FOR OFFICIAL USE ONLY Report No: PAD4767 INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT PROJECT APPRAISAL DOCUMENT ON A PROPOSED LOAN IN THE AMOUNT OF US$40 MILLION TO THE STATE OF MATO GROSSO FOR A PROGESTÃO MATO GROSSO: PUBLIC SECTOR MANAGEMENT EFFICIENCY PROJECT AUGUST 2, 2022 Governance Global Practice Latin America And Caribbean Region 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 authorization. CURRENCY EQUIVALENTS (Exchange Rate Effective July 29, 2022) Currency Unit = Brazilian Real BRL 1= US$0.19 US$ 1= BRL 5.17 FISCAL YEAR January 1 - December 31 Regional Vice President: Carlos Felipe Jaramillo Country Director: Paloma Anos Casero Regional Director: Robert R. Taliercio Practice Manager: Adrian Fozzard Task Team Leader(s): Daniel Ortega Nieto, Kjetil Hansen ABBREVIATIONS AND ACRONYMS ABEP-ICT National Association of State Information and Communication Technology CAPAG Payment Capacity Assessment (Capacidade de Pagamento) CBA Cost-benefit Analysis CGE State Comptroller General (Controladoria Geral do Estado) COFIEX Commission for External Financing CONFAZ National Council of Secretaries of Finance (Conselho Nacional de Política Fazendária) CONSAD National Council of State Secretaries of Administration (Conselho Nacional de Secretarios de Estado de Administração) COMSEFAZ National Committee of State Secretariats of Finance (Comitê Nacional dos Secretarios de Fazenda dos Estados e DF) CONAMA National Council of Environment CONSEPLAN National Council of State Secretaries of Planning (Conselho Nacional de Secretarios de Estado de Planejamento) COTS Commercial-Off-The-Shelf CPF Country Partnership Framework CRAS Social Assistance Reference Center DFIL Disbursement and Financial Information Letter ENDES National Strategy for Social and Economic Development GDP Gross Domestic Product GHG Greenhouse gas GoB Government of Brazil HRM Human Resource Management IADB Inter-American Development Bank IACM Internal Audit Capability Model (Modelo de Capacidade de Auditoria Interna) ICR Implementation Completion and Results Report ICT Information and Communication Technology ICU Intensive Care Unit ID-CRAS CRAS Development Index IFRs Interim Financial Reports IIA Institute of Internal Auditors (Instituto de Auditores Internos) INPE National Institute for Space Research IPF Investment Project Financing IPSAS International Public Sector Accounting Standards ISR Implementation Status and Results Report MoE Ministry of Economy (Ministerio da Economia) MoU Memorandum of Understanding MTPAR Mato Grosso Projects Agency (MT Participações e Projetos) MTPREV Mato Grosso Pensions Agency (MT Previdência) NGOs Non-Governmental Organizations OECD Organization for Economic Cooperation and Development PBF Bolsa Familia Program PDO Program Development Objective PGE State General Attorney (Procuradoria Geral do Estado) PHC Primary Health Care PIM Public Investment Management PISA Program of International Student Assessment PMU Project Management Unit (Unidade de Gestão do Programa) PNAGE National Support Program of Management and Planning Modernization of the States and Federal District (Programa Nacional de Apoio a Modernização da Gestão e do Planejmento dos Estados Brasileiros e Distrito Federal) PPA Medium Term Plan (Plano Plurianual) PPP Purchasing Power Parity PPSD Project Procurement Strategy for Development PROFISCO Program of Support to Revenue Authorities Management of Brazil (Programa de Apoio à Gestão dos Fiscos do Brasil) PRRF Fiscal Recovery Regime Program (Programa do Regime de Recuperação Fiscal) PSR Rural Pension System (Previdência Social Rural) RF Results Framework RGPS General Social Security System (Regime Geral da Previdência Social) RPPS Personal Social Security System (Regime Próprio da Previdêencia Social) SC Steering Committee SCD Systematic Country Diagnostic SEFAZ State Secretariat of Finance (Secretaria da Fazenda do Estado de Mato Grosso) SEPLAG State Secretariat of Planning and Management (Secretaria de Estado de Planejamento e Gestão) SES State Secretariat of Health (Secretaria de Estado da Saúde) SETASC State Secretariat of Social Assistance and Citizenship (Secretaria de Estado de Assistência Social e Cidadania) SICONFI System of Fiscal and Accounting Information for the Public System SID Integrated Debt System SMEs Small and Medium Enterprises SOE State Owned Enterprises SoMT State of Mato Grosso SOP Series of projects STN National Secretariat of Treasury (Secretaria do Tesouro Nacional, Ministry of Economy) SUAS Social Assistance Public System (Sistema Único de Assistência Social) TCE State Court of Accounts ToRs Terms of Reference The World Bank Progestão Mato Grosso (P188339) TABLE OF CONTENTS DATASHEET ........................................................................................................................................1 I. STRATEGIC CONTEXT ..................................................................................................................1 A. Country Context .....................................................................................................................1 B. Sectoral and Institutional Context ...........................................................................................2 C. Relevance to Higher Level Objectives ......................................................................................6 II. PROJECT DESCRIPTION................................................................................................................8 A. Project Development Objective ..............................................................................................8 B. Project Components ...............................................................................................................8 C. Project Beneficiaries ............................................................................................................. 10 D. Results Chain ....................................................................................................................... 10 E. Rationale for Bank Involvement and Role of Partners ............................................................ 11 F. Lessons Learned and Reflected in Project Design ................................................................... 12 III. IMPLEMENTATION ARRANGEMENTS ......................................................................................... 13 A. Institutional and Implementation Arrangements ................................................................... 13 B. Results Monitoring and Evaluation Arrangements ................................................................. 14 C. Sustainability ........................................................................................................................ 14 IV. PROJECT APPRAISAL SUMMARY................................................................................................ 15 A. Technical, Economic and Financial Analysis (if applicable) ..................................................... 15 B. Fiduciary .............................................................................................................................. 17 C. Legal Operational Policies ..................................................................................................... 18 D. Environmental and Social ..................................................................................................... 18 V. GRIEVANCE REDRESS SERVICES ................................................................................................. 19 VI. KEY RISKS ................................................................................................................................. 19 VII. RESULTS FRAMEWORK AND MONITORING ................................................................................ 20 ANNEX 1: IMPLEMENTATION ARRANGEMENTS AND SUPPORT PLAN ......................................... 28 ANNEX 2: PROGESTÃO PROGRAM ............................................................................................. 40 ANNEX 3: ECONOMIC ANALYSIS ................................................................................................ 54 The World Bank Progestão Mato Grosso (P188339) DATASHEET BASIC INFORMATION BASIC_INFO_TABLE Country(ies) Project Name Brazil Progestão Mato Grosso: Public Sector Management Efficiency Project ID Financing Instrument Environmental and Social Risk Classification Investment Project P178339 Low Financing Financing & Implementation Modalities [ ] Multiphase Programmatic Approach (MPA) [ ] Contingent Emergency Response Component (CERC) [✓] Series of Projects (SOP) [ ] Fragile State(s) [ ] Performance-Based Conditions (PBCs) [ ] Small State(s) [ ] Financial Intermediaries (FI) [ ] Fragile within a non-fragile Country [ ] Project-Based Guarantee [ ] Conflict [ ] Deferred Drawdown [ ] Responding to Natural or Man-made Disaster [ ] Alternate Procurement Arrangements (APA) [ ] Hands-on Enhanced Implementation Support (HEIS) Expected Approval Date Expected Closing Date 23-Aug-2022 30-Jun-2028 Bank/IFC Collaboration No Proposed Development Objective(s) Improve efficiency in public resource management in selected departments of the State of Mato Grosso. Components Component Name Cost (US$, millions) Page 1 of 61 The World Bank Progestão Mato Grosso (P178339) Whole-of-Government Management Systems 41.00 Management Systems in Strategic Sectors 6.80 Project and Change Management 2.20 Organizations Borrower: State of Mato Grosso Implementing Agency: Secretariat of Finance - Mato Grosso PROJECT FINANCING DATA (US$, Millions) SUMMARY -NewFin1 Total Project Cost 50.00 Total Financing 50.00 of which IBRD/IDA 40.00 Financing Gap 0.00 DETAILS -NewFinEnh1 World Bank Group Financing International Bank for Reconstruction and Development (IBRD) 40.00 Non-World Bank Group Financing Counterpart Funding 10.00 Borrower/Recipient 10.00 Expected Disbursements (in US$, Millions) WB Fiscal Year 2022 2023 2024 2025 2026 2027 2028 Annual 0.00 2.92 3.31 5.14 5.83 9.16 9.47 Cumulative 0.00 2.92 6.23 11.37 17.20 26.36 35.83 2 The World Bank Progestão Mato Grosso (P178339) INSTITUTIONAL DATA Practice Area (Lead) Contributing Practice Areas Environment, Natural Resources & the Blue Economy, Health, Governance Nutrition & Population, Social Protection & Jobs Climate Change and Disaster Screening This operation has been screened for short and long-term climate change and disaster risks SYSTEMATIC OPERATIONS RISK-RATING TOOL (SORT) Risk Category Rating 1. Political and Governance ⚫ Substantial 2. Macroeconomic ⚫ Moderate 3. Sector Strategies and Policies ⚫ Low 4. Technical Design of Project or Program ⚫ Substantial 5. Institutional Capacity for Implementation and Sustainability ⚫ Moderate 6. Fiduciary ⚫ Moderate 7. Environment and Social ⚫ Low 8. Stakeholders ⚫ Low 9. Other 10. Overall ⚫ Moderate COMPLIANCE Policy Does the project depart from the CPF in content or in other significant respects? [ ] Yes [✓] No Does the project require any waivers of Bank policies? [ ] Yes [✓] No 3 The World Bank Progestão Mato Grosso (P178339) Environmental and Social Standards Relevance Given its Context at the Time of Appraisal E & S Standards Relevance Assessment and Management of Environmental and Social Risks and Impacts Relevant Stakeholder Engagement and Information Disclosure Relevant Labor and Working Conditions Relevant Resource Efficiency and Pollution Prevention and Management Relevant Community Health and Safety Not Currently Relevant Land Acquisition, Restrictions on Land Use and Involuntary Resettlement Not Currently Relevant Biodiversity Conservation and Sustainable Management of Living Natural Relevant Resources Indigenous Peoples/Sub-Saharan African Historically Underserved Traditional Relevant Local Communities Cultural Heritage Relevant Financial Intermediaries Not Currently Relevant NOTE: For further information regarding the World Bank’s due diligence assessment of the Project’s potential environmental and social risks and impacts, please refer to the Project’s Appraisal Environmental and Social Review Summary (ESRS). Legal Covenants Sections and Description Legal Agreement, Schedule 2, Section I.A.2: “2. No later than 60 days after the Effective Date, the Borrower shall establish and thereafter maintain throughout Project implementation a Project Steering Committee (“PSC”) chaired by SEFAZ, an advisory body responsible for the Project oversight, strategic guidance, and coordination, with composition, functions and responsibilities set forth in the POM and acceptable to the Bank.” Conditions 4 The World Bank Progestão Mato Grosso (P178339) Type Financing source Description Effectiveness IBRD/IDA Legal Agreement, Article V, 5.01: “5.01. The Additional Conditions of Effectiveness consist of the following: (a) that the Project Operations Manual referred to in Section I.B of Schedule 2 to this Agreement has been adopted in a manner acceptable to the Bank; (b) that the Implementation Agreement referred to in Section I.A of Schedule 2 to this Agreement has been entered into between the Borrower and MTPREV, in form and substance acceptable to the Bank; and (c) that the Inter-Secretariat Agreement referred to in Section I.A of Schedule 2 to this Agreement has been entered into between the Borrower and the Implementing Secretariats, in form and substance acceptable to the Bank.” 5 The World Bank Progestão Mato Grosso (P178339) I. STRATEGIC CONTEXT 1. The proposed project is the second operation in a Series of Projects (SoP) under the Progestão Program designed to assist Brazilian States in implementing reforms that will improve efficiency in public expenditure. The objective of Progestão Program, as stated in the Memorandum of Understanding between the National Secretariat of Treasury (Secretaria do Tesouro Nacional, STN) and the World Bank, is to develop the fiscal budget and asset management of the Brazilian governments through actions that aim at reducing and rationalizing public spending with long term results to contribute to the fiscal sustainability of state entities. The Program, available to all Brazilian States regardless of their fiscal situation, will provide technical assistance to help participating States modernize and improve efficiency in whole-of-government functions and strategic sectors through investments in management reforms and information systems. The Progestão Program Framework is presented in Annex 2. The Federal government has requested that the Bank support the Progestão Program through a series of investment project financing operations in order to ensure technical support from the World Bank during project implementation. This Project Appraisal Document presents the Progestão Project in the State of Mato Grosso. The Mato Grosso Progestão project addresses five whole- of-government functions (human resource management, pensions, public investment management, asset management, and procurement) and two strategic sectors (health and social assistance). These focus areas were selected applying the Progestão Program selectivity criteria: strategic alignment, implementation capacity, impact on beneficiaries, and alignment with World Bank corporate commitments. A. Country Context 2. Brazil entered the COVID-19 pandemic in a weak economic position. After rapid growth and social progress between 2001 and 2010, partly due to sound macro policies and a favorable external environment, Brazil’s economy fell into deep recession. While external factors triggered the slowdown, an expansionary policy response led to rapidly rising fiscal unbalance and, with rising domestic political uncertainty, a loss of confidence and a sharp drop in investment. Poverty increased three percentage points between 2014 and 2017, pushing 7.3 million more people into poverty. From 2017 to 2019 – the years immediately before the pandemic – growth averaged just 1.1 percent. Unemployment declined from a peak of 13.6 percent in March 2017 to 11.0 percent in 2019 but it remained above pre-crisis levels (6.8 percent in 2014). Most of the new jobs were created in the informal sector. As of 2019, 19.6 percent of the population lived on less than US$5.50 per day (2011 purchasing power parity [PPP]), including 4.6 percent on less than US$1.90 per day (2011 PPP). 3. The COVID pandemic has severely impacted Brazil with over 678,000 deaths as of July 2022. The country’s health system was under extreme stress during the first half of 2021: hospital capacity was pushed to the limit, intensive care unit bed occupancy rates exceeded 80 percent in 14 out of 27 States, with scarcities of oxygen, Intensive Care Unit (ICU) medication supplies, and trained professionals. The government has negotiated vaccine contracts for over 662 million doses, 179.7 million Brazilians have received at least one dose of a COVID-19 vaccine and 168.9 million are fully vaccinated (78.6 percent of the population). After a contraction of 4.1 percent in 2020, the Brazilian economy rebounded with a 4.7 percent growth rate in 2021, though the latest data points to some deceleration. The labor market began to recover in early 2021. Unemployment fell from 13.5 percent in 2020 to 11.6 percent in November 2021. However, recent World Bank business pulse and COVID-19 phone surveys indicate cuts in pay or hours worked for a significant share of workers. These trends, coupled with higher inflation, have contributed to a 11.4 percent decrease in average real income of workers by November 2021 (YoY). 4. Brazil’s state governments are in a dire fiscal situation. Brazil’s States have extensive service delivery responsibilities in health, education, security, and environment. Prior to the pandemic, 7 out of the 26 Brazilian States and the Federal District had declared a state of fiscal calamity, 17 out of 27 State governments were not eligible to borrow under Federal rules due to limited creditworthiness related to liquidity and solvency concerns, and 20 had 1 The World Bank Progestão Mato Grosso (P178339) delayed payments to public servants and/or providers at some point. In 2019, State public investment was 52.5 percent lower than in 2015. Paradoxically, in 2020, State governments experienced improved fiscal outcomes, despite the negative effects of the health crisis, with just 12 States ineligible to borrow. This was due to the large federal transfers to address the COVID-19 pandemic (R$97 billion, 1.4 percent of GDP), through the federal social protection program – Auxílio Emergencial – that helped maintain a reasonable level of economic activity and contributed to tax revenue increases. As these temporary measures wind down in 2022 and beyond, the States’ fiscal position will deteriorate rapidly if State governments do not implement reforms to reduce expenditures. 5. The Ministry of Economy recently launched programs to support States in fiscal distress and encourage them to implement structural reforms. The Fiscal Recovery Regime Program (Programa do Regime de Recuperação Fiscal, PRRF) instruments support States in serious fiscal distress, providing a fiscal adjustment instrument for all participating state governments. PRRF offers debt relief for highly indebted States that: reduce tax exemptions by at least 20 percent; approve legislation for the privatization of State Owned Enterprises (SOEs); contain recurrent expenditure growth with an expenditure rule; harmonize the States’ civil servants benefits in line with those of the federal government; adopt a pension reform similar to the federal pension reform of 2019; implement a complementary pension fund; centralize all public resources in a single treasury account managed by the Executive; and renegotiate arrears with private providers and the implementation of fiscal adjustment plan. The Fiscal Sustainability Program (Plano de Equilibrio Fiscal, PEF) will help state governments in fiscal distress recover their creditworthiness with the National Treasury achieving a Payment Capacity Assessment B rating (Capacidade de Pagamento, CAPAG1) by improving current savings and fiscal liquidity. Under this program, the Federal Government provides guarantees for new lending against implementation of fiscal adjustment program which must include at least three fiscal measures drawn from the PRRF. 6. The Federal Government intends to complement these fiscal measures with reforms to management systems that can deliver efficiency gains in public administration and public expenditure. The Federal Government proposes to devolve additional responsibilities to state governments – an initiative the President describes as “More Brazil and Less Brasilia” – while at the same time achieving efficiency improvements so that States can “do more with less.” In order to avoid the fragmented impact of past reforms across States, the Federal Government will implement the Progestão Program as a “national” joint federal-state effort that supports a “Brazilian State” vision and a common set of public sector management reforms. STN designed Progestão as a program to help States improve their management capacity, raise the efficiency of public expenditure, and address management challenges in a coordinated country-wide technical assistance program in line with ongoing and upcoming reforms. B. Sectoral and Institutional Context 7. Even though Mato Grosso has had a strong economic performance in recent years and ranks 7th among Brazilian States on the Human Development Index in 2017, the State has high poverty levels and patchy service delivery performance. Between 2002 and 2019 Mato Grosso recorded the highest average GDP growth in Brazil2, at 5 percent per year, significantly above the national average of 2.3 percent. Growth was driven largely by the agriculture sector, led by cotton cultivation and livestock. Unemployment, at 5.9 percent in March 2022, is significantly lower than the national average of 11.1 percent. Nonetheless, Mato Grosso has high levels of poverty. Data from the Unified Registry for Social Programs (Cadastro Único, CadUnico), reveals that approximately 12 percent of the population (419, 942 people) were living in extreme poverty in 2020 (living on less than R$ 151, US$30, per month), compared to 9.9 percent in 2018. In October 2020, around 30 percent of the population (1.1 million people) were living on less than half the minimum wage (approximately US$110/month or US$3.67/day) and thereby eligible for support from the emergency cash transfer 1 Tesouro Nacional Transparente, Capacidade de Pagamento (CAPAG), Estados e Municípios (Link) 2 There is a two year delay in the Brazlian Institute of Geography and Statistics (Instituto Brasileiro de Geografia e Estatística, IBGE)’s production of statistics on State’s GDP. (Link) 2 The World Bank Progestão Mato Grosso (P178339) program (Auxílio Emergencial)3, a rate that is similar to the Brazilian average. In 2021, only 53 percent of 5th grade students reached the expected proficiency in Portuguese and 41 percent in Math, compared with a national average of 57 and 47 percent respectively. Nearly 18 percent of the population reported having limited access to public health services according to the Family Budget Survey (2017-2018), again around the average for Brazilian States (17 percent). 8. Mato Grosso's fiscal performance has improved significantly in recent years. The State Government cut current expenditures by 1.4 percent annually between 2018 and 2020. In 2019, the State government implemented contingency measures in payroll expenses, reducing the number of Secretaries from 27 to 16, discontinuing automatic readjustments policy for public officials and suspending new hires4. Pension reforms increased the contribution rate of employees, lifting revenues by around R$350 million in 2020. Current revenues grew by 25.2 percent from 2018 to 2020, largely due to a 50-percent increase in federal transfers in response to the COVID-19 pandemic, and strong economic growth and business activity increasing the State’s own tax revenue by 14 percent. In 2021, revenues collected in the first 10 months (the most recent data available) surpassed the total value of the previous year by 4 percent. Mato Grosso achieved a positive fiscal balance in 2019, which continued in 2020 when the surplus grew further by an impressive 223.7 percent (at a nominal value of R$3.9 billion). Preliminary data for 2021 indicate a continuation of this positive trend. This performance has resulted in an increase of the State Payment Capacity Assessment (CAPAG) score from C (the second worst score) in 2019 to an A in 2021. 9. The State of Mato Grosso has requested the Bank’s assistance to consolidate recent reforms and improve efficiency in whole-of-government public sector management systems and service delivery in sectors under the Progestão Program. Progestão Mato Grosso will help tackle public sector management and public sector inefficiencies through investments in management reforms and information systems in: human resource management; pensions; public procurement; public investment management; and asset management. Progestão Mato Grosso also supports investments in management reforms and information systems in two strategic sectors: health and social assistance. The State did not select to include education priority management systems, since there is another project under implementation in the Secretariat, with limited internal capacity to deal with an additional project intervention. Whole of Government Management Systems 10. Human Resource Management. The World Bank’s micro-data analysis shows that the main factor behind the wage bill growth of active personnel between 2009 and 2016 was salary increases. In this period, the average salary grew in real terms by approximately 6.5 percent annually while the number of employees increased at an average rate of 2.2 percent annually. In 2018, Mato Grosso implemented a freeze on new hires and discontinued automatic wage increases. This helped reduce personnel expenditures, with wage bill dropping to below the Fiscal Responsibility Law threshold of 60 percent of total net current revenue in 2020, as compared with 68.18 percent in 2018. In 2020, the State had 54,972 active and 39,746 retired employees. Wage bill growth resumed in January 2022 with a 7 percent increase based on the Annual General Review (Revisão Geral Anual) for all public officials. Around 15 percent of active employees will retire between 2022 and 2024. While this will put pressure on the pension system, it does provide an opportunity to review HRM practices and align hiring and talent management with future public sector needs. The State has a structured HRM information system that provides secure data, providing a good foundation for developing new technological solutions. However, the State’s HRM practices are largely manual and process-driven, providing limited opportunities for skills development, career advancement, and movement within the public sector. Poor HR planning and career management has led to wage bill growth without a commensurate increase in delivery capacity. Women 3 Secretaria De Avaliação E Gestão Da Informação, VIS DATA 3 beta Pessoas inscritas no Cadastro Único com renda mensal de até meio salário mínimo (Link) 4 These reforms were supported by the P164588 Mato Grosso Fiscal Adjustment and Environmental Sustainability Development Policy Loan (approved in May 2019 , closed December 2021). 3 The World Bank Progestão Mato Grosso (P178339) represent 56 percent of tenured positions but occupy just 34 percent of leadership positions hired from outside the government and 41 percent of the top 10 percent highest-paid positions. The Secretariat of Planning (SEPLAG) intends to invest in the workforce planning system, use artificial intelligence for automated wage bill audits, conduct a functional review of the public administration careers and positions, and support actions leading to an increase in women’s participation in leadership positions. 11. Pensions. The State of Mato Grosso’s pension expenditures increased 6.1 percent in real terms annually from 2016 to 2019. Revenues from inactive personnel increased only by 3.6 percent over the same period and the pension deficit grew from R$966 million in 2016 to R$1.6 billion in 2019. In 2020, Mato Grosso implemented pension reforms increasing the contribution rate from 11 percent to 14 percent of income, increasing the minimum retirement age from 53 to 60 years, introducing a new benefit calculation rule, and creating the Complementary Fund for all new members and employees of the Executive, Legislative, Judiciary and Public. These measures slowed pension expenditure growth to 1.4 percent in 2020 (the most recent data available), pension revenues increased by 37.9 percent and thereby reduced the deficit to R$580 million. Despite these gains, Mato Grosso’s pension system still faces significant challenges. In 2020, the State had 0.83 retirees and pensioners for each active employee, up from 0.64 in 2017. The pension fund, valued at R$84.2 million in December of 2020, is much smaller than most States. Recurrent pension deficits and lack of complete and accurate information means that Mato Grosso's Pension Agency (Mato Grosso Previdência, MTPREV) cannot generate timely actuarial impact projections for workforce changes. The State is undertaking a census of pension beneficiaries and plans to digitalize analysis and monitoring services to generate more accurate projections and scenario analysis. The State will complement management system reforms with measures to strengthen liability management and returns on its pension fund investments, currently averaging 4.35 percent, below other State pension funds. 12. Procurement. Mato Grosso recently created a Procurement Unit in SEPLAG, to centralize public procurement for standard purchases. However, Secretariats and entities continue to carry out other items that require a more technical preparation of bidding documents. The State Government spent approximately R$1.25 billion a year on public procurement between 2017 and 2020, peaking at nearly R$1.4 billion in 2020, averaging 7 percent of State expenditure. In 2020 and 2021 the State undertook 1,712 public procurement processes, with the Secretariat of Public Security and the State Health Fund undertaking the largest number (375 and 305, respectively), totaling R$854 million. Actual procurement spending could be much higher. Weak reporting systems fail to capture all of the procurement undertaken by secretariats and entities. The State lacks standard requirements for public bidding processes, with buyers using different modalities, evaluation criteria, bidding formats, often resulting in different prices for equivalent items. Bidding is waived in approximately 45 percent of procurement processes. The COVID-19 pandemic reinforced the need to improve these processes, and highlighted structural challenges, especially in procurement for the health sector. The State Court of Accounts has launched a dashboard (Radar de Controle Público) to increase transparency and controls in public spending. The State intends to streamline public procurement procedures, strengthen the use of data for analysis and strategic management, thereby improving efficiency and value in public spending. Reforms will support the development of sustainable procurement approaches addressing environmental, gender equality, and other social objectives. 13. Public Investment Management. Mato Grosso’s public investment amounted to 4.5 percent of State expenditures in 2020, slightly higher than the average for Brazilian States (4.1 percent) but down from the average of 6 percent achieved in the period 2015-2017. Investments picked up again in 2021 when it was 76 percent higher between January and August than the same period in 2020. The State Government lacks the guidelines, methodologies and institutional governance structures needed to ensure high standards for the preparation, screening, selection, and management of its public investment projects. Weak public investment management practices contribute to frequent adjustments to projects, time and cost overruns. There is no central institution responsible for the review and approval of public investments. MT Participações e Projetos S/A (MT Par) promotes and prepares public-private partnership projects, but 4 The World Bank Progestão Mato Grosso (P178339) this entity also lacks standardized tools and procedures for project preparation, appraisal and approval. Public investment projects are not screened for environmental or climate risks or to assess their alignment with other public policy objectives such as gender or promotion of small and medium sized enterprises. The State intends to put in place a management information system for public investment projects and public private partnerships which will allow the State to standardize project preparation and approval procedures and improve the quality of information on projects and resources. The State will also put in place an information system to manage the investment resources transferred to municipalities. 14. Asset Management. In 2020 the State Government rented out 272 buildings, owned 91 unoccupied buildings, and rented 101 buildings from the private sector, with R$18.1 million in revenues from property sales and rent and expenditures of R$3 million on the acquisition of real estate assets and rents. The State Government does not have a complete registry of all its properties, with updated valuations, complete legal documents, and other relevant information. Low quality and incomplete information contributes to inefficient asset management with underutilized, empty, poorly maintained assets, often incurring unnecessary operations and maintenance and rental expenditures or revenue losses. Decentralized management of information technology has led to a proliferation of hardware and software, limited interoperability and information sharing, security concerns, duplication of assets, high acquisition, and operating costs. The State Government intends to strengthen its asset management systems by undertaking systematic inventories, regularizing legal documentation on their real estate portfolio, and acquiring both movable asset and immovable asset management information systems. Sector Management Systems 15. Health. Mato Grosso’s large area (904,000 km2, about the area of France and Germany combined) and low population density (6.9 inhabitants per km2), pose significant challenges to the delivery of health services across the State. Life expectancy at 80.1 years for women and 73.9 years for men is slightly above the national averages of 79.5 and 72.2 years. The top four causes of death are heart disease, stroke, chronic pulmonary disease, and diabetes (interpersonal violence and road accidents are in third and fourth place). As the population ages, the incidence of chronic disease will increase placing additional burdens on the health care system. 83 percent of the population depends on the public health system. In 2020, the health sector accounted for 14.8 percent of State expenditure, significantly more than the average for Brazilian States at 13 percent. Initial estimates point to an increase of 80 percent in the cost of health care provision during the COVID 19 pandemic. Despite the significant investment, health management systems are weak. Patients’ medical records are managed manually. There is limited integration across information systems for services, administrative and financial data, human resources, and health indicators. Health data is rarely used for service delivery planning and decision-making. The State Secretariat of Health (SES) intends to implement a hospital management system in the high complexity facilities under its management (regional and referral hospitals) to improve planning, budgeting, health services management, and support evidence-based decision making. The system is expected to deliver efficiency improvements by, for example, making better use of available hospital capacity and strengthening adherence to clinical guidelines, whilst simultaneously improving transparency and accountability. 16. Social Assistance. The State co-finances the Social Assistance System (Sistema Único de Assistência Social, SUAS) with municipalities and provides technical support to ensure adequate coverage and quality of services. Municipalities’ Social Assistance Reference Centers (Centro de Referência de Assisência Social, CRAS) offer services, programs and benefits to mitigate social risks, including family protection and assistance and services for people with disabilities and the elderly. In recent years, Mato Grosso has expanded activities in this field, reaching R$1 billion in social benefits to households in 2020. The ID-CRAS (Indicador de Desenvolvimento dos Centros de Referência de Assistência Social, CRAS Development Index) measures financial execution and integration across municipalities’ social services and benefits. In 2018, Mato Grosso’s ID-CRAS rating, ranked 7th in Brazil, but 19 percent of municipalities’ CRAS scores were “lower than expected quality,” a increase from 16.2 percent in 2017. The State lacks robust systems for monitoring the quality of 5 The World Bank Progestão Mato Grosso (P178339) SUAS services, transfers to and management of resources by municipalities and NGOs. Administrative systems are manual and fragmented. Weak service management leads to overlaps and gaps in service provision. Resource allocation and productivity could be improved with modern financial management and benefits management systems, strengthened monitoring capacity, and data use for decision-making. Cross Cutting Issues 17. Climate Change. Mato Grosso is part of the Legal Amazon region and contains a variety of important biomes: 53 percent of the State lies within the Amazon biome, 40 percent within the Cerrado (tropical savanna) and 7 percent within the Pantanal (tropical wetland). Mato Grosso has 111 protected areas, 23 of which are federally protected, 47 are under State control and the remaining 36 are under municipal control. The extensive environmental capital is threatened by growing deforestation, large forest fires and other phenomena related to climate change – such as more frequent and intense droughts. The climate – high degree of insolation, regularity of rainfall and high rainfall index – and the topographical relief – not very rugged – favor the development of agribusiness. The State has productive regions for cropland agriculture and cattle ranching, contributing 28 percent of Brazil’s grain production in 2020 and 14 percent of livestock production in 2018. Interannual climate variability is already impacting crop production patterns. The State Government reported a financial loss of R$321 million in 2019 due to climatological and hydrometeorological events. Agricultural expansion has historically taken place through clearing of forests, including in the Amazon biome. While average deforestation post-2010 has been 75 percent below its 2001-10 average, deforestation continues to be considerable, and its pace has increased since 2015. In 2018, 1,749 km2 of forests were cleared in Mato Grosso’s Amazon biome (130 percent above the 2012 low point). The expansion of agricultural production into previously forested areas has historically been a leading contributor to carbon emissions and has come to the detriment of higher productivity. Mato Grosso contributed 10.3 percent of Brazil’s GHG emissions in 2019, ranking second among Brazilian States. The State needs to strengthen its climate-informed PIM process to avoid infrastructure and others disasters related damage. 18. Gender. There is limited information of gender gaps in Mato Grosso from State information systems. The lack of gender-relevant data is a significant shortcoming that needs to be addressed as core management information systems are put in place. The General Comptroller of the State (CGE) is responsible for managing public employee misconduct cases but there is no specific procedure for civil servants to seek protection, nor is there any organized data about complaints. In 2021, CGE and SEPLAG created a special commission to design and implement an anti-harassment campaign, with two core areas: prevention and legal instruments5. A comparison of State procurement data with the federal enterprise database, reveals that female-owned businesses were awarded 20.6 percent of contracts, compared with 42.8 percent going to male owned businesses. Possible barriers to increased participation of female owned businesses in public procurement include limited information about the State procurement process, lack of bidding processes targeting women-owned business, and lack of information about what the State buys and opportunities for suppliers. The new Brazilian Public Procurement Law (n. 14.133/2021) does not promote women owned businesses as a policy objective. The State intends to gather information on the type of ownership of businesses participating and awarded in public procurement, as well as disaggregate data by gender in new information management systems. C. Relevance to Higher Level Objectives 19. Mato Grosso Progestão is aligned with the State’s medium-term plan (PPA) for 2020-2023. The project supports nine programs listed in the PPA: Digital Government, Partnerships, Public Policies Management, Strategic Management, Accountability, and Modernization. The PPA intends to strengthen management tools, expand the use of new technologies, and promote creative and innovative solutions that improve the efficacy and effectiveness of service delivery. The project is also aligned with the State Secretariat of Planning and Management’s (Secretaria de Estado de 5 CGE Noticias, CGE e Seplag finalizam programa contra o assédio moral e sexual no serviço público (Link) 6 The World Bank Progestão Mato Grosso (P178339) Planejamento e Gestão, SEPLAG) Strategic Plan 2016-2025 which seeks to ensure the quality and efficiency of public services through improvements in areas of human resources management, documentation management, procurement, and asset management. The project supports this objective through investments in information systems and consultancies to improve processes and governance in critical areas. 20. The project is aligned with the World Bank Group's Country Partnership Framework (CPF) 2018-2023 (Report #113259-BR) discussed by the Executive Directors on May 16, 2017, which proposes the reorientation of new lending toward challenges identified in the Systematic Country Diagnostic, including government effectiveness and the quality of policymaking and implementation. The proposed project will support the CPF's Focus Area 1 (Fiscal consolidation and government effectiveness) and is aligned with objective 1.1 “Strengthen fiscal management at all levels of government, and objective 1.2 “Increase fiscal sustainability and fairness of pension system, and effectiveness of social protection systems.” The CPF states that “restraining growth in current expenditures and enhancing public sector efficiency will be key for increasing domestic public savings” and stresses that “greater attention can be given to the quality of public spending” considering inefficient and poor target spending commitments. The CPF proposes support to help the Government of Brazil consolidate, disseminate, and deepen this first generation of fiscal and public sector management reforms, noting that “Sub-national government have made important contributions to the improvement of Brazil's fiscal position, but should address fiscal issues as a prerequisite.” The Bank will use investment and development policy loans to support institutional changes and policy implementation. The project is aligned with objective 1.4 “increase effectiveness of service delivery in health”, by helping the State government adopt management systems and practices that will strengthen capacity, accountability and quality in health service delivery. 21. The project will contribute to the World Bank Group's corporate priorities embedded in the CPF Focus Area 3 (Inclusive and Sustainable Development). The CPF supports Brazil’s efforts to reach its Nationally Determined Contribution (NDC), which aims to reduce total net greenhouse gas emissions by 43 percent by 2030 and create climate neutrality (net-zero emissions) in 2060. The national strategy lays out a transition to a cleaner energy mix and increased use of climate risk management approaches. The Project will incorporate, when technically relevant and feasible, gender, environmental, and climate change perspectives. The project will strengthen Mato Grosso’s resilience and climate change mitigation and adaptation by strengthening the implementation of environmental regulations, promoting green and climate smart procurement, introducing a climate dimension to the screening and appraisal of public investment projects, management of physical assets and reviews of public expenditures. The project will support gender informed activities, including potentially in the areas of human resources management, public investment management and public procurement. It will also promote equity and support poor and vulnerable groups’ access to services through impro ved management practices in strategic sectors: health and social assistance. The project will promote citizen engagement by supporting interactions between citizens and governments with information and consultation platforms. 22. The “Series of Projects based on a common design” will enable the Bank to help address individual requirements of Brazilian States in a cost-efficient manner by providing an opportunity to share experience and solutions among participating States where conditions are similar while respecting their fundamental differences. Public sector management reforms require a strategic and long-term commitment from all parties. The SoP provides a strong message to all stakeholders as it establishes from the outset a sense of commitment and continuity that cannot be achieved by stand-alone operations. It also serves as a tool for coordination, learning and collaboration between federal and State governments, across State governments and with the World Bank. The Federal Government and the World Bank have agreed on general guidelines which provide an overarching strategy and priorities common to all operations (see Annex 1). The SoP approach will help preserve coherence and predictability across multiple operations in Brazil through a single Program Development Objective and a clear set of activities that can be financed. This will help the federal government implement a well-defined national agenda. States can join the program at different implementation stages insofar as they subscribe to the development objective and meet the eligibility criteria. Use of project templates can help 7 The World Bank Progestão Mato Grosso (P178339) accelerate project preparation and shift staff to hands-on supervision. II. PROJECT DESCRIPTION A. Project Development Objective PDO Statement Improve efficiency in public resource management in selected departments of the State of Mato Grosso. PDO Level Indicators • Public Sector Workforce replacement rate of non-frontline service delivery staff (Baseline: 0.99; Target: 0.975) • Time between opening and finalizing the procurement processes (Baseline: 195 days; Target: 120 days) • Investment budget execution rate (Baseline: 55%; Target: 70%) • Net fixed property income (Baseline: R$15.1 million; Target R$20.1 million) B. Project Components 23. The operation is structured around three main components: whole-of-government management systems; management systems in strategic sectors; and project and change management. The project scope and structure is aligned with the Progestão Program (see Annex 1). Mato Grosso did not request support in debt management because the PROFISCO II project (financed by the Inter-American Development Bank) is already supporting SEFAZ in this area and did not request support for state-owned enterprises because major privatizations have already taken place. Specific interventions in sectors were selected based on their direct impact on public sector efficiency and implementation readiness. The project will support management systems in health, social protection, and environment – focusing on the highest priority management systems that have an impact on efficiency of resource allocation. The project does not include education because the World Bank is preparing a project for that sector in Mato Grosso. The project activities will incorporate, when technically relevant and feasible, gender, environmental, and climate change perspectives in accordance with Brazilian legislation. Component 1: Whole-of-Government Management Systems (US$41 million) 24. Sub-Component 1.1: Human Resource Management (US$9 million) SEPLAG. Activities financed under this subcomponent include: (i) development of a strategic workforce planning system and functional reviews to identify the competencies needed and plan organizations’ staff recruitment and deployment in all State departments and selected agencies; (ii) design and implementation of a management analytics system and artificial intelligence for automated wage bill audits; (iii) periodic staff surveys to assess reform implementation and support change management; and (iv) communications and capacity building to support the rollout and implementation of the above mentioned activities. 25. Sub-Component 1.2: Pensions Management (US$2.4 million) MTPREV. Activities financed under this subcomponent include: (i) development and implementation of an actuarial impact calculation system for changes in the State’s workforce; (ii) design and implementation of a pension financial asset and liability management system implemented for the new benefits scheme and capacity-building to improve management of pension benefits (iii) a full financial audit of all pension benefits and payments; (iv) design and implementation of a pension fund investment management strategy; (v) procurement of energy-efficient hardware to support the deployment of these systems; and (vi) communications and capacity building to support the rollout and implementation of the above mentioned activities. 26. Sub-Component 1.3: Public Procurement (US$10 million) SEPLAG. Activities financed under this subcomponent include: (i) development of a sustainable procurement strategy, and an implementation plan to help embed sustainable 8 The World Bank Progestão Mato Grosso (P178339) procurement across the State's purchases; (ii) development and implementation of a centralized e-procurement system, including the redesign and automation of key processes to ensure cost-effective acquisitions; (iii) development and implementation of a inventory management system integrated to procurement, including an e-marketplace portal; (iv) design and implementation of a strategic sourcing methodology to help identify demand for goods and services across the government; (v) application of artificial intelligence using electronic invoices and to identify and reduce fraud and corrupt practices; (vii) development and implementation of a system that certifies enterprises and automatizes data aggregation; (viii) capacity building for officials working to support the roll-out of these initiatives; and (ix) procurement of energy-efficient hardware to support the deployment of the above mentioned activities. 27. Sub-Component 1.4: Public Investment Management and Budgeting (US$6.9 million) SEPLAG and SEFAZ. Activities financed under this subcomponent include, inter alia: (i) development and implementation of a public project management system for State’s investments, integrating project preparation, screening and appraisal; (ii) preparation of a portfolio of technically appraised, implementation ready projects; (iii) design and implementation of a governance strategy to manage the project portfolio execution; (iv) design and implementation of sustainable budgeting systems and practices; (v) development and implementation of a management system for the transfer of resources from the State of Mato Grosso to municipalities and non-governmental organizations, allowing for digital monitoring of project preparation, implementation and reporting; (vi) capacity building for the State civil servants on sustainable public investment and expenditure management practices, to support the rollout and implementation of new tools; (vii) periodic staff surveys to assess reform implementation and support change management; and (viii) procurement of energy-efficient hardware to support the rollout and implementation of the above mentioned activities. 28. Sub-Component 1.5: Asset Management (US$12.7 million) SEPLAG. Activities financed under this subcomponent include: (i) contracting of technical support to assess and update information on the State’s real estate properties, including geospatial data, area, occupation rate, valuations and registry status; (ii) identification of opportunities to improve energy efficiency; (iii) development and implementation of a comprehensive public asset management system; (iii) energy audits for selected government properties, focused on reducing energy consumption; (iv) development and implementation of a system for mapping costs of information and communication technologies (ICTs), including identification of synergies between government-to-government systems, interoperability, and a governance strategy for new acquisitions and maintenance; (v) capacity building on asset management practices and support the rollout and implementation of new tools; (vi) procurement of energy-efficient hardware to support the rollout and implementation of the above mentioned activities; and (vii) sizing of server storage to guarantee enough space for information technology tools and systems implemented under this project. Component 2: Management Systems in Strategic Sectors (US$6.8 million) 29. Sub-Component 2.1: Health (US$5 million) SES. Activities financed under this subcomponent include: (i) implementation of an expenditure review to identify cost structure and assess budgeting practices in the State's public health units; (ii) implementation of systems to support budgeting and expenditure management in the State's health units; (iii) communication and capacity-building to support the rollout and implementation of new tools; and (iv) procurement of energy-efficient hardware to support the rollout and implementation of the above mentioned activities. 30. Sub-Component 2.2: Social Assistance (US$1.8 million) SETASC. Activities financed under this subcomponent include: (I) design and implementation of an integrated management system to facilitate the execution of social assistance programs, including financial management, cash transfer programs and management of other benefits, as well as internal registries; (ii) development and implementation of a transparency panel to support decision-making in social assistance; (iii) automation of social protection services, providing faster access to services and reducing operational costs; (iv) communication and capacity-building to support the rollout and implementation of new tools; and (v) procurement of energy-efficient hardware to support the rollout and implementation of the above mentioned 9 The World Bank Progestão Mato Grosso (P178339) activities. Component 3: Project and Change Management (US$2.2 million) 31. Sub-Component 3.1: Project Management Unit (US$1.5 million) SEFAZ. Activities include: (i) project management, including procurement, financial management, and environmental and social safeguards (staff, equipment, and operating costs); (ii) development and implementation of a grievance redress mechanism and management information system, in coordination with the Comptroller General (CGE) the institution mandated with this function; and (iii) communications and capacity building to support project management functions. 32. Sub-Component 3.2: Change Management (US$0.7 million) SEFAZ. Activities financed under this sub-component include: (i) development a transversal change management strategy encompassing on incentives, processes and skills; (ii) consulting services, studies, and surveys to support project implementation; (iii) carrying out process reviews before information systems are developed; (iv) just-in-time support, as needed and as agreed with the Bank, including advisory services to the technical teams during implementation, including the State General Attorney (Procuradoria Geral do Estado, PGE), State Comptroller General (Controladoria Geral do Estado, CGE), and State Court of Accounts (Tribunal de Contas do Estado, TCE), and knowledge exchange activities; (v) development and implementation of an integrity control system, including data analytics, to identify potential fraud in contracts; and (vi) communications and capacity building to support the rollout and implementation of the above mentioned activities. C. Project Beneficiaries 33. The proposed Project is expected to benefit around 80,000 State employees, promoting more efficient and effective systems for managing public finances. Direct beneficiaries are staff from Mato Grosso, SEFAZ and SEPLAG, their subordinate entities and sector secretariats for health and social assistance. These institutions and their employees will benefit from more efficient and effective systems for managing services and public finances, better quality and more timely information for decision-making, and enhanced technical capacity to manage and utilize that information for decision-making. All State agencies will benefit from improvements in whole-of-government management practices and improved access to information. This will help agencies manage resources more efficiently and effectively. Citizens and businesses will benefit from improvements in government transparency and increased public sector productivity. Service users will benefit from improvements in the efficiency of health and social assistance management systems. Civil society organizations and academics will benefit from access to better quality and more timely information that can be used for research, accountability, advocacy, and management purposes. Indirect beneficiaries are firms in the State of Mato Grosso who will benefit from improved fiscal policy decisions based on more complete, accurate and timely financial information and improved policy analysis. D. Results Chain 34. Figure 1 presents a summary of the project's theory of change, illustrating the linkage between the project's key interventions and its targeted intermediate results, outcomes, and project development objective. Inputs include technical assistance, consulting services and capacity building to identify, design, develop and support implementation of modern management systems in areas of public management that can generate efficiency gains in Mato Grosso’s public administration. Intermediate results are management systems, supporting regulations, procedures and information systems. In turn, these results will support outcomes such as savings, increased productivity and transparency. Assumptions in the causal chain include: the State will commit and build consensus for system implementation in the areas of HRM, pensions, procurement, public investment management and asset management; cross-cutting systems transcend government transitions allowing continuity in project implementation; systems and new technologies applied to management activities can increase public sector productivity, transparency and resilience to extreme weather events and climate change; and savings resulting from systems and selected public sector management 10 The World Bank Progestão Mato Grosso (P178339) can also improve service delivery in strategic sectors. Figure 1: Progestão Mato Grosso Theory of Change E. Rationale for Bank Involvement and Role of Partners 35. The World Bank is uniquely placed to support Mato Grosso given its experience working on public sector management reforms in Brazil and globally, including the Bank’s collaboration with the State of Mato Grosso. The World Bank’s public sector portfolio, spanning multiple States, provides a good understanding of public sector management reforms across Brazil, the technical and institutional challenges posed by the proposed reform program, and of the factors that will be critical to the success of these reforms. In the State of Mato Grosso, the World Bank has supported the implementation of expenditure reforms and revenue measures with Mato Grosso Fiscal Adjustment DPL 11 The World Bank Progestão Mato Grosso (P178339) (P164588), paving the way for the complementary activities that will guarantee the sustainability of the entire operation. The Bank’s strong field presence in all the technical areas covered by the project facilitates close support to public management systems implementation and capacity-building activities. 36. The Progestão Program provides a framework for collaboration across States and institutions at the national level. These partners include but are not limited to the National Council of State Secretaries of Administration and Planning (CONSAD and CONSEPLAN), the National Association of State Information and Communication Technology Entities (ABEP-ICT), and the National Council of Secretaries of Finance (COMSEFAZ). These partners will provide a forum for policy and technical discussions to guide implementation of State projects. States are expected to share experience and tools, including information systems, through thematic work groups. This will significantly reduce investment costs and potentially allow States to share costs of upgrading information systems. The following thematic working groups have been established by CONSAD: human resource management; procurement; public investment management; asset management; and digital government. 37. The State of Mato Grosso is currently implementing PROFISCO II, a program financed by the IADB that supports fiscal sustainability, through a focus on modernizing government’s revenue mechanisms and processes. The Mato Grosso PROFISCO II focuses on increasing the efficiency of tax collection and simplifying tax compliance for businesses and citizens. PROFISCO works almost exclusively with SEFAZ, though the program also finances improvement in the results-driven budgeting process through SEPLAG. The Progestão Program complements PROFISCO II through its focus on management and expenditures, cross-cutting functions, and strategic sectors, expanding the revenues/SEFAZ scope. The Ministry of Economy requires an assessment of PROFISCO State-level activities during Progestão Project preparation to identify synergies and avoid duplication of efforts. F. Lessons Learned and Reflected in Project Design 38. The proposed operation draws on lessons learned from the World Bank’s experience with State-level operations focused on public sector reform, service delivery, and expenditure management. These operations include Parana (P126343), Amazonas (P147979), Acre (P147913), Ceará (P127463), Alagoas (P103770), and Rio de Janeiro (P127245). Lessons include: the importance of high-level political commitment to the reform agenda; engagement with and ownership of technical teams implementing reforms; the need for an active learning agenda, communications program and continuous engagement with stakeholders; the importance of close supervision by Portuguese speaking staff; the value of relevant international experience and access to experts with experience beyond Brazil; the need for technical assistance to support preparation of terms of reference to avoid procurement delays; making use of innovative analytical techniques and sources such as use micro-data to identify key reforms and potential economic returns, particularly in HRM and Pensions; ensuring flexibility in the design and implementing arrangements so that the project focus can be adjusted as State priorities change and implementation proceeds; and the critical role played by a national (Federal and State level) reform agenda to guide priorities and drive the reform agenda across States; and the need for early discussion on the legal requirements to enable retroactive financing. 39. The project also draws on lessons from the PNAGE (2006-2012), PROFISCO I (2008-2018) and PROFISCO II (2014- ongoing), programs financed by the Inter-American Development Bank (IADB). The National Support Program of Management and Planning Modernization of States and Federal District (Programa Nacional de Apoio a Modernização da Gestão e do Planejamento dos Estados Brasileiros e Distrito Federal, PNAGE) and the Program of Support to Revenue Authorities Management of Brazil (Programa de Apoio à Gestão dos Fiscos do Brasil, PROFISCO) are joint federal-state national programs that help States address challenges in revenue administration and public financial management. Lessons include: establishing a task force to manage knowledge exchange between state governments; supporting State Procuradorias, through the implementing unit, in charge of approving contracts and whose limited capacity can delay the implementation as a result of long and complex hiring processes; and assessing the level of commitment, readiness, 12 The World Bank Progestão Mato Grosso (P178339) and potential fiscal impact before committing finance to State projects. 40. The Project will benefit from insights from the Bank’s recent and ongoing parallel analytical work. This includes analytical work on: pension reform Implementation at federal and subnational levels which underscored the need for strengthened pension management at the subnational level (P172230); public sector wage bill, human resource management and inter-governmental fiscal transfers, using micro-data analysis from subnational governments to assess, for the first time, the impact of different policy measures in the wage bill and on HRM (P172560); and corruption risk and use of public data for anti-corruption activities, piloting the use of artificial intelligence to identify potential fraud in public procurement at different levels of government (P171744). III. IMPLEMENTATION ARRANGEMENTS A. Institutional and Implementation Arrangements 41. Mato Grosso’s Secretariat of Finance (SEFAZ) will lead project implementation. Specific implementing arrangements include: a Steering Committee; a Project Management Unit (PMU); interagency agreements for implementation; and inter-state thematic working groups for the learning agenda. See Annex 1 for details. 42. SEFAZ. The Secretariat will lead the project and host the Project Management Unit. The project will leverage SEFAZ’s experience in managing externally financed operations, including two recent projects with the Inter-American Development Bank (IADB) and other the World Bank's DPL (P164588). The State Government has selected SEFAZ as the main implementing agency because it has the qualified and tenured staff, greater continuity of staffing across changes in administration, a mandate to coordinate reform programs across government and experience in working with agencies through the planning and budget process, as well as experience with large technical assistance projects. 43. Steering Committee (SC). The Steering Committee is an advisory body comprising representatives of each agency participating in the Program. The representatives are the Secretaries or Deputy Secretaries appointed to the Committee by the State Governor. The Committee will be chaired by SEFAZ. The committee may temporarily invite agencies with direct or indirect involvement in the program to participate. The SC will provide strategic guidance and oversight of the reforms and project implementation. It will be responsible for the overall policy coordination and policy guidelines, strategic guidance, set priorities, resolve conflicts, and ensure inter-agency collaboration where needed and monitor progress of the project. 44. PMU. The PMU will support project implementation and coordination with the participating secretariats. SEFAZ will create the PMU by decree. The Project Manager will report to the Secretary of Finance. The primary responsibility of the PMU will be to oversee and ensure operational compliance with Procurmenet Regulations and World Bank policies, including the environmental and social policy, as defined in the financing agreement, the Project Operations Manual, the Disbursement and Financial Information Letter. 45. Interagency agreements. SEPLAG will implement activities under Component 1 directly or through its subordinate agencies such as MTPREV. The State Secretariats of Health and Social Assistance will implement sub-components under Component 2. SEFAZ will implement Component 3 which supports the PMU. SEFAZ will sign interagency agreements for cooperation with the sectoral secretariats, establishing the specific objectives, responsibilities, and timeframe for implementation of project activities. Participating agencies will designate a focal point responsible for project implementation and monitoring of progress. 46. Thematic working groups. At the national level, thematic working groups established through CONSAD will bring together technical teams and high-level officials from across the country. These working groups will be a key mechanism for exchanging views on both technical challenges and implementation issues among the Brazilian States and with the Federal Government. In addition to a permanent high-level agenda (meetings at least once a year), States will be able to 13 The World Bank Progestão Mato Grosso (P178339) request ad hoc workshops to discuss specific project-related issues presented by the network of specialists and practitioners. Thematic groups on Human Resources, Digital Government, Procurement, and Asset Management have already been formed during the Program’s preparation in partnership with the CONSAD. The National Council of State Secretaries of Planning (CONSEPLAN) and the National Council of Secretaries of Finance (CONFAZ) are expected to join. The thematic groups will serve as a sounding board to continuously improve processes and procedures to make interventions more effective. B. Results Monitoring and Evaluation Arrangements 47. Progress towards the achievement of the Project Development Objective will be assessed based on the PDO- level and intermediate results indicators. The Results Framework (RF) for this operation is presented in Section VII. The RF includes selected indicators used by the Ministry of Economy for the purposes of monitoring the impact of the national Progestão Program. The PDO indicators were selected in consultation with SEFAZ taking into consideration: the level of priority of the reform areas in the State’s medium-term program; the extent to which implementing agencies have influence over the proposed outputs and outcomes; the level of ambition of the reforms; and the availability and reliability of data from administrative systems. The limited availability of data for baselines has proved an important constraint on the selection of PDO and intermediate results indicators. 48. The World Bank and the State government will continue to strengthen results measurement during project implementation as information systems are put in place and the range and quality of performance information improves. The project will support improvements to information systems that will generate data on: public investment project cost overruns, budget revisions, and restructuring; public procurement cost savings for high volume or commonly procured goods and services, the share of sustainable procurement, and the share of procurement to women-owned businesses; and the performance of the State pension fund relative to the national average. 49. The PMU will gather the relevant data from participating institutions and present the Bank with semi-annual progress reports that include data on project execution and project outputs and outcomes. The PMU may commission an interim evaluation before the project's midterm review to inform any adjustments to the project's interventions, economic analysis, or implementation arrangements. The World Bank team will conduct semi-annual implementation support missions to monitor achievement of results and agree on adjustments when necessary. Implementation progress will be documented in Aide Memoires and Implementation Status and Results (ISR) Reports. Learning from Monitoring and Evaluation (M&E), including beneficiary feedback, will provide information for the development of the subsequent projects in the SOP, and will be shared with relevant stakeholders through the thematic groups. C. Sustainability 50. Mato Grosso is the second State to present a Progestão Project and secure federal government approval. The Ministry of Economy requested the World Bank’s assistance in the design, financing, and implementation of the national Progestão Program. The Program seeks to improve efficiency of public expenditures in Brazilian States through investments in management reforms and information systems that improve administrative and expenditure efficiency. The Commission for External Financing (COFIEX), the Government's council responsible for approving externally financed operations, approved Progestão Program on 19th May 2021, with an envelope of US$1,000 million in federal guarantees for participating States. States participate on a voluntary basis, submitting proposed Progestão Projects to COFIEX for approval. The Progestão Program and State-level Progestão Projects commit the authorities to the implementation of a reform program over a five-year period. The Program and Projects are aligned with Federal and State governments’ objectives in improving efficiency, identifying budgetary savings whilst sustaining or improving service delivery performance. 51. Mato Grosso has achieved a more stable fiscal situation after spending cuts and implementing structural 14 The World Bank Progestão Mato Grosso (P178339) expenditure reforms and revenue measures supported by the World Bank DPL operation (P164588). The project supported by Mato Grosso Progestão will continue these reforms, strengthening capacity and productivity in key whole- of-government management functions. The reforms supported by the project are of a managerial and technical nature and as such are not expected to be controversial. The program is expected to proceed without significant adjustment following changes in administration. 52. The Project will support regulatory reforms, business process changes, information systems, capacity building and change management activities in all areas of engagement. These institutional reforms are expected to put in place routines, review and oversight arrangements that will help sustain reforms. Engagement with key internal and external stakeholders through project design and implementation is expected to increase ownership. The project will strengthen HRM by putting in place more effective recruitment routines, introducing competencies and performance evaluation methodologies. These HRM reforms are expected to reinforce the shift towards data-informed and evidence-based management practices supported by the other components of the project. IV. PROJECT APPRAISAL SUMMARY A. Technical, Economic and Financial Analysis (if applicable) 53. Strategic Relevance. The project is of strategic relevance to the Government of Mato Grosso and aligned with the State’s medium-term plan (PPA) and the participating institutions’ action plans. The project focuses on core whole-of- government management systems and selected management systems in strategic sectors identified by the participating agencies. 54. Technical design. The proposed project will develop and implement complex systems, some of which will be commercial off-the-shelf (COTS) customized and some will be developed specifically based on the needs of the agency. Contracted system developers will provide direct support, skills transfer and user training. The PMU will assist the participating agencies prepare appropriate TORs for contracts, drawing on the Bank’s international experience. The PMU will ensure that users and beneficiaries are consulted during the design and implementation of administrative reforms and information systems. The project will support change management activities under each component, this will include extensive training in systems use, data analytics, and evidence-based decision making for the targeted management staff. This will develop in house capacity and thereby support continued operation and sustainability. Just- in-time technical assistance, approved by the PMU and Bank, will help with problem solving. The project loan agreement provides sufficient flexibility to allow for adjustments to project sub-components and activities to accommodate changes in State policy priorities and allow the project to respond to differential progress in implementation. 55. Institutional Building, Knowledge Sharing and Innovation. The Progestão program provides a platform to strengthen institutional capacity in Brazilian states on several priority public sector management areas through upgrading core management systems and approaches. Peer learning and technical collaboration among states on priority reform areas will drive results and innovation. States participating in Progestão will share experiences and tools through thematic working groups (see para Error! Reference source not found.). These groups will be crucial for exchanging views on implementation issues and technical challenges among state governments. Collaboration and experience sharing across State governments through these working groups is expected to reduce investment costs by allowing States to: develop, pilot and share innovative solutions, such as the use of artificial intelligence in human resource management; maintain reform momentum through peer exchange; and save time on implementation by allowing States to share TORs and technical documents. A capacity development and knowledge management program will support skills enhancement for both technical and managerial staff and strengthen soft skills in all technical areas. The management information systems developed by the project – for public investment, procurement, human resources, hospitals, schools, environmental management – will be of interest to States participating in the Progestão 15 The World Bank Progestão Mato Grosso (P178339) Program, a wider range of Brazilian States and may be of interest to other countries in the region. 56. Technical capacity and readiness to implement. The project entails a challenging set of management reforms and systems across a wide range of functions and multiple institutions in Mato Grosso’s public administration. The State has some experience with management reforms, recently introducing result-oriented budgeting practices, implementing e- invoicing systems and strategic workforce planning in SEFAZ. The proposed project provides for significant technical assistance to support the reform process, including technical advisors and consultants, capacity building and change management activities. Change management is particularly important given the project requires changes in organizational culture, promoting use of integrated data and analytics to support evidence-based decision making and citizen-oriented services. SEPLAG and SEFAZ leadership and managers at all levels will play an important role in mobilizing support for the implementation and use of outputs developed under the project. 57. Climate Change. The Project will incorporate climate change perspectives as relevant to contribute to climate change mitigation and adaptation in the following: (i) the pension fund investment management strategy; (ii) development of a sustainable procurement strategy and an implementation plan; (iii) development and implementation of a public project management system for State investments, integrating climate change considerations in project preparation, screening, and appraisal; (iv) rationalization of movable and immovable assets and identification of opportunities to improve energy efficiency; (v) development and implementation of systems to support cash transfers and agreements with municipalities to implement social programs which targets the poor and vulnerable to external shocks; and (vi) the procurement of energy-efficient hardware to support the deployment of new systems. 58. Citizen Engagement. The project will contribute to citizen engagement through improvements in the quality, timeliness and accessibility of information on public finances and the performance of State institutions. The project will: facilitate dialogue with civil society on information made publicly available; establish and put in place mechanisms to track public consultations in relation to investment projects; and undertake periodic consultations on the implementation of management reforms. Systems that monitor transfers and capital investments in municipalities will apply open data principles. The PMU will explore the feasibility of applying these principles to other management systems. The results framework includes an indicator aimed at capturing and incorporating feedback to improve government's investments made through transfers to municipalities, and the quality, timeliness and accessibility of information provided. 59. Gender. The project will address gender gaps in project activities as and when technically relevant and feasible, in human resources management, public investment and procurement. The design and implementation of the new systems is an opportunity to prepare the State Government to collect gender-disaggregated data to inform gender policies across Progestão components. Progestão Mato Grosso will contribute to a higher registration rate of women- owned businesses in the state’s procurement system and eligible to participate in public bids. The Results Framework will reflect an indicator to monitor the closing of the gender gap. 60. Equity. The Project will incorporate, when technically relevant and feasible, equity perspectives in accordance with Brazilian legislation. The project’s investments in information systems and management reforms will facilitate equitable access to public services and opportunities. The new public investment management system will integrate environmental and social considerations into project planning and design and improve targeting for the poor and other disadvantaged groups. Procurement reforms will also consider gender, poverty and environmental elements in public procurement. HRM systems will generate information on ethnicity and gender that can be used to inform public employment policy. Health management information systems will benefit the population dependent on the public health system, which are predominantly lower income families. The social assistance systems will help improve service delivery to poor and vulnerable groups, promoting equity in the State, and the environment systems will help identify vulnerable areas to better target policies. 16 The World Bank Progestão Mato Grosso (P178339) 61. The Economic Analysis assesses the project’s economic return using a cost -benefit analysis (CBA) of the modernization of the public administration. Project costs includes systems development, implementation, and incremental operating costs. Direct benefits come from efficiency savings from reduced staff time and operating costs. Economic benefits include the increased economic growth impact of higher quality public investments. Other savings are expected from the rationalization of operational costs, payroll savings, improved performance of pension funds. Estimation of the expected benefits is based on the data and information provided by the State Government. Annex 3 summarizes costs and benefits by project component considered in the cost-benefit analysis. The analysis employed an incremental approach, which, by design, compares the scenario without the project (counterfactual scenario) and the scenario with the project. The net present value of project benefits is estimated at US$40.9 million, with an internal rate of return of 13 percent at a discount rate of 4.5 percent (see Annex 3). B. Fiduciary (i) Financial Management 62. A financial Management Assessment (FMA) was conducted for the project. It found that: (i) the FM arrangements for the proposed Project are considered acceptable; (ii) the funds flow, disbursements, monitoring, auditing, and supervision arrangements have been designed to respond to the Project’s implementation arrangements; and (iii) the residual FM risk associated with the project is rated as Moderate. 63. The FMA identified several risks to the achievement of the project development objective: These include (i) SEFAZ/MT has no prior experience with managing World Bank investment project financing (IPF) instruments; (ii) the project has a complex design as it aims to support several sectors and multiple executing agencies, which may delay project implementation; (iii) the FM Team at the PMU has not been appointed, (iv) the current PPA and LOA did not envisage the Project’s activities, which may result in budget constraints, and (v) the need to modernize and strengthen internal control arrangements at the State Secretariat of Internal Control (CGE) to fully comply with its institutional role and mitigate fiduciary risks, specifically the internal audit functions and adoption of a risk-based approach. 64. Fiduciary risk mitigation measures have been identified. These include: (i) The Bank FMS should be provided direct access to the State's financial management information system (FMIS); (ii) the Project Operations Manual (POM) will be developed by the PMU and forwarded to the Bank for non-objection, and, the Bank will provide continued close support and supervision throughout project implementation, (iii) two months from project signature and prior to the first project disbursement , two fully dedicated Financial Management staff should be appointed/hired to undertake all FM related tasks and to ensure segregation of functions, to be detailed in the POM. The FM staff should be trained in all the necessary government budget, accounting, administrative rules, and procedures, and should attend all fiduciary trainings provided by the World Bank throughout project implementation, (iv) SEFAZ-MT should adjust its PPA and LOA to reflect the Project’s activities, including a budget line to monitor the technical assistance component, and (v) the project will provide support in the Technical Assistance component to strengthen and update the administrative and functional structure of the CGE in order to strengthen project execution monitoring. (ii) Procurement 65. The project procurement risk is Substantial. The Project will be carried out in accordance with the World Bank’s Procurement Regulations for IPF Borrowers, dated November 2020. The main challenge from the procurement standpoint is related to the large number of consulting services contracts under the Project. Planned consulting services include a first set of 28 contracts for the development of information systems and consulting services for diagnostics and technical studies. Many of the systems related contracts involve cybersecurity aspects, which adds to the complexity and scope, requiring special attention, skills and care. Although the national consulting services market is well-developed and competitive, implementing agencies shall prepare an engagement strategy to inform and mobilize a broad set of 17 The World Bank Progestão Mato Grosso (P178339) prospective consulting firms, and ensure a bidding process that is attractive to market participants. 66. A procurement capacity assessment was carried out. The assessment reviewed the organizational structure and their operating environment for implementing procurement transactions expected by the project; the project’s procurement will be centralized in the PMU. The identified issues and risks include: (i) capacity limitations of administrative staff (ii) lack of familiarity with World Bank procurement policies for the selection of consultants and procurement of goods and non-consulting services (c) limited capacity to prepare realistic procurement plans (d) limited staff with procurement skills, profile and experience, and (e) insufficient measures and procedures to ensure a good track record of managing environmental, social, health, and safety risks including preventing sexual harassment, exploitation, and assault throughout the procurement process. 67. Staffing: SEFAZ and each implementing agency shall be staffed with skilled procurement staff according to the complexity of activities, including a pool of experts to prepare Terms of Reference and Technical Specifications. Technical aspects of envisaged procurement activities will require appropriate coordination amongst technical and procurement specialists. .C. Legal Operational Policies . Triggered? Projects on International Waterways OP 7.50 No Projects in Disputed Areas OP 7.60 No . D. Environmental and Social 68. Based on the results of the environmental and social risks and impacts screening, this project is rated as low risk under the Bank’ Environmental and Social Framework. The following standards were found relevant during project preparation: ESS1—Assessment and Management of Environmental and Social Risks and Impacts; ESS2—Labor and Working Conditions; ESS3—Resource and Efficiency and Pollution Prevention and Management; ESS7—Indigenous Peoples/Sub-Saharan African Historically Underserved Traditional Local Communities; ESS8—Cultural Heritage; and ESS10—Stakeholder Engagement and Information Disclosure. A detailed analysis of the relevance of each applicable ESS is presented in the project’s Environmental and Social Risk Summary. The Client will carry out an environmental and social assessment through an environmental and social issues scoping exercise that will be publicly consulted and disclosed within 30 days after project effectiveness. The Borrower has prepared an Environmental and Social Commitment Plan (ESCP), including the relevant elements of a Stakeholder Engagement Plan (SEP) to ensure information disclosure as well as stakeholder and citizen feedback and a Labor Management Procedures (LMP) to ensure terms and working conditions in line with the requirements of ESS2. The ESCP and SEP were disclosed on the Bank’s website on March 29, 2022. 69. Environmental risk. Progestão Mato Grosso does not foresee infrastructure works or other on-the-ground activities with environmental impacts and risks that need to be managed. No future construction of physical infrastructure investments, spatial plans and natural resources management regulations are expected as results of technical assistance activities supported by the project. The project is expected to have a positive impact on the environment through: (i) the systematic environmental screening and assessment of public investment; (ii) the development and implementation of a sustainable public procurement strategy; (iii) undertaking energy audits of selected State properties and identifying investments needed to improve energy efficiency and shift to renewables; (iv) rationalizing the movable assets and identifying opportunities to shift to electrify and improve energy efficiency; (v) 18 The World Bank Progestão Mato Grosso (P178339) reductions in consumables, travel time and energy consumption through the digitalization of public administration services; and (vi) improved monitoring of natural forest cover and the recovery of natural vegetation in the State and thereby strengthening compliance with Forest Code (Law 12.651/2012) and land use planning. 70. Social risk. Progestão Mato Grosso is not expected to have adverse social impacts. Project activities do not require land acquisition, do not lead to restrictions on land use or involuntary resettlement. They are not expected to have adverse impacts on Indigenous Peoples and other vulnerable and disadvantaged social groups. Increased efficiency of public services in the different sectors is expected to mostly benefit vulnerable and disadvantaged social groups who rely heavily on public health and social protection networks. Progestão Mato Grosso will improve the transparency of human resource management, procurement, public investment, and asset management processes. It will create opportunities for public consultation around public investment projects and the administrative reform agenda. The project will strengthen the State Government’s grievance redress mechanisms. V. GRIEVANCE REDRESS SERVICES 71. Communities and individuals who believe that they are adversely affected by a World Bank supported project may submit complaints to existing project-level grievance redress mechanisms or the Bank’s Grievance Redress Service (GRS). The GRS ensures that complaints received are promptly reviewed in order to address project-related concerns. Project affected communities and individuals may submit their complaint to the WB’s independent Inspection Panel which determines whether harm occurred, or could occur, as a result of WB non-compliance with its policies and procedures. Complaints may be submitted at any time after concerns have been brought directly to the World Bank's attention, and Bank Management has been given an opportunity to respond. For information on how to submit complaints to the World Bank’s GRS, please visit http://www.worldbank.org/en/projects-operations/products-and-services/grievance- redress-service. For information on how to submit complaints to the World Bank Inspection Panel, please visit www.inspectionpanel.org. VI. KEY RISKS 72. The overall risk of the proposed operation is assessed as Moderate. The principal risks to the objectives of this operation include political uncertainty, and the complexity of systems and reforms that will be implemented. These risks are presented below. 73. Political and Governance risks are substantial given that State and federal elections in October 2022 may potentially affect political consensus around the Project’s reform agenda. The Borrower, with support from the Bank, intends to mitigate this risk by focusing, in the first year of implementation, on developing core management systems that are required by Federal regulations, notably the asset management and public investment systems, which are not controversial; involving permanent employees to ensure the continuity of the outputs and outcomes of the operation in each component activity; holding an event right after elections with the participation of Secretariats of Finance and Planning and the Federal Government to keep stakeholders engaged. 74. Risks related to the Technical Design of the Project are rated as substantial. There are a high number of contracts that will be executed across multiple agencies throughout implementation. Even with the strong commitment from the implementing agencies, the management reforms and information systems that will be implemented are complex. The project mitigates this risk by focusing on administrative reforms, drawing on models of administrative and information systems from across Brazil and internationally, and promoting a consultative approach to systems design and implementation. . 19 The World Bank Progestão Mato Grosso (P178339) VII. RESULTS FRAMEWORK AND MONITORING Results Framework COUNTRY: Brazil Progestão Mato Grosso: Public Sector Management Efficiency Project Development Objectives(s) Improve efficiency in public resource management in selected departments of the State of Mato Grosso. Project Development Objective Indicators RESULT_FRAME_TBL_ PD O Indicator Name PBC Baseline End Target Improve efficiency in public resource management in selected departments of the State of Mato Grosso Public sector workforce replacement rate for non frontline 0.98 0.97 service delivery staff (Number) Time between opening and finalizing the procurement process 195.00 120.00 (Days) Investment Budget execution rate (Percentage) 55.50 70.00 Net fixed property income (Number) 15.10 20.10 PDO Table SPACE Intermediate Results Indicators by Components RESULT_FRAME_TBL_ IO Indicator Name PBC Baseline End Target Component 1: Whole-of-Government Management Systems Page 20 of 61 The World Bank Progestão Mato Grosso (P178339) RESULT_FRAME_TBL_ IO Indicator Name PBC Baseline End Target Payroll irregularities (Text) 0.00 -0.30 State public agencies and institutions conducting strategic workforce planning (Percentage) 0.00 50.00 Performance of the state pension fund relative to the average for 0.00 0.10 Brazilian states (Percentage) Public hearing on public investments by state or through No Yes transfers to municipalities (Yes/No) Integrated dashboard for municipal transfers with operational information and accessible to the public (Yes/No) No Yes Pension payroll irregularities (Text) 0.00 -0.30 Use of price reference system in competitive bidding processes 0.00 80.00 (Percentage) Public procurement processes with sustainability criteria 27.00 50.00 (Percentage) Women-owned businesses registered in the state's procurement system and eligible to participate in public bids (Percentage) 0.00 15.00 Public investment projects prepared and selected in line with 0.00 100.00 PIM methodology (Percentage) Inventory on State ICT Infrastructure (Yes/No) No Yes Public real estate with complete legal documentation (Percentage) 15.00 80.00 Component 2: Management Systems in Strategic Sectors Number of high complexity health units with hospital management system implemented and operational (Number) 0.00 5.00 Municipalities using new financial management system to 0.00 65.00 provide reports on social assistance services (Percentage) Municipalities with capacity building on the new social assistance 0.00 80.00 services management system (Percentage) Page 21 of 61 The World Bank Progestão Mato Grosso (P178339) IO Table SPACE UL Table SPACE Monitoring & Evaluation Plan: PDO Indicators Methodology for Data Responsibility for Data Indicator Name Definition/Description Frequency Datasource Collection Collection Personnel recruited from outside the public sector Sum of # new divided by personnel leaving Secretariat of permanent public active post (retirement, Planning / officials new hires in resignation) in non-frontline Public sector workforce replacement rate Annual Atlas do the last 5 years / Sum SEPLAG service delivery areas. for non frontline service delivery staff Estado of # permanent public Baseline is average of last 5 Brasileiro officials leaving in the yrs last 5 years This indicator excludes personnel employed in front line service delivery Average difference Days between Demand between procurement Time between opening and finalizing the Registration in procurement Annual SEPLAG opening and finalizing SEPLAG procurement process system and award of dates for all state contract to provider purchases Average annual execution of Sum of executed State public investment projects budget on public Planning compared with original investment projects in Annual Integrated SEPLAG Investment Budget execution rate budget in the last 5 years, the last 5 years / Sum System considering a filter of of planned budget on (FIPLAN) investment projects applied public investment to the attribute "expenses projects in the last 5 Page 22 of 61 The World Bank Progestão Mato Grosso (P178339) group="Investments" in the years State Planning integrated system (FIPLAN) (Sum of revenues of the budget items (1.3.1.0.01.1.0 - Rents; 1.3.1.0.01.2.0 - Foros, Laudemios and Occupation Fees; 1.3.1.0.99.0 ) in the Average net fixed propery past 3 years (N-1, N-2 income of State "receita and N-3)/3)-(Sum of patrimonial" element in SICONFI current expenditures Annual SEPLAG Net fixed property income Budget revenues (Millions of Annex I-C on rents and real estate Reais). Baseline is average of assets based on budget lst 3 yrs. Excludes property elements in the past sales and purchases three years (N-1, N-2 and N-3)/3) - (Sum of expenditures of the budget items reffered to property rents in the past three years (N-1, N-2 and N-3)/3) ME PDO Table SPACE Monitoring & Evaluation Plan: Intermediate Results Indicators Methodology for Data Responsibility for Data Indicator Name Definition/Description Frequency Datasource Collection Collection Expenditure irregularities in One time Audit report Review of audit report SEPLAG Payroll irregularities the active personnel payroll. findings Page 23 of 61 The World Bank Progestão Mato Grosso (P178339) Data will come from Audit reports. The management analytics product will identify risk areas for control. Baseline is total payroll and target is -0,3%. # of State departments AnnualHu and agencies of direct man Human administration that # of institutions/agencies Resources Resources implemented a with strategic workforce Manageme Management State public agencies and institutions workforce strategic SEPLAG planning reports as percent nt Information conducting strategic workforce planning planning methodology / of total number of state Informatio System # of State departments agencies/institutions n System (HRMIS) and agencies of direct (HRMIS) administration Measures of the performance of the State Pension Situation pension fund in comparison Indictor Panel (Total Performance of the state pension fund to the average of other Annual MTPREV State investment MTPREV relative to the average for Brazilian states State governments, with a assets) x Annex 4, Table target of improving annual 1 RREO Siconfi returns by at least one standard deviation. Government incorporating feedback to improve government's investments Report from project Public hearing on public investments by Secretariat of made through transfers to Annual management unit in SEPLAG state or through transfers to Planning municipalities, as well as SEPLAG municipalities capital investments by capturing user satisfaction on specific dimensions of Page 24 of 61 The World Bank Progestão Mato Grosso (P178339) quality, timeliness and accessibility of information provided Website with information Annual verification of Integrated dashboard for municipal Secretariat of on municipal transfers is Annual website functionality, SEPLAG transfers with operational information Planning operational and acessible to available information and accessible to the public the public Expenditure irregularities (of any category) in the retired personnel and pensioner payroll. Data will come from Audit reports. The One time Audit Report Review of Audit Report MTPREV Pension payroll irregularities management analytics product will identify risk areas for control. Baseline is total payroll and target is a reduction of 0.3% # of goods and services E- bidding documents Share of goods and services Procurement with price reference / Use of price reference system in Annual SEPLAG bidding documents with Information total of goods and competitive bidding processes price reference System services bidding documents # of goods and services Public procurement with E- bidding documents sustainability criteria. Share Procurement with sustentability Public procurement processes with of public procurement Annual SEPLAG Information criteria / total of goods sustainability criteria processes with System and services bidding environmental, social, and documents governance criteria Page 25 of 61 The World Bank Progestão Mato Grosso (P178339) SEPLAG will prepare a report information on women owned businesses which Measures women-owned Portal da participated in public businesses registered in the Transparênci procurement bids, and Women-owned businesses registered in state's procurement system Annual a x Receita the number of women SEFAZ the state's procurement system and and eligible to participate in Federal owned businesses eligible to participate in public bids public bids as a share of CNPJs awarded contracts in total business registered. public procurement processes as a share of total # of procurement processes Measures degree of # of investment project Public application of the new PIM prepared and selected Investment methodology to public under PIM Public investment projects prepared and Annual Project Infor SEPLAG investment projects. A methodology / total of selected in line with PIM methodology mation review of all new projects investment project System will be carried out to carried out by the State determine compliance Complete inventory report Secretariat of Review of inventory on state ICT infrastructure One time SEPLAG Inventory on State ICT Infrastructure Planning report and systems finalized and available Number of state real estate properties with complete Technical report from legal documentation Secretariat of Public real estate with complete legal Annual the state asset SEPLAG proving state ownership as Planning documentation management system share of total number of state real estate properties listed in state database Page 26 of 61 The World Bank Progestão Mato Grosso (P178339) Number of high complexity health units implementing # of hospitals that Number of high complexity health units an integrated digital hospital Secretariat of implemented and are Annual SES with hospital management system management system with Health (SES) operating the hospital implemented and operational minimally required management system information and analytical capabilities # of municipalities that Percentage of municipalities Secretariat of adopted and are using Municipalities using new financial generating reports on social Social Annual the system/ # of SETASC management system to provide reports assistance services from the Assistance municipalities of the on social assistance services financial management (SETASC) entire State information system # of municipalities that Percentage of municipalities Secretariat of ere trained in the Municipalities with capacity building on that have adopted and were Social Annual system/ # of SETASC the new social assistance services trained in the new social Assistance municipalities of the management system assistance services (SETASC) entire State management system ME IO Table SPACE Page 27 of 61 The World Bank Progestão Mato Grosso (P178339) ANNEX 1: IMPLEMENTATION ARRANGEMENTS AND SUPPORT PLAN Project Institutional and implementation arrangements 1. Mato Grosso’s Secretariat of Finance (SEFAZ) will lead project implementation. Specific implementing arrangements include: a Steering Committee (SC); a Project Management Unit (PMU); interagency agreements for implementation; and inter-state thematic working groups for the learning agenda. Figure 1: Implementation Arrangements 2. SEFAZ will lead project implementation and host the Project Management Unit. The project will leverage SEFAZ’s experience in managing externally financed operations, including two recent projects with the Inter-American Development Bank (IADB), with the Program to support Fiscal Management (PROFISCO), and two World Bank-financed Development Policy Operations (P164588 and P152285), addressing fiscal adjustments and public investments. The State Government has selected SEFAZ as the implementing agency because it has the qualified staff, greater continuity of staffing across changes in administration, a mandate to coordinate reform programs across government, and experience in working with agencies through the planning and budget process, as well as experience with large technical assistance projects. As the implementing entity, SEFAZ will: coordinate, monitor, and report on project implementation; decide on operational matters related to project implementation; support the other Secretariats to implement the project activities; coordinate with other secretariats to ensure project's proper implementation; and serve as World Bank's interlocutor for the implementation of the project. 3. Steering Committee. The Steering Committee is an advisory body comprising representatives of each agency participating in the project. The representatives are the Secretaries or Deputy Secretaries appointed to the Committee by the State Governor. The Committee will be chaired by SEFAZ. The committee may temporarily invite agencies with direct or indirect involvement in the project to participate. The SC will provide strategic guidance and oversight of the reforms and project implementation. The Committee will be responsible for the overall policy coordination and policy guidelines, strategic guidance, set priorities, resolve conflicts, ensure inter-agency collaboration where needed, and monitor progress of the project. 4. Thematic working groups. At the national level, thematic working groups established through the CONSAD will bring together technical teams and high-level officials. These arrangements will facilitate learning and exchange of experience on human resource management, procurement, public investment management, asset management, and Page 28 The World Bank Progestão Mato Grosso (P178339) innovation and digital government. 5. Project Management Unit. SEFAZ will establish a PMU to support the day-to-day management of project implementation and coordination with the participating secretariats. The PMU will be created within SEFAZ by decree. The PMU will be headed by a Project Manager, either recruited externally or assigned to a tenured staff. The Project Manager will report to the Secretary of SEFAZ. The PMU will be staffed with a team of officers and staff drawn from relevant secretariats in addition to external consultants for the project, hired through the PMU to support the planning, coordination, implementation, and monitoring of the project performance. The PMU will also include procurement and financial management specialists/analysts. External consultants and training activities will strengthen SEFAZ’s technical and fiduciary capacity to management the large number of consulting services under the project, which will follow World Bank procurement rules that are substantially different from the national law. The PMU will serve the following functions: (i) ensuring proper and timely implementation of project activities; (ii) monitoring and supporting proper implementation of the project environmental and social framework; (iii) assisting in the preparation of Terms of Reference; (iv) ensuring that procurement is carried out in the most expeditious manner, with technical input provided by relevant departments and/or in-country expertise in the relevant area being financed, following World Bank rules; (v) monitoring contracts under the project; (vi) presenting project progress and financial reports on a timely basis as required by the World Bank; (vii) disseminating results in such a manner as to strengthen reform constituencies and ensure the carrying out of reforms deriving from the implementation of the project or studies and recommendations; and (viii) hosting and facilitating World Bank support missions and working to optimize the operation’s results and impact. 6. Operations Manual. The PMU will implement the project in accordance with an “Operations Manual”, satisfactory to the Bank, setting forth Financial Management, Procurement, Safeguards, and other arrangements as established by the Legal Agreement. The approved Operations Manual (OM) is an effectiveness condition for the project. 7. Interagency agreements. SEPLAG will implement activities under Component 1 directly or through its subordinate agencies such as MTPREV. The State Secretariats of Health and Social Assistance will implement sub- components under Component 2. SEFAZ will implement Component 3, which includes the PMU, just-in-time technical, and change management activities for all project components. SEFAZ will sign interagency agreements for cooperation with the sectoral secretariats, establishing the specific objectives, responsibilities, and timeframe for implementation of project activities. Participating agencies will designate a focal point responsible for project implementation and monitoring of progress. Each agency will be responsible for the execution of sector activities following State and WB regulations. Sector secretariats will receive technical support from the PMU to ensure compliance with World Bank procurement rules across. Table 1: Progestão Mato Grosso Implementing Agencies Responsibilities for Project Components Agency Institutional Structure and Function Subcomponents Secretariat of Finance SEFAZ is the administrative body of the executive branch responsible for Public Investment SEFAZ assisting the State Governor in planning, execution, and evaluation of the Management and financial, accounting, and tax policies of the State of Mato Grosso Budgeting; Change Management State Secretariat for SEPLAG is a direct administration body advising the State Governor on Human Resource Planning and planning, coordinating the planning and budgeting cycle of the executive Management; Management branch and promoting actions to promote the policy of human resources Procurement; Asset SEPLAG management, public assets and the provision of services to society. Management; Public SEPLAG monitors the budget plans, controlling and evaluating the Investment Management performance of the public sector. and Budgeting Page 29 The World Bank Progestão Mato Grosso (P178339) Agency Institutional Structure and Function Subcomponents Mato Grosso Pensions MT PREV is a State agency with legal mandate, part of the State's indirect Pensions Management Agency administration. The agency is responsible for managing the Social Security MT PREV System for Civil Servants of the State of Mato Grosso (RPPS-MT), operationalizing the respective social security benefits, covering active, inactive, and pensioner civil servants. State Secretariat for SETASC is the administrative body of the executive branch of the State of Social Assistance Social Assistance and Mato Grosso responsible for promoting social assistance through Citizenship SETASC mechanisms of social inclusion that include capacity building activities, decentralized assistance centers in municipalities, and the formulation and execution of public policies oriented to achieve general equity. Secretariat of Health The Secretariat of Health is responsible for the coordination, formulation, Health SES control, and implementation of health policies and guidelines in the State of Mato Grosso Financial Management 8. The World Bank conducted a financial management assessment (FMA) of SEFAZ and concluded that the financial management risk is Moderate. There are no FM-related conditions of effectiveness. SEFAZ will undertake the primary fiduciary responsibilities for the project in accordance with Bank Policy Investment Project Financing, Bank Directive: Financial Management in Bank-Financed Operations and Other Operational Matters (effective September 7, 2021). The FM assessment included: an evaluation of the existing financial management systems in place for project monitoring, accounting and reporting; a review of staffing arrangements; a review of the flow of funds arrangements and disbursement methods to be used; a review of the internal control mechanisms in place; a discussion of reporting requirements, including the format and content of Interim Financial Reports (IFRs); and a review of internal and external audit arrangements. 9. Risks. The FMA identified the following risk to the achievement of the Project Development Objective (i) SEFAZ has no prior experience with managing a World Bank investment project financing instrument; (ii) the project has a complex design supporting numerious sectors and with multiple executing agencies, which may delay project implementation; (iii) the FM Team at the PMU has not been appointed; (iv) the current PPA and LOA did not envisage the Project activities, which may result in budget constraints; and (v) the need to modernize and strengthen internal control arrangements at the State Secretariat of Internal Control (CGE) to fully comply with its institutional role and mitigate fiduciary risks, specifically the internal audit functions and adopting a risk-based approach. 10. Risk Mitigation. To manage these risks the following mitigation measures were idenfitied: (i) the Bank FMS should be provided direct access to the State's FMIS; (ii) the OM will be developed by the PMU and forwarded to the Bank for non-objection, and, the Bank will provide continued close support and supervision throughout Project implementation; (iii) two months from project signing and prior to the first project disbursement, two fully dedicated Financial Management staff, will be appointed or hired to undertake all FM related tasks and to assure segregation of functions, to be detailed in the POM; (iv) FM staff will be trained in all the necessary government budget, accounting, administrative rules, and procedures, and will attend all fiduciary trainings provided by the World Bank throughout project implementation; (v) SEFAZ will adjust its PPA and LOA to include project activities; and (vi) the project will provide support to strengthen and update the administrative and functional internal audit structure of the CGE to enhance monitoring of project execution. 11. Planning and Budgeting. The State’s budget process follows Law 4.320/64 and its respective regulations. The key planning and budgeting instruments are the medium-term plan (Plano Plurianual, PPA), the annual budget circular (Lei de Diretrizes Orçamentárias, LDO) and annual budget (Lei Orçamentária Annual, LOA). The procedures in place to Page 30 The World Bank Progestão Mato Grosso (P178339) plan project activities, prepare related budgets, and collect information from the other entities involved in the project are Satisfactory. However, the current PPA and LOA does not include the project activities. This represents a budgetary constraint and therefore a risk. To allow budget execution, SEFAZ will need to adjust the LOA and include project activities in the budget lines, no later than thirty days after loan signature. The FIPLAN state system will be utilized to elaborate the project’s budget process. The state budget process initiates with the completion of the PTA – “Plano de Trabalho Anual” or Yearly Work Plan. The PTA and FIPLAN are integrated systems. The project will be identified with its own “UG - Unidade Gestora” or budget unit. The PTA will include all the necessary project budget information such as: activity, component, subcomponent, category, etc. 12. Accounting. The State’s integrated system of Planning, Accounting and Finance is FIPLAN (Sistema Integrado de Planejamento, Contabilidade e Finanças do Estado de Mato Grosso). The system can adequately account for and control all transactions and records in real time and at the required level of detail. FIPLAN requires that funds are committed by source, enabling the tracking of loan proceeds to project expenditures. Such arrangements have the necessary segregation and level of approvals. FIPLAN provides detailed information on the budgetary and financial execution of all Management Units, recording revenues and expenditures, and other transactions that affect or may affect the entity's financial performance and financial position. Federal Decree no. 10,540/2020 establishes additional mandatory guidelines to art. 48 of Complementary Law no. 101, of 2000, which deals with minimum requirements for the accounting and control systems of budgetary units and their financial execution. The decree requires States to elaborate and publish an action plan for migration to the new standards by the 2023. The Project’s documented financial reporting responsibilities (which specifies what reports are to be prepared, their structure, timing and content) are being fulfilled. The accounting system maintains standards acceptable to the World Bank. All transactions under the Project will be accounted for on a cash basis, for disbursements, reporting and auditing purposes. 13. The Project will be monitored per the current FIPLAN’s chart of accounts. There is no need to open new accounts since the approved LOA will be transferred to the Group 5 - Approved Budget Accounts, according to the details of the PTA previously approved during the budget process. And once expenditures are spent, the transactions are booked through the Group 6 – Planning and Budget Execution Control’s Accounts. 14. Accounting Standards. The State of Mato Grosso follows federal accounting standards. These include: the Public Sector Accounting Standards (Normas Brasileiras de Contabilidade, NBC TSP) which represents the adoption of IPSAS in Brazil; Law N. 4,320/64 which establishes high-level accounting principles related to budget and accrual accounting; and the Accounting Manual applied to the Public Sector (Manual de Contabilidade Aplicado ao Setor Público, MCASP) issued under Law 10,180 of February 6, 2001. STN publishes the Public Sector Accounting Manual (Manual de Contabilidade Aplicada ao Setor Público, MCASP), whose use is mandatory for all public sector entities across the Federation. The MCASP is aligned with the accounting practices set forth in NBC TSP issued by the Brazilian professional accountancy organization, the Federal Accounting Council (Conselho Federal de Contabilidade, CFC). The NBC TSP translates IPSAS into Portuguese, with very few adaptations (indirect adoption). STN issues other relevant standards regarding budget execution accounting, chart of accounts, fiscal and LRF limits reports and other legal and special accounting procedures. STN has issued a detailed implementation plan for the adoption of IPSAS accrual accounting standards (Plano de Implantação dos Procedimentos Contábeis Patrimoniais, PIPCP) with broad participation of key stakeholders, including the Federal Court of Auditors. Mato Grosso expects to fully implement the PIPCIP by 2023: thirteen of the nineteen accounting standards have been fully implemented, two partially implemented, while four have yet to be initiated. The project will not finance any PIPCP activity, but the Bank will monitor progress throughout project implementation as it directly relates to the achievement and sustainability of the PDOs. Bank staff will be provided direct access to data from the State FMIS within 90 days after loan effectiveness to facilitate monitoring of project execution. 15. Internal Control. The State Constitution established the Integrated System of Internal Control of the Executive Branch of the State of Mato Grosso. All project budgeting and accounting transactions will be processed through FIPLAN. Page 31 The World Bank Progestão Mato Grosso (P178339) The first stage of the expenditure process is the Commitment (empenho) which is approved by the PIU, followed by Acquisition, Verification, and Certification (liquidação); and final Payment (pagamento) is made by SEFAZ. Approval and authorization controls are adequate as currently described in the state’s regulations. These will also be described in the OM. All project transactions will be reconciled on a monthly basis with the budget and procurement reports.The system for protecting the project’s assets from fraud, waste, and abuse is adequate. Assets purchased will be listed in an inventory record using FIPLAN. Each asset is given an individual master record and number. A physical inventory control is performed at the end of each fiscal year for these assets and reconciled with the respective control accounts annually. CGE will implement. Two months after project signature and prior to the first project disbursement, two fully dedicated financial management staff should be appointed or hired to undertake all FM related tasks and to assure segregation of functions, to be detailed in the POM. No funds will be disbursed prior to the appointment and training of the FM Staff. SEFAZ discloses information on its activities thorough the State’s transparency portal (http://www.transparencia.mt.gov.br/) 16. Internal Audit. The CGE is responsible for supporting State agencies on legal procedural compliance for public expenditures and complying with the access to public information law. CGE is also responsible for internal audit related functions, certain aspects of internal controls, and guides and evaluates the internal control activities of the Executive Branch. The CGE will implement the Internal Audit Capability Model (IA-CM) issued by the Institute of Internal Auditors (IIA). IA-CM consists of five levels, tied to leading practices. At level 3 (integrated) internal audit management and professional practices are uniformly applied following international practices. The Bank will support the State government’s effort to achieve level 3 of IA-CM by Project mid term review, financing some activities of the IA-CM through the project. The Bank will continuously support the government’s effort to achieve level 3 of IA-CM by MTR - midterm review, through financing some activities of the IA-CM. According to CGE’s status of the implementation of the IA-CM and the Action Plan, there are two KPAs6 (3.6 – Risk Base Audit and 3.9 – Cost Information) that needs to be completed by CGE-MT to achieve level 3. The Project will provide resources in a total of R$ 410,000 reais (approximately USD 80,000 dollars) to achieve KPA 3.6. The counterpart funds will provide the resources for the achievement of KPA 3.9. It is expected that the internal audit department in the CGE/MT conduct an evaluation on adequacy and effectiveness of internal control in the project implementing agencies, throughout project implementation. 17. Financial Reporting and Monitoring. The PMU will ensure the timely production of semiannual Interim Financial Reports (IFRs) for submission to the Bank within 60 days of the end of each semester. SEFAZ will submit the enhanced version of the IFRs (format and content) for the Bank’s validation 30 days after loan signing. The format and content of the IFRs will cover the following items: IFR 1 - Sources and Uses of Funds by disbursement category, with evidence of the World Bank’s share in the financing of expenditures, cumulative (project-to-date, year-to-date, and for the period) versus actual expenditures, including a variance analysis; IFR 2 - Uses of Funds by Project Activity or Component and Subcomponent, cumulative (project-to-date, year-to-date, and for the period) versus actual expenditures, including a variance analysis; IFR 3 - Designated Account bank reconciliation and Bank statements; and IFR 4 – Disbursement Forecast. IFRs will be prepared directly from FIPLAN, and will be supported by the accounting records, bank account statement and respective reconciliation. FIPLAN will provide IFRs on a cash-basis in local currency (BRL). The General Conditions require the Borrower/Recipient to retain all records (contracts, orders, invoices, bills, receipts, and other documents) evidencing eligible expenditures and to enable the Bank’s representative to examine such records. FIPLAN can adequately control, account for, report on, and manage the proposed Project. 18. Disbursement Arrangements. The disbursement of project funds will be processed in accordance with Bank procedures as stipulated in the Legal Agreement and in the Disbursement and Financial Information Letter (DFIL). During project implementation, the following disbursement methods will be available for use: Reimbursement, Direct Payment, 6KPA – Key Process Areas: a total of forty-one KPAs, which defines the technical-operational maturity of an internal audit unit, taking into consideration the way in which it establishes, implements, measures, controls and improves its processes and practices. Page 32 The World Bank Progestão Mato Grosso (P178339) and Advances. The primary disbursement method will be Advances. For Advances, disbursements will be documented based on the intherim financial reports (IFRs),submitted to the Bank within 60 days from the end of each semester, following the prescribed agreed format. Reimbursements will also be documented by the IFRs, which will include a list of payments made against contract for which the Bank’s prior review is required. Direct Payments will be documented by Records (copy of the invoices). The DA ceiling will be variable based on the forecast needed for a six months’ period. SEFAZ will be responsible for preparing and sending withdrawal applications to the Bank only after they are paid and fully documented, ensuring that the loan proceeds were exclusively used for eligible expenditures. Direct payments will be documented by appropriate records. 19. Payments. All payments will be made by SEFAZ once expenditures have been received, approved, and properly documented, through the FIPLAN system. Payments will be made directly by FIPLAN to service providers and contractors’ bank accounts. Funds will be committed by source, allowing the tracking of grant disbursements/receipts to project expenditures. These processes will be detailed in the OM and approved by the Bank. 20. Advances and Reimbursements. The use of Advances and Reimbursement withdrawal applications will be documented through IFRs. 21. Retroactive financing: Retroactive financing will be allowed for this project up to an aggregate amount not to exceed twenty percent or US$8,000,000.00 of the total loan amount to be made for payments made on or after the signing date of the loan agreement - July 14, 2022, for eligible expenditures. The Minimum Application Size for Direct Payments will be U$1,000,000 equivalent. There will not be a Minimum Application size or Reimbursement. 22. Counterpart funds. Counterpart funds will be earmarked in detail with a clear link to project activities. The source of the counterpart funds must be detailed according to the project objective, component or activity in order to ensure project execution controls. Figure 2. Flow of Funds 23. Flow of Funds. The flow of funds is illustrated in Figure 2. (A) SEFAZ will open a segregated DA, in Banco do Brasil, NY, the name of the State of Mato Grosso to receive loan funds and to process disbursements in U.S. Dollars (US$ or USD). (B) SEFAZ will transfer funds from the DA into a local currency (BRL) operational account in Banco do Brasil, Cuiabá, to process local currency payments to suppliers and contractors’ bank accounts. (C) SEFAZ will instruct the State Treasury to make all payments once payment obligations have been incurred and properly documented. (D) SEFAZ will Page 33 The World Bank Progestão Mato Grosso (P178339) report on eligible expenditures paid from the DA semi-annually, through IFRs via the Client Connection System. 24. Details of flow of funds and internal processes will be included in the POM. 25. External Audit. The project’s annual financial statements will be audited by independent auditors7, based on TORs acceptable to the World Bank, in accordance with International Standards on Auditing (ISAs) issued by the International Auditing and Assurance Standards Board (IAASB) of the International Federation of Accountants (IFAC) or national auditing standards if, as determined by the Bank, these do not significantly depart from international standards. TORs should be prepared and cleared within 30 days of project signature. The auditors should be hired within 90 days after loan effectiveness. The audited financial statements will be prepared in accordance with accounting standards acceptable to the Bank (IPSAS or national accounting standards where, as determined by the Bank, they do not significantly depart from international standards). 26. Management letter. In line with World Bank guidelines, the auditors will prepare a Management Letter, where any internal control weaknesses are identified. The auditor’s report and management letter will be submitted to the World Bank no later than six months after the closing of the fiscal year. The annual audit may be financed out of the loan proceeds. All audited financial statements and related audit opinions are disclosed by the Project and by the Bank in accordance with the Bank's Policy on Access to information. All supporting records will be maintained at the PMU for at least two years after the Closing Date; or one year after the Bank has received the Audited Financial Statements covering the period during which the last withdrawal from the Loan Account was made, whichever is later. 27. Conditions or Nonstandard Financial Covenants. There are no FM-related conditions for Board and/or Effectiveness. Procurement Management 28. Procurement will be carried out in accordance with “World Bank Procurement Regulations for IPF Borrowers” dated November 2020. The project entails the procurement of information technology and consulting service contracts. The Bank will provide specific training on World Bank procurement regulations before the start of project implementation. TORs, Technical Specifications and Contract Management Plans for all relevant contracts will be prepared before the start of implementation. The Bank will review TORs for the selection of consulting firms. The Project Procurement Strategy for Development (PPSD) is being drafted. It defines a procurement strategy based on hiring expert consultant firms to develop software applications and to hire large variety of IT services formulated on the basis of the findings and recommendations provided by the experts. This will result in a substantial number of contracts whose procurement approach will be optimized towards packaging and consolidation in the Procurement Plan in a manner consistent with the resources available for implementation and the support and guidance offered by the Bank. Further details on the project's procurement arrangements will be documented in the Project’s Operations Manual (OM). 29. Risk Assessment. The Project Risk rating is Substantial. A procurement capacity assessment was and focused on assessing the capacity of the Implementing Agencies, SEFAZ, and SEPLAG, to implement procurement transactions and management contracts, in accordance with the Bank’s Procurement Regulations. The assessment reviewed the IAs’ organizational structures and the current operating environment available for implementing procurement transactions expected by the project. Risks include: (i) lack of familiarity of IA’s staff with procedures to select consultants as well as in procurement goods and non-consulting services in accordance Bank’s procurement policies; (ii) capacity constraints to prepare realistic procurement plans; and (iii) lack of sufficient staff with the right skills and behaviors and a satisfactory 7 During appraisal, the Bank performed an evaluation of the State Supreme Audit Institution (Tribunal de Contas do Mato Grosso, TCE-MT) current arrangements as to assess its’ capacity to undertake external audit the projects financed by the World Bank. The State Audit Court (TCE-MT) is responsible for the State external scrutiny, and the legislature plays an external oversight role. The State has been able to prepare timely financial statements of reasonable quality. According to the last audit reports (2019 and 2020), the TCE-MT report identified some exceptions, but they did not compromise the overall consistency and usefulness of the financial statements. TCE-MT has been able to carry out audits of a reasonable scope and its reports are timely issued. Page 34 The World Bank Progestão Mato Grosso (P178339) track record in carrying out Procurement. 30. Risk Mitigation. Mitigation measures were proposed based on the major likelihood of occurrence of inherent risk on procurement. The Implementing Agencies will: (i) identify qualified staff with the expected skills and behaviors, and appoint them to be trained and guided on procurement aspects related to regulations and procedures that govern project procurement; (ii) prepare an action plan considering measures to support and enforce regulations and systems related to procurement planning activities, including training on best planning practices; (iii) prepare a Contract Management Plan for each of the main contracts of the Project that are in execution; (iv) ) prepare an action plan with the technical and contract management team to improve existing measures and procedures to handle contract risk allocation, and strengthen the existing skills on risk allocation; (v) prepare and adopt a simplified bid/proposal evaluation flow that should be widely disseminated among involved staff and other implementing agencies; and (vi) train procurement staff working at both IAs involved in project execution or with the responsibility for preparing procurement documents and carrying out procurement processes. The Bank will monitor implementation of all recommended measures and propose additional mitigation measures during project implementation as needed. 31. STEP System. Implementing agencies will use the World Bank’s Systematic Tracking of Exchanges in Procurement (STEP) system to: record all procurement actions under the project, including preparing, updating and clearing their Procurement Plans; and seek and receive the Bank’s review and non-objection to procurement actions as required. 32. Use of e-Reverse Auction procedures. Goods and non-consulting services estimated to cost up to US$100,000 may be procured through electronic reverse (e-reverse) auction procedures as an alternative to Request for Quotations method (RfQ). E-reverse auctions will be open to the participation of any eligible bidder regardless of nationality. Participating bidders must be registered in the government supplier database. 33. Procurement Bidding Documents. Standard Procurement Documents (SPDs) will be used for all contracts subject to international competitive procurement and for those contracts as specified in the Procurement Plan tables in STEP. For bidding processes using a national market approach, bidding and request of quotations documents were agreed with the Bank at Negotiation. 34. Sustainability and Gender Equality. The PMU will put in place, when technically relevant and feasible, and in accordance with World Bank procurement rules, measures to support sustainable procurement and gender equality in all project procurement. Implementing agencies will adopt criteria of sustainable procurement and gender equality in all project procurement documents. 35. Operating costs. Operating costs will include recurrent costs that implementing agencies would not have incurred if not for the project (for example, utilities, equipment, administrative and project implementation staff, office maintenance) and will be procured following World Bank Procurement Regulations and processed using the STEP System. 36. Procurement Capacity. A detailed procurement capacity assessment of the agencies responsible for procurement transactions and managing contracts (see Table 1) was carried out in accordance with the Bank’s Procurement Regulations. The assessment reviewed the agencies’ organizational structure and their operating environment for implementing procurement transactions expected by the project. Procurement capacity risks identified include: lack of familiarity with World Bank procurement policies for the selection of consultants and procurement of goods and non-consulting services; limited experience in the preparation of procurement plans; limited staff with procurement skills, profile and experience; and insufficient measures and procedures to ensure a good track record of managing environmental, social, health, and safety risks including preventing sexual harassment, exploitation, and assault throughout the procurement process. The project risk rating is Substantial. Page 35 The World Bank Progestão Mato Grosso (P178339) 37. Mitigation Measures. The proposed mitigation measures are based on the likelihood of procurement risk occurrence. Most of these measures rely on agency actions and include: identifying qualified staff with the required skills and experience, and training and supporting them on procurement regulations and procedures; preparing an action plan with measures to support and enforce regulations and systems for procurement planning, including training on best planning practices; preparing a Contract Management Plan for each of the main contracts of the Project under execution; adopting protocols based on Bank ESF requirements in the bidding documents; preparing an action plan with the technical and contract management teams to improve existing measures and procedures to handle contract risk allocation, and strengthen the existing skills on risk allocation and management; preparing and adopting a simplified bid/proposal evaluation flow that will be widely disseminated among involved staff and other implementing agencies; and training of procurement staff working at implementing agencies involved in project execution or with the responsibility for preparing procurement documents and managing procurement processes. The World Bank team will monitor the progress on all recommended measures and propose additional mitigation measures during project implementation as needed. 38. Procurement documents. Procurement of goods and services using an international approach and all selection of consultants will follow the Bank’s standard procurement documents. Procurement of goods and services following a national approach will follow procurement documents acceptable to the Bank. 39. Mandatory use of the procurement planning and tracking tool. Implementing agencies will use the Bank’s online procurement planning and tracking tools (STEP System) to record all procurement actions under the proposed operation, including preparing, updating, and clearing Procurement Plans, and seeking and receiving the Bank’s review and No-objection to procurement actions as required. 40. Procurement Plan. The first Procurement Plan has been drafted and approved in STEP prior to negotiations. The procurement plan defines appropriate procurement and selection methods, market approach and type of review by the WB based on the following summary: Table 3: Procurement Plan Amount Procurement Selection Evaluation ID Category Agency Description (US$) Approach Method Method Consulting Strategic workforce planning of all International Rated 1 SEPLAG 2,000,000 QCBS Services agencies and capacity building activities Open Criteria Review of the Functional Structure and Consulting International Rated 2 SEPLAG Senior Position Model, as well as Career 2,000,000 QCBS Services Open Criteria Model Redesign Consulting Development and implementation of International Rated 3 SEPLAG 3,500,000 QCBS Services Workforce Sizing System Open Criteria Consulting International Rated 4 SEPLAG Diagnosis of Payroll Inputs Processes 600,000 QCBS Services Open Criteria Consulting International Rated 5 SEPLAG Design of Automatic Audit 400,000 QCBS Services Open Criteria Consulting International Rated 6 SEPLAG Design of Business Intelligence Platform 500,000 QCBS Services Open Criteria 7 Consulting MTPREV Integration between the active and 600,000 International QCBS Rated Services inactive system and predictive models of Open Criteria actuarial impact 8 Consulting MTPREV Development of a virtual platform to 600,000 National CQS Rated Services monitor projections Open Criteria 9 Consulting MTPREV Diagnosis and review of the pension 600,000 International QCBS Rated Page 36 The World Bank Progestão Mato Grosso (P178339) Amount Procurement Selection Evaluation ID Category Agency Description (US$) Approach Method Method Services management system and assets Open Criteria 10 Consulting MTPREV Implementation of a monitoring system 600,000 International QCBS Rated Services to evaluate investment strategy Open Criteria 11 Consulting SEPLAG Digital transformation services for the 3,500,000 International QCBS Rated Services development and implementation of an Open Criteria integrated public procurement system, including consultancy for the identification of improvement and simplification of flows and processes 12 Consulting SEPLAG Development of an integrated stock 3,000,000 International QCBS Rated Services management system Open Criteria 13 Consulting SEPLAG Development, customization, or 1,800,000 International QCBS Rated Services establishment of partnerships for e- Open Criteria Marketplace solutions in corporate public procurement in the state. 14 Consulting SEPLAG Consulting services for diagnosis, 200,000 International QCBS Rated Services implementation of improvements and Open Criteria development of sustainability plans for public procurement in the state 15 Consulting SEPLAG Digital transformation services for the 1,300,000 International QCBS Rated Services development of a computerized solution Open Criteria aimed at using the Electronic Invoice database to define reference prices for purchases 16 Consulting SEPLAG Consulting services for the development 200,000 National CQS Rated Services and implementation of a strategic Open Criteria sourcing methodology, and potential fraud in public procurement system. 17 Consulting SEFAZ Hiring an audit to verify accounting 200,000 National LCS Rated Services adherence Open Criteria 18 Consulting SEFAZ Systems to monitor cash transfers and 1,200,000 International QCBS Rated Services agreements with municipalities to Open Criteria implement social programs 19 Consulting SEPLAG Design and implementation of a system 5,500,000 International QCBS Rated Services to standardize project preparation, Open Criteria evaluation and screening procedures, including possible public-private partnerships 20 Consulting SEPLAG Technical support for mapping, 3,500,000 International QCBS Rated Services documenting, and evaluating the value of Open Criteria real estate 21 Consulting SEPLAG Development of asset management 4,600,000 International QCBS Rated Services system integrated with accounting and Open Criteria financial management 22 Consulting SEPLAG Design the governance structure of ICT 1,600,00 International QCBS Rated Services solutions that ensure monitoring, Open Criteria evaluation, cost reviews and strategic Page 37 The World Bank Progestão Mato Grosso (P178339) Amount Procurement Selection Evaluation ID Category Agency Description (US$) Approach Method Method guidelines 23 Consulting SEPLAG Implement data layer enabling 1,600,000 International QCBS Rated Services interoperability between systems Open Criteria 24 Consulting SES Development of hospital management 3,000,000 International QCBS Rated Services system focused on managing clinical, Open Criteria hospital beds and care costs 25 Consulting SES Development of a corporate/institutional 2,000,000 International QCBS Rated Services governance system for health Open Criteria 26 Consulting SETASC System to automate and monitor the 1,000,000 International QCBS Rated Services operationalization and resources Open Criteria allocation of social assistance resources, as well as technical support to improve the management capacity of municipalities 27 Consulting SETASC System to digitize access to consumer 800,000 International QCBS Rated Services protection services Open Criteria 41. Implementation support. The Bank’s procurement specialist will maintain a dialogue with the PMU’s procurement team to avoid delays in the procurement process due to a misunderstanding on the application of all procedures required by the Bank’s procurement framework. The Bank will identify the relevant contracts to be subject to prior review procedures. Procurement post-review visits will be carried out by Bank staff or independent consultants every 12 months of implementation. Fiduciary implementation support activities include the following: reviewing implementation progress, focusing on the achievement of project results and implementation of the Action Plan; monitoring the performance of fiduciary systems and audit reports; monitoring the financial statement reporting process and assisting the client as necessary; monitoring changes in fiduciary risks of the project and, as relevant, compliance with the fiduciary provisions of legal covenants; reviewing project implementation with the sector team to assess the timeliness and adequacy of the project funds appropriation; helping the borrowers with institutional FM and procurement capacity building; and continually assessing and monitoring the performance of the FM and procurement systems under the project and providing suggestions for improvement. 42. Post-Procurement Reviews. The Bank will carry out post procurement reviews on an annual basis with an initial sampling rate commensurate with the risk rating of the project. This rate will be adjusted periodically during project implementation based on the agencies’ performance. The Bank will also carry out procurement supervision missions on a semiannual basis. SEFAZ will upload all procurement and contract information in STEP, which will be used to provide the World Bank with a consolidated list of all contracts for goods, and consultancy services awarded under the project. A sample post-review contract will be selected from STEP. 43. Procurement and Prior Review Thresholds. The Procurement Plan will identify contracts subject to the World Bank’s prior review based on activity risks. All other contracts will be subject to post review by the World Bank. The prior review thresholds apply to all procurement processes regardless of procurement or selection methods. The determination of whether a contract reaches the threshold for prior review is based on the cost estimate of the respective contract or package of contracts, including all taxes and charges inherent in the contract or package of contracts to be procured or selected. Page 38 The World Bank Progestão Mato Grosso (P178339) Table 4. Prior Review Thresholds based on the activity risks (USD million) Activity Risks Activity Category High Substantial Moderate Low Goods, Information Technology, and non-consulting services 1.5 2.0 4.0 6.0 Consulting Services (firms) 0.5 1.0 2.0 4.0 Individual Consultants 0.2 0.3 0.4 0.5 Fraud and Corruption 44. Fraud and corruption. The Brazilian Anticorruption Law (Federal Law 12,846) establishes civil and administrative liabilities for legal entities in relation to acts of corruption. The Law implements the OECD Anti-Bribery Convention, strengthens anticorruption enforcement and is broadly in line with (and, in some respects, even stricter than) similar legislation found in other jurisdictions—such as the U.S. Foreign Corrupt Practices Act and the U.K. Bribery Act. Brazil’s Law exposes companies and individuals to liabilities and fines. 45. SEFAZ shall observe the Guidelines on Preventing and Combating Fraud and Corruption in Projects Financed by IBRD Loans and IDA Credits and Grants (dated as of October 2006; revised as of July 1, 2016), that set the general principles, requirements, and sanctions applicable to persons and entities which receive, are responsible for the deposit or transfer of, or take or influence decisions regarding the use of the loan proceeds . All SEFAZ, CGE and state agency staff involved in project implementation must observe the highest standard of ethics and take all appropriate measures to prevent and refrain from engaging in sanctionable practices. SEFAZ and CGE must report allegations of fraud and corruption in connection with the use of loan proceeds, maintain appropriate fiduciary and administrative arrangements, cooperate with Bank investigations, taking timely and appropriate action to address the problem, and follow other applicable government related rules and guidelines. Page 39 The World Bank Progestão Mato Grosso (P178339) ANNEX 2: PROGESTÃO PROGRAM PROGESTÃO PROGRAM FRAMEWORK 1. The Ministry of Economy developed the Progestão Program and established a partnership with the World Bank to support State governments’ public sector management reforms. The objective of the Progestão Program, as stated in Memorandum of Understanding between the National Secretariat of Treasury (Secretaria do Tesouro Nacional, STN) and the World Bank, is to develop the fiscal, budget and asset management of the Brazilian governments through actions that aim at reducing and rationalizing public spending with long term results to contribute to the fiscal sustainability of state entities. The Progestão Program recognizes that the state fiscal crisis is largely a result of structural problems in public sector management. The Progestão Program will provide technical assistance to help participating States improve efficiency in public administration and public expenditure. The Progestão Program was gazetted in the Diario Oficial on May 19th, 2021, providing a line of credit of US$1 billion guaranteed by the Federal Government, with US$250 million available every year until 2024.8 2. The Progestão Program supports the Economic and Institutional pillars of the Government’s National Economic and Social Development Strategy for 2020-2031 (Estratégia Nacional de Desenvolvimento Econômico e Social – ENDES). Under these two pillars, ENDES seeks to: promote national per capita GDP growth; increase the productivity of the Brazilian economy; harness the potential of the workforce by increasing its skills and employability; and improve public sector governance by increasing the efficiency and effectiveness of government actions. 3. The Progestão Program comprises a series of projects (SOP) that finance technical assistance in line with restrictions imposed by the Senate Resolution 43/2001 on access to international financing. Compliance with Senate Resolution 43/2001 restricts Progestão project financing to the direct inputs required to develop and implement management systems, including consultancy services, capacity building activities and information technology. This prevents the financing of Progestão projects using results or policy-based lending instruments, thereby excluding development policy lending, programming for results, or investment lending with performance-based conditions. A multi-phase programmatic approach (MPA) was considered but deemed inappropriate because the direct beneficiaries of Progestão projects are sector institutions (through efficiency gains) rather than service users such school students or hospital patients (through improvements in the quality and quantity of services). The Series of Operations allows Progestão projects to adopt some of the elements of the MPA: the Bank will implement State projects following a similar approach and structure as part of a national program; the State projects will benefit from shared learning, experience, management innovations, and IT solutions. 4. The Progestão Program is open to all 26 States and the Federal District. The Ministry of Economy waived the need for participating States to have a CAPAG A or B ratings – usually a requirement for access to federal guarantees for external financing – thereby opening the program to States that are not in compliance with the Fiscal Responsibility Law. Participating States must commit to the implementation of reforms in Progestão Program priority areas. They must collaborate with the Bank in conducting a fiscal sustainability assessment using fiscal modeling to determine the size of the fiscal adjustment needed to put State finances on a sustainable trajectory and identify the fiscal measures needed to bring the State into alignment with the Fiscal Responsibility Law. Individual Progestão Projects are subject to approval by the National Treasury Secretariat (STN). Each loan is approved by the Government of Brazil’s External Financing Committee (COFIEX). The Bank supports States in the preparation of their COFIEX proposals and initiates project 8Memorandum of Understanding between the Ministry of Economy and World Bank, “Fiscal Sustainability Program, Efficiency and Effe ctiveness of Public Spending in the States and Federal District PROGESTÃO. Operational Regulations of the Program.” (Link) Page 40 The World Bank Progestão Mato Grosso (P178339) preparation after COFIEX approval. The Progestão Program prioritizes States that have demonstrated commitment to the implementation of management reforms and those States where Bank assistance is expected to have the greatest impact in terms of restoring a State’s fiscal balance. 5. States participating in the Progestão Program will implement a common set of reforms albeit with some variation in approach and scope. The Program components align with the reform priorities identified by the Federal Government focused on core seven whole-of-government functions: human resource management; pensions; public procurement; public investment management; debt management; state-owned enterprises; and asset management. The Memorandum of Understanding (MOU) between the Bank and the Ministry of Finance identifies an indicative list of eligible activities and results indicators for each of these areas of intervention. The Program also supports the implementation of management reforms that will deliver improvements in administrative and expenditure efficiency in Brazil’s priority sectors: health, education, social assistance, and environmental management. These sectors account for approximately 40 percent of State level expenditure, ranging from 39 to 50 percent. National Legislation requires that 25 percent of expenditure goes to education and 12 percent to health. Some States spend over 17 percent of their budget on health according to the System of Health Public Budget Information (SIOPS). 6. State governments identify priority areas of support for their Progestão Projects in consultation with the Bank. Projects will prioritize investments in management systems that are expected to have the greatest fiscal impact, guided by the results of the fiscal sustainability assessment. In addition, the following criteria will help screen the technical assistance activities supported by the Bank: Strategic Alignment, clear demand from the State government and the participating institutions, requests fall under scope of Program, and the Bank has the appropriate technical skills to support implementation; Implementation Capacity, the participating institution has the capacity to undertake the reform with Bank’s support and ensure sustainability after the project, implementation can be finalized within project’s duration, and transaction costs are reasonable; Impact on Beneficiaries, the proposed reform can deliver efficiency gains and simultaneously ensure improvements in the quality and/or quantity of services, particularly services that will benefit the poor and vulnerable; and Corporate Commitments, the project contributes to the Bank’s climate, gender, and citizen engagement commitments. 7. Implementation of Progestão Projects is the responsibility of the State Finance or the Planning/Administration Secretariat. State governments are required to establish a Project Management Unit in the State Finance or Planning/Administration Secretariat by means of a “Portaria” or other appropriate legal instrument before the first disbursement of funds. The implementing agency is required to sign cooperation instruments with the other beneficiary agencies or agencies directly involved in the implementation of the project, establishing roles responsibilities between them and with the PMU, and designating a representative to lead project activities and results. 8. Progestão supports a learning agenda and collaboration across Progestão Program partners. The World Bank and the National Council of Secretaries of Administration (Conselho Nacional de Secretários de Adminstração, CONSAD), will facilitate knowledge exchange across participating States and support implementation through specific thematic working-groups (see Box 1). Working groups were formed during Program preparation in partnership with the National Council of State Secretaries of Administration (CONSAD), the National Council of State Secretaries of Planning (CONSEPLAN) and it is expected that that the National Council of Secretaries of Finance (COMSEFAZ) will join. Working groups will facilitate learning, the exchange of experience, collaboration on operational matters and potentially joint procurements of critical inputs such a training, consultancy services and information technology. In addition to a permanent agenda (meeting at least once a year), States will be able to request ad hoc workshops to present and discuss specific project-related issues that can be discussed by the network of specialists and practitioners, such as developing Terms of Reference for similar systems. Page 41 The World Bank Progestão Mato Grosso (P178339) BOX 1: PROGESTÃO PROGRAM CONSAD KNOWLEDGE EXCHANGE PARTNERSHIP Innovation and Digital Government. The first workshop on Digital Government took place in May 2019 led by CONSAD and the National Association of State Information and Communication Technology Entities (ABEP-ICT) with the aim of identifying a shared agenda for State and Federal Governments. This group will be the main platform to discuss the use of new technologies and the digitalization of services. Since innovation and digital government are relevant to all Progestão Program components, some of the participants for this group will be drawn from other thematic areas. Human Resources. The working group on human resources comprises of state secretaries of public administration and/or planning (18 States have participated already), representatives from the Federal Government and academics. There have been three workshops in which the participants agreed on the key HRM issues affecting the country and the establishment of an online practitioner network with continuous information exchanges. Procurement. The national learning agenda on this topic will focus, among other topics: (i) on the generation and use of data to guide new policies, technologies, and reforms; (ii) the use of artificial intelligence to identify “red flags” for fraud and incentivize the use of transformative ways of doing public procurement applying innovative and disruptive methodologies and technologies; and (iii) the adoption of best practices and models of green and sustainable procurement, including gender equality in procurement. The availability of data, as a reflection of the procurement systems in place, significantly differs across states. Some states will be interested in learning how to implement centralized procurement systems for the first time, others will be interested in discussing how to leverage procurement data to inform policy. Public Investment Management. A working group will be formalized with CONSAD or CONFAZ and the learning agenda on this topic will focus on the generation of data to guide new policies and implementation strategies, screening, and climate risk assessments of investments. Asset Management. A working group will be formalized with CONSAD. The learning agenda on this topic will focus on the generation of data to guide new policies and reforms. Experience across states varies considerably, with some states having established asset management systems while others have rudimentary, decentralized, paper-based systems. 9. Monitoring and reporting on Progestão Program implementation will focus on the results of individual Progestão Projects. While the MOU between the Bank and Ministry of Economy identifies an indicative set of indicators for each area of whole-of-government reforms and the Bank has prepared a similar set of indicators for the strategic sectors and cross-cutting themes, Progestão Projects will share the same PDO but will not necessarily apply all the elements of a common results framework. Consequently, it will not be possible to consolidate results information for all elements of the program across all projects. 10. Progestão Projects will report on progress in implementation and against their results framework every six months. The Bank will undertake implementation support missions every six months. The Implementation Status and Results (ISR) report with be shared with the State Government and the Ministry of Economy. An Implementation Completion and Results Report (ICR) will be prepared by the Bank within six months of closing of each Progestão Project. The World Bank will hold an evaluation seminar with the State Government and Ministry of Economy to present the results achieved, promote the dissemination of information and the exchange of experience. This seminar may inform preparation of the ICR. Page 42 The World Bank Progestão Mato Grosso (P178339) WHOLE-OF-GOVERNMENT MANAGEMENT SYSTEMS Human Resource Management 11. Brazil’s public sector human resource system is characterized by a high public sector wage premium and a fragmented, rigid, and seniority-based career system. Brazil’s government employs approximately 12 percent of the entire labor force and, in 2013, public sector remuneration amounted to 13.1 percent of GDP, which represents almost a third of the total economy wide remuneration.9 Brazil’s total government employment is lower than that of OECD countries (around 18 percent) yet it is rather costly, exceeding that of upper-middle income countries and that of Latin America and the Caribbean (LAC). Over the period 2007-2017, overall spending on public servants increased by 48 percent in real terms. This is partly driven by constitutional mandated floors for expenditure in certain sectors: states must spend at least 12 percent of net tax revenues on health and the federal government and municipalities least 15 percent. In the early 2000’s governments at all levels expanded employment through the creation of new ministries and secretariats, autonomous institutions, and SOEs. This structural expansion was also accompanied by overall growth in both personnel and wages, which together with complex local legislation that guarantees numerous benefits, has led to significant fiscal pressure. Compensation is a key driver of the high costs of Brazil’s bureaucracy. Civil servants benefit from genero us starting salaries, automatic salary increases, and particularly large pension benefits. There is a significant public sector wage premium: up to 96 percent at federal level and 36 percent in States. At the municipal level, real wages have followed a similar rising trend. In 2020, four States 10 surpassed the limits on wage and benefits payments of 60 percent of expenditures contained in the Fiscal Responsibility Law. In the State of Minas Gerais, for example, personnel expenditure reached 79.2 percent of expenditure. A 2019 World Bank study shows that five States11 will have to reduce spending on employed and retired civil servants by an average of 2 percent annually until 2022 in real terms if they are to comply with the Fiscal Responsibility Law. Table 1: Potential Activities and Results in Human Resource Management Activities Results Develop and implement integrated systems Establishment of Strategic Workforce Planning System (hardware/software) with assessments and models that result Reduced number of new hires. in reduced personnel expenses. Reduced number of payroll irregularities. Right-size (optimal dimensioning) software and efficient Reduced personnel expenses as a percentage of current net workforce allocation. revenue. Streamline the rules for career progression and promotion. Increased number of organs using results of dimensioning Streamline the hiring of servers, including temporary and the workforce. commissioned employees, especially in strategic sectors. Number of career plans. Adapt State rules to the federal regime. Reduced delays in paying salaries. Develop payroll management and audit software. Increased number of women and minorities in leadership Customize or develop new Human Resource Management positions Information System Public Sector Pensions 9 Brazil Public Expenditure Review (2016) 10 As per the Brazilian Treasury in the RGF report about 2020 states finances, Minas Gerais, Rio Grande do Norte, and Paraíba have surpass the limit. (Link) 11 Minas Gerais, Mato Grosso do Sul, Rio Grande do Norte, Rio de Janeiro e Rio Grande do Sul. World Bank. “ Gestão de Pessoas e Folha de Pagamento no Setor Público Brasileiro”. (Link) Page 43 The World Bank Progestão Mato Grosso (P178339) 12. Brazil’s public pension system is costly. In 2018, total expenses of the system stood at 12.7 percent of GDP, with 8.6 percent of GDP spent on pensioners affiliated with the national social pensions scheme for private sector (RGPS, Regime Geral da Previdência Social) and 4.1 percent of GDP spent on the civil servant pension regime (RPPS, Regimes Próprios da Previdência Social). Within the RPPS, about half of the spending (47 percent in 2018) is attributable to the federal RPPS, while the remaining half covers state civil servant pensions. The national RGPS pension scheme is under fiscal pressure due to the rapid aging of the population, early retirement ages, and highly subsidized minimum benefits. The main drivers of increasing RPPS pension spending are a large wave of civil servants hired in 1980s currently reaching retirement, especially generous benefits of civil servants hired before 2003, steep seniority-related wage increases culminating in high pensions, and exemption of uniformed personnel from the 2003 reform. Assessment of the fiscal impacts of pensions on State and municipal governments is challenging. Data on wages and pensions of civil servants employed at executive, legislative, and judiciary branches of the government is not unified, is rarely audited, and contains errors. Data on remuneration histories on uniformed personnel, even though part of the executive branch of the government, is often not available at all. These issues often lead to uneven application of pension rules, exacerbated by perverse human resource policies, including approval of pre-retirement wage increases for the sole purpose of permanently increasing pension payments.12 13. The national pension reform of October 2019 made an important contribution to curbing pension expenditure growth. The most significant change for the RGPS scheme was the gradual elimination of the early retirement option, which was formerly available at any age as long as the length of service requirement was reached. Savings will increase gradually, reaching 2 percent of GDP in 10 years, and 4.4 percent of GDP in 30 years, without exposing lower income population to the risk of reduced incomes. However, the reform does not eliminate the projected growth in pension deficits, which will continue to increase, albeit at a slower pace, from current 1.2 percent of GDP to 4.9 percent of GDP by 2050. The adoption of RPPS reform measures by over 2,000 sub-national governments requires approvals by the respective State and municipal assemblies. As of October 2021, twenty-five States had implemented reforms with estimated savings of over R$100 billion over the next ten years. States have typically introduced: changes in the retirement age, benefit formulae, and transition rules for currently active public servants; gradual elimination of the early retirement option; increases in the pension contribution rate by approximately 3 percent; reduced survivor pensions and percentual accumulation of benefits; and new rules for teachers and public security officer's pensions. However, some state governments are still to approve pension rule changes, while others have opted for less stringent reforms than the federal RPPS. Furthermore, the 2019 reform measures, even if fully implemented, are likely to slow rather than halt the growth of pension expenditures for most state governments over the next 2-3 decades. Under these circumstances, additional efforts to contain expenditure is needed, including better controls and auditing of benefits assignment, payment, and termination processes. Table 2: Potential Activities and Results in Public Sector Pensions Activities Results Develop and implement integrated pension information Increased revenue collection of pension funds. systems that tighten controls and reduced pension spending. Reduced pension fund expenditure. Develop and implement pension fund record management Reduced number of non-conformities in the pensioner and analytical software. payroll. Integrate pension record management of all three state Increased pension fund capitalization. government branches. 12The October 2019 reform does not apply to security and military personnel, which constitute around a third of the membership of state RPPS and which were also exempt from the 2003 pension reform. Page 44 The World Bank Progestão Mato Grosso (P178339) Activities Results Update the register of retirees and pensioners, eliminating Improved long term performance of pension fund inconsistencies. investments. Strengthen control and cross-checking of benefit assignment Reduced delays in benefit payments. processes. Streamlined certification process of sub-national RPPSs with Enable cross-checks with other databases, including actuarial federal authorities analysis. Assess impacts of pension reforms and human resource actions for active employees. Improve transparency of pension calculations and pension fund investment performance. Strengthen governance of pension funds and investment performance through regulation and adoption of relevant software. Public Procurement 14. While the federal legal framework for public procurement is solid and transparent and takes precedence over those of state levels, the institutional arrangements for State and municipal procurement systems vary, most States lack adequate procurement information systems, and most States face capacity constraints. The regulatory framework requires that open competitive bidding is the default procurement method, as defined by Article 37 of the Constitution, and all procurement opportunities, regardless of estimated cost, should be published on the internet and/or official gazettes. However, procurement arrangements vary across Brazil’s States and municipal governments. Over the last decade, there has been a trend towards centralization of public procurement across the Brazilian States. A 2021 survey carried out by CONSAD found that 20 out of 27 States, including the Federal District, had adopted a centralized model where a central agency/department conducts most public procurement but delegates some processes to procuring agencies. Federal and State governments have not put in place structured staff development programs beyond training in regulatory requirements. States and municipalities have made limited progress in implementing sustainable procurement. In the absence of procurement information systems, lack of adequate data poses a significant constraint to effective procurement planning, monitoring and policy alignment. Most state governments have difficulties in estimating demand. State secretaries procure the same products but at different times with different instruments, resulting in price variations that could be avoided through consolidation of government demand. CONSAD found significant delays in procurement processing, with the highest average bidding times in national competitive bidding (307 days), international competitive bidding (230 days), and national limited bidding (198 days). There is also a significant gender gap in procurement: the Bank estimates based on State and federal datasets revealing that female owned companies account for just 21.6 percent of suppliers and 10.3 percent of procurement expenditures. These shortcomings in public procurement are partly a consequence of capacity constraints – Brazilian States suffer from a shortage of qualified procurement professionals, there is no public procurement profession even at the federal level – but are also reflect deficiencies in the regulatory framework and procurement information systems. Table 3: Potential Activities and Results in Public Procurement Page 45 The World Bank Progestão Mato Grosso (P178339) Activities Results Update State regulatory framework for public procurement, Increased use of the Reference Price System in acquisitions. in line with Federal legislation. Reduced time between opening and finalization of Simplify and streamline procurement procedures. procurement processes. Replace price registration mechanism with database Reduced bidding times. generated from electronic invoices. Reduced price paid per product. Develop and implement green procurement practices. Increased procurement through e-marketplace platforms. Develop and implement integrated procurement Increased procurement processes with sustainable information systems. procurement criteria. Develop and implement materials and inventory allocation Increased number of contracts awarded to companies that and management models. have women in leadership positions. Establish e-Marketplace solutions Automation of the analysis of reference prices for cost Develop and implement a strategic sourcing methodology. estimation. Increased State procurement staff with requisite skills. Public Investment Management 15. Brazil lacks a well-regulated public investment management system at both the federal and state levels. About two-thirds of public investments (excluding SoEs) are undertaken by state governments and 38 percent of public investment is executed by SOEs. Brazilian States spent on average 4.3 percent of their budgets on public investments in 2020, ranging from a high of 9.4 percent to a low of 1.4 percent. The latest PIMA (2018) shows that Brazil is well far behind regional peers and emerging market economies in the application of systems for project planning, appraisal, selection, and project management. States lack formal screening and appraisal procedures and clear technical criteria to guide project selection. Project sponsors are often responsible for project appraisal without independent review. Environmental impacts and climate change considerations are not addressed systematically. At State level, projects are rarely screened before detailed preparation starts, seldom undergo substantive economic appraisal and where they are appraised the agency proposing the project often takes the lead. Shortcomings in project preparation hinder financial planning for multi-year investments and State budgets. Misaligned incentives, capacity constraints and weaknesses in planning, selection and appraisal procedures contribute to the selection of projects with dubious economic benefits, delays in design and completion of projects, significant risks in procurement, cost and time overruns, incomplete projects, and the failure to operate and maintain assets efficiently. Brazil has increased its use of PPPs to leverage private financing for infrastructure and services. Brazil’s stock of PPP and concession projects reached more than 10 percent of GDP in 2014, more than three times the average of other BRICS higher that other emerging and LAC economies. However, the cost-effectiveness of many PPPs is questionable, there are regular renegotiations of contracts, cost overruns, delays in completion, and a high incidence of corruption. In this context, the creation of additional space for investment will not lead to improvements in infrastructure and economic growth without improvements in the governance of public investment. PIM Reforms in Brazilian States focus on putting in place systems with rigorous technical standards for each step of the project cycle as a requirement for entry into the State’s investment pipeline and project approval. Further work is needed on the adoption of a more strategic approach to public investment and investment portfolio management, particularly in the context of climate change adaptation and decarbonization. Table 4: Potential Activities and Results in Public Investment Management Page 46 The World Bank Progestão Mato Grosso (P178339) Activities and Outputs Results Establish and implement procedures and criteria for project Increased share of public investment projects prepared and identification, screening, preparation, appraisal, and approval. selected in line with PIM methodology. Integrate climate change adaptation and decarbonization, Improved transparency through publication on project and environmental, and gender considerations in the project portfolio related information. cycle. Reduced public investment project time and cost overruns. Integrate public-private partnerships and concessions in the Improved transparency of inter-governmental transfers project cycle. through publication of information on financial and physical Develop and implement integrated public investment performance. management information systems that strengthen controls and facilitate project and portfolio management. Undertake portfolio reviews to assess the policy-alignment and effectiveness of the investment portfolio and pipeline. Debt Management 16. Average debt of Brazilian state governments is increasing at a rate of 6.6 percent and currently stands at 86.2 percent of State revenues, with the debt stock of Rio de Janeiro and Rio Grande do Sul exceeding the debt limit of 200 percent of net current revenue defined by Federal Senate Resolutions. Most of this debt comprises internal and external loans (89.8 percent) and unpaid and overdue judicial debts (7.7 percent). States lack contractual, operational, administrative, and accounting information and financial data related to debt maturity for debt management operations and decision making. Most States do not have debt management modules integrated into their financial management information systems or dedicated debt management information systems, relying on spreadsheets instead. This hinders effective debt management. Use of spreadsheets raises security and data reliability concerns. It is difficult and time consuming to consolidate information of the contracts and statements. Potentially unreliable projections can result in inaccurate financial flow planning, even exposing the State to the risk of default. The National Treasury’s Integrated Debt System (Sistema Integrado de Divida, SID) could be used by state governments. SID is a collection of modules that work together to facilitate recording, monitoring, production of data and reports, and preparation of payment obligations. The information system enables debt managers to monitor the flows that affect the inventory and maturity of liabilities so that they are able to verify with high accuracy the amounts to be paid through their own records, rather than merely paying the invoices received by creditors. governance in relation to accreditation and access, rules of use and auditing. A robust, well-functioning and user-friendly system allows governments to strengthen their debt management environment, connecting with other applications, such as payment systems, central securities depository, and the FMIS. Table 5: Potential Activities and Results in Debt Management Activities and Outputs Results Align State and national accounting and treasury Reduced debt service costs. management regulations and practices. Reduced debt service and payment irregularties. Develop and implement integrated debt management information systems, including modelling, assessment of terms of agreements, and contract management. Strengthen cash management, financial management and risk management practices. Page 47 The World Bank Progestão Mato Grosso (P178339) State Owned Enterprises (SOEs) 17. Brazil has a large SOE sector with uneven performance. The sector comprises 203 Federal SOEs, mainly concentrated in finance, oil and gas, and the postal service, and a further 302 State SOEs. State SOEs are concentrated in finance (35 SOEs), sanitation (28), habitation (25), transport (24), regional development (20), gas and derivatives (19), energy (19) and food supply (19). State SOEs are found in all States but are concentrated geographically in the northeast region (93) and the southeast (63). 46 percent of State SOEs are dependent, receiving funds from the controlling institution to cover payroll, operating and investment. The proportion of State SOEs that are independent is highest the finance, gas and derivatives, energy and sanitation sectors. In 2020, 44 percent of SOEs were loss making – 66 percent of the dependent State SOEs – up from 35 percent in 2019. The largest losses were sustained by State SOEs in the transport sector. In 2020, 41 of the State SOEs were in the process of liquidation, over half of which were loss making.13 18. The SOE Statute of June 2016 improved the governance of national and State SOEs though implementation is still incomplete. The Statute was a response to civil society pressure following the Lava Jato investigations that directly involved PETROBRAS. The new regulation requires SOEs to establish Fiscal, Audit, and Eligibility Committees, measures to increase transparency regarding the policy goals pursued by the enterprises and a ensure a separation of the mandates of senior public officials and SOE board members. Nearly all State SOEs have established at least one of these committees and just over half have established all three (72 percent of the State SOEs that are profitable and 46 percent of the loss-making firms). All SOEs are required to publish an annual statement of their public policy objectives but only 32 percent do so. Reforms have also allowed more participation of the private sector in areas that had been almost exclusive to SOEs and the creation of mixed enterprises, leading to greater interest in the valuation of public enterprises and the adoption of practices that can maximize SOE equity value. There are no centralized SOE monitoring functions in place at State level. Instead, SOEs are followed up by the line ministries and secretariats in the sectors of their operations. However, recently a few State Secretariats of Finance have started to collect information on the State SOE and PPP portfolios with the objective of monitoring overall performance and potential fiscal risks. Table 6: Potential Activities and Results in State Owned Enterprises Activities Results Align the governance framework for SOEs at State level with Regular performance monitoring reports on SOEs prepared federal regulations. and available online. Establish and implement central monitoring and reporting Fiscal risks assessments carried out and included in State functions for State SOEs. budget documents. Strengthen SOE risk management, strategic and reporting Increased SOE valuations. functions. Increased number of SOEs participating in capital markets Integrate climate change considerations in the risk and private sector participation in SOEs. management, strategic planning and reporting framework for State SOEs. Strengthen SOE valuation and privatization process and adopt practices that maximize the companies' equity value. Asset Management 19. States are beginning to explore options for improving the return on physical assets, rationalizing real estate portfolios, and disposing of assets where they are not needed. Some States have established specialized asset management institutions to manage this process, usually following one of two models: holding companies that 13 Tesouro Nacional:”As empresas dos estados brasileiros: um panorama das empresas estatais estaduais”. (Link) Page 48 The World Bank Progestão Mato Grosso (P178339) concentrate both movable and immovable public assets or real estate investment funds. At the federal level, the National Treasury’s has issued an Implementation Plan of Asset Accounting Procedures and, through Decree n.10,540/ 2020, established mandatory minimum requirements for the accounting and control systems to be implemented by the year 2023. Implementation of the asset reporting standard and management reforms is hindered by the lack of comprehensive, up-to-date registries of physical assets and valuations. Few States have systematic records their compliance with building, disability and gender codes, fewer still have undertaken energy audits and climate risk assessments. Most States have yet to develop public asset management strategies that align asset holdings with future needs and reduce the government’s environmental and climate footprint. 20. Alongside traditional real estate and equipment assets, Brazilian States have invested heavily in Information and Communication Technology (ICT). Most States have a limited integration of ICT, with each agency procuring and managing its own ICT equipment and services. State agencies often use standalone platforms with different standards which are not necessarily interoperable. This increases costs, causes inefficiencies and delays, prevents access to critical information, worsens the clients’ experience, poses security risks, and increases the risks to business continuity in the event of disasters. The use of information technologies to deliver public services in Brazil is still characterized by a highly bureaucratized processes that hinders innovation and marked by disintegrated and outdated digital solutions. The COVID-19 pandemic underscored the importance of having an adequate strategy and governance structure to manage ICT assets with adequate governance and procedures to avoid duplication of activities, reduce costs, improve efficiency and minimize environmental impacts. Table 7: Potential Activities and Results in Asset Management Activities Results Put in place regulations and institutional arrangements for a Reduced asset management costs. centralized asset management function. Increased number of public real estate with complete legal Identify, evaluate and register immovable and movable documentation. assets. Reduced share of unoccupied State-owned buildings. Develop and implement integrated asset management Reduced expenditures on rent and Increased rent revenue. information systems. Reduced building security, maintenance and utility Develop and implement ICT governance frameworks and expenses. strategies Increased number of mapped ICT systems Reduced ICT system support expense. MANAGEMENT SYSTEMS IN STRATEGIC SECTORS Health 21. The creation of the Unified Health System (Sistema Único de Saúde – SUS) in 1988, establishing universal health coverage funded by the state, has led to remarkable improvements in access, financial protection, and health outcomes, but an aging population will place a heavy burden on the health care system in coming years. Nationwide, approximately 70 percent of the population depends exclusively on SUS, rising to 85 percent in the poorest States. Brazilian States are mandated to spend at least 15 percent of the their revenues on health services. Many States exceed this target. The Family Health Strategy (Estratégia de Saúde da Família, ESF), the community-based primary health care program, has delivered significant improvements in maternal and child health care. Infant mortality rates fell by 60 percent from 30.3 deaths per 1,000 live births in 2000 to 12.4 deaths per 1,000 live births in 2019. Life expectancy at birth increased by 5.7 years, from 70.2 years to 75.9 years over the same period, though life expectancy is still five years below the OECD average. An aging population now poses a new set of challenges. The share of the population 65 years Page 49 The World Bank Progestão Mato Grosso (P178339) or older is expected to increase from 9.9 percent of the population in 2017 to 21.9 percent in 2050.14 Aging has already contributed already to a shift in hospital demand toward chronic-degenerative and other Non-Communicable Diseases (NCDs) which require more complex treatments and are expensive to treat. In most of Brazilian States, these conditions are manged through the network of high-complexity hospital facilities which are the State government’s responsibility. In this scenario, costs will need to be controlled if the State public sector is to remain viable and respond to the changing health needs of the population. 22. The search for a new health management model focuses on hospitals. There is significant scope to improve efficiency in health service delivery by converting many of the smaller hospitals not intermediate care facilitities; concentrating services in the larger general hospitals; improving hospital management systems; and putting place guidelines, clinical protocols, and procedures for hospital accreditation. The hospital management information systems provide an effective solution for hospitals to reduce the costs of administrative and clinical transactions, and at the same time, provide better service to their consumers. Information systems strengthen operational control; automate the process of collecting, collating and retrieving patient information; rationalize clinical pathways to improve diagnoses and treatments offered; and provide managers, doctors and hospital staff with the decision support system for patient care. Table 8: Potential Activities and Results in Health Activities and Outputs Results Design and implement hospital management information Number of hospitals with hospital management system system, including key functions(patient administration, implemented and operational clinical management, resources management, financial Number of hospital directors trained in hospital management and management information system for management decision-making). Cost-reduction of administrative and clinical transactions, Design and implement health care costing systems. through implementation of an effective IT solution to State Implement training for hospital directors. high-complexity hospitals Education 23. Brazil’s education sector is characterized by generous spending as a share of GDP, poor outcomes c ompared to peers, and significant inefficiencies. Brazil science and reading scores in the Program for International Student Assessment (PISA) have stagnated since 2009, and math scores since 2012. According to the 2018 World Development Report, if Brazil continues to improve at the current rate, it will take 75 years to reach the OECD’s average score in math and 263 years to reach the OECD average for reading. Poor educational performance is not a consequence of inadequate spending. Increases in the education spending combined with declining enrollment in public schools led to a 217 percent real increase in the annual average spending per student from 2000 to 2015. The Constitution earmarks 25 percent of State and municipal tax revenues for education. This contributes to inefficiency of education spending by requiring increases in spending in line with increases in tax revenues without an adequate focus on efficiency and learning outcomes. It also leads to unequal levels of per-student spending across States in Brazil, where the wealthier spend considerably more than poorer municipalities and States, where needs are greater. Studies show that local governments are not using education budgets wisely. If all municipalities and States could reach the efficiency frontier, it would be possible to increase performance in terms of passing rate and student achievement by 40 percent at the primary and lower secondary education and up to 18 percent at upper secondary level with the same level of public spending. About 40 percent of this improvement performance could be achieved by administrative reforms such the reallocation of 14 OECD (2021) OECD Reviews of Health Systems. Brazil. (Link) Page 50 The World Bank Progestão Mato Grosso (P178339) teachers and pupils in classrooms. Table 9: Potential Activities and Results in Education Activities and Outputs Results Develop and implement an integrated educational Reduced number of classrooms at less than 50 percent of management system. capacity. Digitalize the enrolment process and automate classroom Increased number of teachers working under full-time formation and teacher allocation. contracts in State schools. Monitor the decentralized school meal budgets, Savings on the teacher payroll, school meal and school consumption, and quality. transport contracts. Digitalize and automate school transport routes and transport budgets decentralized to municipalities. Social Assistance 24. While Brazil’s the Unified Social Assistance System (Sistema de Assistência Social Unificado, SUAS) provides a comprehensive safety net, there is scope for efficiency gains through improvements in management systems and the use of information systems. SUAS comprises three main pillars: social insurance institutions, such as the Rural Pension Program (Previdência Social Rural, PSR); benefits, such as transfers for disabled people and the elderly above 65 years with family income per capita of less than 25 percent of minimum wage known as Continuous Assistance Allowance (Benefício de Prestação Continuada, BPC); and programs for targeted income support, such as the Bolsa Familia (PBF) conditional cash transfer program. Since its creation in 2005, SUAS has built one of the largest public service networks with representation in all municipalities through more 8,000 Social Assistance Reference Centers (Centros de Referência de Assistência Social, CRAS), 2,500 Specialized Social Assistance Reference Centers (Centros de Referência de Assistência Social Especializada, CREAS), and 300 homeless population Reference Centers (Centro de Referência Especializado para Pessoas em Situação de Rua, POP). 15 The SUAS network provides access to services to millions of citizens, including 14 million PBF families, and over 4.5 million BPC beneficiaries. The States co-finance the SUAS programs and services delivered through the service network, providing training and technical support for decentralized management. The fragmentation of the assistance program creates duplication, non-standardized processes, and inefficiencies. Planning, monitoring, and control could be improved through the use of information technology, leading to administrative efficiency gains and improved targeting of assistance to the poor, vulnerable and those at risk of violence. 25. Progestão will strengthen participating State government’s capacity to manage the provision of social assistance through municipalities. The program will support State government initiatives including: development knowledge dissemination mechanisms and implementation of a SUAS National Permanent Education Policy targeting families; strengthening complementary public policies, such as food security and productive inclusion, integrated with the Bolsa Família Program and initiatives in strategic areas such as early childhood; use of the Cadastro Único as a tool to consolidate information for different public policies; monitoring of family attendance records through the SUAS activities and register, accountability and systemic integration with the other management and control instruments; active search strategies for the extremely poor in remote areas and adaptation of offers to specific audiences; and construction of risk management mechanisms and adaptation of support for disaster relief. It is an investment in governance and to strengthen public management of services to better assist the population with more needs. 15 Official data from the Ministry of Citizenship. Available at: https//aplicacoes.mds.gov.br/snas/vigilância. Page 51 The World Bank Progestão Mato Grosso (P178339) Table 10: Potential Activities and Indicators in Social Assistance Activities Results Develop and implement integrated SUAS management Results of IGDSUAS-e (SUAS Decentralized Management information systems. Index of the State) indicating the improvement of municipal Support for the execution, integration, and regulation of management in its financial execution and in the integration management in the municipalities. between services and benefits through ID-CRAS (CRAS' Development Indicator). Improvement in the execution of social spending by municipalities Increased number of municipalities using the new management system for financial reporting Increased number of municipalities with capacity building and implementation of the new management system PROGESTÃO CROSS-CUTTING ISSUES Gender 26. While the 1988 Brazilian Constitution guarantees equality between women and men, Brazil ranks 92 out of 152 countries in terms of gender equality, and second last in Latin American and the Caribbean region. Gender inequality is reflected in the Brazilian public sector in a variety of ways. Each Brazilian State and the Federal District regulate their HR careers through an estatuto do servidor. These laws, dating from the 1990’s in most Brazilian States, provide weak protections for harassment in the workplace, unbalanced paid leave differentiating between biological birth and adoption, and limited mechanisms to promote women in leadership positions. There is a significant gender gap at the highest levels of the administration, with only 10.4 percent in level 1+ positions held by women18. Brazil has a high prevalence of sexual violence which increased during the Covid-19 pandemic: in a survey undertaken in mid-2021, one in every four Brazilian women over 16 years old reported intimate partner violence in the last 12 months19. Women- owned businesses have limited success in State procurement. Barriers to their participation include lack of information about the State procurement process, nonspecific bids for women-owned businesses, and lack of information about opportunities for suppliers. Table 12: Potential Activities and Results in Gender Activities Results Design selection processes to senior management positions. Increased proportion of women and ethnic minorities in level Collect gender disaggregated data 1, 2, 3 leadership positions. Implement certification programs and identifying women- Increased number of registered women-owned business owned businesses. Identify gender-oriented budget Offer training programs on public procurement, including for women. Undertake budget reviews. Climate Change 27. Brazil’s updated Nationally Determined Contribution (NDC, 2020) target to reduce emissions 43 percent by Page 52 The World Bank Progestão Mato Grosso (P178339) 2030 from 2005 levels is unchanged from its 2015 indicative target. Brazil has committed to forest restoration, recovery of degraded pastureland and expansion of non-hydro renewables energy to support its mitigation goals and an adaptation strategy focused on the need to protect vulnerable populations. While GHG emissions and forest deforestation decreased considerably between 2004-2012, these trends have reversed since 2015, with approximately 9.762 square kilometers of deforestation in 2019. A comprehensive national climate policy launched in 2016 by the Ministry of Environment includes a transparency system, an adaptation plan focusing on the most vulnerable municipalities, a National Climate Fund, emissions registry, as well as knowledge management activities. Table 13: Potential Activities and Indicators in Climate Change Activities and Outputs Results Integrate climate change risk and vulnerability screening and Increased proportion of projects that are subject to climate assessments in public investment management systems. change risk screening and assessment. Integrate disaster and climate change vulnerability Increased proportion of immovable assets with disaster and assessments in immovable physical asset registries. climate change vulnerability assessment. Undertake energy audits of selected real estate assets. Number of energy audits conducted. Include climate change perspectives in expenditure reviews Integration climate change into budget practices to assess the policy alignment. Increased proportion of procurement applying Include climate change policy considerations in the budget environmental criteria process. Design and implement green procurement practices. Page 53 The World Bank Progestão Mato Grosso (P178339) ANNEX 3: ECONOMIC ANALYSIS 1. Economic benefits. The economic benefits from the project arise from expenditure savings from improvements to government management systems. Savings are generated from the rationalization of government operational costs and improvements in efficiency and productivity in the core systems supported by the project in the areas of human resources, pensions, procurement, asset management, social assistance, and health. The analysis does not consider second-order impacts from the reallocation of public funds to more productive uses through improvements in the quality and policy alignment of spending or benefits associated with increased investment project execution resulting from higher quality public investment projects. Nor does the analysis consider benefits from the modernization of State functions, such as improvements in the quality of public service, transparency, and compliance. 2. The net present value of all project benefits using a social discount rate of 4.5 percent is estimated to be US$40.9 million over 10 years with an internal rate of return of 13 percent. The discount rate follows the recommendation of a recent study on 17 Latin American countries using the social rate of time preference (STP) method16 and is relatively close to the social discount rates adopted by European countries (ranging between 3.5-5.5 percent). Table 1: Summary of the Cost-Benefit Analysis (U$ Millions) 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 Total (USD) - 4.0 - 8.0 - 8.0 - 8.0 - 8.0 - 4.0 - - - - - - 40.0 Project Cost (USD) - 0.4 6.9 1.4 1.9 2.6 3.3 4.0 4.9 5.8 6.9 38.0 HRM Pensions - 0.0 3.4 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 3.4 Procurement - - - 3.6 3.7 3.9 4.1 4.2 4.4 4.6 4.8 33.4 Asset Management - 0.0 0.0 0.2 0.4 0.6 0.8 1.0 1.2 1.4 1.7 7.2 Health - - 2.1 2.3 2.5 2.8 3.1 3.4 3.7 4.1 4.5 28.6 Social Assistance - 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.2 1.3 Net Benefit - 4.0 - 7.5 4.5 - 0.5 0.7 5.9 11.3 12.8 14.4 16.2 18.1 72.0 NPV 40.9 IRR 13% 3. Human Resources Management. The benefits for this component are estimated based on expected savings in the wage bill resulting from the use of strategic workforce planning tool and subsequent workforce resizing and the implementation of a payroll audit. Strategic workforce planning is expected to lead to a reduction in the public sector workforce replacement rate in non-front line service delivery staff from 0.985 to 0.97. This represents a reduction of 0.02 percent in payroll growth per year with savings of R$128.2 million (US$25.2 million) over ten years. An audit of a small sample (0.37 percent) of benefit entries in the Federal government payroll in 2018 focused on four elements of the wage bill (basic salary, earnings, subsidies, and allowances) encountered 0.005 percent irregularities. An expansion of the sample to the entire payroll projected a total of 1.35 percent of irregularities. Applying these findings and assumptions to the Mato Grosso wage bill audit, the economic analysis expects a more conservative one-time saving of 0.3 percent of 16Moore MA, Boardman AE, Vining AR (2020) Social Discount Rates for Seventeen Latin American Countries: Theory and Parameter Estimation. Public Finance Review.48(1), pp 43-71. (Link) Page 54 The World Bank Progestão Mato Grosso (P178339) the wage bill amounting to R$30.8 (US$6.0 million). The net present value of savings from HRM measures is estimated at R$139.2 million (US$27.2 million). 4. Pensions. The economic benefits for this subcomponent were estimated based on expected savings in the pension payroll from the implementation of an automated audits using the same parameters as the payroll audit. The economic analysis estimates a one-time saving of 0.3 percent of the total pension budget, generating a benefit of R$17.6 million (US$3.4 million). 5. Procurement. The economic benefits for this subcomponent are estimated with reference to other experiences of procurement reforms in Brazil. An activity-based costing project with the Electronic Basket (Bolsa Electronica de Compras, BEC), applied costs per activity to the central government and suppliers and identified gains from increased procurement process flexibility, increased competition, a reduction of time between opening and finalizing procurement processes, and increased payment creditworthiness. In addition to the gains from process simplification in procurement operations, the study also identified a 22 percent reduction in prices paid by the State. The proposed system modernization, centralized collection, and use of data through the project are conservatively estimated to generate cost savings of 1 percent from the third year of project implementation and until year ten, amounting to R$200.9 million (US$39.3 million) with a net present value of R$145.9 million (US$28.6 million). 6. Asset Management. The economic benefits for this subcomponent are estimated based on the expected increase in the revenues obtained from the rent and sale of State properties. The increased revenue is a consequence of reducing the number of vacant State units and the related operational cost. In 2020, Mato Grosso had 91 unoccupied buildings and spent R$ 2.2 million (US$ 393,757) in rent expenses for its 101 facilities. Between 2017 and 2021, 272 buildings were rented. Mato Grosso will rationalize management of vacant properties, renting them out or selling them. This requires mapping the State's properties and regularization of ownership in some cases. It is estimated that Mato Grosso can benefit from a 5 percent increase in revenues resulting in additional revenue of R$28 million (US$5.5 million) over a ten year time frame with a net present value of R$19.7 (US$3.9 million). 7. Public Investment Management. Improvements to the methodologies and systems for investment project preparation, screening, and approval is expected to result in projects that are better prepared and ready for implementation, thereby avoiding repeated adjustments and time and cost overruns. The State Government does not collect and compile project level data for benchmarking and analysis. Due to these data constraints, the project measures PIM improvements through the increase in the aggregate State investment budget execution rate. This is not an ideal indicator since many factors could affect budget execution. However, improvements in investment project appraisal and monitoring are expected to improve the overall investment budget execution. An increase in the execution rate from 55 to 70 percent would bring benefits of US$171 million in the form of additional funds being spent on public investment projects. Various studies have shown that public investments have broader positive multiplier effects in the economy17. Applying the average multiplier (2.7) for upper-middle-income countries, could bring economy-wide benefits of US$460 million approximately. These second-order economic benefits are not included in the estimation of table 1 above which includes only first-order benefits. 8. Health. The economic benefits for the health component are estimated based on expected savings from reducing administrative costs through the implementation of management systems in Mato Grosso's public health units. The implementation of these types of systems will help the State to deal with some of the persistent challenges the State's health care delivery. According to a 2005 study 18, the implementation of information technologies on public hospital management can lead to cost reductions of approximately 4.5 percent annually through cost reductions in 17IMF, Fiscal Monitor, October 2021: Strengthening the Credibility of Public Finances (Link) 18Girosi, Federico, Meili, Robin and Scoville, Richard (2005) Extrapolating Evidence of Health Information Technology Savings and Costs, Rand Health. (Link) Page 55 The World Bank Progestão Mato Grosso (P178339) administrative costs and reduced drug costs for inpatients. The cost benefit analysis applies a conservative estimate of 1 percent reduction in administrative costs with benefits of R$123 million (U$ 24.1 million) over ten years, applied from the second year of project implementation, with a net present value of R$90.9 million (US$17.8 million). 9. Social Assistance. The economic benefits for the social assistance subcomponent are estimated based on administrative savings with the implementation of a financial management information system to monitor and document the resources transferred to 141 municipalities in the State. Cost savings include reduced travel expenses (fuel and per- diem), paperwork (mail and graphic material), and work hours. The project assumes that Mato Grosso will save 100 percent of the total cost of mail and graphic material including the estimated hours of work to prepare these materials, representing R$693.739 (U$135,761) over ten years. A conservative estimate of savings from the reduction of the number of visits to each municipality from two to one per year would yield savings R$ 4.9 million (U$967.382) over ten years. Page 56