Document of The World Bank Group Public Disclosure Authorized FOR OFFICIAL USE ONLY Report No. 97063-UY INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT INTERNATIONAL FINANCE CORPORATION AND MULTILATERAL INVESTMENT GUARANTEE AGENCY Public Disclosure Authorized COUNTRY PARTNERSHIP FRAMEWORK FOR THE ORIENTAL REPUBLIC OF URUGUAY FOR THE PERIOD FY16-FY20 December 21, 2015 Public Disclosure Authorized Argentina, Paraguay, and Uruguay Country Management Unit Latin America and the Caribbean Region The International Finance Corporation Latin America and the Caribbean Region 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 Country Partnership Strategy FY2010-2015 for Uruguay was October 14, 2010 (Report No 55863-UY) CURRENCY EQUIVALENTS (As of November 25, 2015) Currency Unit= Uruguayan Peso U$$ 1= 29.6 Uruguayan Pesos FISCAL YEAR January 1 to December 31 ABBREVIATIONS AND ACRONYMS ASA Advisory Services and Analytics ACCE Procurement and Contracting State Agency (Agencia de Compras y Contrataciones del Estado) ANCAP National Fuel, Alcohol and Portland Administration (Administración Nacional de Combustibles, Alcohol y Portland) ANII National Agency for Research Innovation (Agencia Nacional de Investigación e Innovación) ASSE State Health Services Administration (Administración de los Servicios de Salud del Estado) BCU Central Bank of Uruguay (Banco Central del Uruguay) BPS National Social Security Institute (Banco de Previsión Social) CAF Latin American Development Bank (Formerly the Andean Cooperation Development) CND National Development Corporation (Corporación Nacional para el Desarrollo) CPI Consumer Price Index CPSCLR Country Partnership Strategy Country Learning Review DDO Draw-Down Option DINAGUA National Directorate of Water (Dirección Nacional de Agua) DINAMA National Directorate of Environment (Dirección Nacional de Medio Ambiente) DPL Development Policy Lending ECD Early Childhood Development ECH Continuous Household Survey (Encuesta Continua de Hogares) FDI Foreign Direct Investment FEE Energy Stabilization Fund (Fondo de Estabilización Energética) GHG Greenhouse Gas GoU Government of Uruguay IADB/IDB Inter-American Development Bank IBRD International Bank for Reconstruction and Development IFC International Finance Corporation IFI International Financial Institutions INAU Uruguay Institute of Children and Adolescents (Instituto del Niño y Adolescente del Uruguay) INE National Institute of Statistics (Instituto Nacional de Estadística) INUMET Uruguayan Institute of Meteorology (Instituto Uruguayo de Meteorología) IPF Investment Project Financing IWRMD Integrated Water Resource Management and Development LAC Latin America and the Caribbean ii LCI Low Carbon Intervention LGBT Lesbian, Gay, Bisexual and Trans MEC Ministry of Education & Culture (Ministerio de Educación y Cultura) MEF Ministry of Economy and Finance (Ministerio de Economía y Finanzas) MERCOSUR Southern Common Market (Mercado Común del Sur) MGAP Ministry of Livestock, Agriculture and Fishing (Ministerio de Ganadería, Agricultura y Pesca) MIDES Ministry of Social Development (Ministerio de Desarrollo Social) MIGA Multilateral Investment Guarantee Agency MSP Ministry of Public Health (Ministerio de Salud Pública) MTSS Ministry of Labor and Social Security (Ministerio de Trabajo y Seguridad Social) MVOTMA Ministry of Housing, Land Planning and Environment (Ministerio de Vivienda, Ordenamiento Territorial y Medio Ambiente) OECD Organization of Economic Cooperation and Development OPP Office of Planning and Budgeting (Oficina de Planeamiento y Presupuesto) OSE National Water Utility Company (Obras Sanitarias del Estado) PEFA Public Expenditure and Financial Accountability PENCTI National Strategic Plan for Science, Technology and Innovation (Plan Estratégico Nacional de Ciencia, Tecnología e Innovación) PFM Public Financial Management PPP Public Private Partnership RAS Reimbursable Advisory Services R&D Research & Development SCD Systematic Country Diagnostic SME Small and Medium Enterprises SNIC National System of Integrated Care (Sistema Nacional Integrado de Cuidados) SOE State-owned Enterprise SOGIE Sexual Orientation, Gender Identity and Expression TA Technical Assistance UMC Upper Middle Income Countries UTE National Energy Utility (Administración Nacional de Usinas y Transmisiones Eléctricas) WDI World Development Indicator IBRD IFC MIGA Vice President: Jorge Familiar Karin Finkelston Keiko Honda Director: Jesko Hentschel Salem Rohana Ravi Vish Task Team Leader: Ruxandra Burdescu Frank Sader Dan Biller iii FY16-20 COUNTRY PARTNERSHIP FRAMEWORK FOR THE ORIENTAL REPUBLIC OF URUGUAY TABLE OF CONTENTS I. Executive Summary ............................................................................................. 1 II. Country Context And Development Agenda ................................................... 4 A. Political and social context ..................................................................................................... 4 B. Poverty and shared prosperity ................................................................................................ 4 C. Growth with sustainability ..................................................................................................... 8 D. Recent economic developments and prospects ...................................................................... 9 E. Key development challenges ................................................................................................ 13 III. World Bank Group Country Partnership Framework ............................... 17 A. Lessons learned from the previous country partnership strategy ......................................... 17 B. Selectivity filters ................................................................................................................... 18 C. Proposed WBG Country Partnership Framework (2016-2020) ........................................... 20 Pillar 1 – Building resilience to shocks ................................................................................... 24 Pillar 2 – Rebalancing the social compact .............................................................................. 27 Pillar 3 – Integrating into global value chains ......................................................................... 30 D. Implementing the 2016-2020 Country Partnership Framework .......................................... 33 IV. Managing Risks to the CPF Program ........................................................... 35 Annexes Annex 1. Results Monitoring Matrix ................................................................... 37 Annex 2. CPS Completion and Learning Review (CPSCLR) FY 2010-2015 .. 42 Annex 3. Selected Indicators of Bank Portfolio Performance and Management .................................................................................................................................. 82 Annex 4. Operations Portfolio (IBRD/IDA and Grants) ................................... 83 Annex 5. IFC Committed and Disbursed Outstanding Investment Portfolio . 84 Annex 6. Gender analysis ...................................................................................... 85 iv I. EXECUTIVE SUMMARY 1. Uruguay is a country of about 3.3 million people, which has consistently given high priority to achieving broadly-shared economic growth and a sustainable reduction in poverty. A strong and progressive social compact has been a defining feature of Uruguayan society and politics, with consistent emphasis placed on protecting vulnerable groups, assuring worker dignity and promoting equitable growth. This compact, combined with rapid economic growth since 2003, has contributed to the development of a sizeable middle class – at 60 percent, the largest in Latin America as a proportion of the population – as well as effective institutions, good governance and, in consequence, a high degree of public trust in Government. The resultant political stability has been a fundamental element of Uruguay’s success in attaining its present standards of living. 2. The relationship between Uruguay and the World Bank Group (WBG) represents value added for both partners, with a focus on innovative solutions. Uruguay is the highest- income active borrower from the WBG, expressing significant demand for the services of the Group. This pertains in particular to (i) developing innovative financing and knowledge services, which provide solutions based on WBG’s experience in other countries; (ii) using integrated services across the World Bank, IFC and MIGA such as on the PPP agenda; and (iii) show-casing Uruguayan development experiences where the WBG can be a platform for dissemination of successful reforms. Similarly, the WBG has a keen interest to continue engaging with this sophisticated client so as to: (i) collaborate with a country that has chosen a model of development geared towards productivity increases and global insertion, and in which equitable development and supporting the bottom 40 percent of the population is a core value; and (ii) partner in the pursuit of innovative development solutions that support Uruguay and generate positive knowledge externalities for the WBG’s other clients in LAC and beyond. 3. A decade of rapid and inclusive economic growth has enabled Uruguay