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Implementation Completion Report (ICR) Review - Public Finance And Social Progress Dpl


  
1. Project Data:   
ICR Review Date Posted:
09/17/2013   
Country:
El Salvador
Is this review for a Programmatic Series?
 Yes
How many operations were planned for the series?
 2
How many were approved?
 1
Series ID:
S122699
First Project ID:
P122699
Appraisal
Actual
Project Name:
Public Finance And Social Progress Dpl
Project Costs(US $M)
 100.0  100.0
L/C Number:
Loan/Credit (US $M)
 100.0  100.0
Sector Board:
Economic Policy
Cofinancing (US $M)
   
Cofinanciers:
Board Approval Date
  06/02/2011
 
 
Closing Date
12/31/2012 12/31/2012
Sector(s):
Central government administration (70%), Other social services (30%)
Theme(s):
Tax policy and administration (40%) Public expenditure financial management and procurement (25%) Gender (20%) Social risk mitigation (10%) Other accountability/anti-corruption (5%)
         
Prepared by: Reviewed by: ICR Review Coordinator: Group:
Nestor Ntungwanayo
Clay Wescott Christopher D. Gerrard IEGPS2

2. Project Objectives and Components:

a. Objectives:


    The objectives of this DPL were to support the Government's efforts to implement a sustainable medium-term fiscal framework, while creating fiscal space for needed social expenditure and for the protection and social inclusion of vulnerable segments of the population [Program Document (PD) p.29]. The objectives were not stated in the loan agreement, which instead listed the prior actions.

b. If this is a single DPL operation (not part of a series), were the project objectives/key associated outcome targets revised during implementation?
No

c. Policy Areas:

The DPL supported reforms around two pillars covering four policy areas:
(i) Creating a fiscal space for needed social expenditure: The DPL supported a reform program for El Salvador to enhance PFM in three policy areas: (i) improving efficiency in tax collection and expanding the tax base, (ii) increasing tax revenues through tax administration actions and fiscal reforms, and (iii) enhancing efficiency, transparency and accountability in the allocation of public resources.
(ii) Protecting and including vulnerable segments of the population: The DPL supported a reform program for El Salvador aimed at enhancing protection of vulnerable groups, and allocating additional public resources towards social programs. It is linked to the policy area of protecting vulnerable groups such as the elderly, women, and children in poor areas.

d. Comments on Project Cost, Financing, Borrower Contribution, and Dates

Initially, this was designed as the first single-tranche operation of a programmatic series of two DPLs. Subsequent developments in the country's economic and political context led the Bank's team to delay the preparation of the second operation. As a result, the DPL series lapsed and this loan became a stand-alone operation. It was approved on June 02, 2011 in an amount of $100.0 million, became effective on September 07, 2011, disbursed in a single tranche and closed on schedule on December 31, 2012.


3. Relevance of Objectives & Design:

a. Relevance of Objectives:
High

    The objectives were consistent with the country's reform program initiated by the Government that came to power in 2009. It adopted a comprehensive development plan for the period 2010-14 and identified overcoming economic, social, and political inequality as a priority. This DPL supported actions consistent with two main objectives of the government's plan: (i) expanding fiscal space by substantially increasing tax revenues, increasing the efficiency and transparency in the use of such resources and reducing the public debt, and (ii) reversing the rise in poverty rates observed in the previous years and expanding basic social services in rural and urban areas, especially to vulnerable segments of the population, and particularly women (PD, pp.18-24).

    The objectives were also in line with those identified in the Bank's CPS adopted in FY10: (i) to strengthen the fundamentals for economic recovery by addressing macro and institutional vulnerabilities, and (ii) to strengthen delivery of social services. Under the first objective, the Bank intended to expand fiscal space, implement results-based budgeting and, improve fiscal transparency. Under the second objective, the Bank aimed to: (i) protect the income of the urban poor, (ii) support the design of a Universal Social Protection System, (iii) ensure access to basic health services, and (iv) improve quality education and expand access to schools.

    The objectives of the DPL were addressing priorities of the country, were consistent with the Bank's CPS for El Salvador, and were still relevant at the closure of the operation.

b. Relevance of Design:

Modest

The policy matrix (PD, Annex 2) was comprehensive, indicating a clear and credible logical chain for the most part from prior actions to target outcomes, with baseline and indicators, linked to the objectives. The triggers for the intended second programmatic loan are also logically linked to the objectives. The design could have been improved with more support for containing unnecessary expenditures. Prior actions and indicative triggers to enhance expenditure management included adopting daily monitoring of all bank accounts, and expansion of result-based budgeting to two additional Government agencies. Additional measures in this area would have been helpful.


4. Achievement of Objectives (Efficacy) :


Objective I: Support to the creation of fiscal space for needed social spending: Modest

    Prior actions contributed to this objective by supporting expanded electronic payment, strengthened tax recovery instruments, improved taxpayer audit, and better detection of non tax filers. Triggers supported the objective with a simplified schedule for income tax payments, strengthened taxpayer monitoring, and a new fiscal reform. On the expenditure side, prior actions improved financial monitoring systems and enhanced transparency to citizens, and triggers supported expanded result-based budgeting, 100 percent publication of government business opportunities, and some progress in implementing the Access to Public Information Law. Three performance indicators toward this objective were satisfactorily accomplished as follows: (i) the share of payments to the Government made through the electronic payments platform (P@GOES) increased by 30.1% in 2012, (ii) the net tax revenue increased by 1.2 percentage points, and (iii) 100 percent of the Government's business opportunities and results were published online. One other performance indicator was partially achieved: in 2012, tax revenue/GDP was 14.4%, an improvement compared to the average of 13.3% for 2006-2008, but not sufficient enough to meet the target. Finally, three target indicators were not achieved: (i) the use of the framework agreements to purchase common used goods and services was not included in the procurement law adopted by the Congress; (ii) the number of tax filled decreased 35% percent by April 2013, but performance fell below the target, and (iii) the Government's balances monitored by The Directorate General of Treasury's (DGT) system increased from US$91.9 million in 2009 to $122.54 million in 2012, below the program target of US$175 million.

    In summary, some achievements toward the creation of a fiscal space included: (i) higher efficiency in tax collection mainly due to increased use of an electronic payments platform, and other structural reforms as detailed above, (ii) increase in the net tax revenue and the tax revenue/GDP ratio, although the level was below the program target, and (iii) some improvement in the efficiency, transparency and accountability in the allocation of public resources. The improvement in tax revenue contributed to a small improvement in the primary balance, from -1.7 percent of GDP in 2011 to a projected -1.4 percent of GDP in 2013. However, the overall balance was unchanged at -3.9 percent over the period (IMF Article IV report, p. 26), in part due to lack of sufficient effort to contain expenditures.

Objective II: Protection and inclusion of vulnerable segments of the population: Substantial

    Prior actions contributed to this objective by strengthening legislation aimed at promoting gender equality, protecting women against violence, and improving the social protection system. Indicative triggers pursued the agenda to improve the gender equity, and the social protection in urban municipalities and the education sector. The three performance indicators under this objective were all satisfactorily achieved as detailed below: (i) 14 consulting committees monitoring progress in gender equality were functioning, and 11 country regions had at least one window on women's rights information, (ii) there were 75 rural municipalities where at least 80% of eligible elders receive cash transfers, but the cash transfer was not extended to urban municipalities, and finally (iii) 10,356 students were studying under the extended-day modality, and approximately 16,968 students were studying under indirect modality, in 53 education centers.

    Progress toward the achievement of the second objective is illustrated by the fact that the government implemented a gender equity agenda and a cash transfer program, and helped protect young individuals at risk by piloting a full school day period in 22 schools. However, the importance and the efficiency of these three policies are not well documented, and their funding suffered from the less than expected progress in creating more fiscal space.

5. Efficiency (not applicable to DPLs):

6. Outcome:


Relevance of objectives was high as the operation was consistent with the country's priorities and in line with the Bank's strategy for El Salvador. Relevance of design was modest because while the results chain was for the most part sound, reforms related to the expenditure side could have been deeper in order to help expand the fiscal space. Efficacy in achieving the first objective was modest; it was substantial for the second objective.

Under the first objective, key results included a pick-up in the net tax revenue and the tax revenue/GDP ratio, although they fell below the program target, and some improvement in efficiency, transparency and accountability in the allocation of public resources. Progress in revenue collection, and in the allocation of public resources created some fiscal space that permitted an increase in social spending. Income tax measures implemented during 2012 and strict control over current outlays were offset by higher public investment and some increases in the wage bill and transfers, so there was only modest reduction of the primary deficit.

Under the second objective, the Government implemented a gender equity agenda, as well as a cash transfer program, and helped protect young individuals at risk by piloting a full school day period in 22 schools.

a. Outcome Rating: Moderately Satisfactory

7. Rationale for Risk to Development Outcome Rating:


    The program of reforms to increase the government's revenue and to contain expenditures was partially successful, and contributed positively to bringing the fiscal situation under control, although they fell short in creating a sustained fiscal space. There was some progress in implementing indicative triggers, particularly in (i) the integration of the Customs Agency (DGA) and the Tax Administration Office (DGII) tax payer’s registry and information system; (ii) the adoption of a new fiscal reform, (iii) the expanded use of the results-based budgeting (RBB) framework, and (iv) the adoption of a gender equity agenda and the social protection program as well, and by protecting young individuals at risk. However the entire PFM reform agenda was not completed, and much remains to be done.

    The changes in the political sphere affected the reform momentum and the postponement of the second programmatic loan is an indication that the reform program will not continue as designed in the context of the programmatic DPL operations. The lapse of the IMF program is an additional lost opportunity in the continuation of the reform agenda aimed at creating the fiscal space needed to include and protect the vulnerable. A fiscal reform program being implemented in 2013 includes measures to further reduce expenditures and increase revenue collection. However, the polarized political climate in El Salvador and the upcoming presidential elections (March 2014) will further increase tensions and might impose spending pressures, slowing fiscal consolidation. International Country Risk Group ratings on government stability and political risk have both worsened between 2012 and 2013. Economic growth remains low and, despite fiscal consolidation efforts, the public debt and fiscal deficit are still higher than their 2008 levels.

    Finally, El Salvador is highly vulnerable to multiple natural disasters risks. The occurrence of a major natural disaster could imply a reassessment of the country’s development priorities and pose a significant threat to economic growth and fiscal stability, and could delay the Government’s program.

    a. Risk to Development Outcome Rating: Significant

8. Assessment of Bank Performance:

a. Quality at entry:

The DPL was designed in close collaboration with the Government to ensure that actions supported by the operation were fully consistent with the country’s long term development goals. In supporting the increased fiscal space needed for sustainable social spending, enhancing the social gains and protecting vulnerable segments, the DPL benefited from the findings and recommendations of several analytical pieces, including a Public Expenditure Review (PER) completed in 2011, and a Public Financial Management Performance Measurement Framework issued in 2009. It also built on technical assistance from the United States Agency for International Development and the International Monetary Fund. There was also a parallel TA project approved in FY09 and devoted to underpinning the DPL reform program, although it was slow to disburse.

The results matrix was of good quality but was biased towards reforms aimed at increasing revenue. More attention could have been paid to expenditure management, and on containing the fiscal deficit. Finally, risks were well identified.

Quality-at-Entry Rating: Satisfactory

b. Quality of supervision:

Supervision was carried out formally through three supervision missions. The first one took place in August 2011 with the purpose of monitoring the government's progress towards targeted outcomes. There were improvements on most outcome indicators, with the exception of the fiscal impact of the operation. The second and third supervision missions took place in April and December 2012, and program performance was considered satisfactory by the first two Implementation Status and Results Reports (ISRs). During the third supervision mission the progress towards achievement of PDO was rated as moderately satisfactory due to the slowdown in fiscal consolidation and slower progress in some of the result indicators. However, the supervision missions didn't report on the risks' monitoring and mitigation measures taken.

Quality of Supervision Rating: Moderately Satisfactory

Overall Bank Performance Rating: Satisfactory

9. Assessment of Borrower Performance:

a. Government Performance:

The Ministry of Finance was the principal executing agency, responsible for the implementation and overall coordination of the operation. The Ministry of Finance coordinated with the different ministries and line agencies involved in the operation including, DGA, DGII and DGT. The coordination was instrumental in shaping the actions of each institution and ensuring the timely implementation of the multiple prior actions under the program. On the political side, the mid-term election changed the political composition in Congress, affecting its ability to support and approve loans and sensitive reforms, further slowing fiscal consolidation. Changes in the economic and political context led the Bank team to delay the preparation of the second operation; the DPL series lapsed and this loan became a stand-alone operation. Despite the postponement of the second DPL, the Government implemented all but one of the indicative triggers for a subsequent operation; the one not implemented (on adoption of framework contracts) was not approved by Congress.

Government Performance Rating: Not Applicable

b. Implementing Agency Performance:

Implementing Agency Performance Rating: Not Applicable

Overall Borrower Performance Rating: Moderately Satisfactory

10. M&E Design, Implementation, & Utilization:

a. M&E Design:

The design of the M&E system for this operation had two parts: (i) the policy matrix (PD, Annex 2) that described the issue at hand, the policy areas and the prior actions for the first DPL, the triggers for the second DPL and the expected outcomes, (ii) the summary table (PD, pp. 3-4) that provided detail on the key outcome indicators. The Ministry of Finance was responsible for program implementation and for coordinating actions of concerned line agencies, including the Central Bank, the Technical Secretariat of the Presidency, the Ministry of Education and the Ministry of Health. The design focused on output and outcome indicators that were feasible to measure and that were expected to be achieved by December 2012, the closing date of the operation. The M&E sought to align output indicators to indicators and targets frequently monitored by the Government.

b. M&E Implementation:

Under the coordination of the Ministry of Finance, the above-indicated institutions collected the necessary data to assess and report on implementation progress, taking into account both process advances and service statistics, surveys and other data that were used to assess the achievement of the outcome indicators of the operation.

a. M&E Utilization:

This review didn't find instances whereby M&E arrangements described in the PD were effectively utilized to help correct or fine-tune program implementation. The ISRs and the ICR didn't report on effective use of the M&E arrangements in the course of operation supervision.

M&E Quality Rating: Substantial

11. Other Issues:

a. Safeguards:

    The operation supported reforms in tax, public expenditure management, and transparency and social spending that do not have direct effects on safeguard issues.

b. Fiduciary Compliance:
The ICR didn't raise any issues related to fiduciary compliance related to this operation. Support to PFM during the previous years has contributed to improving the PFM country systems, and no fiduciary compliance issues were raised during the implementation of the operation.

c. Unintended Impacts (positive or negative):
Not applicable

d. Other:
Not applicable



12. Ratings:

ICR
IEG Review
Reason for Disagreement/Comments
Outcome:
Moderately Satisfactory
Moderately Satisfactory
 
Risk to Development Outcome:
Moderate
Significant
Polarized political climate and the upcoming presidential elections (March 2014), lapse of the IMF program, and high risk of natural disasters are factors that could dramatically affect achieved outcome.  
Bank Performance:
Satisfactory
Satisfactory
 
Borrower Performance:
Moderately Satisfactory
Moderately Satisfactory
 
Quality of ICR:
 
Satisfactory
 
NOTES:
- When insufficient information is provided by the Bank for IEG to arrive at a clear rating, IEG will downgrade the relevant ratings as warranted beginning July 1, 2006.
- The "Reason for Disagreement/Comments" column could cross-reference other sections of the ICR Review, as appropriate.

13. Lessons:

There are two lessons from this operation that can be put to good use in future DPL operations:

    While the identification of risks at appraisal is critical; their monitoring and mitigation require attention during implementation. Even if the Bank dialogue with the Government is continuous, great care has to be paid to internal political polarization that can became a hindrance to the the pursuit of reform, and eventually trigger the need for risk mitigation measures being taken.

    Policy reforms supported by the Bank's operations require continuous support from key internal stakeholders. When internal dialogue among the Government and these stakeholders on issues related to policy reforms and indebtedness is polarized, the Bank should step up the level of dialogue and ensure that all relevant segments of the society are included in the policy debate.

    14. Assessment Recommended?

    No

    15. Comments on Quality of ICR:

    The ICR provides a comprehensive account of the context of the operation, its preparation and implementation. Specific attention was given to the progress towards the objectives, as illustrated by the completion of prior actions, and the achievement of performance indicators and indicative triggers. However, the ICR didn't report to which extent the M&E system developed in the PD was utilized in fine tuning program implementation.

    a. Quality of ICR Rating: Satisfactory

    (ICRR-Rev6DPL-Jun-2011)
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