Bahia Inclusion and Economic Development DPL

closed

The objective of the Bahia Socio Economic Development for Inclusive Growth Development Policy Loan (DPL) Program for Brazil is to support the State of Bahia's program to reduce social inequality, develop more efficient institutional infrastructure and logistics, and strengthen public sector management. The State of Bahia, which represents the sixth largest economy in Brazil and the fourth state in terms of population, is the largest economy in Northeast Brazil. Bahia accounts for about 4.2 percent of the national gross domestic product (GDP) and its population of 14 million inhabitants represents 7.5 percent of total national population. Bahia, like other Northeastern states, has long lagged behind the rest of Brazil in terms of socio economic development; the State's GDP per capita of R$9,364 (in 2009) is about 56 percent of the national average. Brazil's relative resilience to the global financial crisis reflected good macroeconomic management and a solid financial system. At the same time, Brazil's public external debt-to-GDP ratio has shown a marked decline in recent years, largely reflecting the country's prudent fiscal policy stance. Gross public sector external debt as a share of GDP plummeted from 9.3 percent in 2005 to 2.7 percent in 2011, and is projected to stabilize around that level for the next few years. Other external sector vulnerability indicators have behaved similarly. For example, total external debt service in terms of exports fell by 40 percent between 2007 and March 2012. Even more remarkably, total external debt as a share of international reserves plunged from 557.1 percent in 2002 to a projected 82 percent in 2012. In addition, nonresident holding of general Government debt remains relatively low, estimated at end 2011 as 3.8 percent, in comparison to the emerging market average of 20.4 percent. To counter the recent growth slowdown, particularly regarding domestic industrial output, the Government has taken action to curb exchange rate appreciation and has also moved towards more direct industrial policy interventions.