Document of The World Bank FOR OFFICIAL USE ONLY Report No. 72350-BR INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT PROGRAM DOCUMENT FOR A PROPOSED LOAN IN THE AMOUNT OF US$150 MILLION TO THE STATE OF SERGIPE WITH THE GUARANTEE OF THE FEDERATIVE REPUBLIC OF BRAZIL FOR A DEVELOPMENT POLICY LOAN IN SUPPORT OF DEVELOPMENT POLICIES FOR THE STATE OF SERGIPE (POL�TICAS DE DESENVOLVIMENTO NO ESTADO DE SERGIPE) April 11, 2013 Human Development Department Brazil Country Management Unit Latin America and the Caribbean Region This document is being made publicly available prior to Board consideration. This does not imply a presumed outcome. This document may be updated following Board consideration and the updated document will be made publicly available in accordance with the Bank’s policy on Access to Information. BRAZIL - GOVERNMENT FISCAL YEAR January 1 – December 31 CURRENCY EQUIVALENTS (Exchange Rate Effective as of October 23, 2012) Currency Unit Real (R$) US$1.00 R$2.02 WEIGHTS AND MEASURES Metric System ABBREVIATIONS AND ACRONYMS ADEMA State Environmental Administration (Administração Estadual do Meio Ambiente) BNDES National Bank for Economic and Social Development (Banco Nacional de Desenvolvimento Econômico e Social) CADIN State Registry of Unpaid Credits (Cadastro Informativo dos Créditos Não Quitados com o Estado) CadÚnico Single Registry for Social Programs of the Federal Government (Cadastro Único para Programas Sociais do Governo Federal) CEAC Citizens’ Attention Center (Centro de Atendimento ao Cidadão) COHIDRO Company for Development of Water Resources and Irrigation (Companhia de Desenvolvimento de Recursos Hídricos e Irrigação) CPS Country Partnership Strategy DPL Development Policy Loan EMDAGRO State Company for Agriculture and Livestock Development (Empresa de Desenvolvimento Agropecuário de Sergipe) FDI Foreign Direct Investment FUNDEB Fund for Maintenance and Development of Basic Education and Valorization of Education Professionals (Fundo de Manutenção e Desenvolvimento da Educação Básica e de Valorização dos Profissionais da Educação) GDP Gross Domestic Product GoS Government of Sergipe IADB Inter-American Development Bank IBRD International Bank for Reconstruction and Development IBGE Brazilian Institute of Geography and Statistics (Instituto Brasileiro de Geografia e Estatística) IDEB Basic Education Development Index (�ndice de Desenvolvimento da Educação Básica) i-Gesp Integrated Financial Management Information System IMF International Monetary Fund IOF Tax on Financial Transactions (Imposto sobre Operações de Crédito, Câmbio e Seguro ou Relativas a Títulos e Valores Mobiliários) IPEA Institute for Economic Analysis (Instituto de Pesquisa Econômica Aplicada) IPSAS International Public Sector Accounting Standards LRF Fiscal Responsibility Law (Lei de Responsabilidade Fiscal) NCR Net Current Revenue NPL Non-Performing Loans PFM Public Financial Management PNAD National Household Survey (Pesquisa Nacional por Amostra de Domicílios) PNAIC Literacy at the Right Age Program (Programa Nacional de Alfabetização na ii Idade Certa) PPA-P Multiyear Participatory Plan (Plano Plurianual Participativo) SEAGRI State Secretariat of Agriculture and Rural Development (Secretaria de Estado da Agricultura e Desenvolvimento Rural) SEED State Secretariat of Education (Secretaria de Estado da Educação) SES State Secretariat of Health (Secretaria de Estado da Saúde) SEFAZ State Secretariat of Finance (Secretaria de Estado da Fazenda) SEIDES State Secretariat of Inclusion, Protection and Social Development (Secretaria de Estado da Inclusão, Assistência e Desenvolvimento Social) SEMARH State Environmental and Water Resources Secretariat (Secretaria de Estado do Meio Ambiente e dos Recursos Hídricos) SEPLAG State Secretariat of Planning, Budget and Management (Secretaria de Estado de Planejamento, Orçamento e Gestão) SEPM Special State Secretariat of Women (Secretaria Especial de Políticas para as Mulheres) SIGA Integrated Management School System (Sistema Integrado de Gestão Acadêmica) SUAS Social Assistance System (Sistema Único de Assistência Social) SUS Unified Health System (Sistema Único de Saúde) Vice President: Hasan A. Tuluy Country Director: Deborah L. Wetzel Sector Manager: Joana Godinho Task Team Leader: Tania Dmytraczenko iii BRAZIL SERGIPE DEVELOPMENT THROUGH INCLUSION TABLE OF CONTENTS LOAN AND PROGRAM SUMMARY ......................................................................................................... vi I. INTRODUCTION ............................................................................................................................ 1 II. COUNTRY CONTEXT ................................................................................................................... 2 A. RECENT ECONOMIC DEVELOPMENTS IN BRAZIL ...................................................... 2 B. CURRENT MACROECONOMIC OUTLOOK ...................................................................... 3 C. RECENT SOCIOECONOMIC AND FISCAL DEVELOPMENTS IN SERGIPE................. 6 III. THE GOVERNMENT’S PROGRAM AND PARTICIPATORY PROCESSES ....................... 8 IV. BANK SUPPORT TO THE GOVERNMENT’S PROGRAM ..................................................... 12 A. RATIONALE FOR BANK INVOLVEMENT AND LINK TO THE CPS ............................ 12 B. COLLABORATION WITH THE IMF AND OTHER DONORS .......................................... 13 C. CHOICE OF INSTRUMENT AND RELATIONSHIP TO OTHER BANK OPERATIONS 13 D. LESSONS LEARNED ............................................................................................................ 15 E. ANALYTICAL UNDERPINNINGS ...................................................................................... 15 V. THE PROPOSED OPERATION: SERGIPE DEVELOPMENT THROUGH INCLUSION ... 18 A. OPERATION DESCRIPTION ................................................................................................ 18 B. POLICY AREAS ..................................................................................................................... 23 VI. OPERATION IMPLEMENTATION ............................................................................................. 36 A. POVERTY AND SOCIAL IMPACTS .................................................................................... 36 B. ENVIRONMENTAL ASPECTS ............................................................................................. 40 C. IMPLEMENTATION, MONITORING AND EVALUATION .............................................. 42 D. FIDUCIARY ASPECTS.......................................................................................................... 43 E. DISBURSEMENT AND AUDITING..................................................................................... 45 F. RISKS AND RISK MITIGATION ......................................................................................... 46 ANNEXES ANNEX 1: SERGIPE LETTER OF DEVELOPMENT POLICY ............................................................. 50 ANNEX 2: SERGIPE DEVELOPMENT THROUGH INCLUSION POLICY MATRIX ...................... 79 ANNEX 3: COUNTRY AND STATE AT A GLANCE ............................................................................... 84 ANNEX 4: FISCAL SUSTAINABILITY ANALYSIS ................................................................................ 88 ANNEX 5: INTERGOVERNMENTAL FISCAL ARRANGEMENTS IN BRAZIL ............................... 96 ANNEX 6: MILLENNIUM DEVELOPMENT GOALS ............................................................................. 99 ANNEX 7: GENDER EQUALITY AND SUSTAINABLE DEVELOPMENT ......................................... 100 ANNEX 8: POVERTY AND SOCIAL IMPACTS ...................................................................................... 103 LIST OF TABLES Table 1: Brazil Macroeconomic Indicators 2005-2016 .................................................................................... 3 Table 2: Value Added Composition (% of Total) ............................................................................................. 6 Table 3: Proposed Policy Actions for Sergipe Development through Inclusion............................................... 20 Table 4: IDEB for Sergipe’s State Schools, 2009 ............................................................................................. 30 Table 5: Sergipe’s GDP per Capita in Relation to Other States........................................................................ 33 LIST OF FIGURES Figure 1: Real GDP, 2000-2010 (2000=100).................................................................................................... 6 iv LIST OF BOXES Box 1: Brazilian Fiscal Federalism and the Control of Sub-National Fiscal Performance ............................... 5 Box 2: Good Practice Principles for Conditionality ......................................................................................... 19 The “Sergipe Development Through Inclusion� Development Policy Loan was prepared by an IBRD team consisting of Tania Dmytraczenko (Task Team Leader, LCSHH), Daniela Pena de Lima (co-Task Team Leader, LCSHH), Magnus Lindelow (LCSHD), Jose Manuel Rodriguez Alvarez (LCSPS), Rafael Chelles Barroso (LCSPE), Leandro Oliveira Costa (LCSHE), Maria Madalena Dos Santos (LCSHE), Maria de Fátima Amazonas (LCSAR), Alberto Coelho Gomes Costa (LCSSO), Gunars Platais (LCSEN), and Joseph Kizito Mubiru (LCSFM). This operation was undertaken under the general guidance of Deborah L. Wetzel (Country Director, LCC5C), Keith Hansen (Sector Director, LCSHD), and Joana Godinho (Sector Manager, LCSHH). Peer reviewers were Bert Voetberg (SASHN), Jonas Frank (PRMPS), Andreas Blom (AFTED), Jorge Muñoz (ARD), Juan Carlos Parra Osorio (SDV), and Roland Clarke (LCSPS). v LOAN AND PROGRAM SUMMARY BRAZIL SERGIPE DEVELOPMENT THROUGH INCLUSION Borrower The State of Sergipe, Brazil, with a Guarantee of the Federative Republic of Brazil Implementing State Secretariat of Planning, Budget and Management (Secretaria de Agency Estado do Planejamento, Orçamento e Gestão de Sergipe – SEPLAG) Financing Data US$150 million Operation Type Single tranche Development Policy Loan to be disbursed upon loan effectiveness Main Policy Areas The proposed loan will support policy actions aiming at: • Consolidating fiscal management and public sector innovations • Increasing access to better quality public services in health and education • Promoting socioeconomic development and inclusive growth in the interior of the State Key Outcome • Increase responsiveness to citizen complaints in the Citizen Indicators Service Centers (CEAC) by increasing the share of complaints that receive a written explanation from 15 to 90 percent in specified CEACs • Reduce the time to produce agreed upon managerial reports through i-Gesp, the Integrated Financial Management Information System • Increase in revenues collected from tax arrears as a share of the stock of tax arrears from 0.43 to 0.52 percent • Increase the number of maternity hospitals implementing the protocol for classification of admissions by risk to 75 percent of maternity hospitals under state management • Reduce the cesarean section rate at the referral Maternity Hospital Nossa Senhora de Lourdes from 55.2 to 50.2 percent • Increase the number of school directors selected by merit and with signed management agreements by 40 percent • Increase the number of municipalities receiving support from the State for implementation of the Literacy at the Right Age Program – PNAIC to 38 (50 percent of the total municipalities in the state) • Increase the number of trained small producer units included in the Núcleos de Produção de Leite and selling at least 90 percent of their production to private and public/institutional markets by 10 fold • Increase the number of small producers included in the Program for Agroecological Production and linked to the Social Control Organizations selling directly in agroecological fairs and to private vi and public/institutional markets by 20 percent • Increase the number of seasonal workers benefitting from the program Mão Amiga included in the program Sergipe Alfabetizado to 50 percent, 1/8 of which are women • Increase the number of families with monthly per capita income of less than R$70.00 living in the poorest 15 municipalities included in the CadÚnico by 5 percent • Increase the number of women in situations of violence and vulnerability attended in the Rede de Atendimento à Mulher Vítima de Violência by 75 percent Program The Development Policy Objective of the proposed operation is to Development improve public sector management, and expand access to quality Objective(s) and public services and economic opportunities for the extremely poor in Contribution to CPS the State of Sergipe. The proposed operation is fully consistent with the overarching objective of the CPS 2012-2015, and with the strategic objectives of enhancing the efficiency of public investments, improving quality and expand provision of public services, and promoting regional economic development. It is also fully aligned with the GoS’s goal to eradicate poverty, as outlined in the Multiyear Participatory Plan (PPA-P) 2012- 2015. Risks and Risk Risk analysis for this operation ranges from moderate to low risk, and Mitigation depends mostly on the degree and status of implementation of proposed reforms, the responsible executing secretariat, needed adherence from concerned parties, and whether the policy reform is a state mandate or depends on other actors at national or sub-national levels. Specific risks per category are: Country, state and sector factors: moderate to low risk Social and Environmental factors: moderate (social), moderate (environmental) Fiduciary factors: low risk Institutional and implementation factors: moderate to low risk In general, mitigation measures include detailed planning and monitoring of required actions, training of staff, and communication campaigns. Operation ID P129652 vii IBRD PROGRAM DOCUMENT FOR A PROPOSED LOAN TO THE STATE OF SERGIPE WITH THE GUARANTEE OF THE FEDERATIVE REPUBLIC OF BRAZIL FOR A DEVELOPMENT POLICY LOAN IN SUPPORT OF DEVELOPMENT POLICIES FOR THE STATE OF SERGIPE I. INTRODUCTION 1. The proposed operation is a single tranche development policy loan (DPL) to the State of Sergipe, Brazil in the amount of US$150 million. The program development objective is to support the Government of Sergipe (GoS) in strengthening public policies that improve public sector management and expand access to quality public services and economic opportunities for the extremely poor in the State. The DPL is fully consistent with the World Bank Group’s Brazil CPS FY2012-2015 (Report #63731-BR), discussed by the Executive Directors on November 1, 2011. The CPS is grounded in the Bank and International Finance Corporation regional strategies, which focus on creating opportunities for growth and employment, targeting the poor and vulnerable, strengthening governance and promoting global collective action, as well as stimulating private sector innovation and competitiveness. 2. Since the early 1990s, Brazil has experienced sustained reductions in poverty and inequality and the share of Brazilians living in poverty has decreased from 42 percent in 1990 to 21 percent in 2009. 1 The poor have benefited from lower inflation levels, economic growth, a rapid increase in the minimum wage, trade liberalization and associated job creation. Targeted pro-poor initiatives have included the national Bolsa Família cash transfer program, social security transfers, significant investments in education at all levels, and large- scale rural community-driven development programs throughout the Northeast region. Improvements in consumption and income indicators have been accompanied by important advances across a range of non-income measures of well-being (access to health, education, clean water, sanitation, electrification). With regard to inequality, Brazil’s Gini coefficient has decreased from just under 0.61 to about 0.54, and the incidence of extreme poverty has dropped about twice as fast as overall poverty. 3. However, Brazil still faces major challenges in tackling poverty, vulnerability and social exclusion issues, especially in the Northeast region and its rural areas. Poverty in Brazil remains more deeply entrenched in rural areas (29 percent) than in large metropolitan cities (10 percent) and smaller urban centers (13 percent). Fifty-nine percent 2 of the country’s poor reside in the Northeast region, mainly in rural areas, villages and small towns, where economic activity revolves largely around agriculture and associated services. Growth in the Northeast has equaled or surpassed national rates over the past decade; but the starting point with respect to incomes and wellbeing was considerably lower than the national average and thus sustained investment and reform efforts are needed to close the gap. 1 Institute for Economic Analysis (Instituto de Pesquisa Econômica Aplicada – IPEA), 2010. 2 Brazilian Institute of Geography and Statistics (Instituto Brasileiro de Geografia e Estatística – IBGE), 2010. 1 4. Though Sergipe performs relatively well on key development indicators compared to other states in the Northeast, it lags behind the national average. In recent years, education, health and income growth indicators have improved at a faster pace than other Northeast states, translating into the highest human development index in the region. Despite progress, Sergipe still ranks below the national average on key development indicators. The GoS recognizes that closing the gap will require reaching the poorest segments of the population. To this end, the GoS has outlined an ambitious program to eradicate poverty in the State, which is aligned with the Federal Government’s Brasil Sem Miséria program. It has also defined, though a participatory planning process, a series of poverty alleviation strategies and has sought World Bank support in realizing these strategies. 5. The proposed DPL will focus on three policy areas that have been identified by the Government as posing challenges to achievement of its poverty reduction goals. These are: (i) consolidating fiscal management and public sector innovations; (ii) increasing access to better quality public services in health and education; and (iii) promoting socioeconomic development and inclusive growth in the interior of the State. II. COUNTRY CONTEXT A. RECENT ECONOMIC DEVELOPMENTS IN BRAZIL 6. The Brazilian economy slowed significantly over 2011 and 2012. Real GDP grew at a meager 0.9 percent in 2012 compared to 2.7 percent in 2011. With trend growth estimated at around 4 percent, this growth slowdown represents a major weakening of economic performance. The slowdown was driven by domestic and external factors. Tighter monetary and fiscal policies aimed at curbing earlier overheating pressures weakened domestic demand. External demand was dampened by protracted weakness and uncertainty in advanced economies and slowing growth in major emerging economies such as China. While the slowdown was felt across the board, industrial output and investment demand were affected disproportionately. 7. Recent indicators provide tentative signs of the recovery gathering strength. Quarterly data point to improved investment demand toward end-2012, following four quarters of consecutive contraction. Late 2012 momentum also picked up in the services sector, while industrial output decelerated somewhat even though it continued to sustain a positive trend. Monthly data suggests good growth in industrial production in January (at 2.5 percent, compared to the previous month and adjusted for seasonality), which has been broadly shared by some 67 percent of industrial enterprises. Over the same interval, the production of capital goods started to expand strongly at 8.2 percent, following two months of decline. 8. Brazil’s disappointing growth performance prompted various policy interventions. Monetary policy was initially eased aggressively – with the policy rate reduced by an unprecedented 525 basis points to 7.25 percent in October 2012 – and recently put on hold. Fiscal policy became more expansionary on the back of cyclical revenue weakness and discretionary stimulus measures in the form of tax cuts and faster spending, which led to a primary surplus of 2.4 percent – well below the 3.1 percent target. Fiscal interventions aimed at reviving industry through payroll tax reductions, cheaper and more expansive funding 2 through federal banks, tax cuts on selected consumer durables and reductions in energy costs. A financial transactions tax and enhanced foreign exchange intervention helped reverse real exchange rate appreciation, supporting the external competitiveness of industry. Table 1: Brazil Macroeconomic Indicators 2005-2016 Estimates Projections Indicator 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 National Accounts (annual real percent change) Real GDP Growth 4.0 6.1 5.2 -0.3 7.5 2.7 0.9 3.1 3.7 3.5 3.7 (in percent of GDP) Gross domestic investment 16.8 18.3 20.7 17.8 20.2 19.7 17.6 20.8 21.2 21.5 21.9 External Sector (in US$ billions, unless noted) Current account 13.6 1.6 -28.2 -24.3 -47.3 -52.5 -54.2 -62.9 -69.3 -82.7 -87.4 Merchandise trade balance 46.5 40.0 24.8 25.3 20.1 29.8 19.4 15.0 14.5 8.2 6.2 Exports (fob) 137.8 160.6 197.9 153.0 201.9 256.0 242.6 262.2 274.8 299.8 331.2 Imports (fob) 91.4 120.6 173.1 127.7 181.8 226.2 223.2 247.2 260.3 291.6 325.0 Nonfactor services, net -9.6 -13.2 -16.7 -19.2 -30.8 -37.9 -41.1 -41.9 -44.9 -45.9 -47.1 Income and current transfers, net -23.2 -25.3 -36.3 -30.3 -36.6 -44.3 -32.6 -36.0 -38.9 -45.0 -46.5 Direct investment, net -9.4 27.5 24.6 36.0 36.9 67.7 68.1 60.0 60.0 60.8 62.9 Portfolio equity, net 1 6.8 24.8 -7.3 39.7 43.9 16.0 3.3 4.6 4.7 4.8 4.9 Gross international reserves 85.8 180.3 193.8 238.5 288.6 352.0 373.1 390.6 404.7 423.9 437.3 Current account (% of GDP) 1.3 0.1 -1.7 -1.5 -2.2 -2.1 -2.4 -2.4 -2.5 -2.8 -2.7 General Government (in percent of GDP) Total Revenues and Grants 34.6 34.3 35.0 33.9 35.4 35.0 35.0 35.3 35.4 35.5 35.5 Total Expenditure 38.1 36.9 36.3 36.9 38.1 37.6 38.1 38.2 38.3 38.3 38.2 Current Expenditure 36.1 35.1 34.0 34.7 34.1 35.4 35.6 35.7 35.7 35.7 35.5 of which: Interest payments 6.8 6.1 5.4 5.2 5.2 5.7 5.4 5.2 5.1 5.0 4.9 Capital Expenditure 1.9 1.8 2.2 2.2 4.0 2.3 2.5 2.5 2.6 2.6 2.7 Primary Balance 3.3 3.5 4.1 2.2 2.5 3.1 2.4 2.3 2.2 2.2 2.2 Overall Balance -3.5 -2.6 -1.3 -3.0 -2.7 -2.6 -3.0 -2.9 -2.9 -2.8 -2.7 Gross Public Sector Debt 66.7 65.2 63.5 66.9 65.2 64.9 65.0 62.7 60.6 58.7 56.9 Prices (annual percent change) GDP Deflator 6.1 5.9 8.3 7.2 8.2 7.0 6.0 5.5 5.3 4.9 4.9 Consumer Price Index (eop) 3.1 4.5 5.9 4.3 5.9 6.5 5.8 5.7 5.5 5.3 4.9 Producer Prices (eop) 4.3 9.4 9.8 -4.1 13.8 4.1 11.1 5.2 5.0 4.7 4.7 Memorandum items: Nominal GDP (in R$ billions) 2,369 2,661 3,032 3,239 3,770 4,143 4,403 5,294 5,768 6,273 6,809 Note 1: Porfolio equity does not include debt securities Source: IM F, BCB, IBGE, EIU, WB Calculation 9. The financial side of the Brazilian economy has weathered the slowdown well. The banking system has remained sound and resilient. Despite rapid credit growth, lower interest rates have eased pressures on borrowers containing delinquencies and allowing asset quality indicators to broadly stabilize. Solvency and liquidity indicators have remained comfortable. The balance of payments saw the current account deficit at 2.4 percent by end- 2012 on account of a deteriorated trade balance, but foreign direct investment remained more than sufficient to cover the deficit. Portfolio flows showed significant volatility however: buoyed by interest rate differentials, inflows were strong until global risk aversion rose, the policy rate was lowered and financial transaction taxes were imposed. B. CURRENT MACROECONOMIC OUTLOOK 10. Growth is expected to gradually strengthen over 2013, settling at 3.1 percent for the full year. Domestic demand is expected to drive forward momentum. As consumer confidence strengthens, consumption – which previously slowed but remained relatively 3 resilient – should get a boost on the back of favorable fundamentals. Investment, which saw a major decline, should see a revival as sentiment improves and will be aided by the development of new offshore oil fields and the preparations for upcoming mega events. While the external environment is likely to stabilize if not improve, the contribution of external demand will likely remain dampened by structural factors affecting export competitiveness as well as the likely boost to import demand arising from domestic demand strength. 11. The inflation outlook remains a challenge. The negative output gap that resulted from the economy’s recent underperformance did not prevent inflationary pressures from emerging, a trend which should be further accentuated as the recovery takes a firmer hold. Inflationary risks have emerged on the back of rapid wage growth (in excess of productivity growth) partly due to a tight labor market, with wage increases particularly affecting services prices. Looking ahead, policymakers will need to walk a fine line between supporting the recovery and guarding against the resurgence of inflation. 12. Risks to the near-term outlook remained centered on the external environment. A worsening of the global economy caused by a possible U.S. and/or Chinese slowdown, coupled to a worsening of the fiscal situation of some countries in the euro zone, may translate into lower external demand for Brazil’s export products as well as deterioration in the terms of trade. Brazil also remains vulnerable to market sentiment, posing a risk to both portfolio and foreign direct investment (FDI) inflows. Brazil’s external vulnerabilities are however mitigated by several factors, such as adequate foreign reserve levels, favorable external debt composition, a current account fully covered by FDI and an overall low degree of trade openness. 13. A prolonged slowdown would pose a risk to the fulfillment of fiscal targets. If the economy were to remain weak, fiscal outcomes are expected to deteriorate both as a result of weaker revenue growth and higher expenditures due to the cycle and the likelihood of additional fiscal and quasi-fiscal stimulus. Additional fiscal risks to be monitored stem from multiple sources, such as the January 2013 minimum wage increase, tax relief for selected industries, and quasi-fiscal activities by the National Bank of Economic and Social Development (Banco Nacional de Desenvolvimento Econômico e Social – BNDES). 14. Brazil’s overall macroeconomic framework is deemed adequate and sustainable in the medium term. Brazil’s policy framework (see Box 1 for more details on Brazilian Fiscal Federalism) has provided the authorities with sufficient leeway to respond to past and current crises with an array of fiscal, monetary, and external measures to stimulate demand. Gross public sector debt is expected to decline in the future, despite difficulties in maintaining fiscal balance in the face of large investment needs and pressures from current expenditure growth. Flexible exchange rates and relatively large foreign reserves provide additional comfort in meeting external contingencies. 15. The overriding challenge for the medium term is for Brazil to tap into its unrealized growth potential. For Brazil to continue its ascent up the per capita income ladder, while at the same time ensuring that growth is both inclusive and sustainable, it will need to take advantage of this unrealized potential by creating better conditions for growth. This will require not only tapping into Brazil's internal growth dynamic (which is tethered to 4 its large domestic market and rising middle class), but also deriving greater benefits from Brazil’s ongoing integration into the world economy. Box 1: Brazilian Fiscal Federalism and the Control of Sub-National Fiscal Performance The fiscal stance of Brazilian states has always been an important element in macroeconomic management in Brazil. Until the late 1990s, the expansionary fiscal policies by the states and the lack of effective controls over their indebtedness resulted in frequent sub-national debt crises. On three different occasions (1989, 1993 and 1997) the Federal Government had to take on and reschedule the debts of the states. The largest operation occurred in 1997, under Law 9496, when the Federal Government restructured R$200 billion (12 percent of national GDP) of the debts owed by the states. In the 1997 refinancing operation, the debts were refinanced for 30 years. This refinanced debt, so called intra-limite debt, carries a real interest rate of 6 percent with the nominal value of the debt rising by inflation. The debt service was capped at 13 percent of states’ net current revenues. Any debt service above the 13 percent cap is recapitalized and added to the intra-limite debt stock. At the end of the contracts (in 2028), if there are residual debt balances, the state must pay off the remainder within 10 years. The 1997 bailout was conditioned upon the state’s compliance with medium-term fiscal adjustment and structural reform programs. In exchange for the rescue package, the debt renegotiation contracts mandate the implementation of three-year rolling Programs of Fiscal Adjustment (Programas de Reestruturação e de Ajuste Fiscal – PAFs) to be agreed upon by the National Treasury and the 25 states that had their debt rescued by the National Treasury during the period of the contract. The Programs of Fiscal Adjustment set annual targets on indebtedness, primary balances, personnel spending, tax revenue and public investment, in order to guarantee a gradual decline in indebtedness. In addition, these Programs include structural reforms such as privatization or other public sector modernization initiatives. The controls on sub-national fiscal performance were further strengthened by the approval of the Fiscal Responsibility Law (Lei de Responsabilidade Fiscal – LRF) in 2000. The LRF institutionalized fiscal discipline at all levels of government, incorporating hard budget constraints into a single unifying framework. It explicitly prohibits debt refinancing operations between different levels of government, thereby addressing the moral hazard problem in intergovernmental fiscal relations caused by sequential bailouts. Complementary Senate resolutions also prohibit borrowing if: (i) the net consolidated debt exceeds twice net current revenue (Receita Corrente Líquida – RCL) (ii) new credit operations exceed 16 percent of net current revenue; and (iii) debt service exceeds 11.5 percent of net current revenue. Borrowing is also prohibited if it violates the debt reduction schedules set by the debt renegotiation contracts under the Law 9496. Finally, as per a resolution from the Federal Senate, issuance of sub-national governments bonds is prohibited through 2020. This system of controls has resulted in repeated state and municipal surpluses—an adjustment that has continued through four federal administrations. In addition, this system has also favored the adoption of appropriate expenditure programs by sub-national governments. Besides the controls on indebtedness, LRF requirements improved transparency and strengthened budgetary practices. Transparency: budget outturns and compliance with the LRF – including a statement of corrective measures if the relevant provisions are breached—are reported on a regular basis. Municipalities and states are also required to report the fiscal outturns of the previous year to the Ministry of Finance. The legislative branch of each level of government, aided by its respective Court of Accounts, monitors observance of the fiscal targets and ceilings. Budget Institutions: the LRF introduces more stringent requirements on fiscal targets in the preparation of the Budget Guidelines Law (Lei de Diretrizes Orçamentárias – LDO), strengthening its role in budget preparation and fiscal management in general. The LRF also calls for a detailed assessment of the Government’s contingent liabilities and strengthens the link between the Annual Budget Law (Lei Orçamentária Anual – LOA) and the LDO. A complementary Fiscal Crime Law is applied to all levels of the public administration, with the possibility of detention for those public officials not complying with the LRF. 5 16. Energizing the underlying drivers of growth will require determined multi-year efforts in tackling long-standing structural bottlenecks. Key among these challenges is the need to accelerate and strengthen the quality of human capital formation to raise living standards and boost productivity growth. In addition, there is the need to raise public and private investment, to address growing infrastructure bottlenecks and lay the foundations for innovation-led growth. Further key challenges relate to the importance of developing a private long-term capital market, a more flexible labor market, and a more agile business environment that promotes internal competition and external competitiveness. C. RECENT SOCIOECONOMIC AND FISCAL DEVELOPMENTS IN SERGIPE 17. Sergipe suffered severe effects from the country’s fiscal and external crisis in the late 1980’s and early 1990’s. From 1985 to 1990, while Brazil grew on average 2 percent yearly and the Northeast region grew 0.2 percent, Sergipe posted an average growth rate of - 7.1 percent. The only noteworthy federal public investment done in Sergipe in this period was the construction of the Xingó Power Plant, which opened in 1994, but only became fully operational in 1997. The State’s share of regional GDP declined to 4.3 percent in 1995 and dropped further down to 4.1 percent in 2000. 3 18. Recently the State’s economy had gained some momentum. Agriculture and manufacturing industries grew 44.9 and 26.4 percent respectively from 2004 to 2010 in Sergipe, while the same figures for the Northeast region were 8.4 and 15.0 percent. However, due to the fluctuations in the extractive industry, overall GDP in Sergipe grew at 24.8 percent, a similar pace to that the Northeast region (25.4 percent). Nonetheless, more recent data from 2011 and 2012 data show that the Sergipe economy is once again underperforming compared to the national economy. Retail sales grew 15.7 percent in Brazil and 5.9 percent in Sergipe from 2010 to 2012. Oil production increased by 0.6 percent in Brazil from 2010 to 2012, but declined 2.2 percent in Sergipe. Cement production also displayed a meager growth in Sergipe (4.9 percent) vis-à-vis the 8.6 percent growth registered in the whole country in 2011. Figure 1: Real GDP, 2000-2010 (2000=100) Table 2: Value Added Composition (% of Total) 155 150 145 Brazil Sergipe 140 Agriculture 5.3 4.6 135 130 Industry 28.1 28.6 125 120 Extractive Industry 3.0 5.8 115 110 Manufacturing 16.2 7.4 105 Public Utilities 3.2 7.8 100 95 Construction 5.7 7.6 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Brasil Nordeste Sergipe Services 66.6 66.9 19. The composition of Sergipe’s GDP broadly resembles that of Brazil, except for a few notable differences. Manufacturing accounts for nearly two-thirds of the industrial value 3 Source: IBGE and Ipeadata. 6 added in the country as a whole, whereas its share in the State is below a third. 4 Conversely, extractive industry and public utilities (energy, gas, and water) account for over 40 percent of industrial value added in Sergipe but are less than 20 percent in Brazil, as shown in Table 2. Public Finances in Sergipe 20. Sergipe’s main sources of revenues are transfers from the Federal Government. 5 In 2011, transfers accounted for 44.7 percent of the State’s revenues while tax revenues were to 36.5 percent. This ratio has been roughly maintained in the last three years. In 2011, total transfers amounted to R$3.1 billion and tax revenues reached R$2.4 billion. The main transfer is the State Participation Fund and the main tax source is the value added tax – R$2.5 billion and R$2 billion, respectively, in 2011. Revenues have grown from 2004 to 2011 – from R$3.6 billion in 2004 to R$6.6 billion – or 8.9 percent yearly on average. The only exception was 2009 when revenues fell by 2.6 percent due to the crisis. The pace of revenue growth however was not stable. For instance, revenues grew 13.7 percent in 2010, but only 6.1 percent in 2011. Though the major increase in value came from federal transfers and value added taxes, the greatest growth rates were recorded in the collection of fees (21.4 percent) and the Tax on Inheritances and Donations (18.2 percent). 21. The State’s main expenditure is on payroll – R$3.8 billion in 2011. The second largest expenditure is on goods and services (R$1.4 billion), followed by transfers to municipalities (R$0.6 billion). Interest payments on the debt amounted to R$120 million and debt amortization to R$164 million. Together, debt service is equivalent to 4.3 percent of revenue. Lastly, investment expenditures summed up R$418 million, which is equivalent to 6.3 percent of state revenues. Expenditures grew 9.7 percent yearly on average from 2004 to 2011. The main increase was due to the compensation of employees that grew by 11.4 percent on average, adding R$2 billion in new expenditures from 2004 to 2011. During the crisis in 2009, while revenues were shrinking expenses grew by 10.1 percent, evidencing a difficulty of the Government to curb expenditures in line with revenues behavior. 22. In terms of functions, expenditures composition is largely concentrated in education, health and public security. These three items accounted for 41 percent of government total expenditures in 2011. This concentration is in line with the pattern seen in other states and reflects the distribution of federative expenditure responsibilities. It also explains the large share of payroll in government accounts since these activities are labor intensive. 23. Though Sergipe has been showing good fiscal results, recent years have seen a deterioration. Expenditures have grown above revenues from 2004 to 2011 – 9.7 percent and 8.9 percent respectively. This pattern translated in narrower albeit positive gross operating balances. In 2004, gross operating balances were equivalent to 15.5 percent of net current revenue (NCR), however, by 2011, this had decreased to 5.7 of NCR. By the same token, primary balance deteriorated from strictly positive figures from 2004 to 2008 to an average deficit of R$ 209 million from 2009 to 2011. The unbalance between revenue and expenditure 4 In 2010, manufacturing activities and extractive industry plus public utilities represented respectively 58 and 22 percent of total industrial activity in the Brazilian GDP, while the numbers for Sergipe were 26 and 47 percent respectively. 5 For more details on intergovernmental fiscal arrangements see Annex 5. 7 growth rates became more prominent after the crisis in 2009, when expenditures grew 10 percent in real terms, while revenues fell 2.6 percent. In the following two years, expenditure growth kept pace with or exceeded the rate of growth in revenues, an indication that the State had difficulty in curtailing expenditures and restoring fiscal balances to pre-crisis levels. 24. The Government has been complying with all limits set by the Fiscal Responsibility Law (LRF), though relative debt ratios have increased. In 2011, payroll expenditures as defined in the LRF reached 56.6 percent of NCR. The net consolidated debt over NCR ratio is at 46.2 percent, an increase from 24.4 percent in 2008, but still well below the 200 percent threshold. The increase is owed to the new debt contracted by the State, after three years without any disbursement, to bolster public investment levels. Despite the increase in debt, the debt service level in 2011 (5.8 percent of NCR) is roughly the same as in 2008 (5.7 percent of NCR), when the net consolidated debt to NCR ratio was at its lowest level. The State does not have any outstanding guarantee and, in the last two years, the amount of loan proceeds was below 16 percent of NCR. 25. Fiscal risks are contained and do not pose threats to medium-term fiscal sustainability. The main contingent liability is estimated to cost at most R$170 million and refers to past salary readjustments when the Real Plan was introduced back in 1994. The State complies with legally mandated earmarked expenditures such as education and health. More specifically, it complies with the nationally set minimum wage for teachers and the earmarked expenditures in health as set by the newly approved Federal Complementary Law 141/12. 26. Sergipe’s State debt is sustainable since, in none of the scenarios, the projected debt to revenue ratios are increasing constantly. Aside from the current scenario, in which everything is held constant, two other scenarios were constructed. The baseline assumes a mild contention in expenditure growth in real terms and an investment rate of 8.2 percent of the NCR. The worst case scenario assumes a decline in revenue in the first years and higher investment rates financed by larger debt contracting. Under all three scenarios the net consolidated debt to NCR ratio falls below 10 percent by 2021, despite different trajectories. 27. The GoS has an adequate macroeconomic framework, expenditure program and fiscal arrangements with the central government. Even though fiscal balances have deteriorated in recent years, primary deficit is improving and it is not large in relation to NCR. Furthermore, a drastic curtailment of expenditures is not required for the State to produce positive primary balances again, even as it increases its investment expenses moderately. Expenditures are in line with the fiscal rules and responsibilities given to states in the Brazilian federative framework. In addition, no significant fiscal risks are foreseen in the medium-term for the State’s finances. Lastly, intergovernmental fiscal arrangements are mainly rule-based and guaranteed by legal norms. More details are given in Box 1 and Annex 5 and 6. III. THE GOVERNMENT’S PROGRAM AND PARTICIPATORY PROCESSES 28. The Government’s program reflects its commitment to social inclusion, poverty alleviation and extreme poverty eradication and is based on a broad participatory planning process. Both the GoS’s long term development plan and its multiannual plan were developed through a participatory process, with consultations with a broad range of stakeholders, including municipal governments, the private sector, civil society and non- 8 governmental organizations. Beginning in 2007, the Government introduced new participation mechanisms as part of its planning process. Conferences were held in all 75 municipalities to identify priority demands from the local population and electing municipal representatives for eight territorial conferences, which were subsequently held to debate and select demands with territorial and state scope. Late in 2008, a statewide conference was convened and priority action plans, projects and goals were agreed upon between the state and society. About 24,000 people took part on the first round of municipal conferences and identified 8,671 priority actions; 900 municipal representatives took part in the territorial and statewide conferences. The approved priority actions – which focused on short-term outputs and outcomes – were consolidated in the State`s Multiyear Participatory Plan (Plano Plurianual Participativo – PPA-P). 29. In 2011, the Government further developed its participatory planning processes in an attempt to incorporate medium and long-term strategic goals. The preparation of the State's long-term strategic plan evolved from an attempt to bring together and align the technical expertise needed for strategic and budgetary management, citizen's participation and social control over policy planning and implementation. Initially, State secretariats and agencies convened to discuss the Government’s strategic guidelines and define priority areas. Subsequently, the Government`s implementation of the previous PPA-P was evaluated in a new round of territorial conferences that convened hundreds of municipal representatives. More than 80 percent of the 377 proposals identified in these conferences were included in the 2012-15 PPA-P. The policies supported by this operation have been scrutinized and validated in these conferences and, then, included in the Government`s strategic guidelines. 30. Additionally, as elsewhere in Brazil, each sector of the Government relies on state councils as consultative and deliberative boards for approval of its policies and actions, and on ombudsman services to redress citizens’ grievances. Thus, policies supported by this operation were debated and approved at four State councils – namely, the State Council of Social Assistance, Sustainable Rural Development, Health and Education – which convene State and civil society representatives. The Secretaries of Health and Education also have ombudsmen, who can be accessed personally or through hot lines, mail, e-mails or web pages; they keep records, respond to queries and annually report on complaints and grievances. Transparency and accountability have been re-enforced in this new model of governance. The GoS has created two new agencies within its planning structure: the “Situation Room� and the Sergipe Observatory (Observatório de Sergipe). The goal is to: (a) establish an economic, statistical, geographical and cartographical information management policy, aimed at improving public policy analysis through more robust use of socioeconomic indicators; (b) monitor the implementation of the long-term strategic plan and the PPA-P, support the decision-making process, and improve society`s access to information about public policies; and, (c) improve disclosure and dissemination of information and increase transparency. 31. Through the participatory planning process described above, the State of Sergipe identified strategies aimed at achieving its goal of eradicating extreme poverty by 2016. The four strategic axes defined in the PPA-P 2012-2015 are: (1) social development and affirmation of citizen rights; (2) excellence in public sector management; (3) productive infrastructure and logistics; and, (4) inclusive economic development. The PPA-P also summarizes the principal challenges to achieving this goal and lays out priority policies and programs under each axis. The program supported by this DPL is fully aligned with the 9 Government program described in the PPA-P. Some salient features of the Government program in the areas supported by the DPL – namely, axes 1, 2 and 4 – are described below. Axis 1: Social development and affirmation of citizen rights 32. The GoS recognizes that poor health is a major impediment to achievement of its social development goals. It established as one of the centerpieces of its strategic plan to strengthen the Unified Health System (Sistema Único de Saúde – SUS) in Sergipe and to structure delivery of healthcare so as to guarantee citizens’ right to health. With that objective in mind, the State Secretariat of Health (SES) is implementing a number of initiatives; some of the most relevant to this operation include to: (i) improve maternal, neonatal and child health care in the SUS-Sergipe network; (ii) improve and expand Family Health Clinics; (iii) expand the supply, at the regional level, of specialized care, including high risk pregnancy services; (iv) expand and improve the efficiency of mobile urgent care services (Serviço de Atendimento Móvel de Urgência – SAMU), which includes transport of pregnant women in case of emergency; and (v) increase access to pharmaceuticals by expanding participation in the Popular Pharmacy program (Farmácias Populares). 33. The GoS´s education policies are fully aligned with those of the Ministry of Education. The State adhered to the Ministry’s strategy to improve education indicators, the Plano de Metas Compromisso Todos pela Educação. Under the strategy states are required to develop Coordinated Action Plans (Plano de Ações Articuladas - PAR). Sergipe’s Plan was structured in 2011 around the following major areas: (i) quality of the education program, which focuses on the development of activities for supporting students’ intellectual and cognitive growth, skills and abilities to be well prepared individuals and better citizens; (ii) expansion of secondary and vocational technical education (the Programa Nacional de Acesso ao Ensino Técnico e Emprego – PRONATEC); (iii) modernization of education management by introduction of a merit system and school community participation in the selection of school directors with emphasis on development of school-based strategies, which include the school community, parents and other stakeholders in the school decision making process; (iv) establishment of a new curriculum development program for strengthening teaching methodologies to improve learning; (v) upgrading school infrastructure, teaching materials and equipment to support learning; (vi) development and improvements in the monitoring and evaluation systems to support quality improvements; and (vii) provision of technical assistance to the 75 municipal education systems for enhancing quality of education in municipal schools. The policies supported by this DPL are part of this larger strategy. 34. In the area of social protection and productive inclusion, the objective of the Government is to promote access to income generation activities for socially vulnerable and at risk populations. Government initiatives to achieve this objective include: (i) expansion of income transfer programs and support to seasonal sugarcane and orange growers through the Mão Amiga program; (ii) creation of reference centers for social assistance, as well as centers for productive inclusion; (iii) agroecological fairs; (iv) implementation of civil defense activities, including creation of community groups in at risk areas; (v) promotion activities to enhance professional qualifications for vulnerable populations; (vi) incentives to entrepreneurship and organization of cooperatives to promote income generation activities; 10 and (vii) centralization and expansion of services to laborers, including job placement and other activities to integrate workers into the labor market. Axis 2: Excellence in public sector management 35. The Government program includes as a macro-challenge to promote public management with innovation and quality, under the coordination of the State Secretariat of Planning, Budget and Management (SEPLAG). This policy implies interactions with the Secretariat of Finance (SEFAZ), the State Secretariat of Social Communication (SECOM), the State Audit Agency (the Controladoria Geral do Estado), and the State Secretariat of Administration (SEAD). The objectives of this policy are to: (i) guide public action to be more responsive to citizens’demands, giving emphasis to innovation and quality of public services delivered, introducing an entrepreneurial culture to strengthen accountability for results, establishing evaluation systems and enhancing the Government’s strategic programs; (ii) promote optimization of State revenues and the public finance balance, by improving management, legal, operational and technological mechanisms to pursue enhancement of the taxation, fiscal and accounting systems; and (iii) strengthen the State means of communication and public management, bringing knowledge and transparency to government actions and boosting communication and social inclusion tools. 36. Within this policy, the Government program in public management includes twelve initiatives. Among them, the most directly connected with the activities included in this operation are to: (i) establish and disseminate programs, projects and technological tools of modernization in the State’s public management, including, among others, i-Gesp, the Program of Financial Modernization, the Program of Modernization of Revenues and Fiscal, Financial, and Assets Management; (ii) expand virtual access channels to public services and provide an appropriate informational infrastructure for supplying, through the internet, public interest information on the State of Sergipe and on Government actions, giving priority to the economic, cartographic, geographic and statistical databases; (iii) promote open communication to ensure transparency in government actions, using all the available channels to reach citizens; (iv) enhance fiscal education, especially by stimulating citizens to demand fiscal bills; and (v) optimize the recovery of fiscal debts, combating fiscal evasion and establishing records of defaulting taxpayers. Axis 4: Inclusive economic development 37. The territorial development program is the centerpiece of the GoS’s strategy for inclusive economic development. The program aims to reduce the broad inequalities that exist between the metropolitan region and the interior of the State, as well as between certain population groups – e.g., blacks and whites, and women and men. The Government program includes: (i) establishment of basic infrastructure to support production (such as water supply, cisterns, community warehouses, rural electrification); (ii) establishment of community vegetable gardens; (iii) support for improvements in management of family-owned agribusinesses; (iv) promotion of partnerships between family farmers and institutional markets; (v) support to family farmers through loans, crop insurance and development of small production trade projects in the semiarid region of the State; (vi) strengthening of the 11 productive chains of strategic importance, including dairy production; (vii) recovery and maintenance of the irrigation infrastructure for communal use; and (viii) structure the production of seeds and institute a seed bank to promote self-sufficiency in production of these inputs. 38. Another important development objective of the GoS is to promote gender equality through the social and economic inclusion of women. To increase the capacity of the State to develop and implement gender equality policies, the Special State Secretariat of Women (SEPM) was recently created. Its main objectives are to reduce all forms of violence against women and improve service delivery to victims; and to promote women's economic autonomy across the State through capacity building and employment programs. To more effectively promote gender equality, the Secretariat aims to strengthen institutional monitoring of implementation of gender programs and policies, and mainstream gender across sectors. To this end, the Secretariat is: (i) increasing coordination with key secretariats to mainstream gender in state programs; (ii) introducing an overarching policy framework to promote sustainable gender equality policies; and (iii) developing a strategic management action plan to standardize the delivery and types of services offered to women victims of violence. IV. BANK SUPPORT TO THE GOVERNMENT’S PROGRAM A. RATIONALE FOR BANK INVOLVEMENT AND LINK TO THE CPS 39. The overarching goal of the CPS – The World Bank Group's Country Partnership Strategy 2012-2015 (Report # 63731-BR) discussed by the Executive Directors on November 1, 2011 – is to contribute to Brazil’s aim of faster, more inclusive and more environmentally sustainable growth, with macroeconomic stability. Brazil’s priorities for its partnership with the World Bank Group are set out in the CPS for the period FY2012-2015. The strategy is focused on second-generation development problems that require innovative solutions in terms of improving national policy frameworks and finding ways to implement programs with sub-national governments. Specifically, the CPS identifies four strategic objectives: (i) increase the efficiency of public and private investments; (ii) improve the quality and expand the provision of public services for low income households; (iii) promote regional economic development; and (iv) further improve sustainable natural resource management and enhance climatic resilience while contributing to local economic development and helping to meet rising global food demand. 40. The CPS envisages sustained or increased lending to state and municipal levels, with a focus on multi-sector operations. The Federal Government is interested in the World Bank’s support to sub-national governments as a way of enhancing the implementation of national policies, ranging from the fiscal responsibility framework to strategic social and infrastructure investment programs. Sub-national governments demand integrated multi- sector development solutions that address complex and multidimensional development challenges and combine technical and financial support, using tailored instruments. 41. The objective of the proposed operation is to support the State of Sergipe in strengthening public policies that improve public sector management, and expand access to quality public services and economic opportunities for the extremely poor. 12 Thus the proposed operation is fully consistent with the overarching objective of the CPS FY2012-2015, and with the strategic objectives of enhancing the efficiency of public investments, improving quality and expand provision of public services, and promoting regional economic development. B. COLLABORATION WITH THE IMF AND OTHER DONORS 42. Since the International Monetary Fund (IMF) does not work directly with state governments there has been no direct collaboration with the IMF on this specific operation. However, the World Bank and Fund work very closely on the overall Brazil program. This is consistent with the Joint Management Action Plan, which, in order to improve coordination at the country level called for World Bank and Fund staff to consult at least annually in the preparation of their work programs. The Brazil country offices of the World Bank and the Fund have also been meeting regularly. 43. The major external financing agencies operating in Brazil are the Inter- American Development Bank (IADB), the Andean Development Corporation (CAF) and the World Bank. Only the IADB is currently active in Sergipe. They have recently completed negotiations on a US$5.8 million loan to the State that will strengthen fiscal management to increase revenue generation and increase the effectiveness and quality of public expenditures. Additionally, US$1.7 million have been transferred to Sergipe through a federal level project, National Program to Support Modernization of Public Administration and Planning in the States and the Federal District (PNAGE). Policy area 1 of the DPL will be fully coordinated with the IADB’s fiscal and public sector management projects. 44. The Government is also currently preparing a health sector loan with the IADB. The project, which will be implemented from 2013-2016, will have four components: (i) strengthening health administration though capacity building and implementation of administrative systems; (ii) expansion of the specialized care network, particularly related to cancer treatment and services for the disabled; (iii) improvement in living conditions of populations in extreme poverty though investments in sanitation and replacement of housing materials that harbor vectors for disease; and (iv) monitoring and evaluation. These areas covered by the future IADB project are distinct from those supported by this DPL; the two loans are complementary. C. CHOICE OF INSTRUMENT AND RELATIONSHIP TO OTHER BANK OPERATIONS 45. DPL vs. Investment Lending. The operation supports a set of policy and institutional reforms linked to the GoS’ program to promote social inclusion and eradicate extreme poverty. The program is clear, coherent, and based on a robust participatory planning process. To date, support to the State has been in the form of investment lending. The State has requested a fast-disbursing loan to permit strategic investments, and has identified a series of policy and institutional reforms that would support effective implementation of the program. The State’s public financial management system features strong internal rules and controls, and clear definition of responsibilities and institutional arrangements for the management of public finances. A DPL is, therefore, an appropriate vehicle for supporting the State. 13 46. One-tranche DPL vs. two-tranche DPL. A single-tranche DPL was deemed suitable as it would allow for fast disbursement of funds to address urgent financing needs of the State. Possible ways to sustain an engagement with the State in priority areas may be considered depending on the State’s interest and the World Bank lending capacity. 47. The DPL will be the third operation with the State of Sergipe. Previous operations were specific investment lending. The rural development and productive inclusion component of the DPL builds on previous engagement through the Sergipe State Integrated Project: Rural Poverty (P110614, Loan 7595-BR), which was approved in 2008 and seeks to assist the State to reduce levels of rural poverty by improving well-being and income of the rural poor. The Rural Poverty Reduction Program that was supported by the project was based on a Northeast Brazil “brand� of decentralized community-driven development and has contributed to the creation of community associations and operation of deliberative municipal councils in 78 municipalities. The approach – which is premised on beneficiary management of resources, simple, explicit and verifiable poverty targeting, transparency, and partnership with local authorities and with civil society – has contributed to a better interface between communities and local authorities, more effective representation of poor family farmers in decision-making processes at the municipal level, and greater transparency and social control over municipal decisions. Hence, the Rural Poverty Reduction Program remains a critical instrument for meeting the Northeast states’ rural poverty reduction objectives. More recently, in January 2012, the World Bank approved the Sergipe Water Project (P112074, Loan 8113-BR). The project supports improvements in the quality of life for the local population and the environment as a whole through water service-delivery to approximately 2 million people living in Sergipe. It is aligned with the Federal Government �gua para Todos (Water for All) program, which benefits the State and aims to ensure broad access to water for the rural population and households in extreme poverty, either for consumption or food production and animal husbandry. This focus is highly complementary to the DPL. In specific, DPL prior actions related to sustainable agricultural practices and productive inclusion complement interventions supported by the Sergipe Water Project that seek to promote sustainable resource use and increased incomes for rural households and disadvantaged groups. 48. There have been no social sector operations with the State. However, the DPL is consistent with, and complementary to federal health projects, including the Health Network Formation and Quality Improvement Project - QUALISUS-REDE (P088716, Loan 7632-BR), which also supports the establishment of regional health networks in some states, and the Second Family Health Extension Program - PROESF (P095626, Loan 7545-BR), which supports the implementation of the Family Health Strategy in selected municipalities, including two in Sergipe. While QUALISUS-REDE does not provide any financing to the State of Sergipe, the policy focus of the DPL has strong links with the reforms and instruments supported by this federal operation. 49. Across all sectors, the operation will align closely with other DPL in Brazil and in the Northeast in particularly. Currently, there are DPLs supporting similar policy issues in the States of Bahia (Bahia Inclusion and Economic Development - P126351, Loan 8177-BR), Pernambuco (Expanding Opportunities, Enhancing Equity in the State of Pernambuco - P106753, Loan 8142-BR) and Piauí (Piaui Green Growth and Inclusion - P126449, Loan 8128-BR). This provides significant opportunities for cross-fertilization and learning. 14 D. LESSONS LEARNED 50. The design of the proposed operation draws on lessons learned from implementation of DPLs worldwide, as well as recent experiences with state-level DPLs in Brazil. In preparing the operation, the World Bank has aimed to implement good practices highlighted in the 2009 Development Policy Retrospective. 6 This included customization of the program to the needs of the State, application of good practice principles of conditionality (Box 2 below) and definition of a results framework with clear links between actions supported by the DPL, expected results and GoS goals. 51. Experiences from recent state-level DPLs underscore the importance of client ownership of the reform program, the need for close dialog with the state and the importance of coordination with the Federal Government. The GoS’s strategic plan was developed through an extensive participatory process and the actions supported by the World Bank operation are fully aligned with the defined strategies, many of which advance the implementation of national programs. Further, the policy actions and expected results were vetted by all concerned secretariats. E. ANALYTICAL UNDERPINNINGS 52. Enhancement of access to opportunities – determined by the achievement of specific functions such as health, education and the autonomous generation of income – improves overall productivity and fosters further growth. To trigger such virtuous circles between equity, growth and reductions in ex-post inequality requires active policies, as well as the political conditions for their sustainability. 7 Further, the 2009 World Bank study “A Comparative Perspective on Poverty Reduction in Brazil, China and India� highlighted that pro-poor social policy reforms in Brazil play an important role in sustaining poverty reduction, even during a period of economic stagnation. 8 53. The specific objectives and policy actions supported by this operation were grounded on analysis of sector data and studies carried out by the World Bank, the Government or other partners. They also focus on the Millennium Development Goals that are off-track for meeting the 2015 targets (Annex 7). 54. Fiscal and Public Sector Management: The Independent Evaluation Group’s 2010 review, “World Bank Engagement at the State Level: The Cases of Brazil, India, Nigeria, and Russia,� confirmed the relevance and development impact of sub-national operations and validated the World Bank's strong focus on improving public sector management at the state level. 9 Most lending operations in Brazil are at the sub-national level, particularly in the Northeast states. These are often multisectoral projects aimed at improving financing and management of the sectors – particularly ones that are human resource intensive such as education and health, while also modernizing central secretariats, such as finance, planning, human resources and public management (regardless of the specific institutional arrangements that govern these thematic areas in each state). These operations support improvements in tax 6 World Bank, 2010a. 7 Bourguignon et al, 1997; Levy and Walton, 2008. 8 Ravallion, 2009. 9 World Bank, 2010b. 15 collection, financial management, coordination between planning and budgeting, human resource management, asset management, procurement and citizens’ information services, among others, all with the intent of strengthening the results achieved in the sector. The design of coherent systems, particularly on human resources and asset management, requires strong coordination between the central and sector secretariats, as well as flexibility to adapt the new systems to the specific necessities of each sector. This is the approach adopted by the last generation of lending operations in the Northeast region (among others, the Recife Sector Wide Approach and specific investment lending operations in Alagoas, Rio Grande do Norte and Pernambuco); it is also the approach proposed in this DPL. In addition to being a core area of engagement, public sector management often serves as entry point for broader engagement. 55. Health: The recently completed World Bank study, “Brazil’s Sistema Único de Saúde After 20 Years: Achievements, Challenges, and Unresolved Issues�, confirms that the Unified Health System – which the GoS aims to strengthen – has contributed to better coverage, health status and financial protection. 10 This success is at least in part due to the expansion of primary health care by, among other things, prioritizing access for low-income and other vulnerable groups through the Family Health Program. The study also points to the need to improve referral mechanisms and integration among providers, increase access to specialized care, strengthen agreements across levels of government and make them more performance- based, and strengthen information systems focusing on quality indicators. The health policies supported under this operation will help address these constraints. They focus specifically on maternal health care because, notwithstanding the progress in recent years in reducing maternal mortality, 11 more needs to be done if the country is to meet the Millennium Development Goal 5, particularly in the poorest states of the Northeast that lag behind the national average. In their study in metropolitan Aracaju, Ribeiro et al (2009) revealed that a third of women attending prenatal visits received inadequate care, and this was more likely among poor women seeking public services. Maternal and neonatal health interventions will also address the Millennium Development Goal 4 because the majority of infant deaths (68.8 percent) occur in the first 28 days of life (IBGE 2010). 56. Education: Experience has been drawn from several studies and programs developed by other states in Brazil and particularly in the Northeast states, which have similar problems. The study recently finalized by the World Bank, “Achieving World-Class Education in Brazil: The Next Agenda,� shows the major advances and pitfalls of the Brazilian education system in the last 15 years and outlines the agenda going forward to achieve improvements in education at the different levels. 12 In addition, the World Bank study “Knowledge and Innovation for Competitiveness in Brazil� provides a cross-sectoral analysis of Brazil’s capacity for producing knowledge and innovation. 13 This study pointed to the need to re- evaluate the Brazilian education system, its information technology infrastructure and policy framework for encouraging innovation in order to ensure that the economy as a whole is growing fast enough to keep up with global competition, while also guaranteeing progress in its fight against poverty. Other important lessons were taken from the study “Making School Work: New Evidence on Accountability Reforms� and from a survey paper “School 10 Gragnolati et al, 2012. 11 IBGE census data 2000 and 2010. 12 Bruns et al, 2012. 13 World Bank, 2008. 16 Resources and Educational Outcomes in Developing Countries: A Review of the Literature from 1990 to 2010.� 14 This paper examines studies published during the last decade, which investigate the specific school and teacher characteristics that have strong positive impacts on learning and time in school in developing countries. 57. Socioeconomic development and inclusive growth: Results from sector and country studies fed into the design of policies fostering access to markets and income growth, and sustainable agriculture and productive inclusion. The 2003 World Bank study “Rural Poverty Alleviation in Brazil: Toward an Integrated Strategy,� confirmed the relevance and development impact of policies that support the livelihoods of smallholder farmers as crucial efforts to tackle poverty and hunger, especially when they adopt a multisectoral approach. The State of Sergipe carried out an assessment in 2011, “Determinação do Perfil Sócio- Econômico das Unidades Produtoras de Derivados do Leite,� mapping the socio-economic profile of dairy producing units in the Alto Sertão Sergipano, one of the poorest regions of the State and with higher concentration of dairy production. 15 This study, which guides the State in structuring its policies aimed at increasing access to markets, income growth and sustainable agriculture, identified opportunities and challenges faced by the dairy supply chain in the region and laid out alternatives to improve productivity and boost producers’ income. Investments in knowledge – especially in the form of technology – featured prominently and consistently in most strategies to promote sustainable agriculture development. Further, lessons learned from the Sergipe State Integrated Project: Rural Poverty (P110614) provide a clear snapshot of the State’s agriculture and rural development advancements and challenges, which informed the design of this operation. In support of policies fostering social protection and prevention of gender-based violence, the “World Development Report 2012: Gender Equality and Development� brings evidence that experiencing violence between parents as a child is a risk factor for women experiencing violence from their own partners as adults, and for men perpetrating violence against their partners. Further, data from the State Special Secretariat of Women indicates that there is a positive correlation between labor force participation and domestic violence for women with less education or who were young at first marriage in Sergipe. This is consistent with the theoretical model that women with low bargaining power may face increased risk of domestic violence upon entering the labor force as the husband seeks to counter the increased bargaining power she derives from participating in the market. The need to stay vigilant about this potential risk is heightened in light of the rise in female labor force participation and the number of female-headed households between the 2000 and 2010 census. Additionally, the World Development Report 2012 finds that better nutritional status of mothers has been associated with better child health and survival. The gender-related policies supported by this DPL are in line with the actions recommended in the report. 14 Bruns et al, 2011; Glewwe et al, 2011. 15 Ribeiro et al, 2011. 17 V. THE PROPOSED OPERATION: SERGIPE DEVELOPMENT THROUGH INCLUSION A. OPERATION DESCRIPTION 58. The Development Policy Objective of the proposed operation is to improve public sector management, and expand access to quality public services and economic opportunities for the extremely poor. The multisectoral DPL will focus on three policy areas that have been identified by Government as posing challenges to achievement of its poverty reduction goals, namely: (i) consolidating fiscal management and public sector innovations; (ii) increasing access to better quality public services in health and education; and (iii) promoting socioeconomic development and inclusive growth in the interior of the State. The operation will support the GoS in realizing its commitment to eradicate poverty in the State by promoting structural reforms and expanding provision of essential public services. The operation is in line with the World Bank’s good practice principles for the application of conditionality—country ownership, harmonization, customization, criticality and transparency and predictability. 16 Box 2 below outlines how these principles have been applied in the preparation on this DPL 59. The Program also addresses gender as a cross-cutting issue given the effect of gender imbalances on poverty in the Northeast (as highlighted in Annex 8 and in the poverty and social impact analysis). Specifically, gender is addressed in the policies related to health, productive inclusion and prevention of gender-based violence. To address cross- cutting gender issues, the State has established the Special Secretariat for Women and developed an action plan, endorsed by the management team, outlining actions to prevent and mitigate violence against women, as well as interventions to protect victims through a State Network and multisectoral actions to address broader gender issues such as employment. The action plan, which has the objective of enhancing the effectiveness of State support, focuses on: (i) improving the diagnosis of gender issues at regional and state levels; (ii) establishing priorities for policy dialogue with municipal governments, non-state actors and development partners; (iii) strengthening mainstreaming of gender issues in State institutions; (iv) defining clear roles and responsibilities for the implementation of these actions; (v) establishing a set of indicators and targets to monitor progress; and (vi) providing local teams with additional capacity building and technical backstopping support to work together with the Delegacias da Mulher (police stations for women) and Justice. Furthermore, the State action plan calls for municipal action plans to be developed by each local team from the Centros de Referência de Atendimento às Mulheres and other institutions. 16 World Bank, 2009 and 2010. 18 Box 2: Good Practice Principles for Conditionality Principle 1 – Reinforce Ownership • The operation support policies and programs for which there is clear evidence of ownership, as expressed in the PPA-P 2012-2015 and other Government strategy documents • The PPA-P is the product of a year-long broad-based consultation process grounded on the principles of popular participation and transparency (see section III above) • The Government has a strong track record of implementing reforms as well as popular support, as evidenced in the re-election of the incumbent. • The operation will be completed within this Government’s term; hence, the policy environment and political economy are expected to remain stable Principle 2 – Agree up front with the Government and other financial partners on a coordinated accountability framework • The policy matrix agreed with Government summarizes policy actions to be taken before approval of the operation and clearly outlines actions, expected results and indicators that are measurable using Government data • Monitoring will be done by SEPLAG and the individual sector Secretariats supervising activities in the areas defined in the policy matrix • The operation complements projects financed by other donors as well as other World Bank-financed projects Principle 3 – Customize the accountability framework and modalities of World Bank support to address country circumstances • The Government program was the primary sources of policy actions, which were selected in partnership with Government and are fully aligned with the Government’s Strategic Plan 2011-2014 • The policy matrix was vetted by all concerned Secretariats Principle 4 – Choose only actions critical for achieving results as conditions for disbursement • The actions selected were deemed by Government and World Bank staff participating in design of the proposed DPL to have a positive or neutral impact on poverty alleviation and to bring about substantive changes in the sectors • Processing steps, such as action plans, were avoided Principle 5 – Conduct transparent progress reviews conducive to predictable and performance-based financial support • Progress will be reviewed by Government using existing institutional accountability processes • The policy matrix spells out objectives, actions, and indicators to measure results, including a baselines, targets and data sources 60. The prior actions that are conditions for disbursement for the proposed operation, as well as the expected results, are summarized in Table 3. The complete policy matrix is presented in Annex 2. 19 Table 3: Proposed Policy Actions for Sergipe Development through Inclusion OBJECTIVES POLICY ACTIONS EXPECTED RESULTS Policy Area 1: Consolidating Fiscal Management and Public Sector Innovations 1.1 Improve the Policy Action 1: The State of Sergipe Increase responsiveness to citizen Quality of standardizes services oriented to respond to complaints in the Citizen Service Government-Citizen citizens’ needs/complaints by issuing (a) Centers (CEAC) Services Decree No. 28837 of October 18, 2012 Baseline (Oct 2011): 15 percent of regulating a “one-stop shop� model (guichê complaints receive a written único) – Published in the Diário Oficial do explanation in the Riomar and Rua Estado on October 22, 2012) and (b) Portaria do Turista CEACs No. 3242 of October 29, 2012 establishing the Endline (Dec 2013): 90 percent of Charter of Citizens’ Attention Services complaints receive a written (Published in the Diário Oficial do Estado on explanation in the same CEACs October 31, 2012) Responsibility: State Secretariat of Planning 1.2 Modernize Key Policy Action 2: The State of Sergipe issues Reduce the time to produce agreed Planning, Decree No. 28830 of October 16, 2012 making upon managerial reports through i- Budgetary, the use of i-Gesp (which includes the Gesp Execution and processes of (i) planning, (ii) budgeting, (iii) Baseline (Dec 2010): reports not Control Processes budgetary and financial execution, (iv) public available under the previous accounting, and (v) agreements management) system (SAFIC) compulsory within the executive branch, with Endline (Dec 2013):4 reports 17 an implementation schedule for the price produced automatically database, debt management, integration with human resource systems, purchases and assets monitoring modules (Published in the Diário Oficial do Estado on October 18, 2012) Responsibility: State Secretariat of Finance 1.3 Increase Policy Action 3: The State of Sergipe issues Increase in revenues collected from Revenues Through Decree No. 28843 of October 19, 2012 tax arrears as a share of the stock Combating Fiscal regulating a virtual and integrated process – of tax arrears Avoidance between the State Secretariat of Finance, the Baseline (Dec 2011): 0.43 percent Office of the Attorney General of Sergipe, and Endline (Dec 2013): 0.52 percent the Judiciary – for collection of tax arrears (Published in the Diário Oficial do Estado on October 23, 2012) Responsibility: State Secretariat of Finance, Office of Attorney General of Sergipe Policy Area 2: Increasing access to better quality public services 2.a Health 2.a.1 Improve the Policy Action 4: The State Secretariat of Increase the number of maternity Quality of Maternal Health publishes an Amendment to the Public hospitals implementing the and Newborn Action Contract (Termo Aditivo ao Contrato de protocol for classification of Health Services for Ação Pública – TCAP), which includes the admissions by risk (Acolhimento High Risk priority maternal and newborn health program com Classificação de Risco – Pregnancies Rede Cegonha, integrating municipal actions ACCR) and services under the SUS-Sergipe (Published Baseline (Dec 2011): 1 in the Diário Oficial do Estado on April 25, Endline (Dec 2013): 3 (75 percent 2012) of maternity hospitals under state 17 The four reports are: (1) Asset Sales Control, (2) Collected Revenue Comparison, (3) Debt Amortization Comparison and (4) Construction/ Facilities/ Property Acquisitions for Use by the State Administration. 20 OBJECTIVES POLICY ACTIONS EXPECTED RESULTS management that were operating Policy Action 5: The annual regional plans, under normal conditions in 2013) 18 which include implementation of Rede Reduce the cesarean section rate at Cegonha, are approved by the State-and- the referral Maternity Hospital Municipal Committee (Colegiado Nossa Senhora de Lourdes Interfederativo Estadual – CIE) (Issuance of according to the guidelines in deliberations for the regions of Aracaju, Portaria No.3477/1998 Itabaiana, Estância, Nossa Senhora do Baseline (Dec 2011): 55.2 percent Socorro, Propriá, Lagarto and Nossa Senhora Endline (Dec 2013): 50.2 percent da Glória, May 24 to June 22, 2012). The strength of the action is further supported by the Ministry of Health’s validation of the plans through publication of a Portaria No. 3069 of December 27, 2012 (Published in the in the Diário Oficial da União on December 28, 2012) Responsibility: State Secretariat of Health, Ministry of Health 2.b Education 2.b.1 Improve Policy Action 6: The State of Sergipe issues Increase the number of school School Management Decree No. 29120 of March 6, 2013 directors selected by merit and in State-Run Schools implementing a new school management model with signed management based on use of result-based management agreements strategies and selection of school directors by Baseline (Dec 2011): zero merit and through a participatory/ democratic Target (Dec 2013): 151 school processes (Published in the Diário Oficial do directors selected and with signed Estado on March 8, 2013) management agreements (40 percent of 378 state schools) Responsibility: State Secretariat of Education 2.b.2 Improve Policy Action 7: The State of Sergipe issues Increase the number of learning results in Portaria No. 6146 of October 04, 2012 municipalities receiving technical municipal establishing the State-and-Municipal assistance from the State in the elementary schools collaboration to support implementation of the implementation of PNAIC Literacy at the Right Age Program (PNAIC) in Baseline (Dec 2011): zero municipal schools (Published in the Diário Target (Dec 2013): 38 Oficial do Estado on October 10, 2012) municipalities (50 percent of all municipalities in the State) Responsibility: State Secretariat of Education 18 One of the State’s five public maternities will be operating in temporary quarters while a new facility is under construction. 21 OBJECTIVES POLICY ACTIONS EXPECTED RESULTS Policy Area 3: Promoting Socioeconomic Development and Inclusive Growth 3.a Access to Market and Income Growth 3.a.1 Strengthen the Policy Action 8: The State of Sergipe issues Increase the number of trained Cattle Milk and Decree No. 28733 of August 27, 2012 small producer units included in Dairy Production organizing production to include family the Núcleos de Produção de Leite Cluster with Focus farmers into the Dairy Production Clusters and selling at least 90 percent of on Family (Núcleos de Produção de Leite), which are part their production to private and Agriculture of the Intensive Production System (Balde public/institutional markets 19 Cheio) that aims to improve quality by Baseline (Dec 2011): 3 providing sanitary certification of dairy Endline (Dec 2013): 30 products and genetic enhancement of the herd in the irrigated perimeter of Jabiberi (Published in the Diário Oficial do Estado on August 30, 2012) Responsibility: State Company for Water Resources and Irrigation 3.b Sustainable Agriculture and Productive Inclusion 3.b.1 Promote Use of Policy Action 9: The State of Sergipe enacts Increase the number of small Environmentally Law No. 7270 on November 17, 2011, creating producers included in the Program Sustainable the Program for Agroecological Production for for Agroecological Production and Agriculture inclusion of family farmers and establishing linked to the Social Control Practices – ‘Green instruments to give incentives for Organizations selling directly in Inclusive Growth’ environmentally sustainable production agroecological fairs and to private (Published in the Diário Oficial do Estado on and public/institutional markets24 November 23, 2011) Baseline (Dec 2011): 83 producers, 5 women Responsibility: State Company for Agriculture Endline (Dec 2013): 100 and Livestock Development producers, 15 women 3.b.2 Increase Policy Action 10: Certification 20 that Increase the number of seasonal Employment and participants from the State’s income transfer workers benefitting from the Income and generation program Mão Amiga are program Mão Amiga included in Opportunities for enrolled in the literacy program Sergipe the program Sergipe Alfabetizado the Most Vulnerable Alfabetizado (Certification dated August23, Baseline (Feb 2012): 0 People (Especially 2012) Endline (Dec 2013): 565 (or 50 Seasonal Orange percent), 1/8 of which are And Sugarcane Responsibility: State Secretariat of Social women Production Assistance and State Secretariat of Education Workers) 3.c Social Protection and Prevention of Gender-Based Violence 3.c.1 Strengthen the Policy Action 11: The State of Sergipe enacts Increase the number of families Social Assistance Law No. 7251 of October 31, 2011 (published with monthly per capita income of System (SUAS) – on November 7, 2011) establishing the detailed less than R$70.00/month living in Busca Ativa for resource transfer system to finance social the poorest 15 municipalities inclusion in the assistance in municipalities, and included in the CadÚnico CadÚnico institutionalizes co-financing agreements with Baseline (Jan 2012): 39,582 two municipalities (Published in the Diário families Oficial do Estado on November 7, 2011) Endline (Dec 2013): 41,561 families Responsibility: Secretariat of Social Assistance 19 Federal government programs for food acquisition: (i) Programa de Aquisição de Alimentos da Agricultura Familiar (PAA), created through the Federal Law No.10696/2003; and (ii) Programa Nacional de Alimentação Escolar (PNAE), created through the Federal Law No. 11947/2009. 20 A high-ranking officer in the Secretariat of Education, Secretariat of Social Assistance or related entity issues a certificate of approval attesting to accuracy of the list of participants. 22 OBJECTIVES POLICY ACTIONS EXPECTED RESULTS and Ministry of Social Development 3.c.2 Scale Up State Policy Action 12: Technical Cooperation Increase the number of women in and Municipal Agreement signed between the State and at situations of violence and Government least one municipality in each of the four (4) vulnerability attended in the Rede Support Programs regions with the highest concentration of de Atendimento à Mulher Vítima Aimed at Protecting gender-based violence (Sul Sergipano, Agreste, de Violência Women in Baixo São Francisco and Alto Sertão) for Baseline (Mar 2012):3,985 Situations of decentralizing women protection and support Endline (Dec 2013): 6,973 Violence and programs to the interior of the State, as Vulnerability required by the Cooperation Agreement of July 21, 2009 between the State and Federal Government (Agreements signed on October 9, 2012 for Poço Redondo municipality in Alto Sertão Sergipano, Propriá municipality in Baixo São Francisco and Itabaiana municipality in Agreste Sergipano; and on December 7, 2012 for Estância in Sul Sergipano) Responsibility: State Secretariat of Public Security and Special State Secretariat of Women B. POLICY AREAS Policy Area 1: Consolidating Fiscal Management and Public Sector Innovations Government’s policy objectives and challenges 61. The objective of the GoS is to achieve excellence in public management by promoting fiscal responsibility and innovations in public administration. Within this context, the actions taken by the State demonstrate a commitment to (i) improve responsiveness to citizens; (ii) implement new integrated tools for budget, financial and human resources management; and (iii) combat fiscal avoidance to ensure fair contributions to public expenditures. 62. Currently, processes for the services offered by the Government to citizens are not standardized. Though citizen services are delivered in a single space – the Citizen Service Centers (Centros de Atendimento ao Cidadão – CEACs) – the processes are not uniform. Information and services are delivered by different staff, depending on the nature of the activity, and according to different protocols. Lack of standardization, which jeopardizes service quality, is apparent not only in the CEACs but also in individual units of the State’s administration that offer services to citizens, such as the Department of Transit, the Secretariat of Public Security and the Secretariat of Finance, among others. 63. There is ample room for improving, both on the demand and supply sides, citizens’ experiences in accessing data, information and services offered by the Government. On the demand side, the current model does not satisfy citizens’ expectations; at present citizens need to fulfill different requirements for every service requested. Polls on the quality of CEAC services show dissatisfaction with service quality. On the supply side, staff and managers of the CEACs have identified problems and bottlenecks, including a 23 weakening of the network established with managers and representatives of partner government service agencies, a progressive reduction of human resources attached to the CEACs, obsolete or insufficient equipment, and lack of maintenance. Additional challenges to implementation of this policy include: (a) indifference or even resistance to the policy of standardization on the part of technical and administrative staff; (b) difficulties in disseminating the knowledge and practices needed to adopt the new paradigm among the staff operating the CEAC network; (c) a risk of discontinuity in the delivery of services while changes are implemented; and, (d) the existence of diverse information and communication technology systems, which hinder exchange of data and integration between the new and old systems. 64. Regarding implementation of integrated public management systems, there is strong demand from all sectors of the State’s public administration for more integration of data, information and procedures and for better managerial control. Currently the price database and systems for debt management, human resources, and purchases and assets management are isolated and do not have a relational data structure, making communication between them and control of processes difficult. These isolated systems also do not offer friendly interfaces to facilitate the production of managerial information. Additionally, the State Audit Agency (the Controladoria Geral do Estado) and Secretariats of Finance (SEFAZ) and Planning, Budget and Management (SEPLAG) lacked tools to produce information in real time. Responding to demands from the National Treasury and the State’s Court of Accounts (Tribunal de Contas do Estado) was fraught with operational difficulties. Further, the lack of systemic continuity in the databases produced incompatible historic information, requiring additional effort to connect data and interpret results across fiscal years. Finally, the former financial and accounting system, SAFIC (Sistema de Administração Financeira e Contábil), used a discontinued technological platform, from both the hard- and software perspective. With adoption of the new Integrated Fiscal Management Information System, i-Gesp, the different systems will be unified. The i-Gesp is an integrated management and information system that connects the State’s areas of planning, budgeting, finances, accounting and logistics. It provides tools to achieve higher quality public expenditure, and public resource management and control by simplifying, rationalizing and standardizing public management. The State will also be able to fulfill the Fiscal Responsibility Law requirement that state-owned enterprises (that previously had their own execution and accounting system) use i-Gesp. The single account, before managed by the Bank of the State of Sergipe, will now also be integrated in the i-Gesp system. 65. It is expected that implementation of an integrated system will reduce the working and financial costs associated with operating all of the system’s modules, and will offer standardized and more reliable procedures, reports and balance sheets. Specifically, it is expected that the average time to draft managerial reports and to close the annual balance sheet will be reduced. 66. However, implementation of an integrated system – which started in January 2011 with roll out of the modules for planning, budgeting, budgetary and financial control, public accounting, and arrears management – faces some challenges. The main ones are (i) adapting working processes, which were shaped over decades, to a new and complex tool; and (ii) integrating the new technological tools, business rules and functionalities within a short period of time. The most significant risks are staff resistance to a 24 different working system that will require additional effort from them to master new concepts and practices in a short period of time, and possible resistance from state-owned enterprises to the new system. 67. Regarding tax administration, there is clear demand from society and across sectors for more fiscal justice and transparency. There is awareness that all citizens and firms should comply with their fiscal duties and that compliance directly affects the State’s ability to mobilize the resources needed to improve public policies and the quality of services delivered to citizens. On the supply side, the GoS is strongly committed to fighting fiscal fraud and tax avoidance, not only to increase its resources but also to bolster the legitimacy of Government. To reach this objective, the Government aims to expand and improve tools and procedures to collect tax arrears, aiming to reduce the time between the generation and collection of tax arrears. Current gaps are substantial. In the administrative phase, it takes 616 days, on average, for installments to be paid and 189 for settlements to be made; in the judiciary phase, these terms reach 1,313 days for installments and 2,613 days for settlements. 68. Low rates of collection of tax arrears are a pervasive problem in Brazil at both the federal and state levels, and Sergipe is no exception. This situation is suboptimal because it turns payment procrastination into a credible strategy for companies, undermining voluntary and spontaneous payment by taxpayers. In order to curb such behavior, the Government of Sergipe has instituted a registry of unpaid government credits 21 (Cadastro Informativo dos Créditos Não Quitados com o Estado – CADIN) with sanctions for non- compliant tax payers. It has also promoted the inclusion of tax arrears in credit bureaus such as Serasa, the most expansive credit bureau outside the United States. The State has also integrated all government agencies and the judiciary in the tax arrears collection process, which allows the State to accompany tax arrears from their origin all the way to the judicial stage, when necessary. This is a completely new initiative in Brazil. Specific policy actions to be supported under the operation 69. To improve citizen services, a new system within CEACs is proposed that will combine the standardization of all processes and a ‘one-stop shop’ model. ‘One-stop shop’, defined as a model in which the citizen receives the diverse services s/he requires from a single public employee, is considered a best practice. Such a system will help to shorten the average time spent by citizens in obtaining the services delivered in the CEACs. Specifically, it is expected that the average time will be reduced by 30 percent, alleviating one of the main constraints to improving the quality of citizens’ attention services. The decree regulating the citizen’s attention policy will establish the standardization of processes and the ‘one-stop shop’ model as key elements of the new system. 70. As a complement to these two key measures, a Charter on the Citizens’ Attention Services will be drafted and approved. This Charter of Services will specify the basic rights of citizens as users of the State’s CEACs and provide other information about the services delivered by these units. This Charter is a key demand side tool, and it will complement the State’s policy of establishing a standardized and unified supply system by guaranteeing citizens the delivery of the ten most requested services. These services currently represent 21 Credits held by the government against another party. 25 more than 60 percent of the CEACs actions, and the Charter will specify the arrangements for the provision of every service and the time needed for their implementation. The Charter is an innovation at the state level in Brazil; the only similar experience is in the State of Acre, but there the attention services are outsourced and not delivered by state staff. 71. Regarding the modernization of key planning, budgetary, execution and control processes, the GoS is implementing i-Gesp, an information and communication technology solution specifically oriented to public management. i-Gesp provides more agility, flexibility, integration, control, transparency and quality than the former system, which was outdated in terms of technology and processes and did not allow for adoption of the International Public Sector Accounting Standards (IPSAS) that are to be adhered to by all Brazilian states by 2013. i-Gesp is a fully integrated system and includes modules covering all key management areas: (i) planning; (ii) budgeting; (iii) budgetary and financial control; (iv) public accounting; and (v) agreements management. It is a recently developed system that has been de facto implemented since January 2011 without any regulation. The Government intends for i-Gesp to serve as a Government Resource Planning system. As the system encompasses the entire cycle of administrative activity, regulation is needed to establish its compulsory use in the executive branch; this operation supports the adoption of this regulation. Through a decree that regulates a set of key rules about the main features i-Gesp, its objectives and components (modules), the Government intends to introduce transparency, dissemination of the content of the new system and legal certainty. The regulation will also include a schedule for implementation of the price database, debt management and the new Brazilian Regulation on Public Accounting in 2013; integration with human resources system and purchases system in 2014; and, integration with asset management in 2015. 72. Implementation of i-Gesp will present a variety of significant advantages and facilitate the use of recognized good practices. Regarding its advantages, implementation of i-Gesp implies better technical conditions for managing planning, budgeting, budgetary and financial execution, and accounting; better conditions for accomplishing legal duties with internal and external control bodies; and more technological flexibility to face future requirements, such as integration of other systems and design and implementation of new management modules. With respect to facilitating implementation of recognized good practices, i-Gesp allows for the adoption of the Accounting Plan model of the National Treasury, which aims to standardization of public accounting in all states; the implementation of a single Account Plan for the entire State administration, to be used by all the bodies and entities of the State’s executive branch; and the use of the concept of ‘conta corrente contábil’ that permits more detailed analyses of accounting operations. Finally, the i-Gesp system also entails use of the concept of financial programming as a management tool for budget execution; and the use of Management Coordination Units (Unidade Gestoras Coordenadoras) and Management Execution Units (Unidade Gestoras Executoras), which will improve management conditions for budgetary execution within the different budgetary units (secretariats, state-owned enterprises and other state public entities). 73. To combat tax evasion, the State will implement a virtual and integrated process for the collection of tax arrears. Virtualization means that all documents relating to the recovery of tax arrears are available to all parties (tax agents, state attorneys and judges) in electronic rather than physical. Further, by integrating all systems into a single workflow tool, it eliminates the need to request information through memos, thereby speeding up the process. 26 It also serves as an effective monitoring tool for the participants. This system will also provide for enforcement of CADIN and the inscription of debtors in Serasa, significant tools to recover tax arrears. Additionally – because the inclusion of a firm in the CADIN precludes them from being contracted by the public administration and inscription in Serasa could limit access to credit from banks – these are also important tools to increase voluntary payment of state taxes. Virtualization and integration of tax arrears recovery processes will facilitate interaction between the concerned bodies (SEFAZ, the Office of the Attorney General of Sergipe and the Judiciary), increasing the State’s ability to collect tax arrears. These processes will need to be regulated through a Decree in order to have legal status. In October 2011, CADIN and the inscription of debtors in Serasa were regulated by a Decree. Now, the Government is drafting a Decree to regulate virtualization and integration of the processes for debt recovery. It should be noted that this system is an innovation in the field of combating tax evasion at the state level in Brazil; only São Paulo has implemented a virtual process, but without integration of concerned bodies. Policy Area 2: Increasing Access to Better Quality Public Services Health Government’s policy objectives and challenges 74. Universal coverage of quality, client-centered healthcare is one of the primary objectives of the Government, though it recognizes it faces major challenges in this area. The strategy the GoS has outlined is to strengthen the Unified Health System (SUS) by, among other things: (i) adhering to the federal program Rede Cegonha in order to improve the quality of maternal and newborn health services; and (ii) strengthening integration between levels of care, including maternal and neonatal care network. From a gender perspective, this focus is justified because, while life expectancy at birth is higher for women (75 years) than for men (68 years), pregnancy-related deaths remain a significant risk. 75. Maternal and child mortality have improved significantly in Sergipe over the past decade. Nonetheless, state-level indicators – 66 maternal deaths per 100,000 live births and 31.4 infant deaths per 1,000 live births – are still higher than the national average, 58 and 22.5 respectively (Annex 7, IBGE 2010). The principal causes of maternal mortality in Sergipe, as elsewhere in Brazil, are preeclampsia (hypertension during pregnancy), eclampsia (a severe condition that causes seizures and bleeding) e postpartum infections. Also, the majority of infant deaths occur in the neonatal period and many could have been avoided with appropriate prenatal and delivery care. For instance, a recent analysis of newborn deaths in Sergipe identified that a disproportionate number were infected with congenital syphilis. Further analysis identified a number of bottlenecks in the delivery of appropriate prenatal care. Bottlenecks were occurring at each level of the care chain, as well as in the communication between levels; they included failure to administer diagnostic tests, delays of six weeks or more to obtain test results which were processed centrally, breakdowns in communicating results to the patient and, finally, delays in administering treatment to the pregnant woman and her partner. With regards to congenital syphilis, the State Secretariat of Health (SES) has since taken action to correct shortcomings at each level. 27 76. A more systemic approach, however, is needed to address the problem more broadly. The GoS identified that, in order to make gains in maternal and newborn health outcomes, it must enhance the quality of prenatal care services at the primary care level, improve referral to specialized care when needed and reduce the rate of unnecessary cesarean sections. The State Secretariat of Health (SES) estimates that in 2012 approximately 6,000 out of 40,000 pregnancies will be classified as high risk. Though 90 percent of pregnant women in the State have at least four prenatal care visits, less than 50 percent receive the recommended basic diagnostic tests for early detection of conditions or illnesses that can place either the mother or the fetus at risk. Even women who are identified as having a high risk pregnancy, there are failures in the referral system such that many women do not receive the specialized care they need at higher levels of the delivery network. Lack of integration in the service delivery network also means that there is discontinuity of care between pregnancy services (provided at the primary care level) and the delivery itself, which mostly takes place in hospitals in Brazil. Another contributing factor is that rates of cesarean section in Sergipe – which is in the 60-70 percent range in some maternity hospitals – are well beyond the 15 percent countrywide average recommended by the World Health Organization. 22 Associated risks of cesarean procedures, when compared to vaginal deliveries, include higher rates of maternal mortality, hemorrhaging and infection for the mother, as well as a greater probability of premature and low birth weight babies. Specific policy actions to be supported under the operation 77. The DPL will assist the Government to improve the quality of maternal and newborn health services, particularly for high risk pregnancies. The SES plan to achieve this objective by adhering to the Ministry of Health’s maternal and neonatal care program, Rede Cegonha, launched in 2011. Rede Cegonha is a strategy of the Ministry of Health, which stipulates a new model for mother and child assistance at birth and outlines improvements in the maternal and neonatal care network; its aim is to reduce maternal and neonatal mortality rates throughout the country, but particularly in lagging areas such as the Northeast. The program includes provisions for early identification of pregnant women, implementation of the protocol for classification of patients according to levels of risk (Acolhimento com Classificação de Risco – ACCR) throughout the maternal and newborn care network, including for prenatal services, delivery and post-delivery care; establishing formal links between the pregnant women and the referral facility where she will deliver, as well as the transport system in case of emergency; broadening of the scope of diagnostics offered at the primary and specialized care levels; and strengthening of the information management system across levels. The program calls for municipalities and the states, with support from the Federal Government, to develop regional action plans for implementation of these and other provisions. These plans – the Termo Aditivo ao Contrato de Ação Pública – define clear qualitative and quantitative targets, activities to be undertaken, roles and responsibilities, as well as the financial transfers from the federal to the municipal level that serve as incentives for implementation of the program. Further, the plans define how achievement of program results will be monitored and evaluated. The Ministry of Health will validate the plans and verify, on an annual basis, the achievement of results; verification will be done in collaboration with the National Council of State Health Secretaries (Conselho 22 World Health Organization (1985). Appropriate technology for birth. Lancet 326: 436-7. 28 Nacional de Secretários de Saúde – CONASS) and the National Council of Municipal Health Secretariats (Conselho Nacional de Secretarias Municipais de Saúde – CONASEMS). 78. Implementation of the Rede Cegonha strategy in Sergipe, with support from the Ministry of Health, is expected to bring about substantive changes that will contribute to improving the quality of service delivery. Some important changes relative to the way the system currently functions include: (i) the definition of clear indicators and targets for maternal and neonatal health; (ii) establishment of a management structure that brings together administrators and service providers from different levels of the delivery network to develop evidence-based work plans, grounded on situation analyses, that should define the services to be provided, as well as the allocation of recurrent expenditures and capital investments; (iii) availability of decentralized technical staff from the Ministry of Health who provide support in implementation of the program at the state level as well as in situ support to service providers; and (iv) creation of a forum for discussion and validation of plans with a broad group of stakeholders, including civil society representatives. Furthermore, the Termo Aditivo ao Contrato de Ação Pública creates a legal framework that defines and regulates roles and responsibilities of the three spheres of government (municipal, state and federal) regarding formulation of policies, organization of the health system and provision of services. Finally, federal participation is accompanied by financial resources, in addition to the aforementioned technical support. Education Government’s policy objectives and challenges 79. The objective of the GoS is to increase access and quality of public services delivery in statewide public education by: (i) strengthening school management in state- run schools, and (ii) improving learning results in municipal elementary schools. Sergipe’s performance in the education sector has been weak over the last decade. The illiteracy rate in the State has been improving but is still high with 17.0 percent of illiterate people age 10 or older in 2010 (Census, 2010), compared with the national rate of 9 percent. The average years of schooling of the adult population (25 years or more) is among the ten lowest in Brazil (6.3 years), though it is slightly higher than the Brazilian Northeast region average (6.0 years). The State’s net attendance rate for secondary education (37 percent) is lower than the Northeast region (40 percent) and Brazil (49 percent) averages. This outlines the challenge faced by Northeastern states, including Sergipe, for improving labor market skills to compete with the South and Southeast regions. Regarding the flow of students in the education system, the age-grade distortion for the upper grades of primary school is 46 percent and 52 percent for secondary education, while for Brazil it is 30 and 35 percent respectively. Enrollment and performance of females are higher than males in both primary and secondary education (promotion rates in the former are 76.5 percent for girls compared to 67.5 percent for boys; in the latter, they are 73.5 and 62.5 percent respectively). 80. Although Sergipe’s economic indicators are relatively good compared to those of the Northeast region as a whole, educational indicators highlight the urgent need to improve the quality of basic education. Since the national quality-driven basic education development index (�ndice de Desenvolvimento da Educação Básica – IDEB) was launched by the Ministry, Sergipe’s performance has improved slightly in the early grades of primary 29 education – moving from 3.0 in 2005 to 3.9 in 2011, a slight improvement over the Ministry`s projected target for the State in 2011 (3.8). However, it has stagnated in upper primary, remaining at 2.9 since 2005, well below the projected target of 3.3 for 2011. In secondary education, the State achieved 2.9, again below the Ministry`s target of 3.1 for that period; Sergipe remained as the 4th worst ranked state in the Northeast. This is a dire situation when we consider that member countries of the Organization for Development and Cooperation achieve 6.0 or higher on the IDEB scale. 81. Repetition and drop-out rates are also high. In secondary education, the repetition rate of 13.7 percent in 2011 was higher than the Northeast average of 10.4 percent. At this same education level, the dropout rate of 13.2 percent in 2011 was slightly higher than other Northeast states such as Piauí (11.5) and Bahia (12.5). Promotion rates in secondary and primary education, 73 and 76 percent respectively, were the lowest among the Northeast states. Table 4: IDEB for Sergipe’s State Schools, 2009 Fundamental education (grades 1 to 9) 1st to 4th grades 5th to 9th grades Secondary Education 2005 2007 2009 2011 2005 2007 2009 2011 2005 2007 2009 2011 Brazil 3.9 4.3 4.9 5.1 3.3 3.6 3.8 3.9 3.0 3.2 3.4 3.4 Northeast 2.9 3.3 3.7 3.9 2.6 2.8 3.0 3.1 2.7 2.8 3.1 3.0 Sergipe 3.0 3.4 3.7 3.9 2.9 2.9 2.7 2.9 2.8 2.6 2.9 2.9 82. As elsewhere in Brazil, Sergipe’s low performance in education is the reflection of poor coordination of policies and programs between the State and the municipalities. Lack of coordination and clear division of responsibilities between the State Secretariat of Education (SEED) and the 78 municipal secretariats of education make the administration of education unnecessarily inefficient in responding to the system's demands and challenges. Problems associated with the parallel systems create difficulties in optimizing resources, establishing accountability, and ensuring comparable standards and prerequisites in terms of inputs and outputs in the system. Furthermore, despite the strong policy supported by the Federal Government of municipalization of primary education in the Northeast States, Sergipe still has a significant number of state-operated schools offering early grades of primary education. 83. The State public education system faces various obstacles. They include: (i) insufficient coverage of basic education, mainly at the secondary level and vocational- technical programs; (ii) low learning outcomes; (iii) inefficient school management and lack of merit mechanisms for selecting school directors and technical staff; and (iv) low planning and monitoring and evaluation capacity. Specific policy actions to be supported under the operation 84. The Government understands that a more professional and participatory approach is needed in school management. Currently, school directors are politically appointed with little experience in management. Realizing that quality and efficiency improvements are also affected by school management and following the positive experience of several states in Brazil, the government will adopt a more decentralized model of school 30 management, giving greater autonomy to schools and providing incentives for them to become more accountable to the school community and to the state government. Moreover, the Government intends to institutionalize the education system’s management and monitoring of schools using the following instruments: establishment of management agreements to be signed between the SEED and the school directors; index for evaluating school performance, structured curriculum guidelines, establishment of School Councils, and strengthening of the Integrated Management School System (Sistema Escolar de Gestão Integrada – SIGA). 85. The DPL will assist the Government in promoting strengthening of school management and learning outcomes for public schools. As a prior action, a decree establishing a new management system for the state-run schools will be enacted by the Governor defining a merit-based and participatory/democratic selection process for school directors. Concretely, the main change that will result from this policy will be the replacement of politically appointed school directors by a two-step selection process. The first phase of the process involves a review of professional qualifications and a test on practical knowledge on school management (selection by merit). On the second phase, the candidates with the highest scores present a proposal to the school community, who then elects the director of their choice (participatory/democratic process). In the election phase, school directors will be elected by the school community, represented by teachers, students and parents in a participatory process that increases the interaction between the school and the community. Elected candidates are then nominated by the Government for a three-year period, renewable for another three years. A decree establishing this new management system for state-run schools will be enacted by the Governor. The new system will define a merit-based selection process for school directors, strengthen School Councils and ensure that selected sectors are legally and technically capable of managing school` s human, financial and technical resources. The desired outcomes of this DPL’s support for strengthening of school management is for the selection of school directors to be based on merit in 40 percent of the 378 state-operated schools, including signing of school management agreements, adoption of the evaluation guidelines and use of the SIGA. 86. The DPL will support the Government in improving coordination in the education system as a whole through institutionalization of new regime of collaboration between the state and municipal subsystems for the implementation of the Literacy at the Right Age Program (Programa Nacional de Alfabetização na Idade Certa – PNAIC). As a prior action, a legal administrative rule (Portaria) will be issued and published establishing guidelines for technical agreements between SEED and the municipal education systems for supporting, among other programs, the implementation of PNAIC. The desired outcome of the DPL’s support is to increase literacy rates of children in the first years of elementary education in municipal schools. Results of the program will be measured by the application of Provinha Brasil, which tests the literacy level of children, and by an external evaluation at the end of the 3er grade of schooling. 87. Under the new regime of collaboration between the state and the municipal subsystems, the SEED intends to implement PNAIC in state-run schools and to support its implementation in municipal schools. The PNAIC is an integrated program aimed at making children become literate in Portuguese and mathematics by the 3rd grade of elementary school. This national program intends to target all children of state and municipal 31 schools in rural and urban areas. The main characteristics of the program are (i) continuing education of literacy teachers through a series of activities, including training and use of materials for supporting teaching-learning activities for children who are in first to third grade, (ii) curricular guidelines, and (iii) permanent supervision and technical support to teachers working in the program. The management of the program is shared between the Federal Government, states and municipalities. SEED will be responsible for providing technical assistance and guidance to the municipalities participating in the PNAIC. This initiative intends to guarantee that all municipal schools achieve the objective of making children become literate at the right age, as measured by annual assessments and external evaluations of all students graduating from 3rd year. The program will also be monitored by the State Education Council, Municipal Education Councils and School Councils through meetings and visits. Policy Area 3: Promoting Socioeconomic Development and Inclusive Growth Access to Markets and Income Growth Government’s policy objectives and challenges 88. Sergipe is still largely an agricultural economy with about 30 percent of the population living in rural areas. While the share of agriculture in the State economy was only about 6 percent in 2008 (up from 4.6 percent in 2007), this figure vastly understates the dependence of the economy on agricultural productivity. Much of the rural economy is nonmonetary, and many activities in other sectors are essentially dependent on agriculture and susceptible to fluctuations in its output. Moreover, economic inclusion will depend increasingly on the expansion of commercial agriculture, especially in the Alto Sertão, one of the poorest regions in the State though, contradictorily, one of the most productive territories for corn and milk production (which increased 280 and 18 percent, respectively, between 2006 and 2009). Corn and milk production are essentially developed by the family farmers. 89. Though job creation in Sergipe during the past decade was slower than the Brazilian average, both in the Metropolitan Area and the interior of the State, during the 2007-2010 period the State saw the creation of over 54,000 new jobs (an increase of 98 percent). The proportion of non-registered workers in both areas declined between 1995 and 2011. However, the proportion in the interior is still above 50 percent in 2011, reflecting the greater challenge of informality in local markets. 90. Between 2007 and 2010, through the Program of Industrial Development, Sergipe has attracted 110 new industrial firms, a 56 percent increase compared to 2003-06 period. The positive trend in formal job creation has enabled Sergipe to sharply reduce its unemployment rate, with a continuous downward trend. Economic growth, access to credit and the fall in the unemployment rate, has contributed to a sharp reduction in the State’s poverty rate. 91. Sergipe has made progress in improving both economic and social indicators in recent years. However, though it has the largest GDP per capita in the Northeast Region, it 32 ranks 18th out of 27 Brazilian states. 23 Notwithstanding recent progress, the State faces significant challenges: poverty levels are still unacceptably high in Sergipe, with 15 percent of its population living below the regional extreme poverty line 24 and almost a third of these people (29 percent) living in the rural areas. It is evident that to sustain social inclusion gains and substantially reduce current poverty levels, more rapid and inclusive economic growth will be required. Table 5: Sergipe’s GDP per Capita in Relation to Other States GDP per capita ranking GDP per capita States - Northeast Region among Northeast states ranking nationwide Sergipe 1 18 Bahia 2 19 Pernambuco 3 20 Rio Grande do Norte 4 22 Ceará 5 23 Paraíba 6 24 Alagoas 7 25 Piauí 8 26 Maranhão 9 27 Source: IBGE 2010 Specific policy actions to be supported under the operation 92. The DPL will support the Government in improving policies and institutional mechanisms to promote socioeconomic development and inclusive growth in the interior of the State, especially in rural areas. This is expected to bring positive social and economic gains to the poor and the most vulnerable social groups. Key stakeholder meetings have stressed the cause-and-effect relationship between socially and environmentally sustainable rural development and policy reforms based on the integration of: (i) technical assistance targeted to small and medium-size producers and traditional communities, (ii) productive inclusion programs, and (iii) social protection policies as proposed by this operation. The combination of these complementary reforms is expected to bring positive social, economic and environmental impacts for poor rural families and promote use of green technologies for agricultural practices in Sergipe. It is expected that institutional policy reform together with socioeconomic and inclusive growth policies will positively contribute to reduce poverty and improve sustainable practices in fragile ecosystems. This will likely also contribute to improving the link between large producers and small family farmers, thus helping overcome social instability in rural areas. 93. The DPL will support expansion in access to markets and income growth through strengthening of the main clusters for family agriculture, including the dairy production clusters (Núcleos de Produção de Leite). The State will provide support to rural producers through seed capital, technical assistance and rural extension across selected producer chains, with the aim of enabling greater market participation, particularly in institutional niches such as the National School Feeding Program (Programa Nacional de Alimentação Escolar – 23 Source IBGE, 2010 24 “Extreme poverty line� is defined by the Brazilian Government as less BRL70/month. 33 PNAE), as well as private markets. The desired outcomes that will be reached through improved technical assistance and training courses include: an increase in the number of small producers included in the dairy production cluster and selling 90 percent of their production to private and public markets. Sustainable Agriculture and Productive Inclusion Government’s policy objectives and challenges 94. In the Northeast, drought, poor soils, water scarcity and unequal distribution of land and income are major contributors to poverty, vulnerability and social exclusion, which are most striking in rural areas. Since 1993, the state governments in the region have sought to break this vicious cycle through investments in several generations of community-led rural development operations region-wide. Complementing these programs, two decades of large-scale, pro-poor federal programs and sound macro-economic policies have promoted rapid, generalized economic growth, and lowered poverty rates including in the rural Northeast and in Sergipe. However, it remains a challenge to provide poor rural families with sustainable productive alternatives and promote social and economic inclusion. Specific policy actions to be supported under the operation 95. The DPL will support policies that combine productive inclusion and affirmative action to promote the sustainable use of rural landscapes. These policies contribute to reducing the burden of poverty by attenuating the environmental constraints that worsen the life of poor people in the Caatinga biome. Further, by reducing the use of chemicals, sustainable agricultural practices and technologies lessen the costs for family farmers and facilitate compliance with the agroecological requirements on agriculture activities. The policies also encourage producers to introduce new and more environmentally sound technologies in their productive systems, reducing their environmental footprint. Often, small family farmers are the main threat to the biome because they are settled in the most fragile lands, rely on more rudimentary productive systems (slash-and-burn agriculture), and lack knowledge and resources to promote soil conservation. Intensive land use and deforestation of Caatinga, as well as excessive use of pesticides, are the main factors for environmental degradation, erosion, silting of water courses, and contamination of springs. 96. Environmental awareness is also a key factor in enhancing the sense of collective responsibility, the feeling of belonging to a community, and the affective ties to a rural landscape. These ingredients contribute to building the social cohesion needed for effective management of common resources. Promotion of environmentally sustainable development in this region is expected to bring positive impacts for the health and well-being of the State population in general. Adoption of sustainable technologies will contribute to: (i) natural resources management (especially, optimizing water uses and increasing water efficiency) in the target area; and (ii) scale-up of this methodology and approach to other rural areas. The Government has prepared frameworks, based on the Program for Agroecological Production, which set out basic principles in each of these areas; these frameworks have been made available to the population through a dissemination process. During project preparation, assessments were carried out on the overall management capacity for social and environmental issues. The Government, who already had a relatively strong capacity to 34 implement and coordinate policy actions in these areas, is also supporting further strengthening of State systems. The existence of the present policies and frameworks should ensure satisfactory compliance under the proposed operation. 97. Women are the main promoters of conservation practices in family agriculture. They also more frequently accept sustainable practices. Therefore, it is important to include women in technical assistance services and training courses that introduce new methodologies and support productive activities. Evidence from around the world suggests that societies that promote more equal opportunities for men and women have higher growth, lower poverty, and better development outcomes. Yet, across the globe, women cannot participate on par with men in many aspects of societal life when they do not have a say in the decisions that affect their lives, cannot claim fair political representation, do not have fair access to education, face discrimination in employment, are denied entitlement to land and property, or suffer violence within their own home. 98. The DPL will support sustainable agriculture and productive inclusion. It will: (i) promote use of environmentally sustainable agriculture practices – ‘green inclusive growth;’ 25 (ii) promote women inclusion in productive activities through their productive organizations; and (iii) increase employment and income opportunities for the most vulnerable people (especially seasonal orange and sugarcane production workers). The expected result are that at least fifty percent of seasonal workers from the State’s Mão Amiga program will be included in the literacy program Sergipe Alfabetizado, and that at least sixty percent of the workers will participate in the State’s qualification training courses for inclusion in formal markets/enterprises. Moreover, this program recognizes that sustained growth is necessary to achieve the urgent development needs of the State's poor and that there is substantial scope for growing cleaner without growing slower. Social Protection and Prevention of Gender-Based Violence Government’s policy objectives and challenges 99. The Government recognizes that strengthening management of social protection services and increasing the supply of services to the poor are central to eradicating extreme poverty. To deal with these challenges the Government developed Sergipe Mais Justo, a plan to eradicate extreme poverty in the State. This plan brings together several actions, including health, education, housing, agriculture, access to potable water, environment, economic and social inclusion, among others. Therefore, it has designed a set of measures that builds upon the framework defined by the Federal Government for the national poverty alleviation program Brasil Sem Miséria and aims to reduce population inequality by strengthening the coordination amongst programs for income transfer and productive inclusion, and by increasing access to public services. These measures seek to improve the provision of services through co-financing of social services provided by the municipalities and improvement in the identification of poor families entitled to receive assistance from 25 Green inclusive growth is the pathway to sustainable development. A variety of market, policy, and institutional failures mean that natural capital tends to be used in ways that are economically inefficient and wasteful, without sufficient reckoning of the true social costs of resource depletion and without adequate reinvestment in other forms of wealth. These failures threaten the long-term sustainability of growth and progress made on social welfare. 35 federal, state and municipal social programs. One of the main challenges of Sergipe Mais Justo is to find and include the most vulnerable and poorest people in the Cadastro Único para Programas Sociais do Governo Federal – CadÚnico, an instrument to identify and classify low income families. To date, CadÚnico has been used almost exclusively as a registry for the beneficiaries of the cash transfer program Bolsa Família. The intent now is to broaden the role of the instrument by using it as a registry for all social programs, to identify and classify poor individuals and households in all Brazilian municipalities. The “active search� (Busca Ativa), which aims to identify and include this broader range of beneficiaries in the CadÚnico, will be implemented through agreements between the state government and municipalities. 100. The sustainable livelihoods approach may be used as a basis for exploring livelihood issues from a gender perspective. Differences between women and men, between households headed by women and those headed by men, and between women heading households and women not heading households are reflected in their asset base, livelihood strategies, vulnerabilities and outcomes. 101. Gender roles and responsibilities refer to culturally-based expectations of the roles, responsibilities and behaviors of women and men. The term distinguishes the socially constructed from the biologically determined aspects of being male and female. Changes in gender roles often occur in response to changing economic, natural or political circumstances, including development efforts. Women and men play multiple roles in society: productive, household or reproductive, and community. Men tend to focus on productive and community roles, and tend to fulfill their multiple roles sequentially. Women, in contrast, often undertake all three roles simultaneously and have to balance the competing claims on their time. 102. Gender analysis should be mainstreamed into livelihoods analysis and thereby represents another principal cornerstone of policy development. Gender analysis should also be an integral part of program implementation and activities to monitor progress and assess program impact. Specific policy actions to be supported under the operation 103. The DPL will support social protection and prevention of gender-based violence. Specifically, it will: (i) strengthen the Social Assistance System (Sistema Único de Assistência Social – SUAS) by including it in the CadÚnico and co-financing it in at least twenty percent of all municipalities; and (ii) scale up state and municipal government support to promote protection of women threatened by violence and vulnerability by increasing by 50 percent the number of women attended by the Women Protection and Support Program through the Rede de Atendimento à Mulher Vítima de Violência. VI. OPERATION IMPLEMENTATION A. POVERTY AND SOCIAL IMPACTS 104. The policy actions supported by this operation are expected to have a positive overall impact on poverty and social inequalities as they address key constraints to 36 socially inclusive growth and reinforce democratic processes of public governance in Sergipe. The operation will support policy changes that: (i) modernize State management, improve the quality of citizen services, and increase State revenues by improving fiscal efficiency; (ii) improve access and quality of basic public services in health and education that mostly benefiting poor women and children; (iii) promote access to market and income growth for family farmers, which are overrepresented among the most deprived population of the State and include traditional communities and indigenous peoples; 26 and, (iv) promote social inclusion by tailoring social assistance to reach the most vulnerable social groups and strengthen programs for preventing and deterring gender-based violence. The assessment of the potential distributive effects of these policy changes on society and poverty relied on an analysis of secondary data, interviews and focus groups consultations with key stakeholders. 27 105. An analysis of the baseline context was carried out. This analysis reveals that: (a) social conditions in Sergipe are worse than national averages; (b) poverty and extreme poverty are more intense in rural areas – the extreme poor account for 28.9 percent of the population living in rural areas compared to 10.1 percent of the urban population – due to land concentration, low productivity, and poor access to monetary incomes and loans by small family farmers); (c) poverty is strongly determined by race, gender, education and age; and, (d) the deterrence of gender-based violence is a rising concern in the State. 28 In this scenario, the combined social and economic impacts of the policies supported by this operation are expected to be positive for the most vulnerable population. 106. Productive and social inclusion policies address key determinants of rural poverty in the State of Sergipe and may positively contribute to improve the livelihood and quality of life of the rural poor. Available data and stakeholder consultation indicated that there is a positive causal chain between supporting milk production and reducing the vulnerability of small family farmers. Milk production is a core activity and reliable source of 26 The Xokó people – who comprise a population of 400 people – are the only indigenous group in Sergipe. They inhabit the Caiçara/Ilha de São Pedro Indigenous Land (4,317 hectares). Their livelihood is analogous to poor rural and riverine people, combining subsistence agriculture, livestock breeding, ranching and fishery. In the State, 21 rural communities and one urban community have been certified by the Palmares Foundation as quilombolas. Just one has received its land title from INCRA (Instituto Nacional de Colonização e Reforma Agrária). 27 These interviews were carried on during the months of February and April 2012. They included representatives from civil society organizations at the State Council of Health and representatives of family health teams from the municipalities of Estância and Nossa Senhora do Socorro; the State federations of rural workers (FETASE) and rural producers (FAESE); the State federations of industry (FIES) and commerce (FECOMERCIO); the State Council of Education, the State union of teachers (SINTESE), teachers and directors of three state schools (Escola Estadual 24 de Outubro e Colégio Estadual Costa e Silva, municipality of Aracaju, and Colégio Estadual Edélzio Vieira de Mello, municipality of Capela); quilombola organizations and communities; representatives of Rural Workers Unions from the municipalities of Boquim, Pacatuba and Capela, where orange and sugar cane are the main crops, and beneficiaries of the State`s Mão Amiga program; milk producers engaged in the State`s program Balde Cheio (Assentamento Jabiberi, in the municipality of Tobias Barreto) and two organizations of organic farmers from the municipalities of Areia Branca and Itabaiana; community based associations from poor neighborhoods in Aracaju (Confederação Nacional de Moradores e Entidades Comunitárias do Brasil, Federação das Associações de Moradores de Aracaju e Cooperativa dos Agentes Autônomos de Reciclagem de Aracaju); representatives of civil society at the State Council of Social Assistance and three women organizations (Federação das Mulheres de Sergipe, Conselho Estadual de Defesa dos Direitos da Mulher, and Grupo de Mulheres Negras Maria do Egito). 28 A full version of the Poverty and Social Impact Analysis, containing a deeper analysis of the baseline conditions is presented at Annex 7. 37 monetary income for small family farmers. Nowadays, however, they face some key constraints in increasing their productivity and production, improving their herds and the sanitation conditions of milk production, and in gaining access to new and more formal markets. Interviews with producers who already benefitted from the policies to strengthen the milk production chain, which will be supported by this operation, show positive impacts of these policies in earnings, labor conditions, health and living standards. These producers are now able to properly feed throughout the year three times as many cows as they had been able to before benefiting from these policies. Daily milk production has grown up to ten times, their workload has been reduced, and their health has improved as they shifted from productive system heavily reliant on agrochemicals to an agroecological system. Earlier they had to work outside their plots, earning small gains; now many of them hire laborers on a continuous basis to work on their plots. A key constraint to scaling up of this policy is the high illiteracy and/or functional illiteracy rate of older producers given that Balde Cheio program requires rigorous control of activities and, therefore, literacy skills. In its pilot area, this constraint has been overcome through the engagement of younger family members in recording information. 107. Policies supporting agroecological agriculture may also have positive impacts on income and health conditions of family farmers, though they reach a more restrict group of rural producers. Agroecological production is highly labor intensive, placing additional demands on workers. At the same time, however, by not relying on agrochemicals, pesticides, or fertilizers, its products may reduce health risks for producers, as well as consumers. While the costs and productivity rates of agroecological products are comparable to conventional production; its market is expanding and its market has a considerable margin over that of conventional production. Additionally, agroecological producers benefit from higher subsidies when they sell their production to institutional markets. As a consequence, the overall profitability rate is highly competitive. However, the need to rest lands for a two years period prior to obtaining certification as an organic producer, as well as the lack of technical assistance, have restricted the scaling up and impact of this policy. The policy supported by this operation will increase technical assistance and is expected to bring positive returns to agroecological producers. 108. Policy reforms related to social inclusion will directly and positively benefit some of the most vulnerable parcels of the rural population – namely, orange pickers and sugarcane cutters – through seasonal cash transfers. Orange pickers and sugarcane cutters are among the most deprived poor family farmers; they ordinarily lack access to land, work under precarious labor conditions and face seasonal unemployment. The socioeconomic profile of the 2011 beneficiaries of the State`s Mão Amiga program shows that illiteracy and poverty rates among these groups are still worse than the average among rural people. Illiteracy hampers life opportunities for 15 percent of the orange pickers and 21 percent of the sugarcane cutters. Poverty and extreme poverty rates among sugarcane cutters reach, respectively, 42 and 7 percent and 19 and 72 percent among the orange pickers. The majority of these families (76 percent) are eligible for the federal Bolsa Família cash transfer program and 65 percent of them are actually enrolled in the program. In 2011, Mão Amiga has benefited 7,673 families of sugarcane cutters and orange pickers (36 and 64 percent of the total, respectively) in 29 municipalities, reducing the burden of seasonal unemployment through cash transfers. The prevalence and permanence of poverty among these two social groups is due to factors that are both chronic and transient (essentially seasonal 38 unemployment). 29 The State cash transfer program is expected to have positive impacts on poverty reduction because cyclical deprivation of income is a condition that postpones or dilutes the potential impact of policies that are designed to improve the capabilities of poor people (such public programs for education or health). The cash transfer program is also expected to have greater positive impact upon the younger generation of orange pickers and sugarcane cutters, who can benefit the most from human capital building activities such as literacy classes and job training and, consequently, have improved access to better paid jobs. 30 However, there is a consensual concern among key stakeholders that Mão Amiga will have to make an effort to address the gap between job training classes offered and skills demanded by regional job markets in order to have better outcomes in terms of opening access to more formalized labor markets for its beneficiaries and to achieve more sustainable impacts on their labor, income and living standards. 109. Social inclusion policies will also contribute to expand social welfare by reaching out to the most deprived people and making social policies accessible to them. Stakeholders have expressed their strong support for the State’s efforts to deal with poverty as a multidimensional phenomenon and for reaching out to the extremely poor and, oftentimes, “invisible� families who have historically “fallen through the cracks� of the social services network and live in a situation of self-perpetuating poverty that worsens with each subsequent generation. In general, these families remain unseen, unheard, and unattended though they present higher than average rates of teen pregnancy and premature births, malnutrition, chronic diseases, and mortality among children; negligence and violence against children and women; out-of-school children and child labor; drug and alcohol addiction; poor housing conditions and low levels of formal education of the mothers. Stakeholders agreed the main failures to reach these families lie at the municipal level and relate to poor dissemination and understanding of state policies, political interference on the selection of human resources and beneficiaries, precarious labor conditions and high rotation of social workers, as well as poor social control. The policies supported by this operation will address these problems by co- financing the Social Assistance System (SUAS) in at least 20 percent of all municipalities. It is expected that extremely poor families will benefit the most from access to social services that have the potential of translating into greater human capital endowments, new job opportunities, and enhancement of family assets. 110. Social inclusion and health policies will also have a positive impact on gender issues and are expected to benefit mostly the poor women and their children. There is a 29 Chronic poverty is most commonly associated with lack of human capital, the demographic composition of households, location of residence, lack of ownership of physical assets, and low-paid labor. Distinctively, family size, government transfers, seasonality of economic activities, migration and life cycle events are key contributing factors to transient poverty. 30 Race, schooling, informal labor, gender, and residence in the Northeast region of Brazil are the features that mostly determine the permanence of poverty and the downward mobility of adults in Brazilian urban areas. Most poor (73 percent) are subject to poverty mainly because of their past persistent state of poverty against which short-term interventions in the labor market and monetary transfers alone are not effective because they do not alter the adverse characteristics of individuals and households (such as lack of education or assets). Nevertheless, policies of cash transfer, which are needed to extricate households from poverty during a certain period, may also help reducing the future chances of these same families falling back into poverty if persistence in poverty derives from the extent to which current poverty depends upon the past state of poverty. Consequently, more effective anti-poverty policies should combine a systematic multi-sector approach that seeks to improve human capital and the access to quality public services with an extensive policy of income redistribution. (Ribas and Machado: 2007 and 2008). 39 consensual view among women organizations that the proposed measures to strengthen the State`s ability to prevent and deter gender-based violence are greatly needed and beneficial. In their view, however, there is also a need for these policies to be supported by better dissemination of the sentences paid by violent men and educational measures to change gender-based cultural rules and behavior. Health policies supported by the operation respond to key concerns identified by the main stakeholders (users, workers and providers of health services) with regards to children and maternal health. By aiming to reduce the incidence of maternal and newborn mortality rates, as well as early and risky pregnancies, they may benefit the poor most given that they rely heavily on the public health system. 111. Finally, poor people will benefit the most from policies that increase the access and improve the quality of public education. Interviews carried on with key stakeholders on the education sector revealed large divergences. However, they have also suggested common ground. They agree on Sergipe`s poor performance in key educational indicators – low learning outcomes, high repetition and drop-out rates, and high number of youngsters out of school – and on the need to improve the quality of teaching and learning in public schools. They share a critical view of political interferences in school management, which results in inefficiency and poor quality of educational service delivery. Finally, they prize actions aimed at increasing community participation in the decision making processes at the school level. Policies supported by this operation address the issues related to political interference, community participation and quality of learning in public schools. It is expected that these policies will benefit poor children and youth the most given that they are the main users of municipal and state schools in Sergipe – as elsewhere in Brazil. Considering the strong and positive correlation between education, better job opportunities and income, it is also expected that these policies will positively contribute to breaking the vicious cycle of reproduction of poverty, opening new and better life opportunities for children and youth from the bottom half of Sergipe`s society. B. ENVIRONMENTAL ASPECTS 31 112. Sergipe has a solid legislative framework in place that allows it to comply with its environmental obligations. This legal structure has been strengthened over the last five years with a special emphasis on licensing and environmental compliance. Since 2007 several strategies have been pursued that have improved the State’s performance in such critical areas as water resource management, environmental licensing and other control and supervision activities. The State environmental agenda has also been expanded. 113. However, some components of the State environmental agenda require revisions of the legal-institutional framework. Recent changes in federal regulatory frameworks require that some State policies be updated; for example, the solid waste policy needs to be brought up to the new standards established in the National Solid Waste Law. State water resource management requires institutional strengthening in order to continue implementing the current model. Progress in some cutting edge State environmental policies needs to be consolidated. For instance, the climate change policy needs to be instituted. The Government already has a strategy for its implementation. 31 This section is based on an Environmental Assessment (Neves 2012) with an extensive bibliography review and a full listing of pertinent legislation. 40 114. The State has significant resources and installed capacity for environmental protection, with a broad agenda of environmental responsibilities. Organizational resources of the State environmental management system have been strengthened, which has supported the expansion of activities and a large increase in spending capacity. Fund raising for environmental management through the granting of licenses and permits has also grown as reflected in the performance of the State Environmental Administration (ADEMA) activities and those of the Bureau of Water Resources (SRH) and the State Environmental and Water Resources Secretariat (SEMARH) in organizing the State water management system. 115. Despite this positive outlook, ability of the State Environmental Administration to fund its operating expenses is decreasing. Considering the government’s agenda and institutional responsibilities, resources and installed capacities at the state level are insufficient to meet all demands. The importance given to the environment is still very low, which is reflected in the minimal share of the environment in State spending and in the condition of saturation of the responsible technical body. The technical staff of the State Environmental and Water Resources Secretariat and the State Environmental Administration are overwhelmed with the volume of work represented by the routine formulation, implementation, monitoring and evaluation and compliance of environmental projects. As an illustration, in 2011, each technical staff produced 22 administrative acts. 116. Environmental management capacity at the municipal level is still precarious despite improvements over the last few years. State managers have been supporting strengthening of local capacity as there is a State wide decentralization effort underway. To date, only one municipality is fully ready to exercise its environmental mandate. Therefore, the State recognizes the need to continue supporting local governments in the short to medium term. 117. The environmental impact assessment of policy actions supported by the DPL shows that the program results in both beneficial and adverse impacts on environmental quality. The State has institutional capacity for environmental management and protection. The weakest aspects of available capacity and resources relate to operational limitations and consistent staffing. The overall environmental impact of the DPL can be positive, if the potential beneficial actions are expanded and strategies to neutralize the likely adverse impacts are adopted. These strategies should have two foci, namely, an increase in the operational capacity of the environmental governance system and regularization of pending institutional issues. 118. The strategic vision and plans of the State favor policy decentralization and deconcentration, with active participation of municipalities in accordance with the cooperative characteristics of Brazilian federalism. Within the context of the DPL, health care is promoted under cooperative and decentralized actions. However, the current state of environmental capacities at the municipal level indicates that, even if State efforts to promote institutional strengthening of municipalities are intensified, the concentration of responsibilities at the state level will be a decisive trait of environmental institutions in Sergipe in the short to medium term. 41 119. The activities highlighted in the Carta Consulta indicate that implementation of some public policies that will potentially be supported by this operation may have adverse environmental impacts. The particular areas identified as presenting potential risks are: (i) health sector – the operation might support policies for improving coverage and quality of public services (R$300 million has been allocated to the sector to cover infrastructure and services delivery); (ii) educational sector – there are plans to increase supply of capacity building and professional training, which includes renovation of existing schools and construction of 12 new schools; and (iii) in the inclusive development area there are several activities in the private sector that could have environmental impacts – however, under the current design of the Program these impacts are considered to be minor. C. IMPLEMENTATION, MONITORING AND EVALUATION 120. This is a multi-sector operation covering three policy areas: (1) fiscal and public sector management; (2) public services in health and education; and (3) socio-economic development, including agriculture, social protection, and gender. Given its nature, the operation would be implemented by seven different State secretariats, namely the Secretariat of Planning, Budget and Management of the State of Sergipe (SEPLAG), the Secretariat of Finance (SEFAZ), the Secretariat of Health (SES), the Secretariat of Education (SEED), the Secretariat of Agriculture and Rural Development (SEAGRI), the Special Secretariat of Women (SEPM), and the Secretariat of Inclusion, Protection, and Social Development (SEIDES). These secretariats will monitor implementation and outcomes in their respective technical areas, while SEPLAG would also have a coordination role. 121. The preparation of this operation is being led by SEPLAG. This Secretariat will be in charge of the overall DPL’s coordination, monitoring, and evaluation, and, as such, it will be the World Bank’s main interlocutor also during implementation. As the formal coordinator, it will compile all operation-related information furnished by the other participating secretariats and produce the required documents. In this regard, two tasks are expected: (i) providing evidence, in a timely manner and in a format satisfactory to the World Bank, to meet the conditions of the single-tranche requirements, and (ii) facilitating the timely completion of the activities required to meet those conditions. 122. SEPLAG will also be responsible for the implementation of the expected reforms under Policy Area 1. Specifically, SEPLAG will be in charge of actions aimed at increasing the quality of services for citizens by the development of standardized processes and procedures. In addition, SEPLAG will work with SEFAZ to implement activities aimed at modernizing key processes of planning, budgeting, and control functions through revision of processes and establishment of a new information system. 123. SEFAZ will be responsible for fiscal consolidation, and reforms associated with better use of state assets, as well as an increase of State revenues and decrease of tax evasion, all covered under Policy Area 1. To this end, SEFAZ will work closely with the Office of the Attorney General of Sergipe, and the Judiciary power to improve tools and procedures, including the ones associated with electronic information. 124. SES and SEED will oversee implementation of Policy Area 2, covering the education and health sectors respectively. SES is in charge of implementing health-related 42 policies, which would cover high risk pregnancy and newborn care services. This will be done through the establishment of regional health networks amongst municipalities within the State of Sergipe and their adhesion to the Rede Cegonha Program (the federal maternal and child health program). Municipalities’ participation would also require Ministry of Health approval and disclosure of the regional plans. On the other hand, SEED would oversee implementation of reforms to improve access, quality and efficiency of basic education, mainly through improvement of the State’s schools management model and support to the Ministry of Education’s Literacy at Right Age Program (Programa Nacional de Alfabetização na Idade Certa – PNAIC), which would require strengthening of decentralization and agreements between the State and participating municipalities. 125. Finally, Policy Area 3 will be implemented by SEAGRI, SEIDES, and SEPM. These secretariats will, respectively, support reforms in the areas of agriculture (dairy production chain, seeds’ and tuberous’ supply, and ‘Inclusive Green Growth’); employment and income opportunities; and gender inclusion and protection of vulnerable women. Such policies and reforms would be implemented through support to training; access to markets; participation in the literacy program; fund to fund transfers to finance identification and registration of the most vulnerable – Busca Ativa , as well as their inclusion in social protection programs; and, strengthening the protection network for women in situation of violence. These activities would also receive support from other institutions such as Company for Development of Water Resources and Irrigation (Companhia de Desenvolvimento de Recursos Hídricos e Irrigação – COHIDRO), and Company for Development of Agriculture (Empresa de Desenvolvimento Agropecuário – EMDAGRO). D. FIDUCIARY ASPECTS Public Financial Management 126. The constitution of the Federative Republic of Brazil underpins the management of public finances at all levels of government throughout the country. More detailed requirements and guidelines relating to Public Financial Management (PFM) procedures to be adopted at all levels of government are contained in a well-developed legal framework. This framework was developed through the introduction of a number of legal and institutional reforms that were introduced over a several years to help strengthen accountability and transparency in the management of public finances in Brazil. A public accountability law (Lei 4320 of 1964) regulates financial controls, budgeting and reporting at the federal, state and municipal levels. The Law of Fiscal Responsibility (LRF) of 2000 established particular requirements for macroeconomic and fiscal discipline that define many aspects of the PFM environment. The context in which these laws are implemented is provided by the increased demand for accountability for the use of public resources and various initiatives introduced at many levels of government aimed at increasing the efficiency of public expenditure. 127. Sergipe’s PFM system features strong internal rules and controls. There is a clear definition of responsibilities and institutional arrangements for the management of public finances. The GoS commitment to a strong PFM system is evidenced in its development strategy, which recognizes transparency, accountability and the increased efficiency of public expenditures as key elements necessary to ensure equitable economic growth in the State. 43 128. The budget classification system is governed by federal rules that are consistent with international standards. These rules also lay down specific requirements relating to the inclusion of comprehensive information in budget documents. The budget preparation process is orderly and is designed in such a way as to promote participation by all key stakeholders and sector agencies. The process is guided by well-defined budget preparation procedures and a calendar that establishes the proper sequencing of activities to allow sufficient time for them to be undertaken. The State has consistently met deadlines for the preparation of key budget documents and for submitting them to the legislature for consideration and approval. These documents include the Multiyear Participatory Plan (Plano Pluriannual Participativo – PPA- P), the Budget Guidelines Law (Lei de Diretrizes Orçamentárias), and the Annual Budget Law (Lei Orçamentária Anual). The State government is committed to improving the medium-term outlook in its planning and budgeting process. 129. However, some weaknesses still exist in the PFM environment of the State. To address these, the GoS has undertaken a number of reforms to enhance efficiency, transparency and accountability in the use of public funds. These reforms have been aimed at strengthening linkages between strategic planning and the budget preparation process, increasing capacity for accounting and internal audit functions and upgrading its information systems. 130. Brazil has established a timetable for the adoption of international public sector accounting standards (IPSAS) in all federal entities by 2013. The adoption of IPSAS is intended to improve the quality and relevance of financial information available for decision making by public sector managers. This would enhance transparency and accountability in the management of public resources while supporting the State’s objective of enhancing efficiency in the management of these resources. The GoS is undertaking a number of reforms to prepare for implementation of the new accounting requirements. For instance, it established a steering committee to coordinate activities in this area. It has also embarked on a program of sensitization of all its officials on the management changes that will be necessary. The preparation also includes a training program to ensure that public officials have the skills and knowledge required to implement the new accounting requirements. 131. There is a high level of transparency with respect to financial information in Brazil. This is made possible through the use of the internet and other public media channels to disseminate information on plans and budgets, as well as regular financial reports and annual financial statements. The State has consistently been able to prepare its financial statements within the stipulated time. The relevant laws are quite clear on the obligations regarding preparation of these financial statements. The government is committed to ensuring that the quantity, quality, and format of this information are such that they enable a broad participation in budget preparation and monitoring of the execution processes. 132. The State has accorded a high priority to implementation of a new Integrated Financial Management Information System, i-Gesp, a software that was procured under an agreement with the State of Pernambuco. The aim is to upgrade Sergipe’s information systems to enable the automatic generation of in-year budget reports and to reduce the risk of data inaccuracies in the classification and recording of data. The upgrade will also enhance effective integration of the accounting systems, while supporting the introduction and adoption of the new accounting rules and regulations. 44 133. The internal audit function is carried out by the Controladoria Geral do Estado, which enjoys sufficient autonomy. The department has sufficient access to other government departments to enable it to undertake its audits. Its recommendations are generally implemented, partly as a result of its close collaboration with the State audit institution (see below). The Controladoria Geral do Estado intends to modernize its audit methodology and enhance the capacity of its staffing resources. 134. The mandate to audit the financial statements of the State is vested by the Constitution in Sergipe's Tribunal de Contas do Estado, which is largely able to carry out audits of a reasonable scope. In the recent past, it has been able to submit reports to the legislature, which is responsible for reviewing and approving the accounts, in a timely manner. Recommended actions are usually implemented, as is evidenced in the Tribunal’s reports. Legislative scrutiny of the budget and of the financial statements follows clear rules and procedures. The Tribunal is currently undertaking reforms aimed at introducing modern audit practices and bringing its approach in line with international standards. 135. As a result of the above review, the Bank is satisfied that the PFM environment in the State of Sergipe is adequate to support the proposed operation. In addition, the Government’s development strategy and actions undertaken to implement reforms are a satisfactory reflection of its commitment to improving the PFM environment. Foreign Exchange Control environment 136. The IMF undertook a Safeguards Assessment of the Central Bank of Brazil in October 2002 and updated it in March 2004. It concluded that the Central Bank does not present widespread vulnerabilities that could compromise the safeguarding of Fund resources. The World Bank also undertook a review of the financial statements of the Central Bank to assess the extent to which the foreign exchange control environment continued to be adequate. As part of this review, the World Bank examined the financial statements for the years ended December 31, 2006 to 2011. These included Explanatory Notes to the financial statements and a report of the independent audit carried out by an international firm of auditors. The latter contained an unqualified opinion on the financial statements for all years. The Explanatory Notes, an integral part of the financial statements, provide an extensive explanation of the Central Bank’s risk management policies, including those related to financial instruments held to manage the international reserves. In relation to operational risks, the Notes state that the Central Bank “uses internal control systems, which are considered adequate for its activities.� The World Bank’s conclusion based on the review of the financial statements was that the control environment governing the Central Bank’s operations within which the loan’s foreign exchange would flow continued to be adequate. E. DISBURSEMENT AND AUDITING 137. The proposed operation will follow the World Bank’s disbursement procedures for development policy loans. The loan proceeds will be disbursed against satisfactory implementation of the development policy program and will not be tied to any specific purchases. Upon effectiveness, disbursements of the loan will be made by the World Bank into an account maintained by the State in the Caixa Econômica Federal, a commercial bank 45 that is deemed acceptable to the World Bank as it is: (i) financially sound; (ii) authorized to maintain the account in the currency agreed between the World Bank and the State; (iii) is audited regularly, and has received satisfactory audit reports; (iv) able to execute a large number of transactions promptly; (v) is able to perform a wide range of banking services satisfactorily; (vi) is able to provide a detailed statement of the account; (vii) is part of a satisfactory correspondent banking network; and (viii) charges reasonable fees for its services. The account will be denominated in Brazilian reais and does not form part of the country’s official foreign exchange reserves. However, the Central Bank will be informed of the deposit of this amount. Once the funds are deposited in the account, the Caixa Econômica Federal will credit an equivalent amount of money into the State’s single treasury account that is used to finance budget expenditures. The State will provide a confirmation to the World Bank that: (i) loan proceeds were received into the local currency denominated account, and (ii) an equivalent amount was credited to the account that finances budgeted expenditures. Such a confirmation will be sent to the World Bank within 30 days after payment. If the borrower wishes the funds to be deposited at a commercial bank different from Caixa Economica Federal, the Borrower will need to obtain the Bank’s approval for such a change. If the proceeds of the loan are used for ineligible purposes as defined in the Development Loan Agreement, the World Bank would require the State to refund the amount. Due to the conclusions related to the adequacy of the State’s public financial management environment, no additional fiduciary arrangements will be put in place for the operation. F. RISKS AND RISK MITIGATION 138. Country, state and sector factors. Moderate to low risk. As described in the country and state context, despite external risks and internal policy challenges, the Government of Brazil’s overall macroeconomic framework is considered sustainable in the medium term. At the state level, Sergipe’s economy has grown in recent years, presenting the highest GDP growth (25.2 percent) when compared to other states in the Northeast and to the whole country. In addition, the GoS has been complying with all limits set by the Fiscal Responsibility Law (LRF), and medium-term fiscal sustainability does not appear to be at risk. The GoS has also been demonstrating high ownership and willingness to implement and sustain policy reforms to be supported by this operation, which are also empowered by the political stability in place in the State in the last years. 139. Social factors. Moderate. A poverty and social impact analysis was carried out, including secondary data analysis and focus group interviews with key stakeholders. The analysis concluded that the combined social and economic impacts for the most vulnerable population are expected to be positive. The social-related risks associated with the operation are moderate and refer to: (a) the risk of women under-reporting on gender-based violence, which may limit the impact of deterrence policies; (b) the high illiteracy and/or functional illiteracy rates among poor and older farmers that may hamper the success of productive and social inclusion policies; (c) the need to rest lands for large periods prior to obtaining certification as an organic producer, which may reduce the enticement of organic agriculture for poor farmers and small-landholders; and (d) the gap between job training classes offered and skills demanded by regional job markets, which may convert the Mão Amiga program in just a cash-transfer compensatory policy rather than a job qualification one. 46 140. Environmental factors. Moderate. An environmental assessment was carried out. The analysis concluded that the environmental impacts of the program’s interventions are expected to be positive. The environmental risks associated with the operation are moderate and refer to: (a) the risk that the institutional capacity for environmental compliance not keep up with the expanded demand for services; and (b) that the sugarcane and orange workers under the Mão Amiga program not receive sufficient and appropriate training to minimize potential exposure to pesticides. The institutional capacity for environmental compliance will be strengthened through the operation thus minimizing any potential risk. The State is studying how to include in the Mão Amiga program an enhanced training component to reach these potentially vulnerable populations. 141. Fiduciary factors. Low. PFM procedures are well developed in Brazil and adopted by all levels of government. A sound legal framework was developed over a number of years to help strengthen accountability and transparency in the management of public finances in the country. Sergipe’s PFM system features strong internal rules and controls, with clear definition of responsibilities and institutional arrangements for the management of public finances. Existing weaknesses are being addressed by the State through a number of reforms, which would mitigate the financial management risks. 142. Institutional and implementation factors. Moderate to low risk. Risk analysis ranges from moderate to low risk for institutional and implementation factors. It depends on the degree and status of implementation of proposed reforms, the responsible executing secretariat, needed adherence from concerned parties, and whether the policy reform is a state mandate or depends on other actors at national or sub-national levels. The following paragraphs provide a description of the implementation capacity and associated risks for each of the involved secretariats. 143. SEPLAG is the main State secretariat for management, budget and planning, and, as such, has the structure and expertise needed to coordinate other agencies, and implement activities under its responsibility. However, with regard to improving the quality of services for citizens, there may be risks related to SEPLAG’s capacity to develop and integrate different systems in a timely manner and train staff on the new proposed process of one-stop shopping (guichê único). In addition, there may be risks and delays related to the needed physical changes in the facilities that provide such services, and resistance from staff to the new proposed process. Mitigation measures would include regular meetings, planning and monitoring of required actions, preparation of architectural documents, staff training, and communication campaigns. 144. SEFAZ demonstrates above average capacity to implement when compared to other State secretaries and institutions due to the historical access it has had to trained and well-paid technical staff. Furthermore, the GoS has a unique characteristic of strong cooperation between SEFAZ, the Office of the Attorney General of Sergipe and the Judiciary power. Risks for this operation are associated with difficulties in integrating several systems with diverse technologies, maintaining good coordination and relationships between the involved parties, and resistance from staff and dependent companies to the new modus operandi and system. Mitigation measures would include detailed planning and monitoring of required actions, training of staff on the use of the new system simulating daily work 47 situations, and availability of an information technology team to provide timely support to staff needs. 145. SES counterparts are confident that they can assume the responsibility of implementing policy reforms and activities associated with the Rede Cegonha program. SES highlighted that the program is a priority of the President. Hence it has benefited from strong partnership and support from the Ministry of Health in implementing the Amendment to the Public Action Contract (Termo Aditivo ao Contrato de Ação Pública – TCAP),32 which is the legal instrument between the federal and state level outlining activities, roles and responsibilities related to regional health networks, including Rede Cegonha. Possible risks associated with the reforms and indicators proposed under this operation include: (i) one of the prior actions for the health sector depends on the Ministry of Health – that is, it is not under State’s governance; (ii) federal financing to health regional networks would follow the SUS’ defined fee schedule for reimbursing health services and, therefore, may not cover actual costs – thus implying co-financing by the State and/or municipalities; and (iii) there is lack of clarity on how results-based rewards will flow given that several targets are regional in nature – hence, requiring actions at different levels of the service delivery network – when only municipalities are entitled to receive funds (that is, regions are not fund managing entities). An additional challenge and risk relates to weaknesses in the SES data systems, which would need to be strengthened to adequately support evidence-based management process. In order to mitigate the first risk, a group with representatives from the State, municipalities and the Ministry of Health has been created, and has a defined agenda and work plan to be complied with. According to the SES, the funding issues would be mitigated by a complementary financing from the State and municipalities whenever it is needed, which has been recently allowed by the Ministry of Health for some interventions. 146. SEED – risks regarding education policy reforms are associated with the establishment of a meritocratic system for selecting directors of state-run schools and the resistance this process may face by stakeholders such as the teachers union. However, the implementation of this policy is being preceded by a broad debate with teachers and directors, the State Education Council, policy makers, Government authorities and other stakeholders. Furthermore, the SEED hired a consultant who is providing support in the definition of structural policies and introduction of a results-based management model through the creation of an Index Tab by which schools, teachers and students will be monitored and evaluated. 147. SEAGRI and its related agencies, EMDAGRO and COHIDRO, already have the experience, infrastructure and technical capacity to implement the policies and actions supported by this DPL. Moreover, EMDAGRO is staffed with personnel to provide technical assistance in 40 municipalities. COHIDRO has the infrastructure and personnel working in six irrigated perimeters in the Sergipe; current capacity would be able to cover all 75 municipalities within the State. 148. SEIDES has responsibility for social protection policies, which are implemented under a broad statewide social services network. Further, many of these policies are 32 In a near future the TCAP will be replaced by the Public Action Organizational Contract (Contrato Organizativo de Ação Pública - COAP), the new legal framework to regulate federal-state partnerships. 48 constitutionally defined duties or result from agreements and partnership with the Federal Government; thus, risks are low. The implementation of policies and actions under this operation would reinforce ongoing work, allowing results to be expanded and strengthened. 149. SEPM is carrying out activities that result from well-established policies and agreements with the Federal Government. Additionally, it counts with the support of other state institutions and municipalities for the implementation. Hence, though SEPM was recently established in 2011, no major risks are anticipated under the operation in the area related to prevention and protection against gender-based violence. 150. ADEMA and SEMARH have significant resources and installed capacity for environmental protection; however these are insufficient to meet all demands. At the municipal level this is at best uneven. The importance given to the environment is still very low, which is reflected in the minimal share of the environment in State spending and in the condition of saturation of the responsible technical body. To date, just one municipality is fully ready to exercise its environmental mandate. 49 ANNEXES ANNEX 1: SERGIPE LETTER OF DEVELOPMENT POLICY 50 ~~ . GOVERNO DE SERGIPE GABINETE DO GOVERNADOR Oficio n°. 3.299/2012 Ref. GE n°. 303/2012 Aracaj u, 03 de outubro de 2012. MR. JIM YONG KIM President The World Bank Washington, DC Assunto: Sergipe - lncluir para Desenvolver - Carta de Polfticas. Este documento apresenta urn panorama das politicas publicas do Estado de Sergipe, bern como uma vfsao geral atualizada sobre a situa~ao economica e fiscal do Estado. Contempla tambem as d fretrizes de Governo para os pr6ximos anos, materializadas no Plano Plurianual 2012-2015- Sergipe: lncluir para Desenvolver, as quais se desdobram em iniciativas que objetivam a erradica~ao da pobreza extrema, a prom~ao do desenvolvimento economico inclusivo e a constru~ao de uma sociedade mais justa. Temos a certeza que o apoio financeiro do Banco Mundial, por meio do instrumento de Emprestimo para Politicas de Desenvolvimento (Development Policy Loan - DPL), representa urn importante refor~o as iniciativas do Plano Sergipe: lncluir para Desenvolver, com reflexos positivos nos resultados esperados. 1. Politicas Publfcas no Estado de Sergipe: contexto, avan~os recentes, diretrfzes e desafios · A trajet6ria das politicas publicas no Estado de Sergipe nos ultimos anos foi marcada pelo fortalecimento de politicas sociais e, ao mesmo tempo, por solido crescimento economico. A partir de 2007, a agenda de politicas publicas no Estado incorporou o tema do desenvolvimento economico com inclusao social, permitindo urn redirecionamento da atua~ao estatal. No Estado de Sergipe, as primeiras iniciativas baseadas nesse novo paradigma de desenvolvimento remontam ao Plano Plurianual 2008-2011 - Desenvolvimento com lnclusao pelo Diretto e pela Renda, em que ja se desenvolvfam a<;6es tendentes a efetiva<;ao de "um novo modelo de desenvolvimento voltado para a redu~lio da exclusao social e das desigualdades sociais e regionais" . 0 realinhamento da a<;ao estatal em Sergipe acompanha, em grandes linhas, o mesmo movimento verificado na agenda do Governo Federal, onde o imperativo da inclusao social com desenvolvimento economico teve grande impulso na ultima decada. A convergencia programatica entre as esferas federal e estadual pode ser apontada 51 •7 GOVERNO DE SERGIPE GABINETE DO GOVERNADOR como urn importante fator para o avanc;:o das polftfcas publicas em Sergipe nos ultimos anos. Exibindo taxas de crescimento do Produto lnterno Bruto acima da media nacional e apresentando importantes melhorias nos indicadores sociais, frutos do reconhecido sucesso das polftfcas fmplementadas, Sergipe aposta no fortalecimento das politicas publicas inauguradas em 2007. A despeito da crise financeira internacional surgida no final de 2008, o Produto lnterno Bruto a prec;:os de mercado do Estado manteve a tendencia de crescimento entre 2007 e 201 0 a taxas superiores a 5%, com excec;:ao de 2008, quando o crescimento fof de 2,6%. Em 2009, Sergipe apresentou a quarta maior taxa de crescimento entre os estados brasileiros. Outros indicadores economicos demonstram que a economia sergfpana ganhou forc;:a e dinamismo no periodo. Verificou-se o crescimento de quase 100% na quantidade de empregos formais gerados no Estado, em. comparac;:ao ao quadrienfo anterior. Foram implantados 110 novas empreendimentos industrials incentivados pelo Program a Sergipano de Desenvolvimento Industrial, com importante aumento da oferta de emprego no setor. 0 consumo e o credito demonstraram forte expansao entre 2007 e 2010. Ha elevados investimentos projetados na· ampliac;:ao da explorac;:ao de potassio e na expansao da industria de fertilizantes no Estado. Preve-se tambem o aumento do a investfmento relacfonado industria de gas natural e petr6leo, com a confirmac;:ao de uma nova area de explorac;:ao em aguas profundas na bacia de Sergipe. A descoberta representa urn marco nesse importante segmento da economia sergipana, com potencial de duplicar a produr;ao de petr61eo e gas natural. Sergipe tern apresentado avanc;:os nao menos significativos no aspecto social. 0 Estado registrou nos ultfmos anos melhorias acima da media nacfonal em indicadores sociais como acesso a saneamento basico, renda, acesso a bens de consumo e condic;:6es de moradia. Entre 2007 e 2010, a vertente da inclusao produtiva pela renda avanc;:ou com a interiorizac;:ao do desenvolvfmento economico. Considerando o total de novas postos de trabalho criados no periodo, mais da metade foram gerados em cfdades do interior, ligados principalmente ao desenvolvimento de palos industrials nos ramos textil, alimenticio, calc;:ados e na cadeia . produtiva da cana~de-ac;:ucar. Em 2011, os empregos gerados no interior do Estado alcanc;:aram 62% do total. A agricultura familiar passou a . ocupar importante papel na inclusao social no semiar1do, principalmente com o desenvolvimento da pecuaria leiteira e do cultivo do mHho. A polftica de desenvolvimento rural, por meio do fomento a agricultura familiar, do estfmulo ao agroneg6cio e do ·tortalecimento de cadeias produtivas locais, contribuiu para a · expansao desses dois setores econ6micos no interior do Estado. 52 GOVERNO DE SERGIPE GABINETE DO GOVERNADOR Entre 2006 e 2009, a produc;ao de milho do Estado passou de 185 mil toneladas para 703 mil toneladas, o que representa urn acrescimo de 280% na produc;ao. No mesmo periodo, houve urn incremento de 18% na produc;ao de Leite, alem de ganhos reladonados ao beneficiamento do produto. Com resultados expressivos nos indicadores socials de saude, educac;ao e renda per capita, Sergipe ostenta o melhor indice de desenvolvtmento Humano (IDH) eo melhor indice de desenvolvimento socioeconomico (IDSE/FGV) dentre os estados da regiao nordeste. Entretanto, segundo levantamento do Ministerio de Desenvolvimento Social a e Combate Fome - MDS, realizado em 2010, estima-se que mais de trezentas mfl pessoas, cerca de 15% da populac;ao total, ainda vivam em situac;ao de extrema pobreza no Estado de Sergipe. 0 Plano Sergipe: lnclujr para Desenvolver (Plano Plurianual - PPA 2012-2015) aposta no aprofundamento do modelo de desenvolvimento com inclusao social, com uma a abordagem de politicas publicas direcionadas parcela mais pobre da populac;ao. 0 Plano adotou como meta mobilizadora a erradicac;ao da pobreza extrema, que devera direcionar a ac;ao do Estado de Sergipe nos pr6xfmos anos. Assim, sao priorizadas iniciativas em quatro eixos estrategicos: · (i) desenvolvimento social e afirmac;ao da ddadania; (ii) gestao publica de excelencia; (iii) infraestrutura produtiva e logfst1ca; e (iv) desenvolvimento economico indusivo. 0 Plano preve, ainda, uma metodologia de monitoramento e avaliac;ao das politicas. A partir da elaborac;ao de planos de ac;ao especificos, contendo objetivos, metas, indicadores, prazos e responsaveis, as ac;:6es e programas prioritarios serao acompanhados por uma sala de situac;ao. Essa estrutura, alem de permftfr urn tratamento mais integrado e interdisciplinar nos processos de monitoramento e avaliac;:ao, incorpora o caniter transversal das politicas publ1cas a partir de Nudeos de Governanc;:a em quatro areas, de acordo com os eixos estrategicos delimitados no Plano. A metodologia permite o acompanhamento com base em uma visao global sobre a implementac;ao, possibilitando a oferta de subsidios tecnicos e analiticos ao Nudeo Estrategico de Governo. A metodologia tern sido aplicada no processo de monitoramento e avalfac;:ao da Agenda do Sertao Sergipano e no Plano Sergipe Mais Justo. Este ultimo objetiva ampliar as politicas publicas de inclusao produtiva e gerac;:ao de renda, em atendimento prioritario a populac;:ao de extrema pobreza. 0 monitoramento e realizado de maneira continua por uma 'sala de situac;:ao', que consolida informac;6es provenientes dos diversos 6rgaos e entidades responsaveis, elabora relat6rios de acompanhamento fisico e financeiro, avaliando o progresso das ac;6es e propoe ajustes e soluc;:6es. Os relat6rios produzidos pela 'sala de situac;:ao' subsidiam as decis6es e encamfnhamentos nas reuni6es mensais dos Comites de lntegrac;:ao de Politicas (Comite de Politicas de lnfraestrutura Social, Comite de Politicas de Acesso a Servic;:os 53 GOVERNO. DE SERGIPE GABINETE DO GOVERNADOR Publicos e Comite de Politicas de lnclusao Produtfva), nas reunioes trimestrais do Comite Gestor, bern como sao disponibilizados diretamente ao Governador do Estado. 2. Situa~lo fiscal do Estado de Sergipe No que se refere a Lei de Responsabilidade Fiscal, em 2011 o Estado de Sergipe atendeu ao limite prudencial com despesa total de pessoal, representando 56,54% da receita corrente lfquida, sendo 46,76%do Poder Executlvo, 5,12% do Poder Judiciario, 1,63%do Ministerio Publico e 3,03% do Poder Legislativo. A Receita Total do Estado atingfu urn montante de R$ 6,05 bilhoes, que representa urn crescimento nominal de 11, 5%, quando comparada com 2010. Ja as despesas de 2011 foram na ordem de R$ 6,03 bilhees, 1ndfcando urn crescimento nominal de 10,3% frente ao anode 2010. Ressalta-se que, deduzindo-se a despesa total da receita total, o Estado de Sergfpe apresentou urn superavit em 2011 de RS 21,5 m1lh0es, que, comparativamente com 2010, representa urn crescfmento de 142,0% . Esse resultado confirma que os ajustes realizados pelo Governo de Sergipe p6s-crise 2008 estao dando resultado. 0 deficit de R$ 130,1 milhees em 2009 foi reduzido para 50,2 milhees em 2010 e controlado em 2011 , ano que apresentou superavit. Em 2011, a arrecadar;ao do principal tributo estadual, o ICMS, atingiu o montante de R$ 1. 958,1 milhoes, o equivalente a aproximadamente 81%da receita tributaria e 32% da receita total do Estado, apresentando urn crescfmento nominal de 11,66% comparativamente com o mesmo periodo ·do exercicio anterior. No que diz respeito a arrecadac;ao do IPVA, observa-se que a tendencia positiva de crescimento persiste, incentivada pela politica nacional de reduc;ao temporaria de impostos sobre vefculos. Em 2011, a arrecadac;ao atingiu urn montante de R$ 93,5 m1lhoes, significando urn crescimento nominal de 17,10% comparado com 2010. 3. Polfttcas incluidas na opera~ao com o Banco Mundfal 0 Estado de Sergipe, tendo em vista as prforidades definidas no planejamento plurianual, especialmente no que se refere a meta mobilizadora - Erradica<;ao da Pobreza Extrema no Estado, prop6e a composic;ao do Projeto em tres areas de politicas: (i) consolidac;ao da gestao fiscal e das inova<;aes na gestao publica, (ii) promoc;ao da melhoria no acesso e na qualidade de servi<;os publicos e (f1f) fortaleci mento da desconcentrac;ao do desenvolvimento e da inclusao produtiva nos territ6rios. Essas tres areas concretizam-se em objetivos especfficos que podem ser apoiados pelo empresttmo, os quais sao apresentados a seguir: 3.1 . Politfca 1 - Consolida~ao da gestao f iscal e das inova~Oes na gestio publica 54 GOVERNO DE SERG IPE GABINETE DO GOVERNADOR 3. 1. 1 Melhorar a qualidade do atendimento ao cidadao A polftfca de atendfmento ao c1dadao do Estado de Sergfpe tern sfdo orientada pela necessidade de oferecer a populat;ao praticidade e celeridade na prestat;ao dos servit;os publicos, atraves da centralizat;ao em um (mico ambiente. Esta e a logica da rede do Centro de Atendfmento ao Cfdadao - CEAC, que na ultima decada vern a prestando relevantes servit;os populat;ao sergipana, com mais de oito milh6es de atendimentos entre 2001 e 2011 nas tres unidades fixas instaladas na capital sergipana (Riomar, Rodoviaria e Rua do Turista) e em uma unidade movel, que percorreu, nos ultimos tres anos, todos os 75 (setenta e cinco) munidpios sergipanos. Atualmente, os processos de atendimento ao cidadao, tanto na rede CEAC, como em diversas unidades do Departamento Estadual de Transito - DETRAN, da Secretaria de Segurant;a Publica- SSP, da Secretaria da Fazenda- SEFAZ e de outros orgaos, nao sao padronizados, o que compromete a qualidade dos servit;os, uma vez que cada atendimento ocorre de acordo com urn protocolo diferenciado. Alem disso, apesar da centralizat;ao em um unico ambiente, os processos atuais de atendfmento nos CEACs sao direcionados por tipo de servit;o prestado, sendo necessaria que o cidadao se apresente em guiches diferentes, de acordo com cada especfe de servit;o demandado. Prop6e-se, entao, a adot;ao do sistema de "guiche (mico", que sera responsavel por receber, de uma unica vez, demandas para todos os servfc;os ofertados em cada unidade do CEAC. Adicionalmente, sera elaborado um documento com informac;6es sobre procedimentos, compromissos e padr6es de atendimento para os dez servic;os mais demandados nos Centros de Atendimento aos Cidadaos. Esse documento, denominado de "Carta de Servit;os", sera amplamente divulgado, permitindo, de um lado, a fixac;ao de criterios de eficfencfa e effcacia na prestac;ao de servfc;os para a Administrac;ao Publica e, de outro, maior credibilidade e confiant;a nos servic;:os por parte dos cidadaos. · A simplificat;ao dos processos, decorrente da padronizac;ao e da implementac;ao do "guiche unico", com a consequente redw;ao do tempo dos servfc;os prestados sao os principais desafios do Estado para melhorar a qualidade no atendimento. Nesse sentido, a proposi~ao da institui~ao de _ uma Polftica de Atendimento ao Cidadao, alfada a fmplementac;ao do "guiche unico" e a ampla divulga~ao da "Carta de a Servic;os", tern como objetivo dar celeridade e qualidade prestac;ao dos servit;os publicos. 3. 1.2 Modernizar processos chaves de planejamento, or~amento, execu~ao e controle 55 GOVERNO DE SERGIPE GABINETE DO GOVERNADOR No campo da Gestao Fiscal, a Administra~ao Estadual vern adotando a estrategia de revisar processos e implantar um novo sistema integrado de gestao publica, denominado de i·Gesp (sistema integrado de gestao publica). A imptanta~ao do sistema i·Gesp e um dos marcos mais importantes no recente processo de moderniza~ao da gestao do processo de despesa publica do Estado de Sergipe. Trata·se de uma sotu~ao de Tecriotogfa da lnforma~ao voltada para a Gestao Publica Estadual, propfcfando maior agilidade, flexibilidade, integra~ao, controle, transparencia e qualidade. 0 sistema e totalmente fntegrado e engloba OS modules de planejamento, Or~amento, execu~ao or~amentaria e financeira e · contabilidade. Por ser um sistema que incorpora todo o ciclo da a~ao administratfva, a regulamenta~ao da obrigatoriedade do uso do sistema i·Gesp, no ambito do Poder Executive, e condi~ao essencial ao sucesso da politica. A fmplanta~ao do sistema vern ocorrendo de maneira gradual, ja tendo sido implementados os principais m6dulos · de planejamento, or~amento, execu~ao or~amentaria e financeira e contabilidade. As pr6ximas etapas previstas sao a f mplanta~ao dos m6dulos de Banco de Pr~os, Gestao da Divida Publica, lntegra~ao com sistemas de Recursos Humanos (RH), Compras e Controle de Patrimonfo, o que tornara o sistema, a media prazo, um GRP - Government Resource Planning, com cronogramas de trabalho previstos em Decreta que regulamentara a obrigatoriedade do uso do sistema no ambito do Poder Executivo. Espera-se que o sistema i·Gesp contribua para a redu~ao de custos de trabalho e financeiros relativos a todos os m6dulos inclu{dos no sistema, alem de oferecer procedimentos, relat6rios e balanr;os padronfzados e mais confiaveis. Entre os fnumeros impactos espedficos que a ador;ao do novo sistema produzira na gestao publica estadual estao a redu~ao de tempos medias para elabora~ao de retat6rios gerencfafs e para fechamento dos balan~os anuais. 3.1.3. Aumentar a arrecada~ao por meto do combate aevasao fiscal 0 Estado de Sergipe pretende aumentar a arrecada~ao por meio do combate evasao a fiscal. Pretende-se amplfar e aperfei~oar ferramentas e procedimentos para cobranr;a a do credito, visando redu~ao do prazo entre a gerar;ao do credito tributario e sua respectiva cobranr;a. A implantac;:ao do Cadastre Estadual Informative de Creditos nao Quitados (CADIN Estadual) e a fnscrir;ao de devedores no Serasa1 tornar-se-ao importantes instrumentos 1 e A Serasa - Centralizaryao de Servi~os dos Bancos S/ A - uma empresa privada braslle1ra, que faz analises e pesquisas de informar;Oes economico-financelros das pessoas, para apoiar dectsoes de credito, como emprestimos. Foi criada pelos bancos, com o objetivo de centralizar informa~oes e fazer com que seus custos administrativos diminuissem (fonte: http:/ /www.signlflcados .eom.br/serasa/). 56 GOVERNO DE SERGIPE GABINETE DO GOVERNADOR na recupera~ao do credito trfbutarfo, atuando tambem como importante componente para aumento da adimplencfa voluntaria de tributos estaduais, dado que a 'negativa~ao' de empresas fornecedoras em cadastros de inadimplentes inviabilfzam sua contrata~ao por entidades publicas, assim como podem inibir a obtens;ao de cn~dito bancario. Por outro lado, o projeto de 'virtualizas:ao' do processo da divida ativa tern como objetfvo permitir o acompanhamento da execus:ao j udicial do processo fiscal, permeando os 6rgaos envolvidos: Secretaria de Estado da Fazenda de Sergipe • SEFAZ, Procuradoria Geral do Estado · PGE e Tribunal de Justi~a - TJ. A implementas:ao do Cadastro Estadual Informative de Creditos nao Quitados (CADIN Estadual) e a inscrfs:ao de devedores no Serasa, bern como a iniciatfva de virtualizas:ao da divida ativa, necessitam ser regulamentadas por meio de Decreto para atingir eficacia juridica. Em outubro de 2011, foram regulamentados o Cadastre Estadual lnformativo de Credftos nao Quitados (CADIN Estadual ) e a instris:ao de devedores no Serasa. Nesse momento, o Governo do Estado esta . elaborando decreto que regulamenta a virtualizas:ao do processo da divida ativa. 3.2. Polftica 2- Promover melhorta no acesso e na qualidade dos servi~os publicos 3.2.1. Melhorar a qualfdade dos servi~os de aten~do materno-infantil para alto risco, em resposta a uma causa importante de mortalidade materna Politicas voltadas para a ampliac;:ao do acesso e a melhoria da qualidade de atens:ao a saude sao imprescindfvefs para 0 fortalecimento do funcionamento das redes assistenciais de forma integrada. As redes especializadas voltadas para o atendimento as mulheres, como as redes "Cegonha" e "Amamenta" possuem enfase na linha de e cuidado materno-infantil do estado, cujo objetfvo aumentar o numero de gestantes atendidas peto programa, sobretudo no alto-risco, e a reduc;:ao da mortalidade materno-infantil. Vale ressaltar que o Estado de Sergipe, como outros estados da regiao Nordeste, apresenta resultados preocupantes nas · quest6es da saude materno·i nfantil. No entanto, no periodo 1985-2000 houve melhora bastante sfgnlffcativa na taxa de mortalidade infantil. Na ultima decada, a redus:ao dessa taxa no Estado de Sergipe vern seguindo a tendencia nacional, com uma media de diminuis:ao de 1,72%ao ano. Os indicadores de mortalldade materna e de mortalidade infantil sao considerados indicadores de efetivfdade dos sistemas de saude e sao uteis na analise da situas:ao sanitaria de urn territ6rio administrativo. A Rede Cegonha, programa que visa qualificar e melhorar a assistencia materno- infantil, envolve ac;:6es, em Sergi pe, que vao desde o acolhimento da gestante em uma Clinica de Saude da Familia (CSF) ate o atendimento com classificac;:ao de risco 57 GOVERNO DE SERGIPE GABINETE DO GOVERNADOR nas maternidades para realizac;ao do parto. 0 programa tambem busca estimular os seguintes aspectos: (i) a participac;:ao da familia no momento do parto; (ii) o parto natural; e (iii) o aleitamento materna e a doac;:ao de Leite para o banco de Leite. Para implementar as redes de saude no estado, dentre etas a Rede Cegonha, a Governo de Sergfpe ffrmou Contrato de Ac;ao Publica - CAP, instrumento que reorganfza e define o f uncionamento do SUS em escala regionalizada, com responsabilizac;:ao de cada ente federado, descentralizac;:ao da assistencia e proposta de metas para alcance de indicadores de saude. A inclusao do ente federado Uniao no CAP, por meio do Termo Aditivo ao Contrato de Ac;:ao Publica • TCAP, possibilitou a garantia de mais recursos para que seja feita a estruturac;ao da Rede Cegonha, assistencia materna infantil, e da rede de Urgencia e ·· e Emergenc1as. Serg1pe o primeiro Estado do Brasil a assinar esse documento. 3.2.2. Melhorar a gestao das escolas da rede do Estado de Sergipe Os indices educacionais, na rede estadual de Sergipe, a exemplo do lndice de Desenvolvimento da Educac;ao Basica - lOEB, indicam que os niveis de aprendizagem dos estudantes estao aquem dos esforc;os conjuntos de professores, gestores e governo. As analises dos dados produzidos pela rede sinalizam que os timidos avanc;:os estao relacfonados, entre outros fatores, com uma fragil politica de gestao administrativa e pedag6g1ca que predomina nas escolas. Muito dessa fragilidade esta relacionada com a fnobservancia de criterios, sobretudo merit ocraticos, nos processos de escolha dos gestores escolares. 0 atual processo · de selec;ao dos gestores nao exige o conhecimento dos padroes minimos de gestao escolar e das polfticas educacionais que deverao ser implementadas nas escolas. Com o objetivo de qualfffcar a politica de gestao educacional, o governo do Estado esta estabelecendo atraves de Decreto .urn novo sistema de selec;:ao dos gestores escolares da rede estadual considerando criterios de merfto. Para apoio a esta politica e, com a colaborac;:ao de especialista em gestao educacional, esta desenvolvendo junto com os gestores e docentes sergipanos urn espac;:o de discussao e de construc;ao de tecnologias pedag6gicas que tern como objetivo principal a melhoria dos resultados educacionais. Alem da selec;ao dos gestores por merito, OS esforc;os atualmente desenvolvidos a incluem a capacitac;:ao dos gestores e docentes com vistas melhoria dos processos de planejamento, d1agn6stico e avaliac;ao permanente da atividade educacional. Como produto das oficinas ja realizadas, foram elaborados dois instrumentos, a saber, o "Compromisso de Gestao" e o "lndice Guia". 0 primeiro consiste num diagn6stico e no estabelec1mento de urn conjunto de metas educacionais e de ac;:6es definidas pela rede e por cada escola e acordados entre as partes, num compromisso coletivo pela melhoria da qualidade do ensino na rede estadual de .Sergipe. ~ 58 GOVERNO DE SERGIPE GABINETE DO GOVERNADOR 0 segundo documento institui os procedimentos de monitoramento e avaliat;ao da atividade escolar nas suas variadas dimensaes, partindo de urn acompanhamento sistematico do cotidiano escolar e dos resultados dele decorrentes. Paralelo a essa tarefa, o Governo do Estado ja lant;ou urn referencial curricular para a rede e esta discutindo com as escolas a construt;ao e sfstematizat;ao de seus curriculos. Nesse conjunto de esfort;os, .minutas de portarias e decretos-lef estao prontos para normatizar a selet;ao dos diretores por merito e outras medidas de melhorfa da at;ao educativa. 3.2.3. Melhorar as condiqoes de aprendizagem no ensino fundamental na rede municipal 0 esfort;o do Governo do Estado em melhorar os indices educacionais no Estado de Sergipe nao pode estar restrito a rede de ensi no sob sua gestao. Os munidpios sergipanos sao parte da fragilidade da educat;ao sergfpana, demonstrada em indices como o lOEB. A partir dessa constatat;ao, e, considerando o fato de que a rede municipal educa aproximadamente 284 m.fl alunos (a rede estadual tern cerca de 200 mil alunos2 e a rede particular tern 96,9 mil,) entende a Administrat;ao Estadual que e necessar1o coordenar as politicas e as gestoes estadual e muntcfpais e disponibilizar todo aparato de conhecimento e estrutura da Secretarfa de Estado da Educat;ao para fortalecer o ensino no Estado. e Nesse sentido, urn dos obj etivos do Governo do Estado melhorar as condit;6es de aprendizagem no ensfno fundamental na rede municipal, por meio do apofo a implementat;ao do Programa Nacional de Alfabetizat;ao na ldade Certa (PNAIC) nos municipfos. Para atingir este objetivo sera estabelecido urn regime de colaborat;ao estado-municfpfo para implementat;ao do PNAIC, estruturando-se urn nucleo adminfstratfvo para cuidar especificamente da articulat;ao da polftfca estadual com as redes municipais. 0 PNAIC e urn programa integrado cujo objetivo e a alfabetfzat;ao em Lingua Portuguesa e Matematica, ate o 3° ano do Ensino Fundamental, de todas as criant;as das escolas municipais e estaduais brasileiras. Caracteriza-se pela integrat;ao de diversas at;oes e materials didaticos que contribuem para a alfabetizat;ao; pelo compartHhamento da gestao do programa entre Governo Federal, estados e munidpios; e pela orientat;ao em garantir os direitos de aprendizagem e desenvolvimento dos alunos, a serem aferidos pelas avalfat;Cies anuais. Os eixos desenvolvidos no PNAIC para a melhorla da educat;ao sao: material didatico, literatura, tecnologias educacionais dfgftais, avaliat;ao e controle e mobilizat;ao social. 2 Fonte: MEC/INEP • Censo da Educa~ao Basfca 2011 59 GOVERNO DE SERGIPE GABINETE DO GOVERNADOR Nesse sentido, e considerando a debili dade dos munfcipios, a parcerfa entre as duas esferas - estado e municipio - tem como objetivo principal melhorar os indices educacfonais, atraves de novas instrumentos · pedag6gicos, cabendo ao estado a articulat;ao do programa e a colaborat;ao e assfstencia tecnfca aos munidpios para a implementa~ao do PNAIC em Sergipe. 3.3. Polfttca 3 - Promover o desenvolvtmento s6cto-econ0m1co com crescimento inclustvo 3.3.1. Fortalecer a cadeia produtiva do Leite e derivados, com foco na agricultura familiar No semiarido sergipano encontra-se a principal bacia leiteira do Estado, assentada em pequenas unidades produtivas de base familiar, que recentemente tern experimentado expressivo crescimento de sua produ~ao, com taxas superiores as de outras regioes climaticamente mais favorecidas. A estrutura fundiarfa e bastante fragmentada, predominando a pequena unidade de produ~ao. Cerca de 90% das unidades produtfvas sao minifundios com menos de 30 ha, e com pequenos rebanhos por unidade: em torno de 10 vacas, produzindo cerca de 50 litros/dia. Esta atividade const1tu1-se na principal fonte de renda e forma de fnser~ao no mercado para a quase totalidade dos produtores familiares. A produ~ao caracteriza-se ainda pela oferta pulverizada de Leite, em geral de baixa qualidade, obtfda a custos elevados, principalmente por conta da alimentac;ao concentrada, totalmente dependente de compras externas; pela debHidade organizativa dos produtores, com baixo grau de escolaridade; e por urn processo produtivo ambfentalmente agressor e exaustor dos recursos naturais. De outro lado, a cadeia produtfva do Leite e derivados, em Sergipe, deve experimentar, em media prazo, urn crescfmento da demanda da ordem de 300 mil litros/dia de Leite, com a entrada em opera~ao de uma empresa de laticinio de grande porte, em implanta~ao · na regiao sub-umida do Estado, volume que possfvelmente nao venha a ser suprido pela produ~ao atual na referida bacia lefteira sertaneja, da ordem de 800 mil litros diarios, ja comprometfdos com a demanda existente. Nesse contexto, a atividade leiteira constitufr-se·a em o~ao potencialmente favoravel para a reconversao econ6mica dos produtores dos perimetros irrigados localizados nessa regiao, desde que tecnicamente desenvolvida em forma intensiva, a baixo custo e com minimos impactos ambi~ntais, portanto, em bases sustentaveis. A inclusao social pelo fortalecimento da cadeia produtiva do leite na reg1ao sem1arfda requer a melhoria da organizac;ao produtiva, atraves da dissemina~ao dos nucleos de produ~ao intensiva de leite entre os produtores famfliares, bern como a melhoria das condfc;oes sanitarias do produto. 60 GOVERNO DE SERGIPE GABINm DO GOVERNADOR Para tanto, o Govemo do Estado esta desenvolvendo o programa para inclusao de produtores familiares em nucleos de produ~ao de lefte, com previa capacitac;:ao em sistemas intensfvos e em praticas sanitarlas. A fdeia e replicar o modelo do projeto Balde Cheto, Sistema de produ~iio intensiva de Leite, para outras organiza~6es no Estado. 3.3.2. Promover o uso de pratkas . agrfcolas ambientalmente sustentaveis- "crescimento verde" A aplicac;:ao da agricultura organica busca, entre outros aspectos, garantir a sustentabilidade economica e ecol6gica, a maxfmfza~ao dos beneffcfos socials, a minimiza~ao da dependencia de energia nao renovavel, empregando, sempre que possivel, metodos culturais, biol6gicos e mecanicos, em contraposic;:ao ao uso de materials sinteticos (agroqufmicos) e a elimina~ao de uso de organismos geneticamente modfffcados. Em sintese, pode·se citar que a agricultura organka tern por objetivo a formac;:ao de ecossistemas mais equilfbrados, preservando a biodiversidade, os ciclos e as atividades bfol6gicas do solo. Nesse sentido, as a~6es sao conduzidas, em geral, em redes de apoio ao desenvolvimento da agricultura organfca. Em Sergipe, por mefo do servi~o de assistencia tecnica e de extensao rural, sob a responsabilidade da Empresa de Desenvolvimento Agropecuarlo (EMDAGRO) e com a participac;:ao de outros parceiros institucionafs, encontra·se em execuc;:ao urn conjunto de a~oes nos Territ6r1os Sul, Agreste e Leste Sergipano que buscam os objetivos da agricultura verde. Estas a~Oes se materializam especfalmente a partir de programas de assistencia tecnica e de capacita~ao continuada para tecnfcos e produtores, valendo·se do uso de unidades demonstratfvas de base ecol6gica, sobretudo com hortffrutigran jei ros. As exigencias para o comercio de produtos organicos no Brasil e no mundo dependem, em grande medfda, da rela~ao de confianc;:a entre produtores e consumidores, bern como dos sistemas de controle de qualidade. A legislaryao brasileira abriu excec;:ao a obrigatoriedade de certificaryao dos produtos organicos para agricultores familiares, que hoje podem vender os organicos diretamente aos consumidores finals. Com esta alternativa, os trabalhos da EMDAGRO vern se fortalecendo e, a partir de 2012, a expectativa com esta politfca e alcanc;ar 100 agricultores familiares, sendo 15 mulheres, por meio de Organizac;oes de Controle Social - OCS, o que permftira a venda direta dos produtos em feiras de organfcos a serem instaladas no ambito destes Territ6rios. Diante do exposto, espera-se com as ac;oes desta politica, a forma~ao de tecnicos e de produtores em sistemas de produc;ao organfca, a melhoria da qualidade ambiental e preserva~ao dos recursos naturais, a ampliac;ao dos canals de comercializac;ao para 61 GOVERNO DE SERGIPE GABINETE DO GOVERNADOR os produtos organicos e, por fim, o aumento da renda familiar e da seguran~a alimentar dos consumidores. 3.3.3. Ampliar as oportunidades de trabalho e renda para a popula~do em situa~do de vulnerabWdade socioeconomica (trabalhadores rurais sazonais da cultura da cana-de- a~ucar e da laranja) · a A lnclusao Produtfva tern por objetivo promover o acesso renda da popula~ao em situa.yao de risco e vulnerabilidade social. lsto porque o cfclo de reprodu.yao da pobreza e da dependencia das familias aos programas sociais governamentais somente se quebra quando promovemos as condi.y6es para que estas famflias adquiram autonomia para sua sobrevivencia. Essa vertente e urn dos principais "eixos" de trabalho do Plano Nacional de Erradica~ao da Miseria, "Brasil Sem Miseria", e do respective Plano em Sergipe, "Sergipe Mais Justo". Na zona rural, contempla alternatlvas para o aumento da produ~ao da agricultura familiar e tern grande interface com os Programas de Agricultura e Seguran~a Alimentar. Uma das principais iniciativas de inclusao produtiva do governo do Estado na area do e campo o Programa Mao Ainiga, que tern por finalidade adotar medidas mitigadoras frente aos efeitos do desemprego sazonal decorrente das entressafras dos cultivos da cana-de-a.yucar e da laranja, que resultem em gera~ao de renda, refor~o alimentar, capacita~ao profissional e melhorfa da qualidade de vida da popula.yao afetada. 0 Programa Mao Amiga estabelece como meta anual o atendimento a 10.000 trabalhadores, sendo 5.000 da laranja e 5:000 da cana, e oferece auxilio de R$ 190,00 durante os quatro meses das entressafras. Em contrapartida, o proprio trabalhador, ou urn membro de sua familia, frequenta cursos profissionalizantes e/ou m6dulos de . cidadanfa, saude e agricultura. Por outro lado, a efetiva~ao de parceria com a Secretarfa de Estado da Educa.yao, com o objetivo de inclufr no Programa Estadual de Alfabetiza~ao os trabalhadores rurais analfabetos atendidos pelo Programa Mao Amiga, significa mafs urn passo na perspectiva de quebra do cfclo de miseria existente nas regi6es mais pobres de Sergipe. 3.3.4. Fortalecer o Sistema Unicode Assistencia Social (SUAS) Desde a Constitui~ao de 1988, a Assistencia Social, por meio do Sistema Unico de Assistencfa Social - SUAS, se consolidou como politica universal, nao contributfva, descentralfzada e participativa, que oferece servi.yos de prote~ao social e benefkios assistenciais a popula~ao em situa.yao de vulnerabilidade social. Em Sergipe, ao Longo dos anos, a consolida.yao do SUAS teve avan~os significativos: em torno de 239.566 familias sao beneficiarias do Programa Bolsa Familia, num universo 62 . '1 GOVERNO DE SERGIPE GABINETE DO GOVERNADOR de 358.808 familias cadastradas no CadUnico (mar~o 2011 ); ha cobertura de Centros de Referencfa da Assistencia Social - CRAS - em todos os 75 munidpios sergfpanos e de 35 Centros Especializados de Assistencia Social - CREAS, distribufdos em 32 munidpios e de 01 Centro especializado na popula~ao de rua - CREASPOP local1zado na capital. Mas ha mufto a evoluir na gestao e na qualidade dos servi~os em nivel municipal. Alem dfsso, o Plano Brasil sem Miseria e, no ambito estadual, o Plano Sergipe Mais Justo trazem novas exigencias e desaffos· para a organiza~ao e a oferta dos servi~os s6cio-assistencfais. E o caso da busca ativa pelos extremamente pobres, que gera demandas mais complexas para o conjunto dos gestores, trabalhadores e conselheiros do campo da Assistencia Social. lsto, sem duvida, requer maior capacidade tecnfca, politica e etica por parte desses atores aqui referenciados. Neste cenario, a dfsposi~ao do Governo do Estado em implantar o "cofinancfamento estadual" sera urn grande avan~o. Trata-se da transferencia de recursos financeiros do Fundo Estadual de Assistencia Social -FEAS aos Fundos Munfcipais de Assistencia Social- FMAS para cofinanciar o aprimoramento da gestao, os servi~os, os programas, os projetos e beneficios eventuais, como, por exemplo, a busca atfva nos munidpios. 3.3.5. Ampliar o acesso de mulheres em s;tua~ao de violencia a programas de prote~aoe preven~ao e atendfmento de melhor quaUdade A desigualdade entre mulheres e homens no Brasil e fato incontroverso e persistente. 0 ultimo fndice Global de Desigualdade de Genera do Forum Economico Mundial (Global Gender Gap Index - GGI), lan~ad6 em novembro de 2011, revelou que o Pais ocupa a 828 posi~ao entre os 135 paises no ranking, atras de todos os outros pafses da America do Sul. 0 estudo demonstra, em subindices, que a desigualdade de genero no .~ pais expressa-se principalmente nos campos do ''empoderamento politico" e da "participa~ao economica e oportunidades". No Brasil, o problema da violencia contra a mulher agrava a desigualdade de genero, principalmente nas classes menos favorecidas, em que as mulheres se encontram em situa~ao de maior vulnerabilidade social. · Nos ultimos anos, o tema da desfgualdade entre homens e mulheres alcan~ou "status" de politfca publica, com a cria~ao de institui~6es e a~6es de governo voltadas ao enfrentamento da desigualdade e da vfolencia contra a mulher. 0 Estado de Sergipe a aderiu, em julho de 2009, ao Pacto Nacional pelo Enfrentamento Vfolencfa contra a Mulher, que visa a consolida~ao da Politica Nacional de Enfrentamento a Violencfa contra as Mulheres, por meio da fmplementa~ao de polfticas publicas integradas em todo o territ6rfo nacional. Em consonancia com as lfnhas de a~ao do Pacto, 0 Estado de Sergipe tern se esfor~ado para ampliar a rede de "Centros de Atendfmento a Mulher" por meio da descentra liza~ao, aos munfdpios polos, do atendimento especializado. Esses Centros disponibilizam servi~os voltados a mulher em situa~ao de violencia ou ~ 63 GOVERNO DE SERGIPE GABINm DO GOVERNADOR vulnerabilidade, como abrigos de prote~ao, pericias especializadas e servic;os de responsabilizac;ao e reeduca~ao do agressor. Preve-se a formalizac;ao de Termos de Cooperac;ao Tecnica entre o Estado e os munidpios-polo de cada territ6rio de planejamento. Com a ampliac;ao da rede de atendimento, espera-se um aumento no quantitativa de mulheres vltimas de violencla atendidas. 4. Pedtdo de apoio financefro. 0 Estado de Sergipe manifesta interesse· na consolldac;ao de parceria com o Banco Mundial, na forma de emprestimo na modalidade Development Policy Loan - DPL, no valor de U$ 150,000,000.00 (cento e dnqUenta mtth6es de d6lares americanos), a ser liberado conforme cronograma financelro da operac;ao. Esses recursos serao destinados ao suporte financeiro das politicas apresentadas no presente documento, bern como do plano de politicas de desenvolvimento nas quais elas se inserem, representando importante contribuic;ao para o alcance, no Estado de Sergipe, de maior desenvolvimento economico com i nclusao social e reduc;ao da pobreza extrema. 'I JACKSO Governador do E a 64 SERGIPE LETTER OF DEVELOPMENT POLICY (UNOFFICIAL TRANSLATION) GOVERNMENT OF SERGIPE OFFICE OF THE GOVERNOR Official Letter No. 3.299/2012 Ref.GE No. 303/2012 Aracaju, October 03, 2012 Mr. Jim Yong Kim President The World Bank Washington, DC Subject: Sergipe – Development through Inclusion – Letter of Development Policy This document provides an overview of the public policies of the State of Sergipe, as well as a general, up-to-date view of the State’s economic and fiscal situation. It also includes the Government’s objectives for the years ahead, set out in the 2012-2015 Multiyear Plan – Sergipe: Development through Inclusion, which are broken down into initiatives aimed at the eradication of extreme poverty, the promotion of inclusive economic development and the building of a more equitable society. We are convinced that financial support from the World Bank, in the form of a Development Policy Loan (DPL), will greatly strengthen the initiatives included in the Sergipe Plan: Development through Inclusion, and have a positive impact on the expected results. 1. Public Policies in the State of Sergipe: context, recent progress, objectives and challenges The aim of public policies in the State of Sergipe in recent years has been to consolidate social policies and, at the same time, promote sound economic growth. In 2007, economic development through social inclusion was incorporated into the State’s public policy agenda, to allow for a refocusing of state action. In the State of Sergipe, the first initiatives based on this new development paradigm date from the 2008-2011 Multiyear Plan – Development with Inclusion through Rights and Income, under which efforts were already under way to implement “a new development model for the reduction of social exclusion and social and regional inequalities.� The realignment of state action in Sergipe broadly follows the same trend observed in the agenda of the Federal Government, where the imperative of social 65 inclusion with economic development has gained significant impetus in the last decade. The convergence of the federal and state programs can be viewed as a major factor in the increasing effectiveness of public policies in Sergipe in recent years. With GDP growth rates above the national average and significant improvements in its social indicators, results made possible by the acknowledged success of implemented policies, Sergipe intends to strengthen the public policies instituted in 2007. Despite the international financial crisis that erupted at end-2008, the growth of market price GDP in Sergipe remained above 5 percent between 2007 and 2010, except in 2008 when it fell to 2.6 percent. In 2009, Sergipe had the fourth highest growth rate among all Brazilian states. Other economic indicators show that Sergipe’s economy became stronger and more dynamic during the period. The increase in the number of formal jobs created in the State was nearly 100 percent greater than in the preceding four years. Spurred by the Sergipe Industrial Development Program, a total of 110 new industrial enterprises were launched, resulting in a significant jump in employment in the sector. Both consumption and credit expanded sharply between 2007 and 2010. Sizable investments in the expansion of potassium operations and in the fertilizer industry in the State are projected. Increased investment in the oil and natural gas industry is also planned, following confirmation of a new deep-water exploration area in the Sergipe basin. This discovery constitutes a milestone in this important segment of Sergipe’s economy, with the potential to double oil and natural gas production. Sergipe has made equally significant strides in the social arena. The improvement in recent years in such social indicators as access to basic sanitation, income, access to consumer goods, and living conditions has surpassed the national average. Between 2007 and 2010, the promotion of productive inclusion through income growth carried the economic development process to the interior of the State. More than half of all the new jobs created during the period were generated in cities in the interior of the State, primarily as a result of the development of industrial centers in the textile, food, and footwear industries and in the sugarcane production chain. In 2011, jobs created in the interior of the State accounted for 62 percent of the total. Family farming began to play an important role in social inclusion in the semi-arid region of the State, owing in large part to the expansion of dairy farming and the growing of corn. The policy of rural development through the promotion of family farming, the encouragement of agribusiness and the strengthening of local production chains contributed to the growth of these two economic sectors in the 66 State’s interior. Between 2006 and 2009, corn production in Sergipe grew from 185,000 tons to 703,000 tons, representing a 280 percent increase in production. Milk production during the same period rose 18 percent, in addition to the advances made in processing the product. With significant improvements in the social indicators of health, education and per capita income, Sergipe is proud to have the highest Human Development Index (HDI) and the best Socioeconomic Development Index (�ndice de Desenvolvimento Socioeconomico — IDSE/FGV) of all the states in the northeast region. However, according to a survey conducted in 2010 by the Ministry of Social Development and Hunger Alleviation (MDS), it is estimated that more than 300,000 people, or close to 15 percent of the total population, are still living in extreme poverty in the State of Sergipe. The Multiyear Plan Sergipe: Development through Inclusion 2012-2015 is aimed at strengthening the model for development with social inclusion through the implementation of public policies targeting the poorest segment of the population. The goal driving the Plan is the eradication of extreme poverty, which will guide the action of the State of Sergipe in the years ahead. Priority is therefore given to initiatives under four strategic pillars: (i) social development and affirmation of citizenship; (ii) excellence in public management; (iii) productive and logistical infrastructure; and (iv) inclusive economic development. The Plan also includes a policy monitoring and assessment methodology. Following the preparation of specific action plans defining objectives, goals, indicators, timeframes and responsible parties, a situation room will oversee the priority actions and programs. This unit, in addition to allowing for a more integrated and interdisciplinary approach to monitoring and assessment, will incorporate the cross-cutting nature of public policies through Governance Centers in four areas, in line with the strategic pillars defined in the Plan. The methodology permits comprehensive monitoring of the implementation process, to facilitate the provision of technical and analytical assistance to the Government Strategic Center. The methodology has been applied to the process of monitoring and assessing the Sertão Sergipano Agenda and the Plan for a Sergipe Mais Justo. The latter aims to expand public policies for productive inclusion and income generation, with priority given to the population living in extreme poverty. Monitoring is carried out continuously by a “situation room,� which consolidates data from the various responsible agencies and entities, prepares physical and financial monitoring reports assessing the progress of actions, and proposes adjustments and solutions. The reports produced by the “situation room� support the decision-making and direction of the monthly meetings of the Policy Integration Committees (Social Infrastructure Policy Committee, Committee for Policies on Access to Public Services, and Productive Inclusion Policy Committee) and of the quarterly 67 Management Committee meetings, and are made available directly to the Governor of the State. 2. Fiscal situation of the State of Sergipe In 2011, the State of Sergipe observed the prudential limit established in the Fiscal Responsibility Law, with total personnel expenditure accounting for 56.54 percent of net current revenue, of which 46.76 percent in the Executive Branch, 5.12 percent in the Judicial Branch, 1.63 percent in the Public Prosecutor’s Office and 3.03 percent in the Legislative Branch. State revenue totaled R$ 6.05 billion, representing nominal growth of 11.5 percent compared to 2010. Expenditure in 2011 was of the order of R$ 6.03 billion, indicating nominal growth of 10.3 percent since 2010. Of particular note is the fact that deducting total expenditure from total revenue reveals that the State of Sergipe achieved a surplus of R$ 21.5 million in 2011, which, compared to 2010, represents an increase of 142.0 percent. This positive development confirms that the adjustments made by the Government of Sergipe in the wake of the 2008 crisis are producing results. The deficit of R$ 130.1 million in 2009 was reduced to R$ 50.2 million in 2010 and eliminated in 2011, the year in which the surplus occurred. In 2011, revenue from the main state tax, the ICMS (state sales tax), amounted to R$ 1,958.1 million, the equivalent of approximately 81 percent of tax revenue and 32 percent of the State’s total revenue, representing nominal growth of 11.66 percent compared to the same period of the preceding fiscal year. The upward trend of IPVA (motor vehicle ownership tax) revenue continued, as a result of the national policy of temporarily reducing motor vehicle taxes. In 2011, IPVA revenue amounted to R$ 93.5 million, representing nominal growth of 17.10 percent compared to 2010. 3. Policies included in the World Bank operation The State of Sergipe, in view of the priorities defined in the multiyear plan, especially with reference to the incentivizing goal – the eradication of extreme poverty in the State –, proposes the composition of the project in three policy areas: (i) consolidation of fiscal management and innovations in public management; (ii) promotion of improvement in access to and the quality of public services and (iii) further deconcentration of development and productive inclusion in the territories. These three areas are reflected in the following specific objectives, which can be supported by the loan: 68 3.1. Policy 1 – Consolidation of fiscal management and innovations in public management 3.1.1 Improve the quality of citizen service The State of Sergipe’s citizen service policy is guided by the need to offer the population practicality and promptness in the delivery of public services through centralization in a single location. This is the rationale behind the Citizen Service Center (CEAC) network, which, in the last decade, has provided relevant services to the population of Sergipe, with more than eight million services provided between 2001 and 2011 in the three permanent units set up in the capital of Sergipe (Riomar, Rodoviária and Rua do Turista) and in one mobile unit, which, in the last three years, has traveled through all 75 (seventy-five) of Sergipe’s municipalities. Currently, the processes involved in providing services to citizens, both within the CEAC network and in various units of the State Transit Department (DETRAN), the Secretariat of Public Safety (SSP), the Secretariat of Finance (SEFAZ) and other agencies, are not standardized, which compromises the quality of the services, inasmuch as each service is provided in accordance with a different protocol. Thus, despite centralization in a single location, the current processes involved in providing services in the CEACs are determined by the type of service provided, so that citizens are required to appear at different windows, depending on the type of service requested. Consequently, the adoption of a “one-stop shop� is proposed for the one- time receipt of requests for all services offered at each CEAC unit. In addition, a document will be prepared with information on the procedures, commitments and service standards for the top ten services requested in Citizen Service Centers. This document, entitled “Charter of Services� will be widely disseminated, making it possible, on the one hand, to establish criteria for efficiency and effectiveness in the provision of services for the Public Administration and, on the other, to enhance credibility and build citizens’ confidence in the services. Simplification of these processes, through standardization and implementation of the “one-stop shop,� with the expected reduction in the service delivery time, are the main challenges facing the State in its effort to improve the quality of service. Accordingly, the aim of the proposed adoption of a Citizen Service Policy, in parallel with implementation of the “one-stop shop� and broad dissemination of the “Charter of Services,� is to ensure that public services are provided promptly and are of high quality. 3.1.2 Modernize key planning, budgeting, execution and control processes 69 In the field of fiscal management, the state Government is adopting the strategy of reviewing processes and putting in place a new integrated public management system known as i-Gesp (Integrated Financial Management Information System). The establishment of the i-Gesp system is one of the most important milestones in the recent process of modernizing the management of the public expenditure process in the State of Sergipe. The system is an IT solution for State Public Management that provides greater agility, flexibility, integration, control, transparency and quality. The system is fully integrated and includes planning, budgeting, budget execution, and financial and accounting modules. Because this system incorporates the entire range of government actions, requiring the use of the i-Gesp system in the executive branch is key to the success of the policy. The system is being implemented gradually, with the main planning, budgeting, budget execution, and financial and accounting models already in place. The next steps are implementation of the Price Bank, Public Debt Management, Integration with Human Resources (HR) Systems, and Asset Procurement and Control modules, which, in the medium term, will make the system a Government Resource Planning (GRP) system, with work schedules provided for in a decree that will require the use of the system in the executive branch. It is expected that the i-Gesp system will help reduce the labor and financial costs associated with all the modules included in the system, in addition to providing procedures, reports and standardized, more reliable balance sheets. Reduction of the average amount of time spent preparing management reports and the annual financial statements is one of the many specific impacts that adoption of the new system will have on State public management. 3.1.3. Boost revenue by combating tax evasion The State of Sergipe plans to boost revenue by combating tax evasion. It plans to augment and improve tools and procedures for the collection of claims, with a view to shortening the period between the generation of a tax claim and its subsequent collection. The establishment of the State Register of Unpaid Credits (State CADIN) and the listing of debtors in Serasa 33 will be important tools for the recovery of tax claims and will contribute significantly to increasing voluntary state tax 33 SERASA – Centralização de Serviços dos Bancos S/A – is a private Brazilian enterprise that collects and analyzes personal economic and financial information to support credit-related decisions, such as those concerning loans. It was created by banks with a view to centralizing information and reducing administrative costs (source: http://www.significados.com.br/serasa/). 70 compliance, given that the “negative status� of supplier enterprises listed in registers of defaulters will disqualify them from contracting with public entities and may also prevent them from obtaining bank loans. The purpose of the project to “virtualize� the past-due debt process is to permit monitoring of the judicial execution of tax proceedings, through the agencies involved: Sergipe Secretariat of State for Finance (SEFAZ), Office of the Attorney General of Sergipe (PGE) and the Tribunal of Justice (TJ). Implementation of the State Register of Unpaid Credits (State CADIN) and the listing of debtors in Serasa, as well as the initiative to virtualize the past-due debt process, need to be regulated by a Decree in order to be legally effective. In October 2011, regulations were issued concerning the State Register of Unpaid Credits (State CADIN) and the listing of debtors in Serasa. The state Government is currently preparing a decree that will regulate virtualization of the past-due debt process. 3.2. Policy 2 – Promote improvements in access to and the quality of public services 3.2.1. Improve the quality of maternal-infant care in high-risk cases in response to a major cause of maternal mortality Policies designed to expand access to and improve the quality of health care are key to strengthening the functioning of assistance networks in an integrated manner. Specialized networks providing care for women, such as the Rede Cegonha [stork] and Amamenta [breastfeeding] networks, emphasize state-provided maternal-infant care, the objective of which is to increase the number of pregnant women receiving care under the program, especially those at high risk, and to reduce maternal-infant mortality. It should be noted that in terms of dealing with maternal-infant health issues, the performance of the State of Sergipe, like other states in the northeast region, is troubling. However, in 1985-2000, the rate of infant mortality improved significantly. In the last decade, the reduction of that rate in the State of Sergipe has kept pace with the national trend, with an average decrease of 1.72 percent per year. The maternal mortality and infant mortality indicators are viewed as indicators of health system effectiveness and are useful in analyzing the health status of an administrative territory. The Rede Cegonha program, the objective of which is to strengthen and improve maternal-infant care, involves actions in Sergipe ranging from welcoming expectant mothers to a Family Health Clinic (CSF) to helping with the assessment of delivery risks at admission in maternity hospitals. The program also seeks to 71 promote the following: (i) family participation at the time of delivery; (ii) natural childbirth; and (iii) breastfeeding and the donation of breast milk to the breast milk bank. To implement health networks in the State, including the Rede Cegonha, the Government of Sergipe signed a Public Action Contract (CAP), which reorganizes and defines the functioning of the SUS (Unified Health System) at the regional level, with accountability for each sub-national entity, the decentralization of care and the proposal of goals for observing health indicators. The inclusion of federal entities in the Public Action Contract, pursuant to the Amendment to the Public Action Contract (TCAP), guaranteed more resources for the structuring of the Rede Cegonha, for maternal-infant care, and for the Urgent and Emergency Care network. Sergipe is the first Brazilian state to sign that document. 3.2.2. Improve the management of schools in the State of Sergipe system The education indices in the Sergipe state system, such as the Basic Education Development Index (IDEB), show that student performance is not commensurate with the joint efforts of teachers, managers and the government. Analysis of the data produced by the system suggests that the disappointing progress is attributable, among other factors, to the weak administrative management and teaching practices pursued in the schools. Much of this weakness is related to the nonobservance of criteria, especially meritocratic criteria, in the school director selection processes. The current process for the selection of directors does not require knowledge of minimum school management standards or of the educational policies that should be implemented in the schools. To strengthen the education management policy, the State Government is issuing a decree establishing a new merit-based system for the selection of school directors in the state system. In support of this policy and, with the help of a specialist in education management, the State Government is working jointly with managers and teachers in Sergipe to develop a forum for the discussion and development of pedagogical technologies aimed primarily at improving education outcomes. In addition to the merit-based selection of directors, current efforts include the training of managers and teachers with a view to improving the processes of planning, diagnosis and ongoing assessment of education activities. As an output of the workshops already held, two instruments were prepared: the “Management Agreement� and the “Guidance Index.� The former consists of a diagnosis and the establishment of a set of educational goals and actions defined for the system and for each school and agreed among the parties, in a collective commitment for improving the quality of education in the Sergipe state system. 72 The latter document institutes procedures for monitoring and assessing the various dimensions of school activities, based on the systematic monitoring of daily school activities and the results they produce. Parallel to this task, the State Government has introduced curricular standards for the system and is discussing with the schools the development and systematization of school curricula. As part of these efforts, draft decrees and decree-laws have been prepared to standardize the merit-based selection of directors and other measures to improve education initiatives. 3.2.3. Improve learning conditions in the municipal basic education system The effort of the State Government to improve the education indicators in the State of Sergipe must extend beyond the education system it manages. Some of the weakness of Sergipe’s education system is attributable to the municipalities, as demonstrated in indices such as the IDEB. Based on this observation, and considering the fact that the municipal system educates approximately 284,000 students (the State system has close to 200,000 students 34 and the private system 96,900) the State administration understands that state and municipal policies and actions need to be coordinated and that the entire knowledge base and structure of the State Secretariat of Education must be made available to strengthen education in the State. Consequently, one of the State Government’s objectives is to improve the learning conditions in the municipal elementary education system, by supporting implementation of the National Program for Literacy at the Right Age (PNAIC) in the municipalities. To attain this objective, a state-municipal cooperation mechanism will be established for implementation of the PNAIC, including the formation of a central administrative unit, specifically to ensure coordination of the State policy with the municipal systems. The PNAIC is an integrated program promoting literacy in the Portuguese language and in mathematics up to the third year of elementary education, for all children in Brazil’s municipal and state schools. It is characterized by the integration of various actions and teaching materials that contribute to literacy; by the fact that the program is managed jointly by the Federal Government, the states and the municipalities; and by its aim of guaranteeing students’ right to learning and development, as determined through annual assessments. The pillars put in place in the PNAIC to improve education are: teaching materials, literature, digital education technologies, assessment and supervision, and social mobilization. Accordingly, and considering the deficiencies of the municipalities, the main objective of the partnership between these two groups – state and municipal – is to 34 Source: MEC/INEP – 2011 Basic Education Census 73 improve education indices using new teaching tools, with the state accepting responsibility for coordination of the Program and for technical cooperation and assistance to the municipalities for implementation of the PNAIC in Sergipe. 3.3. Policy 3 – Promote socioeconomic development with inclusive growth 3.3.1. Strengthen the milk and dairy production chain, with a focus on family farming Most of Sergipe’s dairy industry, which is based on small family farms, is located in the semi-arid region of the State. Dairy production in Sergipe recently experienced significant growth, with rates higher than those of other regions with better weather. The structure of land ownership is quite fragmented, with small production units predominating. Close to 90 percent of the production units are small landholdings of fewer than 30 hectares, each with a small herd: approximately 10 cows producing roughly 50 liters per day. This activity is the main source of income and means of participation in the market for nearly all family producers. The production is also characterized by the widely dispersed supply of milk, generally of poor quality, costly to produce primarily because of the intensive feeding required, and totally dependent on external purchases; by the poor organizational capacity of producers with low levels of education; and by a production process that is environmentally aggressive and depletes natural resources. The milk and dairy production chain in Sergipe is expected to experience demand growth in the medium term of roughly 300,000 liters of milk per day, with the start of operations of a large-scale dairy company currently under development in the sub-humid area of the State. It is unlikely that this volume can be supplied with the current production in the above-mentioned inland dairy region, amounting to approximately 800,000 liters per day, which are already committed to satisfying existing demand. In this context, dairy farming is a potentially favorable option for the economic conversion of producers in the irrigated perimeters of this region, provided that intensive, low-cost and environmentally conscious farming techniques are employed on sustainable bases. Social inclusion through reinforcement of the milk production chain in the semi-arid region requires improvement of the productive organization, through the inclusion of family farmers in intensive milk production centers, as well as improvement of the sanitary conditions of the product. The State Government is therefore developing a program for the inclusion of family producers in milk production centers, with prior training in intensive systems and sanitary practices. The idea is to replicate the model of the Balde Cheio, Intensive Milk Production System project for other organizations in the State. 74 3.3.2. Promote the use of environmentally sustainable agricultural practices – “green growth� Among other things, the aim of organic farming is to guarantee economic and ecological sustainability, maximize social benefits, minimize reliance on nonrenewable energy, and whenever possible, to use biological and mechanical cultivation methods, instead of synthetic materials (agrochemicals), as well as eliminate the use of genetically modified organisms. In summary, it can be said that the objective of organic farming is the formation of more balanced ecosystems, in order to preserve the biodiversity, cycles and biological activities of the soil. Consequently, action is generally taken through systems designed to support the growth of organic farming. In Sergipe, the technical assistance and rural extension service, which is under the responsibility of the State Company for Agriculture and Livestock Development (EMDAGRO), and other institutional partners are carrying out a series of green agriculture initiatives in the southern, rural and eastern areas of the State. More specifically, these actions take the form of technical assistance and ongoing training programs for specialists and producers, using ecologically based demonstration units, especially for produce. The requirements for selling organic products in Brazil and elsewhere in the world depend in large measure on the relationship of trust between producers and consumers, as well as quality control systems. Brazilian legislation exempts family farmers from the requirement of certification of organic products, enabling them to sell organic products directly to consumers. As a result of this alternative, the work of EMDAGRO is growing and, in 2012, this policy is expected to apply to 100 family farmers, including 15 women, through Social Control Organizations (OCS), which will allow for the direct sale of products at outdoor organic markets to be set up in those territories. Thus, it is expected that actions under this policy will include the training of specialists and producers in organic production systems, the improvement of environmental quality and the preservation of natural resources, the expansion of marketing channels for organic products and, lastly, increased family income and food security for consumers. 3.3.3. Expand employment and income opportunities for the socioeconomically vulnerable population (seasonal rural workers engaged in the growing of sugarcane and oranges) The objective of productive inclusion is to promote access to income for people living in situations of social risk and vulnerability. The cycle of poverty 75 reproduction and household dependence on government social programs can only be broken when the necessary conditions for these households to gain autonomy and provide for themselves are created. This is one of the main “pillars� of the national plan to eradicate poverty, Brasil Sem Miséria, and of the corresponding plan in Sergipe, Sergipe Mais Justo. In rural areas, alternatives are being considered to increase family farm production, and interaction with the Agriculture and Food Security Programs is substantial. One of the State Government’s foremost productive inclusion initiatives in rural areas is the Helping Hand Program (Programa Mão Amiga), the aim of which is to implement measures to alleviate the effects of seasonal unemployment in the period between the sugarcane and orange crops, aimed at income generation, greater food security, vocational training and improvement of the quality of life of the affected population. The annual goal of the Helping Hand Program is to help 10,000 workers: 5,000 orange grove workers and 5,000 sugarcane workers. The program provides assistance in the amount of R$ 190.00 during the four months between crops. In exchange, the worker or a member of his family attends professionalization courses and/or citizenship, health and agriculture modules. Effective implementation of the partnership with the State Secretariat of Education, with a view to including in the State Literacy Program illiterate rural workers covered by the Helping Hand Program, is yet another step toward breaking the cycle of poverty in the poorest regions of Sergipe. 3.3.4. Strengthen the Unified Social Assistance System (SUAS) Since the 1998 Constitution, social assistance through the Unified Social Assistance System (SUAS) has become a universal, non-contributory, decentralized, and participatory policy that provides social protection services and assistance benefits to the socially vulnerable population. The strengthening of the SUAS in Sergipe over the years has resulted in significant advances: approximately 239,566 households are beneficiaries of the Bolsa Família Program, out of a universe of 358,808 households registered in the CadÚnico (single registry database) in March 2011; the coverage of Social Assistance Reference Centers (CRAS) now extends to all 75 municipalities in Sergipe, in addition to 35 Specialized Social Assistance Centers (CREAS) located in 32 municipalities and one Specialized Homeless Center (CREASPOP) located in the capital. However, much remains to be done in terms of the management and quality of services at the municipal level. Moreover, the Brasil Sem Miséria Plan and, at the state level, the Plan for a Sergipe Mais Justo, give rise to new demands and new challenges for the organization and delivery of social assistance services. Such 76 is the case with actively seeking out the extremely poor, which places more complex demands on social assistance managers, workers and advisors. This will undoubtedly place greater technical, political and ethical demands on these individuals. In these circumstances, the State Government’s willingness to establish “state co-financing� will be a major step forward. This involves the transfer of financial resources from the State Social Assistance Fund (FEAS) to the Municipal Social Assistance Funds (FMAS) to co-finance the improvement of management, services, programs, projects and possible benefits, such as, for example, active targeting in the municipalities. 3.3.5. Increase the access of women living in violent situations to protection and prevention programs and better quality services The inequality between women and men in Brazil is an incontrovertible and persistent fact. The World Economic Forum’s most recent Global Gender Gap Index (GGI), issued in November 2011, shows that Brazil is in 82nd place among the 135 countries in the ranking, behind all the other South American countries. The study demonstrates, in sub-indices, that the gender gap in Brazil is greatest in the areas of “political empowerment� and “economic participation and opportunities.� The problem of violence against women widens the gender gap in Brazil, primarily among the most disadvantaged where women live in a situation of greater social vulnerability. The subject of gender inequality achieved public policy status in recent years with the creation of government institutions and actions to tackle inequality and violence against women. In July 2009, the State of Sergipe signed the National Pact on Combating Violence Against Women, the aim of which is to reinforce the National Policy to Combat Violence Against Women through the implementation of integrated public policies throughout Brazil. In parallel with the lines of action in the Pact, the State of Sergipe has worked hard to expand the network of “Women’s Assistance Centers� by delegating responsibility for specialized services to key municipalities. The services provided by these centers for women living in situations of violence or vulnerability include shelters, specialized know-how, and services designed to re-educate aggressors and instill a sense of accountability. Plans are under way to formalize the Terms for Technical Cooperation between the State and the key municipalities in each planning area. With the expansion of the service network, it is expected that larger numbers of women victims of violence will receive help. 77 4. Request for financial assistance The State of Sergipe would like to strengthen its partnership with the World Bank through a Development Policy Loan (DPL) in the amount of US$150,000,000.00 (one hundred fifty million U.S. dollars), to be disbursed in accordance with the financial schedule for the operation. These resources will be used to provide financial support for the policies described in this document and for the development policies plan of which they are a part, thus making a major contribution, in terms of scope, to greater economic development with social inclusion and the reduction of extreme poverty in the State of Sergipe. Respectfully, JACKSON BARRETO DE LIMA Acting Governor of the State of Sergipe 78 ANNEX 2: SERGIPE DEVELOPMENT THROUGH INCLUSION POLICY MATRIX OBJECTIVES POLICY ACTION RESULTS INDICATOR 1.1 Improve the Quality of Policy Action 1: The State of Sergipe standardizes Increase responsiveness to citizen Government-Citizen services oriented to respond to citizens’ needs/complaints complaints in the Citizen Service Centers Services by issuing (a) Decree No. 28837 of October 18, 2012 (CEAC) regulating a “one-stop shop� model (guichê único) – Baseline (Oct 2011): 15 percent of Published in the Diário Oficial do Estado on October 22, complaints receive a written explanation in 2012) and (b) Portaria No. 3242 on October 29, 2012 the Riomar and Rua do Turista CEACs establishing the Charter of Citizens’ Attention Services Endline (Dec 2013): 90 percent of (Published in the Diário Oficial do Estado on October 31, complaints receive a written explanation in 2012) the same CEACs Responsibility: State Secretariat of Planning 1.2 Modernize Key Policy Action 2: The State of Sergipe issues Decree No. Reduce the time to produce agreed upon Planning, Budgetary, 28830 of October 16, 2012 making the use of i-Gesp managerial reports through i-Gesp Execution and Control (which includes the processes of (i) planning, (ii) Baseline (Dec 2010): reports not available Processes budgeting, (iii) budgetary and financial execution, (iv) under the previous system (SAFIC) public accounting, and (v) agreements management) Endline (Dec 2013):4 reports 35 produced compulsory within the executive branch, with an automatically implementation schedule for the price database, debt management, integration with human resource systems, purchases and assets monitoring modules (Published in the Diário Oficial do Estado on October 18, 2012) Responsibility: State Secretariat of Finance 1.3 Increase Revenues Policy Action 3: The State of Sergipe issues Decree No. Increase in revenues collected from tax Through Combating Fiscal 28843 of October 19, 2012 regulating a virtual and arrears as a share of the stock of tax arrears Avoidance integrated process – between the State Secretariat of Baseline (Dec 2011): 0.43 percent Finance, the Office of the Attorney General of Sergipe, Endline (Dec 2013): 0.52 percent and the Judiciary – for collection of tax arrears (Published in the Diário Oficial do Estado on October 23, 2012) 35 The four reports are: (1) Asset Sales Control, (2) Collected Revenue Comparison, (3) Debt Amortization Comparison and (4) Construction/ Facilities/ Property Acquisitions for Use by the State Administration. 79 OBJECTIVES POLICY ACTION RESULTS INDICATOR Responsibility: State Secretariat of Finance, Office of Attorney General of Sergipe 2.A.1 IMPROVE THE Policy Action 4: The State Secretariat of Health publishes Increase the number of maternity hospitals QUALITY OF MATERNAL an Amendment to the Public Action Contract (Termo implementing the protocol for classification AND NEWBORN HEALTH Aditivo ao Contrato de Ação Pública – TCAP), which of admissions by risk (Acolhimento com SERVICES FOR HIGH RISK includes the priority maternal and newborn health Classificação de Risco – ACCR) PREGNANCIES program Rede Cegonha, integrating municipal actions and Baseline (Dec 2011): 1 services under the SUS-Sergipe (Date: April 25, 2012) Endline (Dec 2013): 3 (75 percent of maternity hospitals under state management Policy Action 5: The annual regional plans, which include that were operating under normal conditions in 36 implementation of Rede Cegonha, are approved by the 2013) State-and-Municipal Committee (Colegiado Interfederativo Estadual – CIE) (Issuance of deliberations Reduce the cesarean section rate at the for the regions of Aracaju, Itabaiana, Estância, Nossa referral Maternity Hospital Nossa Senhora Senhora do Socorro, Propriá, Lagarto and Nossa Senhora de Lourdes according to the guidelines in da Glória, May 24 to June 22, 2012). The strength of the Portaria No. 3477/1998 action is further supported by the Ministry of Health’s Baseline (Dec 2011): 55.2 percent validation of the plans through publication of a Portaria Endline (Dec 2013): 50.2 percent No. 3069 of December 27, 2012 (Published in the in the Diário Oficial da União on December 28, 2012) Responsibility: State Secretariat of Health, Ministry of Health 2.B.1 IMPROVE SCHOOL Policy Action 6: The State of Sergipe issues Decree No. Increase the number of school directors MANAGEMENT IN STATE- 29120 of March 6, 2013 implementing a new school selected by merit and with signed RUN SCHOOLS management model based on use of result-based management agreements management strategies and selection of school directors Baseline (Dec 2011): zero by merit and through a participatory/ democratic processes Target (Dec 2013): 151 school directors (Published in the Diário Oficial do Estado on March 8, selected and with signed management 2013) agreements (40 percent of 378 state schools) Responsibility: State Secretariat of Education 36 One of the State’s five public maternities will be operating in temporary quarters while a new facility is under construction. 80 OBJECTIVES POLICY ACTION RESULTS INDICATOR 2.B.2 IMPROVE LEARNING Policy Action 7: The State of Sergipe issues Portaria No. Increase the number of municipalities RESULTS IN MUNICIPAL 6146 of October 04, 2012 establishing the State-and- receiving technical assistance from the State ELEMENTARY SCHOOLS Municipal collaboration to support implementation of the in the implementation of PNAIC Literacy at the Right Age Program (PNAIC) in municipal Baseline (Dec 2011): zero schools (Published in the Diário Oficial do Estado on Target (Dec 2013): 38 municipalities (50 October 10, 2012) percent of all municipalities in the State) Responsibility: State Secretariat of Education 3.A.1 STRENGTHEN THE Policy Action 8: The State of Sergipe issues Decree No. Increase the number of trained small CATTLE MILK AND DAIRY 28733 of August 27, 2012 organizing production to producer units included in the Núcleos de PRODUCTION CLUSTER include family farmers into the Dairy Production Clusters Produção de Leite and selling at least 90 WITH FOCUS ON FAMILY (Núcleos de Produção de Leite), which are part of the percent of their production to private and AGRICULTURE Intensive Production System (Balde Cheio) that aims to public/institutional markets 37 improve quality by providing sanitary certification of Baseline (Dec 2011): 3 dairy products and genetic enhancement of the herd in the Endline (Dec 2013): 30 irrigated perimeter of Jabiberi (Published in the Diário Oficial do Estado on August 30, 2012) Responsibility: State Company for Water Resources and Irrigation 3.B.1 PROMOTE USE OF Policy Action 9: The State of Sergipe enacts Law No. Increase the number of small producers ENVIRONMENTALLY 7270 on November 17, 2011, creating the Program for included in the Program for Agroecological SUSTAINABLE Agroecological Production for inclusion of family farmers Production and linked to the Social Control AGRICULTURE PRACTICES and establishing instruments to give incentives for Organizations selling directly in – ‘GREEN INCLUSIVE environmentally sustainable production (Published in the agroecological fairs and to private and GROWTH’ Diário Oficial do Estado on November 23, 2011) public/institutional markets38 Baseline (Dec 2011): 83 producers, 5 Responsibility: State Company for Agriculture and women Livestock Development Endline (Dec 2013): 100 producers, 15 women 37 Federal government programs for food acquisition: (i) Programa de Aquisição de Alimentos da Agricultura Familiar (PAA), created through the Federal Law No. 10.696/2003; and (ii) Programa Nacional de Alimentação Escolar (PNAE), created through the Federal Law No. 11947/2009. 81 OBJECTIVES POLICY ACTION RESULTS INDICATOR 3.B.2 INCREASE Policy Action 10: Certification 38 that participants from Increase the number of seasonal workers EMPLOYMENT AND INCOME the State’s income transfer and generation program Mão benefitting from the program Mão Amiga OPPORTUNITIES FOR THE Amiga are enrolled in the literacy program Sergipe included in the program Sergipe MOST VULNERABLE Alfabetizado (Certification dated August 23, 2012) Alfabetizado PEOPLE (ESPECIALLY Baseline (Feb 2012): 0 SEASONAL ORANGE AND Responsibility: State Secretariat of Social Assistance and Endline (Dec 2013): 565 (50 percent), 1/8 of SUGARCANE PRODUCTION State Secretariat of Education which are women WORKERS) 3.C.1 STRENGTHEN THE Policy Action 11: The State of Sergipe enacts Law No. Increase the number of families with SOCIAL ASSISTANCE 7251 of October 31, 2011 (published on November 7, monthly per capita income of less than SYSTEM (SUAS) – BUSCA 2011) establishing the detailed resource transfer system to R$70.00/month living in the poorest 15 ATIVA FOR INCLUSION IN finance social assistance in municipalities, and municipalities included in the CadÚnico THE CADÚNICO institutionalizes co-financing agreements with two Baseline (Jan 2012): 39,582 families municipalities (Published in the Diário Oficial do Estado Endline (Dec 2013): 41,561 families on November 7, 2011) Responsibility: Secretariat of Social Assistance and Ministry of Social Development 38 A high-ranking officer in the Secretariat of Education, Secretariat of Social Assistance or related entity issues a certificate of approval attesting to accuracy of the list of participants. 82 OBJECTIVES POLICY ACTION RESULTS INDICATOR 3.C.2 SCALE UP STATE AND Policy Action 12: Technical Cooperation Agreement Increase the number of women in situations MUNICIPAL GOVERNMENT signed between the State and at least one municipality in of violence and vulnerability attended in the SUPPORT PROGRAMS each of the four (4) regions with the highest concentration Rede de Atendimento à Mulher Vítima de AIMED AT PROTECTING of gender-based violence (Sul Sergipano, Agreste, Baixo Violência WOMEN IN SITUATIONS OF São Francisco and Alto Sertão) for decentralizing women Baseline (Mar 2012):3,985 VIOLENCE AND protection and support programs to the interior of the Endline (Dec 2013): 6,973 VULNERABILITY State, as required by the Cooperation Agreement of July 21, 2009 between the State and Federal Government (Agreements signed on October 9, 2012 for Poço Redondo municipality in Alto Sertão Sergipano, Propriá municipality in Baixo São Francisco and Itabaiana municipality in Agreste Sergipano; and on December 7, 2012 for Estância in Sul Sergipano) Responsibility: State Secretariat of Public Security and Special State Secretariat of Women 83 ANNEX 3: COUNTRY AND STATE AT A GLANCE Brazil at a glance 3/29/ 12 Lati n Upper- POVERTY and SOCIAL America middle- Deve lopment diamond" Brazil & Carib. inco m e ~ 010 P opulation, mid-;ear (millio ns) 1949 583 2 ,452 Life expectancy GN I per capita (Atlas method, US$) 9 ,390 7 ,733 5 ,884 GN I (Atlas metho d, US$ billions) 1,830 4 4 ,505 U ,429 A v erage annual growth , 2004-10 P opulation ("A,) 10 12 07 Labo r force ("A,) 16 2 .0 1.2 GNI Gross per primary Mo s t re cent e s timate (late s t yea r available , 2004-10) capita enrollment Pove rt y(%o f popu/ati:J n below national po vertyline) 21 Urban population (% o f total popu/a/i:J n) 87 79 57 Life expect ancy at birt h (;ears) 73 74 73 Infant rn a rt ality (per 1,000 live births) 17 18 17 Child m alnutrition (%of ch#dren under 5) 3 3 Access to improved wa ter source Access to an im proved water source (% of population) 98 94 93 Lit eracy(%of popu/ali:J n age 15->j 90 91 93 Gross primary enro llm ent ("A,ofschool-age population) 127 117 111 - - Brazil Male 132 119 111 - - Upper-m iciJie-irrcxn e grOtp Female 123 115 111 KEY E CONOM IC RATIOS and LONG-TERM TRENDS ,. 1990 2000 2009 ,. 2010 Eco n omic rat ios"' GOP (US$ billions) 462.0 644 .7 \594 .5 2 ,087.9 Gross capit al fo rmation /GOP 20 2 1!3 135 192 Expo rt s o f goods and services/GOP 82 tl.O 111 11.2 Trade Gross do mestic sav ings/ GOP 2 14 13.5 135 1!.3 Gross national savllgs/ GDP 189 139 U7 13 5 + Current account balance/ GOP -08 -38 - 15 -23 Int erest paym ents/GOP Domestic Capital 0.5 2 .7 09 0 .7 savi ngs formation Total debt/ GOP 259 37 5 174 136 Total debt service/ expo rt s 22 4 89 7 17 7 134 Present v alue o f debt/GOP tJ.6 P resent v alue o f debt/exports 1138 Indebtedness 1990-00 2000-10 2009 .. 2010 2010-14 (averag e annual gro wlh) GOP 2 .7 3.7 .()_6 75 3 .9 - Brazil GDP per ca pita 12 26 - 15 66 31 - - Upper+midde-income g-oop Expo rt s a f go ods and services 5 .9 6.4 -1J.2 115 U.O STRU C TURE or t he ECONO MY .I 1990 2000 2 009 .. 2010 Growth or capital and GOP (%) ("A,ofGDP) Agric ulture Indust ry M anu facturing 8.1 387 5 .6 27 7 17 2 6 .1 254 tJ.8 5 .8 268 tJ.8 20 1 : ---=s,:rr=S~ h Serv ices 532 66.7 68.5 67.4 - 1o os 06 ~~o ·20 Househok:l final co nsumptio n expenditure 59 3 64 3 617 606 General gov 't fin al consumption expen diture 19 3 192 218 212 - GOP lm ports a f goods and servic es 7.0 117 112 12.1 1990-00 2000-10 2 009 .. 2010 Growth or ex ports and i mports(%) (average annual growth) "~ t. Agriculture 36 36 -46 65 30 Indust ry 24 28 -67 1l2 20 Manufacturing 2.0 2 .5 -62 9 .7 10 Serv ices Househok:l final co nsum ptio n expenditure 38 37 39 40 21 02 54 1l4 -1: ~ -20 ~0 General gov1 final co nsumption expenditure to 3 .3 39 3 .3 Gross capit al fo rmat ion 42 47 -1l 3 219 - Exports - Imports Impo rts o f goo ds and servic es 116 85 - 115 362 Not e : 2010 data are prelim inaryestim ates. T his ta ble was pro duc ed f rom the Dev elopment Eco no mics LD B database "The diam o nds show fa ur k ey indicators in the co untry ~n bold) co mpared with •s in com e1)roup av erage .If data are m issing , the diam a nd will be inco mplete. 84 Brazil P R IC E S and G OVERN M ENT FI N AN C E ,. 1990 2000 2009 ,. 2010 lnflatioo (%) D o m estic pric e s 'l ~ (%change) Consum er prices \ 6210 6.0 5.9 5.3 lm plic it GOP deflator 2,735.5 6.2 5.7 7.3 Go ve rnment f i nanc e (%of GOP, includes current grants) Current revenue '6.5 23.2 25.0 05 OG 07 08 oe 10 Current budget balance -2.2 2.9 4.6 - GDPden ator - o - C PI Overall s urp lus/deficit 4,162.3 -2.1 -3.4 -2.2 TRACE ,. 19 90 2 000 2 0 09 ,. 2010 Export and import levels (U S$ mill.) (US$ m illio ns) To tal exports (fob) 30,729 54,1!7 208,178 230,377 t~~ra~~.~w Coffee 2,656 3,048 20,615 20,932 Soybeans 2,854 2,1!8 13,902 13,962 M anufactures 19,624 32,528 108,534 '126,694 To tal imports (cif) 20,661 55,783 172,782 198,192 Food \ 379 \ 507 2,761 2,929 Fuel and energy 4,354 6,358 26,002 27,511 Capital goods 5,932 13,605 37,543 43,606 04 05 06 07 08 09 10 Export price index (2000=1JO) 103 100 '124 112 lm port price index (2000=1JO) 63 100 99 98 • Expats I Imports Terms of t rade (2000=1JO ) '64 100 '125 114 BALA NC E of PA YM E N TS ,. 1990 2000 2009 ,. 2010 Current account b alance t o GOP (%) (US$ m illio ns) Exports of goods and services 35,'66 64,584 1!0,723 233,736 Imports of goods and services 28,010 72,444 174,679 244,322 Resourc e balance 7,156 -7,860 6,044 - 10,586 Net incom e -1t773 - 17,886 -33,684 -39,567 Net current t ransfers 833 \ 521 3,338 2,788 ·1 Current acco unt balance -3,784 -24,225 -24,302 -47,365 -2 Financ ing items (net) 4,264 2 1963 70,953 96,465 -3 Changes in net reserves -481 2,262 -46,651 -49,101 M e mo : Reserves inc luding gold (US$ m illio ns) 9,973 33,011 273,'123 297,571 Convers ion rate (DEC, local/US$) 2.50E-5 18 2.0 18 E X TER NA L DEBT and RESOUR C E FLOWS 1990 ,. 2000 2 009 ,. 2 0 10 Compositio n of2010 d ett (US$ mill.) (US$ m illio ns) To tal debt o utstanding and disbursed 119,732 24 \ 550 276,91) 346,978 IBRD 8,427 7,377 10,065 13,523 A 13,523 IDA 0 0 0 0 To tal debt service 8,156 64,843 44,590 45,806 IBRD \ 975 \351 2,231 \ 141 IDA 0 0 0 0 Composition o f net reso urc e f lows Offic ial grants 41 53 196 413 Offic ial creditors -634 - 1801 3,433 8,685 Privat e creditors -410 4,8 '12 23,8'12 44,067 Foreign direc t investment (net inflows) 989 32,779 25,949 48,438 Portfo lio equity (net inflows) 103 3,076 37,071 37,684 F 240,231 World Bank program Comm itments 905 1290 \861 5,440 Disbursem ents 782 \ 692 \ 274 4,472 A - lBRO E- BlateraJ Princ ipal repaym ents 1251 887 1872 960 B- IDA D - Other mlltilateraJ F- A'ivate C - IMF G - Slut-term Net f lows -469 805 -598 3,5'12 Interest paym ents 725 464 359 1!0 Net t ransfers -\ 193 341 -957 3,332 No te: This t able was produced from the Development Economics LOB dat abase. 3/ 29/ '12 85 Sergipe at a glance Sergipe, Age Distribution 2010 (% of total Key Development Indicators population) Sergipe Brazil 2010 75-79 1,A Population, mid-year (millions) 2.1 190.8 A 65-69 Surface area (thousand sq km) 22 8,515 1,A 55-59 Average population growth (2000-2010, %) 1.50 1.17 Urban population (% of total population) 1,A 74 84 45-49 35-39 2009 25-29 2,B,C GDP (current prices, US$ billions) 10 1,622 C 15-19 GDP (current prices, R$ billions) 20 3,239 GDP per capita (current prices, US$) 2,B,C,D 4,902 8,472 5-9 C,D GDP per capita (current prices, BRL) 9,787 16,918 Less than a year 6 4 2 0 2 4 6 GDP growth (%) C 4.44 -0.31 GDP per capita growth (%) D 3.39 -1.29 Male Female Sergipe, Poverty Headcount (% of the E Poverty headcount ratio at $1.25 a day (PPP, %) 10.0 6.1 population) - National poverty lines (IPEA) E Poverty headcount ratio at $2.00 a day (PPP, %) 19.3 10.8 0.7 Extreme Poverty headcount ( National poverty line ) 3,F 13.49 7.28 Poverty headcount ( National poverty line ) 3,F 37.63 21.42 0.6 Gini F 0.576 0.543 0.5 G Life expectancy at birth (years) 71.7 73.3 0.4 Infant mortality (per 1,000 lives births) - 20104H 15.0 13.9 Child malnutrition (% of children under 5) - 2006 G 2.0* 1.9 0.3 *Northeast region 0.2 Adult literacy (% of ages 15 and older) A 81.6 90.4 Net primary enrollment (% of age group) I 97.2 97.6 0.1 0 5,I 1995 1998 2002 2005 2008 Access to improved water source (% of households) 87.0 84.4 6, Acces to improved sanitation facilities (% of households) 53.1 59.1 Extreme Poverty Poverty J Government Finance Sergipe Brazil 2001 2009 2001 2009 (% of GDP) Current Revenue (including grants) 20.6 21.5 17.2 18.9 Tax Revenue 7.3 7.6 7.5 8.0 Current Expenditure 18.5 22.3 15.6 17.7 Overall surplus/deficit 0.3 0.8 (1.9) (3.3) Primary Surplus 1.5 (0.8) 1.7 1.3 SE Consolidated Net Debt (NCD) and Net Current Revenue (NCR), 2000-2012* 6.0 1.0 0.88 0.9 0.78 5.0 Debt and Net Current Revenue 0.73 0.8 0.69 0.7 4.0 0.65 (in R$ bi of 2012) 0.57 0.6 NCD/NCR 0.46 0.48 3.0 0.45 0.42 0.5 0.33 0.4 2.0 0.26 0.22 0.3 0.2 1.0 0.1 0.0 0.0 2000 2001 2002 2003 .. 2004 .. 2005 2006 ..2007 .. 2008 2009 2010 2011 2012* NCD/NCR NCD NCR * Up to August 2012 86 Sergipe Long-Term Economic Trends 1980-1991 1991-2000 2000-2010 1980 1991 2000 2010 (average annual growth %) 1,A Brazil 119.0 146.8 169.8 190.8 1.93 1.63 1.17 Population, mid-year (millions) Sergipe 1.2 1.5 1.8 2.1 2.34 1.99 1.50 1995-2000 2000-2005 2005-2009 1995 2000 2005 2009 (average annual growth %) 2,B,C Brazil 927,037 1,024,052 1,174,788 1,358,203 2.01 2.78 3.69 GDP (constant price 1998, BRL million) Sergipe 5,036 5,678 7,346 8,288 2.65 3.94 4.33 2,B,C Brazil 799,097 882,724 1,012,657 1,170,759 GDP (constant price 1998, US$ million) Sergipe 4,341 4,894 6,332 7,144 C Economic Sector 1995 2000 2005 2009 1995-2000 2000-2005 2005-2009 (% of GDP) (average annual growth %) Brazil 5.8 5.6 5.7 5.6 3.27 4.18 3.14 Agriculture Sergipe 6.5 4.6 4.4 5.9 -1.41 6.28 9.16 Brazil 27.5 27.7 29.3 26.8 1.08 2.50 1.39 Industry Sergipe 26.0 24.7 33.3 27.9 3.67 3.85 3.79 Brazil 18.6 17.2 18.1 16.6 0.25 2.90 0.05 Manufacturing Sergipe 14.5 14.0 10.7 8.6 3.81 4.33 3.66 Brazil 0.8 1.6 2.5 1.8 3.06 6.36 2.06 Extractive Sergipe 1.5 2.2 6.0 5.2 3.69 0.20 2.02 Brazil 66.7 66.7 65.0 67.5 2.13 2.90 4.35 Services Sergipe 67.5 70.7 62.3 66.2 2.32 3.63 3.84 GDP Growth GDP per Capita Growth 0.08 12% 0.07 10% 0.06 8% 0.05 6% 0.04 4% 0.03 2% 0.02 0% 0.01 -2% 0 -4% -0.01 -6% 1996 1998 2000 2002 2004 2006 2008 1996 1998 2000 2002 2004 2006 2008 Brasil Sergipe Brazil Sergipe Sources: A - Census 2010/IBGE; B - IMF WEO; C- Regional Accounts/IBGE; D- IBGE; E - WB; F- IPEA using PNAD/IBGE; G- Ministry of Health/Datasus; H- Ministry of Health/MS/SVS/DASIS/CGIAE; I- PNAD/IBGE; J- National Treasury Notes: 1 Numbers refer to Census 2010 very recently released by IBGE. The 194.9 billion population for Brazil that appears on the text and table Brazil at a Glance refers to the official IBGE's estimate of total population for 2010, which was available at the time of preparation of the the document and released before the Census was concluded. 2 GDP and GDP per capita data for Brazil were taken from IMF WEO survey. The values for the State of Sergipe were estimated using share in total GDP (IBGE regional accounts) and population estimate for 2009, both from IBGE 3 Extreme porverty line here is estimated as a consumption basket with the minimum necessary calories for a person's adequate survival according to WHO. Poverty line is twice the value of the extreme 4 Administrative data using Active Search (Busca Ativa) 5 Access to water network supply per household (IBGE Tables) 6 Access to sewage disposal system or to septic tank connected to disposal system per household (IBGE Tables) 87 ANNEX 4: FISCAL SUSTAINABILITY ANALYSIS A4.1. Sergipe’s main sources of revenue are transfers from the Federal Government. In 2011, transfers accounted for 44.7 percent of the State’s revenues while tax revenues summed up to 36.5 percent. This ratio has been roughly maintained in the last three years. In 2011, total transfers amounted to R$3.1 billion and tax revenues reached R$2.4 billion. Other sources of revenue include social contributions for the funding of the civil servant retirement plan and other minor revenues, such as rents and dividends paid by state-owned enterprises. A4.2. The main transfer is the State Participation Fund, which amounted to R$2.5 billion in 2011 or 80 percent of the State’s transfer revenue. It is a rule based transfer from the Federal Government, composed of proceeds from the income tax and tax on industrialized products. Due to its significant production of oil and energy, Sergipe also receives royalty transfers, which totaled R$163 million in 2011. A4.3. The main source of tax revenue is the value added tax, which collected R$2 billion in 2011. This tax is charged on all goods and some services (communication and transport) in internal and interstate operations, with most of the revenues coming from the fuel, energy and telecommunication sectors. The second largest tax revenues source is the income tax on civil servants’ payroll and the third one is the tax on motor vehicle property. Figure A4.1: Revenue Composition, 2011 Figure A4.2: Transfers Composition, 2011 3.9% 5.3% 8.5% 5.5% 36.5% 46.9% 80.7% 12.6% FPE Health Royalties Other Taxes Social Contributions Transfers Other A4.4. Revenues have grown steadily from 2004 to 2011 - 8.9 percent yearly on average. The exception was 2009, when revenues fell by 2.6 percent due to the crisis. Total revenues grew from R$3.6 billion in 2004 to R$6.6 billion in 2011. The greatest growth rates were recorded in the collection of fees (21.4 percent) and tax on inheritances and donations (18.2 percent), both of which grew even during the crisis. However, the major increase in absolute terms came from the value added tax and federal transfers. A4.5. Expenses grew 9.7 percent yearly on average from 2004 to 2011, outstripping the growth in expenditures. In 2009, for instance, while revenues decreased 2.6 percent, expenses grew by 10.1 percent, evidencing a difficulty of the government to curb expenditures in line with revenues collection. On the other hand, expenditure fell by 1.4 percent in 2007, which was the first year of the first tenure of the current governor. The major 88 source of increase was employee compensation, which grew by 11.4 percent on average, adding R$2 billion in new expenditures from 2004 to 2011. Figure A4.3: Tax Revenue Composition, 2011 Figure A4.4: Expenditure Composition, 2011 5.5% 1.4% 3.9% 11.3% 21.4% 10.3% 60.9% 83.4% 1.9% Payroll Interest Payments Transfers ICMS IRRF IPVA Other Goods and Services FUNDEB Note: The FUNDEB 39 expenditure in Figure A4.4 refers to the net loss to the State given its transfers to FUNDEB exceed the transfers it receives from the fund. A4.6. The State main expenditure is on payroll – R$3.8 billion in 2011. The second largest expenditure is on goods and services (R$1.4 billion) and then transfers to the municipality (R$0.6 billion). Interest payments on the debt amounted to R$120 million in 2011 and debt amortization to R$164 million. Together, debt service is equivalent to 4.3 percent of revenue. Lastly, investment expenditures summed up R$418 million. In terms of functional classification, the main expenditures items are education, public security and health. A4.7. Sergipe had 60,000 civil servants in its payroll by the end of 2011. The majority of them (70.4 percent) are active, while the rest are either retired or pensioners. 40 The ratio of working civil servants to the population is of approximately1:49. Civil servants are concentrated in education (46.3 percent), public security (18.9 percent) and health (15.2 percent). The number of active civil servants grew by 10.6 percent from 2004 to 2011; however, the average wage increased by 214 percent in nominal terms, 41 demonstrating that the policy of real wage gains for the civil servants is the main driver behind the growth of payroll in the government accounts. A4.8. Despite the high proportion of active to retired civil servants, the civil service retirement plan deficit has been increasing rapidly. In fact, the deficit grew more than 8 times from 2004 to 2011 (from R$33 million to R$318 million), which is equal to an average annual growth of 38 percent. The deficit has been growing due to the decision taken in the past to segregate retirement payments into two funds. The old fund is paying most of the 39 The Fundo de Manutenção e Desenvolvimento da Educação Básica e de Valorização dos Profissionais da Educação (FUNDEB) is a fund that receives resources from all three levels of government and makes transfers to municipalities and states based on the number of enrolled students. 40 Pensioners are referred here as relatives (wives and offspring) of civil servants who have died. 41 The inflation rate recorded for the same period was of 52.7 percent. 89 benefits and receiving contributions only from servants admitted before the new fund was established, while the new fund – established on a capitalization basis – has few payments to make and is receiving an increasing share of the contributions. The long run prospect for the sustainability of the retirement plan is improving; however, the transition costs are likely to put more pressure in the government accounts in the short to medium term. A4.9. Though Sergipe has been showing good fiscal results, a deteriorating trend was recorded in the last years. Expenditures have grown above revenues from 2004 to 2011 – 9.7 percent and 8.9 percent respectively. This pattern translated in narrower, albeit positive gross operating balances. In 2004, gross operating balances were equivalent to 15.5 percent of Net Current Revenue (NCR), while in 2011 it equaled to 5.7 percent of NCR. Moreover, the deterioration continued from the crisis (2009) to date, because the government was not able to curtail expenditures in line with slower revenues growth. A4.10. Primary balance also deteriorated from 2004 to 2011. The State registered a positive primary balance of R$56.6 million in 2004, which was equivalent to 2.8 percent of NCR. Positive primary balances were recorded until 2008, with significant values especially in 2007 and 2008. From 2009 onwards, due to the crisis that affected revenues, the difficulty of the government to curtail expenditures growth and the increase or maintenance of investment levels led the State to record primary deficits in three consecutive years from 2009 to 2011. A4.11. The increase in loan proceeds allowed the State to maintain investments and avoid further deterioration in its overall balance. The GoS received R$1 billion in loans revenues from 2009 to 2011, after three years (2006 to 2008) of not recording any loan disbursement. Figure A4.5: Real Growth in Revenues and Figure A4.6: Payroll Expenditures/ NCR, Expenditures, 2005-2011 2004-2011 30.0% 1,000.0 58.0% 890.8 56.6% 900.0 55.6% 25.0% 56.0% 55.2% 800.0 54.6% 54.4% 54.0% 20.0% 649.0 659.2 700.0 54.0% 15.0% 600.0 52.0% 500.0 10.0% 371.0 50.0% 49.1% 400.0 49.0% 270.5 266.6 277.9 5.0% 300.0 48.0% 200.0 0.0% 46.0% 100.0 -5.0% 0.0 44.0% 2005 2006 2007 2008 2009 2010 2011 2004 2005 2006 2007 2008 2009 2010 2011 Gross Operating Balance Revenues Expenditures Payroll Expenditure/ NCR A4.12. The GoS has been complying with all limits set by the LRF. In 2011, payroll expenditures as defined in the LRF reached 56.6 percent of NCR. The net consolidated debt over NCR ratio is at 43.4 percent, well below the 200 percent threshold. The State does not have any outstanding guarantee and, in the last two years, the amount of loan proceeds was below 16 percent of NCR. 90 Table A4.1: State of Sergipe Government Financial Statistics, 2004 – 2011 (BRL Million – constant values) 42 2004 2005 2006 2007 2008 2009 2010 2011 I. REVENUE 3,631.9 4,198.1 4,595.5 4,823.7 5,614.2 5,469.5 6,220.2 6,597.4 Taxes 1,407.5 1,541.2 1,670.9 1,759.8 1,855.6 1,925.2 2,275.8 2,408.9 ICMS 1,260.1 1,368.9 1,443.8 1,521.1 1,591.5 1,637.8 1,920.2 2,007.9 IPVA 41.3 44.3 49.9 60.3 66.4 75.3 85.2 93.5 OUTRAS 106.1 127.9 177.3 178.4 197.7 212.1 270.4 307.4 ITCMD 2.3 3.0 2.8 3.5 4.3 4.7 8.7 7.5 IRRF 96.9 115.7 152.3 156.8 171.7 184.9 238.2 273.0 Fees 6.9 9.2 22.2 18.0 21.7 22.5 23.5 26.9 Social Contributions 410.1 412.8 441.9 537.2 599.8 642.9 777.7 833.5 Transfers 1,591.4 1,961.2 2,103.6 2,298.4 2,812.7 2,612.7 2,826.5 3,094.7 Current Transfers 1,534.4 1,937.5 2,051.2 2,228.3 2,627.0 2,492.3 2,685.1 2,950.3 Capital Transfers 57.1 23.7 52.4 70.1 185.6 120.4 141.4 144.4 Other Current Revenues 222.9 282.9 379.1 228.3 346.1 288.7 340.2 260.3 Interest Revenues 15.2 19.5 11.2 11.7 75.7 60.0 75.8 41.2 Non-Financial Asset Revenues 48.7 78.5 83.9 28.8 32.6 32.4 23.5 55.5 Other Current Revenues 159.0 184.8 284.0 187.8 237.8 196.3 240.8 163.6 II. EXPENSE 3,314.9 3,549.1 4,224.5 4,164.5 4,723.4 5,199.0 5,953.6 6,319.4 Compensation of Employees 1,811.4 2,003.9 2,412.4 2,568.9 2,834.0 3,201.8 3,644.3 3,850.0 Interest Payments 118.8 131.9 120.8 112.3 92.6 86.9 108.1 119.8 Other Current Expenditures 1,222.8 1,221.9 1,473.4 1,233.8 1,521.4 1,640.1 1,887.4 1,999.0 Transfers to Municipalities 362.7 403.3 456.0 485.8 526.8 535.1 643.7 647.9 Goods and Services 860.2 818.6 1,017.4 748.0 994.5 1,105.0 1,243.7 1,351.0 Contracted Services (Third-parties) 369.2 356.2 463.5 373.7 504.9 635.9 831.4 888.5 Other Goods and Services 490.9 462.4 553.9 374.3 489.6 469.1 412.3 462.5 FUNDEB Net Loss 161.9 191.4 217.9 249.5 275.4 270.1 313.8 350.6 III. GROSS OPERATING BALANCE (I - II) 317.0 649.0 371.0 659.2 890.8 270.5 266.6 277.9 % of NCR 15.5 25.6 12.9 21.2 23.4 6.9 5.8 5.7 IV. TRANSACTIONS IN NON-FINANCIAL ASSETS 363.9 386.9 463.5 187.1 407.0 472.4 637.4 470.2 Investiment in Non-Financial Assets 168.5 254.7 350.5 167.9 284.3 288.4 534.5 418.3 Investment in Financial Assets 195.4 132.2 113.0 19.2 122.7 184.0 102.9 51.9 V. NET LENDING / BORROWING (III - IV) -47.0 262.1 -92.5 472.1 483.8 -201.9 -370.8 -192.2 VI. PRIMARY BALANCE (V + Net Interest Payments) 56.6 374.4 17.1 572.7 500.8 -175.0 -338.5 -113.6 % of NCR 2.8 14.8 0.6 18.5 13.2 -4.4 -7.3 -2.3 VII. TRANSACTIONS IN FINANCIAL ASSETS AND LIABILITIES 47.0 -86.2 -108.2 -154.3 -159.4 56.2 317.2 213.1 New Loans 157.1 37.1 0.0 0.0 0.0 191.4 436.5 376.0 Amortizations, net (110.7) (123.7) (131.3) (156.6) (160.4) (135.8) (119.8) (164.6) Amortizations received 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Amortizations paid 110.7 123.7 131.3 156.6 160.4 135.8 119.8 164.6 Asset sales 0.7 0.4 23.1 2.3 1.0 0.6 0.5 1.8 VIII. GROSS FINANCING NEEDS (Net Debt Service - VI) 214.3 236.0 240.9 257.2 177.3 162.7 152.0 243.2 % of NCR 10.5 9.3 8.4 8.3 4.7 4.1 3.3 5.0 VIII. OVERALL BALANCE (VI + VII) 103.5 288.2 -91.1 418.4 341.3 -118.8 -21.3 99.5 Memo Items: Net Current Revenue (NCR) 2,043.1 2,536.7 2,865.7 3,102.9 3,799.8 3,934.3 4,629.4 4,905.6 Non-Financial Investment / NCR 8.2% 10.0% 12.2% 5.4% 7.5% 7.3% 11.5% 8.5% Note: ICMS (Imposto sobre Circulação de Mercadorias e Prestação de Serviços) is a value added tax. IPVA (Imposto sobre a Propriedade de Veículos Automotores) is a tax on motor vehicle property. ITCMD (Imposto de 42 In order to produce the GFS statement for the Sergipe State Government and to ensure comparability among the statements in different years, some adjustments had to be made in the fiscal reports presented by the government under the Brazilian fiscal accounts standard. Transfers made to municipalities were recorded as expenditure in 2011, as opposed to a deduction in revenues, and the retirement and pension contribution paid by the State was also recorded as revenue. Lastly, the net loss incurred by the State in the FUNDEB transfers was registered as expenditure for the whole period. 91 Transmissão Causa Mortis e Doação – ITCMD) is a tax on inheritances and donations. IRRF (Imposto de Renda Retido na Fonte) is an income tax on civil servants’ payroll. A4.13. The State consolidated debt amounted to R$2.8 billion in 2011, which is equivalent to 58 percent of NCR. The net consolidated debt over NCR ratio was at 43.4 percent. The State does not have any outstanding bond debt in the market. The bulk of its debt is of a contractual nature (77.5 percent) and judicial sentences (14.6 percent). The main creditor is the Federal Government (39 percent of the debt stock) due to past debt bail-outs offered to all states. The second largest creditor is the BNDES, with 24.2 percent of the debt stock. Other domestic creditors include other state-owned banks like Caixa Econômica Federal and the Banco do Nordeste do Brasil. A4.14. Outstanding external debt amounts to only R$39 million or 1.4 percent of total debt. The only external creditor of the State is the IBRD with two rural poverty reduction programs. Most of the debt contracted by the State has fixed interest rates. However, some of debt is indexed, with the main price index being the IGP-DI because of the debt bail-out promoted by Federal Government in 1997. With regards to this debt, the Sergipe is in a better situation than most Brazilian states. It pays the lowest interest rate (6 percent), is not generating any residue and the monthly payments are equivalent to approximately 2 percent of the net real revenue, while the cap foreseen in the debt agreement is 13 percent. A4.15. Relative debt ratios are increasing, due in part to their initial low levels as well as the contraction of new debt by the State. After three years without any disbursement, loans were obtained to bolster public investment levels in the State. Hence, the net consolidated debt to NCR ratio has increased from 21.8 percent in 2008 to 43.4 percent in 2011. Nonetheless, it still well below the 200 percent threshold set by the FRL. Despite the increase in debt, the debt service level in 2011 (5.8 percent of NCR) is roughly the same as in 2008 (5.7 percent of NCR), when the net consolidated debt to NCR ratio was at its lowest level. Figure A4.7: Net Consolidated Debt and Debt Service (% of NCR), 2004-2011 70.0% 64.7% 16.0% 60.0% 57.1% 14.0% 12.0% 50.0% 45.3% 42.3% 43.4% 10.0% 40.0% 33.3% 8.0% 30.0% 26.7% 21.8% 6.0% 20.0% 4.0% 10.0% 2.0% 0.0% 0.0% 2004 2005 2006 2007 2008 2009 2010 2011 Net Consolidated Debt/ NCR Debt Service/ NCR A4.16. Fiscal risks are contained and do not pose threats to medium-term fiscal sustainability. The main contingent liability is estimated to cost at most R$170 million and refers to past salary readjustments when the Real Plan was introduced back in 1994. The State 92 complies with legally mandated earmarked expenditures such as education and health. More specifically, it complies with the nationally set minimum wage for teachers and the earmarked expenditures in health as set by the newly approved Federal Complementary Law 141/12. Projections A4.17. The GoS fiscal accounts were projected until 2015 to assess fiscal sustainability going forward. Debt projections were made for 10 years to assess debt sustainability. The economic assumptions for the fiscal and debt sustainability analyses are in accordance with the table presented in the current macroeconomic outlook in the main document. Fiscal assumptions for the baseline scenario are presented below. Table A4.2: Assumptions for Baseline Fiscal Projection I. REVENUE ICMS GDP growth and inflation IPVA GDP growth and inflation ITCMD GDP growth and inflation IRRF Growth in the same rate as compensation of employees Fees GDP growth and inflation Social Contributions Growth in the same rate as compensation of employees Current Transfers GDP growth and inflation Capital Transfers Inflation growth over last three average Interest Revenues Inflation growth Non-Financial Asset Revenues Inflation growth over 2008-2010 average Other Current Revenues GDP growth and inflation II. EXPENSE Compensation of Employees GDP growth and inflation with reduction in 2012 Interest Payments Inputed by debt sustainability exercise Transfers to Municipalities Growth in the same rate as ICMS and IPVA Contracted Services (Third-parties) Inflation growth plus 2 percent in real terms Other Goods and Services Inflation growth plus 2 percent in real terms FUNDEB Net Loss Growth in the same rate as taxes and current transfers IV. TRANSACTIONS IN NON-FINANCIAL ASSETS Investiment in Non-Financial Assets GDP growth and inflation Investment in Financial Assets GDP and Inflation growth over last three average VII. TRANSACTIONS IN FINANCIAL ASSETS AND LIABILITIES New Loans Disbursements planned on contracted debt plus 200 million in 2014 and 2015 Amortizations paid Inputed by debt sustainability exercise A4.18. The baseline scenario was constructed to reflect a continuation of the current practices in the State. Revenues were projected conservatively assuming elasticity equal to one, which is below the current numbers for some items, such as the motor vehicle tax and the tax on inheritance and donations. No great retractions in absolute terms in expenditures are foreseen, due to major earmarking and the expansive payroll policy. However, it is foreseen that the GoS will reduce the rate of expansion of its expenditures due to the deteriorating fiscal balances, the fiscal rules imposed on subnational governments and the obligation to pursue prudent fiscal policy in order to obtain Federal Government guarantees for its loans. Goods and services are expected to grow in real terms but below GDP and revenues and payroll increase will also be contained below inflation and GDP growth rate. Investments are expected to grow moderately and loans proceeds will be restricted to disbursements on already contracted loans and two new disbursements of 200 million in 2014 and 2015, in line with the Programs of Fiscal Adjustment being signed by the states and the National Treasury. A4.19. The assumptions above were also used in the debt sustainability exercise. The projected debt over NCR ratios are depicted in Figure A4.8. The current situation line reflects 93 the expected debt to revenue ratio if no loan other than the proposed DPL is contracted nor disbursements to current loans are made. It also takes into consideration that part of the DPL proceeds will be used to repay a bridge loan taken out with the Caixa Econômica Federal, as informed by the GoS and required by the loan contract. The baseline scenario reflects the baseline fiscal projections depicted in Table A4.2, while the worst case scenario depicts a crisis where revenues are affected in 2012 and 2013 and investments are elevated to 12 percent of NCR, demanding more loans to be contracted to finance such investments. A4.20. The Sergipe State debt is sustainable since, in none of the scenarios, the projected debt to revenue ratios are increasing constantly. The high debt deleverage reflects the payment of the debts renegotiated with the Federal Government due to the 1997 bailout. From 2011 in 2020, the outstanding debt for this contract, which is the State’s largest one, will be halved. Moreover, in all scenarios the State will still comply with the LRF. In fact, the State debt level would be well below the 200 percent threshold. Figure A4.8: Projected Debt/ NCR, 2012-2021 60% 50% 40% 30% 20% 10% 0% 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 CD/NCR Baseline Worst Case 94 Table A4.3: State of Sergipe Government Financial Statistics Projections, 2012 – 2015 (BRL Million – current values) 2011 2012 2013 2014 2015 I. REVENUE 6,597.4 6,899.5 7,576.0 8,263.3 8,995.7 Taxes 2,408.9 2,548.2 2,798.5 3,058.9 3,334.0 ICMS 2,007.9 2,148.4 2,359.5 2,579.0 2,810.9 IPVA 93.5 100.1 109.9 120.1 131.0 OUTRAS 307.4 299.7 329.2 359.8 392.1 ITCMD 7.5 8.1 8.9 9.7 10.6 IRRF 273.0 262.8 288.7 315.5 343.9 Fees 26.9 28.8 31.6 34.6 37.7 Social Contributions 833.5 802.6 881.5 963.5 1,050.2 Transfers 3,094.7 3,298.8 3,617.3 3,942.5 4,285.8 Current Transfers 2,950.3 3,156.7 3,466.8 3,789.4 4,130.1 Capital Transfers 144.4 142.2 150.5 153.1 155.7 Other Current Revenues 260.3 249.9 278.7 298.4 325.7 Interest Revenues 41.2 43.3 45.7 48.0 50.3 Non-Financial Asset Revenues 55.5 31.5 40.8 40.3 46.4 Other Current Revenues 163.6 175.0 192.2 210.1 229.0 II. EXPENSE 6,319.4 6,339.5 6,907.9 7,486.6 8,111.5 Compensation of Employees 3,850.0 3,707.4 4,071.7 4,450.5 4,850.7 Interest Payments 119.8 118.6 107.9 86.7 81.2 Other Current Expenditures 1,999.0 2,140.2 2,318.4 2,501.4 2,691.3 Transfers to Municipalities 647.9 693.3 761.4 832.2 907.0 Goods and Services 1,351.0 1,446.9 1,557.1 1,669.2 1,784.3 Contracted Services (Third-parties) 888.5 951.6 1,024.0 1,097.7 1,173.4 Other Goods and Services 462.5 495.4 533.1 571.5 610.9 FUNDEB Net Loss 350.6 373.2 409.9 448.1 488.3 III. GROSS OPERATING BALANCE (I - II) 277.9 560.0 668.1 776.7 884.2 % of NCR 5.7 10.9 11.9 12.6 13.2 IV. TRANSACTIONS IN NON-FINANCIAL ASSETS 470.2 568.4 576.3 604.1 650.7 Investiment in Non-Financial Assets 418.3 447.5 475.5 504.4 534.0 Investment in Financial Assets 51.9 120.8 100.9 99.7 116.7 V. NET LENDING / BORROWING (III - IV) -192.2 -8.3 91.8 172.6 233.4 VI. PRIMARY BALANCE (V + Net Interest Payments) -113.6 67.0 154.0 211.2 264.3 % of NCR -2.3 1.3 2.7 3.4 4.0 VII. TRANSACTIONS IN FINANCIAL ASSETS AND LIABILITIES 213.1 45.0 114.1 97.6 32.7 New Loans 376.0 272.0 515.9 277.9 200.0 Amortizations, net (164.6) (228.0) (402.8) (181.3) (168.3) Amortizations received 0.0 0.0 0.0 0.0 0.0 Amortizations paid 164.6 228 402.8 181.3 168.3 Asset sales 1.8 1.0 1.0 1.0 1.0 VIII. GROSS FINANCING NEEDS (Net Debt Service - VI) 243.2 303.3 465.1 220.0 199.1 % of NCR 5.0 5.9 8.3 3.6 3.0 VIII. OVERALL BALANCE (VI + VII) 99.5 112.0 268.1 308.8 296.9 Memo Items: Net Current Revenue (NCR) 4,905.6 5,130.2 5,633.3 6,144.3 6,688.9 Non-Financial Investment / NCR 8.5% 8.7% 8.4% 8.2% 8.0% 95 ANNEX 5: INTERGOVERNMENTAL FISCAL ARRANGEMENTS IN BRAZIL A5.1. Brazil is a federative country composed of 26 states, plus the Federal District, and 5,564 municipalities. Each government level is allowed to raise its own revenue by exploring specific tax bases. Distribution of tax collection responsibilities is broadly consistent with economic principles that suggest that mobile tax bases should be taxed by the central government and immobile bases by sub-national governments. A5.2. Broadly speaking, the Federal Government can levy taxes on personal income (IRPF) and corporate profits (IRPJ), industrial products (IPI), financial operations (IOF), fuels (CIDE), rural property (ITR) and import duties (II). The Federal Government also levies social contributions on corporate profits (CSLL), payroll (social security contributions) and corporate revenue (PIS/COFINS). Social contributions are meant to finance health, social protection and social security expenditures. Contrary to tax revenues, social contributions are not shared among subnational governments. 43 A5.3. State government’s largest tax source is the VAT (ICMS) receipts. Apart from that they also impose tax on motor vehicle property (IPVA) and on donations and inheritances (ITCMD). The municipalities have the right to tax urban property (IPTU), services (ISS) and property transmission (ITBI). A5.4. To compensate for regional disparities, the Constitution also makes room for federal transfers to state and municipalities and state transfers to municipalities. The receipts from federal taxes: IPI, IRPF and IRPJ form the Municipality and State Participation Fund (FPM and FPE respectively). FPM is formed by 23.5 percent of IPI and IRPF/PJ receipts and FPE is formed by 21.5 percent of IPI and IPI and IRPF/PJ receipts. States are also entitled to receive another 10 percent of the IPI collection in order to compensate them for the abolition of ICMS on industrial products exports. Lei Kandir and Exporting Financial Aid transfers are also intended to compensate for ICMS revenue from primary exports, which were exempt in 1997. A share of 25 percent of the IPI-exportação and Lei Kandir are transferred to municipalities also. The Federal Government must also transfer 29% of the tax receipts from CIDE. CIDE revenues are divided among states according to the size of their road network, fuel consumption, population and a 10 percent share that is divided equally. States in turn must share 25 percent of the CIDE transfers with municipalities. Apart from the aforementioned transfers, states and municipalities receive a small transfer originating from IOF and sectorial transfers aimed at health and education financing. States and municipalities can also receive voluntary transfers from the Federal Government. These transfers are decided either under big federal programs or on a case by case. They are normally intended to cover capital expenditures and are governed by specific agreements. Finally, of the three state taxes, two of them (25 percent of ICMS and 50 percent of IPVA) are shared with municipalities. The IPVA is shared according to the number of motor vehicles registered in each city and the ICMS is shared according to the value added in each city (75 percent) and the remainder 25 percent according to state laws. It is also important to note that, although states transfer funds to the municipalities, they do not have any control over municipal finances. 43 An exception is the Salário-Educação, a contribution imposed over private company’s payroll to finance education expenditures. 96 A5.5. Figure A6.1 is a graphic representation of the abovementioned intergovernmental fiscal arrangement. Taxes are classified according to their base. Taxes depicted in blue are collected directly by the government level in the corresponding row, while green represents transferred revenues. Figure A6.2 shows the corresponding aggregate numbers for the intergovernmental fiscal arrangements in 2010, including oil royalties. Figure A5.1 – Tax Assignment and Intergovernmental Fiscal Transfers in Brazil Property Transaction Business Miscellaneous PIS/COFINS Social Security II Federal ITR IPI CSLL IRPF IOF CIDE IRPJ IPI CIDE State IPVA IRPJ IRPF ICMS ITCMD IPTU ISS ITR ITBI Municipal IRPJ IRPF IPI IPVA CIDE ICMS Figure A6.2 – Revenue collected and after transfers by government level: 2010 Tax Collection Revenue after Transfers % of GDP % of Total % of GDP % of Total Federal 23.8 67.8% 20.0 57.0% State 9.2 26.2% 8.7 24.7% Municipal 2.1 6.0% 6.4 18.3% TOTAL 35.2 100.0% 35.2 100.0% Source: (Afonso & Castro, 2011) A5.6. Aggregate fiscal discipline is imposed through the Fiscal Responsibility Law (LRF), the 1997 Debt Renegotiation Agreement between subnationals and the Federal Government and controls on the supply and demand of credit to the public sector. This law institutionalized fiscal discipline at all levels of government, incorporating hard budget constraints into a single unifying framework. It explicitly prohibits debt refinancing operations between different levels of government, thereby addressing the moral hazard 97 caused by sequential bailouts. It also sets limits for subnational governments on debt, debt service, payroll expenditures and guarantees. The Debt Renegotiation agreements tied subnational governments to a stringent declining debt/ revenue ration and to positive primary balance results. The requirements of the Fiscal Responsibility Law must be complied with in order for subnational governments to contract loans. Subnational governments must also have authorization from the Federal Government to contract out external loans. For domestic loans, a R$1 billion limit exists on the outstanding amount of credit to public sector and exemptions are only granted for government sponsored and operated programs. Lastly, all governments must publish annual balances, bimonthly budget execution summaries and report on limits imposed by the Fiscal Responsibility Law every four months. The conformity to the fiscal rules is ensured by the National Treasury and the by the Court of Accounts. 98 ANNEX 6: MILLENNIUM DEVELOPMENT GOALS Selected Indicators - Brazil Selected Indicators - Sergipe Indicators Baseline Actual Target for 2015 Status Baseline Actual Target for 2015 Status Goal 1: Eradicate extreme poverty and hunger Target 1.A: Halve the proportion of people whose income is less than $1 a day 1.1 Proportion of population below $1.25 (PPP) per day (%) 15.5 (1990) 3.8 (2009) 7.8 Already Achieved 68.5 (1991)b 51.0 (2010)b 34.3 Off track Target 1.C: Halve, between 1990 and 2015, the proportion of people who suffer from hunger 1.8 Prevalence of underweight children under-five years of 4.5 (1996) 2.2 (2007) 2.3a Already Achieved 11.7 (1999)c 3 (2008)c 5.9 Already Achieved age (%) Goal 2: Achieve universal primary education Target 2.A: Ensure that, by 2015, children everywhere, boys and girls alike, will be able to complete a full course of primary schooling 2.2 Primary completion rate, both sexes 107.7 (2000) 105.8 (2005) 100.0 Already Achieved 70.3 (1991) 92.6 (2009) 100.0 On track 2.2 Primary completion rate, boys 107.8 (2000) 109.8 (2001) 100.0 Already Achieved N/A N/A 100.0 -- 2.2 Primary completion rate, girls 107.7 (2000) 111.2 (2001) 100.0 Already Achieved N/A N/A 100.0 -- Goal 3: Promote gender equality and empower women Target 3.A: Eliminate gender disparity in primary and secondary education, preferably by 2005, and in all levels of education no later than 2015 3.1 Ratio of girls to boys in primary, secondary education 1.06 (1991) 1.02 (2007) 1.00 Already Achieved N/A N/A 1.00 -- Goal 4: Reduce child mortality Target 4.A: Reduce by two-thirds, between 1990 and 2015, the under-five mortality rate 4.1 Children under five mortality rate per 1,000 live births 55.7 (1990) 20.6 (2009) 18.6 On track to achieve 36 (1994) 21 (2008) 12 Off track Goal 5: Improve maternal health Target 5.A: Reduce by three quarters, between 1990 and 2015, the maternal mortality ratio 5.1 Maternal mortality ratio per 1,000 live births 120 (1990) 58 (2008) 30.0 Off track to achieve 64 (1996) 66 (2008) 16 Off track Goal 7: Ensure environmental sustainability Target 7.C: Halve, by 2015, the proportion of people without sustainable access to safe drinking water and basic sanitation 7.8 Proportion of population without an improved drinking 12 (1990) 03 (2008) 6.0 Already Achieved 42 (1991) 15 (2008) 21 Already Achieved water source (%) 7.9 Proportion of the population without an improved 31 (1990) 20 (2008) 15.5 Off track to achieve 68 (1991) 25 (2008) 34 Already Achieved sanitation facility (%) Source: Millennium Development Goals Indicators (United Nations). Sergipe - Sínteses Estaduais: Objetivos de Desenvolvimento do Milênio (Observatório Regional Base de Indicadores de Sustentabilidade - ORBIS, 2010). a Half of the 1996's figure. b National poverty line. c Children under 2. 99 ANNEX 7: GENDER EQUALITY AND SUSTAINABLE DEVELOPMENT A7.1. The livelihood of girls and women in Brazil have improved significantly over the past quarter century. Women now represent 53 percent of the labor force and 52.3 percent of the rural labor force in Brazil. Moreover, girls outnumber boys in secondary school and more than half of university students are young women.4 In some areas, however, progress towards gender equality has been limited. The post-birth female mortality rate has changed only slightly in Brazil, decreasing from 1,677 deaths in 2000 to 1,590 in 2007. Although Brazil has implemented strategies and legislation to address violence against women (through the Maria da Penha Law), strengthening and expansion of multidisciplinary networks – including legal aid for victims, psychological support, law enforcement, social services, and housing – are still needed if the country is to achieve a significant reduction in the vulnerability of women to violence and its effects. A7.2. Despite the substantial advances in political, social and civil rights of women that have been made in the last decade, Brazil and Sergipe continue to be plagued by gender- based inequalities. As shown in Figure A7.1, women in Brazil and Sergipe have narrowed the gap in primary education and continued to maintain higher levels of post-secondary education than men. Nevertheless, these achievements have not reduced gender asymmetries in terms of the participation rate in the job market, access to less precarious labor relations and levels of earnings, as shown in Figures A7.1 - A7.3. Figure A7.1: Gender-based Asymmetries in Education – Brazil and Sergipe, 2001-2008 45% 43% 10% 9% 40% 9% 36% 8% 34% 8% 8% 35% 7% 7% 7% 7% 30% 29% 28% 28% 6% 27% 6% 25% 25% 6% 25% 24% 5% 22% 21% 5% 4% 20% 4% 4% 15% 3% 3% 10% 2% 5% 1% 0% 0% 2001 2004 2008 2001 2004 2008 2001 2004 2008 2001 2004 2008 Sergipe Brazil Sergipe Brazil Share of population (15 years of age or more) with up to 4 years of schooling Share of population (20 years of age or more) with 15 years of schooling or more Men Women Men Women Sources: IBGE, PNAD 2001, 2004 and 2008. Soares 2010. 100 Figure A7.2: Gender-based Asymmetries in the Job Market – Brazil and Sergipe, 2001-2008 100% 9% 8% 90% 86% 87% 85% 85% 84% 84% 8% 7% 80% 7% 6% 6% 70% 64% 6% 58% 59% 60% 60% 56% 56% 5% 5% 5% 50% 4% 4% 4% 4% 4% 40% 3% 3% 30% 2% 2% 20% 10% 1% 0% 0% 2001 2004 2008 2001 2004 2008 2001 2004 2008 2001 2004 2008 Sergipe Brazil Sergipe Brazil Job market participation (people 20 years of age or more) Share of population (20 years of age or more) in decision-making jobs Men Women Men Women Sources: IBGE, PNAD 2001, 2004 and 2008. Soares 2010. Figure A7.3: Gender-based Asymmetries in Monetary Income – Brazil and Sergipe, 2001-2008 80% 70% 67% 62% 63% 58% 56% 60% 53% 50% 48% 49% 50% 38% 38% 36% 40% 30% 20% 10% 0% 2001 2004 2008 2001 2004 2008 Sergipe Brazil Share of population (10 years of age or more) without income and with income below one minimum wage Men Women Sources: IBGE, PNAD 2001, 2004 and 2008; Soares 2010. A7.3. In addition, gender-based asymmetries are reinforced by race discrimination both in Brazil and Sergipe. Non-white women tend to have much lower levels of schooling than white women, rendering them less capable of participating in the job market and of engaging in less precarious labor relationships. This also drives them to the bottom of the income scale. A7.4. To address gender gaps, the GoS has decided to prioritize policies and actions aimed at reducing gender imbalances. State policies to increase employment and income opportunities have specifically focused on the inclusion of women. Health policies have placed a strong emphasis on improving maternal health outcomes. Further, in 2009, the State joined the National Pact to Reduce Violence against Women (Pacto Nacional Pelo 101 Enfretamento à Violência Contra a Mulher), an agreement between the federal, state and municipal governments that is ruled by five structural axes: (i) ensuring the applicability of standards relating to violence against women, (ii) ensuring public safety and access to justice, (iii) the guarantee of sexual and reproductive rights, combating women trafficking; (iv) empowering women in violent situations and expand their rights and (v) expansion and strengthening of the Network Service for Women in Situations of Violence. Also, the GoS created the Special Secretariat for Policies for Women (Secretaria Especial de Políticas para as Mulheres – SEPM) in 2011, which has Coordinating Centers for Women in 28 out of 75 municipalities. A7.5. The State’s initiative is fully aligned with the World Bank’s goals to reduce gender disparities and inequalities by enhancing women's voice in the household and in society and reducing female mortality. Over the last five years (FY2006-10) more than $65 billion (37 percent) of the World Bank's lending and grants were allocated to gender- informed 44 operations in education, health, access to land, financial and agricultural services, jobs, and infrastructure. Last year, the share of gender-informed support reached almost half of our total lending, totaling about $26.3 billion. 44 Gender-informed operations systematically consider gender inequalities and try to address them in project design, implementation, expected impact and monitoring. Sources: 1World Development Report 2012, Gender Equality and Development, The World Bank; 2Gender and Governance in Rural Services: Insides from India, Ghana, and Ethiopia, The World Bank and International Food and Policy Research Institute; 3Instituto Nacional de Estudos e Pesquisas Educacionais Anísio Teixeira. Censo da Educação Superior: sinopse estatística – 2005 / Instituto Nacional de Estudos e Pesquisas Educacionais Anísio Teixeira. – Brasília: O Instituto, 2007; 4Anuário das Mulheres Brasileiras, Departamento Intersindical de Estatísticas e Estudos Socioeconômicos, São Paulo, 2011. 102 ANNEX 8: POVERTY AND SOCIAL IMPACTS A8.1. The policy actions supported by this operation are expected to have a positive overall impact on poverty and social inequalities as they address key constraints to socially inclusive growth and reinforce democratic processes of public governance in Sergipe. The operation will support policy changes that: (i) modernize State management, improve the quality of citizen services, and increase State revenues by improving fiscal efficiency; (ii) improve access and quality of basic public services in health and education benefiting the most poor women and children; (iii) promote access to market and income growth for family farmers which are overrepresented among the most deprived population of the State and include traditional communities and indigenous peoples; 45 and, (iv) promote social inclusion by tailoring social assistance to reach the most vulnerable social groups and by strengthening programs for preventing and deterring gender-based violence. The assessment of the potential distributive effects of these policy changes on society and poverty relied on the analysis of secondary data, interviews and focus groups consultations with key stakeholders. 46 Their combined social and economic impacts for the most vulnerable population are expected to be positive. Baseline Context A8.2. The baseline information reveals that social conditions in Sergipe are worse than national averages. 47 The State`s average per capita GDP equals just 61 percent of the nation`s average, the infant mortality rate and the illiteracy rate (among people 15 years and over) are, respectively, 40 percent and 68 percent above the national averages. The poverty rate has declined sharply in the State in recent years, but remains high and presents significant interregional, race and gender differences. In the period from 1995 to 2008, the poverty rate dropped 31 percent, but still exceeds the national average by 68 percent. The number of 45 The Xokó people – who comprise a population of 400 people – are the only indigenous group in Sergipe. They inhabit the Caiçara/Ilha de São Pedro Indigenous Land (4,317 hectares). Their livelihood is analogous to poor rural and riverine people, combining subsistence agriculture, livestock breeding, ranching and fishery. As their lands are located in the San Francisco River basin, their productive activities are less vulnerable to cyclical droughts. In the State, 21 rural communities and one urban community have been certified by the Palmares Foundation as quilombolas. Just one has received its land title from INCRA (Instituto Nacional de Colonização e Reforma Agrária). 46 These interviews were carried out during the months of February and April 2012. They included representatives from civil society organizations at the State Council of Health and representatives of family health teams from the municipalities of Estância and Nossa Senhora do Socorro; the State federations of rural workers (FETASE) and rural producers (FAESE); the State federations of industry (FIES) and commerce (FECOMERCIO-SE); the State Council of Education, the State union of teachers (SINTESE), teachers and directors of three state schools (Escola Estadual 24 de Outubro e Colégio Estadual Costa e Silva, municipality of Aracaju, and Colégio Estadual Edélzio Vieira de Mello, municipality of Capela); quilombola organizations and communities; representatives of Rural Workers Unions from the municipalities of Boquim, Pacatuba and Capela, where orange and sugar cane are the main crops, and beneficiaries of the State`s Mão Amiga program; milk producers engaged in the state`s program Balde Cheio (Assentamento Jabiberi, in the municipality of Tobias Barreto) and two organizations of organic farmers from the municipalities of Areia Branca and Itabaiana; community based associations from poor neighborhoods in Aracaju (Confederação Nacional de Moradores e Entidades Comunitárias do Brasil, Federação das Associações de Moradores de Aracaju e Cooperativa dos Agentes Autônomos de Reciclagem de Aracaju); representatives of civil society at the State Council of Social Assistance and three women organizations (Federação das Mulheres de Sergipe, Conselho Estadual de Defesa dos Direitos da Mulher, and Grupo de Mulheres Negras Maria do Egito). 47 IPEA (2010). 103 people living in extreme poverty was reduced by half, but is still almost double the country`s average. The Gini index of inequality in the State declined at a slower pace than in the country as a whole (7 percent compared to 10 percent). A8.3. There is a strong and positive relationship between the most rural areas in the State and extreme poverty. Thus, as shown in Figure A8.1, below, extreme poverty is concentrated in the San Francisco basin (on the Northern border of the State) as well as the Southern municipalities in which urbanization rates are lower. Census data from 2010 show that 15 percent of the State population (i.e., 311,162 people) lived in extreme poverty, comprising 29 percent of the State`s rural population and 10 percent of its urban population. Eight-three percent of families living in rural areas and 56 percent of those living in urban areas earn per capita monthly nominal income of one minimum wage or less. Figure A8.1: Map of Extreme Poverty in Sergipe, 2011 A8.4. Rural poverty in Sergipe is positively correlated with land concentration, low productivity, and poor access to monetary incomes and loans by small family farmers. There are more than 100,000 farms in the State and 90 percent of them are operated by family farmers. The average landholding is 14.7 hectares, but the average size of small family landholdings is half of this (7.9 hectares). 48 Together the 90,330 family farms comprise just 48.1 percent of the State’s agricultural land. The total production value and income of family farms is barely a quarter of those of non-family farms. Only a small fraction of both the 48 Family farms are labor intensive – to create each agrarian occupation family farms require 3.15 hectares and non-family farms require 17.94 hectares respectively. In family farming, the workforce is gender imbalanced, with a large predominance of males (71 percent of the occupied labor), and is composed mostly of workers with kinship ties to the landholder (88 percent), only a small minority of which receive wages (< 3 percent). 104 family and non-family farmers (8 and 6 percent, respectively) have access to loans for investment. A8.5. Race, gender, age and illiteracy are key determinants of poverty and extreme poverty in Sergipe. Non-whites people comprise 71 percent of the State’s total population and account for 77 percent of the extreme poor population; they have fewer years of schooling and present higher illiteracy rates than whites. 49 Non-whites also comprise most of the people living in subnormal agglomerates. 50 Women account for roughly half (51 percent) of the extremely poor, but gender imbalances exist, which are reflected, for instance, in lower average incomes by women (just 77 percent of men`s income). Gender asymmetries are reinforced by cultural norms that traditionally ascribe the household workload to women; thus, while men 16 years and over spend an average of 10.1 hours per week on household tasks, women in the same age group spend more than twice as much time on those tasks (27.8 hours per week), reducing their capacity to enter the labor market and/or rendering their workload more intensive than men`s. Families headed by woman with children, which comprise nearly 22 percent of the families living in Sergipe, are the most affected by these asymmetries. Youths and illiterate people are overrepresented among the extremely poor: they represent 49 and 32 percent of that population group, but only 20 and 16 percent, respectively, of the general population. A8.6. Despite some improvements in the last decades, the State educational and health systems continue to perform poorly, reducing the quality of life and hampering future prospects for the poor, who rely heavily on them. Ninety-six percent of the children and youngsters from the lowest income quintile and 86 percent from the second lowest quintile are enrolled in public schools; they comprise a disproportionate share, 35 percent and 26 percent respectively, of students in public schools. Poor families are also the most dependent on the public health system. 51 Additionally, maternal, newborn and child deaths are more prevalent among the poor. This is partially a reflection of lower utilization of preventive care in Sergipe than in the country as a whole, which translates into higher mortality rates in the State than the national average. 52,53 49 The illiteracy rate reaches 12 percent among whites, 18 percent blacks and 18 percent among people of mixed race. Average schooling is 7.7 years among whites, 6.5 years among blacks and 6.3 years among people of mixed race. 50 Subnormal agglomerates refer to irregular, informal and precarious settlements, such as slums. In Sergipe, just 4 percent of the state population lives under those conditions. Eighty-one percent of the families living in these agglomerates earn per capita monthly incomes of less than one minimum wage, compared to only 58 percent of the general population of the State. 51 In Sergipe, only 16.4 percent of the state population is covered by a private health plan. As elsewhere in the Northeast, the majority of the beneficiaries of private health plans are people whose monthly income exceeds five minimum wages. 52 The State`s child mortality rate dropped from 37.5 per 1,000 live births in 2004, to 31.4 in 2009 and, though, lower than the regional average of 33.2, it remains much above the national average (22.5). There were 520 fetal and child deaths in 2011, of which 306 or 59 percent were from avoidable causes. 53 A recent cross-sectional study carried out of all deliveries in the maternity hospital of Aracaju (which represented about 40 percent of all deliveries in the state of Sergipe) revealed that 69 percent of the mothers were considered poor (income < 3 minimum wages), 21 percent were adolescents and 20 percent were single. Caesarean sections accounted for 31.6 percent of all the deliveries and low birth weight and prematurity babies accounted for 7.2 and 7.7 percent, respectively, of all newborns. Ricardo Queiroz Gurgel et al (2009). 105 A8.7. Episodes related to gender-based violence have been reported steadily in recent years and there is a growing number of related police investigations. Data available from the State Secretary of Public Security points to a steady number of incidents reported to women`s police stations (an annual average of 4,638 statewide) and a growing number of police investigations related with violence against women (an increase of 45 percent in two years). In the last three years, threats (32 percent), calumnies (19.7 percent), domestic violence (17 percent) and assaults (14 percent) have been the main types of incidents reported by women. Expected Distributive Social and Economic Impacts A8.8. Productive and social inclusion policies address key determinants of rural poverty in the Sergipe and may positively contribute to improving the livelihood and quality of life of the rural poor. Available data and stakeholder consultation indicated that there is a positive causal chain between supporting milk production and reducing the vulnerability of small family farmers. Milk production is a core activity and a reliable source of monetary income for small family farmers. Nowadays, however, they face some key constraints in increasing their productivity and production, improving their herds and the sanitation conditions of milk production, and in gaining access to new and more formal markets. Interviews with producers who already benefitted from the policies to strengthen the milk production chain, which will be supported by this operation, show the positive impacts of these policies on earnings, labor conditions, health and living standards. These producers are now able to properly feed throughout the year three times as many cows as they had been able to before benefiting from these policies. Daily milk production has grown up to ten times, their workload has been reduced, and their health has improved as they shifted from productive system heavily reliant on agrochemicals to an agroecological system. Further, their earnings from dairy production are now enough to improve their families’ living standards. Earlier they had to work outside their plots, earning small gains; now many of them hire laborers on a continuous basis to work on their plots. A key constraint to scaling up of this policy is the high illiteracy and/or functional illiteracy rate of older producers given that the Balde Cheio program requires rigorous control of activities and, therefore, literacy skills. In its pilot area, this constraint has been overcome through the engagement of younger family members in recording information. A8.9. Policies supporting agroecological agriculture may also have positive impacts on income and health conditions of family farmers, though they reach a more restrict group of rural producers. Agroecological production is highly labor intensive, placing additional demands on worker. At the same time, however, by not relying on agrochemicals, pesticides, or fertilizers, its products may reduce health risks for producers, as well as consumers. While the costs and productivity rates of agroecological products are comparable to conventional production, its market is expanding and its market value market value has a considerable margin over that of conventional production. Additionally, agroecological producers benefit from higher subsidies when they sell their production to institutional markets. As a consequence, the overall profitability rate is highly competitive. However, the need to rest lands for a two years period prior to obtaining certification as an organic producer, as well as the lack of technical assistance, have restricted the scaling up and impact of this policy. The policy supported by this operation will increase technical assistance and is expected to bring positive returns to agroecological producers. 106 A8.10. Policy reforms related to social inclusion will directly and positively benefit some of the most vulnerable parcels of the rural population – namely, orange pickers and sugarcane cutters – through seasonal cash transfers. Orange pickers and sugarcane cutters are among the most deprived poor family farmers; they ordinarily lack access to land, work under precarious labor conditions and face seasonal unemployment. The socioeconomic profile of the 2011 beneficiaries of the State’s Mão Amiga program shows that illiteracy and poverty rates among these groups are still worse than the average among rural people. Illiteracy hampers life opportunities for 15 percent of the orange pickers and 21 percent of the sugarcane cutters. Poverty and extreme poverty rates among sugarcane cutters reach, respectively, 42 and 7 percent and 19 and 72 percent among orange pickers. The majority of these families (76 percent) are eligible for the federal Bolsa Família cash transfer program and 65 percent of them are actually enrolled in the program. This vulnerable group stands to benefit from the capacity building offered through the Mão Amiga program which should provide training on the dangers of pesticide exposure and its appropriate use. In 2011, Mão Amiga benefited 7,673 families of sugarcane cutters and orange pickers (36 percent and 64 percent of the total, respectively) in 29 municipalities, reducing the burden of seasonal unemployment through cash transfers. The prevalence and permanence of poverty among these two social groups is due to factors that are both chronic and transient (essentially seasonal unemployment). 54 The State cash transfer program is expected to have positive impacts on poverty reduction because cyclical deprivation of income is a condition that postpones or dilutes the potential impact of policies that are designed to improve the capabilities of poor people (such public programs for education or health). The cash transfer program is also expected to have greater positive impact upon the younger generation of orange pickers and sugarcane cutters, who can benefit the most from human capital building activities such as literacy classes and job training and, consequently, have improved access to better paid jobs. 55 However, there is a consensual concern among key stakeholders that Mão Amiga will have to make an effort to address the gap between job training classes offered and skills demanded by regional job markets in order to have better outcomes in terms of opening access to more formalized labor markets for its beneficiaries and to achieve more sustainable impacts on their labor, income and living standards. A8.11. Social inclusion policies will also contribute to expand social welfare by reaching out to the most deprived people and making social policies accessible to them. Stakeholders have expressed their strong support for the State’s efforts to deal with poverty as 54 Chronic poverty is most commonly associated with lack of human capital, the demographic composition of households, location of residence, lack of ownership of physical assets, and low-paid labor. Distinctively, family size, government transfers, seasonality of economic activities, migration and life cycle events are key contributing factors to transient poverty. 55 Race, schooling, informality, gender and residence in the Northeast region of Brazil are the features that most determine the permanence of poverty and downward mobility of adults in Brazilian urban areas. Most of the poor (73 percent) are subject to poverty mainly because of their past persistent state of poverty against which short-term interventions in the labor market and monetary transfers alone are not effective because they do not alter the adverse characteristics of individuals and households (such as lack of education or assets). Nevertheless, policies of cash transfer, which are needed to extricate households from poverty during a certain period, may also help reduce future chances of these same families falling back into poverty, if persistence in poverty derives from the extent to which current poverty depends upon the past state of poverty. Consequently, more effective anti-poverty policies should combine a systematic multi-sector approach that seeks to improve human capital and access to quality public services with an extensive policy of income redistribution. (Ribas and Machado 2007 and 2008) 107 a multidimensional phenomenon and for reaching out to the extremely poor and, oftentimes, “invisible� families who have historically “fallen through the cracks� of the social services network and live in a situation of self-perpetuating poverty that worsens with each subsequent generation. In general, these families remain unseen, unheard, and unattended though they present higher than average rates of teen pregnancy and premature births, malnutrition, chronic diseases, and mortality among children; negligence and violence against children and women; out-of-school children and child labor; drug and alcohol addiction; poor housing conditions and low levels of formal education of the mothers. Stakeholders agreed that the main failures to reach these families lie at the municipal level and relate to poor dissemination and understanding of state policies, political interference on the selection of human resources and beneficiaries, precarious labor conditions and high rotation of social workers, as well as poor social control. The policies supported by this operation will address these problems by co-financing the Social Assistance System (SUAS) in at least 20 percent of all municipalities. It is expected that extremely poor families will benefit the most from access to social services that have the potential of translating into greater human capital endowments, new job opportunities, and enhancement of family assets. A8.12. Social inclusion and health policies will also have a positive impact on gender issues and are expected to benefit mostly poor women and their children. There is a consensual view among women organizations that the proposed measures to strengthen the State`s ability to prevent and deter gender-based violence are greatly needed and beneficial. In their view, however, there is also a need for these policies to be supported by better dissemination of the sentences paid by violent men and educational measures to change gender-based cultural rules and behavior. Health policies supported by the operation respond to key concerns identified by the main stakeholders (users, workers and providers of health services) with regards to children and maternal health. By aiming to reduce the incidence of maternal and newborn mortality rates, as well as early and risky pregnancies, they may benefit the poor most given that they rely heavily on the public health system. A8.13. Finally, the poor will benefit the most from policies that increase access and improve the quality of public education. Interviews carried on with key stakeholders on the education sector revealed large divergences. However, they have also suggested common ground. They agree on Sergipe’s poor performance in key educational indicators – low learning outcomes, high repetition and drop-out rates, and high numbers of youngsters out of school – and on the need to improve the quality of teaching and learning in public schools. They share a critical view of political interferences in school management, which results in inefficiency and poor quality of educational service delivery. Finally, they prize actions aimed at increasing community participation in the decision making processes at the school level. Policies supported by this operation address the issues related to political interference, community participation and quality of learning in public schools. It is expected that these policies will benefit poor children and youth that most given that they are the main users of municipal and state schools in Sergipe – as elsewhere in Brazil. Considering the strong and positive correlation between education, better job opportunities and income, it is also expected that these policies will positively contribute to breaking the vicious cycle of reproduction of poverty, opening new and better life opportunities for children and youth from the bottom half of Sergipe’s society. 108 References Bruns, B., Evans, D., and Luque,. J., 2012. Achieving World-Class Education in Brazil: The Next Agenda. Washington, DC: World Bank. Bruns, B, Filmer, D., and Patrinos, H.A. 2011. Making Schools Work: New Evidence on Accountability Reforms. Washington, DC: World Bank. Bourguignon, F. and C. Morrisson. 1998. “Inequality and Development: the Role of Dualism.� Journal of Development Economic 57: 233-257. Gragnolati, M., B. Couttolenc and M. Lindelow. 2012. 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Aracaju: Jornal da Cidade (May 15, 2011). http://cenariosdesenvolvimento.blogspot.com/2011/05/quem-sao-os-sergipanos-que-se- encontram.html. Levy, S. and M. Walton (2009): No Growth without Equity? Washington, DC: World Bank and Palgrave McMillan. Ministério da Saúde. 2008. VIGITEL Brasil 2007: Vigilância de Fatores de Risco e Proteção para Doenças Crônicas por Inquérito Telefônico. Brasília, DF. ———. 2011. VIGITEL Brasil 2010: Vigilância de Fatores de Risco e Proteção para Doenças Crônicas por Inquérito Telefônico. Brasília, DF. Neves, Estela Maria.S.C. 2012. Avaliação Ambiental: Programa de Política de Desenvolvimento Sergipe: Incluir para Desenvolver. Rio de Janeiro. 109 Gurgel, R.Q., A.M. DN Guimarães, M. LD Almeida, E. RO Ribeiro, D. DF Lima, H. Bettiol, and M.A. Barbieri. 2009. Characteristics of pregnancies, deliveries and newborns in the Metropolitan Region of Aracaju, State of Sergipe, Brazil. Revista Brasileira de Saúde Materna e Infantil 9(2): 167-177. Ravallion, R. 2009. A Comparative Perspective on Poverty Reduction in Brazil, China and India. Policy Research Working Paper 5080. Washington, DC: World Bank. Ribas, R.P. and A.F. Machado. 2007. Distinguishing Chronic Poverty from Transient Poverty in Brazil: Developing a Model for Pseudo-Panel Data. Working Paper 36. Brasília: International Poverty Centre, UNDP. ———. 2008. Do Changes in the Labour Market Take Families out of Poverty? Determinants of Exiting Poverty in Brazilian Metropolitan Regions. Working Paper 44. Brasília: International Poverty Centre, UNDP. Ribeiro, E. RO, A.M DN Guimarães, H. Bettiol, D. DF Lima, M. LD Almeida, L. de Souza, A. AM Silva and R. Q Gurgel. 2009. Risk factors for inadequate prenatal care use in the metropolitan area of Aracaju, Northeast Brazil. BMC Pregnancy and Childbirth. 9:31. (http://www.biomedcentral.com/1471-2393/9/31) Ribeiro, J.V., Ribeiro Bomfim, A.O., and Waltenberg S. e Silva, S. 2011. 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ATLANTI C O CEAN BRAZIL Canindé de São Francisco Ri BRAZIL oS ão Fr ancicso A L A G O A S PERU MACEIÓ Area of Map Poço BRAS�LIA Redondo BOLIVIA Porto da Folha CHILE PARAGUAY Gararu 10° S PACI F I C 10° S O CEAN Monte Alegre Nossa Senhora ATLANTI C de Sergipe de Lourdes ARGENTINA O CEAN Itabi URUGUAY Nossa Senhora Canhoba Amparo de São Rio da Glória Francisco Ser Gracho g ip e Cardoso Telha Propriá 36° W Aquidabã Cedro de Santana do B A H I A Feira Nova São João São Francisco Malhada São Japoatã Neópolis dos Bois Ri Carira Nossa Senhora São Miguel Cumbe Francisco o São Fran ci Aparecida do Aleixo Muribeca cs o Nossa Senhora Pacatuba Brejo Ilha das Ribeirópolis das Dores Capela Flores Grande ATLANTIC OCEAN Pinhão Frei Paulo Moita Santa Rosa Siriri Bonita Japaratuba Pedra de Lima Rosário Mole Macambira Itabaiana Divina do Catete Carmópolis Malhador Pastora General Campo Maynard Pirambu Poço Simão Dias do Brito Areia Riachuelo Maruim Verde São Domingos Branca Laranjeiras Santo Amaro das Brotas BRAZIL Nossa Senhora do Socorro Lagarto Rio Vaz aB a Barra dos Coqueiros DEVELOPMENT POLICY LOAN ARACAJU IN SUPPORT OF ris Itaporanga São 11° S 11° S Salgado D’Ajuda Cristóvão Riachão do Dantas DEVELOPMENT POLICIES Ri o R FOR THE STATE OF SERGIPE Tobias Boquim ea l Barreto Pedrinhas Estância MAIN CITIES AND TOWNS Itabaianinha Arauá GSDPM Tomar STATE CAPITALS Map Design Unit Santa Luzia do Geru do Itanhy This map was produced by Umbaúba 0 10 20 30 40 MUNICIPALITY BOUNDARIES the Map Design Unit of The World Bank. The boundaries, STATE BOUNDARIES colors, denominations and Cristinápolis Indiaroba KILOMETERS any other information shown on this map do not imply, on the part of The World Bank IBRD 39999 Group, any judgment on the B A H I A APRIL 2013 legal status of any territory, or any endorsement or acceptance of such boundaries. 38° W 37° W 36° W