniture for 2 skills hubs and 20 secondary schools by Q3 2022. Complete provision of furniture and equipment for 2 skills hubs by Q1 2023 and 20 schools by Q1 2024. Advertise and mobilize VET consultants and firms. Establish a program monitoring and evaluation system, and a program performance management system. Implement periodic gender action plan, update indicators, and monitor compliance with safeguards. Submit quarterly progress report and program completion report. Inputs Asian Development Bank Program loans: (i) Subprogram 1: €42.42 million (ordinary capital resources) (ii) Subprogram 2: €25.45 million (ordinary capital resources) Project loan: €16.97 million (ordinary capital resources) Government of Georgia: €13.57 million CBTA = competency-based training and assessment; IGA = income-generating activity; MOESCS = Ministry of Education, Science, Culture and Sport; NCEQE = National Center for Education Quality Enhancement; PIU = project implementation unit; PWD = people with disabilities; Q = quarter; SSO = sector skills organization; VET = vocational education and training. a Government of Georgia. 2014. Socio-economic Development Strategy of Georgia – “GEORGIA 2020”. Tbilisi. b Contribution to the ADB Corporate Results Framework 2019–2024, to be determined. c Target is based on VET graduates’ average employment rate of 58.6% as per tracer studies conducted by MOESCS. d Program skills hubs and secondary schools will have (i) separate toilets for men and women; (ii) adequate lighting; (iii) closed-circuit television facilities; (iv) common rooms for staff; and (v) features for PWD, including workshop design, equipment, and ramps. Source: Asian Development Bank.

18 Appendix 2

LIST OF LINKED DOCUMENTS http://www.adb.org/Documents/RRPs/?id=52339-001-3

1. Program Loan Agreement 2. Project Loan Agreement 3. Sector Assessment (Summary): Education (Technical and Vocational Education and Training) 4. Project Administration Manual 5. Contribution to the ADB Results Framework 6. Development Coordination 7. Country Economic Indicators 8. International Monetary Fund Assessment Letter1 9. Summary Poverty Reduction and Social Strategy 10. Risk Assessment and Risk Management Plan 11. List of Ineligible Items 12. Financial Analysis 13. Economic Analysis 14. Gender Action Plan 15. Initial Environmental Examination 16. Due Diligence Report: Social Safeguards

Supplementary Documents 17. Governance of the Vocational Education and Training Sector in Georgia 18. Kutaisi Skills Hub 19. Telavi Skills Hub 20. Vocational Education and Training Sector in Georgia Policy Paper 21. Safeguards Policy Matrix

1 The International Monetary Fund (IMF) confirmed on 12 November 2020 that the attached IMF letter may serve as the IMF assessment letter.

Appendix 3 19

20 Appendix 3

Appendix 3 21

22 Appendix 3

Appendix 3 23

24 Appendix 4

POLICY MATRIX Subprogram 1 Subprogram 2 Post-Program Partnership Policy Actions Tentative Policy Actions Framework Reform Area March 2019–September 2020 October 2020–June 2022 2022−2026

Improved institutional framework for upscaling and improving quality of VET

Quality and GoG implemented measures to MOESCS takes steps to promote relevance of strengthen the quality and relevance of innovation, excellence, and inclusiveness vocational VET: in VET: education and training in priority 1. To improve responsiveness and 1. To improve responsiveness and • To improve responsiveness economic sectors institutional efficiency, the MOESCS institutional efficiency, the MOESCS and institutional efficiency, improved. developed a concept for the approves a governance framework for the MOESCS pilots a governance framework of skills hubs skills hubs. The framework adopts governance framework in which adopts corporate principle for corporate principle for strengthening skills hubs and in centers of strengthening linkage with private linkage with private sector and for excellence. sector and for internationalization of internationalization of education. education, and published it on an official GoG website as a basis for DE/RA: Regulation/charter outlining a VET sector stakeholder consultations. new governance framework for skills hubs approved. [MOESCS] DE/RA: Concept paper for the governance of skills hubs published on an official GoG website as a basis for sector consultation. [MOESCS]

2. To attract and retain higher quality 2. To improve the quality of teaching in VET teaching staff, the GoG VET, the MOESCS approves a amended GoG Resolution No. 244 to regulatory framework for (i) VET increase the total value of voucher teacher competencies, (ii) induction including increased remuneration of process for new VET teachers, and (iii) VET teachers by 30% starting from system for in-service professional January 2020 onwards.a development

DE/RA: Amendment to GoG DE/RA: Ministerial orders relating to Resolution No. 244 on VET Financing VET teacher competencies, induction (GoG Resolution No. 16). [GoG] process for new VET teachers, #1779354 of 30/12/2019 on system for in-service professional submission of the draft of the

Appendix 4 25

Subprogram 1 Subprogram 2 Post-Program Partnership Policy Actions Tentative Policy Actions Framework Reform Area March 2019–September 2020 October 2020–June 2022 2022−2026

amendment and Explanatory development, and setting of teachers’ Note. [GoG] remuneration. [MOESCS]

3. To upscale VET program (expansion 3. To improve the relevance of VET • To diversify institutional of voucher program, institutional and program with more market oriented funding, at least 50% of targeted programs, and training approach and introduction of public VET institutes programs) and improve the quality corporate principles such as generate income from and relevance of VET delivery, the performance-based management, the income generating GoG increased the budget for GoG approves regulation for a revised activities. vocational education from 2019 to VET funding framework, including the 2020 by around 23%. introduction of performance-based funding for VET institutes and income DE/RA: Figures for State Budget generating activities. 2019 (actual) and 2020 (plan) from the Law of Georgia on State Budget DE/RA: Government regulation on 2020 (amendment 6407-IIs of VET institute financing by public VET 24/6/2020). [GoG] providers. [GoG]

4. To systematize qualifications at all 4. To promote development of key • To promote key levels of education in one framework competences in VET, the MOESCS competencies in VET, the aligned with the European education approves revised entrepreneurship MOESCS conducts series system, MOESCS revised and module, as part of national VET of teacher training to ensure approved a new National standard in line with the European entrepreneurship module is Qualifications Framework Entrepreneurship Competence introduced to all 90 Framework institutes (Baseline: 0) DE/RA: MOESCS Decree No. 69/N of 10/04/2019 on Approving National DE/RA: Ministerial Decree on Qualifications Framework and Field of approving entrepreneurship module. Education. [MOESCS] [MOESCS]

5. To strengthen VET institutional and program quality assurance, the GoG revised and approved output-oriented VET authorization standards and procedures.

26 Appendix 4

Subprogram 1 Subprogram 2 Post-Program Partnership Policy Actions Tentative Policy Actions Framework Reform Area March 2019–September 2020 October 2020–June 2022 2022−2026

DE/RA: Amendment to the MOESCS Decree No. 99/N on the Approval of the Educational Institutions Authorization Charter and of Authorization Fees (Decree No. 25/N;12/02/2020). [MOESCS]

Expanded access of VET for skilling and re-skilling to all GoG improves the targeting and Access to, and effectiveness of its programs to expand inclusiveness of, access to VET for women and vulnerable VET system groups, and strengthening linkage with increased. secondary schools:

5. To expand the network of VET • To expand the network of institutes and to strengthen linkages VET institutes and to between secondary education and strengthen linkages between VET, the MOESCS authorizes three secondary education and additional public secondary schools to VET, MOESCS authorizes deliver VET programs (Baseline: at least 20 additional public currently eight secondary schoolsb are secondary schools to deliver authorized). VET programs (2022 baseline: 11 secondary DE/RA: Decisions of the Authorization schools are authorized). Board. [MOESCS]

GoG implemented measures to increase equity and access to VET for women and vulnerable groups:

6. To promote lifelong learning and the • To promote lifelong learning responsiveness of the VET system for and the responsiveness of adult learners, the GoG approved a the VET system for adult new regulatory framework for adult learners, the MOESCS education, including program increases the budget and

Appendix 4 27

Subprogram 1 Subprogram 2 Post-Program Partnership Policy Actions Tentative Policy Actions Framework Reform Area March 2019–September 2020 October 2020–June 2022 2022−2026

development, eligibility to deliver numbers of adult education programs and rules for student providers to increase the enrolments. number of students enrolled in adult education programs DE/RA: GoG Ordinance No. 131 of to at least 3,500. 15/3/2019 on the Approval of Rules to (Baseline: 1,942 in June Obtain the Right for the 2020). Implementation of VET Training and Retraining Programs. Ministerial Order No. 71 of 10/4/2019 on enrolment in training and retraining programs, Ministerial Decree No. 59 of 26/03/2019 on development and approval of programs [GoG]

7. To provide more equitable access to VET for youth and vulnerable groups, the MOESCS approved new VET enrollment rules and procedures.

DE/RA: Ministerial Order No. 59/N of 28/5/2020 on amendment to Ministerial order No.152/N of 27/09/2013, Professional Testing introducing equitable enrollment rules and procedures was approved. [MOESCS]

8. To promote lifelong learning and improve employability and career pathways for those without formal qualifications, the MOESCS approved revised rules and procedures for the recognition of non-formal learning.

28 Appendix 4

Subprogram 1 Subprogram 2 Post-Program Partnership Policy Actions Tentative Policy Actions Framework Reform Area March 2019–September 2020 October 2020–June 2022 2022−2026

DE/RA: MOESCS Decree No. 188/N of 06/09/2019 on Recognition of Learning Outcomes Achieved within Non-Formal Learning. [MOESCS]

6. To expand access to VET for women • MOESCS implements the and to make the VET system more VET gender 5-year action gender-responsive, the MOESCS plan (2022-2026) to achieve develops and publishes a VET gender the targets outlined in the policy and guidelines, and approves a action plan for expanding 5-year action plan (2022−2026) to put access to VET for women this policy into effect.c and to make the VET system DE/RA: Gender equality policy and more gender-responsive guidelines, and 5-year action plan 2022−2026 for the VET system are published on MOESCS website. [MOESCS]

Enhanced private sector participation for improved relevance and efficiency

Institutional The GoG took measures to increase the The GoG facilitates private sector framework role of the private sector in VET: involvement in VET through key changes strengthened to the institutionalization of VET-industry through partnership through SSOs: increased private 9. To increase the relevance of VET, the 7. To increase the relevance of VET, the • To increase the relevance of participation in MOESCS approved the regulations GoG approves regulations on the VET, the GoG grants the VET. for submission to the GoG on the development of occupational status of training enterprise transfer of responsibility for the standards and transfer of responsibility with authority to provide WBL development of occupational for coordinating WBL by industry-led to at least seven public and standards and the coordination of SSOs. private companies (out of 95 WBL to industry-led SSOs. companies) (Baseline: 86).e DE/RA: Approved GoG regulations on DE/RA: Regulations on occupational development of occupational standards standards development and WBL and implementation of WBL. [GoG]

Appendix 4 29

Subprogram 1 Subprogram 2 Post-Program Partnership Policy Actions Tentative Policy Actions Framework Reform Area March 2019–September 2020 October 2020–June 2022 2022−2026

formulated and published on an official GoG website. [MOESCS] 8. To improve VET sector governance, • To increase the relevance of foster development of VET, and VET, MOESCS approves the increase private sector involvement in education standards based the VET sector, the GoG establishes a on all occupational standards skills authority with responsibility for developed by SSOs. VET sector governance, and whose charter provides for private sector and GoG participation in decision-making, and 50% female representation on its board.

DE/RA: Ordinance or public registry certificate on establishment of the skills authority, regulation vesting VET governance functions in the skills authority, and skills authority charter. [GoG]

9. To increase the relevance of VET, the Skills Authority approves the occupational standards developed by SSOs. These standards define competencies of each profession which responds to the industry needs, and become a basis of vocational education standards.

DE/RA: Decisions by Skills Authority on approving new occupational standards. [GoG]

10. To promote private sector delivery in 10. To increase private sector delivery of • To promote private sector VET, the MOESCS piloted a VET VET, the MOESCS approves the PPP delivery in VET, the

30 Appendix 4

Subprogram 1 Subprogram 2 Post-Program Partnership Policy Actions Tentative Policy Actions Framework Reform Area March 2019–September 2020 October 2020–June 2022 2022−2026

PPP by establishing collaboration program documents including MOESCS successfully with private construction company information on terms and conditions of prepares and tenders at least and a privately operated VET college a concessional agreement for at least two additional VET PPPs (In in Western Georgia, offering VET one additional VET PPP (in total of total of six) (2022 baseline: programs in construction (Baseline: four) (Baseline: three) four). two) DE/RA: Ministerial legal act. DE/RA: Authorization Council’s [MOESCS] Decision No. 116 On Granting Authorization to Non-Profit VET College (Construct). f [MOESCS]

11. To incentivize private sector provision of VET and expand access to VET, the MOESCS extended eligibility for the government funded voucher program to include private VET providers for students enrolling in priority programs. The voucher program initially included public VET providers for students enrolled in any program.

DE/RA: GoG Resolution No. 174 on the Amendment in the Rules and Conditions of Funding VET and the Maximum Amount of Tuition Fee in VET Institutes of 29/03/2019. [GoG] DE/RA = documentary evidence/responsible agency; GoG = Government of Georgia; MOESCS = Ministry of Education, Science, Culture and Sport; NCEQE = National Center for Education Quality Enhancement; PPP = public-private partnership; SSO = sector skills organization; VET = vocational education and training; WBL = work-based learning. a The government does not have any budget category for teachers’ salary in VET. Teachers’ salary is paid from vouchers being allocated to schools and institutes following the government’s order. Amendment to GoG Resolution No. 244 on VET Financing specifies the budget increase of VET voucher and its Explanatory Note guides teachers’ salary increase. b 1. General education institute LTD Tsodna (authorization valid till 9/12/22); 2. Makhinjauri Maritame Liceum ( authorization valid till 4/27/22); 3. School of University of US (authorization valid till 8/17/22); 4. Kareli Municipality Agara Public School ( authorization valid till 9/15/26); 5. LTD Ivane Javakhishvili Borjomi Private General Education school ( authorization valid till 5/23/23); 6. General education institute LTD St Dimitri Khipiani Multiprofile School-college (authorization valid

Appendix 4 31

till 12/12/22); 7. LTD ST Trinity Georgian Academy (authorization valid till 9/22/23); 8. General education Institute non-profit St Tamar School of Patriarck (authorization valid till 4/5/22) c The publication serves as MOESCS’s endorsement, by providing policy guidance and future directions of education sector development.. The action plan to be approved by MOESCS will ensure and determine actions, resource allocation (finance and human resources), division of labor of agencies and institutes, and timing as defined in the policy. d Priority economic sectors are: (i) electronic engineering, (ii) information and communications technology, (iii) medical and pharmaceutical production, (iv) fashion and design, (v) water engineering, (vi) furniture production and carpentry, and (vii) services (hospitality and tourism). e The target is set in line with the WBL piloting scheme which targets 106 companies by 2026. f Authorization refers to granting authority to an institute to deliver education and training programs, and eligibility for public financing. Source: Asian Development Bank.