Mato Grosso Fiscal Adjustment and Environmental Sustainability DPL

closed

The Program Development Objectives are to support the State of Mato Grosso to regain fiscal sustainability and to increase institutional capacity for sustainable agriculture, forest conservation and climate change mitigation.The proposed DPL will support policies anchored in the two key elements of the government’s development strategy: fiscal sustainability and management of the nature-based engine of economic growth.The design of the fiscal pillar incorporates lessons learned from previous subnational DPLs in Brazil.Key lessons from the evaluation of these operations are: (i) subnational DPLs to support fiscal adjustment programs in states and municipalities need to include fiscal measures that are sufficient to achieve relevant fiscal outcomes and these measures need to be front-loaded, to contain moral hazard; (ii) ownership and leadership at the highest level are needed to successfully implement reforms, and the beginning of the political cycle is the most promising time for reforms; (iii) selectivity in the choice of sectors is key to keep the operation focused and deliver meaningful results; (iv) DPLs can serve as a vehicle for deepening the policy dialogue on fundamental issues, with the Bank providing technical knowledge; and (v) close collaboration with the relevant federal agencies (STN) strengthens the design of a fiscal program and monitoring of subnational governments’ fiscal status.The design of the second pillar benefited from the experience of the Piauí Green Growth and Inclusion Development Policy Loan, the first subnational DPL in Brazil focusing on climate change and environmental issues: (i) given the multi-actor nature of the Produce, Conserve, Include (PCI) plan, it is crucial to engage multiple stakeholders beyond the environment and agricultural sectors into the policy discussion and implementation; (ii) there is a need to institutionalize these long-term policies, to ensure continuity across administrations; and (iii) there is also a need to establish early on adequate monitoring and evaluation tools to track policy implementation and fulfillment of program targets.