PROGRAM INFORMATION DOCUMENT (PID) CONCEPT STAGE <October 4, 2013> Report No.: 86550

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1 Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Operation Name PROGRAM INFORMATION DOCUMENT (PID) CONCEPT STAGE <October 4, 2013> Report No.: Acre: Strengthening Public Polices for Improved Service Delivery Development Policy Loan Region LATIN AMERICA AND CARIBBEAN Country Brazil, State of Acre Sector Regional government administration (100%) Operation ID P Lending Instrument Development Policy Lending Borrower(s) State of Acre Implementing Agency State Secretariat of Planning Government of the State of Acre Date PID Prepared October 4, 2013 Estimated Date of Appraisal October 17, 2013 Estimated Date of Board December 5, 2013 Approval Key Development Issues and Rationale for Bank Involvement The State of Acre is faced with a unique set of critical development challenges. The State of Acre has a population of just 733,559 inhabitants. It is located on the westernmost edge of the country within the Amazon region. As in other northern states, social-economic development in Acre is below the level found in the other regions of the country. In 2010, the GDP per capita was equivalent to US$ 6,528, less than 60 percent of the national average of US$11,234. The policy reforms supported by this DPL represent a snapshot of a long-running reform effort aimed at economic development, improved service delivery, and social inclusion. To confront these challenges, the Government of Acre has launched a development strategy, aimed at diversifying its economic base and ensuring adequate provision of public services. The Government has undertaken significant investments in infrastructure in the last decade. Since 1999, Acre s public management model has delivered significant results in the fight against extreme poverty, expansion of access to basic services, improvement of social indicators, and inclusive growth. Financial support to Acre would help the state maintain key public investments in the face of tighter fiscal conditions. Acre remains very dependent on transfers from the Federal Government, which account for about 66 percent of State revenues. Transfers from the Federal Government suffered a sharp deceleration in recent years as the global crisis led to slower growth in Brazil, impacting tax revenues at the federal level and thus the volume of revenues shared with states. Financial support through this proposed DPL will help sustain the current 1

2 pace of capital spending without cutting current expenditures associated with investment projects and maintain service delivery. Project Objective(s) The Program Development Objective (PDO) of this proposed operation is to enhance the efficiency of public sector administration, particularly in the areas of education and gender equality. The choice of areas and sectors for support under this operation reflects the Government of Acre s priorities and needs, taking into account complementary actions in other areas supported by the Bank and other agencies. More specifically, the proposed operation aims to strengthen public sector management as well as social and productive inclusion through: (i) improving planning, monitoring and evaluation to increase the results orientation of development programs; (ii) introducing integrated procurement and asset management practices; (iii) improving monitoring of learning outcomes of students in the state public schools; and (iv) aligning the state s gender policy and institutional framework with gender policy reforms at the national level. The objectives of this proposed operation are fully aligned with the World Bank Group s goals of eradicating extreme poverty and promoting shared prosperity. The Government of Acre further expands on the Federal Government s efforts to eradicate extreme poverty with its own Plan to Eradicate Extreme Poverty (Plano Acre sem Miséria). This policy seeks to improve the social mobility of poor families by helping them to engage in income generating activities and access public services. This operation supports these goals by promoting improved service delivery and social as well as productive inclusion. Project Description The proposed DPL is a single operation with two tranches, the first for US$150 million and the second tranche for US$100 million. Two pillars underpin this proposed operation, in line with the PDO and the Government s overall goal of promoting better service delivery in the areas of education and gender equality. The pillars are: (i) public sector management; and (ii) social and productive inclusion. The public sector management pillar will support the achievement of the PDO by fostering a better results-orientation of development programs resulting from improved planning, monitoring and evaluation. This pillar provides the institutional basis for the entire program. The social and productive inclusion pillar will directly promote inclusive growth through the building-up of human capital; the improved delivery of public services in the education sector; and the expansion of a dedicated network of services for women. The main objective of the first pillar is to contribute to better service delivery by improving the results-orientation of development programs and introducing transparent expenditure management practices within the public sector. Its components address the need for streamlining and modernizing practices in the execution of the budget, monitoring and evaluation of PPA programs, procurement, and asset management. A major remaining impediment to efficient public expenditure and effective internal and external controls is the diversity of practices across 2

3 agencies and secretariats. Rising demands from citizens for more and better public services, combined with tighter fiscal conditions, make increasing public expenditure efficiency critical for the State. The proposed actions support the state-wide adoption of investment planning and management processes and standardized budget execution procedures by providing the legal basis, detailed regulations, and accountability structures necessary for their implementation. The actions supported by this development policy operation will set up the foundations for the adoption of two systems: the Integrated System of Planning and Strategic Management (SIPLAGE) and the Public Resources Management System (GRP) aimed at establishing streamlined processes and procedures across all agencies of the state government. Formalizing and making mandatory the use of these new processes will contribute to ensuring that the reforms are sustained and the expected efficiency gains are realized. The main goal of the social and productive inclusion pillar is to promote social and productive inclusion by: (i) improving monitoring of learning outcomes in public schools; and (ii) increasing service coverage to women facing violence and vulnerability. It will build on recent and ongoing reforms in the areas of education and gender policies. On education, a key step for improved delivery of educational services is the institutionalization and implementation of the School Learning Evaluation System (SEAPE). In this vein, State Secretariat of Education will complete an assessment of the results of the student proficiency exam and adopt a performancebased, school-level bonus system. On gender inclusion, the DPL will be supporting actions to help advance Acre s gender policies and strengthen service delivery for women through actions through two main avenues. First, it will help consolidate the institutional framework required to implement in the state the policies already in place at the national level, as enshrined in the Maria da Penha Law. Second, it will support the state s efforts to move towards universal access to a network of services for women envisaged by the national law. Institutional and Implementation Arrangements The State Secretariat for Planning (SEPLAN) will be in charge of organizing this multistakeholder operation and will be responsible for its general implementation. Given the reforms proposed, the operation will be executed by four Secretariats: Public Sector Management: Secretariat for Administrative Management (SGA) and Secretariat of Institutional Coordination (SAI), responsible for monitoring and evaluating government policies and Programs; Social and Productive Inclusion: (i) State Secretariat of Education and Sport (SEE), in charge of the sub-component on education; and (ii) the Secretariat of Policies for Women (SEPMulheres), responsible for the sub-component concerning policies to support women; All the policies that receive DPL support will be evaluated as part of the Integrated Management System, through its mechanisms and tools. The Secretariat of Institutional Coordination (SAI) is 3

4 directly responsible for its oversight. The Governor and the Program and policy managers meet periodically to examine the implementation of the activities and compliance with the set goals. Risks and Risk Mitigation The proposed operation is considered to have Moderate risk. Macroeconomic risks at the country level. In the last year, Brazil s macroeconomic environment has deteriorated due to weaker than expected growth, inflationary pressures, and the weakening of the Real. The key risk to the environment going forward is that of relative stagnation due to structural impediments to growth. The authorities have begun addressing some of these challenges through increased focus on education, especially vocational training, the creation of infrastructure bonds, and the launching of a program of private-public partnerships in infrastructure. However, it is unclear if these efforts will be sufficient and effective in easing the supply constraints in the medium term. Lower growth would also constitute an important risk to debt sustainability in the longer term. Fiscal risks at the state level. Lower growth at the national level is probably the most important risk to Acre s fiscal position as Acre s fiscal aggregates are vulnerable to volatility in the State s Participation Fund (Fundo de Participação dos Estados or FPE), which constitutes the primary source of revenue for the state. The volatility in FPE constrains the state s ability to match financing and cover complementary services for public investment. The reforms in public sector management supported by this operation are designed to mitigate these risks by improving efficiency of public spending. Governance and political risks. Program components may be subject to some policy reversal risks, which could be mitigated by the relative stability in the composition of the Government s technical teams. All components will be completed during the term of the present Administration. Furthermore, this proposed operation will contribute to institutionalizing policies to improve public resource use and the policy monitoring and evaluation framework. The PROACRE project will also provide complementary technical assistance to support the implementation of agreed programs. Technical Design and Capacity Risks. The modest institutional and technical capacity of the Government of Acre could affect the implementation and delivery of the planned programs and delay the disbursement of the operation s second tranche. This risk is mitigated by the efforts that the state has undertaken to strengthen its administrative capacity for managing and monitoring programs. Poverty, Social, and Environmental Risks. The social and environmental risks of the components are low. The Government of Acre has developed a model of economic development centered on the sustainable use of natural resources. Acre is considered exemplary in this regard. The state has recorded significant improvements in social and economic indicators in recent years. Performance in environmental indicators and sustainable growth has also been strong. The implementation of a possible additional financing for the PROACRE project will also be beneficial in that regard. The components of the development operation and the technical assistance provided by the additional financing of the PROACRE investment project will support efforts to reduce poverty and increase social inclusion in an environmentally sustainable manner. 4

5 Poverty and Social Impacts and Environment Aspects Poverty and Social Impacts The specific policy reforms supported by this development policy loan are expected to have significant and positive impacts for inclusive and sustainable development in the state of Acre. The policies supported by this operation address key issues and needs related to Acre s strategy of development with social inclusion. They are expected to bring major benefits to the poor population living in the most rural, remote and isolated areas. The State Government's program to improve education quality and efficiency is expected to have high positive social outcomes with gains for all students enrolled in the public school system and pro-poor effects. The proposed gender oriented policies are expected to contribute to reducing the gap in the participation of women in economy and gender-based violence, contributing to improving women empowerment and agency. Environmental Aspects Overall, the specific policy actions that comprise the DPL are expected to contribute to enhancing the implementation of Acre s sustainable and inclusive development strategy. The improved efficiency and transparency of program planning, monitoring and evaluation processes intended from the reform of public sector management policies should ultimately reflect in enhanced monitoring of environmental sustainability results. With this operation the Government of Acre is strengthening the adequate policy framework to support implementation of its sustainable development strategy. The project is not expected to have significant negative impacts on the environment and natural resources. Tentative financing Source ($m.) Borrower 0 International Bank for Reconstruction and Development 250 Total 250 Contact point World Bank Contact: Jorge Araujo Title: Lead Economist Tel: (202) jaraujo@worldbank.org 5

6 Borrower Contact: Márcio Veríssimo Carvalho Dantas Title: State Secretary of Planning Tel: (55-68) For more information contact: The Info Shop The World Bank 1818 H Street, NW Washington, D.C Telephone: (202) Fax: (202) Web: 6