PROGRAM INFORMATION DOCUMENT (PID)
CONCEPT STAGE
June 13, 2013
Report No.: AB7316
Operation Name
Region
Country
Sector
Operation ID
Lending Instrument
Borrower(s)
Implementing Agency
Date PID Prepared
Estimated Date of Appraisal
Estimated Date of Board
Approval
Corporate Review Decision
I.
CO: Enhancing Fiscal Capacity to Promote Shared
Prosperity DPL
LATIN AMERICA AND CARIBBEAN
Colombia
Central government administration (40%); Public
administration- Financial Sector (40%);Sub-national
government administration (20%)
P145605
Development Policy Lending
REPUBLIC OF COLOMBIA
Ministry of Finance and Public Credit (MHCP)
May 21, 2013
July 16, 2013
August 29, 2013
Following the corporate review, the decision was taken to
proceed with the preparation of the operation.
Key development issues and rationale for Bank involvement
The Government of Colombia (GoC) has made inequality reduction a top priority turning
its attention towards understanding how reforms, policies and institutions affect social
outcomes, and in particular equity. This emphasis is reflected in the strategies and goals of the
GoC National Development Plan (NDP) “Prosperity for All 2010-2014” (Prosperidad para
Todos 2010-2014). The three pillar objectives of the Plan are: (i) Sustainable Growth and
Competitiveness, (ii) Equality of Opportunities for Social Prosperity, and, (iii) Consolidation of
Peace.
Over the last two years, social indicators have improved, including a reduction in income
inequality, income poverty and the official measure of multidimensional poverty.
Improvements in the incidence of growth implied that, between 2010 and 2012, the average
income of the bottom 40 percent of the income distribution grew at a faster rate than the Latin
American average (8.1 versus 3.3 percent). This resulted in a further reduction of income poverty
but also in a turning point for income inequality, which started to decrease (from 0.56 to 0.54
between those years). Over the same period of time, 2010 to 2012, the official multidimensional
poverty measure (which includes fifteen dimensions related to education, health, employment
and assets) dropped 3.4 points.
The proposed Development Policy Loan (USD 300 million) recognizes and supports
reforms that aim at reinforcing the declining recent trends in income inequality and
improve overall equity in several dimensions. The set of reforms included in this operation
will have important impacts to move in the direction of more equitable conditions in the
following dimensions: i. Horizontal equity in the tax structure, ii. Regional equity though the
reform of the royalties (regalias) system, iii. Equity from a life-cycle perspective by
instrumenting policies to reduce poverty among the elderly, iv. Enhanced transparency, quality
of information and accountability in the execution of the public budget, v. Enhanced public
reporting of poverty and social welfare outcomes, and vi. Gender equity, through the enhanced
implementing of instruments to promote gender-informed sector policies throughout the
government, and strengthening the framework to protect women against violence.
II.
Proposed Objective(s)
The set of reforms supported by this operation is expected to enhance fiscal capacity,
achieve significant reduction in inequality and promote shared prosperity within the next
years. This objective is consistent with the three pillars of the GoC’s National Development Plan
“Prosperity for all”, namely: (i) Sustainable Growth and Competitiveness, (ii) Equality of
Opportunities for Social Prosperity, and, (iii) Consolidation of Peace. This is aligned with The
World Bank’s CPS FY-12-16 strategic theme 3: Inclusive Growth and Enhanced Productivity by
contributing to the long-term outcome of “Improved Public Sector Management and Equity and
Efficiency of Economic Policies.”
III.
Preliminary Description
The reform program supported by the DPL is built around six policy areas that seek to
enhance fiscal capacity towards shared prosperity in Colombia. These are: (a) More
equitable tax policy and administration; (b) Inter-regional equity and subnational governments’
management; (c) Equity in social spending; (d) Equitable access to information and enhanced
budgetary and financial management; (e) Monitoring of poverty and other social indicators; (f)
Gender Equity.
In each policy area, the prior actions demonstrate Colombia’s commitment to the reforms
highlighted above. These reforms will have a positive impact on equity, as technical
analysis has shown. The implementation of the reforms will reduce income inequality after
taxes and transfers, enhancing the redistributive capacity of the system, increase the speed of
regional convergence within the country and reduce poverty among the elderly. In addition, the
reforms will improve the efficiency and transparency of the budget management and
administration, strengthening conditions for transparency and accountability as well as better
monitoring of achievements in the social sectors. By reducing the cost of formalization in the
productive sector, the reform may also have an effect on formal employment and wages. Finally,
the reforms create the instruments to promote gender-informed sector policies throughout the
government, and strengthen the framework to protect women against violence.
The operation is fully consistent with The World Bank’s goals to end extreme poverty and
promote shared prosperity. While economic growth is important for increasing welfare, how
equitable a society is also plays a primary role in driving progress. Equity-driven policies, such
as the ones supported by this operation, enhance the capacity to grow in a sustained manner.
Enabling people and regions that are currently marginalized to improve their conditions will
unleash their inherent economic potential, increasing overall productivity and thus spurring back
on growth.
IV.
Poverty and Social Impacts and Environment Aspects
Poverty and Social Impacts
The Government policies supported in this DPL are expected to have a positive poverty
and social impact. The PSIA that is currently being carried out is meant to provide a robust
analysis of the positive outcomes on equity of these Policy Actions. There are reasons to expect a
positive impact from each of the supported reforms, as explained below.
The PSIA is structured to follow the policy areas outlined under the Proposed Operation.
Specifically, within Policy Area I, the policy towards a more equitable tax policy and
administration is found to have a positive impact, decreasing income inequality, reducing
poverty and increasing formal sector employment. In terms of Policy Area II, the policy actions
regarding Subnational Governments Management are expected to become a factor of regional
convergence for the period 2012 to 2016, by means of accelerating the catch-up effect between
poor and rich Departamentos. Within Policy Area III, the policy actions are found to positively
enhance equity in social spending—including by promoting access to social protection schemes
for the elderly, informal and low-income workers. In terms of Policy Areas IV and V, the prior
actions towards stronger budget and financial management, as well as monitoring of poverty and
other social indicators are expected to improve transparency and efficiency in access to
information on economic and social indicators. Finally, regarding Policy Area VI, gender equity,
prior policy actions are expected to have a positive effect from a gender perspective, towards
ensuring gender equality and the reduction of violence against women.
Environment Aspects
The proposed operation is not likely to have any significant effects on the environment,
forests, and other natural resources. As this operation focuses on tax reform, transfers to
subnational governments, improvement of social spending and financial management, poverty
monitoring and gender equity, it is not expected to have any impact on the environment.
However, to the extent that actions supported by the loan program are successful, over time, in
attracting new private investment, there will be need to continue strengthening Colombia’s
institutional capacity to identify and address environmental policy and regulatory issues.
The Government of Colombia is well prepared to address potential environmental impacts.
The National Development Plan (2010-14) focuses on sustainable growth, with environmental
and disaster risk management as a cross-cutting theme, and calls for the strengthening of the
National Environment System. The new Ministry of Environment and Sustainable
Development23 has prioritized the implementation of measures to strengthen the sustainability of
some of the priority economic sectors, also known as growth engines (agriculture, mining, and
construction). The Bank has been accompanying the Government in this process through a
package of services, including the Environmental Development Policy Loan series, the
Sustainable Development Investment Loan and the provision of targeted technical assistance and
analytical support in the area of environmental management.
V.
Tentative financing
Source:
Borrower
International Bank for Reconstruction and Development
($m.)
0
300
Others (specify)
Total
VI.
Contact point
World Bank
Contact: Luis-Felipe Lopez-Calva
Title: Lead Economist
Tel: +1 (202) 473-4123
Fax: +1 (202) 522-0054
Email: lflopezcalva@worldbank.org
Borrower
Contact: Luis Fernando Mejia
Title: General Director of Macroeconomic Policy
Tel: +57 (1) 381-1700 ext. 2194
Email: lmejia@minhacienda.gov.co
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
0
300