CPSCR Review Independent Evaluation Group

Transcription

1 1. CPS Data Country: Brazil CPS Year: FY08 (CPS), FY10 (CPSPR) CPS Period: FY08 FY11 CPSCR Review Period: FY08 FY11 Date of this review: October 26, Executive Summary i. This review examines the implementation of the FY08-FY11 Brazil Country Partnership Strategy (CPS) of FY08 and the CPS Progress Report (CPSPR) of FY10, and evaluates the CPSCR. The strategy was joint between IBRD/IDA and IFC, and this review covers the joint program of the two institutions. ii. The WBG sought to address Brazil s key challenges where it could provide solutions not yet devised by the country itself. The WBG stayed within the same four pillars of the previous CPS, namely: (i) Macro fundamentals, good governance and public sector management: improving the effectiveness of the state, reducing custo Brazil, (high cost of doing business due to taxes and expenditure composition),, and strengthening accountability with a focus on results; (ii) Competitiveness: addressing key competitiveness and investment climate challenges, supporting financial sector efficiency and its impact on other sectors, risk management and stability, and improving infrastructure; (iii) Equity: addressing cost, quality and access in health care; improving basic education quality and supporting the Bolsa Familia cash transfer program; improving access to infrastructure/urban services; and supporting family agriculture; and (iv) Sustainability: balancing conservation with development, expanding the role of clean energy, and helping the Amazon s sustainable development. iii. IEG rates overall outcome of the WBG s strategy as moderately satisfactory. There were positive outcomes in infrastructure, health, education, the conditional cash transfer program, and, to a limited extent, on deforestation rates. In addition, there were improvements in fiscal performance and, to some extent, state effectiveness. In some cases, as with the financial sector, the WBG interventions were limited and could not have contributed to all of Brazil s achievements in the sector. In others, such as accountability through a greater focus on results, no evidence could be garnered on actual developments, although transparency has increased. Objectives regarding increased relative development of poor regions were unrealistic. Monitoring fell short on financial sector impact on other sectors, and on social protection linkages to other human development sectors and productive activities. The overall positive assessment of the strategy is influenced by the strong performance of Brazil during the CPS period. iv. IEG concurs with the lessons of the CSPCR, but stresses three points. First, governance issues need to be better defined in terms of objectives and instruments, with IBRD focusing on results accountability and IFC on corporate governance. Second, while the CPS acknowledged the limited size of WBG financing in relation to the country size, the scope of some of its objectives remained ambitious and encompassing at the country level. The large country size makes it imperative that the WBG be more realistic in defining the objectives of its strategy, identifying more clearly the sectors, interventions, and instruments of its contributions, as well as the results chain. Third, while IBRD and IFC coordinated better among themselves than in the past, both institutions could push the envelope further in the areas of collaboration outlined by the CPS. Fourth, the CPSPR is the appropriate CPSCR Reviewed by: Peer Reviewed by: CASCR Review Coordinator Mauricio Carrizosa, Consultant, IEGCC Silvina Vatnick, Consultant, IEGCC Rene Vandendries, Consultant, IEGCC Stephen Francis Pirozzi, Sr. Evaluation Officer, IEGPR Jaime Jaramillo-Vallejo Lead Economist, IEGCC

2 2 instrument to refine the objectives and monitoring and evaluation of country strategies, and is particularly important when the original strategy is weak in these regards. 3. CPS Summary Overview of CPS Relevance: 1. Country Context. During the 1990s and the 2000s, the level of Brazil s per-capita GDP (at purchasing power parity) averaged about 5 percent below the rest of Latin America s. Annual per capita growth improved from 2.3 percent during to 3.6 percent during , the CPS period. Meanwhile poverty declined from 24.2 percent in 2007 to 21.4 percent in 2009, despite the significant impact of the global financial crisis of Aided by strong fundamentals, a countercyclical macro policy stance and increasing commodity prices, the economy grew by 7.5% in 2010, a growth that was strongly pro-poor. 2. Brazil s development agenda, outlined in the Government s multi-year plan and endorsed by both outgoing President Lula and incoming President Rousseff, prioritized growth and greater social equality, improvements in the quality of education, increased productivity and competition, expansion of consumption, greater sustainability of use of natural resources, infrastructure improvements, reduction in regional inequalities and strengthening of democracy and citizen participation. These objectives implied a commitment to primary surpluses enabling declines in public debt, at both the federal and the state level; and a decision to achieve growth primarily through an infrastructure program (designated the Growth Acceleration Program ). At the sub-national level programs varied considerably, but most states focused also on growth, infrastructure and inclusion. Some (the center-west and the Amazon) also targeted a balance of conservation with growth and a good number also brought in the need to improve the quality of public sector management. 3. The WBG sought to address Brazil s key challenges where it could provide solutions not yet devised by the country itself. The WBG stayed within the same four pillars of the previous CPS, namely: (i) Macro fundamentals, good governance and public sector management: improving the effectiveness of the state, reducing custo Brazil, (high cost of doing business due to taxes and expenditure composition), and strengthening accountability with a focus on results; (ii) Competitiveness: addressing key competitiveness and investment climate challenges, supporting financial sector efficiency and its impact on other sectors, risk management and stability, and improving infrastructure; (iii) Equity: addressing cost, quality and access in health care; improving basic education quality and supporting the Bolsa Familia cash transfer program; improving access to infrastructure/urban services; and supporting family agriculture; and (iv) Sustainability: balancing conservation with development, expanding the role of clean energy, and helping the Amazon s sustainable development. 4. Congruence with the Country s Context and Program: The ample breadth of the four pillars of the WBG strategy provided considerable flexibility to address country challenges, giving the strategy congruence with the country s context and program. It allowed the WBG to support Brazil s states in their long-standing efforts to improve public sector performance; to respond to the Brazil s wellrecognized infrastructure gaps; to support improvements in education quality, following the achievements on access; and to better balance competitiveness with sustainability in development. It also allowed IFC to gear its strategy in support of the competitiveness pillar. On the Brazilian side, the government has had a long-standing system in place to bring the WBG s efforts in line with those of the country, with the Government conducting analyses of and approving prospective operations before they are prepared. 5. Relevance of Response to Market. The strategy enabled IFC to react promptly to market developments. In the liquidity crunch that came in the wake of the 2008 global financial crisis, IFC was able to provide trade finance through the Global Trade Finance Program,, as well as stepping up

3 3 long-term financing for a variety of projects that otherwise would have come later. 6. Relevance of Design. The capability of the WBG strategy to achieve its objectives varied across its different areas. Some objectives were not achievable with WBG inputs. For example, WBG interventions could hardly increase the per capita GDP of the poorer regions to the country s average. Similarly, Brazil s key competitiveness challenges span a wide set of issues well beyond the reach of the WBG program. Moreover, the program had little to offer to achieve the financial sector objectives. On the other hand, better infrastructure was a feasible outcome, particularly if the intended public resources could be used in partnership with the private sector. The adequacy of the results framework in defining and tracking the outcomes was mixed, and could have been refined much more at the time of the CPSPR. Some objectives (e.g., infrastructure for growth) were better defined than others (e.g., financial sector impact on other sectors, linkages across social protection pillars). And the defined monitoring indicators did not adequately measure some of the intended outcomes. In particular, the strategy did not provide operationally relevant outcome measures against which to assess the impact of IFC advisory and Investment operations. And it did not provide the means to evaluate the alignment of the numerous IFC interventions in the broader WBG Strategy. 7. Risk Identification and Mitigation. Of the risks that materialized, the CPS and CPSPR had foreseen that improvements in economic performance could reduce the willingness to carry out key structural reforms, and that public expenditure quality could falter as the public investment program was carried out. The extent to which the WBG dealt effectively with these two risks, and how it did so is unclear, because the mitigating measures mentioned in the strategy documents were vague and the CPSCR does not report on them. The other risk foreseen in the strategy documents that indeed materialized was an external crisis. Aside from IFC s trade financing, the WBG did not deliver any specific interventions intended to provide financial support to Brazil to weather the global financial crisis of Nevertheless, IBRD went ahead with operations that were already programmed and well under way. Overview of CPS Implementation: 8. Lending and Investments. IBRD approved financing for US$ 12.5 billion during the CPS period, most of it in the form of investment lending, but also including substantial developing policy lending in FY 09-FY 10 (US$ 4.6 billion). Seventeen operations were either delayed or dropped, for a total intended amount of US$ 3.2 billion. In the macroeconomics and governance pillar ($6.2 billion), IBRD delivered sub-national fiscal adjustment/public sector management DPLs or SWAPs to five states and one municipality. In the competitiveness pillar ($3.1 billion), IBRD delivered loans in support of regional/municipal development, urban transport, and roads. In the equity pillar ($1.8 billion), IBRD approved loans in support of rural poverty reduction, integrated municipal development, social and economic inclusion, health services sector, education, conditional transfers, and housing. On sustainability (0.9 billion), IBRD approved loans in support of water conservation/management, sustainable development, and solid waste management. Many of these operations covered areas in one or more of the other pillars in addition to their main focus. Using Global Environment Facility (GEF) resources, IBRD also delivered several grants ($0.1 billion), primarily in support of the sustainability pillar. In addition to the 53 new projects covered above, IBRD continued implementing 48 previously approved projects. 9. IFC provided support in three of the pillars: reducing poverty and inequality, improving competitiveness, and climate change mitigation and adaptation. On competitiveness, IFC worked on strengthening small and medium enterprises (SMEs), improving their access to finance, and integrating them into corporate supply chains, as well as in upgrading infrastructure and improving the investment climate. This enabled IFC to increase its net commitments in Brazil to approximately $3.8 billion, i.e. an increase of slightly over 200% over the previous CPS period driven primarily by trade

4 4 finance ($2.2 billion or 60% of the total net commitment). IFC s net commitment activity in equity participations was just 7 percent of the total, while loans increased to represent 93 percent of the total, driven largely by trade finance. IFC concentrated 42 percent of its equity participations in collective investment vehicles, which in turn were invested in various sectors. The financial sector (specifically finance and insurance) was the biggest beneficiary, receiving 40 percent of IFC s total equity investments. The remaining equity investments were channeled mostly to construction and real estate (7 percent), utilities (6 percent), education services (3 percent), and services and industrial and consumer products (3 percent). Loans to the financial sector represented approximately 80 percent of total loan commitments. 10. On IBRD s side, the share of commitments at risk increased from 5.6 percent in 2008 to 9.7 percent in 2011, with almost 18 percent of all projects being at risk. The increase in the share of commitments at risk contrasts with the decline observed in the rest of the Latin American and Caribbean Region (LCR) from 20.4 percent to 9.9 percent, and in the rest of IBRD from 17.3 percent to 13.7 percent in the same period. Of 24 projects that exited during the CPS period and were evaluated by IEG, 78.1 percent obtained a rating of moderately satisfactory or better, a share lower than those of LCR (85.0 percent) and the entire IBRD (84.5 percent). On the IFC side, of the 11 evaluative notes carried out by IEG over the CPS period, 10 indicate that projects were successful or better. 11. Analytic and Advisory Activities and Services. IBRD delivered most of its planned nonlending services, addressing some of the issues related to the lending operations. In the macroeconomic and governance pillar, IBRD s AAA covered the following issues: fiscal (fiscal federalism, pensions, public debt, countercyclical policy), public sector management (a PEFA, procurement in Sao Paulo, governance) and M&E (the Brasil Avaliação BRAVA). Phase 4 of the BRAVA program was not implemented. On competitiveness, IBRD s AAA focused on the financial sector (capital markets, directed credit), transport (road, rail, aviation), and urban growth. On equity, IBRD s AAA covered education (quality), health (governance, hospital M&E), jobs quality, crime and violence, housing, and equality of opportunities. IBRD dropped intended programmatic work on health. In sustainability, IBRD completed work on environmental licensing, energy development, and changing rainfall probabilities in the Amazon. 12. IFC advisory services covered access to finance, investment climate, sustainable business and public-private partnerships (PPP) transactions, with advice on PPPs accounting for most of this assistance. PPP advisory activities focused on complementing private sector and government efforts to address basic needs in health (quality) and education (access) these efforts have yet to bear fruit. IFC sought to develop commercial microfinance institutions through the transformation of a benchmark NGO into a regulated financial institution, and the launching of greenfield microfinance institutions with the support of experienced international microfinance networks. While there is some evidence of impact from these advisory projects, the limited size and breadth of IFC s interventions calls for caution in overstating their contribution at the country level. 13. Partnerships and Development Partner Coordination. Coordination across MFIs in Brazil (Corporacion Andina de Fomento, CAF, and the Inter-American Development Bank, IADB) was partly determined by the government allocation of demand for their services and partly by informal dialogue of IBRD with IADB to determine areas for joint work (e.g., financing of Bolsa Familia, harmonization of country procurement and financial management systems). The IMF s involvement with Brazil was limited, following the prepayment of outstanding obligations in 2005 and Brazil s improving macroeconomic performance. 14. Safeguards and Fiduciary Issues. IEG is not aware of any safeguards or fiduciary investigations relating to IBRD activities in Brazil.

5 5 Overview of Achievement by Objective 15. The WBG articulated its strategy around four pillars: strengthening the macroeconomic and good governance foundations of growth; boosting competitiveness; increasing equity; and improving environmental sustainability. The first of these was to provide a foundation to the other three. Furthermore, the CPS sought to engage primarily with the long-run, path-setting challenges where Brazil has not yet devised solutions and where international experience can be of particular value (CPS, para. 18). Aside from the WBG contributions to the four pillars reviewed below, the CPS implementation record does not show how the WBG worked with the government in identifying the long-run, path-setting challenges where the institution could contribute as was stated in the strategy. Pillar I: Strengthening the Macroeconomic and Good Governance Foundations of Growth 16. Under this pillar, the WBG was to help improve the effectiveness of the state, reduce custo Brazil (high cost of doing business due to taxes and expenditure composition), and strengthen accountability with a focus on results. 17. Improving the Effectiveness of the State. Developments on state effectiveness, including overall fiscal performance and focus on results, occurred in an environment of rising real GDP growth, from 3.5 percent during to 4.6 percent during On the overall fiscal performance and guided by the fiscal responsibility law, Brazil s overall debt to GDP ratio (an indicator of the strategy and its programs) declined from a peak of 60.6 percent in 2002 to38.1 percent in 2008, hovering around that level though the rest of the CPS period. Overall state debt, primarily determined under the federal-state debt agreements initiated in 1997, declined from 13.1 percent of GDP in 2007 to 10.9 percent in There were only minor declines in the debt to GDP ratio of states supported by the WBG, although revenue performance appears to be better in them. The ratio of wages to state revenues increased or remained constant in these states, with the exception of a decline in Rio Grande do Sul (the state with the highest share of wages). On a positive note, the ratio of state nonfinancial investments to revenues increased to a larger extent in the states supported by the WBG. 18. Reducing Custo Brazil. The CPS defined within the first pillar this objective, making explicit reference to reducing the high tax burden and limiting the burden of social security spending on public finances. Between 2007 and 2010, latest data available, the tax to GDP ratio increased from 35.7 percent to 36.7 percent, while social security spending increased from 20.0 percent to 23.0 percent. The strategy had no interventions that would have addressed this aspect of custo Brazil. 19. Strengthening Accountability with a Focus on Results. There is evidence that some states where the WBG was active introduced performance agreements with government entities, but not to the extent to which these could have led to an effective strengthening of actual accountability. 20. IBRD sought to support improvements in fiscal performance and public service delivery through loans to six states and the municipality of Rio de Janeiro, placing special emphasis on debt burden indicators. In Minas Gerais IBRD provided support for these two objectives through an FY06 $240 million DPL followed by an FY08 $976 million SWAP. In Rio Grande do Sul IBRD provided support through an FY09 $1.1 billion DPL. While Minas Gerais achieved a modest reduction in its debt burden, Rio Grande do Sul did not. Both states introduced results agreements as instruments of accountability for results. Two federal loans that closed in FY08 also provided support for fiscal objectives in the areas of fiscal, debt, and pension management. Some improvements in pension administration (e.g., cadastre upgrades, audits) were achieved, primarily aimed at containing unwarranted beneficiary payments. 21. IEG rates the achievement of outcomes under Pillar I as moderately satisfactory. There were improvements in fiscal performance as measured by the debt to GDP rations and, to some extent, in

6 6 state effectiveness. Improvements in transparency are notable, but those on accountability for results were not even monitored. Custo Brazil, understood as the fiscal burden, increased instead of decline. Pillar II: Boosting Competitiveness 22. Under this pillar, the WBG was to address the key competitiveness and investment climate challenges; support initiatives for financial sector competitiveness, efficiency and risk management while maintaining stability; support financial sector programs that catalyze or facilitate development in other areas of the economy; and improve infrastructure within a context of growth and environmental and fiscal sustainability. 23. Improving competitiveness and the investment climate. Private sector investment and foreign direct investment, respectively, averaged 14.9 percent and 4.2 of GDP during , with no discernible trends. Nevertheless, Brazil showed a slight improvement on its World Economic Forum (WEF) Global Competiveness Index from 4.13 out of 7 in 2008 to 4.32 in This improvement helped the country boost its relative ranking in the index from 72 nd in to 58 th in , a relative ranking still below the 57 th in The improvement since was fairly broad-based across the various index components, with some exceptions where the sub-index ranks remained put (education and health, market size, technological preparedness) or deteriorated (goods market efficiency). 24. The WBG s Logistics Performance Index (LPI) improved from 2.8 out of 5.0 in 2007 to 3.2 in 2010, boosting Brazil s ranking from 61 st to 41 st. The components of LPI where Brazil made the most progress were timeliness and tracking and tracing, while the one in which it remained put was customs. 25. IBRD provided support through DPL and SWAp loans to Minas Gerais (para. 20), a similar FY08 SWAp loan to Ceara and a DPL to Rio de Janeiro, seeking competitiveness improvements at the state level (e.g., reduce barriers to investment in Ceara), with satisfactory IEG outcome ratings for the first two. In Ceara, an FY09 investment loan is supporting improvements in infrastructure, the investment climate and regional management in nine municipalities, but outcomes remain to be seen. IBRD provided technical assistance on customs through the Sustainable and Equitable Growth Technical Assistance Program, SEGTAP (FY 05, restructured in FY08). An FY08 Innovation and Competitiveness Report diagnosed Brazil s needs in becoming a knowledge economy. IFC delivered two advisory services, which focused on bureaucratic procedures in five sub-prefectures of the Great Sao Paulo and in the municipalities of Teresina and Fortaleza in the Northeast of Brazil. 26. Promoting financial sector competitiveness, efficiency and risk management, while maintaining stability. Brazil s spread between deposit and lending rates, a strong indicator of competitiveness and efficiency of a financial system, remains exceedingly high but declined from 33.1 percentage points in 2007 to 31.1 percentage points in Similarly, Brazil improved its financial sector rating in the WEF index from 4.36 over 7 in 2008 to 4.47 over 7 in 2011 the relative ranking went from 73 rd in to 50 th in The WEF improvement reflected better stock market regulation, banking services, capital flows, and venture capital IBRD provided technical assistance through SEGTAP to strengthen the regulation of the Comissao de Valores Mobiliarios, the entity in charge of regulating capital markets. In addition, IFC had within its portfolio a number of investment operations in the financial sector that were used to 1 The WEF index is based to a large extent on surveys and data on developments on the ground, in contrast with the DBI which narrowly focus on changes on the books regarding rules, regulations and legislation. 2 See Carlos Arruda, Marina Araújo, Arthur Kux O Brasil no Global Competitiveness Report , Fundação Dom Cabral.

7 7 channel financing to other sectors. WBG interventions, however, did not appear to have a significant impact on sector competitiveness, efficiency, or risk management beyond the regulation of capital markets. 28. Catalyzing or facilitating development in other areas of the economy through the financial sector. Although this objective was not articulated with precision, the CPS suggests the WBG envisaged an impact on housing finance and access to finance for the lower income groups. Access to financial services improved. The percentage of individuals that held at least one bank account increased from about 60 percent to 69 percent in Overall credit to the private sector expanded from 52.9 percent of GDP in 2008 to about 63.6 percent of GDP in IBRD provided technical assistance on housing financing during the CPS period. IFC s Amazon MFI Advisory Project helped strengthen the financial intermediation role of retailers, mostly family owned micro and SMEs in that state. IEG assessed it as satisfactory. Several IFC investment operations were designed to address the need to promote better access to SME finance, but actual results are not clear. 30. Improving Infrastructure for growth. Brazil improved its infrastructure rating in the WEF index from 3.2 over 7.0 in to 4.0 in , raising its ranking from 78 th to 62 nd. The LPI rating for infrastructure increased from 2.8 over 5.0 in 2007 to 3.1 in This improvement partly reflected modest increases in the quality of transport and trade-related infrastructure. Nevertheless, fewer than half of the targets of the government s Growth Acceleration Program had been met three years after its launch, with much of the financing going to housing rather than to the improvement of infrastructure. Furthermore, private infrastructure investment was limited and failed to compensate for scarce public resources and attention. It was constrained by the regulatory environment, the lack of adequate risk mitigation mechanisms to help align incentives, and the lack of guaranteed returns on investment. 31. IBRD implemented seven federal or state-level projects in the transportation sector. These projects covered mass transit and road infrastructure needs. An FY10 federal-level loan for electricity distribution targeted improvements in its financial and operational performance and its commercial management. Broader infrastructure projects were directed to municipalities in the states of Rio Grande do Sul and Ceara, with outcome ratings of moderately satisfactory or better IFC s contribution through mobilizing resources to improve port infrastructure was significant, while for road, air transport, and railroad infrastructure was more limited. IFC carried out advisory activities on irrigation and roads based on PPP structures, but it is premature to assess their impact. 32. IEG rates the achievement of outcomes of the WBG strategy under Pillar II as moderately unsatisfactory. Improvements in infrastructure were positive and in line with the strategy s objectives. However, the WBG interventions in the financial sector were limited, and could not contribute significantly to the two broad objectives related to the financial sector. Moreover, the interventions relating to competitiveness and the investment climate contributed only marginally to Brazil s own noticeable achievements, with IBRD s support on customs showing no impact. Pillar III: Increasing Equity 33. Under this pillar, the WBG was to help address cost, quality and access pressures in health care; support improvements in performance and quality in basic education; support the Bolsa Familia program and social protection linkages with other human development sectors and with productive activities; improve access to infrastructure and urban services; and support sustainable agricultural 3 Servicios Financieros para el Desarrollo: Promoviendo el Acceso en América Latina, Reporte de Economía y Desarrollo, CAF 2011

8 8 growth and small-holder inclusion in agricultural market chains. 34. Improving the cost, quality and access in health care. A number of indicators, including prenatal and birth care, immunization rates, hospital beds, health personnel, and the share of people covered by universal and private insurance can point to increased access to health care. Not surprisingly, real per capita health care costs continued to increase, by 15 percent from 2007 to 2009, and from 8.4 to 9.0 percent of GDP between those two years. About 290 hospitals (out of a total of 360) are currently accredited by the National Accreditation Organization (ONA) with one of three levels of quality (basic, full, excellent), but there is no data or analysis readily available on whether hospital quality improved or deteriorated over the last four years. 35. IBRD sought to improve access and quality, while containing costs, through better incentives, an improved ability to handle increasing non-communicable diseases, and addressing market failures in health insurance and provision. IBRD supported this pillar with seven federal health projects and one state-level project, with half of them receiving satisfactory outcome ratings. The federal projects focused on AIDS and sexually transmitted diseases, health care decentralization, disease surveillance, family health service, regional health care networks, university hospital performance, clean water and sanitation, basic health care and neonatal care. The state-level projects (Bahia) focused on access to health by the poor and on water and health to improve health outcomes. IBRD support also comprised health service-delivery components in multi-sector operations in Bahia, Rio de Janeiro, Minas Gerais and Acre. A 2008 report provided a thorough analysis of hospital performance. IFC carried out several advisory projects on health, and worked on PPPs to build schools, and hospitals or clinics in the North Eastern states it t is too early to assess the effectiveness of these PPPs. 36. Improving performance and quality in basic education. The Index of Development of Basic Education shows improvements in both basic and secondary education, and in both public and private schools, between 2007 and 2009 (more recent data is not available). These are confirmed by improvements in Brazil s PISA scores as well. 37. IBRD sought to improve primary education results and performance through implementation of a federal-level FY02 project that aimed at reducing performance disparities across primary schools and an FY02 state-level basic education quality project (Ceara). In Pernambuco, an FY05 and followup FY09 SWAP aimed at improving both effectiveness in delivery of overall education services and efficiency in the use of overall public education resources. IEG ratings for these projects were mixed. In the Ceara project, education quality, efficiency and equity objectives were only modestly achieved, partly due to limited implementation. In Pernambuco, the FY05 project faltered in its objective of improving quality, efficiency and inclusiveness but the FY09 seems to be doing better on this objective. Analytic work covered education quality, a report on the challenges being faced during the current decade; and early childhood development (ECD), a non-lending program aimed at developing ECD oversight and regulation and assessing innovative ECD programs at the municipal level. IFC also had several advisory projects on education, and promoted PPPs to build schools in Minas Gerais. The outcomes of these PPPs have yet to materialize because the operations are recent. 38. Supporting the Bolsa Familia program and social protection linkages with other human development sectors and with productive activities. The Bolsa Familia cash transfer program expanded markedly during the last decade and contributed to the reduction of about 20 million people under the poverty line since It covers today about a quarter of the population (13 million families) but still needs to cover about a quarter million hard-to-reach families. Household surveys indicate an increase from 4.4 percent in1999 to 28 percent in 2009 in the other sources of income (including Bolsa Familia and other assistance sources) of families receiving less than on fourth of the minimum wage. A recent impact evaluation suggests that the program reduced school desertion by about 36

9 9 percent. Bolsa Familia also provided health and nutrition benefits to children and their mothers. 39. IBRD aimed at connecting the Bolsa Familia program beneficiaries to education, skills, and productive opportunities; expand the program; and improve M&E and targeting. IBRD followed an FY04 project in support of the program with a new one in FY11, and provided technical support on design, implementation, and M&E. There is no information on how IBRD could have supported social protection linkages with productive activities. 40. Expanding access to infrastructure and urban services. Increases in the percentage of households with access to water between 2007 and 2010 are difficult to assess, because the sources of data (a survey and a census) are not fully comparable between the two years. Access to sewage seems to have increased from 51 percent of the population in 2007 to 55 percent in 2010, with the same caveat about data sources. Perceived improvements in transport infrastructure may reflect better access to urban transport services, although hard data is unavailable. The housing deficit declined from about 6.0 million units in 2007 to about 5.6 million units in 2010, partly as a result of government programs (e.g., the low-income housing program Minha Casa Minha Vida, MCMV, introduced in 2009). 41. IBRD supported increased access to water and sanitation through several water sector projects (discussed below under Pillar IV). IBRD also supported slum upgrading and housing through two loans to the federal government and three loans to sub-national governments, which had mixed outcomes. As in other areas of IBRD support, these projects adopted integrated approaches. The Bahia project, for example, targeted access to basic services, improved housing, and social support services; and the Rio de Janeiro loan (together with an associated TAL), supported an integrated package of housing, land use, transport and disaster risk management policies. Projects in urban transport (discussed above under Pillar II), included components to improve infrastructure for the poor. Analytic work covered the sustainability of the low-income housing MCMV program through private sector involvement, to expand access to capital markets and land. IFC had three investments in Brazil s water and wastewater sector, and has moved recently into financing low-income housing developments. 42. Supporting sustainable agricultural growth and small-holder inclusion in agricultural market chains. This objective responded to the CPS s shift towards strengthening sustainable development. Total agriculture GDP growth expanded at about the same average annual rate during (3.2 percent) as during (3.3 percent). Much of this growth has been due to productivity growth and is expected to remain so, but there is little or no recent data on the productivity dynamics of family farming. Family farming may have been encouraged by the land credit (Credito Fundiario) program that increased the number of families being settled each year. Recent data for agriculture growth in the Amazon (North) region is not available, while data on the extension of the road network that would gauge access to markets is outdated (2004). 43. IBRD sought to support agricultural growth through regularization of land tenure and programs generating agricultural SME and agribusiness expansion. An FY01 project that closed in FY08 supported the Government s land acquisition credit program (Credito Fundiario), with a substantial impact on beneficiary incomes. IBRD supported other improvements in rural development with projects in eleven states. These projects sought increased rural infrastructure, development governance, and community participation. Most received moderately satisfactory outcome ratings from IEG. 44. IEG rates the achievement of outcomes of the WBG strategy under Pillar III as moderately satisfactory. Health care improved, but its cost also rose. Primary school quality also improved. Access to infrastructure (sewage, transport, and housing) seems to have improved, and IBRD support in these areas seems to have had some impact. Bolsa Familia continued its successful conditional

10 10 transfer program with IBRD support. However, there is no evidence that the WBG had any success in supporting social protection linkages with productive activities. In addition, data on outcomes on sustainable agricultural growth and small holder inclusion in agricultural market chains is limited and outdated. Pillar IV: Improving Environmental Sustainability 45. Under this pillar, the WBG was to help balance conservation with development, expand the role of clean energy, and help develop the Amazon in a sustainable manner. The WBG included in this strategy an Amazon Partnership Framework that it developed with the government and that sought the conservation, energy, and development objectives in the Amazon, as well as better population access to services covered under the equity pillar. 46. Balancing conservation with development. In 2009, Brazil approved a climate change law that calls for a 70 percent reduction in the rate of deforestation by Terrestrial and marine areas under protection arrangements (e.g., the Amazon Protected Areas Program supported by the WBG) increased markedly. Protection contributed to a reduction in the rate of deforestation from its peak of 27,772 Km2 in 2004 to 6,451 Km2 in Nevertheless, the deforestation rate increased again in the first half of 2011, to some extent reflecting an expectation of an amnesty included in draft legislation (under debate) that would relax forest protection provisions. On water conservation, recent surveys suggest little or no progress in containing water consumption, which is mainly driven by irrigation demand. CO2 emissions jumped in 2008 and remained at that level in 2009, the latest data available. 47. IBRD implemented 16 projects (8 approved during the CPS period) directed at forest conservation, both in the Amazon and other regions. Six of the projects addressed forest conservation policy issues at the country level, including the $1.3 billion FY09 Programmatic DPL for Sustainable Environmental Management Project which supports Brazil s National Climate Change Action Plan. The others were directed to policies at the state level. On water and sanitation, IBRD projects supported improvements in the supply of water and sanitation services, including water management and its integration with other areas, with mixed results. These projects also adopted an integrated approach. For example, an FY09 project supported Sao Paulo s actions to improve water quality and reliability, improve the quality of life of the poor populations residing in key targeted urban river basins, and strengthen water resources management, water pollution control, land-use policy and basic service provision. And an FY11 project in the state of Bahia seeks to increase access to clean water, sanitation and basic health care in municipalities most affected by infectious intestinal diseases. Furthermore, IBRD supported environmental improvements through four three waste management projects, mostly receiving satisfactory outcome ratings from IEG. A series of grants provided further support for forest conservation, biodiversity, air quality, emissions control, and environmental management. A 2010 IBRD report consigned the WBG s efforts to identify ways to reduce emissions in developmentally friendly ways. IFC provided advisory activities on promoting the expansion and development of biodiversity friendly practices among cattle and soybean producers in the Amazon, as well as on an irrigation PPP that has yet to materialize. One operation was rated by IEG as mostly unsuccessful from the standpoint of its development effectiveness. 48. Expanding the role of clean energy. Renewable energy increased in absolute terms, although its share remains unchanged since Renewable energy sources accounted for 45 percent of total energy in 2005 and Despite Brazil s abundance of water resources, increased use of oil, natural gas, and coal had reduced the share of those sources from 58 percent in The current share is expected to remain flat in the foreseeable future IBRD aimed to support a cleaner energy matrix by providing technical for major and controversial energy generation, and for promoting energy efficiency, renewable sources and low- 4 See Mauricio T. Tolmasquim, Amilcar Guerreiro and Ricardo Gorini, Matriz Energética Brasileira.

11 11 carbon solutions. IBRD supported an increased role of renewable energy sources through implementation of small projects, including an unsuccessful sugar bagasse (2005) project, a successful wood waste management project (FY06), and a new (FY10) project to promote less energy intensive transport modes. IFC undertook investment operations with ethanol producers from Sao Paulo and Goias states. 50. Supporting sustainable Development of the Amazon. Conservation performance improved through 2010, as the pace of deforestation in Brazil declined including in the Amazon, but deteriorated, likely termporarily, with the increase in deforestation in On growth, performance changed little the Amazon region s per-capita GDP increased at the same rate as Brazil s average. 51. As discussed above, IBRD implemented several projects aimed at forest conservation. In the Amazon, these included the conclusion of a 2001 project in support of Brazil s Protected Areas Program, and of a 2004 sustainable development project in the state of Tocantins, as well as a new 2011project aimed at maintaining or restoring legally required forest cover. The Tocantins project included growth objectives that were to be achieved through access to markets, job opportunities, infrastructure and social services for rural communities in its poorest regions. IFC provided advisory services to a reputable foreign forestry company to foster sustainable forest management in the Amazon. 52. IEG rates the achievement of strategy outcomes under Pillar IV as moderately satisfactory. Despite the worsening in 2011, progress was achieved in reducing deforestation rates with a contribution from WBG projects through The small projects achieved little progress in strengthening the role of renewable energy or improving the relative development of the Amazon. The latter was hardly achievable with the WBG instruments in the program. Objectives CPSCR Rating IEG Rating Pillar I: Strengthen the macroeconomic and good governance foundations of growth. NA Moderately Satisfactory Pillar II: Boosting Competitiveness. NA Moderately Unsatisfactory Pillar III: Increasing equity. NA Moderately Satisfactory Pillar IV: Improve environmental sustainability. NA Moderately Satisfactory 4. Overall IEG Assessment Overall Outcome: IBRD/IDA Performance: IFC Performance: Moderately Satisfactory Moderately Unsatisfactory Moderately Satisfactory 53. Overall outcome. IEG rates overall outcome of the WBG s strategy as moderately satisfactory. There were positive outcomes in infrastructure, health, education, the conditional cash transfer program, and, to a limited extent, on deforestation rates. In addition, there were improvements in fiscal performance and, to some extent, state effectiveness. In some cases, as with the financial sector, the WBG interventions were limited and could not have contributed to all of Brazil s achievements in the sector. In others, such as accountability through a greater focus on results, no evidence could be garnered on actual developments, although transparency has increased. Objectives regarding increased relative development of poor regions were unrealistic. Monitoring fell short on financial sector impact on other sectors, and on social protection linkages to other human

12 12 development sectors and productive activities. The overall positive assessment of the strategy is influenced by the strong performance of Brazil during the CPS period, and could lead to a different view and rating had the country been less successful in its own development efforts. 54. IBRD Performance. IEG rates IBRD s performance as moderately unsatisfactory. IBRD s performance was mixed, with weaknesses in key areas. The relevance of design of the strategy was limited by some outcomes being hardly attainable with IBRD instruments, and by monitoring and evaluation arrangements that were not used, both of which could have been revised at the time of the CPSPR. The performance of IBRD s portfolio in Brazil was weaker than that of LCR and IBRD, with the share of commitments at risk worsening while LCR and IBRD improved, and with weaker outcome ratings of projects and programs. The identification and mitigation of the risks of the strategy was blurred and did not seem to play a role in its implementation. The opportunity was missed of making objectives more realistic and of refining them as well as the monitoring and evaluation framework at the time of the CPSPR. However, coordination with other external partners was satisfactory, as was attention to environmental issues. 55. IFC Performance. IEG rates IFC s performance as moderately satisfactory. The period under review was characterized by rapidly changing circumstances both in global markets as well as in Brazil. IFC managed to react quickly and effectively to the dynamic domestic environment and carried out a number of operations following the strategic direction of the CPS. In terms of implementation, most of the results are positive, although IFC s work quality was mixed. The quality of the corporate governance of IFC s clients continues to present challenges for the design and implementation of both equity- and debt-based operations. Overall, IFC s additionality was present in most activities, by having provided market comfort for investors while helping mobilize funds from alternative sources. IFC s experiences in Brazil were mixed with respect to the introduction of innovation and standards, and were marginal on the introduction of new or improved regulation in sectors as diverse as microfinance or infrastructure, and limited to a few advisory projects in particular states. Their replicability at a larger scale and with a significant country-wide impact remains to be tested, except in ports. 5. Assessment of CPS Completion Report 56. The CPSCR provides a good but overly positive account of implementation and achievements of the WBG program, and some of its assessments are unwarranted. For example, on water and sanitation, the paucity and limited comparability of the data call for a more reserved judgment on the sector s improvements. Similarly, on regional disparities, there is no evidence that points to IBRD s impact on the ratio of per-capita income in poor states to the Brazil s average. Generally, the document makes limited effort to move beyond the CPS indicators to get more robust indications of outcomes. Finally, the CSPCR could have said more on how the numerous IFC interventions are aligned with the WBG strategy, while giving the thrust of key implementation experiences. 6. Findings and Lessons 57. IEG concurs with the lessons of the CSPCR, but stresses three points. First, governance issues need to be better defined in terms of objectives and instruments, with IBRD focusing on results accountability and IFC on corporate governance. Second, while the CPS acknowledged the limited size of WBG financing in relation to the country size, the scope of some of its objectives remained ambitious and encompassing at the country level. The large country size makes it imperative that the WBG be more realistic in defining the objectives of its strategy, identifying more clearly the sectors, interventions, and instruments of its contributions, as well as the results chain. Third, while IBRD and IFC coordinated better among themselves than in the past, both institutions could push the envelope

13 13 further in the areas of collaboration outlined by the CPS. Fourth, the CPSPR is the appropriate instrument to refine the objectives and monitoring and evaluation of country strategies, and is particularly important when the original strategy is weak in these regards.

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15 15 Annex Table 1: Planned and Actual Lending, FY08-11 Annex Table 2: Planned and Actual Analytical and Advisory Work, FY08-11 Annex Table 3a: IEG Project Ratings Annex Table 3b: IEG Project Ratings for Country and Comparators, FY08-11 Annex Table 4: Portfolio Status for Brazil and Comparators, FY08-11 Annex Table 5: IBRD/IDA Net Disbursements and Charges Summary Report for Country Annex Table 6: Total Net Disbursements of Official Development Assistance and Official Aid, Annex Table 7: Economic and Social Indicators for Country and Comparators, Annex Table 8: Millennium Development Goals Annex Table 9: Summary of Achievements of the CPS Objectives.