Post on 19-Apr-2018
transcript
El Salvador Fiscal Policy and Expenditure
Management Program (FPEMP)
Fifth Year Evaluation Report June 2015 – May 2016
August 2016
This publication was produced for review by the United States Agency for International
Development. It was prepared by DAI Global LLC.
FISCAL POLICY AND EXPENDITURE
MANAGEMENT PROGRAM (FPEMP)
FIFTH YEAR EVALUATION REPORT
JUNE 2015 - MAY 2016
Program Title: Fiscal Policy and Expenditure Management Program
Sponsoring USAID Office: USAID/El Salvador Economic Growth Office
Contract Number: AID-519-11-000001
REQ-519-10-000011
Contractor: DAI
Author: David Hall
Date of Publication: August 2016
The authors’ views expressed in this publication do not necessarily reflect the views of the
United States Agency for International Development or the United States Government.
TABLE OF CONTENTS
ACRONYMS .................................................................................................................................. i
EXECUTIVE SUMMARY ............................................................................................................ 1
CHAPTER 1- INTRODUCTION ................................................................................................. 4
CHAPTER 2 - A STABLE MACROECONOMIC ENVIRONMENT: THE ROLE OF
FISCAL REFORM ...................................................................................................................... 10
CHAPTER 3 - OBJECTIVE 1: ENHANCED PUBLIC EXPENDITURE MANAGEMENT 15
Consolidation of GOES Treasury Operations........................................................................... 16
Development of the Treasury Subsystem and Integration with the SAFI II............................. 17
Supporting IPSAS Adoption ..................................................................................................... 18
Development of the Government Accounting Subsystem and Integration with the SAFI II ... 19
Enhancing the e-procurement system, COMPRASAL II ......................................................... 19
UNAC reform and strengthening .............................................................................................. 21
Transition to Programmatic Budgeting ..................................................................................... 21
Sustainability of Component A Initiatives ................................................................................ 23
CHAPTER 4 – OBJECTIVE 2: IMPROVED REVENUE MOBILIZATION ......................... 25
Improving the Tax Control Environment/Strengthening Tax Evasion Enforcement ............... 26
Development of CSMS II ......................................................................................................... 30
Improving Taxpayer Services through Online services ............................................................ 33
Taxpayer Data Integrity ............................................................................................................ 33
Sustainability of Objective 2 Initiatives .................................................................................... 34
CHAPTER 5 – OBJECTIVE 3: STRENGHTENED PRIVATE SECTOR OUTREACH ... 36
Seeking a National Fiscal Sustainability Agreement in El Salvador ........................................ 37
Improving Fiscal Transparency in El Salvador ........................................................................ 38
Supporting Fiscal Transparency at the Municipal Level .......................................................... 40
Building a stronger culture of performance management ......................................................... 41
Supporting Fiscal Education through the EXPRESATE Center .............................................. 42
Supporting the implementation of a Public Procurement Ombudsman Office ........................ 43
Sustainability of Objective 3 Initiatives .................................................................................... 43
CHAPTER 6 - FINDINGS AND RECOMMENDATIONS ..................................................... 46
Lessons Learned........................................................................................................................ 46
Recommendations ..................................................................................................................... 47
Annex 1: Perception Survey Results............................................................................................. 52
Annex 2: List of Interviews .......................................................................................................... 53
Figures
Figure 1: National GDP Growth ................................................................................................... 11
Figure 2: Government Revenues and Expenditures as % of GDP (2012-15) ............................... 12
Figure 3: Fiscal Deficit as a Percentage of GDP .......................................................................... 12
Figure 4: Total Sovereign Debt 2003-2015, as a percentage of GDP .......................................... 13
Figure 5: Floating Debt 2011-2015............................................................................................... 13
Figure 6: Issuance, Payments and Balance of Short-Term Debt (“Letes”) .................................. 16
Figure 7: COMPRASAL II: Software development sequence ..................................................... 20
Figure 8: Tax (Net) Revenue Collections, El Salvador 2004-2015 (as % of GDP) ..................... 25
Figure 9: Tax Revenue Breakdown by Tax Type ......................................................................... 26
Figure 10: CSMS Roadmap detail ................................................................................................ 30
Figure 11: Massive Flows - CSMSII ............................................................................................ 30
Figure 12: CSMS II Full workflow ............................................................................................... 31
i
ACRONYMS
AECID Spanish International Cooperation Agency
AFI Law Organic Financial Administration Law
ATI Addis Tax Initiative
CAFTA-DR Central America and the Dominican Republic Free Trade Agreement
COMPRASAL II e-procurement system
COR Contracting Officer’s Representative
CSMS II Case Selection Management System
DAI Development Alternatives Incorporated
DGA General Directorate of Customs
DGCG General Directorate for Government Accounting
DGEA Administrative General Directorate
DGII General Directorate for Internal Revenue
DGP Budget General Directorate
DGT Treasury General Directorate
DINAFI National Directorate for Financial Administration
DRM Domestic Resource Mobilization
EU European Union Cooperation Agency
FPEMP Fiscal Policy & Expenditure Management Program
GDP Gross Domestic Product
GIZ German International Cooperation
GOES Government of El Salvador
HR Human Resources
ICEFI Central American Fiscal Studies Institute
IDB Inter-American Development Bank
IPSAS International Public Sector Accounting Standards
IT Information Technology
LTO Large Taxpayer Office
MOF Ministry of Finance
NFSA National Fiscal Sustainability Agreement
OTA Office of Technical Assistance of the United States Treasury
ii
PAAC Annual Procurement Plan module
PFGL Local Government Strengthening Project
PFM Public Financial Management
PPP Public-Private Partnership
SAFI National Financial Management System
SAFIM Municipalities Financial Management System
SIGMUNI Municipal Management Information System
TAIIA Tax Appeals Directorate
TPAR Tax Policy & Administration Reform Project
TSA Treasury Single Account
UNAC National Procurement Unit
USAID United States Agency for International Development
USG United States Government
VAT Value Added Tax
WB World Bank
1
EXECUTIVE SUMMARY
With the purpose of strengthening the program cycle, the USAID/FPEMP incorporates in its
monitoring and evaluation approach a performance review of the program on an annual basis.
The expected results presented in this report follow the expected results from FPEMP’s work
plan, which follow the results expected per the program’s contract. These are results anticipated
to arise from counterpart’s achievements which directly support program objectives. While many
factors can affect the achievement of the expected program objectives and results, by evaluating
achievements and delivered outputs on an annual basis, it is possible to ensure a more systematic
review of any challenges while devising a strategy which can keep program activities on track in
progressing towards achieving its objectives and expected results.
The following represent key results obtained in the fifth year of assistance to the GOES, by
component:
COMPONENT A: Enhanced Public Expenditure Management
“Libre gestion” module of the e-procurement system (COMPRASAL II) fully developed
and 14 public sector pilot institutions trained in the use of this new tool. Once completed,
COMPRASAL II will cover all public procurement and represent a significant step in the
fight against corruption, collusion and bid-rigging nation-wide.
40% completion of the IPSAS-compliant Government Accounting Subsystem in the
National Financial Management System of the Government of El Salvador (GOES)
called SAFI II by its Spanish acronym.
42% completion of the Treasury Subsystem in the SAFI II. The new subsystem will
incorporate the advanced TSA system.
359 public sector staff trained in modern expenditure system management techniques
during year five, more than 900 during all FPEMP project lifetime;
Technical foundations for government-wide adoption of IPSAS 70% complete and on
schedule for full completion by the end of the contract period.
Proposed reforms to the Financial Administration System Law to improve overall PFM
provided to MOF authorities.
Public Procurement Regulatory Unit-UNAC fully reformed as proposed and requested by
FPEMP.
MOF adoption of the recommendation made by FPEMP to develop the budget
formulation using a revenue budget based on net revenue.
COMPONENT B: IMPROVED REVENUE MOBILIZATION
USAID public finance investments have both tangible impact on public revenues, but
equally important—though more qualitative—impacts on transparency and legitimacy of
government and its capability to deliver public services. FPEMP activities in
Component B have yielded an estimated $229.2 million from a USAID investment of
$3.6 million since 2011, which means every dollar invested by USAID in this
2
component has generated an additional $63.66 in domestic revenues. A minimum of
$135 million in additional revenue was produced through FPEMP assisted
initiatives in Year 5 during the evaluation period.
The “Tax Evasion Crackdown” has produced $129.2 million in additional public revenue
since its inception, with higher amounts expected upon completion.
Taxpayer records and the database containing those records fully cleaned, formatted and
now continuously monitored by the MOF with its own resources.
Tax reform proposal approved by the MOF and now with the Legislative Assembly for
approval.
Achieved technical and political consensus on enforced tax arrears collections in part
through an FPEMP study tour to Colombia to learn from their policy and administrative
set-up for enforced collections. Detailed action plan for creating an enforced arrears
collection unit is complete through project assistance.
Case Selection Management System II (CSMS II) 90% complete and on schedule for
delivery and full handover to the Directorate General of Internal Revenue (DGII, from
the Spanish acronym) by the end of the contract period of performance.
COMPONENT C: PRIVATE SECTOR ENGAGEMENT AND TRANSPARENCY
National transparency portal fully operational and updated by MOF;
The national Fiscal Transparency Portal currently averages 25,445 page visits per month.
Fiscal Transparency white paper, co-funded with GIZ and AECID, presented to the
President’s Economic Council, National Council for Growth and Civil Society;
Facilitated discussions between GOES and the private sector to raise the chances of
reaching a “fiscal pact” to open political space for the MOF to raise adequate revenue;
Near completion of the Public Procurement Ombudsman’s office replicated from
CHILECOMPRAS Ombudsman model demonstrated through an FPEMP-facilitated
study tour;
2131 high school students visit the Tax Awareness “Expresate” Center to learn the
importance of tax compliance and benefits of government expenditures for Salvadoran
youth. More than 7000 students have visited the center since its launch in 2013.
As part of a series of interviews with FPEMP counterpart offices inside the MOF, a brief
customer satisfaction survey was given orally to respondents, requesting feedback on the:
Quality, Timeliness, Flexibility, Communication and General Satisfaction on FPEMP’s technical
assistance. The results from 15 respondents, on a scale of 1 to 5 were on average, as follows:
1 Quality 4.63
2 Timeliness 4.80
3 Flexibility 4.53
4 Communication 4.57
3
5 Overall Satisfaction 4.80
Qualitative comments and feedback offered were roundly positive on all fronts of project
assistance, while also offering suggestions for improvement and proposed project responses that
will be discussed in greater detail under the technical area where it applies. It is universally
accepted by all respondents that project activities are directly in line with the MOF’s Strategic
Plan, and has contributed to the achievement of important, broader GOES objectives.
Finally, while substantial progress has been made, nearly all interviewed respondents indicated
significant short and medium-term needs for continuing support. For example, respondents
consistently requested assistance in: further capacity building on new tools and approaches
implemented by FPEMP, completion of the full SAFI II system due to delays on the Budget sub-
system cascading down to FPEMP software development tasks, adoption and capacity building
on IPSAS, development of the COMPRASAL II system to manage contracts and conduct large
procurements over $64,000, developing new online taxpayer services, further strengthening tax
audit and enforcement effectiveness, acquisition of further third-party data sets to enable deeper
data mining and the integration of customs operations under the CSMS II system. Other areas for
requested assistance have been discussed with the FPEMP project team together with
recommended areas for integration in the project work plan.
4
CHAPTER 1- INTRODUCTION
Background and Purpose
With the purpose of strengthening the program cycle, the USAID/FPEMP incorporates in its
monitoring and evaluation approach a performance review of the program on an annual basis.
This report continues this cycle with this performance review for the fifth year of implementation
with a specific focus on:
Evaluating key program results;
Identifying factors that facilitate or impede achievement of results, and integrate feedback
into future activities and work plans;
Detect challenges, including technical and/or related to political economy
Provide recommendation of options for adjusting program activities with an aim to
accomplish and/or accelerate results to ensure reaching the intended objective
Pinpoint specific program implementation experiences which relate to learning,
adaptation and collaboration approaches that may be emphasized further in the program.
The FPEMP contract was fully executed by USAID and DAI on June 10, 2011. Since USAID
agreed to exercise the final option year of the contract, a further eight month extension has been
granted through February 2017. Implemented by DAI, USAID/FPEMP contributes to achieving
the objectives of El Salvador’s Five Year Development Plan 2014-2019, and the new Strategic
Plan of the Ministry of Finance; namely, to improve the efficiency of public expenditure
management, enhance tax administration in order to mobilize greater tax revenues, and improve
public-private relations and transparency in order to accelerate economic growth. In this context,
FPEMP supports the MOF’s commitment to transform the GOES into a high performing, result-
driven administration that taxes citizens fairly, spends money wisely, and promotes greater social
inclusion.
Structure of the report
This introductory chapter includes a discussion on the background, purpose and methodology
used to prepare and review the report. The next chapter provides a general overview of El
Salvador’s macro-fiscal trends evaluating the role of FPEMP’s activities in achieving macro-
fiscal stability. Next are three chapters, one for each program objective, which provide a detailed
overview of the activities implemented during the fifth year of the program with a lens on
identifying specific results that can be attributed to the program providing direct or indirect
impact on achieving greater public expenditure efficiency, domestic resource mobilization and
public-private dialog and transparency. The final chapter provides findings and
recommendations for the way forward.
Methodology This evaluation report is the outcome of detailed review of documents, technical studies and
technical deliverables, data and program progress reports as well as consultation and interviews
5
with Salvadoran government counterparts, FPEMP staff/consultants and USAID/El Salvador. In
this report, Salvadoran counterparts interviewed included: From the revenues side: General
Directorate of Internal Revenue, Case Selection Unit, Audit, Taxpayer Services Tax Appeals and
the Vice Minister of Revenue. From the expenditure side: DGT, DGCG, DGP, UNAC, DGEA,
DINAFI and the Viceminister of Finance. Each office of the MOF was asked to verbally respond
to a 5 question survey regarding their level of satisfaction with the project on 5 different criteria
(quality, timeliness, flexibility, communications and overall satisfaction). This report is based on
the program’s objectives, expected results, achievements, and work product or deliverables.
Throughout this report, accomplishments are supported with measurable results indicators
wherever possible, but to ensure broad capturing of achievements, we also include qualitative
observations of interviewees and synthesis from the author.
FPEMP’s Strategic Alignment and Structure
USAID/El Salvador has provided support to the Government of El Salvador (GOES) to improve
its capacity to raise higher levels of tax revenue and manage its expenditures since 2005 with the
Tax Administration Management Program (TPAR), and continues today under the FPEMP
project. USAID assistance has helped the MOF increase its total tax effort from 11.5% of GDP
to 15.1% of GDP at the end of 2015, and a projected 15.4% of GDP at mid-year 2016. This
continuing effort and investment directly aligns with US support in line with the U.S. Strategy
for Engagement in Central America. The US Government is committing significant resources to
all three countries to accelerate broad-based economic growth, improve government performance
and improve security conditions.
In El Salvador, FPEMP directly addresses the Government Performance “Line of Action”,
specifically the “Improving Fiscal Capacity” and “Targeting Corruption” sub-components under
that line. The project’s activities also indirectly impact the GOES’ ability to encourage broad-
based economic growth, particularly as it finances the government’s capability to “Increase
Resilience” and “Reduce Poverty.”
FPEMP also corresponds with the Alliance for Prosperity in the Northern Triangle’s Strategic
Line of Action D: Strengthening Institutions to Increase People’s Trust in the State—Ensuring
the State’s Financial Capacity and Increasing Transparency. The project also directly impacts the
GOES’ ability to finance service delivery nationwide, and thus, its ability to provide an
appropriate enabling environment for economic growth (Strategic Lines of Action A and B).
Project activities have produced tangible results in: 1) increasing the fairness, efficiency, and
productivity of tax administration to increase the share of domestic revenue relative to GDP; 2)
increasing the efficiency, transparency and accountability of public expenditures; and 3)
supporting a political consensus by providing technical advice and resources to civil society and
the private sector on the need for additional public revenue. The results of FPEMP activities
described herein demonstrate the results of this strategic alignment in terms of improved
performance of the MOF to fairly raise, and wisely spend, government resources.
Similarly, this project also aligns with the US Government’s regional strategy to address the root
causes of migration from Central America to the United States—limited employment
opportunities exacerbated by slow economic growth, vulnerability of rural livelihoods to climate
6
change and natural disasters, and pervasive crime and violence heavily impacting already
marginalized communities throughout the country. Direct GOES intervention is required to
effectively counter these macro-level drivers of migration, all of which depend on raising higher
levels of public revenue to provide more efficient services and investments while improving
fiscal performance and closing the current structural deficit equal to 4% of GDP.
The US Government is one of the leading players in the multi-donor Addis Tax Initiative (ATI),
which commits donors to collectively strive to double their assistance to improving the
“Domestic Resource Mobilization” (DRM) of aid-recipient countries. The motivation of the ATI
is to help recipient countries raise their own domestic revenue, thereby financing their own
development needs, thus reducing the long-term need for foreign assistance to finance
development investments and the delivery of essential services. Investing in strengthening tax
policy and administration is a simultaneous investment in providing increased resources for
essential public goods that donors support and all citizens need—health, education, housing,
transport, economic opportunity, adequate food and nutrition, and so on.
FPEMP and its predecessor, the Tax Policy and Administration Reform project (TPAR, 2005-
2010) have directly contributed to an increase in the total tax take of 4% of GDP through entirely
operational improvements resulting from the projects’ assistance and collaboration with
strategically aligned actors in the international community, principally the German and Spanish
International Cooperation Agencies (GIZ and AECID, respectively) and the IDB. Tax policy
reform is important, but political economy factors have made such reforms difficult to enact, and
despite that, USAID’s investments have delivered results from within the existing policy
framework, providing a powerful example for the potential of DRM technical assistance in other
countries.
FPEMP’s goal is to “create a stable macroeconomic environment that fosters inclusive, broad-
based economic growth through enhanced transparency, accountability and more efficient use of
public resources.” The program goal is expected to be achieved, in part, by reaching the three
program objectives discussed in the next chapter. FPEMP has three explicit objectives comprised
in three components. These objectives are as follows:
Objective 1: Enhanced public expenditure management (through improved efficiency in the use
of resources and stronger public financial management);
Objective 2: Improved revenue mobilization (through sound tax policy and better revenue
administration);
Objective 3: Strengthened private sector engagement (through greater outreach, enriched
communication mechanisms and transparency).
The three components work areas are:
Component A: Public expenditure management
Component B: Tax revenue mobilization
Component C: Private sector outreach
7
Each of the components has a team that works with a defined annual work plan, with dedicated
staff working within counterparts’ facilities. The program’s cross-cutting team, including
program management and administration, outreach, and Information Technology (IT) helps
ensure that FPEMP’s component teams have the tools and support necessary to meet the
program’s objectives and expected results.
Expected Results, Achievements and Delivered Outputs The expected results presented in this report follow the expected results from the FPEMP
contract. These are results anticipated to arise from counterpart’s achievements, which follow
directly from program activities. While many factors can affect the achievement of the expected
program objectives and results, by evaluating achievements and delivered outputs on an annual
basis, it is possible to better attribute FPEMP’s interventions in relationship to broader outcomes,
while devising a strategy which can keep program activities on track toward achieving its
objectives. All achievements mentioned in this report are attributed to the counterpart agencies in
the MOF and the GOES via the support of USAID. Achievements are changes in behavior or
capacity of counterparts, improvements to laws or regulations or processes that have a direct
impact on results. Additionally, not all of FPEMP’s counterparts’ achievements might be
documented in this report. Instead, the report focuses on achievements that have a direct
relationship to both the program’s objectives and results. USAID-funded FPEMP provides a
variety of outputs including: technical assistance, human and institutional capacity building, IT
and other equipment, systems, advisory assistance, outreach mechanisms, technical reports, and
advocacy that altogether help support counterparts’ achievements and improvements that lead to
expected results.
International Donor Assistance and Coordination
The GOES is advancing its fiscal reform agenda with support from multiple international
agencies. In a change from the previous year, DPEF, in coordination with other units of the
MOF, now leads the efforts of international assistance coordination from: USAID, German
International Cooperation Agency (GIZ), European Union Cooperation Agency (EU),
International Monetary Fund (IMF), Inter-American Development Bank (IDB), World Bank
(WB), Spanish International Cooperation Agency (AECID), and U.S. Department of Treasury
Office of Technical Assistance (OTA).
Sustainability of Assistance
The USAID Global Health Bureau’s definition of sustainability is “the capacity of a host country
entity to achieve long-term success and stability and to serve its clients and consumers without
interruption and without reducing the quality of services after external assistance ends.” In
Governance reform, achieving sustainability in government transparency, accountability, and
service delivery is a long-term investment that typically requires longer than 5 year commitments
that characterize the normal program cycle. USAID/El Salvador recognized as much and has
been investing in strengthening the tax system and Public Financial Management (PFM) since
2005 with impressive results from near-continuous assistance throughout that time.
8
The four key dimensions of sustainability, per USAID guidelines adapted from the Global Health
Bureau, are as follows:
Political Ownership and Stewardship. Host country (public and private sectors) is the
architect that fully implements and provides oversight of national plan to achieve results.
Donors support concept of local ownership.
Institutional Ownership. Host country institutions constitute the primary vehicles
through which PFM reforms are executed and take responsibility for each program.
Capabilities. Host country has effective workforce, organizations and systems at all
levels able to perform activities and carry out responsibilities that achieve priority fiscal
outcomes.
Mutual Accountability. Explicit roles and responsibilities are described with appropriate
management of performance in place.
In brief, FPEMP progression toward sustainability of reform in each of the four dimensions has
been substantial. We include a summary with supporting examples below:
1. Political ownership and stewardship. At the political level, a range of proposed policy
reforms that would improve fiscal performance have not yet been adopted for complex
political economy reasons. FPEMP has aligned its assistance with the clearly articulated
needs of the MOF as the strategic and operational institution executing fiscal functions.
The program offers policy advice to the MOF when requested, and the MOF itself uses
this advice to advocate for the change it desires. This is the program’s approach to
generate a greater degree of political ownership, through the beneficiary institution that is
better positioned within the political economy context to advocate for meaningful change
than FPEMP as an external actor. It is an important aspect of USG’s approach to the
polarized political environment in El Salvador to remain politically neutral and avoid the
appearance of favoring a political interest, and the program has sought to faithfully
maintain that neutrality.
2. Institutional Ownership. At a strategic level, FPEMP was designed in alignment with
the Partnership for Growth negotiated at a high level between the GOES and USG. Its
Components align directly with the stated needs of the MOF to raise additional tax
revenue, increase the efficiency of public spending, and initiate a more productive public-
private dialog to raise the level of mutual understanding thereby improving the policy
development process.
At an operational level, the program enjoys a high level of cooperation and commitment
from the MOF. This is particularly demonstrable now with the MOF Strategic Plan, is
possible to see that FPEMP initiatives are directly executing—or building capacity to
execute—projects within the 4 Strategic Objectives of the MOF. FPEMP project
leadership in partnership with USAID COR Martin Schultz, are active participants in a
donor coordination roundtable to align project resources with the needs of the institution,
and secure the commitment of MOF for its activities. All project initiatives are ultimately
conducted in partnership with a Directorate within the MOF, including private sector
engagement which is coordinated by the Directorate for Economic and Fiscal Policy.
9
Capacity building is an integral and ongoing part of project implementation that increases
the MOF’s capability to own and carry forward reform efforts that FPEMP supports.
For example, the program has helped the MOF to open 3 different call centers—all of
which now function without project assistance, and have improved their performance
year after year. For example, the Tax Collections Call Center was started in 2012 and
yielded $1 million in revenue resulting from follow-up calls to tax payers just in its first
year. The call center’s most recent collections numbers are $16 million in additional
revenue produced through the call center’s effort. Similar things could also be said
regarding the CSMS, which is now managed by the Case Selection Unit within the MOF,
which has its own team of 17 managing the databases and operations of the system.
3. Capabilities. See point 4.
4. Mutual Accountability. Given the range of activities that FPEMP executes, and thus the
necessary capabilities and mutual accountability needed for sustainability, this report
contains separate sections under each Project Objective dedicated to a discussion on the
sustainability of initiatives and activities under technical areas.
10
CHAPTER 2 - A STABLE MACROECONOMIC
ENVIRONMENT: THE ROLE OF FISCAL REFORM
In 2009-10 following the global financial crisis, policy initiatives to lower fiscal deficit,
including two IMF-sponsored Stand-By Arrangements, have contributed to some improvements
but they have been insufficient to ensure fiscal consolidation and sustainability. Economic
growth continues to be stagnant, public debt was 64% of GDP at the end of 2015, though with a
small dip to 58.6% of GDP in May 2016.
President Sanchez Ceren’s administration has published its five-year plan 2014-19, which in
chapter 7 continues to commit to deep fiscal reforms, including vowing to increase economic
growth to 3 percent and to take austerity measures to non-essential government spending to
create fiscal space for more social outlays. Public expenditure has come down 1% of GDP to just
over 21% since 2013, but tax revenue remains flat at 16% of GDP, and total revenue at 19%. The
GOES has obligated itself to top-up public pension payments out of the general fund, which
accounts for more than half of the total fiscal deficit—a top priority for reform for policymakers
along with public security.
Achieving fiscal sustainability in the medium and longer term is essential in order to ensure
government spending and investments in key sectors, particularly those that benefit the most
vulnerable and the poor. Fiscal reform permeates all areas of government as it provides the
resources necessary to provide basic health and education, social assistance programs, fight and
prevent crime and violence, among others. Promoting a fiscally sustainable environment where
the resources are raised and spent in an equitable, efficient and effective manner is key to
tackling the most important challenges in El Salvador today, which include:
1. Economic growth measured through real Gross Domestic Product (GDP) has been lower
than pre-global crisis levels struggling to reach 2 percent annually.
2. Tax revenue mobilization has contributed to providing important resources for
government spending, however, it has not been enough. Keeping up with the sustained
increase in tax revenue to GDP of 4 percentage points of GDP over the last decade will
require additional tax reforms that tackle informality, tax evasion and empowering the tax
administration to enforce collection of tax arrears.
3. Public debt levels have risen 25 percentage points over the last decade reaching 60% in
2015.
4. Although unemployment has been low at 6.2 percent in 2014, minimum wages are low
compared to others in the region. Salvadorans continue to migrate to the U.S. in search of
better economic opportunities, exacerbating social problems where a large number of
children grow up without their parents and look to gang-related activities for survival in a
society where crime and violence impacts all economic activity either directly or
indirectly through higher input costs.
5. The quality of public spending on social services in education, health, water, housing and
others continue to provide questionable value for money with large gaps in access to
basic services at the macro level.
11
Achieving fiscal sustainability requires commitment to ongoing fiscal reform activities.
Following a sound and sustainable fiscal framework will contribute to greater mobilization of
domestic resources, which are then subsequently spent in an effective and efficient manner.
Besides all ongoing fiscal reform activities, the GOES should look to additional revenue and
expenditure measures to achieve the needed adjustments. While the draft Fiscal Responsibility
Law (FRL) provides a framework for fiscal sustainability, additional tax reforms and expenditure
measures should be considered such as an update to the tax procedures law to tackle tax evasion,
expanding the tax base to include a concept of worldwide income, eliminating the indexation of
the “escalafon” (a scheme that provides certain public sector workers with large automatic wage
increases, not linked to performance), rationalization of subsidies, pension reform, and the
introduction of a fully-fledged property tax.
Recent Economic and Fiscal Trends
El Salvador’s economic performance after the 2008 financial crisis has been poor, as real GDP
growth has not caught up to the growth rates experienced prior to the 2008 crisis. 2015 offered
some reason for measured optimism with an increase to 2.5% growth from 1.4% in 2014.
Figure 1: National GDP Growth
The expansion of tax revenue collections in 2012 and 2013 was driven by the tax reform
effective in 2012, in addition to significant ongoing improvements in tax administration. With
non-tax revenue holding constant at 3.2% of GDP (included as part of current revenues below),
tax revenue has only been able to keep pace with a slow growth rate. Judgments of
unconstitutionality of 3 different taxes (including the alternative minimum income tax of 1% on
gross revenue) negatively affected the further expansion of tax revenues this past year. GOES
liquidity problems have intensified to the extent revenue forecasts continue to be over-optimistic.
Although treasury operations have been optimized and consolidated into a TSA, the liquidity
problem driven by inadequate budgeting practices, continues to cause the ongoing reliance on
short-term debt (“letes”) in order to meet government current spending.
1.7 2.3 2.3
1.9
3.6 3.9 3.8
1.3
-3.1
1.4
2.2 1.9 1.8
1.4
2.5
-4.0
-3.0
-2.0
-1.0
0.0
1.0
2.0
3.0
4.0
5.0
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015% G
row
th
El Salvador's GDP Growth
12
Figure 2: Government Revenues and Expenditures as % of GDP (2012-15)
Figure 3 details the structural fiscal deficit since 2003 that has led up to the critical status of
sovereign debt. A return to 2012 deficit levels has alleviated some of the pressure, and the fiscal
deficit is on a positive trajectory since President Sanchez Ceren took office. However, there is a
serious risk of default on the Government’s floating debt this year (see Figure 5), and so the
gradual pace of deficit reduction may not be fast enough to maintain creditors’ willingness to
lend to the government. Total stock of sovereign debt stands at 58.6% of GDP as of May 2016
(latest data in line with Figure 4).
Figure 3: Fiscal Deficit as a Percentage of GDP
Source: “El Salvador en Búsqueda de un Acuerdo de Sostenibilidad Fiscal” (USAID/AECID/GIZ).
17.5%
18.0%
18.5%
19.0%
19.5%
20.0%
20.5%
21.0%
21.5%
22.0%
22.5%
2012 2013 2014 2015
Revenues vs. Expenditures
Current Revenues Net Expenditures
-559
.9
-378
.8
-510
.0
-546
.6
-395
.3
-683
.4
-1,1
71.6
-917
.8
-906
.6
-813
.9
-979
.4
-907
.0
-851
.7
-3.7
-2.4
-3.0 -2.9
-2.0
-3.2
-5.7
-4.3 -3.9
-3.4
-4.0
-3.6-3.3
-6
-5
-4
-3
-2
-1
0
-1,200
-1,000
-800
-600
-400
-200
0
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
Porc
enta
je d
el P
IB
Mill
ones
de
USD
Déficit fiscal Porcentaje del PIB (eje derecho)
13
Figure 3 above highlights the continuing structural, fiscal deficit of between 2-6% annually. The
chart below shows the upward trajectory of sovereign debt (Figure 4), and the chart beneath that
shows the current floating debt (Figure 5). The floating debt is the major concern for solvency of
the Government, and immediate actions on revenue generation and a likely need for austerity
measures on the expenditure side to reverse the trend to a position with which foreign and
domestic creditors are comfortable. IMF assistance is a possible avenue, but the GOES would
need to negotiate a resolution to outstanding action items from its previous Stand-By
Agreements with which the government did not previously comply.
Figure 4: Total Sovereign Debt 2003-2015, as a percentage of GDP
Figure 5: Floating Debt 2011-2015
40.5% 40.7% 39.8% 40.0% 37.1%
39.7%
50.3% 51.7% 51.9% 57.1% 57.0% 58.9% 60.8%
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
70.0%
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Total Floating Debt, $972.90
$-
$200.00
$400.00
$600.00
$800.00
$1,000.00
$1,200.00
2011 2012 2013 2014 2015
Mill
ion
s (U
SD)
Total Floating Debt
14
The current reform process in revenues, expenditures, fiscal transparency, and public financial
management is accompanied by the proposed Fiscal Responsibility Law, and considerations for
achieving a fiscal sustainability agreement. FPEMP also helped develop the Administrative Tax
Arrears Enforcement Collection Law and expect to gain legislative approval by the end of 2016.
The FPEMP program supports the GOES in all of these areas, and will provide support as
needed in debt management or other areas of potentially urgent need, currently supported with
short-term assistance by the US Treasury Office of Technical Assistance.
15
CHAPTER 3 - OBJECTIVE 1: ENHANCED PUBLIC
EXPENDITURE MANAGEMENT
The GOES’ MOF has embarked in a systematic modernization of its public financial
management systems, in a commitment to achieve greater effectiveness and efficiency of
revenue and expenditure management, as well as improving accountability and transparency in
the public sector. While there has broadly been a growth trend in tax revenues and public
expenditures over the last 6-7 years, improvements in access to and quality of public services
need to accompany such increases. The MOF attempts to bridge this gap through efforts to
improve the budget planning, execution and oversight processes and various other aspects of
public financial management to ultimately improve service delivery that Salvadorans need.
Additionally, the GOES has developed a proposal for a Fiscal Responsibility Law aiming to
exert discipline and put limits on discretionary fiscal policy, leading to credibility in the
management of public finances.
Technical assistance to the GOES from the various donors in this area has allowed the MOF to
strategically plan the reform. The MOF’s main objectives of the reform in this area include5: (1)
improve the efficiency in the use of public resources, increasing access and financing services
within a framework of fiscal sustainability; (2) improve the allocation of resources based on
priorities and the country’s development objectives; (3) transform the public budget into a
management instrument leading to greater transparency and accountability; and (4) create the
fiscal resilience to successfully confront economic and environmental shocks.
FPEMP’s technical assistance supports all of these objectives. The public expenditure
management component focuses on modernizing the entire budget process (i.e. planning,
execution, monitoring and evaluation), one that is driven by results, within a medium term
framework and an upgraded platform of government financial management information system.
Moreover, FPEMP supports the GOES in adopting a new treasury management system including
instituting a TSA; introducing government accounting practices in compliance with the IPSAS;
strengthening and upgrading the integrated financial management information system (SAFI or
SAFI II, as it is known in El Salvador) to conform to the new budget system and all other PFM
reforms; implementing a programmatic budget system focused on results; upgrading the public
procurement processes and procedures introducing a cutting-edge platform for e-procurement
(COMPRASAL II); and improving fiscal transparency and accountability by publicly providing
budget information to which citizens are entitled regarding public finances at the national and
subnational levels (more on this as part of Component 3).
Assistance in the above-mentioned areas result from coordinated efforts among 8 different
donors, including USAID, GIZ, EU, IDB, OTA, WB, IMF, AECID, and at least eight different
departments at the MOF, now led by the counterparts at the Fiscal and Economic Policy
Directorate, which apportions tasks under the MOF Strategic Plans to different donor supporters
active in the MOF, currently USAID, GIZ, IDB, OTA, WB and soon to be the EU. GIZ funding
is scaling back and WB funding is scheduled to terminate this September.
16
Consolidation of GOES Treasury Operations
FPEMP supports the modernization of the DGT through the implementation of the Treasury
Single Account (TSA) and the treasury subsystem for integration into SAFI II. The treasury
operations modernization agenda contributes to the goal of achieving fiscal sustainability and is
essential for consolidating and managing the GOES’ cash resources, minimizing borrowing
costs, and strengthening controls for meeting payment obligations. The modernization of
treasury operations, once integrated into the SAFI II allows effective aggregate control over
government cash balances, contributes to improved financial programming by minimizing
transaction costs during budget execution, allows rapid payments of government expenses,
facilitates reconciliation between banking and accounting data and introduces efficient controls
and monitoring of funds.
Over the past year, FPEMP has helped DGT complete Phase 1 of the transition to a TSA. All
central budget institutions are now integrated under the TSA and their cash is under central
control. The most immediate benefit of the TSA is that by centralizing cash management, GOES
minimizes the extent to which it requires short-term debt (“Letes”) to finance expenditures.
While the stock and flow of letes continues to increase due to the continuing structural deficit,
the TSA has limited the impact and improved GOES’ fiscal position relative to the
counterfactual scenario without consolidated cash management.
Figure 6: Issuance, Payments and Balance of Short-Term Debt (“Letes”)
0
100,000,000
200,000,000
300,000,000
400,000,000
500,000,000
600,000,000
700,000,000
800,000,000
900,000,000
1,000,000,000
2011 2012 2013 2014 2015 2016*
USD
Letes Balance
Principal
Interest
17
Key outputs and their status under this area of assistance include:
Development of the Treasury Subsystem and Integration with the SAFI II
Development of the core treasury subsystem is an important milestone for the implementation of
SAFI II. It enables the integration and exchange of information from various subsystems and
agencies (e.g. DGT, DGII, DGA, Central Bank). Since 2011, the FPEMP has been supporting
the development of the treasury subsystem for integration into SAFI II. Design, development and
implementation of the treasury subsystem has required government commitment and
management support at the highest levels, strong inter-agency coordination and user involvement
in the system design. In the process, FPEMP has enabled the building of institutional capacity
and technical skills within the Ministry of Finance and the DGT, ensuring the cohesive
implementation and sustainability of the new system.
The treasury system includes the following components:
1. Budget execution and monitoring
2. Accounting (general ledger, management of payments and receipts)
3. Cash Management
4. Financial Reporting
5. Purchasing / Commitment
6. Asset / Inventory Management
7. Operational support to spending units (UFIs)
The Treasury subsystem is 42% developed, but is currently stalled waiting for completion of the
Budget subsystem. FPEMP has developed 39 use cases within the treasury module and 69 more
are ready for software development on their own, but the FPEMP IT team is waiting on further
customization to ensure compatibility and integration between the Treasury, Accounting and
Budget subsystems. Completion of the Treasury subsystem will stretch beyond the life of the
FPEMP contract, and will require further external support to complete and ensure sustainability.
Assesment and recommendations for the TSA implementation Completed
Development of the TSA conceptual model Completed
Seminars on TSA Completed
Study tour to Argentina to learn about the Argentinian TSA Completed
IT procurement for the DGT Completed
Support the implementation of the TSA Completed
Training on use cases design to DINAFI, DGP, DGCG, and DGT Completed
SAFI II treasury subsystem use cases design Completed
SAFI II treasury subsystem software development In Progress
SAFI II Public Treasury Call Center established Pending
18
Other key outputs under this area of assistance include:
Supporting IPSAS Adoption
The benefits of adopting IPSAS are numerous. IPSAS helps improve accountability through
complete and accurate view of government accounts; provides greater transparency over the use
of resources; enhances credibility of the budget; improves overall management and planning;
supports a results-based approach to budgeting; and harmonizes government financial
information and reporting that facilitates more effective monitoring and evaluation of the budget.
IPSAS has 35 international standards, of which 32 are currently available in Spanish.
With the decision to adopt IPSAS, the GOES is also progressing toward the full adoption of
accrual-based accounting which contributes to providing more useful information for long‐term
assessment of public policies' financial sustainability. FPEMP’s assistance to the adoption of
IPSAS began in 2011, supporting the DGCG. Working with a dedicated working group of 13
officials from the DGCG, the FPEMP’s assistance in this area is successfully making progress in
the adoption of IPSAS. Full adoption of IPSAS by the GOES is expected to be completed by
2020.
During Year 5, FPEMP provided two IPSAS training types. One training on IPSAS general
accounting policies for some non-financial assets to 32 DGCG and 5 Audit Court staff along
with one advanced IPSAS training to all GOES entities (IPSAS 11,12,16,17,21,27,31 and 32) for
another 162 GOES officials.
Some immediate challenges to IPSAS implementation include:
Mandatory Adoption of IPSAS: in order to continue with the IPSAS adoption DGCG
must issue several accounting rules to make mandatory for all GOES entities the new
public accounting conceptual module, the new chart of accounts and the chart of accounts
description manual.
Government Accounting Cleansing: the legal framework needs to set the mandatory
accounting clearance processes, establish accounting policies and procedures, including
procedures for cleansing accounts with inconsistencies to be cleared by the Court of
Accounts by January 2017.
Clarify legal authorities. IPSAS best practice should lead to centralized authority for all
government accounting within the DGCG; eliminating the divided authority currently in
statute with DINAFI.
Assistance of the program during Year 5 has helped DGCG complete 19 government accounting
matrices in line with their chart of accounts, conceptual model and framework, and which govern
Development of the financial administration system of ES reform proposal Completed
Study tour to Colombia to learn about GRP systems Completed
Study tour to Argentina to learn about GFMIS systems Completed
Study tour to Argentina to learn about budget M&E, budget programs formulation and
result oriented buget Completed
Training on use cases design to DINAFI, DGP, DGCG, and DGT Completed
SAFI II treasury subsystem use cases design Completed
SAFI II treasury subsystem software development In Progress
SAFI II accounting subsystem use cases design Completed
SAFI II budget execution module use cases design Completed
Support the review of the SAFI II budget formulation use cases design Completed
Study tour to Peru to learn about budget execution Completed
Study tour to Argentina to learn about the payroll and human resources system within
the finantial administration system operation Completed
Support the use cases design of the COMPRASAL II modules In Progress
Software development of the PAAC module of COMPRASAL II Completed
Support training on COMPRASAL II PAAC module to GOES insttituions and municipalities Completed
Software development of the "libre gestion" module of COMPRASAL II Completed
Support training on COMPRASAL II "Libre Gestion" to 14 pilots institutions In Progress
Study tour to Chile to learn about public procurement system Completed
Support training on COMPRASAL II modules to public sector providers In Progress
Software development of the "Licitaciones y Concursos" module of COMPRASAL II Pending
Support the public procurement law regulation (RELACAP) reform proposal approval In Progress
19
more than 200 required use cases for programming into the Accounting subsystem—of which 24
have already been developed. Of the remaining use cases, 23 are currently in development, 110
are blocked due to the problems with the Budget Module, 69 are not in development phase yet
and the final 3 are not applicable. Continuing work on use cases, approval of the chart of
accounts description manual, updating of conceptual model as use cases are developed, and
capacity building in the use of the IPSAS transparency manual published by the IMF will
continue to be priorities during the software development work stoppage referenced previously.
In other words, functional work will continue while software programming waits to be integrated
with the pending completion of the budget subsystem. The Accounting subsystem is currently
40% complete, and completion of the Accounting subsystem will likely require support beyond
the life of the contract.
Key outputs under this area of assistance include:
Training on IPSAS adoption and implementation to all GOES institutions Completed
Advance IPSAS training to GOES entities (IPSAS 11,12,16,17,21,27,31 and 32) Completed
Development of the charts of accounts under IPSAS Completed
Development of the charts of accounts description manual In Progress
Support the development of the accounting policy manual Pending
Development of the Government Accounting Subsystem and Integration with the
SAFI II
Similar to treasury operations’ linkage with the new Treasury subsystem within SAFI II, the
FPEMP team is also helping to develop a new, IPSAS compliant Government Accounting
Subsystem within the broader SAFI II development. The project has helped the DGCG develop
its use cases, chart of accounts, and is now completing a full conceptual model for software
development. Once deployed, the system will fully enable electronic accrual accounting
throughout national government, and introduce new functionality for performance management,
monitoring and evaluation. For example, the new system will maintain a comprehensive
government asset registry that does not currently exist. Most importantly, the Accounting
Subsystem will enable higher quality of financial data through consistent and automated
application of PFM standards and regulations.
The Accounting subsystem is currently 40% complete, and is awaiting integration with the
Budget subsystem under development by DINAFI, expected to be delayed due to the cessation in
World Bank funds in September 2016.
Enhancing the e-procurement system, COMPRASAL II
The third and final subsystem of SAFI II under FPEMP provision is a fully transactional
electronic procurement (e-procurement) system called COMPRASAL II. The graphic below
describes the 11 modules included in the full e-procurement system that will be required for all
Public Sector spending units including all 262 municipalities—covering all public procurement
once complete. The green chevrons are already completed; light green are in or will be in
20
development during the final year of FPEMP; and the blue chevrons are required modules
needing support beyond the life of the contract.
Figure 7: COMPRASAL II: Software development sequence
The traditional procurement methodology is done on paper and over email with significant
weaknesses in the internal control environment. Centralizing a number of duties in one person
creates a risk for internal malfeasance within the MOF; a total lack of vendor tracking opens the
GOES to the risk of fraudulent or poor performing vendors to continue winning government
work; collusion within vendors is more difficult to spot; audit trails are incomplete either
deliberately or through loss of physical files; and finally the process is simply slow and
inefficient. COMPRASAL II addresses—and in many cases solves—each of these problems by
institutionalizing internal controls through a rigid IT system that requires the full workflow,
including internal checks and audit trails, to be followed according to the law and in line with
separation of responsibilities required by internal control standards.
Already, progress toward automating procurement has yielded significant impact. Procurements
under $6,000 do not require competition, but instead the vendor compliant with the terms of
selection can be selected by the procurement officer. Once they receive the approved requisition,
procurement officers choose from an approved list of government vendors offering the good or
service, and then make the purchase order in a format similar to online shopping outlets. In 2015,
$132.8 million in public expenditure was spent on purchase orders under $60,000—all of which
will now be fully executed by COMPRASAL II through the libre gestion module with an
electronic audit trail. This amount makes up 13.43% of the total cost of public procurement, and
92.4% of all government issued procurements. In an unexpectedly positive turn of events,
MSMEs (8,800 of 9,200 registered vendors in COMPRASAL II) are receiving more
opportunities to provide goods and services to the public institutions thanks in part to the
COMPRASAL II vendor’s registry. It is expected that they will received more positive impacts
once the “libre gestion” module is completely used by all the public sector since 40% of all the
public procurement under $60,000 are provided by MSMEs.
FPEMP staff expects to be able to complete the licitaciones y concursos and contratacion directa
modules. Licitaciones y concursos cover procurements of more than $60,000. Completion of this
module will enable COMPRASAL II to cover another $708.1 million (71.6% of total public
procurement) in total expenditures. Additionally, “contratacion directa” will make up another
148.5 million (15.01% of total public procurement) which will enable COMPRASAL II to
finally cover the 100 percent of the public procurement.
PAAC Planning and Execution
CDP “Libre
Gestion” Incidents
Solicitations and
Competitions
Contract Administratio
n
Direct Contraccting
Guarantee payment
custodianship
Contract Management
Sanction Proceedings
Vendors
21
Thus, with FPEMP’s assistance, $132.8 million in public expenditure will be now far less prone
to fraud, misuse, malfeasance or other forms of corruption or mismanagement once the “libre
gestion” module is completely used by all the public sector. With further support to MOF beyond
the life of FPEMP, USAID’s investment can cover 100% of all procurements through
COMPRASAL II, which will electronically govern compliance with procurement laws of $989
million in expenditures based on 2015 numbers—a significant contribution to transparency and
accountability of government expenditure.
UNAC reform and strengthening
As a key aspect of improving public procurement performance, FPEMP has invested in
strengthening the Central Procurement Unit (UNAC). The project has provided technical
assistance to UNAC staff to restructure their internal organization, strengthen internal legal
capacity, provide international learning experiences, offer IT development services for
COMPRASAL II (see above) and help supply basic office furnishings.
FPEMP helped the UNAC Legal Counsel develop revisions to the public procurement law’s
implementing regulations (RELACAP), which have already been approved by the Minister. The
project also helped UNAC to train its own staff to implement these changes, and added the
reforms to training materials provided to spending ministries outside of MOF. FPEMP helped
UNAC to train 350 GOES officials (outside the MOF) in 14 pilot institutions to utilize the libre
gestion module of COMPRASAL II.
Key outputs under this area of assistance include:
Transition to Programmatic Budgeting
Activities during Year 5 with the Budget General Directorate (DGP) were limited to the
proposed functional re-organization of the DGP in preparation for its transition to programmatic
Support the use cases design of the COMPRASAL II modules In Progress
Software development of the PAAC module of COMPRASAL II Completed
Support training on COMPRASAL II PAAC module to GOES insttituions and municipalities Completed
Software development of the "libre gestion" module of COMPRASAL II Completed
Support training on COMPRASAL II "Libre Gestion" module to 14 pilots public institutions In Progress
Study tour to Chile to learn about public procurement system Completed
Support training on COMPRASAL II modules to public sector providers In Progress
Support the public procurement law regulation (RELACAP) reform proposal approval In Progress
Software development of the "Licitaciones y Concursos" module of COMPRASAL II Pending
Developed the UNAC administrative and functional reform proposal and gained approval
from the MOF Completed
Support training on administrative law penalties provisions for the UNAC staff Completed
Strengthen UNAC functional and administrative capacities In Progress
Support the creation of a Public Procurement Call Center In Progress
UNAC office furnishing In Progress
22
budgeting. According to the Director, the proposal for re-organization was accepted and
appreciated. The DGP has made revisions to the proposal to reflect its own interpretation of its
needs and available resources, and is preparing to submit the revised structure to the Minister for
approval.
Other tasks related to the transition were apportioned to other donors supporting the MOF,
specifically GIZ and the World Bank. However, given the breadth and depth of the task at hand
and the scaling back of funding from GIZ to the DGP, a space for increased participation by
USAID has opened. Programmatic budgeting has the potential to enforce performance standards
on public institutions by making future budget allocations contingent upon strong performance
from previous allocations. Transitioning from the current financial and document management
focus of budget planning, execution, monitoring and evaluation to a more results-focused
approach could generate tremendous gains in both efficiency and service delivery. The project in
partnership with USAID should consider increasing its engagement with the DGP.
Key outputs under this area of assistance include:
Development of the financial administration system of ES reform proposal Completed
Study tour to Colombia to learn about GRP systems Completed
IT procurement for the DGP Completed
Development of DGP functional administrative reform proposal Completed
Support the DGP functional administrative reform implementation Completed
Study tour to Argentina to learn about budget M&E, budget programs formulation and
result oriented budget Completed
Study tour to Peru to learn about budget execution Completed
Study tour to Argentina to learn about the payroll and human resources system within
the finantial administration system operation Completed
Support the budget programs design based on a results for the Ministry of Economy and
DGP Completed
Support the budget programs design based on a results for the Ministry of Agriculture
and DGP Completed
Support the budget programs design based on a results for the Ministry of Health and
DGP Completed
Strengthening of the DGP M&E Unit capacities Completed
Study tour to Chile to learn about budget M&E Completed
Development of the financial administration system of ES reform proposal Completed
Study tour to Colombia to learn about GRP systems Completed
Study tour to Argentina to learn about GFMIS systems Completed
Study tour to Argentina to learn about budget M&E, budget programs formulation and
result oriented buget Completed
Training on use cases design to DINAFI, DGP, DGCG, and DGT Completed
SAFI II treasury subsystem use cases design Completed
SAFI II treasury subsystem software development In Progress
SAFI II accounting subsystem use cases design Completed
SAFI II budget execution module use cases design Completed
Support the review of the SAFI II budget formulation use cases design Completed
Study tour to Peru to learn about budget execution Completed
Study tour to Argentina to learn about the payroll and human resources system within
the finantial administration system operation Completed
Support the use cases design of the COMPRASAL II modules In Progress
Software development of the PAAC module of COMPRASAL II Completed
Support training on COMPRASAL II PAAC module to GOES insttituions and municipalities Completed
Software development of the "libre gestion" module of COMPRASAL II Completed
Support training on COMPRASAL II "Libre Gestion" to 14 pilots institutions In Progress
Study tour to Chile to learn about public procurement system Completed
Support training on COMPRASAL II modules to public sector providers In Progress
Software development of the "Licitaciones y Concursos" module of COMPRASAL II Pending
Support the public procurement law regulation (RELACAP) reform proposal approval In Progress
23
Sustainability of Component A Initiatives
SAFI II. While the commitment of the MOF to SAFI II is not in doubt, FPEMP’s role in
development of the Government Accounting and Treasury Subsystems has been
significantly delayed by a relative lack of progress on the Budget Subsystem with which
Accounting and Treasury must closely integrate to have the desired effect on the system
as a whole. With current signs pointing to the World Bank funded Budget Subsystem not
being completed on time, it is highly likely that the SAFI II system will not be complete
and ready for handover to MOF by the end of the contract period. The project’s capability
to complete the remaining work will continue to depend on progress of the Budget
Subsystem, and so a definitive date cannot be offered without greater certainty on the
completion date from DINAFI.
Once complete, USAID will need to provide assistance to MOF software developers to
format their teams to compensate for relatively low compensation levels for programmers
relative to the compensation in the private sector. FPEMP has proposed a smaller team of
senior, contracted staff coupled with a partnership with a local university or universities
to host a co-op program of approximately 10 junior developers who can both do the work
the MOF needs, but use those developers to replace the inevitable turnover from the more
senior ranks in a way that guarantees continuity of expertise within the MOF software
development environment. Such reorganization would facilitate FPEMP’s current efforts,
and future USAID efforts to build greater capacity for the MOF to write its own code in
harmony with the rest of SAFI II’s back end (Oracle) system.
E-Procurement. While COMPRASAL II is part of SAFI II, it is treated differently due
to the impact of the budget subsystem delays, whereas Government Accounting and
Treasury subsystems are effectively halted. COMPRASAL II as an IT system is off and
running with the PAAC and libre gestion modules fully operational and licitaciones y
concursos and contratacion directa planned for completion by contract’s end. FPEMP
has supported the functional and physical reorganization of the UNAC office to provide
more effective technical support, and built the capacity of the legal counsel, management,
and IT developers from UNAC that will maintain the system moving forward. In terms of
future needs to solidify sustainability, COMPRASAL II will require support beyond the
life of FPEMP to complete the full set of modules to create a truly end-to-end system.
Likewise UNAC will need capacity building to effectively train line ministries in their
use of the system. Also, UNAC will need to develop greater expertise to manage large
public works procurements or Public Private Partnerships (PPPs) that come with a much
more complex set of interdisciplinary challenges and contingent liabilities for MOF.
IPSAS Adoption. MOF is fully committed to a high level of compliance with IPSAS
accounting standards, but even in the best of circumstances, the transition is lengthy and
labor intensive for government accounting offices. In the course of developing the
Accounting Subsystem, FPEMP IPSAS experts have helped create a new chart of
accounts, generate a new conceptual model and conceptual framework, and have assisted
the DGCG to generate 24 of the most complex use cases for the subsystem. Support to
consolidating IPSAS reform in all its detail and complexity will stretch well beyond the
life of FPEMP, but will be championed by DGCG without project assistance—though
24
they will have fewer resources to acquire the necessary international expertise to support
their efforts, and thus progress will likely slow-down considerably without external
support.
Treasury Single Account. All central government institutions are covered by the
Treasury Single Account, marking a major achievement in cash management and overall
PFM for the GOES. When funds are available at DGT, approved payments have been
reduced from a wait time of 10 days for a check or electronic transfer to 2-3 hours until a
direct wire transfer is made to the recipients account. 27 institutions are now covered by
the TSA, and idle bank balances have been minimized, subsequently reducing the need to
take out short-term financing because of inefficient, decentralized cash management.
FPEMP, OTA and the IMF collaborated to achieve the current advances. Nevertheless,
the current treasury subsystem within SAFI I was developed by DINAFI and have serious
performance issues, requiring manual procedures and an onerous number of system
corrections. The DGT is eager to have the SAFI II Treasury Subsystem up, running and
handed over. The Treasury Subsystem that FPEMP is developing incorporates significant
advances for an advanced TSA, which will then be able to handle cash management for
central and decentralized government institutions for 100% coverage of all government
cash. DGT is managing the system and its functional requirements well, with minimal
requests for maintenance support.
25
CHAPTER 4 – OBJECTIVE 2: IMPROVED
REVENUE MOBILIZATION
El Salvador has achieved important progress in mobilizing greater tax revenue in the past
decade. Net tax revenue has increased from 11.5 percent of GDP in 2004 to 15.1 percent in 2015
with projections of 15.4 percent for 2016— nearly a 4 percentage point increase—overcoming
the effects of the global financial crisis and achieving a consistent growth trend, but plateauing
over the last three fiscal years. Three tax policies including the alternative minimum tax were
struck down as unconstitutional, harming revenue performance. Low levels of economic growth,
high levels of tax evasion, combined with potentially diminishing returns to administrative
improvements without combining that strengthened capacity with more powerful tax policies.
However, since 2013 tax revenue to GDP has plateaued around 15 percent of GDP. Non-tax
revenue makes up 3.2% of GDP bringing total revenue to 19.8% in both 2014 and 2015.
To better understand the dynamics of the difference between the revenue capacity of the tax
system and actual results (the “Tax Gap”), a thorough Tax Gap Analysis would determine the
extent of future revenue potential in tax administration improvements, and thus realistic targets
for revenue improvements with and without tax policy reform in the medium term.
Figure 8: Tax (Net) Revenue Collections, El Salvador 2004-2015 (as % of GDP)
USAID’s assistance since 2005 through the predecessor project TPAR and the FPEMP has been
vital in supporting the GOES’s tax revenue mobilization achievements. In the first two years of
assistance, the FPEMP supported the DGII to implement the Treasury’s Collections Call Center
for tackling tax arrears; redefining the Large Taxpayer’s Office from 1,500 to 639 largest
taxpayers and improving their services and focus; improving taxpayer services to medium and
small taxpayers; cleaning and updating of the Taxpayer Current Account; cleaning and updating
of the Taxpayer Database; and supporting rigorous and fair audits through the enhancement of
the CSMS.
10.0%
11.0%
12.0%
13.0%
14.0%
15.0%
16.0%
17.0%
18.0%
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
% o
f G
DP
Net Tax Revenue (2004-2015)
26
Taxes from the value added tax continue to be the largest component of tax revenue representing
nearly half of collections, but taxes from income and corporate profits have been consistently
growing by nearly 25 percent since 2011 with the introduction of a fiscal reform package in
2012. Since that reform, the GOES, with support from FPEMP, has continued efforts to mobilize
additional tax revenue through tax administration activities such as massive, targeted, and risk-
based audit plans implemented through the state-of-the art Case Selection Management System
II (CSMS II) and a FPEMP-supported crackdown on tax fraud and evasion.
Figure 9: Tax Revenue Breakdown by Tax Type
FPEMP’s assistance in the fifth year focused on the contribution to a new tax reform that updates
procedures and the tax code to empower the tax administration to collect tax arrears, developing
an operational plan for an enforced arrears collections office, developing a fully functional e-
filing system and implementation of final remaining modules of the CSMS II. These activities
continue a layered strategy that FPEMP has pursued that blends initiatives that will yield
immediate increases in revenues combined with activities that invest in long-term voluntary
compliance, as well as transparency and accountability of the tax administration itself. In sum,
FPEMP’s approach focuses as much effort on increasing tax revenue as it does on how that
revenue is collected.
Improving the Tax Control Environment/Strengthening Tax Evasion Enforcement
Reform of the Tax Control system. The FPEMP project developed an extensive diagnostic on
the technical, procedural and operational capacities for tax investigations in the DGII, in order to
determine a strategy that will help improve these capabilities and to support the Vice Ministry of
Revenue in the development of a plan against tax evasion to improve collection. This diagnostic
identified structural problems in the tax control environment ranging from the lack of
exploitation of third party information by the DGII for data mining, sub-optimal research
practices, weak law enforcement and others. Based on this diagnosis, a program was designed to
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
16.0%
18.0%
2010 2011 2012 2013 2014 2015
% o
f G
DP
Special Taxes
"Other" taxes
Excise Taxes
Trade Tariffs
Income Tax
VAT
27
strengthen tax control by using the data mining capabilities of the CSMS II along with other
control strategies while training was provided to auditors.
The tax control strategy is a multi-faceted approach to strengthening the culture of tax
compliance by making a strong, focused effort to enforce the tax code to make it clear to
taxpayers that the DGII is strengthening its stance against tax evasion and fraud. The two goals
of the strategy are 1) to increase short-term collections, and 2) to increase voluntary compliance
in the coming years by stepping up the level of overall tax control throughout the system. The
strategy includes the following elements:
Issue Response
Tax Fraud Impunity 1) Reform tax criminal code
2) Reform procedural code
Weak presumption and transfer pricing
rules
Strengthen presumption rules and transfer pricing
Tax evasion/avoidance Enshrine anti-evasion/avoidance rules in the tax code
Limited powers of the tax administration Strengthen administrative and audit/enforcement
powers; require information exchange between DGII
and other government agencies
Recovery of Tax Arrears Facilitate coercive tax enforcement and collection by
the tax administration
Reforming Income Tax 1) Introduce the principle of worldwide income
2) Introduce a simplified income tax regime
In 2015 actual production (tax revenues generated by the actions of control) was equivalent to
$90.1 million. The Tax Control Plan was pursued to increase revenue using the CSMS II to
improve collections, inspections, and increase the efficiency of collections compared to
assessments between January and April 2016 collections equal to $19.4 million. Also, as a result
of the Tax Control Plan, arrears collection increased $120 million, equivalent to 0.5% of GDP. In
addition, in 2014 (the last year before the implementation of the Tax Control Plan) the amount of
scheduled cases was 45,310. During 2015 (first year of implementation of the Plan) the number
of cases scheduled amounted to 68,630 (enabled through automated functionality of the CSMS
II), and in the first months of 2016 (period January-April) the amount of scheduled cases has
reached the figure of 68,300, almost the same number of cases scheduled which made throughout
2015.
Tax Fraud Regulatory Reform. FPEMP helped the MOF to draft a proposal to modernize the
tax system and help raise more revenue without the need to increase tax rates. The reform
proposal includes procedural code reforms on transfer pricing practices and empowerment of the
DGII to enforce collections of tax arrears in keeping with international best practices—
demonstrated through a consensus-building study tour to Colombia to observe and learn from
their arrears enforcement system. The ministry decided to move forward with administrative
arrears enforcement, which could increase total revenue by up to 1% of GDP. In addition, the
package of reforms strengthens deterrent punishments in the criminal code against tax evasion
28
and provides the MOF with increased powers to investigate cases of tax fraud and build
individual cases for prosecution by the Attorney General.
Weak Presumption Rules and Transfer Pricing Rules. A common practice for international
companies is the practice of internal purchasing of goods and services between legally related
companies. For instance, if a Salvadoran affiliate of an international accounting firm pays for the
expert services of an American employee of the American affiliate of the same firm—the
transfer price is the amount that the Salvadoran affiliate compensates the American affiliate.
Done properly in accordance with IPSAS rules, transfer pricing enables proper accounting for
costs and revenues. However, transfer pricing becomes highly complex with very large multi-
national companies with complicated cost structures—raising the possibility of inaccurate
accounting for costs and revenues from one affiliate to the next.
A common legal tax avoidance strategy is to transfer price internally to artificially suppress
declared profits in high-tax locations and move those profits into offshore holding companies.
Clarifying transfer pricing rules in line with international best practice will enable the DGII to
more thoroughly investigate multinational companies’ transfer pricing practices, and hold them
accountable for taxes due on income earned in El Salvador.
Key outputs under tax policy reforms include:
Tax Evasion/Avoidance. As part of the broader effort to crack down on tax evasion, and more
clearly defining legal tax avoidance, FPEMP is supporting the MOF in technical analysis and
legal drafting to enshrine proposed reforms into a modified tax code. The revisions are included
in the proposed reforms expected to receive legislative approval by September 2016.
Limited Powers of the Tax Administration. Even though the DGII has greater productivity and
effectiveness than the courts in collecting taxes due from delinquent taxpayers, it does not have
the legal empowerment to effectively enforce arrears collection (see below), nor does it make the
best use of available third party data. Through the development of CSMS II, FPEMP has enabled
DGII to use third party data sources to cross-reference with their own using sophisticated data-
mining software to help identify audit cases and aid investigations. Stepping up the integration of
other data sets—for example, forging a link between Customs and DGII—will provide more
powerful tools to augment the capability of the tax administration to enforce the law. CSMS II is
already capable of data mining through FPEMP support, the program challenge is now to help
them expand their access to data and better utilize the results of data mining exercises to
mobilize greater revenues.
Training on 2011 tax reforms Completed
Study tour to Colombia to learn about administrative tax collection enforcement system
for five diputados Completed
Development of the tax reform proposal Completed
Delivere a conference to the Congress on the new tax reform proposal Completed
Delivere a conference to the CAPRES Legal Advidors on the new tax reform proposal Pending
Delivere a conference for civil society on the new tax reform proposal Completed
Training on transfer pricing audit techniques Completed
Study tour to Ecuador to learn about transfer pricing audit techniques Completed
Train MOF staff on the implementation of the new fiscal reform Pending
29
Enforced Arrears Collection. Existing tax arrears equal 0.8% of GDP, and that amount has
remained constant for several years, demonstrating a significant pool of foregone revenue that
the DGII does not have the capacity to collect. Simply speaking, required fiscal adjustment of
3% of GDP to resolve the country’s structural deficit would be 33% resolved if DGII was
empowered to collect taxes due.
Currently, the system of collecting existing tax arrears gives powers to the DGT to pursue
“persuasive” (voluntary) debt collection methods for a period of six months, after which the debt
is sent to the prosecutor for the judicial collection. This system of judicial recovery is extremely
inefficient in the sense the tax debt that is in the process of judicial collection is equivalent to
$127 million, and the Office of Persuasive Collections is $65 million, but the recovery rate from
prosecution annually is $2.5 million whereas the DGT is $30 million.
In this context the reform of the current system is changing; giving the Ministry of Finance the
power of coercive collections (in practice, this means the repossession of a taxpayer’s assets to
cover their debts) using administrative rather than judicial autonomy is necessary. FPEMP
convinced the Viceminister of Revenue and the Minister of Finance to move forward with a tax
reform to provide statutory power to the MOF to collect tax arrears through coerced
administrative enforcement (i.e. asset reclamation), following international best practices.
FPEMP drafted the legal reform and submitted it to the Minister of Finance. The MOF has
already sent this proposal to the Legislative Assembly, and FPEMP, in coordination with the
IDB, organized a study tour for five members of the treasury committee in the Legislative
Assembly (including the Vice President of that committee) to the Ministry of Finance in
Colombia for them to gain exposure to the Colombian experience of applying administrative
enforcement powers. The FPEMP program continues to support the Ministry of Finance in
seeking approval of this legislative initiative, which is expected to be approved by the end of
2016.
Key outputs under this area of assistance include:
Support the large taxpayer office conceptual model Completed
Study tour to Chile to learn about the Chilean Large Taxpayer Directorate Completed
Setting up the new large taxpayer office front and back office Completed
Training on transfer pricing audit techniques Completed
Study tour to Ecuador to learn about transfer pricing audit techniques Completed
Support the DGT collection call center conceptual model Completed
Setting up the new DGT collection call center Completed
Taxpayer self service kiosk system implementation Completed
Assessment and recommendations to strengthen DGII tax control Completed
Implementation of the first phase of the DGII tax control reform program Completed
Assessment and recommendations to strengthen DGII internal audit units Completed
Implementation of the second phase of the DGII tax control reform program Pending
Deliver training on tax control strategies Pending
Support the large taxpayer office conceptual model Completed
Study tour to Chile to learn about the Chilean Large Taxpayer Directorate Completed
Setting up the new large taxpayer office front and back office Completed
Training on transfer pricing audit techniques Completed
Study tour to Ecuador to learn about transfer pricing audit techniques Completed
Support the DGT collection call center conceptual model Completed
Setting up the new DGT collection call center Completed
Taxpayer self service kiosk system implementation Completed
Assessment and recommendations to strengthen DGII tax control Completed
Implementation of the first phase of the DGII tax control reform program Completed
Assessment and recommendations to strengthen DGII internal audit units Completed
Implementation of the second phase of the DGII tax control reform program Pending
Deliver training on tax control strategies Pending
30
Development of CSMS II
Figure 10: CSMS Roadmap detail
Case Selection
Payment Management – DGT / Taxpayer Current Account Interphase
Taxpayer Hearings(UAT)
Administrative Appeals(TAIIA)
(Interphase)Trails in Judicial Supreme Court*
Notifications
Appraisal
Tax Unfulfillment (SIT)
Other Sources
Other Sources
Refunds
Complaints
Preventive plans
Roadmap - CSMS
DGII Audit (Integral
and detailed)
Fiscal Compliance
DGA sub-modules
1 Audit
2 Special Rules
3 Legal Procedures Department
Completed
In Progress
Pending
Risk Matrix
Audit Paperwork
E-Notebook
DGT collect call center
Results of “Fiscalizacion masiva.” As for “Massive” tax control, leveraging the data mining
capabilities of CSMS II and the Tax Compliance Call Center grossed $1.7 million in additional
revenue. In 2014 the figure rose to $4.3 million, while in 2015 the figure reached $6 million.
Finally from January-May 2016, these strategies have directly resulted in $14 million.
The CSMS II enables several stages of risk identification and automated communications with
taxpayers flagged as stop-filers or non-filers for direct contact through email, phone or direct
mail using their contact information in the taxpayer database. CSMS II also produces audit plans
based on the databases available and risk matrix established by the Audit department. Each of
these steps is meant to send a clear message to taxpayers that the authorities are watching their
declarations and payments for inaccuracies, and they can get in touch to rectify any mistakes—
intentional or unintentional, starting with a more friendly corrective stance (preventive), to more
serious, and finally to official notifications of an audit or investigation begun against the
taxpayer when fraud/evasion are suspected. The chart below shows the layers of different types
of automated communications enabled by CSMS II.
Figure 11: Massive Flows - CSMSII
31
Figure 12: CSMS II Full workflow
In all, the MOF attributes a minimum of $34.2 million in additional collections to the additional
functionality of CSMS II, and the system has still not maximized its full potential. The cost of
system development to USAID is expected to be $1.5 million once the TAIIA module is
completed (the final module for DGII, see above). With a revised risk matrix, direct data
exchange between DGII and Customs (DGA), and acquisition of additional third party data
sources, additional revenue growth through improved audit case selection and strengthened
evidence and investigations is highly likely. In addition, with the passage of stronger tax
regulations, the CSMS II could also offer support to enforced collections by accurately
identifying the assets of delinquent taxpayers, identify potential illicit international financial
flows, and provide a more complete third-party data set to identify irregularities in transfer
pricing from Salvadoran companies.
Key outputs under this area of assistance include:
USC
Fiscalización
Call Center
UAT
UAT -Incumplimientos
Plan Masivo
DGII - Traslado
Análisis Gestión de Cartera
Fiscalización
Cobranzas
RegímenesEspeciales
UGR
Operaciones
Contribuyente
DPJ
Mini UAT
TAIIA
DGII (Internal Revenue) TAIIA (Appeals)
DGA (Customs)
DGT (Treasury)
Notificaciones
Fiscalización Masiva
32
Tax Collections Call Center. Uncollected tax arrears represent a great challenge for the GOES’
tax administration, as in many countries, accumulating at a rate of $15-20 million per year. Since
August 2012, with support from FPEMP, the Treasury’s Collection Call Center was inaugurated
contributing to improve tax arrears collection, surpassing the annual goal for debt recovery since
its implementation. Establishing a two-way (initiating calls and answering calls) call center,
phone operators contact delinquent taxpayers to collect tax debt, to remind about payment
coming due on pre-established payment plans, and to answer any inquiries taxpayers have with
regards to their past due tax liabilities.
Located at the DGII building within the stop-filers call center, the Treasury call center began
operations initially with three staff members from the “Tax Collections Division,” who on a
monthly rotational basis, would serve in the call center. At the end of one month’s service they
would be reincorporated to their normal functions. This arrangement was implemented through
February 2015. Since then, an alternative staffing structure initiated with six interns who were
trained by the Tax Collections Division staff, and who to this day continue to serve as call center
operators. The Treasury Call Center was equipped through FPEMP assistance and has capacity
to accommodate up to seven operators with fully equipped computer stations.
Since the Treasury Call Center’s implementation in August 2012 the overall impact on tax
arrears recovery has been noteworthy. Collecting an additional $10 million in tax arrears than in
previous years just in the first year of the Call Center’s implementation, the Call Center has been
able to maintain tax arrears collection amounts above $20 million on an annual basis (see Figure
below). Furthermore, the Treasury Call Center has contributed to mobilizing additional tax
revenue by improving the debt recovery rate from taxpayers with arranged payment plans from
60% prior to the call center’s implementation and over 90% recovery since 2012.
2011 was the last year the DGT did not have the Collections call center, and that year there was a
tax amnesty that allowed delinquent taxpayers to reconcile any unpaid taxes from previous years
Support the design of the CSMS II development strategy Completed
Training program on use cases design to DGII Completed
Support the CSMS II modules use cases design Completed
Software development of the CSMS II selector module Completed
Software development of the CSMS II management module Completed
Software development of the CSMS II fiscal compliance module Completed
Software development of the CSMS II fiscal audit module Completed
Software development of the CSMS II portfolio management module (gestion tributaria y
grandes) Completed
Software development of the CSMS II notary (fedatario) module Completed
Software development of the CSMS II punto fijo module Completed
Software development of the CSMS II special plans audit module Completed
Software development of the CSMS II call center module Completed
Software development of the CSMS II UAAP module Completed
Software development of the CSMS II TAIIA module In Progress
Support the implementation of the CSMS II modules In Progress
Deliver of the CSMS II to the DGII IT Unit Pending
33
without needing to pay any fines—significantly driving up payment rates of taxpayers contacted
via mail to 90%. The year prior in 2010 without a call center and with no amnesty, the rate was
60% contacted via mail paid their taxes in full. Since 2012 and the launch of the Collections call
centers, there have been no tax amnesties, yet recovery rates have stayed between 88-93% and
total revenue performance has been higher than 2011. Even compared with the amnesty year,
the FPEMP intervention of the Collections call center has yielded $17 million in additional
revenues. When compared to the most comparable year (2010 with no tax amnesty), the
call center has yielded $28.5 million in additional revenue.
Improving Taxpayer Services through Online services
The DGII has already developed the electronic filing system for income tax and VAT. In
October 2015, the Ministry of Finance has developed a system of online tax returns within the
Taxpayer Service System (SSC). So far the program has drawn 16 of 23 use cases of first
registration applications and excise taxes. With this module it is expected that the taxpayer can
process imported vehicle registration filing (“primera matricula”), excise tax payments from the
website of the Ministry, and update other related personal information. Enabling remote payment
will increase the efficiency and lower the administrative costs both for the Ministry and the
taxpayer. The DGII expects a legal resolution to make it mandatory for large and medium
taxpayers the use of the e-filing service from October 2016 and for small and medium taxpayers
in January 2017. FPEMP support will make those targets possible from a technical perspective—
with contributions on taxpayer education from GIZ and the MOF itself.
Current e-filing rates of just under 40% for income taxes and 23% for VAT mean that mandatory
e-filing will realize considerable efficiency gains for the Taxpayer Services and Returns
Processing departments. E-filing will eliminate the need for error-prone manual data-entry that
currently takes over 100 full time positions within the MOF. It will also eliminate in-person
contact between tax officials and taxpayers, which follows international best practices in
professionalization and anti-corruption efforts of tax services. Once realized by the end of this
year, 100% e-filing rates—even if just for large taxpayers—will be a major step forward in
productivity and the fight against corruption within DGII.
Key outputs under this area of assistance include:
Taxpayer Data Integrity
FPEMP helped the Ministry of Finance to clean up/correct the current accounts of 21,523
taxpayers. Additionally, FPEMP convinced the Ministry of Finance to institutionalize regular
current account cleaning through an automated process within CSMS II, now implemented by
Presented the e-filing proposal to the Vice Ministers and gained approval for its
implementation Completed
E-filing system use cases desing In Progress
Development of the e-filing system In Progress
Implementation of the e-filing system Pending
34
DGII without FPEMP support. Since June 2014, the Ministry performs regularly checks and
updates, which provides significantly more reliable information about individual taxpayers.
Similarly, FPEMP helped the Ministry of Finance to maintain a Single Taxpayer Registry with
high data quality by updating profiles 7,730 taxpayers. FPEMP convinced the MOF to
institutionalize this activity as well in a similar form. A clean taxpayer registry and current
accounts has led to more efficient operations and has allowed DGII to execute a range of actions
including targeted taxpayer communications, auto-filled declarations, more successful audit
planning and outreach, and ultimately higher collections for less effort by the DGII.
Key outputs under this sub-objective include:
Training program on use cases design to DGII Completed
Development of the TRS application update first phase Completed
Development of the TCA application update first phase Completed
IT procurement for DGII (TRS and TCA cleaning) Completed
Development of the TRS cleaning Completed
Development of the TCA cleaning Completed
Support the TRS and TCA web services implementation In Progress
Support the TRS cleaning institutionalization Completed
Support the TCA cleaning institutionalization Completed
Support the implementation of the DGII and DGT interphase In Progress
Develop an assessment on web services implementation between the MOF and banks Completed
Sustainability of Objective 2 Initiatives
Tax audit, enforcement, and reduction of tax evasion; CSMS II. CSMS II is the system at the
heart of FPEMP efforts to improve revenue mobilization through improved tax administration.
As of this writing, the final stage of CSMS II—the Tax Appeals module—is in the final stages of
testing with the Appeals Unit before being rolled out. Once rolled out, CSMS II will be complete
and will cover all internal revenues in the country. CSMS will be handed over to MOF in the
coming months for their full control, and capacity building has already taken place to enable a
smooth transition—and final orientation/training on the system will happen on-the-job after the
handover.
Integration of Customs is the final step toward a complete case selection management system
with powerful data mining capabilities for the national level bodies responsible for revenue
mobilization (DGII and DGA). Both of those institutions’ respective data sets are
complementary and can aid both accuracy and investigative power for both institutions, and
ultimately raise compliance by requiring that private sector actors be in good standing with both
Customs and Internal Revenue in order to carry on with their business. Future support to this
area would be a lucrative investment of a relatively small amount of resources.
Call Centers. Taxpayer Service and Treasury collections call centers are both established and
demonstrating business results, justifying their own usefulness simply by the results attributed to
them in improved customer satisfaction, efficiency and productivity in collections. The call
35
centers supported by FPEMP have proven successful, but have also provided a model for citizen
communications that can be replicated in other areas throughout GOES to enable more cost-
effective compliance with services ranging from tax collections—such as with FPEMP—to
public services like water quality, weather reports for farmers, and appointment reminders from
the Ministry of Health, to name just a few potential areas that call centers would have high
impact. The call centers supported by FPEMP are fully owned and operated by MOF and seek
support for expansion or cost-sharing for relatively inexpensive technology or furnishings that
enable operations.
Taxpayer Data Integrity. Year 5 saw only “maintenance” support to MOF in continuing to
utilize its automated registry and taxpayer current account quality checks. The account and
database was systematically cleaned, and is now in an ongoing maintenance phase supported
entirely by MOF—securing these efforts’ sustainability.
Tax policy reform. In conjunction with efforts under Objective 3, FPEMP has provided expert
assistance to the MOF to propose tax policy reform ranging from fundamental reforms of the
income tax system, to regulatory and procedural reforms that would provide DGII with the tools
and capabilities to maximize revenue mobilization within the confines of current tax policy.
These efforts are not yet secured, but the political and technical consensus gained through careful
analysis and a study tour to Colombia that has apparently broken a political logjam with highly
influential members of the Legislative Assembly. Once the tax evasion reforms are passed, the
MOF will be ready to create the new General Collections Directorate and implement its part in
the changes to the criminal code resulting from painstaking work from FPEMP short-term
advisors.
More fundamental reform of rates, however, is further afield politically than anything within
FPEMP’s manageable control. The Program has contributed to non-partisan efforts to deepen
and better inform the public debate around fiscal policy (see activities and discussion under
Objective 3).
36
CHAPTER 5 – OBJECTIVE 3: STRENGHTENED
PRIVATE SECTOR OUTREACH
The third main objective of FPEMP assistance is to bridge differences and build consensus
between the Government and the private sector. Part of the strategy that FPEMP has taken to
achieve this is to help GOES to more proactively publish information, solicit private sector
feedback, and demonstrate its own commitment to greater transparency and to work together
with other donors (AECID and GIZ) in developing and disseminating a fiscal sustainability
paper to call GOES, private sector and civil society attention on the urgency of working all
together in a fiscal sustainability plan that guarantee the country a proper fiscal and economic
environment. To this end, the GOES must be able to demonstrate its commitment to more
efficient, effective, and transparent management of the country’s fiscal affairs and the current
fiscal situation is a key matter on the relation between GOES, private sector and civil society.
There is a critical need to improve the public-private dialogue that provides a mechanism for
fostering greater tax compliance and increasing tax revenues.
In the first year of assistance, FPEMP facilitated a joint public-private forum culminating in the
development of 15 strategic areas incorporated into a national fiscal transparency policy. FPEMP
has been supporting the implementation of specific tasks based on the 15 strategic areas for
promoting greater fiscal transparency. The second year of FPEMP assistance contributed to
advancing the implementation of some of these areas, including: revamping the MOF’s fiscal
transparency portal; supporting fiscal education for youth through the EXPRESATE center. At
the end of 2014 the renewed Fiscal Transparency Portal is launched significantly improving the
quantity and quality of the information provided. FPEMP continues to support improvements in
fiscal transparency through IT support for linking fiscal data of municipalities through the
Municipalities’ Financial Management System (SAFIM) and processing of information to be
facilitated and made public through the Municipal Management Information System (SIGMUNI)
system.
During Year 5, the major FPEMP activity under Objective 3 was to present the Fiscal
Sustainability White Paper to the national Economic Council, in collaboration with the Spanish
and German donors and coordinated by regional think-tank, the Central American Institute for
Fiscal Studies (ICEFI), to offer comprehensive analysis of the current macro-fiscal realities and
recommendations on policy and public administration approaches. FPEMP specifically
developed the Chapter of the white paper on Public Revenue, and supported the outreach to
government and the private sector to present the paper’s analysis. Other activities this year
included ongoing monitoring of the national fiscal transparency portal, and continuing
development of the municipal transparency portal. The project also followed-up on the status
performance and human resource management system. Finally, the project also supported UNAC
to develop a concept for transparent and accountable public procurement procedures through
strengthening intra-governmental oversight; specifically, replicating the concept of a Public
Procurement Ombudsman, taken directly from an FPEMP-supported study tour to Chile.
37
Seeking a National Fiscal Sustainability Agreement in El Salvador
After failed previous attempts to adopt a fiscal pact between the public sector and the private
sector and civil society (Social and Economic Council in 2011 and the Fiscal Sustainability
Agreement in 2012), new efforts are now sought pursuing the challenge to implement a renewed
National Fiscal Sustainability Agreement (NFSA). While El Salvador has improved its fiscal
stance in recent years through improved revenue mobilization and significant increases in social
sector spending, these have been insufficient to tackle the macro-fiscal sustainability risks arising
from sluggish GDP growth, depressed labor markets, low capital investment, persistent fiscal
deficit and increasing debt levels, and the need to improve access and quality of key public
services.
Supporting the GOES through a joint effort from the donor community including AECID, GIZ
and USAID, a comprehensive assessment and evaluation of the macroeconomic and fiscal
situation culminated in a renewed strategy for promoting fiscal sustainability in the medium and
longer term. Development of the NFSA document was led by the Central American Fiscal
Studies Institute (ICEFI) but integrates input from various other agencies as follows:
Diagnosis of the Fiscal Situation in El Salvador 2004-2013, by ICEFI (AECID-funded);
Evaluation of Government Revenue in El Salvador, by USAID/FPEMP;
Assessment of public spending in El Salvador, by ICEFI (GIZ-funded);
Element of a strategy for reaching a National Fiscal Sustainability Agreement in El
Salvador, by ICEFI (AECID-funded).
The NFSA documents points toward the need to continue pursuing a national agreement that is
led by the MOF and the Office of the Presidency while promoting inclusion of the public sector,
private sector, civil society, churches and others. Promoting such national agreement should have
a clear inclusive and participatory platform for dialog that fosters credibility and trust among
stakeholders. Failed attempts to reach such a national agreement should inform a more effective
process, including the success of the 1992 Peace Accord. The NFSA document systematically
describes the serious, immediate fiscal stability issues and risks in the country, and presents a
comprehensive series of recommendations to overcome those risks. The fiscal issues arise from
both revenue and expenditure sides affecting:
GOES liquidity;
Opportunities for improved performance of the tax administration within current rates;
“Fiscal privileges” including tax expenditures;
Efficiency and effectiveness of public spending, including subsidies;
Fiscal transparency;
Unsustainable public borrowing; and
An urgent need for pension reform.
The new strategy for fiscal sustainability document lays out important findings with
accompanying options and recommendations. While the GOES continues to strive to reach a
national agreement there are specific actions that do not need to wait until a national agreement
38
is reached. For example, following the development of the NFSA document and FPEMP’s
evaluation of the options for tax revenue mobilization, FPEMP currently supports the Ministry of
Finance to pursue some of the recommendations brought about from these efforts. As such,
FPEMP supports the legal drafting of an important revamping of the tax legislation. Not one
where tax rates are increased, but instead a tax reform that tackles procedural and tax code issues
that limit the tax administration’s ability to mobilize greater revenue. The final document can be
found online (in Spanish) here: http://www.aecid.org.sv/wp-
content/uploads/2016/04/Documento-En-la-búsqueda-de-un-acuerdo-nacional-de-sostenibilidad-
fiscal.pdf?82a9e7
The White Paper was presented to the President’s Economic Commission, the National Council
for Economic Growth (private sector), and to interested civil society groups. Both the final
product and process of developing the white paper were praised throughout interviews for this
evaluation. The White Paper offered the MOF a space to take a step back from the operational
details and short-term pressures they face to recognize the high-level challenges that the country
faces, specifically its structural deficit and a looming debt crisis. The public consultation process
also opened space for a more evidence-based policy dialog that demonstrates the immediate
necessity for fiscal reform to both sides of the political debate—where fiscal reform is a topic
that evokes visceral reactions to opposing political parties, and therefore the topic is most often
avoided in the political dialog.
Leveraging the White Paper, USAID and its projects that work with other parts of the GOES can
calibrate their recommendations with the knowledge and understanding of the national fiscal
situation. USAID itself can also use the White Paper’s analysis and positions in its discussions
with GOES and with other donors to encourage short, medium and long-term planning and
policy-making that more rapidly brings about fiscal sustainability and avoids adverse economic
shocks. In the final year of the project, FPEMP will continue to disseminate the White Paper
through in-country networks and relationships with other USAID projects, local think tanks and
civil society—in addition to its continuing commitment to offer fiscal advice to the MOF.
Key outputs under this area of assistance include:
Improving Fiscal Transparency in El Salvador
There are several measures of fiscal transparency but none provides satisfactory information on
certain issues including whether fiscal data are available for all of general government, or
government reports are based on a cash or accrual basis, or whether the information is provided
on a user-friendly format for an ordinary citizen to access, all of which affect the degree of fiscal
transparency in a given country. An IMF (2015) report on Trends in Fiscal Transparency
analyzes the comprehensiveness of countries’ reporting on the Government Finance Statistics of
the IMF and finds that El Salvador is among the top four countries to report the most fiscal data
on general government. This involves six pieces of information: (i) liabilities, (ii) financial
Development of the Fiscal Sustainability Whitepaper Completed
Present the fiscal sustainability white paper to the Economic Growth National Council Completed
Present the fiscal sustainability white paper to the Presidential Economic Commission Completed
Present the fiscal sustainability white paper to the Salvadoran civil society Completed
39
assets, (iii) nonfinancial assets, (iv) the statement of the sources and use of cash; (v) the
statement of government operations; and (vi) the statement of other economic flows. However,
this measure only covers one aspect of fiscal transparency, namely the comprehensiveness of
aggregate government finance statistics.
By comparison with the Open Budget Index ranking in 2015, El Salvador has a relatively low
ranking—though trending upward from 43/100 in 2012 to 53/100 in 2015, in part due to the
extent and depth of budget data and information published by MOF on the fiscal transparency
portal. Key recommendations for improving budget transparency and accountability according to
the International Budget Partnership, which publishes the Open Budget Index, is to improve
budget information listed by appropriate classifiers (which is being addressed by FPEMP
supported IPSAS reforms), publish comparative analysis on forecasts vs. actuals, and creating
more formal spaces and opportunities for public participation in the budget process (which
FPEMP is also addressing through data published by the transparency portals and events
convened around fiscal sustainability).
One issue raised that FPEMP will work to address in the final year of the project is that some of
the published data is not immediately available in machine-readable formats. Many reports and
data published on the portal are in PDF format rather than in Excel or a database format that
would permit deeper economic analysis by non-government researchers—one of the key benefits
to more transparent data is enabling a stronger body of research outside of government.
That said, significant improvements to the portal include:
Availability of time series data on budget execution in 4 modules: expenditure execution,
public debt, public investment and government revenue.
Tools for downloading information in different format including pdf, excel, word, etc.
Expenditure execution is available by type of institution, by type of expenditure, for a
time series from 2010 to 2015.
Public investment data is presented by type of financing resources, by sector, and
provides a comparison between the budget plan and implementation status.
Public Debt data is provided by type of creditor (bilateral, multilateral, bonds, and
others).
Tax Revenue data is published on a monthly basis by type of tax, by economic sector, by
department and municipality, allowing the user to obtain detailed and up-to-date
information.
Full technical and functional control has now been passed to the MOF to maintain and update
after necessary capacity building from FPEMP. The website continues to be updated with the
most recent data and has adequate capacity to handle its web traffic. FPEMP will explore ways
to better utilize the portals in its communications efforts, as well as to raise awareness of the
portal within the international community and with new USAID/El Salvador projects coming
online. So while the capacity and will to sustain this investment by MOF is clear, the program
will help to solidify its contribution on the “demand” side to ensure the existence of a non-
government constituency committed to advocating to the MOF to continue maintaining the site
and updating available data.
40
Key outputs under this area of assistance include:
Supporting Fiscal Transparency at the Municipal Level
Now that the MOF has control over the national level fiscal transparency portal, the program is
working in collaboration with the World Bank’s Local Government Strengthening Project
(PFGL) to further develop a similar transparency portal, but at the municipal government level
(called SIGMUNI). SIGMUNI will work in a similar manner to the national fiscal transparency
portal, except that the “back-end” data will be pulled from the SAFIM system rather than SAFI.
Since SAFIM is a voluntary system for municipalities and it does not have 100% participation,
the data will not be comprehensive. Making SIGMUNI comprehensive is a broader issue that
would involve a political decision to require municipalities to utilize SAFIM, which is not
anticipated in the near-term. However, 104 municipalities are currently utilizing SAFIM—nearly
doubling the 53 municipalities active by the end of Project Year 4—and thus a significant
increase in available fiscal data from the municipal level will soon be available.
SIGMUNI is a product of collaboration between FPEMP and PFGL. FPEMP agreed to develop
the data loading mechanism that links to SAFIM enabling current data availability, while PFGL
is developing the user interface on the website. FPEMP has completed the data mechanism—
after defining the scope of municipal data to be included with GOES—and so PFGL is now
working with the Subsecretary for Territorial Development and the DGCG to design the “front-
end” with parameters that the data can fulfill. The project anticipates completion and launch of
the SIGMUNI portal to the public by the end of 2016, and will provide any updates as needed to
FPEMP’s contribution.
The data and related performance indicators of municipal finances to be included in the
SIGMUNI portal include the following:
Local Government Revenue
Savings rate (current revenue minus current expenditure)
Fiscal autonomy
Tax collection efficiency
Support the development of the fiscal transparency strategic lines Completed
Presentation and validation forum of the fiscal transaprency strategic lines Completed
Fiscal transparency strategic lines incorporated in the GOES Transparency and Anticorruption Policy Completed
Assessment and recommendation to modernize the fiscal transparency portal Completed
Design the strategy for data loading and dynamic data model of the fiscal transparency portal Completed
Launch of the Trilateral Cooperation on Fiscal Transparency Completed
Workshops on Fiscal Transparency Completed
Redesign of the fiscal transparency portal Completed
Study tour to Brazil to learn about fiscal transparency portals Completed
Launch of the new fiscal transparency portal Completed
41
Local Government Expenditure
Expenditures per capita
Administrative efficiency
Investment effectiveness
Capital expenditure levels
Infrastructure investment
Debt service levels
Local borrowing
Borrowing trends and ceilings
Key outputs under this area of assistance include:
Building a stronger culture of performance management
The FPEMP supports the MOF and the public financial modernization reforms underway,
through a program aimed at improving human resource utilization. The goal is to improve the
operational efficiency and productivity of professional staff, strengthening their technical
capacities, outlining a clear professional career path, improving employee’s performance
evaluation, and providing capacity building and training for professional development.
FPEMP continues supporting the implementation of the MOF Human Resources system based
on competencies, but with great challenges. While it was expected that at least five functional
units would undertake the performance evaluation process in 2014-15, this has been met with
great resistance from the MOF employees union, who have met this as a threat rather than as an
opportunity for career advancement and professional development.
The details of FPEMP assistance in this area were provided in the previous year’s evaluation
with respect to the numbers of employee profiles assessed (314), the conceptual model for a
revised human resource framework, which then enabled the FPEMP-supported MOF Human
Resources system. During Year 5, the project continued to offer support to the Administrative
General Directorate (DGEA) to deepen the substantive use of performance evaluations for
management decision-making on individual employees. Demographic concerns continue to be
raised by Directors of offices within the MOF; referencing the entrenched nature of long-serving
civil servants as a barrier to implementing technology-based reforms, transparency and anti-
corruption initiatives, and a change in mindset in areas like programmatic budgeting or
investigations focused audits flagged by data-mining. Use of this performance management
Launch of the Trilateral Cooperation on Fiscal Transparency Completed
Launch of the Fiscal Transparency Initiative for Municipalities Completed
Study tour to Brazil to learn about fiscal transparency portals for municipalities Completed
Support the strategy for data loading and dyanamic data model of the fiscal transaprency portal for municipalities Completed
Launch of the fiscal transaprency portal for municipalities Pending
42
system is intended to provide a resource to those Directors and Managers, but institutional
barriers to deepening its usage continue.
The project will work closely with the DGEA to identify opportunities to support this initiative.
A recent follow-up visit from FPEMP Human Resources (HR) expert Lee Niederman advised
the project to wait for a more permissive institutional environment before investing greater
resources into this area. The initiative remains of vital importance, but the HR system that has
already been developed by the project remains under-utilized and the MOF should first
demonstrate its own commitment to a culture of performance before FPEMP can expect stronger
results for its effort.
Key outputs under this area of assistance include:
Supporting Fiscal Education through the EXPRESATE Center
Officially launched in March 2013, EXPRESATE, the GOES tax awareness program for youth
has become renowned world-wide as an innovative program promoting outreach and fostering
public-private interchange through the youth population. Targeted at high school students within
15-20 years of age, EXPRESATE (to express yourself) is aimed at creating tax awareness,
promoting fiscal responsibility and tax compliance among the youth. The center is a playful area
where young visitors take a fun walk around six sections. Each section has its own specific goals
intended to promote analysis, discernment and learning of the activities regarding the GOES
functions and responsibilities. EXPRESATE also promotes the importance for understanding and
participating in the country’s development, linking the payment of taxes with the country’s
investments and economic growth.
Assessment and recommendations for the Training Department (DECAMH)
modernization Completed
Training on the methodology to elaborate training curricula Completed
Institutional reform of the Training Department (DECAMH) Completed
Workshops on technical area profiles development for DGP, DGT, DGICP, DGII, DGA, UNAC
and HR Department Completed
Development of the technical area profiles of the MOF Completed
Training on course development and train-the-trainers Completed
Workshops on curricula development for DGP, DGT, DGICP, DGII, DGA, UNAC and HR
Department Completed
Development of the curricula of the MOF Completed
Training on train-the-trainers and training on performance evaluation based on
competencies Completed
IT procurement for the Training Department (DFDMH) Completed
MOF HR system based on competencies implementation workshop Completed
Development of the MOF HR system based on competencies Completed
Support the implementation of the MOF HR competencies based system In Progress
Setting up the Training Department (DFDMH) computer lab Completed
43
In Year 5, the EXPRESATE center remains open particularly to school groups and has provided
education in fiscal responsibility and tax awareness to 2,131 high school aged youth. Since its
launch in 2013, more than 7,000 students have visited the center. The MOF recently decided to
open the museum to elementary school students, broadening the potential impact to a larger
number of young people. FPEMP has handed over responsibility for the EXPRESATE center to
the MOF, and continues to monitor the performance and usage of the center, while resources for
future educational programs are now provided by MOF.
Supporting the implementation of a Public Procurement Ombudsman Office
The project has also inspired the creation of the Ombudsman’s office through a study tour with
UNAC, fully owned and championed by UNAC and the MOF itself. FPEMP plans to provide
limited technical support, but UNAC plans to move forward with replicating the Chilean model
on its own.
Chile Study Tour to learn about CHILECOMPRA’s Ombudsman experience. During year
5, a study tour to Santiago was organized by FPEMP for the Chief and technical staff of UNAC.
The objective was to meet with and learn about Chile’s Public Procurement Ombudsman, and
consider options for El Salvador’s own modes of ensuring transparency and accountability for
following its procedures defined in statute. After a week of meetings, discussions and strategic
planning, UNAC officers committed—and upon their return secured internal MOF agreement—
to replicate Chile’s Ombudsman model. The Ombudsman will work in coordination with the
Audit Court and Attorney General’s Office. The Ombudsman will be responsible for receiving
and acting on citizen and vendor complaints and seeking resolution or restitution on their behalf
in case the law is not followed. This is one of several cases of a study tour leading directly to the
establishment of a productivity or accountability enhancing operational reform. UNAC is proud
to launch the Public Procurement Ombudsman Office, and they have already received requests
from four other countries in the CAFTA-DR signatories for assistance in their own procurement
reform efforts.
Sustainability of Objective 3 Initiatives
Fiscal Sustainability. Closing the fiscal deficit and staving off default through pension reform
and a strengthened political commitment to a stronger tax control environment have taken much
greater primacy in the political dialogue over the past 12 months. Along with civilian security,
pension reform is now a top political priority with strengthened tax control powers for the MOF
expected to follow later in the year. As is the case in many countries, opportunities for genuine
tax reform and consensus-building on far-reaching fiscal reforms are rare. Given the political
economy realities and the relative ease with which a project such as FPEMP, or a donor such as
USAID, can be easily linked with a political ideology or party—the program leadership has
worked closely with USAID to maintain a position of political neutrality as technical advisors to
the government. In that vein, FPEMP worked in partnership with other donors and a regional
think tank (ICEFI) to develop the Fiscal Sustainability White Paper, in the recognition that
genuine fiscal sustainability will require policy change beyond the scope of administrative
improvements internal to the government.
44
As such, FPEMP interventions under Objective 3 have focused on providing the evidence and
analysis needed for a better informed policy dialog with an appropriately calibrated level of
urgency. Interventions under Objectives 1 and 2 focus on operational/administrative
improvements to the actions of government to make meaningful contributions that enable GOES
to create fiscal space under its current policy constraints by building its capacity for efficiency
and productivity of operations. Objective 3 takes those contributions, builds apolitical
partnerships with the international community, and conducts data-driven analysis such as the
Fiscal Sustainability White Paper to raise the level of dialog around the need for fiscal reform to
prevent negative economic shocks stemming from the structural deficit.
While FPEMP and its partners have succeeded in raising the importance and urgency of fiscal
reform at the national level, such a focus is transitory by nature and must be maintained through
disciplined policies at the political level and management at the MOF. In the words of leading
fiscal economist Richard Bird, even the ideal fiscal reform will likely suffer the effects of “fiscal
termites” (special interests seeking to decrease their tax bills) that eat away at a simple, direct
fiscal regime over time. Thus we can say the impact of activities intended to bring the GOES and
private sector together around a common table to discuss fiscal issues of great national import
have been successful. However, that dialog still needs to be deepened and broadened until
adequate political consensus is reached to permit policy reforms that offer the GOES the legal
powers and platform it needs to balance its books over the medium term.
AECID is planning to shift its assistance to focus on being a convener of a policy dialog between
the public and private sector, which FPEMP will support wherever possible with analysis in its
final year. However, continuing support to build capacity of both the MOF to provide policy
analysis, as well as advocacy for publishing accessible data to enable a more evidence-based
policy analysis, will be useful contributions to critical policy discussions in the years to come if
policy reform does not pass by early 2017.
Fiscal Transparency. Similar to Fiscal Sustainability, a commitment to Fiscal Transparency is
an orientation of a number of institutions rather than a single activity or commitment. However,
FPEMP activities directly contribute to institutionalizing such a commitment. The Tripartite
Transparency Agreement between GOES and the Governments of Brazil and the U.S.—
facilitated by FPEMP—commit GOES at a political level, while the national and municipal
transparency portals have created established avenues by which citizens and organizations can
access data and hold the government accountable. An added benefit of SAFI and SAFI II is that
the data within can be tailored and extracted by tools and pushed out to the public with minimal
effort or maintenance on the part of MOF once the tool is developed.
MOF is now in full control over the national transparency portal and is actively updating the data
in the comprehensive structure of the site. While additional functionality should be added to
make the site friendlier to external researchers, the information provided is highly appreciated by
civil society and national policy organizations.
Improved Human Resource Management. Support to improved HR management and
developing a culture of performance management has not yet taken hold, but the performance
management IT system that FPEMP supported is in use. Managers currently assign ratings to
their direct reports—theoretically based on performance, but in practice there is little training on
how to assign ratings, little oversight on whether or not managers are following the guidelines,
45
and overall the impact of the system has been small, to date. In order to truly take root,
leadership, directors and managers must lead and maintain consistency with their message
downward that accountability for individual performance will be documented by the HR system,
but will ultimately be expressive of a more comprehensive norm of performance feedback.
Individual and team accountability is often challenging to enforce in government bureaucracies,
and the MOF particularly struggles given the varying levels of prestige and earning power that
accompany different jobs within the MOF.
Norms and institutional culture will not change overnight, and there continue to be vocal
opponents of instituting the HR system in all of its functionality. Instituting this system would
mean a more rigorous and well documented incentive system that rewards tangibly strong
performance, and just as importantly, provides consequences for poor performance or corruption
of employment termination and could identify evidence for further sanctions of behavior
ventures into criminality. FPEMP will continue to stand ready with support as the political
economy of change evolves over time. Once the space opens to expand the reach of performance
management at the MOF, a multi-year capacity building and change management initiative will
be needed from top to bottom within ministries, from the individuals being evaluated all the way
to the Minister. Once the opportunity to provide such support is present, sustainability will be
within reach.
EXPRESATE Center. In recognition of the cultural aspects of tax compliance, the
EXPRESATE center is a long-term investment in Salvadoran youth to make a stronger case for
paying taxes as an act of citizenship, backed by the force of law to enforce their compliance. For
many in older generations, tax evasion is a societal norm, whereas young people have not made
decisions on the types of social norms they will accept as adults. For the older generation,
ramped up audit and enforcement may be the only thing they respond to that compels them to
pay taxes, whereas the MOF is seeking a tax base that depends more on voluntary tax
compliance backed by the implicit threat of audits.
The sustainability of the initiative is now firm. The Center is established, staffed and operational
with MOF resources alone with FPEMP only monitoring progress but not providing
programmatic support after helping with the up-front costs to establish the center. The greater
impact of the Center on the tax compliance of future generations is a long-term proposition
that—when combined with better taxpayer services, clear policy and a strong tax control
environment—will lead to increases in voluntary compliance over time, reducing the need for
adversarial audit and enforcement actions.
46
CHAPTER 6 - FINDINGS AND RECOMMENDATIONS
This report provides an analysis of FPEMP’s fifth year of assistance to the GOES in advancing
its fiscal reform agenda in the areas of public expenditure management, tax revenue mobilization
and private sector outreach. Through a detailed review of program reports, technical
deliverables, and interviews with GOES counterparts, the FPEMP team, and USAID, findings
reveal important achievements through the first five years of FPEMP assistance. This evaluation
helps identify challenges going forward and areas requiring additional assistance in order to
ensure the implementation of a sustainable fiscal reform.
Lessons Learned
There are key lessons that can be extracted from the implementation of fiscal reform in El
Salvador. Particularly the following:
Embeddedness of the project team requires constant vigilance for professionalism,
maintaining the decorum of the Ministry as occupants of its office space, and also
maintaining high standards for capacity building and avoiding the replacement of MOF
capacity with project resources. MOF and the program both benefit from the physical
proximity in the professional relationships—both formal and informal—that such
proximity permits, and how those relationships ease communications. Despite that,
several specific areas for improvement in communications channels have been identified,
reminding the project team that such communication and coordination is of the utmost
importance especially when in a position as embedded advisors.
Continuing the project’s practice of offering capacity building beneath the management
level to operational staff should be replicated and scaled in the future, particularly as
FPEMP has helped develop a number of modernized IT systems (SAFI II and CSMS II)
and significantly modernized functional work flows (IPSAS accounting, programmatic
budgeting, technology-enabled audits/investigations) that will be used by
specialists/analysts as much, if not more, than management level staff.
Study tours have been important in promoting political will for reform. GOES officers
have visited other countries in the Latin America and the Caribbean region with
experience implementing the various PFM reforms, exposing them to the experience, and
providing important input in the design and implementation of such reforms in El
Salvador. The project’s approach of (1) securing substantial MOF cost-shares, (2)
limiting involvement to small groups of the principal actors involved in a given reform,
(3) communicating clear expectations regarding a full-time work schedule for participants
and post-trip deliverables, and finally (4) having a knowledgeable facilitator with in-
country knowledge, experience and professional networks are all necessary for a
productive experience. For example in Year 5:
o An UNAC study tour to Chile facilitated by FPEMP inspired the creation of
Central America’s first Public Procurement Ombudsman’s office, replicating an
internal transparency and accountability mechanism used by the Government of
Chile. Along with the COMPRASAL II system, this is a significant commitment
to internal assurance of accountability of public procurement, with UNAC
crediting that experience as a “tipping point” for creating such an office.
47
o Several respondents commented that a recent study tour with 5 members of the
Legislative Assembly to observe Colombia’s enforced arrears collection unit and
discuss policy matters cemented political consensus from the Treasury
Commission within the Assembly. Legislative passage is now expected later in
2016 and is critical for the collection of up to 1%/GDP in revenue owed to the
Treasury year-to-year in uncollected tax arrears.
As technical service providers, the project needs to maintain a flexible posture toward the
evolving requirements of the beneficiary (MOF), even if previously understood
agreements change mid-stream such as the current situation with the development of
SAFI II. While such events create management challenges and call for retrospective
inquiry and reaching new solutions, the decision to maintain flexibility to the needs of the
MOF was the best available course of action. The project was complimented roundly for
its flexibility, but the need to maintain such a posture was emphasized as a top priority
for FPEMP as technical advisors.
A focus on short and medium-term modernization of public administration and regulatory
reform can still yield significant and concrete results—such as increases in tax revenue
and tighter control over public spending—even in a political climate where
comprehensive reforms requiring legislative approvals are unlikely.
Regular performance monitoring combined with annual evaluations such as this
contributes to an internal accountability for the project team—requiring project
leadership to be open to constructive feedback and continuous learning and flexibility to
continue providing consistently high levels of service to clients and achieving prioritized
results.
Recommendations
USAID and the FPEMP team should continue to work in close coordination with the government
counterparts and other donor assistance programs to ensure the GOES’ continuous, sustainable
progress towards results, relying on much needed donor technical assistance to overcome the
complex and interlinked nature of operational reform efforts throughout the ministry. We
provide a series of detailed recommendations for project management as a whole and divided by
Component and sub-activity.
Cross-Cutting
Provide progress reports and quarterly results of no more than 2-pages to the
Viceministers in Spanish, translated from the Quarterly report. This is in response to
a request for greater clarity on the results of activities and short-term consulting
assignments by the Viceminister of Finance. The project produces such highlights in its
quarterly report in English, so these can be translated and provided to MOF as a brief
update with highlights on recent results and major activities.
48
COMPONENT A: Public Expenditure Management
Government Accounting and IPSAS implementation
o Provide technical assistance to finalize the conceptual framework and help the
Directorate secure Ministerial approval for the revised chart of accounts;
o Connect the Directorate with IPSAS technical support from the IMF on its
published transparency manuals;
o Offer capacity building support from international consultants provided to the
Directorate in the recent past as the needs and absorptive capacity within this
office has exceeded the project’s budgeted resources for IPSAS implementation;
o Carefully calibrate the investment of project resources in IPSAS initiatives against
more immediate, short-term strategic priorities that will more directly yield
tangible reform on either the revenue or expenditure sides.
Treasury Operations
o Investigate the technical needs and IT capacity of the current Treasury system
(under CSMS I) to accommodate the desired Phase 2 of the TSA.
Development of SAFI II
o Shift resources to development of COMPRASAL II and CSMS II if software
development of the Budget subsystem continues to delay further developments on
the Government Accounting and Treasury subsystems. Also consider dedicating
resources to preparing the foundation for Phase 2 of the Treasury Single Account.
o Provide monthly progress reports to the Viceminister of Finance and Director of
DINAFI on FPEMP progress on development of the Treasury, Accounting and
Procurement subsystems;
o Offer support if needed on systems integration, and remain open, flexible and
available to push SAFI II development forward whenever the opportunity arises.
Transition to Programmatic Budgeting
o Determine available project resources to lay foundations for increased
engagement with the DGP on programmatic budgeting as the FPEMP proposed
office reorganization is imminent, and GIZ assistance is scheduled to be reduced;
o Request an operational meeting with the Director and Subdirector of Budget.
Public Procurement
o Investigate internal controls within UNAC and COMPRASAL II system. One
comment from a highly placed MOF official stated that while the system
increases external competition, there still appear to be insufficient internal checks
and balances to protect the government against collusion or bid-rigging;
o Continue to develop COMPRASAL II, targeting completion of the Contract
Management and Direct Contracting modules in the scheduled workflow.
Fiscal Policy Analysis
o Provide capacity building to build analytical skills to more effectively utilize the
Medium Term Fiscal Framework and Medium Term Expenditure Framework to
inform policy discussions and more accurately reflect GOES strategic plans.
o Work with Directorate General or Fiscal and Economic Policy to define the
parameters for the Tax Gap Analysis and work with MOF analysts to conduct the
study to also build their capacity to repeat the same type of study in the future,
data availability permitting.
49
o Provide flexible support in this office’s role as donor coordinator, offering project
institutional memory and networks to other strategically aligned projects.
o Consider supporting the Directorate General of Investment and Public Credit on
optimizing debt management through the use of state of the art tools such as a
Medium Term Debt Strategy. Rising debt and recent dependence on domestic
creditors is increasing the risk of crowding out private investment, along with
concerns about a potential default on floating debt levels. Optimizing debt choices
will not reverse debt dynamics, but can mitigate potential negative outcomes and
offer MOF more fiscal space and flexibility to most effectively govern fiscal
dynamics.
Component B: Tax Revenue Mobilization
Strategic Planning
o Given flat tax revenue outcomes over the past three years and the lack of tax
policy reform, the project should conduct a thorough Tax Gap Analysis to
determine the additional capacity of the tax system to generate higher levels of
revenue from the economy, data permitting. A Tax Gap Analysis is critical to
validate the underlying assumption of the project’s strategy under Component B,
namely, that tax effort still lags behind tax capacity, and thus the project should
focus on operational improvements in tax administration. Once such an
assessment is conducted, and if that assessment validates FPEMP’s strategy, the
study will provide the analytical basis for where the project should focus the bulk
of its resources, as well as where future programming in DRM should focus. For
instance, observing that VAT revenues are holding steady while income taxes are
improving in its performance, it would be valuable to understand if that effect
results from the maturation of the tax system—other middle and high income
countries also see an increasing revenue base from income taxes versus
consumption taxes as the economy grows and tax administrations become more
effective—or due to declining diligence in VAT collections. As observed by an
interviewee, Customs VAT collections have recently increased while Inland VAT
collections have decreased, which if the VAT is being collected appropriately is
impossible. Thus, some irregularity must exist, either in the data or in the
collections performance of DGII. Similarly, FPEMP should request access to the
Tax Expenditure Study recently conducted by the IDB in collaboration with the
Fiscal and Economic Policy Directorate to identify weaknesses in the tax system
and plan future activities accordingly.
Support to Tax Audit and Enforced Collections
o Continue to encourage MOF leaders to keep enforced arrears collections at the top
of their policy agenda;
o Encourage and contribute, as needed, to the completion of the Risk Matrix for risk
based audit (currently a GIZ task).
Support to Taxpayer Services
50
o Ramp up support to e-filing to provide sufficient technical capacity to
accommodate 100% e-filing for large taxpayers for both VAT and Income taxes,
and a significant influx of filings from small and medium taxpayers;
o Provide capacity building to the Taxpayer Services call center to enable better
triaging of cases by complexity to more or less experienced operators;
o Support other online services.
Completion of CSMS II
o Complete TAIIA testing and handover;
o If additional resources are diverted from the SAFI II software development,
initiate first steps toward defining more specific needs with the Customs
Directorate;
o Flexibly support the integration of more third-party data sets to deepen and
strengthen data-mining efforts.
DGII’s IT Migration
o Once enabled by DINAFI to transfer to the JBoss system, support migration of 10
critical modules from the SAFI to SAFI II environment.
Component C: Strengthened Private Sector Outreach
External Communications
o Contract a junior/mid-level Salvadoran communications specialist focused on
connecting civil society groups focused on service delivery and Salvadoran
research institutions with the resources generated by the project;
o Task this person with follow-up on the project’s intellectual credibility to share
knowledge and potentially leverage resources from other donors, other USAID
projects, and offering an avenue to national non-government actors into better
understanding the current fiscal climate and future fiscal needs.
National Fiscal Transparency
o Encourage the MOF to post fiscal statistics in machine-readable formats that
enable external analysis (currently most files available only in .pdf format);
o Connect new USAID Anti-Corruption and Higher Education projects with
resources that FPEMP has generated and help create synergies between projects,
for example with anti-corruption and the development of COMPRASAL II—a
significant contribution to reducing the abuse of government procurement funds;
o Complete a “How To” video for the fiscal transparency portal;
o Establish a social media presence for fiscal transparency resources in coordination
with the MOF to call greater attention to available resources on the portal to civil
society and private sector groups.
Municipal Fiscal Transparency
o Complete stabilization of the municipal transparency portal and connection with
the SAFIM.
Support Private Sector roundtable proposed by the Spanish government
51
o Maintain a strictly neutral technical advisory role on fiscal policy, such as in areas
like follow-up presentation or advocacy on the fiscal sustainability white paper;
o Support private sector outreach efforts in favor of a fiscal pact, such as the current
efforts of the international community to convene a private sector roundtable with
a main area of focus being on the need for GOES to raise greater tax revenue.
Provide technical analysis and advice to this and other such groups in close
coordination with USAID.
52
Annex 1: Perception Survey Results
Avg Score Dir
. Co
nta
bili
dad
Sub
Co
nta
bili
dad
Ch
ief
of
Cas
e Se
lect
ion
Un
it
Au
dit
Ch
ief
DG
EF C
hie
f
Taxp
ayer
Ser
vice
s C
hie
f
DG
II D
irec
tor
Gen
eral
Dir
ecto
r G
ener
al o
f Tr
easu
ry
Vic
emin
iste
r o
f R
even
ue
Vic
emin
iste
r o
f Fi
nan
ce
Pu
blic
Pro
cure
men
t C
hie
f
Ad
min
istr
atio
n D
irec
tor
IT C
hie
f
Bu
dge
t D
irec
tor
Gen
eral
Ap
pea
ls C
hie
f
1 Quality 4.63 5 5 5 5 5 5 4 5 4.5 4.5 5 5 3 4 4.5 4.63
2 Timeliness 4.80 5 5 5 4 5 5 5 5 5 5 5 5 4 4 5 4.80
3 Flexibility 4.53 5 5 5 5 5 5 4 5 5 5 5 4 3 3 4 4.53
4 Communication 4.57 5 5 5 4 5 5 5 5 5 3.5 5 5 3 3 5 4.57
5 Overall Satisfaction 4.80 5 5 5 5 5 5 5 5 5 5 5 5 3 4 5 4.80
5 5 5 4.6 5 5 4.6 5 4.9 4.6 5 4.8 3.2 3.6 4.7 4.67
53
Annex 2: List of Interviews 1) USAID: Martin Schultz (FPEMP COR); Teresa Miller (Deputy Director of Economic
Growth)
2) FPEMP: Enrique Giraldo (COP), Carlos Quiteno (M&E Specialist), Renato Bonilla (IT
Manager), Sandra Urazan (Revenue Advisor); Alex Rivera (IT Project Manager,
COMPRASAL II)
3) MOF: Carmen de Mancia (Taxpayer Services); Alfredo Diaz (DG of DGII); Jose David
Lopez (Audit Chief); Jeremias Aguilar (Case Selection Unit Chief); Alejandro Riveria
(Viceminister of Revenue); Juan Murillo (DG of Treasury); Inmar Reyes (Director of
Government Accounting) Jose Candido Perez Hernandez and Luis Antonio Campos
(Government Accounting Subdirectors); Carlos Ortiz (Director of Administration);
Edelmira Montejo (Public Procurement Chief); Roberto Solorzano (Viceminister of
Finance); Nelson Fuentes (Director of Economic and Fiscal Policy); Jose Ovidio Cardoza
(Director of IT and Innovation); Carlos Salazar (DG of Budget); Mario Villatoro
(Subdirector of Budget);
4) International Community: Ignacio Nicolau Ibarra (Director of Aid Coordination-
Spanish Embassy); Angel Marcos (Senior Advisor-AECID); Sonia Jurado (Technical
Advisor-GIZ); Juan Pablo Ortiz (Fiscal Team Lead-IDB)