Document of The World Bank FOR OFFICIAL USE ONLY Report No. 82539-BR INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT PROGRAM DOCUMENT FOR A PROPOSED LOAN IN THE AMOUNT OF US$216 MILLION TO THE STATE OF AMAZONAS WITH A GUARANTEE OF THE FEDERATIVE REPUBLIC OF BRAZIL FOR A MODERNIZING PUBLIC SECTOR MANAGEMENT, CITIZEN SECURITY AND GENDER POLICIES DEVELOPMENT POLICY LOAN April 25, 2014 Poverty Reduction and Economic Management Brazil Country Management Unit Latin America and the Caribbean This document is being made publicly available prior to Board consideration. This does not imply a presumed outcome. This document may be updated following Board consideration and the updated document will be made publicly available in accordance with the Bank’s policy on Access to Information. BRAZIL GOVERNMENT FISCAL YEAR January 1 – December 31 CURRENCY EQUIVALENTS (Exchange Rate Effective as of April 14, 2014) Currency Unit Currency Unit = Real (R$) R$2.33 = US$1 ABBREVIATIONS AND ACRONYMS AISC Amazonas’ Integrated Citizen Security Areas (Áreas Integradas de Segurança Cidadão) CGE Amazonas’ Internal Auditor (Controladoria Geral do Estado) CGL Procurement General Committee (Comissão Geral de Licitação) CPS Country Partnership Strategy DIP Amazonas’ Integrated Police Units (Delegacias Integradas de Polícia) DPL Development Policy Loan FDI Foreign Direct Investment GBV Gender-Based Violence GDP Gross Domestic Product GoAM Government of Amazonas IADB Inter-American Development Bank ICMS Brazilian Value-Added Tax (Imposto sobre a Circulação de Mercadorias e Serviços) LRF Brazilian Fiscal Responsibility Law (Lei de Responsabilidade Fiscal) NCR Net Current Revenue NFC-e Amazonas’ Consumer Electronic Fiscal Note (Nota Fiscal do Consumidor Eletrônica) PDO Project Development Goal PFM Public Financial Management PPA Multi-Year Plan (Plano Plurianual) PPP Public Private Partnerships PSIA Poverty and Social Impact Assessment RMM Metropolitan Region of Manaus (Região Metropolitana de Manaus) SEFAZ Amazonas’ Secretariat of Finance (Secretaria da Fazenda) SEPM Executive Secretariat for Gender-Related Policies (Secretaria Executiva de Políticas para Mulheres ) SGC Amazonas’ Contract Management System (Sistema de Gestão de Contratos) TCE/AM Amazonas State Court of Accounts (Tribunal de Contas do Amazonas) ii   STATE OF AMAZONAS, BRAZIL AMAZONAS: MODERNIZING PUBLIC SECTOR MANAGEMENT, CITIZEN SECURITY AND GENDER POLICIES DPL TABLE OF CONTENTS LOAN AND PROGRAM SUMMARY .................................................................................................. iv  I - INTRODUCTION AND COUNTRY CONTEXT ............................................................................ 1  II - MACROECONOMIC POLICY FRAMEWORK AND RECENT DEVELOPMENTS ............ 3  2.1  IMF RELATIONS...................................................................................................................... 12  III - THE GOVERNMENT’S PROGRAM .......................................................................................... 12  IV - THE PROPOSED OPERATION .................................................................................................. 13  4.1  LINK TO GOVERNMENT PROGRAM AND OPERATION DESCRIPTION ...................... 13  4.2  PRIOR ACTIONS, RESULTS AND ANALYTICAL UNDERPINNINGS............................. 13  4.3  LINK TO CPS AND OTHER BANK OPERATIONS .............................................................. 23  4.4  CONSULTATIONS, COLLABORATION WITH DEVELOPMENT PARTNERS ............... 23  V. OTHER DESIGN AND APPRAISAL ISSUES .............................................................................. 24  5.1  POVERTY AND SOCIAL IMPACT ........................................................................................ 24  5.2  ENVIRONMENTAL ASPECTS ............................................................................................... 25  5.3  FIDUCIARY, DISBURSEMENT AND AUDITING ASPECTS ............................................. 25  5.4  MONITORING AND EVALUATION ..................................................................................... 28  5.5  SUMMARY OF RISKS AND MITIGATION .......................................................................... 28  ANNEX 1: POLICY AND RESULTS MATRIX ................................................................................. 30  ANNEX 2: LETTER OF DEVELOPMENT POLICY ....................................................................... 34  ANNEX 3: FUND RELATIONS ANNEX ............................................................................................ 46  ANNEX 4. BRAZIL AND AMAZONAS AT A GLANCE ................................................................. 47  This Loan was prepared by an IBRD team consisting of Laura Zoratto, Fanny Weiner, Katherine Grau, Ana Mie Horigoshi Reis (LCSPS); Luciano Wuerzius (LCSPT); Rodrigo Serrano, Flavia Carbonari, Alberto Costa (LCSSO); Agnes Velloso (LCSEN); Roland Clarke (LCSPR); Fabio Sola Bittar (LCC5C); Miguel Sanchez (LCSPE); João Vicente Campos (LCSFM); Adam Ratzlaff, Aude-Sophie Rodella, Miriam Muller (LCSPP); Miguel Santiago Oliveira, Tatiana de Abreu (CTRLN), Cristian D’Amelj, Catarina Portelo and Gabriela Grinstein (LEGLE). Brianna Shalimar Elton-Rojas, Angela Nieves Porto (LCSPS) and Monica Porcidonio (LCSPR) provided valuable support. Peer Reviewers were Shaun Moss (LCSPT) and Denis Medvedev (SASEP). iii   LOAN AND PROGRAM SUMMARY BRAZIL AMAZONAS: MODERNIZING PUBLIC SECTOR MANAGEMENT, CITIZEN SECURITY AND GENDER POLICIES DPL Borrower State of Amazonas Implementation Agency State Secretariat of Finance (SEFAZ) – Government of the State of Amazonas  IBRD Loan guaranteed by the Federal Government Terms: Commitment-linked IBRD Flexible Loan, variable spread, level repayments, 5-year grace period, 25-year final maturity, all conversion options Financing Data selected except for Caps and Collars and the Front End Fee to be paid from the Borrowers own resources Amount: $216 million- single tranche Operation Type One-tranche stand-alone operation development policy loan Main Policy Areas Tax Administration, Procurement, Citizen Security and Gender-based Violence To assist the Government of Amazonas to (i) improve tax administration and Program Development procurement procedures and to (ii) strengthen the delivery of citizen security Objective(s) services and women’s access to justice and social services. Tax Administration and Procurement  Number of taxpayers registered at SEFAZ  Percentage of procurement processes completed in less than 45 days.  Percentage of value of purchases made through Price Registration  Percentage of procurement Plans of GoAM published on e- Compras.AM  Number of services for which standard specifications for contracting are obligatory  Percentage reduction in unitary costs of selected services  Number of government institutions adopting new budget execution Result Indicators practices Citizen Security with a focus on Gender-Based Violence  Number of AISCs operating in the State.  Number of performance indicators implemented  Number of police trained  Number of disclosures per year of indicators of expenditures of AISCs  Number of communities reached with mobile units providing judicial and basic services to women  Number of women receiving judicial and/or social services at the Casa da Mulher Brasileira  Number of implementers of the Maria da Pena Law receiving training Moderate. The main risks identified include political and governance risks at the State level; sector policies risks; operational design, implementation and Overall risk rating sustainability risks; and macroeconomics risks at the country level. Paragraphs 93-97 mention the mitigation measures. Operation ID P147979 iv   IBRD PROGRAM DOCUMENT PROPOSED MODERNIZING PUBLIC SECTOR MANAGEMENT, CITIZEN SECURITY AND GENDER POLICIES DEVELOPMENT POLICY LOAN TO THE STATE OF AMAZONAS WITH THE GUARANTEE OF THE FEDERATIVE REPUBLIC OF BRAZIL I - INTRODUCTION AND COUNTRY CONTEXT 1. The proposed operation is a one-tranche Development Policy Loan (DPL), in the amount of US$216 million to the Brazilian State of Amazonas. The purpose of the operation is to assist the Government of Amazonas (GoAM) to (i) improve tax administration and procurement procedures and to (ii) strengthen the delivery of citizen security services and women’s access to justice and social services. By improving the efficiency of revenue and expenditure management, increasing citizen security and fostering women’s living conditions, the operation is contributing directly to the World Bank goals of ending extreme poverty and promoting shared prosperity. 2. The support to the GoAM is being carried out in partnership with the Inter- American Development Bank (IADB). This operation complements and extends selected policy actions supported by the IADB’s Program for Fiscal Consolidation to Improve the Delivery of Public Services in the State of Amazonas (Programa de Consolidação Fiscal para a Melhoria da Prestação de Serviços Públicos no Estado do Amazonas - PROCONFIS AM) operation. The IADB program focuses on the legal and regulatory aspects of the reforms while the World Bank on its implementation policies drawing from experience in other States. By partnering with the IADB the Bank has been able to enhance its policy dialogue with a reformist administration in a poor and low-capacity State, while supporting priorities at the Federal level and demonstrating its flexibility and responsiveness, to both the State and the country. 3. The partnership has also enabled the Bank to respond to the request of the GoAM to share lessons learned from similar reforms in other Brazilian States. The project draws on Bank experience from similar projects in other Brazilian States, such as Rio de Janeiro, Pernambuco and Bahia, especially in the areas of tax administration, citizen security and gender- based violence (GBV). Moreover, the GoAM requested the World Bank’s support to evaluate the results of current reforms through impact evaluations, as well as continuous technical advice for follow-up reforms. To this end, results indicators have also been designed to monitor follow-up reforms of selected policy actions. 4. The Bank prepared additional analytical inputs to align the operation with the World Bank’s goals of ending extreme poverty and promoting shared prosperity. These include a detailed analysis of shared prosperity, poverty and income distribution, key challenges in Amazonas. Furthermore, the Bank prepared an analysis to assess the impact of the proposed operation on the lower-income segment of the population. Moreover, to support the Government’s sustainable fiscal management, a detailed fiscal and debt sustainability analysis was prepared. This additional Bank support will enable the GoAM to maintain continuity of development programs and investments. 5. Amazonas is the largest state in Brazil, surpassing all South American countries except Argentina in terms of size. Amazonas is sparsely populated with only 3.6 million inhabitants, and has a lower population density than any country in the world except Mongolia. Amazonas’ Gross Domestic Product (GDP) totaled R$59.8 billion in 2010 (US$34 billion), which represents 1.6 1   percent of Brazil’s GDP. Per capita GDP was R$17,158 in 2010 (US$8,500), which is equivalent to 87 percent of the national average. The low population density, combined with difficult access to many communities in the State due to its geography have implied that investment requirements and service delivery costs are significantly higher than in other parts of Brazil. 6. With 17.8 percent of the population living below the poverty line (under R$140 PPP/month, or moderate poverty) and 7.4 percent in extreme poverty (under R$70 PPP/month), the incidence of poverty in Amazonas continues to be pervasive. Currently, the State registers the fourth highest poverty and inequality rates in Brazil and the highest in the northern region. While poverty has been reduced in recent years, this reduction has been less pronounced than in the rest of the country. Whereas the moderate poverty rate in Brazil has fallen from 22.6 percent in 2004 to 9.4 percent in 2012, in Amazonas it has declined from 32.1 percent to 17.8 percent. Similarly, Amazonas has not experienced a steady decline in inequality in recent years like the rest of the country1. Between 2004 and 2012 the Gini coefficient has fluctuated between 0.52 and 0.56 while the national average in 2012 was 0.53. In terms of human development, Amazonas also falls below the Brazilian national average, scoring 0.67 compared to 0.73 according to the Human Development Index 2013. Such high levels of inequality and low per capita GDP have hampered the growth of shared prosperity in Amazonas, attaining a value of 13.1 percent of the benchmark2 in 2009 compared with a value of 18.3 percent for the nation as a whole. 7. While the country’s Southeast region has experienced a massive decline in its homicide rates over the past decade, the North and Northeast have seen an unprecedented rapid increase in violent crime. States such as São Paulo reduced their homicide rate by almost 70 percent between 2000 and 2010; however, homicide rates doubled over the same period in the Northern region. In Amazonas alone the rise was of 54.6 percent in a decade. The homicide rate went from 19.8 per 100,000 inhabitants in 2000, to 30.6, in 2010, and has since then remained high but relatively stable reaching 31 per 100,000 inhabitants in 2011 and 30 in 2012. In 2011, the State also experienced the second highest robbery rate in the country, reaching 1,038 per 100,000 inhabitants. In the capital city, Manaus, the homicide rate reached 56.2 per 100,000 inhabitants in 2011. 8. Due to its poor social indicators, elevated crime rate, and vast territory, the State has needed to invest more than the national average in social sectors since 2000, 2.8 percent of GDP compared to 1.1 percent respectively. In Amazonas, one of the largest shares of budget expenditures goes to citizen security3, which accounts for 9 percent of total expenditure and has been increasing rapidly in recent years4. Between 2010 and 2012, expenditures on citizen security increased by 31.8 percent in real terms, compared to an increase of 8.6 percent in education and a 1.8 percent drop in health. This significant increase in citizen security expenditures is explained mainly by the Government’s efforts to respond to rising levels of crime and violence through the establishment of Integrated Police Units (Delegacias de Polícia Integrada - DIPs) of the civil and military police. The trend towards increasing expenditure in                                                              1 World Bank (2013). Poverty, Equity and Shared Prosperity Notes: An overview for the State of Amazonas. 2 The Shared Prosperity Convergence Index (SPCI) uses the equity-weighted GDP of the world’s top ten countries. 3 Citizen security refers to the responsibility of the state to protect its citizens from crime and violence in their daily lives. It also refers to principles of strengthening democratic governance and inclusion, and the expression has been increasingly used by development agencies. 4 Other sectors with high expenditure as percentage of the 2012 budget were health (16 percent) and education (15.3 percent). 2   this sector is likely to continue for at least the next two years, with hiring new staff, training and increases in wages, which start from a significantly low base5. 9. Reducing gender-based violence in particular is a priority for the GoAM. Manaus has the third highest female homicide rate in Brazil, at 11.5 murders per 100,000 women in 2010. Gender-based violence (GBV) is one of the central issues affecting the welfare of women in Brazil6 and is a priority issue identified by the recently launched State Plan for Gender-related Policies (Plano Estadual de Políticas para as Mulheres, 2013) for Amazonas. For that reason, the citizen security program developed by the State includes specific measures aimed at preventing and reducing violence against women. Those include, among others, strategies to improve the integration between the Public Security Secretariat (Secretaria de Segurança Pública) and the recently created Executive Secretariat for Gender Policies (Secretaria Executiva de Política para Mulheres) in the provision of services to support victims of GBV and to disseminate information to prevent it. 10. In this context, one of the main challenges is to manage the State’s financial resources more efficiently in order to maintain public investments and upgrade service delivery. To meet these challenges, the GoAM has identified a number of deficiencies in tax and financial administration, and in the management of the citizen security sector, which limit its fiscal capacity and service delivery efficiency. This operation supports specific measures to tackle these deficiencies. Support for the citizen security sector is important both because of the priority given by the GoAM to improve service delivery in this area - reduction of crime and violence, including GBV, is fundamental for citizen welfare and economic growth - and the risk that the expansion of this sector could inhibit service delivery in other sectors if resources are not used more efficiently. II - MACROECONOMIC POLICY FRAMEWORK AND RECENT DEVELOPMENTS 1.1. RECENT ECONOMIC DEVELOPMENTS IN BRAZIL 11. Over the last two decades, Brazil has made significant advances in terms of economic management, poverty reduction, and social indicators. Growth in employment and labor incomes, as well as the implementation of targeted social assistance programs have contributed to a reduction in the share of Brazilians living below the extreme poverty line of R$70 a month from 10.8 percent in 2001 to 4.3 percent in 20127, as well as a reduction in inequality as reflected in a fall in the Gini coefficient from 0.60 to 0.53 over the same period. 12. Brazil’s development is now at a crossroads. The country is gradually recovering from a slowdown that started in 2011. Future growth appears to be limited by structural bottlenecks in infrastructure, human capital, and poor financial intermediation compounded by a burdensome tax system and business environment. At the same time, a growing middle class is drawing attention to the ineffectiveness and inefficiency of public service delivery. Mass demonstrations in Brazil during June 2013 left little doubt as to the importance of good governance and effective service delivery.                                                              5 Based on the State Law 3.722/2012.  6 According to the WHO (2005), 29 percent of women aged 15 to 49 reported having experienced physical or sexual violence at least once in their life in 2005 (WHO, 2005). 7 Data from PNAD (national household survey) using the extreme poverty line of the Brasil sem Miséria program. 3   13. The recent economic slowdown now appears as much structural as cyclical. Initially, tighter monetary and fiscal policies in 2011 weakened domestic demand at the same time as external demand was dampened by protracted weakness and uncertainty in advanced economies and slowing growth in major emerging markets. However, as the slowdown continued throughout 2012, policy became looser and the external environment strengthened, structural factors such as the tight labor market and high cost of production, have become increasingly important. While the slowdown was felt across the board, it was industry that slowed most (industrial production declined by 6.4 percent between mid-2011 and end-2013) due to weak domestic demand, a relatively strong real exchange rate and the structural bottlenecks referred to earlier. The poor performance of industry was also mirrored in the weakness of investment demand. 14. Inflation remains high. Headline inflation reached 5.9 percent in 2013, accelerating to 6.2 percent in March 2014. Inflation is higher for goods whose prices are not controlled, running at 7.0 percent (compared with 3.4 percent for regulated prices) as well as for non-tradable goods (8.1 percent). The rate of inflation reflects in part capacity constraints, and a structurally tight labor market (due to skills mismatches and changing demographics). As a result, even at low rates of growth, demand-pull factors have played an important role. Cost-push factors such as automatic minimum wage adjustment and price shocks (i.e. food) have also contributed to inflationary pressure. 15. Fiscal and monetary policies responded to slow growth and high inflation. Over the past decade Brazil’s three-pillared macroeconomic framework (flexible exchange rates, inflation targeting and fiscal prudence) gained credibility. The fiscal stance has been loosened with primary surplus declining from 3.1 percent in 2011 to 1.8 percent in February 2014. However fiscal policy was tightened in February 2014 with the announcement of cuts of close to 1 percent of GDP to meet a primary surplus target of 1.9 percent of GDP. With inflation close to the 6.5 percent upper limit of the target range, monetary policy was also tightened and the interest rate has been raised by 375 basis points between April 2013 and April 2014 to 11 percent currently. 16. External instability has led the exchange rate to depreciate and became more volatile. The current account deficit widened to 3.7 percent of GDP in February 2014 from 2.4 percent in 2012. At the same time FDI failed to fully cover the gap reaching 2.9 percent. The difference was covered by portfolio investment which has reached 1.1 percent of GDP. The beginning of the tapering of monetary policy by the Federal Reserve has led to additional pressures on the exchange rate (as in other emerging markets). The Central Bank of Brazil responded with an intervention plan consisting of purchasing interest rate swaps and a foreign exchange repurchase program. While these interventions contributed to limiting exchange rate volatility, they also left the authorities with a non-deliverable short position with a notional value of US$ 84 billion as of February 2014. This compares to a stock of reserves of US$ 363 billion. Higher interest rates and reduced taxes on capital inflows also supported the currency. 17. While concerns have emerged about the interventionist nature of recent economic policies, Brazil’s macroeconomic framework remains adequate and robust. In recent years, economic policy has appeared more interventionist. Attempts to control inflation by administering prices and reducing taxes, together with other discretionary tax incentives, subsidies to energy and state-owned banks as well as slower growth and increased social demands have reduced the primary surplus. This in turn has complicated the task of curbing inflation. Indeed this combination of factors underpinned the downgrade by Standard and Poor’s of Brazil’s sovereign credit rating to the lowest investment grade on March 24. However, recent fiscal adjustment and moves to accelerate the auction of oil and infrastructure concessions 4   indicate a clear recognition of the importance of market-oriented policies by the Government. The downgrade is likely to strengthen the Government’s focus on such market oriented policies. Table 1 - Brazil: Selected Economic Indicators and Projections: 2007 - 2017 Projections Indicator 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 National Accounts (annual real percent change) Real GDP Growth 6.1 5.2 -0.3 7.5 2.7 1.0 2.3 2.0 2.6 3.5 3.5 (in percent of GDP) Gross domestic investment 18.3 20.7 17.8 20.2 19.7 18.2 18.4 18.5 18.7 18.9 19.2 External Sector Current account 1.6 -28.2 -24.3 -47.3 -52.5 -54.2 -81.5 -74.8 -73.2 -74.1 -78.9 Merchandise trade balance 40.0 24.8 25.3 20.1 29.8 19.4 2.3 7.8 19.8 22.7 21.5 Exports (fob) 160.6 197.9 153.0 201.9 256.0 242.6 242.4 259.4 281.4 304.0 324.1 Imports (fob) 120.6 173.1 127.7 181.8 226.2 223.2 240.1 251.6 261.6 281.3 302.6 Nonfactor services, net -13.2 -16.7 -19.2 -30.8 -37.9 -41.0 -47.5 -48.0 -51.5 -54.6 -56.1 Income and current transfers, net -25.3 -36.3 -30.3 -36.6 -44.3 -32.6 -36.4 -34.6 -41.6 -42.3 -44.3 Direct investment, net 27.5 24.6 36.0 36.9 67.7 68.1 64.0 60.0 61.7 64.8 68.0 Portfolio equity, net 1 24.8 -7.3 39.7 43.9 16.0 3.3 2.7 3.4 3.5 3.5 4.2 Gross international reserves 180.3 193.8 238.5 288.6 352.0 373.1 358.9 363.0 367.8 371.6 374.4 Current account (% of GDP) 0.1 -1.7 -1.5 -2.2 -2.1 -2.4 -3.6 -3.5 -3.3 -3.1 -3.1 General Government (in percent of GDP) Total Revenues and Grants 35.7 36.9 34.9 37.2 36.6 37.2 37.2 36.9 37.2 37.1 37.2 Total Expenditure 38.4 38.2 38.0 39.9 39.1 40.0 40.5 39.7 39.2 38.8 38.5 Current Expenditure 36.6 36.0 35.8 35.9 36.7 37.5 37.7 36.9 36.4 35.9 35.5 of which: Net Interest payments 6.1 5.5 5.3 5.2 5.7 4.9 5.2 4.7 4.7 4.1 3.4 Capital Expenditure 1.8 2.2 2.2 4.0 2.5 2.6 2.8 2.9 2.9 2.9 3.0 Primary Balance 3.5 4.1 2.2 2.5 3.2 2.1 1.9 1.8 2.7 2.3 2.1 Overall Balance -2.7 -1.4 -3.1 -2.7 -2.5 -2.8 -3.3 -2.8 -2.1 -1.8 -1.3 Gross Public Sector Debt 65.2 63.5 66.8 65.0 64.7 68.0 66.3 64.2 61.6 58.6 55.5 of which: Domestic Currency 60.6 58.4 63.2 62.1 62.2 65.4 63.2 61.0 58.2 55.2 52.2 of which: Foreign Currency 4.6 5.1 3.7 3.0 2.7 3.1 3.1 3.2 3.4 3.5 3.3 Prices (annual percent change) GDP Deflator 5.9 8.3 7.2 8.2 7.0 4.9 7.7 5.7 5.2 4.7 4.5 Consumer Price Index (eop) 4.5 5.9 4.3 5.9 6.5 5.8 5.9 5.8 5.5 5.3 5.0 Memorandum items: Nominal GDP (in R$ billions) 2661.3 3032.2 3239.4 3770.1 4143.0 4402.5 4836.4 5214.3 5628.1 6098.8 6596.4 Total External Debt (% of GDP) 17.5 15.9 17.4 16.4 16.2 17.9 18.8 20.8 21.0 21.4 20.6 Note 1: Porfolio equity does not include debt securities Source: IMF, BCB, IBGE, EIU, WB Calculation 18. Brazil’s financial system has remained sound and resilient. Following a period of rapid credit growth, asset quality indicators broadly stabilized during 2012 and recently reported some improvement. As of February 2014, around 4.3 percent of household loans and 1.9 percent of corporate loans were classified as non-performing. Lower interest rates in recent years eased pressures on borrowers, keeping delinquencies at manageable levels. A moderated increase in delinquency cannot be ruled out as interest rates in Brazil are rising. The banking system appears to be well-cushioned to withstand losses, with loan loss provision coverage at 170 percent of nonperforming loans as of December 2013, compared with 160 percent recorded last June as nonperforming loans fell. Moreover, the solvency ratio remained considerably above the 11 percent minimum regulatory requirement, at 16.6 percent in November 2013. However, rising private sector external debt levels, largely reflecting increased issuance of bonds by corporates and banks, have raised concerns about the capacity of some companies to carry their debt. 5   1.2. BRAZIL’S MACROECONOMIC OUTLOOK AND DEBT SUSTAINABILITY 19. The growth prospects for the Brazilian economy remain muted, with 2.3 percent growth recorded in 2013 and a slightly lower growth rate expected for 2014 with a gradual increase to 3.5 percent thereafter. After a 3.5 percent monthly contraction in December 2013, industrial production recovered in the two consecutive months, reporting 1.1 percent growth in the last 12-months to Feb-2014. Consumer confidence stabilized in March after three consecutive drops. Investment, which declined in 2012, has rebounded in 2013 and will be aided by an increase in infrastructure investment and the preparations for upcoming mega events. The contribution of net external demand will likely remain dampened given global developments as well as the current crisis in Argentina, which is an important market for Brazilian manufactured exports. The depreciation of the Real should have a positive impact on the current account. 20. Inflation is expected to remain a challenge. A key factor is the role of the labor market which remains tight. It is characterized by low unemployment (5.1 percent in February), scarcity of skilled workers and labor hoarding due to low flexibility caused by structural issues affecting mobility and wage setting (such as indexation of the minimum wage to inflation and GDP growth). Government efforts to address skills gaps should help address some of these concerns in the medium term, although more will be needed to raise labor market flexibility. Other factors that may contribute to inflation include the pass-through of the recent depreciation of the currency and also the end of restraint of administrated prices, which have been running at 1.5 percent in 2013, but have started to rise as fuel prices are brought near to world market levels and energy subsidies are phased out. On the other hand, the recent monetary policy tightening will help subdue inflationary pressures. Inflation expectations also remain high, standing at 6.3 percent for the coming 12 months in early April. 21. The external environment continues to pose a risk to Brazil’s outlook for near-term growth. Continuation of an uneven recovery in advanced economies and a slowdown in emerging markets, may translate into lower external demand for Brazil’s exports. Like other emerging market economies, Brazil also remains vulnerable to market sentiment posing a continued risk to FDI and especially portfolio flows, particularly given the relatively high share of some government bonds held by non-residents and the possible impact of the unwinding of unconventional monetary policy in the US. Nonetheless, Brazil’s vulnerability to external events is likely to remain moderate due to its high reserves (US$ 363 billion), the low share of short-term debt in total external debt (around 21 percent), the large role of foreign direct investment (2.9 percent of GDP in Feb-2014) in financing the current account (-3.7 percent of GDP in Feb-2014). 22. Downside contingencies and social pressures for improved public services also pose risks to the fulfillment of fiscal targets. The achievement of primary surplus targets are in jeopardy if the growth rate of current expenditures is not curtailed and if activity turns out more sluggish than expected. Other potential fiscal risks include Government efforts to stimulate the economy through specific incentives for particular sectors, the subsidy to energy prices which cost around R$ 20 billion in 2013, sporadic tax relief for selected industries, and quasi-fiscal activities by the National Bank for Economic and Social Development (BNDES), which received R$ 39 billion in transfers from the Treasury in 2013. More generally, pressures for improved public services and mandatory payments for Congressional Budget Amendments may also create stronger expenditure pressures. Also, political tensions between Congress and the Executive and the coming election year pose further risks of pressures to the fiscal stance. 6   23. In spite of these risks and challenges, Brazil’s overall macroeconomic framework is currently adequate for the purposes of this operation. Brazil’s policy framework continues to provide the Government with the flexibility to respond to economic crises. While the continuation of inflation pressures and the recent deterioration of fiscal outturns have raised concerns, the authorities remain committed to inflation control and fiscal prudence. Gross public sector debt is expected to decline in the future, given the levels of the primary surplus, despite difficulties in maintaining fiscal balance in the face of large investment needs and popular pressures for improved service delivery. Moreover, flexible exchange rates and relatively large foreign reserves provide Brazil with a buffer to shifts in market perceptions and an associated turn-around in capital flows – as the recent episode of market turbulence has suggested. 24. Brazil’s medium to longer-term outlook will critically depend on its ability to tap into a large unrealized growth potential and remove structural bottlenecks. These bottlenecks include: the need to accelerate and strengthen the quality of human capital formation; reduce the tax burden; increase the effectiveness of public spending; raise public and private investment to address infrastructure bottlenecks; 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. Addressing these bottlenecks would lay the foundations for productivity growth. Recent Economic Developments in the State of Amazonas 25. Amazonas’s GDP has consistently grown faster than Brazil’s since 2000. The annual average GDP growth rate for Amazonas from 2000 until 2010 was 5.3 percent, while the corresponding annual rate for Brazil was 3.6 percent. Recently, GDP growth in Amazonas has reported higher volatility than national GDP. Thus, overall, although Amazonas is still a relatively poor state, in terms of GDP, it is converging faster than other regions (e.g. Northeast of the country). 26. The industrial sector increased as a share of GDP between 1995 and 2006. Industry accounted for 42.3 percent of Amazonas’ GDP, on average, from 2007-2010; this is significantly above the national average (27.7 percent) and results from the establishment of the Manaus Free Zone (Zona Franca de Manaus, or ZFM) in 1960. After losing ground to industry and agriculture between 1995 and 2006, the service sector recovered somewhat between 2007 and 2010. The agricultural sector has expanded as a share of GDP since 1995, reaching 5.4 percent from 2007-2010. Amazonas has traditionally been a pole for the production of rubber and plastics8. Nowadays, mobile phones and electronics are the main manufacturing products, as companies such as Siemens and Nokia have established production facilities in the ZFM. 27. Amazonas’ development is based on the Zona Franca de Manaus (ZFM). ZFM is a free trade area (imports and exports are tax-free) with fiscal incentives, established with the aim of creating an industrial, commercial and agricultural pole in the Amazon region. The Federal Government supports the extension of fiscal incentives currently in place. It is estimated that the Zona Franca de Manaus directly employs 118 thousand people. According to the GoAM’s estimates, industry alone is responsible for 40 percent of the state’s tax revenues and tax waivers are estimated at R$5.2 billion in 2013, close to 70 percent of Brazilian Value-Added Tax (Imposto sobre a Circulação de Mercadorias e Serviços – ICMS) revenues. Companies                                                              8 See http://www.suframa.gov.br/publicacoes/site_pim/plastico.htm 7   benefiting from fiscal incentives are expected to contribute to special purpose funds. The annual contribution amounted to R$1.1 billion in 2012. Figure 1: Evolution of Amazonas GDP (left) and GDP sector structure (right)  180 average % of total GDP Index. 2000=100 57.9  54.4  49.3  52.3   130  80 39.0  41.1  45.4  42.3  2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 3.0  4.5  5.2  5.4  Brazil North Amazonas 1995‐1998 1999‐2002 2003‐2006 2007‐2010 Agriculture Industry Services Source: IBGE and World Bank 28. Current revenues in 2012 totaled R$ 11.2 billion, having grown by 7.2 per cent annually in real terms between 2006 and 2012. A significant share of GoAM’s revenues stem from own tax revenues, with the ICMS accounting for 52 percent of revenues in 2012. ICMS collection benefitted from robust GDP growth in Amazonas (an average of 6.2 percent annually between 2006 and 2012). Additionally, State tax revenue collection surpasses both national and regional rates, representing 56 percent of the total compared to 40.6 percent at the regional level and 53 percent at the national level. Current revenue performance benefitted from strong growth of own revenues and also increasing distribution of oil royalties. The economic deceleration experienced in Brazil since 2011 has affected transfers from the Federal Government to states and municipalities. Tax incentives granted by the Federal Government to stimulate the economy diminished resources available for subnational governments. The State Participation Fund (Fundo de Participação dos Estados e Distrito Federal – FPE) is the State’s second largest source of revenue, but its share of total revenue declined from an average of 15.3 percent from 2009-2011 to 13.7 percent in 2012. Amazonas continues to rely on capital and current transfers, which amounted to 21 percent of revenues in 2012. The intergovernmental transfer system in Brazil is rules stable and rules based. Hence transfers tend to vary with overall economic activity and tax collection. 29. Despite the progress achieved in tax collection9, the State faces some challenges ahead. There are difficulties relative to the enforcement of tax collection in the transit of goods between states. Moreover, agencies dealing with tax crimes do not work cooperatively and information on business transactions are not fully integrated, making it harder for the State to efficiently diminish tax evasion. The State has taken steps towards higher efficiency in tax collection such as the adoption of the so called “substituição tributária10”, and the ongoing implementation of Nota Fiscal Eletrônica, which should help diminish tax evasion. Increasing tax collection is a priority for the GoAM to account for increased spending pressures. Moreover,                                                              9 While Amazonas faces some issues regarding tax collection efficiency, the State has already one of the highest tax-to- GDP ratios in the country. Own tax collection to GDP amounted to 10 percent in 2010, which is considerably higher than the average for the North region (8.4 percent) and Brazil (8.8 percent). However, one has to take into account that the large contribution of the industrial sector to Amazonas’ GDP differs it from other states regarding its potential tax collection. Industry accounted for 43 percent of Amazonas’ GDP in 2010, compared to 28 percent at the national level. 10 “Substituição tributária” is a special collection regime for value added taxes, wherein the taxes owned at each step of the production process is paid in advance at the beginning of the chain. 8   public service delivery is particularly expensive in a sparsely populated State, where access to several communities is difficult. Table 2. Amazonas Statement of Government Operations11 Amazonas Statement of Government Operations (GFS Standards) % of GDP 2006 2007 2008 2009 2010 2011 2012 I. REVENUE 15.03 15.93 17.24 15.90 15.94 16.74 18.11 Taxes 9.18 9.50 10.58 9.36 9.97 9.92 10.29 ICMS 8.55 8.82 9.84 8.65 9.28 9.16 9.49 IPVA 0.22 0.26 0.27 0.27 0.28 0.28 0.28 Others 0.41 0.42 0.47 0.44 0.42 0.48 0.52 Social Contributions 1.20 1.17 1.25 1.04 1.09 1.40 2.23 Transfers 4.13 4.17 4.69 4.01 3.84 3.86 3.82 Current Transfers 3.98 4.03 4.44 3.62 3.47 3.55 3.61 FPE 2.36 2.55 2.80 2.55 2.28 2.60 2.48 Other Current Transfers 1.61 1.48 1.64 1.07 1.19 0.95 1.13 Capital Transfers 0.16 0.14 0.25 0.39 0.37 0.31 0.21 Other Current Revenues 0.51 1.09 0.72 1.49 1.04 1.56 1.77 II. EXPENSE 12.52 13.25 14.19 14.34 13.64 14.25 15.47 Compensation of Employees 6.02 6.16 6.57 6.93 6.22 6.75 7.47 Interest Payments 0.28 0.25 0.23 0.24 0.26 0.29 0.26 Other Current Expenditures 5.68 6.22 6.79 6.50 6.53 6.52 7.04 Transfers to Municipalities 2.47 2.48 2.72 2.43 2.55 2.54 2.62 Goods and Services 3.21 3.73 4.06 4.07 3.99 3.98 4.42 Contracted Services (Third-parties) 1.45 1.55 1.84 1.87 1.75 1.77 1.93 Other Goods and Services 1.76 2.18 2.22 2.20 2.24 2.21 2.49 FUNDEB Net Loss 0.54 0.62 0.60 0.66 0.63 0.69 0.71 III. GROSS OPERATING BALANCE (I - II) 2.51 2.67 3.05 1.57 2.30 2.49 2.64 % of NCR 21.00 21.07 22.31 12.63 18.56 18.88 19.04 IV. TRANSACTIONS IN NON-FINANCIAL ASSETS 2.36 2.06 2.73 3.52 3.03 2.50 2.18 Investiment in Non-Financial Assets 2.28 2.06 2.70 3.43 2.84 2.37 2.14 V. NET LENDING / BORROWING (III - IV) 0.15 0.61 0.32 (1.95) (0.73) (0.01) 0.46 VI. PRIMARY BALANCE (V + Net Interest Payments) 0.32 0.75 0.28 (1.92) (0.58) 0.10 0.54 % of NCR 2.72 5.90 2.08 (15.44) (4.65) 0.78 3.90 VII. TRANSACTIONS IN FINANCIAL ASSETS AND LIABILITIES (0.12) 0.00 0.06 1.46 0.59 (0.05) 0.65 New Loans 0.22 0.31 0.36 1.72 0.86 0.33 1.11 Amortizations, net (0.34) (0.31) (0.31) (0.31) (0.27) (0.38) (0.49) VIII. GROSS FINANCING NEEDS (Net Debt Service - VI) 0.19 (0.30) (0.01) 2.26 1.00 0.40 0.03 % of NCR 1.62 (2.38) (0.08) 18.23 8.06 3.01 0.24 VIII. OVERALL BALANCE (VI + VII) 0.20 0.75 0.34 (0.46) 0.01 0.05 1.19 Memo Items: Net Current Revenue (NCR) 11.93 12.69 13.66 12.42 12.39 13.19 13.85 Net Consolidated Debt / NCR 33.30 18.98 12.81 23.68 27.09 19.36 15.32 Net Consolidated Debt / GDP 3.97 2.41 1.75 2.94 3.36 2.55 2.12 Consolidated Debt / NCR 42.11 36.70 34.79 45.09 43.04 38.78 40.16 Consolidated Debt / GDP 5.02 4.66 4.75 5.60 5.33 5.12 5.56 Non-Financial Investment / NCR 19.08 16.21 19.79 27.64 22.90 18.00 15.44 Source: WB Staff calculations based on official data provided by SEFAZ/Amazonas. Values are as a percentage of GDP. 30. GoAM’s expenditures are mainly composed of compensation to employees (48 percent) and goods and services (29 percent). Payroll expenditures reported 13 percent real growth in 2012, considerably above the 2006-2011 average (7.3 percent). The observed expansion is mainly a result of wage increases granted to state officials and, in particular, a                                                              11 The consolidated (gross) debt is considered for the purpose of the Debt Sustainability Analysis to be consistent with international practice and GFS standards. Net consolidated debt is the concept required for accountability under the LRF, and is equal to consolidated debt minus cash assets. 9   significant increase in the police force, which led to a 28 percent growth in public security payroll during that year. Transfers to municipalities posted a 5.4 percent growth rate in 2012, in line with the 2006-2013 average growth. 31. Among the items of major expenditure in Amazonas’ budget, citizen security has been growing fast in recent years. In 2012 citizen security accounted for 9 percent of total expenditure. Between 2010 and 2012, expenditures with citizen security increased by 31.8 percent in real terms, compared to an increase of 8.6 percent in education and a 1.8 percent drop in health. The observed expansion resulted from the introduction of Ronda no Bairro, which is part of the State’s efforts to respond to the rising criminality. Expenditure on citizen security is expected to continue increasing over the next couple of years. 32. Amazonas has reported continued improvement in its fiscal balance since 2006, with the exception of 2009 when Brazil’s GDP fell slightly amidst the global financial crisis. The positive outcome is mainly a result of increased tax collection, which more than compensates for expense growth. However, the State’s resources alone have not been enough to finance its sizeable investment plan throughout 2011 and Amazonas has resorted to borrowing. In 2012, the State’s primary result has reported a significant increase from the previous year. This can be partly explained by own revenues growth and, to the addition of the Amazonas Pension System to the State accounts. This added R$286 million to revenues and the impact should be sustained going forward. Figure 2. Evolution of fiscal balances Figure 3. Evolution of public debt stock Source: SEFAZ and World Bank. Note: Graph refes to GFS definition. Therefore, expense does not account for investments. However, investments are included when estimating the primary balance 33. One of the main challenges for the State is to strengthen fiscal sustainability, while maintaining investment and, at the same time, the quality of public service delivery. In 2012, investments in non-financial assets amounted to R$1.49 billion allocated mainly to urban works (20.5 percent), education (14 percent), transport (13 percent), sports and leisure (12.7 percent), citizen security (9 percent) and housing (7.4 percent). 34. Total consolidated debt stock in Amazonas reached R$ 3,877 million in 2012, representing 5.6 percent of Amazonas’ GDP (compared to 4.7 percent as of end 2007). Consolidated debt as a percentage of Net Current Revenues (NCR)12stabilized at an average of 40 percent in 2008-2012 (compared to 65 percent in 2004). Regarding public debt composition,                                                              12 Net current revenues are calculated as tax revenues plus federal transfers minus transfers to municipalities (established by law) and pension contributions for state workers. 10   approximately 73 percent is domestic debt, mainly held by the Federal Government, following the 1998 debt renegotiation.13 With regards to external debt, 84 percent of it is held by international organizations (mainly the IADB). 35. Debt service represents a relatively small share of net current revenues, and interest payments have been contained over the past five years. On average, interest payments have remained below 2 percent of NCR in 2008-2012, compared to 3.2 percent in 2004 and 2.7 percent in 2005. Table 3. Evolution of Fiscal Responsibility Law (art. 48) indicators (percentage of NCR) 2006 2007 2008 2009 2010 2011 2012 Personnel Expenditure - Executive 49.0 41.1 38.4 38.7 46.2 41.9 42.2 41.4 Total Guarantees 22.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Net Consolidated Debt 200.0 33.3 19.0 12.8 23.7 27.1 19.4 15.3 New Loans 16.0 1.8 2.5 2.7 13.9 7.0 2.5 8.0 Source: National Treasury (STN) 36. The GoAM has been compliant with the Fiscal Responsibility Law (Lei de Responsabilidade Fiscal – LRF). Personnel expenditure has been maintained at an average of 41.4 percent of net current revenues in 2006-2012, compared to the limit of 49 percent. The State of Amazonas has not requested any explicit guarantees from the Treasury, and debt levels (at 15.3 percent of NCR in 2012) are well below the 200 percent threshold of the LRF. 37. A debt sustainability analysis was carried out for the State of Amazonas. This indicated that in the baseline scenario debt would rise to just over 50 percent of net current revenues by 2015 and then stabilize. Even in the worst case scenarios of slower growth and revenues shocks debt would not exceed 60 percent of net current revenues or about 8 percent of GDP. Figure 4. Risk analysis under simultaneous shock under the baseline, with the DPO Source: World Bank staff calculations. 38. Intergovernmental fiscal relations are adequate. Transfers are mostly rule-based, with the rules being written in the Constitution or laws. The rules are public and known in advance, and their application is overseen by the Court of Accounts. Under the Fiscal Responsibility Law                                                              13 Renegotiated debt accounted for 27 percent of total debt in 2012. According to the rules established during restructuring, debt service associated with renegotiated debt (“intra-limit debt”) is subject to a maximum of 13 percent of net revenues. 11   and complementary Senate resolutions borrowing by States is prohibited if: (i) the Net Consolidated Debt twice exceeds NCR in the case of States or 120 percent in the case of municipalities (ii) new credit operations exceed 16 percent of NCR; or (iii) debt service exceeds 11.5 percent of NCR. Borrowing is also prohibited if it violates the debt reduction schedules. Finally bail-outs of subnational governments are prohibited and none has been registered in the last 15 years. In State government fiscal accounts are under rigorous scrutiny of the National Treasury Secretariat. Revenues and Expenditures assignment are broadly matched with gaps being covered by specific transfers by the Federal government mostly on education and health. The current debate over intergovernmental finance reforms is not expected to change these characteristics in the next few years. 39. In conclusion, the GoAM’s expenditure program and fiscal arrangements between the Federal Government and the GoAM are adequate for the purpose of this operation. The GoAM’s debt is low and sustainable, even under the most adverse conditions. 2.1 IMF RELATIONS 40. As the International Monetary Fund (IMF) does not work directly with sub-national governments, no direct collaboration with the IMF is expected on the proposed DPL. This DPL does, however, comply with the guidelines for coordinating with the IMF on development policy lending set forth in the Joint Management Action Plan. III - THE GOVERNMENT’S PROGRAM 41. The Government of Amazonas’ program is set out in its Multi-year Plan (Plano Plurianual - PPA) for 2012-2015. This plan reflects a strategic alignment of State and Federal priorities in terms of programs that seek innovative solutions to modernize state capacity, reduce inequalities, and improve service delivery. The PPA priorities are divided into different thematic areas: (i) Education; (ii) Health; (iii) Social; (iv) Security and Justice; (v) Economy; (vi) Infrastructure; (vii) Planning and Management; and (viii) Legislative and Judiciary powers. These thematic areas correspond to the structure in which the Government establishes its priorities. Objectives, guidelines and targets are established for each thematic area. In order to achieve these objectives, the GoAM is focusing on implementing best practices from other states, strengthening integration and coordination within its public administration, and promoting monitoring and evaluation as a key element of the PPA. 42. This DPL is directly linked to the PPA thematic areas of “Planning and Management” and “Security and Justice.” The role of women is considered strategic in the development of Amazonas, and is therefore treated in the PPA as a transversal component of all the thematic areas. In the strategic area of “Planning and Management”, objectives are to promote efficiency, efficacy and institutional transparency in the State public administration, contributing to the optimization of public expenditures and economic development by encouraging greater integration between the programs and actions of government institutions to better use the resources and implement public policies effectively. 43. Priorities in the area of “Security and Justice” are to reduce violence and fight criminality in the neighborhoods of Manaus and other municipalities with the specific objective to guarantee citizen security. As a response to the increasing crime trend in the State, 12   between 2010 and 2012 the GoAM increased public security expenditures by 32 percent. Most of these expenses were used towards the implementation of the Ronda no Bairro program (“Neighborhood Watch”), which consists of the implementation of joint actions by the civil and military police, responsible for criminal investigations and policing, respectively, through DIPs working in Integrated Areas of Public Security (Áreas Integradas de Segurança Cidadã – AISC). IV - THE PROPOSED OPERATION 4.1 LINK TO GOVERNMENT PROGRAM AND OPERATION DESCRIPTION 44. The Program Development Objective (PDO) of this proposed operation is to assist the Government of Amazonas to i) improve tax administration and procurement procedures and (ii) to strengthen the delivery of citizen security services and women’s access to justice and social services. The PDO is, therefore, fully aligned with the Government’s longer-term development goals as outlined in the previous section. 45. This operation is directly linked to the objectives of the Government’s PPA (2012-2015) and aims to support the GoAM’s goals in the areas of public sector management, citizen security and implementation of gender-related policies. The choice of areas for support under this operation reflects the GoAM’s priorities and needs, specifically to support the GoAM to achieve its goals through: (i) improving tax collection, information on commercial taxpayers, and expenditure control via improved procurement rules and procedures; and (ii) improving resource allocation and efficiency in the security sector, with a focus on reducing GBV. Support for the security sector is important both because of the priority given to improved service delivery in this area and the risk that the expansion of this sector could crowd-out resources and hamper service delivery in other sectors if resources are not used more efficiently. 46. The proposed DPL builds on the experience of other Bank operations with Brazilian state governments. Among these lessons learned is the importance of putting arrangements in place to assist the implementation over the medium-term. Previous experience has also shown that prior actions should be limited to a few key policy and institutional reforms. Without such focus, implementation by the Government and supervision by the Bank risk losing sight of the operation’s priorities. Experience in other States (such as Rio de Janeiro and Pernambuco) has shown that citizen security, in addition to being a direct benefit to the most vulnerable in the community, is a pre-requisite for the state to be able to deliver public services. Analytical work has proven to be a critical tool for project preparation. It helps to identify gaps in specific sectors, inform stakeholders, build consensus around important development issues, and prepare the groundwork for future engagement and dialogue. Previous Bank analytical work and technical assessments conducted by the GoAM provide support for this proposed operation (see Table 3). 4.2 PRIOR ACTIONS, RESULTS AND ANALYTICAL UNDERPINNINGS A. Program Components 47. The two pillars that underpin this proposed operation are aligned with the PDO and the GoAM’s overall goal of improving public sector management and performance in citizen security, with a gender-related focus. The pillars are: (i) Tax administration and Procurement; and (ii) Citizen Security Sector, with a focus on reducing GBV. The first pillar will support the achievement of the PDO by promoting actions oriented towards increasing tax 13   collection, strengthening expenditure controls and increasing transparency. The prior actions will foster the institutionalization of transparent mechanisms for tax collection, budget execution and procurement, gradually supporting greater efficiency and efficacy in public spending. The pillar related to the citizen security sector with a focus on women’s access to justice will directly support actions to foster interagency coordination and integration to limit duplication of efforts and, in turn, strengthen service delivery. The focus on reducing GBV in particular is a priority theme identified by the recently launched State Plan for Gender-related Policies (Plano Estadual de Políticas para as Mulheres, 2013). Pillar I. Tax Administration and Procurement 48. The main objectives of this first pillar are to increase tax compliance and improve efficiency and transparency in procurement procedures. This pillar seeks to increase tax compliance through modernizing and simplifying tax administration systems and procedures. Prior actions under this pillar also aim at streamlining procurement rules to generate savings and increase efficiencies. Furthermore, this pillar will contribute to greater efficiency and transparency within the public sector by strengthening expenditure control and improving budget execution. 49. Amazonas has scope to improve its sales tax collection rates – the primary tax revenue for the State. There is a consensus around the need for Brazil to embark on a comprehensive tax policy reform, focusing on simplifying an overly complex tax system. However, these types of reforms are beyond the scope of what a single State in the Federal system is able to change. As such, this prior action focuses on reforming sales tax administration, which is entirely the responsibility of the State. Low tax compliance arises from a number of factors, including the high cost, in terms of money and time, incurred by small businesses to comply with the current system, and high costs for auditing. Under the current system, retailers must first acquire the equipment to generate the tax receipts from an accredited supplier of the Secretariat of Finance (Secretaria da Fazenda – SEFAZ). The equipment and the application represent an average total cost of US$3,000. The retailor must also obtain authorization from the State Government to issue tax receipts, which can involve cumbersome accreditation procedures. In addition, system maintenance cost is also considerable. 50. As a result, more than 80 percent of the 34,000 registered businesses in the retail sector of the State are not in compliance with the tax collection system. From the government side, it is difficult to validate the submission of receipts since they are not in a format that permits automatic cross-referencing of information as the transaction information remains in the memory of the equipment that generated the receipt. This generates a substantial need for in-depth and costly tax audits; however, only about 3 percent of taxpayers are audited in the retail industry. This situation further fuels the perception that there are negligible repercussions for not complying with tax obligations. With readily available information in electronic format, the need for tax audits will significantly decrease, with the added benefit of improving the business environment. 51. This pillar complements ongoing efforts to reform tax administration in Amazonas. Focusing on improvements in recording commercial transactions the State of Amazonas spearheaded the Electronic Consumer Receipt (Nota Fiscal do Consumidor Electronica - NFC-e) in 2013, the first instrument of its kind in Brazil, alongside six other States in the country. The NFC-e, a free system for retailers, creates an electronic file with the invoice information at the time of purchase and sends this to SEFAZ, which then validates the information against the taxpayer database. Once this information is validated, the invoice is issued to the consumer. Based on the results of a previous 14   implementation in the Municipality of Rio de Janeiro, the NFC-e is expected to generate substantial improvements, both from an administrative and a financial standpoint (Souza Boavista and dos Santos Silva, 2011). The gradual rollout of the system across the State will substitute the previous system involving paper receipts, reduce the cost of compliance and decrease the demand for in-depth audits by increasing the availability of real-time and reliable information on collection. In turn, this will boost voluntary compliance, collection14 and improve the taxpayer database. The State has planned for a gradual deployment of the NFC-e, starting with voluntary membership in July 2013 and moving to obligatory compliance for retailors by September 2014. 52. A continuation of this reform involves instituting incentives for consumers to request their receipts from retailers, which will include door prizes and lotteries for consumers that request the NFC-e. Results of similar reform programs implemented in other parts of Brazil suggest that these measures are effective in improving tax compliance. For example, the Nota Fiscal Paulista (NFP) program carried out in the State of São Paulo, which gives monetary rewards to consumers for requesting their receipts, has contributed to increase the revenue reported in the retail sector by at least 23 percent over four years (Naritomi, 2013). The GoAM plans to roll out similar incentives in January 2015, and expects a 10 percent increase in sales tax collection by the end of 2015.  Prior Action 1: The Government has adopted the NFC-e, to be applied on a: (a) voluntary basis from July 1, 2013 until December 31, 2014, and (b) mandatory basis from January 1, 2015.  Results: (i) Increased number of taxpayers registered at SEFAZ and (ii) improved methods for the collection of taxes on retail sales. 53. This pillar also builds on the recent reforms and selected public financial management measures introduced by the GoAM to meet challenges in procurement and public financial management. The GoAM suffers from low efficiency in budget and financial planning and in the procurement of goods and services. This stems from the absence of comprehensive policies, standards, and tools – a key challenge of public management systems in Brazil (Brumby, Melo and Velloso, 2011). In Amazonas, the need for such policies and standards is particularly evident in the areas of (i) public procurement regulatory framework, (ii) hiring and contract management of outsourced services, (iii) control of recurrent expenditures, and (iv) improved investment planning of Public Private Partnerships (PPPs). The proposed actions of the operation support the adoption of new policies, standards, and tools that will allow the executive branch to improve financial control through better planning and execution of expenditures. 54. Good public procurement practices are a major determinant of effective public expenditure and improved development outcomes, through the timely and cost-effective purchase of goods and services (IEG World Bank, 2013). In recent years, Amazonas has taken steps to mitigate shortcomings in planning and procurement through strengthening the State’s public procurement framework. Recently, the GoAM created a new regulatory framework - the Integrated Management System of Procurement and Contracts (Sistema Integrado de Gestão de Compras e Contratos do Estado), which defines roles for the regulatory body, introduces mandatory procurement planning, regulates electronic purchasing, and aims to increase                                                              14 The GoAM estimates a 3 percent increase in nominal sales tax collection in the next two years (2014-2015). This result is not included as an indicator given uncertainties with respect to sales and GDP growth which could affect this estimate. 15   economies of scale through bulk purchasing of goods and services under the price registration modality (Registro de Preços) within the online procurement platform e-Compras.AM. Price registration is a framework agreement under which the government has competitively chosen a provider of a certain good or service and has established its price, which is registered in the procurement management system for 1 year. When purchasing goods or services, government entities can simply process the order through e-Compras.AM, without the need for price comparison or tenders, hence shortening procurement processes. The system enhances contract management, transparency and linkages with the financial management system. 55. At the moment, 29.2 percent of procurement processes are completed in fewer than 45 days15. The GoAM estimates that of the purchases currently conducted under different procurement modalities (i.e. price comparison), an additional 24 percent could be transitioned to the price registration modality in the short-term. Through the continued rollout of the price registration modality, the percentage of processes completed in fewer than 45 days will be able to increase to 40 percent by 2015, thus improving delivery times for goods and services. 56. The new regulatory framework enhances procurement planning and transparency of procurement processes. As part of the implementation process of the Integrated System of Procurement and Contracts, the procurement planning process will be improved by gathering information from the new Contract Management System (Sistema de Gestão de Contratos - SGC) (see Prior Action 3). Furthermore, procurement plans will be disclosed on e-Compras.AM to inform the market about the future business opportunities with the GoAM. Similar procurement reforms in Minas Gerais generated R$256 million in savings in the period 2007- 2012, equivalent to 25 percent savings compared with the period prior to the reforms. Savings were generated in the Minas case mainly due to the mandatory requirement for line secretariats to present their procurement plan in advance.  Prior Action 2: The Government has improved its public procurement regulatory framework, through the establishment of: (i) the Integrated Management System of Procurement and Contracts (Sistema Integrado de Gestão de Compras e Contratos do Estado) which allows to manage public procurement procedures in an integrated manner, and (ii) a price registration modality aimed at recording in a systematic manner prices of goods and services procured by the States’s secretariats, agencies and entities.  Results: (i) Shorter duration of procurement processes and increased value of purchases made through Price Registration, and (ii) increased procurement planning and transparency. 57. Amazonas has also made strides to strengthen planning and management of outsourced services, a rising expenditure category in recent years. Expenditures for outsourced services (e.g. security, cleaning, administrative services) increased by about 200 percent from R$598 million in 2004 to R$1.8 billion in 2012 (an average of 9 percent annually in real terms). The lack of standardized specifications for the contracting of outsourced services and the lack of tools and standards to supervise the execution of such contracts – and, therefore, to reliably validate expenditures – have created not only differentiated contracting criteria, but also divergent prices for identical or similar services.                                                              15 The GoAM established 45 days as a benchmark given the current average of 60 days for procuring goods. 16   58. Recently, Amazonas has taken actions to confront these challenges. In 2012, the GoAM started standardizing technical specifications and therefore was able to establish reliable market reference prices for nine basic services accounting for 22 percent of budget execution. Those included security, cleaning, administrative personnel and support staff, and services for hospital (i.e. laundry and food), amongst others. Ten more services will be standardized, inter alia, water and sanitation, travel expenses, and building maintenance. These efforts, covering 32 percent of expenditures for outsourced services, aim to reduce those expenditures by R$61 million. For example, the GoAM estimates that by 2015 they will generate 15 percent savings through the standardization of school maintenance. 59. Moreover, in order to enhance contract management, the GoAM has implemented a Contract Management System SGC, which registers all contracts between outsourced service providers and the Government (executive branch, entities directly administered by the State, and autonomous entities and foundations). These contracting processes are linked to e-compras.AM, and the contract payment component is connected with the Integrated Financial Management System (Sistema de Administração Financeira Integrada – AFI). Through the SGC, the GoAM will be able to monitor timely contract execution and payments and to control price amendments.  Prior Action 3: The Government has established an electronic system (Sistema Eletrônico de Gestão de Contratos) for electronically managing the contracting of services outsourced by the secretariats, agencies and entities within the State’s Executive Branch (Poder Executivo Estadual).  Result: (i) Increased number of services with standard specifications; (ii) reduction in cost of outsourced services by 10 percent; and (iii) increased transparency of contract management. 60. Delays in payment of recurrent expenditures such as water and sanitation, electricity, and telecommunication services have generated substantial liabilities with providers and have resulted in high fines. In 2012, the average delay for payments was 45 days, which in the case of electricity services resulted in R$2.6 million in fines, equivalent to 2.85 percent of GoAM’s total electricity bill. Those delays stem from the absence of a standardized policy for these services, necessary for proper administrative processing and prioritization of payments. 61. In order to improve the execution of recurrent expenditures, the GoAM has introduced norms to restrict intra-year budget modifications for essential recurrent expenditures. As a result, the GoAM has increased control over recurrent expenditures, as well as cost savings through timely payments. The proposed actions of the operation support the expansion of the pilot to control expenditures of electricity, water supply and sanitation, and telephone. As a result, the GoAM is expecting reductions in spending for recurrent expenditures. This regulation restricts a malpractice common in many Latin American countries, whereby line secretariats modify their budgets concerning essential expenditures (e.g. electricity, water) to increase other types of expenditures, knowing they will need to be paid, often with delays and additional costs. 17    Prior Action 4: The Government has established a regulatory framework requiring specific budget allocations for essential recurrent expenditures (including, inter alia, electricity, telephone, water and sanitation) incurred by the secretariats, agencies and entities within the States’s Executive Branch (Poder Executivo Estadual) and restricting modifications of said budget allocations during a given budget period.  Results: Savings resulted from improvements in the budget execution of agencies in the executive branch through enhanced expenditure controls related to, inter alia, electricity, telephone, water and sanitation services payroll. 62. The program of fiscal and budgetary reforms is being complemented by strengthening the capacity of the State to undertake PPPs. Amazonas has been developing its capacity to execute PPPs since 2008 in order to be able to undertake long-term investments of great economic and social impact. However, the success of PPPs has been limited due to bottlenecks related to capacity and coordination in the preparation of PPPs, resulting in project designs that are not bankable. This indicates the importance of developing a unified framework to appraise structure, implement and evaluate PPP investments (World Bank, 2013). The GoAM has established a PPP Management Unit and introduced economic, financial and environmental guidelines for the approval of PPPs. These improvements will strengthen the quality of investments as well as guarantee the control of future expenditures. The Bank supports this initiative and will continue to provide technical support during implementation. Pillar II. Citizen Security Sector with a focus on Gender-based Violence 63. Policy actions to be supported under this pillar aim at improving efficiency and transparency in the provision of citizen security services with a focus on women through: (i) the integration of resources and actions of the different entities operating in the sector; (ii) the implementation of results-based management to evaluate the performance and productivity of police activity; (iii) the promotion of greater transparency of public security management; (iv) the promotion of policies that improve women’s access to justice and social assistance services. 64. The lack of coordination, information sharing, and trust between the Civil and Military Police has historically posed problems in many Brazilian States and in the country as a whole16. Accordingly, robust evidence suggests that coordinated and integrated police interventions focused on crime hotspots is effective in reducing crime (World Bank, 2012.). The Ronda no Bairro program (see section III) integrates the work of the two police forces in order to avoid duplication of efforts and lack of coordination, focusing on prevention. The program is based on the principles of results-orientation and community policing, aimed at increasing efficiency in the allocation of citizen security resources, establishing monitoring and evaluation mechanisms to oversee citizen security performance and expenditures, and at strengthening the relationship between the police and civil society. In addition to new procedures and processes, the program introduces technology for monitoring and sharing of information and targeted policing. This allows a constant evaluation of strategies and actions by police organizations,                                                              16 The 1988 Brazilian Federal Constitution (CF/88) regulates public safety in art. 144. The CF/88 created a duality of police activity, with the civil police responsible for investigations and the military police for patrolling. The CF/88 states that these institutions should not go beyond their duties, but the practice is different: the military police has created mechanisms for investigation, and the civil police engages in patrolling activities. 18   leading to improved management and strengthened monitoring and evaluation of public strategies to control and prevent crime and violence in the State. 65. The Ronda no Bairro program involves increased transparency in all aspects of police activity, from reporting indicators, to the use of ICT tools to monitor police behavior. Results achieved so far include a significant reduction in crime rates in the areas of intervention of the program, as pointed out in the risk assessment, and a significant change in the approach followed by the state government. In addition to the program’s coordinated efforts of the civil and military polices in hotspot areas, following the examples of other states such as Minas Gerais, São Paulo, Rio de Janeiro and Pernambuco, and the creation of mechanisms to enhance police performance and transparency of actions, the program follows community policing principles and involves increased training for police officers (including in human rights); acquisitions of cameras to place inside police vehicles, with the aim to monitor police behavior; acquisition of other equipment (e.g. smart phones for police cars so that they can connect citizen’s calls to the police car closest to the incident through the Ronda no Bairro App). 66. Through the implementation of Ronda no Bairro, the GoAM has made inroads in combatting crime and violence. Since 2012, Ronda no Bairro has been implemented in the state capital, Manaus, where 6 AISC (Integrated Areas of Citizen Security, or Áreas Integradas de Segurança Cidadã) have been created based on the incidence of crime and violence, with 30 DIPs (Integrated Police Units) comprised of both military and civil police officers with joint operations and criminal investigations. The GoAM attributes the decline of the State’s homicide rate, from 29.6 per 100,000 in 2011, to 28.9 in 2012, to the implementation of the program. In Manaus alone, the number of homicides dropped by 30 percent between the first six months of 2012 and the first semester of 2013. During the same period the number of thefts (in which the victim is absent) fell by 27 percent and robberies (in which the victim is present) by 17 percent.17 Similar results have also been documented in other areas where comparable programs exist, such as Minas Gerais where a rigorous evaluation found a causal effect of the integrated security model on crime (Soares and Viveiros, 2010). However, duplication of efforts and lack of coordination between the civilian and military police remain, limiting the efficient use of public security resources. The potential for increasing efficiency in the allocation of these resources is also limited by the absence of general monitoring and evaluation mechanisms and poor coordination between the State, municipalities and civil society. The model piloted in Manaus is now being implemented in the Metropolitan area of Manaus and throughout the State.  Prior Action 5: The Government has integrated the management of its civil and military police units, through: (i) the creation of AISCs in twelve of the State’s municipalities; (ii) the establishment of integrated work routines aimed at coordinating the activities of said police units, (iii) the adoption of operational procedures to integrate the activities of police units and promote the exchange of information between them, and (iv) the establishment of the CISPO  (Integrated Commission for the Systematization of Operational Procedures of the Civil and Military Police of Amazonas - Comissão Integrada para Sistematização dos Procedimentos Operacionais das Policias Civil e Militar do Amazonas).   Results: Better allocation of resources and service delivery in the citizen security sector.                                                              17 Technical note prepared by the Amazonas State Secretary during project preparation: Soares Junior, Amadeu Silva. September 2013. Nota Técnica: Custos das AISC’s em Manaus, Região Metropolitana de Manaus e Interior. 19   67. In order to improve police performance and accountability, the GoAM has sought to implement a results-oriented policing approach. This approach is supported by evidence from other states linking results-based management and improved outcomes in the citizen security sector. Evidence suggests that the implementation of team level results agreements and performance-related pay is associated with significant and positive changes in outcomes (Viñuela and Zoratto, 2013). Following best practices, the GoAM is introducing methods to evaluate the performance of police activities and its operating costs.  Prior Action 6: The Government has established a performance evaluation system (including, inter alia, indicators and objectives to be met) in order to monitor and measure the joint activities of its civil and military police units in the AISCs.  Results: Citizen security policies and actions guided by clear and informed objectives, targets, baselines and impact indicators, defined through strategic planning and effective monitoring. 68. Civil society engagement is also critical to the GoAM’s strategy for crime and violence reduction. In addition to increasing civil society participation in citizen security management through the establishment of Interactive Security Community Councils (Conselhos Interativos Comunitários de Segurança - CONSEGs), the GoAM has also developed a new information system for its citizen security management model through which it will make citizen security expenditure information accessible to the public on an ongoing basis. Disclosure of information related to public expenditures can help citizens monitor the process of public security reform and promote greater government accountability (Institute of Medicine, 2008). This operation will support the establishment of this disclosure mechanism and the subsequent publishing of indicators.  Prior Action 7: The Government has regulated the public disclosure of expenditures and costs of its civil and military police units  Results: Increased transparency and accountability in the public security sector. 69. A strategic focus on gender-related aspects of development is also critical to the GoAM’s program. Even though there has been progress over the last years, women in the State of Amazonas still face significant challenges in terms of economic opportunities and agency. To address these issues, the GoAM has created the Executive Secretariat for Gender-related Policies (Secretaria Executiva de Políticas para Mulheres, SEPM). As an Executive Secretariat, SEPM is strengthened in its capacity to promote policies aiming to increase gender equity in the State. Specifically, one of the key responsibilities of SEPM is to coordinate and implement the State’s Plan for Gender-related Policies (Plano Estadual de Políticas para as Mulheres, 2013). GBV is one of the central issues affecting the welfare of women in Brazil18 and one of the priorities outlined in the plan is to address the problem of domestic violence. 70. GBV is especially critical in Amazonas. While Amazonas is on the lower end of female homicides according to the Mapa da Violência 2012 (3.7 homicides per 100,000 women in 2010),                                                              18 According to the WHO (2005), 29 percent of women aged 15 to 49 reported having experienced physical or sexual violence at least once in their life in 2005 (WHO, 2005). 20   Manaus has the third highest female homicide rate in Brazil at 11.5 murders per 100,000 women in 2010. For instance, out of 65 female homicides in 2010, 48 were registered in the capital19. 71. To address the problem of GBV more effectively, the GoAM has established a Technical Chamber to strengthen cross-sectoral cooperation in the implementation of the National Pact to Tackle Violence Against Women (Pacto Nacional pelo Enfrentamento à Violência contra a Mulher) The objective is to ensure comprehensive and well-coordinated initiatives to expand and improve prevention efforts and ensure better protection of the victims20. At the state level, the pact foresees the expansion of the Network of Services for Women (Rede de Atendimento à Mulher), including special police units, shelters and specialized social assistance centers at the municipal level. Furthermore, the GoAM also joined the Federal program “Women, Living Without Violence” (Mulher, Viver sem Violência). This program envisages the construction of centers called “House of the Brazilian Woman” (Casa da Mulher Brasileira) in several state capitals throughout the country. Each Casa will be a focal point for service provision of public security, justice, health, social welfare, counselling, sheltering, employment and income generation. In Manaus, the Casa is expected to be fully functioning by the end of 2014. The objective is to create an environment that allows women to be empowered to break out of situations of violence, by providing emergency counselling and access to immediate protective and support services. Furthermore, the GoAM started to operate mobile units (buses and boats) which offer judicial and basic services to women living in isolated communities of the State.  Prior Action 8: The Government has established the SEPM which aims at adopting policies to improve women’s living conditions in the State’s territory, through inter alia: (i) the coordination of support and protection services for victims of domestic violence; and (ii) the provision of training and the carrying out of awareness initiatives to communities regarding gender issues and services for women.  Results: Increased access by victims to judicial and social services provided by the Casa da Mulher Brasileira and mobile units, such as buses and boats, targeting women living in isolated communities of the State.                                                                  19 Accurate data on prevalence of domestic violence is rarely available. Female homicide rates can be used as proxies for domestic violence. 20 This is in line with the findings of a recent study on gender issues (Perova, Reynolds, Muller, 2012) which found that programs and initiatives addressing the issue of domestic violence are most effective when offering comprehensive services to victims (including psycho-social and legal support, but also economic and financial empowerment and networking opportunities).   21   Table 3: DPL Prior Actions and Analytical Underpinnings Prior actions Analytical Underpinnings Pillar 1: Tax Administration, Financial Management and Procurement Prior Action 1: Nota Souza Boavista and dos Santos Silva (2011). “Nota Carioca: A Preliminary Impact Evaluation.” Ministry of Fiscal Electronica Finance. Assesses the positive impact of the implementation of the NFC-e “Nota Carioca” in the (NFC-e) Municipality of Rio de Janeiro, in terms of improved services tax collection. Naritomi, Joana (2013). “Consumers as Tax Auditors.” Harvard University. This article uses quasi- experimental evidence to show that the Nota Fiscal Paulista (NFP)of the State of Sao Paulo, Brazil, which employs monetary incentives for final consumers to request receipts, has increased the revenue reported in the retail sector by at least 23% over four years. Prior action 2: Moreira Silva, Alessandro (2013). “Improvement in Public Procurement Management Process with an Public Procurement Emphasis on the Effectiveness of Planning and Execution.” Amazonas Government Technical Note. This Regulatory technical note details the problems the GoAM faces with their current procurement framework and their Framework progress in establishing a price registration allowing to plan and implement public bidding process more efficiently and transparently. World Bank (2013). “The World Bank and Public Procurement.” Independent Evaluation Group Report. This IEG report emphasizes the importance of good public procurement as a major determinant of effective public expenditure and, in turn, for development outcomes. Prior actions 3 and Moreira Silva, Alessandro (2013). “Improving Service Hiring Including Standardization, benchmarks and 4: Establishment of application of Information Technology Tools in Contract Management.” Amazonas Government Technical a Contract Note. This technical note details the problems generated by weak control of current expenditure and Management contract management and planning, and estimates the savings that Amazonas would perceive as a result of System and Budget strengthening this capacity. allocation Brumby, Melo and Velloso (2011). “The Public Investment Management System of Brazil”. World Bank regulatory Report. This paper describes challenges related to public investment management and emphasizes the framework importance of utilizing a systematic and comprehensive reform approach.  Pillar 2: Citizen Security with a focus on Reducing Gender-based Violence Soares and Viveiros (2010). “Organization and Information in the Fight Against Crime: An Evaluation of the Prior action 5: Integration of Police Forces in the State of Minas Gerais, Brazil.” Institute of Labor Discussion Paper 5270. Integration of the World Bank (2012). “Making Brazilians Safer: Understanding the Dynamics of Violent Crime. Civil and Military These articles show that there is robust evidence that police interventions are more effective when efforts are Police through the coordinated, integrated, and focused in hotspot areas.. establishment of Veloso and Guimaraes Ferreira (2008). “It is possible: Public Security Management and Violence.” AISC These articles discuss the need to move towards a more coordinated and integrated system between the two main police forces in Brazil. Soares and Silva (2013). “AISC Costs in Manaus, Metropolitan Region of Manaus and the Interior.” Government of Amazonas. Technical Note. This technical note outlines the issues faced by Amazonas in integrating their police forces and inroads achieved with the AISC and the DIP units. This technical note also points to the benefits of continuing to strengthening integration. Prior action 6: Viñuela and Zoratto (2013). “Performance Gains in Results-Based Management in Brazil”. World Bank Implementation of (forthcoming). This piece describes the experiences of states in adopting performance-based management to performance improve outcomes in service delivery areas such as security. Results suggest that the implementation of team evaluation of the level results agreements and performance-related pay is associated with significant and positive changes in Civil and Military outcomes in the security sector. Police activity Lima, R.S. (2010). “Diagnostic of Crime and Violence in the Cities of Sao Paulo and Rio de Janeiro.” FLASCO. These articles discuss the implementation of results-oriented policing, which introduces a results orientation culture that rewards innovation and performance accountability. Prior action 7: Institute of Medicine (2008). “What is Working Around the World in Violence Prevention?” and Stanly et. Al. Disclosure of police (201). “Children and Families Experiencing Domestic Violence- Police and Children’s Social Services’ expenditure Responses.” Journal of Interpersonal Violence. These articles provide evidence that more effective mechanisms for preventing and controlling crime and violence can be achieved when initiatives are implemented with citizen participation. Disclosure of information related to crime statistics and public expenditures can help citizens to monitor the public security sector reform, making governments accountable. Prior actions 8: World Development Report (2012) “Gender Equality and Development” provides evidence that gender Creation of the issues are most promisingly addressed in a comprehensive way – promoting endowments, economic Secretariat for opportunities and agency. Gender-related Perova, Reynolds, Müller (2012).“Towards a More Comprehensive Domestic Violence Policy in Brazil” policies (SEPM) provides evidence that one of the key challenges in addressing the problem of domestic violence is the need to address prevention and protection – and both in a comprehensive and multi-sectoral approach, 22   4.3 LINK TO CPS AND OTHER BANK OPERATIONS 72. The proposed DPL operation is fully consistent and closely aligned with the objectives of the World Bank Group's Brazil Country Partnership Strategy (2012-2015) (CPS) Report No 63731-BR, discussed by the Executive Directors on November 1, 2011. 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. This is one of several DPLs and Sector-wide Approaches (SWAps) designed to strengthen public sector management and service delivery, as an integral part of the Bank’s CPS for Brazil. 73. The program’s development objective and the policy focus of the operation are hence closely aligned with the strategic objectives of: (i) increasing the efficiency of public and private investments, thus boosting growth capacity with job and income generation; and (ii) improving the quality of public services for low income households and expand their provision through public and private channels. Within the first strategic objective, this operation is directly linked with several results areas, including reducing the cost of tax compliance, increasing quality of recurrent expenditure and strengthening internal control functions, enhancing institutional and regulatory frameworks for PPPs, promoting modern performance management techniques, and enhancing participatory mechanisms in policy making. The operation directly supports the second strategic objective through its focus on inclusive development, with special consideration for gender- related issues and policy, as well as crime and violence prevention. 74. The Bank so far has had a limited engagement with the State of Amazonas. The last loan operation in the State was the Alto Solimões Basic Services and Sustainable Development Project (P083997), which was approved in 2008 and involved institutional strengthening for regional development, sustainable production, and water and sanitation in the region of Alto Solimões. The only other recent engagement was the provision of two trainings in the State of Amazonas. The first was based on issues surrounding education reform (2005, P095270) and the second on regional capacity enhancement (2004, P091867). These programs, particularly on educational reform, show the potential for lowering levels of multi-dimensional poverty and improving access to services. 4.4 CONSULTATIONS, COLLABORATION WITH DEVELOPMENT PARTNERS Consultations 75. The DPL was developed within the framework of the GoAM’s Multi-year Plan (PPA). As an integral part of the PPA preparation process, the GoAM conducts consultations with the local population. With that purpose, in 2011/2012 the GoAM engaged in discussions with civil society in 14 municipalities regarding priority programs and investments. A total of 792 people representing different age groups and levels of education participated in the consultation process. The majority of policy reforms in this operation - such as public sector improvements in tax administration and procurement - involve increased transparency and disclosure of information to the public in official websites. Regarding reforms in the citizen security sector and the Ronda no Bairro Program in particular, the GoAM has requested opinion surveys to be carried out in order to closely follow-up on the civil society’s view on these reforms, and results have been positive and led the government to continue and expand the program. In general, consultations with citizens in most Brazilian States happen at the time of 23   formulation of the multi-year plan, during the first year of an elected government. Specific decrees enacted during the government years, such as the prior actions in this operation, are discussed within the legislative assembly which represents civil society. Collaboration with Other Development Partners 76. This operation is being carried out in partnership with the IADB and is intended to complement and scale-up support for the GoAM’s program. The IADB is supporting the GoAM through an investment and a development policy lending operation. The two-tranche Program of Consolidation of Fiscal Equilibrium for Social and Economic Development in the State of Amazonas (Programa de Consolidação do Equilíbrio Fiscal para o Desenvolvimento Econômico e Social do Estado do Amazonas - PROCONFIS BR-L1385) is complementary to the proposed World Bank operation. While the focus is on supporting the State in the consolidation of the legal framework of the supported policy areas, the proposed World Bank operation is putting emphasis on the implementation of the policy reforms. Furthermore, an IADB investment operation (Programa de Apoio à Gestão e Integracão dos Fiscos - PROFISCO-AM, BR-L1388) provides technical support to strengthen and modernize fiscal management, including financial and tax administration in the State of Amazonas. V. OTHER DESIGN AND APPRAISAL ISSUES 5.1 POVERTY AND SOCIAL IMPACT 77. The policy actions supported by this operation are expected to have a positive impact on poverty as they will address good governance and fiscal sustainability, citizen security and gender equity issues. A Poverty and Social Impact Analysis (PSIA) was carried out and assessed the expected distributional impacts and attempts to identify political economy and implementation risks linked to this operation on different socioeconomic groups, especially poor and vulnerable groups. The assessment relied on the analysis of secondary data. The combined social and economic impacts of the policies supported by this operation for the most vulnerable population are expected to be positive. 78. The strengthening of Public Sector Management by means of improved planning and budgeting systems, and financial and resource management are essential for Amazonas to expand the State’s capacity in public service delivery. By adopting new policies to improve planning and budgeting, increase compliance with the tax system, and expand tax collection, the GoAM is expected to increase revenue collection and efficiency in the allocation of public funds, provide public services more effectively, and target better programs and projects to benefit the poor. The establishment of the NFC-e is expected to curb tax evasion and increase revenues from sales tax. The impact of this policy change may be felt most by a segment of small merchants and service providers in the retail sector,21 but it is also expected to reduce the financial burden that small merchants currently face to comply with the requirements for emission of consumers’ receipts, as the new solution cuts expenses with specific hardware and equipment maintenance. Redistributive and pro-poor effects are expected from increased compliance with the NFC-e and increased state fiscal                                                              21 More than 80 percent of the 34 thousand registered small businesses in the retail sector of the state are not in compliance with the tax collection system. 24   space as the better-off segments of the population will finance improved public services, and the higher revenues might be allocated according to existing social priorities. 79. The potential pro-poor effects of the citizen security and gender-related policies supported by this operation can be seen from the distributional impacts of crime and violence in Amazonas. Violence and criminality rates are much higher in the capital city and in its more underserved areas with higher rates of poverty, poor housing stock, unemployment, lower educational attainment, low levels of investment in public spaces and higher levels of social vulnerability (the East, the North and the West Regions). As elsewhere in Brazil, age, gender and race disparities are also characteristic of crime victimization in Amazonas. The increased homicides were larger among the youth: at the state level, it grew by 138 percent; in the capital city, 151.5 percent. Furthermore, while Amazonas is on the lower end of female homicides according to the Mapa da Violencia 2012 (3.7 homicides per 100,000 women in 2010), Manaus has the third highest female homicide rate amongst Brazilian capitals at 11.5 murders per 100,000 women in 2010. Finally, homicide rates are higher among Afro-Brazilians than among white Brazilians; 155.7 percent among the Afro-Brazilians and 128.3 percent among the white Brazilians. Therefore, the proposed policy changes in citizen security are expected to bring positive outcomes for the society as a whole, but they will particularly benefit the poorest and most vulnerable segments of the population, including youth, women and the Afro- descendant population. Additionally, by emphasizing public disclosure of criminality rates and police activities, the proposed citizen security policy changes will foster transparency and social accountability in the involved sectors. 80. Therefore, the overall conclusion of the PSIA is positive. The changes in citizen security and gender-related policies have clear positive distributional effects on the poor and vulnerable groups – benefiting particularly women – in the short and the medium to long term. Although a few challenges have been pointed out by this assessment, the review has indicated no significant negative impact of the policies being pursued on the poor. 5.2 ENVIRONMENTAL ASPECTS 81. No direct impact on the environment or natural resources supported is expected by the operation. In the long term, greater efficiency in these sectors should increase government capacity to deal with issues that may result in positive indirect impacts on biodiversity and forest protection, such as greater control over illegal activities involving natural resources (e.g. animal traffic and commercialization of illegal timber). This large and remote state encompasses 18.5 percent of the country’s territory and still maintains over 90 percent of its original forest cover, which houses globally important biodiversity. The State has a satisfactory institutional framework for sustainable development, environmental protection and indigenous affairs, and although the long distances and difficult access (mostly through river transportation) limit the reach of institutional action, these factors also contribute to maintaining most of the forest in its original state. 5.3 FIDUCIARY, DISBURSEMENT AND AUDITING ASPECTS 82. The Constitution of the Federative Republic of Brazil and a well-developed legal framework underpin the management of public finances at all levels of government. Recently the Federal and subnational Governments have embarked on an initiative to adopt International Public Sector Accounting Standards (IPSAS). This reform is not only intended to improve financial reporting and accountability at all levels in Brazil, but also the quality and 25   relevance of financial information available for decision-making by public sector managers. This would enhance transparency and accountability in the management of public resources. 83. The GoAM’s commitment to a strong Public Financial Management (PFM) system is evidenced in its development strategy as documented in the PPA for 2012-2015. This recognizes the need to strengthen public sector transparency and accountability as important for the achievement of its long term development goals. To achieve these, the GoAM has undertaken reforms in the management of public funds, and support for public sector decision making. 84. The PFM system of the State of Amazonas features strong internal rules and controls and a clear definition of responsibilities and institutional arrangements. There is generally 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, regular financial reports and annual financial statements. In recent years, the State of Amazonas has consistently been able to prepare detailed financial statements within stipulated deadlines. The obligations relating to the preparation of these financial statements are clearly described in relevant laws and regulations, and the State’s internal controls generally ensure that these are adhered to. 85. The internal audit function is carried out by the State Internal Auditor (Controladoria Geral do Estado- CGE), whose Head has the status of a state secretary and reports directly to the Governor. This level of independence thus guarantees it sufficient access to other government departments to enable it to undertake its audits. The CGE's structures have been fully established; however, it has an insufficient number of staff. Its strategy plan includes actions that are aimed at developing its capacity to ensure continuing adequacy of its internal control environment and to contribute to the efficiency and effectiveness of public expenditures in the State. 86. The State Court of Accounts (Tribunal de Contas do Amazonas TCE/AM) is constitutionally mandated to audit all State resources. However, it faces some challenges in meeting this responsibility. It has a limited number of staff, and its methodologies need to be strengthened and modernized. The TCE/AM's strategy for improvement and strengthening its capacity is documented in the Plano Estrategico for 2012-2016. The key actions in the strategy include the modernization of its methodologies and its processes. 87. The control environment governing the Central Bank’s operations within which the loan’s foreign exchange would flow continues to be adequate. This conclusion is based on reviews undertaken by both the IMF and the Bank. The IMF’s Safeguards Assessment of the Central Bank of Brazil concluded that it does not present any widespread vulnerability that could compromise the safeguarding of Fund resources. The 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. The Bank examined the audited Financial Statements for the years ended December 31, 2006 to 2012, 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. 88. The proceeds of the loan will be disbursed against satisfactory implementation of the Development Policy lending program and will not be tied to any specific purchases. Once effective, disbursements of the loan will be made by the Bank into an account maintained by the State in Banco do Brasil, deemed an acceptable financial institution to the World Bank as it is: 26   (a) financially sound; (b) authorized to maintain the account in the currency agreed between the World Bank and the State; (c) audited regularly, and has received satisfactory audit reports; (d) able to execute a large number of transactions promptly; (e) able to perform a wide range of banking services satisfactorily; (f) able to provide a detailed statement of the account; (g) part of a satisfactory correspondent banking network; and (h) charges reasonable fees for its services. The account will be denominated in foreign currency and will not form part of the country's foreign exchange reserves. However, the Central Bank will be informed of the deposit of this amount. The State will ensure that upon the deposit of the loan proceeds into said account, an equivalent amount will be credited in the State’s budget management system. The State will provide a confirmation to the Bank that: (i) the loan proceeds were received into the foreign currency denominated account, and (ii) an equivalent amount was credited to the account that finances budgeted expenditures. Such confirmation will be sent to the Bank within 30 days of payment. If the proceeds of the loan are used for ineligible purposes as defined in the Loan Agreement, the 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 required. Procurement 89. Procurement in the State of Amazonas follows federal laws (which define methods, procedures, thresholds, and contract provisions) and state legislation (mainly for operational procedures and setting up of the state system). The legal framework is based on the five national constitutional principles of legality, impersonality, morality, publicity, and efficiency and it defines open competition as default. Like many other federate entities, Amazonas has adopted the electronic reverse auction (pregão eletrônico) as the main procurement method for the purchase of goods and common services with important gains in transparency and competitiveness, and it has lately relied heavily on IT systems to enhance further gains (some of which are supported by this Project). Except for state-owned enterprises, all bidding is carried out by the Procurement General Committee (Comissão Geral de Licitação - CGL). The CGL is linked to the State's CGE and is composed of 28 procurement officers. It has specialized subcommittees for works and for the health sector, with 5 members each. During the bidding process, there are 3 control instances: a prior review by a legal counsellor, a post review by a Controller, and sign-off by the purchasing entity before contract signing. The main challenge for procurement relates to transportation/logistics for delivery. Such risk increases final product costs and, because transportation is heavily dependent on availability of waterways due to drought and rain, delivery delays are a constant risk as well. 90. Given the potential for additional gains, the State of Amazonas has built on the adoption of the pregão eletrônico and IT systems to reap further gains in procurement. "E- compras.am", a dedicated procurement portal, concentrates and publicly discloses all procurement information: bidding opportunities and documents, catalogues, supplier registry, legislation, manuals, awards, etc. Through "e-compras.am", the CGL processes pregão eletrônico and advertises not only all results, but also all framework agreements available, which are considered an important tool for savings. The State has established a Government Purchase Coordination (Coordenação de Compras Governamentais - CCGov) that is responsible for championing all the initiatives supported by this Project. 27   5.4 MONITORING AND EVALUATION 91. SEFAZ will be in charge of the monitoring and evaluation of this operation. For that means, it will coordinate with the other government entities involved in the policies supported under this operation, such as the Amazonas' Secretariat of Planning (Secretaria de Planejamento – SEPLAN), the Secretariat of Citizen Security, the Executive Secretariat for Gender-related Policies, and the Municipalities of the Metropolitan Region of Manaus (Região Metropolitana de Manaus – RMM) area and municipalities in the interior for Pillar II. 92. The progress of the program will mainly be monitored through results indicators linked to each of the prior actions (see Annex 1). SEFAZ will be responsible for the data collection and consolidation of information necessary to monitor the progress of the program, and will keep the Bank informed on the main achievements. The Bank will carry out continuous implementation support to monitor and document the progress towards the established results indicators. After closing of the operation, the GoAM, through SEFAZ and the Bank will each prepare a project completion report, which will describe the results accomplished and impacts achieved by the operation and report on the status of the results indicators described in the policy and results matrix in Annex 1. 5.5 SUMMARY OF RISKS AND MITIGATION 93. Overall risk. Based on the assessment of the different risk categories, the proposed operation is considered to have an overall moderate risk. 94. Political and governance. Given that the program is widely supported among the government and the participating entities, the political context for the operation is favorable. The upcoming elections in 2014 are not expected to result in significant changes in critical government officials, nor in the Government’s priorities. The current Governor was elected mainly due to his emphasis on citizen security reforms, which are seen very favorably by the population. Consequently, no major issues regarding the implementation and monitoring of the policies supported under this operation are expected to occur. 95. Sector policies and stakeholders. The World Bank Citizen Security team has carried out a risk assessment of the Ronda no Bairro Program, approved by the Bank’s Legal team on March 8, 2014, in addition to an assessment carried out by the IADB. In summary, the Bank’s assessment indicated that the actions supported in this operation are in compliance with the Bank’s Legal Note for engagement in the criminal justice sector22. The component on citizen security focuses on the elimination of duplicated efforts between the civil and the military police and on increasing transparency in the sector. The Ronda no Bairro program follows a results- based management model that emphasizes monitoring and evaluation of security policies and actions, prevention, community policing principles, increased training to police officers (including in human rights), and increased transparency through e.g. placing cameras inside police vehicles to monitor police behavior, and using smart phones for police cars so that they can connect citizen’s calls to the police car closest to the incident through the Ronda no Bairro App. The key challenges to the reform refer to the possible resistance of sections of the police to follow the reform and the                                                              22 World Bank General Counsel’s Legal Note on Bank Involvement in the Criminal Justice Sector (February 2012) and accompanying Staff Guidance establishes the framework for WB engagement in the Criminal Justice Sector. 28   continuity of the program. To mitigate those risks, the government has adopted a series of measures, such as enacting laws and several decrees establishing mechanisms that allow for the program’s continuing institutionalization, and training police officers in the principles of the Ronda Bairro Program. The risk assessment presents all mitigation measures in detail. 96. Operational design, implementation and sustainability. The policies supported are implemented by several institutions. A lack of coordination or a decrease in the priority of the policies in one or several institutions might slow down the implementation process. In the medium or long term, a change in government priorities might occur, which could lead to the discontinuation of policies. However, the program is fully supported by the current Government, and the State’s technical teams and all participating entities have been involved in the preparation of this operation. As this operation is the first development policy lending operation between the World Bank and the State of Amazonas, the team will maintain continuous communication with the GoAM to ensure close coordination and to facilitate implementation. 97. Macroeconomic Risks at the Country Level. In the last year, Brazil’s macroeconomic environment has deteriorated due to weaker than expected growth, inflationary pressures, and the weakening of the Real. Nonetheless, levels of public debt remain sustainable and the existing reserves have allowed the Government to defend the exchange rate. The principal macroeconomic risk is a prolonged stagnation of the economy which could lead to rising debt levels and would also affect the fiscal balance of the State of Amazonas. 29   ANNEX 1: POLICY AND RESULTS MATRIX PRIOR ACTIONS RESULTS INDICATORS (2015) OBJECTIVE Policy Development Objective: To assist the Government of Amazonas to i) improve tax administration and procurement procedures and (ii) to strengthen the delivery of citizen security services and women’s access to justice and social services. Pillar I - Tax Administration and Procurement Objectives: Prior Action #1: Expected Result: Improved methods for the collection To increase sales tax The Government has adopted the NFC-e, to be applied on a: (a) voluntary basis of taxes on retail sales, including reduced bureaucracy compliance, control from July 1, 2013 until December 31, 2014, and (b) mandatory basis from for retailers and improved information on taxpayers23. expenditures, and increase January 1, 2015. transparency and efficiency   Indicator: of government Evidence: Number of taxpayers registered at SEFAZ: procurement. (i) Executive Decree No. 33.405 of 16th of April 2013, published in the DOE on the 16th of April 2013, institutionalizing the NFC-e. 2013 Baseline: 0 (ii) Resolution No. 022/2013 of the Finance Secretariat, published in the DOE 2015 Target: 4,000 on the 1st of July 2013, establishing procedures related to the adherence to the NFC-e. Prior Action #2: Expected Result: Improved procurement planning, The Government has improved its public procurement regulatory framework, efficiency and transparency through the establishment of: (i) the Integrated Management System of Procurement and Contracts (Sistema Integrado de Gestão de Compras e Indicators: Contratos do Estado) which allows to manage public procurement procedures in an integrated manner, and (ii) a price registration modality aimed at Percentage of procurement processes completed in less recording in a systematic manner prices of goods and services procured by the than 45 days: States’s secretariats, agencies and entities. 2013 Baseline: 29.2% Evidence: 2015 Target: 40% (i) Executive Decree No. 34.159 published in the DOE on the 11th of November of 2013, establishing the Integrated System of Procurement and Percentage of value of purchases made through Price Registration :                                                              23 With the roll-out of the NFC-e, the Government will be able to implement incentive programs similar to the Nota Paulista and Nota Carioca, with lotteries and prizes that aim to stimulate the request of invoices by consumers. The Government expects to increase sales tax collection by 10 percent until the end of 2015, with the implementation of such incentive programs in early 2015. 30   PRIOR ACTIONS RESULTS INDICATORS (2015) OBJECTIVE Contracts (nullifies Decree No Dec. 25.374 and other related Decrees) 2013 Baseline: 47.9% (ii)  Executive Decree No. 34.162 published in the DOE on the 11th of November of 2013 establishing Price Registration (nullifies Decree 24.052 (of 2015 Target: 55% February 27, 2005).  Percentage of procurement Plans of GoAM are published on e-Compras.AM : 2013 baseline: 0% 2015 Target: 80% Prior Action #3: Expected Result: Enhanced contract management and The Government has established an electronic system (Sistema Eletrônico de savings from outsourced services Gestão de Contratos) for managing electronically the contracting of services outsourced by the secretariats, agencies and entities within the State’s Indicators: Executive Branch (Poder Executivo Estadual). Number of services for which standard specifications   for contracting are obligatory: Evidence: 2013 Baseline: 9 Executive Decree No. 34.158 published in the DOE on the 11th of November 2015 Target: 19 (e.g. building maintenance, car of 2013, establishing the Contract Management System (SGC) for the rental, representing 32 percent of total expenditures Executive Branch, entities directly administered by the State, autonomous with services) entities and foundations. Percentage reduction in Unitary cost of selected services 24: 2013 Baseline: 0% 2015 Target: 10%                                                                  24 This calculation involves school maintenance services, painting and maintenance of air-conditioning for the Secretary of Education (SEDUC) only. The expected average reduction in unitary costs for these three services is 10 percent. Savings will be greater considering all secretariats and services in the calculation; however, given the complexity of the calculation, we demonstrate savings for SEDUC in selected services as an example. 31   Prior Action #4: Expected Result: Reduction in recurrent expenditures The Government has established a regulatory framework requiring specific budget allocations for essential recurrent expenditures (including, inter alia, Indicator: electricity, telephone, water and sanitation) incurred by the secretariats, Number of government institutions adopting the new agencies and entities within the States’s Executive Branch (Poder Executivo budget execution practice: Estadual) and restricting modifications of said budget allocations during a 2013 Baseline: 22 given budget period. 2015 Target: 60 (100 percent of the total) Evidence: Executive Decree No. 34.011 published in the DOE on the 25th of September of 2013. Pillar II – Citizen Security with a focus on Gender-based violence Objectives: Prior Action# 5: Expected Result: Increased transparency, To improve efficiency and The Government has integrated the management of its civil and military police accountability and efficiency in the citizen security units, through: (i) the creation of AISCs in twelve of the States’s municipalities; sector 25 transparency in the Citizen (ii) the establishment of integrated work routines aimed at coordinating the Security sector as a whole, activities of police units; (iii) the adoption of operational procedures to integrate and increase women’s Indicators: the activities of said police units and promote the exchange of information access to justice and basic between them; and (iv) the establishment of the CISPO. services in particular Number of AISCs operating in the State: Evidence: (i) Executive Decree No 34.181, published in the DOE on November 14, 2013, 2013 Baseline: 6 creating the AISCs in twelve municipalities in the State of Amazonas. 2015 Target: 18 ii) Decree No. 34.184, published in the DOE on November 14, 2013 iii) Executives Decrees No. 228/2013 and 25/2014, published in the DOE on December 16, 2013 and on February 24, 2014. Number of performance indicators implemented26: iv) Executive Decree No. 34.186 published in the DOE on November 14, 2013, creating the CISPO. 2013 Baseline: 0 2015 Target: 15 Prior Action# 6: The Government has established a performance evaluation system (including, inter alia, indicators and objectives to be met) in order to monitor and measure                                                              25 It is expected that the homicide rate will fall 14% in 2015, relative to 2013. The Annual Plan for each AISC, elaborated jointly by the civil and military police, stipulates annual goals for homicides, robberies, thefts etc. However, these targets are not included in this matrix given the difficulty of controlling for other factors that might affect these indicators, such as the number of migrants to the State. 26 The indicators are listed in Decree No. 23/2014 and No. 24/2014, both published in the Official Gazette on February 24, 2014. 32   the joint activities of its civil and military police units in the AISCs. Number of police trained: Evidence: 2013 Baseline: 1,003 Executive Decree No. 23/2014 and No. 24/2014, both published in the Official 2015 Target: 2,000 Gazette on February 24, 2014 (indicators and objectives).    Prior Action #7 Number of disclosures per year of indicators of The Government has regulated the public disclosure of expenditure and costs expenditures of AISCs in periodic reports: of its civil and military police units. 2013 Baseline: 0 Evidence: 2015 Target: 4 Executive Decree No. 34.183, published on the 14th of November of 2013 in the DOE, setting up the Information System of the New Management model for Citizen Security (e-Seguridade Cidadã) to disclose crime rates. Prior Action #8 Expected Result: Increased access to justice and The Government has established the SEMP which aims at adopting policies to social services by women improve women’s living conditions in the State’s territory, through inter alia: (i) the coordination of support and protection services for victims of domestic Indicators: violence; and (ii) the provision of training and the carrying out of awareness initiatives to communities regarding gender issues and services for women. Number of communities reached with mobile units providing judicial and basic services to women: Evidence: Baseline 2013: 2 Law 3.873, published on March 20, 2013 in the DOE, creates the Executive Target 2015: 60 Secretariat for Gender Policies (SEPM). Number of women victims of violence receiving judicial and social services at the Casa da Mulher Brasileira: Baseline 2013: 0 Target 2015: 6000 Number of implementers of the Maria da Penha Law receiving training: Baseline 2013: 320 Target 2015: 2,750 33   ANNEX 2: LETTER OF DEVELOPMENT POLICY ,-;t, ~ COVERNO 00 ESTAOO 00 AMAZONAS CAB INET£ DO COVERNAOOR CARTAOE I'OLiTICAS PROG RAi\1A 1>£ t\ n:cur..os ftnanceiros. o seu pc:;so.1l altamente treinado c a sua ompln bose de conhecimentos pam apoi~r os esfo~ d:ls na~lles ern dc'Sen\'OI\·imento prua atingtr um crescimento duradouro. sustcnt:hcl c cquitati,·o. Concomitnnten1entc. o BIRD \ 'Cm opoitmdo a Uniao. os Estados c o~ Municipios brasileiros hU 111uis de scsscnta anos com tinanciamentos em itn:a~ como gcst~o p(Jblica. infraeslnllura. de~~rwol vimcnlO urbttno. C'duc:a\' :10. sui1 dc c meio ambicnlc. Em porticulflr, pam o caso do Amtl7..onas. o HI RD j A apoiou a~Oes de invcstimcnln de grande rcpcrcussilo. como o Projeto de Desenvolvimcnlo ReJiiOnal do Es1ado d() Amazonas para oZona Franca Verde - I'RODERAM. Com c>tc-< untcccdcntes favoro, eis. o ES1ado do Amazona• co RIR[) cst~o prcparando urn no,·o programa que \ isa realiznr refomtas ~annum is p.1rn gamnlir a sustcntabilidade fiscal do ES1ado. uma vc-.£ que o Amazonas vem. nos Ultimo~ anos. apn::scntando urn \Ohnne: de ¥asros com im·cstimcntos em rclac!k> oo Pill. acima da media nrasil. em setores prioriu\rios como s::nide e «guran~a pi•blica. ( vorurao dos lnvcsrlmontos em Rel a~N o ao PIB htado do Amazonas (fonto: STN) Anos - EJpedflcacao 2008 2009 2010 lOll M4Da 8tM:1I 09"' 1. 1 7~ 1.31.. 09311. 2 70!1. 3 .:1~ 2.84'JI. 2~ 34   Ncssc scntido~ o l~stado de Amuzonas vern solicitar ao BIRD urn financiamento na modalidade EmprCstimo para Politicas de Oesenvolvimenlo (Dl!\·elopmeJu Polic>' Loan - DPL) no \-alor de US$ 2 16.000.000.00 (duzen tos e dezcsseis milhOcs de d61arcs nortc-amcricanos). com a linalidade de apoiar a consoli da~ao e susteruabilidadc do equilibria liscal e o desenvol\'imento ccon6rnico do E.'ltado do Amazonas. A colabora<;ao do banco estani d irecionada ao ajuste estrutural das fi nanc;as estaduais co m vista a aumentar a capacidadc de invL-st imcnto pUblico. com base na mclhoria de contro lcs. apcrfciQoamcnto das a~Ocs de Jiscaliza~.ao. pJaoejamcnto e gestiio eficiente da receita e despesa publica. Oem assirn. levo ao co nhecimento de Vossa Senhoria ·q ue o Es1 ado de Amazonas recebeu autori:zac;ao do Govem o Federal para contrata.-;ao d esta opcrac;iio d e crCdito. solicitada por mcio de Cana-Consulta autorizada pcla Rccomcndn~o da Comissao de Financiamt"flto Extcrno - CO FIEX. n• l 0. p ublicada no OOU. ed ir;ileiras. em conseqO~ncia. sobretudo. do Ouxo migrat6rio de outros estados da federaciio. A panicipa9ao do PIB do Estado vem se mantendo constante. em torno d e 1.6%. relmivan"'ente ao PJB nacional. ou seja. em termos absolutos o Estado eresce p r6ximo it media brasileira. Em valo rcs corrcntes. o PIB do Estado em2010. foi de R$ 59. 779 miiMes. sendo a 14' econo rnia do Pais. 0 PIB per cap iw cst:i estimado em RS 17.158 e silua~ s.e como o ma.ior da Rea.iao Norte c o 11° maior PI B per cc,piw brasileiro. - lmportante notar que nos liltirnos anos o £.stado de Amazonas vem desenvolvendo a~Oes "oltadas para a melhoria d os sen·i~os prioritarios c ddicit3rios. como sat."1de e seguranca pl1blica. a fim de beneticiar a popul~ao. Essas a~ esailo ocasionando uma prcssao nos gastos. aomand o essencial med idas d e saneamento li na.nceiro. Como consequencia. o Estado do Amazonas neccssitarit realizar refonnas estrutumis para garam ir a sua sustentabilidade li.scal c criar bases s61idas e sus tent{aveis para a promor; mooio e Iongo p razos.       35   II · Reforma.s E..~trutu rais Associadas ao Progra m a 0 objetivo geral de-sse Prog.r:tma ¢ promover at;:Oes de invest imento. em especial no setor de scgunmc;a pUblica. por meio da co nsolida~iio c sustentabilidade do equilibrio fiscal do Estado no medio e Iongo prazo. c da mclhoria da qualidadc do gasto e dos scrvi9os. 0 Programa cst:i turndo em dois componentes confOnne segue: estn.1 Co mponcnte 1: Ad mini.st ra ~i'i.o Tributiiria e- Compras Go,·e-rnament2is 0 objetivo dcsse componente C a modemiza~ ao da adm inistrac;ao tribut3ria mclhorando a cfetividade dos controles. e as melhoria dos processos de gestdo pt1blica gerando eeonomia c aumcntando a cficiCncia dos g_astos. 0 Govemo do Estado do Amazonas estabeleceu e implcm~rou a l'ota Fiscal Eletronica · os comroles sobre o comercio 'arejiSia. do Consumidor (NFC-e) a fim de melhora1 A ado9ii0 da NFC-e proporciona controles fiscais mais abrangcnrcs c maior rapid.,;,: no que conccme as infom1a~Oes sobre o volume de ,·endas. Como decorrCncia. espera·se urn aumento imponante na arrecada\"aO como ICMS do setor varejista. Decreto Executin> n• 33.-105 de 16 abril de 20 13. publicado no dia 16 de abril de 2013 no DOE. institucionalizando a NFC-e: c Rcsolu.;ao n• 0221201 3 da Secretaria de Estado da fazenda. publicado no din OJ dejulho de 2013 no DOE. que cstabelece os procedi,.lentos relacionados com a adcs<:'l£'3 c.onvt:nios e ou opcmc;Oes de crfdito). com o objetivo de trazer maior prcvisibilidade ao o~mento . bem assim eontrolar sua CXCCLf980. Esses procedimentos visam aprimorar o planejamento. controle e monitoramento das aquisi ~Oes 'ilos c climina~ao de de bens e scrvi~s. com Cnl3se: na transpart!ncia. efeti' idade dos ga. dcspcrdicios. Decreto Exccutin) n • 34. I 59 publicado no dia I I de novembro de 2013 no DOE, que estabelece o Sistema lntegmdo de Compras e Contratos (anula o Decreta n dczembro 25.37~ e ourros dc-.:rctos relacionados): c Decreto Execurivo n • 3~.1 62 publicado em I I de novembro de 20 13 no DOE. cstabelulou os procedimemos de contratn\"10 piablica. por meio da cria<;ao d e Sistema lntcgrado de Compras e Contrmos do Estad o e o estabelecimento da modalidade de registro de pre~os. Esses proccdimc.ntos proporcionam bcneficios gcrenciais. l'edu~ilo de riscos/custos operacionais e ganhos monel3rios. E\'idencia: Decreto E.'ecuti'o n• 34.011 p ublicado no d ia 25 de sctcmb ro d e 2013 no DO E. Componente II : M elhoria da Efidencia no Seto r de Scguran~ C idad!i e,·cmbro de 2013 no DOE cstabe1ecendo procedimentos operacionajs de integra~fio entre a Policia Civil e M ilitar do Amazonas e d i,·ulgando-os no site da SSP:     37   Decreto Exectllivo n" 34.184 . publicado em 14 de ltovcmbro de 2013 110 DOE. cstabelcccndo rolina~ de trubulho inlcgrudo cnll\! as policius civil c militur: c Dccrctn Exccutivo n• 34.18 1 pub lic ~ do em II de novembro de 2013 110 DOE. institucionalizando o Progrtuna "Ronda no Hairro" em Areas lnlegradas de Segumn~a Cidada - AISC. 0 Govemo do Estado do Amazonas implemcntou metodos bascados em resultados pam a avnlia~:\o do dc~cmpc11ho e da pi'Odutividnde dns atividadcs IX>Iiciois ern Monaus. As avaliac;(lcs de desempenho da policia por meio de metOdos basc>tdos em resultados tcndem a clevar a motiva~ilo do policial e melhorar o seu ambiente de trabnlho. 0 resultado e urn policial mais smisie ito. eficicnte c produti,·o. Evidcncia: Dccreto Exccutivo n• 34. 185 publicado no diu 14 de nowmb1·o de 2013 no DOE. que ~l'ia comissao ·odutividadc das atividadcs policiais. paru dclinir nwdidas de p1 0 Govcr11o do Estado do Amazonas tcm dodo totul tra11spnr~ncio1111 di vu lgn~llo de indic~dorcs da l:tx:t de crimint1lidadc c das: dcspes~s das unidadcs policiais. por mcio de publica9ocs na imeruet. Oeu eto Executivo n• 34.1 83. publicado no din 14 de novembro de 2:013 no DOE. que cria o Sistema de l11fonnoct!o. c-Scguridadc Cidad8, para divulga9ii0 de indk~s d.: Cl'imiualidudc. 0 Guv~rno do ~wdo do Amazonas instituc io11alizou a dnboru~ilo de politicas com o objctivo de promovcr a cquidodc de gcncro 110 Estudo do Amazonas. mnwcs do cri a~:lo dn ~ccrctoria F.xccut iva de Politicas porn Mulhcrcs · SEPM. rcsponsavcl, cntl'c outros. pclo: ./ coordcna~ilo de v!ll'ins servi~os de a poio c de protc~no :Is viti mas de violencin dom~st ica: ./ cxccu~iin d:o~ < Uividi!des descritas no Plano Estadunl de i'uliticas pma Mulhcres: e ./ provisilo de l"'ogramn~ de lormn,~o c scnsi biliza~iio das comunidades em rcla~ao as qucst<)cs de gcncro. l.ci Murin du Pcnha c de scrvii'OS para as mulh.:rcs.     38   39   - Unofficial English Translation - LETTER OF DEVELOPMENT POLICIES PROGRAM FOR THE MODERNIZATION OF THE PUBLIC SECTOR MANAGEMENT, PUBLIC SECURITY AND GENDER POLICIES IN AMAZONAS To The Honorable Dr. Jim Yong Kim  HE PRESIDENT OF THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT Mr. President, I would like to emphasize the important support that the International Bank for Reconstruction and Development (IBRD) has been providing through the availability of financial resources and its highly trained staff and their extensive knowledge base to support the efforts of developing nations to achieve a lasting, sustainable and equitable growth. The IBRD has been supporting the Union, the Brazilian States and Municipalities for over sixty years with funding in areas such as public administration, infrastructure, urban development, education, health and the environment. In particular, in the case of Amazonas, IBRD has supported investment actions with major repercussions, such as the Regional Development Project in the State of Amazonas for the Zona Franca Verde (Green Free Trade Zone) – PRODERAM. With this positive context, the state of Amazonas and the IBRD are preparing a new program that aims to undertake structural reforms to ensure the fiscal sustainability of the State as, in recent years, Amazonas has been presenting a volume of investment expenditures in relation to the GDP which is above the average for Brazil, in priority sectors such as public health and safety. Progression of Investments in Relation to the GDP State of Amazonas (Source: STN) Years Specification 2008 2009 2010 2011 Brazil Average 0.97% 1.17% 1.31% 0.93% Amazonas 2.70% 3.43% 2.84% 2.33%   40   Therefore, the State of Amazonas requests financing in the form of a Development Policy Loan (DPL) in the amount of US$216,000,000.00 (two hundred and sixteen million U.S. Dollars), in order to support the consolidation and sustainability of the fiscal balance and economic development of the State of Amazonas. The collaboration of the Bank will be directed at the structural adjustment of state finances in order to increase the capacity of public investment, based on the improvement of controls, enhancement of inspection activities, efficient planning and management of revenue and public expenditure. Additionally, the State of Amazonas has received authorization from the Federal Government to procure this credit transaction, requested through a Letter of Inquiry authorized through a Recommendation from the Commission of External Financing – COFIEX, No. 10, published in the DOU (Official Gazette of the Union), issue of November 18, 2013. Therefore, I present the background that motivated this request, as well as the structural reforms envisaged in this operation: I – Background – Social and Economic Aspects of the State of Amazonas: The State of Amazonas is the largest in the country. With 1,559,161.682 km², it occupies more than 18% of the entire national territory, 31% of the Brazilian Amazon and 40.7% of the Northern Region of Brazil, establishing itself as a continental area with specific economic and social aspects, defined by the straits of major rivers such as the Amazon, Solimões, Negro, Jurua, Madeira and Purus. The State has one of the lowest population densities in the country, with 2.23 km² per inhabitant, according to data from the Brazilian Institute of Geography and Statistics (IBGE). According to the 2010 Census, the state has a population of 3,483,985, of which 2,755,490 live in urban areas and 728,495 in rural areas. The capital Manaus, one of the 62 municipalities of Amazonas, is the most populous city in the Northern Region of Brazil. With 1,802,525 inhabitants, it had a population growth of 22% between 2000 and 2010 (1,405,835), greater than the average for Brazilian capitals, mainly as a consequence of migration from other States. The share of the State’s GDP over national GDP has remained constant, at around 1.6%, or, in absolute terms, the state grows near the Brazilian average. At current values, the GDP of the State in 2010 was R$ 59,779 million, making it the 14th largest economy in the country. GDP per capita is estimated at R$ 17,158 and it stands as the largest of the Northern Region and the 11th highest GDP per capita in Brazil. It is important to note that in recent years the state of Amazonas has been developing actions aimed at improving the priority and deficit-generating services, such as public health and safety, in order to benefit the population. These actions are generating pressure on expenses, making the need for measures of financial restructuring essential. As a result, the State of Amazonas needs to implement a structural reform to ensure its fiscal sustainability and create solid and sustainable foundations for the promotion of fiscal balance in the medium and long terms. 41   II - Structural Reforms Associated with the Program The general objective of this program is to promote investment actions, especially in the public safety sector, through the consolidation and sustainability of fiscal equilibrium of the state in the medium and long term, and the improvement of the quality of spending and services. The program is structured into two components, as follows: Component I: Tax and Government Procurement Administration The objective of this component is the modernization of tax administration by improving the effectiveness of controls, and improved procedures for public management generating economy and increasing the efficiency of spending. Prior Action #1: The government of the state of Amazonas has established and implemented the Consumer Electronic Invoice (NFC-e) in order to improve controls over retail commerce. The adoption of the NFC-e provides more comprehensive fiscal controls and greater speed with regard to information on the volume of sales. As a consequence, we expect a significant increase in the collection of the ICMS tax within the retail sector. Evidence: Executive Decree No. 33,405 of April 16, 2013, published on April 16, 2013 in the DOE (Official State Gazette), institutionalizing the NFC-e; and Resolution No. 022/2013 of the State Secretariat of Finance, published on July 1, 2013 in the DOE, establishing procedures related to joining the NFC-e. Prior Action #2: The government of the State of Amazonas introduced new procedures related to operating expenses (electricity, telephone and water bills, payroll and counterpart funding for agreements and/or loan operations), with the objective of bringing greater predictability to the budget and thus control its execution. These procedures are designed to enhance the planning, monitoring and control of the acquisition of goods and services, with an emphasis on transparency, effectiveness of spending and elimination of waste. Evidence: Executive Decree No. 34,159 published on November 11, 2013 in the DOE, establishing the Integrated System for Procurement and Contracts (overrides Decree 25,374 of December and other related Decrees), and Executive Order No. 34,162 published on November 11, 2013 in the DOE, establishing the registration fee (overrides Decree 24,052 of February 27, 2005). Prior Action #3: 42   The Amazonas state government instituted a mandatory standardization for the acquisition, hiring and execution of outsourced services, and implemented the Contract Management System (Sistema de Gestão de Contratos – SGC). Reforms in the area of government procurement aim at increasing the efficiency and transparency in procedures for government procurement, generating financial economies and saving time. Evidence: Specifications published in "e-compras.gov" under the "standardized services" link, and Executive Decree No. 34,158 published on November 11, 2013 in the DOE, establishing the Contract Management System (SGC) for the executive branch, entities administered directly by the state, autonomous entities and foundations. Prior Action #4: The Amazonas state government reformulated procedures for public contracting, through the creation of an Integrated System of Procurement and Contracts and establishment of the method for registration of prices. These procedures provide managerial benefits, reduction of operational risks/costs and monetary gains. Evidence: Executive Decree No. 34,011 published on September 25, 2013 in the DOE. Component II: Improving the Efficiency in the Public Safety Sector with a focus on gender policies The objective of this component is to improve the efficiency and transparency of the Public Safety sector and, consequently, improve the security of citizens. Prior Action #5: The Amazonas state government formalized the integration of the Civil and Military Police of Amazonas and created the Integrated Areas of Public Safety (AISC) in three municipalities of the Metropolitan Region of Manaus – RMM (Manacapuru, Iranduba and Itacoatiara) and in eleven municipalities of the State (Coari, Humaitá, Parintins, Tefé, Tabatinga, São Gabriel da Cachoeira, Lábrea, Eirunepé, Boca de Acre, Maués and Manicoré). The integration of the Civil and the Military Police of Amazonas and the creation of the Integrated Areas of Public Safety will increase the structure of police management in an integrated manner, causing a reduction in crime rates and, consequently, improving the quality of life of the citizens. Evidence: Executive Decree No. 34,186, published on November 14, 2013 in the DOE establishing operational procedures for the integration between the Civil and the Military Police of Amazonas and making them accessible on the SSP website; 43   Executive Decree No. 34,184, published on November 14, 2013 in the DOE, establishing routines of integrated work between the civil and the military police , and Executive Decree No. 34,181 published on November 11, 2013 in the DOE, institutionalizing the program Ronda no Bairro in the Integrated Areas of Public Safety – AISC. Prior Action #6: The Amazonas state government implemented results-based methods for the evaluation of performance and productivity of police activities in Manaus. The evaluations of police performance using results-based methods tend to increase the motivation of the police and improve their work environment. The result is a more satisfied, productive and efficient police officer. Evidence: Executive Decree No. 34,185 published on November 14, 2013 in the DOE, which creates a committee to define measures of productivity of police activities. Prior Action #7: The Amazonas state government has been giving complete transparency in the reporting of indicators of crime rates and the costs of police units, through publications on the Internet. Evidence: Executive Decree No. 34,183, published on November 14, 2013 in the DOE, which establishes an information system, Citizen e-Security, to disseminate crime rates. Prior Action #8: The Amazonas state government institutionalized the development of policies with the objective of promoting gender equality in the State of Amazonas, through the creation of the Executive Secretariat for Policies for Women (SEPM), responsible, among others, for the:   coordination of several support and protection services for victims of domestic violence;  implementation of the activities described in the State Plan of Policies for Women, and  provision of training and community awareness programs related to gender issues, the Law Maria da Penha and services for women. 44   The creation of the Executive Secretariat for Policies for Women will result in a raised awareness of issues related to gender violence and increased access to justice and social services for women. Evidence: Law 3,873, published in April 2013 in the DOE, that establishes the Executive Secretariat of Policies for Women – SEPM. Finally, the Government of the State of Amazonas reiterates its commitment in favor of the program for the reform of the fiscal balance and the economic and social development of the State, which is the subject of this letter, and thanks the technical and financial support from the IBRD, which will be solidified by means of the loan requested herein. Cordially, Omar José Abdel Aziz Governor of the State of Amazonas   45   ANNEX 3: FUND RELATIONS ANNEX A satisfactory letter of assessment, dated March 19, 2014 has been received from the IMF, and it is circulated separately.     46   ANNEX 4. BRAZIL AND AMAZONAS AT A GLANCE Brazil at a glance 3/17/1 3 Lat in Upper- POVERTY and SOCIAL America mid dle- Development diamond• Brazil & Carib. Income 2011 Population, mid-year (millions) 196.7 589 2,490 Life expectancy GNI per capita (Atlas method, US$) 10,720 8,574 6,563 GNI (Atlas method, US$ billions) 2,107.7 5,050 16,341 Average annual g rowth, 2005·11 Population (%) 0.9 1.2 0.7 GNI Gross Labor force {%) 1.5 2.0 1.1 per primary Most recent estimate (latest year availab le, 2005-11) capita enrollment Poverty {% of population below national poverty line) 21 Urban population (% of total population) 85 79 61 Life expectancy at birth (years) 73 74 73 Infant mortality (per 1,000 live births) 14 16 16 Child malnutrition {% of children under 5) 2 3 3 Access to improved water source Access to an improved water source (% of population) 98 94 93 Literacy (%of population age 15+) 90 91 94 Gross primary enrollment {% of school-age population) 137 116 111 - Brazil Male 141 118 111 - - Upper-middle-income group Female 132 11 4 111 KEY ECONOMIC RATIOS and LONG-TERM TRENDS 1991 2001 2010 2011 Economic ratios• GOP (US$ billions) 407.3 553.6 2,1 43.0 2,476.7 Gross capital formation/GOP 19.8 18.0 20.2 19.7 Trade Exports of goods and se rvices/GOP 8.7 12.2 10.9 11.9 Gross domestic savings/GOP 20.5 16.7 19.2 19.0 Gross national savings/GOP 18.7 13.5 17.5 17.2 Current account balance/GOP Interest payments/GOP Total debt/GOP Total debt service/exports Present value of debi/G DP Present value of debt/exports (average annual growth) 1991-01 -0.3 0.9 29.8 23.4 2001-11 -4.2 3.1 4 1.5 70.7 2010 -2.2 0.6 16 .4 19.0 2011 -2.1 0.7 16.3 19.4 14.6 11 8.3 2011-1 5 Domestic savings + Indebtedness Capital GOP 2.7 3.9 7.5 2 .7 3.5 - Brazil GOP per capita 1.1 2.9 6.6 1.8 2.7 Upper-middle-income group Exports of goods and services 5 .9 5.6 1 1.5 4 .5 9.2 STRUCTURE of the ECONOMY 1991 2001 2010 2011 Growt h of capital and GOP (%) {%of GOP) Agriculture 7.8 6.0 5.3 5.5 Industry 36.2 26.9 28.1 27.5 Manufacturing 25.3 17.1 16.2 14.6 Services 56. 1 67.1 66.6 67.0 Household final consumption expenditure 61.6 63.5 59.6 60.3 General gov't final consumption expenditure 17.9 19.8 21.1 20.7 - - GCF - o - - GDP Imports of goods a nd services 7.9 13.5 11 .9 12.6 1991-01 2001-11 2010 2011 Growth of exports and imports (%) (average annual growth) Agriculture 4.0 3.5 6.3 3.9 Industry 2.4 3.1 10.4 1.5 Manufacturing 2.0 2.4 10.1 0.1 Services 4.2 4.0 5.6 2.7 Household final consumption expenditure 3.5 4 .6 10.4 4.0 General gov't final consumption expenditure 1.1 3.3 4.2 1.9 Gross capital formation 3.7 6.7 21.3 4.7 - - Exports ~ Imports Imports of goods and services 9.7 10.9 47 35.8 9.7   Note: 20 11 data are preliminary estimates. T his table was produced from the Development Economics LOB database. • The diamonds show four key indicators in the country (in bold) compared with its income-group average. If data are missing, the diamond will be incomplete. AMAZONAS AT A GLANCE PER CAPITA GDP AND POPULATION, 2010 Share of State FRL Compliance 2012 December Region/State Per capita GDP Share of National (2010 US$) National GDP Population Personnel Expenditures to NCR NORTH 7,220 5.3% 8.3% Debt Debt to Net Current Revenue (NCR) Ratio State Ratio Acre 6,568 0.2% 0.4% (R$ billions) (Cannot Exceed 2.00) (Cannot Exceed 49%) Amapá 7,017 0.2% 0.4% RS 51.719 2.18 42.6% Amazonas 9,753 1.6% 1.8% MG 70.462 1.75 40.7% Pará 5,837 2.1% 4.0% RJ 67.063 1.65 29.6% Rondônia 8,571 0.6% 0.8% SP 177.518 1.54 42.4% Roraima 8,000 0.2% 0.2% AL 7.600 1.50 47.9% Tocantins 7,083 0.5% 0.7% MS 6.956 1.05 40.4% NORTHEAST 5,434 13.5% 27.8% GO 14.379 1.02 44.8% Alagoas 4,476 0.7% 1.6% PR 13.068 0.60 46.7% Bahia 6,259 4.1% 7.3% AC 1.917 0.58 46.3% Ceará 5,236 2.1% 4.4% SE 2.755 0.53 48.3% Maranhão 3,912 1.2% 3.4% PI 2.816 0.50 44.6% Paraíba 4,821 0.8% 2.0% BA 10.617 0.49 44.6% Pernambuco 6,151 2.5% 4.6% PE 7.143 0.46 45.2% Piauí 4,021 0.6% 1.6% RO 2.155 0.45 43.8% Rio Grande do Norte 5,802 0.9% 1.7% MA 3.659 0.41 36.9% Sergipe 6,578 0.6% 1.1% SC 5.899 0.41 46.5% SOUTHEAST 14,770 55.4% 42.1% MT 2.712 0.30 52.7% Espírito Santo 13,280 2.2% 1.8% CE 3.360 0.28 42.0% Minas Gerais 10,191 9.3% 10.3% PB 1.651 0.26 49.8% Rio de Janeiro 14,472 10.8% 8.4% TO 1.029 0.21 48.8% São Paulo 17,186 33.1% 21.6% RR 0.467 0.20 41.5% SOUTH 12,915 16.5% 14.4% AP 0.595 0.18 45.1% Paraná 11,825 5.8% 5.5% AM 1.479 0.15 41.4% Rio Grande do Sul 13,420 6.7% 5.6% ES 1.634 0.15 36.3% Santa Catarina 13,871 4.0% 3.3% PA 1.373 0.11 44.8% CENTER WEST 14,175 9.3% 7.4% RN 0.714 0.11 48.5% Distrito Federal 33,152 4.0% 1.3% DF 1.433 0.10 45.0% Goiás 9,238 2.6% 3.1% Mato Grosso 11,162 1.6% 1.6% Mato Grosso do Sul 10,099 1.2% 1.3% AM Consolidated Net Debt (DCL) and Net Current Revenue (RCL), 2000-2013 BRAZIL 11,234 100.0% 100.0% 12.0 1.2 Debt and Net Current Revenue Social indicators and ranking position between all 27 1.00 10.0 1.0 brazilian states (R$ bi of 2013) Social indicator Amazonas Ranking Brazil DCL/RCL 8.0 0.8 0.69 Human Development 0.67 0.713 16 0.766 Index (2000) 6.0 0.56 0.6 Household income per capita (in Reais, 496.61 21 754.06 4.0 0.45 0.37 0.4 2011) 0.33 0.27 0.24 0.19 0.19 Headcount Extreme 2.0 0.13 0.15 0.12 0.2 1 15.1% 6 7.2% Poverty Rate (2011) 0.0 0.0 Headcount Poverty 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013* 2 38.5% 6 21.2% Rate (2011) DCL/RCL DCL RCL Poverty headcount at $2.5 a day, PPP 24.5% 5 12.6% (2011) AM Personnel Expenditures (DTP) and Net Current Revenue (RCL), 2000-2013 Inequality - Gini 0.542 6 0.529 Personnel Expenditures and Net Current Revenue 12.0 60 Index (2011) Net Enrollment Rate 10.0 46.2 50 (children from 7 to 96.2% 19 96.9% 44.8 40.7 39.8 40.9 41.1 41.4 42.2 14), 2007 40.8 41.0 41.9 38.7 8.0 38.4 42.2 40 (R$ bi of 2013) DTP/RCL (%) Average years of 6.95 10 6.90 schooling (2007) 6.0 30 Infant Mortality (per 4.0 20 thousand born, 51.31 11 39.32 2000) 2.0 10 3 Sanitation (share of 72.4% 15 0.81% households, 2009) 0.0 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013* 4 Water (share of 71.9% 21 0.84% DTP/RCL DTP RCL households, 2009) Source: IBGE 1 The headcount extreme poverty rate is measured, using Pesquisa Nacional por Amostra de Domicilios data, as the percent of total households with per capita income below the extreme poverty line. The extreme poverty line is an estimate of the value of a food basket with a minimum of calories needed to adequately supply a person, based on recommendations from the FAO and the WHO. 2 The poverty line is twice the value of the extreme poverty line 3 Share of households with adequate sanitation (general network connection, septic tank or, in rural areas, households with private toilet and rustic cesspit) 4 Share of households with access to general network connection. We do not consider wells and springs because there is no enough information if they are secure sources of water. 48   49   R . B. DE Boa Vista BRAZIL COLOMBIA VENE ZUEL A AMAZONAS STATE RORAIMA PA R Á Amazonas Rio Manaus PERU BRAZIL A M A Z O N A S R.B. DE GUYANA French VENEZUELA Guiana SURINAME (Fr.) COLOMBIA RORAIMA AT L A NT I C AMAPÁ OC E A N Manaus AMAZONAS PARÁ MARANHÃO CEARÁ RIO GRANDE DO NORTE PARAÍBA PIAUÍ ACRE PERNAMBUCO ACRE ALAGOAS Porto Velho TOCANTINS RONDÔNIA M AT O SERGIPE PERU BAHIA GROSSO M AT O F.D. Rio Branco BOLIVIA BRASÍLIA GOIÁS GSDPM MINAS Map Design Unit IBRD 40912 | APRIL 2014 This map was produced by the Map Design Unit of The World Bank. RONDÔNIA GROSSO CHILE PARAGUAY MATO GROSSO DO SUL SÃO PAULO PARANÁ G E R A I S ESPÍRITO SANTO RIO DE JANEIRO The boundaries, colors, denominations and any other information STA. CATARINA PACIFIC shown on this map do not imply, on the part of The World Bank Group, any judgment on the legal status of any territory, or any endorsement or acceptance of such boundaries. BOLIVIA OCEAN ARGENTINA RIO GRANDE DO SUL URUGUAY AT L A NT I C OC E A N