Document of The World Bank
Report No: ICR00004429
IMPLEMENTATION COMPLETION AND RESULTS REPORT
Public Disclosure Authorized (IBRD-85540)
ON A
LOAN
IN THE AMOUNT OF US$150 MILLION
TO THE
THE MUNICIPALITY OF MANAUS
WITH A GUARANTEE OF THE FEDERATIVE REPUBLIC OF BRAZIL Public Disclosure Authorized FOR A
SERVICE DELIVERY AND FISCAL MANAGEMENT DEVELOPMENT POLICY LOAN
July 27, 2018
Public Disclosure Authorized
Governance Global Practice Latin America and the Caribbean Region Public Disclosure Authorized
The World Bank BR Manaus Service Delivery and Fiscal Management DPL (P153203)
CURRENCY EQUIVALENTS (Exchange Rate Effective as of April 20th, 2015) And (Exchange Rate Effective as of July 11th, 2018) Currency Unit = Brazilian Real (R$) R$3.86 = US$1 (April 2015) R$3.81 = US$1 (July 2018)
FISCAL YEAR January 1 – December 31 ABBREVIATIONS AND ACRONYMS
BRT Bus Rapid Transit CPF Country Partnership Framework DPL Development Policy Loan DPO Development Policy Operation FIRJAN Rio de Janeiro’s Industry Federation (Federação das Indústrias do Estado do Rio de Janeiro) GDP Gross Domestic Product GIDE Integrated School Management Model (Gestão Integrada da Escola) ICMS Brazilian Value Added Tax (Imposto sobre a Circulação de Mercadorias e Serviços) IDEB Basic Education Development Index (Índice de Desenvolvimento da Educação Básica) IFGF FIRJAN Fiscal Management Index (Indice FIRJAN gestão fiscal) IPTU Municipal Property Tax (Imposto Predial e Territorial Urbano) ISS Service Taxes (Imposto Sobre Serviços) IT Information Technology MEC Ministry of Education (Ministério de Educação) MEI Individual Micro Entrepreneurs (Micro Emprendedor Individual) MM Municipality of Manaus NCR Net Current Revenues PDCA Plan, Do, Check, and Act PDO Program Development Objective PPA Manaus' Multi-Year Plan (Plano Plurianual) Database of School Directors (Programa Municipal de Certificação e PROCERT Composição de Banco de Diretores para Unidades de Ensino da Rede Pública Municipal de Manaus) SEMED Municipal Secretariat of Education (Secretaria Municipal de Educação e Cultura) SEMEF Municipal Secretariat of Finance (Secretaria Municipal de Finanças) UGC Central Procurement Administration Unit (Unidade Gestora de Compras Municipais) ZFM Manaus Free Trade Zone (Zona Franca de Manaus)
The World Bank BR Manaus Service Delivery and Fiscal Management DPL (P153203)
Regional Vice President: Jorge Familiar Country Director: Martin Raiser Senior Global Practice Director: Deborah Wetzel Practice Manager: Robert Taliercio Task Team Leader: Laura Zoratto
ICR Main Contributor: Daniel Ortega Nieto
The World Bank BR Manaus Service Delivery and Fiscal Management DPL (P153203)
BR Manaus Service Delivery and Fiscal Management DPL
TABLE OF CONTENTS
DATA SHEET
A. BASIC INFORMATION ...... ii B. KEY DATES ...... ii C. RATINGS SUMMARY ...... ii D. SECTOR AND THEME CODES ...... iii E. BANK STAFF ...... iv F. RESULTS FRAMEWORK ANALYSIS ...... iv G. RATINGS OF PROJECT PERFORMANCE IN ISRs ...... vii H. RESTRUCTURING (IF ANY) ...... viii ICR SUMMARY ...... 9 1. PROJECT CONTEXT, DEVELOPMENT OBJECTIVES AND DESIGN ...... 10 2. KEY FACTORS AFFECTING IMPLEMENTATION AND OUTCOMES ...... 15 3. ASSESSMENT OF OUTCOMES ...... 19 4. ASSESSMENT OF RISK TO DEVELOPMENT OUTCOME ...... 29 5. ASSESSMENT OF BANK AND BORROWER PERFORMANCE ...... 29 6. LESSONS LEARNED ...... 30 7. COMMENTS ON ISSUES RAISED BY BORROWER/IMPLEMENTING AGENCIES/PARTNERS ...... 32 ANNEX I: BANK LENDING AND IMPLEMENTATION SUPPORT/SUPERVISION PROCESSES ...... 34 ANNEX II: RESULTS BY PILLAR ...... 35 ANNEX III: SUMMARY OF BORROWER'S ICR AND/OR COMMENTS ON DRAFT ICR ...... 40 ANNEX IV: MANAUS CASE STUDY ON GLOBAL REPORT ON IMPROVING PUBLIC SECTOR PERFORMANCE ...... 41 ANNEX V: LIST OF SUPPORTING DOCUMENTS ...... 47 ANNEX VI: MAP ...... 48
The World Bank BR Manaus Service Delivery and Fiscal Management DPL (P153203)
A. BASIC INFORMATION BR Manaus Service Country: Brazil Program Name: Delivery and Fiscal Management DPL Program ID: P153203 L/C/TF Number(s): IBRD-85540 ICR Date: 06/04/2018 ICR Type: Core ICR Development Policy PREFEITURA DE Financing Instrument: Borrower: Loan MANAUS Original Total US$150.00 million Disbursed Amount: US$150.00 million Commitment: Revised Amount: US$150.00 million
Implementing Agencies:
Cofinanciers and Other External Partners:
B. KEY DATES Revised / Actual Process Date Process Original Date Date(s)
07/31/2017 Concept Review: 12/11/2014 Effectiveness: 06/27/2016
Appraisal: 03/23/2015 Restructuring(s):
Approval: 12/03/2015 Midterm Review:
07/31/2017 Closing: 07/31/2017
C. RATINGS SUMMARY C.1 Performance Rating by ICR Outcomes: Satisfactory
Risk to Development Outcome: Low
Bank Performance: Satisfactory
Borrower Performance: Satisfactory C.2 Detailed Ratings of World Bank and Borrower Performance (by ICR) Bank Ratings Borrower Ratings Quality at Entry: Satisfactory Government: Satisfactory Implementing Quality of Supervision: Satisfactory Satisfactory Agency/Agencies: Overall Bank Overall Borrower Satisfactory Satisfactory Performance: Performance:
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The World Bank BR Manaus Service Delivery and Fiscal Management DPL (P153203)
C.3 Quality at Entry and Implementation Performance Indicators Implementation QAG Assessments (if Indicators Rating Performance any) Potential Problem
Program at any time No Quality at Entry (QEA): None (Yes/No): Problem Program at Quality of Supervision No None any time (Yes/No): (QSA): DO rating before
Closing/Inactive status: D. SECTOR AND THEME CODES Original Actual
Sector Code (as % of total Bank financing)
Public Administration
Sub-National Government 60 60
Education
Primary Education 30 30
Transportation
Urban Transport 10 10
Theme Code (as % of total Bank financing)
Economic Policy 5 5
Fiscal Policy 5 5
Tax policy 5 5
Human Development and Gender 30 30
Education 30 30
Access to Education 15 15
Education Financing 15 15
Public Sector Management 45 45
Public Administration 20 20 Transparency, Accountability and Good 20 20 Governance
Public Finance Management 25 25
Domestic Revenue Administration 5 5
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The World Bank BR Manaus Service Delivery and Fiscal Management DPL (P153203)
Public Expenditure Management 20 20
Urban and Rural Development 20 20
Urban Development 20 20
Urban Planning 20 20
E. BANK STAFF Positions At ICR At Approval
Jorge Familiar Calderon Vice President: Jorge Familiar Calderon
Martin Raiser Country Director: Martin Raiser
Arturo Herrera
Practice Manager/Manager: Robert R. Taliercio Gutierrez
Laura De Castro Zoratto Program Team Leader: Laura De Castro Zoratto
ICR Team Leader: Daniel Ortega Nieto
ICR Primary Author: Daniel Ortega Nieto
Fabio Sola Bittar F. RESULTS FRAMEWORK ANALYSIS Program Development Objectives (from Project Appraisal Document) Assist the Municipality of Manaus (MM) in improving the management of its finances as well as its education and transport sectors, through upgraded revenue and expenditure processes, meritocratic and results-oriented management of schools, and improved control of bus concessions Revised Program Development Objectives (if any, as approved by original approving authority)
(a) PDO Indicator(s) Actual Value Original Target Values Formally Achieved at Indicator Baseline Value (from approval Revised Completion or documents) Target Values Target Years Indicator 1: Number of registered properties in the Property Tax Cadaster Value 214,914 560,000 365,586 Quantitative or Qualitative) Date achieved 01/01/2013 07/31/2017 07/31/2017
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The World Bank BR Manaus Service Delivery and Fiscal Management DPL (P153203)
Comments The target was partially achieved (65%). The cadaster already contains (including % 560,000 properties, but SEMEF was able to ‘sanitize’ 365,586 of them that is, achievement) the information of those cadasters was verified (through different methods) and is now complete/correct. The remaining could not be sanitized by the same method due to high levels of informality in the city (further explained below) and will be done by a specilized firm starting in September 2018 using MM’s own resources. The number of incomplete registries decreased from 60,64% in 2013, to 35% in 2017, leading to a nominal increase in IPTU collection of 44% (inflation in the period was 17%).
Indicator 2: Average execution time of electronic bidding processes for the purchase of goods and services Value 0 - There was no 50 days for bids 59 days Quantitative or electronic bidding (the between R$8 Qualitative) average time for other thousand and R$1 methods was 120 million days).
Date achieved 01/01/2013 07/31/2017 07/31/2017 Comments The target was partially achieved (87%). The average number of days was (including % reduced by 61 days from an average of 120 days to 59 days, and electronic achievement) bidding was developed.
Indicator 3: Percentage of bidding results published in the Manaus Compras open access website Value 0% 90% 100% Quantitative or Qualitative) Date achieved 01/01/2013 07/31/2017 07/31/2017 Comments Target achieved and surpassed. (including % achievement)
Indicator 4: Average reduction of unit price of supplies and contracted services Value 0% 5% 23.9% for a Quantitative or selected basket Qualitative) of goods. Date achieved 01/01/2013 07/31/2017 07/31/2017 Comments Target achieved. The indicator was supposed to track reduction in prices using (including % a basket of 35 items. However given the specificity of the items the achievement) Government was only able to document comparative data for 9 of them (unit prices were compared with those from eletronic VAT invoices that capture all transactions in Manaus). For those 9 items, there were savings of 23.9%. Savings were achieved with the introduction of framework agreements and centralization of purchases.
Indicator 5: Number of nonconformities in payroll
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The World Bank BR Manaus Service Delivery and Fiscal Management DPL (P153203)
Value 54,222 1,000 45,344 Quantitative or Qualitative) Date achieved 01/01/2013 07/31/2017 07/31/2017 Comments The target was partially achieved. The Government established a methodology (including % and protocol for identifying irregularities in its payrolll. Until mid-2017, it had achievement) resolved around 9,000 irregularities, and 10,000 others are currently being resolved. Manaus is the only subnational government that uses this type of methodology—developed by the federal government —to identify nonconformities.
Indicator 6: Acquisition and maintenance of the Pension Conformity Certificate (Certificado de Regularidade Previdenciária), without resorting to judicial measures Value No Yes Yes Quantitative or Qualitative) Date achieved 01/01/2013 07/31/2017 07/31/2017 Comments Target achieved. (including % achievement)
Indicator 7: Municipal tax rate compliance Value 54.49% 57.9% 50.8% Quantitative or Qualitative) Date achieved 01/01/2013 07/31/2017 07/31/2017 Comments The target was not achieved. The economic crisis affected the collection of (including % VAT on services. achievement)
Indicator 8: Number of schools that achieved at least 19 out 24 GIDE targets Value 0 278 (out of 400) 147 Quantitative or Qualitative) Date achieved 01/01/2013 07/31/2017 07/31/2017 Comments Target partially achieved (52 %).The indicator did not take into account that (including % there are six different types of schools and that not all of them are eligible to achievement) achieve between 19-24 GIDE indicators.
Indicator 9: Number of schools with certified directors Value 0 150 490 Quantitative or Qualitative) Date achieved 01/01/2013 07/31/2017 07/31/2017
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The World Bank BR Manaus Service Delivery and Fiscal Management DPL (P153203)
Comments Target achieved and surpassed. A new certification was put in place in 2016 (including % and 490 school directors have been certified. achievement)
Indicator 10: Number of schools complying 100% with the Minimum Standard Framework Value 0 150 161 Quantitative or Qualitative) Date achieved 01/01/2013 07/31/2017 07/31/2017 Comments Target achieved and surpassed.The Minimum Standard Framework (MSF) was (including % revised and 161 schools are complying with the new MSF. The standard will achievement) become legally binding starting June 2018.
Indicator 11: Number of street vendors accredited as individual micro entrepreneurs (MEI) and relocated to shopping facilities Value 0 1,642 688 Quantitative or Qualitative) Date achieved 01/01/2013 07/31/2017 07/31/2017 Comments Target partially achieved (42%). A total of 1,509 street vendors have been (including % trained, certified and relocated to shopping facilities— not everyone became achievement) accredited MEI.
Indicator 12: Monthly percentage of bus trips completed Value 88% 97% 100% Quantitative or Qualitative) Date achieved 01/01/2013 07/31/2017 07/31/2017 Comments Target achieved and surpassed. (including % achievement)
Indicator 13: Number of licenses for moto-taxis issued Value 0 3,303 2,957 Quantitative or Qualitative) Date achieved 01/01/2013 07/31/2017 07/31/2017 Comments Target partially achieved (90%). (including % achievement)
G. RATINGS OF PROJECT PERFORMANCE IN ISRs Actual Date ISR No. GEO IP Disbursements Archived (US$, millions) Not applicable
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The World Bank BR Manaus Service Delivery and Fiscal Management DPL (P153203)
H. RESTRUCTURING (IF ANY) Not Applicable
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The World Bank BR Manaus Service Delivery and Fiscal Management DPL (P153203)
ICR SUMMARY
1. The single-tranche stand-alone Development Policy Loan (DPL) of US$150 million to the Municipality of Manaus (MM) is aimed to assist the Government in improving the management of its finances as well as its education sector and urban mobility. The overall outcome of the operation is rated Satisfactory given the substantial results in a particularly challenging environment. The current administration took office in 2013 with a legacy of fiscal deficit and, among other things, committed expenditures without corresponding cash resources of R$347 million.1 Moreover, project implementation took place in a much more challenging environment than what was expected. The economic situation in the country was extremely dire, leading to the bankruptcy of several states. At appraisal, gross domestic product (GDP) forecasts for Brazil pointed to contractions of 2.7 percent and 0.7 percent for 2015 and 2016, respectively, followed by a 1.4 percent expansion in 2017. In retrospect, data shows that Brazil’s GDP in fact contracted 3.8 percent in 2015 and 3.6 percent in 2016, and only increased by 1 percent in 2017.
2. The Municipality’s current administration that assumed office in 2013 acted promptly and embarked, with support from the World Bank, on an ambitious reform process that yielded notable legacies that went well beyond the operation’s Results Framework. In a short period, Manaus went from being one of the worst performing to one of the best performing municipalities in Brazil in terms of fiscal management. The Municipality took several measures to curb expenditures, increase revenues, and modernize internal processes. These measures included the implementation of results-based management in the Secretariat of Finance (SEMEF) through training, action plans, indicators, and targets for every employee; the creation of a Central Fiscal Committee to approve significant expenditures; the introduction of pensions’ management; strengthening tax collection and procurement processes; and curbing wage bill expenditures, among others. In the education sector, among other measures, the Municipality implemented an Integrated School Management Model (Gestão Integrada da Escola, GIDE) that identifies specific challenges in every school, and helps customize solutions for each case. The Municipality did this at the same time it embarked on an important effort to cut expenditure in the sector which saved approximately R$100 million over two years.2 In terms of urban mobility, the Municipality invested heavily in improving the city center with the aim of creating a business-friendly environment and preserving historical landmarks. It recovered degraded public areas and transferred street vendors to formal commercial areas. It also tackled informality in the transport sector by registering and legalizing moto-taxis. Finally, it improved bus flow, reduced travel time, and decreased average bus occupancy to address overcrowding.3
3. The report documents the overwhelmingly positive results that the Municipality achieved in all key areas. An indicative example of the scope and success of the reforms related to this operation is the external recognition that Manaus has earned. In 2017, Manaus was considered the capital with the best fiscal management in Brazil and 33rd among more than 5,500 municipalities—it improved from 14th place among capitals and 1200th among municipalities in 2014. The Municipality won first place in the ranking of the Federal Accounting Council and its pension system—Manaus Previdência—ranked 1st in the 2017 award for best practices on pension management. In education, Manaus’ position in the Basic Education Development Index (Índice de Desenvolvimento da Educação Básica, IDEB), which measures proficiency of students
1 This represented 9.3 percent of MM’s primary expenditures and approximately US$150 million in 2013. 2 This represented 2.7 percent of MM’s primary expenditures and over US$43 million in 2013. 3 Annex 2 presents additional results achieved by Manaus across the operation’s sectors, while annex IV shows a case study from the World Bank’s “Global Report on Public Sector Performance” (2018) showing the Municipality’s successful management reforms.
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The World Bank BR Manaus Service Delivery and Fiscal Management DPL (P153203)
across the country in Portuguese and Mathematics, moved from 18th to 11th among Brazil’s capitals in two years (2013–2015),4 reaching the target established by the Ministry of Education (MEC) four years before it was expected.
1. PROJECT CONTEXT, DEVELOPMENT OBJECTIVES AND DESIGN 1.1 Context at Appraisal 4. The single-tranche, stand-alone Development Policy Loan (DPL), in the amount of US$150 million to the Municipality of Manaus (MM), in the State of Amazonas, Brazil was designed to assist the Municipality in improving the management of its finances as well as its education and transport sectors, through upgraded revenue and expenditure processes, results-oriented management of schools, and improved control of bus concessions.
Macroeconomic and Structural Background
5. Following years of economic slowdown, at the time of appraisal, Brazil was undergoing a deep and widespread recession. The country’s growth performance had continually declined—from an average of 4.5 percent growth between 2006 and 2010, to 2.1 percent between 2011 and 2014. Growth in the past decade was largely based on favorable external conditions, rising consumption, and expanding labor force participation. As these drivers gradually exhausted, structural constraints on growth have become binding.5 The slowdown was exacerbated in 2015 by the impact of the Lava Jato corruption investigation, a polarized political environment, and an increasingly unfavorable external environment, which drove investment and confidence to record low levels.
6. The severity of Brazil’s economic situation was underestimated at the time of appraisal and project implementation took place in a much more challenging environment than expected. At appraisal, GDP forecasts pointed to contractions of 2.7 percent and 0.7 percent for 2015 and 2016, respectively, followed by a 1.4 percent expansion in 2017. In retrospect, data show that GDP actually contracted 3.8 percent in 2015 and 3.6 percent in 2016 and only increased by 1 percent in 2017. Economic activity is gradually strengthening with GDP projections pointing to a 2.4 percent expansion in 2018, but given the unsolved fiscal deficit, uncertainties in the country remain.
7. The fiscal deterioration strongly affected subnational governments. Several large states experiencing fiscal distress. The States of Rio de Janeiro, Rio Grande do Sul, and Minas Gerais declared a state of financial calamity in 2016–2017. The problems are fundamentally the same across states—poor fiscal management, and a growing wage bill and pensions. On the revenue side, distress has also been driven by reduced federal transfers and limited own source revenues (states and municipalities’ main tax instruments is the tax on goods and services); the situation worsened due to states and municipalities’ limited access to borrowing.
4 With the highest percentage growth in the country, Manaus reached a grade of 4.3 in the 2015 IDEB (26 percent higher than in 2013), from 6th to 9th grades. The result was higher than the goal of 3.8 determined by the Ministry of Education (MEC) for Manaus. For 1st to 5th year of elementary school, Manaus had the third-highest percentage growth, reaching a grade of 5.4 in 2015 IDEB against a target of 4.9 established by the MEC. The official IDEB 2017 will be released only in July 2018, but SEMED already knows there were further improvements in proficiency in relation to 2015. 5 These include infrastructure bottlenecks, high labor costs, and low skill levels, a high tax burden and onerous tax system, excessive administrative burdens, shallow credit markets, and barriers to competition and international trade.
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The World Bank BR Manaus Service Delivery and Fiscal Management DPL (P153203)
8. While the decline in economic activity was broad-based, it was driven particularly by contractions in investment and industry. Growth of investment spending declined (from an average of 9.3 percent in 2006–2010 to 1.9 percent in 2011–2014), while private consumption growth slowed from 4.8 percent in 2011 to 0.9 percent in 2014. From 2014, investment was affected by increased uncertainty about policies and the investigations of corruption at Petrobras, which paralyzed a large swath of the construction sector. The industrial sector saw the most pronounced slowdown—moving from growth of 10.4 percent in 2010, to contracting by 1.2 percent in 2014 and another 3.0 percent in the first half of 2015. The decline in economic activity in 2015 became broad-based, affecting all major sectors of the economy.
9. Unemployment increased rapidly, due primarily to poor GDP growth and job creation and progress in poverty reduction slowed. Formal sector job creation was moderate from the creation of 2.5 million jobs in 2011 to 0.15 million in 2014, and to a loss of 1.1 million jobs in the 12 months preceding August 2015. Job losses were widespread among most sectors of the economy and across all demographic groups. Unemployment remained low at around 5 percent until the end of 2014, masked by shrinking labor force participation but it surged in August 2015 to 7.6 percent. Because of the economic slowdown in recent years, at the time of appraisal it was estimated that the number of Brazilians living in extreme poverty grew from 7 million in 2012 to 7.6 million in 2013, the first increase after 10 consecutive years of reductions.
10. The economic performance of Manaus is closely linked to the performance of the Manaus Free Trade Zone (Zona Franca de Manaus, ZFM). The companies located at the ZFM had a combined revenue of R$97.1 billion in 2014 and employed 120,089 workers. The jobs generated at the ZFM accounted for 27 percent of all formal jobs in the Municipality. As with the Brazilian economy, growth in the ZFM declined throughout 2014. However, the economic crisis led to a major contraction of industrial production in the State of Amazonas, which dropped 11.8 percent between 2014 and 2017,6 compared with a 4.6 percent contraction at the national level.
11. Manaus is highly dependent on transfers from the Federal Government and the state governments. In 2014, transfers accounted for 64 percent of the Municipality’s current revenues. Transfers from the state government accounted for more than 50 percent of the transfers. The largest transfer is from an indirect tax (Imposto sobre a Circulação de Mercadorias e Serviços, ICMS) that in 2014 accounted for 30 percent of all current revenues of the Municipality. This large share of the ICMS transfers in Manaus’ budget reflects the dependence on the ZFM, because the industries located there are large ICMS taxpayers and the main criteria for sharing the ICMS is the value added in the Municipality. ICMS tax collection was significantly affected by the economic crisis, affecting transfers to the Municipality. Estimates point to a 23 percent real drop in ICMS transfers between 2014 and 2017.
12. The current administration took office in 2013 with a legacy of a fiscal deficit but acted promptly to revert it. By the end of 2012, the Municipality had a financial deficit—committed expenditures without corresponding cash resources—of R$347 million, including expenditures of R$81 million that were outside of the budget. The Municipality took several measures to curb expenditures, increase revenues, and modernize internal processes. These measures included setting agreements to pay arrears gradually, monitoring timely payments of utility bills to avoid late penalties, introducing results-based management with revenues and expenditures targets, and creating a Central Committee to approve large expenditures,
6 Data is for industrial production in the State of Amazonas, which is highly correlated with ZFM. Source: IBGE
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The World Bank BR Manaus Service Delivery and Fiscal Management DPL (P153203)
among others. By the end of 2013, the outstanding financial deficit was reduced to R$214 million (see table 1 with key indicators). While the crisis strongly affected transfers and service taxes (imposto sobre serviços, ISS) collection, Manaus managed to partly offset losses through gains in municipal property tax (imposto predial e territorial urbano, IPTU), higher contributions, and extraordinary revenues (table 1). The Municipality also kept payroll expenditures under control and managed to sustain investment, although at a lower level. Investment in 2017 represented 70 percent of the average for 2014–2015; 2016 was an extraordinary year as the DPL allowed the municipality to increase investment. Had these measures not been taken, it is likely that Manaus would have suffered much more from the recession. Table 1. Key Economic Indicators - Manaus (R$, millions, 2017 prices)
2012 2013 2014 2015 2016 2017 Primary Revenues (I) 3,973.4 4,063.7 4,339.3 3,960.6 4,301.4 4,206.1 Tax revenues 941.6 1,015.8 1,090.3 989.1 949.0 954.2 IPTU 102.5 128.3 153.7 177.8 189.5 210.2 ISS 633.3 661.5 696.9 584.2 534.1 517.7 Others 205.8 226.1 239.6 227.0 225.5 226.3 Contributions 102.5 130.8 263.1 249.3 419.9 439.7 Pensions 0.0 0.0 126.7 117.3 140.9 105.7 Others 102.5 130.8 136.4 132.0 279.0 334.0 Transfers 2,551.7 2,714.0 2,672.5 2,428.1 2,342.5 2,573.4 Federal – FPM 301.4 342.9 356.5 341.4 376.5 360.2 State - ICMS and IPVA 1,126.5 1,208.9 1,173.7 1,139.0 1,022.5 1,018.1 Others 1,123.8 1,162.2 1,142.3 947.7 943.5 1,195.1 Other current revenues 316.5 176.3 242.7 269.0 557.2 225.2 Capital transfers 61.1 26.8 70.7 25.2 32.8 13.5 Primary Expenditures (II) 3,756.1 3,723.0 4,415.5 4,179.8 4,547.4 4,125.9 Current expenditures 3,368.9 3,320.6 3,905.0 3,773.5 3,744.4 3,803.5 Payroll 1,775.5 1,844.9 2,176.0 2,064.2 2,084.1 2,162.3 Other current expenditures 1,593.4 1,475.7 1,729.0 1,709.3 1,660.4 1,641.2 Investments 387.2 402.4 510.5 406.3 803.0 322.4 Primary Result (III) = (I) − (II) 217.3 340.7 −76.2 −219.2 −246.0 80.2 % of net current revenues (NCR) 5.5 8.3 −1.8 −5.6 −6.5 2.0 Debt Service (IV) 83.5 58.3 −89.9 25.2 26.7 67.0 Interest revenues 28.4 47.5 176.6 75.3 94.0 73.5 Interest payments 22.3 19.9 20.9 25.5 36.6 47.7 Net amortization 89.6 85.9 65.8 74.9 84.0 92.8 Gross Financing Needs (V) = (IV) − (III) −133.8 −282.4 −13.7 244.3 272.6 −13.2 New loans (VI) 55.8 81.7 86.5 82.9 567.0 21.6 Asset sales (VII) 1.6 0.7 1.1 0.5 0.6 0.0 Overall Balance (VIII) = (VI + VII − V) 191.1 364.7 101.3 −160.9 295.0 34.8 % of NCR 4.9 8.9 2.3 −4.1 7.8 0.9 Source: World Bank with data from SiCONFI, National Treasury
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The World Bank BR Manaus Service Delivery and Fiscal Management DPL (P153203)
13. Manaus’ fiscal stance was considered adequate for the operation. At approval, debt levels were low and were expected to continue dropping in the long term despite sizable loans contracted in the past and the impact of this operation. Budget balances were also projected to follow a sound path, but the Municipality was expected to see its investment capacity decrease in case the harsher economic environment continues. Under the baseline scenario, investment was projected to grow from 12.4 percent of NCR to 19 percent in 2020. Meanwhile, the worst-case scenario reported investment at 10.8 percent of NCR in 2020.
Rationale for World Bank Assistance
14. This was the first engagement of the World Bank with the MM and was partly the result of the engagement with the State of Amazonas. The World Bank has had a limited but growing engagement with the State of Amazonas, of which Manaus is the capital city. In May 2014, the Board approved the first operation to the State of Amazonas, the Modernizing Public Sector Management, Citizen Security, and Gender Policies DPL (P147979). Part of the reforms carried out by Manaus benefited from a partnership with the state government, which transferred knowledge especially related to procurement systems. The operation was also consistent and closely aligned with the World Bank’s Country Partnership Strategy (2012–2015)7 for Brazil, which underscored the need to focus on second-generation development problems that require innovative solutions, with a focus on subnational governments.
15. The operation was designed to contribute to the World Bank’s twin goals of ending extreme poverty and promoting shared prosperity, and it was well positioned to support the MM priorities through the operation. This included experience supporting other Brazilian subnational governments in the implementation of reforms in tax and financial administration to strengthen fiscal capacity, spending efficiency, and public service delivery in a range of sectors. By improving the efficiency of revenue and expenditure management, the operation was designed to address spending pressures, which threatened the sustainability and improvement of the MM’s capacity for service delivery to its citizens.
1.2 Original Program Development Objectives (PDO) and Key Indicators (as approved)
16. The operation’s development objective was to assist the MM in improving the management of its finances as well as its education and transport sectors, through upgraded revenue and expenditure processes, meritocratic, and results-oriented management of schools, and improved control of bus concessions.
7 World Bank report number 101431
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The World Bank BR Manaus Service Delivery and Fiscal Management DPL (P153203)
Table 2. List of Key Indicators Indicator 1: Number of registered properties in the Property Tax Cadaster Indicator 2: Average execution time of electronic bidding processes for the purchase of goods and services Indicator 3: Percentage of bidding results published in the Manaus Compras open access website Indicator 4: Average reduction of unit price of supplies and contracted services Indicator 5: Number of nonconformities Indicator 6: Acquisition and maintenance of the Pension Conformity Certificate (Certificado de Regularidade Previdenciaria), without resorting to judicial measures Indicator 7: Municipal tax rate compliance Indicator 8: Number of schools that achieved at least 19 out of 24 GIDE targets Indicator 9: Number of schools with certified directors Indicator 10: Number of schools complying 100% with the Minimum Standard Framework Indicator 11: Number of street vendors accredited as individual micro entrepreneurs (MEI) and relocated to shopping facilities Indicator 12: Monthly percentage of bus trips completed Indicator 13: Number of licenses for moto-taxis issued
1.3 Revised PDO and Key Indicators, and Reasons/Justification
Not applicable.
1.4 Original Policy Areas Supported by the Program (as approved)
17. The operation had two main pillars: Strengthened Public Sector and Fiscal Management and Enhanced Management and Quality of the Education and Transport Sectors.
Pillar I: Strengthened Public Sector and Fiscal Management
18. This pillar included the following policy areas: tax administration, procurement, pensions, payroll, and introduction of results-based management. The main reforms of these policy areas aimed to control expenditures; improve efficiency, savings, and transparency in procurement procedures; and increase tax collection. Actions to increase tax collection included updating the taxpayers’ property tax cadaster and enhanced direct communication with taxpayers. The Municipality also embarked on a reform of its public procurement system, which encompassed an overhaul of the processes and procedures to plan and manage procurement, including the introduction of electronic bidding, framework agreements, centralization of processes, and publishing all contract awards. Actions aimed at improving the governance and transparency of Manaus’ pension system were also put in place and included decreasing the exposure to high-risk assets and receiving the Pension Conformity Certificate. SEMEF also prioritized the introduction of new management tools in public administration to improve efficiency. The MM substantially improved its public sector and fiscal management and was recognized with numerous prizes: first place in fiscal management among Brazil’s capitals, first place in the ranking of the Federal Accounting Council, and first place in pension management among Brazil’s capitals.8
8 For more information about the different prizes see: Pensions (http://www.aneprem.org.br/ and http://bncamazonas.com.br/poder/boa-gestao-previdenciaria-da-a-manaus-premio-de-melhor-do-pais/ ); Education
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Pillar II: Enhanced Management and Quality of the Education and Transport Sectors
19. This pillar included policies to improve management and quality of urban mobility and education. In the education sector, the Secretary of Education (Secretaria Municipal de Educação e Cultura, SEMED) implemented a new Integrated School Management Model (Gestão Integrada da Escola, GIDE) based on the method of Management for Results. The Municipality also strengthened school management through an accreditation process of teachers as potential school directors and a new merit-based selection of school directors, as well as defining clear and objective rules for the allocation of school staff to support the continuity of pedagogical programs. This policy area also sought to support street vendors in the city center through accrediting them as microentrepreneurs and relocating them to shopping galleries. Under this policy area, the Municipality also aimed to increase service compliance and control of bus concessions, as well as informal moto-taxi services.
1.4 Original Policy Areas Supported by the Program (as approved)
Not applicable.
1.5 Revised Policy Areas (if applicable)
Not applicable.
1.6 Other Significant Changes (in design, scope and scale, implementation arrangements and schedule, and funding allocations)
Not applicable.
2. KEY FACTORS AFFECTING IMPLEMENTATION AND OUTCOMES
2.1 Program Performance
20. The Board of Executive Directors approved the single-tranche, stand-alone operation on December 3, 2015. All conditions in the Loan Agreement were met and, after a long approval process within the Brazilian Senate, the loan was disbursed in two payments on June 29 and September 2, 2016.9 At the time of writing this report, six results indicators were fully achieved or surpassed, six were partially achieved and one has not been achieved (tax compliance rates). However, SEMEF is still working to achieve all of its intended targets; all policy areas and indicators in this operation remain strategic priorities in their 2018 Strategic Plan.
21. As this report will show, particularly section 3.2 and annex 2, the overall results achieved by the Municipality are overwhelmingly positive in key areas: fiscal management, pensions, procurement, education, and urban regeneration. These results have also been recognized throughout Brazil. For example, in 2017, Manaus was considered the capital with the best fiscal management and 33rd among
(http://dados.gov.br/dataset/ideb-por-municipios and http://www.educacao.am.gov.br/wp-content/uploads/2013/01/RESUMO- DOS-IDEB-2015.pdf); Fiscal Management (http://www.firjan.com.br/ifgf/). 9 According to the Brazilian Fiscal Responsibility Law, states and municipalities must comply with expenditures and debt limits. The borrower requested in withdrawal application No. 1 the maximum authorized amount to be within the debt limit and the remaining amount was claimed in withdrawal application No. 2.
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more than 5,500 municipalities by the Rio de Janeiro’s Industry Federation (Federação das Indústrias do Estado do Rio de Janeiro, FIRJAN) Index.10 That same year, the Municipality ranked 4th place in the country in the award for best practices on pension and ranked 1st place in adhering to the Brazilian accounting norms and the Accounting Manual in the public sector. The economic recession that affected Brazil significantly affected Manaus’ revenues; however, the Municipality remains compliant with all the Fiscal Responsibility Law parameters—almost 40 percent of municipalities in Brazil do not comply. Moreover, the Federal Government recently published the CAPAG methodology, which assesses subnational entities debt repayment capacity. Manaus received the highest rating, which indicates a comfortable fiscal performance and qualifies the Municipality for federal guarantee on new debts. The Municipality has a moderate level of debt (41.8 percent of NCRs) and reports a current savings ratio of 10.2 percent for 2016. Finally, in terms of educational performance, Manaus moved from 18th to 11th place in the IDEB11 among 27 capitals in two years, an improvement not seen in the country before.
Expected Tranche # Amount Actual Release Date Release Release Date June 27, 2016 (US$375,000 front-end-fee) Tranche 1 US$150 million June 27, 2016 June 29, 2016 (US$139,710,000) Regular September 2, 2016 (US$9,915,000)
Status as of Prior Actions Effectiveness Pillar I. Strengthened Public Sector and Fiscal Management Prior Action #1: The Secretariat of Finance has adopted a management model following the PDCA Met methodology, an integrated electronic document management system and monitored the achievement of selected indicators. Prior Action #2: The Municipality has implemented an integrated supply management system and processes for procuring goods and services, including electronic bidding and inspection Met of goods delivery, and adopted the legal framework for binding selected vendors registering prices for the provision of services and goods through the signing of Ata de Registro de Preços. Prior Action #3: The Municipality has adopted the legal framework for auditing its payroll system and Met carried out a payroll audit in all of its secretariats. Prior Action #4: Met
10 FIRJAN developed that Fiscal Management Index (Indice FIRJAN gestão fiscal, IFGF). Manaus was 14th place in the IFGF in 2014. The IFGF has four different rankings: Concept A to D, where A is Excellent, B is Good, C is Difficult, and D is Critical Management. The concept given to each entity is composed by five indicators: own revenue, staff cost, investments, liquidity, and cost of debt. Manaus was evaluated with Concept B in the General IFGF, obtaining an A in own revenues owing to the effort to raise tax collection. Moreover, it also reached a maximum score in investments for investing more than 20 percent of its budget, a direct result of the US$150 million Manaus Service Delivery and Fiscal Management DPL. The Municipality kept B ratings under cost of debt and staff cost and got a C rating for liquidity. See: http://www.firjan.com.br/ifdm/ 11 The IDEB is an indicator created by the Federal Government in 2007 to measure the quality of teaching in public schools. It is calculated with the data on school approval obtained in the School Census and the means of performance in the evaluations of Prova Brasil for the municipalities. It is measured every two years and presented on a scale ranging from 0 to 10. The goal is to achieve a grade of 6, equivalent to that of the Organisation for Economic Co-operation and Development (OECD) countries, (see: http://portal.inep.gov.br/ideb).
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The Municipality has established Manaus Previdência which includes the establishment of clear and accountable rules for investing its resources. Prior Action #5: The Municipality has adopted administrative procedures to enable taxpayers to pay Met their respective tax arrears in instalments and established a system of communicating with taxpayers in arrears through various channels. Pillar II. Enhanced Management and Quality of the Education and Transport Sectors Prior Action# 6: The Municipality, through the Education Secretariat (SEMED), has implemented an Met integrated school management model, including the establishment of school-level targets and pedagogical planning). Prior Action# 7: Met. The Decree 3.022 The Municipality, through the Education Secretariat (SEMED), has implemented a of March 5, 2015, was certification program on school management skills for school directors and adopted a substituted by Decree meritocratic selection process for school directors. 3.718 on June 13, 2017. See explanation below Prior Action #8: The Municipality, through the Education Secretariat (SEMED), has established the Met procedures and criteria for appointment and relocation of public servants serving SEMED. Prior Action #9: The Municipality has adopted an integrated urban regeneration policy for the city center, Met including licensing, retraining and relocating street vendors to selected venues. Prior Action #10: The Municipality has adopted processes for managing the concession of bus services in the Met Municipality’s territory (including real-time tracking and control of the bus fleet) and policies to license selected public transport in selected areas of the Municipality’s territory. Note: PDCA = Plan, Do, Check, and Act.
22. Note on Prior Action #7. Decree 3.022 published on March 5, 2015, which created the Municipal Certification Program and a Database of School Directors (Programa Municipal de Certificação e Composição de Banco de Diretores para Unidades de Ensino da Rede Pública Municipal de Manaus, PROCERT) was substituted by a new decree, which created a new program (Programa de Seleção, Formação e Certificação de Diretores Escolares da Rede Pública Municipal de Ensino, PROGEM) on June 13, 2017, through Decree 3.718. The main difference between the two certification programs is that the 2015 Decree established that school directors and teachers would be tested and certified and a selection process for school directors would follow. The Government faced resistance from school directors because most of them perceived the risk of losing their positions. The Government adapted to the constraints and with the aim of not derailing and continuing the overhaul of the educational reform (see section 3.2) enacted a new program (PROGEM). Through the new program, school directors received management training and obtained a certification, while teachers were placed in a pool of certified candidates for the next elections for school directors. The change reflects the ability of the Government of Manaus to adapt to circumstances without losing sight of the original development objective. The educational reforms proceeded, with the Municipality achieving substantial results in terms of increased proficiency of students in Portuguese and mathematics as measured by the IDEB, among others that are further explained in this report.
2.2 Major Factors Affecting Implementation
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Economic Crisis
23. The deterioration in both the external environment and domestic policies resulted in a deep- protracted crisis starting in 2014, and the country underwent the greatest recession in decades in 2015– 2016. The recession of 2015–2016 was deepened by the impact of a difficult political environment and an unfavorable external environment. Because of the crisis, there was a considerable decrease in revenue and therefore expenditures had to be adjusted. The effects of the economic downturn had a negative impact on the implementation of certain policies, particularly the one related to tax administration (Municipal Tax Rate Compliance - Indicator 7). Specifically, the crisis led to a 10 percent nominal loss of the MM’s most important tax, the ISS, between 2014 and 2016.
Government Commitment and Leadership
24. The success of the Development Policy Operation (DPO) in supporting reforms was rooted in the strong commitment and ownership of the MM, and particularly SEMEF. SEMEF was responsible for the operation, provided strong leadership, and a technically competent team. Despite the challenges that resulted from the economic crisis, the MM took the necessary actions to achieve the PDO.
Change Management Reforms
25. The leadership of the Secretary of Finance implemented and embedded a new management model. SEMEF appointed an undersecretary for Management for Results who developed action plans, activities, and goals, and provided managerial trainings to staff. These plans include revenue increasing and expenditure reduction targets and weekly monitoring of indicators. They indicate the person responsible for each activity and when the activity is to be finalized. The action plans include, for example, measures to institutionalize transparent and efficient processes for the procurement of goods and services and to control personnel expenditures. The success of the management reforms was partly the result of the selection of the consultants that helped implement the new system because it requires specific expertise that might not be easily found. Furthermore, different from other subnational governments in Brazil that have implemented similar management reforms, Manaus did it gradually and in a low-profile manner, focusing first only in SEMEF. Moreover, SEMEF revamped the use of technology to modernize and improve service delivery. The change management reform, however, was also undertaken in the education system, where results management at the school level was implemented with success, as the following sections further explain. More details about the management reforms implemented by Manaus are available in annex IV.
Partnership with the Government of the State of Amazonas and Other Governments
26. The procurement and contract management reforms in Manaus are partly the result of a partnership with the state government and linked to the World Bank’s loan, the Modernizing Public Sector Management, Citizen Security, and Gender Policies DPL (P147979). The partnership entailed the transfer of knowledge and systems to Manaus, where public officials benefitted from the state’s recent reforms. Throughout the reform process, government officials were particularly proactive in learning from what other successful governments were doing in specific areas, and established partnerships (for example, with the Municipality of Pelotas on Human Resources), demonstrating a pragmatic and results-oriented approach to all the reforms.
2.3 Monitoring and Evaluation (M&E) Design, Implementation, and Utilization
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M&E Rating: Substantial
27. Design. The design of the operation’s Results Framework was ambitious for certain target values. This, however, was by design and upon the explicit request of the Government of Manaus officials to create an external commitment device and implement sensitive reforms, especially on the area of procurement. The intent was to establish implicit performance incentives, namely reputation effects that could generate external pressure for reform and motivation for public servants.
28. Implementation. The progress of the operation was monitored through results indicators linked to each of the prior actions and according to the Results Framework. SEMEF—responsible for the data collection and consolidation of information—and the World Bank were constantly in contact throughout the implementation period and a virtual supervision mission was conducted in October 2016. SEMEF requested the World Bank’s assistance in understanding the causes of low IPTU compliance rates, and with that purpose signed a data sharing agreement with the World Bank, and a team of researchers is currently working on the analysis of property tax compliance. During the supervision period, the World Bank and MM teams developed a successful proposal for the Smart City Trust Fund (Spain). The Municipality also contributed and provided information for the World Bank’s Global Report on Public Sector Performance, as a success case of public sector management reforms (see annex IV).
29. Utilization. The change management reforms incorporated into the operation strengthened the state’s M&E systems and yielded notable legacies, particularly at SEMEF and SEMED. SEMEF adopted a management model following the PDCA methodology, an integrated electronic document management system and monitored the achievement of selected indicators. Furthermore, SEMED incorporated GIDE’s methodology, which is based on the method of Management for Results. SEMED and regional directors were trained on how to use an online monitoring system that has clear targets for schools, and on how to find solutions when challenges are identified. Two pedagogical activities were redesigned: (a) the bimonthly student assessments (Avaliação de Desempenho Individual) and (b) the definition of the core curriculum for the elementary school, which is reviewed every two months. Management contracts have also been signed by the school directors with SEMED to increase monitoring and accountability. Finally, the Municipality has adopted processes for better monitoring the city’s transportation and has included a real-time tracking and control of its bus fleet.
2.4 Expected Next Phase/Follow-up Operation (if any)
30. The World Bank’s Social, Urban, Rural, and Resilience Global Practice is in the pre-identification phase of a project aimed at enhancing urban resilience in Manaus through integrated urbanization with higher-density and lower-disaster risk. Furthermore, the Municipality is currently collaborating with the World Bank in fiscal intelligence efforts to raise IPTU compliance rates using Big Data.
3. ASSESSMENT OF OUTCOMES
3.1 Relevance of Objectives, Design, and Implementation (to current country and global priorities, and Bank assistance strategy)
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Relevance of Objectives: High Relevance of Design and Implementation: Substantial
31. The objectives of the operation continue to be highly relevant. The Government of Manaus’ program is established in its Multiyear Plan (Plano Plurianual, PPA), and the new PPA 2018–2021 continues to reflect the strategic alignment of state and municipal priorities in terms of programs that seek to modernize municipal capacity, improve service delivery, and reduce inequality, as was the case with PPA 2014–2017. The new PPA is divided into seven different thematic objectives: (i) Health; (ii) Basic education; (iii) Social development; (iv) Economic development; (v) Environment; (vi) Infrastructure and mobility; and (vii) Public sector management efficiency. The operation continues to be directly linked with the PPA, particularly objectives ii, iii, vi, and vii. Moreover, policy reforms were discussed within Municipal Councils and responded to feedback provided by Manaus’ citizens.
32. The objectives of the operation also continue to be highly relevant for the World Bank assistance strategy. The World Bank’s Systematic Country Diagnostic 2016 highlights the importance of fiscal management and procurement as fundamental areas for improvement, as well as education and infrastructure critical obstacles for the country’s development. Furthermore, a critical focus area of the new Country Partnership Framework FY18–FY23 includes (a) strengthening fiscal management at all levels of government, (b) increasing fiscal sustainability and fairness of pension system, and (c) increasing effectiveness of service delivery in education. All these issues were directly addressed by the operation. The design of the operation was appropriate in addressing the Municipality’s challenges and priorities,
3.2 Achievement of Program Development Objectives (including brief discussion of causal linkages between policy actions supported by operations and outcomes)
33. As approved, the PDO was to assist the MM in improving the management of its finances as well as its education and transport sectors, through upgraded revenue and expenditure processes, meritocratic and results-oriented management of schools, and improved control of bus concessions.
Pillar I: Strengthened Public Sector and Fiscal Management
34. The main objective of this first pillar was to improve public and fiscal management in the Municipality, starting with SEMEF. The main reforms aimed to control expenditures, improve efficiency, savings and transparency in procurement procedures, increase tax collection, and regularize the municipalities’ pension scheme. The economic recession that affected Brazil had an impact on Manaus’ revenues significantly; however, the Municipality remains compliant with all the Fiscal Responsibility Law indicators—almost 40 percent of municipalities in Brazil do not comply. Moreover, the Federal Government recently published the CAPAG methodology, which assesses subnational entities debt repayment capacity. Manaus received the highest rating, which indicates a strong fiscal performance and qualifies the Municipality for federal guarantee on new debts. The Municipality has a moderate level of debt (41.8 percent of NCRs) and reports a current savings ratio of 10.2 percent for 2016.
35. As part of the operation, the MM implemented several actions to strengthen tax collection and curb expenditure growth. Some of those measures were contemplated in the DPL Results Framework, yet the actual scope of such actions was broader. On the revenues side, the Municipality improved IPTU collection; it also implemented the ITBI online (tax on transfer of properties); created a web portal (SIGED) and a call center to offer SEMEF’s services online; and cross-referenced its own databases with those of
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credit card providers and the Federal Revenue Office to expand the base of the ISS (tax on services) collection. SEMEF also created a public-private sector council that meets weekly to discuss issues that could improve the business environment of the MM. On the expenditure side, the Municipality reduced the number of municipal agencies from 32 in 2012 to 24 in 2013; cut expenses with official vehicles by reducing the fleet; managed to reduce total contract costs, which, according to SEMEF, remain below 2012 figures until today; reduced the number of commissioned positions; separated its pension system by creating a complementary fund for staff joining later than 2013; went through a re-registering process of social programs to make sure beneficiaries complied with binding conditions; and created the Central Procurement Administration Unit (Unidade Gestora de Compras Municipais, UGC) to centralize procurement of goods and services. In sum, the Municipality made substantial reforms in a particularly unfavorable economic context. More illustrative of the scope and magnitude of the reforms carried out by Manaus is the recognition given by the renowned FIRJAN Fiscal Management Index (Indice FIRJAN gestão fiscal, IFGF). It ranked the city 1st place among capitals and 33rd among all Brazilian municipalities in 2017, a significant improvement compared to its 2013 standing of 14th place among state capitals and 1,200th among all municipalities.
Policy Area I: Improved Management of SEMEF
36. The operation supported the implementation of a new management model at SEMEF. Before the DPL, SEMEF had not adopted digital technologies for its day-to-day operations and interactions with citizens. As part of actions to improve management, SEMEF revamped the use of technology to modernize and streamline processes. Among others, the municipality upgraded the information technology used for procurement and tax collection. In addition, SEMEF hired a team of consultants to provide trainings and instill a new results-based culture within the Secretariat. Every staff member was trained in PDCA methodology—a management tool used to ensure follow-through on goals and for continuous improvement of business processes and, with the aim of embedding the practice, SEMEF formed a new subsecretary in charge of implementing this results-based methodology.
37. Additionally, SEMEF adopted an integrated electronic document management system and monitored the achievement of selected indicators. Incentives were also set in place to motivate employees; the main goal was to increase the city’s revenue by 10 percent and this led to a revision of every process within SEMEF to find ways to achieve the goal. This led to the development of over 30 indicators and detailed plans for each worker that outlined how they would achieve their monthly targets. Each plan followed a standard template devised by the subsecretary that detailed what would be achieved, why it was important, how it would be achieved, who was responsible, and when it would be achieved. Because of the improved management of SEMEF, every worker has individual performance agreements and a process through which these are monitored, as well as a weekly meeting in which obstacles can be discussed with a broader group with the aim of finding solutions. The management reform at SEMEF was critical for the positive results of the operation.
Policy Area II: Procurement
38. The operation supported improvements in procurement by aiming to decrease the average execution time of electronic bidding processes for the purchase of goods and services, improve transparency by publishing bidding results online, and reduce unit price of supplies and contracted services. The expected result is faster, more transparent, and economical procurement and data collection to inform procurement strategy and policy.
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39. The MM embarked on a major reform of its public procurement system, which encompassed a complete overhaul of the processes and procedures to plan and implement procurement, manage and monitor contract implementation, and inspect the delivery of goods and services to beneficiaries. The reform initiated in March 2014 and benefited from strong cooperation with the Government of the State of Amazonas, which had undergone a similar reform as part of a World Bank operation. The MM started an institutional reform to improve procurement and centralize processes for more efficiency and reducing costs; as part of the overhaul, it created the UGC whose functions were based at Secretariat of Administration (Secretaria de Administração) and are now at SEMEF. The UGC started operations in 2015 and has performed 111 reverse auctions since then. An important step in the reform is that the UGC has already incorporated all Municipal Secretariats into its system. The procurement reform has become fully operational and examples of the improvement is that because of the new legal framework of price registration, the Government made significant achievements: 100 percent of bidding results is published in the Manaus Compras open access website above the project’s target of 90 percent, execution time for bidding processes for goods and services was reduced by more than half and auctions are starting to be conducted electronically, and average reduction in the unit price of goods and services was recorded for 9 items at about 24 percent.
Policy Area III: Payroll
40. The operation supported improvements in the payroll system through the identification of nonconformities on personnel expenses with the expected result of promoting regularity and conformity of such expenses. The MM embarked on a process of auditing administrative acts to identify recurrent nonconformities in the Municipality's payroll. The objective is to strengthen the management of the wage bill to improve the existing control mechanisms, and exclude the improper payments. The exercise required merging numerous and complex datasets to identify 28 different ‘tracks’ of payroll nonconformities by the Secretariat; something that, given its complexity, is only done in the Federal Government to audit the wage bill. The MM has taken a positive step in establishing a system to identify nonconformities systematically and has in-house personnel who can do the analysis, something that no other subnational government in Brazil has achieved. The MM developed a technical note, algorithms, and procedures which now serve as the main guidance to identify nonconformities across the Municipality’s Government. The unit responsible for the audit Subsecretary for Internal Control (Subsecretaria de Controle Interno) sends its findings to every Secretariat, which is responsible for follow- up; however, not all Secretariats follow up on the recommendations and while the Subsecretaria de Controle Interno plays a critical role in identifying nonconformities, it does not have enough leverage to hold other Secretariats accountable.
41. One example of a resolved nonconformity in payroll was the elimination of transport vouchers to staff above 60 years, given that public transport is free for that segment of the population. That correction affected 985 staff and generated annual savings of R$1.4 million. Another correction example is that 5,185 temporary staff were contributing to the ManausPrev (Manaus‘ pension system) when they should be contributing to the INSS (the public pension). One example of nonconformity that was detected but not solved is the payment of extra work hours beyond the legal ceiling of 90 hours per month to staff responsible for cleaning the streets. In this case, the Secretariat for Urban Cleaning requested an exception to SEMEF, given the low wage bill of this group. Because of this effort there was a reduction of around 9,000 nonconformities in the payroll from 2014 to 2016. While significant, this number is short of the target reduction of 53,200 nonconformities that the city expected to eliminate, a target that was too ambitious given that it requires significant interagency coordination. An additional 10,000
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nonconformities are currently under revision and expected to be solved in 2018, such as ‘track 21’ with 5,246 temporary staff who cannot be discharged because of a judicial rule and who will leave their posts on November 21, 2018.
Policy Area VI: Pension System
42. The operation supported the attainment and maintenance of the Pension Conformity Certificate (Certificado de Regularidade Previdenciária),12 without resorting to judicial measures to improve the governance of Manaus’ retirement system. The MM was granted its Pension Conformity Certificate for the first time in 2014 and has since managed to renew it semiannually without resorting to judicial measures. Manaus Previdência (Pensions) took several measures to strengthen its capacity to manage the municipality’s pension system. They did strategic planning, obtained the ISO 9001.2008 certification, and launched the Transparency web page within the Manaus Previdência Portal, all in 2016. In addition, Manaus Previdência created a specialized public career (carreira previdenciária) to form qualified cadres, conducted annual training for staff, organized public hearings, and conducted a census of pensioners every five years (last one was in 2016). Finally, they created the Segregação de massas, an individual complementary pension scheme instituted with the objective of improving sustainability of the system.
43. There have been important results for Manaus Previdência since the current administration took over and which go beyond the results indicator. Manaus Previdência received the first place in the award for best practices on pension management granted by the National Association for State and Municipal Pension Managers. It was also the first subnational entity to institute a monthly follow-up of actuarial equilibrium performed by its own staff. Currently, Manaus Previdência manages R$904.5 million in assets, a 94.26 percent growth since 2014. It also managed to decrease the exposure to high-risk assets from 52 percent to 13.7 percent of its total assets and eliminated 3 of 17 high-risk investment funds, recovering R$54.2 million of R$57 million allocated to those funds. The amount recovered was invested on low-risk fixed-income funds. Undoubtedly, governance of the Manaus pension system has improved beyond expectations. The actions and results from Manaus Previdência to improve financial management went far beyond the indicator—which was achieved—and can shed light on how other subnational governments could manage their pensions given that it is widely acknowledged that reform is a necessity to regain the financial sustainability. To date, only 1,667 municipalities in Brazil obtained the Pension Conformity Certificate, out of 5,565 municipalities.
Policy Area V: Tax Administration
44. The operation supported improvements in tax administration by increasing the number of correct registries in the Property Tax Cadaster, its revenue from IPTU, as well as the administrative procedures and communication with taxpayers to enable to pay their respective tax arrears in installments. One of the expected outcomes of the Results-Based Fiscal Management Framework was to boost revenue collection. In 2014, tax revenues amounted to R$900 million and represented 22.4 percent of the Municipality’s current revenues, with the IPTU collecting around R$127million. The ISS (tax on services), its most important tax, collected R$575 million. The country’s economic crisis led to a 10 percent nominal loss on ISS tax collection between 2014 and 2016. Still, Manaus managed to sustain the level of tax revenues, at least in nominal terms, at R$922 million. Measures implemented to boost IPTU collection
12 The Certificado ascertains compliance with the criteria and requirements established in Law No. 9,717 of November 27, 1998. It certifies that the federal entity follows rules of good management, to ensure the payment of social security benefits to its insured.
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were essential to achieve this result. Revenues from the IPTU increased from R$128 million in 2013 to R$189.5 million in 2016, which compensated for the ISS loss. Tax revenues closed 2016 at 22.3 percent of current revenues, stable in relation to 2014 and despite the economic crisis.
45. The Municipality implemented measures to improve IPTU collection by increasing the number of taxpayers’ cadaster with complete information (‘clean’). In 2013, the Property Tax Cadaster had 215,000 ‘clean’ properties. This number increased to 365,585 by January 2018 (the total number of registered properties is 560,000). The observed improvement in the IPTU cadaster was a direct result of internal efforts to clean it up and complete missing data. The number of incomplete registries (missing the owner’s ID number, the CPF/CNPJ) was reduced from 60.64 percent of all registries in 2013, to 35 percent in 2016. SEMEF used information from several sources, cross-validating with different databases (for example, Federal Revenues Office, State Secretariat of Finance, Energy and Water Utility Companies, and so on) to identify property owners. While the approach has been fruitful, there are decreasing returns to it as those datasets have been searched to exhaustion. Moreover, one of the challenges in updating Manaus’ cadaster is the level of informality in the city; until recently two-third of the city were informal properties hence the identification of owners must be done in loco. For that purpose, the municipality decided to hire a firm to re-cadaster the remaining 35 percent of registries that are incomplete, starting in September 2018. Obtaining complete data on properties and owners is crucial to improve enforcement. The Municipality needs the owner’s ID (CPF for individuals or CNPJ for firms) to include the taxpayer in the list of active debtors. Part of the current challenge is that while a property has been identified, it has not been possible to identify its owner. The full ‘clean-up’ of the cadaster is expected to be complete within two years. After the cadaster is complete, SEMEF plans to reevaluate its tax sectors divisions and land values, which date from 1975; simplify the tax formula, and develop an application to make cadaster updates, map visualizations, and payment easier for taxpayers.
46. With the cadaster update and implementation of measures to facilitate communication with taxpayers, IPTU tax collection increased to R$184 million in 2016, a 44.9 percent nominal growth rate in two years (inflation increased by 17.5 percent in the same period). The result is substantial, especially considering the strong deterioration in economic activity in these two years. As mentioned above, during the same period, the collection of ISS tax fell by 10 percent in nominal terms. Transfers also suffered a major hit, with ICMS transfers from the state government dropping by 9.2 percent. This lower collection on the ISS tax and ICMS transfers (VAT) are expected consequences of prolonged economic crisis. There is still room to increase IPTU revenues through improvements in the cadaster and by adjusting parameters of property value to approach more up-to-date market value. Another measure implemented by the MM is the use of advanced imaging through aerial photography and digital mapping of the city with the aim of better assessing changes in property size and identifying unregistered properties.
47. The MM also implemented several initiatives to increase municipal tax compliance rates by reaching out to taxpayers. In 2016, a total of 47,286 IPTU taxpayers with delayed payments were contacted by e-mail (potential tax collection of R$ 25.5 million). Another 3,000 IPTU debtors and 1,300 ISS debtors were contacted by phone (potential tax collection of R$8.5 million and R$1.6 million for the IPTU and ISS, respectively). The Municipality also sent over 400,000 letters to tax debtors (360,000 for the IPTU, 43,000 for licenses, and 4,300 for ISS on self-employed professionals). Those numbers indicate an important effort to recover tax arrears. Despite all the efforts, the target value was not achieved partly because of the prolonged economic crisis (affecting mainly the ISS collection), and 2016-specific factors
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that affected IPTU collection.13 In 2017, IPTU compliance remained at 50 percent. A team of researchers is working with the World Bank, according to Manaus’ request, to analyze delinquency rates—preliminary findings were presented to the municipality in June 2018—and will inform policy reform going forward. Delinquency from properties for which the MM does not have the clean cadaster is around 90 percent. In turn, delinquency is around 30 percent among the properties for which they have all the data. Although still high, the 30 percent delinquency rate is similar to other municipalities in Brazil and indicates that compliance can substantially increase once the property cadaster has complete data on all properties.
Pillar II: Enhance Management and Quality of the Education and Transport Sectors
48. Pillar II aimed at improving the quality of the municipal education system and urban mobility through enhanced management practices.
49. The MM embarked on an effort to improve primary education because it had been ranked among the worst performers nationally and had high rates of repetition and dropouts. As part of the operation, the MM implemented GIDE—an integrated management model–which has had good results in other states such as Minas Gerais, Pernambuco, and Rio de Janeiro, among others. GIDE is based on innovative management methodologies that enable SEMED to identify specific issues in every school, assess the problem, and design tailored solutions. As part of GIDE, management contracts are signed by school directors and SEMED to increase accountability and sets monetary incentives that will be awarded should specific objectives be attained. In addition to these measures, the MM also aimed to improve school management through an accreditation process for teachers who aspire to become school directors, as well as by establishing a minimum standard for schools. The positive results of the MM’s effort to revamp and improve its primary school system are significant and go beyond the results indicators in that they embedded a new management approach in primary schools and the Secretariat which is reflected in the substantial improvements in the Municipality’s ranking—in 2013 Manaus was ranked 18th among State capitals in the IDEB and then moved to 11th place by 2015, being the capital that improved the most. The IDEB results were, according to the Federal MEC, only expected to happen by 2019, yet they now surpass the national average. This is particularly remarkable given the economic crisis and the size of the school system—Manaus has the third largest municipal school system in Brazil after Rio de Janeiro and Sao Paulo.
50. The Municipality invested heavily in improving Manaus’ city center with the aim of creating a business-friendly environment, formalizing street vendors into microentrepreneurs and preserving historical and cultural landmarks. It focused on recovering degraded public areas and supporting street vendors by accrediting them as microentrepreneurs and transferring them to formal commercial areas.14 Additionally, the MM implemented measures to improve bus flow, reduce travel time, and decrease average bus occupancy to address overcrowding. Infrastructure interventions include the construction of integrated terminals connecting low-capacity bus lines with higher capacity bus rapid transit (BRT) lines operating along the north-south and east-west corridors. The MM also upgraded traffic lights' coordination and interaction with the bus system operation to prioritize bus movement around the city.
13 In March 2013, a judge forbade the IPTU collection based on arguments that the proposed tax rate increase was too high. The city agreed to collect the increase in installments over the next 5 years. The higher IPTU bill in 2016 encouraged taxpayers not to pay property taxes that year. Compliance rates returned to normal levels in 2017. 14 The expansion of street vendors in the city center affected urban mobility as it prevented pedestrian circulation and harmed retail shops.
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Policy Area IV: Education
51. The MM made substantial improvements in the education sector by improving school management capacity, school directors’ management skills, and allocation of SEMED’s public servants through the observation of the minimum standard framework. Reforms undertaken by the MM in the education sector have been highlighted as a success story in national media (for example, Exame, No 18, 2016). The MM implemented GIDE that helps identify specific issues in every school, assess the problem, and come up with a potential solution. The most impressive result of this management reform was the improvement in the IDEB (which measures student’s proficiency in Portuguese and mathematics every two years), moving from 18th to 11th place in a particularly short period.15 The reforms included setting incentives for teachers and school directors that are constantly monitored; nowadays every school monitors common indicators, and over 17,000 public servants in the education sector have clear targets. According to SEMED, because of GIDE, the management skills of the Secretariat as well as the schools have improved. The reform also involved parents and in two years the percentage of parents that attend school meetings went from 29 percent to 92 percent. In addition to the enhancements in school management, SEMED embarked on an important effort to cut expenditures, which saved the MM approximately R$100 million in a space of two years. Among the measures were reducing the car fleet to half and centrally procuring school meals. The results are particularly positive if it is considered that because of rapid urbanization, the MM had to expand its network of primary schools by 92, or 23 percent, in less than 3 years. Moreover, 83 percent of the schools in the Municipality are in an area where there is drug trafficking and homicides making the improvement of the IDEB index more impressive.
52. At the time of writing this report, 52 percent of 278 schools achieved 19 of the 24 GIDE indicators. GIDE monitors 24 variables: environment-related variables such as prevention of drug use and early pregnancies; pedagogical variables such as fulfilment of the calendar year, parents’ participation in school meetings, teachers,’ and students’ presence and others; and result indicators such as drop-out rates and proficiency. As of 2018, 73 percent of schools in Manaus have an aggregated index of those indicators of 0.8 or above (from 0 to 1, 0 being poor performance, and 1 being excellent), with different weights given to these 3 dimensions. In 2013, only 11 percent of schools were in range of 0.8 or above.
53. A second indicator related to improving school directors’ management skills was overachieved after a new decree on certification of school directors was issued in 2017. All 490 school directors (against a target of 150) in the Municipality have received training and are now certified. Finally, the third indicator was overachieved with 161 schools (against a target of 150) applying a revised standard minimum framework that will become legally binding in June 2018. It is noted that the original minimum standard framework turned out to be unattainable as it included, among other measures, that every school needed to have a dentist. In this regard, the MM recognized that such a standard framework was unrealistic and it redefined it.
Policy Area V: Urban Mobility
54. The operation supported reforms in the transport sector as well as renovation of the city center. The expected results are the upgrading of Manaus’ city center and increased service compliance and control of bus concessions and moto-taxi services. The achievements of the MM in rejuvenating its city center have been significant given the difficulty that governments across the world have in dealing with
15 Manaus was ranked number 21 in IDEB 2009.
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informal services (for example, moto-taxis and street vendors). Street vendors were taken off the streets of Manaus’ city center and relocated to temporary spaces, while at the same time, empty historical buildings were identified and refurbished as shopping malls to host the vendors. With the aim of generating pedestrian traffic, public service outlets were also relocated to these shopping malls. While these buildings were being renovated, street vendors underwent training on entrepreneurship and literacy programs and were registered under the category of individual micro entrepreneurs (Micro Empreendedor Individual, MEI). The Municipality also extended loans on preferential terms to vendors. The process of relocation was a voluntary one, following extensive consultations with all those involved. A total of 688 street vendors were relocated and registered as MEI, while an additional 850 have been permanently relocated but not registered. In total, the MM served 1,509 street vendors in terms of capacity building, certifications, financing, and relocation though an ambitious schedule for refurbishing the shopping malls and delays in construction affected the pace of the project. The incentives for formalization were greatly reduced with the economic crisis and decreased sales, given that as a MEI, vendors pay taxes. The success of Manaus was partly the result of an adequate policy design and incentives, as well as a long and consistent engagement with the stakeholders.
55. There were important achievements in the transport sector. The MM created an integrated management system of bus services to monitor the implementation of contracted services, providing information for a clearing system16 (câmara de compensação tarifária), which balances costs of services rendered, revenues, and gratuities established by law. An agreement was reached with bus companies to implement a management facility, which now tracks bus services in real time and curbs delays and nonconformities. This central operational control facility oversees the services of 10 bus operators through an advanced computerized system. The traffic command and control center increases and improves the data as well as the interaction with individual buses, which will allow for better traffic coordination (for example, the MM now monitors the length, duration, and number of trips completed); nowadays 100 percent of bus trips are completed. Therefore, bus services have improved in terms of better routes and predictability for clients, as well as better control of routes by the MM. In addition, the MM made an important effort to formalize other public transport services, namely moto-taxis, with the aim of improving the safety of passengers and regulating the service. The MM regularized 2,957 moto- taxis which are now safer because of vehicle quality control and less pollutant (gas and noise) as a result of inspections. To date, 90 percent of the end-target value of the result indicator has been achieved. The Municipality is continuing with this effort. See annex 2 for additional results.
3.3 Efficiency
Not applicable.
3.4 Justification of Overall Outcome Rating (combining relevance, achievement of PDOs)
56. The overall outcome rating for the DPL is Satisfactory. The relevance of the DPL is rated as Substantial and efficacy as Substantial.
16 It involves the use of a clearing house which collects revenues, accounts, and compensates unbalanced performance among the bus operators. In Manaus, operators carry out contracted services at rates varying from 98.5 percent to 100 percent. Under that procedure, the underperforming companies must pay compensations corresponding to incomplete service to stimulate schedule compliance.
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57. The operation supported important reforms and is well aligned with the Government of Brazil, the Government of Manaus, and the World Bank’s priorities. Moreover, given the economic context in which the operation took place, the results achieved are particularly significant because they set the pillars for long-term improvements in the management of financial resources and service delivery in key sectors. The operation benefited from the leadership of an active and technically sound implementing agency. Despite some shortcomings in achieving some of the end-target values of the results indicators due to various factors not in the control of MM, the additional evidence on results achieved in all policy areas illustrates the success of the reforms supported as well as their positive and long-lasting impact.
Rating
Relevance Efficacy Design and Education and Urban Overall Outcome Objectives Fiscal Management Implementation Mobility High Substantial Substantial Substantial Satisfactory Substantial Substantial
3.5 Overarching Themes, Other Outcomes, and Impacts (a) Poverty Impacts, Gender Aspects, and Social Development
58. The operation’s Poverty and Social Impact Analysis showed that there can be positive distributional effects on poor and vulnerable groups because of the operation. For example, improved public management through a results-based approach may benefit society by increasing efficiency and the value-for-money of public services. Better delivery of public services, such as education and public transport supported under this operation, may have the most positive impact upon the poor, because they are the ones that rely on public services the most in the most diverse sectors to carry out their lives. Better quality of education provided by the municipal schools can also have a positive impact because most of the children enrolled come from low-income families. In the short and medium term, these poor children will benefit through better learning, access to knowledge, and enhanced endowments. In a society where school attainment has a huge influence on economic activity and earnings, these poor children will benefit in the medium and long term from more opportunities in the formal job market and get out of chronic poverty. Actions in the transport sector can also have important benefits because the users of public transportation are mostly low-income people. Positive impacts are expected because the policy contributes to reduce commuting time; improve coverage In underserved areas; and increase comfort, accessibility, affordability and road safety. Finally, the policies aimed at supporting street vendors will help them improve access to social protection and retirement policies, enhanced skills, and safer and healthier working places. Other stakeholders—formal shopkeepers and merchants and owners of premises located at the city center—will also benefit from this policy.
(b) Institutional Change/Strengthening (particularly with reference to impacts on longer-term capacity and institutional development)
59. Sections 2.2 and 3.2 have referred to the institutional changes that emerge from the DPL, most notably the management reforms in SEMEF and SEMED. The incorporation of results-based management in both Secretariats promises positive and long-lasting effects because these practices have been embedded in the day-to-day work and routines. Additionally, SEMEF bought an advanced data center to
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process and save all their data that also will allow for business intelligence analytics to be applied to underpin future evidence-based reform initiatives.
(c) Other Unintended Outcomes and Impacts (positive or negative, if any)
60. Manaus received important recognition because of the results achieved. In 2017, Manaus was considered the capital with the best fiscal management in Brazil and 33rd among more than 5,500 municipalities—it improved from 14th place among capitals and 1200th among municipalities in 2014. The Municipality won first place in the ranking of the Federal Accounting Council and its pension system ranked 1st in the 2017 award for best practices on pension management. In education, Manaus’ position in IDEB moved from 18th to 11th among Brazil’s capitals in two years (2013–2015), reaching the target established by the MEC four years before it was expected.
3.6 Summary of Findings of Beneficiary Survey and/or Stakeholder Workshops (optional for Core ICR, required for ILI, details in annexes)
Not applicable.
4. ASSESSMENT OF RISK TO DEVELOPMENT OUTCOME Rating: Low
61. Most of the policies and reforms implemented appear to be well established, in particular regarding financial management, pensions, tax administration, transport, and education reforms, which have gained increasing relevance in the current context of fiscal constraints. The reforms in these areas have been consolidated and the positive results so far provide additional evidence and incentives for their sustainability.
5. ASSESSMENT OF BANK AND BORROWER PERFORMANCE
5.1 Bank Performance
(a) Bank Performance in Ensuring Quality at Entry (i.e., performance through lending phase) Rating: Satisfactory
62. The World Bank prepared a solid operation partly due to the team’s composition and its extensive experience in Brazil. This allowed it to incorporate lessons from other operations in the country. The World Bank also worked closely with the MM during preparation to ensure strong alignment between the operation’s objectives and activities, which was critical for the overall success of the operation.
(b) Quality of Supervision (including of M&E arrangements) Rating: Satisfactory
63. SEMEF—responsible for the data collection and consolidation of information on the MM side— and the World Bank were constantly in contact throughout the supervision period to find solutions to issues that emerge and to support additional initiative to deepen reforms being pursued. Currently, the World Bank is assisting SEMEF in understanding the causes of low compliance of IPTU—the policy area in which SEMEF has encountered more challenges to implement. A data-sharing agreement was signed with the municipality and a team of researchers is currently working on an analysis of the determinants of low
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IPTU compliance rates. The World Bank team received an award from the Governance Global Practice in February 2018 to work on this topic with the Municipality, together with the World Bank Big Data team.
(c) Justification of Rating for Overall Bank Performance Rating: Satisfactory
64. Based on the World Bank performance with regard to both Quality at Entry and Quality of Supervision, the overall rating for World Bank performance is Satisfactory.
6.2 Borrower Performance
(a) Government Performance Rating: Satisfactory
65. The Government of the MM had clear ownership and commitment to the implementation of the reforms at the highest levels, as mentioned in the Key Factors Affecting Implementation and Outcomes and the Assessment of Outcomes sections. The design and implementation processes were smooth, partly given the strong technical capacities of the staff involved, especially in SEMEF and SEMED. The Government delivered on its commitments, and its performance stands out as explained in section 3.2, particularly given the difficult economic situation and other issues beyond MM’s control.
(b) Implementing Agency or Agencies Performance Rating: Satisfactory
66. The performance of SEMEF, implementing agency of Policy Areas on Tax Administration, Procurement, and Financial Management, was Satisfactory, as was that of Previdencia Manaus in charge of pension reforms. The rating reflects the strong performance and leadership, as well as capacity of SEMEF that enabled positive results and institutional changes. SEMEF participated actively in the preparation and implementation of the operation, coordinated actions with other implementing agencies, and reported on time to the World Bank on progress. The performance of SEMED in charge of the Education Policy Area was also Satisfactory given the efforts, and results achieved, from implementing a major overhaul of the primary education system. SEMED was able to handle the exponential increase in the number of schools, while implementing a substantial change in difficult economic times.
(c) Justification of Rating for Overall Borrower Performance Rating: Satisfactory
67. Based on the above paragraphs, the rating for overall borrower performance is Satisfactory.
6. LESSONS LEARNED
68. Given the substantial results achieved by Manaus in a particularly unfavorable economic context and other challenges that emerged that were beyond MM’s control, it is important to identify lessons that can help replicate the success both in Brazil and abroad. In this respect, there are two broad sets of lessons: ‘Manaus Approach’ and ‘Sectoral Lessons’.
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Manaus Approach17
69. Change management. Change management processes that are well thought-out in terms of design and implementation and have the buy-in from both leadership and the organization’s technical staff can be powerful drivers of change. In addition, the selection of firms/consultants that have experience in these issues is fundamental because it requires specific expertise that might not be easily found. Moreover, change management processes should also include all stakeholders in the design to ensure buy-in, collaboration, and/or avoid resistance during implementation. As the example of SEMEF shows, changing daily routines and providing clear objectives can affect the results of the entire organization. Different from other subnational governments in Brazil that have implemented similar management reforms, Manaus did it gradually and in a low-profile manner, focusing first only in SEMEF. Moreover, the introduction of a bonus salary was done only three years after the beginning of the program, and conditional on the city improving own revenue collection. The establishment of a performance management system, based on the PDCA methodology and which included clear performance goals for every department, transformed the management culture by emphasizing development of action plans, monitoring progress, and collective problem solving. Among other relevant changes, managers upload documentation on achievements in real time into a new performance evaluation system and set aside time every Monday to check progress, identify obstacles, and solve problems. The subsecretary for management was charged with implementing the institution-wide results- based management and worked with every department on process improvement. The new subsecretary had to train staff on how to develop indicators, targets, and action plans and motivate staff to achieve them.
70. Use of technology. Aware of the relevance of technology to improve public services, SEMEF requested to incorporate the department of information technologies of Manaus and thus changed its name from Secretary of Finance to Secretary of Finance and Information Technology. The use of technology was crucial to modernize and streamline processes. Among others, the municipality upgraded the information technology used for procurement and tax collection (introducing electronic invoices for the tax on services). This move turned out to be a critical first step because it enabled the Financial Secretariat to eliminate some of the manual processes they had previously relied on and opened new communications channels with the general population. SEMEF staff routinely makes use of messaging applications to coordinate actions.
71. Leadership and learning. Senior government officials from the MM showed great leadership throughout the operation. The institutional reforms that they implemented required strong leadership and constant communications within and across organizations. Additionally, to incorporate the latest management models, the SEMEF staff were encouraged to identify good practices in Brazil and learn from those experiences. In all reforms, SEMEF sought to learn from other cases and received training from other governments for example, from the State of Amazonas in procurement. Once faced with a challenge to raise property tax compliance, SEMEF sought the World Bank’s assistance and signed a data sharing agreement to analyze tax payer level information and help inform future reforms.
72. Indicators as incentives. It is important to acknowledge, during the design of any operation, that the results indicators are salient guiding frameworks for implementation and are, therefore, critical policy tools. In the case of the MM operation, the Government requested the World Bank to include ambitious
17 More information available at Annex IV
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target values for the results indicators to motivate the different teams. In this case, and as the evidence shows, the strategy paid off because the positive overall results of the operation overshadowed the underachievement in some of the indicators. Indicators can generate commitments to implement sensitive reforms and motivate the respective teams to deliver. In the case of the operation, the objective was to establish implicit incentives, namely reputation effects that could generate external pressure for reform and motivation for public servants.
Sectoral Lessons
73. Informal services. The operation showed that policies to increase formalization of the economy are possible, as it happened with street vendors and motorbikes. The experience of Manaus demonstrates that a long and consistent engagement with the stakeholders can bear important results. Clear communication and credibility are fundamental for mobilizing the informal sector and providing a clear path to formality and its benefits. The project showed that careful planning, adequate incentives, and sequencing of activities is critical for success.
74. Management for Results in schools. The operations showed that incorporating Management for Results methods in schools can contribute toward improving student’s performance. SEMED and regional directors, with the support of a specialized consultancy (Instituto Aquila) were trained on how to use an online monitoring system that has clear targets for schools and on how to find solutions when school- specific challenges are identified. For example, one director was responsible for results in five schools, and was thus able to focus on identifying challenges and design tailored solutions for each school. Additional pedagogical materials were developed to assist in this process. Management contracts were also signed by the school directors with SEMED to increase monitoring and accountability. The use of indicators and bimonthly student assessments were key in improving the city’s IDEB.
7. COMMENTS ON ISSUES RAISED BY BORROWER/IMPLEMENTING AGENCIES/PARTNERS
(a) Borrower/Implementing agencies
75. The MM provided inputs in the preparation of this report and had no substantial issues on the report and ratings. Comments on the Implementation Completion and Results Report (ICR) and on the operation were overwhelmingly positive. They consider that the ICR captures well their achievements and challenges over the 2014–2016 period. They requested the team include a sentence indicating that all indicators and targets continue to be part of their 2018 Strategic Plan. Therefore, although some of the indicators were only partially achieved by the time of writing this report—such as the nonconformities in the wage bill or the complete clean-up of property cadaster—the Municipality will continue to work on those policy areas. Regarding the choice for ambitious targets at the time of design, the counterparts still consider that it was a good commitment device for them. Thus, they see it as having generated positive results. Indeed, at time of identification and design of this operation, the counterparts had requested a Program-for-Results with disbursed-linked indicators and technical assistance. The World Bank decided to start with a DPO given it was the first engagement. MM is looking forward to a Program for Results operation as the next engagement with the Bank.
(b) Co-financiers
Not applicable.
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(c) Other partners and stakeholders (for example, NGOs/private sector/civil society)
None.
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ANNEX I: BANK LENDING AND IMPLEMENTATION SUPPORT/SUPERVISION PROCESSES
(a) Task Team Members Responsibility/ Names Title Unit Specialty Lending Zoratto, Laura De Castro Senior Economist GGOLP Task Team Leader Barroso, Rafael Chelles Senior Economist GMTA1 Task Team Leader Financial Management Kaizeler, Maria Joao Pagarim Ribei GGOLF Financial Mgmt. Specialist Specialist Bittar, Fabio Sola Research Analyst LCC5C Team Member Senior Development Costa, Alberto Coelho Gomes GSU04 Safeguards Specialist Grau, Katherine Elizabeth Consultant GGOLP Consultant Kikoni, Edith Senior Economist GMTE3 Team Member Senior Public Sector Olalia, May Cabilas GGOLP Team Member Specialist Lead Procurement Oliveira, Alexandre Borges de GGOPL Procurement Specialist Specialist Marques Porto, Angela Nieves Consultant GGOLP Team Member Kriss, Paul Lead Urban Specialist GSU09 Team Member Souza, David Oliveira De Senior Health Specialist GHN13 Team Member Kuttner, Stephanie Anne Consultant GFA04 Team Member Oliveira Costa, Leandro Senior Economist GED04 Team Member Lead Public Sector Clarke, Roland N GGOLP Team Member Specialist Rodella, Aude-Sophie Senior Economist GWAGP Team Member Alvim, Bernardo Guatimosim Consultant GTD04 Team Member Supervision Bittar, Fabio Sola Research Analyst LCC5C ICR Team Member Ivins, Courtney Price Health Specialist GHN01 Team Member Hartmann, Till Johannes Consultant GGOOS Team Member Ortega Nieto, Daniel Public Sector Specialist GGOLP ICR Team Leader Zoratto, Laura De Castro Senior Economist GMTA1 Task Team Leader Marques Porto, Angela Nieves Consultant GGOLP Team Member (b) Staff Time and Cost Staff Time and Cost (Bank Budget Only) Stage of Project Cycle US$, Thousands (including travel No. of staff weeks and consultant costs) Lending FY15 37.47 137,585.8 FY16 9.26 46,854.99 Total: 46.73 184,440.80 Supervision/ICR FY16 9.25 38,440.05 FY17 5.25 28,389.55 FY18 14.17 72,216.12 Total: 28.67 139,045.70
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ANNEX II: RESULTS BY PILLAR
Results Indicator Baseline Target Actual Comments Pillar I: Strengthened Public Sector and Fiscal Management Number of registered 214,914 560,000 365,585 Partially achieved (65%). Thanks to a properties in the Property (January cadaster ‘clean-up,’ Tax Cadaster 2018) IPTU tax collection increased to R$184 million in 2016, a 44.9 percent nominal growth rate in two years (inflation increased by 17.5 percent in the same period). Moreover, the municipality will continue to pursue the target with the support of an external firm hired to redo the cadaster. Target expected to be achieved by end of 2019. Average execution time of No 50 days for 59 days Partially achieved (88%) and electronic bidding electronic each bid electronic bidding was created. processes for the purchase bidding (the between of goods and services average R$8 time for thousand other and R$1 methods million was 120 days) FIRJAN Indicators: General — — B Manaus was evaluated with concept IFGF 2017 B in the General IFGF index, at the top of all state capitals. FIRJAN Indicators: IFGF — — A Manaus was ranked A owing to the Own Revenues 2017 effort to raise tax collection. FIRJAN Indicators: IFGF — — A Manaus invested more than 20% of Investments 2017 the budget Percent of bidding results 0 90 100 Achieved and surpassed published in the Manaus Compras open access website Average reduction of unit 0 5 23 percent Target achieved (reduction of 23% price of supplies and in unit prices considering a basket of contracted services 9 goods), due to the introduction of framework agreements Acquisition and No Yes Yes Achieved maintenance of the Pension Conformity Certificate (Certificado de Regularidade Previdenciária), without resorting to judicial measures
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Results Indicator Baseline Target Actual Comments Actuarial equilibrium — — — Manaus is the first subnational entity to institute a monthly follow- up of actuarial equilibrium performed by its own staff. Reduced high-risk — — — Manaus eliminated 3 of 17 high-risk investment funds investment funds, recovering R$54.2 million of R$57 million allocated to those funds. The amount recovered was invested on low risk fixed income funds. Improved pension — — — Manaus Previdência ranked as 6th management (2016) and 4th (2017) in the award for best practices on pension management granted by the National Association for State and Municipal Pension Managers. Sustainability of pensions — — — Manaus Previdência Segregação de massas’, through an individual complementary pension scheme was instituted with the objective of improving sustainability of the system Improved capacity of — — — Manaus Previdência created a Manaus Previdência and specialized public career (carreira citizen engagement previdenciária) to form qualified cadres, conducted annual training for staff, organized public hearings, and conducted a census of pensioners every five years Exposure to high risk asset — — 13.7% Manaus Previdência managed to funds (October decrease the exposure to high risky 2016) assets from 52 percent to 13.7 percent of its total assets. Number of 54,222 1,000 45,344 The target was ambitious and not nonconformities yet achieved. As of end of 2017, 9,000 nonconformities have been resolved. However, the Government implemented the process to track nonconformities (only done at the federal level) and improve the audit of its payroll, and will continue implementation. Improved management in — — — SEMEF adopted a management Secretary of Finance to model following the PDCA improve day-to-day methodology, an integrated activities electronic document management system and monitored the achievement of selected indicators.
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Results Indicator Baseline Target Actual Comments Increase in municipal tax 54.49% 57.9% 50.77 Not achieved. Tax collection was compliance rates directly affected by the economic recession. Improved services to — — — SEMEF created a web portal citizens (SIGED), call centers and one-stop shops to offer the population SEMEF services. Improved engagement — — — SEMEF created a public-private with private sector sector council that meets weekly to discuss issues that could be improved. Tax debtors contacted by — — 47,900 e- The MM of Manaus has e-mail, phone, or letter mails, implemented several initiatives to 4,300 phone increase municipal tax compliance calls, rates. Results were undermined by 400,000 the economic recession. letters Pillar II: Enhanced Management and Quality of the Education and Transport Sectors Improved students’ — — — With the highest percentage growth proficiency among cities in the Brazil, Manaus reached a grade of 4.3 in the 2015 IDEB (26 percent higher than in 2013), in the 6th to 9th grades. The result was higher than the goal of 3.8 determined by the MEC for Manaus. Regarding the initial years (1st to 5th year), Manaus had the third highest percentage growth among cities, reaching a grade of 5.4 in the 2015 IDEB against a target of 4.9 established by the MEC. Number of schools that 0 278 (out of 147 Target partially achieved (52%). achieved at least 19 out 24 400) GIDE targets Performance-based — — — 17,000 public servants in the management education sector have clear targets that are monitored closely. Education sector savings — — — SEMED embarked on an important effort to cut expenditures, which saved approximately R$100 million in a span of two years. Among the measures were reducing the car fleet by half and centrally procuring school meals. Parent involvement in — — — The Manaus reform also involved school/education parents’ participation and only in two years the percentage of parents who attended school meetings went from 29 percent to 92 percent.
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Results Indicator Baseline Target Actual Comments Number of schools with 0 150 460 Target achieved A new certification certified directors is in place and all directors have received training. Improved Management of None — — Implemented GIDE. The GIDE model Secretary of Education is based on innovative management (SEMED) and schools methodologies that enable SEMED to identify specific issues in every school, assess the problem, and design a solution. SEMED and regional directors were trained on how to use an online monitoring system that has clear targets for schools. Management contracts have been signed by the school directors with SEMED to increase monitoring and accountability Improved student None — — Two pedagogical activities were assessments and Curricula redesigned: (a) the bimonthly student assessments (Avaliação de Desempenho Individual) and (b) the definition of the core curriculum for the elementary school, which is reviewed every two months. Number of schools 0 150 161 Target achieved. A total of 161 complying 100% with the schools have the new Standard Minimum Standard Framework. Framework Number of street vendors 0 1,642 688 Target partially. However, a total of accredited as individual 1,509 street vendors have been micro entrepreneurs (MEI) directly attended by the program and relocated to shopping either through capacity-building facilities. activities, certifications, and relocation. A total of 688 street vendors were relocated and registered as the MEI. Monthly percentage of bus 88 97 100 Target achieved trips completed Improved infrastructure — — — Infrastructure interventions include the construction of integrated terminals connecting low capacity bus lines with higher capacity BRT lines operating along the north- south and east-west corridors Improved oversight of — — — The central operational control buses facility oversees the services of 10 bus operators through an advanced computerized system.
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Results Indicator Baseline Target Actual Comments Improved traffic flow — — — The MM also upgraded traffic lights' coordination and interaction with the bus system operation to prioritize bus movement around the city. Number of licenses for 0 3,303 2,957 Target partially achieved (90 moto-taxis issued percent)
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ANNEX III: SUMMARY OF BORROWER'S ICR AND/OR COMMENTS ON DRAFT ICR
1. The implementing agency, SEMEF, received a draft of the ICR on June 5. Comments on the ICR and on the operation were overwhelmingly positive. They consider that the ICR captures well their achievements and challenges over the 2014–2016 period. They requested the team to include a sentence indicating that all indicators and targets continue to be part of their 2018 Strategic Plan. Therefore, although some of the indicators were only partially achieved by the time of writing this report–such as the nonconformities in the wage bill or the complete clean-up of property cadaster–the Municipality will continue to work on those policy areas. Regarding the choice for ambitious targets at the time of design, the counterparts still consider that it was a good commitment device for them. Thus, they see it as having generated positive results. Indeed, at time of identification and design of this operation, the counterparts had requested a Program-for-Results with disbursed-linked indicators and technical assistance. The World Bank decided to start with a DPO given it was the first engagement. Looking forward, they feel prepared for a Program-for-Results.
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ANNEX IV: MANAUS CASE STUDY ON GLOBAL REPORT ON IMPROVING PUBLIC SECTOR PERFORMANCE
Case Study#7. Turning Around an Agency: The Manaus Finance Secretariat Introduces Results-Based Management, 2013–2018
Overview
1. In 2013, Manaus, the capital of Amazonas state in Brazil, was not managing its finances effectively and as a result, public services were lacking. Many secretariats, departments, and individuals lacked focus, a major impediment to improving financial management and service delivery. Understanding the need to improve worker performance in order to introduce much-needed reforms, the Secretariat of Finance introduced a new performance management strategy for all of its employees. Staff began working toward specific goals, and a new department within the secretariat closely monitored each individual’s progress. The new focus on results helped the secretariat introduce new services for citizens and improve tax collection. As of 2018, the secretariat was beginning to work with other government departments to introduce similar performance management reforms.
Introduction
2. At the end of 2012, Manaus, the largest city in the Amazon rainforest region of Brazil, was in crisis. The municipal government was struggling to manage its finances, and had less than 20 million Brazilian reais cash on hand (about US$9 million at the time), while owing more than 360 million reais (about $160 million) to suppliers. Similar to many municipalities in Brazil, Manaus had a weak tax collection system and relied heavily on transfers from the federal government.18 Without strong revenue collection, the government did not have funds available to pay its suppliers, or to make the investments in health, education, and transport that its citizens demanded.
3. Part of the problem was poor management at the city’s finance secretariat. The secretariat, responsible for revenue collection and the city’s financial management, mostly relied on manual processes for all of its tasks, instead of adopting digital technologies that could improve efficiency. Poor staff motivation further contributed to the productivity problem. “The secretariat was very poorly managed,” said Lourival Praia, who was the subsecretary of budget and projects at the time. “There was no management plan, and workers had no targets to work towards. We desperately needed a new management model.”
4. When newly elected mayor Arthur Virgílio took office at the beginning of 2013, he knew he had to turn the finance secretariat around. Manaus urgently needed to increase revenue, reduce unnecessary expenses, and start delivering better public services. Manaus was one of 12 cities selected to host the 2014 FIFA World Cup, and public services—particularly transport—had to be functioning efficiently before the tourists arrived.
5. Virgílio had a different management style than his predecessors. “The new mayor had a vision of the public sector as a big company,” said Praia. “He wanted to treat public services as he would a business.
18 World Bank. 2015. Service Delivery and Fiscal Management Development Policy Loan. The World Bank. October 20, 2015.
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The Government had to earn revenue, and then invest that revenue in public services… It was very important to have a leader who believed in meritocracy and wanted to treat the public sector like a business.”
6. The mayor appointed Ulisses Tapajós, a well-known retired businessman, as his incoming secretary of finance. “All over Brazil, politicians often give positions like (secretariats) to their supporters,” said Laura Zoratto, senior economist at the World Bank. “However, this mayor brought in Tapajós based on his technical abilities…he had just retired from the private sector, and wanted to make the city better.”
Response
7. Tapajós had an ambitious vision for the city. He wanted to make Manaus, one of the best places to live in Brazil and among the top five best-managed capital cities in the country (Manaus is the capital of Amazonas, Brazil’s largest state by area). Reforming the finance secretariat was the first step toward achieving those goals. After improving financial management and increasing revenue, the city could begin investing more in services for its citizens.
Changing a Culture within the Secretariat
8. When Tapajós arrived at the secretariat, he quickly realized he had to change the culture of the institution and motivate civil servants. Without committed, high-performing staffers, all the big reforms he had in mind would likely fail. With the mayor’s backing, Tapajós brought in a team of business consultants to help instill a new results-focused culture within the secretariat. The consultants trained managers within the secretariat on how to build trust, credibility, and respect from their staff, and led workshops to build pride and camaraderie among civil servants. Next, the consultants trained every staff member in PDCA methodology, a popular management tool used to ensure follow through on goals and for continuous improvement of business processes.
9. In July 2013, Tapajós created a new department within the finance secretariat to institutionalize the new PDCA methodology. The subsecretary for management was charged with implementing results- based management institution-wide and working with other subsecretaries on process improvement. The new subsecretary had to train staff on how to develop indicators, targets, and action plans, and motivate staff to achieve them.
10. Some staffers at the secretariat were reluctant to accept change, but came on board when they saw the direction the new secretary was leading the organization. “Initially, the workers did not want to change,” Praia said. “However, after participating in the trainings, workers started to become more comfortable with the idea.”
11. At the same time the trainings were taking place, the secretariat began reforming its own information technology (IT) systems, and those of the entire government. “Tapajós asked to be in charge of Manaus’ IT, knowing that IT is a crucial element to modernize and streamline processes,” said Zoratto. “The Secretary of Finance became the Secretary of Finance and IT.”
12. The mayor set the secretariat an ambitious goal: to increase its revenue by 10 percent each year. If the secretariat achieved the goal, the mayor said, every employee would get an extra month’s salary at the end of the year. After spending 2013 in training staff and improving IT infrastructure, the secretariat
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was ready to get to work in 2014 to make the internal process more efficient, provide better services to taxpayers, and increase tax collection.
Setting Goals
13. Based on the institutional goal of increasing revenue for the city by 10 percent, the secretariat began setting targets for each of its different departments. Tapajós and his management team looked at every department and every process within each department to find ways to increase revenue.
14. At that time, there was huge room for improvement in tax collection. The state collected two main taxes, a property tax and a tax on services, and together they accounted for less than 25 percent of state revenue. Property tax collection was particularly poor: there was an estimated 550,000 properties in Manaus, but only 150,000 were included in the property cadaster and only about half of those actually paid tax.19
15. Increasing property registration and improving collection of taxes from already-registered properties were just two of the dozens of goals created by the secretariat. Another major goal included introducing an electronic procurement system. To enact that reform, the secretariat sought advice from the state government of Amazonas, which had overhauled its procurement systems just a couple of years earlier.20 Creating partnerships and learning from others’ experience was another strategy adopted by the secretariat to accelerate the pace of reforms. “Tapajós reached out to other governments that were already achieving what he wanted to achieve,” said Zoratto. “Learning about procurement from the state government was just one example of that.”
16. In 2014, the finance secretariat began negotiating a US$150 million DPL with the World Bank to help finance its reforms. Zoratto said the secretariat used the agreement to strengthen its commitment to achieve Tapajós’s goals. "Tapajós accelerated and locked-in reforms by including overambitious targets as indicators of their DPO (development policy operation) with the World Bank,” she said. “It served as an external enforcement to implement difficult reforms, such as procurement.”
17. Following the goal setting model taught by the consultants the previous year, all employees at the finance secretariat set two main goals for 2014 in collaboration with their managers. The goals were quantifiable and broken down into monthly targets. The goals were added to the secretariat’s new performance evaluation system, which the subsecretary for management had created to monitor progress.
18. Each employee signed an agreement with their managers to achieve the yearly goals and monthly targets agreed upon. “The goals are negotiated between managers and their staff,” said Praia. “The goals cannot be imposed on staff. If the worker did not agree with the goal, they would not sign the form.”
19. To ensure full commitment to the agreement, the secretariat linked achievement of the goals to the employee’s salary. “The signed forms are legal documents that can be checked by the public auditor,”
19 “Program Document.” Service Delivery and Fiscal Management Development Policy Loan. The World Bank. October 20, 2015. 20 Laura De Castro Zoratto. “Making Procurement Smarter: Lessons from the Amazon.” Governance for Development, The World Bank. May 17, 2016.
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said Praia. “Part of the worker’s salary depends on achieving the goals. If they fail to meet targets, they are penalized.”
20. Working with their managers and the subsecretary for management, each worker devised an action plan outlining how they would achieve their targets month on month. Each plan followed a standard template devised by the subsecretary that detailed what would be achieved, why it was important, how it would be achieved, who was responsible, and by when it would be achieved.
21. The new performance-based way of working fundamentally changed the day-to-day culture of the secretariat. “Now, civil servants do not arrive to work wondering what they are going to do today,” said Praia. “They have goals, they have a plan, and they know exactly what they are going to do.”
Monitoring Progress and Solving Problems 22. To ensure follow through on the goals, the subsecretary set up a monitoring system to follow each individual’s progress. Managers uploaded documentation on achievements in real time into the performance evaluation system and set aside time each week to check progress, identify obstacles, and solve problems. Every Monday, 3 pm to 5 pm was designated as the time to check progress.
23. If any employee encountered a roadblock, they could work with their managers to analyze the problem and find a solution. In some cases, difficult situations called for collaboration between different subsecretaries, or intervention from Tapajós or other senior management. For example, increasing property tax payments required the secretariat to improve communication with property owners across the city. Different units within the secretariat collaborated to create radio advertisements and a broad social media campaign.
24. While collaboration between different subsecretaries had been disjointed in the past, joint trainings and an emphasis on teamwork from top management broke silos within and between secretariats. “Usually coordination is very difficult, with staff sending memos and following official procedures,” said Zoratto. “In this case, the workers were constantly coordinating with each other by exchanging messages on WhatsApp [a popular smartphone messaging application].”
25. Each worker had to strive to meet their targets, or they would see their pay docked at the end of the month. “To receive 100 percent of their monthly salary, each civil servant has to meet at least 75 percent of their goal [for that month],” said Praia. “If they do not meet 75 percent of their goal, they do not get paid their full salary.”
26. Targets were designed to be ambitious but achievable, and some workers struggled initially. “In the first instance, the worker feels mad when they lose their salary,” said Praia. “However, the intention is not to take people’s salary, the intention is to get people to work hard.” Each employee agreed to the targets set and had no recourse if they did not achieve them other than to work harder the next month to ensure their salary was not docked again.
Reflections
27. Five years after introducing results-based management reforms at SEMEF in Manaus, there were clear indications the changes had been effective.
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28. In 2017, Manaus was ranked first of all Brazilian state capitals and 33rd of all Brazilian municipalities in the FIRJAN Fiscal Management Index. The index, created by the Federation of Industries in Rio de Janeiro State (FIRJAN, an organization that promotes business competitiveness), evaluated more than 5,000 municipalities across Brazil according to their capacity to manage revenue and expenditures. In 2013, Manaus had been ranked 1,200th out of the cities evaluated.
29. The municipality revised and upgraded its property tax cadaster, reduced tax incompliance, overhauled its procurement systems, and partnered with other governments to learn and adopt best practices in several areas, including upgrading urban transport and monitoring bus concessions. Another reform created a marketplace, designed as a tourist attraction, to give physical workspace to street vendors and incorporate them into the formal economy.
30. The finance secretariat also developed more citizen-centric services using its enhanced IT capacity, such as an online information portal. The portal provided assistance for citizens, businesses, and the self-employed, and allowed individuals and companies to submit tax payments online.21 Other IT reforms replaced outdated paper-based processes and allowed for faster and cheaper electronic communication between citizens and the secretariat, and between the secretariat and other parts of the Manaus government.
31. Despite Brazil’s dismal economic performance during the same period, Manaus increased revenue between 2014 and 2018. The increased revenue stabilized the city’s finances and enabled the government to invest more in services for citizens, including building new roads, upgrading bridges, and improving schools. For example, SEMED rolled out a new management model in primary schools that provided monetary incentives for school directors to achieve specific targets, and in 2016, Manaus was ranked 11th out of all state capitals according to Brazil’s Basic School Development Index (an improvement from their 2014 ranking of 18th).22
32. Workers within the finance secretariat were far more motivated than they had been before the management reforms took place. “In Brazil, there is an entrenched culture within the civil service to not work hard,” said Praia. “The goals became the stimulus to change that.”
33. The management reforms required strong support from the secretary of the institution, Ulisses Tapajós, and the city mayor, Arthur Virgílio. With strong and motivated managers, the system would be highly replicable in any government organization. Virgílio was trying to use the finance secretariat’s experience to improve productivity across the Manaus government. “We are now trying to replicate the system in all the other secretariats in Manaus,” said Praia, who took over from Tapajós when he resigned due to health problems in 2017. “We started working with the SEMED in mid-2017, and we are planning to start working with the health secretariat this year. After we have set up the system in those two big secretariats we will start working with the smaller secretariats.”
34. Manaus’s success proved that results-based management reforms could be implemented even when facing the toughest financial situations. “There is a perception that governments cannot do results based management when in a difficult fiscal situation,” said Zoratto. “However, you do not need money
21 “Portal De Serviços.” Secretaria Municipal De Finanças, Prefeitura De Manaus.
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to pay extra salaries to create a new culture. You can start by creating work plans for people, having weekly meetings, motivating people, and creating a purpose for their work.”
35. The finance secretariat’s focus on changing the culture within its own agency, as well as in other government offices, made it a unique example within Brazil. “Results-based management has been implemented in other subnational governments in Brazil, for example in the state of Minas Gerais,” said Zoratto. “However, the Manaus case is innovative because it was low-cost, gradual, and focused on changing culture, with bonuses that were contingent on revenue increases added at a later stage.”
36. Although the finance secretariat did not reach its goal of increasing revenue collection by 10 percent each year in the first four years of the management reforms, staff expressed confidence that they would reach their target in 2018—and finally receive the bonus of an extra month’s salary. “In 2016, we reached 87.61 percent of the target, while in 2017 we reached 99.27 percent of the target,” said Praia. “Of course, the economic crisis of 2014–2017 negatively affected tax collection. However, because of our management model, we were less impacted by the crisis than the state and the rest of the capital cities.”
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ANNEX V: LIST OF SUPPORTING DOCUMENTS
Branco, Leo. 2015. Como Manaus “passou de ano” em plena crise econômica. Revista Exame, No. 18.
Goddard M., and R. Mannion. 2004. “The Role of Horizontal and Vertical Approaches to Performance Measurement and Improvement in the UK Public Sector.” Public Performance & Management Review 28 (1): 75–95.
OECD. 2008. “Promoting Performance: Using Indicators to Enhance the Effectiveness of Sub Central Spending.” Working Paper 5, OECD, Paris.
Propper, C., and D. Wilson. 2003. “The Use and Usefulness of Performance Measures in the Public Sector.” Oxford Review of Economic Policy 19 (2): 250–266.
World Bank. 2015. Documento Do Programa Para Um Empréstimo Proposto No Montante De US$ 150 Milhões Ao Município De Manaus Com Garantia Da República Federativa Do Brasil Para O Empréstimo Para Políticas De Desenvolvimento Consolidação Fiscal Para Melhoria Da Prestação De Serviços Públicos, Relatorio nº: 92953-BR.
World Bank. 2016. Retaking the Path to Inclusion, Growth, and Sustainability: Brazil Systematic Country Diagnostic. Washington, DC: World Bank. http://documents.worldbank.org/curated/en/239741467991959045/pdf/106569-SCD-P151691-PUBLIC- non-board-version.pdf.
World Bank. 2018. Improving Public Sector Performance Through Innovation and Inter-Agency Coordination. Washington, DC: World Bank.
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ANNEX VI: MAP
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