PROGRAM INFORMATION DOCUMENT (PID) CONCEPT STAGE October 27, 2011 Report No.: AB6686 Operation Name Bahia Inclusion and Economic Development DPL Region LATIN AMERICA AND CARIBBEAN Country Brazil Sector General public administration sector (20%); Sub-national government administration (20%); General education sector (20%); Health (20%); Roads and highways (20%) Operation ID P126351 Lending Instrument Development Policy Lending Borrower(s) STATE GOVERNMENT OF BAHIA Implementing Agency SECRETARY OF FINANCIAL ADMINISTRATION Secretaria da Fazenda do Estado de Bahia 2a Ave 260 CEP 41.745-003 CAB Salvador Bahia Brazil Tel: (55-71) 8153-8679 augusto@sefaz.ba.gov.br Date PID Prepared October 18, 2011 Estimated Date of Appraisal December 23, 2011 Estimated Date of Board July 12, 2012 Approval Corporate Review Decision Following the corporate review, the decision was taken to proceed with the preparation of the operation. Other Decision I. Key development issues and rationale for Bank involvement The Bank acknowledges the highly decentralized nature of the Brazilian Federation, and therefore the very important role sub-national governments play in addressing the country’s main development challenges. Improving the capacity of sub-national governments to implement national development policies is key for maximizing their impact, “fine-tuning� their design and reducing regional inequalities. The Bahia State Government is in the process of implementing a medium-term program to modernize the State in a sustainable manner. State governments in Brazil are responsible for executing many areas of public policy, from tax policy and tax administration to education, health and citizen partnership. Bank support of effective public sector management of State Governments is therefore critical to support economic growth and poverty reduction at the State level as well as to create incentives for sound policy making by State Governments. The proposed operation is a two-tranche development policy loan. The first tranche (US$350 million) will be disbursed once the loan goes into effect, while the second tranche (US$350 million) is contingent upon the government’s completion of additional policy actions, which will be set forth in the loan agreement. II. Proposed Objective(s) The objective of the proposed operation is to support the Bahia’s development program and its efforts to reduce social inequality, develop more efficient economic diversification, institutional infrastructure and logistics, and innovation of public financial management and planning. The proposed operation is fully consistent with and closely linked to the objectives of the Brazil Country Partnership Strategy (CPS) 2008-2011 which emphasizes reducing extreme poverty, vulnerability and exclusion, promoting growth through sustainable resource use, and improving competitiveness. A special focus of the proposed DPL would be social and productive inclusion, more efficient social, physical and institutional infrastructure, and stronger planning and management of the public sector, all of which are key pillars of the CPS for achieving sustainable development and inclusive growth III. Preliminary Description The proposed operation will support policy actions in the following areas: • Improving Social and Productive Inclusion (Equity) • Developing Social, Physical, and Institutional Infrastructure for Sustainable Development (Efficiency) • Strengthening Planning and Management of the Public Sector (Governance) IV. Poverty and Social Impacts and Environment Aspects Poverty and Social Impacts Many of the policies supported by this operation address the subjacent causes and most perverse effects of the socioeconomic – regional, racial, and gender – inequalities that have historically hampered the sustainable development of the state of Bahia. As considered the state of Bahia is the largest economy in the Northeast of Brazil and accounted for about 4.9 percent of the national gross domestic product (GDP). Poverty has sharply declined over the past decade (from 50 percent of the population in 2003 to about 27 percent of the population in 2009), the economy has been able to generate an increasing balance of formal jobs, the coverage of health care services and the enrollment rate in elementary school have increased. However, the GDP per capita is just about half the national average; the extremely poor people still comprise about 17 percent of the state population; the jobs being created are mostly low wage jobs; infant mortality and maternal mortality ratios remain above national averages; and, while the children`s schooling continues to be harnessed by low quality of teaching, high drop-out, low passing, and high age-grade distortion rates, high rates of illiteracy and low levels of average schooling prevail among the adult population. Poor and extreme poor people are overrepresented at the municipalities in the largely rural semi-arid zone, which lag behind in terms of economic activities and development, job creation, and contribution to growth. In consequence, the State of Bahia is home to up to 20 percent of the rural poverty in Brazil due to chronic water scarcity and lack of access to basic infrastructure, precarious land tenure rights and high concentration of land, scarce rural extension, lack of access to rural financing and technology among other factors that lead to low productivity. Meanwhile, the Metropolitan Region of the capital city concentrates most of a huge quantitative deficit of housing units (equivalent to 8 percent of the total deficit for Brazil); its poor population is the most exposed and the most vulnerable to both natural hazards (localized landslides and flooding from excessive rainfall) and violence. By addressing these socioeconomic inequalities, these policies may answer key challenges faced by the state to reduce and overcome poverty and are expected to bring positive effects for the poor, extremely poor and most vulnerable groups within the state`s population. As preliminary diagnostics have shown that low literacy skills and ability to understand simple utterances are the main cause of poor learning outcomes and performance across all levels of education in public schools, poor children may benefit the most of the amelioration of literacy (first and second grade) classrooms as intended by the “Todos pela Escola� Program. Poor family farmers in the lagging semi-arid regions may benefit the most from the proposed policies of productive inclusion, land regularization and disaster risk management related to droughts and forest fires. The extremely poor families may benefit from social inclusion policies that aim to outreach them and improve their access to social services and conditional cash transfers programs. The economy of poor and backward municipalities may benefit from both productive and social inclusion policies as they might make more cash available at the local market. Women and single women headed households may also benefit from social inclusion policies that address gender inequalities. Low-income families living in informal settlements and at risk areas in urban settings may take the most advantage from policies that address qualitative and quantitative housing deficits and vulnerability to natural hazards. Finally, poor families in informal settlements at the metropolitan region of the capital city – and particularly the youth of afro-descent who are hit harder by violence – are expected to gain the most from policies designed to respond to violence and to reduce drug addiction (“Pacto Pela Vida�). During preparation, the World Bank team will carry on a poverty and social impact analysis to assess the feasibility of these expected positive impacts, identify any adverse effects these policies may have on poverty and society, and contribute to their improvement and the definition of any mitigating measure that might be needed. The PSIA will have three main objectives: (a) to assess how these policy changes affect different social groups; (b) to identify how these different stakeholders might more forcefully and efficaciously support or resist to them; and, in consequence, (c) how the different response of distinct stakeholders to policy changes may put the later at risk. The PSIA will rely on primary and secondary data. PSIA will include a desk review of secondary quantitative and qualitative data, aiming to assess the state performance on the different social, economic and political dimensions affected by the proposed policy changes as well as to identify key social issues, research gaps and key stakeholders. Primary research to address these research gaps will be based on interviews and focus groups consultations with key stakeholders and experts on the issues at hand. They will focus on the potential distributive effects of the policies supported by this operation on the more vulnerable social groups. Special attention will be paid to the level of access to state provided services according to gender and generation, rural versus urban settings, race and ethnicity, which play a determinant role on poverty distribution and intensity. Stakeholder analysis will also address the arguments pro and against the proposed policy changes made by different social groups, thus assessing the risks they face, how they can be mitigated and/or how they might be redesigned to reach more beneficial impacts on the most vulnerable people. Environmental Aspects The proposed operation is not expected to have a significant environmental impact. An analysis of the environmental implications reveals no likely environmental impact from the DPL- supported policies. V. Tentative financing Source: ($m.) Borrower 0 International Bank for Reconstruction and Development 700 Borrower/Recipient IBRD Others (specifiy) Total 700 VI. Contact point World Bank Contact: Yaye Seynabou Sakho Title: Sr Country Economist Tel: (202) 458-9732 Fax: Email: ysakho@worldbank.org VII. For more information contact: The InfoShop The World Bank 1818 H Street, NW Washington, D.C. 20433 Telephone: (202) 458-4500 Fax: (202) 522-1500 Web: http://www.worldbank.org/infoshop