Uruguay to Become First Country in the Region to Use New Results-Based Financing Mechanism
WASHINGTON, November 14, 2012 – The World Bank Board of Directors approved two loans yesterday totaling US$326 million to support Uruguay’s reform agenda, improve the country’s road network and contribute to institutional strengthening. The financing package includes two projects: a US$260 million Development Policy Loan (DPL) and the US$66 million Uruguay Road Rehabilitation and Maintenance Program.
The Development Policy Loan supports the Uruguayan Government’s reform program to consolidate growth with social equity, and grants a new financing line to confront the impact of international uncertainty.
“Faced with the uncertainty of the current international situation, economic policy is responsible for reducing financial vulnerability. In this sense, a series of measures have been implemented in relation to the domestic agenda, and it is within that framework that we need to understand the recourse to this instrument agreed with the World Bank,” maintained Fernando Lorenzo, Minister of Finance of Uruguay, adding that “we welcome the availability of this type of stand-by instrument, which, alongside the deployment of our own agenda, allow us to confront the uncertainty that characterizes the global situation with confidence.”
The Uruguay Road Rehabilitation and Maintenance Program will contribute to finance rehabilitation and maintenance work in Uruguay’s 8875 km (5478 mi) national road network during the next three years, using a new financing tool called Program-for-Results.
Both projects fall under the framework of the 2010-2015 World Bank Partnership Strategy with Uruguay, which rests on: reducing macroeconomic vulnerability and strengthening public sector administration; improving competitiveness and infrastructure; protecting the environment, mitigating the effects of climate change and strengthening family agriculture; and greater social inclusion and equity.
“Uruguay has managed to significantly reduce poverty and inequity in recent years. The greatest challenge now is to ensure that those Uruguayans that have benefited from this do not relapse into a precarious economic situation, especially considering an uncertain and volatile global scenario,” maintained Peter Siegenthaler, World Bank Representative in Uruguay. “The two programs approved today respond to this challenge, reinforcing public finances and consolidating the reform agenda. Another highlight is a new tool that backs Government efforts to introduce a results-based approach into public policy.”
Over the 2013-2015 period, the US$66 million Uruguay Road Rehabilitation and Maintenance Program will help finance the National Road Network Rehabilitation and Maintenance Program, implemented by the Ministry of Transportation and Public Works (MTOP, in Spanish) and the Uruguayan Road Corporation (CVU, in Spanish). It contemplates the rehabilitation of 500 km (309 mi) of roads, including bridges, drainage systems, and improvements to the road sign system of the almost 9000 km (5500 mi)-long national road network across the three year period, as well the creation of performance-based maintenance contracts. It is worth noting that this Program is also supported by other international development organizations.
In order to support Uruguay in its search for more innovative solutions, for the first time in Latin America and the Caribbean this operation uses a new financing instrument called Program-for-Results (PforR). This new tool was approved by the World Bank Board of Directors in January of this year. It supports ongoing government investment programs and its main feature is that of linking fund disbursement directly with the attainment of specific goals; in this way, money is disbursed once results are met and audited. The other main feature of this tool is that it supports the institutional strengthening of implementing agencies, making their processes more efficient.
For its part, the Third Programmatic and Reform Implementation Policy Development Loan enables a reform package in three key areas identified and prioritized by the Government:
- Improve the efficiency of public resource utilization. Advance toward a results-based public sector management approach; continue with reforms to public financial management, such as debt or treasury management, and e-government.
- Promote greater social inclusion, through increased coverage, equity and efficiency of social programs. In this category we can highlight the progress achieved toward the universalization of health insurance coverage, and improvements regarding beneficiary data, which allows policies to be better focused on their target audience.
- Greater financial inclusion. It promotes access to financial services among low income groups and a reduction in informality, at first through payments, debit cards, family allowances and Uruguay Social cards, with a complete VAT deduction on these card transactions.
This loan, like the one granted in 2011, operates as a stand-by line of credit for the Government, with funding available throughout the next three years and liable to be used flexibly, as needed. It is financed via a tool called Deferred Drawdown Option (DDO), specifically created for countries without an immediate need for financing but wanting an additional insurance in case an unforeseen deterioration of the external situation occurs. The maturity period for this loan is 20.5 years, with a 15-year grace period, and a variable interest rate.