Document of The World Bank

FOR OFFICIAL USE ONLY

Report No. 89496 - BR

INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT

INTERNATIONAL FINANCE CORPORATION

AND

MULTILATERAL INVESTMENT GUARANTEE AGENCY

COUNTRY PARTNERSHIP STRATEGY PROGRESS REPORT

FOR

THE FEDERATIVE REPUBLIC OF BRAZIL

FOR THE PERIOD FY2012-2015

July 24, 2014

Brazil Country Management Unit Latin America and Caribbean Region International Finance Corporation Latin America and Caribbean Department Multilateral Investment Guarantee Agency This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

i

CURRENCY EQUIVALENTS

Exchange Rate Effective July 24, 2014

Currency Unit = Real Real 2.22 = US$1.00

WEIGHTS AND MEASURES

Metric System

FISCAL YEAR January 1 - December 31

ABBREVIATIONS AND ACRONYMS

AAA AFD APL BCB

Analytic and Advisory Activity French Agency for Development Adaptable Program Loan Central Bank of Brazil

Atividade de Análise e Assesoria Agência Francesa de Desenvolvimento Empréstimo Adaptável ao Programa Banco Central do Brasil

BNDES BSM

National Bank of Economic and Social Development Brazil Extreme Poverty Eradication Plan

Banco Nacional de Desenvolvimento Econômico e Social Brasil sem Miséria

DPL DRM ESF FDI

Development Policy Loan Disaster Risk Management Family Health Strategy Foreign Direct Investment

Empréstimo para Políticas de Desenvolvimento Gestão de Risco e de Desastres Estrategia de Saúde da Família Investimento Direto Estrangeiro

FY Fiscal year Ano Fiscal GDP GNI

Gross Domestic Product Gross National Income

Produto Interno Bruto Rendimento Nacional Bruto

GEF Global Environmental Facility Fundo para o Meio Ambiente Mundial GoB IADB

Government of Brazil Inter-American Development Bank

Governo do Brasil Banco Interamericano de Desenvolvimento

IBRD ICT

International Bank for Reconstruction and Development Information and communications technology

Banco Internacional para a Reconstrução e o Desenvolvimento Tecnologias de informação e comunicação

IDF IEG

Institutional Development Fund Independent Evaluation Group

Fundo de Desenvolvimento Institucional Grupo de Avaliação Independente

IFC INPE LCR MIC MIGA

International Financial Corporation Brazil National Institute for Space Research Latin America and the Caribbean Medium Income Countries Multilateral Investment Guarantee Agency

Corporação Financeira Intemacional Instituto Nacional de Pesquisas Espaciais América Latina e Caribe Países de rendimento médio Agência Multilateral de Garantia de Investimentos

NHSFO Non-Honoring Financial Obligations Inadimplência de Obrigações Financeiras NLTA OECD

Non-Lending Technical Assistance Organisation for Economic Co-operation and Development

Assistência Técnica Não-Reembolsável Organização para a Cooperação e o Desenvolvimento Econômico

PAC PISA

Growth Acceleration Program Program for International Student Assessment

Programa de Aceleração do Crescimento Programa de Avaliação Internacional de Estudantes

ii

PPP PRONATEC RAS RBM SBL

Public-Private Partnerships National Access to Technical Education and Employment Reimbursable Advisory Service Results Based Management Single Borrower Limit

Parcerias Público-Privadas Programa Nacional de Acesso ao Ensino Técnico e Emprego Serviços Reimbolsáveis de Consultoria Gestão baseado em resultados Limite de Exposição aos Países

SME SPCI SUS

Small and Medium Enterprises Shared Prosperity Convergence Index Universal Health System

Pequenas e Médias Empresas Índice de Convergência de Prosperidade Compartilhada Sistema Único de Saúde

SWAp Sector Wide Approach Abordagem Setorial Ampla TA Technical Assistance Assistência Técnica WB World Bank Banco Mundial

iii

ACKNOWLEDGEMENTS

This CPSPR was prepared by Edith Kikoni (Task Team Leader) under the guidance of Deborah Wetzel, Country Director for Brazil and Roland Clarke, Sector Leader and and Lead Economist, and Auguste Kouame, Sector Manager and in collaboration with Hector Gomez Ang and Luciana Marchesini (IFC), Dan Biller and Abraham Fox (MIGA) and Wilson Frota. Contributions are gratefully acknowledged from the Brazil Sector Leaders: Gregor Wolf (LCC5C), Magnus Lindelow (LCC5C), Mark Dutz (GTCDR), Paul Kriss (LCC5C) and Roland Clarke (LCC5C); Boris Enrique Utria (LCC5C), Cornelius Fleischhaker (GMFDR), Javier Baez (GPVDR), Miriam Muller (GPVDR), Tania Lettieri (LCC5C) and other members of the broader Country Team: Adriana Moreira (GENDR), Alessandra Campanaro (GURDR), Alexandre Takahashi (GURDR), Andre Loureiro (GEDDR), Angela Nieves Porto (LCC5C), Aude-Sophie Rodella (GPVDR), Barbara Bruns (GEDDR), Barbara Farinelli (GAGDR), Bernadete Lange (GENDR), Christophe de Gouvello (GEEDR), Claudia Baddini (GSPDR), Cristian Quijada Torres (GTCDR), Diego Arias (GAGDR), Eric Lancelot (GTIDR), Erwin de Nys (GWADR), Ezau Pontes (GHNDR), Fabio Sola Bittar (LCC5C), Frederico Pedroso (GURDR), Gregoire Gauthier (GTIDR), Jose Arturo Villanueva (GWADR), Juliana Menezes Garrido (GWADR), Laura De Castro Zoratto (GGODR), Leandro Costa (GEDDR), Lorena Vinuela (GGODR), Maria Concepcion Steta Gandara (GSPDR), Maria de Fatima Amazonas (GAGDR), Marianne Grosclaude (GAGDR), Michael Drabble (GEDDR), Monica Moura Porcidonio Silva (LCC5C), Paula Silva de Freitas (GWADR), Philip Schellekens (GMFDR), Rafael Chelles Barroso (GMFDR), Remi Trier (GAGDR), Thadeu Abicalil (GWADR), Tania Dmytraczenko (GHNDR) and Thomas Kenyon (GTCDR). Contributions are also gratefully acknowledged from Eduardo Wallentin (IFC, CLASC), Glenn-Marie Lange (GENDR), Kevin Barnes (CROCR), Konstantin Wacker (GMFDR), Rebecca Schutte and Seth Colby. The report benefitted from peer reviewer comments by Jose Guilherme Reis (ECCU6), Kathy Lindert (LCC2C), Sabine Hader (LCC7C) and Sameh Wahba (GURDR)

IBRD IFC MIGA Regional Vice President: Jorge Familiar Country Director: Deborah Wetzel Task Team Leader: Edith Kikoni

Regional Vice President: Jean P. Prosper Regional Director: Irene Arias Country Manager: Hector Gomez Ang Team Leader: Luciana Marchesini

Vice President: Michel Wormser Director of Economics and Sustainability: Ravi Vish Sector Manager: Dan Biller

iv

BRAZIL

COUNTRY PARTNERSHIP STRATEGY PROGRESS REPORT

TABLE OF CONTENTS

I. INTRODUCTION .......................................................................................................................... 1

II. COUNTRY CONTEXT ................................................................................................................ 1 A. Economic Developments ................................................................................................................. 1 B. Poverty, Shared Prosperity and Gender ........................................................................................... 3 C. Sustainable Development ................................................................................................................ 5 D. Political Developments .................................................................................................................... 5 III. IMPLEMENTATION PROGRESS OF THE CPS PROGRAM ............................................ 6 A. Progress towards achieving CPS outcomes ..................................................................................... 6 B. Portfolio Performance ...................................................................................................................... 9 C. Bank Group Performance .............................................................................................................. 12 D. Lessons Learned ............................................................................................................................ 15 IV. THE CPS PROGRAM GOING FORWARD ......................................................................... 16

V. RISKS AND MITIGATING MEASURES ............................................................................... 18

Annex 1: Progress towards achieving CPS Objectives and Outcomes ................................................ 1 Annex 2: Gender in the Brazil Portfolio ............................................................................................ 12 Annex 3: Summary of Changes to CPS Outcomes ............................................................................ 14 Annex 4: Brazil CPS FY12-15 Revised Results Matrix .................................................................... 18 Annex 5: Brazil Key Economic Indicators, 2008-18 ......................................................................... 26 Annex 6. Brazil Problem Projects and Actions to Improve Portfolio Health .................................... 27 Annex 7: Selected Indicators of Bank Portfolio Performance and Management............................... 29 Annex 8: Operations Portfolio (IBRD and Grants) ............................................................................ 30 Annex 9: IBRD Program Summary FY12-15 .................................................................................... 33 Annex 10: Detail of IBRD Program FY12 – FY15 ........................................................................... 36 Annex 11: Trust Fund Portfolio ......................................................................................................... 46 Annex 12: IFC Investment Operations Program ................................................................................ 47 Annex 13: IFC Committed and Disbursed Outstanding Portfolio ..................................................... 48

1

I. INTRODUCTION

1. This Country Partnership Strategy Progress Report (CPSPR) assesses the implementation of the World Bank’s FY12-15 Country Partnership Strategy (CPS) for Brazil1. The main objective of the World Bank Group (WBG) program during this period has been to make a catalytic contribution to Brazil’s efforts to eradicate poverty and to become a more prosperous and inclusive country. The WBG aims to achieve this goal by supporting activities that underpin four Strategic Objectives: (i) increasing the efficiency of public and private investments; (ii) improving the quality and expanding the provision of public services for low income households; (iii) promoting regional economic development; and (iv) improving sustainable natural resource management and climate resilience. The Progress Report finds that, while the rapid growth expected at the outset of the CPS period has been more elusive than expected, Brazil has achieved significant success in reducing poverty and promoting shared prosperity in an inclusive and sustainable manner, with the support of Bank programs. Brazil remains one of the World Bank Group’s most important partners, drawing on significant financial, knowledge and convening services of all the Bank Group entities; testing innovative new instruments and multi-sectoral approaches to solving development problems; and providing a broad range of lessons on development for the Global Community in areas ranging from poverty reduction to social inclusion and environmental management.

2. This Report briefly takes stock of the implementation of the strategic framework embedded in the CPS, focusing on how the World Bank Group has implemented its program while adapting to new realities and evolving demands of the Government of Brazil (GoB).

II. COUNTRY CONTEXT

A. Economic Developments

3. Economic conditions have weakened since the CPS was prepared in 2011. While remaining relatively resilient during the 2008 financial crisis and recovering swiftly in 2010, economic growth has slowed from pre-crisis levels of 4-5 percent to 2 percent over 2011-13. Domestic and external factors combined to dampen growth as the slower-than-anticipated global recovery moderated commodity demand and prices, and domestic demand decelerated. Growth of investment spending declined (from 21 percent growth in 2010 to a contraction of 4 percent in 2012), but with a strong recovery of 5.2 percent in 2013, while private consumption growth slowed from 6.9 percent in 2010 to 2.6 percent in 2013. On the supply side, industry saw the most pronounced slowdown, moving from growth of 10 percent in 2010 to contracting by 0.8 percent in 2012 but registering an expansion of 1.7 percent in 2013. However, the slowdown did not translate into a weaker labor market, which remained strong with unemployment running at historically low rates of around 5 percent.

4. Structural issues in the economy are increasingly constraining growth. In its initial phase in 2011, the slowdown was largely driven by cyclical factors, triggered by tightened monetary and fiscal conditions as well as adverse external shocks. The continued slowdown however, has increasingly reflected structural constraints such as low investment, infrastructure bottlenecks and slow productivity growth. While growth over the past decade was in part based on 1 The CPS (Report No. 63731-BR) was discussed by the Executive Directors on November 1, 2011.

2

favorable external conditions and growth of the workforce, productivity growth has stagnated, and unit labor costs have risen by more than 30 percent in the last five years to May 2014.2 With investment low, infrastructure bottlenecks remain a great challenge as transport still represents a significant cost for the production and export of goods. A complex tax system and high regulatory burden imposes additional costs on economic activity, driving up prices and harming the country’s competitiveness. These constraints have made it difficult to achieve higher levels of non-inflationary growth.

5. Despite the slowdown, inflationary pressures have persisted. Inflation has been at the high end of the target range (4.5-6.5 percent) and in March 2014 was running at 6.2 percent annually. The main drivers of inflation are on the supply side; above all the tight labor market, which creates strong wage pressure translating into service inflation running at above 8 percent. In the past year, the situation was further aggravated by supply shocks, especially in food prices. At the same time, changes in the regulatory framework of the electricity sector and attempts to slow down the increase in other administered prices have created a significant divergence in the development of administered prices (rising very slowly), versus those set by markets (running well ahead of headline inflation).

6. To stimulate growth and contain inflation, policy makers have adjusted fiscal and monetary policy. To bring inflation back to the center of the target, the Central Bank began tightening monetary policy in April 2013. This followed an initial policy response of relaxing the monetary policy stance to boost domestic demand, which brought rates to a historic-low of 7.25 percent in 2012. The authorities have since 2007 undertaken efforts to alleviate the historical infrastructure deficit through the Program for Accelerated Growth (PAC). These efforts have been strengthened recently by additional measures to alleviate structural bottlenecks and bolster the supply response including through infrastructure concessions to the private sector. In addition, the Government has implemented accommodative fiscal policies through an expansion of lending to public banks and through tax breaks. The latter has contributed to a reduction of the primary surplus, raising concerns about the credibility of fiscal policy targets. These concerns notwithstanding, the GoB has (since 1999) maintained a positive primary balance value – at 1.9 percent in 2013, 2.1 percent in 2012 – and has set a higher primary surplus target in the medium-term – 2.5% of GDP in 2015.

7. Against a backdrop of weaker growth, macroeconomic vulnerabilities have risen, though they remain moderate. While a continued, albeit lower, primary surplus has ensured a falling level of net public sector debt (about 33.6 percent of GDP), gross debt has risen to 53.8 percent of GDP3 – relatively high for an emerging market. Indeed this combination of factors underpinned the downgrade by Standard and Poor’s of Brazil’s sovereign credit rating to the lowest investment grade in March. Nonetheless, risks associated with the debt level are limited by low foreign-currency exposure and an increasing share of fixed-rate domestic debt. Externally, the current account deficit has widened to 3.6 percent of GDP. While the deficit remains largely financed by sizeable FDI inflows, portfolio flows have been volatile, highlighting heightened vulnerabilities to capital flow reversals given the weaker economic growth and the unwinding of quantitative easing in advanced economies. Ample international reserves (US$359 billion) and exchange rate flexibility, however, continue to provide a buffer against external turbulence.

2 Source: BCB 3 Source: BCB, end 2013 data. Gross debt is computed according to the methodology adopted by the BCB.

3

8. The economic outlook remains challenging. The principal challenges in the near term will be overcoming slow growth and persistent inflation in an environment of structural bottlenecks, and global uncertainties. Additionally, lower growth, sustained inflationary pressures, and reduced fiscal space will complicate macroeconomic management in the near term and make it difficult to engage in counter-cyclical measures. Therefore, only a modest recovery of the Brazilian economy is expected up to the end of 2014. In the medium term, growth prospects will depend critically on the degree to which structural constraints, such as poor infrastructure, complex tax and labor regulations and an insufficiently skilled workforce, can be alleviated. While the authorities recognize and are addressing these long-standing bottlenecks, the low growth environment has raised the urgency of the structural reform agenda. Overcoming these structural constraints over the rest of the CPS period and beyond will need to be the main focus of policy efforts.

B. Poverty, Shared Prosperity and Gender

9. Despite lower than expected growth in recent years, poverty and inequality continue to decline. The Government helped lift 4 million Brazilians out of poverty in 2012, the highest number recorded in a single year. These numbers are consistent with the trend in poverty reduction. Using the administrative poverty lines derived from the Bolsa Família and the Brasil Sem Miséria programs,4 moderate poverty has fallen from 24.7 percent in 2001 to 9.0 percent in 2012, while extreme poverty declined, from 9.9 percent in 2001 to 3.6 percent in 2012. Thus from 2001 to 2012 the number of poor was reduced by 24.8 million and the number of extreme poor by 9.9 million.

10. Increases in labor income and wages, combined with effective transfers have generated significant progress in shared prosperity. Driven by these factors, income levels of the poor are increasing faster than the rest of the country. From 2002 to 2012, mean income per capita in Brazil grew at an annualized rate of 3.5 percent, while the corresponding figure for the bottom 40 percent of the income distribution was 6.1 percent. This is faster growth than experienced in the LCR region overall where mean incomes grew by an annualized rate of 2.9 percent and incomes of the bottom 40 percent grew at 4.8 percent annually. According to another indicator for shared prosperity, the Shared Prosperity Convergence Index (SPCI), Brazil has begun to converge with more developed countries.5

11. Challenges persist, as some regions continue to lag behind and a large part of the population remains vulnerable. The incidence of poverty in Brazil remains very heterogeneous across regions. The states located in the Northeast and North regions still have much higher levels of poverty6, ranging from 9.3 to 28.6 percent compared to those in the Southeast, South, and Central West regions, which range from 1.9 to 5.5 percent. Starting in 2002, the Gini coefficient for Brazil as a whole dropped from 0.59 to 0.53 in 2012. Nevertheless, even with this decline, Brazil remains one of the most unequal countries in the world. Those in Brazil’s middle class now outnumber those

4 While Brazil does not have official poverty lines, the R$70 and R$140/month thresholds used by the Bolsa Família and Brasil Sem Miséria are typically used in the place of official poverty lines. In June 2014, the BSM threshold for extreme poverty was updated to R$77/month. The poverty headcount is calculated using PNAD data and following the definitions and methodologies used by MDS and IPEA. 5 The SPCI is an equity weighted measure of GDP per capita of a country relative to the population weighted average of the ten top performers or benchmark countries. 6 Based on the BF and BSM moderate poverty definition (living below R$140 per capita a month).

4

living in poverty – a huge success – but 18.3 percent of all citizens are vulnerable to falling back into poverty.7

12. Rural-urban disparities remain large, yet given Brazil’s overwhelmingly urban population, the urban poor still outnumber the rural poor. While the gap between rural and urban poverty has dropped from 30.3 to 17.7 percentage points since 2001, the incidence of rural poverty is more than three times that seen in urban areas, with levels of moderate poverty at 24.0 and 6.2 percent respectively in 2012. However, the majority of Brazil’s poor still live in cities. Brazil’s highly urbanized population, with 84.8 percent living in urban areas in 2012, yields a larger absolute number of poor people living in cities than in rural areas. In 2012, over 10 million urban residents were poor, representing 60 percent of the nation’s poor. Inequality also remains high within metropolitan areas8, as poverty is concentrated in long-marginalized and underserved areas/ large urban slums (favelas), which coexist next to affluent neighborhoods that resemble living conditions of high-income countries. In this highly urbanized context, metropolitan areas in Brazil are poles of opportunity, but also present specific challenges with direct implications for poverty reduction in terms of public service delivery, mobility and housing.

13. Brazil has made significant advances along all three dimensions of gender equality – endowments, agency, and opportunities. In recent years, the disparity in the ownership of assets between genders has decreased; access to sexual and reproductive health services has increased; and women outperform their male counterparts in education. The Government has prioritized gender equality in its development agenda. It has dedicated US$133 million by 2014 to support a new Program called Mulher, Viver sem Violência, to provide integrated services to address issues of gender-based violence through comprehensive services to women.

14. Despite recent trends, progress has been uneven and a number of issues constraining gender equity remain. These barriers are mainly associated with disadvantages women face regarding economic opportunities and their lack of agency (the capacity to have control over one’s life), manifested in teenage pregnancy rates above the average for the LCR region9 and high rates of domestic violence10. In addition, women’s political participation and representation is low – admittedly with recent improvements. Gender equality across the three dimensions mentioned above is important for reducing poverty, promoting equity and enhancing overall growth and productivity of current as well as future generations – which is the key issue facing Brazil presently (see Annex 2 for data on gender equality).

7 Share of the population with monthly income between R$140 and R$291 in 2012. The Secretaria de Assuntos Estratégicos (SAE) recently updated its definition of the middle class in Brazil, raising the cut-off income to R$291 per capita. It also defined three types of “middle class:” lower-middle class, R$291-441; ‘middle’ middle class, R$441-R$641; and a higher middle class, R$641-$1,019 (SAE, 2013). http://www.sae.gov.br/site/?p=17351#ixzz2h0ho0ALf. 8 The ten largest metropolitan areas (São Paulo, Rio de Janeiro, Belo Horizonte, Belém, Recife, Salvador, Fortaleza, Curitiba, Porto Alegre and Brasilia) represent 30% of the population of Brazil as of 2012. 9 World Bank, World Development Indicators, latest available data for 2012 according to which the adolescent fertility rate in Brazil is 70.8 (per 1,000 girls ages 15-19) compared to 68.0 for LCR and 31.2 for upper-middle-income countries. 10 WHO. (2005). Multi-country study on women’s health and domestic violence against women: summary report of initial results on prevalence, health outcomes and women’s responses. Geneva: WHO

5

C. Sustainable Development

15. Brazil has made remarkable progress towards its ambitious goals for biodiversity conservation and climate protection. In recent years, it has achieved a reduction in Amazon deforestation from 24,940 km2 in 2002-4 to 5,843 in 2012-1311 and has set aside around 17 percent of the national territory as a protected area to maintain biodiversity and reduce carbon emissions. Brazil has one of the cleanest energy matrices in the world and is implementing new programs to finance renewable energy production and energy efficiency projects. As a result, natural capital accounts show that Brazil’s rate of natural resource depletion12 (4.1 percent of GNI) remains lower than the Regional and MIC averages (6.5 and 5.7 percent respectively).13 Beyond that, Brazil continues to play an active role in the global promotion of sustainable environmental stewardship and has emerged as a champion for green growth.14 As one of the leading nations on climate negotiations, Brazil has adopted a voluntary goal of reducing its projected greenhouse emissions by 36 to 39 percent by 2020 and in June 2012, the country hosted the second global conference on sustainable development (“Rio+20”), reaffirming its commitment to the implementation of its low carbon development strategy.

D. Political Developments

16. Brazil is entering an electoral period for both Federal and State authorities. The general elections of October 2014 will involve the Presidency, all state governors and Congress. Municipal elections are only due in October 2016. The incumbent President, Dilma Rousseff, as well as the likely opposition candidates, are all focusing on accelerating economic growth and reducing poverty and inequality. The outcomes of the elections are not expected to fundamentally alter these priorities. However, there will be some uncertainty as to the balance of political forces at the state level and in the national congress, which will have an impact on the ability of the next administration to implement the structural reforms required to raise productivity, employment and incomes in Brazil over the coming years.

17. Recent social unrest has galvanized the attention of policy makers. The success of social policy in creating a growing middle class has also increased demands for accountability and improved service delivery. A series of mass demonstrations in June 2013 drew attention to the difficulties – at all levels of government – of delivering public services such as education, health and urban transport efficiently and cost-effectively. However, improving public service provision in a large federal country like Brazil is a process that requires considerable time, effort and long-term vision. The World Bank Group has been working with different levels of government to support service delivery in key sectors and will continue to do so through technical assistance and support for multi-sector institutional reform programs and also through facilitating the diffusion of successful experiences in enhancing the quality and responsiveness of government services.

11 According to INPE’s Amazon Deforestation Monitoring Project – PRODES (Projeto de Monitoramento do Desflorestamento na Amazônia Legal). 12 Natural resource depletion is the sum of net forest depletion, energy depletion, and mineral depletion. 13 World Bank Wealth Accounts based on sources and methods in "The Changing Wealth of Nations: Measuring Sustainable Development in the New Millennium" (World Bank 2011). 14 Brazil is party to a number of international conventions on environmental issues (biodiversity, climate change/Kyoto Protocol, desertification, endangered species, etc).

6

III. IMPLEMENTATION PROGRESS OF THE CPS PROGRAM

A. Progress towards achieving CPS outcomes

18. The CPS continues to adapt and respond to Brazil’s evolving needs as a dynamic middle income country. At the request of the Government, the FY12-15 CPS program has continued to strengthen the focus on sub-national entities, combining analytical and technical support at the federal level with the IBRD’s largest lending program, implemented mostly through multi-sectoral operations at the subnational level. The program also provides significant knowledge, advisory, convening and South-South activities in order to address second generation development issues and to share the lessons of Brazil across the globe. In line with its strategy for engagement with middle income countries, the Bank’s work has focused on supporting catalytic investments and policy reforms whose impact can be enhanced through replication and that benefit from the Bank’s unique blend of financial and knowledge services. The heavy emphasis on multi-sector approaches reflects the multi-dimensional nature of addressing key development problems presented by the needs of country counterparts. 19. The key building blocks of the strategy – its 4 strategic objectives and 14 results areas – remain relevant to, and well aligned with government priorities (See figure 1 below). The strategic objectives are focused on addressing key development challenges and are mutually reinforcing. They are: (i) increasing the efficiency of public and private investment; (ii) enhancing service provision to poorer segments of the population; (iii) reducing regional economic disparities, and (iv) improving sustainable natural resource management and climate resilience. Each strategic objective serves as a pillar under which the Bank organizes its activities and contributes to outcomes across 14 core results areas. The CPS focused on monitoring the Bank Group’s contribution to a selected set of 37 development outcomes. However, implementation has shown that it is more effective to have fewer, more focused outcomes and indicators. Thus while the 4 Strategic Objectives and 14 Results areas remain well aligned with government objectives, this Progress Report proposes a revised set of outcomes to usefully streamline the results framework, bringing the number of outcomes down from 37 to 19, including new outcomes related to gender – an area of strengthened focus in recent years (See paragraph 34). It also proposes a slight revision to the set of results areas to which the Bank’s program can be expected to realistically contribute. Specifically, given Federal Government initiatives dealing with the expansion of affordable housing, Bank engagement has been limited in this area, and the associated outcomes will be excluded from the evaluation framework of the program. The revised outcomes, which capture the Program more effectively and simply, are presented in Annex Table 3.

7

Figure 1: Brazil FY12-15 CPS Strategic Objectives and Results Areas

20. Brazil’s performance toward CPS outcomes has been largely positive. Outcomes are on track in most results areas, with the majority of outcomes expected to be reached within the CPS timeframe. Building on previous WBG support to institutional and management reforms, the FY12-15 CPS has helped Brazil achieve satisfactory outcomes such as improved results-based management practices at the sub-national level, as well as enhanced social protection systems. The WBG has also helped increase access to water and sewage services, and promoted sustainable development in the Amazon through its support for the expansion of protected areas. Areas where less progress has been made include expanding the market for long-term private finance, improving policies to boost productivity growth, increasing efficiency of water supply, making housing subsidies more effective, and expanding sustainable agriculture, where in each case the targets were probably overambitious, given the instruments at the disposal of the Bank. Analysis of progress to date indicates that of the 19 revised outcomes, 3 are already achieved, 15 are partially achieved and 1 is delayed. Further details are elaborated in Annex 1 and annotated results matrix (Annex 4), which has been updated from the original CPS results matrix. 21. Sustained support to effective Government programs over an extended period has proved instrumental in boosting outcomes in key operational areas. Continuous support for Government programs has helped strengthen decade long gains and the sharpened focus on SNGs has provided opportunities for knowledge sharing across jurisdictions. This is the case for Bank support to Results Based Management (RBM) reforms where the Bank is helping to advance the use of RBM and strengthen RBM systems in a number of subnational governments. Within the CPS period, Bank activities have supported Minas Gerais in the introduction of the third phase of RBM reforms, emphasizing citizen participation and decentralization of results-based management, and Bahia in the introduction of results management in the security sector in 2013, as well as the States of Pernambuco, Rio Grande do Sul, Ceará, Acre and Amazonas. Preliminary research by the Bank indicates that improved results-based management has improved service delivery outcomes. In the area of PPP development, IFC advisory services continue to support the National Bank of Economic

1.1 Improved Fiscal and Public Sector Management

1.2 Enhanced Private Sector Development Policies

Engagements: National, State and Municipal Level

Private Sector

Strategic Objective 3: Promote regional

economic development through strategic

investments and policies

Strategic Objective 2: Improve quality and expand provision of

public services for low income households

Strategic Objective 1: Increase the efficiency of public and private

investments

Strategic Objective 4: Improve sustainable

natural resource management and climate resilience

Faster, more inclusive and more environmentally sustainable growth under

continued macroeconomic stability

2.1 Consolidated and strengthened social protection system

2.2 Improved quality of education for low income groups

2.3 Improved access to health care for low income households

2.4 Expanded affordable

housing and improved living conditions for low-income and vulnerable groups

3.1 Improved policy coordination at territorial level

3.2 Expanded access to improved basic sanitation

3.3 Improved transport infrastructure and management

3.4 Increased supply of clean and efficient energy services

4.1 Integrated Water Resources Management

4.2 Expanded sustainable agriculture

4.3 Improved environmental management, biodiversity conservation and climate change mitigation

4.4 More effective disaster

risk management

8

and Social Development (BNDES) through the Brazil Private Sector Partnership Program and have since FY12, helped structure and implement four PPP projects, including two of Brazil’s key international airports (Rio de Janeiro and Belo Horizonte). The Bank has also supported institutional development and capacity building to design and manage PPP projects at the Federal, as well as State and Municipal levels (Minas Gerais, Bahia, Paraná, São Paulo and the Municipality of Rio de Janeiro). While it is still too early to assess the quality of the PPP institutions and processes established, some short-term results are positive. In Rio de Janeiro municipality, a PPP technical unit was created, procedures for the technical analysis of PPP’s were established and five PPP projects are currently under implementation, three of which are included among KPMG‘s 100 most innovative projects.15 22. The Bank has maintained its long-standing engagement in the areas of social assistance, sustainable natural resource management, and water supply and sanitation. Over the CPS period, the second Bolsa Familia APL, whose implementation began in 2012, is helping strengthen the program's overall governance, oversight and control functions16 and the consolidation of its monitoring and evaluation system. In the last two years, 1.1 million new families were added into the program through the active search for beneficiaries and transfer coverage in the first quintile currently stands at 82 percent. In addition, the Bank continues to support the expansion and consolidation of protected areas in the Amazon Region, through the ARPA Phase 2 Project. Processes are underway to create 6.9 million hectares of new protected areas, and 14.6 million hectares of existing protected areas have been consolidated, up from 8.5 million in January 2012. Combined with Bank-supported interventions targeting the Cerrado and Pampa biomes, areas under effective protection are expected to reach 135 million hectares by end 2015. In the area of basic sanitation, state and municipal projects have been the main vehicle to enhance the water management system and to reach underserved communities. State-level integrated water resource management projects that address coverage and water management issues were extended to five states and four municipalities. Convening services in the Bank’s water portfolio have also been useful in promoting and providing a platform for multidisciplinary collaboration across different levels of government—an essential component for water resource management in the federal system. These programs have contributed to sizable gains in the sector with clean water and sewage coverage reaching 95 percent and 76 percent of all households respectively. 23. In other areas Bank Group interventions have produced only modest results. These areas include expanding the size of the private long-term finance market, more effective housing subsidies, promotion of sustainable agriculture and improving policies to boost productivity growth. The limited results reflect a number of factors including a recognition of the modest ability of potential Bank activities to influence specific targeted outcomes (expanding the size of the private long-term finance market, more effective housing subsidies and improved housing and land markets), suggesting the need for a sharpened strategic focus on areas where the Bank can be realistically expected to contribute (see Annex 3 for related changes to the CPS outcomes). Accelerated progress towards CPS outcomes has also been affected by limited traction in response to Bank efforts to scale-up support to Federal programs dealing with the promotion of sustainable agriculture. Nonetheless, important Bank contributions to this agenda occur in the context of the

15 Transolympica, Rio Olympic Park and Porto Maravilha. 16 In three axes: the registry of beneficiaries (Cadastro Unico), management of benefits, and monitoring of conditionalities.

9

Bank’s long-standing partnership with the Northeast Region through a series of multi-sector projects which aim at: raising agricultural productivity, linking farmers to markets, reducing risk to vulnerability, facilitating conditions for rural nonfarm income and enhancing environmental services and climate-smart agriculture. In the critical area of improving policies to boost productivity growth of the private sector, progress at the country level has also been modest. While some progress has been made at the state level, where productivity enhancing operations have been implemented in Rio Grande do Sul and Ceará, the options for achieving a country level impact on the policy side have been limited as the demand for support at Federal Level had been more focused on social policy and service delivery at the subnational level. The Bank has been a long-time partner to Brazil’s efforts to improve access to energy. It has recently began work to improve the efficiency of the country’s electricity systems and has helped strengthen the operational efficiency of six electricity distribution companies in the Amazon and Northeast region. These efforts are however in their initial stages and the large scale of the challenge to increase efficiency in this sector means there is much more work to be done. 24. Overall, important challenges remain to meet the higher level strategic objectives to which CPS outcomes contribute only partially and/or indirectly. Growth remains constrained by inadequate levels of public and private investment, slow productivity growth, infrastructure bottlenecks and a complex tax system. Indeed, despite a strong effort during the last decade to accelerate public investment in infrastructure, implementation has been slow, with many major investment projects being subject to long delays. Despite Brazil’s enormous success in extending social programs and increasing the coverage of public services such as health, education, transport and crime prevention, additional improvements are needed in improving the coverage and quality of public service provision, particularly for the poor. Education in Brazil is emblematic of the challenges in terms of public service provision. Student learning outcomes are still below the average of other middle-income countries, despite sustained improvements over the last decade17. Health coverage, despite important progress, is still insufficient18 and logistics costs remain high when compared to OECD countries. Brazil is making good progress toward environmental sustainability. Deforestation in the Amazon is on a downward trend, but accommodating the competing demands of agricultural growth, poverty reduction, and environmental protection remains a challenge.

B. Portfolio Performance

25. The World Bank has delivered a strong program of IBRD lending over the first half of the CPS period. A total of 30 projects, equivalent to $8.2 billion have been delivered under the CPS up to this Progress Report. Of that amount, $6.3 billion was approved during FY12-13, in line with what had been envisioned for this period in the indicative CPS lending program. Overall, lending has largely conformed to the strategy, with only 2 of the projects identified in the indicative lending program for the first two years of the CPS period (FY12-13) dropped and 3 new high priority operations added. In FY14, IBRD lent a total of US$ 2.02 billion, bringing the total exposure at end of the fiscal year to US$ 14.56 billion. Total lending over the CPS period is

17 With a score of 410, Brazil’s performance on the 2012 OECD Program for International Student Assessment (PISA) remains below the mean score of 494, putting the country in 55th position in the ranking of 65 countries. 18 35 percent of individuals with per capita income less than one fourth of the minimum wage still lack primary care coverage.

10

expected to reach about US$ 10 billion by the end of FY15 as there is currently about US$ 1.63 billion in the active pipeline for FY15. The increase in the Single Borrower Limit (SBL) from US$16.5 billion to US$19 billion, approved by the Board of Directors on February 11, will allow the lending program to advance through the full CPS period, albeit at a lower annual volume than in the first half of the CPS period. 26. In line with the FY12-FY15 CPS strategic shift to increased focus on the knowledge agenda, the Bank has created a robust AAA program under each strategic objective (see Annex 10 for details). Recent analytical work includes key issues such as: Chronic Poverty; Health System Reform; Efficiency of Spending; Strengthening Productivity; and issues related to Gender. In FY12-13, the Bank’s knowledge program in Brazil delivered 22 tasks. In FY14 16 knowledge tasks were delivered, at the Federal and sub-national levels, as efforts were strengthened to further integrate the knowledge and financial products and to link various Bank Group services more strategically. The Bank has also gradually expanded and broadened its South-South Knowledge Exchange - SSKE (and South-North engagement) activities. So far in the CPS period, the Brazil program shared knowledge in 94 global knowledge exchanges. These exchanges are facilitating the transfer of knowledge across the Bank and across countries, and serve as a critical platform for learning, discussion, and debate on specific development challenges. The World Without Poverty Learning Initiative – a knowledge hub intended to draw and share the lessons of implementation of Brazil’s experience – has brought together the World Bank, the Ministry of Social Development and Fight Against Hunger (MDS), the Brazilian Institute for Applied Economic Research (IPEA) and the UN International Poverty Center to further reinforce global knowledge sharing on poverty reduction. 27. Under the CPS, the Bank continues to increase its responsiveness and flexibility. However, at times the increase in flexibility and speed may have affected some aspects of portfolio performance. Working closely with the GoB, the Bank has further reduced the average project processing time – from project concept discussion to approval – from 17.6 (FY8 to FY11) to 11.6 (FY12 to date) months19. There are now 59 active IBRD projects with net commitments of $12.7 billion. Yet, certain aspects of portfolio performance require focused attention. There are 14 problem projects, representing 24 percent of the active portfolio. The most salient among these are: Health Network Formation and Quality Improvement Project (P088716; US$235million); Eletrobras Distribution Rehabilitation Project (P114204; US$495 million); Integrated Solid Waste and Carbon finance Project (P106702; US$50 million); and Ceara Regional Development Project (P099369; US$46 million). These projects have generally been beset by both effectiveness and implementation delays, impacting the performance of the entire portfolio. In recent years, the portfolio disbursement ratio – a key indicator of overall portfolio performance – has steadily declined and as of June 30, 2014, the disbursement ratio stood at 11.3 percent for FY14, below the Regional/LCR and Bank-wide averages of 18.8 and 20.8 percent. The main factors affecting disbursements are described in Box 1.

19 Excludes the Rio State Strengthening Public Management and Integrated Territorial Development Project which was prepared outside the standard preparation process. The project was originally prepared as an Additional Financing, but the Government subsequently requested it be prepared as a separate project which required restructuring hence a longer preparation. Thus the longer preparation time is reflective of the Bank’s responsiveness to the Government’s request.

11

28. Remedial actions to improve portfolio quality are being taken and disbursements are expected to increase gradually going forward. The CMU undertook a detailed sectoral review of the portfolio to identify the major systemic implementation issues. Beyond the general factors described in Box 1, disbursement bottlenecks appeared in part to be a result of over-optimism by teams during preparation, leading to unrealistic costing and project schedules, followed by unrealistic project ratings when implementation problems did appear. In other cases, unforeseen technical problems had arisen. Many actions have since been taken to improve portfolio performance such as provision of additional supervision resources in order to resolve technical issues, restructuring and even cancellation of projects where necessary. These actions have begun to improve performance at the margin. Most of the problem projects are beginning to move out of problem status, and increased realism is helping to ensure prompt action is taken when projects appear to be having problems (further details are elaborated in Annex 6). However, while the Brazil portfolio is relatively young and expected to reach “disbursement maturity” over the next 24 months, it is likely that significant improvements in disbursement will only take place starting mid-2015, given the national elections period in 2014. The resolution of a pending legal issue (National Account Tribunal Resolution) that potentially affects all International Competitive Bidding procurement under Bank financed projects will play an important role in determining disbursement in FY15. 29. IFC’s investment portfolio in Brazil now stands at US$4.2 billion, including $1.5 billion from syndications, making it the Corporation’s third largest country program (see Annex 13 on IFC Committed and Disbursed Outstanding Investment Portfolio). IFC commitments totaled US$1.8 billion in FY12, of which $1.4 billion was from its own account and $405 million was from mobilization. FY13 commitments were US$ 2.0 billion, including an IFC member-state record of $514 million in equity. Key sectors included Financial Markets, Trade Finance and Infrastructure. Looking forward, the commitment target for FY14 is US$2.2 billion with investments geared toward: (i) larger, more impactful projects in critical sectors such as infrastructure, agribusiness, and financial markets, (ii) more complex investments in poorer, frontier regions such as the Northeast and Amazon; and (iii) helping innovative companies access new markets and develop new products, promote competition and South-South knowledge transfers. In addition to its investment projects, IFC has provided Brazil’s fast-growing private sector with

Box 1: Main Factors Affecting Disbursements

Reduced Preparation Time: The push towards speed and flexibility has resulted in some projects being approved by the Board in less than five months after concept review. This has negatively affected the level of readiness of projects and procurement packages, most of which now require additional work after effectiveness.

Political Cycle: Every two years in Brazil there are elections, either at the national level or sub-national level. Increased political polarization in the country and its public institutions has affected Senate approvals, delaying the effectiveness and the implementation of many projects. Institutional changes in counterparts associated with the political cycles have, in some cases, also led to a loss of ownership.

Impact of PAC: In the last three to four years the Federal Government has increased the pressure to implement projects funded with resources from PAC 1 and 2, which has crowded out the clients’ capacity to implement projects funded by the Bank, resulting in delays. This has also caused significant overheating in the infrastructure markets and an increase in the costs of project implementation, which has resulted in unanticipated delays and in the need for additional financing operations.

New Lending vs Supervision Trade-off: Over the period of the CPS, the Country Management Unit (CMU) has maintained a high volume of lending per fiscal year. This requires significant resources (budget, staff) dedicated to project preparation, which creates a limitation on the resources available for project supervision and contributes to implementation delays.

12

various advisory services with ten projects worth $13.6 million covering access to finance, sustainable business advisory, PPPs (airport and health), and investment climate.

30. MIGA has recently processed its first exposure transaction in Brazil since FY09. While MIGA has had no exposure in Brazil in recent years, it views Brazil as a target market, where it can support the Government’s agenda of meeting the country’s massive infrastructure requirements, through the provision of guarantees of Non-Honoring Financial Obligations (NHSFO) in respect of financial payment obligations of the sovereign, sub-sovereign and state-owned enterprises. These products provide credit enhancement to borrowers to enable them to (i) reduce their funding costs (ii) increase their access to long-term financing and (iii) diversify their financing sources. A case in point is the São Paulo Sustainable Transport Project. MIGA’s NHSFO guarantee, which was approved by the Executive Directors in April 2014, will mobilize long-term commercial bank financing on competitive terms, by guaranteeing the State of Sao Paulo’s financial obligations under such bank financing. Brazil will also be the first IBRD beneficiary of the Bank Group's effort to take advantage of synergies across the balance sheets of World Bank Group entities. Brazil will gain about $100 million in additional IBRD lending headroom through an exchange of existing IBRD exposure to Brazil, where MIGA has the capacity to assume higher exposure, for MIGA exposure to Panama, a country where IBRD has available capacity.

C. Bank Group Performance

31. Demonstrable progress has been made in implementing the 4 guiding principles related to Bank performance featured in the CPS – Selectivity, Innovation, Leveraging and Flexibility. 32. Selectivity: While the Bank Group’s program in Brazil is large, demand for support continues to outstrip supply. The relatively limited resources which the World Bank Group has at its disposal have created an incentive for the Bank Group to increase selectivity, geographically and thematically. Supporting the Federal Government’s strategy, the program continues to sharpen its focus on sub-national governments, with particular emphasis on the Northeast region – Brazil’s poorest region – and on large urban and metropolitan areas, which concentrate a large share of the country’s poor and have high degrees of inequality. In FY11, Sub-national IBRD lending represented 84.2 percent (all to States) and the Federal Government accounted for the remainder 15.8 percent. By FY13, all new IBRD lending was directed to Sub-national Governments (93 percent states; 7 percent municipalities). The Bank is also concentrating efforts on areas where it can have a catalytic role and on interventions that can produce a strong demonstration effect inside and outside Brazil. The CPS explicitly recognizes Brazil’s significant achievements in tackling second-generation development challenges using innovative approaches that can be shared with other countries. The Bank Group is strengthening its support in these areas. Examples include Brazil’s successful conditional cash transfer programs, effective implementation of results-based management and clean energy matrix.

13

33. Innovation: Over the CPS period, the Bank has sought to increase the use of innovative financial services and products, including new results-based and multi-sector lending instruments. In FY14 the Board approved the first “Program for Results (P4R)” in Brazil – a US$ 350 million loan for the Northeastern State of Ceará. Additionally, since FY11, projects have become increasingly multi-sectoral, focusing on improving interrelated systems in innovative ways to deliver development solutions. One such example is the São Paulo Sustainable Transport Project which brings together traditional issues in transport with Climate Change and Disaster Risk Management – issues that are closely related in an urban context, but often treated separately.

34. The CPS program includes some of the Bank’s most innovative activities promoting gender equity. These include the first DPL in the World Bank to include a full gender component, gender mainstreaming in non-traditional sectors such as urban transport and the direct support to the Procuradoria Especial da Mulher at the National Congress (Special Attorney’s Office for Women’s Issues) through an IDF. Beyond that, the portfolio has become increasingly gender-informed as the Bank has expanded its use of the full menu of instruments to promote gender equity. With the comprehensive use of different instruments, the Bank has been promoting gender equity in endowments, economic opportunities and agency. The projects in the portfolio that address endowments include actions or targets on women’s health. On economic empowerment, several projects on rural development integrate activities or targets related to productive inclusion of women. Such activities promote the inclusion of women and youth in market-oriented sub-projects and provide training to facilitate female entry into the labor market with minimum targets for women’s participation. With regard to agency, multiple activities have been introduced to address gender-based violence through prevention and support services (see Annex 2 for a detailed overview).

Box 2: Brazil’s Transformational Programs: ARPA and Bolsa Família

The Amazon Region Protected Areas (ARPA) program redefines large-scale conservation through its geographic scope and financial objectives. The program, set up by the Brazilian Government and supported by a range of stakeholders that include the World Bank, aims to create and support a system of well-managed protected areas and sustainable natural resource management reserves in the Amazon Biome. This vast expanse contains approximately 30 percent of the planet's remaining tropical rain forest, shelters between 10 and 15 percent of the 1.5 million species registered in the world and stores an estimated 120 billion tons of carbon. Since the program’s start in 2003, it has set world-class standards for innovation and cooperation involving multiple sectors of society and has produced extraordinary conservation results. With ARPA support, by December 2013, a total of 30 million hectares of new protected areas had been created in the Amazon, more than doubling the area under protection prior to the program's initiation. The protected areas supported by ARPA together with the law enforcement and deforestation monitoring measures adopted by the Government have been important in achieving deforestation reduction. It is estimated that the recent expansion of protected areas in the Brazilian Amazon reduced the region’s deforestation by 37 percent between 2004 and 2006. Results have been widely acknowledged. In June 2012, ARPA received the inaugural Development Impact Honors award from the U.S. Department of the Treasury for helping Brazil achieve a remarkable decline in deforestation rates. The Bolsa Família Program (BFP) has undoubtedly changed the lives of millions in Brazil. The program, which receives technical and financial support from the World Bank, is cited as one of the key factors behind the positive social outcomes achieved by Brazil in the last decade. As one of the World’s best targeted social programs, it now reaches 14 million households, about 50 million people or around 1/4 of the population and is widely seen as a global success story, a reference point for social policy around the world. Launched in 2003, the program is based on a powerfully simple concept: trusting poor families with small cash transfers in return for keeping their children in school and attending preventive health care visits. And so BFP has two important results: helping to reduce current poverty, and getting families to invest in their children, thus breaking the cycle of intergenerational transmission and reducing future poverty. Ten years after, BF has been one of the factors in helping to reduce extreme poverty in Brazil by more than half—from 9.0 to 3.6 percent of the population. Success has sparked adaptations in almost 20 countries—including Chile, Mexico, and other countries around the world, such as Indonesia, South Africa, Turkey, and Morocco. The World Bank has been a partner to BFP from the outset, offering nearly US$800 million via two loans that have boosted the program.

14

35. The program has continued to play a role in pioneering models of support for important transversal issues such as social inclusion of minorities, crime prevention and governance. These themes which were not prominently featured in the CPS, have become increasingly important components of the program. This is the case for interventions targeting improved livelihoods of ethnic minorities (afro-descendants, indigenous peoples) who remain with fewer opportunities and resources, prompting increased emphasis on opportunities for these marginalized groups in the quest for sustained reductions in poverty. Citizen security has also become an important transversal issue in the program. It remains one of the most critical challenges for shared prosperity in Brazil, where crime and violence disproportionately affect the poorest segments of society. Bank support in this area has frequently combined financing (five DPLs with citizen security as a pillar: Rio de Janeiro, Amazonas, Bahia, Pernambuco, Recife), knowledge products (2 ESWs and a good practice guide: Making Brazilians Safer; Taking the State Back to the Favelas of Rio de Janeiro; Public-Private Partnerships and Local Safety; two PSIAs: Rio de Janeiro, Pernambuco), advisory services, and convening power. Beyond these two important transversal issues – social inclusion of minorities and crime prevention – the Bank has also focused on broadening and exploring new modalities of support for increased transparency in public institutions and strengthening of oversight entities. Almost all Bank projects in Brazil have a transversal element of public sector management to support the efforts of states to improve institutions and governance arrangements within sectors, with a view to strengthening the ability of government to deliver services.

36. Leverage: The Bank’s total lending portfolio is a small fraction of the Government’s overall budget and financing needs. Its lending is further constrained by the SBL, despite its recent increase. Thus, in order to maximize impact in a country as large as Brazil, the program has focused on leveraging resources from government, the private sector and other development partners. For example in FY13, the 3rd Minas Gerais Partnership DPL for US$ 450 million was linked to an operation by AFD for EUR 300 million and Credit Suisse US$ 1.3 billion to provide a package of US$ 2.2 billion for the State. In FY14, complementary financing to the US$300 million São Paulo Sustainable Transport Project, was mobilized from the private sector. The US$ 300 million co-financing from international private banks is covered by MIGA under its NHSFO guarantee. The project is an example of ongoing collaborative efforts between the Bank and MIGA to design innovative solutions for clients, in order to respond to their financing requirements. Additionally, private banks and other organizations are keen to partner with the World Bank Group in supporting Brazilian financing needs and the program will continue to search for new and innovative ways to leverage resources.

37. Reimbursable Advisory Services (RAS) are becoming an increasingly important instrument to provide advisory and analytical services. Under the current CPS, IBRD has signed six Reimbursable Advisory Services (RAS) agreements totaling US$10.3 million, three of which are still under implementation. An additional four potential RASs for US$5.8 million have been identified. Their preparation however, depends on the resolution of legal obstacles to the use of international law, New York or English law in RAS agreements in Brazil. RASs currently under implementation concern areas such as: Dam Safety; developing PPPs; water management and irrigation; among others. In addition to providing client-driven technical assistance, the RAS work program is a new vehicle for knowledge generation and dissemination. Most RAS have a strong policy, international knowledge sharing and solutions-oriented focus that contributes to building the Bank’s applied knowledge practice.

15

38. The Bank Group also manages a portfolio of about 57 trust fund grants for a total of US$119 million, as of June 2014, with FY14 disbursements of US$13.5 million. Most of these resources support environmental management and, on a smaller scale, issues such as gender, urban development, health and education. Much of the ongoing work in the area of conservation and sustainable natural resources management depends on continued Trust Fund support. The Global Environmental Facility (GEF) remains the most reliable and generous provider of financial resources. The GEF currently supports a portfolio of nine projects with a combined grant volume of nearly US$68 million. The Bank expects to build on this strong relationship under the GEF-6 commitment period, by further assisting Brazil’s efforts on ecosystem conservation and management as well as scaling up its work on climate change. Examples of other notable TF-based environmental protection partnerships are the United Kingdom’s Department of Environmental and Food Affairs (DEFRA) program, as well as the Forest Investment Program (FIP) under the Bank-administrated Climate Investment Funds (CIF) – both focusing on sustainable land use in the Cerrado biome.

39. Flexibility: The Bank has adjusted areas of engagement and instruments to better respond to the country’s evolving needs. The demonstrations in June 2013 highlighted issues related to service delivery and have further increased demand for Bank support to address these challenges in ways that will lead to visible results in the short to medium term at the state and municipal levels, where most services are actually delivered. In the second half of 2013, the Bank team responded quickly to requests for support to improve transparency and accountability in the transport system in Rio de Janeiro through an innovative DPL focused on transport integration and service delivery. Overall, an evolving response has led to a slight adjustment of resources in the CPS program with increases in projects geared towards strengthening the ability of governments to deliver services through improving urban transport services in large urban areas; supporting better access to and quality of education and health, with a clear focus on improved management and governance arrangements within the sectors. In addition, the Bank has been developing mechanisms to respond quickly to support programs together with other multi-lateral development partners such as the IADB.

D. Lessons Learned

40. An IEG Country Program Evaluation, FY04-11 was recently completed, providing the following useful lessons for program implementation:20

41. The high degree of program adaptability has been a key driver of performance. The shift to state-level engagement enabled the Bank to provide customized support for a wide variety of challenges across the country and has enhanced the effectiveness of Bank Group support. In addition, responsiveness to strong demand for financing and knowledge allowed the Bank Group to make significant contributions by providing useful and timely inputs on real and evolving issues of immediate relevance to authorities. Examples cited include support for Bolsa Familia, improved student learning outcomes, subnational results-based management systems, water resource

20 World Bank. 2013. Brazil Country Program Evaluation, FY04-11. An Evaluation of the World Bank Group Program. Washington, DC: World Bank

16

management, deforestation and Bank Group advisory support for structuring public-private partnerships.

42. Stronger/Strengthened Bank Group collaboration will be needed to advance areas where results have been less satisfactory. There is a potential for significant gains in some areas where it has been difficult to get traction in addressing important challenges: infrastructure bottlenecks (particularly in logistics), the cost of doing business, and the environment for competition. These areas remain critical constraints to Brazil‘s growth and a key Government concern. Given complementarities in knowledge accumulated by Bank Group entities on ways to facilitate private participation in infrastructure investments, it will be important to intensify collaboration to exploit synergies within the Bank Group. Potential exists to leverage the Bank Group’s deep knowledge regarding infrastructure development in order to facilitate higher levels of private sector participation.

43. Enhancing the leverage and catalytic effects from lending is more important than ever, given proximity to the single-borrower limit. To maximize the contribution per dollar lent, there is a strong rationale for prioritizing activities that can offer benefits beyond the individual intervention and on leveraging results from lending. IEG notes that the FY12-15 CPS already includes several areas with catalytic potential: support for social programs, and focus on the efficiency of public investment and incentives for private investments, but suggests ways to encourage further replication and demonstration effects of positive results achieved across subnational entities. Given the promising results so far, the Bank should continue pursuing opportunities for multi-sectoral approach at the subnational level, while incorporating the lessons learned.

44. There is an increasing role for knowledge activities to maximize positive externalities and catalytic effects. Knowledge services have been an important complement to lending and are generally well regarded. Further increasing the prominence of knowledge services in the country program will be beneficial but will require continuous updating of the Bank’s knowledge base on key short term policy issues, as well as on critical medium-term constraints to development in Brazil/ issues with longer-term implications for Brazil, even if some of these areas are not part of the immediate policy agenda. Developing knowledge networks further with think-tanks, NGOs, governments, and other development partners will help identify the areas where the Bank can contribute most effectively.

IV. THE CPS PROGRAM GOING FORWARD

45. The remaining CPS period, through end of FY15, will pose an interesting set of challenges in Brazil. The election cycle began in earnest in March 2014, in preparation for October elections. The Brazilian economy continues to be challenged by turbulence in external markets, as well as by inflationary pressures and slow growth at home, although low external debt and high levels of reserves suggest that Brazil is well prepared to weather volatility. The World Cup in June-July of 2014 went smoothly, although pressures for better service delivery will likely build before the elections.

46. The World Bank Group is well prepared to face these challenges and will continue to support the four strategic pillars of the CPS program through a variety of financial products, knowledge and convening services. The Bank team will continue to support state level programs through early FY15, building on the strong dialogue and programs developed over the previous

17

years. These programs will help lay the foundations for engagements with incoming governments in early calendar 2015. FY15 will also see increasing engagement with the large capital cities of the states, especially in the Northeast. Many of these cities, such as Recife and Salvador, are keen to replicate the progress in results-based management and service delivery that they have observed at the state level. Overall, lending of about US$1.67 billion is expected in FY15. (See Table 1 below and Annex 10, for the expected program details.)

47. In terms of program areas, efforts to sustain the reductions in poverty and strengthen shared prosperity by supporting Brasil sem Miséria, better quality service delivery and sustainability will continue to build on the considerable progress made so far during this CPS period. The newly configured Bank team will work to reinforce fiscal and results–based management in order to help governments manage on-going economic volatility and improve service delivery. Efforts to support more effective delivery of logistic and infrastructure services will be redoubled, especially through joint IBRD-IFC work to attract private capital and to facilitate PPPs. Working in partnership with IPEA and other think tanks, the World Bank Group has stepped up its work on improving productivity and competitiveness, progress in which will be critical for Brazil to sustain the gains already achieved. Programs to support lagging regions at the country, state and urban levels will continue to emphasize inclusion of women and vulnerable groups. Finally, continued support to strengthening capacity in managing land, water resources and integrated solutions to the challenges of climate change will remain high on the agenda. Over the coming 18 months, the Bank will do less in areas related to the financial sector, housing and solid waste management, as these engagements to date have not proven to be catalytic.

48. The World Bank Group entities will work more closely to find new and innovative ways of leveraging each other and our resources. Building on the MIGA NHFSO Guarantee in Sao Paulo, we expect there to be considerable interest in pursuing guarantees elsewhere. MIGA will also exchange knowledge and ideas with the Ministry of Finance’s new Guarantee Agency. IFC and the Bank are working together in several areas, such as urban mobility, waste and water management, sanitation and health to better link upfront policy work with downstream investment opportunities. Over the rest of the CPS period, efforts will be made to promote a more systematic collaboration. Further steps to integrate WBG efforts are being explored, including joint management discussions which will, among other objectives, seek to identify opportunities/areas of collaboration in implementation – parallel, sequential and/or joint activities. Teams will build on the good partnership demonstrated in the coordination of water sector activities, deepen and extend collaborative practices in/across specific sectors and programs, including: provision of infrastructure finance, health and education services, etc. Cross Bank-group engagement on the PPP agenda is also a focal point.

49. The next 12 months will also focus on strategic work to build the basis for the next cycle of engagement following the elections. The Brazil team will undertake a Systematic Country Diagnostic (SCD) in FY15 in order to identify the most critical challenges and opportunities for Brazil to accelerate progress towards ending extreme poverty and promoting shared prosperity in a sustainable manner. The SCD will lay the foundations for the CPF due in FY16. Analytical work on productivity and competitiveness, jobs and skills and metropolitan areas will complement other work on service delivery that has been recently completed. South-south engagement and global knowledge sharing will continue to be a key part of our program, with a special emphasis on the World Without Poverty Learning Initiative. (See Annex 10 for the detail on the FY12-FY15 program).

18

Table 1: IBRD Program for FY15

Lending Knowledge Reimbursable Advisory Services FY15

Bahia DPL Systematic Country Diagnostic RAS EPL Logistical Support

(AF) MST PROACRE Loan Programmatic Approach on Productivity and Competitiveness

RAS Sao Paulo Bus Concession

(AF) Pernambuco Education Results & Accountability

WWP Learning Initiative (SoD Hub) RAS Arco Tiete

Piaui Sustainable Human Development and Social Inclusion DPL

Brazil: Skills and Jobs RAS Ministry of Cities Capacity Development on Resettlement Policy

Piaui Sustainable Development, Social Inclusion and Human Development SWAp

Strengthening PPPs

Sergipe DPL II TA Pensions Brazil

Bahia Transport Chronic disease and the health system

Bahia Entrepreneurship and Economic Autonomy among Women and Afrodescendants

(MST) Metropolitan Governance

Salvador Infrastructure and Social TF Assessing the Performance and Sustainability of Pacto Pela Vida

Manaus Municipal Development Drought Preparedness and Climate Change Resilience

Recife Municipal DPL Urban Poverty and Vulnerability in the Metropolitan Area

Fortaleza Municipal DPL Knowledge at the service of the Favelas

Pernambuco Primary Health Care Impact Evaluation

Recife Teacher Effectiveness Program Impact Evaluation

V. RISKS AND MITIGATING MEASURES 50. The CPS identified potential macroeconomic risks, as well as the risk of not having a significant impact in a country of continental dimensions, given the resources available to the Bank. Both these risks remain relevant, and in addition, the success of the Government in expanding the middle class has increased social and political risks through demands for improved service delivery. All these risks are discussed in detail below. 51. Among macroeconomic risks the most important is that of slow economic growth. The macroeconomic risk emanating from reduced external demand persists; however, as advanced economies are recovering, the risk of reduced external demand has increasingly shifted to emerging economies. As demonstrated by the subdued economic performance in recent years, there is also a risk of continued slow growth and above target inflation if Brazil is unable to overcome the structural obstacles to growth, and raise productivity. Indeed the greatest macroeconomic risk now appears to be that a continued period of slow growth could jeopardize the achievements made over the past decade in reducing poverty and inequality, which are also core goals of the Bank’s program. In addition, continued low growth is likely to lead to further deterioration of the fiscal accounts, which given the composition of public spending in Brazil, is likely to result in a crowding out of spending in areas essential to the program (public investment and expansion of public services to the poor). The need for fiscal adjustment in such a scenario could also affect demand for Bank lending if the Federal Government acts to restrict subnational borrowing. Intensifying the emphasis on knowledge support activities will continue to be the primary risk mitigation tool against constraints in lending and the Bank Group will continue to strengthen its knowledge portfolio/program to enhance its effectiveness in achieving development results in Brazil.

19

52. The CPS also identified Bank-related risks, namely the risk of not achieving significant impact due to the limited and relatively small size of the Bank program and the complexity of multi-sector Bank projects. The risk of having a low development impact because of the modest scale of Bank Group financial support in relation to Brazil’s economy remains present. Limitations on the financing envelope also present risks of not being able to respond to client demands. To mitigate these risks, catalytic engagements are being prioritized, efforts to leverage financial resources are being pursued, and scaling up integration of the lending program with knowledge-intensive activities has become an even greater priority. Furthermore, the Bank’s ability to achieve significant impact by spreading itself too thin in multi-sector projects is being mitigated by balancing the often complex requests of Governments with more focused interventions and strengthened efforts to focus on implementation capacity.

53. Social and political risks endure, as demonstrated by the unrest seen in 2013. In June of 2013 Brazil witnessed social unrest on a scale not seen in decades While a broad public debate about the country’s development challenges such as upgrading the quality of public services could provide needed momentum for policy changes, widespread unrest could also run the risk of increasing polarization, as well as prompting policy reactions, such as increased public spending, that could destabilize the macroeconomic framework, by triggering the macroeconomic risks discussed above. The Presidential, State and Congressional elections of October 2014 in themselves pose only limited risks. While some of the governments and legislative majorities in the various federative units might change, this does not pose a significant risk to the implementation of the CPS as all major players share the thrust of the development agenda. However, since the Bank is engaged with a large number of subnational governments, the possibility of policy reversals in some cases cannot be ruled out. Changes in governments could also lead to delays in strategy implementation during the remainder of the CPS period. Managing these risks is outside the control of the Bank; however, the Bank will stay closely engaged and provide knowledge services, advise Government within its mandate, and maintain a flexible approach to react quickly to changes.

1

Annex 1: Progress towards achieving CPS Objectives and Outcomes

1. The following section discusses key areas of progress by CPS Strategic Objective. Annex 4 complements this text with an updated results matrix detailing progress toward CPS outcomes noting Government achievements and World Bank Group support. Strategic Objective 1: Increase Efficiency of Public and Private Investments

2. One of the central development challenges for Brazil in the last decade has been to increase both the volume and quality of public and private investment. Brazilian growth in recent years has been constrained by insufficient investment, leading to infrastructure bottlenecks. The Government has been addressing the infrastructure gap through the PAC I and PAC II investment programs and has recently launched an infrastructure concession program of over US$200 billion. Nevertheless, investment levels have not risen as expected and have been maintained just above 18 percent of GDP over the CPS period. The Bank has supported Brazil’s efforts to increase public investment, working mainly with selected sub-national Governments to improve fiscal and public sector management in order to increase the fiscal space for public investment, strengthen investment management and enhance the effectiveness and cost-efficiency of Government programs through a medium-term approach to expenditure management, as well as a focus on results based management. The WBG is also assisting Brazil’s efforts to stimulate private sector investment by supporting policies aimed at strengthening institutional and regulatory frameworks for public-private partnerships (PPPs), expanding the market for private long-term and SMEs financing, and improving policies to promote productivity-enhancing investments

3. Sub-National Governments (SNGs) continue to implement policies to increase the resources available for public investment and public service delivery. Since the presentation of the CPS in 2011, there has been further improvement in SNG revenue administration as additional measures have been undertaken to reduce the cost of tax compliance and enhance tax-collection, including by means of strengthening management and internal controls, and updating taxpayer cadastres and property values. The Bank has supported improvements in revenue administration as well as HR and procurement management reforms to increase the efficiency and effectiveness of spending in States such as Rio de Janeiro, Minas Gerais, Pernambuco and Rio Grande do Sul. Over the CPS period, SNG revenues (in these States) have increased in real terms by an annual average of 8 percent (compared with annual GDP growth of 6.2 percent). Nonetheless, public investment is constrained by fiscal space as current spending remains high. A number of important challenges to the effective control of current spending persist, including easing budgetary rigidities, particularly federally mandated salary increases. Over the rest of the CPS period and beyond, continued efforts by the GoB to implement institutional fiscal reforms will be needed to address these challenges to public investment and to identify possibilities for the simplification of the tax system to encourage private investment.

4. Since 2010 many Brazilian States and some municipalities have adopted elements of multi-year expenditure management. In states such as Rio de Janeiro and Minas Gerais, as well as the municipality of Rio de Janeiro, core elements of medium-term fiscal frameworks were adopted with the support of the Bank. In Minas Gerais, the Government introduced a formal investment planning framework for all investment co-financed by the Federal Government, and is in the process of extending this to all major programs. In addition, the State has been introducing

2

systems to allow multi-annual procurement and commitment controls so as to introduce key elements of medium-term expenditure management. In addition to these two states, the Bank has been working with Rio Grande do Sul, Pernambuco, Ceará, Tocantins and Paraná in developing processes to select and manage major investments. The Bank has also provided technical assistance to States on costing of programs for multi-year expenditure frameworks though the Governance Partnership Facility. While state governments recognize the importance of a medium-term fiscal framework, development of full multi-year expenditure management systems has nonetheless been limited by the need to build both the technical ability to cost government programs and the political consensus for multi-year expenditure management. In retrospect, the proposed CPS target of full implementation of multi-year expenditure management for 2015 in some states was ambitious and inconsistent with political and institutional realities.

5. Public sector management focused on results is an important instrument to improve the quality of expenditure and service delivery in many states. Management for results in Brazil began in the states of Ceará in the late 1990s and Minas Gerais in 2003-2004, and was subsequently extended to the States of São Paulo, Rio Grande do Sul, Rio de Janeiro, and Pernambuco. Within the period of the CPS, Bank activities have supported Minas Gerais in the introduction of the third phase of the (RBM) reforms, emphasizing citizen participation and decentralization of results-based management, and Bahia in the introduction of results management in the security sector in 2013, as well as the States of Pernambuco, Rio Grande do Sul, Ceará, Acre and Amazonas. Many other States have been inspired by the success particularly of Minas Gerais, and are planning the introduction of some aspects of results-based management. Preliminary research by the Bank21 tentatively indicates that improved results-based management has been effective in improving service delivery outcomes. There is considerable potential for the Bank to help disseminate knowledge across federal and state entities, in partnership with national and local institutions. Additional research on the impact of results-based models using unit or team level data is needed to better inform the new wave of reformers and to ensure that improved public sector management and service delivery results in increased efficiency of both public investments and private investments by enterprises.

6. There has been considerable demand for assistance in developing PPP frameworks in many States. Aiming to improve Government capacity to structure feasible, bankable transactions and better design, and monitor PPP and concession contracts, the IFC has enhanced its PPP advisory support to Sub-National Governments and continues to work with the BNDES PPP facility at the federal level. Since FY12, IFC advisory services have helped with the structuring and implementation of 4 PPP projects, including two of Brazil’s key international airports (Rio de Janeiro and Belo Horizonte). The Bank has also supported PPP capacity building at the Federal, State and Municipal levels. It has worked with the states of Minas Gerais, Bahia, São Paulo and the Municipality of Rio de Janeiro, as well as the Federal Government through lending operations and Reimbursable Advisory Services (RAS), and prepared a review of PPP practices in Brazil, covering challenges and recommended actions with respect to (i) policy, regulatory and enabling environment practices, (ii) project and financial structuring practices, and (iii) public funding practices. While some short-term results are evident, (for example in Rio de Janeiro municipality where procedures for the technical analysis of PPP’s were established and a PPP project pipeline was created), it is still too early to assess the quality of the PPP institutions and processes

21 Viñuela, L. and Zoratto, L. (2013) Review and Research Agenda on Results-Based Management in Brazilian States, World Bank, Report No. 82592-BR

3

established. Overall, demand for RASs to support PPPs continues to increase for both the Bank and IFC.

7. Progress has been made in expanding private long-term and SME financing. Long-term investment financing has expanded strongly in recent years, owing to the rapid growth of BNDES credit operations. The stock of BNDES credit operations increased from 8.1 percent of GDP in December 2010 to 9.8 percent in November 2013. A Financial Sector Assessment Program (FSAP) was completed in 2012, highlighting, among others, the short-termism of the fixed income market and the fact that the long-term credit segment is almost exclusively served by the National Public Development Bank - BNDES, with a large share of BNDES subsidized lending going to large companies. However, in spite of BNDES’ continued dominant role especially in the long-term credit segment, IFC has supported an enhanced engagement with midsize banks as part of its effort to improve second-tier Brazilian companies‘ access to financing with longer tenors. IFC has committed to 45 long-term finance projects since 2012 at a value of US$ 2.9 billion – of which $1.2 billion are SME related. Recent Bank work in this area has focused on assisting with the regulation and supervision of both open and closed pension funds, with advice on the portfolio allocation of pension funds aiming at creating the conditions to help facilitate investments in infrastructure and other longer-term financing. The Bank has also established with the Ministry of Finance an Exchange Traded Fund in order to strengthen the longer-maturity end of Brazilian bond markets.

8. The Bank is supporting the GoB’s efforts to enhance productivity through technical assistance activities. Over the CPS period, analytical work in support of productivity improvements has been generated, providing in-depth assessments of productivity issues at the country and firm levels. This work is contributing to high level policy dialogue with the Federal Government on key steps to improve productivity. The Bank is also financing technical assistance for impact assessments of interventions aimed at enhancing private sector productivity in Rio Grande do Sul and Ceará, as well as in Pernambuco. In each case, the Bank is advising on enterprise data collection, sampling methodologies and interpretation of results, ensuring that they inform subsequent rounds of policy design.

9. While the overall strategic objective of increasing public and private investment has met challenges in the recent domestic and international economic climate, significant progress has been made in meeting the outcomes with regard to results-based management and progress (although at variable levels) – has been achieved in each of the other areas. Annex 4 sets out the mid-term assessment in terms of achievement of outcomes and some suggestions for refinement in the remainder of the CPS period.

Strategic Objective 2: Improve quality and expand provision of public services for low income households.

10. The elimination of extreme poverty and strengthening of social inclusion are fundamental objectives of the current Government, particularly through the “Brasil sem Miséria” (Brazil without Destitution - BSM) plan. Launched in June 2011, the BSM now represents the primary poverty reduction platform of the current administration. It builds on the work of Bolsa Família, which in its 10 years of implementation has delivered important impacts on improving maternal healthcare, reducing underweight children and children suffering from disease, as well as positive outcomes in terms of educational results.22 BSM seeks to enhance both the 22 Campello, T., and M. Neri. 2013. Programa Bolsa Família – uma década de inclusão e cidadania. Brasilia.

4

capacities and opportunities of individuals who remain monetarily poor and without access to basic services, despite Brazil’s important social accomplishments. To this end, multi-sectoral programs focused on expanding cash-transfer programs, improving income generation capacity, and bettering living conditions of low-income populations are being coordinated across all levels of government to guarantee an increase in income and basic social well-being of the poorest and most vulnerable groups.

11. The Government is strengthening and extending the reach of its main social programs to the most vulnerable populations. Through the BSM plan, the Government has devoted renewed efforts to identify, map and engage poor citizens currently excluded from the country’s social-welfare programs. A key feature of the program – the active search for vulnerable individuals (Busca Ativa) – has resulted in an additional 1.1 million families included in the beneficiary identification system (Cadastro Único) over the last two years, bringing the total to 27.3 million families in 2013. As the Government has moved to rapidly expand its effort to reduce poverty and integrate programs across different sectors, the Bank has played a supporting role. Through the Bolsa Familia APL 2 project, the Bank is assisting efforts to improve targeting, strengthen program governance and enhance monitoring and evaluation of selected components of Brasil sem Miséria, including Bolsa Família. The Bank is also supporting sub-national governments in the implementation of BSM, especially in poor regions of the country. Moreover, recognizing Brazil’s track-record in reducing poverty and inequality, a decision was made in March 2013 to establish an initiative to promote learning from the implementation of poverty reduction programs at sub-national level, as well as south-south knowledge exchange in the area of conditional cash transfers and other elements of BSM. The Brazil Learning Initiative for a World Without Poverty (WWP) is a partnership between the Bank, the Ministry of Social Development and Fight against Hunger (MDS), the Institute of Applied Economic Research (IPEA), and the UN International Poverty Center.

12. Efforts to improve education quality, especially for the poor, are showing progress and Bank research has played an important role in the identification and dissemination of best practices. Brazil increased the primary school completion rate from 63 to 75 percent between 2007 and 2012 and secondary school completion from 48 to 59; in both cases, progress has been driven by gains for students from the bottom 40 percent of the income distribution. Gaps in test scores between richer and poorer regions have also narrowed. Brazil has also shown continued improvement on the internationally-benchmarked PISA exam and while the country’s PISA scores are below the OECD average, these gains combined with the gains in equalizing education reflect the success of policies that Brazil has put in place. They include: (i) the reform of intergovernmental transfers for education (FUNDEB), specifically its extension to fund crèche and preschool coverage (recommended by the Bank reports Achieving World Class Education in Brazil and Early Child Education: Making Programs Work for Brazil and supported by many different Bank operations at the state and municipal level); (ii) the focus on early grade literacy and numeracy skills, started in Ceará and Minas Gerais with Bank support, which in 2012 was made a national initiative, PNAIC; (iii) the focus on teacher quality through research collaboration with different states and municipalities to observe and analyze teacher practice in the classroom, which is inspiring a new wave of initiatives to change the way teachers are selected and trained; and (iv) the focus on improving the quality of secondary education and expansion of technical education and skills training to facilitate labour market insertion for low-income youths (also supported by the Bank). The ongoing AAA Brazil: Skills and Jobs is helping to guide the new national initiative

5

PRONATEC to reform vocational education and IFCs financing of tertiary education projects have benefitted an estimated 714,000 students since FY12. Despite sustained progress in raising learning outcomes, important challenges remain to (i) continue the expansion and ensuring quality of early childhood education; (ii) improve instruction and quality at basic and secondary education levels; and (iii) ensure that the significant investments into technical education and training bear fruit in terms of employment and earnings.

13. Bank Group programs are helping the Government to expand primary and specialist health care. Primary care, in the form of the Family Health Strategy (ESF), has long been a central focus of the GoB’s effort to improve the Sistema Único de Saúde (SUS) and the Bank continues to support efforts to expand its coverage and access on a national level through the Family Health Extension Project (PROESF II). Under the ESF, primary care coverage now reaches over 50 percent of the Brazilian population and there is evidence of its contribution to improvements in health outcomes. In recent years, a growing recognition of the challenges associated with chronic diseases has led to increasing efforts by the Government to enhance the quality of primary care, as well as access to and quality of specialist care and diagnostic services. The WBG’s engagement on these issues has expanded over time, with several pieces of analytic work related to aging, chronic disease and with a number of projects that support activities or health system reform related to chronic disease prevention and care. They include IFC’s support to Rede D’Or – one of Brazil’s largest private hospital networks – in order to expand affordable tertiary healthcare to lower-income populations. Despite this progress, many significant challenges remain. A recent Bank report assessing the performance of the health system over the last 20 years23, points to on–going issues including: coverage gaps, regional disparities in access, fragmented and poor quality services and weak coordination of care as some of the key impediments to further improving health outcomes.

14. With respect to housing, Minha Casa, Minha Vida (MCMV) is the Government’s largest initiative to increase the supply of affordable housing. Announced in 2011, the second phase of the national housing subsidy program is on track to build two million new housing units for low income households by end of 2014. These efforts to enlarge the housing stock are complemented by comprehensive programs that address multiple sources of poverty, which are improving the living conditions in the favelas surrounding Brazil’s largest cities. Since 2011, 449 new initiatives of slum upgrading, totaling R$ 12.9 billion, were contracted under PAC Favelas (Urbanization of Settlements Program), a large slum upgrading program and the Government is scaling up successful initiatives to prevent crime and violence and enhance service delivery and socio-economic inclusion with a focus on favela dwellers. The IFC has supported the MCMV program through its Canopus project, while the Bank has been involved in the design of the national housing plan (Plano Nacional de Habitação –PlanHab) and its main programs, PAC – Favelas and MCMV. Of special note, Bank technical assistance to the Government of Brazil’s National Housing Secretariat on the implementation of the national housing plan contributed to the development of Brazil’s new resettlement and urban upgrading policy (passed in July 2013). Nevertheless, Bank Group contributions remain modest as the housing deficit in Brazil remains huge, particularly for lower income individuals, with new demand forecast to reach 23 million units by 2023.

23 Gragnolati, M., M. Lindelow and B. Couttolenc. 2013. Twenty Years of Health System Reform in Brazil: An Assessment of the Sistema Único de Saúde. Washington, DC: World Bank

6

15. Progress has been significant in most areas under this strategic objective and in some cases, as with our work on Bolsa Família and Brasil sem Miséria, it has helped to support a truly transformational program. However, in all of these areas significant challenges remain to improve the quality of services and greater efficiency in their delivery. So, despite progress, there is still much to do.

Strategic Objective 3: Promoting regional economic development

16. Regional inequality is a deep seated and chronic problem in Brazil. This is reflected both in disparities between states and regions, and also within states between urban and rural areas and even within geographically small urban areas. To address the challenge of convergence between regions, the GoB has adopted a two-pronged strategy. On one hand, Federal and State Governments are using a territorial approach to better coordinate the planning and implementation of social programs targeted at the poorest rural areas of the country. Additionally, the GoB is deploying rural productive inclusion programs and public infrastructure investment programs to foster regional economic development. The goal is to improve living conditions in lagging and remote areas of the country but also to use public infrastructure investments to generate additional economic opportunities (e.g. through the attraction of private investments as well as increased productivity and access to markets) 17. Efforts to enhance rural productive inclusion through more productive family agriculture and strengthening of productive chains have continued to support the reduction in poverty in rural areas. Projects in Acre, Bahia, Ceará, Pernambuco, Rio Grande do Norte, Paraná, and Santa Catarina have helped rural communities to improve small agricultural practices and to strengthen community-based organizations that help farmers find avenues for marketing their goods. Increasingly, these projects have also provided support to integrating women and vulnerable communities. 18. The infrastructure deficit remains a central development challenge, but some steps forward have been taken over the past two years. Over the CPS period, the Federal Government has intensified efforts to raise infrastructure investment. Since 2011, R$43.8 billion has been invested in transport infrastructure under the second Growth Acceleration Program (Programa de Aceleração do Crescimento – PAC II) and, even though outcomes are not fully clear yet, the R$216.7 billion Logistics Investment Program launched in 2012 has facilitated increased participation by the private sector in infrastructure investment through concessions of roads, railroads, seaports, and airports. In parallel, the creation of the Logistics and Planning Company (Empresa de Planejamento e Logistica, EPL) in 2012 has improved Government capacity to accelerate project implementation and fostered coordination among stakeholders. Despite the recent progress, the infrastructure gap and overall organization of the sector, specifically the coordination between the federal and subnational levels, remain important challenges. A sustained commitment to addressing these challenges will be needed as achievement of the outcome – sustained decreased logistics costs – will require time to fully materialize. 19. Bank support for the modernization of Brazil’s transport sector has evolved over the CPS period. Collaboration with the Federal Government is now fully focused on knowledge and best practices sharing, while much of the engagement with the states remains a blend of sector financing and policy dialogue. Partnerships at both levels have yielded results. At the Federal level,

7

technical dialogue was instrumental in the preparation of strategic studies such as the National Inland Waterway Masterplan, aimed at rebalancing and greening the transport matrix. This collaboration paved the way for a strengthened partnership between the Federal Government and the Bank and opened the way for potential new advisory services. At the subnational level, Bank-financed transport and logistics operations in six states, have played an important role in helping states adopt performance-based management, develop logistics plans, and mainstream best practices related to environmental management and road safety. In São Paulo State, a US$300 million operation on Sustainable Transport is being accompanied by a MIGA NHFSO Guarantee, bringing a further $300 million in private sector funds to the state and leveraging the IBRD’s resources. In Rio de Janeiro and São Paulo, work on improving urban mobility is helping to integrate the favelas with the central cities in order to improve service delivery and reduce inequality in major urban centers.

20. Overall progress towards improving and expanding access to basic sanitation has been mixed. As Brazil has boosted spending on basic sanitation in recent years, some progress has been achieved in increasing water access and sewage services, but challenges remain to further improve the efficiency of water service delivery and expand collection and sanitary disposal of solid waste. Through implementation of sectoral programs such as the Água para Todos, aimed at universalizing access to clean water and sewage services, service coverage has increased to 95 percent and 63.2 percent of households in 2013. The sector still faces many challenges however. Large disparities in water supply coverage remain, between rural and urban areas, and between geographic regions. Water losses in utilities remain large – 37 percent at the national level, but ranging from a staggering 53 percent in the North to 27 percent in the South. 37 percent of the population does not have access to wastewater collection and only 37.5 percent of the wastewater is treated. Of the total volume of solid waste produced, about 11 percent was not collected, and 43 percent was improperly disposed of in dumpsites.

21. The Bank and the IFC are collaborating to increase access, efficiency and quality of water service delivery in less developed regions of the country. At the Federal level, the Bank is helping strength Government capacity to perform regulatory and policymaking functions, including investment planning and monitoring, and supporting the development of targeted results-based water subsidies that improve sustainable access to safe water among the poor. The Bank has channeled its support at this level through the InterÁguas Project, and the implementation of technical assistance, while the IFC has invested up to US$150m in debt and equity, during the CPS period, in AEGEA Saneamento – one of Brazil’s leading private operators of water and sanitation services – to expand service to low income regions in the North and Northeast. In recent years, knowledge-sharing activities have played an increasingly important role in bringing water-related best practices to support the country's specific needs and the Bank is currently supporting the creation of a South-South knowledge exchange facility with the National Environmental Sanitary Engineering Association (ABES). At sub-national level, the Bank and the IFC are supporting efficiency improvements and promoting the use of innovative technologies and service delivery models. Notably, Bank-IFC collaboration has helped to mobilize market financing to support efficiency improvements in second-tier water utilities in Santa Catarina and Sergipe.

22. Considerable progress has been made to increase access to electricity in remote areas, but efficiency in the sector still needs to be enhanced. Through the implementation of Brazil’s Ten-Year Energy Expansion Plan, which is updated every year (Plano Decenal de Expansão de Energia – PDE), rural electrification has been expanded to 97 percent of households in 2013 from

8

71 percent in 2000. The Bank and IFC are providing complementary support to Brazil’s efforts to increase supply of clean and efficient energy services. Bank support over the CPS period has focused on helping to strengthen Brazil’s policy and regulatory framework for the electricity sector, and helping to increase efficiency in supply by improving the performance of six distribution companies in the North and Northeast. The IFC has supported Brazil’s energy diversification efforts, and has also provided investment and advisory support for enhancing demand-side energy efficiency and rural electrification. To date some efficiency gains have been achieved in the sector as losses have already been reduced by 10 percent on average in the six distribution companies in the Amazon and Northeast region. However, distribution and (long-distance) transmission losses are still double the OECD average, presenting an important challenge to increasing access in underserved regions. Higher levels of efficiency are essential if the country is going to meet electricity demand, which is expected to increase by 60 percent in the next 10 years.

23. The Bank has been able to support improved management of citizen security as an important transversal issue for alleviation of poverty, particularly in major urban areas, where crime and violence disproportionately affect the poorest segments of society. The support has taken the form work through DPL operations, ESWs and PSIAs and has focused on improved management and community policing in urban areas such as Rio de Janeiro, Recife, Salvador and Manaus.

24. Overall, under this strategic objective, efforts to support rural agriculture and productive inclusion continue to make steady progress. Policy improvements and investments in services such as energy, water and sewage services, transport have been important in helping to reduce territorial inequalities among regions, and within state and urban areas. Less progress has been made in addressing issues related to housing subsidies and increasing the efficiency of water supply. There is also much work to do to integrate key services, especially as relates to different types of infrastructure and logistics services.

Strategic Objective 4: Improve Sustainable Natural Resource Management and Climate Resilience.

25. Brazil has one of the world’s largest endowments of water, arable land and mineral resources. The country is also the repository of an immense biodiversity and it has among the world‘s biggest stocks of forest carbon. Managing these resources in a sustainable way, combining conservation with the promotion of local regional economic development has, however, imposed significant policy and institutional challenges. In addition, the increasing evidence on the potential impacts of climate change has further complicated the challenges of natural resource management. The WBG is contributing to Brazil‘s efforts to tackle these challenges by supporting further improvements in environmental management, agricultural sustainability, water resource and natural disaster risk management. 26. Brazil has made remarkable progress towards its ambitious goals for biodiversity conservation and climate protection. The coverage of protected areas has increased from 8 percent (681,266 km2) of the national territory in 2006 to 17 percent (1,527,213 km2) in 2012 and deforestation in the Amazon rain-forest affected 4,571 km2 in 2011-2012, compared to the average of 19,535 km2 between 1996 and 2005. While there are notable differences among biomes, there is a trend towards less deforestation in the Amazon region, where on average 24,940 km2 were

9

deforested per year in 2002-2004, 14,980 km2 in 2005-2007, and 8,940 km2 per year in 2008-2010. These measures are consistent with Brazil’s 2009 Policy for Climate Change, which established the voluntary national greenhouse gas (GHG) reduction target of between 36 and 39 percent of projected emissions by 2020. In the context of this commitment, the objective is to reduce deforestation rates by 80 percent in the Amazon and by 40 percent in the Cerrado until 2020. To date, Brazil is on track to meet these targets as the annual rate of Amazon deforestation in the last decade has fallen nearly 80 percent. The most recent data shows, however, that deforestation in the Brazilian Amazon jumped by 28% over the last reporting period 2012 to 2013, reaching 5,843 km2. While this number still remains the second lowest annual figure for forest loss in recent history, it has raised concerns about the sustainability of recent progress and highlights the need for the continued active promotion and implementation of conservation-oriented policies and programs. 27. The Amazon Region Protected Areas (ARPA) program remains at the center of the Bank’s contribution to the long-term stewardship of Brazil’s globally important ecosystems. The program has achieved marked success, and recent studies show that it has been effective in containing deforestation and in influencing connectivity, land use, and sustainable territorial development. The second phase of Bank support to the program, aimed at expanding and consolidating the system of protected areas, is currently under implementation through the ARPA 2 project24. Beyond the Amazon, the Bank’s environmental protection efforts focus on strengthening monitoring and control mechanisms, specifically through the Rural Environmental Cadaster (Cadastro Ambiental Rural - CAR). The Bank’s support to the CAR occurs through a blend of investment lending operations as well as bilateral and multilateral grant funds. Further activities that support the environmental agenda include: the GEF-funded National Biodiversity Mainstreaming and Institutional Consolidation Project (PROBIO II), which is supporting efforts to strengthen biodiversity awareness in several Government agencies and in the private sector as well as the National Environmental Program - PNMA II. Other GEF supported programs focus on the conservation and restoration of biodiversity in the Cerrado and Caatinga ecosystems, with the next frontier being the establishment of marine protected areas. 28. Improving sustainable agricultural practices continues to be one of the key challenges to further advancement of Brazil’s environmental agenda. Over the last decade, agricultural expansion has underpinned economic growth, but has also had major impacts on biodiversity and the conservation of ecosystem services in the country. Emissions from the sector increased 5.2 percent from 2005 to 2010. The Government’s 2010 Low Carbon Agriculture Program (Agricultura de Baixo Carbono – ABC) is intended to reverse this trend. The program is a Government priority and in recent years, efforts have been stepped-up to strengthen its implementation, including through scaled-up funding. Bank support to the program thus far has occurred mostly on the analytical level, although several of the Bank’s multi-sector lending operations in rural areas also include components aimed at promoting low carbon agriculture and other sustainability measures. Efforts to scale-up support at the Federal level, especially via EMBRAPA, have gained limited traction, although the Forest Investment Program (FIP) will test training and technical assistance methodologies to improve the quality and rates of ABC technological adoption.

24 Notably, in 2012 ARPA received the inaugural Development Impact Honors Award from the U.S. Treasury Department.

10

29. Appreciable progress has been made towards building a more integrated approach to water resource management, yet integrated planning faces technical and institutional challenges. Initial steps have been taken to improve the coordination of water related strategies and programs and the Federal Government is placing increased emphasis on its strategic objective of ensuring water security and the broad range of cross-sectoral interventions/actions needed to guarantee reliable water supply, in quantity and quality, to meet the demands for human consumption, the productive sector, and ecosystems. To this end, a National Water Security Plan, financed by the World Bank’s INTERAGUAS project, is being prepared by the Ministries of National Integration, Cities, and Environment, and the National Water Agency (ANA) to be finalized by 2015. To support the GoB’s efforts to promote integrated planning and management of water resources, and strengthen the capacity of institutions, the Bank has made increased use of Reimbursable Advisory Services (RAS) combined with traditional (both non-lending and lending) technical assistance programs. To date, three RAS projects were prepared to support the implementation of Brazil’s new dam safety law and regulatory framework, as well as to support the Government’s Mais Irrigação (“More Irrigation”) program, which promotes sustainable irrigation approaches, including through public-private partnerships. Through NLTA programs, the Bank is also channeling knowledge to public agencies at the federal and sub-national level to help strengthen institutional capacity for improving water resource planning.

30. During the CPS period, Brazil has intensified efforts to strengthen the effectiveness of disaster risk management (DRM), but the unfinished agenda remains significant. While Brazil has traditionally focused on post-disaster response, namely through the civil defense system, recent extreme climate events have prompted the Federal and state governments to take a more proactive role in addressing the problem. In April 2012, a National Civil Protection and Defense Policy was adopted and investments in both structural and non-structural measures have been prioritized. To this end, the GoB, has allocated over R$18.8 billion for actions of response, prevention, mapping and monitoring. The Banks program of support has evolved in line with Brazil’s increased focus on reducing vulnerabilities to adverse natural events. The Bank started its DRM re-engagement in 2011 when it supported the Federal Government in drawing up a new legal framework. Since then, the Bank has supported a number of activities ranging from risk identification to risk prevention and mitigation. Overall, the engagement has been focused on developing local capacity at federal, state and municipal levels. This focus will be maintained during the rest of the CPS period, as the Bank seeks to help the Government overcome major challenges including the development of a strong institutional framework for developing and coordinating readiness and response actions and the lack of technical capacity needed to create awareness and address the root causes of disasters.

31. Efforts to support sustainable natural resource management and climate resilience under Strategic Objective Four have made significant inroads in areas such as improved environmental management, biodiversity conservation and climate change mitigation. There is steady progress in supporting sustainable agriculture and integrated water resource management, two key areas for sustainable growth in the future. More effective disaster risks management has seen some gains in the development of a national plan, although increasing the focus on prevention remains an on-going challenge.

32. Overall, as seen in the results framework in Annex 4, while progress in achieving the four strategic objectives of the CPS has been positive, important challenges remain, particularly given the less favorable economic environment under the CPS period than initially expected. In some areas – support to programs such as Bolsa Família, the Amazon Region

11

Protected Areas (ARPA) program and efforts to work with states on results-based management – the engagements have been highly successful. In many others, such as provision of social and infrastructure services, the outcomes have been positive, though challenges in improving the efficiency and quality of service delivery remain. While the initial hopes of rapid growth expected during the CPS period have been disappointed, Brazil has achieved significant success in reducing poverty and promoting shared prosperity in an inclusive sustainable manner, with the support of Bank programs.

12

Annex 2: Gender in the Brazil Portfolio

Gender Issues In recent decades, Brazil has experienced significant improvements in gender equality outcomes, particularly in terms of assets and endowments (specifically with regards to sexual and reproductive health as well as education outcomes). With regards to health outcomes, both the percentage of births attended by skilled health staff (97%, 2006) and the contraceptive prevalence rate (80.6%, 2006) are higher than for other upper middle income countries (96.7% and 59.9 %). The maternal mortality ratio decreased dramatically between 1990 and 2010, from 120 to 56 per 100,000 live births, and in 2010 is far below the regional average of 80.

However, despite successes along several gender dimensions, inequality persists regarding economic opportunities: Women continue to lag behind in the labor market, evidenced by the female to male labor force participation ratio of 0.74 (2011), and by one of the widest gender wage gaps in LCR (Poverty and Labor Brief 2012: The Effect of Women’s Economic Power in Latin America and the Caribbean). Moreover, the female labor force is predominantly concentrated in traditionally female sectors.

With regards to women’s agency (women’s capacity to take decisions and act on them) significant issues of concern remain. Women’s political participation and representation is still very weak in Brazil. Women’s representation in parliament of 9 percent (2011) lags well behind the average for LCR (24.5 percent) and the adolescent fertility rate of 76 (births per 1,000 women age 15-19, 2011) is significantly higher than averages for same income level countries (43). Domestic violence is one of the key challenges for gender equality in Brazil today. For example, WHO (2005) reports that 29 percent of Brazilian women have experienced physical or sexual violence during their lifetime. The current administration of President Rousseff is putting strong emphasis on reducing women’s vulnerability – as most recently evidenced by the launch of the Program Mulher, Viver sem Violência, which provides integrated services to women.

How does the Brazil Portfolio address these issues?

In Brazil, the Bank has been using the full menu of instruments to promote gender equity including the first development policy loans supporting institutional and legal innovations towards gender equity. According to a review undertaken under an NLTA on Gender and Social Inclusion in FY 13, about 60 percent of the lending operations in Brazil are gender-informed25 – 27 percent of the portfolio addressed gender issues in one dimension (analysis, actions or M&E), 18 percent did so in 2 dimensions and 17 percent in all three dimensions. It is noteworthy that the Bank’s portfolio in Brazil includes some of the Bank’s most innovative activities promoting gender equity such as the first DPLs in the World Bank to include a full gender component (DPLs to Pernambuco and Bahia support the creation of permanent state-level Secretariat for Women´s affairs as prior actions) as well as 5 out of 6 DPLs Bank-wide to directly address gender-based violence. For instance, a DPL on urban transport in Rio de Janeiro supports activities aiming to facilitate women’s access to specialized services (support on domestic violence, access to financial and economic inclusion, childcare etc.) around the Supervia. The Bank also engages in stand-alone initiatives such as an

25 Gender-informed refers to addressing gender issues in at least one of the following dimensions: analysis, actions, M&E. This reflects information from both active and pipeline lending operations.

13

Institutional Development Fund (IDF) Procuradoria Especial da Mulher, supporting the strengthening of the institutional capacity of the Procuradoria to promote gender-sensitive legislation in the Congress and to monitor laws and policies addressing gender issues in Brazil. The country office in Brasilia also launched a campaign to engage men in preventing domestic violence: ‘Homen de verdade não bate em mulher’. (Real Men Don’t Beat Women) which went viral and generated significant attention to domestic violence issues.

In addition, the portfolio includes gender activities along the following dimensions:

Gender-based violence:

The portfolio includes analytical work such as an ESW on Domestic Violence in Brazil as well as support to protect women victims of violence through increase of coverage, accessibility and/or quality of services (Development Policies for the State of Sergipe DPL, Bahia Inclusion and Economic Development DPL and Enhancing Public Management for Service Delivery in Rio de Janeiro DPL). Furthermore, in Pernambuco, a DPL (Pernambuco Equity and Inclusive Growth) supports the introduction of a Technical Chamber to Combat Violence Against Women to coordinate activities, and monitoring and evaluation, to address SGBV across various sectors.

Economic inclusion:

The portfolio includes activities to improve the active involvement and participation of women in rural production chains (Piaui Green Growth and Inclusion DPL), as well as financial support to female producers, and agricultural associations to access better production technologies (Ceara Rural Sustainable Development and Competitiveness). Also, projects in Alto Solimoes and Teresina include the promotion of employment and income generation opportunities with a special focus on supporting women and youth (Alto Solimoes Basic Services and Sustainable Development Project and Municipal APL: Teresina Enhancing Municipal Governance and Quality of Life Project). Finally, the IFC and Itau Unibanco are partnering to invest $470 million to finance women entrepreneurs in Brazil - the largest Banking on Women investment to date. IFC will also provide advisory services to help Itau Unibanco develop financial products that will address the needs of WSMEs.

Sexual and reproductive rights:

Besides more traditional activities to promote maternal health, the Brazil portfolio includes activities to promote STD prevention and treatment through expansion of PSD coverage (Second Family Health Extension Adaptable Lending) and a renewed focus in AIDS prevention by reaching new groups at risk (young homosexual men who do not participate in traditional networks, young women) and underserved regions in the National AIDS Program (AIDS-SUS).

Teenage pregnancy:

Disbursement for the Bahia Integrated Health and Water Management project is based on number of pregnant adolescents registered in PRO-NASCER health insurance system. Also, targets for the Rio de Janeiro Public Sector Modernization Program include a reduction in teenage pregnancy.

Voice and participation:

In Tocantins (Integrated Sustainable Regional Development), training for municipal agents include a module on gender, race, ethnicity and citizenship. In Rio de Janeiro, a DPL (Metropolitan Urban and Housing Development Program) supports a program that provides at-risk youth with life skills as well as opportunities and knowledge to improve their self-esteem.

14

Annex 3: Summary of Changes to CPS Outcomes

Original CPS Outcomes Mid-Term Assessment Revised CPS Outcomes

Strategic Objective 1: Increase Efficiency of Public and Private Investments

1. Enhanced medium term fiscal frameworks (Ceará, Minas Gerais, Rio Grande do Sul, Federal District, Alagoas, Rio State, Rio de Janerio, São Paulo, Bahia, Tocantins, Paraná, Recife, Pernambuco, Belo Horizonte, Piaui.)

Revised. Achievement of full-fledged MTEFs considered ambitious for four year time period

1. Greater adoption of some elements of medium term fiscal frameworks in States and Municipalities (Ceará, Minas Gerais, Rio Grande do Sul, Federal District, Alagoas, Rio State, Rio de Janerio, São Paulo, Bahia, Tocantins, Paraná, Recife, Pernambuco, Belo Horizonte, Piaui)

2. Increased result orientation in planning, budgeting and expenditures in states supported by the Bank (Bahia, Pernambuco, Rio Grande do Norte, Piaui, Alagoas, Ceará, Tocantins, Minas Gerais, Rio de Janeiro, Rio Grande do Sul, Paraná, and São Paulo)

Revised to improve measurability 2. Increased result orientation in planning, budgeting and expenditure (including procurement processes) in one or more sectors in States supported by the Bank (Acre, Amazonas, Bahia, Ceará, Minas Gerais, Paraná, Pernambuco, Piaui, Tocantins, Rio de Janeiro, Rio Grande do Norte, Rio Grande do Sul, São Paulo and Sergipe)

3. Increased value for money in human resource and procurement management in Pernambuco, Alagoas, Minas Gerais, Rio Grande do Sul and Paraná

Dropped (Measurement difficulties). Despite progress in implementing processes, it is difficult to show value for money - particularly for human resource.

n.a.

4. Strengthened institutional framework for public-private partnerships (PPPs) in Bank-supported states

3. Strengthened institutional framework for public-private partnerships (PPPs) in Bank-supported states

5. Expanded market for private long-term and SME financing

Dropped. Partial progress made, but Bank Group has little influence over the size of the private long-term finance market.

n.a.

6. Increased access to credit by low income households.

Dropped. Not attributable to Bank engagement given limited WBG role in regulatory frameworks governing provision of financial services to low income households.

n.a.

7. Improved policies to promote productivity-enhancing investments (Ceará, Rio Grande do Sul)

Revised to improve measurability. 4. Demonstrable contribution to policy dialogue on productivity issues and progress achieved in improving institutional frameworks and policy actions to promote productivity and competitiveness enhancing investments in Bank-supported states

15

Strategic Objective 2: Improve the Quality and Expand the Provision of Public Services for Low Income Households

8. Enhanced extreme poverty eradication program 5. Enhanced extreme poverty eradication program 9. Improve quality and increase coverage of ECD services (creche and pre-school), targeted to the lowest income quintiles.

6. Improve quality and increase coverage of ECD services (creche and pre-school), targeted to the lowest income quintiles

10. Improve learning outcomes and completion rates in primary and secondary education as measured by national education quality index, IDEB.

7. Improve learning outcomes and completion rates in primary and secondary education as measured by national education quality index, IDEB

11. Improve relevance, efficiency and equity of vocational training and technical education in the “S System” (SENAI, SENAC, SENAR), and in secondary and tertiary education (subject to implementation of AAA in this area in FY13 or later).

Dropped. Engagement with the “S” system has not materialized. In addition, the outcome targets improvements in secondary education, which are covered by activities under outcome 10.

n.a.

12. Improved access to quality primary health care 8. Improved access to quality primary health care 13. Development of integrated health care networks 9. Development of integrated health care networks

14. Increased access and utilization of HIV/AIDS and STD prevention, care and treatment by Groups Most at Risk, and strengthened decentralized implementation, governance, and results-based management of the national HIV/AIDS and STD program

Dropped. Not attributable to Bank engagement given limited bank intervention in this area. Outcome remains relevant, but relates to a single federal project; none of the sub-national operations includes a focus on HIV/AIDS.

n.a.

15. Expanded availability of affordable housing and mortgage finance for low-income groups

Dropped. The Federal Government has largely picked up this area with its Minha Casa Minha Vida program, so Bank resources in this area are no longer needed. The Bank continues to provide important support on issues such as resettlement

n.a.

16. More effective housing subsidies and improved housing and land markets 17. Improved integration of slum upgrading and housing programs, including via MCMV and PAC Urbanizacao, with territorial development and socio economic policies (Rio de Janeiro, São Paulo, Bahia, Pernambuco, Salvador, Recife) in WBG intervention areas. New Outcome. Gender outcomes and specific

targets and indicators were not included in the original CPS matrix since the projects including gender activities were still under preparation

10. Support for active Gender Policies

16

Strategic Objective 3: Promote Regional Economic Development through Improved Policies and Strategic Public and Private Investments

18. Enhanced rural productive inclusion programs (Acre, Ceará, Pernambuco, Rio Grande do Norte, Paraná, Santa Catarina)

Merged/Consolidated with outcome 29, 30 and 31, related to expanding sustainable agriculture as they target improvements in similar areas of engagement.

19. Increased access to and improved efficiency of water supply

11. Increased access to and improved efficiency of water supply

20. Increased access to sewage services and treatment of waste water

12. Increased access to sewage services and treatment of waste water

21. Improved access to collection and sanitary disposal of solid waste

Dropped. State demand in this area has been limited.

n.a.

22. Improved integrated transport infrastructure and management

Merged/Consolidated outcome 22 and 23 as they target improvements in similar areas of engagement

13. Improved integrated transport infrastructure and management with sustainable urban mobility

23. Improved sustainable urban mobility and regional access 24. Increased access to energy services in remote areas

14. Increased access to energy services in remote areas

25. Improved efficiency in energy supply and demand

Dropped. Intervention relatively small and unlikely to have a significant impact given the magnitude of efficiency losses in the sector.

n.a.

26. Diversification of clean energy sources and improved energy efficiency.

Dropped. Intervention not sufficiently substantive to achieve the outcomes.

n.a.

Strategic Objective 4: Improve Sustainable Natural Resource Management and Climate Resilience

27. Improved water resources management Merged/Consolidated outcome 27 and 28 as they target improvements in similar areas of engagement.

15. Improved water resources management and development of innovative long-term irrigation approaches

28. Development of innovative long-term irrigation approaches 29. Increased low carbon and clean agriculture and livestock production

Dropped. Limited progress in engaging client n.a.

30. Increased sustainability of agricultural production in the Cerrado

Merged/Consolidated outcome 30, 31 and 18 as they target improvements in similar areas of engagement.

16. Adoption of improved agriculture technologies (including CSA) and improved market access for family farmers

31. Improved sustainability of productive chains of natural products 32. Expansion of areas under effective protection 17. Expansion of areas under effective protection

17

33. Sustainable Natural Forest Management of private and public areas

Merged as they target improvements in similar areas of engagement.

34. Improved institutional capacity for environmental management

18. Improved institutional capacity for environmental management and upscaling of Cadastro Ambiental Rural

35. Improved disaster risk prevention and reduction Merged as they target improvements in similar areas of engagement

19. Improved disaster preparedness and coordination of post disaster response in states/cities of Bank engagement

36. Improved disaster preparedness and coordination of post disaster response in states/cities of Bank engagement

37. Improved infrastructure resilience to natural disasters

18

Annex 4: Brazil CPS FY12-15 Revised Results Matrix

Outcomes Indicators 2014 Status

STRATEGIC OBJECTIVE 1: INCREASE EFFICIENCY OF PUBLIC AND PRIVATE INVESTMENTS

Results Area 1. Fiscal and public sector management

Outcome 1: Greater adoption of some elements of medium-term fiscal frameworks (MTEFs) in States and Municipalities (Ceará, Minas Gerais, Rio Grande do Sul, Federal District, Alagoas, Rio State, Rio de Janerio, São Paulo, Bahia, Tocantins, Paraná, Recife, Pernambuco, Belo Horizonte, Piaui)

Baseline: No full-fledged MTEFs, relatively basic multi-year expenditure management system, fiscal risk analysis methodology and fiscal control systems Target: Functioning investment screening processes in Minas Gerais, Rio de Janeiro, Ceará, Rio Grande do Sul, Pernambuco and work initiated on such processes in other States and Municipalities.

On-track. Core elements of medium term fiscal frameworks have been adopted in states and municipalities where the Bank is engaged. They include multi-annual procurement systems (Minas Gerais), multi-year fiscal projections and setting of fiscal targets (Rio de Janeiro). Investment screening processes have been developed in Minas Gerais, Rio de Janeiro and Ceará and development of similar processes is starting in Rio Grande do Sul and Pernambuco. While functioning effectively in Minas Gerais, in Rio de Janeiro and Ceará support will be required to ensure the necessary institutional coordination and internal processes for the investment screening to become an effective part of the budget process.

Outcome 2: Increased result orientation in planning, budgeting and expenditure (including procurement processes) in one or more sectors in States supported by the Bank (Acre, Amazonas, Bahia, Ceará, Minas Gerais, Paraná, Pernambuco, Piaui, Tocantins, Rio de Janeiro, Rio Grande do Norte, Rio Grande do Sul, São Paulo and Sergipe)

Baseline: Significant result orientation in planning, budgeting and expenditures exists in Minas Gerais and is at earlier stages of development in other states.

Target: Increased (or deepened) coverage of sectors by formal RBM processes including results agreements or formal results monitoring systems providing feedback to program managers in States supported by the Bank. (Acre, Amazonas, Bahia, Ceará, Minas Gerais, Paraná, Pernambuco, Piaui, Tocantins, Rio de Janeiro, Rio Grande do Norte, Rio Grande do Sul, São Paulo and Sergipe)

On-track. Within the period of the CPS, Bank activities have supported Minas Gerais in the introduction of the third phase of the (RBM) reforms, emphasizing citizen participation and decentralization of results-based management, and Bahia in the introduction of results management in the security sector in 2013, as well as the States of Pernambuco, Rio Grande do Sul, Ceará, Acre and Amazonas. Preliminary research by the Bank tentatively indicates that improved results-based management has been effective in improving service delivery outcomes.

Results Area 2. Private Sector Development Policies

Outcome 3: Strengthened institutional framework for public-private partnerships (PPPs) in Bank-supported states

Baseline: PPP framework still under-developed in Paraná and Rio de Janeiro, and other sub-national entities. Target: Improved PPP frameworks in Paraná, Bahia and Rio de Janeiro, some progress in other entities and

On-track. Since FY12, IFC advisory services have helped structure and implement 4 PPP projects, including two of Brazil’s key international airports (Rio de Janeiro and Belo Horizonte). The Bank has worked with the states of Minas Gerais, São Paulo, Bahia and the Municipality of Rio de Janeiro, as well as the Federal Government

19

support through IFC in structuring PPP transactions.

through lending operations and Reimbursable Advisory Services (RAS), to strengthen their institutional frameworks. In Rio de Janeiro municipality procedures for the technical analysis of PPPs were established and a PPP project pipeline was created. In Paraná work is about to start on the PPP framework. However, it is still too early to assess the quality of the PPP institutions and processes established.

Outcome 4: Demonstrable contribution to policy dialogue on productivity issues and progress achieved in improving institutional frameworks and policy actions to promote productivity and competitiveness enhancing investments in Bank-supported states (e.g. Ceará, Rio Grande do Sul, Pernambuco).

Indicator: Number of joint dialogues on productivity policy at federal level and productivity-focused policy actions linked to Bank support at State level. Baseline: none Target (2015): 3

Delayed. Although policy dialogue on productivity issues has been limited until now, the Bank is expanding its work in this area to coincide with the start of the new governmental term. The Bank is also financing technical assistance for impact assessments of interventions aimed at enhancing private sector productivity in Rio Grande do Sul and Ceará, as well as in Pernambuco. In each case, the Bank is advising on enterprise data collection, sampling methodologies and interpretation of results, ensuring that they inform subsequent rounds of policy design, but demonstrable results so far are relatively few.

STRATEGIC OBJECTIVE 2: IMPROVE THE QUALITY AND EXPAND THE PROVISION OF PUBLIC SERVICES FOR LOW INCOME HOUSEHOLDS

Results Area 3. Consolidated and strengthened social protection system

Outcome 5: Enhanced extreme poverty eradication program

Indicator: % of families in Quintile 1 that receive transfers from Bolsa Família (PNAD) Baseline (2009): 50% Target (2015): 78%

Achieved. In 2012, 82% of families in Quintile 1 received transfers from Bolsa Familia

Results Area 4. Improved Quality of Education for the Poor

Outcome 6: Improve quality and increase coverage of ECD services (creche and pre-school), targeted to the lowest income quintiles

Indicator: Pre-school participation for the poorest two quintiles of the population Baseline (2009): 42% Latest data (2012): 48% Target (2015): 54% Boys Girls Baseline (2009): 42.7% Baseline (2009): 42.0% Latest data (2012): 49% Latest data (2012): 47.6% Target (2015): 54% Target (2015): 54%

On-track. Baseline (previously 69%) and target (previously 85%) adjusted to reflect lower age of entry to primary school since 2009 (now age 6).

20

Indicator: Creche participation for the poorest two quintiles of the population Baseline (2009): 14% Latest data (2012): 17% Target (2015): 20% Boys Girls Baseline (2009): 13.7% Baseline (2009): 14.1% Latest data (2012):17.1% Latest data (2012): 17.0% Target (2015): 20% Target (2015): 20%

Off-track. Creche expansion not as fast as expected in many regions, in part because parents still prefer to keep infants at home (enrollments below age 1 are minimal). However, these data do not capture home-visit and parent education programs which are expanding coverage and may be more cost-effective.

Outcome 7: Improve learning outcomes and completion rates in primary and secondary education as measured by national education quality index, IDEB

Indicator: Improve IDEB scores for end of primary cycle Baseline (2009): 4.0 (target 3.7) Latest data (2011): 4.1 (target 3.9) 2013 target: 4.4 Target (2015): 4.7

On-track. 2013 IDEB results will not be available until late 2014, but targets have been exceeded in every year through 2011

Indicator: Improve IDEB scores for end of secondary school Baseline (2009): 3.6 (target 3.5) 2011 target: 3.7 (achieved) 2013 target: 3.9 Target (2015): 4.3

On track. 2013 IDEB results will not be available until late 2014, but 2011 target was met

Results Area 5. Improved access to health care, especially for the poor

Outcome 8: Improved access to quality primary health care

Indicator: Population covered by Family Health Strategy in municipalities with more than 100,000 population and benefitting from PROESF Baseline (2009): 36.2% Target (2015): 43%

On-track. In 2012, 40.3% of the population in municipalities with more than 100,000 inhabitants were covered by Family Health Strategy and were benefitting from PROESF

Outcome 9: Development of integrated health care networks

Indicator: Number of RHCNs that deploy governance mechanisms (regional management committees, Inter-regional base contracts or intergovernmental agreements based regional or global consortium) Baseline (2009): None Target (2015): 15

On track. Proposed target consistent with QualiSUS. In 2012 the number of RHCNs was 8.

21

Outcome 10: Support for active Gender Policies Indicator: Number of States supported by the World Bank Group in implementing substantive policy or institutional reforms or investments for the empowerment of women and protection of women from Gender Based Violence. Baseline: None Target (2015): 5

On track. Substantive programs to implement the Maria de Penha Law and to establish Secretariats for Gender Policy have been supported by the Bank in the States of Bahia, Amazonas, Sergipe, Rio de Janeiro and Acre.

STRATEGIC OBJECTIVE 3: PROMOTE REGIONAL ECONOMIC DEVELOPMENT THROUGH IMPROVED POLICIES AND STRATEGIC PUBLIC AND PRIVATE INVESTMENTS

Results Area 7. Expanded access to improved basic sanitation

Outcome 11: Increased access to and improved efficiency of water supply

Indicator: Percentage of households with access to clean water Baseline (2010): 91% Target (2015): 93%

Achieved. 95% in 2012 (PNAD/IBGE 2012).

Indicator: Average non-revenue water losses Baseline (2010): 37.4% Target (2015): 35%

Off-track. Target is unlikely to be met. Latest available data from National Sanitation Information System (SNIS, 2011) shows national average of non-revenue water losses at 38.8%.

Indicator: Percentage of municipalities with services providers regulated by independent regulators Baseline (2010): 30% Target (2015): 60%

Off-track. Target is unlikely to be met. Latest available data shows indicator at 41.3% (ABAR, Regulação Saneamento Básico 2012)

Outcome 12: Increased access to sewage services and treatment of waste water

Indicator: % of Households with access to sewerage Baseline (2010): 70% Target (2015): 75%

Achieved. In 2012, the indicator reached 76% (PNAD/IBGE 2012)

22

Results Area 8. Improved transport and logistics

Outcome 13: Improved integrated transport infrastructure and management with sustainable urban mobility

Indicator: States (Minas Gerais, Paraná, Rio Grande do Sul and Tocatins) will have in place improved integrated transport management and overall efficiency with emphasis on green transport, as measured within the supporting Bank projects.

On-track. The Bank supported the expansion of the use of performance based contracts in the road sector, the introduction and development of PPP, the development of multimodality and greener freight through an advanced policy dialogue and support to targeted investments under a operations and technical assistance advice to the states. More specifically: 1. Rio Metropolitan Area (IL and DPL with State RJ): added public transport services (trains) and improved planning of Metropolitan rail-bus network, ongoing update of public transport (PDTU) and logistics (PELC) master plans and management framework. Ongoing transport studies and pilots in TOD, DRM, ITS Center. 2. SP Metropolitan Area (IL and RAS with State): added public transport services (trains) and improved planning of Metropolitan rail-bus network, updated public transport master plan (PITU) and management framework (CDTI); supported upstream structuring of two urban transport projects as PPPs (Metro Line 6 was awarded in Nov 2013). 3. Cities and Metropolitan Regions of Curitiba, BH and SP: GEF support for strategic studies and pilot initiatives in public transport development in high-capacity corridors and vehicle technologies, integrated land use planning, travel demand management, non-motorized transport and freight management.

Indicator: States and cities (Belo Horizonte and Rio de Janeiro) will have integrated transport within a broader urban management framework as measured with the support Bank operations.

Results Area 9. Increased supply of clean and efficient energy services

Outcome 14: Increased access to energy services in remote areas

Indicator: Households lacking electricity in North and Northeast reduced by 500,000 families by 2015 Baseline (2010): 590,294 Target (2015): 90,294

Achieved. The 2010 Census of IBGE showed the existence of 590,294 households without electricity in North and Northeast Brazil. The Luz para Todos (LpT - Light for All) program, has delivered over 562,832 new electricity connections mainly in the North and Northeast, between January 2010 and February 2014.

23

STRATEGIC OBJECTIVE 4: IMPROVE SUSTAINABLE NATURAL RESOURCE MANAGEMENT AND CLIMATE RESILIENCE

Results Area 10. Integrated Water Resources Management

Outcome 15: Improved water resources management and development of innovative irrigation approaches.

13 State water agencies and 4 river basin water agencies that are properly functioning, applying the management instruments established by law, and are reasonably well staffed. Volume (20 million m3 per year) of bulk water being charged (and 50% percentage collected of that volume) in the country, excluding power generation. Indicator: PPP arrangements signed for irrigation projects covering an expanded area: Baseline (2010): < 3,000 ha Target (2015): 200,000 ha

Ontrack. There has been progress in the strengthening of State and river basin agencies over the last years. However, this is an area that will require continued Bank support over the next period. All 26 states and the Federal District have institutions in charge of water resources management; and 8 states have water agencies created. Bank-financed projects has contributed to the creation and strengthening of two agencies in Pernambuco and Rio Grande do Norte. There are currently 7 river basin agencies created and functioning. On track. Bulk water is being charged in five federal river basins and in several river basins in 5 states. The total amount charged, in average, has remained around BRL200 million since 2012 (90% of that amount being collected). The amount collected goes back to the river basins for investment. Partially on track. In November 2012, the Government officially launched its More Irrigation Program that foresees more investment in irrigation with private participation. The Bank contributed with two RAS to help the Government roll out the Program through specific projects. Substantial work has been done on the social, environmental, financial and economic studies required for PPP arrangements and market analysis for risk. However, none of these projects has been bid as a PPP concession as of today.

Results Area 11. Expanded sustainable agriculture

Outcome 16: Improved Market Access for and adoption of Climate Smart Agriculture (CSA) by Small Rural Producers Organizations (% of organizations led by women)

Indicator: Number of Small Producers Organizations with improved market access in the States of Rio Grande do Norte, Rio de Janeiro, Bahia, Amazonas, Parana, Para, Sao Paulo, Santa Catarina, Pernambuco, and Ceara (% of organizations led by women) Baseline (2009): 2,730 small producers organizations supported by Bank-financed Projects (844 organizations led by women, 30%) Target (2015): 19,600 small producers organizations supported by Bank-financed Projects (5,800 organizations led by women, 30%)

On-track. In 2013, 10,400 small producer organization were supported by Bank-financed Projects in the States of Rio Grande do Norte, Rio de Janeiro, Bahia, Amazonas, Parana, Para, Sao Paulo, Santa Catarina, Pernambuco, and Ceara (3,500 organizations led by women, 30%)

24

Indicator: Brazilian States implementing programs that promote the adoption of CSA by farmers Baseline (2009): 0 States Target (2015): 4 States

On-track. In 2013, the states of Sao Paulo, Rio de Janeiro and Santa Catarina were implementing programs that promote the adoption of CSA by farmers. The state of Parana is expected to commence with the implementation of similar programs in 2014.

Results Area 12. Improved environmental management, biodiversity conservation and climate change mitigation

Outcome 17: Expansion of areas under effective protection

Protected areas to increase: Baseline (2010): 120 million ha. Target (2015): 135 million ha.

On-track. Legal instruments have been prepared and submitted for approval for the creation of 324,124ha in the Cerrado Biome. Studies to identify and prioritize suitable areas for creation of PAs are underway by MMA and ICMBio, Tocantins, Goias (117.000ha) and ICMBio projects in a total of 274,191ha in the Cerrado Biome. Pampa Biome: Action Plan of the Serra do Espinilho State Park under preparation; environmental assessment of the Quarta ecological corridor under Execution; Lagoa dos Peixes National Park management activities under implementation in the buffer zone; Environmental assessment of the Quarta ecological corridor under execution; Lagoa dos Peixes National Park management activities under implementation in the buffer zone. The ARPA Program has prepared and submitted to Presidential approval decrees for six new Federal Protected Areas in the Amazon Region, on an estimated of 6,900,000 hectares.

Outcome 18: Improved institutional capacity for environmental management and upscaling of Cadastro Ambiental Rural

Environmental management capacity will have improved through (a) development of more transparent and user-friendly tools to speed up licensing processes and improve social participation and control mechanisms, (b) the creation of ecological-economic zoning (EEZ) land use planning tools in three states. Strengthening the Environmental Agencies’ capacity to receive, analyze, and approve the rural environmental cadastre entries and link them to the national system (Sistema de Cadastro Ambiental Rural, SICAR), in accordance with Law 12651 Baseline (2010): 0 Target (2015): 10 States & Federal District.

On-track. As part of the multi setoral Projects, the following States are improving their licensing process: São Paulo, Paraná, Tocantins, and Rio Grande do Sul States. As part of the Forest Investment Plan and Cerrado Climate Change Mitigation Program, the Bank is supporting Environmental Ministry’s efforts to implement the Environmental Rural Cadastre in the Cerrado Biome (10 States & Federal District) and 55 municipalities. As of June 2013, Piaui State had approved and delivered 1,300 land titles to small farmers, while another 1,200 titles have been approved and should be delivered during the next few months. As part of the multi setoral Projects, the following States and Watershed are preparing ZEEs: São Paulo, Tocantins, Rio Grande do Sul, and São Francisco Watershed.

25

Additionally, trough the PPG7 the Bank has supported the Environmental Ministry’s efforts to monitor and evaluate the Amazon Region Macro ZEE,

Results Area 13. More effective disaster risk management

Outcome 19: Improved disaster preparedness and coordination of post disaster response in states/cities of Bank engagement

State/City early Warning Systems Revamped Baseline (2010): 0 Target (2015): 10

On-track. Both cities and states are engaging in developing early warning systems under the guidance of the Ministry of National Integration (CENAD). The Bank is supporting CENAD and several states (Parana, Espirito Santo, and Rio de Janeiro).

26

Annex 5: Brazil Key Economic Indicators, 2008-18

Indicator 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

National Accounts Real GDP Growth 5.2 -0.3 7.5 2.7 1.0 2.5 1.5 2.1 2.8 3.2 3.5

Gross domestic investment 20.7 17.8 20.2 19.7 18.2 18.2 13.9 16.3 17.2 19.2 19.5

External SectorCurrent account -28.2 -24.3 -47.3 -52.5 -54.2 -81.1 -80.7 -85.5 -86.4 -93.2 -98.6

Merchandise trade balance 24.8 25.3 20.1 29.8 19.4 2.6 4.8 -0.7 29.1 21.6 19.8Exports (fob) 197.9 153.0 201.9 256.0 242.6 242.2 251.6 262.5 284.2 313.2 333.7Imports (fob) 173.1 127.7 181.8 226.2 223.2 239.6 246.9 263.2 255.1 291.5 313.9

Nonfactor services, net -16.7 -19.2 -30.8 -37.9 -41.0 -47.2 -48.2 -50.9 -53.1 -57.2 -61.8 Income and current transfers, net -36.3 -30.3 -36.6 -44.3 -32.6 -36.4 -37.2 -33.9 -62.3 -57.6 -56.7

Direct investment, net 24.6 36.0 36.9 67.7 68.1 67.5 64.0 67.0 68.0 70.0 70.0

Portfolio equity, net 1

-7.3 39.7 43.9 16.0 3.3 10.2 3.4 3.5 3.5 4.2 4.9Gross international reserves 193.8 238.5 288.6 352.0 373.1 358.8 361.3 361.9 365.2 376.8 378.4Current account (% of GDP) -1.7 -1.5 -2.2 -2.1 -2.4 -3.6 -3.7 -3.8 -3.6 -3.6 -3.5

General Government2

Total Revenues and Grants 36.7 34.8 37.1 36.6 37.7 37.2 36.9 37.2 37.0 37.8 36.8 Total Expenditure 38.3 38.1 39.9 39.2 40.4 40.5 40.1 39.5 38.9 39.2 38.3

Current Expenditure 35.6 35.9 36.3 35.8 37.1 37.7 37.2 36.6 36.0 36.2 35.3of which: Net Interest payments 5.5 5.3 5.2 5.7 4.9 5.1 5.0 4.8 4.8 4.5 4.5

Capital Expenditure 2.7 2.5 2.9 2.9 3.1 2.8 2.8 2.9 2.9 3.0 3.0 Primary Balance 3.9 2.0 2.4 3.1 2.1 1.9 1.8 2.5 3.0 3.1 3.0 Overall Balance -1.6 -3.3 -2.8 -2.6 -2.8 -3.3 -3.2 -2.3 -1.8 -1.4 -1.5

Gross Public Sector Debt3 63.5 66.8 65.0 64.7 68.2 66.3 64.7 62.6 60.0 57.1 54.2

of which: Domestic Currency 58.4 63.2 62.1 62.2 65.4 63.2 61.6 59.3 56.6 53.7 51.0of which: Foreign Currency 5.1 3.7 3.0 2.7 3.1 3.1 3.1 3.3 3.4 3.3 3.2

Prices GDP Deflator 8.3 7.2 8.2 7.0 4.9 7.5 5.7 5.2 4.7 4.5 4.5 Consumer Price Index (eop) 5.9 4.3 5.9 6.5 5.8 5.9 6.5 6.0 5.3 5.0 4.5

Memorandum items: Nominal GDP (in R$ billions) 3032.2 3239.4 3770.1 4143.0 4392.1 4,845 5189.6 5574.1 5999.5 6470.1 6997.9 Total External Debt (% of GDP) 15.9 17.4 16.4 16.2 17.9 18.6 20.3 20.8 21.7 21.5 21.6

(annual percent change, unless noted)

1 Porfolio equity does not include debt securities

2 IMF definition of General Government

Sources: IMF, BCB, IBGE, EIU, WB Calculation

Projections

(in percent of GDP, unless noted)

(in percent of GDP)

3 Based on IMF methodology

(in billions of USD, unless noted)

(annual percent change)

27

Annex 6. Brazil Problem Projects and Actions to Improve Portfolio Health

The Bank team has carried out specific actions to address problem projects. These include the following: Health Network Formation and Quality Improvement Project (P088716; Adjustable Program Lending – APL; US$235million). The objectives of the first phase of this APL Program (now called Series of Projects under OP/BP10:00) are to: (a) improve the quality and efficiency of SUS’ Regional Health Care Networks (RHCN) with emphasis on secondary-level health care, specialty, diagnostic and emergency centers, and logistical systems serving the Project’s targeted regions and populations; and, (b) improve the effectiveness of the SUS’ RHCNs delivery system to prevent, detect and treat priority health conditions in the Project’s targeted regions and populations. The project was approved in January 2009, but its actual implementation did not effectively start until mid-2012. The reasons for the implementation delays of this project are: (i) an initial one year Effectiveness delay due to an institutional transition at the Ministry of Health (MOH) following national elections; (ii) an additional one year delay before project launch due to a request from the MOH to change the original implementation arrangements; (iii) slow preparation and negotiation by the Borrower of the decentralized sub-projects; and, (iv) slow implementation of sub-projects, due to the disruptions caused by the Municipal elections in October 2012, and to weak ownership by the Secretaria higher level de Assistencia de Saude. To date about 26 percent of Project funds have been disbursed. MOH and the Bank prepared a Level 2 restructuring which was approved in June 2014. The Restructuring extended the closing date and cancelled US$ 65 million of the Loan. A second restructuring is being prepared and is expected to be completed by September, 2014. It will make additional changes including a revision of the Project Development Objective, the results framework, activities, closing date and a reallocation of loan proceeds amongst disbursement categories. While the APL Program remains highly relevant, based on the poor institutional performance of this project the Bank will re-assess its continued engagement within the APL program on the basis of the implementation outcome of the restructuring. The Bank has exercised supervision of this operation all through its implementation process, and will continue to closely supervise it, especially during the remainder of 2014 and early 2015 as this year’s national elections could again bring significant implementation issues. Eletrobras Distribution Rehabilitation Project (P114204; US$495 million). The objective of the Project is to improve the quality of electricity service provided by the Eletrobrás-managed distribution companies to the population in the States of Acre, Alagoas, Amazonas, Piaui, Rondonia and the City of Boa Vista, as a means to improve the quality of life and foster economic growth. This project is an integral component of a larger investment program within Electrobras. After 3 years of implementation the Bank project has disbursed only 8 percent due to a protracted lack of definition and agreement between Electrobras and the Bank on the technical specification of two major procurement packages totaling $250 million, simultaneously covering six different distribution companies in six different states, and including a state-of-the-art integrated distant metering system. The Counterpart portion of the larger Electrobras investment program has been implemented more diligently disbursing to date more than $95 million (equivalent to 44 percent of the program’s total investments). The Bank project has been under intensive supervision during FY14, including the change of the Task Team Leader (TTL) to a Country Office-based TTL and direct and permanent involvement from the Country

28

Management Unit (CMU). In spite of the significant disbursement delay, this project is considered a “flagship project” by Electrobras and the Ministry of Energy, because it has delivered key technical assistance and best practice knowledge and support in a number of strategic areas in the power sector. Recently, technical agreement on those two large Bank-financed packages was reached and the Bank’s No Objections were issued. However, a new issue of concern, which might cause further delay to this project – and has the potential to force the cancellation of the two large ICB contracts – relates to a recent legal injunction (Acórdão) which challenged the use of the Bank’s International Competitive Bidding process (ICB). While the challenge is still in the courts, if upheld, it has the potential to stall all ICB procurement procedures under externally financed projects in Brazil (WBG, IDB, CAF, etc.). Integrated Solid Waste and Carbon finance Project (P106702; US$50 million). The objective of the Project is to improve the treatment and final disposal of municipal solid waste in Brazil while: (a) supporting (i) the closing of open dumps and the implementation of modern and environmentally safe landfills or alternatives to waste disposal; (ii) improved municipal solid waste management practices; (iii) reduction of poverty among waste pickers; and (iv) increased private sector participation in solid waste service provision; and (b) strengthening Caixa Economica Federal’s capacity to manage carbon finance projects. Since project effectiveness in 2012 only 19% of the Loan amount has been disbursed. Caixa Econômica Federal, the federal bank in charge of implementing the project, is under corporate restructuring since early 2012, thus not assigning adequate management oversight nor staffing to effectively implement the project. This project has been intensively supervised but the small size of the project relative to the size of Caixa’s operations and portfolio has effectively limited the Bank’s ability to move implementation forward. The Bank has supported this project’s continuation in spite of the accrued delays because of its innovative nature (Carbon Finance) and importance within the Climate Change Agenda. Nevertheless, the Bank tabled the need to restructure this operation with partial cancellation of proceeds to Caixa during the last supervision mission (March 2014) and will request that at the next CPPR with the Federal Government. Ceará Regional Development Project (P099369; US$46 mil). The objective of this project is to promote economic development and improve metropolitan management for public services in the Central Cariri Region of Ceara, which includes the nine municipalities of Barbalha, Caririacu, Crato, Farias Brito, Jardim, Juazeiro do Norte, Missao Velha, Nova Olinda, and Santana do Cariri. This project suffered an initial one year Effectiveness delay due to an institutional transition following national elections. Since its Effectiveness in March 2010, only 32% of Loan commitments have been disbursed. Project implementation has suffered from major capacity constraints at the Project Implementation Unit, both in project management and coordination, as well as lack of relevant technical knowledge to design and implement the wide range of project activities. While these issues had been systematically raised through the Bank’s supervision effort, the Borrower had failed to address them. In light of these continued challenges and continued delays, the Bank and the Borrower agreed to restructure the project to refocus the Loan proceeds toward the core municipal infrastructure components with high development impact. The restructuring will downsize a non-performing component to provide local economic development support (particularly to the footwear industry) and will remove a planned landfill from the project due to its high risks (technical design and governance arrangements issues).

29

Annex 7: Selected Indicators of Bank Portfolio Performance and Management

As Of Date 7/16/2014

Indicator 2011 2012 2013 2014Portfolio Assessment Number of Projects Under Implementation a 56 54 60 59

Average Implementation Period (years) b 2.9 3.0 3.4 3.6Percent of Problem Projects by Number a,

c 17.9 13.0 20.0 23.7

Percent of Problem Projects by Amount a, c 9.7 12.1 10.0 15.3

Percent of Projects at Risk by Number a, d 17.9 13.0 20.0 25.4

Percent of Projects at Risk by Amount a, d 9.7 12.1 10.0 16.3

Disbursement Ratio (%) e 31.8 22.0 15.2 11.3Portfolio Management CPPR during the year (yes/no) Yes Yes No NoSupervision Resources (total US$) 5,982 4,982 5,811 4,162Average Supervision (US$/project) 98 84 100 69

Memorandum Item Since FY 80 Last Five FYs

Proj Eval by IEG by Number 285 23Proj Eval by IEG by Amt (US$ millions) 34,879.4 3,337.8% of IEG Projects Rated U or HU by Number 25.5 54.5% of IEG Projects Rated U or HU by Amt 23.5 27.7

a. As shown in the Annual Report on Portfolio Performance (except for current FY). b. Average age of projects in the Bank's country portfolio. c. Percent of projects rated U or HU on development objectives (DO) and/or implementation progress (IP). d. As defined under the Portfolio Improvement Program. e. Ratio of disbursements during the year to the undisbursed balance of the Bank's portfolio at the

beginning of the year: Investment projects only. * All indicators are for projects active in the Portfolio, with the exception of Disbursement Ratio, which includes all active projects as well as projects which exited during the fiscal year.

30

Annex 8: Operations Portfolio (IBRD and Grants)

As Of Date 7/16/2014

Closed Projects 350

IBRD/IDA *

Total Disbursed (Active) 6,992.17

of which has been repaid 58.71

Total Disbursed (Closed) 15,672.42

of which has been repaid 17,417.79

Total Disbursed (Active + Closed) 22,664.59

of which has been repaid 17,476.49

Total Undisbursed (Active) 5,683.87

Total Undisbursed (Closed) 0.02

Total Undisbursed (Active + Closed) 5,683.88

Active Projects

Last PSR

Fiscal Year

Original Amount in US$ Millions

Difference Between

Expected and Actual

Supervision Rating Disbursements a/

Project ID Project Name Development

Objectives Implementation

Progress IBRD IDA GRANT Cancel. Undisb. Orig.

Frm Rev'd

P147913 Acre: Strengthening Public Policies DPL S S 2014 250.0

P099469 BR (APL2) 2nd National Environmental U MU 2010 24.3 22.8 (1.5)

P095626 BR (APL2)Family Health Extension 2nd APL S MS 2008 83.5 41.0 41.0

P121671 BR (APL2)GEF Cerrado Init.:Goias& ICMBio # S 2010 6.0 1.5

P095171 BR (MST) Bahia Health and Wtr Mgt (SWAP) MS MS 2011 60.0 48.9 42.8

P113540 BR AIDS-SUS S MS 2010 67.0 33.7 26.8

P147979 BR Amazonas DPL # # 2014 216.0 216.0

P082651 BR APL 1 Para Integrated Rural Dev MS MS 2007 60.0 22.3 7.6 29.9 6.6

P006553 BR APL SP Integrated Wtr Mgmt MS MU 2010 124.8 78.4 53.8

31

P101504 BR Bolsa Familia 2nd APL S S 2011 200.0 9.9 7.8

P099369 BR Ceara Regional Development MU MU 2009 46.0 30.2 13.2

P121167 BR Ceara Rural Sustainb&Competitiveness MS MS 2012 100.0 89.8 64.8

P126537 BR Energy & Mineral Sctr Strengthening MS S 2012 49.6 40.1 33.0

P130682 BR ES Integrated Sust. Water Mgt Project # # 2014 225.0 225.0

P114810 BR GEF Amazon Region Prot Areas Phase 2 S S 2012 15.9 11.2 6.3

P094233 BR GEF Espirito Santo Biodiversity S MS 2009 4.2 2.9 2.7

P094715 BR GEF National Biod Mainstreaming S MS 2008 22.0 5.5 5.5

P086341 BR GEF Rio Grande do Sul Biodiversity MS MS 2010 5.0 2.6

P114010 BR GEF Sust Transp & Air Quality MS MU 2010 8.5 4.9 4.9

P091827 BR GEF Sustainable Cerrado Initiative MS MS 2010 7.0 1.8

P088716 BR Health Network Formation & Quality Im MS MU 2009 235.0 65.0 125.7 190.7 190.6

P106702 BR Integr. Solid Waste & Carbon finance U MU 2011 50.0 35.1

P118410 BR Mato Grosso do Sul Road S S 2010 300.0 3.6 (296.4)

P107146 BR MST Acre Social Economic Inclusion S MS 2009 120.0 30.2 20.2

P126749 BR MST Belo Horizonte Urban DPL S MS 2013 200.0

P112073 BR MST Federal Integrated Water Sector MS MU 2012 107.3 101.2 (6.2) 21.8

P126452 BR MST Rio Grande do Norte Regional Dev S S 2013 360.0 336.5

P121495 BR MST Tocantins Integrated Sust. Reg. S S 2013 300.0 291.5

P088966 BR Municipal APL3: Teresina S S 2008 31.1 2.9 2.9 (0.8)

P094315 BR Municipal APL4: Sao Luis MS MU 2009 35.6 18.6 18.6 3.2

P104995 BR Municipal APL5: Santos MS MS 2010 44.0 24.4 24.4

P126343 BR Parana Multi-sector Development S S 2013 350.0 299.1 179.3

P120139 BR Pernambuco - Rural Economic Inclusion S MS 2012 100.0 89.2 39.8

P106208 BR Pernambuco Educ Results& Account. MS S 2009 154.0 1.5 1.5 1.5

P108654 BR Pernambuco Sustainable Water MS MS 2010 190.0 154.4 154.4

P089929 BR RGN State Integrated Water Res Mgmt MS MS 2008 35.9 11.6 11.6 11.6

P127245 BR Rio de Janeiro Mun. Strengthening PSM MS MU 2013 16.2 16.2

P106768 BR Rio de Janeiro PSM/Fiscal MST S S 2011 18.7 12.5 11.0

P120830 BR Rio Grande do Sul SWAp (SIL) MS MS 2012 480.0 408.5

P111996 BR RJ Mass Transit II S MS 2010 811.7 565.9 (34.1) (9.1)

P118540 BR Santa Catarina Rural Competitiveness MS MS 2011 90.0 56.8 (0.2)

P106663 BR Sao Paulo Feeder Roads Project S S 2010 493.4 3.2 (323.6)

P116170 BR Sao Paulo Metro Line 5 MS MS 2010 650.4 440.1 440.1 (210.3)

P106038 BR Sao Paulo Trains and Signalling MS MU 2008 662.9 67.8 (45.1) 66.1

32

P129652 BR Sergipe DPL S S 2013 150.0

P112074 BR Sergipe Water MS MU 2012 70.3 62.5

P106390 BR SP METRO LINE 4 (PHASE 2) MS MS 2010 130.0 90.1 90.1 (39.9)

P108443 BR SP Sust Rural Dev & Access to Markets MU MU 2010 78.0 69.5 49.5

P106703 BR SP Water Reagua MS MU 2010 64.5 57.8 33.3

P127463 BR Strength. Serv. Delivery Ceará PforR S S 2014 350.0 255.4

P126351 BR-Bahia DPL S S 2012 700.0

P132768 BR-Pernambuco Equity & Inclus.Growth DPL S S 2013 550.0

P126372 BR-Recife Swap - Educ & Public Mgmt. MS MS 2012 130.0 100.2 21.7

P101508 BR-RJ Sustainable Rural Development MS MS 2010 139.5 109.4 8.4 3.9

P101324 BR-Second Minas Gerais Dev't PArtnership HS S 2008 1,437.0 1.4 1.7 (457.9) 3.1

P114204 ELETROBRAS Distribution Rehabilitation MU MS 2010 495.0 438.9

P147695 Enhancing Public Manag for Service Deliv S S 2014 500.0

P148083 RS:Strengthening Fiscal & Water Mgmt DPL # # 2014 280.0 280.0

P127723 Sao Paulo Sustainable Transport Project S S 2013 300.0 230.4 (39.6)

P126735 Strengthening PM and Int Territorial Dev S S 2014 48.0 48.0

Overall Result 12,764.8 68.6 88.7 5,714.3 (2,246.3) 48.1

33

Annex 9: IBRD Program Summary FY12-15

Lending Knowledge Reimbursable Advisory Services

FY12 Energy & Mineral Sector Strengthening Education Evidence-Based Policy Fee-based Analytical and Advisory Services to the Municipality of RJ*

PE-Expanding Opportunities, Enhancing Equity DPL Monitoring and Evaluation RAS Nilo Coelho Irrigation Project

Sergipe Water Brazil: Productivity and Upgrading Management model of the São Francisco River Basin Pernambuco - Rural Economic Inclusion Social Protection during the Twin Crises of 2008 FBS with Ministry of Environment (AF)Upgrading Greening Rio Urban Rail Country Study on Health Finance RAS São Paulo Metro PPP Support

APL2 Sao Bernardo Integrtd Water management SP Early Childhood Development NLTA MST Piaui Green Growth and Inclusion DPL Brazil: Monetary Policy, Credit Cycles and Growth Rio Grande do Sul SWAp (SIL) Implications of Oil & Gas Discoveries Ceara Rural Sustainability & Competitiveness Bahia DPL Recife Swap – Education & Public Management

FY13

MST Tocantins Integrated Sustainable Regional Development Evidence-based Policy in Education Analytical and Advisory Services to the National Water Agency on Dam Safety

3rd Minas Gerais Partnership DPL Brazil Eradicating Extreme Poverty Fee-Based Services to the State of São Paulo in Support of Education

Rio State DPL III BRAZIL Accounting & Auditing Report on the Observance of Standards and Codes (ROSC)

Parana Multi-sector Development Amazon Deforestation and Protection

(AF) RJ Sustainable Rural Development Status of Urban Pollution Management in Brazil

MST Belo Horizonte Urban DPL Gender Study

MST Rio Grande do Norte Regional Development Gender and Social Inclusion NLTA Sergipe DPL JIT Efficiency of Public Spending Rio de Janeiro Municipal Strengthening PSM Bringing the State Back to the Favelas of Rio de Janeiro SP Change, DRM & Transport SWAP Adapting Water Resources Planning and Operation to Climate Change Pernambuco Equity & Inclusion Growth DPL Brazil Agricultural Productivity and Competitiveness

Technical Assistance & Guidance in Implementation of Minha Casa Minha Vida

Development of National Disaster Risk Management Strategy Impacts Of Climate Change On Brazilian Agriculture: Refocusing

Impact Assessments To 2050

* Agreement signed in FY11, but implemented through February 2014

34

Lending Knowledge Reimbursable Advisory Services

FY14 Rio de Janeiro DPL: Enhancing Public Manag for Service Delivery Locking in Performance Gains Rio State Strengthening Public Management and Integrated Territorial Development

Review of PPPs Practice in Brazil

Strengthening Service Delivery - Ceará PforR Leveling the Playing Field: Improving the Sustainable Protection and Promotion of Vulnerable Populations in Brazil

Acre: Strengthening Public Policies DPL Intergovernmental Finance BR-Espirito Santo Integrated Sustainable Development Fee-Based Services to the State of São Paulo in Support of Education Amazonas Fiscal Consolidation for Improved Service Delivery DPL Productive inclusion in BsM Rio Grande do Sul Strengthening Fiscal and Water Resources Management DPL

Improving the Managerial Skills of Social Interest Housing

Bahia Sustainable Rural Development Fee-based Analytical and Advisory Services to the Municipality of Rio Rio de Janeiro DPL: Enhancing Public Management for Service Delivery

TF Social Housing Information System SBDC

Public Broadcasting Network Airports Public Private Partnerships in Brazil Brazil Land Governance Assessment Brazil Productivity Pernambuco State Equity Assessment Logistics and Trade Facilitation in Brazil NLTA Economic and Fiscal Impact of Natural Disasters

FY15 Bahia DPL Systematic Country Diagnostic RAS EPL Logistical Support

(AF) MST PROACRE Loan Programmatic Approach on Productivity and Competitiveness RAS Sao Paulo Bus Concession

(AF) Pernambuco Education Results & Accountability WWP Learning Initiative (SoD Hub) RAS Arco Tiete

Piaui Sustainable Human Development and Social Inclusion DPL Brazil: Skills and Jobs RAS Ministry of Cities Capacity Development on Resettlement Policy

Piaui Sustainable Development, Social Inclusion and Human Development SWAp

Strengthening PPPs

Sergipe DPL II TA Pensions Brazil

Bahia Transport Chronic disease and the health system

Bahia Entrepreneurship and Economic Autonomy among Women and Afrodescendants

(MST) Metropolitan Governance

Salvador Infrastructure and Social TF Assessing the Performance and Sustainability of Pacto Pela Vida

Manaus Municipal Development Drought Preparedness and Climate Change Resilience

Recife Municipal DPL Urban Poverty and Vulnerability in Metropolitan Area

Fortaleza Municipal DPL Knowledge at the service of the Favelas

Pernambuco Primary Health Care Impact Evaluation

Recife Teacher Effectiveness Program Impact Evaluation

Involuntary Resettlement Policy TA*

Rio de Janeiro Low Carbon City Development Program*

Advisory Services for Integrated Urban Development in Rio*

HD Impact Evaluation*

35

Implications of a Changing China for Brazil: A New Window of Opportunity*

Rio State Fiscal Model*

* These tasks will close early in the FY

36

Annex 10: Detail of IBRD Program FY12 – FY15

FY12: IBRD Lending Program

Strategic Objectives

Increase Volume and Productivity of Public and

Private Investments

Improve access to Public Services by Low Income

Households

Promote Regional Economic Development

Improve Natural Resources Management and Climate Resilience

Results Areas

Project Name US$ Fiscal and

Public Sector Management

Private Sector Development

Policies

Access to Social

Protection, Health and Education

Access to Housing for Low Income Households

Regional Economic

Development Policies

Sanitation, Transport and

Energy Infrastructure

Water and Environmental Management

Sustainable Agriculture

Disaster Risk Management

Energy & Mineral Sector Strengthening

49.6 √

PE-Expanding Opportunities, Enhancing Equity DPL

500.0 √ √ √ √

Sergipe Water 70.3 √ √

Pernambuco - Rural Economic Inclusion

100.0 √ √ √

(AF)Upgrading Greening Rio Urban Rail

600.0 √ √ √

APL2 Sao Bernardo Integrtd Water management SP

20.8 √ √

MST Piaui Green Growth and Inclusion DPL

350.0 √ √ √

Rio Grande do Sul SWAp (SIL) 480.0 √ √ √ √

Ceara Rural Sustainability & Competitiveness

100.0 √ √ √ √

Bahia DPL 700.0 √ √ √

Recife Swap – Education & Public Management

130.0 √ √ √

Total 3,101

37

FY12: IBRD Knowledge Program

Strategic Objectives

Increase Volume and Productivity of Public and

Private Investments

Improve access to Public Services by Low Income

Households

Promote Regional Economic Development

Improve Natural Resources Management and Climate Resilience

Results Areas

Project Name Product

Line

Fiscal and Public Sector Management

Private Sector Development

Policies

Access to Social

Protection, Health and Education

Access to Housing for Low Income Households

Regional Economic

Development Policies

Sanitation, Transport and

Energy Infrastructure

Water and Environmental Management

Sustainable Agriculture

Disaster Risk Management

Education Evidence-Based Policy TA √

Monitoring and Evaluation TA √

Brazil: Productivity and Upgrading EW √

Social Protection during the Twin Crises of 2008

EW √

Country Study on Health Finance EW √

Early Childhood Development NLTA TA √

Brazil: Monetary Policy, Credit Cycles and Growth

EW √

Implications of Oil & Gas Discoveries EW √ √

38

FY13: IBRD Lending Program

Strategic Objectives

Increase Volume and Productivity of Public and

Private Investments

Improve access to Public Services by Low Income

Households

Promote Regional Economic Development

Improve Natural Resources Management and Climate Resilience

Results Areas

Project Name US$ Fiscal and

Public Sector Management

Private Sector Development

Policies

Access to Social

Protection, Health and Education

Access to Housing for Low Income Households

Regional Economic

Development Policies

Sanitation, Transport and

Energy Infrastructure

Water and Environmental Management

Sustainable Agriculture

Disaster Risk Management

MST Tocantins Integrated Sustainable Regional Development

300.0 √ √ √ √

3rd Minas Gerais Partnership DPL 450.0 √ √ √ √

Rio State DPL III 300.0 √ √

Parana Multi-sector Development 350.0 √ √ √

(AF) RJ Sustainable Rural Development

100.0 √

MST Belo Horizonte Urban DPL 200 √ √ √

MST Rio Grande do Norte Regional Development

360 √ √ √ √

Sergipe DPL 150 √ √ √

Rio de Janeiro Municipal Strengthening PSM

16.2 √ √

SP Change, DRM & Transport SWAP 300 √ √ √

Pernambuco Equity & Inclusion Growth DPL

550 √

Total 3,076

39

FY13: IBRD Knowledge Program

Strategic Objectives

Increase Volume and Productivity of Public and

Private Investments

Improve access to Public Services by Low Income

Households

Promote Regional Economic Development

Improve Natural Resources Management and Climate Resilience

Results Areas

Project Name Product

Line

Fiscal and Public Sector Management

Private Sector Development

Policies

Access to Social

Protection, Health and Education

Access to Housing for Low Income Households

Regional Economic

Development Policies

Sanitation, Transport and

Energy Infrastructure

Water and Environmental Management

Sustainable Agriculture

Disaster Risk Management

Evidence-based Policy in Education EW √

Brazil Eradicating Extreme Poverty EW √ √

BRAZIL Accounting & Auditing Report on the Observance of Standards and Codes (ROSC)

EW √

Amazon Deforestation and Protection EW √

Status of Urban Pollution Management in Brazil

EW √ √

Gender Study EW √

Gender and Social Inclusion NLTA TA √

JIT Efficiency of Public Spending TA √

Bringing the State Back to the Favelas of Rio de Janeiro

EW √ √

Adapting Water Resources Planning and Operation to Climate Change

EW √

Brazil Agricultural Productivity and Competitiveness

EW √

Technical Assistance & Guidance in Implementation of Minha Casa Minha Vida

TA √

Development of National Disaster Risk Management Strategy

TA √

Impacts Of Climate Change On Brazilian Agriculture: Refocusing Impact Assessments To 2050

EW √ √

40

FY14: IBRD Lending Program

Strategic Objectives

Increase Volume and Productivity of Public and

Private Investments

Improve access to Public Services by Low Income

Households

Promote Regional Economic Development

Improve Natural Resources Management and Climate Resilience

Results Areas

Project Name US$(M) Fiscal and

Public Sector Management

Private Sector Development

Policies

Access to Social

Protection, Health and Education

Access to Housing for Low Income Households

Regional Economic

Development Policies

Sanitation, Transport and

Energy Infrastructure

Water and Environmental Management

Sustainable Agriculture

Disaster Risk Management

Rio de Janeiro DPL: Enhancing Public Management for Service Delivery

500 √ √ √

Rio State Strengthening Public Management and Integrated Territorial Development

48 √ √ √

Strengthening Service Delivery Ceará PforR

350 √ √ √ √

Acre: Strengthening Public Policies DPL

250 √ √ √

Espirito Santo Integrated Sustainable Development

225 √ √ √

Amazonas Fiscal Consolidation for Improved Service Delivery DPL

216 √

Rio Grande do Sul Strengthening Fiscal and Water Resources Management DPL

280 √ √ √ √

Bahia Sustainable Rural Development 150 √ √ √ √ √

Total 2,019

41

FY14: IBRD Knowledge Program

Strategic Objectives

Increase Volume and Productivity of Public and

Private Investments

Improve access to Public Services by Low Income

Households

Promote Regional Economic Development

Improve Natural Resources Management and Climate Resilience

Results Areas

Project Name Product

Line

Fiscal and Public Sector Management

Private Sector Development

Policies

Access to Social

Protection, Health and Education

Access to Housing for Low Income Households

Regional Economic

Development Policies

Sanitation, Transport and

Energy Infrastructure

Water and Environmental Management

Sustainable Agriculture

Disaster Risk Management

Locking in Performance Gains EW

Review of PPPs Practice in Brazil EW √

Leveling the Playing Field: Improving the Sustainable Protection and Promotion of Vulnerable Populations in Brazil

TA

Intergovernmental Finance TA √

Fee-Based Services to the State of São Paulo in Support of Education

TA

Productive inclusion in BsM TA √

Improving the Managerial Skills of Social Interest Housing

TA √

Fee-based Analytical and Advisory Services to the Municipality of Rio

TA

TF Social Housing Information System SBDC

TA √

Public Broadcasting Network TA √

Airports Public Private Partnerships in Brazil

TA √

Brazil Land Governance Assessment EW

Brazil Productivity EW √

Pernambuco State Equity Assessment EW √ √

Logistics and Trade Facilitation in Brazil NLTA

TA √ √

Economic and Fiscal Impact of Natural Disasters

TA √

42

FY15: Proposed IBRD Lending Program

Strategic Objectives

Increase the Efficiency of Public and Private

Investments

Improve access to Public Services by Low Income

Households

Promote Regional Economic Development

Improve Natural Resources Management and Climate Resilience

Results Areas

Project Name US$(M) Fiscal and

Public Sector Management

Private Sector Development

Policies

Access to Social

Protection, Health and Education

Access to Housing for Low Income Households

Regional Economic

Development Policies

Sanitation, Transport and

Energy Infrastructure

Water and Environmental Management

Sustainable Agriculture

Disaster Risk Management

Bahia DPL 400 √ √ √

(AF) MST PROACRE Loan 150 √ √

Bahia Transport 200 √ √

Piaui Sustainable Human Development and Social Inclusion DPL

200 √ √ √

Piaui Sustainable Development, Social Inclusion and Human Development SWAp

120

(AF) Pernambuco Education Results & Accountability

175 √ √ √

Recife Municipal DPL 180 √ √

Salvador Social and Infrastructure 100 √ √ √

Manaus Municipal Development 100 √ √

Total 1,625

Under Consideration

Terasina AF 80 √ √

Sergipe DPL II 150 √

Paraiba Rural Development 50 √ √ √

Bahia Entrepreneurship and Economic Autonomy among Women and Afrodescendants

160 √ √

GDF PSM Project 100 √ √

Alagoas Poverty Reduction & Economic Inclusion

150 √ √ √

Fortaleza Municipal Development 100

Sao Paulo Metropolitan Development TBD

Minas Gerais Metropolitan Development

TBD

43

Parana Metropolitan Development TBD

FY15: IBRD Proposed Knowledge Program

Strategic Objectives

Increase Volume and Productivity of Public and

Private Investments

Improve access to Public Services by Low Income

Households

Promote Regional Economic Development

Improve Natural Resources Management and Climate Resilience

Results Areas

Project Name Product

Line

Fiscal and Public Sector Management

Private Sector Development

Policies

Access to Social

Protection, Health and Education

Access to Housing for Low Income Households

Regional Economic

Development Policies

Sanitation, Transport and

Energy Infrastructure

Water and Environmental Management

Sustainable Agriculture

Disaster Risk Management

Systematic Country Diagnostic EW √ √ √ √ √ √ √ √ √

Programmatic Approach on Productivity and Competitiveness

EW √

WWP Learning Initiative (SoD Hub)

Involuntary Resettlement Policy TA TA

Rio de Janeiro Low Carbon City Development Program

TA √

(MST) Metropolitan Governance EW √ √ √

Advisory Services for Integrated Urban Development in Rio

TA

HD Impact Evaluation TA √

Chronic disease and the health system EW √

TF Assessing the Performance and Sustainability of Pacto pela Vida

EW √

Implications of a Changing China for Brazil: A New Window of Opportunity

EW √

Rio State Fiscal Model TA √ √

TA Pensions Brazil TA √

Strengthening PPPs TA √

Brazil: Skills and Jobs EW √

Drought Preparedness and Climate Change Resilience

EW √

Urban Poverty and Vulnerability in Metropolitan Area

EW √

44

Knowledge at the service of the Favelas

IMPE √ √

Pernambuco Primary Health Care IE IMPE √

Recife Teacher Effectiveness Program IMPE √

45

FY12 - FY15: Reimbursable Advisory Services

Strategic Objectives

Increase Volume and Productivity of Public and

Private Investments

Improve access to Public Services by Low Income

Households

Promote Regional Economic Development

Improve Natural Resources Management and Climate Resilience

Results Areas

Project Name Product

Line

Fiscal and Public Sector Management

Private Sector Development

Policies

Access to Social

Protection, Health and Education

Access to Housing for Low Income Households

Regional Economic

Development Policies

Sanitation, Transport and

Energy Infrastructure

Water and Environmental Management

Sustainable Agriculture

Disaster Risk Management

FY12

Fee-based Analytical and Advisory Services to the Municipality of RJ*

TA √ √

RAS Nilo Coelho Irrigation Project TA √ √

FBS with Ministry of Environment TA √

Management model of the São Francisco River Basin

TA √ √ √

RAS São Paulo Metro PPP Support TA √ √

FY 13

Fee-Based Services to the State of São Paulo in Support of Education

TA √

Analytical and Advisory Services to the National Water Agency on Dam Safety

TA √ √

FY15

RAS EPL Logistical Support TA √

RAS Sao Paulo Bus Concessions TA √

RAS Arco Tiete TA √

RAS Ministry of Cities Capacity Development on Resettlement Policy

TA √ √

* Agreement signed in FY 11, but implemented through February 2014

46

Annex 11: Trust Fund Portfolio

Program Fund Name Closing Date Grant Amount USD

BRF BRAZILIAN RAIN FOREST (ADMINISTRATIVE) 12/31/9999 31,863,974                

CFASST Brazil ‐ Rio City‐wide Approach to Carbon Finance 6/30/2014 250,000                      

CITIES Cities Alliance: TA Involuntary Resettlement Policy 6/28/2014 175,000                      

Brazil ‐ Dedicated Grant Mechanism for Indigenous Peoples and Traditional Communities ‐ DGM MPIS Fees 11/30/2018 280,000                      

Brazil FIP: Preparation Grant for the Development of the Investment Plan 6/20/2014 250,000                      

Development of systems to prevent forest fires and monitor vegetation in cover in the Brazilian Cerrado MDB Fees 6/30/2019 220,000                      

Environmental Regularization of Rural Lands in the Cerrado of Brazil 9/30/2017 245,000                      

Preparation Grant for the Development of Systems to Prevent Forest Fires and Monitor Vegetation in Cover in the Brazilian Cerrado 2/20/2014 100,000                      

Preparation Grant for the Promotion of Low Carbon Agriculture in the Brazilian Cerrado 2/20/2014 100,000                      

Promotion of Low Carbon Agriculture in the Brazilian Cerrado  Brazil MDB Fees 6/30/2019 245,000                      

DEFRA TF ADMINISTRATION AND PROGRAM MANAGEMENT 8/31/2016 471,012                      

Rural Environmental Cadastre and Fire Prevention in Piaui State Project 6/30/2016 4,400,000                   

Technical Assistance to MMA and Other Agencies 8/30/2016 635,500                      

Amazon Region Protected Areas Project Phase 2 11/30/2015 15,890,000                

BRAZIL ‐ NATIONAL BIODIVERSITY MAINSTREAMING AND INSTITUTIONAL CONSOLIDATION PROJECT 12/31/2014 22,000,000                

BRAZIL Sustainable Transport and Air Quality Project 6/30/2015 8,532,000                   

GEF FSP ‐ BRAZIL: ESPIRITO SANTO BIODIVERSITY AND WATERSHED CONSERVATION AND RESTORATION PROJECT 12/31/2014 4,000,000                   

GOIÁS Sustainable Cerrado Project 12/31/2014 3,000,000                   

ICMBio Cerrado Biodiversity Protection Project 12/31/2014 3,000,000                   

MMA Cerrado Policy and Biome Monitoring Project ‐ Sustainable Cerrado Initiative 12/31/2014 4,000,000                   

Rio Grande do Sul Biodiversity Project 2/28/2015 5,000,000                   

Tocantins Sustainable Cerrado Project 12/31/2014 3,000,000                   

Expanding Women’s Agency through Productive Inclusion in Rural Areas at Northeast Brazil 12/31/2014 110,000                      

Urban Mass Transport: Gender Agency and Inclusion (Via Lilas Program) 12/30/2016 150,000                      

GFDRR Brazil DRM Specialist Support (GFDRR: Track II TA Core) 6/30/2014 349,542                      

Bottom up Costing for Medium Term Expenditure Frameworks (MTEF) in Brazil and Indonesia 10/31/2014 200,000                      

W2‐Strengthening Governance for State Economic Development in Northeast and North Brazil 10/31/2014 500,000                      

iRAP Survey in Brazil 6/30/2014 150,000                      

Road Safety Capacity Assessment in the State of Rio Grande do Sul 6/30/2014 85,000                         

HRBF Brazil‐ HRITF Impact Evaluation 6/30/2014 75,000                         

Brazil: Rio Grande do Norte Strategy for Institutional Strengthening of the Secretariat of Health 6/17/2016 700,000                      

IDF Grant for Strengthening TCU Financial Audit of the Consolidated Financial Statements of the Government of Brazil 3/31/2014 248,994                      

Strengthening the capacity of Procuradoria Especial da Mulher 9/10/2015 305,500                      

Leveling the Playing Field for Quilombola Communities in Northeastern Brazil 7/16/2014 877,614                      

Leveling the Playing Field for Quilombola Communities in Northeastern Brazil 7/30/2014 1,025,318                   

LEVELING THE PLAYING FIELD FOR QUILOMBOLA COMMUNITIES IN NORTHEASTERN BRAZIL (BANK‐EXECUTED) 7/30/2014 84,000                         

ROUND 29 ‐ BRAZIL SOLID WASTE PICKER SOCIAL INCLUSION INITIATIVE 1/28/2014 2,729,900                   

A Sustainable Vision for the Rio de Janeiro Metropolitan Region 6/30/2015 150,000                      

Rio de Janeiro Low Carbon City Development Program KGGTF 6/30/2016 250,000                      

NTF Cancer and the Right to Health in Brazil 11/30/2014 160,000                      

PHRD PHRD STAFF GRANT SUPPORT FOR SATOSHI OGITA 12/15/2015 391,350                      

PMR Brazil ‐ PMR Bank Executed Grant 5/30/2015 350,000                      

BRAZIL: Financing Options for Municipal Energy Efficiency Projects in the City of Rio de Janeiro 6/30/2014 69,685                         

BRAZIL: Institutional Strengthening and PPP Options for a Regional Solid Waste Management System 12/31/2014 75,000                         

Assessing Federal & State Programs for Rural Productive Inclusion in Northeast Brazil 4/30/2015 80,000                         

Brazil Expansion of the School Day Technical Assistance 4/30/2015 80,000                         

Brazil: Assessing the Performance and Sustainability of Pacto Pela Vida Citizen Security Plan in Pernambuco 12/31/2014 80,000                         

Impact Evaluation for the Tocantins Sustainable Regional Development Project 12/31/2014 46,000                         

Pernambuco Equity and Inclusive Growth DPL II 12/31/2014 30,000                         

Advisory Services for Integrated Urban Development in Rio de Janeiro 6/30/2014 250,000                      

Fostering Short Sea Shipping in Brazil 6/30/2014 300,000                      

Supervision of Fostering Short Sea Shipping in Brazil 8/30/2014 21,000                         

Water in Northeast Brazil: Enhancing the Productive Use of Water 12/31/2014 750,000                      

DRM ‐ Brazil Drought Preparedness and Climate Change Resilience 12/31/2015 350,000                      

DRM ‐ Staff Costs TF016771 ‐  DRM: Brazil Drought Preparedness and Climate Change Resilience activity 12/31/2015 38,888                         

LCR Support to the Platform of knowledge dissemination for PPP in irrigation sub‐sector 4/24/2015 143,600                      

LCR: Finalize the Documentation and Disseminate the Brazil Rural Water Supply Study 1/31/2015 50,000                         

Grand Total 118,913,877              

WPP

IDF

JSDF

KGGTF

PPIAF

PSIA

SFLAC

CSCFIA

DCTF

GEFIA

GENTF

GPF

GRSF

47

Annex 12: IFC Investment Operations Program

2011 2012 2013 2014*

Original Commitments (US$m) IFC and Participants 2109.88 1614.25 1697.38 1794.60 IFC's Own Accounts only 1139.49 1285.10 1397.38 1504.95

Original Commitments by Sector (%)- IFC Accounts only ACCOMMODATION & TOURISM SERVICES 1.74 AGRICULTURE AND FORESTRY 1.37 COLLECTIVE INVESTMENT VEHICLES 1.07 0.47 CONSTRUCTION AND REAL ESTATE 3.89 1.79 EDUCATION SERVICES 2.63 5.45 2.03 ELECTRIC POWER 7.53 18.01 FINANCE & INSURANCE 81.01 71.22 83.4 52.68 FOOD & BEVERAGES 3.89 6.85 HEALTH CARE 2.66 1.53 3.58 INDUSTRIAL & CONSUMER PRODUCTS 1.76 0.63 INFORMATION 8.23 OIL, GAS AND MINING 5.84 0.25 PROFESSIONAL, SCIENTIFIC AND TECHNICAL SERVICES 0.42 6.64 PULP & PAPER 3.61 TRANSPORTATION AND WAREHOUSING 8.51 2.33 1.23 UTILITIES 3.01 3.86 0.89 0.47

Total 100 100.01 100 100

Original Commitments by Investment Instrument (%) - IFC Accounts only Equity 8.58 6.56 36.79 13.58 Guarantee 66.27 63.7 51.12 44.06 Loan 23.4 25.86 11.38 34.6 Quasi loan 1.76 3.89 0.72 7.76 Total 100.01 100.01 100.01 100

* Data as of July 01,2014

48

Annex 13: IFC Committed and Disbursed Outstanding Portfolio

As Of 6/30/2014 (In USD Millions)

Committed Disbursed Outstanding

FY Approval Company Loan Equity

**Quasi Equity *GT/RM

Partici pant Loan Equity

**Quasi Equity *GT/RM

Partici pant

2014 Abc brasil 20 0 0 0 60 20 0 0 0 60 2012/14 Aegea 45.59 19.77 0 0 0 45.59 19.6 0 0 0 2013 Alliar 41.17 0 10 0 0 21.17 0 10 0 0 2010 Anhanguera 19.54 0 0 0 0 19.54 0 0 0 0 2014 Anima 0 8.07 0 0 0 0 8.07 0 0 0 2008 Armco 15 0 0 0 0 15 0 0 0 0 2014 Asa part 13.68 0 7.2 0 0 13.68 0 7.2 0 0 2010/13 Banco daycoval 50.75 56.88 0 0 226.43 50.75 56.88 0 0 226.43 2012/14 Bansicredi 0 14.61 45.3 0 0 0 14.61 45.3 0 0 2007/09 Bauducco 11.25 0 16.66 0 0 11.25 0 16.66 0 0 2006 Bbm 11.67 0 0 0 0 0 0 0 0 0 2013 Bhg 0 16.49 0 0 0 0 16.49 0 0 0 2013 Bi brasil 15 0 0 0 0 15 0 0 0 0 2010/11 Bic banco 25.62 0 0 22.79 0 25.62 0 0 22.79 0 2008 Black gold 36.52 0 0 0 0 36.52 0 0 0 0 2011 Brasilfactors 0 5 0 0 0 0 2 0 0 0 2011/14 Btp santos 138.95 0 0 0 507.8 138.95 0 0 0 507.8 2014 Caixa geral br 30.54 0 0 0 0 0 0 0 0 0 2012 Canopus holding 0 23.09 0 0 0 0 23.09 0 0 0 2008 Cemar equatorial 18.94 0 0 0 0 18.94 0 0 0 0 2004 Cgtf 21.34 0 7 0 13.32 21.34 0 7 0 13.32 1996 Chapeco 0 0 0 0 0 0 0 0 0 0 1999/12 Cibrasec 0 2.03 0 0 0 0 2.03 0 0 0 2010 Constellation 0 103 0 0 0 0 102.36 0 0 0 2013 Cpfl renovaveis 0 67.38 0 0 0 0 67.38 0 0 0 2014 Crusader res 0 3.76 0 0 0 0 3.08 0 0 0 2013 Cventures 0 6.84 0 0 0 0 0 0 0 0 2010 Darp sfp 0 5 0 0 0 0 5 0 0 0 0 Darp spv renova 0 0 40.28 0 0 0 0 39.89 0 0 0 Darp spv sfpfidc 0 36.75 0 0 0 0 36.75 0 0 0

49

2007 Eiffel ridge 22.98 0 0 0 0 22.98 0 0 0 0 2014 Enel brasil 200 0 0 0 0 0 0 0 0 0 2013 Equatorial 0 95.64 0 0 0 0 81.97 0 0 0 2011/12 Estacio 28.43 0 0 0 0 28.43 0 0 0 0 2009 Estre ambiental 4.97 0 1.18 0 0 4.97 0 1.18 0 0 2006 Febr 2.57 0 0 0 0 2.57 0 0 0 0 2007/11 Fibra 35.78 18.13 0 0 0 35.78 18.13 0 0 0 2013 First 0 15 0 0 0 0 0 0 0 0 0 Fras-le 4.67 0 0 0 0 4.67 0 0 0 0 2001 Gpc part. 0 0 8.63 0 0 0 0 8.63 0 0 1998 Icatu equity 0 1.2 0 0 0 0 0 0 0 0 2010 Idealinvest 0 6.19 0 0 0 0 6.19 0 0 0 2013 Indusval s.a. 10 0 0 0 5 10 0 0 0 5 2013/14 Internexa part 0 21.33 0 0 0 0 21.28 0 0 0 12/13/2008 Itau unibanco 180.09 0 0 0 470 180.09 0 0 0 470 1999 Josapar 0.27 0 0.73 0 0 0.27 0 0.73 0 0 2014 Klabin 0 0 34.51 0 0 0 0 34.51 0 0 11/12/2009 Latapack 34.58 0 0 0 91.55 34.58 0 0 0 91.55 2014 Mauricio 0 15.57 0 0 0 0 14.73 0 0 0 2012 Mbac 40 6.22 0 0 0 40 4.07 0 0 0 2002 Microinvest 0 0.14 0 0 0 0 0.14 0 0 0 2013 Minerva s/a 62.78 23.69 0 0 0 62.78 19.25 0 0 0 2006 Mrs 15.63 0 0 0 0 15.63 0 0 0 0 2013 Neogas 0 0 10 0 0 0 0 10 0 0 2014 On telecom 70 25 0 0 0 0 0 0 0 0 2007 Randon impl part 0 0 15.91 0 0 0 0 15.91 0 0 2011 Rede dor 35.29 0 0 0 0 35.29 0 0 0 0 2008 Sabo 25.67 0 0 0 0 25.67 0 0 0 0 2008 Santander brasil 31.87 0 0 0 0 31.87 0 0 0 0 2014 Seaborn 0 4 0 0 0 0 4 0 0 0 2008 Sofisa 4.77 0 0 0 0 4.77 0 0 0 0 2010 Softwell 0 4.8 0 0 0 0 2.8 0 0 0 2013 Sul america s.a. 0 156.64 0 0 0 0 156.64 0 0 0 2008/12 Tecon salvador 28.03 0 0 0 44.25 28.03 0 0 0 44.25 2011 Terra brasis 0 6.36 0 0 0 0 6.36 0 0 0 11/12/2010 Tribanco 12.55 15.35 0 0 3 12.55 15.35 0 0 3 2010 Ubf seguros 0 11.56 0 0 0 0 11.56 0 0 0 2008 Usj 0 0 32.22 0 0 0 0 12.22 0 0

50

2007 Vale do parana 9.5 0 7 0 0 9.5 0 7 0 0 2012 Vonpar 46.38 0 0 0 0 46.38 0 0 0 0

Total Portfolio: 1422.37 795.49 236.62 22.79 1421.35 1090.16 719.81 216.23 22.79 1421.35 * Denotes Guarantee and Risk Management Products. ** Quasi Equity includes both loan and equity types

51

Brazil at a glance 6/26/14

Latin UpperKey D evelo pment Indicato rs America middle

Brazil & Carib. income(2012)

Population, mid-year (millions) 196.9 570 2,419Surface area (thousand sq. km) 8,515 20,394 59,328Population growth (%) 0.8 1.2 0.7Urban population (% of to tal population) 85 79 56

GNI (Atlas method, US$ billions) 2,107.7 3,890 11,804GNI per capita (Atlas method, US$) 10,720 6,831 4,880GNI per capita (PPP, international $) 11,000 10,442 9,014

GDP growth (%) 1.0 4.3 6.0GDP per capita growth (%) 0.1 3.1 5.3

(mo st recent est imate, 2005–2011)

Poverty headcount ratio at $1.25 a day (PPP, %) 6 6 ..Poverty headcount ratio at $2.00 a day (PPP, %) 11 12 ..Life expectancy at birth (years) 74 74 72Infant mortality (per 1,000 live births) 15 20 18Child malnutrition (% of children under 5) 2 .. ..

Adult literacy, male (% of ages 15 and o lder) 90 90 94Adult literacy, female (% of ages 15 and o lder) 90 89 88Gross primary enro llment, male (% of age group) 141 118 111Gross primary enro llment, female (% of age group) 132 114 111

Access to an improved water source (% of population) 85 93 90Access to improved sanitation facilities (% of population) 57 77 67

N et A id F lo ws 1980 1990 2000 2013 a

(US$ millions)Net ODA and official aid 85 151 231 460Top 3 donors (in 2010): n.a. 48 31 49 127 n.a. 0 1 2 6 n.a. 9 19 24 41

Aid (% of GNI) 0.0 0.0 0.0 0.0Aid per capita (US$) 1 1 1 2

Lo ng-T erm Eco no mic T rends

Consumer prices (annual % change) 95.6 1621.0 6.0 5.9GDP implicit deflator (annual % change) 87.3 2,735.5 6.2 7.6

Exchange rate (annual average, local per US$) 93.3 68.1 1.8 2.2Terms of trade index (2000 = 100) 147 164 100 124

1980–90 1990–2000 2000–13

Population, mid-year (millions) 121.7 149.7 174.4 196.9 2.1 1.5 1.1GDP (US$ millions) 235,025 461,952 644,702 2,248,212 2.7 2.7 3.4

Agriculture 11.0 8.1 5.6 5.7 2.8 3.6 3.7Industry 43.8 38.7 27.7 25.0 2.0 2.4 2.6 M anufacturing 33.5 25.3 17.2 13.1 .. 2.0 2.3Services 45.2 53.2 66.7 69.3 3.3 4.4 3.4

Household final consumption expenditure 69.7 59.3 64.3 62.6 0.7 3.7 3.7General gov't final consumption expenditure 9.2 19.3 19.2 22.0 7.3 1.0 2.9Gross capital formation 23.3 20.2 18.2 17.9 3.3 4.2 4.7

Exports o f goods and services 9.1 8.2 10.0 12.6 7.5 5.9 6.2Imports o f goods and services 11.3 7.0 11.7 15.0 0.5 11.6 8.6Gross savings .. .. .. ..

Note: Figures in italics are for years other than those specified. Indicates data are not available.a. A id data are for 2010.

(average annual growth %)

(% of GDP)

6 4 2 0 2 4 6

0-4

15-19

30-34

45-49

60-64

75-79

percent of total population

Age distribution, 2010

Male (..) Female (..)

0

10

20

30

40

50

60

70

1990 1995 2000 2010

Brazil

Under-5 mortality rate (per 1,000)

-8

-6

-4

-2

02

4

6

810

90 95 00 05 10

GDP GDP per capita

Growth of GDP and GDP per capita (%)

52

B alance o f P ayments and T rade 2000 2013

(US$ millions)

Total merchandise exports (fob) 55,086 242,179 Total merchandise imports (cif) 55,783 239,626 Net trade in goods and services -7,860 -44,216

Current account balance -24,225 -81,075 as a % of GDP -3.8 -3.6

Workers' remittances and compensation of employees (receipts) 1,649 4,234

Reserves, including gold 33,011 358,808

C entral Go vernment F inance

(% of GDP)Current revenue (including grants) 19.9 24.4

Tax revenue 18.1 21.4Current expenditure 14.7 18.9

T echno lo gy and Infrastructure 2000 2010Overall surplus/deficit .. -2.3

Paved roads (% of to tal) 5.5 ..Highest marginal tax rate (%) Fixed line and mobile phone Individual 28 28 subscribers (per 100 people) 31 100

Corporate 37 34 High technology exports (% of manufactured exports) 18.7 11.6

External D ebt and R eso urce F lo ws

Enviro nment(US$ millions)Total debt outstanding and disbursed 242,512 308,625 Agricultural land (% of land area) 31 31Total debt service 58,587 47,884 Forest area (% of land area) 64.5 62.7Debt relief (HIPC, M DRI) – – Terrestrial protected areas (% of land area) 16.9 26.3

Total debt (% of GDP) 37.6 13.8 Freshwater resources per capita (cu. meters) 30,219 28,546Total debt service (% of exports) 81.1 30.9 Freshwater withdrawal (billion cubic meters) .. ..

Foreign direct investment (net inflows) .. .. CO2 emissions per capita (mt) 1.9 2.1Portfo lio equity (net inflows) .. ..

GDP per unit o f energy use (2005 PPP $ per kg of o il equivalent) 7.3 7.4

Energy use per capita (kg of o il equivalent) 1,084 1,298

P rivate Secto r D evelo pment 2000 2013

Time required to start a business (days) – 108Cost to start a business (% of GNI per capita) – 4.6Time required to register property (days) – 30

Ranked as biggest constraint to business 2000 2009 (% of managers surveyed who agreed)Tax rates .. 32.8Tax administration .. 13.2

Stock market capitalization (% of GDP) 35.1 49.9Bank capital to asset ratio (%) 12.1 10.1

Note: Figures in italics are for years other than those specified. 6/26/14.. indicates data are not available. – indicates observation is not applicable.

0 25 50 75 100

Control of corruption

Rule of law

Regulatory quality

Polit ical stability

Voice and accountability

Country's percentile rank (0-100)higher values imply better ratings

2010

2000

Governance indicators, 2000 and 2010

Source: Kaufmann-Kraay-Mastruzzi, World Bank

IBRD, 13,523IDA, 0IMF, 4,446 Other multi-

lateral, 16,401Bilateral, 11,537

Private, 241,037

Short-term, 65,496

Composition of total external debt, 2010

US$ millions