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Paraguay Consolidates its Public Sector Reform

April 6, 2015


Paraguay is improving its internal controls through a standardized internal control system. It is also improving the tax system by strengthening the capacity of the Large Taxpayers Unit, and increasing the size of the large taxpayer’s base that is audited. The government significantly strengthened its oversight capacity of the SOEs through an improved institutional framework, financial transparency, and results-based management.

Challenge

The government of Paraguay has successfully reformed its public sector in collaboration with the World Bank in the areas of tax administration, internal controls and state-owned enterprises (SOE). However, the government recognized the need to consolidate these reforms. The tax-to-GDP ratio was still one of the lowest in the region, the basic service delivery by SOEs was still weak, both of which were potential obstacles for the country’s rapid growth.

Solution

The Public Sector Reform Development Policy Loan project was designed to follow up and consolidate the achievements reached by previous reforms, adapting to country circumstances and ensuring strong national ownership. The project components were consistent with the government’s Strategic and Social Plan and the policy actions were in line with further strengthening public sector institutional capacity in the areas of SOE oversight, internal control, and tax administration

Results

The project contributed to the effectiveness and efficiency of the public sector as a medium for improved service delivery. The program supported achievements in the following areas:

  • Audited financial statements for seven out of the eight currently operational SOEs were published online within six months after the end of the fiscal year.
  • The government adopted management contracts with seven out of the eight SOEs,  improving their own control over the targets and the capacity of the monitoring unit, Unidad de Monitoreo de Empresas Públicas, (UMEP).
  • New management contracts for 2013-2015 were negotiated and are currently being implemented.
  • The creation SOE council, Consejo Nacional de Empresas Públicas, (CNEP) which consolidates the institutional framework, was approved and adopted. Five ministries established internal control committees, internal control norms, and trained the staff to implement the standard model of internal control (MECIP) These advances were maintained during the life of the program, exhibiting a more comprehensive set of internal control rules, and a broader coverage of internal audit function, as well as a higher extent of management response to internal audit findings.
  • Subsecretaría de Estado de Tributación strengthened its audit capacities for large taxpayers through: (i) the issuance of a resolution by SET and the banking superintendency, Superintendencia de Bancos, to allow for the audit of financial institutions classified as large taxpayers; and (ii) the implementation of a training program for auditors from the large taxpayers unit.
  • Tax collection rose, with the tax/GDP ratio reaching 13.80 percent in 2012.

Bank Contribution

The Bank supported the project with a US$100 million loan.

Partners

The USAID-supported Umbral program provided technical assistance and intensive training to ensure adequate and gradual implementation of the standardized internal control framework, MECIP. The Ministry of Finance was the implementing agency supported through the Consejo Nacional de Empresas Públicas, (CNEP) and the Tax Administration Agency (Subsecretaría de Estado de Tributación) carried out activities of the reform processes.

Moving Forward

The Bank team maintains engagement and supports the government’s ongoing public sector reform agenda with the technical assistance project Strengthening Tax Administration and SOE Corporate Governance.

Beneficiaries

In particular, the staff of the public institutions involved in the reform benefited directly from the actions taken through improved institutional processes and increased information for decision-making.  In addition, improvements in public sector management benefit all citizens through more efficient and transparent central administration, better public service delivery, and increased quality and access to public information.