THE ONLY 2 COUNTRY-LEVEL TRANSITION INDICATOR UPGRADES IN 2014 ARE RELATED TO IMPROVED COMPETITION POLICY

Introduction

Amid new and continuing political and economic challenges, the readiness of countries to implement reforms seems to have waned. The Transition Report 2013 noted that the difficult environment was limiting the ability of governments – and, in certain cases, their willingness – to implement much-needed structural reforms and return their countries to a path of sustainable growth. As noted in 2013, it appears that, despite the difficult circumstances, there has been no wholesale reversal of previous reforms. However, there has been an increase in the number of downgrades relating to either the reversal of reforms or a lack of much-needed action to lift countries out of the crisis. As a result, there have been more downgrades than upgrades this year.

The EBRD continues to measure the progress of reforms in two ways. The first is a review of country-level reforms in areas such as privatisation, competition policy and trade. This review has been conducted since 1994 and has been extended to cover all years since 1989. While by no means comprehensive, it can be a useful tool to illustrate the progress that countries have made in allowing the private sector to develop and thrive as an important pillar of a functioning market economy. The second is a more disaggregated assessment at sector level which captures the distance relative to an industrialised market economy in terms of market structure and market-supporting institutions.

At sector level, the number of downgrades has continued to increase, surpassing the number of upgrades for the first time since the assessment began in 2010. Similar to last year, downgrades are driven mainly by EU countries (albeit there have also been a number of downgrades in Central Asia). The country-level indicators continue the trend witnessed in previous years of fewer changes being observed. Indeed, there have been only two upgrades and one downgrade this year.

With Cyprus becoming an EBRD recipient country in May 2014, sector and country-level assessments have been conducted for the country for the first time.

Sector-level transition indicators

Table S.1 shows the transition scores for 16 sectors in all of the countries where the EBRD works. The methodology is broadly unchanged from previous years (see Chapter 1 of the Transition Report 2010 for a detailed explanation), but some adjustments have been made in the capital markets sector.1

TABLE S.1

Sector-level transition indicators 2014: overall scores

	Agribusiness	General industry	Real estate	ICT
Central Europe and the Baltic states
Croatia	3	3+	3+	4
Estonia	3+	4+	4+	4
Hungary	4	4-	4-	4-
Latvia	3	4-	4-	3+
Lithuania	3+	4	4-	4-
Poland	3+	4-	4-	4
Slovak Republic	3+	4+	4	4-
Slovenia	4-	3+	4	3+
South-eastern Europe
Albania	3-	2+	3-	3+
Bosnia and Herzegovina	3-	2	2-	2+
Bulgaria	3	3+	3+	4-
Cyprus	3-	4+	3	4-
FYR Macedonia	3-	3	3-	4-
Kosovo	2+	2-	2-	2+
Montenegro	2+	2+	2+	3+
Romania	3	3+	3+	3+
Serbia	3-	3-	3-	3
Turkey	3-	3	3+	3+
Eastern Europe and the Caucasus
Armenia	3-	3	3-	3
Azerbaijan	2+	2	2	2-
Belarus	2+	2	2	2
Georgia	3-	3-	3-	3-
Moldova	3-	2-	2+	3
Ukraine	3-	2+	3-	3-
Russia	3-	3-	3-	3+
Central Asia
Kazakhstan	3-	2	3	3
Kyrgyz Republic	2+	2	2+	3
Mongolia	3-	2+	2	3
Tajikistan	2	2-	2-	2+
Turkmenistan	1	1	1	2-
Uzbekistan	2	1	2	2
Southern and eastern Mediterranean
Egypt	2	2	2+	3
Jordan	2	2+	3-	3+
Morocco	2+	3-	3-	3+
Tunisia	3-	3+	3-	3

	Natural resources	Sustainable energy	Electric power
Central Europe and the Baltic states
Croatia	4-	3-	3
Estonia	4	3-	4+↑
Hungary	4-	3	3↓
Latvia	4-	3+	3+
Lithuania	4-	3+	3+
Poland	3	3	3+
Slovak Republic	4-	3	4
Slovenia	3+	3+	3
South-eastern Europe
Albania	3-	3+	2+
Bosnia and Herzegovina	2	2	2+
Bulgaria	3+	3-	3
Cyprus	3-	3-	3
FYR Macedonia	2+	2+	3
Kosovo	2	2-	2+
Montenegro	3+	2	2+
Romania	4-	3+	3+
Serbia	2	2+	2+
Turkey	3+	3	3+
Eastern Europe and the Caucasus
Armenia	2+	3-	3+
Azerbaijan	2+	2+	2+
Belarus	1	2	1
Georgia	2	3-	3+
Moldova	3	2+	3
Ukraine	2-	2+	3
Russia	2	2	3+
Central Asia
Kazakhstan	2-	2-	3
Kyrgyz Republic	2-	2	2+
Mongolia	2	2	2+
Tajikistan	1	2+	2
Turkmenistan	1	1	1
Uzbekistan	1	2-	2+
Southern and eastern Mediterranean
Egypt	1	2+	2+
Jordan	2+	2+	3
Morocco	2-	3	2
Tunisia	2	3-	2

	Water and wastewater	Urban transport	Roads	Railways
Central Europe and the Baltic states
Croatia	3+	3+	3+	3-
Estonia	4	3+	3	4
Hungary	3+↓	3+	4-	3+
Latvia	3+	4-	3	4-
Lithuania	3+	4-	3	3
Poland	4-	4-	4-	4-
Slovak Republic	3+	3+	3+↑	3+
Slovenia	3+	3+	3	3
South-eastern Europe
Albania	2+	3-	3-	2
Bosnia and Herzegovina	2	2+	3	3+
Bulgaria	3	3+	3-	3+
Cyprus	3+	3+	3	Not applicable
FYR Macedonia	2+	3-	3-	3-
Kosovo	2+	2+	2+	3-
Montenegro	2	3	2+	2+
Romania	4-	3+	3	3+
Serbia	2+	3-	3-	3
Turkey	3-	3	3-	3-
Eastern Europe and the Caucasus
Armenia	3-	2+	3-	2+
Azerbaijan	2-	2	2+	2+
Belarus	2-	2	2	1
Georgia	2	2+	2+	3
Moldova	2	3↑	3↑	2
Ukraine	2+	3-	3-	2+
Russia	3	3	3-	4-
Central Asia
Kazakhstan	2+	2+	3-	3
Kyrgyz Republic	2	2	2-	1
Mongolia	2	2	2-	3-
Tajikistan	2	2	2-	1
Turkmenistan	1	1	1	1
Uzbekistan	2-	2	1	3-
Southern and eastern Mediterranean
Egypt	1	2	2+	2-
Jordan	2-	2+	3-	2
Morocco	2+	3	3-	2
Tunisia	2	2+	2+	2+

	Banking	Insurance and other financial services	MSME finance	Private equity	Capital markets
Central Europe and the Baltic states
Croatia	3+	3+	3-	2+↓	3+
Estonia	4-	3+	3+	3-↓	3
Hungary	3↓	3	3	3	3+
Latvia	3+	3+	3	2+↓	3+
Lithuania	3+	3+	3	2+	3
Poland	4-	3+	3	3+	4-↓
Slovak Republic	4-	3+	4-	2+	3
Slovenia	3	3+	3-	3-	3+
South-eastern Europe
Albania	3-	2	3-↑	1	2-
Bosnia and Herzegovina	3-	2+	2+	2-	2
Bulgaria	3	3+	3	3-	3-
Cyprus	3-	Not available	Not available	Not available	3+
FYR Macedonia	3-	3-	3	1	2-
Kosovo	2+	2	3-↑	1	1
Montenegro	3-	2+	3↑	1	2
Romania	3	3+	3	3-	3-
Serbia	3-	3	3	2↑	2
Turkey	3+	3	3↑	3-	4
Eastern Europe and the Caucasus
Armenia	2+	2	2+	1	2
Azerbaijan	2	2	2	1	2-
Belarus	2	2	2	1	2-
Georgia	3-	2	3-	1	2-
Moldova	2+	2+	2	2-	2
Ukraine	3-	2+	2+	2	2↓
Russia	3-	3-	2	2+	4-
Central Asia
Kazakhstan	2+↓	2+	2	2-	2↓
Kyrgyz Republic	2	2-	2-	1	2-
Mongolia	2+	2	2+	2-	2-↓
Tajikistan	2	2-	2-	1	1
Turkmenistan	1	2-	1	1	1
Uzbekistan	1	2	1	1	1
Southern and eastern Mediterranean
Egypt	2+	2+	2-	2	2+
Jordan	3	2+	2+	2	2
Morocco	3	3-	2+	2+	3
Tunisia	2+	2+	2	2-	2+

Source: EBRD.

Note: The transition indicators range from 1 to 4+, with 1 representing little or no change relative to a rigid centrally planned economy and 4+ representing the standards of an industrialised market economy. For a detailed breakdown of each of the areas of reform, see the methodological notes in the online version of this Transition Report (tr.ebrd.com). Upgrades and downgrades are marked by upward and downward arrows respectively. A colour code is used for ease of recognition: green indicates a sector that is at a fairly advanced stage of transition, scoring 3+ or higher. Conversely, dark red denotes sectors where transition has barely advanced and the score is 2 or lower.

There were nine one-notch upgrades this year: electric power (Estonia), urban transport (Moldova), roads (Moldova and the Slovak Republic), MSME finance (Albania, Kosovo, Montenegro and Turkey) and private equity (Serbia). There were 12 downgrades: ICT (Hungary), electric power (Hungary), water and wastewater (Hungary), banking (Hungary and Kazakhstan), private equity (Croatia, Estonia and Latvia) and capital markets (Kazakhstan, Mongolia, Poland and Ukraine). A methodological adjustment in the capital market sector has also led to a number of changes (affecting Bulgaria, Croatia, Jordan, Latvia, Moldova, Montenegro, Morocco, Romania, Serbia and Slovenia), which are not marked as upgrades or downgrades as they do not represent improvements in or the reversal of capital market reforms. Scores for sustainable energy are currently undergoing revision. Please note that not all scores for Cyprus were available at the time of printing, but will be added to the online version of this Transition Report.

Tables S.2 and S.3 show the component ratings for market structure and market-supporting institutions and policies respectively, which together make up the overall sector-level assessment. There have been nine upgrades and 12 downgrades2 – indicated by upward and downward arrows respectively – the reasons for which are outlined in the following sections (see also the “Countries” section of the online Transition Report, at tr.ebrd.com). Changes to inclusion assessments, which have also undergone some methodological adjustments, are presented in Tables S.4 to S.6, as well as being explained in detail in the “Inclusion” section.

TABLE S.2

Sector-level transition indicators 2014: market structure

	Agribusiness	General industry	Real estate	ICT
Central Europe and the Baltic states
Croatia	Small	Small	Medium	Small
Estonia	Small	Negligible	Negligible	Small
Hungary	Small	Small	Small	Small
Latvia	Small	Negligible	Small	Small
Lithuania	Small	Negligible	Small	Small
Poland	Small	Small	Small	Small
Slovak Republic	Small	Negligible	Small	Small
Slovenia	Small	Small	Negligible	Small
South-eastern Europe
Albania	Medium	Medium	Large	Medium
Bosnia and Herzegovina	Medium	Large	Large	Medium
Bulgaria	Small	Small	Medium	Small
Cyprus	Medium	Negligble	Medium	Small
FYR Macedonia	Medium	Medium	Large	Small
Kosovo	Medium	Medium	Large	Medium
Montenegro	Medium	Medium	Medium	Small
Romania	Small	Small	Medium	Small
Serbia	Medium	Medium	Large	Medium
Turkey	Medium	Small	Small	Medium
Eastern Europe and the Caucasus
Armenia	Medium	Medium	Large	Medium
Azerbaijan	Medium	Large	Large	Large
Belarus	Large	Large	Large	Medium
Georgia	Medium	Medium	Large	Medium
Moldova	Medium	Medium	Large	Medium
Ukraine	Medium	Medium	Large	Medium
Russia	Medium	Medium	Medium	Medium
Central Asia
Kazakhstan	Medium	Large	Medium	Medium
Kyrgyz Republic	Medium	Large	Large	Large
Mongolia	Medium	Large	Large	Large
Tajikistan	Medium	Large	Large	Large
Turkmenistan	Large	Large	Large	Large
Uzbekistan	Large	Large	Large	Large
Southern and eastern Mediterranean
Egypt	Large	Large	Medium	Medium
Jordan	Medium	Medium	Medium	Small
Morocco	Medium	Medium	Medium	Small
Tunisia	Medium	Medium	Medium	Medium

	Natural resources	Sustainable energy	Electric power
Central Europe and the Baltic states
Croatia	Small	Medium	Large
Estonia	Small	Medium	Negligible
Hungary	Small	Medium	Medium
Latvia	Medium	Medium	Medium
Lithuania	Medium	Medium	Medium
Poland	Medium	Medium	Medium
Slovak Republic	Small	Medium	Small
Slovenia	Small	Small	Medium
South-eastern Europe
Albania	Medium	Small	Large
Bosnia and Herzegovina	Large	Large	Large
Bulgaria	Small	Large	Large
Cyprus	Medium	Medium	Large
FYR Macedonia	Medium	Large	Medium
Kosovo	Medium	Large	Large
Montenegro	Small	Large	Large
Romania	Small	Medium	Medium
Serbia	Medium	Large	Large
Turkey	Medium	Medium	Medium
Eastern Europe and the Caucasus
Armenia	Medium	Medium	Medium
Azerbaijan	Large	Large	Large
Belarus	Large	Large	Large
Georgia	Large	Medium	Medium
Moldova	Medium	Large	Medium
Ukraine	Large	Large	Large
Russia	Large	Large	Medium
Central Asia
Kazakhstan	Large	Large	Large
Kyrgyz Republic	Large	Large	Medium
Mongolia	Medium	Large	Large
Tajikistan	Large	Large	Large
Turkmenistan	Large	Large	Large
Uzbekistan	Large	Large	Large
Southern and eastern Mediterranean
Egypt	Large	Large	Large
Jordan	Medium	Large	Medium
Morocco	Large	Medium	Large
Tunisia	Large	Large	Large

	Water and wastewater	Urban transport	Roads	Railways
Central Europe and the Baltic states
Croatia	Medium	Medium	Small	Medium
Estonia	Negligible	Small	Medium	Small
Hungary	Small	Medium	Small	Medium
Latvia	Small	Small	Medium	Small
Lithuania	Medium	Small	Medium	Medium
Poland	Small	Small	Small	Small
Slovak Republic	Medium	Medium	Small	Small
Slovenia	Small	Small	Medium	Medium
South-eastern Europe
Albania	Large	Medium	Medium	Large
Bosnia and Herzegovina	Large	Medium	Medium	Medium
Bulgaria	Medium	Medium	Medium	Small
Cyprus	Medium	Medium	Medium	Not applicable
FYR Macedonia	Large	Medium	Medium	Medium
Kosovo	Large	Medium	Medium	Medium
Montenegro	Large	Small	Medium	Medium
Romania	Small	Small	Small	Small
Serbia	Large	Medium	Medium	Medium
Turkey	Large	Medium	Medium	Medium
Eastern Europe and the Caucasus
Armenia	Medium	Large	Medium	Medium
Azerbaijan	Large	Large	Medium	Medium
Belarus	Large	Large	Large	Large
Georgia	Large	Large	Large	Medium
Moldova	Large	Medium	Medium	Large
Ukraine	Large	Medium	Medium	Medium
Russia	Medium	Small	Medium	Small
Central Asia
Kazakhstan	Large	Medium	Medium	Medium
Kyrgyz Republic	Large	Medium	Large	Large
Mongolia	Large	Large	Large	Medium
Tajikistan	Large	Large	Large	Large
Turkmenistan	Large	Large	Large	Large
Uzbekistan	Large	Large	Large	Medium
Southern and eastern Mediterranean
Egypt	Large	Large	Large	Large
Jordan	Large	Medium	Medium	Large
Morocco	Medium	Medium	Medium	Large
Tunisia	Large	Large	Medium	Large

	Banking	Insurance and other financial services	MSME finance	Private equity	Capital markets
Central Europe and the Baltic states
Croatia	Small	Small	Medium	Medium	Medium
Estonia	Small	Small	Small	Medium	Medium
Hungary	Small	Small	Medium	Medium	Medium
Latvia	Small	Small	Medium	Medium	Medium
Lithuania	Small	Small	Medium	Medium	Medium
Poland	Small	Small	Medium	Small	Small
Slovak Republic	Small	Small	Medium	Medium	Medium
Slovenia	Medium	Small	Medium	Medium	Medium
South-eastern Europe
Albania	Medium	Large	Medium	Large	Large
Bosnia and Herzegovina	Medium	Medium	Medium	Large	Large
Bulgaria	Small	Small	Small	Medium	Medium
Cyprus	Medium	Small	Not available	Not available	Medium
FYR Macedonia	Medium	Medium	Medium	Large	Large
Kosovo	Medium	Large	Medium	Large	Large
Montenegro	Medium	Medium	Medium	Large	Large
Romania	Small	Small	Medium	Medium	Medium
Serbia	Medium	Medium	Medium	Medium	Large
Turkey	Medium	Medium	Small	Medium	Negligible
Eastern Europe and the Caucasus
Armenia	Large	Large	Medium	Large	Large
Azerbaijan	Large	Large	Large	Large	Large
Belarus	Large	Large	Large	Large	Large
Georgia	Medium	Large	Medium	Large	Large
Moldova	Large	Large	Large	Large	Large
Ukraine	Medium	Medium	Large	Medium	Large
Russia	Medium	Medium	Large	Medium	Small
Central Asia
Kazakhstan	Medium	Medium	Large	Large	Large
Kyrgyz Republic	Large	Large	Large	Large	Large
Mongolia	Large	Large	Medium	Large	Large
Tajikistan	Large	Large	Large	Large	Large
Turkmenistan	Large	Large	Large	Large	Large
Uzbekistan	Large	Large	Large	Large	Large
Southern and eastern Mediterranean
Egypt	Medium	Large	Large	Large	Medium
Jordan	Small	Medium	Medium	Medium	Large
Morocco	Medium	Medium	Medium	Medium	Medium
Tunisia	Medium	Medium	Large	Medium	Medium

Source: EBRD.
Note: “Large” indicates a major transition gap. “Negligible” indicates standards and performance that are typical of advanced industrialised economies. A historical revision taking into account the availability of new data has been conducted for Jordan’s capital market sector. Please also note the correction for Hungary’s railway sector which was previously misreported. In addition, not all gaps for Cyprus were available at the time of printing, but will be added to the online version of this Transition Report.

TABLE S.3

Sector-level transition indicators 2014: market-supporting institutions

	Agribusiness	General industry	Real estate	ICT
Central Europe and the Baltic states
Croatia	Medium	Small	Small	Small
Estonia	Medium	Negligible	Negligible	Negligible
Hungary	Small	Small	Negligible	Small
Latvia	Medium	Small	Negligible	Negligible
Lithuania	Medium	Small	Negligible	Negligible
Poland	Small	Small	Small	Negligible
Slovak Republic	Small	Negligible	Negligible	Small
Slovenia	Medium	Small	Negligible	Negligible
South-eastern Europe
Albania	Medium	Medium	Medium	Medium
Bosnia and Herzegovina	Medium	Medium	Large	Medium
Bulgaria	Medium	Medium	Small	Small
Cyprus	Medium	Negligble	Small	Small
FYR Macedonia	Medium	Medium	Medium	Small
Kosovo	Large	Large	Large	Medium
Montenegro	Medium	Medium	Medium	Medium
Romania	Medium	Small	Small	Small
Serbia	Medium	Medium	Medium	Medium
Turkey	Small	Medium	Medium	Small
Eastern Europe and the Caucasus
Armenia	Medium	Small	Medium	Medium
Azerbaijan	Medium	Large	Large	Large
Belarus	Medium	Large	Large	Large
Georgia	Medium	Medium	Small	Small
Moldova	Medium	Large	Medium	Medium
Ukraine	Medium	Large	Medium	Medium
Russia	Medium	Medium	Medium	Medium
Central Asia
Kazakhstan	Medium	Large	Small	Medium
Kyrgyz Republic	Medium	Medium	Medium	Medium
Mongolia	Medium	Medium	Large	Medium
Tajikistan	Large	Large	Large	Large
Turkmenistan	Large	Large	Large	Large
Uzbekistan	Large	Large	Large	Large
Southern and eastern Mediterranean
Egypt	Large	Medium	Large	Medium
Jordan	Large	Large	Medium	Medium
Morocco	Medium	Medium	Medium	Medium
Tunisia	Medium	Small	Medium	Medium

	Natural resources	Sustainable energy	Electric power
Central Europe and the Baltic states
Croatia	Small	Medium	Medium
Estonia	Negligible	Medium	Negligible
Hungary	Small	Small	Large
Latvia	Negligible	Small	Negligible
Lithuania	Negligible	Small	Small
Poland	Medium	Small	Negligible
Slovak Republic	Small	Small	Small
Slovenia	Small	Small	Small
South-eastern Europe
Albania	Medium	Medium	Medium
Bosnia and Herzegovina	Large	Large	Large
Bulgaria	Medium	Small	Medium
Cyprus	Medium	Medium	Medium
FYR Macedonia	Medium	Medium	Medium
Kosovo	Large	Large	Large
Montenegro	Small	Medium	Medium
Romania	Small	Small	Medium
Serbia	Large	Medium	Large
Turkey	Small	Medium	Medium
Eastern Europe and the Caucasus
Armenia	Medium	Medium	Medium
Azerbaijan	Medium	Large	Large
Belarus	Large	Medium	Large
Georgia	Large	Large	Medium
Moldova	Medium	Small	Large
Ukraine	Large	Small	Large
Russia	Large	Medium	Medium
Central Asia
Kazakhstan	Large	Large	Medium
Kyrgyz Republic	Large	Large	Large
Mongolia	Large	Medium	Large
Tajikistan	Large	Large	Large
Turkmenistan	Large	Large	Large
Uzbekistan	Large	Large	Large
Southern and eastern Mediterranean
Egypt	Large	Medium	Large
Jordan	Medium	Medium	Medium
Morocco	Large	Medium	Large
Tunisia	Large	Medium	Large

	Water and wastewater	Urban transport	Roads	Railways
Central Europe and the Baltic states
Croatia	Small	Small	Medium	Medium
Estonia	Small	Medium	Medium	Negligible
Hungary	Medium	Small	Negligible	Small
Latvia	Small	Small	Medium	Negligible
Lithuania	Small	Small	Medium	Small
Poland	Small	Small	Small	Small
Slovak Republic	Small	Small	Medium	Medium
Slovenia	Small	Small	Medium	Small
South-eastern Europe
Albania	Large	Large	Medium	Large
Bosnia and Herzegovina	Large	Large	Medium	Small
Bulgaria	Small	Small	Medium	Medium
Cyprus	Small	Small	Medium	Not applicable
FYR Macedonia	Large	Large	Medium	Medium
Kosovo	Medium	Large	Large	Medium
Montenegro	Large	Large	Large	Medium
Romania	Small	Small	Medium	Small
Serbia	Large	Large	Medium	Small
Turkey	Medium	Medium	Medium	Medium
Eastern Europe and the Caucasus
Armenia	Medium	Medium	Medium	Large
Azerbaijan	Large	Large	Medium	Large
Belarus	Large	Large	Large	Large
Georgia	Large	Large	Medium	Medium
Moldova	Large	Medium	Medium	Large
Ukraine	Large	Large	Medium	Large
Russia	Medium	Medium	Medium	Small
Central Asia
Kazakhstan	Large	Large	Medium	Medium
Kyrgyz Republic	Large	Large	Large	Large
Mongolia	Large	Large	Large	Medium
Tajikistan	Large	Large	Large	Large
Turkmenistan	Large	Large	Large	Large
Uzbekistan	Large	Large	Large	Medium
Southern and eastern Mediterranean
Egypt	Large	Large	Medium	Large
Jordan	Large	Large	Medium	Large
Morocco	Large	Large	Medium	Medium
Tunisia	Large	Large	Large	Medium

	Banking	Insurance and other financial services	MSME finance	Private equity	Capital markets
Central Europe and the Baltic states
Croatia	Small	Small	Medium	Medium	Small
Estonia	Small	Small	Small	Medium	Small
Hungary	Medium	Small	Small	Small	Small
Latvia	Small	Small	Small	Medium	Small
Lithuania	Small	Small	Small	Medium	Small
Poland	Small	Small	Small	Small	Small
Slovak Republic	Small	Small	Negligible	Small	Small
Slovenia	Medium	Small	Small	Medium	Small
South-eastern Europe
Albania	Medium	Medium	Medium	Large	Large
Bosnia and Herzegovina	Medium	Medium	Medium	Large	Large
Bulgaria	Medium	Small	Medium	Small	Small
Cyprus	Medium	Not available	Medium	Not available	Small
FYR Macedonia	Medium	Medium	Medium	Large	Large
Kosovo	Medium	Large	Large	Large	Large
Montenegro	Medium	Medium	Medium	Large	Medium
Romania	Small	Small	Small	Small	Small
Serbia	Medium	Small	Medium	Medium	Medium
Turkey	Small	Small	Medium	Small	Small
Eastern Europe and the Caucasus
Armenia	Medium	Large	Medium	Large	Medium
Azerbaijan	Large	Medium	Large	Large	Large
Belarus	Large	Large	Large	Large	Large
Georgia	Medium	Medium	Medium	Large	Large
Moldova	Medium	Medium	Medium	Medium	Large
Ukraine	Medium	Medium	Medium	Large	Medium
Russia	Medium	Medium	Large	Medium	Medium
Central Asia
Kazakhstan	Medium	Medium	Large	Medium	Medium
Kyrgyz Republic	Large	Large	Large	Large	Large
Mongolia	Medium	Large	Large	Medium	Medium
Tajikistan	Large	Large	Large	Large	Large
Turkmenistan	Large	Large	Large	Large	Large
Uzbekistan	Large	Large	Large	Large	Large
Southern and eastern Mediterranean
Egypt	Medium	Medium	Large	Medium	Medium
Jordan	Medium	Medium	Large	Medium	Large
Morocco	Medium	Medium	Large	Medium	Medium
Tunisia	Large	Medium	Large	Large	Medium

Source: EBRD.
Note: “Large” indicates a major transition gap. “Negligible” indicates standards and performance that are typical of advanced industrialised economies. A historical revision taking into account the availability of new data has been conducted for Jordan’s capital market sector. Please also note the correction for Poland’s capital markets sector which was previously misreported. The missing gaps for Cyprus will be added at a later date.

APPROXIMATELY 170 km THE LENGTH OF ESTLINK 2, THE NEW INTERCONNECTION BETWEEN THE BALTIC AND NORDIC ELECTRICITY MARKETS

Energy

The last few years have been difficult for energy markets in the EBRD region. While some countries have announced reforms, progress with implementation has been slow. In some cases, reforms have even been reversed, leading to six downgrades in the electric power sector in the past two years. With only one downgrade and one upgrade, 2014 may mark a turning point for this sector. However, it is too early to say with certainty, particularly given the increase in energy-related challenges in the region, not least because of the crisis in Ukraine.

Hungary has been downgraded for the third year in a row, this time from 3+ to 3, owing to a further deterioration in market-supporting institutions. Government interference in this sector has continued, especially with regard to tariff setting, reversing earlier tariff liberalisation efforts. The government has announced further price reductions and is continuing unequal treatment among users, with businesses having to pay higher electricity prices than households and public institutions. In addition, the presence of private utilities in the market is actively being reduced as a result of acquisitions by the state-owned incumbent.

In contrast, progress has been made in Estonia, leading to an upgrade from 4 to 4+. This upgrade is mainly driven by the full opening-up of Estonia’s electricity market in 2013, in line with the country’s EU accession agreement. All customers can now choose their electricity supplier. This was the only major challenge remaining in the area of market structure, meaning that the country has now reached the maximum score in terms of aligning its structures and institutions with those of an energy sector within a well-functioning market economy. This achievement is underpinned by the positive outlook for cross-border trade, especially with the undersea power cable EstLink 2 beginning to operate in 2014. The cable will enhance interconnection and help to increase the flow of electricity between the Baltic states and the Nordic countries.

Infrastructure

There have been a number of positive developments in the area of infrastructure, leading to three upgrades in the Slovak Republic and Moldova. However, Hungary’s increasingly state-oriented and non-commercial approach to economic policy has had a negative effect on the water and wastewater sector, leading to a downgrade. In addition, Bulgaria has been downgraded in regard to urban transport, mainly owing to a number of municipalities returning to providing bus services without private sector involvement.

The downgrade for Hungary in the water and wastewater sector, from 4 to 3+, is related to changes in market-supporting institutions. Legal changes have been adopted which turn for-profit operators into not-for-profit entities, and the country’s newly established water regulator is limiting commercial pricing. In addition, private sector participation has fallen from its previously high level. Thus, this sector is moving further away from commercially based mechanisms, effectively jeopardising its long-term financial sustainability.

However, there have been upgrades in the road sector. The score for the Slovak Republic, for example, has increased from 3 to 3+. The public-private partnership (PPP) relating to the R1 motorway has been refinanced via the issuance of bonds – a landmark transaction indicating that this sector is approaching maturity. While this is the only road-related PPP project in the Slovak Republic, its completion and capital refinancing have demonstrated the viability of the PPP mechanism in the country. Moldova has also been upgraded (from 3- to 3), reflecting reforms relating to the funding of road maintenance. These reforms include moves towards formula-based allocation, as well as a substantial increase in allocated funds – resulting in a total of some MDL 1.2 billion (approximately €65 million) for 2014. In addition, more than 30 state-owned maintenance companies have been merged to form 11 larger entities, resulting in much-needed consolidation in the sector.

Similarly, Moldova has seen another important development in the urban transport sector. Public service contracts (PSCs) have been introduced in major cities such as Chisinau and Balti. Early evidence of more regular payments under these contracts reinforces the positive demonstration effect that these may have on other cities. In contrast, while the PSC framework in Bulgaria has also been improved, the city of Sofia’s failure to honour contractual obligations in recent years has dampened their demonstration effect. In addition, the return to municipal management of urban bus services in several Bulgarian cities in order to obtain larger EU grants has led to Bulgaria’s market structure gap widening from small to medium.

Financial sectors

While last year’s observation that financial sector reforms had proven resilient still holds true, there are some notable exceptions, with three downgrades in the banking sector this year compared with none last year. The difficult economic and socio-political environment has also revealed a number of structural challenges in the micro, small and medium-sized enterprise (MSME), private equity and capital market sectors. However, some improvements have also been observed – particularly in the MSME sector, where improved access to finance for SMEs has triggered a number of upgrades.

In the banking sector, Hungary has been downgraded from 3+ to 3 owing to a number of tax measures that led to cost-cutting and rapid deleveraging among banks. Restitution of certain loan charges made on foreign-currency-denominated retail loans, and uncertainty over the announced future conversion of such loans into domestic currency, have further eroded banks’ appetite for lending. The government has announced targets to reduce the role of foreign banks within the sector and to expand the role of state-owned institutions. Non-performing loans (NPLs) stand at about 18 per cent in both corporate and retail loans. While this represents a small reduction, incentives for banks to clean up portfolios remain weak, and there is a need to develop more effective out-of-court restructuring mechanisms. The downgrading of Kazakhstan can be explained by the failure to reduce the high level of NPLs (about 30 per cent), despite the Central Bank directing its efforts towards solving the problem. In addition, there has been a decline in the percentage of total banking assets that are foreign-owned, driven partly by sales of bank subsidiaries to local competitors. In contrast, Romania’s gap for market-supporting institutions has narrowed from medium to small, as banking regulation has been improved (including compulsory stress testing for foreign currency lending).

In the area of MSME lending, the market structure gap has widened from medium to large in Ukraine. This is driven by the fact that there is currently scant MSME lending available, owing to the poor situation of many banks, which are suffering from very high NPL ratios. As a result, the current priority is to clean up banks’ balance sheets. This is having a disproportionate effect on MSMEs, not least because they represent the segment with the highest level of NPLs. On the other hand, Turkey has seen its market structure gap narrow from medium to small. This reflects positive developments in terms of increased lending to SMEs, more favourable interest rates and greater availability of alternative financing options in the market. Three other upgrades in Albania, Kosovo and Montenegro have been driven by better access to finance for SMEs, in addition to improvements in the skills of loan officers and lending departments dealing with credit applications by SMEs.

Changes in the private equity sector have been driven mainly by the presence of fund managers in the market, or a lack thereof, particularly in central and eastern Europe. However, they also reflect the availability of private equity more generally. Downgrades in Croatia (from 3- to 2+), Estonia (market structure gap from small to medium) and Latvia (from 3- to 2+) can be explained by unfavourable changes in the number of fund managers – and the types of fund manager – that are investing in these countries. However, there have also been upgrades in both the Slovak Republic and Serbia, where market structure gaps have narrowed from large to medium, as the amount of private equity capital invested has more than doubled in both countries. In addition, in the Slovak Republic the permitted scope of investment for funds has been widened to include assets designated as being distressed or in need of restructuring.

In the capital market sector, a number of changes have been driven by a methodological adjustment that has led to the recalibration of overall scores in order to reflect differences between countries more accurately. The downgrades in Kazakhstan and Poland are linked to pension reforms, which have marginalised the role of private pension funds and had a significant negative effect on the institutional investor base in both countries. In addition, the endemic problems in Kazakhstan’s banking sector – see above – have brought a halt to the capital market development observed prior to the financial crisis. In Ukraine, the market structure gap has widened owing to a deterioration of liquidity indicators – in particular, government and corporate bond market indices. In Tunisia, by contrast, a comprehensive development plan for capital markets has been put in place, supporting further progress and leading to a narrowing of the market institutions gap from large to medium.

Corporate sectors

Progress in the corporate sector continues to be mixed, with both positive and negative developments in the transition region. This year there have been two downgrades and one upgrade.

In general industry, the market institutions gap in Bulgaria has widened from small to medium, reflecting the ongoing deterioration in the business environment. Although foreign firms – manufacturers of automotive parts, for example – continue to show interest in Bulgaria, the weak economic growth in recent years, combined with political turbulence, has led to low levels of both foreign direct investment and domestic investment. The political interference seen in the electric power sector (which was downgraded last year), combined with low feed-in tariffs, is having a significant effect on the corporate sector by discouraging investments in resource efficiency.

Hungary has also suffered a downgrade in the ICT sector, with the market institutions gap widening from negligible – the highest rating – to small. A new special tax on advertising and media services was introduced recently. Even though the special tax on telecommunications operators introduced in 2010 as a temporary measure was phased out as of 2013, it was replaced by a new tax on telecommunications services (telephone calls and text messages). The uncertainties related to frequent changes in sector-specific taxation may affect operators’ willingness to invest in network infrastructure and may make the sector less attractive for new investors.

The sole upgrade is observed in the real estate sector, with Montenegro’s market institutions gap narrowing from large to medium. This is due mainly to progress in reducing bureaucratic obstacles to obtain building permits. Processes have been significantly streamlined, including the introduction of a one-stop shop, as well as strict time limits for the provision of approval.

Although they have not led to any rating changes this year, significant developments have also been observed in the agribusiness sector across the EBRD region. Examples include plans to move away from highly subsidised food schemes in Egypt, which will, however, be challenging to implement. In addition, efforts to reform land markets have begun in Croatia and Turkey, which may help to prevent the further fragmentation of farm land and facilitate productivity gains. In Russia, a number of ad hoc trade barriers have been introduced. In addition, temporary import bans have been put in place in response to sanctions imposed by the United States and the EU. The potential structural effects of these measures have yet to be assessed.

Cyprus

Cyprus became an EBRD recipient country in May 2014, so this is the first time that it has been included in this annual assessment of structural reform progress. Despite being an EU member state and relatively advanced in certain sectors, the country faces major challenges in a few very specific areas – particularly in the financial and infrastructure sectors. In these two sectors, its scores range from 3- to 3+. The key challenges in the financial sector span most of the banking industry, with a very high NPL ratio of around 50 per cent, low levels of funding and a need to push through further restructuring. These problems are restricting companies’ access to finance, particularly in the case of SMEs, while alternative financial products are not readily available in the market. In the infrastructure sector, wider private-sector participation – for example via PPPs and the introduction of performance-based contracts – remain a challenge. In the corporate sector, market structures and institutions appear to be more robust, particularly in the general industry and the ICT sectors, which have scores of at least 4-. However, specific challenges relating to privatisation and corporate restructuring remain.

IN 11 COUNTRIES MATERNAL MORTALITY RATES HAVE IMPROVED

Inclusion

Given the importance of economic inclusion for the development of sustainable economic systems, the EBRD assesses the level of inclusion across a range of market sectors in the countries where it works. This assessment was carried out for the first time last year, and Chapter 5 of the Transition Report 2013 provides a detailed explanation of the rationale behind it, as well as the methodology used. Of the three existing measures of inclusion, only the gender gaps and youth gaps have been updated this year. The regional gaps will be updated once the results of the next Life in Transition Survey – which is scheduled for 2015 – are available.

Most of the changes in the assessment of gender gaps relate to health services and education. In the area of health services, they result from slight improvements in maternal mortality, particularly in the majority of southern and eastern Mediterranean (SEMED) countries (namely Egypt, Jordan and Morocco), as well as in Georgia, Kazakhstan, Moldova, Mongolia, Russia, Serbia, Turkmenistan and Ukraine. However, Lithuania has been downgraded from small to medium owing to a slight increase in maternal mortality. Meanwhile, three countries (Azerbaijan, Belarus and Uzbekistan) have made some progress in education by closing the gender gap in terms of enrolment in and completion of secondary and tertiary education, leading to upgrades. At the same time, completion rates for primary education have decreased among the female population of Bulgaria, Jordan and Romania, leading to downgrades. In the areas of labour practices, access to finance, and employment and firm ownership, gender gaps remain medium to large overall (particularly in the SEMED countries, where gaps are large across all three dimensions).

As regards youth gaps, most upgrades and downgrades are concentrated in the fields of education, financial inclusion and labour market structure. There have been a few upgrades in terms of the quality and quantity of education, driven by better PISA scores (Albania and Montenegro) or increases in the number of years of schooling (Bulgaria, Jordan, Latvia and Romania). Changes to the flexibility of hiring, firing and wage determination in the labour market have led to three downgrades (Bosnia and Herzegovina, Georgia and Romania) and two upgrades (Estonia and Hungary). In terms of financial inclusion, changes generally reflect improvements in the area of access to financial services, resulting in just one downgrade (Georgia) and four upgrades (Jordan, Latvia, FYR Macedonia and the Kyrgyz Republic). Opportunities for young people have not changed much in the past year, so gaps remain large in a number of countries, particularly in the SEMED region, as well as south-eastern Europe.

TABLE S.4

Inclusion gaps for gender

	Legal regulations	Health services	Education	Labour policy	Labour practices	Employment and firm ownership	Access to finance
Central Europe and the Baltic states
Croatia	Negligible	Small	Negligible	Medium	Large	Small	Small
Estonia	Negligible	Small	Negligible	Small	Large	Medium	Medium
Hungary	Negligible	Small	Negligible	Negligible	Medium	Medium	Medium
Latvia	Small	Medium	Negligible	Small	Large	Medium	Small
Lithuania	Negligible	Medium	Negligible	Small	Medium	Medium	Medium
Poland	Small	Small	Negligible	Small	Medium	Medium	Medium
Slovak Republic	Small	Small	Negligible	Small	Medium	Medium	Medium
Slovenia	Negligible	Small	Negligible	Small	Medium	Medium	Small
South-eastern Europe
Albania	Negligible	Medium	Small	Small	Large	Large	Large
Bosnia and Herzegovina	Negligible	Medium	Negligible	Medium	Large	Large	Medium
Bulgaria	Negligible	Small	Small	Small	Large	Medium	Medium
Cyprus	Not available	Medium	Negligible	Not available	Not available	Small	Large
FYR Macedonia	Small	Medium	Small	Small	Large	Medium	Medium
Kosovo	Not available	Not available	Not available	Not available	Not available	Not available	Large
Montenegro	Small	Medium	Negligible	Medium	Large	Medium	Medium
Romania	Negligible	Medium	Small	Small	Large	Medium	Medium
Serbia	Small	Small	Negligible	Medium	Large	Large	Small
Turkey	Small	Small	Medium	Small	Large	Large	Large
Eastern Europe and the Caucasus
Armenia	Medium	Medium	Negligible	Small	Large	Large	Medium
Azerbaijan	Negligible	Medium	Negligible	Medium	Large	Medium	Large
Belarus	Small	Small	Negligible	Medium	Large	Small	Medium
Georgia	Small	Medium	Negligible	Small	Large	Medium	Small
Moldova	Small	Small	Negligible	Small	Large	Small	Medium
Ukraine	Small	Small	Negligible	Small	Large	Medium	Medium
Russia	Small	Small	Negligible	Medium	Large	Medium	Medium
Central Asia
Kazakhstan	Small	Medium	Negligible	Medium	Large	Large	Medium
Kyrgyz Republic	Medium	Large	Negligible	Medium	Large	Medium	Small
Mongolia	Small	Medium	Negligible	Medium	Large	Medium	Small
Tajikistan	Medium	Large	Medium	Small	Large	Medium	Large
Turkmenistan	Large	Medium	Small	Medium	Large	Large	Not available
Uzbekistan	Medium	Medium	Small	Medium	Large	Large	Large
Southern and eastern Mediterranean
Egypt	Medium	Medium	Medium	Medium	Large	Large	Large
Jordan	Medium	Medium	Small	Medium	Large	Large	Large
Morocco	Medium	Medium	Medium	Medium	Large	Large	Large
Tunisia	Small	Medium	Small	Small	Large	Large	Large
Comparator countries
France	Negligible	Small	Negligible	Small	Medium	Medium	Medium
Germany	Negligible	Small	Negligible	Negligible	Medium	Small	Medium
Italy	Negligible	Small	Negligible	Small	Medium	Large	Large
Sweden	Negligible	Small	Negligible	Negligible	Medium	Small	Medium
United Kingdom	Negligible	Small	Negligible	Small	Medium	Medium	Medium

Source: EBRD.
Note: Methodological changes have been made in the following areas: employment and firm ownership, access to finance and labour practices. These are driven mainly by amendments to the BEEPS questionnaire. Please refer to the methodological notes in the online version of this Transition Report (tr.ebrd.com) for further details.

TABLE S.5

Inclusion gaps for youth

	Labour market structure	Opportunities for youth	Quantity of education	Quality of education	Financial inclusion
Central Europe and the Baltic states
Croatia	Medium	Large	Small	Medium	Medium
Estonia	Small	Medium	Negligible	Medium	Small
Hungary	Medium	Medium	Negligible	Small	Medium
Latvia	Small	Medium	Negligible	Medium	Small
Lithuania	Medium	Medium	Small	Medium	Large
Poland	Medium	Medium	Small	Medium	Medium
Slovak Republic	Medium	Large	Small	Large	Medium
Slovenia	Medium	Small	Small	Small	Negligible
South-eastern Europe
Albania	Medium	Large	Small	Medium	Negligible
Bosnia and Herzegovina	Medium	Large	Medium	Not available	Small
Bulgaria	Small	Large	Negligible	Medium	Small
Cyprus	Small	Large	Small	Medium	Medium
FYR Macedonia	Medium	Large	Medium	Large	Small
Kosovo	Not available	Not available	Not available	Not available	Not available
Montenegro	Medium	Large	Small	Medium	Medium
Romania	Small	Large	Negligible	Medium	Small
Serbia	Small	Large	Large	Medium	Large
Turkey	Medium	Large	Large	Medium	Large
Eastern Europe and the Caucasus
Armenia	Small	Large	Small	Medium	Negligible
Azerbaijan	Medium	Large	Small	Large	Small
Belarus	Not available	Medium	Negligible	Not available	Medium
Georgia	Small	Large	Negligible	Medium	Medium
Moldova	Medium	Large	Small	Large	Negligible
Ukraine	Medium	Small	Small	Large	Negligible
Russia	Medium	Medium	Negligible	Medium	Medium
Central Asia
Kazakhstan	Small	Medium	Small	Large	Medium
Kyrgyz Republic	Medium	Large	Medium	Large	Negligible
Mongolia	Small	Medium	Large	Not available	Small
Tajikistan	Medium	Medium	Small	Not available	Negligible
Turkmenistan	Not available	Not available	Small	Not available	Negligible
Uzbekistan	Not available	Not available	Small	Not available	Small
Southern and eastern Mediterranean
Egypt	Medium	Large	Large	Not available	Negligible
Jordan	Small	Large	Medium	Medium	Medium
Morocco	Medium	Large	Large	Large	Medium
Tunisia	Medium	Large	Large	Large	Small
Comparator countries
France	Medium	Medium	Negligible	Small	Medium
Germany	Medium	Negligible	Small	Small	Negligible
Italy	Medium	Large	Negligible	Medium	Large
Sweden	Medium	Medium	Small	Small	Small
United Kingdom	Small	Medium	Small	Small	Negligible

Source: EBRD.
Note: Methodological changes have been made in the following areas: opportunities for youth and financial inclusion. These are driven mainly by the availability of new data. Please refer to the methodological notes in the online version of this Transition Report (tr.ebrd.com) for further details.

TABLE S.6

Inclusion gaps for regions

	Institutions	Access to services	Labour markets	Education
Central Europe and the Baltic states
Croatia	Medium	Medium	Small	Medium
Estonia	Small	Medium	Negligible	Small
Hungary	Medium	Small	Large	Small
Latvia	Small	Medium	Small	Medium
Lithuania	Medium	Large	Small	Small
Poland	Medium	Medium	Medium	Small
Slovak Republic	Medium	Small	Medium	Small
Slovenia	Small	Negligible	Small	Small
South-eastern Europe
Albania	Medium	Medium	Large	Small
Bosnia and Herzegovina	Large	Large	Large	Small
Bulgaria	Medium	Medium	Medium	Medium
Cyprus	Not available	Not available	Not available	Not available
FYR Macedonia	Small	Medium	Large	Large
Kosovo	Medium	Large	Large	Small
Montenegro	Medium	Medium	Large	Small
Romania	Medium	Large	Medium	Medium
Serbia	Large	Medium	Large	Large
Turkey	Medium	Large	Medium	Large
Eastern Europe and the Caucasus
Armenia	Medium	Medium	Large	Medium
Azerbaijan	Medium	Small	Large	Small
Belarus	Medium	Negligible	Small	Negligible
Georgia	Negligible	Large	Large	Medium
Moldova	Medium	Large	Large	Large
Ukraine	Medium	Medium	Medium	Small
Russia	Medium	Small	Small	Medium
Central Asia
Kazakhstan	Small	Small	Medium	Medium
Kyrgyz Republic	Medium	Large	Medium	Small
Mongolia	Negligible	Medium	Medium	Medium
Tajikistan	Medium	Large	Large	Small
Turkmenistan	Not available	Not available	Not available	Not available
Uzbekistan	Large	Medium	Large	Large
Southern and eastern Mediterranean
Egypt	Not available	Not available	Not available	Large
Jordan	Not available	Not available	Not available	Small
Morocco	Not available	Not available	Not available	Large
Tunisia	Not available	Not available	Not available	Not available
Comparator countries
France	Negligible	Medium	Medium	Medium
Germany	Negligible	Large	Negligible	Medium
Italy	Large	Medium	Negligible	Small
Sweden	Medium	Small	Small	Small
United Kingdom	Medium	Small	Small	Large

Source: EBRD.
Note: Please note that the regional gaps have not been updated this year, as they are largely based on the results of the EBRD-World Bank Life in Transition Survey, the next round of which is scheduled for 2015.

Country-level transition indicators

Alongside the sector-level transition scores discussed above, the traditional country-level transition indicators – which cover cross-cutting issues such as privatisation, liberalisation and governance – have been retained (see Table S.7). However, only a few developments in the past year have warranted changes to those scores, either up or down. There have been just three changes: a downgrade for Russia in the area of trade and foreign exchange, and upgrades for Croatia and Montenegro in the area of competition policy.

Russia’s downgrade comes against the backdrop of Western sanctions resulting from the crisis in Ukraine and the countermeasures adopted by Russia in response. The Russian authorities have introduced a one-year import ban with effect from August 2014 targeting EU food products. Separate measures include a ban on imports of Ukrainian food products, including dairy and confectionery. In addition, a number of temporary measures have been adopted over the past year that affect agricultural and manufacturing imports. As a result, Russia’s score has been reduced from 4 to 4-.

Meanwhile, Croatia has been upgraded from 3 to 3+ in the area of competition in light of the country’s accession to the EU and the important amendments to the country’s Competition Act that entered into force in mid-2013. These amendments include the provision of greater clarity regarding the separation of powers and responsibilities between the competition authority and the courts. Croatia has also strengthened the procedures governing raids conducted by the competition authority, which may be associated with firmer and more frequent enforcement of antitrust rules. In Montenegro, the establishment of a fully independent competition authority has led to an upgrade of the competition policy indicator from 2 to 2+. This upgrade is underpinned by signs of increasing prosecution of cartels, despite deficiencies in terms of resources and the resulting enforcement levels.

TABLE S.7

	Large-scale privatisation	Small-scale privatisation	Governance and enterprise restructuring
Central Europe and the Baltic states
Croatia	4-	4+	3+
Estonia	4	4+	4-
Hungary	4	4+	4-
Latvia	4-	4+	3+
Lithuania	4	4+	3
Poland	4-	4+	4-
Slovak Republic	4	4+	4-
Slovenia	3	4+	3
South-eastern Europe
Albania	4-	4	2+
Bosnia and Herzegovina	3	3	2
Bulgaria	4	4	3-
Cyprus	4-	4+	3
FYR Macedonia	3+	4	3-
Kosovo	2-	3+	2
Montenegro	3+	4-	2+
Romania	4-	4-	3-
Serbia	3-	4-	2+
Turkey	3+	4	3-
Eastern Europe and the Caucasus
Armenia	4-	4	2+
Azerbaijan	2	4-	2
Belarus	2-	2+	2-
Georgia	4	4	2+
Moldova	3	4	2
Ukraine	3	4	2+
Russia	3	4	2+
Central Asia
Kazakhstan	3	4	2
Kyrgyz Republic	4-	4	2
Mongolia	3+	4	2
Tajikistan	2+	4	2
Turkmenistan	1	2+	1
Uzbekistan	3-	3+	2-
Southern and eastern Mediterranean
Egypt	3	4-	2
Jordan	3	4-	2+
Morocco	3+	4-	2+
Tunisia	3	4-	2

	Price liberalisation	Trade and foreign exchange system	Competition policy
Central Europe and the Baltic states
Croatia	4	4+	3+ ↑
Estonia	4+	4+	4-
Hungary	4	4	3+
Latvia	4+	4+	4-
Lithuania	4+	4+	4-
Poland	4+	4+	4-
Slovak Republic	4+	4	3+
Slovenia	4	4+	3-
South-eastern Europe
Albania	4+	4+	2+
Bosnia and Herzegovina	4	4	2+
Bulgaria	4+	4+	3
Cyprus	4+	4+	4-
FYR Macedonia	4+	4+	3-
Kosovo	4	4	2+
Montenegro	4	4+	2+ ↑
Romania	4+	4+	3+
Serbia	4	4	2+
Turkey	4	4+	3
Eastern Europe and the Caucasus
Armenia	4	4+	2+
Azerbaijan	4	4	2-
Belarus	3	2+	2
Georgia	4+	4+	2
Moldova	4	4+	2+
Ukraine	4	4	2+
Russia	4	4- ↓	3-
Central Asia
Kazakhstan	4-	4-	2
Kyrgyz Republic	4+	4+	2
Mongolia	4+	4+	3-
Tajikistan	4	4-	2-
Turkmenistan	3	2+	1
Uzbekistan	3-	2-	2-
Southern and eastern Mediterranean
Egypt	3+	4	2-
Jordan	4-	4+	2
Morocco	4	4-	2
Tunisia	4	4	3-

Source: EBRD.
Note: The transition indicators range from 1 to 4+, with 1 representing little or no change relative to a rigid centrally planned economy and 4+ representing the standards of an industrialised market economy. For a detailed breakdown of each of the areas of reform, see the methodological notes in the online version of this Transition Report (tr.ebrd.com). Upward and downward arrows indicate one-notch upgrades and downgrades relative to the previous year.

Methodological notes

Sector-level transition indicators

(See Table S.1)

The sector-level transition indicators reflect the judgement of the EBRD’s Office of the Chief Economist about progress in transition by sector and the size of the remaining transition “gap” or challenges ahead. The scores range from 1 to 4+ and are based on an assessment of the size of the challenges in two components: market structure and market-supporting institutions and policies. The scoring for the components is based on either publicly available data or observable characteristics of market structure and institutions. Based on the results of this scoring exercise, remaining transition gaps for market structure and institutions were classified as either “negligible”, “small”, “medium” or “large”. The final numerical score is based on these gap ratings as well as the underlying information. Table N.1.1.1 serves as a guide, defining the ranges for those cases where the two component assessments are the same, however exceptions can be made to this rule.

TABLE N.1.1.1

Transition cut-off points

Cut-off points
Transition gaps (MS/MI)	Potential scores
Large/Large	from 1 to 2+
Medium/Medium	from 2+ to 3+
Small/Small	from 3+ to 4
Negligible/Negligible	4+

The following tables show, for each sector, the weighting attached to the two components (market structure and market-supporting institutions and policies), the criteria used in each case (and the associated weights), and the indicators and data sources that fed into the final assessments. For the corporate and financial sectors as well as the inclusion assessment, the exact sources are listed in the tables. The assessment of remaining transition challenges in the energy sectors is based on cross-country factual data and information on the energy sector (oil, gas, mining, electric power), including from external agencies (International Energy Agency, European Commission progress reports on accession countries, Business Monitor International sector reports, Energy Regulators Regional Association, and so on). The assessment for the natural resources sector has been done by subcomponent (oil and gas and mining), which were then aggregated with a weight reflecting the importance of subcomponents for a country’s economy. For infrastructure sectors, the assessment relied both on quantitative indicators (for example, cost recovery tariffs based on information from EBRD projects) and qualitative assessments of the less quantifiable measures, such as the relations between municipalities and their utilities. Sources encompassed in-house information from investment projects and cross-country data and assessments from several external agencies (including the World Bank, the European Commission and the OECD).

Corporates

TABLE N.1.2.1

Rating transition challenges in the agribusiness sector

Components	Criteria	Indicators
Market structure [50%]	Liberalisation of prices and trade [15%]	Wheat: producer price to world price ratio (FAO GIEWS and PriceSTAT, latest available)
		Simple average MFN applied tariff for agricultural products (WTO, 2013)
		NRA to agriculture, average 2009-11 (World Bank Distortions to Agricultural Incentives, 2013)
		WTO membership (WTO)
	Development of private and competitive agribusiness [40%]	Wheat: yields per ha, average 2010-12 (FAO ProdSTAT, 2014)
		Wheat: average change in yields per ha in the period 2007-12 (FAO ProdSTAT, 2014)
		Mass grocery retail sales in per cent of total grocery retail (BMI, latest available data)
		Processing mark-up in agriculture (EBRD calculation based on UNIDO, 2013)
	Development of related infrastructure [25%]	EBRD railways infrastructure (EBRD Transition Report, 2013)
		EBRD road infrastructure (EBRD Transition Report, 2013)
		Tractors per 100 ha arable land (World Bank World Development Indicators (WDI), 2014)
		Pump price for gasoline (World Bank WDI, 2014)
	Development of skills [20%]	Ratio of a percentage of tertiary graduates in agriculture over a percentage of agricultural share in GDP (EBRD calculations based on UNESCO and CEIC, 2014)
	Development of skills [20%]	Value-added per worker in agriculture (World Bank WDI, 2014)
Market-supporting institutions and policies [50%]	Legal framework for land ownership, exchanges and pledges [40%]	Tradeability of land (EBRD Transition Report, 2009, updated in 2014)
		Warehouse Receipt Programmes (FAO Investment Centre Working Paper, 2009)
		Building a warehouse: dealing with construction permits (World Bank Doing Business, 2014)
		Registering property (World Bank Doing Business, 2014)
	Enforcement of traceability of produce [40%]	Quality control and hygiene standards [40%] Overall TC 34 (ISO, 2014)
	Enforcement of traceability of produce [40%]	Hygiene standard implementation (EBRD assessment, latest available)
	Creation of functioning rural financing systems [20%]	Ratio of percentage of lending to agriculture relative to percentage of agricultural share in GDP (EBRD calculations, latest available)

TABLE N.1.2.2

Rating transition challenges in the general industry sector

Components	Criteria	Indicators
Market structure [60%]	Market determined prices [20%]	Subsidies in % of GDP (CEIC, latest available data)
	Market determined prices [20%]	Energy intensity (World Bank WDI, 2013)
	Competitive business environment [40%]	MFN applied tariff, simple average, non-agricultural products (WTO, 2014)
		Lerner index (EBRD calculation based on UNIDO, 2010)
		Large-scale privatisation (EBRD Transition Report, 2013)
	Productivity and efficiency [40%]	Expenditures on R&D in % of GDP (UNESCO, 2014)
		R&D effectiveness (EBRD calculation based on WIPO and UNESCO, 2014)
		Value-added, manufacturing, per employee (UNIDO, 2010)
		Knowledge Index (World Bank, 2012)
Market-supporting institutions and policies [40%]	Facilitation of market entry and exit [40%]	Starting a business (World Bank Doing Business, 2014)
		Resolving insolvency (World Bank Doing Business, 2014)
		Per cent of firms identifying business licensing and permits and as a major constraint (EBRD and World Bank, 2013)
	Enforcement of competition policy [30%]	Competition policy indicator (EBRD Transition Report, 2013)
	Corporate governance and business standards [30%]	Composite country law index (EBRD Legal Transition Team, 2014)
		ISO certification (EBRD calculation based on ISO and World Bank data, 2014)
		Protecting investors (World Bank Doing Business, 2013)
		Corruption Perceptions Index (Transparency International, 2013)

TABLE N.1.2.3

Rating transition challenges in the real estate sector

Components	Criteria	Indicators
Market structure [40%]	Sufficient supply of quality assets in all subsegments (warehouse/office/retail/hotels) [60%]	Class A industry supply per capita (Colliers, DTZ, King Sturge, CB Richard Ellis, Jones Lang LaSalle)
		Modern office space per capita (Colliers, DTZ, King Sturge, CB Richard Ellis, Jones Lang LaSalle)
		Prime retail space per capita (Colliers, DTZ, King Sturge, CB Richard Ellis, Jones Lang LaSalle)
		Hotel room supply per capita (WEF Travel & Tourism Competitiveness Index, 2013)
	Market saturation and penetration of innovative construction technologies [40%]	Market saturation index (EBRD, 2012)
		Index on penetration of innovative construction technologies (EBRD, 2012)
Market-supporting institutions and policies [60%]	Tradeability and accessibility of land [20%]	Accessing industrial land: lease rights (World Bank, 2010)
		Accessing industrial land: ownership rights (World Bank, 2010)
		Access to land (BEEPS V, 2012)
	Development of an adequate legal framework for property development [30%]	Quality of primary legislation in the property sector (EBRD, 2012)
		Quality of secondary legislation in the property sector (EBRD, 2012)
		Mortgage market legal efficiency indicators (EBRD, 2014)
	Presence and effectiveness of energy efficiency support mechanisms [10%]	Sustainability of government support mechanisms (EBRD, 2012)
	Adequacy of property-related business environment [40%]	Registering property (World Bank Doing Business, 2014)
		Dealing with construction permits (World Bank Doing Business, 2014)
		Property rights (WEF Travel & Tourism Competitiveness Index, 2013)
		Level of corruption for construction-related permits (BEEPS V, 2012)

TABLE N.1.2.4

Rating transition challenges in the telecommunications sector

Components	Criteria	Indicators
Market structure [50%]	Competition and private sector involvement: mobile telephony [40%]	Expansion of services to rural areas, proxied by % of population covered by mobile signal (World Bank, 2014)
		Mobile penetration rate (International Telecommunication Union, 2014)
		Percentage of private ownership in the incumbent mobile operator (Global Insight, BuddeComm)
		Market share of the largest mobile operator (Business Monitor International, Global Insight, BuddeComm)
		Mobile number portability (Business Monitor International, Global Insight, BuddeComm)
		Level of competition for mobile telephone services (World Bank, 2014)
	Competition and private sector involvement: fixed telephony [20%]	Fixed-line teledensity (International Telecommunication Union, 2014)
		Percentage of private ownership in fixed telephony incumbent (Business Monitor International, Global Insight)
		Market share of the largest fixed telephony provider (Global Insight, BuddeComm)
		Fixed number portability (Business Monitor International, Global Insight)
		Level of competition for international long-distance services (World Bank, 2014)
		Mobile and fixed-line subscribers per employee (World Bank, 2009)
	IT and high-tech markets [40%]	Internet users penetration rate (International Telecommunication Union, 2014)
		Broadband subscribers penetration rate (International Telecommunication Union, 2014)
		International internet bandwidth (World Bank, 2014)
		Level of competition for internet services (World Bank, 2014)
		Piracy rates (Business Software Alliance, 2011)
Market-supporting institutions and policies [50%]	Regulatory framework assessment [70%]	Market liberalisation (EBRD, 2012)
		Sector organisation and governance (EBRD, 2012)
		Market entry for wired networks and services (EBRD, 2012)
		Market entry for wireless networks and services (EBRD, 2012)
		Fees and taxation on electronic communication services (EBRD, 2012)
		Progress towards implementation of information society (EBRD, 2012)
	Preparedness of the country to develop a knowledge economy [25%]	Knowledge Economy Index: Economic Incentives (World Bank, 2012)
		Knowledge Economy Index: Innovation (World Bank, 2012)
		Knowledge Economy Index: Education (World Bank, 2012)
	Freedom of media [5%]	Freedom of press (Reporters Without Borders and Freedom House, 2014)

Energy

TABLE N.1.3.1

Rating transition challenges in the electric power sector

Components	Criteria	Indicators
Market structure [40%]	Restructuring through institutional separation, unbundling and corporatisation [33%]	Extent of corporatisation (setting up of joint-stock companies, improved operational and financial performance)
		Extent of legal unbundling of generation, transmission, distribution and supply/retail
		Extent of financial unbundling of generation, transmission, distribution and supply/retail
		Extent of operational unbundling of generation, transmission, distribution and supply/retail
	Private sector participation [33%]	Degree of private sector participation in generation and/or distribution
	Competition and liberalisation [33%]	Degree of liberalisation of the sector (third-party access to network on transparent and non-discriminatory grounds)
		Ability of end-consumers to freely choose their provider
		Degree of effective competition in generation and distribution
Market-supporting institutions and policies [60%]	Tariff reform [40%]	Presence of cost-reflective domestic tariffs
		Existence of cross-subsidisation among consumers
		Degree of payment discipline as measured by collection rates and payment arrears
	Development of an adequate legal framework [20%]	Energy law in place to support full-scale restructuring of the sector and setting up of a regulator
		Quality of taxation and licensing regime
		Existence and relative strength of the regulatory framework for renewables
	Establishment of an independent energy regulator [40%]	Degree of financial and operational independence of the regulator
	Establishment of an independent energy regulator [40%]	Level of standards of accountability and transparency

TABLE N.1.3.2.1

Natural resources subcomponent: oil and gas sector

Components	Criteria	Indicators
Market structure [40%]	Restructuring through institutional separation and corporatisation [40%]	Degree of unbundling of different business lines into separate legal entities (joint-stock companies)
		Existence of separate financial accounts for different lines of businesses
		Extent of unbundling of different business lines into separate legal entities
		Extent of measures adopted to improve operational and financial performance
	Private sector participation [20%]	Degree of private sector participation in upstream and downstream/supply
	Competition and liberalisation [40%]	Degree of liberalisation of the sector (third-party access to network)
		Ability of end-consumers to freely choose their provider
		Degree of effective competition in upstream/extraction, supply and retail
Market-supporting institutions and policies [60%]	Tariff reform and price liberalisation [40%]	Presence of cost-reflective tariffs
		Existence of cross-subsidisation among consumers
		Degree of payment discipline as measured by collection rates and payment arrears
	Development of an adequate legal framework [40%]	Energy law in place to support full-scale restructuring of the sector and setting up of a regulator
		Quality of taxation and licensing regime
		Extent of transparency and accountability on revenues from extractive industries (e.g. EITI/PWYP compliance)
	Regulatory structure [20%]	Degree of financial and operational independence of the regulator
	Regulatory structure [20%]	Level of standards of accountability and transparency

TABLE N.1.3.2.2

Natural resources subcomponent: mining sector

Components	Criteria	Indicators
Market structure [50%]	Private sector participation [40%]	Degree of private sector participation in direct mining and processing activities
	Private sector participation [40%]	Diversification of supply chain
	Price liberalisation, market access and competition [20%]	Extent of commodities price liberalisation
		Extent of free market access and free trade
		Degree of effective competition in the sector
	Development of related infrastructure [20%]	Availability and quality of rail/road/port infrastructure
	Development of related infrastructure [20%]	Development of processing facilities
	Knowledge and technology [20%]	Distance from the technology frontier
		Availability of skilled labour
		Extent of foreign participation (technology transfer)
		Level of EHS&S technology in use in the sector relative to Best Available Technologies
		Relative carbon intensity of the sector
Market-supporting institutions and policies [50%]	Institutional framework [40%]	Independent mining regulation agency
		Independence of judicial bodies
		Clarity and stability of licensing and tax regimes including royalties
		Independent environmental/social regulatory agency
	Development of adequate legal and regulatory framework [40%]	Mining law/code: adequacy/quality of legislation/regulation
		Adequacy/quality of licensing and tax regimes
		Adequacy of corporate governance and reporting requirements and implementation
		Status of disclosure/reporting transparency and of accountability on revenues (e.g. EITI/PWYP compliance)
		Corruption index
	EHS&S legislative and regulatory framework [20%]	Extent and quality of specific EHS&S legislation for mining sector
		Adequacy of environmental legislation/regulations (including tailings/rock management, water management, emissions controls) and effectiveness of enforcement
		Adequacy of public information and public participation requirements and effectiveness of enforcement
		Adequacy of public health and safety standards and effectiveness of enforcement
		Voluntary market incentives: presence and adoption of international standards and market-based mechanisms for EHS&S, cyanide and so on

TABLE N.1.3.3

Rating transition challenges in the sustainable energy sector: energy efficiency (EE), renewable energy (RE) and climate change (CC)

Components	Criteria	Indicators
Market structure [67%]	Market determined prices [50%]	Quality of energy pricing: end-user cost-reflective electricity tariffs
		Level of enforcement of pricing policies: collection rates and electricity bills
		Amount of wastage: transmission and distribution losses
		Quality of tariff support mechanisms for renewables (tradeable green certificate schemes/feed-in tariffs/no support)
		Presence of carbon taxes or emissions trading mechanisms
	Outcomes [50%]	Level of energy intensity
		Level of carbon intensity
		Share of electricity generated from renewable sources
Market-supporting institutions and policies [33%]	Laws [25%]	Index on laws on the books related to EE and RE (such as those that support renewable technologies, compel minimum standards in various areas of energy use, provide guidance for sectoral targets in terms of energy savings and provide incentives and penalties for achieving desirable targets)
	Laws [25%]	Stage of institutional development in implementing the Kyoto Protocol
	Agencies [25%]	Existence of EE agencies or RE associations (autonomous/departments within government)
		Index on employment, budget and project implementation capacity of agencies
		Index on functions of agencies: adviser to government, policy drafting, policy implementation and funding for projects
	Policies [25%]	Sustainable energy (SE) index: existence, comprehensiveness and specific targets of policies on SE
		Renewable energy index: existence of specific sectoral regulations for RE (renewables obligation, licensing for green generators, priority access to the grid)
		Climate change index: existence of policies (emissions targets and allocation plans)
	Projects [25%]	Index on project implementation capacity in EE, RE and CC
		Number of projects in EE, RE and CC
		Expenditure data on projects in EE, RE and CC

Infrastructure

TABLE N.1.4.1

Rating transition challenges in the railways sector

Components	Criteria	Indicators
Market structure [60%]	Restructuring through institutional separation and unbundling [33%]	Extent of corporatisation of railways
		Extent of unbundling of different business lines (freight and passenger operations)
		Extent of divestment of ancillary activities
	Private sector participation [33%]	Number of new private operators
	Private sector participation [33%]	Extent of privatisation of freight operations and ancillary services
	Competition and liberalisation of network access [17%]	Extent of liberalisation of network access according to non-discriminatory principles
	Competition and liberalisation of network access [17%]	Number of awards of licences to the private sector to operate services
	Institutional development [17%]	Extent of introducing good corporate conducts (for example, business plans, IFRS, MIS and so on)
		Extent of introducing good corporate governance standards
		Extent of introducing best practice energy and/or energy efficiency accounting and management
Market-supporting institutions and policies [40%]	Tariff reform [50%]	Extent of freight tariff liberalisation
		Extent of introduction of public service obligations (PSOs)
		Extent of cost recovery tariffs
		Extent of elimination of cross-subsidies
	Development of an adequate legal framework [25%]	Presence of railways strategy and railways act
	Development of the regulatory framework [25%]	Establishment of a railway regulator to regulate the network access according to non-discriminatory principles
		Degree of independence of the regulator and level of accountability and transparency standards
		Level of technical capacity of the regulator to set retail tariffs and regulate access to the track

TABLE N.1.4.2

Rating transition challenges in the roads sector

Components	Criteria	Indicators
Market structure [60%]	Restructuring through institutional separation and unbundling [33%]	Degree of independence of road management entities
		Extent of divestment of construction from road maintenance, engineering and design activities
	Private sector participation [33%]	Extent of private sector companies in construction and maintenance (BOT-type concessions, management or service contracts, other types of PPPs)
	Private sector participation [33%]	Degree of decentralisation of local roads responsibility
	Competition [17%]	Index on rules for open tendering of construction and maintenance contracts
		Index on practices for open tendering of construction and maintenance contracts
		Degree of privatisation of road construction and maintenance units
	Institutional development [17%]	Extent of introducing good corporate conducts (for example, business plans, IFRS, MIS and so on)
		Extent of introducing good corporate governance standards
		Extent of introducing best practice energy and/or energy efficiency accounting and management
Market-supporting institutions and policies [40%]	Tariff reform [50%]	Level of road maintenance expenditures (that is, it should be sufficient to maintain the quality of state roads and motorways)
		Introduction of road user charges based on vehicles and fuel taxes
		Level of road user charges (that is, it should be sufficient to cover both operational and capital costs in full)
		Comprehensiveness index of road user charges (extent of accordance with road use, extent of incorporation of negative externalities and so on)
	Development of an adequate legal framework [25%]	Existence and quality of road act and other road-related legislation
	Development of an adequate legal framework [25%]	Extent and quality of PPP legislation
	Development of the regulatory framework [25%]	Extent to which the regulatory and policy-making functions are separate from the road administration functions
	Development of the regulatory framework [25%]	Degree of regulatory capacity on road safety, environmental aspects, pricing and competition for road construction and maintenance, and so on

TABLE N.1.4.3

Rating transition challenges in the urban transport sector

Components	Criteria	Indicators
Market structure [50%]	Decentralisation and corporatisation [33%]	Extent of decentralisation (that is, transfer of control from the national to the municipal or regional level)
	Decentralisation and corporatisation [33%]	Degree of corporatisation of local utilities to ensure financial discipline and improve service levels, including in smaller municipalities
	Commercialisation [33%]	Level of financial performance (no concern for financials/a few financially sound utilities in the country/solid financial performance is widespread)
		Level of commercial investment financing (only through grants/selective access to commercial finance/widespread access to commercial finance)
		Level of operational performance: progress in tackling cost control (labour restructuring, energy cost control, reduction of network losses), demand-side measures (metering and meter-based billing, e-ticketing), focus on quality of service
	Private sector participation and competition [33%]	Extent of legal framework and institutional capacity for PPPs and competition
	Private sector participation and competition [33%]	Extent and form of private sector participation
Market-supporting institutions and policies [50%]	Tariff reform [50%]	Degree of tariff levels and setting (cost recovery, tariff methodologies)
	Tariff reform [50%]	Existence of cross-subsidisation among consumers
	Contractual, institutional and regulatory development [50%]	Quality of the contractual relations between municipalities and utility operators
	Contractual, institutional and regulatory development [50%]	Degree of regulatory authority capacity and risks of political interference in tariff setting

TABLE N.1.4.4

Rating transition challenges in the water and wastewater sector

Components	Criteria	Indicators
Market structure [50%]	Decentralisation and corporatisation [33%]	Extent of decentralisation (that is, transfer of control from the national to the municipal or regional level)
	Decentralisation and corporatisation [33%]	Degree of corporatisation of local utilities to ensure financial discipline and improve service levels, including in smaller municipalities
	Commercialisation [33%]	Level of financial performance (no concern for financials/a few financially sound utilities in the country/solid financial performance is widespread)
		Level of commercial investment financing (only through grants/selective access to commercial finance/widespread access to commercial finance)
		Level of operational performance: progress in tackling cost control (labour restructuring, energy cost control, reduction of network losses), demand-side measures (metering and meter-based billing, e-ticketing), focus on quality of service
	Private sector participation and competition [33%]	Extent of legal framework and institutional capacity for PPPs and competition
	Private sector participation and competition [33%]	Extent and form of private sector participation
Market-supporting institutions and policies [50%]	Tariff reform [50%]	Degree of tariff levels and setting (cost recovery, tariff methodologies)
	Tariff reform [50%]	Existence of cross-subsidisation among consumers
	Contractual, institutional and regulatory development [50%]	Quality of the contractual relations between municipalities and utility operators
	Contractual, institutional and regulatory development [50%]	Degree of regulatory authority capacity and risks of political interference in tariff setting

Financial institutions

TABLE N.1.5.1

Rating transition challenges in the banking sector

Components	Criteria	Indicators
Market structure [35%]	Degree of competition [43%]	Asset share of five largest banks (EBRD Banking Survey, 2014; Raiffeisen Research and Bankscope, latest available)
		Net interest margin (EBRD Banking Survey, 2014; Bankscope and official statistical sources, latest available)
		Overhead cost to assets (EBRD Banking Survey, 2014; Bankscope and official statistical sources, latest available)
	Ownership [29%]	Asset share of private banks (EBRD Banking Survey, 2014; Raiffeisen Research, Bankscope and official statistical sources, latest available)
	Ownership [29%]	Asset share of foreign banks (subjective discount relative to home/host coordination) (EBRD Banking Survey, 2014; EBRD assessment, latest available)
	Market penetration [14%]	Assets/GDP (EBRD Banking Survey, 2014; Raiffeisen Research, Bankscope and official statistical sources, latest available)
	Resource mobilisation [14%]	Domestic credit to private sector/total banking system’s assets ( EBRD Banking Survey, 2014; national statistical sources, latest available)
Market-supporting institutions and policies [65%]	Development of adequate legal and regulatory framework [40%]	Existence of entry and exit restrictions (EBRD assessment, latest estimates)
		Adequate liquidity requirements (EBRD assessment, latest estimates)
		Other macroprudential measures (EBRD assessment, latest estimates)
		Supervisory coordination (home/host country) (EBRD assessment, latest estimates)
		Dynamic counter-cyclical provisioning (EBRD assessment, latest estimates)
		Deposit insurance scheme with elements of private funding (EBRD assessment based on official sources, latest estimates)
	Enforcement of regulatory measures [50%]	Compliance with Basel Core principles (EBRD assessment, latest estimates)
		Unhedged foreign exchange lending to the private sector/total lending to the private sector (EBRD Banking Survey, 2014; national statistical sources, latest available)
		Banking strength: total regulatory capital to risk-weighted assets (IMF and national statistical sources, latest available)
		Sophistication of banking activities and instruments (EBRD assessment, latest estimates)
		Private sector deposits to GDP (EBRD Banking Survey, 2014; IMF and national statistical sources, latest available)
		Non-performing loans (EBRD Banking Survey, 2014; IMF and national statistical sources, latest available)
	Corporate governance and business standards [10%]	Proportion of banks which have good corporate governance practices (EBRD assessment, latest estimates)

TABLE N.1.5.2

Rating transition challenges in the insurance and other financial services sector

Components	Criteria	Indicators
Market structure [45%]	Market penetration [60%]	Insurance premia (% of GDP) (UBS, World Bank, EBRD, AXCO and national insurance associations, latest available)
		Life insurance premia (% of GDP) (UBS, World Bank, EBRD, AXCO and national insurance associations, latest available)
		Non-life insurance premia (% of GDP) (UBS, World Bank, EBRD, AXCO and national insurance associations, latest available)
		Leasing portfolio (% of GDP) (Leaseurope and national statistical sources, latest available)
		Availability of insurance products (AXCO and EBRD assessments, latest estimates)
		Mortgage debt/GDP (EBRD Banking Survey, 2014)
		Type of pension system (Pillar I, II, III) (AXCO)
		Pension fund assets/GDP (AXCO, Renaissance Capital and other official sources, latest available)
	Competition [10%]	Market share of top three insurance companies (AXCO and EBRD, latest available)
	Private sector involvement [10%]	Share of private insurance funds in total insurance premia (UBS, EBRD and national authorities, latest available)
	Development of skills [20%]	Skills in the insurance industry (UBS and EBRD assessments, latest estimates)
Market-supporting institutions and policies [55%]	Development of adequate legal and regulatory framework [88%]	Existence of private pension funds (ISSA)
		Pillar II legislation OECD, World Bank, EBRD and national official sources, latest available)
		Quality of insurance supervision assessment (UBS and EBRD, latest estimates)
		Legislation leasing (IFC, EBRD and national authorities, latest available)
	Business standards [12%]	IAIS member (IAIS)
	Business standards [12%]	Internationally accredited actuarial body (official sources)

TABLE N.1.5.3

Rating transition challenges in the capital markets sector

Components	Criteria	Indicators
Market structure [60%]	Market penetration [50%]	Stock market capitalisation/GDP (World Bank, FESE, FEAS and national stock exchanges, 2013)
		Number of listed companies (World Bank, FESE, FEAS and official statistical sources, 2013)
		Securities (bonds and stocks) traded as % of GDP (World Bank, FEAS, ASEA and official statistical sources, 2013)
	Market infrastructure and liquidity [50%]	Money Market Index (EBRD assessment, 2014)
		Government Bond Index (EBRD assessment, 2014)
		Corporate Bond Index (EBRD assessment, 2014)
		Turnover ratio (World Bank, FEAS and FESE, 2014)
Market-supporting institutions and policies [40%]	Development of adequate legal and regulatory framework [100%]	Quality of securities market legislation (EBRD Legal Transition Survey, 2007; EBRD assessment, 2014)
Market-supporting institutions and policies [40%]		Effectiveness of securities market legislation (EBRD Legal Transition Survey, 2007; EBRD assessment, 2014)

TABLE N.1.5.4

Rating transition challenges in the private equity (PE) sector

Components	Criteria	Indicators
Market structure [50%]	Competition [35%]	Effective number of fund managers per thousand companies (Preqin, EMPEA and company websites, latest available)
	Market penetration [65%]	Scope of fund type/strategy (EMPEA, Preqin, Zawya, S&P Capital IQ, Thomson Reuters, Mergermarket, EVCA and EBRD estimates, latest available)
		Active PE capital as % of GDP (EMPEA, Preqin, Zawya, S&P Capital IQ, Thomson Reuters, World Bank, Mergermarket, EVCA, EBRD estimates, latest available)
		PE capital available for investment as % of GDP (EMPEA, Preqin, Zawya, S&P Capital IQ, Thomson Reuters, World Bank, Mergermarket, EVCA and EBRD estimates, latest available)
Market-supporting institutions and policies [50%]	Development of adequate legal and regulatory framework [70%]	Barriers to institutional investor participation (EBRD, latest estimates)
		Quality of securities market legislation (EBRD Legal Transition Survey, 2007)
		Effectiveness of securities market legislation (EBRD Legal Transition Survey, 2007)
	Corporate governance [30%]	Effective framework (EBRD Corporate Governance Legislation Assessment, 2007)
		Rights and roles of shareholders (EBRD Corporate Governance Legislation Assessment, 2007)
		Equitable treatment of shareholders (EBRD Corporate Governance Legislation Assessment, 2007)
		Responsibilities of board (EBRD Corporate Governance Legislation Assessment, 2007)
		Disclosure and transparency (EBRD Corporate Governance Legislation Assessment, 2007)

TABLE N.1.5.5

Rating transition challenges in the MSME finance sector

Components	Criteria		Indicators
Market structure [50%]	Non-banking financing [10%]		Leasing (respective ATC score)
			Private equity (respective ATC score)
			Capital markets (respective ATC score)
	Banking financing [90%]	Competition	Competition in banking (respective ATC score)
		Competition	Interest margin between bank lending to SMEs and large corporates (short-term and long-term) (EBRD assessment, 2014)
		Access to finance	Share of SME lending to total lending weighted by distance of domestic credit to GDP to that in EU area (EBRD assessment, 2014)
		Access to finance	Outreach of commercial banks (branches per 100,000 adults) (IMF, 2012)
		Skills	Existence of specialised SME department in banks (EBRD assessment, 2014)
			Extent of use of SME lending methodologies (EBRD assessment, 2014)
			Presence of trained loan officers in SME lending (EBRD assessment, 2014)
Market-supporting institutions and policies [50%]	Development of adequate legal framework [100%]		Ability to offer and take security over immovable property (cadastre) (EBRD assessment, 2014)
			Credit information services (EBRD assessment, 2014)
			Registration system for movable assets: ability to offer and take non-possessory security over movable property (EBRD assessment, 2014)
			Collateral and provisioning regulatory requirements (EBRD assessment, 2014)
			Enforcing secured creditor rights (EBRD assessment, 2014)

Inclusion

TABLE N.1.6.1

Inclusion gaps for gender

Components	Indicators	Sources
Legal and social regulations	Addressing violence against women	The Economist Intelligence Unit – Women’s Economic Opportunity (EIU-WEO), 2012
	Property ownership rights
	Inheritance laws in favour of male heirs	OECD Social Institutions and Gender Index, 2009
Access to health services	Sex at birth: f/m ratio	World Bank WDI, 2013
	Maternal mortality ratio (maternal deaths per 100,000 live births)
	Contraceptive prevalence (percentage of women aged 15-49)
Education and training	Literacy rate: f/m ratio	UN Social Indicators, latest available
	Primary school completion rate: f/m ratio	World Bank Education Statistics, latest available
	Gender parity index (GPI) for net enrolment rate in secondary education
	Percentage of female graduates in tertiary education
	GPI for gross enrolment in tertiary education
Labour policy	Equal pay policy	EIU-WEO, 2012
	Non-discrimination policy
	Policy on maternity and paternity leave and its provision
	Policy on legal restrictions on job types for women
	Differential retirement age policy
	CEDAW ratification
Assessment of labour practices	Equal pay practice	EIU-WEO, 2012
	Non-discrimination practice
	Access to child care
	Female top manager	BEEPS V, 2012
	Gender pay gap	UNECE, latest available
Employment and firm ownership	Female ownership (equal or more than 50 per cent)	BEEPS V, 2012
	Share of women in non-agricultural employment	World Bank WDI, latest available
	Labour force participation rate: f/m ratio (age 15+)	World Bank Gender Indicators, latest available
	Unemployment with tertiary education: f/m ratio
	Unemployment rate: f/m ratio
Access to finance	Account at a formal financial institution: f/m ratio (age 15+)	Global Financial Inclusion (Global Findex) Database, 2011 (updated 2014 version)
	Account used for business purposes: f/m ratio (age 15+)
	Credit card: f/m ratio (age 15+)
	Debit card: f/m ratio (age 15+)
	Mobile phone used to receive money: f/m ratio (age 15+)
	Mobile phone used to send money: f/m ratio (age 15+)
	Saved at a financial institution in the past year: f/m ratio (age 15+)
	Loans rejected for firms with female versus male top management	BEEPS V, 2012
	Women’s access to finance/seen as an obstacle or not/for firms with female versus male top management	BEEPS V, 2012
	Women’s access to finance programmes	EIU-WEO, 2012

TABLE N.1.6.2

Inclusion gaps for youth

Components	Indicators	Sources
Labour market structure	Hiring and firing flexibility	Global Competitiveness Index, WEF, 2013-14
	Redundancy costs
	Wage-setting flexibility
Opportunities for youth	Difference in unemployment rate from youth (age 15-24) to adult (age 25-65)	World Bank and ILO, 2013 or latest available
Opportunities for youth	Difference between youth not in education, employment or training (NEET)	Eurostat, 2013; Silatech, 2009
Quantity of education	Average years of education for people aged 25-29	Barro-Lee, 2010 (updated 2014 version); Human Development Index, 2012
Quantity of education	Percentage of youth (age 15-24) with no schooling
Quality of education	Test performance relative to highest possible score	PISA, 2012; supplemented by TIMSS, 2011
	Schools’ accountability (achievement data tracked over time)
	Teacher/instruction material shortage
	Employers’ perception of the quality of the education system	WEF, 2013-14
	Households’ perception of the quality of the education system	LITS, 2010
	Universities in top 500 (cumulatively)	ARWU, 2003-14
Financial inclusion	Difference between youth (age 15-24) with bank account compared with adults (age 25+)	Global Findex Database, 2011 (updated 2014 version)
	Difference between youth (age 15-24) with debit card compared with adults (age 25+)
	Difference between youth (age 15-24) with bank account used for business purposes compared with adults (age 25+)

TABLE N.1.6.3

Inclusion gaps for regions

Components	Indicators	Sources
Institutions	Corruption in administrative, health and education systems	LITS, 2010
	Quality of administrative, health and education systems
	Trust in local government
	Satisfaction with the local government
Access to services	Access to water	LITS, 2010
	Access to heating
	Perception of the quality of the health care system
Labour markets	Unemployment	LITS, 2010
Labour markets	Formal or informal job?	LITS, 2010
Education	Years of education	Gennaioli et al. data set, Quarterly Journal of Economics, 2013
Education	Households’ perception of the quality of the education system	LITS, 2010

Country-level transition indicators

(See Table S.7)

The country-level transition indicators discussed above reflect the judgement of the EBRD’s Office of the Chief Economist about country-specific progress in transition.

The scores range from 1 to 4+ and are based on a classification system that was originally developed in the 1994 Transition Report, but has been refined and amended in subsequent reports.

Large-scale privatisation

1 Little private ownership.

2 Comprehensive scheme almost ready for implementation; some sales completed.

3 More than 25 per cent of large-scale enterprise assets in private hands or in the process of being privatised (with the process having reached a stage at which the state has effectively ceded its ownership rights), but possibly with major unresolved issues regarding corporate governance.

4 More than 50 per cent of state-owned enterprise and farm assets in private ownership and significant progress with corporate governance of these enterprises.

4+ Standards and performance typical of advanced industrial economies: more than 75 per cent of enterprise assets in private ownership with effective corporate governance.

Small-scale privatisation

1 Little progress.

2 Substantial share privatised.

3 Comprehensive programme almost completed.

4 Complete privatisation of small companies with tradeable ownership rights.

4+ Standards and performance typical of advanced industrial economies: no state ownership of small enterprises; effective tradeability of land.

Governance and enterprise restructuring

1 Soft budget constraints (lax credit and subsidy policies weakening financial discipline at the enterprise level); few other reforms to promote corporate governance.

2 Moderately tight credit and subsidy policy, but weak enforcement of bankruptcy legislation and little action taken to strengthen competition and corporate governance.

3 Significant and sustained actions to harden budget constraints and to promote corporate governance effectively (for example, privatisation combined with tight credit and subsidy policies and/or enforcement of bankruptcy legislation).

4 Substantial improvement in corporate governance and significant new investment at the enterprise level, including minority holdings by financial investors.

4+ Standards and performance typical of advanced industrial economies: effective corporate control exercised through domestic financial institutions and markets, fostering market-driven restructuring.

Price liberalisation

1 Most prices formally controlled by the government.

2 Some lifting of price administration; state procurement at non-market prices for the majority of product categories.

3 Significant progress on price liberalisation, but state procurement at non-market prices remains substantial.

4 Comprehensive price liberalisation; state procurement at non-market prices largely phased out; only a small number of administered prices remain.

4+ Standards and performance typical of advanced industrial economies: complete price liberalisation with no price control outside housing, transport and natural monopolies.

Trade and foreign exchange system

1 Widespread import and/or export controls or very limited legitimate access to foreign exchange.

2 Some liberalisation of import and/or export controls; almost full current account convertibility in principle, but with a foreign exchange regime that is not fully transparent (possibly with multiple exchange rates).

3 Removal of almost all quantitative and administrative import and export restrictions; almost full current account convertibility.

4 Removal of all quantitative and administrative import and export restrictions (apart from agriculture) and all significant export tariffs; insignificant direct involvement in exports and imports by ministries and state-owned trading companies; no major non-uniformity of customs duties for non-agricultural goods and services; full and current account convertibility.

4+ Standards and performance norms of advanced industrial economies: removal of most tariff barriers; membership in WTO.

Competition policy

1 No competition legislation and institutions.

2 Competition policy legislation and institutions set up; some reduction of entry restrictions or enforcement action on dominant firms.

3 Some enforcement actions to reduce abuse of market power and to promote a competitive environment, including break-ups of dominant conglomerates; substantial reduction of entry restrictions.

4 Significant enforcement actions to reduce abuse of market power and to promote a competitive environment.

4+ Standards and performance typical of advanced industrial economies: effective enforcement of competition policy; unrestricted entry to most markets.

STRUCTURAL REFORM

IN 11 COUNTRIES MATERNAL MORTALITY RATES HAVE IMPROVED

3 THE NEGATIVE BALANCE OF SECTOR-LEVEL TRANSITION INDICATOR UPGRADES VERSUS DOWNGRADES

APPROXIMATELY 170 KM THE LENGTH OF ESTLINK 2, THE NEW INTERCONNECTION BETWEEN THE BALTIC AND NORDIC ELECTRICITY MARKETS

THE ONLY 2 COUNTRY-LEVEL TRANSITION INDICATOR UPGRADES IN 2014 ARE RELATED TO IMPROVED COMPETITION POLICY

Introduction

Sector-level transition indicators

Sector-level transition indicators 2014: overall scores

Sector-level transition indicators 2014: market structure

Sector-level transition indicators 2014: market-supporting institutions

APPROXIMATELY 170 km THE LENGTH OF ESTLINK 2, THE NEW INTERCONNECTION BETWEEN THE BALTIC AND NORDIC ELECTRICITY MARKETS

Energy

Infrastructure

Financial sectors

Corporate sectors

Cyprus

IN 11 COUNTRIES MATERNAL MORTALITY RATES HAVE IMPROVED

Inclusion

Inclusion gaps for gender

Inclusion gaps for youth

Inclusion gaps for regions

Country-level transition indicators

Country-level transition indicators 2014

Methodological notes

Sector-level transition indicators

Transition cut-off points

Corporates

Energy

Infrastructure

Financial institutions

Inclusion

Country-level transition indicators

Large-scale privatisation

Small-scale privatisation

Governance and enterprise restructuring

Price liberalisation

Trade and foreign exchange system

Competition policy