USAID DOMESTIC RESOURCE MOBILIZATION PROJECT MONTHLY REPORT APRIL 2019

The project's development hypothesis is that strengthening financial management capabilities will lead to greater resource inflows and effective management of these resources by national and local government entities. This, in turn, will increase net tax revenue and improve public financial management, augmenting public investment and leading to increased economic growth and employment generation. El Salvador is the third largest economy in Central America and the most densely populated. However, the country faces significant challenges, including political polarization, a breach between the government and private sector, crime and insecurity, weak competitiveness, low educational levels, and low public and private investment. Economic growth has been the weakest in Central America since the international financial crisis in 2008. The country's economic growth has averaged 2.4% since 2015, with a public debt of 66.9% of GDP and a fiscal deficit of 3.6% of GDP in 2015. The project is working closely with the Government of El Salvador to adopt a new system of multi-year results-oriented budgeting with a Medium-Term Fiscal Framework (MTFF) and the associated Medium-Term Expenditure Framework (MTEF). The MTFF will provide aggregate multi-year projections of fiscal expenditures, revenues, and financing based on macroeconomic scenarios and an analysis of risks. The MTEF will provide multi-year expenditure projections disaggregated programmatically, including a public investment program. During the reporting period, the project developed several activities to contribute to the expected results. The project prepared a document to identify opportunities for improving the Salvadoran Medium-Term Fiscal Framework, particularly those related to the projection of public income and expenditure methodology. The project also continued working on a methodology for the Planning-Budgeting linkage, which involves developing a document that matches the language and prevents inconsistencies between the Planning-Budgeting linkage and the MTFF. The project is also working on a report and presentation about the conceptual model of Public Financial Management reform. The presentation explains the project's vision, the activities currently being worked on, and draws attention to the areas recommended to be focused on to improve the fiscal situation. The project prepared an additional presentation that shows the evolution and situation of fiscal variables in El Salvador, demonstrating the importance of the activities developed by the project to improve the fiscal situation. The project continues supporting the advance of the alternative scenario for SAFI II and COMPRASAL II for the implementation in 2020. The Ministry of Finance has restructured the personnel assigned, mainly in Accounting, Human Resources (payroll), and Treasury. The project has been supporting the modules integration activities into the subsystems, which are expected to be finished in May. During the reporting period, two modules of the Treasury Integrated subsystem (SITEP) were developed, and the project provided technical assistance to a MOF's IT functionaries who will be in charge of accountant subsystem development. The project is currently supporting the coordination between UNAC (National Unit for Procurement and Acquisitions from the ministry of Finance) and the Court of Accounts looking to obtain a higher number of published PACCs by the end of 2019. As a result of the supporting process, up to now, more than 13 government institutions have published their PAAC compared with the first trimester of 2018. The project reached an agreement with the Court of Accounts to define and coordinate technical assistance. Through an assessment performed by an international specialist in 2018, the project determined key aspects to assist the Court of Accounts (CCR). The most important recommendations were on the Fiscal Auditing process, which urgently needs to be restructured. Over the last 12 years, USAID has helped the Government of El Salvador and its Ministry of Finance to strengthen its capacities to mobilize resources, create an equal and efficient tax system, and provide a higher transparency in the fiscal control process. As a result of these efforts, the tax revenue (as GDP percentage) increased from 16.1% in 2006 to 18.6% in 2018. The project aims to continue building on these efforts to improve public financial management practices and generate additional revenue for the public sector.