Washington, April 6, 2010 - The World Bank today approved a $461 million in additional financing to the State of Minas Gerais, Brazil, in support of the Second Minas Gerais Partnership for Development, an innovative public sector reform that resulted in significant improvements in the services provided by the State.
The loan contributes to move forward an agenda focused on achieving specific results such as improved student test scores, reduced levels of child mortality and increased road quality. Budgets are therefore assigned according to pre-established targets.
To that end, the State focuses its investment program in a set of intensively monitored strategic projects. In addition, sector-specific targets for improvements, the reduction of unnecessary current expenditures and the introduction of management innovations are agreed with line Secretariats.
While these are held accountable for achieving their sectors’ goals, success is rewarded with increased budget flexibility and salary bonuses for public servants. The original $976 million project loan was signed in 2008.
The program has already attained concrete specific results:
- Five consecutive years of fiscal surpluses;
- Ratio of public investment to revenues increased from 7% in 2004 to 13% in 2008;
- 72.5% of 8 year-old students with expected reading levels, up from 65% in 2007;
- 69% of the population covered by basic family health programs – up from 55% in 2003; and
- 21% of paved state highway grid with performance-based maintenance contracts – up from 11% in 2007.
The new financing strengthens the combination of financial support and technical assistance within a multisectoral approach, which enabled these results. The program supports sectors with significant impact on public services and those which have big spending programs like health, education and transportation, for which improving the use of resources, management innovations and better monitoring and evaluation can result in large gains.
“The broad consensus around fiscal responsibility is a major achievement of Brazil. Minas has had a big role in this, and is showing the way in the challenge of significantly improving the quality of public spending,” said the World Bank Director in Brazil, Makhtar Diop.
The World Bank has been a partner of the Program since the first phase of its reform agenda, supporting it with a development policy loan of $ 170 million.
“This additional financing supports the fiscal framework put in place by the Federal Government through the restructuring of subnational debt and the Fiscal Responsibility Law,” said Pablo Fajnzylber, Project Manager for the World Bank. “This has enabled robust fiscal results, and more importantly, paved the way for increased investments and strong economic growth in the State.”
The successful experience of Minas Gerais is now being evaluated by other Latin American countries and developing countries outside the region, that want to achieve new levels of efficiency in service delivery.
The loan of $461 million from the International Bank for Reconstruction and Development (IBRD) to the State of Minas Gerais has a fixed spread and is guaranteed by the Federative Republic of Brazil. Since 1952, the World Bank has invested more than $ 4.3 billion in Minas Gerais (including today’s loan).