ICRR 14949 Report Number : ICRR14949 IEG ICR Review Independent Evaluation Group 1. Project Data : Date Posted : 06/13/2016 Country : Colombia Is this Review for a Programmatic Series ? Yes No Series ID : First Project ID : P145605 Appraisal Actual Project Name : Co: Enhancing Fiscal US$M): Project Costs (US$ 600 600 Capacity To Promote Shared Prosperity D L/C Number : Loan/ US$M): Loan /Credit (US$ Sector Board : Poverty Reduction US$M): Cofinancing (US$ Cofinanciers : Board Approval Date : 09/06/2013 Closing Date : 12/31/2014 12/31/2014 Sector (s): Other social services (43%); Central government administration (36%); Sub-national government administration (21%) Theme (s): Tax policy and administration (43%); Social risk mitigation (15%); Poverty strategy; analysis and monitoring (14%); Public expenditure; financial management and procurement (14%); Gender (14%) Evaluator : Panel Reviewer : ICR Review Group : Coordinator : Robert Keyfitz Lev Freinkman Lourdes N. Pagaran IEGPS2 2. Project Objectives and Components: a. Objectives: The Loan and Program Summary (Program Document, p. 3) gives the Project Development Objective (PDO) as: "To support the Government of Colombia in improving fiscal , territorial, and gender equity through specific actions in targeted policy areas , while enhancing access to information and accountability in public spending ." b. If this is a single DPL operation (not part of a series), were the project objectives/ key associated outcome targets revised during implementation? No c. Policy Areas: The operation comprised six policy areas : (1) More equitable tax policy and administration . Support comprehensive tax reform to improve equity and efficiency, increase voluntary compliance , and promote formal sector employment through : passage of a new tax law redistributing the burden of income taxation from the bottom 99.6 percent of taxpayers to the top 0.4 percent; streamlining the VAT and introducing a new luxury tax ; shifting the burden of corporate taxation from labor to capital; and reducing payroll taxes to provide incentives for increased formal sector hiring . (2) Inter-regional equity and broadening local revenue sources : Establish joint national-subnational boards ( Órgano Colegiado de Administración (OCADs)) to approve and oversee investment projects financed out of resource transfers from rich to poor regions under reforms to the General System of Royalties . (3) Equity in social spending: Strengthen Colombia Mayor, the social protection program for the elderly , by issuing new rules, increasing the coverage and budget , and better targeting old-age populations living in moderate or extreme poverty. (4) Gender equity: Introduce measures to support women who are victims of gender violence through provision of meals, transport and temporary housing , (5) Open access to national financial management information systems : Improve the operation of the Government's Integrated Financial Management Information System and increase access to data pertaining to budget revenue and execution to enhance transparency and accountability . (6) Monitoring of poverty and other social indicators : Update the methodology and institutional arrangements to enhance quality, transparency and replicability of poverty and other social indicators in order to improve the measurement of poverty. d. Comments on Project Cost, Financing, Borrower Contribution, and Dates: The US$600 million IBRD loan was approved 9/6/2013; became effective 9/9/2013; disbursed fully 9/12/2013 and closed 12/31/2014 as scheduled. There was no cofinancing or borrower contribution . 3. Relevance of Objectives & Design: a. Relevance of Objectives: The objectives were closely aligned with Colombia 's National Development Plan (NDP) 2010-14, "Prosperity for All" which focused on fiscal and regional equity , effectiveness of social spending , and openness and transparency in budget management . Despite recent progress, poverty and inequality in Colombia remain above average for the region and the Gini coefficient is among the highest in the world . The Government's objectives were incorporated in the Bank's 2012-16 Country Partnership Strategy which aimed to support the NDP in the areas of fiscal management, sub-national government capacity building , poverty reduction, inclusive growth, gender equity, and transparency and accountability in public administration . Accordingly, the objectives are rated as highly relevant . b. Relevance of Design: The operation comprised of well chosen and pertinent policy areas , but in general the presentation of the program does not give a clear sense of the linkages between prior actions and expected outcomes . Prior actions refer to numbered legislation or regulatory decisions with only very limited functional descriptions . For instance, a prior action for Policy Area 1 includes, "simplifying the value-added tax, as evidenced by the issuance of the Borrower's Law 1607" while the PD explains only that, "The VAT structure was streamlined to reduce administrative and compliance costs ...." (p. 22) This is insufficient to give a clear picture of key links in the causal chain. In addition to this general concern , the design had a number of specific weaknesses : 1. For territorial equity, the policy -- strengthening management and oversight of territorial capital budgets -- pertained to capacity building in subnational governments and efficiency of resource use rather than equity of resource distribution across subnational governments . Earlier reforms to redistribute natural resource royalties more equitably preceded this operation and were not attributable to it . Measures aimed at raising the quality of public capital stock in poorer regions might plausibly lead to territorial convergence, but neither the PD nor ICR makes the argument or presents any supporting evidence about the distribution of benefits . 2. Prior actions in the areas of gender equity (providing support for women victims of domestic violence ) and fiscal equity (reducing payroll taxes to encourage low wage employment ) though potentially benefiting disadvantaged groups would not normally be considered as promoting equity in the administration of government policies in these areas . 3. In the case of gender equity , the program targeted a budget allocation for temporary support to victims of gender violence rather than effective service delivery . However, the money was not disbursed so there was no direct impact. 4. The second part of the PDO refers to "enhancing access to information and accountability in public spending." But, no policies supported under the program were specifically directed at accountability and the PD did not attempt to link this to the (considerable) increase in access to information . 5. Finally, many of the reforms were complex and highly technical , which would suggest structuring the operation as a programmatic series to sustain a dialogue and allow more time to achieve meaningful results. However, this was ruled out because of the electoral cycle (election in 2014). The disadvantages of a stand -alone operation could be mitigated by carefully integrating it into the rest of the country program, but the PD has no discussion of how this would be done or linkages to possible follow-on operations. On balance design relevance is rated as modest . 4. Achievement of Objectives (Efficacy): Improving fiscal, territorial and gender equity: (Rating: Modest ) Fiscal equity: It is too early for a definitive assessment of the 2012 tax reform, but the impact on equity seems likely to have been positive though modest . Among its other provisions, Law 1607 (passed in December 2012 -- a prior action): (1) amended the income tax schedule to make it more progressive , lowering effective rates for the bottom 99.6 percent of tax payers and raising them for the top 0.4 percent; (2) introduced revenue neutral changes to the VAT with a higher rate on luxury goods ; (3) introduced a new corporate profits tax ; and (4) reduced payroll taxes for low wage workers to stimulate formal sector employment . A Key Performance Indicator (KPI) measuring direct taxes paid by the top 0.4 percent of income earners was not reported . However, Finance Ministry data for 2012-13 show a modest rise in effective tax rates for the top 30 percent of earners (by up to 0.4 percentage points) and a sharp fall for the bottom 10 percent (by up to 12 percentage points). Also, the share of income tax revenue paid by the top 10 percent of earners rose from 56.8 percent to 58.4 percent. Such results are strongly suggestive of a more equitable tax burden . At the same time, effective income tax rates remain very low, limiting the overall redistributive effect , while taxation at the very top of the income distribution appears still to be highly regressive (ICR, Table 3), Changes in the VAT are thought to have had little distributional impact and no data are presented about collections from the luxury tax . Revenue from the new corporate tax reached 1.59 percent of GDP in 2014, well above the target of 0.61 percent. The incidence of the corporate tax reforms is not known, though likely the impact on equity was positive . Using official data from the National Statistical Office , the Gini coefficient declined from .538 to .522 in 2012-15, while simulation studies and actual labor market data (ICR, Figures 2-4) indicate a shift of employment from the informal to formal sector. Territorial equity: Prior to the DPL, Legislative Act 05 in 2011 had drastically reformed Colombia's General Royalty System and, "substantially enhanced territorial equity in the distribution of royalties ." (ICR, p. 17) However, this action was not associated with the DPL whose prior action called for the issuance of Law 1530 of 2012 which restructured revenue from royalties into five different funds and established oversight of territorial investment projects by the OCADs . A total of 2,105 projects were completed and another 3,118 were under contract by year-end 2014, easily exceeding the target of 1,500. But the logic linking this to territorial equity is obscure and no data are presented on the territorial distribution of projects or economic outcomes . Life-cycle equity: The Colombia Mayor program was revamped to extend eligibility to previously unregistered seniors, and improve targeting through the use of new prioritization criteria including age , level of dependency, neglect and disability. At a substantial increase in fiscal cost , the number of beneficiaries in the program increased from 713,660 to 1,456,409 in 2012-14 or from 35 percent to 60 percent of the eligible population of 2.4 million, exceeding the target of 42 percent by a wide margin. Gender equity: The Government mandated specific measures to provide support for victims of gender violence , such as provision of meals, transport and temporary housing . A KPI targeting a budget allocation of .01 percent of total current expenditure was more than achieved . However, no funds have been disbursed in 2013-14. According to the Ministry of Health , many factors were responsible , including a shortage of temporary housing , legal restrictions on some categories of expenditure , difficulties in identifying beneficiaries , and uncertainty about payment procedures. The Bank is engaged in discussions about future implementation of the law . Notably, survey findings indicate an increased awareness of gender issues , and the Government has established a Gender Observatory and a Division of Gender in the National Planning Department . Support from the DPL may have helped build momentum , but so far the direct contribution to women 's status and gender equity has been limited. Overall, progress toward the equity sub -objective is rated as modest . Enhancing access to information and accountability in public spending : (Rating: Substantial ) Access to information: An impressive expansion was achieved in the coverage and quality of budget information available to the public on the government portal . KPIs called for 100 percent of available information about budget execution and 80 percent of available information about revenue collection at the national level to be published on the government's transparency portal. Both indicators achieved 100 percent of information, including procurement expenditures at a department level . Meanwhile methodological and operational changes have enhanced the quality and credibility of official monetary and multi -dimensional poverty measures. The roles of the National Statistics Bureau and Planning Ministry have been clarified , and expert committees have been set up to oversee the compilation of poverty indicators , comprising academics, government officials, and representatives of multilateral agencies including the Bank . Annual data for 2012-13 have been published after validation by the expert committees as required by a KPI , together with annual household survey micro -data. Accountability in public spending : It is hard to imagine that increased access and awareness would not translate to greater accountability. The ICR reports that financial information disseminated via the Government 's transparency portal is used for M &E by Government officials including the President , while a 2015 satisfaction survey of users of the portal indicated 91.6 percent rated the system as good or excellent . Nevertheless, accountability also depends on the existence of an institutional framework and a client -oriented, results-focused culture. The program paid no attention to creating a conducive environment for accountability or to measuring the outcome. 5. Efficiency (not applicable to DPLs): 6. Outcome: The objectives were highly relevant , focusing on shared priorities of the Government and the Bank , however while the design built on strong analytical foundations , it was only modestly relevant . Efficacy was substantial for the transparency and accountability sub -objective, but only modest for equity, perhaps in part because of the short time frame compared to the complexity of the operation . Overall, the outcome is rated as moderately satisfactory . a. Outcome Rating : Moderately Satisfactory 7. Rationale for Risk to Development Outcome Rating: The Government remains committed to the objectives and risks are low in areas such as openness and transparency. However, macroeconomic headwinds and fiscal pressures due to low oil prices may prove challenging in areas of the program which have significant budgetary implications . The regional equity program funded by oil royalties is particularly vulnerable , as are the expansion of Colombia Mayor where sustainable funding has yet to be secured and support for women where the program has yet to become operational . On balance, risks are moderate . a. Risk to Development Outcome Rating : Moderate 8. Assessment of Bank Performance: a. Quality at entry: The Bank responded quickly to the Government 's request for an equity focused DPL , thanks to effective coordination across various Global Practices , and an extensive base of analytical and advisory (AAA) work which included studies on tax policy , public financial management, subnational institutions, poverty, and labor markets. Early on, the Bank organized a high level workshop , Colombia Equity Day, which helped to define the program and build consensus . The operation was carefully reviewed by a Poverty and Social Impact Analysis (PSIA). The objectives were highly relevant though presented in a somewhat ambiguous and confusing way with inconsistencies between the PDO and specific objectives , and between both of these and the program itself. Finally, design weaknesses and shortcomings in the M &E framework may have undermined the operation's eventual achievements. Program preparation took account of Colombia’s macroeconomic framework , which was satisfactory. After showing resilience in the wake of the 2008-09 global crisis, the economy slowed in 2012 due to weak external demand and unforeseen supply shocks . Nevertheless, the financial sector and macroeconomic policy framework were sound and remained so during implementation , with prudent fiscal and monetary and unemployment. IMF Article IV assessments throughout the period remained satisfactory . 4%-5% range, policies contributing Quality -at- subd to sustain at -Entry Rating : Moderately Satisfactory b. Quality of supervision: Two missions were fielded during implementation and ISRs were filed in the system . The problems of disbursement in the gender equity component were noted and followed up . In addition, the Bank participates on the expert committees overseeing poverty measurement and monitoring and has continued with analytical work and dialogue about the program 's equity and poverty issues . Quality of Supervision Rating : Satisfactory Overall Bank Performance Rating : Moderately Satisfactory 9. Assessment of Borrower Performance: a. Government Performance: High level leadership and commitment played an important role during implementation and monitoring . Extensive consultations were held with stakeholders during preparation and for the most part Ministries and other agencies coordinated effectively during implementation . A problem providing tax data for one KPI was attributable to staff changes . Government Performance Rating : Satisfactory b. Implementing Agency Performance: Implementing Agency Performance Rating : Not Applicable Overall Borrower Performance Rating : Satisfactory 10. M&E Design, Implementation, & Utilization: a. M&E Design: The M&E framework consisted of eight Key Performance Indicators (KPIs), a rather small set for a wide ranging program. As a result, some program areas were not well covered . There were no indicators for employment or accountability, while the indicator for regional equity (number of projects overseen by OCADs ) was of uncertain relevance and did not permit any regional disaggregation . For gender equity, the indicator of budget allocation to the program proved to be uninformative because the resources were not disbursed . The indicator for poverty monitoring might usefully also have targeted publication of the data in addition to validation by the expert panels . b. M&E Implementation: Multiple government agencies were responsible for collecting and reporting the data . In only one case did the system fail to deliver -- the share of income taxes paid by the top 0.4% of income earners, which was not reported by the tax directorate to the Finance Ministry , apparently due to staffing changes . c. M&E Utilization: The M&E system was utilized to monitor the program as well as in the context of the Bank 's ongoing policy dialogue, for instance through participation on the expert committee overseeing poverty monitoring . The M&E system contributed to upgrading of national systems for poverty measurement and tracking . M&E Quality Rating : Modest 11. Other Issues a. Safeguards: No issues raised. b. Fiduciary Compliance: No issues raised. c. Unintended Impacts (positive or negative): d. Other: 12. 12. Ratings : ICR IEG Review Reason for Disagreement /Comments Outcome : Satisfactory Moderately High relevance of objectives but Satisfactory modest relevance of design, and modest efficacy on one objective and substantial efficacy on the second objective. Risk to Development Moderate Moderate Outcome : Bank Performance : Satisfactory Moderately Inconsistencies in the presentation of Satisfactory objectives and design flaws do not merit a satisfactory rating. Borrower Performance : Satisfactory Satisfactory Quality of ICR : Satisfactory NOTES: NOTES - When insufficient information is provided by the Bank for IEG to arrive at a clear rating, IEG will downgrade the relevant ratings as warranted beginning July 1, 2006. - The "Reason for Disagreement/Comments" column could cross-reference other sections of the ICR Review, as appropriate. 13. Lessons: The ICR draws a familiar conclusion about the importance of respecting the borrower 's priorities to ensure ownership and commitment. At the same time, the Bank has helped shape Colombia 's approach to equity and poverty issues through analytical work and policy dialogue , not least through a high level workshop building consensus for the DPL's program. When the opportunity arose , the Bank was able to respond quickly because of its multisectoral capacity and a deep well of country specific knowledge . However, where the reform agenda exceeds the scope of a single operation, the Bank must be prepared to sustain an engagement over the longer term . Finally, the ICR notes an important synergy in the operation between governance reforms (access, transparency) and structural objectives (poverty reduction, equity). 14. Assessment Recommended? Yes No 15. Comments on Quality of ICR: The ICR is concise and well organized , and presents credible and convincing arguments for assessments . Some areas where it might have been improved : (1) efficacy was rated in terms of specific objectives for program areas rather than the program objectives in line with the harmonized OPCS /IEG guidelines. At the very least the ICR should have carefully and critically reviewed how the specific objectives and PDO related to each other; (2) the program was described in terms of numbered laws and decrees , but without a more functional description it was not always clear how these were linked to the objectives in areas such as tax reform or regional redistribution. More background about some of Colombia 's programs and institutions such as OCAD , Colombia Mayor, etc. would have further helped the uninitiated reader ; (3) some additional data and/or analysis of program results would also have been useful , e.g. revenue generated by the new luxury goods tax , or an indication that new poverty data had not only been endorsed , but released to general public as well . a.Quality of ICR Rating : Satisfactory