Document of The World Bank Group FOR OFFICIAL USE ONLY Public Disclosure Authorized Report No. 101552-CO INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT, INTERNATIONAL FINANCE CORPORATION, AND MULTILATERAL INVESTMENT GUARANTEE AGENCY Public Disclosure Authorized COUNTRY PARTNERSHIP FRAMEWORK FOR THE REPUBLIC OF COLOMBIA FOR THE PERIOD FY16-21 February 23, 2016 Public Disclosure Authorized Colombia and Mexico Country Management Unit Latin America and the Caribbean Region The International Finance Corporation Latin America and the Caribbean Region The Multilateral Investment Guarantee Agency Public Disclosure Authorized This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank Group authorization. The date of the last Progress Report on the Country Partnership Strategy FY12-16 was April 16, 2014 (Report No. 83966-CO). CURRENCY EQUIVALENTS (Exchange rate effective as of February 16, 2016) Currency unit = Colombian peso US$1.00 = COP 3,409.82 FISCAL YEAR January 1 to December 31 PRINCIPAL ABBREVIATIONS AND ACRONYMS CAT DDO Catastrophe Draw Down Option CONPES National Council for Economic and Social Policy (Consejo Nacional de Política Económica y Social) COP Colombian Peso CPF Country Partnership Framework DANE National Administrative Department of Statistics (Departamento Administrativo Nacional de Estadística) DNP National Planning Department (Departamento Nacional de Planeación) DPF Development Policy Financing DPL Development Policy Loan FARC Revolutionary Armed Forces of Colombia (Fuerzas Armadas Revolucionarias de Colombia) FDI Foreign Direct Investment FDN Financiera de Desarrollo Nacional (Bank for National Development) FY Fiscal Year GDP Gross Domestic Product GEF Global Environment Facility GHG Greenhouse Gas GoC Government of Colombia IDB Inter-American Development Bank IDP Internally Displaced Persons IE Impact Evaluation IFC International Finance Corporation IMF International Monetary Fund IPF Investment Project Financing LAC Latin America and the Caribbean MFI Microfinance Institutions MIGA Multilateral Investment Guarantee Agency MPI Multidimensional Poverty Index MTFF Medium-term Fiscal Framework MSME Micro, Small and Medium Enterprises NDP National Development Plan (Plan Nacional de Desarrollo) OECD Organisation for Economic Co-operation and Development ii PA Programmatic Approach PPP Public Private Partnership RAS Reimbursable Advisory Service SCD Systematic Country Diagnostic SME Small and Medium Enterprises SPI Shared Prosperity Indicator TA Technical Assistance US United States USAID United States Agency for International Development WBG World Bank Group IBRD IFC MIGA Vice President: Jorge Familiar Snezana Stoiljkovic Karin Finkelston Director: Gerardo M. Corrochano Lizabeth N. Bronder Dan Biller Task Team Jutta U. Kern Luciana Harrington- Gianfilippo Carboni Leader: Samuel Freije-Rodriguez Marchesini iii The Republic of Colombia COUNTRY PARTNERSHIP FRAMEWORK (FY16-21) Contents I. INTRODUCTION....................................................................................................... 1 II. COUNTRY CONTEXT AND DEVELOPMENT AGENDA .............................................. 3 A. Toward Achieving Poverty Eradication and Shared Prosperity ............................... 3 B. Recent Economic Developments and Prospects .......................................................... 5 C. Key Development Challenges from the SCD .............................................................. 9 III. WORLD BANK GROUP PARTNERSHIP FRAMEWORK .......................................... 12 A. Government Program and Medium-term Strategy ....................................................... 12 B. Proposed WBG Country Partnership Framework ........................................................ 13 1. Lessons Learned from Implementing the Previous Country Partnership Strategy ........... 13 2. Overview of the World Bank Group Partnership Framework .......................................... 14 PILLAR I: Fostering Balanced Territorial Development ..................................................... 16 PILLAR II: Enhancing Social Inclusion and Mobility through Improved Service Delivery . 20 PILLAR III: Supporting Fiscal Sustainability and Productivity ........................................... 25 C. Implementing the Colombia Country Partnership Framework.................................... 31 IV. MANAGING RISKS TO THE CPF PROGRAM ............................................................. 33 ANNEXES ANNEX 1. CPF RESULTS MATRIX ....................................................................................... 36 ANNEX 2. COLOMBIA CPF SELECTIVITY DIAGRAM................................................... 44 ANNEX 3. COMPLETION AND LEARNING REVIEW REPORT .................................... 45 ANNEX 4. SELECTED INDICATORS OF BANK PORTFOLIO PERFORMANCE AND MANAGEMENT ..................................................................................................... 90 ANNEX 5. OPERATIONS PORTFOLIO (IBRD/IDA and Grants) ..................................... 91 ANNEX 6. STATEMENT OF IFC’S HELD AND DISBURSED PORTFOLIO ................. 92 ANNEX 7. MAP OF COLOMBIA ............................................................................................ 93 Tables Table 1. Key Economic Indicators .................................................................................................. 7 Table 2. SCD: Challenges to Inclusive and Sustainable Growth in Colombia ............................. 11 Table 3. Risks to the CPF Objectives in Colombia ...................................................................... 34 Figures Figure 1. CPF Selectivity Analysis ............................................................................................... 15 Figure 2. CPF Pillars and Objectives ............................................................................................ 16 iv Boxes Box 1. Colombia’s OECD Accession ............................................................................................. 5 Box 2. The Havana Peace Dialogues on Colombia ...................................................................... 10 Box 3. Integrated WBG Support to Competitive Cities ............................................................... 31 Acknowledgements This CPF was produced by a Task Team lead by Jutta U. Kern (Country Operations Advisor, LCC1 and co-TTL), Samuel Freije-Rodriguez (Lead Economist, GPV02 and co-TTL) Luciana Marchesini (Strategy Officer, CBCCE) and Gianfilippo Carboni (Risk Management Officer, MIGEC) under the overall guidance of Gerardo M. Corrochano (Country Director, LCC1C). The team is grateful for the contributions of a dedicated WBG team, composed of: Alma Kanani (Operations Adviser, LCROS), Arturo Herrera Gutierrez (Practice Manager, GGO16), Beatriz Elena Franco (Program Assistant, LCC1A), Carlos Rodriguez Castelan (Senior Economist, GPV04), Carmen Rosa Yee-Batista (Senior Water & Sanitation Specialist, GWA04), Edmundo Murrugarra (Senior Social Protection Economist, GSP04), Eduardo Wallentin (Senior Manager, CBCCF), Enrique Lora Toro (Results Measurement Specialist, CBCD1), Erwin De Nys (Program Leader, LCC1C), Eva M. Gutierrez (Program Leader, LCC1C), Issam A. Abousleiman (Country Manager, LCCCO), Jasmin Chakeri (Senior Economist, GMF04), Karina M. Kashiwamoto (Language Program Assistant, LCC1C), Leonardo Escandon (Operations Analyst, LCCCO), Leonardo Iacovone (Senior Economist, GTC04), Marcelo Fabre (Senior Social Development Specialist, GSU04), Marcelo Acerbi (Senior Environmental Specialist, GEN04), Michael Morris (Lead Agriculture Economist, GFA04), Pedro Arizti (Senior Public Sector Specialist, GGO16), Pedro Cerdan-Infantes (Senior Economist, GED04), Wendy Cunningham (Lead Specialist, GSP02), and William Wiseman (Program Leader, LCC1C). The team would like to thank the peer reviewers: Arturo Ardila (Lead Transport Economist, GTI02), Alberto Leyton (Lead Public Sector Specialist, GGO16), Luis-Felipe Lopez-Calva (Lead Economist, DECWD) and Zafer Mustafaoglu (Program Leader, LCC7C). They would also like to thank Jorge Familiar (Regional Vice President, LCRVP) and Manuela Ferro (Director, Strategy and Operations, LCRVP) for their strategic guidance and support throughout the preparation process. v I. INTRODUCTION 1. In the last decade, Colombia consolidated its position among the top economic performers in Latin America. The country’s sound macroeconomic management helped sustain relatively high growth rates, at an average of 5.4 percent before the global crisis (2004–08) and 4.8 percent thereafter (2010–14). High commodity prices contributed to an expansion of extractive industries’ production and exports, which in turn supported fiscal revenues and growth. This allowed closing the country’s per capita income gap with the leading economies of Latin America and the high-income countries of the Organisation for Economic Co-operation and Development (OECD). Colombia’s economy also received large capital inflows, taking advantage of abundant international liquidity. However, Colombia now faces slowing growth in the context of a less favorable external environment, including lower oil prices. 2. This economic growth and resulting job creation has been the main driver for Colombia’s impressive strides in poverty reduction and shared prosperity. From 2002 through 2014, extreme poverty fell from 17.7 percent to 8.1 percent, while total poverty