Table of Content s of Content s Donors’ C onferences .....1 Grant Assistance vs. Soft Loan S upport.....5 ... DACU Development and Aid Co-ordination Unit DFID Department for International

Table of Contents Donors’ Conferences ............................................................................................... 1 Grant Assistance vs. Soft Loan Support ............................................................... 5 Budget Support ......................................................................................................... 8 Social Issues and Humanitarian Assistance ......................................................11 Economic Recovery ...............................................................................................12 Management of International Assistance ...........................................................14

Annex I Overview of Donors’ Support Annex II Overview of Support by Sectors Annex III List of Loans

i

List of Abbreviations CIDA Canadian International Development Agency CIS Commonwealth of Independent States CRDA Community Revitalization through Democratic Action DACU Development and Aid Co-ordination Unit DFID Department for International Development EAR European Agency for Reconstruction EBRD European Bank for Reconstruction and Development ECHO Humanitarian Aid Office of European Commission EIB European Investment Bank EMS Energy Management System EPS Power Company of Serbia EU European Union FAO Food and Agriculture Organisation of United Nations FRY Federal Republic of Yugoslavia FYRM Former Yugoslav Republic of Macedonia GDP Gross Domestic Product GoS Government of Serbia GSP Public Transport Company of City of Belgrade GTZ Gesellschaft für Techische Zusammentarbeit HIF Health Insurance Fund ICL Institute for Comparative Law IDA International Development Association IDP Internally Displaced Person IFI International Financial Institutions IMF International Monetary Fund IT Information Technology KfW Kreditanstalt für Wiederaufbau MIER Ministry of International Economic Relations MoH Ministry of Health MoFE Ministry of Finance and Economy MSP Municipal Support Programme NBY National Bank of Yugoslavia NGO Non-Governmental Organisation

OECD Organisation For Economic Co-Operation And Development

OSCE Organisation for Security and Cooperation in Europe PFSAC Public Finance Structural Adjustment Credit PHRD Policy and Human Resources Development PRSP Poverty Reduction Strategy Paper RC Red Cross RTS Radio Television of Serbia SAC Structural Adjustment Credit SDC Swiss Agency for Development and Cooperation SDR Special Drawing Rights

ii

SEED Southeast Europe Enterprise Development SIMEST Societa italiana per le imprese all'estero SME Small and Medium-Sized Enterprise SOE Socially Owned Enterprise SOFI Swiss Organisation for Facilitating Investment SOSAC Social Sector Adjustment Credit TA Technical Assistance ToR Terms of Reference TPP Thermo Power Plant TSS Transitional Support Strategy UN United Nations UNDP United Nations Development Programme USA United States of America USAID United States Agency for International Development WB World Bank WTO World Trade Organisation ZOP Office for payment operations ZTP Public Railway Company

1

Donors’ Conferences Donors’ conference planned for June 2002, was postponed and the date in 2003 has not been defined yet Lengthy process of negotiations on Constitutional Charter of Serbia and Montenegro, discontinuity in the work of Parliaments (Federal and Republican) delayed the overall donors’ support and slowed down the funds disbursement The disbursement of grants in 2002 was lower than expected by 49.76 million €, whereas the disbursement of loans was lower by 163.3 Satisfactory level of Foreign Direct Investments relaxed economic pressures caused by slower disbursement of donors’ funds Donors’ conferences are necessary until self-sustainability of the economy is accomplished.

Donors’ Conferences 1. Although the donors’ conference was not organised in 2002, donors have continued with their support. However, disbursement of grants was lower than expected, by 49.76 million €, whereas the disbursement of loans was lower by 163.3. The total vo lume of disbursed funds in 2002 was 785.93 million €1.

2. The following table represents the overview of the pledged funds on donors’ conferences/meetings, the allocation2 of funds and their disbursement3 in the same year.

3. During the June 2001 Donors’ conference in Brussels, the international community indicated that around 4.55 billion € will be pledged in the period 2001 to 2005, for the reconstruction, economic recovery and reforms in the Federal Republic of Yugoslavia, of which around 4 billion € would be for the Republic of Serbia. By the end of 2002, approximately 2.9 billion € was allocated to specific projects including 411.19 million € for emergency interventions in Republic of Serbia economy, pledged prior to the June 2001 conference.

4. Recent estimates show that in the period October 2000 until the end of 2002, approximately 1.5 billion € was disbursed. The total disbursement per year is likely to peak in 2003 amounting to around 900 million €.

1 Estimated disbursement of grants and soft loans in 2002 was 553,99 millions of € and 445 millions of €, respectively. (Source: IMF and DACU February 1st 2002) Actual disbursement of grants and soft loans in 2002 was 504,23 millions of € and 281,7 millions of €, respectively. (Source: DACU, January 2003.) 2 Definition of Allocation - Funds related to projects or programs known to DACU. Amounts pledged on donors’ conferences are relevant as reference, but only when they become allocated to specific sector or project, can they become subject to analysis. “Allocated in 2000” means that they originate from donors fiscal year 2000 3 Definition of Disbursement – Estimates of the amount of funds paid out (relates only to finished or ongoing projects/programmes)

Table 1: Pledge, Allocation, Disbursement Overview

2000 2001 2002 Funds pledged on Donors' conferences-for FRY 443.19 1,348.66 -

Allocated funds for Serbia Source: DACU database) 411.19 1,210.93 1,301.17

Total Disbursement for Serbia (Source: DACU database)

152.79 556.30 785.93

All amounts in € millions

2

Donors’ Conferences Donors’ conference organised in 2003 would represent strong political signal that the State Union of Serbia and Montenegro is on the path of integration into the international mainstreams It is expected that the total disbursement is likely to peak in 2003, amounting to around 900 millions € GoS expects that donors will maintain the level of grants in 2003 as it was in 2002, with the gradual downsizing in the last quarter


Source: DACU database

5. There is an evident change in the structure of donors’ assistance in favour of development assistance in form of concessional loans. However, this rapid shift from humanitarian to development assistance is not fully in accordance with existing needs of Serbian population and economy (which also include assistance to refugees and internally displaced population). The Government of Serbia expects that donors will maintain the level of grants in 2003 as it was in 2002, with a gradual downsizing in the last quarter.

Table 2: Total Estimated Disbursement 2000-2003

Sector 2000 2001 2002 2003 TOTAL

Energy 45.15 143.51 172.68 162.30 523.65 Welfare 52.62 148.26 47.04 91.39 339.31

Local 8.35 26.92 87.96 11.37 134.60 Agriculture 4.33 69.05 18.49 20.44 112.30

Health 12.64 35.01 38.65 37.53 123.83 Civil society 12.94 41.81 17.97 9.15 81.88

Private Sector 0.65 28.46 53.94 137.55 220.60 Other 0.90 15.65 41.76 68.34 126.64

Education 9.75 4.50 12.53 22.08 48.86 Banking 0.13 4.05 13.42 19.14 36.73

Public Administration 0.25 3.31 10.82 23.65 38.04 Water 0.36 0.80 13.58 31.00 45.74

Transport 3.02 7.31 72.40 185.52 268.25 Construction 0.42 2.48 7.93 26.00 36.83 Environment 1.28 4.68 4.86 4.41 15.23

Justice - 2.41 6.83 2.77 12.01 Budget - 17.24 162.90 66.48 246.63 Culture - 0.19 1.21 1.31 2.71

Home Affairs - 0.26 0.47 0.44 1.17 Labour - 0.23 0.23 - 0.46

Science - - 0.27 - 0.27 Telecommunications - 0.14 - - 0.14

TOTAL 152.79 556.30 785.93 920.87 2415.89

3

Chart 1: Humanitarian vs. Development Assistance


36.63

692.99

906.28

1.442.2614.5992.94

116.16

307.46469.75

212.00248.84

-100.00200.00300.00400.00500.00600.00700.00800.00900.00

1,000.00

2000 2001 2002 2003 2004 2005

Humanitarian Development

6. The disbursement of donors’ funds in 2002, was around 50 million € lower than expected and planned, as presented in Table 3. The reasons for this lie within the fact that a significant share of donors’ support depends upon the changes in the legislation, reforms in the public administration and the existence of the clear division of competence in the State Union of Serbia and Montenegro. The disbursement of these funds is challenging due to political reasons, the process of negotiations on the Constitutional Charter of the State Union of Serbia and Montenegro, and the ongoing process of drafting the Law on the implementation of the Constitutional Charter.

7. The establishment of the State Union of Serbia and Montenegro will require significant funds for the process of harmonisation of the legislation, building of new institutions and functions, which will create the environment for the initiation of negotiations on the conclusion of Stabilisation and Association Agreement with the EU, expected in mid summer 2003. Consequently, institutional changes related to establishment of the new State Union of Serbia and Montenegro will create additional burden on budgets of member states.

8. Authorities on all levels must convey the message to the donors’ community emphasising the necessity for organising the donors’

Table 3: Disbursement of grant funds in 2002 2002 Estimated Disbursement (Source: IMF & DACU February 1st, 2002)

553.99 (100%)

Actual Disbursement (Source: DACU January 10th, 2003)

504.23 (91%)

GAP 49.76 (9%)


4

meeting in mid-2003. Taking from experiences of other transitional economies, the third year of reforms represents the crucial milestone in the process of country revitalisation. The peak of structural changes in the Republic of Serbia is expected in 2003, and will be reached through accelerated privatisation process, public finance reform, enforcement of laws on concessions, telecommunications, energy, environment protection, foreign trade, etc. The Government has to provide social programmes and programmes of requalification for the redundant labour (active and passive employment measures).

9. Necessary public finance reforms have an embedded high risk of under-performance during the first implementation year. Due to this fact, the budget will be under additional pressure, to fulfil all of the macroeconomic goals. These facts must be recognised by the donors.

5

Grant Assistance vs. Soft Loan Support Rapid shift from grant to soft loan financing is observed Due to transitional costs, additional budgetary grant support is necessary to avoid deeper transitional crisis Soft loan financing will not be sufficient to preserve the achieved macroeconomic stability

Grant Assistance vs. Soft Loan Support 10. Reviewing the international assistance structure, a quicker shift from grant to loan component can be observed, since the share of soft loans in the total disbursed assistance rose from 6% in 2001 to 36% in 2002.

11. The Republic of Serbia would benefit from a slower and more gradual reduction of grant component, which would give a higher overall portion of grant support within the total assistance. This would, again, provide the Government with more financial room to implement reforms needed, without jeopardizing the achieved macroeconomic stability and increasing social tension.

12. The total allocated loans disbursement, of 22.3%, is lower than needed. It is caused by the following factors: long period between the signing and loan ratification in both Parliaments, due to the introduction of new guarantee requirements from some of the creditors, political instability and discontinuity in the work of

Chart 2: Soft Loans (Disbursement vs. Allocation 2000-2002)

TOTAL ALLOCATED LOANS

TOTAL SIGNED LOANS

TOTAL DISBURSED

LOANS 1,400.50 999.29 312.41


Source: DACU database Note: EU macro financial assistance is not included

6

Parliaments, limited project planning, management and implementation capacity, as well as time-consuming tendering procedures (due to lack of experience in such a procedure).

13. The Table 4 shows that only two sectors (energy and private sector) have a relevant share in the disbursement of both grant and soft loan funds. The differences in the sectorial disbursement of funds can be explained by the character of projects financed by specific type of assistance. Thus, humanitarian projects are mainly funded by grants (social welfare, health, etc), whilst development projects are financed through loans (transport, infrastructure). It is also worth mentioning that the share of disbursed loan funds in the budget sector, which appears to be high in the period 2000- 2002 (significant share of it is WB SAC - 55%), is expected to decrease. This change in the sectorial structure of loan disbursement will be caused by the expected increase of disbursed funds, due to implementation of infrastructure projects over the following few years, while the budget sector financial support was disbursed promptly (one-tranche operation) .

Table 4: Disbursement 2000 - 2002 (Grants vs. Soft Loans)

Sector Grants Soft Loans

Energy 318.32 27% 43.02 14% Welfare 247.91 21% - 0% Local 123.23 10% - 0% Agriculture 91.87 8% - 0% Health 86.29 7% - 0% Civil society 72.72 6% - 0% Private Sector 63.55 5% 19.51 6% Other 57.25 5% 1.06 0% Education 22.75 2% 4.03 1% Banking 17.60 1% - 0% Public Administration 13.38 1% 1.01 0% Water 12.73 1% 2.01 1% Transport 14.33 1% 68.40 22% Construction 10.83 1% - 0% Environment 10.82 1% - 0% Justice 9.24 1% - 0% Budget 6.78 1% 173.37 55% Culture 1.40 0% - 0% Home Affairs 0.73 0% - 0% Labour 0.46 0% - 0% Science 0.27 0% - 0% Telecommunications 0.14 0% - 0%

TOTAL 1,182.61 100% 312.41 100% All amounts in € millions Source: DACU database Note: EU macro financial assistance is not included

7

14. The fact that soft loan disbursement shows a tendency of decline after year 2002 is explained by the inclusion of estimated disbursement of loans in the pipeline, and will be increased consequently with the approval of new loans in 2003 and the following years. The delay in negotiations and approval of new loans in the recent period, is due to the political uncertainties, Constitutional Charter adoption and regulation of credit policy, ratification procedures, etc.

Chart 3: Soft Loans vs. Grants (estimated disbursement)

-

132.3081.13

340.97

614.81

30.71

281.70131.04

306.06

504.23525.59

152.79

-

100.00

200.00

300.00

400.00

500.00

600.00

700.00

2000 2001 2002 2003 2004 2005

Soft Loans Grants

Source: DACU database Note: EU macro financial assistance is not included

8

Budget Support Apart from EU, none of the donors indicated direct budgetary assistance in the form of grant for 2003 The Government of Serbia clearly identifies a need for budget support in 2003 from bilateral donors

Budget Support 15. During 2002, a certain number of bilateral and multilateral donors and IFIs provided financial support, which targeted directly the Republican budget, in order to enable the Government of the Republic of Serbia to continue with reform processes.

16. The EU provided the most important inflow to the Republican budget through the macro financial support programme for the Federal Republic of Yugoslavia. The total macro financial assistance provided by the EU in 2001 was 300 million €, out of which 75 million € was grant (paid in two tranches), and the loan component of 225 mil € was used for clearing the arrears towards the European Investment Bank (EIB). The division of total macro financial assistance was as follows - 90% for the Republic of Serbia and 10% for the Republic of Montenegro. During 2001, the EU decided to increase the grant element of macro financial support by 45 million €, out of which 40.5 million € was allocated to the Republic of Serbia.

17. In 2002, the EU decided to provide further macro financial support to the Republics of Serbia and Montenegro, in the amount of 130 million €, out of which 75 million € represents grant support and 55 million € soft loan. The first tranche of macro financial assistance committed in 2002, was transferred in the amount of 30 million €, with the same division between Serbia and Montenegro, as mentioned above. The overall grant support structure is as follows:

Table 5 Grant macro financial support of EU in 2001-for the Republic of Serbia

In €

millions Disbursed in

Quarter 1st tranche 2001 31.5 Q4 2001

2nd tranche 2001 36.0 Q1 2002

3rd tranche 2001 40.5 Q3 2002

1st tranche 2002 27.0 Q1 2003

Total grant element 135.0

9

18. A satisfactory level of achieved macroeconomic and structural adjustment conditions is the requirement for the macro financial support. According to the accepted 3-year agreement with the IMF, the Republic of Serbia undertook the obligation to perform market reforms and to achieve improvements in economic stabilisation and structural reforms. The EU expressed concern regarding the lack of commitment from bilateral donors to share the burden with the EU in providing budget assistance. The lack of burden sharing is potentially increasing the risk for reduced macroeconomic support from the EU.

19. In 2001 and the beginning of 2002, budget support was provided by several bilateral donors such as Norway, the UK, Switzerland, Germany, France and the USA, for covering arrears in social payments.

20. During the year 2002, a considerable budget support was provided through the World Bank structural adjustment lending 4. So far, the WB approved and fulfilled programmes in the amount of 172.9 million €. These programmes included:

• SAC1, in the amount of 70.5 million €, which represents support to

reform processes within energy, social, health and labour sectors. • PFSAC1, in the amount of 85.6 million €, as support to the reforms

in private and financial sector WB also approved a loan for the continuation of reforms in the education sector, in the amount of 10 million €. 21. Support of the WB enabled implementation of reforms during the year 2002, and closed some of the budget deficit anticipated for that year. This type of support is important in order to keep the momentum of the reforms, and to avoid a destabilising deficit or additional tax burden on the economy and the population.

22. Essential support is provided through the Trade and Transport Facilitation Program, in the amount of 6.7 million €, which will enable easier trade and transport in South East Europe and will decrease costs thereof, through the modernisation of customs offices.

4 Structural adjustment lending is provided under IDA conditions, which include 20 years repayment period, 10 years grace period and debt servicing 0.75%

10

23. Although the macroeconomic projections for the next year are showing GDP growth at an average of 5%, and export growth of 14%, Memorandum on the budget and the economic and the fiscal policies for the budget year 2003 and the following two years is anticipates deficit of 3.8% of the GDP. It means that the Republic of Serbia is still in need of significant financial assistance by International Community (anticipated deficit financing from grants is 0.9% of GDP).

24. It is important to emphasise that, in 2003, apart from the EU, no direct budget assistance in the form of grant is expected.

11

Social Issues and Humanitarian Assistance Serious social problems include: very high unemployment rate, a large number of refugees and internally displaced people, pension reforms, redundant labour The Government is appealing to the International community not to reduce amount of humanitarian assistance too rapidly

Social Issues and Humanitarian Assistance 25. The Government of the Republic of Serbia finished the Interim Poverty Reduction Strategy Paper (PRSP), and started preparation of the full PRSP, which will be available in June 2003.

26. The Government of the Republic of Serbia is facing a large social problems including : very high unemployment rate, a large number of refugees and internally displaced people, pension reforms, high burden of redundant labour, etc. According to the Living Standard Measurement Survey5, 10.6% of the population is living under the poverty line and there is large concentration of population just above it. It is important that the Government takes into consideration that the group of people living just above the poverty line can easily sink below it, unless well-defined measures are implemented in satisfactory manner. Privatisation process, per se requires social programmes of the Government of Serbia. Synergy effects can/will be achieved if the social programmes are implemented jointly with different programmes in the development of SMEs, which can absorb redundant labour.

27. The Government of the Republic of Serbia started economy restructuring and privatisation processes under the high level of poverty. One of the Government priorities is reduction of poverty through the active measures, along with the employment stimulation and improving business and market conditions. Another measure is further support to reforms in the provision of social services through the state social protection network. The Government of the Republic of Serbia will need extended donors’ financial support in the soft loan/grant form, for credit lines for SMEs, in order to relieve the high impact of redundant labour .

28. A successful poverty reduction strategy must be an integral part of overall development strategy and decisive implementation of market reforms. In order to achieve set objectives, the Government is appealing to the International community not to reduce amount of humanitarian assistance too rapidly.

5 Living Standard Measurement Survey, conducted by Ministry of Social Affairs

12

Economic Recovery A satisfactory level of achieved macroeconomic objectives in 2002 - inflation of 14.2%, of which core inflation was around 7%; GDP growth of 4% (contribution of services sector was significant) Rise in the industrial output of 2% Continuation of economy restructuring will be achieved through joint efforts in privatisation process, development of SMEs, vocational education, prequalification programmes, structural adjustment lending which will enable environment for business

Economic Recovery 29. Macroeconomic stability was the main objective in 2002, as well as intensified structural adjustment on micro-level and within the financial sector. This was achieved through restrictive monetary policy, fiscal and public finance reforms. The main accomplishments were reducing of the inflation to 14.2%, of which core inflation was around 7%. At the same time, it is expected that the GDP growth will be at the level of 5%, which is in accordance with the average growth planned for the period of 2002-2005. The growth of production in the industrial sector was 2%.

30. External financing and assistance is still foreseen as needed in all projections of the economic growth prepared by relevant institutions/organisations, such as the IMF and the World Bank. At the same time, macroeconomic projections in the Budget for 2003, are showing the increase in the share of grant component in deficit coverage by 7.34% in comparison with 2002. In order to maintain macroeconomic stability, substantial grant financing from the donors’ community in 2003 and forthcoming years is still needed for covering budget deficit, according to the Ministry of Finance. This is consistent with the extended stand-by arrangement with the IMF, for the period of 2002-05, in the amount of 650 million of SDR (approximately 829 million USD), which was approved in May 2002.

31. Strong international support still has to be provided to the Government of the Republic of Serbia, in order to continue achieving extensive results in the privatisation programme. Within the adopted Memorandum on the budget and economic and fiscal policies for the budgetary year 2003 and the following years6, the Government of the Republic of Serbia is planning to increase the privatisation income share in covering budget deficit by 0.36%. This is in accordance with the announcement that total revenues from the privatisation process are expected to reach up to 1 billion € in 2003.

6 Memorandum on the budget and the economic and the fiscal policies for the budget year 2003 and the following two years, Ministry of Finance and Economy, Government of Serbia

13

32. Donor programmes that are targeting the development of SMEs, vocational education and requalification programmes, would support the Government activities in resolving the problem of very high unemployment rate.

33. During the third year of transition in the Republic of Serbia, severe structural changes are expected, especially in large public enterprises.

34. Support of donors’ community to the budget of the Republic of Serbia is of crucial importance for lessening the negative impact of expected structural changes affecting the most vulnerable categories.

35. In addition to the above-mentioned, donors’ support in 2003 has to have parallel impact on public administration development, justice sector and reinforcing legal reforms. Support to these sectors will strengthen the rule of law and facilitate establishment of stable economic environment.

36. In order to clarify the joint efforts by the donors’ community and the Government of Serbia in recovering the real sector of the economy, the Ministry of International Economic Relations (MIER) will initiate the preparation of the economic impact analysis of the donors’ support to the economy of the Republic of Serbia. This exercise is planned in the MIER list of activities for 2003.

37. Continuation of the positive trends in the economy could be sustained if the objectives set by the Government of Serbia, among which are macroeconomic stability, infrastructure recovery, improvement of living standard, development of private and financial sector, structural adjustment as well as the regional and European integration, are achieved.

14

Management of International Assistance GoS plays a proactive role in management and co-ordination of international assistance No registered cases of misuse and corruption of donors’ funds channelled through the Government institutions Development of capacities for cross-sectoral policy co-ordination Focus on improving efficiency and transparency of the implementation of international support Sufficiency of provided funds is as important as their efficiency

Management of International Assistance 38. The Ministry for International Economic Relations (MIER) is engaged in State administration activities related to coordination of the use of donations and other types of international assistance. In order to accomplish this task, the Ministry undertakes the following activities:

• cooperation with authorised line ministries, other authorities and

organisations in the Republic of Serbia and the Federal Republic of Yugoslavia, in order to identify and determine priority needs and select appropriate projects, which are to be financed by donors’ funds;

• informing donors about priority projects, as well as maintaining regular cooperation with them;

• working with donors in order to prepare and arrange projects; • project realisation follow-up, through reports by donors and

beneficiaries of donations; • cooperation concerning the preparation of regular donors’

meetings and conferences 39. The Ministry of International Economic Relations presents biannual and annual reports to the Government of the Republic of Serbia, Steering Committee, Governmental institutions and donors. The data incorporated in reports originate from the MIER Database. It was established by the end of 2000, and contains around 800 donor projects and programmes that have been agreed since.

40. Through the establishment of the Development and Aid Co-ordination Unit (DACU) within MIER, the Government of the Republic of Serbia has shown its willingness to play a proactive role in the process of management and co-ordination of international assistance. Despite a very ambitious reform agenda, capacity constraints and the size and complexity of the inherited problems, a wide consensus has developed among international stakeholders that this process was successfully preformed.

41. One of the positive results of the co-ordination efforts of the Government of the Republic of Serbia and its international partners is the fact that there is no misuse and corruption reported in implementation of international assistance channelled through the Government institutions.

42. The Government of the Republic of Serbia has prepared and presented strategy document (Reform Agenda of Serbia) which defines development priorities within sectors as well as the cross-sectoral priorities. This initiative was significant in building the Government capacities for cross-sectoral policy planning, as well as for ensuring that donors’ assistance is in accordance with

15

Government priorities. Apart from the regular co-ordination activities, DACU also organised ad hoc meetings in order to resolve urgent problems, either arising from emergency needs or overlapping in donor activities.

43. A continued focus on improving efficiency and transparency of the implementation of international support in close partnership with different international stakeholders is crucial. In this regard, it is essential to develop a successfully functional public procurement system, which will seek to fulfil the procurement requirement of different donors, while encouraging them to harmonise with the procedures of the Government of the Republic of Serbia.

44. The overall impact of international assistance to the Republic of Serbia will not only depend upon the total amount provided and its composition, but also on how efficiently received funds support the ongoing reform processes. Hence, improving the quality of the programming processes will have a more significant overall impact than the provision of larger amount of funds. Thus, the Government of the Republic of Serbia needs to continue developing the capacity and skills required to shift its programming emphasis from separate reform projects to more holistic programmes.

45. The prioritisation and allocation of international assistance should be based upon the national budget process and the medium term fiscal and expenditure frameworks. It is a vital challenge to ensure that this applies to all types of international assistance including project/investment lending in the form of soft loans.

I- 1

Annex I Overview of donors programmes EUROPEAN UNION Programme for 2001

193.8 mil €

2001 First tranche 143.5 mil € Energy 80.4 mil € • Spare parts and reconstruction of power plants • Spare parts for the coal mines • Rehabilitation of transmission network Health 27 mil € • Supply of drugs Agriculture 20 mil € • Supply of fertilizers and animal feed Enterprise development (SME’s) 10 mil € • Credit lines for SME’s Policy and Legal advice centre 5 mil € Second tranche 2001 50.3 mil € Energy 27 mil € • Imports of electricity 15 mil € • Spare parts –extended first tranche 12 mil € Health 5 mil € • Reconstruction of hospitals and primary health

centres and supply of equipment

Development in South Serbia (Preševo valley) 4 mil € Employment programme Enterprise development 6 mil € • Credit lines for SME’s 5 mil € • Reconstruction of 3 SOE’s 1 mil € Media programmes 2 mil € • Audit of RTS • Support to independent media Horgoš border crossing 5 mil € Programme for 2002 179.7 mil € Infrastructure 53.7 mil € • Sloboda bridge in Novi Sad 44 mil € • Horgoš border crossing -second phase •

5 mil € • Border crossing Batrovci 4 mil €

• Institution building of Customs office 0.7mil € Energy 67 mil € • Overhaul TPP Nikola Tesla A3 50 mil €

• Spare parts 8 mil € • Serbian Energy Efficiency Agency 5 mil € • Serbia Energy Regulatory Agency 4 mil €

I- 2

Enterprise development 15 mil € • Credit lines for SME’s 5 mil € • Fund for SME’S 6 mil € • Financial restructuring 12 SOEs 4 mil € Institutions building (Public administration) 15 mil € • Institute for public administration • Treasury Unit (Ministry of Finance) • IT for Public procurement office (Ministry of Finance) • EU Integration office • IT and TA for registries of citizens, companies etc. • Support for Federal and Republican statistic offices Health 5 mil € • Improvement of blood transfusion system Agriculture 6 mil € • Upgrading of veterinary, sanitary and phyto-sanitary

inspections laboratories

Environment Capacity Building 0.5 mil € Education 6 mil € • Tempus III programme1 4 mil € • Vocational Educational Training 2 mil € Social development and civil society 3.5 mil € Technical Assistance in Customs and Taxation1 5 mil € Technical and administrative funds of EAR 3 mil € Management board of EAR in Thessalonica has reviewed and sent the package of 230 mil € for 2003 to Brussels headquarters for approval. The 2003 programme will have the following structure: • Good Governance and institution building approximately 57.5 mil € • Economic Reconstruction, regeneration and reform approx. 140.5 mil € • Social development/Civil Society approx. 24 mil € • Other programmes approx. 8 mil € EUROPEAN COMMISSION HUMANITARIAN AID OFFICE Programme for 2001 47.89 mil € Health 9.5 mil € • Supply of drugs and medical supplies, public health,

assistance to handicapped

Support to vulnerable categories 38.39 mil € • Food and hygiene (complementary food, hygiene

parcels, hot meals, clothes and schooling material) 17.99 mil €

• Shelter, water and sanitation 9.35 mil € • Fuel for heating - heating oil and coal for collective

centres, firewood to 21000 households 4.40 mil €

1 EC managed

I- 3

• Repatriation 4.35 mil € • Psychosocial support 2.30 mil € Programme for 2002 36.9 mil € Health 6.5 mil € • Supply of drugs and medical supplies, public health,

assistance to handicapped

Support to vulnerable categories 30.40 mil € • Food and hygiene (complementary food, hygiene

parcels, hot meals, clothes and schooling material) 13.85 mil €

• Shelter, water and sanitation 6.50 mil € • Fuel for heating - heating oil and coal for collective

centres, firewood to 21000 households 4.00 mil €

• Repatriation and protection 4.00 mil € • Psychosocial support 2.05 mil € UNITED STATES OF AMERICA Total value of allocated funds in 2002 - 149.14 mil € Main projects in 2002 Started

Community Revitalization through Democratic Action 42.27 mil € Economic Policy for Economic Efficiency 10.57 mil € Planned

Home Equity and Mortgage Finance 31.7 mil € NBY reorganization and restructuring 9.51 mil € CRDA program - 211.34 mil € over 5 years • The Program was designed to focus on heavy community participation and rapid

results. It is a citizen-driven program wherein local communities organize themselves and decide on priority development projects that they wish to implement, in conjunction with 5 NGOs - implementing agencies, and with involvement of local government. Projects eligible for funding include civic participation projects, development and rehabilitation of infrastructure and facilities, income generating projects, and environmental improvement projects.

Local Government Reform Program – 26.1 mil € over 4 years • The purpose of this program is to help local authorities become more effective,

responsive and accountable. It will strengthen local government capacities by improving local government customer focus and responsiveness, increasing citizen and civil society organization, involvement and access to local government, improving legal and financial sustainability, and increasing local government influence at the national level.

Economic Policy for Economic Efficiency – 10.57 mil € • The program is aiming to deepen and institutionalize FRY/Serbia’s economic

restructuring and reform process by providing assistance in a number of

I- 4

interrelated issues/areas that are essential to accelerating economic transition. It will enable the government to motivate and manage the economic reform process more effectively and efficiently.

Home Equity and Mortgage Finance – 30 mil € • The program will develop Home Equity and Mortgage financing mechanism that

will mobilize capital for social and investment purposes. NBY reorganization and restructuring – 9.5 mil € • This Activity is designed to assist the National Bank of Yugoslavia (NBY) to

enhance and strengthen the operation, management and dispatch of all functions, in order to ensure a safe, sound and stable banking system.

JAPAN Main projects in 2001-2003 Grant Aid Non-Project Grant Aid 12.5 mil € Bus project for GSP 15.2 mil € Procurement of health equipment for 4 Clinic Centres in Serbia (preparation) Equipment for Hydro Electric Plant “Bajina Basta” I phase Equipment for Hydro Electric Plant “Bajina Basta” II phase (preparation) Grass-roots projects (total)

12 mil € 5.8 mil €

4.5 mil € 0.9 mil €

SWITZERLAND Projects/Programmes from 2002 Swiss government was targeting the following areas in 2002: • Institutional reform • Public Services • Private Sector • Education • Minorities, Refugees and Marginalised Groups • Regional Programmes • Other projects Data provided in the table represent the committed funds of the Swiss Government provided by Swiss Cooperation Office in Belgrade Institutional Reform 1.08 mil € Support of IPA/ UNDP-CBF Support to the MoFA Institute for Comparative Law (ICL) OSCE/ Support to Environment Legislation

Division for the Cooperation with Eastern Europe and the Commonwealth of Independent States

Public Services 2.43 mil € Municipal Support Programme (MSP) projects

Division for the Cooperation with Eastern Europe and the CIS

I- 5

Ecology projects (potable water) Humanitarian Aid EL II Electrical Spare Parts projects II and III Yugoslav National Dispatch Centre Belgrade Trams for Belgrade

State Secretariat for Economic Affairs

Private Sector 1.68 mil € Business Development in the Sandžak Region Private Sector development Fund (implementation by KfW)


Investment Compact/OECD /Stability Pact FIAS Balkans Programme SEED-Southeast Europe Enterprise Development SEAF Growth Fund Swiss Development Financing Corporation Trade Facilitation Programme (TFP) SOFI - Swiss Organisation for Facilitating Investment

State Secretariat for Economic Affairs

Education 1.92 mil € Capacity building for Education reforms (Schools equipment, Teacher training centres, Petnica teaching centre)Equipment of Schooling

Shelter Office Belgrade (School system support in Southern Serbia) Humanitarian Aid

Minorities, Refugees and Marginalised Groups programmes

1.59 mil €

Interethnic Harmony for Democracy Youth Centres DCE (AZO) Pre-School Training Centres (with UNICEF) REC Niš BIBIJA Roma Women ASTRA –AWIN


Shelter Office Belgrade Network of Humanitarian and Legal Offices Relief Operations (soup kitchens)

Humanitarian Aid

Regional Programmes 0.27 mil € Division for the Cooperation with

Eastern Europe and the CIS Other projects 6.87 mil € Budgetary support • Swiss Government has provided a soft loan for the FRY capital in EBRD in the

amount of 17.25 mil €, after which FRY was able to take credits from EBRD. • Swiss Government has co-financed Structural Adjustment Credit of the World

Bank in 2002, in the amount of 6.73 mil €.

I- 6

GERMANY Main projects in 2000 • Electricity imports 10.80 mil € • Energy-EPS-spare parts 3.21 mil € • Commercial banks 0.14 mil € • Health and social 19.56 mil € Main projects in 2001 Finished • Electricity imports 3.06 mil € • Microfinance bank 1.16 mil € • debt financing for goods and services purchased in

2001 by EPS 23.16 mil €

• Utilities companies in Novi Sad, Niš and Belgrade – phase I 16.65 mil€

• TA to the reform of the vocational education system 1.53 mil€ • Social welfare 1.70 mil € Started • Capacity Building in Government 3.49 mil€ Main projects in 2002 • Utilities companies in Novi Sad, Niš and Belgrade –

phase II 15.97 mil€

• TPP Nikola Tesla B2, Kolubara 23.16 mil€ • Health and social 1.90 mil€ NOTE Precondition for further support to Utilities companies in three towns is free creation of tariffs on local level and transferring of ownership rights on Utilities companies from RS to local level The third phase of waterworks reconstruction in Novi Sad, Niš and Belgrade will be offered to be financed in form of grants in co-financing with EIB NORWAY Projects/Programmes from 2002 The following projects were eligible after the signing the MoU-August 2002. Mentioned programmes represent part of the total bilateral assistance that is negotiated with the Government of Serbia (11.57 mil €) and the other part is implemented through international organisations and NGOs (approximately 22 mil €). • Energy Completion of the reconstruction of substation in Bor 3 (3.21 mill €) • Public administration Support for the reform of the central administration in Serbia (0.45 mill €) • Judiciary Support for the implementation of the Ombudsman institution in Serbia (0.25 mill €) • Agriculture Support for private agricultural cooperatives in Serbia (Bac and Kragujevac) (1 mill €)

I- 7

Continuation of the project for viraless potato production project in Guca (0.3 mill €) • Water supply Co-financing of the EBRD project in Belgrade - Water plant Makiš 2 in Belgrade, Žucka kapija-Kaludjerica pipeline (1.53 mill €) • Health Restoration of the emergency medicine services in Serbian cities (1.28 mill €) • Transportation Reconstruction of Niš airport (2.55 mill €) • Civil society Financial support for confidence-building projects in southern Serbia (Covic plan) (1 mill €) Norwegian Government is planning to support the reform programmes of the Government of Serbia in 2003 with the value of approximately 12 mil € ITALY Main finished projects 2000-2001 • Trust fund – WB, EBRD 29.19 mil € • Emergency funds – refugees, health, social 6.65 mil € • Diesel for energy and agriculture sector 18.39 mil € • Democratic process, laws, NGOs, media 2.75mil € Ongoing projects 2000-2002 • “City to City” programme 4.86 mil € • Supply of diagnostic equipment and medical

instruments 0.33 mil €

• Funds of SIMEST – credit line for SMEs 9.19 mil €

• Permanent integration of the refugees and Local self-government and development in Serbian municipalities 13.59 mil €

• Emergency assistance – social welfare 2.22 mil € Main projects that will start in 2003 • Goods and services in agriculture, energy, health,

environment, education 13.63 mil €

• Reconstruction of Centres for Dialysis 4.12 mil € • New Belgrade Power plant gasification project 1.37 mil € • Soft loan package – credits for SME’s 31.22 mil € • Soft loan package – Tesla accelerator in Vinca

Institute 1.2 mil €

• Restructuring/modernization of rural sector 0.42 mil € • Education – equipping of regional departments and

teacher training centres 2.01 mil €

• Interreg IIIA funds – TA for preparation of studies Not yet determined Indicated programmes • Law 84 tool – development projects Not yet determined

I- 8

GREECE Hellenic plan Ongoing activities • Greek plan for economic reconstruction of the Balkans – Hellenic plan -

represents the development financial assistance by the Hellenic Republic to the FRY

• Total amount available for Serbia in the period from 2002-2006 is 183.6 mil € • Initial proposal of the priority sectors has been sent to the Greek Ministry of

Foreign Affairs for the final approval; • The Government of the Republic of Serbia proposed 11 priority projects for

financing from the Hellenic plan and following sectors are included: transport infrastructure, health, social housing, science and technology, energy, environmental protection and education;

Total value of proposed projects is 163.9 mil € Other ongoing activities Belgrade Stock Exchange market set-up project-1.8 mil € Rehabilitation of school facilities- 2 mil € SPAIN Main projects in 2001-2003 Grant Aid

• Equipment and spare parts for the reconstruction of

power distribution system of EPS

0.6 mil € • Legal and social assistance for refugees and IDPs 1.4 mil € • Improvement of the Electrical Distribution System in

the region of Beloljin

0.38 mil € • Micro credit project 6 mil € • Construction of rehabilitation centres for children with

respiratory problems; public kitchens

0.75 mil € Main projects in 2002-2004 Grant Aid

• RC Health assistance at home

1.6 mil €

• Support to the Electrical Coordination Centre in Belgrade 0.54 mil €

Main projects in 2003-2004 Soft loan Preparation

• Rehabilitation of Azotara Pancevo 12 mil € • Supply of computers for the schools in Serbia 10 mil € • Rehabilitation of the existing energy distribution and

generation systems

7 mil € • Supply of medical and hospital equipment 10.5 mil€ • Rehabilitation of Belgrade airport 10.5 mil €

I- 9

NOTE 6 mil € micro credits is not operational because of lack of institutional arrangements in financial sector, at the moment new Spanish expert mission is to be dispatched to examine the possibility of some local and foreign banks to carry out the project UNITED KINGDOM Main projects for 2000 – 2002

30.184 mil €

• Funding for Energy Task Force 1.08 mil € • Winterisation projects 6.45 mil € • Emergency items to social institutions 1.43 mil € • Emergency food aid 2.14 mil € • Strengthening state civil society Relations 2.87 mil € • Protection and tracing programme 2.87 mil € • Support to the NBY & Bank Rehabilitation Agency 0.13 mil € • Support to the privatization reforms 0.12 mil € • Public expenditure mission to FRY 0.11 mil € • Support for the preparation of Telecommunication

law 0.14 mil €

• Family welfare support 12.04 mil € • Support to the Ministry of Social Affairs of the

Republic of Serbia for the project "Support to the Formulation of full Poverty Reduction Strategy paper"

0.305 mil €

• Assistance to the Policy Support Unit, Ministry of Social affairs

0.054 mil €

• Institutional support for the Ministry of Economy and Privatisation of Republic of Serbia

0.238 mil €

• Support to the Serbian Ministry of Finance and Economy “Anti-corruption Unit”

0.197 mil €

FRANCE Total funds allocated in 2002 programs - approx. 7.27 mil € Projects in preparation 5.51 mil € • Support in culture, health, education and public

administration

Started projects 1.38 mil € • Projects in education, culture, home affairs, public

administration, agriculture

Finished projects 0.38 mil € • Master plan of transportation system in the city of Belgrade NOTE Apparently quite modest volume of support

I- 10

Allocation of support mainly in non-commercial sectors AUSTRIA

Total value of allocated funds in 2001 – 9.91 mil €

Main projects in 2001

• Waste water and environment projects 2.63 mil € • Support to SMEs 1.86 mil € • Support to vulnerable categories 1.70 mil € • Humanitarian support for health 0.98 mil € • Support of the Opovo municipality 0.76 mil €

Total value of allocated funds in 2002 – 2.98 mil € Main projects in 2002

• Water supply municipalities Nova Varoš, Cuprija 0.98 mil € • Support to Universities 0.94 mil € • Support to social institutions in Vojvodina 0.48 mil €

FINLAND Grant Aid 2002-2004 Teacher Education Development in the Republic of Serbia 2 mil € • Pilot Universities Belgrade and Sombor Primary School Teacher Education

Faculties

Development of Environmental Legislation in Serbia and Montenegro 1,6 mil € • Harmonization of legislation towards EU directives THE WORLD BANK Projects in 2001/20022: Trust fund-grant (Total FRY: 31.7 mil €; Total Serbia 29.59 mil €) • Private sector development technical assistance grant-6.34 mil € • Electric power emergency reconstruction project-6.34 mil € • Financial sector development technical assistance grant-6.34 mil € • Social protection economic assistance grant – 10.57 mil €) SAC I - 2002 • Structural adjustment credit (SAC I) – 73.97 mil €. Support to key areas of policy

reform: public expenditure management, energy, labour, health, social protection and pensions. Implemented in 2002

2 The fiscal year for the WB projects is starting on July 1st and ending on June 30th next year

I- 11

PF SAC - 2002 • Private and financial sector SAC II (around 89.82 mil €) Support to the extensive

reform program in the Private and Financial Sectors. Implemented in 2002 Projects in 2002/2003 The Transitional Support Strategy (TSS) about 118.35 mil € TSS will define the WB program for FY03 and it should include: • An assessment of progress toward reform goals as outlined in the first TSS • A brief description of country conditions, challenges and reform objectives • A complementary program of TA and analytical products • Serbia Social Sector Structural Adjustment Credit for 2002/2003 (around 84.5 mil

€). Support to reforms in social assistance and child protection, pensions, employment programmes and health

• Education Improvement Programme (10.57 mil €), with the aim to build capacity promoting an effective education reform

• Trade and transport facilitation support (TTFS) 6.02 mil € (5.12 mil € for Serbia). The development objective is to reduce non-tariff costs to trade and transport, and to reduce smuggling and corruption at border crossings.

Projects in 2003/2004

Operations still at the concept stage • PFSAC II (around 63.4 mil €). • Public finances capacity building (around 8.45 mil €). Support for the Ministry of

Finance and other large budget users. Investment in management IT, training and technical assistance

• Health Investment Project (around 15.85 mil €). Support for the policy reform, health information system, financing and delivery restructuring

• Enterprise Restructuring TA (around 11.6 mil €). Support for the Privatization Agency’ efforts to restructure of large privatization.

• Local Initiatives Project (microfinance) (around 5.28 -10.57 mil €). Support overall financial sector reform (sound regulatory framework for microfinance)

• Debt and Debt Service Reduction (around 13.1 mil €). Negotiation with London Club group of creditors. The purpose is to buy back debt owed to commercial creditors at discounted rates following a reduction agreement.

• Energy Efficiency (around 8.45 mil €). Proposed components include a) improvements in District Heating in Belgrade by converting kerosene turbines to natural gas, b) improving in energy efficiency by retrofitting public and residential buildings c) improving the financial management of district heating companies

• Transport/Infrastructure Development (around 10.57 mil €). A proposed transport investment project would seek to complement investment in transport infrastructure that is planned by the EBRD and EIB. Suggestions: capacity building within the Ministry of Transport including transport policy reform and the promotion of private sector involvement in transport. Particular focus would be improving the efficiency and accountability of the procurement process for road maintenance work. To include a batch of small road maintenance contracts to pilot implementation of the reform and capacity building measures. Public private joint ventures in infrastructure financing

• Agriculture (around 8.45 mil €). Suggestions: Privatization of processing and Agro-combinates development of land markets, access to rural credit and the legal framework for new cooperatives and SMEs, restructuring of input supply and output marketing and realignment of support services such as veterinary services

• Demobilization (around 10.57 mil €). Restructuring of the armed forces

I- 12

EUROPEAN INVESTMENT BANK (EIB) Total value of loans signed in 2001 50 mil € Total value of loans signed in 2002 244 mil € Total value of projects under appraisal/preparation, to be signed in 2003

250 mil €

Total disbursement 51 mil € Contracted projects (in Serbia) 294 mil € • Urgent transport rehabilitation (roads and airport) 50 mil € • Railways rehabilitation 70 mil € • Road rehabilitation 95 mil € • Power sector reconstruction ( transmission network) 59 mil € • Apex Global Loan for SMEs 20 mil € Planned interventions in 2003 • Belgrade Urban Renewal (repairs of urban road sections, reconstruction of

tramway network and upgrading of the traffic management control system) • Emergency Water Rehabilitation (emergency repairs of water distribution and

sewerage collection networks of Belgrade, Novi Sad, Kragujevac and Niš) • Air Traffic Control (rehabilitation and improvement of the Air Navigation Services

system) • Emergency Reconstructions in the Health Sector (emergency reconstruction and

refurbishment of a selected number of Serbian regional hospitals) • Emergency Reconstructions in the Education Sector (multi-annual program of

physical reconstruction in support of education sector) • EPS Power System Control (installation of power system control facilities in EPS-

Energy Management System- EMS, Supervisory Control and data acquisition system- SCADA)

• Raiffeisen Global Loan (financing SMEs) NOTE Lack of project documentation and investment plans Period of coming into effectiveness for credits long due to guarantee issuance procedures and ratification in both Federal and Republic Parliaments EUROPEAN BANK FOR RECONSTRUCTION AND DEVELOPMENT (EBRD) Main projects from 2001 320.5 mil € Contracted projects 217 mil € • FRY Railways reconstruction project 57 mil € • FRY Emergency power sector reconstruction 100 mil € • Belgrade municipal infrastructure rehabilitation 60 mil € Ongoing projects 93.5 mil € • Working capital facility 65 mil € • Microfinance bank FRY 8.5 mil € • Trade facilitation programme 20 mil € In the pipeline 10 mil € • FRY Equity Fund 10 mil €

I- 13

Total funds available for 2002/2003 344 mil € Financial sector 52 mil € • FRY Equity Fund 10 mil € • Private banks 4 mil € • Regional investment fund 12 mil € • SME loans 10 mil € • Trade Facilitation Programme (5-7 banks) 16 mil € Private corporate credits 112 mil € • Working Capital Facility (total 65 mil €) 20 mil € • Pharmaceuticals 18 mil € • Household furnishings 24 mil € • Cement/Construction materials 25 mil € • Non-ferrous metals 10 mil € • Agri-business 15 mil € Infrastructure 175 mil € • EPS Power II 50 mil € • RS road recovery project 75 mil € • Air navigation 50 mil € Municipal development

25 mil €

• City of Novi Sad (Water supply) 5 mil € • City of Niš (Water supply) 6 mil € • City of Kragujevac (Water supply) 4 mil € • City of Subotica (Water supply) 4 mil € • Other cities (to be determined) 6 mil €

NOTE Period of coming into effectiveness for credits long due to guarantee issuance procedures (requirement for federal and republican guarantees)

II- 1

Annex II Overview of support by sectors HEALTH Achievements of strategic goals set up in the Reform Agenda of Serbia 2002 Goals Achievements Comments § Strengthening key

institutions § Urgent support for the

reforms in sector § Restructuring the network of

health service facilities § Human resources

development programme § Health system management

capacity building § Health care financing

strategy § Pharmaceutical sector

reform

These activities have started

In order to achieve this objectives MoH still had to implement: § Adoption of the National

Health Plan § Assessment of health needs

of the population (regional assessment)

§ Assessment of the status of health care infrastructure

There is interest from different donors to support health sector. Due to the current state they are reluctant to proceed.

Main projects for the future • EAR -Within the support to the reform of the health sector the EAR is preparing to

propose to the EC a number of projects, including: a) Capacity building of the MoH, b) Support to the Public Health Sector, c) Clinical Therapy Standards, d) National Burden of Disease study, e) Drug Management, f) Analysis of conditions in Clinical centres, g) Assessment of conditions in regional hospitals, TA for completion of Clinical Guidelines development, and e). Recommendation from the MoH needed

• Japan-Equipment for Clinical Centres Belgrade, Novi Sad, Niš, Kragujevac (Approx. € 10.9 mil)

• WB Structural Adjustment Credit 2003 will support the following areas: a) health financing and health insurance, b) health information systems, c) human resources, d) health service restructuring and e) public health. Additional funds should be available through the energy saving programme for the rehabilitation of hospital heating, especially Belgrade Clinical Centre. This proposal is still at a concept stage. Instructions from the MoH needed

WB has $ 0.9 mil for technical assistance

• Global Fund - HIV/AIDS Programmes (4-year programme for design and implementation of the National Strategy for fighting AIDS)

• Hellenic Plan – Improvement of Emergency Services (ambulance and emergency clinics in major cities along Corridor 10)

• Norway - Reconstruction of Emergency Service in 4 cities

II- 2

AGRICULTURE Achievements/Main projects Reviewing the report from July 2002, progress has been made in the following areas: Previous status from July 2002 Change Activity

Improvement of national certification laboratories

Upgrade of sanitary, phyto-sanitary and veterinary services

EU Programme of restructuring of laboratories and establishment of the new National Laboratories (including regional and local labs) Reforms in Agriculture policy and food chain safety - revision of laws and drafting of new laws, Agriculture strategy (EU compliant ) USAID WTO accession project-Revision of laws in regard to the FRY WTO accession (Food chain safety law revision and drafting)

Reforms in Cadastre system

GTZ is preparing the general strategy in Cadastre System FAO expressed an interest in supporting the process in regard to agricultural land

Livestock identification programme

Italian program from 2002 will be effective on the spring 2003. EU is planning to support the programme for establishing and implementing animal identification programme

Development of Cooperatives Bilateral donors are partialy supporting system of cooperatives in Serbia (Italy, Norway)

Revitalization of extension services The Netherlands is reviewing the possible support to the extension services in Serbia

Main challenges for 2003 • Financing of the new system of Food Safety Authorities in State Community of

Serbia and Montenegro • Cost/benefit analysis on the EU accession-Consequences of the Stabilisation

and Association Agreement on the Agricultural Sector. Current interest expressed by Policy and Legal Advice centre, EU funded project

• Implementation of the Master plan (strategy) of agriculture drafted by Policy

Advisory Unit the Ministry of Agriculture. • Support for the Agency for Rural Development (to be establish in first part of

2003) • Establishment of the Market Information System in Agriculture

II- 3

• Maintaining the high level of coordination of the efforts in supporting the reforms in Agriculture. This would be partially covered by continuing the Coordination meetings organised by MIER, but more cooperation on the operational and daily communication is essential.

TRANSPORT Achievements Majority of objectives set up in the Reform Agenda of Serbia have been achieved. Ministry has started with number of reconstruction projects within the road and railway sub sectors. At the same time Ministry has put into the Parliament procedures certain number of laws including the Telecommunication law.

Status Total amount (mil €)

Loans (mil €)

Donations (mil €)

Contracted in 2001 161.7 (100%) 137.5 (85%) 24.2 (15%) Contracted in 2002

252.15 (100%) 240 (95.2%) 12.15 (4.8%)

Possible intervention in 2003

120.5 (100%) 110 (91.3%) 10.5 (8.7%)

Problems in the sector • Budget resources for financing of the construction, reconstruction and

rehabilitation of the transport infrastructure are insufficient • Insufficient level of capacity to make policy recommendations within the transport

sector • Significant need for grant financing of: transport infrastructure rehabilitation

projects and harmonization of regulation with EU standards • Effectiveness of committed funds from IFI’s (EIB and EBRD) are still on the

low level Recommendations/Questions • Financial assessments of the situation in the sector for the future borrowing

(financial decisions in regard to the grant vs. credit financing has to be cleared)

• Analyze the sectors ability for debt repayment • Capacity building in the Ministry of transport and telecommunication

Main projects in 2001-2002 • Rehabilitation of the existing road infrastructure on the Corridor X – 42 mil € (EIB,

EU/EAR) • Rehabilitation of railway transport projects – 127 mil € (EBRD, EIB) • Air traffic rehabilitation project – 15.3 mil € (EIB, Norway) • Reconstruction of Sloboda bridge in Novi Sad – 44 mil € (EU/EAR) • Rehabilitation of municipal infrastructure – 20 mil € (EBRD) Main projects for the future • Rehabilitation of the existing road infrastructure on the Corridor X- 170 mil €

(EBRD, EIB, EC/EAR) • Air traffic rehabilitation projects – 50 mil € (EBRD) • Municipal infrastructure rehabilitation – 60 mil € (EBRD, EIB) • Reconstruction of border crossings – 10.5 mil € (EC/EAR)

II- 4

Ongoing activities in the transport sector: • Ministry for International Economic Relations Republic of Serbia starts

preparation of Hellenic plan in order to define project proposals, which will be financed from the “Greek Plan for the Economic Reconstruction of the Balkans”. We have already recommended projects from transport, trade and tourism, science and technology, education sectors. Ministry of Transport proposed project: “Construction of Highway E-75 from Belgrade to FYRM border crossing” to be financed from Hellenic plan.

• Norwegian Government started implementing project “Reconstruction of the Niš Airport”

ENERGY Achievements Majority of objectives set up in the Reform Agenda of Serbia have been achieved Problems in the sector • Large amount of “old” debts – large amount of new borrowing • Ability to repay loans is highly dependent on the electricity and heating price

(political and social issues) • Significant needs for additional resources for rehabilitation, reconstruction and

development • Absence of grant funds for electricity imports to cover winter season 2002/03 -

needs still exist, though on a smaller scale (due to the ongoing rehabilitation of plants in the period November 2002 – June 2003)

• Lack of capacities in the Ministry of mining and energy- Recommendations/Questions • Capacity building in the Ministry, particularly human resources strengthening • Clear policy on borrowing resources- purpose, yearly amount of credits taken and

pay-back policy • To seek funds for imports of electricity for the remaining winter period? Main projects ongoing or finished • Electricity imports - 101.47 mil € (EU, USA, Germany ) • Fuel for heating - 47.96 mil € (main- Energy for Democracy- EU) • Refurbishment of TPP Nikola Tesla, Kostolac and Kolubara - 37.2 mil € (EU) • District heating in Belgrade, Niš and Novi Sad – 17.4 mil € (KfW) • TPP Nikola Tesla B2 -14 mil € (Germany) • Rehabilitation of TPP Nikola Tesla A3- 50 mil € (EAR) • 12.4 mil € - HPP Bajina Bašta (Japan) Main projects for the future • 120 mil € - Rehabilitation of the transmission network (EIB and EBRD) • 40 mil € - Open pit mine Tamnava West Field- Kolubara (EBRD) • 21 mil € - Rehabilitation of TPP Kostolac B (EBRD) • 20 mil € - District heating in Belgrade (EBRD)

II- 5

- In million €

Donations Credits Allocated 378.55 (100%) 298.85 (100%) Contracted 371.40 (98.11%) 248.68 (83.21%) Disbursed 318.32 (84.09%) 43.02 (14.40%) SOCIAL AFFAIRS Achievements • Social welfare benefits paid regularly • Arrears of social welfare benefits cleared • Strategy for repayment of the arrears in the pension system created (repayment

started in December 2002) • Sound support to the One-off payment fund • Changed legislation in the area of pension scheme, material support for families

and new policy proposals in pipe-line: Family Code, Law on Social Welfare Assistance and Protection and Law on Social Protection of War Veterans

• Interim Poverty Reduction Strategy Paper has been completed; Team for Full PRSP set up and TOR and action plan developed, final document is expected in July 2003

Problems in the sector • Continuation of grant budgetary support to Serbia would decrease the budget

burden constrains and enable the continuation of reform programmes • Humanitarian organisations phased-out of their programmes, therefore

government had to negotiate the alternative solutions for the existing needs for this type of support

• Government of Serbia would need support in the process of poverty alleviation- PRSP will define target groups, target areas, etc.

Recommendations/Questions

• Provide funding for the programmes related to PRSP • Provide funding for supplementary budgetary financing of the reform

programmes implemented in social protection

Main projects in 2002 • Dutch contribution to World Bank Trust fund 0.63 mil € • Swiss contribution to World Bank SAC I – 6.73 mil € • Poverty Survey and Poverty Analyses supported by Dutch co-financing of the

WB SPEAG project (0.24 mil €) • CIDA co-financing WB TA SPEAG project (0.08 mil €) • Norway-Support to Social Innovation Fund 1.5 mil € (project will be implemented

in 2003) • Social protection programmes provided by the following donors: Austria, Canada,

ECHO, Germany, Italy, Spain, Swiss, UK, etc. Main projects for the future • Mainly direct budgetary support will be given by International Financial

organizations, WB and EU • World Bank SOSAC 84.5 mil $- IDA credit is aiming to support the programmes in

the health, social protection, pension and education

II- 6

• Full PRSP programme to be completed (supported by DFID and WB) and Results of the Poverty Survey and Analyses with recommendations adopted inter sectorially for policy changes

• Poverty Analyses to be completed (addressing the issues of concern in social sector) which publication with recommendations will be available to the public

• Further development of the Social Innovation Fund Programme (start up supported by Government of Norway 1.5 mil €, EAR support expected)

• Technical support for the project-Social Protection of Families and Children "Rising Standards, Self-reliance and Access" – reform programmes

• Family Code – policy changes related to Family Law – supported by UNDP • Law on Social Protection of War Veterans and Invalids • Evaluation of the piloting of programmes addressing disability and further

development of the strategy of social protection of disabled people • Draft strategy of social protection of elderly people • Further development of the IT system PRIVATE SECTOR DEVELOPMENT 1.1 Privatisation Achievements • Three laws have been adopted and models of privatization have been defined • Established Agency for Privatisation • Restructuring/privatisation strategies for 50 loss-making socially-owned

enterprises (35 started the first phase of the restructuring and for 4 of them decision on restructuring has been made).

• Privatisation of companies through tender in 2002 (41 decisions on tender were made, of which 14 companies were privatized) and auctions (1 210 decisions of which 212 companies were privatized)

• Large public awareness campaign was introduced Main projects ongoing or finished • Total allocated/indicated support for privatisation process 19 mil € (grant) • Tender privatisation: WB (6.34 mil €), The Netherlands (2.07 mil €) Sweden (1.5 mil €) • Restructuring: EAR (4.53 mil €), USAID (2.11 mil €), and PHRD Japanese Grant

#TF 051355 (586,000 USD) • Public auctions: Germany (1.95 mil €) Recommendations /Questions • How to speed up the privatization process - additional measures • Connect privatization with the EU accession Main projects for the future • Private and financial sector SAC II (around 89.82 mil €) - Support for the

extensive reform program in the Private and Financial Sectors 1.2. Small and medium size enterprises Achievements • Establishment of the Republic Agency for SME development • Establishment of network of 10 regional agencies and centers for SMEs so far,

with the assistance of EAR, GTZ and SDC

II- 7

• Establishment of high-level Inter-Ministerial Committee with the objective to create more favorable legal business environment by initiating and proposing simplification of procedures and conditions for starting-up and operating businesses, especially SMEs

Main projects (ongoing or finished) • SME Development Strategy of the Republic of Serbia should be adopted in early

2003 • New, simplified business registration system • Foundation of a Guarantee Fund of the Republic of Serbia • SME credit lines through domestic commercial banks (including total of 15 mil €

by EAR in Revolving Credit Fund managed by NBY and 15 mil € in European Fund for Serbia managed by KfW)

Questions/Recommendations • All major questions and recommendations are contained in the SME

Development Strategy. Priorities for future donors’ assistance are: creation of more favourable business environment (regulatory and administrative reform), new credit lines and technical assistance related to financing of SMEs, strengthening of institutional network for non-financial assistance to SMEs (agencies and centres) and development of enterprise capability programmes.

Main projects for the future • Soft loan for credit lines for SMEs (35 mil €) Italy

III- 1

Annex III Detail list of the soft loans Sector: Transport

Project Lender

Value in original currency

in mil

Value in mil

€ Status Disbursed

in mil € Conditions Beneficiary

Reconstruction of ŽTP Beograd

EBRD 57 € 57 Started 13.11 15 yrs repayment rate: EURIBOR 12M Grace 4.5 yrs

ZTP Beograd

Rehabilitation of road infrastructure on Corridor X (Co financed with EIB and EU )

EBRD 75 € 75 Effective 0 Same as above Directorate for Roads

Urgent infrastructure rehabilitation programme EIB

50 € (37+13) 50 Started 33

15 yrs repayment rate: EURIBOR 6M+1% Grace 3-5 yrs

Directorate for Roads Airport Belgrade

Rehabilitation of road infrastructure on Corridor X (Co financed with EBRD and EU

EIB 95 € 95 Effective 0 Same as above Directorate for Roads

Railways rehabilitation project EIB 70 € 70 Started 18 Same as above ZTP

A TOTAL ALLOCATED WITH STATUS: EFFECTIVE, STARTED AND FINISHED

347 TOTAL DISBURSED

64.11

Air traffic rehabilitation EIB 50 € 50 In preparation 0

15 yrs repayment rate: variable (EURIBOR +1%) Grace 5 yrs

Airport Belgrade

B TOTAL ALLOCATED

WITH STATUS: INDICATED, IN PREPARATION AND SIGNED

50

A+B GRAND TOTAL TRANSPORT 397

III- 2

Sector: Energy

Project Lender


in mil

Value in mil



Power sector 1 Repairs in Kolubara A5 Thermo power plant Kostolac B Toplodolska power plant Transmission network (Co financed with EIB )

EBRD 100 € 100 Started 1.75 14.5 yrs repayment rate: (EURIBOR 12M) Grace 4 yrs

EPS

Projects in the energy sector (EPS) Germany 100 DEM 51.13 Finished 51.13

12 yrs repayment rate: 3.9 % Grace 3 yrs

EPS

TPP Nikola Tesla A1, A2 TPP Kostolac B1, B2 Tamnava West Field (open pit mine) TPP Morava

Poland 50 USD 52.84 Effective 0 16 yrs repayment rate: fixed 0.75% Grace 2 yrs

EPS


203.97 TOTAL DISBURSED

52.88

Rehabilitation of transmission network (Co financed with EBRD

EIB 59 € 59 Signed 0 20 yrs repayment rate: EURIBOR +1% Grace 5 yrs

EPS

Power sector 2 Open pit mine Tamnava Zapad Telecommunication network of EPS

EBRD 50 € 50 In preparation 0 EPS

B TOTAL ALLOCATED


109 -

A+B GRAND TOTAL ENERGY 312.97

III- 3

Sector: Private

Project Lender


in mil

Value in mil

€ Status

Disbursed in mil

€

Conditions Beneficiary

Export Credit Facility WB 11.5 USD 12.19 Effective 0 20 yrs repayment Grace 10 yrs/Debt servicing 0.75 %

Serbian Banks and Companies

Equity fund for Microfinance bank

EBRD 8.6 € 8.6 Finished 8.6 15 yrs repayment rate: variable (EURIBOR +1%) Grace 5 yrs

Microfinance bank

Working Capital Facility EBRD 65 € 65 Effective 0 15 yrs repayment rate: variable (EURIBOR +1%) Grace 5 yrs

Serbian companies

(e.g. Tigar)



8.6

Credit for SMEs Italy 65 DEM 34 In preparation

0 17 yrs repayment rate 1.5% Grace 5 yrs

Serbian Companies

Privatisation and restructuring of banks and enterprises TA WB 11 USD 11.7 Indicated 0

20 yrs repayment Grace 10 yrs/Debt servicing 0.75 %

Enterprises and financial sector

Credit for private companies EBRD 92 € 92 In preparation

0 15 yrs repayment rate: variable (EURIBOR +1%) Grace 5 yrs

Serbian companies

Credit for SMEs EBRD 72 € 72 In preparation 0 Same as above Serbian

companies Equity fund for Microfinance bank EBRD 10 € 10 In

preparation 0 Same as above Microfinance bank

Apex Global loan: Capital investments of SMEs and small infrastructure projects on municipal level

EBRD 20 € 20 In preparation 0

20 yrs repayment rate: EURIBOR +1% Grace 5 yrs

Serbian Companies

B TOTAL ALLOCATED

WITH STATUS: INDICATED , IN PREPARATION AND SIGNED

239.7 -

A+B GRAND TOTAL PRIVATE 325.49

III- 4

Sector: Budget

Project Lender

Value in original

currency in mil

Value in mil



Structural Adjustment Credit ( Public Expenditure Management, Energy, Social, Labour and Health)

WB 55.5 SDR (70 USD) 73.97 Finished 73.97


Serbian Budget

FRY capital in EBRD Switzerland 17.25 € 17.25 Finished 17.25 10 yrs repayment rate: none/Grace 5

yrs Federal Budget

Clearing arrears of Serbian public companies towards EIB EU 202.5 € 202.5 Finished 202.5

15 yrs repayment rate: variable EURIBOR Grace 10 yrs

Serbian Budget

Structural Adjustment Credit (Private and Financial Sector)

WB 85 € 90.12 Finished 90.12 20 yrs repayment Grace 10 yrs/Debt servicing 0.75 %

Serbian Budget



383.84

Structural Adjustment credit II (Private and Financial Sector)

WB 60 USD 63.6 Indicated 0 20 yrs repayment Grace 10 yrs/Debt servicing 0.75 %

Serbian Budget

Social Sector Adjustment Credit WB 80 USD 84.82 Signed 0 Same as above Serbian Budget

Macro financial Assistance EU 49.5 € 49.5 Signed 0

15 yrs repayment rate: variable EURIBOR Grace 10 yrs

Serbian Budget

B TOTAL ALLOCATED


197.92 -

A+B GRAND TOTAL BUDGET 581.76

III- 5

Sector: Local Government

Project Lender

Value in original

currency in mil

Value in mil



Infrastructure Rehabilitation of Belgrade Water supply District heating Public transport

EBRD 60 € 60 Started 5.08

15.5 yrs repayment rate: (EURIBIR up to 3.99%) Grace 4 yrs

City of Belgrade


60 TOTAL DISBURSED

5.08

Support to Municipalities WB 10 USD 10.6 Indicated 0 Municipalities

Municipal infrastructure rehabilitation EBRD 25 € 25

In preparation 0

14 yrs repayment rate: EURIBOR 12M Grace up to 3 yrs

Municipalities

B TOTAL ALLOCATED


35.6 -

A+B GRAND TOTAL LOCAL GOV. 95.6 Sector: Education

Project Lender

Value in original

currency in mil

Value in mil



Education Improvement Project WB 10 USD 10.6 Effective 5.08


Ministry of Education of Serbia



0

B TOTAL ALLOCATED


0 -

A+B GRAND TOTAL EDUCATION 10.6

III- 6

Sector: Health

Project Lender

Value in original

currency in mil

Value in mil




0 TOTAL DISBURSED

0

Health Sector Investment Project WB 15 USD 15.9 Indicated 0


Health Institutions

B TOTAL ALLOCATED


15.9

A+B GRAND TOTAL HEALTH 15.9 Sector: Public Administration

Project Lender

Value in original

currency in mil

Value in mil



Trade and Transport Facilitation in Southeast Europe

WB 5.72 USD 6.06 Effective 0 20 yrs repayment Grace 10 yrs/Debt servicing 0.75 %

Federal Custom Office



0

B TOTAL ALLOCATED


0

A+B GRAND TOTAL PUB. ADMIN. 6.06

III- 7

Sector: Science and Technology

Project Lender

Value in original

currency in mil

Value in mil




0 TOTAL DISBURSED

0

FDG production through "Tesla" accelerator of Vinca Institute

Italy 5 DEM 2.3 In preparation 0

17 yrs repayment rate 1.5% Grace 5 yrs

Vinca Institute

B TOTAL ALLOCATED


2.3

A+B GRAND TOTAL SCI. TECH. 2.3 Sector: Multi

Project Lender

Value in original

currency in mil

Value in mil




0 TOTAL DISBURSED

0

Industry, Education, Energy, Health, Transport

Spain Approx. 50 €

50 Indicated 0

B TOTAL ALLOCATED


50

A+B GRAND TOTAL MULTI 50

III- 8

Table 1: Breakdown of Soft Loans by Sectors and Status All amounts in mil €

Transport Education Local Public admin Science Private Budget Energy Health Multi Total

Republican Federal

Effective 170.00 10.60 6.06 77.19 52.84 316.69

Disbursed 64.11 5.08 8.60 164.09 219.75 52.88 514.51 Started (not yet disbursed) 112.89 54.92 98.25 266.06 A (Effective, Disbursed, Started) 347.00 10.60 60.00 6.06 0.00 85.79 164.09 219.75 203.97 0.00 0.00 1097.26

Indicated 10.60 11.70 63.60 15.90 50.00 151.80

In preparation 50.00 25.00 2.30 228.00 50.00 355.30

Signed 134.32 59.00 193.32 B (Indicated, Signed, In Preparation) 50.00 0.00 35.60 0.00 2.30 239.70 197.92 0.00 109.00 15.90 50.00 700.42

TOTAL (A+B) 397.00 10.60 95.60 6.06 2.30 325.49 362.01 219.75 312.97 15.90 50.00 1797.68

III- 9

Chart 1: Breakdown of soft loans by Sectors and Status All amounts in mil €

disbursed 514.51

started, not yet disbursed

266.06

effective 316.69

signed 193.32

in preparation 355.3

indicated 151.8

0

100

200

300

400

500

600

1

Documents

Table of Content s of Content s Donors’ C onferences .....1 Grant Assistance vs. Soft Loan S upport.....5 ... DACU Development and Aid Co-ordination Unit DFID Department for International