The World Bank Brazil-Salvador Social Multi-Sector Service Delivery Project (P162033)

performers that scored above 60. In primary health, Belo Horizonte, a 'front - runner' among the state capitals, hadalready achieved the coverage rate above 93.7 percent. While Belo Horizonte may not be a 'fair' comparison for Salvador given the differences in socioeconomic and fiscal/institutional conditions, even other large state capitals in the Northeast Region that are more appropriate comparators such as Fortaleza and Recife had far out-performed Salvador with 49.4 and 56.5 percent of primary care coverage, respectively, in 2012. The picture was similar in social assistance. Clearly, more needs to be done to continue improving the quality of social services and their effects on poverty reduction and human development.

##### Fiscal Outlook

Salvador has achieved the above-mentioned turnaround in social service delivery while jealously maintaining sound fiscal policy over the past several years. In each of the last four years, the municipal administration achieved both positive nominal and primary balances, despite doubling public investments in 2014-15 compared to the previous two years. The low level of debt service obligations - 3.9 percent of net current revenue compared to the legal limit of 11.5 percent established in the Law of Fiscal Responsibility (LFR) - reflect the fact that Salvador has relied almost exclusively on own resources to finance its investment projects, many of which were for revamping service delivery in education, health and social assistance. For the period between 2012 and 2015, Salvador derived approximately 92 percent of resources directed to investments from the municipality's current revenues (taxes and current transfers) and limited its reliance on capital transfers (7 percent) and borrowing (1 percent). Thanks to its prudent borrowing policy, Salvador managed to reduce the ratio of consolidated debt to net current revenues from 52.1 percent to 26.5 percent between 2012 and 2015, well below the LFR limit of 120 percent. Maintaining fiscal discipline and ensuring sustainability of its investments and services is a 4 key priority of the municipal administration. Strong revenue efforts have also contributed to the positive fiscal performance. Salvador increased its own revenue collection effort, and managed to increase the share of own revenues to 54 percent of its total revenues, above the national average for state capitals (44 percent) and the largest ratio among capitals in the Northeast, North and Center- West regions. A notable measure that has contributed to this buoyant performance included the update of the property registration cadaster, which resulted in the expansion of the property tax (IPTU) collection by 42.5 percent between 2012 and 2015 (12.5 percent real average annual growth). The economic crisis resulted in contraction of tax revenues in 2015 in real terms (-11.6 percent), especially due to a significant drop in ISS (tax over services) and sizable losses in fees and in another tax over donations and transfers. Overall, revenues contracted 4.1 percent in real terms in 2015. Still, Salvador managed to keep the personnel expenditure virtually stable in real terms in 2015 and reduce other current expenditures by 0.6 percent. As a result, current expenditures dropped 0.3 percent after a 14-percent expansion in the previous year.

##### Continued Service Delivery Improvements with Results Focus and Fiscal Sustainability

The municipal administration is determined to continue its efforts to improve social service delivery. The new policy priorities are expected to be articulated in the next strategic plan that the municipality is currently developing. While continuing to address gaps in service coverage that remain in specific areas or sub-sectors (e.g., early childhood education and basic social assistance which still needs further development, high-complexity health care given the shifting epidemiological profile of the ci ty's population and the inability of the existing facilities to fully respond to the needs), the