CPS Final Georgia Review Validation of the Country Partnership Validation Strategy Final Review, 24–28 Independent Evaluation Raising development impact through evaluation Validation Report January 2019 Georgia Validation of the Country Partnership Strategy Final Review, 2014–2018 This document is being disclosed to the public in accordance with ADB’s Access to Information Policy. Independent Evaluation: VR-31 NOTES (i) In this report, “$” refers to United States dollars. (ii) For an explanation of rating descriptions used in Asian Development Bank (ADB) evaluation reports, see ADB. 2015. 2015 Guidelines for the Preparation of Country Assistance Program Evaluations and Country Partnership Strategy Final Review Validations. Manila. Director General Marvin Taylor-Dormond, Independent Evaluation Department (IED) Deputy Director General Véronique N. Salze-Lozac'h, IED Director Walter Kolkma, Thematic and Country Division, IED Team leader Ari A. Perdana, Evaluation Specialist, IED Team members Sergio C. Villena, Evaluation Officer, IED Ed Alfred Abrahm M. Alvinez, Evaluation Assistant, IED Christine Grace K. Marvilla, Evaluation Assistant, IED The guidelines formally adopted by the Independent Evaluation Department (IED) on avoiding conflict of interest in its independent evaluations were observed in the preparation of this report. To the knowledge of IED management, there were no conflicts of interest of the persons preparing, reviewing, or approving this report. In preparing any evaluation report, or by making any designation of or reference to a particular territory or geographic area in this document, IED does not intend to make any judgments as to the legal or other status of any territory or area. Abbreviations ADB – Asian Development Bank CPS – country partnership strategy CPSFR – country partnership strategy final review CWRD – Central and West Asia Department EIRR – economic internal rate of return GDP – gross domestic product IED – Independent Evaluation Department IMF – International Monetary Fund km – kilometer MFF – multitranche financing facility MSMEs – micro, small, and medium-sized enterprises PCR – project completion report PEFA – Public Expenditure and Financial Accountability PPP – public–private partnership PVR – project completion report validation report TA – technical assistance TCR – technical assistance completion report UNICEF – United Nations Children's Fund WUS – water and other urban infrastructure and services Currency Equivalents (as of 7 November 2018) Currency unit – lari (GEL) GEL1.00 = $0.36 $1.00 = GEL2.76 Contents Acknowledgments vii Executive Summary ix Map xiii CHAPTER 1: Introduction 1 A. Validation Purposes and Procedures 1 B. Country Development Context 1 C. The Government Plans 4 D. ADB Country Partnership Strategy 5 E. ADB Operations during the Country Partnership Strategy, 2014–2018 6 CHAPTER 2: Validation of the Country Partnership Strategy Final Review 8 A. Relevance 8 B. Effectiveness 10 C. Efficiency 17 D. Sustainability 19 E. Development Impacts 21 F. Performance of Nonsovereign Operations 25 G. ADB and Borrower Performance 26 H. Overall Assessment 27 I. Assessment of Quality of Self-Evaluation 27 CHAPTER 3: Key Lessons and Recommendations 28 A. Lessons 28 B. Recommendations to ADB 29 APPENDIXES 1. ADB Loans and Technical Assistance Active during 2014–2018 31 2. Planned versus Actual Sovereign Loans and Technical Assistance to Georgia, 2014–2018 33 3. Development Partners Active in Key Sectors and Thematic Areas in Georgia 35 4. Scores Assigned to Sector and Cross-Cutting Objectives 36 5. Georgia: Country at a Glance 37 6. Linked Document 38 Acknowledgments This report was prepared by an Independent Evaluation Department (IED) team, with Ari Perdana as team leader, and Sergio Villena, Ed Alfred Abraham Alvinez and Christine Grace Marvilla as team members. Director General Marvin Taylor-Dormond, Deputy Director General Véronique N. Salze-Lozac’h, and Director Walter Kolkma provided overall guidance. Consultants for the validation report were Peter Choynowski and Alexis Arthur Garcia. IED staff member Ma. Patricia Lim assisted in the initial stage of the report and Enrico Pinali commented on the initial draft. Barry Hitchcock peer reviewed the draft report. The team is grateful to Asian Development Bank staff at headquarters and the Georgia Resident Mission for their support to the evaluation, and to the Government of Georgia officials and other stakeholders for their inputs during the country visit. IED retains full responsibility for this report. Executive Summary The Asian Development Bank (ADB) country partnership strategy (CPS) for Georgia, 2014–2018 aligned with country priorities and sought to foster inclusive economic growth, enhancing regional connectivity and ensuring environmentally sustainable growth. ADB’s program amounted to $1.9 billion, with transport operations accounting for 43.1% of financing, water and other urban infrastructure and services operations for 27.7%, public sector management operations for 13.1%, finance operations for 9.4%, and energy operations for 6.6%. This report assessed the program successful, concurring with the final review’s assessment. Outputs and outcomes under various projects were mostly achieved and likely contributed to the development outcomes of robust and inclusive growth; prudent macroeconomic management; and reduced poverty, unemployment, and inequality. The CPS implementation was also efficient, and the outcomes were by and large deemed likely sustainable. The validation makes four recommendations for ADB’s future support to Georgia: (i) focus on regional cooperation and integration; (ii) implement measures to address regional disparities through the ADB- supported program; (iii) invest in education and training; and (iv) support the promotion of information technology-based economic activities in the program. Asian Development Bank’s (ADB) Independent The economy grew robustly at an average annual Evaluation Department validated the Central and rate of 4.8% between 2010–2016, despite West Asia Department’s country partnership numerous shocks. Georgia’s growth decelerated strategy final review (CPSFR) for Georgia, 2014– to 2.7% in 2016 but bounced back to 5% in 2017, 2018 (Appendix 6). The validation assessed driven mostly by tourism. Coupled with a system approved, closed, and ongoing ADB operations of targeted social transfers, reforms helped during the country partnership strategy (CPS) reduce the poverty rate from 37.4% in 2007 to period to provide lessons and recommendations 21.3% in 2016. that will inform ADB’s future country program in Georgia. In addition to information presented in However, Georgia faces some development the CPSFR, the validation used data from challenges. The economy remained over-reliant on consultations that took place during August– domestic demand. The population, especially September 2018 with line ministries and agencies, those at the working age, is declining due to low development partners, participating commercial fertility and high out-migration. Dysfunctional banks, selected project beneficiaries, and staff at land markets, inadequate firm insolvency ADB headquarters and the Georgia Resident frameworks, insufficient financial depth and Mission. inclusion, and skills mismatches in the labor market still constrain business growth and Country Context investment. Meanwhile, income inequality in the Georgia is a small open economy to the east of country is one of the highest in the Central Asia the Black Sea that provides an important link in region. Large urban–rural and intraregional disparities highlight the economic dualism. the oil and gas transit system from the Caspian Sea to international markets. A former republic of The Social-economic Development Strategy of the Soviet Union, Georgia gained independence in Georgia: Georgia 2020, released in 2014, targeted 1991. It has become one of the most democratic inclusive economic growth by ensuring nations in the region since the 2003 Rose macroeconomic stability and effective public revolution. administration, improving private sector x Georgia: Validation of the Country Partnership Strategy Final Review, 2014–2018 competitiveness, developing human capital, and overreliance on domestic demand and its increasing access to finance. relevance on promoting regional cooperation and integration (RCI). It did not pay much attention to The government, formed after the 2016 the issues of rural urban disparities, as well as the parliamentary election, issued a new strategy impact of the declining population on the titled Freedom, Rapid Development, Prosperity: workforce and labor productivity. A thorough Government Platform 2016–2020. The four policy diagnostic review including clear and measurable goals were economic reform, education reform, target indicators would have sharpened the focus spatial planning and regional development, and of the CPS and would have better justified the public governance reform. choice of program assistance. The validation Country Partnership Strategy, 2014–2018 assesses the ADB program relevant. and ADB Support Effectiveness. Most of the CPS results framework The CPS, 2014–2018 sought to foster inclusive targets have been achieved or are likely to be economic growth while enhancing regional achieved, although the achievement of some connectivity and ensuring environmentally could not be verified because of lack of data. sustainable growth. The CPS focused on ADB’s lending program and TA projects were transport, energy,