Programmatic Adjustment Loan 2 (PAL 2)

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The Second Programmatic Adjustment Loan Project (PAL-2) continues the PAL Program support to the Bulgarian government's medium term program, which aims to achieve average annual growth rates of 4.5-5.0 percent during 2002-05, reduce the poverty rate by half by 2005 compared to 2001, and reduce the unemployment rate from 18.1 percent in 2001 to 12-14 percent in 2005, while making substantial progress towards European Union accession, which it is hoped will occur in 2007. The medium-term program balances a strategy of private sector-led growth while reducing social exclusion and increasing empowerment to ensure wide participation in growth. The program consists of five complementary pillars: 1) Sustaining structural reforms in the enterprise sector with emphasis on privatization and restructuring of the energy, railway, telecommunications, and water sectors; 2) Establishing a market-friendly business environment, focusing on reducing entry constraints, accelerating exits, securing deregulation and reducing regulatory costs, improving the delivery of public services to business, and improving the competitive environment, through continuing labor market reform; 3) Deepening the financial sector, improving the legal framework for lending, completing banking reform, and developing financial markets ; 4) Improving public sector governance, strengthening public administration capacity, improving service delivery, reducing corruption, strengthening accountability and transparency, strengthening public expenditure management, and increasing the efficiency and effectiveness of the judicial system; and 5) Investing in human capital and strengthening social programs, improving quality, access and efficiency in education and health, continuing pension reforms, increasing social assistance effectiveness, providing for better integration of the disabled and reducing institutionalization of children. PAL-2, in addition to sustaining the reforms under PAL- 1, focuses in particular on public sector governance, including public administration reform, anticorruption, public expenditure management and judicial reform (Pillar IV). PAL-2 i s to be structured as a two tranche operation. The first tranche will be disbursed immediately after loan effectiveness. The second tranche i s floating and will be disbursed on loan closure after the Second Tranche Conditions have been fulfilled.