Document of The World Bank FOR OFFICIAL USE ONLY Report No. 120362-SV INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT INTERNATIONAL FINANCE CORPORATION AND MULTILATERAL INVESTMENT GUARANTEE AGENCY PERFORMANCE AND LEARNING REVIEW OF THE COUNTRY PARTNERSHIP FRAMEWORK FOR THE REPUBLIC OF EL SALVADOR FOR THE PERIOD FY2016-2019 November 10, 2017 Central American Country Management Unit The International Finance Corporation Multilateral Investment Guarantee Agency Latin America and the Caribbean Region 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 Group authorization. The date of the last Country Partnership Framework was June 23, 2015 (Report No. 95185-SV) FISCAL YEAR January 1 – December 31 CURRENCY EQUIVALENTS The U.S. Dollar is the current currency in El Salvador ABBREVIATIONS AND ACRONYMS CIP Certificates of Pension Investments CPF Country Partnership Framework GDP Gross Domestic Product IFTS Inclusive Full Time School IFC International Finance Corporation FCPF Forest Carbon Partnership Facility LETE Short-term Treasury Letters MIGA Multilateral Investment Guarantee Agency PLR Performance and Learning Review PPP Purchasing Power Parity SAFIM Integrated Municipal Financial Administration System REDD+ Reduce Carbon Emissions from Deforestation and Forest Degradation SEIR Social Sector Expenditure and Institutional Review SMEs Small, and Medium Enterprises SCD Systematic Country Diagnostic PATI Income Support and Employability Project WB World Bank WBG World Bank Group IBRD IFC MIGA Vice President: Jorge Familiar Stephanie von Friedeburg Keiko Honda Director: Seynabou Sakho Irene Arias Merli Margaret Baroudi Task Team Leader: Fabrizio Zarcone/ Eduardo Wallentin Bexi Francina Jimenez Jovana Stojanovic Mota ii TABLE OF CONTENTS I. INTRODUCTION ......................................................................................................................................... 1 II. COUNTRY CONTEXT AND RECENT CHANGES ............................................................................... 2 Recent Economic Developments ........................................................................................................................ 2 Poverty and Shared Prosperity .......................................................................................................................... 4 III. SUMMARY OF PROGRAM IMPLEMENTATION .............................................................................. 7 Pillar 1: Building Reinforcing Foundations to Promote Inclusive Growth ...................................................... 7 Pillar 2: Fostering Sustainability and Resilience ............................................................................................ 10 IV. EMERGING LESSONS ........................................................................................................................... 14 V. ADJUSTMENTS TO THE CPS AND FUTURE WBG ENGAGEMENT ........................................... 16 VI. RISKS TO THE CPS PROGRAM .......................................................................................................... 18 Boxes Box 1: Weak Government Effectiveness Box 2: Role of Remittances in El Salvador Box 3: The Role of the World Bank in addressing the Fiscal Situation Annexes Annex 1: Updated CPF Results Framework Annex 2: Matrix of Changes to Original CPF Annex 3: Definitions - Monitoring and Evaluation of the Updated CPF Results Framework Annex 4: Active IBRD Portfolio Annex 5: IFC Statement of Committed & Outstanding Portfolio Annex 6: MIGA Active Portfolio Annex 7: Advisory and Analytical Services Annex 8: Closed IBRD Projects FY16-18 Annex 9: Active Trust Funds iii I. INTRODUCTION 1. This Performance and Learning Review (PLR) summarizes progress in the implementation of and updates the World Bank Group (WBG) Country Partnership Framework (CPF) for the Republic of El Salvador for the period FY16-FY19 (Report No. 95185)1. The CPF was designed to promote inclusive growth and to foster resilience, with a focus on policy levers that could contribute to helping the country address its deep-rooted developmental challenges in a sustainable manner. To strengthen the mutually-reinforcing foundations of inclusive growth, the CPF sought to: (i) build capacity to create safer communities for economic development; (ii) improve secondary-school attainment; (iii) enhance youth employability and skills; and (iv) increase access to finance. To foster sustainability and resilience, the CPF sought to: (v) promote the efficiency of public spending; and (vi) build capacity to manage disasters and environmental challenges. 2. The CPF was prepared to support the Government’s ambitious development agenda. The new Government, which came to power in June 2014, was committed to tackling long-term reforms, in particular related to boosting growth, improving security and education, and increasing, as well as improving, the targeting of social spending. In this context, the CPF was designed to support the Government’s pledge to making El Salvador more “productive, educated, and safe” and was aligned with the Government’s Five Year Plan (2014-2019)2 that focused on three pillars: (a) stimulating productive employment through sustained economic growth; (b) bolstering education with inclusion and social equity; and (c) strengthening citizen security, through an ambitious program of objectives and actions. However, overall weak Government effectiveness hampered their efforts to make progress in tackling high levels of poverty, inequality, and crime and violence in the context of weak economic growth, and deliver on its development plan. As an example, poverty and extreme poverty reversed the positive trends and started increasing again in 2016. 3. The implementation of the CPF has been negatively affected by the challenging country context, particularly by the fiscal crisis and the country political polarization. At the time the CPF was prepared, the country context was conducive to a robust investment lending program that the WBG planned to deliver 3 to address El Salvador’s long standing developmental challenges. However, no new lending has materialized to date mainly due to the precarious fiscal situation and political impasse in Congress (see Box 1). Fiscal problems have partly overtaken the critical discussions on the development agenda, negatively impacting growth and poverty reduction as well as progress in our engagement. This new situation has obliged the Bank to drop two objectives (crime prevention and youth skills and development) that relied on new lending, while the other four are on track to be achieved. Given the current uncertainty in the country vis- à-vis the fiscal situation and the upcoming congressional and municipal elections in March 2018 and presidential elections in March 2019, no lending is envisaged until the end of this CPF. Thus, 1 The CPF was discussed by the WBG Executive Directors on June 23, 2015. 2 Secretaría Técnica y de Planificación; Gobierno de El Salvador (January 2015). “El Salvador Productivo, Educado y Seguro.” Plan Quinquenal de desarrollo (2014-19). 3 Youth Employability and Skills (proposed at US$130 million) and Crime and Violence project (proposed at US$110 million). Other potential/planned operations included: scaling up of the education project, a repeater operation or additional financing for the Local Government Strengthening Project, and a Development Policy Financing with a Catastrophe Deferred Drawdown Option. 1 this PLR reflects a shift in WBG strategy to employ advisory and analytical services, as well as its convening power to support the country in addressing its developmental challenges, and focus on maintaining achievements, and implementing the on-going portfolio. The PLR also draws on lessons learned from implementation to consolidate and refine CPF objectives and streamline the Results Framework. Box 1: Limitations to Government Effectiveness The Government, led by the National Liberation Front (Farabundo Martí para la Liberación Nacional, FMLN), holds only 31 of the 84 seats in Congress, and has been relying on ad hoc support from the third largest political party, the center-right Gran Alianza por la Unidad Nacional (Gana), which holds 11 seats. However, the FMLN alliance with Gana is one seat short of the 43 required for a simple majority, requiring support of other minority parties that have not been particularly forthcoming. Moreover, reaching a qualified majority (56 votes), in addition to support from other minority parties, the Government requires an alliance with the largest opposition right-wing party, Alianza Republicana Nacionalista (Arena). Arena holds 35 seats and has a long history of disagreement with FMLN over economic policy. While it was clear that it would be difficult to implement reforms in such a political environment, it was also seen as an opportunity to build and ensure political dialogue and consensus on critical areas that affect the country’s development. However, the political gridlock has impacted the Government's effectiveness and constrained progress on El Salvador’s development agenda. For example, fragmentation in Congress has hindered Government efforts to pass any meaningful reforms or approve loans from multi-lateral and financial institutions. II. COUNTRY CONTEXT AND RECENT CHANGES Recent economic developments4 4. Low growth remains a major challenge. El Salvador is seemingly trapped in a low growth equilibrium. Real GDP growth has averaged just 1.9 percent over 2001-2016, the lowest in the Central America region and lagging in comparison to lower middle income countries. Structural weaknesses continue to undermine the growth performance of the country: political polarization that leads to policy inaction, high levels of crime and violence, low investment, poor educational attainment, and fiscal challenges -among other factors—prevent the country from growing at a faster pace. In the absence of a comprehensive reform agenda to address many of these issues, growth projections for headline GDP are not expected to diverge significantly from what has been observed in the recent past (potential GDP growth is estimated at below 2 percent). 5. The country’s fiscal situation has deteriorated, raising risks of sustainability. The low growth environment and elevated debt stock pose important challenges to debt dynamics . The country’s fiscal situation is becoming increasingly complex given its significant public financing needs. The debt-to-GDP ratio has risen gradually, from about 45 percent of GDP in 2009 to 65.5 percent in 2016. While such debt level would be easily manageable through a comprehensive fiscal reform, the political impasse is preventing a meaningful solution. Public debt, therefore, is expected to continue its upward trend in the absence of a comprehensive fiscal consolidation program. Moreover, El Salvador’s debt service to revenue ratio in 2016 was 16.3 percent based on total revenues or 21.6 percent based on tax revenues. The Government has been relying heavily 4 Source of data for this section: Central Bank of El Salvador and the World Bank (September 2017). 2 on short-term treasury letters (LETES) to fill its large financing gap. This has worsened the country’s debt profile and, as a result, increased roll-over risks and public sector borrowing costs. Increased exposure of the financial sector to sovereign risk is a concern against the backdrop of the deterioration in public finances, a fully dollarized economy, and the limited role the Central Bank could play as a lender of last resort. A political stand-off over pension obligations brought El Salvador into a short-lived technical default in April 2017 (selective default). After payments were made, the long-term sovereign credit rating was raised to CC by Standard and Poor’s. The combination of low growth, an already high debt level, and the need to generate primary budget surpluses to stabilize its debt-to-GDP ratio, increasingly draw into question El Salvador’s future ability to service its debt. Being dollarized, the country is also directly exposed to changes in the U.S. monetary policy. Rising U.S. rates and an increasing risk premium have raised El Salvador’s debt service costs, further increasing the urgency of fiscal adjustment. 6. Increased tax effort was partially offset by higher recurrent expenditures and growing pension payments. Revenue of the non-financial public sector has risen by about 2 percentage points of GDP since 2009, yet this increased tax effort was partially offset by higher recurrent expenditures and growing pension payments. The primary and overall deficit of the non- financial public sector were 0.2 and 2.8 percent of GDP in 2016, respectively. The public wage bill –high by both regional and global standards— rose from about 6.9 percent of GDP in 2008 to about 9 percent of GDP in 2016, driven primarily by increases in the public sector headcount and above average public wage hikes in the health sector as a result of the “ escalafones.”5 Pension payments were among the fastest growing spending components over 2008-2016, increasing from about 1.5 percent of GDP in 2008 to 1.9 percent in 2016. 7. Fiscal consolidation is needed to increase market confidence, sustain growth, and reduce debt rollover risks. An ad hoc fiscal agreement between the governing party and the main opposition party was signed in November 2016, authorizing a bond issuance of US$550 million. The proceeds were used to meet the Government’s 2017 financing needs, pay arrears with suppliers, pay wages and salaries, and reduce the stock of LETES, among other obligations. In conjunction with the approval of the bond issuance, a Fiscal Responsibility Law 6 was approved, which foresaw a fiscal consolidation effort of at least three percent of GDP in 2017-19 and a set of numerical fiscal targets to be accomplished by the Government. However, the Law lacked corresponding fiscal measures to implement the targets. The consolidation of at least 3 percent of GDP over the 2017-19 period is a key prerequisite to place the debt-to-GDP ratio on a sustainable path, instill market confidence to support faster and sustained growth, and reduce debt rollover risks that could lead to a liquidity crisis. Spending rigidities complicate consolidation efforts, while political polarization hinders needed tax policy reforms. Some key reforms under discussion include increasing the VAT rate by 2 percentage points to 15 percent, restraining growth of the public wage bill, pension reform and making cuts to spending on goods and services. Proximity to Congressional elections in March 2018 may hamper policy action. 5 “Escalafones” are a non-performance based increase (on top of the general public sector increase) for the ministries of justice, education and health). 6 Fiscal Responsibility Law Decree: https://www.asamblea.gob.sv/eparlamento/indice-legislativo/buscador-de- documentos-legislativos/ley-de-responsabilidad-fiscal-para-la-sostenibilidad-de-las-finanzas-publicas-y-el- desarrollo-social-1 3 8. A pension reform was approved in September 2017, with broad legislative support, which provided some relief to the government in terms of liquidity in the short run and some fiscal savings. The approval of the pension reform represents one step in the right direction within a broader agenda of fiscal measures to place the government finances in a more solid standing. Some changes introduced by the pension reform included: i) increase in the contribution rate by 2 percentage points to 15 percent; ii) reduction of commission and fees charged by pension funds; iii) a debt restructuring of the existing stock of Certificates of Pension Investments (or CIPs), which included changes in the payment schedule, interest rate and maturity; and iv) introduction of a Solidarity Account (Cuenta de Garantía Solidaria)7. On October 2, 2017, S&P downgraded El Salvador from ‘CC’ to ‘SD’ due to a delay in the delivery of the reform related information to credit risk agencies. The following day the sovereign credit rating was raised to ‘CCC+’ with a stable outlook. A preliminary assessment suggests that the reform is expected to provide some real fiscal savings from the increase in the contribution rates, among other factors. In addition, the pension reform is expected to generate some relief in terms of liquidity in the short-run, reducing the immediate public sector gross financing needs. This liquidity effect is partly associated with the restructuring of the payment schedule of the existing stock of CIPs. Absent the reform, amortization payments over 2018-20 would have amounted to US$377 million (or a cumulative 1.3 percent of GDP over 2018-20). Poverty and Shared Prosperity8 9. Small poverty reduction gains have been reversed. Poverty has been persistently high since the early 2000s, when it stood at 45 percent. Poverty reduction in El Salvador is characterized by fluctuations and periods of poverty decrease are followed by increases in poverty, resulting in small gains. Using the national poverty line, although poverty decreased from 42 percent in 2010 to 35 percent in 2013, it increased to 38 percent in 2016. A similar trend is observed for those living in extreme poverty, which declined from 14 percent in 2010 to 9 percent in 2013, to an increase to 10 percent in 2016. Poverty path is mainly driven by the stagnation of real labor income, mainly in urban areas. In addition, a contraction in poverty reduction programs, such as the Income Support and Employability Program (Programa de Apoyo Temporal al Ingreso, PATI), as well as the delay in the implementation of a serious poverty eradication program, is slowing poverty reduction. Urban poverty reduction has remained stagnant around 35 percent. On the other hand, rural poverty dropped from 50 percent to 44 percent between 2010 and 2016. This dynamic is largely explained by the fact that rural income grew at a similar level to the increase in prices of the national basic basket, whereas urban income grew at a much slower pace over the same period. 9 The fiscal situation has limited the development and expansion of important social programs. 10. The weak performance in poverty reduction is associated with low productivity jobs and a reverse in the reduction of the Salvadoran workers in the informal sector. Agriculture is still the economic sector with the highest proportion of poor workers and the lowest wages in El 7 See Box 3 for more details 8 Source of data for this section: LAC Equity Lab tabulations of SEDLAC (CEDLAS and the World Bank). 9 Using the international extreme poverty line of US$2.5 per day (PPP 2005), extreme poverty fell from 13 percent to 10 percent between 2006 and 2015. Over the same period, using a poverty line of US$4 per day (PPP 2005), those living in poverty declined from 39 percent to 28 percent, compared to the LAC average of 24 percent. This discrepancy between the national and international poverty rates is explained by the increase of domestic food prices and differences in the national and international methods for poverty measurement. 4 Salvador. This situation is compounded by the fact that 18 percent of workers are employed in this sector. In addition, the limited reduction of informal labor over the 2013-2014 period was also reversed, making El Salvador one of the countries with the highest informality rate. Informality fell from 60 to 57 percent between 2013 and 2014, and increased to 59 percent in 2016. 11. Despite persistent high levels of poverty, inequality has experienced a modest decline. El Salvador’s Gini coefficient declined by 4 points, from 0.45 in 2006 to 0.41 in 2015. This was mainly driven by gains in income growth for those at the bottom 20 percent of the income distribution in 2015, particularly due to the expansion of employment in the agriculture, retail, and hospitality sectors that tend to employ higher numbers of the poor. Similarly, remittances have played an important role in the decline of inequality since 2000. As such, El Salvador remained the most egalitarian country in the region after Uruguay in 2015 10. 12. Spending in social assistance and coverage of social programs has decreased . The government of El Salvador has made an effort to expand social protection coverage and spending since 2009. However, from 2013 through 2015, non-contributive social spending has experienced a decline. Although, there were savings in electricity subsidies due to more efficient targeting between 2016 and 2017, it is not clear that such funds were reallocated for social programs. Since 2009, non-contributory programs, such as rural conditional transfers and social pensions, have been implemented. Nevertheless, the largest portion of expenditure is absorbed by untargeted subsidies. In recent years, aforementioned coverage of the largest programs such as rural conditional transfers and the PATI, decreased or not expanded. As evidenced in the Social Expenditure Review (SER), a large “leakage” to non-poor families persists in the actual social assistance structure. 13. Although there have been some incipient improvements, the poor still face constraints to upward social mobility similar to those identified in the Systematic Country Diagnostic (SCD). The gap in education outcomes remains between the poor and non-poor population. On average, an adult living in poverty has 2.8 fewer years of education and is 10 percent more likely to be illiterate than a non-poor adult. In addition, household composition and labor market discrepancies persist. In poor households, the share of children under 12 years represents over 26 percent of household members, but only 16 percent in non-poor households. The poor are still nine percentage points more likely to be self-employed, seven percent more likely to be unpaid family workers, and four percent more likely to be unemployed. Women living in poverty are still less likely to be economically active than their non-poor counterparts (24 percent versus 42 percent respectively). Finally, the gap between the poor and the non-poor in terms of non-labor income, mainly pensions and remittances, also increased during 2015. 10 Systemic Country Diagnostics of El Salvador, 2015 (http://documents.worldbank.org/curated/en/385371467998190389/pdf/97718-CAS-P151397-K8831-Box391451B- white-cover.pdf) 5 14. Structural factors continue to weigh on economic Box 2: Role of Remittances in El Salvador performance and poverty Remittances, due to high rates of migration, are key features reduction. A continuous fiscal of the Salvadoran economy. Around one in three of the 6.3 challenge, high levels of crime and million Salvadorans lives abroad, namely in the U.S., which has violence and low productivity are become a “society of reference” for many. Of the 2 million self- pervasive. Fiscal pressures limit declared Salvadorans in the U.S., 1.2 million were born in El the potential expansion of social Salvador and migrated to the U.S.; the other 0.8 million are programs. At the same time, crime descendants of Salvadoran migrants, but were born in the U.S. and violence increase the cost of Migration has generated significant remittances which doing business and negatively constitute an important source of income for many Salvadoran affect investment decisions and job families. Around 13 percent of households in the poorest 40 creation. Labor productivity is percent of the population receive remittances, while the constrained by the low rates of corresponding figure for the three richest quintiles is 18 percent. This steady flow has helped the poorest families avoid falling secondary school completion and into poverty or extreme poverty. On the other side, remittances quality of the education. In fact, El have a number of perverse effects on the Salvadoran society and Salvador continues to face the its economy. For example, females in households that receive “vicious circles” identified in the remittances have lower labor force participation rates in El SCD. First is the vicious circle Salvador. Migrant remittances also appear to lower the savings between low growth and rate, as evidence indicates that the propensity to save out of violence. Low opportunities remittance income is lower than the corresponding savings rate spawn crime and violence, and from non-remittance income. Apart from the decrease due to the high risks and costs of insecurity financial crisis in 2008-2009, the flow of remittances in El t h e n deter investment, resulting Salvador has been quite uniform at around 16 percent of GDP, in lower productivity growth – peaking to 17.1 percent of the GDP in 2016. which in turn hampers overall economic growth in a perpetual cycle. A second vicious circle is the cycle of low-growth and high migration, whereby limited opportunities, combined with high rates of crime and violence, push people to migrate. Migration then spurs a high rate of dependency on remittances (Box 2), lower labor force participation, higher reservation wages, a brain drain and potential disincentives to invest in education, low skills, less competitiveness -- then low growth again. A third vicious circle is the link between low growth, savings and investment – which again are affected by El Salvador’s high rates of violence and migration. Fluctuations in remittances can be quite detrimental for El Salvador. Remittances not only lift many out of extreme poverty but also mean people buy more, which supports local companies. If remittances went down, it would plunge people into poverty and reduce spending, which would hurt companies, causing unemployment, and affecting government finances. At the same time, if remittances decrease, households may see their incomes decrease as well, which may reduce reservation wages and in turn increase labor supply, and labor participation rates. Remittances have also been found to lead to real exchange rate appreciation. These effects would contribute to increase the competitiveness of the economy. 6 III. SUMMARY OF PROGRAM IMPLEMENTATION Pillar 1: Building Reinforcing Foundations to Promote Inclusive Growth 15. This pillar focuses on promoting inclusive growth with four objective areas that seek to: (i) build capacity to create safer communities for economic development; (ii) improve secondary-school attainment; (iii) enhance youth employability and skills; and (iv) increase financial access to promote financial inclusion. Given progress to date under each objective, the PLR proposes to drop two objectives under this pillar, one related to building capacity for creating safer communities, and the second related to enhancing youth employability and skills, and continue focusing on improving secondary-school attainment and increasing access to finance, both critical for building foundations to promote inclusive growth. Objective 1: Build capacity to create safer communities for economic development 16. The CPF support of Government’s efforts to build capacity to create safer communities for economic development is not on track. The CPF envisaged a Safer Communities Project that was under discussion at the time the CPF was prepared. The Project was to support the Government’s strategy for “A Safer El Salvador” and expand on-going initiatives operating in violence-prone areas. Interventions were to be directed towards youth, women, and children and focus on improving psycho-social responses to violence among high-risk populations by providing services that are scarce or non-existent, and on recovery of urban spaces in communities and neighborhoods with at-risk population. Due to the Government’s focus on enforcement rather than crime prevention and its limited capacity to formulate sectoral policies in this area, the Safer Communities Project was dropped – hence no significant progress has been achieved under this objective. The WBG, through the Local Government Strengthening Project (P118026), provided financing to 262 Salvadoran municipalities 11 for small infrastructure, such as street lighting, community centers, and paved roads, which are considered important as mitigation measures against crime and violence in urban areas as they are expected to lead to improvements in the quality of life in urban communities. Nevertheless, these are relatively minor contributions compared to the needs and complexity of the crime and violence agenda in El Salvador that the CPF tried to support. The Government recognizes the need to design effective policies based on collected crime and violence information, improve central and local level coordination and increase capacity to respond to and monitor crime and violence events, as well as to address this complex development issue through a multi-sectoral approach.12 Given the relevance of this objective to break the vicious circles, the WBG plans an increased engagement through policy dialogue and technical assistance. 11 There is a total of 262 municipalities in El Salvador. 12 The WBG may consider providing assistance in this area if WBG’s human and financial resources allow, and the Government requests such support. 7 Objective 2: Improve secondary school attainment 17. The CPF objective of improving secondary-school attainment is on track to be achieved. Student access, retention, and graduation rates in secondary education have been steadily declining since 2011 due to deteriorating economic conditions, migration, increased crime and violence and natural disasters. By supporting the adoption of the Inclusive Full Time School (IFTS) Model, the WBG, through the Education Quality Improvement Project (P126364), has been helping the country improve access, graduation, and retention rates for lower and upper secondary education. The IFTS 13 Model addresses the problems of quality and exclusion of economically disadvantaged students, and tackles problems of early drop out, repetition and poor learning outcomes by: (i) providing stimulating and diverse learning experiences; (ii) ensuring a safe learning environment; (iii) delivering teaching that is responsive to the social and developmental needs of young adolescents from diverse backgrounds; and (iv) making schools accountable for student results. To date, 121 schools adopted the IFTS Model, and another 93 schools are expected to adopt it by 2019 (from a baseline of zero) 14. The IFTS Model is already showing results with access, retention, and graduation rates outperforming schools that have not yet implemented the IFTS Model. For example, retention rates for upper secondary education, although starting from the same baseline of 95 percent (2010), were at 92 percent in schools that have adopted the IFTS Model compared to 86 percent in all other schools (2015). In addition, the WBG-financed Project has supported the renovation of 17 schools out of 39 (planned under the Project) and 209 school facilities (such as classrooms, libraries, study rooms, teacher rooms, sports and recreation spaces) and has benefited around 40,000 students (out of a lower and upper student population of approximately 420,000) with new facilities, learning materials, and pedagogical activities. The Project is also supporting the improvement of pedagogical skills of around 1,997 teachers through a series of certified trainings. Objective 3: Enhance youth employability and skills 18. Progress has been limited in enhancing youth employability and skills. The WBG continued providing support under the Income Support and Employability Project (PATI; P117440), which focused on providing at-risk youth and vulnerable groups with training, job readiness, work experience and social assistance to build their skills and assist their efforts to join the labor market. The PATI proved to be an important tool in addressing youth unemployment and in reducing poverty. Under this CPF, the PATI was expanded to eight additional municipalities with high crime rates benefitting 4,000 people. Building on this successful engagement, the CPF envisaged a delivery of a Youth and Employability Project that was to support the Government to develop a National Employability Strategy and to strengthen training and labor-intermediation systems, with a focus on at-risk youth. The proposed engagement, building on the successful implementation of the PATI, was to help develop active and effective training networks that assist in delivering the essential skills needed by the labor market, including possible opportunities for effective development of sectorial skills. However, the preparation of the Youth Employability Project was delayed due to two main factors: 1) the impasse in Congress and high likelihood that a qualified majority would not be reached to approve investment operations and 2) the ongoing 13 IFTS Model: http://www.mined.gob.sv/index.php/descargas/send/740-plan-social-educativo/6239-hacia-una- escuela-inclusiva-de-tiempo-pleno-eitp 14 There is a total of 5,400 schools in El Salvador. 8 fiscal crisis. As such, given the small scope of support under this CPF and that most of the results of the PATI had already been captured under the previous FY10-15 Country Partnership Strategy (CPS), progress on this objective is considered limited and the PLR proposes to drop it. This area nevertheless, as part of the social protection agenda, constitutes a Bank competitive advantage as well as a critical country priority. Therefore, the WBG plans to remain engaged through policy dialogue and technical assistance. Objective 4: Increase access to finance to promote financial inclusion 19. The positive results from a number of projects and activities indicate that the objective is on track. The WBG engagement has been facilitating access to credit and increasing availability of financing for Microenterprises and Small and Medium Enterprises (MSMEs) to promote financial inclusion. Since FY16, IFC has committed US$82 million in the financial sector across four clients to increase credit lines tailored to microenterprises, and SMEs. To date, the number of SMEs reached with financial services has increased from 3,814 to 7,906. Additionally, IFC’s clients are reaching 48,972 beneficiaries through microloans, a substantial increase from 7,355 at the beginning of the CPF period. Despite the weak fiscal and macroeconomic environment captured by a deteriorating sovereign risk, the banking sector has remained relatively stable. Credit portfolio growth has been moderate averaging nearly 5 percent, above GDP growth, and has remained resilient to domestic shocks evidencing contained levels of non-performing loans (NPLs). Investments of excess liquidity in LETES, one of the few investment instruments authorized by regulation, is being reduced by financial institutions given the perception of high sovereign risk. On the other hand, stable remittances inflows continue to be a key market variable, supporting consumption levels which, to some extent, are driving MSME activity. As discussed in the SCD, structural reforms need to take place to achieve sustained economic growth, and financial institutions continue to play a catalytic role in providing access to finance and inclusion. In addition, since the beginning of the CPF period, IFC has approved three active trade finance lines totaling US$265 million in the textile industry, supporting local producers and suppliers, crucial for developing the local private sector, as well as for creating jobs, in particular for the youth. 20. The WBG has also been providing support for policies and institutional arrangements that facilitate access to finance. The Programmatic Approach for the Development of Sound and Inclusive Financial Systems in Central America (P152455) focused on El Salvador with a number of analytical and advisory services. In particular, under this Programmatic Approach, the WBG provided support to the Government to strengthen financial inclusion by supporting more efficient and inclusive payments, including remittances and credit transactions (Financial Infrastructure Development; P154678). It also provided a diagnostic and technical assistance to strengthen bond market development to improve access to finance for firms and to support infrastructure development (Bond Market Development; P152766). Lastly, in coordination with the International Monetary Fund (IMF), the WBG carried out a Financial Sector Assessment Program, to gauge the stability and soundness of the financial sector, and to assess its potential contribution to growth and development, including for facilitating access to credit. 21. Overall, progress to-date under this first pillar has been mixed. Building reinforcing foundations to promote inclusive growth continues to be fundamental to El Salvador’s development. Lack of progress on critical objectives focusing on crime and violence and 9 productive opportunities reflect the complexity of El Salvador, both in terms of its political landscape and capacity to design and implement multi-sectoral programs to help address the issue of high crime rates and youth unemployment. While reforming the education system is a high priority, and results of the IFTS Model are important, efforts are also needed to enhance employability of the current workforce and create capacity to build safer communities. Progress on increasing access to credit, and in strengthening the financial system to further support financial inclusion, among other things, is a step in the right direction to ensure inclusive growth in the long run. While the true impact of both the IFTS Model and increased access to credit remains to be seen, there is no doubt that these efforts are laying the groundwork for more thorough and complementary interventions in the future. Pillar 2: Fostering Sustainability and Resilience 22. This pillar brings together two objectives related to fostering sustainability and resilience. The first priority aims to promote the efficiency of public spending. The second priority seeks to build capacity for managing disasters and environmental challenges. To date, there has been solid progress under both objectives, albeit with modest impact in the context of the overall complexity of challenges facing El Salvador. Objective 5: Promote the efficiency of public spending 23. The WBG has been supporting the Government to promote the efficiency of public spending in a number of areas, keeping on track the accomplishment of the objective. To support the Government in promoting efficiency of public spending, the WBG engagement under this CPF included support via on-going investment operations. The Local Government Strengthening Project (P118026) supported the implementation of the Ministry of Finance’s Integrated Municipal Financial Administration System (SAFIM) and the Municipal Management Information System (SIGMUNI) 15 to improve municipal governance and contribute to efficiency of public spending. With support from the WBG, 120 municipalities 16 installed SIGMUNI and trained their staff, and 88 municipalities currently use SAFIM. In addition, 149 municipalities have completed and are implementing municipal fiscal consolidation plans, which have been used to update municipal cadasters, improve tax registries, conduct training activities for municipal staff, and acquire specialized software and equipment. These activities were aimed at improving municipal finances by strengthening institutional capacity for fiscal and administrative management, easing the financial burden of highly indebted municipalities, and improving fiscal sustainability at the local level. In the health sector, to help promote efficiency of public spending and curb the costs of the public health care system in the context of emerging chronic diseases, the Bank-financed Public Health Care System Project (P117157) focused on increasing preventive care by ensuring that health facilities are equipped according to norms set by the Ministry of Health and that health personnel receive training on preventive priority programs. As a result, the total number of medical consultations in preventive care increased from 15.6 percent in 2014 to 23 percent in 2017, reducing the demand for services that are costlier and require higher levels of 15 The first was supported as one of the key objectives of the project, while the second one was not originally planned as part of the project activities but rather came as a government’s initiative that the project helped to operationalize. 16 There is a total of 262 municipalities in El Salvador. 10 attention. Also, the WBG has supported the drafting and implementation of the National Plan for Maintaining Medical Equipment, which is expected to improve sustainability of medical assets, and hence contribute to efficiency in the health sector. In the education sector, the Education Quality Improvement Project (P126264) has been focusing on creating Integrated Systems 17 of school clusters that would help improve efficiency in the allocation of public resources by clusters sharing resources amongst themselves and a new governance mechanism at the cluster level. To date, a total of 39 school clusters have been implemented 18. Moreover, by 2018, seven municipalities are expected to undertake a process evaluation (qualitative assessment) of the governance system as a feedback loop for the effective implementation of Integrated Systems of school clusters. 24. To further support this objective the WBG also carried out analytical and advisory services. The WBG updated the Social Sector Expenditure and Institutional Review (SEIR; P146907) for El Salvador, helping systematize measurement of social spending indicators, among others. The WBG also carried out a study to help the Government improve delivery and target of utility subsidy benefits (Fiscal and Welfare Impacts of Electricity Subsidies in Central America; P147077). Lastly, WBG’s on-going technical assistance through the Regional Central American Project to support the implementation of the Trade Facilitation Agreement (P156050), has been focusing on strengthening current regulation, in particular to: (i) streamline and automate procedures of sanitary registration for processed food and beverages; and (ii) improve alignment of the trade laws, regulations, and systems of Central American countries with the WTO-Trade Facilitation Agreement. To date, the WBG has helped to develop and roll out a regional information and communication technology system that facilitates recognition of sanitary registration of processed food and beverages across Central America. This is expected not only to decrease the time needed to complete the recognition process, but also cut costs by 25 percent. Going forward the WBG, will provide technical assistance to help the Government lower the time and the number of documents required to clear air freight. Objective 6: Build capacity to manage disasters and environmental challenges 25. The WBG has been supporting the resilience agenda by focusing on carbon emissions and financial protection against disasters, moving steadily towards the accomplishment of this objective. Within the framework of the Forest Carbon Partnership Facility (FCPF) grant, the WBG has been supporting El Salvador in assessing the causes of deforestation and forest degradation and developing a national strategy and implementation framework to Reduce Carbon Emissions from Deforestation and Forest Degradation (REDD+). To date, El Salvador has made progress towards accomplishing the indicators of REDD+ under the FCPF Readiness Assessment Framework. To institutionalize the REDD+ agenda in key decision-making bodies, the role of the Roundtable on Restoration of Ecosystems and Landscapes (Mesa de Restauración de Ecosistemas y Paisajes) has been formalized. The development of a Measuring, Reporting and Verification 17 A cluster is considered effectively implemented in a given municipality if, at least, 4 out of the 6 factor are in place for all schools within all clusters in that give municipality: (i) new pedagogical approach implemented; (ii) longer school day implemented; (iii) school directors and teachers of all grades trained in the features of the new model; (iv) schools earmarked for civil works fully completed, including furniture educational equipment and material delivered; and (v) territorial reorganization of IFTS schools within the cluster completed. 18 From a baseline of zero. 11 System and Reference Level of Forests and Carbon Emissions is in progress and is expected to be finalized in 2018. Also, a draft of the national strategy to reduce emissions from deforestation and forest degradation is expected to be completed by December 2017 and the WBG is helping the Government identify financing resources for the strategy. Through the Central America Disaster Risk Financing Engagement Project (P148729), the WBG has been helping the Government build capacity to understand financial exposure related to disasters and design a disaster risk financial strategy. As a first step towards developing its disaster financing strategy, the Ministry of Finance included in their “Medium-Term Fiscal Framework 2016-2026” a section on the impact of damages and loses from disasters, which included estimations based on historical data and probabilistic methodologies, and an analysis of the international practices for disaster risk financial strategies. Moreover, the WBG supported a study “Fiscal Vulnerability of El Salvador to disasters”, which includes an analysis of possible losses, and current financial tools to res pond to disasters. This study is expected to inform the country’s disaster risk financing strategy. Estimates from 2014 show that the average annual loss for seismic risk is equivalent to 1.2 percent of GDP, while the corresponding to excess of rains could be 1.6 percent of GDP. Although the Government expressed its interest in the Development Policy Financing with a Catastrophe Deferred Drawdown Option and in joining the Caribbean Catastrophe Insurance Facility to enhance its capacity to safeguard fiscal accounts and balances, given the current macroeconomic and fiscal situation, and lack of agreement on CCRIFs coverage of insurance, the WBG has delayed its support in this area. Lastly, through the Local Government Strengthening Project (P118026), the WBG supported the strengthening of disaster risk management capacity of municipalities. To date, 174 local governments (out of 262) completed and implemented a disaster risk management plan to help municipalities reduce disaster risk. 26. Overall, there has been solid progress under this second Pillar, however overall impact has been modest. In weighing progress against the original CPF Results Matrix, most of the indicators have been achieved or are expected to be achieved. Nevertheless, the WBG support of Government’s efforts to promote the efficiency of public spending to generate fiscal savings is hard to quantify at this stage, especially in the context of reducing the deficit and improving the fiscal situation, as proposed in the original CPF. Nevertheless, the WBG has been fully engaged at the policy level and has been facilitating a complex and lengthy negotiation process between the governing party and Arena to achieve a comprehensive fiscal reform (Box 2). The achievements under this objective represent critical building blocks that are expected to contribute to improving the efficiency of public spending in the medium and long term. Similarly, although the drafting of the disaster financing strategy is a step in the right direction, the Government has not secured contingent funding or at least one risk transfer instrument, which may put further pressure on public spending in the event of a natural disaster, severely affecting the poor and vulnerable and the country’s ability to cope with immediate financial losses. 12 Box 3: The Role of the World Bank in Addressing the Fiscal Situation Since the beginning of 2017, the World Bank has been facilitating a negotiation process between FMLN and ARENA to achieve a comprehensive fiscal reform. The basic elements of the agreement included a package of revenue and expenditure measures (based on the measures listed in the last IMF Article IV Report), as well as the approval of a pensions reform. The upcoming congressional and presidential elections, to be held in 2018 and 2019 respectively, have postponed the discussion of a comprehensive reform. However, the Government managed to pass the pensions reform, which included important technical elements provided by the thorough analysis done by the WB. The pension reform is a vital element of the fiscal consolidation as its payments represent an important share of the fiscal deficit (about 2 percent of the GDP). The pension reform was approved on September 27, 2017, with broad legislative support. Elements of both reform proposals were included (the Government and the private sector’s proposals, the latter elaborated by Iniciativa Ciudadana para las Pensiones -ICP and supported by ARENA. Some changes introduced by the pension reform included: i) increase in the contribution rate by 2 percentage points to 15 percent; ii) reduction of commission fees (and insurance) charged by the pension funds down to 1.9 percent of the income base from 2.2 percent (plus other changes regarding to fees, for example, waving those for inactive accounts); iii) changes in the characteristics of newly issued pension related debt (Certificados de Inversión Previsional or CIPs) and restructuring of the stock of the existing CIPs, iv) introduction of a Solidarity Account (Cuenta de Garantía Solidaria); v) the creation of an Actuarial Committee that will oversee the sustainability of the system. In addition, the Legislative Assembly authorized the issuance of bonds for US$168 million, and a reallocation of budgetary lines for US$260 million, including US$92 million for interest and amortizations of CIPs due in October. This is considered to be an important milestone for the country in both, reaching consensus and moving forward with the comprehensive fiscal reform, albeit in a piecemea l fashion. It also serves as a good example of the WB’s convening power and strong policy dialogue to push for consensus building at difficult times and advise on policy and needed reforms to ensure fiscal sustainability. Portfolio Evolution and Performance 27. The IBRD portfolio has decreased from five active operations totaling US$290 million at the beginning of the CPF to two operations totaling US$140 million at the CLR stage. Of the three operations that exited the portfolio, two were closed as Satisfactory19 and one as Unsatisfactory.20 The current active portfolio includes two lending operations in the health and education sectors that will close in May and December 2018, respectively. As of November 1, 2017, just over US$48.5 million remains undisbursed. The two projects have both had extensions of almost two years due to effectiveness lags generated by delayed congressional approval. To complement and maximize the impact of the IBRD operations and analytical and advisory services, trust fund resources of US$5.7 million were mobilized, mainly to support the disaster risk management efforts, as well as the education, health, and energy sectors (see Annex 9). The most significant implementation challenges faced in El Salvador during the CPF period include limited institutional capacity and inter-institutional coordination. In addition, local ownership also posed challenges to implementation. No new planned operations have materialized under this CPF, resulting in a small IBRD portfolio and limited areas of engagement going forward. 28. Overall disbursements of El Salvador’s lending portfolio have significantly improved during this CPF period. Across FY16 and FY17, disbursements averaged over 20 percent, 19 Local Government Strengthening Project (P118026), Income Support and Employability Project (P117440) 20 SV Fiscal Management and Public Sector Performance (P095314) 13 compared to an average disbursement rate of below 10 percent over the FY12 to FY15 period. This is in part due to the maturity of the portfolio (average age of the portfolio is 6 years), as well as to the concerted efforts of the Government and the WB to address implementation constraints in the health and education sectors. For example, implementation plans for both the health and education operations have been developed and are closely monitored by the task teams and procurement and financial management specialists to ensure that the projects are on track to fully disburse before project closure and achieve their developmental objectives. 29. IFC’s portfolio expanded. IFC’s portfolio has increased from seven projects totaling US$142 million in September 2014 to twelve projects totaling US$221 million in October 2017. The majority of the long-term finance committed portfolio is focused on financial markets (8 projects, US$111 million outstanding), with an additional project in the commercial real estate and services sector. In addition, IFC has three active trade finance guarantee programs, for a total of US$90 million outstanding. Since the beginning of the CPF period in 2016, IFC has committed US$82 million in new long term projects. The new commitments focus on projects in retail and access to finance for SMEs. For more information, see Annex 5. 30. The Multilateral Investment Guarantee Agency (MIGA) has maintained its engagement in the country. As of September 2017, MIGA has three active projects with a total exposure of US$129 million across the services, pension and financial sectors. The guarantees cover the risks of currency convertibility, transfer restriction, expropriation, breach of contract and war and civil disturbance. Activities supported under IFC projects include: financing, procurement, installation, and operation of import inspection equipment and services; acquisition of one of the two pension funds in the country; and, supporting international financial institution to optimize its capital position to support new local lending. MIGA did not approve any new guarantees under this CPF. For more information, see Annex 6. 31. Donor cooperation and partnerships play a fundamental role in achieving the development outcomes of El Salvador. To ensure complementarity of its activities, the WBG is closely coordinating with the Millennium Challenge Corporation (MCC), the Inter-American Development Bank (IDB), the Central American Bank for Economic Integration, the European Union (EU), the United Nations Development Program (UNDP), and other bilateral donors, including the Japan International Cooperation Agency (JICA), the German Development Bank (KfW), the German Agency for Technical Cooperation (GIZ), and Spain, among others. For example, the MCC is currently expanding the Bank-financed IFTS Model to 80 additional schools in the eastern region of the country, significantly leveraging the WBG’s support. In the area of increasing access to finance for MSMEs, in addition to IFC, IDB is providing technical assistance to MSMEs, while KfW is supporting MSMEs through special credit lines for renewable energy. Finally, the Bank is supporting the climate change and resilience agenda in close coordination with JICA, GIZ and IDB. IV. EMERGING LESSONS 32. Although the CPF identified substantial risk related to the public finances and political polarization, it did not fully anticipate the extent of their impact on both the economy and the IBRD lending program. Given that the ruling party does not hold enough seats 14 in Congress to reach even simple majority, it was clear that to tackle some of the most sensitive issues, such as the expansion of social programs and fiscal reform in the face of worsening macroeconomic environment, as well as to approve WBG investment operations, the Government would be dependent on alliances with the opposition parties. Both risks materialized, and in hindsight, should have been assessed as high risk. However, more importantly, the proposed mitigation measures were not sufficient. Although the Government held consultations with civil society to build broad support for its National Development Plan, this was not enough to ensure broad support for reforms across the highly divided political parties. This has had a direct impact on the worsening of the public finances and has led to a hiatus in the IBRD lending program, as none of the planned new lending operations have been approved under this CPF. In this context, perhaps the CPF could have been more explicit about the possibility that no new lending is approved under this CPF and in lieu suggest the use of analytical and advisory services to build foundations for achieving medium- and long-term development outcomes. 33. Addressing crime and violence is critical for El Salvador’s development, but lack of capacity in this area may preclude preparation of well-designed and effective investment projects. As the WBG initiated the preparation of the planned investment operation in this area, it became apparent that there is insufficient institutional capacity to design a fully coherent policy and approach to address crime and violence, in particular, related to prevention, as well as weak implementation capacity and poor inter-institutional coordination that would hamper implementation of such projects. Given the political polarization and fiscal crisis, the project has been put on hold, however, the PLR draws an important lesson for the WBG’s future engagement in this area. Crime and violence is inherently complex, and a relatively new area of experience for the WBG, and thus, the CPF outcomes should be modest and focus on building a strong foundation for crime and violence prevention. The PLR recognizes that translating policy into action requires sector leadership, resources, cross sectoral approaches and donor coordination to achieve sustainable improvements in citizen security. To that end, the WBG should consider robust technical assistance and close coordination with donors in this area, bearing in mind that any operation should also focus on institutional building to ensure sustainable results. 34. Supporting municipal governments has proven to be a crucial element for activating local economies and thus boosting country economic dynamics. Despite the good results reported by the Local Government Strengthening Project (P118026), particularly in terms of basic service delivery (roads, electricity, sanitation, etc.) and the strengthening of local institutional capacities, the Bank considers that a stronger local economic development approach is necessary to have a greater economic and social impact, thus avoiding fragmentation of resources. Any future engagement in this area will draw on past experiences and will consider building a strong engagement with local governments for the identification and prioritization of strategic investments and services. 35. The WBG’s support of the Government’s efforts to implement a complex secondary education reform may have a transformational impact. In the past five years, the WBG has been supporting the piloting of the IFTS model, particularly focusing on lower and secondary school education, precisely on the age group at highest risk of dropping out of school, and has accompanied the Government to implement changes, including the extensive pedagogical reform, incorporating academic and extra-curricular activities, extension of the school day from 25 hours to 40 hours a week, and implementation of a new school governance model. With its support, the 15 WBG has also leveraged other donors’ funds to promote the expansion of the IFTS Model. The IFTS Model is already showing encouraging results in increasing retention and reducing drop-outs in secondary school. Now that all the elements of the IFTS Model are in place, the WBG will carry out an impact evaluation in 2018 to assess the effectiveness of the IFTS Model and potential of its expansion. This evaluation is particularly important as the Ministry of Education has made this Model its highest priority and other donors, such as the MCC, who have funded (US$85.2 million) subsequent phases of the Model, will draw on results of this evaluation to make decisions regarding their own funding and further support to the sector. The impact of this support is expected to spill over to other areas and contribute to raising the skill level of the labor force, reducing the risk factors for crime, violence and teenage pregnancy among young people, which may in the medium and long-term contribute to boosting El Sa lvador’s growth. This support is a worthy example of what the WBG can do even in difficult country circumstance. By focusing on an area that enjoys political consensus, concerted leadership by the Ministry of Education, and support of successive governments in transcending political agendas, and drawing on its vast international experience in supporting secondary education reforms, the WBG is helping the country achieve critical results on its development path. V. ADJUSTMENTS TO THE CPS AND FUTURE WBG ENGAGEMENT 36. While the current situation in El Salvador presents a number of political, and economic challenges, there are also a number of opportunities for WBG engagement moving forward. Given the fiscal crisis, political gridlock and upcoming congressional and municipal elections in 2018 and presidential elections in 2019, no investment operations are envisaged during the remainder of the CPF. The WB will focus on providing critical analytical and advisory services to help the country make progress on a fiscal consolidation program while building knowledge and capacity required for implementing policy reforms and investment operations following the elections. The WBG will continue to support El Salvador through two investment projects in the education and health sector. Where possible, the WB will seek out complementary support through trust fund resources. Despite having dropped the two objectives of crime prevention and youth skills and development, the WBG will remain engaged in both areas through policy dialogue and technical assistance. In particular, the CMU is evaluating the possibility of including El Salvador in the regional study “Central America Employability and Jobs” (P164438). In partnership with other institutions (IDB and USAID), the WB will also continue a high level of engagement through the participation in the “Consejo de Seguridad”, a forum that includes government, international institutions, and civil society. 37. IFC will continue pursuing its active strategy for private sector-led growth focusing on supporting financial institutions that play a key role in promoting financial inclusion and MSME finances. Infrastructure continues to be a key component of IFC’s strategy focusing on promoting renewable energy. IFC will also support competitive sectors such as manufacturing and services. MIGA will maintain its current engagements in the services sector, as well as the pensions and financial sectors. MIGA remains open to facilitating further productive inward investments in the country where possible. The WBG will use the opportunity until the end of this CPF period to interact with a diverse set of stakeholders to better understand the complexities of the El Salvador context and underlying political issues. Given the country context, it will be critical to remain engaged in the dialogue with the Presidential candidates and their parties on the country’s most 16 critical development challenges. Moreover, continued partnership and coordination with other development partners will ensure a more harmonized approach to El Salvador’s challenges and avoid duplication of efforts. 38. To respond to the challenging fiscal environment, the WBG will provide technical support on the fiscal consolidation process, including the preparation of a Public Expenditure Review (PER; P162015). S ince the beginning of 2017, the WBG was involved in a delicate negotiations process to facilitate a fiscal agreement among the political parties. Despite the challenges faced during an electoral period, the political parties reached a partial agreement through a pension reform which includes important insights provided by Bank technical staff. This collaboration will continue through the provision of technical assistance for a fiscal consolidation program. The proposed PER aims to identify policies to improve the efficiency, effectiveness, and, sustainability of public spending, including by identifying fiscal savings across proposed options . To do so, the PER will: (i) examine factors driving growth in public spending; (ii) analyze the implications on fiscal sustainability that derive from the Fiscal Responsibility Law that was approved in November 2016; (iii) analyze the pension system in light of the recently passed pension reform (September 2017) and its impact on public finances; and (iv) provide options to help improve the overall impact and efficiency of fiscal spending, which is central to boost growth in El Salvador. In this context, the PER will assist the Government to identify a series of potential expenditure reform options leading to fiscal consolidation, and stabilizing the macroeconomic situation in the country. The choice of the appropriate instrument will also have to consider the approaching electoral period. To this effect, the Bank is also working in close coordination with the IMF and might consider future joint missions. Actual IBRD lending volumes will depend on country demand, overall performance in the course of the CPF period as well as global economic developments, which affect IBRD’s financial capacity, and demand by other Bank borrowers. In the event of a meaningful fiscal consolidation set in place together with an IMF consolidation program, the WBG could support this process with a variety of potential lending operations, including, but not limited to, development policy financing. 39. The Government has requested WBG support in the energy sector. In particular, the Government has requested WBG support on building capacity to address key constraints to lowering electricity prices and diversifying the energy mix to reduce exposure to external events such as international oil price volatility and droughts. The WBG support will focus on: i) improving management capacity for power grid reliability; ii) optimizing management of costs of necessary reserves to supply the electricity demand; iii) raising awareness about the necessary provisions and considerations for power generation planning process; and iv) informing the decision-making process for the prioritization of transmission investments. In addition, the WBG will also focus on energy efficiency and addressing non-optimal use of energy linked with the high energy intensive characteristic of the country’s economy. This support will focus on: i) providing a better understanding of the supply-demand gap; ii) identifying the main characteristics and critical influence factors of the demand curve behavior; and iii) highlighting key sectors with high- impact opportunities and possible actions. Results of this analytical support are expected to refine the new draft energy efficiency law and reinforce its relevance. Lastly, IFC has conducted exploratory analysis to support potential investments related to natural gas and will look for opportunities to support the renewable energy sector. This is part of a regional effort of the WBG, to improve the efficiency of transmission of Central American Electrical Interconnection System. 17 40. The WBG will also focus on implementing its robust knowledge program, and analytical and advisory services in other critical areas . Given the pervasive poverty and poor social safety nets, the WBG will undertake an analytical and advisory service to analyze the impact of social protection on poverty reduction, coverage of social protection instruments, and contribution of different social protection transfers to poverty reduction (such as pensions, and conditional-cash transfer). The WBG will also analyze a medium-term outlook in the case of fiscal consolidation and implication and mitigation measures for urban and rural policy reforms and programs, especially in the context of increasing urban poverty. As part of a regional program, the WBG will continue supporting the improvement in the efficiency and transparency of post disaster public spending (P157413). To complement the Strengthening Public Health Care System Project (P117157), the WBG will provide support in designing an integral service delivery model for non- communicable diseases (cervical cancer, diabetes, and kidney) to improve early detection and treatment. This work is expected to promote efficiency of public health spending by focusing on prevention and early detection of non-communicable diseases, among other. The WBG may also support the preparation of a National Strategy for Chronic Diseases. Lastly, El Salvador will benefit from other regional analytical and advisory services focusing disaster risk management, trade facilitation and public-private partnerships. Given these adjustments and the progress made so far, the PLR presents a more streamlined Results Framework for further monitoring of the CPF through its closure. As a result, two objectives related to crime and violence and youth employability and skills, which relied on new lending have been dropped. The CPF will continue to focus on four original objectives: (i) improve secondary school attainment; (ii) increase access to finance to promote financial inclusion; (iii) promote the efficiency of public spending; and (iv) build capacity for managing disasters and environmental challenges. The results under this CPF are expected to come from the existing investment lending portfolio, and the complementary knowledge work. To date, progress has been made towards the achievement of the objectives and some results have already been achieved (see Annex 1). As previously described, the implementation plan of the two ongoing operations is on track. Through regular meetings with implementing units, government officers, and our procurement and FM teams, the Bank is reinforcing its operational and technical monitoring to ensure the fully achievement of the remaining CPF targets. VI. RISKS TO THE CPS PROGRAM Table 1: Risks to the El Salvador CPF Program Risk Categories Rating 1. Political and governance High 2. Macroeconomic High 3. Sector strategies and policies Moderate 4. Technical design of project or program Moderate 5. Institutional capacity for implementation and sustainability Substantial 6. Fiduciary Substantial 7. Environment and social Moderate 8. Stakeholders Moderate 9. Other (crime and violence) Substantial Overall Substantial 18 41. The original CPF risks of political polarization and lack of majority in Congress, as well as macroeconomic risk related to fragile public finances, remain high. Political polarization remains acute, hindering the approval of needed reforms. El Salvador continues to have a divided parliament, with no party holding even a simple majority. Forging alliances with the minority parties to reach a simple majority and reaching an agreement with the main opposition party Arena to reach a qualified majority has been extremely difficult and may continue after the Congressional and Presidential elections, in March 2018 and March 2019, respectively. This political gridlock may further exacerbate the already fragile macroeconomic situation. Reaching the qualifying majority is particularly relevant for the approval of new debt, including from Multilateral Banks. The lack of fiscal adjustment has led to increasing indebtedness, and political gridlock is threatening government’s short-term liquidity. To help the Government meet its borrowing requirement for 2017, the largest opposition party, Arena, supported an ad hoc deal in November 2016, to issue an international bond in February 2017. However, Arena is expected to continue to limit the Government's debt issuance, thus restraining borrowing, which may be necessary to prevent a fiscal crisis and finance social spending. Lack of social spending may even further increase poverty, especially in urban areas. A progressive worsening of the macroeconomic environment could threaten the successful attainment of a number of CPF development objectives if the deterioration was to result in significantly lower fiscal space than envisaged under the baseline. For example, improved secondary school attainment will be possible only with a substantial and more efficient public investment in education, particularly in the teachers’ quality and in the overall school infrastructure. A step in the right direction is the recent approval of the pension reform with broad legislative support; however more remains to be done to address the critical fiscal situation of the country. The WBG will continue to monitor the evolution of the macroeconomic framework and carry out the PER that is expected to inform future fiscal consolidation efforts. The WBG will also engage with key stakeholders to reiterate the importance of consensus building around critical reforms, especially fiscal consolidation. 42. Institutional capacity risk and fiduciary risk are also rated substantial. The weak capacity to formulate sectoral policies as well overall weak capacity of public institutions could delay implementation of on-going projects. This risk is magnified in operations that include different levels of government and activities at locations that are spread over the country. Furthermore, a weak internal empowerment by implementing agencies and a fragile inter- institutional coordination could worsen this situation and impact the achievement of CPF results. Moreover, fiduciary and budget management challenges may negatively impact implementation of projects. This relates mainly to the risks of: (a) substantial delays to incorporate project funds into implementing agencies’ budgets; (b) delays in project implementation due to lack of knowledge on WBG regulations by Project Implementation Units and the National Court of Auditors; and (c) weak institutional capacity on fiduciary aspects in all ministries that affects WBG operations. To mitigate these risks, the WBG will continue working closely with implementing institutions and provide early and regular capacity building, particularly on procurement procedures, safeguards, financial management, and other technical-operational matters, as well as continue strengthening the fiduciary teams involved in WBG projects through workshops and training aimed at increasing capacity building. 19 43. The other risk that the PLR assesses as substantial is the risk of crime and violence on achieving CPF objectives. Crime and violence are endemic in El Salvador, and have significant economic, social welfare, health, and governance impact. Violence rate, measured as the number of homicide per 100,000 inhabitants per year, reached historic record levels of 102 homicides per 100,000 inhabitants in 2015, placing the country as the most violent one in the world for that year. For 2016, violence rate stood at 81 homicides per 100,000 inhabitants. Moreover, crime and violence represented a forgoing cost on average of about 16 percent of GDP to the country in 2014 due to costs related to public and private sector security expenses, including earning losses due to criminal activities, such as extortion. This widespread situation may negatively impact the achievement of CPF objectives and more in general investment operations. For example, the persistently high levels of crime and violence have negatively affected the image of the country and the investment climate, precluding new businesses to open, and some to shut- down its operations. Crime and violence may also impede safe access to education (when gangs take over schools) and reduce employment opportunities, particularly at night, because of the dangers of public transportation. To mitigate this risk, the WBG when implementing projects in municipalities with high crime and violence, will involve municipal crime and violence prevention committees, community leaders, and coordinate with local authorities, as needed. 20 Annex 1: Updated CPF Results Framework21 Pillar 1: Building Reinforcing Foundations to Promote Inclusive Growth El Salvador has been stymied by perpetuating cycles of low growth – and consequently a stagnation in poverty reduction. First is the vicious circle between low growth and violence. Low opportunities spawn crime and violence, and high risks and costs of insecurity then deter investment, resulting in lower productivity growth – which in turn hampers overall economic growth in a perpetual cycle. A second vicious circle is the cycle of low-growth and high migration, whereby limited opportunities, combined with high rates of crime and violence, push people to migrate. Migration then spurs a high rate of dependency on remittances, lower labor force participation, higher reservation wages, a brain drain and potential disincentives to invest in education, low skills, less competitiveness -- then low growth again. A third vicious circle is the link between low growth, savings and investment – which again are affected by El Salvador’s high rates of violence and migration. The SCD identified several levers to break these vicious circles, including: (a) strengthening violence prevention and law enforcement; and (b) improving education and skills; and (c) improving productive services and promoting financial inclusion. The CPF ha s been focusing on these reinforcing levers to promote inclusive growth with two objective areas that seek to: (a) improve secondary-school attainment; and (b) increase financial access to promote financial inclusion. Objective 1: Improve Secondary-school attainment Intervention Logic: The Government has placed education among the top three priorities for its Five-Year Plan. This high priority reflects the importance role that education can play in the vicious circles as a binding constraint to growth and inclusion. The quality of education is poor, learning outcomes are deficient, and educational attainment is low. The Government’s Five-Year plan prioritizes improvements in the education system by: improving quality, strengthening teacher training, modernizing infrastructure and equipment in schools, increasing education access for the poor and vulnerable, and ensuring safety in schools. In support of these efforts, the CPF seeks to help improve educational attainment at the secondary level by supporting the adoption of the IFTS Model, which addresses the problems of quality and exclusion of economically disadvantaged students, and tackles problems of early drop out, repetition and poor learning outcomes. The CPF is focused on strengthening the training of teachers, supporting the improvement of learning facilities and acquisition of educational materials, and extending the school day with accompanying investments in curricula and facilities to enhance the learning experience of the students in participating schools. CPF Indicators Supplementary Progress Indicators WBG Program 1.1 Improvement in the retention rate for lower Number of schools that fully adopt the Inclusive Full-time Completed secondary (from 7th to 9th grade) and upper School Model: secondary (from 10th to 11th grade) education22: Baseline: 22 [2013] x Central America School Dropout: Baseline: 91.00% (lower secondary) [2013] Current: 155 [2017] Causes & Consequences 90.50% (upper secondary) [2013] Target: 213 [2018] (P153075- ESW) Current: 90.87% (lower secondary) [2017] 90.01% (upper secondary) [2017] ON TRACK On-going Target: 91.00% (lower secondary) [2019] x Education Quality Improvement 92.50% (upper secondary) [2019] Number of certified secondary school teachers: Project (P126364) ON TRACK Baseline: 0 [2014] 21 All targets are expressed in Fiscal Years. 22 The trends show falling transition rates in recent years, both in project catchment areas and nationally, so the target is to at least maintain the baseline, which would be an improvement over expected outcomes. 21 Current: 1,227 [2017] Target: 1,500 [2018] ON TRACK Number of students in grades 7 to 9 that have more than 30 weekly hours of pedagogical activities coordinated by the school. Baseline: 0 [2014] Current: 6,060 [2017] Target: 12,000 [2018] ON TRACK Objective 2: Increase Access to Finance to Promote Financial Inclusion Intervention Logic: Despite a sound financial sector, financial inclusion is low, especially amongst the poorest 40 percent: only 14 percent of the Salvadoran population has an account at a formal financial institution, and just 6 percent of the bottom 40 had such an account. Limited use of financial services is also seen in the transfer of remittances, with the bulk being transferred outside the banking sector. Given that evidence shows that savings rates on remittance income tend to be lower than on other sources of income, operating outside the banking sector may in fact be nudging households to maintain high consumption and contribute to low savings rates. While access to finance does not appear to be a constraint for larger firms, bank finance for SMEs is limited. According to the 2010 Enterprise Survey, SMEs were 1.5 times as likely as large firms to identify access to finance as a key constraint for their business operations. Consumer credit, which can have simpler documentation requirements, is often used by micro- and SMEs to fund their business, but at higher interest rates. As in other countries in Central America, the banking sector’s share of credit to SMEs has declined, while consumer credit has increased. At an average of 166 percent, the value of the loan, collateral requirements limit access to credit for many firms, particularly smaller firms, and constrain the expansion of employment intensive sectors. WBG engagement has been facilitating access to credit and improving availability of finance through IFC credit lines tailored to microenterprises and SMEs. The expected outcome of this objective is that access to finance for firms and households would be increased so as to promote financial inclusion in the long run. CPF Indicators Supplementary Progress Indicators WBG Program 2.1 Increased people, microenterprises and SMEs Volume of micro & housing and SME loans outstanding On-going IFC reached with financial services Baseline: US$222 million (micro & housing) + US$215 • PC El Salvador Baseline: 7355 (people & micro)+ [2015] million (SME) [2015] • Banco Agricola 3814 (SME) [2015] Current: 296 (micro & housing) + 661 million (SME) • Fedecredito Current: 48,972 (people & micro)+ [2016] [2016] • Davivienda 7,906 (SME)+ [2016] Target: US$850 million (micro & housing) + US$831 • La Hipotecaria Target: 350,000 (people & micro) + [2019] million (SME) [2019] • Promerica ES 12,923 (SME) [2019] • Scotia El Salvador ON TRACK ON TRACK 22 Pillar 2: Fostering Sustainability and Resilience Sustainability and resilience in El Salvador are multidimensional. Fiscal sustainability is hampered by the lack of state capacity. The lack of confidence in public institutions is in part a reflection of a relatively ineffective state. State capacity is limited by low public revenues, and also manifests itself in the difficulty of raising revenue, especially from direct taxes. Pensions, which benefit only a small minority of the population, contribute to two percent of the GDP (half of the fiscal deficit). While debt levels are still manageable, the increase in public debt since the global economic crisis needs to be contained. Exposure to frequent disasters also poses a challenge to El Salvador’s sustainability and calls for an improved resilience. The impact of natural disasters results in average annual losses of around 2.5 percent of GDP. These losses add to fiscal pressures and constrain wealth accumulation, lowering potential growth in the medium- to long-run. This pillar brings together two objectives relating to fostering sustainability and resilience. The first objective aims to promote the efficiency of public spending, the second sees to build capacity for managing disasters and environmental challenges. Objective 3: Promote the Efficiency of Public Spending Intervention Logic: Fiscal deficits and low economic growth have increased public debt. The fiscal deficit hovers around 4 percent of GDP, and debt-to-GDP ratio has increased to 60 percent. The Government needs to improve the efficiency of public spending to make better use of constrained resources. Priority areas for the Government include improving: (a) the efficiency of public financial management at the national and local level; (b) the coordination and targeting of social interventions; (c) the efficiency of the school system; (d) the efficiency of the health services; (e) the management of the pension deficit, which represents half of the overall deficit, as well as the targeting of utility subsidies; and (f) the fiscal framework. The CPF has been supporting the Government’s efforts to improve the efficiency of public spending, in particular in education, health, and local government strengthening while maintaining dialogue and engagement on overall fiscal issues. CPF Indicators Supplementary Progress Indicators WBG Program 3.1 Number of local governments that are using Number of local governments that have completed Closed the official public financial management system: and are implementing a municipal fiscal public Local Government Baseline: 0 [2015] consolidation plan: Strengthening Project Current: 88 [2017] Baseline: 0 [2015] (P118026) Target: 47 [2017] Current: 149 [2017] Target: 100 [2017] ACHIEVED. ACHIEVED 3.2 Improve efficiency and reduce fragmentation in Number of municipalities that have undertaken a process On-going the organization of schools by effectively evaluation (qualitative assessment) of the governance system Education Quality Improvement implementing school clusters through Integrated as feedback loop for the effective implementation of Project (P126364) Systems. Integrated System of school clusters. Baseline: 0 Integrated Systems [2015] Baseline: 0 municipalities [2014] Current: 36 Integrated Systems [2017] Current: 0 municipalities [2015] Target: 40 Integrated Systems effectively Target: 7 municipalities [2018] implemented by completing at least 4 of 6 factors. [2019] ON TRACK ON TRACK 23 3.3 Increasing preventive care as measured Health Facilities equipped according to norms established by On-going by preventive medical consultations as MINSAL (Number of Family Community Health teams/ECOS x Strengthening Public Health Care percentage of total consultations in 92 select and Number of Hospitals) System Project (P117157) municipalities Baseline: 0 ECOS; 4 Hospitals [2015] Baseline:15.6% [2014] Current: 104 ECOS; 30 Hospitals [2017] Current: 23 % [2017] Target: 100 ECOS; 30 Hospitals [2017] Target: 16% [2017] ACHIEVED ACHIEVED Health Personnel receiving training in priority programs Baseline:700 personnel [2015] Current: 2039 [2016] Target: 1200 personnel [2017] ACHIEVED National Plan for Maintenance of Medical and Non-Medical Equipment in the public sector is implemented. Baseline: No [2015] Current: Yes [2017] Target: Yes [2017] ACHIEVED Objective 4: Build Capacity to Manage Disasters and Environmental Challenges Intervention Logic: El Salvador is exposed to a variety of natural hazards, which generate annual losses of around 2.5 percent of GDP and pose a threat to the sustainability of development gains. The most common disasters originate from volcano eruptions, earthquakes, tropical cyclones, excessive rainfall, and droughts. The country shows important progress in disaster risk management, moving from a reactive approach to a comprehensive framework which is based on (a) the strengthening of the National Civil Protection System; (b) a technologically-advanced and faster response system; (c) the most advanced monitoring network on the Central America sub-region and (d) the incorporation of technical information on natural hazards to programs, in order to reduce vulnerability in sector like education, health and public works, among others. The poor suffer the most because they often reside in places in hazard prone areas and have low capacity to recover from the impact of extreme events. The WBG will support the resilience agenda in a selective manner, focusing on carbon emissions and on financial protection against disasters. Within the framework of the Forest Carbon Partnership Facility (FCPF) grant, the WBG will be supporting El Salvador in assessing the causes of deforestation and forest degradation and developing a national strategy and implementation framework to reduce carbon emissions from Deforestation and Forest Degradation (REDD+). Under this framework, El Salvador will have the opportunity to access significant resources form carbon finance entities, such as the Carbon Fund Window of the FCPF. A financial protection strategy can help shield the Government from the economic burden of disasters. 24 CPF Indicators Supplementary Progress Indicators WBG Program 4.1 A financial protection strategy to respond The Ministry of Finance publishes the “Medium- On-going quickly and sufficiently to disasters is put in Term Fiscal Framework 2015-2025” including a x Central America Disaster Risk place chapter on fiscal risks related to natural disasters. Financing Engagement Project (TA- Baseline: No [2015] Baseline: No [2015] P148729-TAS-TF016321 Current: No [2017] Current: Yes [2015] Target: Yes [2019] Target: Yes [2015] ON TRACK ACHIEVED A study on Fiscal Vulnerability of El Salvador to natural disasters is completed. Baseline: No [2015] Current: Yes [2015] Target: Yes [2015] ACHIEVED 4.2 A national strategy to reduce emissions El Salvador develops the institutional arrangements, policy On-going from deforestation and forest degradation instruments and monitoring/evaluation systems that will x El Salvador Readiness Preparation provides the country access to funds from provide the foundation for the country’s participation in Proposal - Formulation Grant (2014) finance initiatives. any future REDD+ mechanism under the UN Framework Baseline: none [2015] Convention on Climate Change. [2017] Target: country gets access to finance initiatives [2018] ON TRACK ON TRACK 25 Annex 2: Matrix of Changes to Original CPF 1.1 Reduced average perception of insecurity in the municipalities where the Dropped. It relied on new lending that did not materialize. “Safer Communities” Project is implemented 1.2 Enhanced and increased access to secondary prevention services for special Dropped. It relied on new lending that did not materialize. target groups 1.3 Improved community cohesion though employability and community Dropped. It relied on new lending that did not materialize. infrastructure 1.4 Reduced capture/recruitment of vulnerable youth by gang structures Dropped. It relied on new lending that did not materialize. 2.1 Improvement in the effective transition rate between lower and upper Revised indicator to measure retention rates to align with the WBG secondary (from 9th to 10th grade). Project monitoring. Baseline: 73% [2013] Target: at least 73% [2019] Revised indicator: Improvement in the retention rate for lower secondary (from 7th to 9th grade) and upper secondary (from 10th to 11th grade) education: Baseline: 91.00% (lower secondary) [2013] 90.50% (upper secondary) [2013] Current: 90.87% (lower secondary) [2017] 90.01% (upper secondary) [2017] Target: 91.00% (lower secondary) [2019] 92.50% (upper secondary) [2019] 2.2 Number of Integrated School Systems that fully adopt the full-time school Moved to milestones. model Baseline: 0 [2014] Target: 40 [2017] 3.1 Number of youth that receive training under new “employability and Dropped. It relied on new lending that did not materialize. skills” program (% female) Baseline: 0 [2015] Target: 40,000 (50%) [2019] 26 3.2 Percent of youth that receive training under new “employability and skills” Dropped. It relied on new lending that did not materialize. program who come from municipalities with high incidence of violence Baseline: 0 [2015] Target: 50% [2019] 3.3 Number of employment offices that are upgraded to become one-stop-shops Dropped. It relied on new lending that did not materialize. for labor intermediation, career counseling, referrals to social programs, and training Baseline: 0 of 40 existing employment offices [2015] Target: At least 10 employment offices with the full range of services [2019] 4.1 Increased number of microenterprises, mortgage clients and SMEs reached Revised target based on the expected engagement before the closure with financial services of the CPF. Baseline: 198,274 (micro & mortgage clients) + 9,360 (SME) (2013) Target: 386,501 (micro & mortgage clients) + 25,625 (SME) (2019) 5.1 Improve public financial systems of selected local governments by Revised. Included the implementation of the municipal fiscal public implementing consolidation plans and applying MoF directives (SAFIM). consolidation plans under milestones and clarified the application of Baseline: 0 [2015] the use of MoF directive. Target: plans and systems implemented in all selected municipalities [2019] Revised language of the indicator: 3.1 Number of local governments that are using the official public financial management system: Baseline: 0 [2015] Current: 88 [2017] Target: 47 [2017] 27 5.2 Improving the coordination and targeting of social interventions by (a) Dropped. It relied on new lending that did not materialize. completing the social registry (Registro Unico de Participantes, RUP); (b) establishing linkages between the RUP and other registry databases, such as the registry for energy subsidies; and (c) once complete, establishing the use of the RUP as the primary platform for targeting social programs. Baseline: 71 municipalities covered by the RUP [2015] Target: RUP extended to cover all 262 municipalities, and linked to and cross- checked with the registry for energy subsidies (gas and electricity), and officially established as the platform for targeting social programs. [2019] 5.3 Improve efficiency and reduce fragmentation in the organization of schools No change. by effectively implementing school clusters through Integrated Systems. Baseline: 0 Integrated Systems [2015] Target: 40 Integrated Systems effectively implemented by completing at least 4 of 6 factors. [2019] 5.4 Increasing preventive care as measured by preventive medical No change. consultations as percentage of total consultations in 92 select municipalities Baseline: 15.6% [2014] Target: 16% [2017] 6.1 A financial protection strategy to respond quickly and sufficiently to No change. disasters is put in place Baseline: No risk financing instruments in place to manage disaster impacts [2015] Target: Development of a tailor-made sovereign disaster risk financing strategy [2019] 6.2 El Salvador Government provides additional contingent funding or at least Dropped to reflect lack of progress on joining CCRIF. one risk transfer instrument. Baseline: The only contingency fund is FOPROMID (with a $4 million risk retention capacity) [2015] Target: Risk retention capacity has been increased or at least one additional contingent funding instrument is in place [2019] 28 6.3 A national strategy to reduce emissions from deforestation and forest No change. degradation provides the country access to funds from carbon finance initiatives. Baseline: none (2015) Target: country gets access to carbon finance initiatives (2018) 29 Annex 3: Definitions - Monitoring and Evaluation of the Updated CPF Results Framework INDICATORS OPERATIONAL DEFINITIONS AND SOURCES OF DATA 1.2 1.1 Improvement in the retention For Lower Secondary: The number of students in grades 7-9 enrolled at the end of year t divided by the total rate for lower secondary (from 7th to 9th number of students in grades 7-9 enrolled at the beginning of year t multiplied by 100. grade) and upper secondary (from 10th to For Upper Secondary: The number of students in general upper secondary education plus number of students 11th grade) education. in technical secondary education enrolled at the end of year t divided by the students in general upper secondary education plus number of students in technical secondary education enrolled at the beginning of year t multiplied by 100. Source of date: National School Census; Directorate of Planning, Ministry of Education 2.1 Increased number of Number of microenterprises, mortgage clients, and SMEs reached with financial services supported by WBG- microenterprises, mortgage clients and financed operations. IFC counts a broad range of financial services with data disaggregated between MSMEs, SMEs reached with financial services including: x Individuals/Micro Finance: This category includes deposit accounts, the number of outstanding micro, housing, and retail loans, as well as clients reached with insurance and pensions. IFC counts the year-end number of outstanding loans, clients insured, and deposit accounts. Microfinance loan is defined as a commercial loan with amount at origination up to US$10,000. Retail loans include consumer credit cards, store cards, motor (auto) finance, personal loans (installment loans), consumer lines of credit, retail loans (retail installment loans). x SME Finance: SME finance includes SME loans, leasing, as well as enterprise insurance. An SME loan is defined as a commercial loan with amount at origination between US$10,000 to US$1,000,000 (or to US$2,000,000 in more advanced economies). Enterprise insurance includes the number of non-life commercial lines and agribusiness. Baseline: 7355 (people & micro)+ [2015] 3814 (SME) [2015] Target: 350,000 (people & micro) + [2019] 12,923 (SME) [2019] Source of data: IFC Development Outcome Tracking System 3.1 Improving public financial systems Improving public financial systems of selected local governments by implementing consolidation plans and of selected local governments by applying MoF directives (SAFIM). implementing Baseline: 0 [2015] consolidation plans and applying MoF Target: plans and systems implemented in all selected municipalities [2019] directives (SAFIM). Source of Data: municipalities 30 3.2 Improve efficiency and reduce Number of Integrated School Systems effectively implemented by completing at least 4 of 6 criteria. The criteria fragmentation in the organization of include: (a) Pedagogical Plan completed; (b) Longer school day implemented with more than 25 hours of class schools by effectively implementing time offered; (c) School directors and lower and upper secondary teachers trained in the features of the new school clusters through Integrated Integrated Systems model through introductory training with at least 50% in three of five models offered; (d) Systems. Civil works earmarked for schools in the Integrated Systems model fully completed, including provision of furniture; (e) Educational equipment and material delivered to schools earmarked for this in the Integrated System; and (f) Territorial reorganization of the Integrated System is complete, as evidenced by at least one teacher training in more than one school in the Integrated System; at least one shared space used by more than one school; and students receiving a transport stipend. Baseline: 0 Integrated Systems [2015] Target: 40 Integrated Systems effectively implemented by completing at least 4 of 6 factors. [2019] Source of Data: Directorate of Planning, Ministry of Education. 3.3 Increasing preventive care as Number of preventive consultations in 92 selected municipalities / total number of consultations in the 92 measured by preventive medical selected municipalities. consultations as percentage of total Baseline: 15.6% [2014] consultations in 92 select municipalities Target: 16% [2017] Source of Data: MINSAL Information System, covering the 92 municipalities. 4.1 A financial protection strategy to The strategy would be based on the careful assessment of risk profile of the country and would seek to provide respond quickly and sufficiently to adequate coverage to multiple eventualities. It would include the creation of budget funds, contingent financing disasters is put in place and insurance. It would be completed by a build-up of the institutional capacity to respond. Baseline: No risk financing instruments in place to manage disaster impacts [2015] Target: Development of a tailor-made sovereign disaster risk financing strategy [2019] Source of Data: Strategy Document Published—publicly available. 4.2 A national strategy to reduce The national strategy is a document which includes the following axes of action: expand agroforestry and emissions from deforestation and forest promote resilient to climate change; conservation of forest ecosystems and protected areas; restoration of degradation provides the country access gallery forests; promotion of green infrastructure for retention, collection and water management; applied to funds from carbon finance initiatives. research, training, and education; institutional strengthening. Baseline: none [2015] Target: country gets access to carbon finance initiatives [2018] 31 Annex 4: Active IBRD Portfolio El Salvador Portfolio As of September 30, 2017 Net Comm. Undisb. Bal. GPVP Project ID Project Name Appr. FY Closing Date Amt. - Total ($M) ($M) GGHVP P117157 SV Strengthening Public Health Care System 2012 30-May-2018 80.00 31.69 GGHVP P126364 SV Education Quality Improvement 2012 31-Dec-2018 60.00 21.94 32 Annex 5: IFC Statement of Committed & Outstanding Portfolio 33 Annex 6: MIGA Active Portfolio 34 Annex 7: Advisory and Analytical Services As of September 30, 2017 Task ID Task Name Team Leaders Status P157980 El Salvador Financial Sector Assessment Program John Daniel Pollner, Rekha Reddy Completed P152766 El Salvador Bond Market Development Rafael Pardo Ostos Completed P154678 El Salvador Financial Infrastructure Development Maria Teresa Chimienti, Marlon Rolston Rawlins Ongoing Mainstreaming Disaster Risk Management in El P157441 Fernando Ramirez Cortes Ongoing Salvador Education P162015 El Salvador Public Expenditure Review Fernando Gabriel Im, Marco Antonio Hernandez Ore Ongoing P155068 Regional Central America Energy Assessments Mariano Gonzalez Serrano Ongoing Regional Central American Project to support the Mayra Del Carmen Alfaro De Moran, William John P156050 Ongoing implementation of the Trade Facilitation Agreement Gain Enhancing Disaster Risk Management in Central P159930 Lizardo Narvaez Marulanda, Ana Campos Garcia Ongoing America Central America Regional task to support Public Private P160763 Thomas A. Vis, Lincoln Flor Ongoing Partnerships 35 Annex 8: Closed IBRD Projects As of September 30, 2017 Net Date, Board Date Comm Tot Disb Proj ID Project Name TL Name Rev Closing Lst DO Lst IP Approval Effect. Amt ($m) ($m) SV Fiscal Mgmt and Guadalupe P095314 11/24/2009 5/24/2011 9/30/2016 U MU 15.27 15.27 Public Sector Perf TA Toscano Nicolas SV Income Support P117440 Pablo Acosta 11/24/2009 1/18/2011 8/31/2016 S S 49.38 49.38 and Employability SV Local P118026 Government Victoria Stanley 06/01/2010 11/18/2010 12/31/2016 S MS 79.06 79.06 Strengthening 36 Annex 9: Active Trust Funds As of September 30, 2017 Fund Grant Fund TTL Grant Managing Grant Disbursement TF End Trustee Fund Name Project ID Program Agreement Closing Date Name Type Unit Amount USD s USD Disb Date Date Name Human Rights and TF07118 Amparo Elena Family Planning in Zika P117157 BEA NTF GHN04 250,000.00 61,617.75 12/08/2016 01/31/2019 09/30/2018 0 Gordillo-Tobar affected countries Support to the Central TF07154 Augustin America Urbanization P157568 BEA FS-SDN GSU10 180,000.00 168,334.08 02/16/2015 04/30/2018 12/31/2017 4 Maria Review Mainstream Disaster Fernando TF07212 Risk Management in El Ramirez P157441 BEA GFDRR GSU10 830,000.00 222,441.70 11/08/2015 04/30/2018 12/31/2017 9 Salvador Education Cortes Sector Assessing risk exposure Fernando TF07086 and vulnerability of Ramirez P157441 BEA GFDRR GSU10 175,336.20 52,574.12 05/26/2017 12/31/2017 08/31/2017 8 school infrastructure in Cortes El Salvador TF07107 El Salvador - FCPF - Giovanni Ruta P124935 BEA FCPFR GEN04 226,134.00 185,201.39 06/13/2014 10/31/2020 06/30/2020 6 Preparation FCPF El Salvador TF07107 Readiness Preparation Giovanni Ruta P124935 REO FCPFR GEN04 3,800,000.00 2,107,474.41 07/28/2011 01/31/2019 07/31/2018 6 Proposal - Formulation Grant El Salvador #B058 TF07072 Maria Teresa Payment System P154678 BEA FIRST GFM04 166,892.00 145,062.55 07/08/2015 01/31/2018 09/30/2017 3 Chimienti Development Indicators for TF07056 Robert J. Educational P126364 BEA TFSCB GED04 98,680.00 80,838.13 07/01/2015 04/30/2018 12/31/2017 1 Hawkins Opportunities 37 90°W 89°W 88°W To Quezaltepeque To Nueva To Ocotepeque Ipala G U AT EM ALA Metapán La Palma Lago de Cerro El Pital HO NDURA S (2,730 m) EL SALVADOR A To Güija N Jutiapa A TA Candelaria de la Frontera C H A L AT E N A N G O N Nueva Tejutla SA To Concepción Jalpatagua Lempa Chalatenango Santa Embalse Lem To Ana pa Marcala SA 14°N Chalchuapa Cerrón Grande 14°N z CU Pa N Jocoaitique Ahuachapán Ahuachap N Volcán de Aguilares Suchitoto CABAÑAS PÁ To SC Santa Ana LA SAL Taxisco A (2,365 m) Ilobasco Sensuntepeque H L I B E R TA D AT La Hachadura C Lago de To A VA D ro la LÁ Coatepeque U Osicala H Ciudad Barrios N Armenia Nueva Izalco MORAZÁN A Esparta SAN SAN OR SALVADOR San Francisco Sonsonate Lago de Cojutepeque VICENTE Goascorán (Gotera) S O N S O N AT E Nueva Illepango San Salvador San Vicente To Santa Rosa Nacaome Acajutla Volcán de a de Lima Jibo Vicente (2,182 m) Olocuilta Tecoluca Santiago LA Zacatecoluca de María SAN MIGUEL UNIÓN pa La Libertad LA San Miguel Le m San Luis Volcán de PA Z San Miguel 90°W USULUTÁN (2,130 m) B La ahía La Herradura San Miguel Un de Jiquilisco de d e ión n Usulután Gr a La Unión EL SA LVA D O R Bahía de Jiq uilis c o Laguna de Olomega SELECTED CITIES AND TOWNS Intipuca Golfo de DEPARTMENT CAPITALS F onseca NATIONAL CAPITAL PA CI FI C O CE A N RIVERS This map was produced by MAIN ROADS the Map Design Unit of The 13°N World Bank. The boundaries, PAN AMERICAN HIGHWAY colors, denominations and any other information shown 0 10 20 30 40 Kilometers NOVEMBER 2006 RAILROADS on this map do not imply, on IBRD 33401R the part of The World Bank Group, any judgment on the DEPARTMENT BOUNDARIES legal status of any territory, 0 10 20 30 Miles or any endorsement or INTERNATIONAL BOUNDARIES acceptance of such boundaries. 89°W 88°W