GOVERNANCE E Q U I TA B L E G R O W T H , F I N A N C E & I N S T I T U T I O N S N OT E S The World Bank’s Support for Subnational Governance in Large Federal Countries: Lessons Learned from Argentina, Brazil and Nigeria Petar Georgiev Stoykov and Serdar Yilmaz © 2022 International Bank for Reconstruction and Development / The World Bank 1818 H Street NW, Washington DC 20433 Telephone: 202-473-1000; Internet: www.worldbank.org This work is a product of the staff of The World Bank with external contributions. The findings, interpretations, and conclusions expressed in this work do not necessarily reflect the views of The World Bank, its Board of Executive Directors, or the governments they represent. 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Because The World Bank encourages dissemination of its knowledge, this work may be reproduced, in whole or in part, for noncommercial purposes as long as full attribution to this work is given. Any queries on rights and licenses, including subsidiary rights, should be addressed to World Bank Publications, The World Bank Group, 1818 H Street NW, Washington, DC 20433, USA; fax: 202-522-2625; e-mail: pubrights@worldbank.org. >>> Overview This note presents lessons learned from the World Bank’s subnational governance projects in three large federal countries - Argentina, Brazil and Nigeria - between 2008-2017 (see Table 1 for project summary and Table 2 for full project details). The note synthesizes the main evaluation findings from the World Bank’s Implementation Completion and Results (ICR) reports and ICR reviews of these projects. > > > T A B L E 1 - Projects Summary AR La Rioja Public Sect Minas Gerais State Employment and PROJECT NAME Streng Prog-APL1 Partnership II Swap Expenditures for Results (P121836) (P101324) Project (P121455) COUNTRY Argentina Brazil Nigeria LEAD GLOBAL Governance Governance Governance PRACTICE INSTRUMENT Adaptable Program Loan Specific Investment Loan Specific Investment Loan ACTUAL COST (US$M): 27.277 (US$M): 1,434.88 (US$M): 174.509 BOARD APPROVAL 02/22/2011 05/01/2008 03/06/2012 CLOSING DATE 12/31/2017 10/31/2014 09/30/2020 ICR OUTCOME Satisfactory Satisfactory Satisfactory RATING IEG OUTCOME Satisfactory Moderately satisfactory Satisfactory RATING Limited local tax revenue and low public sector efficiency are In turn, visible improvements in service delivery are expected two critical problems of public sector management and key to sustain these reform efforts. The political economy of constraints for the economic and social development of many public sector reform indicates that cross-cutting public subnational governments in large federal countries. Additional sector reforms are most sustainable if combined with visible provincial tax revenue is essential to provide resources for improvements in service delivery; such improvements will a more inclusive development agenda focused on rural generate the necessary political capital to make difficult cross- development. To create fiscal space without compromising cutting reforms possible. Improvements in service delivery are macroeconomic stability and fiscal sustainability, there is a significantly more tangible to citizens than horizontal public need for reforms that lead to better use of public resources and sector reforms. This is, in particular, the case if improvements improved expenditure efficiency through reforms in budgeting, in service delivery are clearly prioritized based on maximizing procurement, and tax administration. improvements in citizens’ welfare and are effectively communicated to the general public. Equitable Growth, Finance & Institutions Notes | The World Bank’s Support for Subnational Governance in Large Federal Countries <<< 1 Promoting good governance at the subnational level was When it comes to differences, firstly, although Argentina, fully consistent with the objectives of the Bank’s Country Brazil and Nigeria are all large, federal countries, they vary Partnership Strategy (CPS) in all three countries at the time in size, per capital income and development level and have of these projects. The projects helped achieve specific CPS specific development challenges, both nationally and in the outcomes: (i) to strengthen the effectiveness, efficiency, subnational areas where the projects were implemented. transparency and accountability of public sector management, Secondly, although all three projects supported strengthening and (ii) to expand performance management and to improve local service delivery, they focused on different sectors of the quality of public expenditure, enhance service delivery and service delivery, such as – water, agriculture, education, trust in institutions. health, and social services. In terms of design elements, the three projects exhibit several The lessons learned from these projects can be useful in important similarities and differences. In terms of similarities, shaping the design of future subnational governance projects all three projects were led by the Governance GP and were in other federal countries, particularly those projects seeking implemented in large federal countries. They all aimed to to improve service delivery, public expenditure systems and improve service delivery at the local level through public core governance institutions. This note summarizes the most financial management reforms, especially targeting revenue valuable and transferable lessons learned from these three collection improvements. They were all structured in the form projects. The lessons are thematically grouped and apply to of an investment lending project, complemented by a technical more than one project. The second part of the note contains a assistance element. table outlining the PDOs and main components of each project in detail, followed by a document references section (Table 3). Equitable Growth, Finance & Institutions Notes | The World Bank’s Support for Subnational Governance in Large Federal Countries <<< 2 >>> General Recommendations and 13 Lessons Learned: • There is substantial value in direct World Bank support local leadership was provided in the state of Edo which at the subnational level. To illustrate, institutional was the best performer in terms of PFM results. By strengthening was valuable for one of Argentina’s strengthening PFM systems, the project helped lay the provinces with the highest share of poor households, foundations for states to participate in the next generation and the benefits of the Bank’s direct engagement was Program-for-Results operations which are at the core of recognized by high-level provincial authorities and public the new Nigeria CPF to shift the Bank’s focus towards officials. This is usually not the case when the support to broader intergovernmental reform issues with impact at SNGs happens through an engagement with the national national scale. government, where provinces and municipalities are sometimes “pilots” and get to interact with Bank staff • Large multi-sector results-based operations with much less often during the lifetime of the project. disbursement-linked indicators can offer strong incentives for reform, ensuring that a wider array • Subnational public management strengthening is of policy changes can be implemented smoothly a prerequisite for improvements in service delivery and expeditiously. Sector-specific operations cannot in any single sector. In the case of Argentina, reforms sufficiently address issues that require cooperation of in cross-cutting public administration platforms and different line ministries, some of which may not have any processes were important foundations for strengthening financial stake in the successful implementation of the rural water management. Other sectors (health, education, reforms supported by the project. In the case of SEEFOR, etc.) also benefited from improvements in cross-cutting collaboration and joint work across sectors (governance, public management system. urban development, social development, education and agriculture) both on the Bank and the client’s side had • Political commitment is key in a project that aims significant pay-off and was more impactful than single at improvements in public resource management sector interventions. This holds particularly true for systems and practices. However, sustaining support problems that are multi-pronged and cut across sectors. from top management at key ministries is as crucial, particularly for institutional reform projects where the • The implementation of subnational governance timeframe of implementation is usually very long. Political projects is resource intensive. The complexity of the commitment can in fact vary with changes in government, SEEFOR project required significant financial and human but support from technical leadership ensures deeper resources to provide implementation support. In order rooting of reforms, and makes policy reversals more to provide a sufficient level of technical assistance for difficult. Correspondingly, sustained support of the the implementation of subnational projects which cover top management of the bureaucratic apparatus is just several subnational governments, we need to think about as important. a new modality, such as shifting more responsibilities to clients in the implementation of projects. • Without local leadership, decentralization projects cannot succeed. The interventions under the State • Impact evaluation is key for lessons learned. Impact Employment and Expenditure for Results (SEEFOR) evaluation in multi-sector results-based operations project have the potential to be scaled up across Nigeria, is particularly challenging but should not be replaced even though their impact was variable within the four by partial evaluation carried out immediately after the SEEFOR states. The main explanation for this variability operation closes. The design of technical assistance was the leadership provided by the respective governor components should also provide support for impact of the state as well as heads of department. Strong evaluation. Subnational projects also allow for randomized Equitable Growth, Finance & Institutions Notes | The World Bank’s Support for Subnational Governance in Large Federal Countries <<< 3 control trial impact evaluations comparing subnational to predict. This was exemplified in the Nigeria project government performance with, and without the project which successfully implemented Oracle and SAP-based interventions. IFMIS solutions in four states. However, even though the IFMIS interventions were successful, in the initial stages • The Bank’s know-how can be as important as its not all functionalities of the system were being used. For ability to mobilize significant financial resources. The example, the Procure to Pay modules were not operational Government of Minas Gerais made clear that one of the and much of the workflow processes were outside of key factors for choosing the Bank as the project’s financier the system. Complex IFMIS systems sometimes have was its ability to provide valuable inputs to the design of the a limited shelf life as they get overtaken by upgraded program, and to advise during program implementation. versions. Therefore, if the existing system functionalities are not fully utilized, the investment is also suboptimal • It is important to ensure that risk mitigation measures or inefficient. There is an added pressure to move to the do not create other risks. In the case of the Public Sector subsequent version to align and harmonize with other Strengthening Program in Argentina, the risk mitigation systems at the subnational and national level, thus leading measure of bundling technical assistance activities to additional costs. Additionally, global experience has into a single, large contract was appropriate to mitigate shown that such complex systems need highly competent the impact of limited implementation capacity. But the manpower and good infrastructure. Going forward, there shortage of entities interested in the bundled assignment is a need to look at alternative low-cost systems with a and eligible to bid caused delays in procurement. A more high level of functionality that have become available in thorough market study during project preparation would recent years. Several SEEFOR states are experimenting have foreseen this development. with them at the local government level and depending upon the experience, these could be scaled up. For • Keeping an eye on macroeconomic developments example, Edo state has a low-cost enterprise resource can help anticipate threats to development outcomes planning (ERP) solution in human resource management and build-in sustainability measures prior to project area—Odoo—which has been working well at the local closing. In the case of Argentina, fiscal tightening government level for years and Edo plans to improve its threatened budget predictability and the linkage functionality and coverage. between budgeting and planning. The deterioration in macroeconomic situation reduced the share of primary • Using youth employment in public works projects expenditures in budgets due to cuts in public spending, as a tool to reduce the likelihood of conflict in fragile which ultimately affected budget predictability particularly environments such as the Niger Delta is an appropriate for the delivery of critical public services. In addition, the strategy. The largest component of the Nigeria project provincial governments were slow in articulation of a vision provided the youth with employment opportunities which for development and making the connection between demonstrated that it is a sustainable option to engage the planning and budgeting. youth and minimize opportunities for conflict. To achieve this social objective, the projected remained flexible • Digital technology can be effective for improving regarding prioritizing labor costs. For example, for public M&E. In Nigeria, through the creation of a Geographic works projects, the initial ratio between labor and materials Information System-based digital database, the project was 70:30. This was revised to 60:40 first; and then to facilitated third party monitoring of results, and citizen’s 50:50 based on the request from the participating states. It feedback through a call center. All this was complemented is important to address the broader challenge of providing through a well-designed communication program that remunerative, safe, and dignified work for all working used social media, video, print media and radio to reach age groups. Additionally, youth employment components out to local communities and beneficiaries. This approach enhanced the Bank’s visibility and garnered significant was more suitable in the conflict prone region of the Niger political support. In conflict-prone areas such as the Niger Delta where communities needed to be informed and own Delta, activities related to employment are embedded in the different aspects of the project as beneficiaries. local political economy and conflict dynamics. • Complex Integrated Financial Management In conclusion, as the practice of decentralization is taking root Information Systems (IFMIS) can be effective for all over the world, the number of projects addressing different improving PFM, however their exact cost can be hard aspects of decentralization and strengthening subnational Equitable Growth, Finance & Institutions Notes | The World Bank’s Support for Subnational Governance in Large Federal Countries <<< 4 governments’ capacity is increasing in the World Bank’s infrastructure as well as the benefits of digital technology for portfolio. By analyzing these three projects, key transferable M&E, among others. These lessons are all relevant to the lessons were synthesized that can be widely applied across wider Bank teams. Employing the recommendations outlined Bank operations, particularly in federal states. In short, these in this note will enhance the Bank’s operational effectiveness lessons include: the importance of political will, local leadership, and will allow the institution to deliver better solutions for impact evaluations, competent human resource and good its clients. > > > T A B L E 2 - Detailed Information on the Selected Decentralization Projects AR La Rioja Public Sect Minas Gerais State Employment and PROJECT NAME Streng Prog-APL1 Partnership II Swap Expenditures for Results (P121836) (P101324) Project (P121455) LEAD GP Governance Governance Governance INSTRUMENT Adaptable Program Loan Specific Investment Loan Specific Investment Loan ORIGINAL (US$M): 30 (US$M): 1,435.56 (US$M): 200 COMMITMENT ACTUAL COST (US$M): 27.277 (US$M): 1,434.88 (US$M): 174.509 BOARD APPROVAL 02/22/2011 05/01/2008 03/06/2012 CLOSING DATE 12/31/2017 10/31/2014 09/30/2020 PROJECT To increase tax collection To (i) help the Borrower To enhance opportunities DEVELOPMENT and improve expenditure improve the efficiency and for employment and access OBJECTIVE quality and pilot effectiveness of public to socio-economic services improvements in public resource use and allocation while improving the public service delivery in the area for economic and social expenditure management of rural water management. development; (ii) support systems in the participating The PDO can be unpacked the adoption of innovations states. into three objectives to be in public management measured through five key by the Borrower; and (iii) PDO indicators. support the Borrower in strengthening its results- based management system of monitoring and evaluation of results. PROJECT The Project consists of two This Sector-Wide Approach The project has three COMPONENTS complementary components: (SWAp) operation included components: Component the Implementation of two components covering A will support three main the Eligible Expenditure Public Sector, Private Sector activities: (1) Carrying out Programs Component Develop-ment, Health, of small public works and and the Technical Education, and Transport. institutional strengthening to Equitable Growth, Finance & Institutions Notes | The World Bank’s Support for Subnational Governance in Large Federal Countries <<< 5 Table 2 continued AR La Rioja Public Sect Minas Gerais State Employment and PROJECT NAME Streng Prog-APL1 Partnership II Swap Expenditures for Results (P121836) (P101324) Project (P121455) Assistance Component. The The first component generate youth employment Implementation of the Eligible (SWAp), of US$957.5 in urban areas; (2) Carrying Expenditure Programs million, disbursed to the out technical, vocational, Component (US$24 million) State Treasury against and agricultural training will disburse against Eligible expenditures incurred by providing grants to TVT Expenditure Programs under Eligible Expenditure and agricultural training (EEPs) in three areas: Tax Programs (EEPs). EEPs institutions and (b) State Administration Improvement; are Govern-ment programs ministries responsible for Quality of Expenditure; and included as spe-cific lines in education and agriculture; Service Delivery in Rural the Government Pluri-Annual and (3) Carrying out Water Management. This Plan (PPAG) and in the of eligible Community component follows the SWAp annual budget law.5 Dis- Development subprojects by modality, and disbursements bursement, which occurred at providing grants to (a) FCAs are linked to the achievement three to six month intervals, and (b) CSDAs. Component of agreed disbursement- was also dependent on B will support reforms by the linked indicators (DLI) and the achievement of 24 participating states of their the execution of at least 70 Disburse-ment-Linked public finance management percent of the budgeted Indicators (DLIs) measuring systems, processes and EEPs expenditures. The TA the progress of the EEPs. institutions. Component C Component (US$5.25 million) A Technical Assistance is Project Implementation supports the achievement component in the amount of Support and Coordination, of the Government reform US$18.5 million supported including providing logistical programs in the same three the implementation of EEPs and technical support to areas; it further assists and the achievement of the NPCU and SPCUs, and Project coordination and DLIs. The TA component support the federal ministry management. disbursed as a tradi-tional responsible for Niger Delta investment lending operation Affairs. against statements of expenditures (SOEs). > > > T A B L E 3 - Project Documents References 1. AR La Rioja Public Sect Streng Prog-APL1 (P121836) 2. Minas Gerais Partnership II Swap (P101324) Project Appraisal Document (PAD) Project Appraisal Document (PAD) Implementation Completion and Results Report (ICR) Implementation Completion and Results Report (ICR) Implementation Completion Report Review (ICRR) Implementation Completion Report Review (ICRR) 3. State Employment and Expenditures for Results Project (P121455) Project Appraisal Document (PAD) Implementation Completion and Results Report (ICR) Implementation Completion Report Review (ICRR) Equitable Growth, Finance & Institutions Notes | The World Bank’s Support for Subnational Governance in Large Federal Countries <<< 6