Document of The World Bank FOR OFFICIAL USE ONLY Report No. 113123-PY INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT INTERNATIONAL FINANCE CORPORATION MULTILATERAL INVESTMENT GUARANTEE AGENCY PERFORMANCE AND LEARNING REVIEW OF THE COUNTRY PARTNERSHIP STRATEGY FOR PARAGUAY FOR THE PERIOD FY15-FY18 February 27, 2017 Argentina, Paraguay and Uruguay Country Management Unit Latin America and Caribbean Region The International Finance Corporation Latin America and the Caribbean Region The Multilateral Investment Guarantee Agency This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank Group authorization. i The date of the last Country Partnership Strategy was December 14, 2014 FISCAL YEAR January 1 – December 31 CURRENCY EQUIVALENTS (Exchange Rate Effective January 25, 2017) Currency Unit = Paraguay Guaraní (PYG) PYG 1.00 = USD 0.00017304 USD 1.00 = PYG 5779.00 ABBREVIATIONS AND ACRONYMS AAA Analytical and Advisory Activities ASA Advisory Services and Analytics ATI Access to Information BCP Central Bank of Paraguay (Banco Central de Paraguay) CAF Development Bank of Latin America CEQ Commitment to Equity CPF Country Partnership Framework CPS Country Partnership Strategy CSO Civil Society Organization DDO Draw Down Option DGEEC National Statistics Agency (Dirección General de Estadística, Encuestas y Censo) DPO/DPL Development Policy Operation/Loan EPH National Household Survey (Encuesta Permanente de Hogares) ESSAP Water and Sanitation Public Utility (Empresa de Servicios Sanitarios del Paraguay ) FIDEI Trust Fund for Sustainable Rural Development (Fondo Fideicomiso) FONACIDE National Public Investment and Development Fund (Fondo Nacional de Inversión Pública y Desarrollo) FY Financial Year G Paraguayan Guaranies (Guaraníes) GDP Gross Domestic Product GEF Global Environment Facility GoP Government of Paraguay GPSA Global Partnership for Social Accountability IBRD International Bank for Reconstruction and Development ICR Implementation Completion and Results Report ICT Information and Communications Technology IFC International Finance Corporation INDI Paraguayan Institute of Indigenous People (Instituto Paraguayo del Indígena) IPF Investment Project Financing IPS Social Welfare Institute (Instituto de Previsión Social) IRAGRO Tax on Agriculture Income LAC Latin America and Caribbean Region LC7 World Bank Country Management Unit Southern Cone M&E Monitoring and Evaluation MAG Ministry of Agriculture and Livestock (Ministerio de Agricultura y Ganadería) MIGA Multilateral Investment Guarantee Agency ii MSMEs Micro, Small and Medium Enterprises NDP National Development Plan NLTA Non-Lending Technical Assistance OGAP Open Government Action Plan PA Programmatic Approach PAAP Paraguay Analytical and Advisory Program PDO Project Development Objective PER Public Expenditure Review PLR Performance and Learning Review PPP Public-Private Partnership PRODERS Sustainable Rural Development Project (Proyecto de Desarrollo Rural Sostenible) RAS Reimbursable Advisory Service SCD Strategic Country Diagnosis SEAM Secretary of Environment (Secretaría del Ambiente) SEDLAC Socio-Economic Database for Latin America and the Caribbean. SENASA Government’s Health Agency (Servicio Nacional de Saneamiento Ambiental) SENATICS Secretary of Information Technology and Communication (Secretaría Nacional de Tecnologías de Información y Comunicación) SMEs Small and Medium Enterprise SOE State-Owned Enterprise SORT Systematic Operations Risk-Rating Tool STP Secretary of Technical Planning for Economic and Social Development (Secretaría Técnica de Planificación de Desarrollo Económico y Social) TA Technical Assistance TBC To be confirmed TF Trust Fund USAID United States Agency for International Development USD United States Dollar VAT Value Added Tax WB World Bank WBG World Bank Group WWF World Wildlife Fund IBRD IFC MIGA Vice President: Jorge Familiar Snezana Stoiljkovic Keiko Honda Director: Jesko Hentschel Irene Arias Merli Margaret Baroudi Task Team Leaders: Celia Ortega Sotes Frank Sader Gianfilippo Carboni Eugenia Marinova David Tinel iii PARAGUAY PERFORMANCE AND LEARNING REVIEW OF THE COUNTRY PARTNERSHIP STRATEGY Table of Contents I. INTRODUCTION................................................................................................. 1 II. MAIN CHANGES IN COUNTRY CONTEXT ................................................. 2 III. SUMMARY OF PROGRAM IMPLEMENTATION ....................................... 4 Progress Toward Achieving The CPS Objectives .................................................. 5 IV. EMERGING LESSONS ....................................................................................... 8 V. ADJUSTMENTS TO COUNTRY PARTNERSHIP STRATEGY .................. 9 VI. RISKS TO CPS PROGRAM ............................................................................. 11 Annex 1: Updated CPS Results Matrix ............................................................................ 13 Annex 2: Matrix of Changes to Original CPS Results ..................................................... 17 Annex 3: Matrix Summarizing Progress Towards CPS Objectives ................................. 22 Annex 4: Paraguay Portfolio (as of January 19, 2017) ..................................................... 28 Acknowledgements This PLR was prepared by a Task Team led by Celia Ortega Sotes (Resident Representative for Paraguay, LCCPY, TTL), Eugenia Marinova (Senior Country Officer, LCC7A, TTL), Frank Sader (Principal Strategy Officer, CBCCF, Co-TTL), and Gianfilippo Carboni (Risk Management Officer, MIGEC, Co-TTL), under the overall guidance of Jesko Hentschel (Country Director, LCC7C) and David Tinel (Country Manager, CLAAR). The Task Team comprises a dedicated group of WBG staff including Stefano Curto (Senior Economist, GMF04), David Maleki (Operations Officer, LCC7A), Luis Alvaro Sanchez (Consultant, IEGEC), Carole Megevand (Program Leader, LCC7C), Gloria Dure (Executive Assistant, LCCPY), Graciela Sanchez Martinez (Senior Social Development Specialist, GSU04), Jennifer Marie Arias (Operations Analyst, CLAAR), Maria Ana Lugo (Senior Economist, GPV04), Maria Gabriela Farfan Bertran (Young Professional, GPV04), Rafael Rofman (Program Leader, LCC7C) Rosa Arestivo de Cuentas Zavala (Program Assistant, LCCPY), and Ruth Tiffer-Sotomayor (Senior Environmental Specialist, GEN04). The team benefited from the inputs and comments of the wider World Bank Group Paraguay Country Team. The team is grateful for the comments submitted by the peer reviewers Fanny Weiner (Senior Public Sector Management Specialist, GGO14) and Uzma Basim (Senior Country Officer, SACPA). iv I. INTRODUCTION 1. This Performance and Learning Review (PLR) makes an assessment of the progress toward achieving the objectives of the Paraguay Country Partnership Strategy (CPS) for the period FY15-FY18. It takes stock of the program and recommends adjustments to reflect the changes in the country context and lessons learned from implementation to date. It also introduces greater precision in the definition of objectives and indicators. 2. The CPS (FY15-FY18) was presented to the Board in December 2014 and was aligned with Paraguay’s National Development Plan (NDP) 2013-2030, which calls for eradicating extreme poverty. The World Bank Group (WBG) program was built around three results areas: (i) strengthening resilience to risks and volatility; (ii) boosting pro-poor delivery of public goods and services; and (iii) fostering integrative markets, which are aligned to the NDP objectives. 3. Progress toward achieving the CPS objectives1 is largely on track. Three of the original eight objectives are fully on track, and work under the other five is progressing albeit slower than anticipated. Portfolio performance has improved with two out of the three active lending operations rated moderately satisfactory. As of January 2017, half of the total commitments has been disbursed. The advisory services and analytics (ASA) program has responded to demands from the Government of Paraguay (GoP) and is supporting the CPS objectives, but further reduction of its dispersion will be important. 4. The CPS framework remains valid for the remainder of the CPS period. The WBG will continue to focus on delivering the envisaged development objectives. However, in response to a slowdown in the economic and social progress, special emphasis will be placed on supporting the GoP in their efforts to maintain fiscal stability and manage public expenditures with particular attention to preserving the gains in poverty reduction. In that regard, the WBG has embarked on supporting two new initiatives, namely the Growth and Development Commission, and the Stabilization Fund, which were launched in late 2016. In addition, the Bank will carry out a public expenditure review with a primary focus on health and education spending. Another area of emphasis in the remaining period will be environment conservation considering Paraguay’s extreme climate vulnerability risks and recent international commitments on climate change. The recent signing of several Reimbursable Advisory Services (RAS) is a promising trend, which will help sharpen the selectivity and ownership of new demands for ASA from GoP. The approach will remain flexible to support the country to address any unforeseen economic or natural disaster shocks. IBRD, IFC and MIGA will continue to work closely on achieving the CPS objectives. 5. While cognizant of the complex political economy in the current pre-election period and implementation capacity constraints, the WBG considers it important to maintain a challenging agenda in Paraguay. Given progress made in the implementation of the program to date and the recent good record of the portfolio, the overall risk to achieving the objectives of the WBG program will remain unchanged for the rest of the CPS period and rated as substantial. The work and analysis under the Strategic Country Diagnosis (SCD) planned for FY18 will provide further opportunity to strengthen the dialogue and open new avenues for engagement in important development areas, where the WBG has comparative advantage. The SCD will shape the formulation of the new Country Partnership Framework (CPF) FY19-23, which will also coincide with the new political cycle after the Presidential elections in March 2018. 1 The CPS aligns with the structure introduced by the WBG Guidance on Country Partnership Framework (2016). Accordingly, this PLR incorporates the current lexicon: what was originally titled “Results Areas” has been renamed “Pillars” and the titles of the objectives have been adjusted. 1 II. MAIN CHANGES IN COUNTRY CONTEXT 6. Paraguay is one of the few countries in South America that has maintained a dynamic economic performance in a weakening regional and global environment, commodity price slump, and adverse climate events. In the first half of the CPS period (2015 and 2016), the GoP navigated a complex external environment, avoiding pitfalls, sustaining growth and maintaining the gains in poverty reduction. The country has used the available fiscal space to cope with the current external environment by increasing public investment and sustaining consumption, notably through public transfers to the poor like the Tekoporá and Adultos Mayores programs. Due to its performance in domestic savings, exchange rate flexibility and fiscal stability, the country was one of only three South American economies that did not require internal or external adjustment (World Bank, 20162). Public sector debt has risen from 13 percent of GDP in 2011 to about 23 percent of GDP in 2016 but still remains the 3rd lowest in LAC. 7. A broad political consensus in support of the Government facilitated the approval of major legislation, such as the Fiscal Responsibility Law, the Public Private Partnership Law and the Access to Public Information Law. Revenue mobilization improved starting in 2013 anchored on a reform to broaden the tax base, including applying VAT to agricultural cooperatives. However, the impact of the reform was limited by the weakening economic activity. 8. The economic model, based on modern large-scale capital-intensive agriculture, has supported a solid growth performance in the past but has only partially translated growth into poverty reduction and equality. The high volatility of growth, vulnerability to weather-related shocks and the weak links between growth and high-productive, high-paid formal jobs have affected of the impact of growth and inclusion. The increasing concentration of the top exports in commodities that depend on international prices, together with climatic events related to el Niño/la Niña, has increased GDP volatility threefold over the last 4 years. As a result, the remarkable socioeconomic progress that Paraguay witnessed in the first years of this decade has slowed down particularly among the bottom 40 percent. In the absence of public transfers between 2014 and 2015, the decline in labor income due to a very volatile environment would have led to an increase in extreme and moderate poverty of around 2 percentage points at the national level. The Gini coefficient, while lower than 10 years ago, has been unstable and remains high. Growth is no longer favoring the bottom 40 percent. 9. Paraguay is in the midst of a structural transformation away from agriculture into mostly service sector activity, and employment growth in low-productivity services and construction sectors has been strong. Since 2008, agriculture employment contracted by 39,000 jobs, but many more jobs - both formal and informal - were created in other sectors, notably retail (220,000 jobs), manufacturing (69,000), other services (64,000), and construction (49,000), helping to absorb the large numbers of new entrants to the labor force. Two-thirds of the 550,000 net jobs added since 2008 were formal, bringing the overall formality rate to 29 percent of total employment in 2015 (up from 21 percent in 2008). Productivity and wages have grown in these same services and construction sectors, but from a very low base. Workers at the low end of the skills and income spectrum are therefore benefiting, but not to the hoped-for degree. Paraguay is not taking full advantage of the ongoing structural transformation because the sectors with the largest shares of employment have low productivity and are highly informal. Taking advantage of the demographic bulge will necessitate more job creation in higher-productivity activities and sectors that utilize the higher education levels of new labor force entrants. 10. Public transfers have increasingly become more important–particularly among the extreme poor in rural areas- but their role continues to be limited. Despite recent efforts on formalization, taxation remains relatively low (4th lowest in LAC) and skewed towards VAT; evasion and informality levels are high. 2 LAC-Reviving Growth in the Region, Update 2016, World Bank 2 Moreover, as the political cycle comes to an end with elections scheduled for March 2018, the GoP is facing strong political opposition that is slowing down the reform pace. 11. Going forward, the economy is expected to continue growing albeit it remains exposed to several risks and uncertainty. Growth is expected at around 3.5 percent annually (Table 1) over the medium term; still, economic performance during the entire CPS period (2014-2018) is likely to be a full one percentage point less than originally foreseen (4.5 percent). Short-term risks include severe weather shocks, the coming electoral cycle, and the legislative power of Congress to amend the executive’s budget proposals could undermine a strict adherence to the Fiscal Responsibility Law. 12. In the long term, Paraguay’s opportunities for achieving equitable and sustainable growth are considerable. The country is blessed with an endowment of natural resources and vast energy potential. Paraguay has one of the best hydrological endowments in the world, mainly due to the hydroelectric plants of Itaipu and Yacyreta. Ample and rich arable land allowed Paraguay to become the fourth largest soybean exporter and the ninth largest exporter of beef in the world. The country is also set to benefit from a significant demographic bonus with more than half of its population 30 years or younger. If well managed, the wealth generated by Itaipu and Yacyreta hydropower can contribute to considerable economic growth and shared prosperity. Building on the National Public Investment and Development Fund (FONACIDE) experience, channeling resources efficiently and effectively towards infrastructure and education would help address a large unfinished development agenda, the persistence of poverty and inequality, and support broadening and rebalancing of growth. The ongoing efforts to broaden the tax base are important to make sure the fiscal resources from Itaipu and Yacyreta, particularly after 2023, are additional. It is also important to provide fiscal resources and tools to support the countercyclical role of the government to address the challenge of volatility and mitigate its impact, particularly on the poor and most vulnerable. Improving business environment and the regulatory framework overall will facilitate Paraguay’s ability to tap into global value chains in higher value added products, and rebalance its growth path toward more employment and income-generating activities. 13. Lastly, the protection of Paraguay’s fragile environment remains a critical agenda for long-term sustainable growth. According to the Global Climate Risk Index3, Paraguay is ranked 38th among countries that suffered the most from extreme weather events in 2015 and it is classified by CAF as one the 10 countries in Latin America with “extreme climate vulnerability risks.”4 The total cost of climate change in Paraguay is estimated to be between USD 14.3 billion and USD 80.2 billion dollars, based on the scenario of a continuous increase in the average temperature equivalent to 4.2 degrees Celsius by 2100.5 3German-watch. 2017. GLOBAL CLIMATE RISK INDEX 2017. https://germanwatch.org/en/download/16411.pdf 4 CAF. 2014. Vulnerability Index to climate change in the Latin American and Caribbean Region. 5 CAF. 2014. La economía del Cambio climático en Paraguay. 3 Table 1 Paraguay: Key Macroeconomic Indicators and Medium-Term Outlook Actual Est. Projections 2012 2013 2014 2015 2016 2017 2018 2019 2020 (annual % change, unless otherwise stated) Income and prices Real GDP -1.2 14.2 4.7 3.1 3.8 3.6 3.7 3.8 3.8 Consumer prices (eop) 4 3.7 4.2 3.1 3.8 4.1 4.3 4.5 4.5 Nominal exchange rate (Guarani per USD, eop) 4288.8 4524 4629.3 5,807 5802 … … … … Monetary sector Currency issue 17.5 13.2 8.9 2.9 1.5 6.2 6.1 5.6 5.8 Credit to private sector 15.8 19.4 19.9 9.5 -0.2 4.8 … … … Liabilities to private sector 14 20 15.9 4.4 5 4.5 … … … External sector Exports (fob value) -7.8 16.7 -3.7 -16.6 1 2.1 5.4 5.2 4.9 Imports, (cif value) -5.9 7.8 1.1 -14.6 -8.1 6.5 4.5 4.3 4.7 (% of GDP, unless otherwise stated) Current account -2 1.7 -0.4 -1.7 0.7 -0.5 0 0.4 0.5 Merchandise exports, percent of GDP 47.4 47 42.4 39.8 40.4 39.4 39.3 39 38.6 Merchandise imports, percent of GDP 45.1 41.2 39.1 37.2 34.7 35.3 34.9 34.3 33.9 Gross international reserves (in ml USD) 4,994 5,871 6,891 6,332 6,817 6,854 7,164 7,611 8,127 (in months of imports) 4.6 5.3 7.2 7.2 7.3 7 7 7.2 7.4 Fiscal accounts General government revenues 23.6 22.1 22.8 23.7 23.4 23.5 23.6 23.6 23.6 General government expenditures 25.3 23.5 23.5 25 24.6 24.7 24.5 24.6 24.6 Fiscal balance -1.6 -1.4 -0.7 -1.3 -1.1 -1.1 -0.9 -1.1 -1 Consolidated public debt 14.5 14.4 17.6 20 22.7 23.8 24.4 25 25.5 Memorandum items Nominal GDP (in bn of Guaranies) 108,832 125,152 137,798 144.249 155,231 167,311 180,115 194,402 210,540 Nominal GDP (in bn of USD) 24.6 29 30.9 27.7 26.8 … … … … Per capita GDP, current US$ 3,806 4,416 4,638 4,102 3.987 … … … … Sources: Central Bank of Paraguay, Ministry of Finance of Paraguay, IMF, World Bank staff estimates and projections III. SUMMARY OF PROGRAM IMPLEMENTATION 14. Progress toward achieving the CPS objectives is largely on track. Three of the eight objectives are on track, and the WBG teams have been providing implementation support to projects and technical assistance that will help achieve the other five objectives. Success in delivering on the agenda has been driven by the strong political commitment that allowed for important reforms to advance at the beginning of the engagement under the CPS. This facilitated work on taxation, governance and transparency, financial inclusion, and the PPP agenda. The use of appropriate instruments (DPL-DDO) was critical to support the GoP’s reform agenda. Concentration on implementation and remedial actions to address issues in the investment-lending operations has helped improve their performance. A broad, albeit dispersed, ASA responded to GoP demands and informed policy design. Progress on achieving the CPS objectives, and related indicators are detailed in Annex 3. 4 PROGRESS TOWARD ACHIEVING THE CPS OBJECTIVES Pillar 1: Resilience to Risks and Volatility Objective 1.1: Enhanced agricultural risk management 15. The agriculture risk management agenda has been moving forward steadily, with some areas surpassing expectations. Agricultural insurance penetration rate increased from 0.96 percent of agriculture GDP to 1.14 percent in 2015 (over the 15 percent increase target set in the CPS for 2018). The development of an agricultural commodity exchange is advancing with the Bank’s technical assistance. Implementation of other activities that the CPS highlighted under this area, such as animal health, agro-climatic information systems, and agriculture insurance for family farmers, has been slow to gain traction. However, the Bank and IFC have commenced discussions with the Government on fostering beef exports by linking Paraguay with value chains that can assist in meeting sustainability standards and accessing global markets. IFC is working on improving sustainable and resilient farming, including animal health towards reducing deforestation rates, especially in the Chaco region, and promoting the adoption of environmentally sustainable production of soy and beef in Paraguay as a whole. Objective 1.2: Improved Financial Inclusion 16. The GoP prepared a National Financial Inclusion Strategy with support from the WBG whose goal is to reduce poverty and promote shared prosperity by providing poor and financially vulnerable families access to affordable and secure savings, payment and insurance services. Accurate tracking of the percentage of the adult population holding savings and other accounts is not possible until 2018 as Paraguay has not been included in the most recent Global Financial Index update. However, the Bank has provided analytical support to assist in the implementation of the strategy looking into the supply and demand side, and the legal and regulatory framework for financial inclusion. The DPL-DDO supported the agenda with setting policy reform prior actions related to financial inclusion. IFC’s portfolio to support SMEs and micro enterprises has dropped from about 135,000 in 2013 to 122,000 in 2015. This may be attributed to a significant asset quality deterioration in the second half of 2015, combined with constraining legislative initiatives. Most Paraguayan banks have curtailed loan origination and have adopted a wait-and-see strategy. Banks and financial operators active in the agriculture microcredit segment may pull out of the sector as a result of the current GoP debt-forgiveness initiative of farmers’ debt. This contrasts with an increase in the outstanding lending portfolio to Micro, Small and Medium Enterprises (MSMEs) leveraged with IFC resources, which has grown from USD 2.528 million in 2013 to USD 3.342 million in 2015. Given this scenario, the CPS indicator will be revised to better capture the scope of the IFC engagement in the financial sector. Objective 1.3: Improved forest management in selected areas 17. The implementation of the Conservation and Biodiversity and Sustainable Land Management GEF operation (closed in 2016; rated Satisfactory; TF-96758; ICR #3922) has been key for making progress toward achieving the CPS target. The portion of the Alto Parana Atlantic Forest under conservation currently stands at 13.7 percent, corresponding to 233,353 hectares that include private forest reserves, public areas and indigenous communal land. The target under the CPS is 18 percent. In line with the CPS, the Biodiversity project supported the institutional strengthening of Secretaría del Ambiente (SEAM), Ministerio de Agricultura y Ganadería (MAG) and Instituto Paraguayo del Indígena (INDI) at the national and local level. 5 Pillar 2: Pro-Poor Delivery of Public Goods and Services Objective 2.1: Increased Revenues and Progressivity of Fiscal Management 18. The GoP has operationalized progressivity criteria in the classification of taxation and expenditure information. A DPL-DDO (P151007) operation supported a broad range of initiatives on improving fiscal policy and revenue collection including its progressivity. Salient measures included: higher tax rates for the financial sector and agriculture; and the introduction of a Tax on Agriculture Income (IRAGRO). Other measures aimed at improving tax administration practices. The information available shows that revenues from the financial and agricultural sectors have increased. The tax to GDP ratio has increased from 11.5 percent (2013) to 12.6 percent (2016). At the request of the Ministry of Finance, the WB team carried out a Commitment for Equity (CEQ) analysis jointly with the Ministry of Finance and the Secretaría Técnica de Planificación de Desarrollo Económico y Social (STP) teams. This joint work aimed at building the necessary capacity in the Ministry of Finance and STP to conduct distributional analysis to inform policy reforms. Objective 2.2: Improved Access to Quality Public Services for the Poor 19. The objectives under the CPS are on track to be met by 2018. Already 78,000 people are benefiting from access to improved water sources. Gender disaggregated information will be available by the end of the CPS. Importantly, the impact of the Bank engagement extends well beyond these indicators. The Sanitation Master Plan for the metropolitan Area of Asuncion, expected to be fully implemented by 2019, was designed with Bank support. Likewise, support has been provided to the Servicio Nacional de Saneamiento Ambiental (SENASA) to prepare and implement a sustainability framework for the water service in Chaco province, involving local governments and stakeholders. 20. Support for quality public services to the poor has included attention to rural roads and electricity in selected areas. The Road Maintenance Project (closed in June 2016) contributed to improving rural connectivity, as well as building GoP capacity to establish investment priorities and develop efficient and prioritized work programs aligned with existing budgets. Lastly, the ongoing Energy Sector Strengthening Project seeks to improve the availability and quality of the service, including by increasing the energy supply within the network, which should also facilitate reaching rural areas. Project implementation is on track. Objective 2.3: Improved Social Accountability and Transparency 21. The agenda on improving social accountability is on track to deliver the expected results with at least two social accountability mechanisms under the Open Government initiative by 2018. Several WB supported projects contain social accountability mechanisms and are part of the Open Government Action Plan (OGAP 2016 – 2018). The Open Information Law (Ley 5189/2014), as of July 2016, has been fully implemented by 14 percent of Government agencies.6 The law facilitates citizen access to information on salary and allowance payments from public funds. The Bank technical assistance (closed July 2016), has a follow-on engagement to address the effective implementation of the Law which will increase adherence by Government agencies by 2018. The GPSA Social Audit Project launched the Citizen Scorecard for the Tekopora Program involving the Education and Health Ministries. The Water and Sanitation Project is developing a comprehensive, web-based platform for claim redress and a physical, financial, environmental and social public monitoring tool. MAG and the Ministry of Public Works and Communications also foresee specific social accountability mechanisms and tools as part of the OGAP 2016 – 2018. The 6 Source: Government Official Statistics. http://54.207.3.16/sfp/archivos/documentos/Resumen_julio_2016_bsf3c2fl.pdf 6 widespread use of Information and communications technology (ICT) and the commitment of the Government has strengthened the enabling environment for citizens to engage in accountability. Data was made available through open data platforms as evidenced by: (i) a landmark transparency law7 establishing procedures and offices to respond to information requests; (ii) the creation of the Government’s open data portal;8 (iii) increased transparency of public projects9 linked to Paraguay’s NDP; (iv) the creation of the Directorate of Access to Public Information10 within the Ministry of Justice; and (v) improvements on the monitoring dashboard of the NDP, which will include the development of a citizen’s interface. Pillar 3: Agricultural Productivity and Market Integration Objective 3.1: Improved Agricultural Productivity and Access to Markets 22. Progress has been made towards achieving the target of reaching 30,000 small-holder farms with improved technology and access to markets in 2018; to date, 11,000 have benefited, albeit the postulated real income increase cannot be measured. The gender target -- at least 40 percent of beneficiaries are women – is being met. In addition, 50 communities have adopted development plans, which include investment in infrastructure, productivity and social services. This has been supported by the first phase of Proyecto de Desarrollo Rural Sostenible (PRODERS). One of the concerns with the current approach is the exclusive focus on communities rather than households, especially the extreme poor. A recent pick-up in project disbursements provides assurance that the revised indicators under this PLR will be met. Objective 3.2: Increased private investments in logistics projects/initiatives 23. Significant progress has been made in the PPP agenda with support from the WBG. At least two and possibly more PPP transactions in transport/logistics will be awarded and will be under implementation by end of 2018. In October 2016, the first PPP project (Ruta 2&7) was awarded to an international consortium. This PPP will leverage USD500 million in private investments to improve Paraguay’s regional connectivity. By expanding the road between Paraguay’s major economic hubs -- Asunción in the West and Ciudad del Este on the border to Brazil -- the project will facilitate regional integration and improve Paraguay’s competitiveness. A second PPP project (Airport of Asuncion) is ready to be awarded in 2017. 24. The Transport Connectivity Project (P147278), which will, amongst other activities, contribute to reducing travel times along main highway corridors in the country, has been approved by the Board but is not yet effective and thus its impact will be visible during the next CPF. The Global Road Safety Facility is supporting a road safety management capacity development, critical to address road safety, which is a serious public health issue in Paraguay. It is estimated that the economic costs of road accidents are between 2 to 4 percent of Paraguay’s GDP. A long-term rehabilitation and maintenance culture will be supported through the implementation of contracts, which improve road asset management efficiency. PORTFOLIO PERFORMANCE 25. As envisaged, CPS implementation has focused on larger and fewer lending operations and on improving portfolio performance (Annex 4). The current active portfolio consists of five projects (net commitment of USD 501 million) in priority sectors for GoP to deliver basic services, namely energy, water 7 “Ley No. 5282/2014 ‘De Libre Acceso Ciudadano a la Información Pública y Transparencia Gubernamental’”. Dirección de Publicaciones Oficiales. 19 Set. 2014. Web. 5 Mar. 2015. http://www.gacetaoficial.gov.py/gaceta.php?action=show&id=2549&num=180 8 “Portal de Datos Abiertos del Gobierno Nacional”. Secretaría Nacional de Tecnologías de Información y Comunicación (SENATICS). s.f. W eb. 9 Mar. 2015. http://datos.gov.py/ 9 “Mapa de Beneficiarios PRODERS”. Proyecto de Desarrollo Rural Sostenible (PRODERS). Ministerio de Agricultura y Ganadería. s.f. Web 15 Mar. 2015. shttp://www.arcgis.com/apps/webappviewer/index.html?id=0eeb085014634fb8ad88ee12f5ce5bfb 10 “Avances del Compromiso de Ley de Acceso a la Información con apertura de Dirección en Ministerio de Justicia”. Gobierno Abie rto Paraguay. 5 Mar. 2015. Web. 9 Mar. 2015. http://gobiernoabierto.gov.py/node/98 7 and sanitation, and roads; as well as poverty reduction in rural areas (PRODERS) and a DPL-DDO. As of January 2017, half of the commitments (USD 247 million) had been disbursed. Two out the three active investment lending projects are rated in the satisfactory range (MS), while PRODERS is rated moderately unsatisfactory (MU) as reflected in the most recent ISRs. Two projects closed during the period: GEF Conservation of Biodiversity (P094335), rated (S); and Road Maintenance (P082026), rated (MS). 26. Disbursement and project performance improved partly because of consistent project-specific support and institutional capacity building in procurement. Challenges remain though. The new transport connectivity investment project has yet to become effective, impacting the delivery of objectives under the CPS. Implementation of the ASA agenda has been impaired by the fact that the institutional framework was not in place for the GoP to undertake a jointly financed Bank-Government Paraguay Analytical and Advisory Program (PAAP). The situation is gradually turning around with the recent agreement of two RAS-supported activities with the Central Bank of Paraguay (BCP) and Itaipu (a third RAS is currently under discussion). The Bank has responded to shifting demands for technical and analytical assistance, and showcasing Paraguay’s achievements internationally. 27. Since the beginning of the CPS period, the IFC portfolio (Annex 4) commitments reached approximately USD 408 million 11 in long-term finance. IFC committed USD 237 million from its own account, including USD 7 million in equity investments, and mobilized another USD 64 million from third parties to benefit 12 client companies and banks. IFC supports investments in manufacturing and agribusiness (USD 101 million) and trade finance and financial intermediaries that support SMEs (USD 300 million). IFC is also currently engaged in trade finance programs with five Paraguayan banking institutions and has guaranteed over USD 108 million in trade flows, primarily related to pre-export financing of seeds, soy, grains and other agricultural products. IFC’s contribution to the agricultural sector includes support to pre-harvest and warehouse financing, as well as working capital needs. IFC has so far reached over 38,000 farmers operating in rural frontier regions. 28. In the 2014-2016 period MIGA sought to support GoP’s PPP agenda and help Paraguay close its historical infrastructure gap. Yet, MIGA was not able to use its Non-Honoring Sovereign Financial Obligations (NHSFO) product (i.e. credit enhancement guarantees) under the newly approved Ley 5073 for turn-key projects. MIGA continues to explore the use of traditional sovereign risk solutions in Paraguay, such as expropriation and breach of contract covers. IV. EMERGING LESSONS 29. Progress in delivering on the agenda was driven by: (i) a strong political commitment, which allowed for important reforms to advance; (ii) the use of appropriate Bank instruments; and (iii) on-time quality technical assistance. The initiatives that bore fruit included support to: a tax reform, which led to higher public revenues; and the transparency agenda that has contributed to enhance accountability and public management. A solid institutional support, combined with political and technical leadership by the STP, and application of lessons from other countries has underpinned the take-off of two PPP projects. The successful engagement through the Conservation of Biodiversity project for ITAIPU has provided an opportunity to advance the environment and climate change agenda, and engaging indigenous communities. Setting ambitious goals, while maintaining strong implementation support for ongoing projects, helped advance important reforms in Paraguay. However, with elections scheduled for early 2018 the window for reforms in the remainder of the CPS is narrowing. 30. Focus of ASA requires a shift towards prioritization to ensure ownership. The original CPS intention was to establish an ASA program jointly funded by the GoP and the WBG but this option was not 11 As of December 31, 2016. 8 feasible for Paraguay. As a result, progress in prioritization of ASA has been slow because an adequate institutional framework was not in place. Given the high demand from various counterparts, the pattern of more dispersed ASA continued. Impact was partial during the first two years of CPS implementation. While some analytical pieces that the Bank completed informed a productive dialogue (tax reform, banking law, poverty, equity assessment, volatility study), others (TA on education; rural and land policies) have not triggered a reform dialogue. Given the complex political economy, it will be important to prioritize the areas in which the WBG is to deliver technical support by securing strong ownership by the Ministry of Finance and line ministries. Instead of the PAAP the successful commencement of several RASes has already helped prioritize and increase GoP ownership of the WBG ASA program. In the second part of the CPS period, the WBG will exercise discipline and judgment in responding to shifting demands, and a sustained effort will be made to translate the substantial body of ASA delivered in the 2014-2016 period into an effective tool for reform and sustained dialogue with both the public and the private sector. 31. Careful attention to detail, coordination and division of labor among the WBG agencies and across the Bank Global Practices is necessary for successful delivery of the CPS program. The Bank and the IFC have been working together on advancing several CPS objectives. The Bank has taken the lead in supporting Government in readying two PPP operations, while the IFC, on its part, has been providing on-the-spot technical assistance and supporting the identification of other potential operations. The IFC and the Bank have initiated a dialogue with the GoP on expanding access of agricultural products to markets and addressing animal health risks. In the next phase, the effectiveness of the teams can be enhanced by a joint working plan to deliver on results as agreed in the results matrix and the respective areas of engagement (e.g. business climate and competitiveness). 32. The previous CPS Completion and Learning Review (CLR) recommendations on simplified project design remain broadly valid. Implementation of the active IPF operations (in rural development, energy, and water and sanitation) has improved as efforts concentrate to meet development objectives by closing dates. High turnover of staff in Government agencies has hampered implementation and will probably continue in the future. Bank involvement in capacity building, in procurement will continue to be of relevance, and additional training will be considered as necessary. The Bank can continue playing an important role of convener both within Government and beyond. The WBG will need to further improve its understanding of the underlying social dynamics in projects with multiple implementers. Finding the best instruments and a way to fast-track project processing and implementation will be critical in the next phase of engagement so as to further improve on historically very long implementation times for IPFs. 33. Leveraging client relationships and responding to client needs are critical during periods of commodity market downturns. Considering the challenging macroeconomic environment and drop in commodity prices, IFC has been able to successfully execute projects due to its enduring relationship with clients. It was during these difficult periods that IFC has been able to meet the needs of its clients in the agricultural sector by designing short-term revolving credit lines that matched the clients’ business cycles. V. ADJUSTMENTS TO COUNTRY PARTNERSHIP STRATEGY 34. The second half of the CPS will be implemented in a pre-election period. The external environment for Paraguayan commodities is expected to remain uncertain. The economic growth forecasts are positive but markets will remain subdued and will affect Paraguay’s growth path. The GoP remains committed to the objectives set in the NDP which reinforces the focus on fiscal resilience, financial inclusion, rural development and poverty eradication, and meeting the international commitments under the Paris and Marrakesh agreements on climate change. Within this context, the engagement framework and the CPS objectives remains valid. The PLR proposes to adjust the wording of the objectives and indicators to introduce precision, reflect the pace of implementation, lessons learned and incorporate prioritization 9 discussions with GoP. In addition, the WBG will make an extra effort to address gender-related issues and climate change in the current and future portfolio and capture the results through appropriate indicators. 35. A new activity for the remainder of the CPS is the support to the GoP initiatives on the International Commission for Growth, Equity and Development, (launched in September 2016) and the Stabilization Fund. The Growth Commission will focus on the opportunities, challenges and necessary actions to support three driving forces: (i) harvesting the potential of the ongoing economic transformation; (ii) realizing the benefit of the ongoing socio-demographic change; and (iii) supporting institutional strengthening, going beyond macro stability. The Commission will produce a report in 2018. The work on the Growth Commission and the Stabilization Fund supports the broad development objective of the CPS by promoting the equity and volatility reduction agenda. The second phase of the CPS will also embark on drafting the Systematic Country Diagnostic (SCD). 36. Under Pillar 1, IFC and the Bank will conduct an analysis of introducing traceability initiatives in agricultural and livestock production. The dialogue on animal health will contribute to greater resilience and provide a foundation for accessing international markets. The IFC considers up to USD500,000 in advisory services to set industry standards, define the business case for better practices in the beef sector, and develop financial products to support adoption of sustainable production practices. Under the same pillar, the Bank will support Government efforts at advancing further the financial inclusion agenda, specifically structural reforms underway, such as the Secured Transactions Law. The Bank will also be providing advice on a regulatory framework for secured transactions, collateral registry and insolvency framework; and will work with the Instituto de Previsión Social (IPS) through a RAS instrument. The PLR proposes to revise the indicators related to IFC SME and microfinance to better reflect the current challenges in the financial sector and the scope of IFC engagement. As to reforestation, the environment and climate change, engagement will continue through PRODERS, which has been supporting reforestation of around 1,000 hectares in the Atlantic Forest of the Upper Parana. A new RAS with Itaipu will allow not only delivering on CPS objectives for improving the connectivity of forest land and restoration of the Atlantic Forest, but will also contribute to the Government’s efforts to deliver on the nationally determined contribution targets (NDCs) which are part of their international agreements. 37. Pillar 2 maintains and strengthens the dialogue and support for a resilient and equitable fiscal position. The Bank will be providing technical assistance on macro-fiscal monitoring and the development of the legal framework necessary for implementing a fiscal Stabilization Fund, which will help smooth the volatility of fiscal revenues and provide a conduit for channeling resources from Itaipu royalties to cover cyclical fiscal policies. The indicator under objective #2.1 (Increased Revenues and Progressivity of Fiscal management) was changed from the higher level - tax indicator - to corporate tax on agricultural income (in volume terms) as this indicator is less susceptible to the current growth downturn. This change is deemed appropriate as the original CPS higher level indicator is too susceptible to the overall economic fluctuation and growth downturn. The Fiscal Equity, Efficiency & Macro Resilience ASA includes preparation of a revised debt management strategy and an update debt methodology, follow-up work on tax expenditures, tax incentives, and exceptions, which will support achieving the tax revenue objective. Under service delivery, the PLR incorporates the work on electricity as part of improving infrastructure for better access to quality service to the poor. A Public Expenditure Review (PER) is under preparation. A new more targeted assistance on governance and transparency is under discussion with the authorities with a focus on establishing international benchmarks for effectively implementing the access to information legislation and open data commitments for access to information for Paraguay. Work on Transition to integrated financial management information systems is ongoing with the Central Bank of Paraguay. The added agenda will bear fruit in the next CPF. 38. Under Pillar 3, PRODERS will seek to complement the original focus on communities with attention to individual rural families classified as extremely poor under the STP’s social profile. The project 10 will provide a platform that will serve to strengthen the connection with market niche opportunities and address the needs in the livestock sector and in forestry in areas related to traceability and risk management. The Bank will continue active engagement in advising the Government in the design and implementation of the PPP agenda, with additional focus on selecting a sustainable portfolio of PPP projects and developing the tools to manage fiscal risk and contingent liabilities. MIGA will coordinate with the authorities, the Bank and the IFC to ascertain whether political risk insurance and credit enhancement guarantees can be provided in the context of the broad PPP infrastructure program. Forthcoming work on trade and competitiveness will help deepen the agenda under this pillar. 39. Moving forward the WBG program will prioritize work to maintain the gains on inclusion and poverty reduction and fostering policies with impact on resilience. In the run-up to the elections, the Bank would only foresee providing additional financing to on-going and well-performing operations. In line with the lessons learned, the Bank will engage the authorities around potential areas supported with RAS operations. The available analytical work provides good background knowledge to support the forthcoming SCD in identifying the key constraints to renewed economic growth, poverty and shared prosperity, inclusion and sustainability. Any gaps will be identified during the process and the SCD exercise will be critical in consolidating the analytical work. VI. RISKS TO CPS PROGRAM 40. The overall risk to the achievement of the CPS objectives is assessed as Substantial. Key risks assessed as substantial include: (a) political and governance; (b) sector strategies and policies; (c) institutional capacity for implementation and sustainability: (d) and environment and social. 41. Political and Governance Risks: Increased focus on the upcoming elections scheduled to take place in 2018, may shift the attention of policymakers from some of the priorities supported by the CPS program and the NDP even if the authorities maintain their commitment. In this context the International Commission for Growth, Equity and Development could be an important catalyst for initiating and motivating a broad national dialogue. If needed, the Bank could consider extending financial support to policy initiatives that bolster the resilience of the economy and protect the gains on inclusion that Paraguay has achieved in light of diminishing public revenues as the economy slows down. 42. Sector Strategy Risks: In the pre-election year, advancing on several core sector reforms (including in energy, water and sanitation, and financial inclusion) will be complex. The GoP has requested that the Bank maintain and sustain engagement in those areas, due to their critical importance for the inclusiveness agenda. 2017 will serve best as a period for broad engagement across public and private sector and civil society, consensus building and preparing the ground for sector reform by the new Government. 43. Implementation Capacity: Implementation capacity continues to be a major factor affecting delivery, partly complicated by shifting ownership of policy initiatives. It is a concern, especially with regard to PRODERS, which is central to delivering key CPS results on inclusion by bringing gains to isolated rural areas. It is also relevant to agricultural insurance and financial inclusion, that have seen big advances at the strategy and conceptualization stage but now require a focus on implementation. Continuous dialogue is on-going with the GoP to keep the implementation on course. The Bank will continue to provide hands-on implementation support building on positive experiences such as in advancing the water and sanitation and the PPP agendas. This will include higher reliance on RAS work, as an anchor of ownership and priority. 44. Environment and Social Risks: The importance and relevance of environmental risks is rising and will heighten further by climate change with potentially more volatile impact on economic activity and 11 social outcomes. Should major natural disasters occur during the remainder of the CPS, they will put pressure on the financial and institutional capacity of the Government to deliver on the overall CPS program. From a lending perspective, the Bank will maintain a flexible position. The CPS program already supports building a more resilient economy, both directly through Pillar 1 and indirectly through the work of PRODERS to foster strong communities. Further, building on the commitment of the Government to the Paris and Morocco agreements, the program sets the stage through the Itaipu RAS for a broader engagement that could be extended under the new CPF. The engagement of the Government dealing upfront with sustainability of the environment and the agricultural sector will set the basis for growth in the coming years. Systematic Operations Risk-Rating Tool (SORT) Risk Categories Rating (H, S, M or L) 1. Political and governance S 2. Macroeconomic M 3. Sector strategies and policies S 4. Technical design of project or program M 5. Institutional capacity for implementation and Sustainability S 6. Fiduciary M 7. Environment and social S 8. Stakeholders M 9. Other Overall S 12 Annex 1: Updated CPS Results Matrix Pillar I: Resilience to Risks and Volatility CPS Objectives and Indicators Instruments and Partners #1.1 Enhanced agricultural risk management: Financial services: Ongoing:  PRODERS Sustainable Agriculture & Rural Development (P088799)  Agricultural insurance penetration rate increased 15 percent by 2018 (2013 Baseline: 0.96 percent) Knowledge services: Delivered:  Paraguay Agriculture Sector-Wide Risk Assessment (P149948; FY15), (P145224; FY16)  Agriculture Risk Policy Dialogue (P159719; FY16)  Development of the Agriculture Insurance (P159718; FY16) Ongoing:  Agriculture Commodity Exchange Development. (P154806)  Agriculture Risk Management Programmatic Approach (P145224). #1.2 Improved financial inclusion: Financial services: Ongoing:  50 percent of adults with savings accounts by 2018  SME and Agribusiness competitiveness (IFC) (2013 baseline: 29 percent).  PRODERS Sustainable Agriculture & Rural Development (P088799) Gender disaggregation Knowledge services: Baseline 2013 – 30% Delivered Target 2018- 50%  FIRST Development of NSFI Strategy (P150452; FY17)  Paraguay Finance and Markets Programmatic Approach (P147386; FY17)  Outstanding micro and SME portfolio to reach USD 3.4 billion by 2018 (2014 baseline: USD 2.9 billion) Ongoing  DPL-DDO Enhancing Fiscal Management, Social Protection and Financial Inclusion (P151007)  Paraguay Finance and Markets (P161605)  Insolvency and Secured Transactions (P156369) Proposed  RAS on Pensions (with IPS) #1.3 Improved forest management in selected areas: Financial services: Delivered: 13 Improved forest management and conservation practices introduced  Conservation of biodiversity and sustainable land management in the Atlantic Forest on an area equivalent to 18 percent of the current Alto Paraná Atlantic (GEF) (P094335; FY16) Forest area by 2018 (Baseline 2013 = 9 percent) Ongoing:  PRODERS Sustainable Agriculture & Rural Development (P088799) Knowledge services: Ongoing  Itaipu: Strategic Support for the Development of the Atlantic Forest Corridor in Paraguay RAS (P161498)  Forest Landscape Management (P156288) Pillar II: Pro-poor Delivery of Public Goods and Service CPS Objectives and Indicators Instruments and Partners # 2.1 Increased Revenues and Progressivity of Fiscal Management: Financial services Ongoing Corporate tax on agriculture income (Gs. billion)  DPL-DDO Enhancing Fiscal Management, Social Protection and Financial Inclusion Baseline (2013) 71,8 (P151007) Target (2018) 518,4 Knowledge services: Ongoing: Progressivity of the tax system and public expenditures, measured as  Tekopora Beneficiaries Empowered to Ensure Social Accountability Project (P150876; the difference in the Gini coefficient before and after fiscal FY17) interventions (taxes, subsidies and transfers).  Paraguay Jobs Diagnostic and Let's Work (P156402) Baseline (2014): -1,77  Towards a Jobs Strategy for Paraguay (P153859) Target (2018): -2,45  Programmatic Fiscal Equity and Efficiency (P156331)  Poverty and Equity PA (P151094) # 2.2 Improved and better access to quality public services in select Financial services: sectors Delivered:  Road Maintenance (P082026; FY16)  People provided with improved sanitation environment in urban areas - Target 2018 - 300,000 (2013 Baseline – 0); Ongoing:  Indigenous people provided with access to improved sanitation  Water & Sanitation Sector Modernization (P095235) facilities – Target 2018 – 6,000 (Baseline 2013 – 0)  PRODERS Sustainable Agriculture & Rural Development (P088799)  Energy Sector Strengthening Project (P114971) Gender: 50 percent of beneficiaries are women  Enhancing Fiscal Management, Social Protection and Financial Inclusion (P151007)  Transport Connectivity (P147278) 14  Increase in energy supply through the transmission network from Knowledge services: 3,008,000 Megawatt hour (MWh, 2015) to 5,800,000 MWh Delivered: (2018.)  Improved Services and Territorial Development (P156770; FY17)  Percentage of people reporting satisfaction with quality of roads (San Pedro, Caazapa and Caaguazu road segments) Ongoing: Target 2018 – 75% reporting “good” or “fair”  Paraguay Energy Sector Study (P161738) (Baseline 2009 14% good; 35% fair; 51% bad (from a sample size  Paraguay Poverty and Equity, Measurement and M&E (P151094) of 270 road users)  Paraguay Health Dialogue (P158224) #2.3 Improved institutional foundation for social accountability and Financial services: transparency: Ongoing:  PRODERS Sustainable Agriculture & Rural Development (P088799)  Energy Sector Strengthening Project (P114971)  Open Information Law12 fully implemented by least 20 percent  Water & Sanitation Sector Modernization (P095235) of Government agencies by 2018 (2014 baseline: 9 percent)  Enhancing Fiscal Management, Social Protection and Financial Inclusion (P151007)  At least 10 new education sector information tools and 15 Knowledge services: datasets available for internal management and public access by Delivered: 2018 (2013 Baseline: 0)  Programmatic Governance Engagement (P151990; FY17)  State-Owned Enterprises TA (P155793; FY16)  At least two social accountability mechanism under the Open  SSKE - Access to Information Law (P155801; FY16), (P155800; FY16) Government initiative (e.g. social auditing of the Tekoporã  Challenges of SOE Service Delivery (P156523; FY16) program) successfully implemented by independent CSOs by  Tekopora Beneficiaries Empowered to Ensure Social Accountability Project 2018. (2014 Baseline – 0) (P150876; FY17)  School Infrastructure, the Teaching Profession, and Basic School Supplies (P129179; FY14)  Comprehensive Education Management Information System (P133419, FY16) Ongoing:  Paraguay Transparency and Accountability (P161686)  Banco Central Del Paraguay: Transición to IFRS &IFMIS RAS (P161269) 12 The Open Information Law (Ley 5189/2014) makes mandatory the publication of salaries and allowances received by the civil service. 15 Pillar III: Agricultural productivity and market integration CPS Objectives and Indicators Instruments and Partners #3.1 Improved agricultural productivity and enhanced socio-economic Financial services: conditions for small-holder farmers in targeted areas : Delivered:  Road Maintenance (P082026; FY16)  30,000 poor households, out of 180,000 of the rural poor, including small-scale farmers and indigenous people, in Eastern Ongoing: Paraguay report increase in real agriculture incomes by 2018  PRODERS Sustainable Agriculture & Rural Development (P088799) Annual income - G4 million(2013 baseline) and socio-economic  Transport Connectivity (P147278) conditions (baseline 0)  SME and agribusiness competitiveness (IFC) 40 percent of the beneficiaries to be female  Micro financing to farming communities (IFC) Note: Real income is calculated using national price level; Knowledge services: enhanced socio-economic conditions are achieved when 70% of Delivered: program has been delivered to the targeted communities  Financial sector inclusion development (P150452; FY17)  130 additional indigenous communities’ (representing more than Ongoing: 50 percent of Indigenous Peoples in Paraguay) have prepared  Paraguay Food Prices and Poverty (P154760) and are implementing socio-economic development plans by 2018 (2014 Baseline: 45 communities)  Maize yield increases 12% among project beneficiaries Baseline 2015- 1.7 t/ha Target 2017 - 1.9 t/ha in 2017 #3.2 Increased private investments in logistics projects/initiatives: Financial services: Ongoing:  At least two public private partnership transactions in  PRODERS Sustainable Agriculture & Rural Development (P088799) transport/logistics by 2018 (2014 baseline: 0). Knowledge services: Delivered:  LC7 Farm-to-Market Study (P145360) Ongoing:  Paraguay Institutional Strengthening of PPP (P155856)  Improve Investment Climate in Paraguay (P155012) (P161575) 16 Annex 2: Matrix of Changes to Original CPS Results Results Area I: Strengthening Resilience to Risks and Volatility Pillar I: Resilience to Risks and Volatility CPS Objectives and Indicators Revised CPS Objectives and Indicators #1.1 Enhanced agricultural risk management: #1.1 Enhanced agricultural risk management: The WBG will support the development of an integrated agricultural risk-management program to promote more equitable and sustainable growth  Agricultural insurance penetration rate increased 15 percent by  Agricultural insurance penetration rate increased 15 percent by 2018 (2013 2018 (2013 Baseline: 0.39 percent) Baseline: 0.96 percent) Note: The adjustment in baseline is due to a change in the source of the information. The original 0.39 percent baseline was based on a World Bank Survey of insurance companies, while the 0.96 percent is as measured by the Central Bank. Indicator will include gender dimension when measured in 2018. #1.2 Improved financial inclusion: #1.2 Improved financial inclusion: The WBG will support the development of a comprehensive National Financial Inclusion Strategy in coordination with public and private stakeholders and the international development community  50 percent of adults with savings accounts by 2018 (2013  No change. baseline: 29 percent). Gender disaggregation Indicator is gender disaggregated. Baseline 2013 – 30% Target 2018- 50%  163,000 individuals and microenterprises accessed to  Outstanding micro and SME portfolio to reach USD 3.4 billion by 2018 (2014 microfinance client services by 2018 (2012 baseline: 125,000) baseline: USD 2.9 billion)  7 percent of farmers with improved access to markets and access  Dropped (given the difficulties in tracking the impact at the farmer level). to enhanced productivity and financial services by 2018 (2013 baseline: 5 percent) 17 #1.3 Improved environmental management: #1.3 Improved forest management in selected areas  Improved forest management and conservation practices  No change introduced on an area equivalent to 18 percent of the current Alto Paraná Atlantic Forest area by 2018 (Baseline = 9 percent) Results Area II: Boosting Pro-poor Delivery of Public Goods Pillar II: Pro-poor Delivery of Public Goods and Service and Service CPS Objectives and Indicators Revised CPS Objectives and Indicators # 2.1 Increased Revenues and Progressivity of Fiscal Management: # 2.1 Increased Revenues and Progressivity of Fiscal Management: The WBG will support GoP in raising the tax level, improving the distribution of taxes and overall M&E of the NDP  Total tax/GDP ratio increased from 11.5 percent (2013) to 14  Dropped as the high level indicator is too susceptible to the overall economic percent (2018) and the progressivity of the tax system improved fluctuation and growth downturn compared to the base year 2013.  New indicator: Corporate tax on agriculture income increase (G. billion) Baseline (2013) 71,8 Target (2018) 518,4  Progressivity of expenditures in social and infrastructure service  Progressivity of the tax system and public expenditures, measured as the delivery improved by 2018 compared to baseline in 2013 difference in the Gini coefficient before and after fiscal interventions (taxes, subsidies and transfers). Baseline (2014): -1,77 Target (2018): -2,45 Note: Progressivity of tax and expenditures are merged in the indicators immediately above. # 2.2 Improved access to quality public services for the poor : # 2.2 Improved access to quality public services in selected sectors: The WBG supports inclusion through improved access to and better quality of services to the rural poor  10 percent of urban extreme poor in Asunción metropolitan area  People provided with improved sanitation environment in urban areas - Target benefiting from improved environmental sanitation by 2018 2018 - 300,000 (2013 Baseline – 0); (2014 Baseline: 0) Indicator is gender disaggregated Gender: 50 percent of beneficiaries are women. 18  Indigenous peoples with access to sustainable water increased  Indigenous people provided with access to improved sanitation facilities – Target from 2.5 percent (2013) to 6.5 percent (2018) 2018 – 6,000 (Baseline 2013 – 0) Indicator is gender disaggregated Gender: 50 percent of beneficiaries are women.  New Indicator on electricity services: “Increase in energy supply through the transmission network from 3,008,000 Megawatt hours (MWh, 2015) to 5,800,000 MWh (2018.)  New Indicator: Percentage of people reporting satisfaction with quality of roads (San Pedro, Caazapa and Caaguazu road segments) Target 2018 – 75% reporting “good” or “fair” (Baseline 2009 14% good; 35% fair; 51% bad (from a sample size of 270 road users) #2.3 Improved social accountability and transparency: #2.3 Improved institutional foundation for social accountability and transparency: The Government increased transparency and accountability of its budget. The WBG will support the implementation of GoP’s Open Government and transparency agenda by including social auditing in its new investment program and strengthening social accountability mechanisms in the existing portfolio  Open Information Law13 fully implemented by least 20 percent  No change. of Government agencies by 2018 (2014 baseline: 9 percent)  At least 10 new education sector information tools and 15  No change. datasets available for internal management and public access by 2018 (2013 Baseline: 0) (The dialogue on education has slowed down.) This indicator is eliminated.  At least two social accountability mechanism under the Open  No change. Government initiative (such as the social auditing of the Tekoporã program) successfully implemented by independent CSOs by 2018 13 The Open Information Law (Ley 5189/2014) makes mandatory the publication of salaries and allowances received by the civil service. 19 Results Area III: Fostering market integration Pillar III. Agricultural productivity and market integration CPS Objectives and Indicators Revised CPS Objectives and Indicators #3.1 Improved agricultural productivity and access to markets for #3.1 Improved agricultural productivity and enhanced socio-economic conditions for small-holder farmers: small-holder farmers in targeted areas : The WBG will support increased productivity of small-holder farmers through interventions that increase technical know-how and access to inputs and markets  Income of 15 percent of poor households (out of 130,000) in  30,000 poor households (out of 130,000), including small-scale farmers and Concepción, San Pedro, Canindeyú, Caaguazú and Caazapá indigenous people, in Concepción, San Pedro, Canindeyú, Caaguazú and increased by 30 percent by 2018 (2013 Baseline: annual income Caazapá, report increase in real incomes by 2018 is G4 million) Annual income - G4 million(2013 baseline) and socio-economic conditions Indicator is gender disaggregated (baseline 0) 40 percent of the beneficiaries to be female Note: Real income is calculated using national price level; enhanced socio- economic conditions are achieved when 70% of program has been delivered to the targeted communities  130 additional indigenous communities’ (representing more than  No change 50 percent of Indigenous Peoples in Paraguay) economic development improved through enhancement of organizational capacity and better quality living conditions by 2018 (2014 Baseline: 45 communities) Indicator is gender disaggregated  New Indicator: Maize yield increase among project beneficiaries (from 1.5 in 2015 to 1.7 tons per ha in 2017) 12% increase #3.2 Increased private investments in logistics projects/initiatives and Revised: #3.2 Increased private investments in logistics projects/initiatives: reduced logistics costs: 20 The WBG plans to help GoP identify logistics bottlenecks and attract private knowledge and funds to addressing them  No change.  At least two public private partnership transactions in transport/logistics by 2018 (2014 baseline: 0).  Travel time on two 200 km segments of roads in selected  Dropped priority Departments (San Pedro, Caaguazú, Caazapá or similar) reduced by at least 30 minutes by 2018 (Baseline 2014: average travel time for a 200 km segment of a national road 3 hours and 20 minutes; 2018 target: average travel time for a 200 km segment of a national road 2hours and 50 minutes). 21 Annex 3: Matrix Summarizing Progress Towards CPS Objectives Pillar I: Resilience to Risks and Volatility CPS Objectives and Indicators Progress to Date (as of January 2017) Instruments and Partners #1.1 Enhanced agricultural risk management: Mostly on Track Financial services: WBG will support the development of an integrated agricultural risk- Ongoing: management program to promote more equitable and sustainable growth  PRODERS Sustainable Agriculture & Rural  Agricultural insurance penetration rate increased 15 percent by 2018  Agricultural insurance penetration Development (P088799) (2013 Baseline: 0.39 percent) rate increasing from of 0.96 percent Indicator will include gender dimension. Agriculture GDP to 1.14 percent in Knowledge services: 2015, exceeding CPS expectations Delivered: NB: The baseline to be amended to reflect the information provided by of 15 percent.  Paraguay Agriculture Sector- the Central Bank of Paraguay. The baseline in the CPS derives from a Wide Risk Assessment survey which has been discontinued. Information by gender is not (P149948; FY15), (P145224; available now. The Central Bank, FY16) which is the source of information,  Agriculture Risk Policy does not disaggregate the Dialogue (P159719; FY16) information by gender.  Development of the Agriculture Insurance (P159718; FY16) Ongoing: Agriculture Commodity Exchange Development. (P154806) #1.2 Improved financial inclusion: Partially on Track Financial Services WBG will support the development of a comprehensive National The Bank supported the preparation of Ongoing: Financial Inclusion Strategy in coordination with public and private the National Inclusion Strategy, which  SME and Agribusiness stakeholders and the international development community has been completed. competitiveness (IFC)  PRODERS Sustainable Agriculture & Rural Development (P088799)  50 percent of adults with savings accounts by 2018 (2013 baseline: 29  Accurate tracking regarding the percent). percentage of adult population Knowledge services: Indicator is gender disaggregated. holding savings and other accounts, Delivered the indicator under this result, will  FIRST Development of NSFI not be possible until 2018 as Strategy (P150452; FY17) Paraguay has not been included in the 22 most recent Global Financial Index  Paraguay Finance and Markets update. The information will be Programmatic Approach gender disaggregated. (P147386; FY17)  163,000 individuals and microenterprises accessed to microfinance  Current status: 83,775, of which Ongoing client services by 2018 (2012 baseline: 125,000) 34,084 are women (2015).  Fiscal Equity, Efficiency & Indicator is gender disaggregated. IFC lending to individuals and Macro Resilience PA microenterprises has been affected by (P156331) exogenous factors and the portfolio  Paraguay Finance and Markets has contracted (P161605)  Insolvency and Secured Transactions (P156369)  7 percent of farmers with improved access to markets and access to  The number of farmers with enhanced productivity and financial services by 2018 (2013 baseline: improved living conditions has 5 percent) increased, but access to financial services at the farmer level is difficult to track because resources are provided to groups and not to households. #1.3 Improved environmental management: On track Financial services:  Improved forest management and conservation practices introduced  Status: 13.7 percent of the current Delivered: on an area equivalent to 18 percent of the current Alto Paraná Alto Parana Atlantic Forest is under  Conservation of biodiversity Atlantic Forest area by 2018 (Baseline = 9 percent) improved management and and sustainable land conservation practices. management in the Atlantic Forest (GEF) (P094335; FY16) Besides the work under the Conservation of Biodiversity and On-going sustainable land management. (GEF),  PRODERS Sustainable PRODERS is making an additional Agriculture & Rural contribution by increasing reforested Development (P088799) areas, as of November 2016 1,000 hectares have reforested with the Knowledge services support of this project. PRODERS Ongoing ongoing work will help reach the  Atlantic Forest Strategic target. The RAS requested by Support –RAS (P161498) ITAIPU is expected to guide further  Conservation Action Plan San implementation of actions to improve Rafael (P162896) forest and land management.  Forest Landscape Management (P156288) 23 Pillar II: Pro-poor Delivery of Public Goods and Service CPS Objectives and Indicators Instruments and Partners # 2.1 Increased Revenues and Progressivity of Fiscal Management: Mostly on track Financial Services: WBG will support GoP in raising the tax level, improving the Ongoing: distribution of taxes and overall M&E of the NDP DPL-DDO (P151007)  Total tax/GDP ratio increased from 11.5 percent (2013) to 14 percent  Progress in increasing the Total Knowledge services: (2018) and the progressivity of the tax system improved compared to Tax/GDP ratio, which has reached the base year 2013 12.6 percent of GDP in 2016. Delivered:  Tekopora Beneficiaries Important reforms on taxation have Empowered to Ensure Social taken place but a fuller impact has Accountability Project been limited by the slowing down of (P150876; FY17) economic activity.  Progressivity of expenditures in social and infrastructure service Ongoing: delivery improved by 2018 compared to baseline in 2013  Fiscal equity, efficiency and  Technical assistance on breaking macro resilience PA (P156331) down the progressivity of expenditures has been provided, New: which facilitates setting goals on  PER in health and education progressivity possible. # 2.2 Improved access to quality public services for the poor : Mostly on track Financial services: The WBG supports inclusion through improved access to and better quality Delivered: of services to the rural poor  Road Maintenance (P082026;  Progress has been made in FY16)  10 percent of urban extreme poor in Asunción metropolitan area advancing works for improved benefiting from improved environmental sanitation by 2018 (2014 environmental sanitation in On-going: Baseline: 0) Asuncion the Water and Sanitation  PRODERS Sustainable Indicator is gender disaggregated Project. The proposed indicator can Agriculture & Rural only be measured upon completion Development (P088799) of all the works.  Energy Sector Strengthening Project (P114971)  Progress has been made with the  Water & Sanitation Sector support of the Water and Sanitation Modernization (P095235)  Indigenous peoples with access to sustainable water increased from Project 2.5 percent (2013) to 6.5 percent (2018) Current value (2016: 3 percent) Knowledge services: Indicator is gender disaggregated Delivered: 24 PRODERS has made additional  Improved Services and contributions to increase access to Territorial Development sustainable water in indigenous (P156770; FY17) communities. New: Note: The Water and Sanitation Project  Energy sector study (P161738) has been reprogrammed to take account of progress made and complementary work that will be undertaken by IDB. The scope of the engagement has been narrowed. The Bank has contributed to access to quality public services for the poor through the Road Maintenance Project, which has just been completed, and the Energy Project that is under implementation. The Roads Project delivered access to all weather roads for 34,100 households. #2.3 Improved social accountability and transparency: On Track Knowledge services: The Government increased transparency and accountability of its budget. The WBG will support the implementation of GoP’s Open Government Delivered: and transparency agenda by including social auditing in its new investment  Programmatic Governance program and strengthening social accountability mechanisms in the Engagement (P151990; FY17) existing portfolio  State-Owned Enterprises TA (P155793; FY16)  Open Information Law14 fully implemented by least 20 percent of  Indicator on Track to be met. 14  SSKE - Access to Information Government agencies by 2018 (2014 baseline: 9 percent) percent of Government agencies are Law (P155801; FY16), complying. 76 percent are partially (P155800; FY16) complying.  Challenges of SOE Service Delivery (P156523; FY16)  At least 10 new education sector information tools and 15 datasets  Indicator has been met. The Bank  Tekopora Beneficiaries available for internal management and public access by 2018 (2013 contributed to the design of the Empowered to Ensure Social Baseline: 0) information system through the TA Accountability Project program. This information system is (P150876; FY17) the source of the Open Data system 14 The Open Information Law (Ley 5189/2014) makes mandatory the publication of salaries and allowances received by the civil service. 25 that the Ministry has on its website,  School Infrastructure, the that includes more than 40 public Teaching Profession, and Basic access databases. However, the School Supplies (P129179; dialogue on education has not made FY14) traction limiting the impact of the  Assessment for a work that has been done. [SOURCE Comprehensive Education http://datos.mec.gov.py/data)] Management Information System (P133419, FY16)  Indicator on track to be met. There  At least two social accountability mechanism under the Open are in place two advanced initiatives New Government initiative (such as the social auditing of the Tekoporã and two additional are underway. Transparency and accountability program) successfully implemented by independent CSOs by 2018 AA (P161686) NB. Governance and social accountability has been mainstreamed in all lending operations Pillar III: Fostering market integration CPS Objectives and Indicators Instruments and Partners #3.1 Improved agricultural productivity and access to markets for small- Mostly on Track Financial services: holder farmers: Delivered:  Road Maintenance (P082026;  Income of 15 percent of poor households (out of 130,000) in  11,000 additional small-holder FY16) Concepción, San Pedro, Canindeyú, Caaguazú and Caazapá increased farmers (8 percent of poor  PRODERS Sustainable by 30 percent by 2018 (2013 Baseline: annual income is G4 million) households) are benefiting from Agriculture & Rural Indicator is gender disaggregated improved technology and access to Development (P088799) markets; however, tracking real income increases is complicated by Knowledge services: “price index” issues. Nominal incomes are increasing. Indicator is Delivered: tracked on a gender basis.  Financial sector inclusion development (P150452; FY17)  50 additional communities have  130 additional indigenous communities’ (representing more than 50 adopted development plans and are percent of Indigenous Peoples in Paraguay) economic development implementing them. improved through enhancement of organizational capacity and better quality living conditions by 2018 (2014 Baseline: 45 communities) Indicator is gender disaggregated 26 Note on gender disaggregation: In line with the GoP, the goal under the CPS is that at least 40 percent of the program beneficiaries be female. The status today is slightly above 40 percent, but the percentage can vary due external factors, so the CPS will retain the target at 40 percent. #3.2 Increased private investments in logistics projects/initiatives and On track Financial services: reduced logistics costs: Delivered:  Road Maintenance (P082026; The WBG plans to help GoP identify logistics bottlenecks and attract FY16) private knowledge and funds to addressing them NEW  At least two public private partnership transactions in  Preparation of two PPPs is  Transport Connectivity transport/logistics by 2018 (2014 baseline: 0). advancing and they should be in (P147278) – not yet effective place by 2018. Ruta 2&7 connecting to Brazil (awarded) and Airport of Knowledge services: Asuncion (pending award).  Strengthening the PPP agenda (P161168) (Argentina,  Travel time on two 200 km segments of roads in selected priority  The supporting transport Paraguay and Uruguay) Departments (San Pedro, Caaguazú, Caazapá or similar) reduced by at connectivity project has been least 30 minutes by 2018 (Baseline 2014: average travel time for a approved by the Bank Board but is 200 km segment of a national road 3 hours and 20 minutes; 2018 not effective yet and therefore full target: average travel time for a 200 km segment of a national road impact of the proposed efforts will 2hours and 50 minutes). not be seen until the next CPF. Note: the recently completed Roads Project has contributed to improve access to roads for rural populations. Satisfaction has increased in the areas of project engagement and will be measured in 2018. 27 Annex 4: Paraguay Portfolio (as of January 19, 2017) Paraguay IBRD Portfolio Net Project Len. Comm. Undisb. No. Ratings Project Approval Prod. Closing Age Overall Project Name GPVP Inst. Amt. Bal. of ID FY Line Date (Months) Risk Type IBRD ($M) AF DO IP ($M) PY PRODERS - Sust. Agric. & Rur 29-Dec- P088799 Agriculture 2008 PE IPF 137.50 63.16 107.7 1 MU MU S Dev. Prj 2017 PY Water & Sanit. Sector 30-Sep- P095235 Water 2009 PE IPF 64.00 28.47 93.2 0 MS MS H Modernization 2017 PY Energy Sector Strengthening Energy & 31-Oct- P114971 2011 PE IPF 100.00 26.33 73.7 0 MS MS L Project Extractives 2017 Transport & 30-Jun- P147278 PY Transport Connectivity 2017 PE IPF 100.00 100.00 5.8 0 S S S ICT 2024 Macro Economics & 31-Dec- P151007 PY DPL-DDO 2015 PE DPF 100.00 36.25 22.1 0 M Fiscal 2017 Management Paraguay IFC Portfolio PLR IFC Variable FY15 FY16 FY17* period # Projects 9.0 4.0 4.0 17.0 Commitments $m 192.8 102.1 50.1 344.9 Mobilization $m 33.6 30.0 0.0 63.6 Own account + Mob $m 226.4 132.1 40.1 408.5 Portfolio* (net 291.6 266.0 238.0 commitments $m) Outstanding Portfolio** 250.6 210.0 236.9 (exposure $m) *As of December 31, 2016. 28 29