PROJECT INFORMATION DOCUMENT (PID) CONCEPT STAGE Report No.: AB3364 Project Name

Transcription

1 Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized PROJECT INFORMATION DOCUMENT (PID) CONCEPT STAGE Report No.: AB3364 Project Name Minas Gerais Partnership II SWAP Region LATIN AMERICA AND CARIBBEAN Sector Sub-national government administration (50%);General industry and trade sector (20%);General education sector (10%);Health (10%);Roads and highways (10%) Project ID P Borrower(s) THE STATE OF MINAS GERAIS, BRAZIL Implementing Agency State of Minas Gerais Rua da Bahia, 1600 MG Brazil Tel: Fax: Environment Category [ ] A [x ] B [] C [ ] FI [ ] TBD (to be determined) Date PID Prepared October 5, 2007 Estimated Date of December 6, 2007 Appraisal Authorization Estimated Date of Board April 15, 2008 Approval 1. Key development issues and rationale for Bank involvement Background Minas Gerais (Minas) is one of Brazil s largest and most economically important states. The state of Minas Gerais has the country s second largest population (19.5 million people, equivalent to 10.5 percent of Brazil s population in 2006). Minas is the fourth largest state in Brazil, covering 586,553 km 2 or 7 percent of the country. The state s economy is the third largest in Brazil. In 2006 the Gross Domestic Product (GDP) of Minas Gerais was equivalent to US$ 100 billion, or 9.4 percent of national GDP, smaller than São Paulo (30.9 percent of national GDP) and Rio de Janeiro (12.2 percent). The economy of Minas Gerais is slightly smaller than that of Peru. Minas Gerais is sometimes called a microcosm of Brazil. Its per capita GDP is close to Brazil s average (ranked 12 out of 27 in 2004). 1 Moreover, Minas contains deep regional disparities paralleling those at the national level. For example, Minas has a poor Northern region with similar conditions of extreme poverty, subsistence agriculture, semi-arid climate and intermittent drought experienced in the Brazilian Northeast, the poorest region in the country. At the other extreme, the state contains some of Brazil s most dynamic economic areas (for 1 Population growth in Minas also has been close to the national average.

2 example, the TrianguloMineiro and the metropolitan area of Belo Horizonte, the state s capital). Minas has 853 municipalities, or over 15 percent of the 5,560 municipalities in Brazil. Successful public policy reforms have lead to a stable political environment. After years of economic difficulties experienced by Minas Gerais, in 2002 Governor Aécio Neves was elected to a first four-year term. Governor Neves is the grandson of Brazil s first democratically elected President following the military dictatorship. He is a leading member of the Social Democratic Party (PSDB) and has an immensely strong following in Minas Gerais. Governor Neves was reelected to a second term ( ) by an overwhelming majority (roughly 80 percent of the vote). His current Deputy Governor, Antonio Anastasia, served as Secretary of Planning during Governor Neves first administration. Together, they have been the driving force behind the Minas Gerais long-term development plan (Plano Mineiro de Desenvolvimento Integrado or PMDI ) and the so-called Choque de Gestão (Management Shock), to improve public sector management. These efforts have contributed to the Minas Gerais economic recovery. Moreover, the success of these reforms also has been one explanation for the relatively small political opposition in Minas Gerais, as well as a strong outlook for continuity with these policies. Reforms have led to improvements in a number of indicators, including poverty and social indicators. Using a national food-based poverty line for household per-capita income of about R$132 (US$56) per month in 2005, Minas has a poverty headcount ratio of about 19 percent of the population (down from 25 percent in 2002), implying a poverty headcount of about 3.7 million. Using a 2005 extreme poverty line (about half the poverty line, or R$66 US$28), Minas has an extreme poverty headcount ratio of about 5 percent (roughly 1 million persons), down from 8 percent in Minas has the third lowest poverty headcount rate among the states, and a relatively high per capita family income. The Governor of Minas has asked for the Bank s support in extending and deepening his reform program. The Bank supported the first phase of reforms with a two-tranche DPL of US$170 million which was fully disbursed in May This DPL had three main themes fiscal stabilization, public sector reform and private sector development. In July, the Governor asked the Bank for an operation of $1 billion (the entire borrowing capacity of to the State in its agreement with the Federal Treasury.) in order to support his on-going program. He argued very publicly that the World Bank gave his team the strongest support in terms of the technical assistance and international knowledge. The key request of the Government is to help extend and deepen public sector management reforms in the sectors, while helping to achieve the results of the program. Subsequent discussions have led to a request for an operation of about US$1 billion, phased over a three year period, in the form of a SWAP and with a technical assistance component. 2 Note that despite the conclusion of the DPL in May, the Bank team remained engaged with the Government in the Development of the next steps of our partnership. See Report No BR Brazil: Minas Gerais World Bank Partnership: Building on a Strong Foundation and Leading to Next Steps, which provides a more detailed description of recent economic development and the on-going program.

3 The Government s Program The State for Results Building on the reforms of the Management Shock, successfully implemented during the first administration, the Government has developed a long-term strategy entitled the Minas Plan for Integrated Development (PMDI) After identifying key economic scenarios, the Government highlights six broad themes in which progress is essential in order for Minas to reach its long-term goals. These are: Investment and Business, Network of Cities, An Integrated Perspective of Human Capital, Environmental Sustainability, Equity and Well-Being, and Territorial Integration and Competitiveness. The Government identifies The State for Results Program as a cross-cutting effort that will affect all of the above sectors through improvements in expenditure and management efficiency and through a focus on measurable results. In order to implement the actions required to reach results in the long-term, the Government has identified eleven Results Areas within The State for Results Program, (see Figure 1), with Fiscal Quality and Quality and Innovation in Public Management as cross-cutting pillars to be applied to each Results Area. The function of these Results Areas is to define specific objectives for the medium and long-term, define how these will be measured and define the structural projects (projetos estruturadores) that will contribute to the achievement of these goals. Each Results Area also identifies key actions required for implementation of the sectoral public management agenda. As seen in Figure 1, the beneficiaries of the State for Results Program will include individuals who are well educated, healthy and qualified; young people with better prospects; firms with the possibility to be more dynamic and innovative; cities that are more secure and well- cared for; and individuals and regions that will face less inequality. Figure 1 3 This plan can be found at the following website: xxxxx

4 Macroplan Prospectiva, Estratégia & Gestão PMDI: PLANOMINEIRO DE DESENVOLVIMENTO INTEGRADO 2007/2023 Human capital Integrated Approach Inves timents and Bussiness MINAS: THE BEST STATE TO LIVE Competitive T erritorial Integration Cities Network Equity and Welfare E nvironmental S ustentability STATE FOR RESULTS FIS CAL QUAL IT Y Quality in Education Healthy Life Youth Protagonism EDUCATED, QU AL IF IE D AND HEALT HY INDIVIDU AL S RESULTS AREAS Inves tment and Value Added in Production BENEFICIARIES OF PUBLIC POLICIES YOUNG P R OT AGONIS T Innovation, T echnology and Quality Integration Logistics c and Development DYNAMIC AND INNOVAT IVE F IR MS Poverty R eduction and Productive Inclusion Development of the North Region, Jequitinhonha, Mucuri e Rio Doce INTERPERSONAL AND R E GIONAL EQUITY Cities Network and S ervices E nvironmenatl Quality S ocial Protection S AF E T Y AND CONSERVATED CIT IE S QUAL IT Y AND INNOVAT ION IN PUB L IC S E CT OR MANAGE ME NT Implementation of the Program is based on the signature of Results Agreements between the Governor and the Secretariats that are associated with a given Results Area (many Results Areas require actions from more than one Secretariat and each Secretariat signs all of the results agreements with which it is associated.). Each Secretary commits to the agreed actions and targets, and in return, the Governor commits to providing the Secretariat with sufficient resources to implement the strategic projects and management autonomy over how to achieve results. Each strategic project has a designated manager responsible for results. The Results Agreements are brought together in the Notebook of Agreements (Caderno de Compromissos), which can also be found on the web. In addition the Secretariat of Management and Planning (SEGPLAN) has a Sub- Secretariat (GERAES) that focuses on implementation of the program. Staff in GERAES are assigned to strategic projects in order to support the line Secretariats in managing the strategic projects and assisting the line Secretariats in building the public management reform aspects of the their programs. These staff also support the Secretariats in the development of project plans (plano de projeto) in order to assist in the monitoring and oversight of the structural projects on a regular basis- these planos de projetos are updated quarterly and published annually. Finally, as part of the State for Results Agenda, SEGPLAN also envisions building upon many of the accomplishments of the first set of reforms (the Choque de Gestao) in order to further strengthen public management. Such efforts include: further strengthening of civil service management, refinement of performance evaluations, the approach to performance bonuses, development of a certification system for public sector employees, further strengthening of financial management systems in order to improve the efficiency and accountability of public spending, and further development of their systems of procurement. In

5 many of these areas Minas is well advanced and among the strongest, if not the strongest state, in the country. Rationale for Bank involvement There are a variety of factors that underpin the rationale for Bank engagement in this project. a) The Bank has had a strong partnership with Minas Gerais in the development of its first set of reforms. Minas continues to pursue one of the most advanced reform agendas in Brazil and in Latin America. They have a strong program and a need for financing and advice to support the implementation of this program. This program will lead to significant improvements in a variety of areas that would improve the lives of the people living in Minas. They have asked us to partner with them again and there is no obvious reason why we should not do so. b) The Bank can contribute, but also has a great deal to learn from the Minas experience. The Program in Minas is a model for many states in Brazil and as well as for the Federal government and other countries in the region. While the financial resources themselves provide additionality by extending the ability of Minas to fund high priority public expenditure programs, the Government of Minas had also called upon the Bank to provide international expertise and value added in the most difficult aspects of the program. The Bank can contribute a lot, but also stands to learn a great deal of what may and may not work, especially when it comes to programs of results based management. c) The Bank is uniquely placed to respond to this complex, multi-sectoral request. Although Minas is in a position to borrow from the private sector or other donors, part of their own rationale for requesting Bank assistance is that the Bank is the sole organization that can bring together individuals with deep sectoral knowledge and a capacity to focus on cross-cutting issues in an integrated multi-sectoral program. This is exactly what they need at this point in time. d) Supporting this loan fits squarely within the new strategy to be presented in the upcoming CPS, which will highlight the Bank s increasing role at the State level in Brazil and the importance of addressing complex development challenges in an integrated and multi-sector fashion. e) The request of Minas to help provide funds for their program, but also profound technical guidance in how to deepen their approach to results management in the sectors, presents the type of requests we may increasingly receive from MICS. The case of Minas is an important test of whether the Bank as an institution is up to this challenge. 2. Proposed objective(s) Initial discussions with the Minas authorities have led to the following general and specific project objectives.

6 Broad Project Objective: The project will support the Government of Minas Gerais in its efforts to implement the State for Results model in order to improve quality and efficiency in the delivery of public goods and services, reinforcing the fiscal and macroeconomic advances made through previous reforms, with the overall objective of promoting economic growth and poverty reduction. Specific project objectives: Help the Government of Minas Gerais to strengthen fiscal quality by increasing the efficiency of public expenditures at the sectoral level. Support the process of improved innovation in public management of the State, including more efficient and effective processes for the delivery of services. Support the Government of Minas Gerais in implanting a system of monitoring and evaluation of results in order to reinforce improved fiscal quality and modernization of public sector management. 3. Preliminary description The proposed project would be a US$888 million SWAP to support implementation of the Government s program over a three year period. The project would aim to finance expenses associated with priority expenditure programs that are fundamental to achievement of the Government s program, while at the same time linking disbursement of these resources to continued improvements in fiscal management, improvements in the efficiency of spending and in achievements of specified results in the results areas. The project will also have a TA component of about 2 percent of total Bank financing. The operation will focus on three cross-cutting themes that will themselves be strengthened, but will also be the focal points for drilling down into the results areas. These three areas are: 1) improving fiscal quality (the efficiency of expenditures); 2) innovation in and strengthening of public sector management; and 3) further development of monitoring and evaluation tools. While the operation will support the Government s program as a whole, particular attention will be paid to drilling down in the following results areas: Healthy Life; Quality in Education; Innovation, Technology and Quality; Investment and Value Added in Production; and Integration, Logistics and Regional Development. (See Figure 2) These areas were chosen as those in which the Government sought Bank assistance and in which the Bank could provide the highest value added. Figure 2

7 => Fiscal Quality => Innovation and Quality of Public Management => Monitoring and Evaluation Healthy Life Quality Education Innovation, Technology and Quality Logistics I of Integration and Dev t Investment and Value Added in Production * The project will support the Program of the State for Results in its totality, but in a differntiated form across resutls areas; specific requetss for suport may b eporvidesd to other results areas. The Bank team is working with the Minas Government to identify in each results area: 1) key results indicators to be phased over the life of the project; 2) key expenditure programs that require finance and against which Bank funds can be disbursed; and 3) TA requirements of the Government. For example, in the Healthy Life Results Area, Minas health sector faces a number of systemic challenges that are similar to those faced by many states in Brazil: (i) oversupply of hospitals, particularly of underutilized small facilities; (ii) inequitable access to basic and specialty care; (iii) low quality and inefficient service delivery; (iv) little coordination or integration among health care providers at different levels of care; and (v) weak information environment. Each of these problems has implications for resource allocation and management, quality of spending, and ultimately health outcomes. Since 2003 the State Secretariat of Health (SES) has been a pioneer in reforming the organization and delivery of health services in the state with a focus on improving coverage, quality, and efficiency. State health authorities have launched an array of initiatives and projects touching many aspects of the health system, including pharmaceutical purchasing and supply, maternal-child care, primary care, hospital reform, regionalization, and pharmaceutical production and blood bank management. Although much more needs to be done, many of these initiatives are best practice examples for Brazil. These issues are incorporated into the Healthy Life (Vida Saudável) results area. With a proposed total budget of R$503.7 million for 2008, three structural projects constitute this results area, which also represent flagship programs in health:

8 Health at Home (Saúde em Casa SEC: R$158 million): Initiated in 2005, SEC is the State s version of the federal government s Family Health Program (PSF). Both SEC and PSF aim to provide quality primary care to communities. SEC supports coverage extension and quality improvement of primary care throughout the State Live Life (Viva Vida VV: $35.7 million): Linked to SEC, the program was launched in 2004 and specifically seeks to reduce infant and maternal mortality through improving the access to and quality of maternal-infant care at primary and secondary care levels. Health Care Regionalization (Regionalização de Atençao á Saúde RAS: $310 million): Initiated in 2003, this is an umbrella program that seeks to rationalize the configuration of the health care network and improve the quality of care through reducing the supply of small, inefficient hospitals, creating regional networks with strong linkages among medical care organizations (primary, diagnostic, secondary and tertiary care), developing information systems to support the networks, and establishing incentives and accountability schemes (such as contracts) to improve hospital performance. Progress to date has been robust. SES has already complied with two of the three health final indicators for the Health Life results area for All of the specific activities linked to each of the structural programs are under implementation. The proposed project will address on-going challenges within the framework of the three crosscutting public sector management (PSM) areas identified by government. The following is a sampling of potential performance indicators by PSM area: Quality of Spending Reduction of hospital bed-days and average length of stay Reduction unnecessary inter-hospital transfers Reduction in unnecessary hospital admissions (focus on specific conditions) Development of hospital payment mechanism with strong incentive for efficiency Modernization of Public Management Reduction in the amount of time between patients first contact with health delivery system and the provision of care (focus on emergency care) Strengthening of SES capacity for contract management Establishing stronger link between health financing and performance (e.g., quality based purchasing such as hospital accreditation, primary care certification, etc.) Monitoring, Impact Evaluation, Results-based Management Establish social monitoring system such as hospital scorecards Strengthening of information systems and expansion of indicators used for program (and contract) monitoring Impact evaluation of each program Design, test, and roll-out of standardized cost accounting system in hospitals Work is underway to define and focus both indicators and the priority expenditure programs. As the team moves toward appraisal and negotiations, we will work with the Government to define a set of parsimonious indicators appropriate to the magnitude of the project. These indicators will be linked where possible to the priority expenditure programs.

9 Financial flows of the project would work along the lines of the following schema: Figure 3 Schematic of the Project Gov t Program identified PMDI Pluri-Annual Investment Plan Annual Budget Law Project Preparation Agreement on Indicators -fiscal -PSM -Results areas Identification of Priority expenditure Programs -Results Areas -Structural Projects Evaluation of Systems -FMS -Procurement -Safeguards Disbursement Attainment of indicators -general indicators for overall level of annual disbursements -specific indicators for allocation of resources among results areas Evaluation 2X per year Disbursement against implementation of priority expenditure programs Indicative disbursements per year (US$millions): 2008: up to 380 over the year 2009: up to 403 over the year 2010: up to 216 over the year Current discussions suggest that in the first year of the project, a substantial disbursement would be made against indicators already attained and expenditures made within the guidelines of the program. Subsequent evaluations of indicators could take place twice a year, with disbursements made to Fazenda, allowing the Government to draw on resources in line with the results achieved. Details of the disbursement mechanism will be more fully developed as part of project preparation. Fiscal Analysis. As noted above, Minas Gerais has undertaken a strong fiscal adjustment since 2003, with a view to obtaining fiscal sustainability, reversing the trend in previous years. The fiscal measures that stand out were the control of spending, especially on personnel and operating costs, and actions to improve the efficiency to collect taxes. The early stages of this were accomplished during a period of economic stagnation, when total revenue was declining, putting the main burden on expenditure control. However, with a recovery in the Brazilian economy and in Minas beginning in 2004, the reforms were consolidated and more of the impact occurred through the revenue measures. Revenue increase by about 30 percent in 2004 compared with the previous year. As a result since 2003, personnel costs have been falling as a share of real net current revenue, own revenue has been increasing, investment as a share of real net current revenue has been rising, fiscal balances have shifted from deficits to surpluses, and debt as a share of real net current revenue has declined. In addition, overall economic growth in the Brazilian economy, combined with price stability, strong exports (even in the face of an appreciating Real vis-à-vis the US dollar), has provided a conducive international environment for this recovery. By 2006 the fiscal situation was more comfortable and the state was able to

10 generate saving, allowing the state to increase investment by over 3 times the level attained in This public investment is contributing to faster economic growth and job creation. These trends have continued in The fiscal adjustment has been successful in producing a virtuous circle of improved fiscal and debt conditions, putting Minas Gerais on a sustainable path and encouraging economic growth. As noted above, the fiscal adjustment has led to significant reductions in the state s net debt position. Consolidated net debt has fallen from 278 percent of net current revenue to 181 percent by the end of This improved debt situation has contributed further to improve the fiscal situation, by lowering required interest and amortization payments. Also important, the reduced debt and strengthened fiscal position has reduced risk, as perceived by capital markets, and is encouraging private sector investment. On the fiduciary front, Minas Gerais has some of Brazil s most advanced systems of financial management, procurement and safeguards. All proposed physical investments are part of programs that have already undertaken environmental impact analysis and obtained the necessary licenses. Project preparation will include and assessment of system in all three areas. The team and Government are interested in being a pilot for country systems if the aforementioned assessments indicate that this is appropriate. The Technical Assistance Component. The Government has identified a wide range of technical assistance needs that they would like to be supported by the project. These include activities in the cross-cutting themes, as well as by results area. The Government has suggested that some 2 percent of loan proceeds could be used to finance a technical assistance component and we re working to identify which requests should be included. At the same time, the Minas authorities have requested some support for immediate needs in the form of non-lending technical assistance. We are actively seeking finance from a variety of sources, yet, Senior Management may wish to consider whether it is possible to allocate some resources for TA support to the Government on top of what would be allocated for project preparation. 4. Safeguard policies that might apply Safeguards will need to be verified for some sector activities 5. Tentative financing Source: ($m.) Borrower 0 International Bank for Reconstruction and Development 330 Total Contact point Contact: Jose Guilherme Reis Title: Senior Private Sector Development Specialist Tel: Fax: jreis@worldbank.org Location: The World Bank

11 1818 H Street, NW Washington D.C