World Bank

Document of

The World Bank

FOR OFFICIAL USE ONLY

Report No. 47916-PH

INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT

INTERNATIONAL FINANCE CORPORATION

MULTILATERAL INVESTMENT GUARANTEE AGENCY

COUNTRY ASSISTANCE STRATEGY

FOR

THE REPUBLIC OF THE PHILIPPINES

FOR THE PERIOD FY 2010-2012

April 2, 2009

Philippines Country Team, World Bank

East Asia and Pacific Region

International Finance Corporation

East Asia and Pacific Department

Multilateral Investment Guarantee Agency

East Asia and Pacific Department

This document has a restricted distribution and may be used by recipients only in the performance of

their official duties. Its contents may not otherwise be disclosed without World Bank authorization.

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The last Country Assistance Strategy (CAS) Report No. 32141-PH was discussed by the Board on May 17, 2005, and the last CAS Progress Report No. 40085-PH was dated June 21, 2007 World Bank IFC MIGA Vice President James W. Adams Rashad-R. Kaldany

Karin Finkelston Izumi Kobayashi

Country Director/ Resident Representative

Bert Hofman Jesse Ang Frank Lysy

Task Team Leader Co-Task Team Leader

Lada Strelkova Andrew Parker

Magdi Amin Conor Healy

CURRENCY EQUIVALENTS

Currency unit: Pesos (Php) as of April 2, 2009

US$1 = Php 48.27

FISCAL YEAR

January 1 – December 31

This Country Assistance Strategy (CAS) was prepared under the guidance of Bert Hofman, IBRD Country Director, and Jesse Ang, IFC Resident Representative, by a team led by Lada Strelkova, Task Team Leader (TTL) and Andrew Parker, co-TTL. The IFC team integral to the development of this CAS was led by Magdi Amin, Principal Strategy Officer. MIGA participation was led by Conor Healy, Risk Management Officer. Nigel Twose provided overall guidance on the joint IFC-IBRD strategy development.

The CAS Core Team included: David Llorito, Leonora Gonzales, Lilanie Magdamo, Maribelle Zonaga, Maryse Gautier and Yolanda Azarcon and the following Working Group Leaders: Ben Eijbergen, Carol Figueroa-Geron, Eduardo Banzon, Eric Le Borgne, Jehan Arulpragasam, Josefina Esguerra, Karl Kendrick Chua, Kim Henares, Maria Loreto Padua, Mukami Kariuki, Swati Ghosh, and Yasuhiko Matsuda. Core team support was provided by: Cynthia Manalastas, Grace Borja, Maria K. Hermoso, Maria Liberty Cardenas, Ludy Anducta, and Necitas Garcia from IBRD; Andrey Manalo from IFC; and Yoshine Uchimura, and Zafar Ahmed (consultants).

The following CAS Working Group members and other colleagues have also made important contributions to this strategy: Agnes Albert-Loth, Cecille Vales, Christopher Pablo, Fabrizio Bresciani, Florian Lazaro, Hamid Alavi, Hiroshi Tsubota, Josefo Tuyor, Felizardo Virtucio, Jr., Iain Shuker, Jonas Bautista, Lynnette Dela Cruz Perez, Mark Woodward, Mario Suardi, Mary Judd, Ma. Bella Tumaliwan-Belizario, Matthew Stephens, Maya Villaluz, Miguel Navarro-Martin, Rashiel Velarde, Rayah Sarah Judy Padilla, Rey Ancheta, Rosechin Olfindo, Salvador Rivera, Sameer Goyal, Sheryll P. Namingit, Simon Gregorio, Maria Theresa Quinones, Timothy Johnston, Ulrich Lachler, Victor Dato, and Zahid Hasnain from IBRD; and Aileen Ruiz, Ali Naqvi, Colin Taylor, Deepa Chakrapani, Euan Marshall, Gerlin Catangui, Julie Bayking, Lulu Baclagon, Matthew Gamser, Patricia Wycoco, Rafael Dominguez, Val Bagatsing, Will Beloe, and William Haworth from IFC. Other members of the Bank-wide Philippines Country Team (including IBRD, IFC and MIGA) have also contributed.

Special thanks are extended to the Government of the Philippines counterpart team and World Bank Group development partners for their contributions.

ACRONYMS AND ABBREVIATIONS

AAA Analytical and Advisory Activities

ADB Asian Development Bank

AIDS Acquired Immune Deficiency Syndrome

ARCDP2 Agrarian Reform Communities Development Project 2

ARMM Autonomous Region in Muslim Mindanao

AusAID Australian Agency for International Development

BSP Bangko Sentral ng Pilipinas (Central Bank of the Philippines)

BEIS Basic Education Information System

BIR Bureau of Internal Revenue

BOC Bureau of Customs

BTr Bureau of Treasury

CALABARZON Cavite, Laguna, Batangas, Rizal and Quezon provinces

CAS Country Assistance Strategy

CCT Conditional Cash Transfer

CDD Community-Driven Development

CDS City Development Strategy

CGAC Country Governance and Anticorruption

CIDA Canadian International Development Agency

CMU Country Management Unit

CLT Country Leadership Team

COA Commission on Audit

CPBD Congressional Planning and Budget Department

CPI Consumer Price Index

CSOs Civil Society Organizations

DBM Department of Budget and Management

DBPLID Development Bank of the Philippines/ Local Infrastructure Development

DENR Department of Environment and Natural Resources

DepED Department of Education

DFIMDP Diversified Farm Income and Market Development Project

DILG Department of Interior and Local Government

DOE Department of Energy

DOF Department of Finance

DOH Department of Health

DPL Development Policy Loan

DPWH Department of Public Works and Highways

DRM Disaster Risk Management

EAP East Asia and Pacific

ECSLRP Electric Cooperatives System Loss Reduction Project

EC European Commission

FDI Foreign Direct Investment

FIES Family Income and Expenditure Survey

FM Financial Management

FSAP Financial Sector Assessment Program

JICA Japan International Cooperation Agency

GAD Gender and Development

GDP Gross Domestic Product

GFDRR Global Facility for Disaster Reduction and Recovery

GFIs Government Financial Institutions

GIFMIS Government Integrated Financial Management Information System

GNP Gross National Product

GOCC Government Owned and Controlled Corporations

IBRD International Bank for Reconstruction and Development

ICT Information and Communication Technology

IEG Independent Evaluation Group

IFC International Finance Corporation

IMF International Monetary Fund

INT Department of Institutional Integrity

FY10-12 Country Assistance Strategy for the Philippines April 2, 2009

ii

IPs Indigenous Peoples

ISRs Implementation Status and Results Reports

IRA Internal Revenue Allotment

KALAHI-CIDSS Kapit Bisig Laban sa Kahirapan-Comprehensive and Integrated Delivery of

Social Services

LGC Local Government Code

LGUs Local Government Units

LISCOP Laguna De Bay Institutional Strengthening and Community Participation

MDFO Municipal Development Fund Office

MDGs Millennium Development Goals

MIGA Multilateral Investment Guarantee Agency

MILF Moro Islamic Liberation Front

MIMAROPA Mindoro, Marinduque, Romblon, and Palawan provinces

MRDP2 Mindanao Rural Development Project 2

MMURTRIP Metro Manila Urban Transport Integration Project

MTEF Medium Term Expenditure Framework

MTF-RDP Mindanao Trust Fund-Reconstruction and Development Project

MTPDP Medium-Term Philippines Development Plan

MTPIP Medium-Term Philippines Investment Plan

MWSS Metro Water Sewerage Systems

NAPC National Anti-Poverty Commission

NCR National Capital Region

NEDA National Economic and Development Authority

NER Net Enrolment Rate

NG National Government

NGO Non-Governmental Organization

NPS National Program Support

NPL Non Performing Loan

NRIMP2 National Roads Improvement Management Project 2

NSCB National Statistical Coordination Board

NTC National Telecommunications Commission

ODA-GAD Official Development Assistance-Gender and Development

PCN Project Concept Note

PDF Philippines Development Forum

PEFA Public Expenditure and Financial Accountability

PEM Public Expenditure Management

PFM Public Financial Management

PGAT Philippines Governance Advisory Team

PIDP Participatory Irrigation Development Project

PPP Public-Private Partnership

PSP Private Sector Participation

RPP Rural Power Project

SME Small and Medium Enterprise

SOCCSKSARGEN South Cotabato, Sarangani, North Cotabato, and Sultan Kudarat provinces

SSLDIP Support for Strategic Local Development and Investment Project

TA Technical Assistance

TB Tuberculosis

TF Trust Fund

UN United Nations

USAID United States Agency for International Development

UT Urban Transport

VAT Value Added Tax

WBI World Bank Institute

WBG World Bank Group

WDDP Water District Development Project

WHO World Health Organization

WGI World Governance Indicators

WPA Work Program Agreement

JOINT IBRD/IFC/MIGA

COUNTRY ASSISTANCE STRATEGY (CAS) FOR

THE REPUBLIC OF THE PHILIPPINES

TABLE OF CONTENTS

EXECUTIVE SUMMARY ............................................................................................ I

I. INTRODUCTION ................................................................................................ 1

II. PHILIPPINES CONTEXT AND DEVELOPMENT AGENDA ............................. 1 Social and Political Context ........................................................................................................................... 1 Recent Economic Developments .................................................................................................................... 3 Macroeconomic Prospects .............................................................................................................................. 4 Poverty Profile and Trends ............................................................................................................................. 6 Philippines Development Challenges and Opportunities ............................................................................... 9 Updated 2004-10 Medium-Term Philippines Development Plan (MTPDP) ............................................... 11

III. BANK GROUP ASSISTANCE STRATEGY FOR THE PHILIPPINES .............. 12

A. Lessons Learned from FY06-09 CAS and Stakeholder Feedback ......................................................... 12 Lessons from FY06-09 CAS Completion Report......................................................................................... 12 Findings from Recent IEG Evaluations ........................................................................................................ 12 World Bank FY09 Client Survey and Multistakeholder Consultations ....................................................... 13

B. Proposed World Bank Group Assistance Strategy ................................................................................. 14 World Bank Group Assistance Strategy Overview ...................................................................................... 14 World Bank Group Program Integration ...................................................................................................... 17 Strategic Objectives and Results Areas ........................................................................................................ 18 - Strategic Objective 1: Stable Macro Economy .......................................................................................... 18 - Strategic Objective 2: Improved Investment Climate ................................................................................ 20 - Strategic Objective 3: Better Public Service Delivery ............................................................................... 22 - Strategic Objective 4: Reduced Vulnerabilities ......................................................................................... 24 Cross-Cutting Theme: Good Governance .................................................................................................... 27

C. Implementing the FY10-12 Country Assistance Strategy ....................................................................... 29 Operationalizing Governance ....................................................................................................................... 29 Managing the Program ................................................................................................................................. 31 Fostering Stronger Partnerships ................................................................................................................... 34 Mainstreaming Gender ................................................................................................................................. 36

IV. MANAGING RISKS ......................................................................................... 37


ii

TEXT TABLES

Table 1: Medium-Term Macroeconomic Framework

Table 2: Poverty by Urban-Rural Areas and Sector of Employment, 2003 and 2006

Table 3: Estimates of Growth Elasticity of Poverty

TEXT BOXES

Box 1: Key Messages from Multistakeholder Consultations

Box 2: World Bank Group’s Response to the Global Economic Crisis

Box 3: One Bank Group: IFC-IBRD Integrated Programs

Box 4: Enhancing Conflict Sensitivity

Box 5: Governance Filters

Box 6: CAS Results Monitoring

TEXT FIGURES

Figure 1: Poverty Reduction in the Philippines versus East Asian Neighbors

Figure 2: Poverty Incidence versus Magnitude of Poverty, 1985 and 2006

CAS ANNEXES

Annex 1: Poverty, Inequality and Progress toward the MDGs

Annex 2: Governance Challenges, Opportunities and Risks

Annex 3: FY06-08 Country Assistance Strategy Completion Report

Annex 4: World Bank FY09 Client Survey and CAS Multistakeholder Consultations

Annex 5: FY10-12 Country Assistance Strategy Results Framework

Annex 6: Indicative World Bank Group (WBG) Program by Results Area

Annex 7: Official Development Assistance (ODA) Programs in the Context of the CAS

Annex 8: World Bank Group-Managed Trust Funds in the Philippines

Annex 9: Philippines Harmonization Agenda

Annex 10: Country Financing Parameters for the Philippines

CAS STANDARD ANNEX TABLES

Annex A2: Country At-A-Glance

Annex B2: Selected Indicators of Bank Portfolio Performance and Management

Annex B3: IFC Investment Operations Program

Annex B3 IBRD Indicative Financing Program, FY10-12

Annex B4 IBRD Indicative Program of Analytical and Advisory Activities, FY10-12

Annex B5: Philippines – Social Indicators

Annex B6: Philippines – Key Economic Indicators

Annex B7: Philippines – Key Exposure Indicators

Annex B8: Operations Portfolio (IBRD and Grants)

Annex B8: IFC Committed and Disbursed Outstanding Investment Portfolio

MAP OF THE PHILIPPINES (IBRD NO. 33466R3)


i

EXECUTIVE SUMMARY

i. The Philippines’ Development Challenges. In recent years, the Philippines’ economic

growth has rebounded on the back of fiscal consolidation, macroeconomic stability and a strong

international economic environment. Higher growth has, however, not translated into less poverty: the

share of the population below the poverty line is the same as it was a decade ago and has increased

between 2003 and 2006. Income inequality remains high, and the country risks missing MDGs on

education and maternal health. Weak governance is a recognized constraint to sustained growth and

poverty reduction. The country’s main development challenge, therefore, is to achieve more inclusive

growth. In the short- and medium-term, the external environment for the Philippines is likely to

deteriorate, and the country may face slower growth and renewed fiscal pressures. Furthermore, the

elections in 2010, typical of such elections, may slow down decision-making and program

implementation. At the same time, an incoming administration can be expected to engage with the

World Bank Group on the policies and initiatives it gives priority to.

ii. The World Bank Group Strategy. The updated 2004-10 Medium-Term Philippines

Development Plan (MTPDP) provides the framework for the Bank Group’s CAS for the Philippines.

The MTPDP focuses on economic growth and job creation; energy; education and youth opportunity;

and anticorruption and good governance. It highlights the need for agriculture sector modernization to

raise farmers’ incomes and to upgrade rural welfare; supports sustained investments in infrastructure;

and gives priority to protecting the poor through more employment opportunities, shelter, health

insurance, microfinance, low-cost medicines, and cash transfers. Over the CAS period, the World

Bank Group will contribute to achieving more inclusive growth by supporting the Philippines to (i)

maintain macroeconomic stability and cope with increased macroeconomic uncertainty through a

stronger revenue base, improved expenditure efficiency and targeting, and responsive financing; (ii)

improve the investment climate through an enabling business environment that promotes

competitiveness, productivity and employment, especially for sectors of particular importance to the

poor, such as agriculture and fisheries, and developing better models of infrastructure finance and

management; (iii) increase access to better public services for the poor by deepening the reform

agendas in key public services sectors and expanding basic service delivery directly to the poor; and

(iv) reduce vulnerabilities by expanding and rationalizing the country’s social safety net, improving

disaster risk management, piloting climate change adaptation measures and expanding climate change

mitigation programs. In line with the Bank’s country governance and anticorruption framework

(CGAC), the Bank Group will promote good governance as a cross-cutting theme by supporting more

capable and accountable government at the national, local, and agency level to strengthen core

governance systems in public financial management, procurement and decentralization.

iii. The World Bank Group Program. The Bank Group's program focuses on core results areas

through engagements at the national, local, and private sector level. The CAS proposes an IBRD

lending program in the order of US$700 million-US$1 billion per year, which would reverse the recent

trend of negative net transfers and could increase IBRD exposure to the Philippines from US$2.7

billion in FY08 to US$3.9 billion in FY12. The proposed lending plan is indicative as IBRD’s

capacity to lend can change over time. There is higher degree of certainty for the lending plans for the

earlier years of the CAS period. The IFC investment program is expected to be in the order of

US$250-300 million per year, while advisory services will be supported by funding of approximately

US$3 million per year. The Bank Group will support efforts to counter the effects of the global

economic crisis by financing faster-disbursing poverty alleviation programs such as the conditional

cash transfers (CCT), the community driven development (CDD) project KALAHI-CIDDS, the

national program support (NPS) for health and education, additional financing to ongoing operations,

and repeater projects. The Bank has committed to support a possible government program for

increasing revenues and fiscal transparency in calendar year 2009. Beyond current commitments for a

development policy loan (DPL) with a possible draw-down option to mitigate the impact of the global

economic crisis, the Bank will use development policy operations in support of disaster risk


ii

management and in the context of a strong reform program in government financial management. The

World Bank Group will also continue to support increasing local government access to finance

through more diversified financial instruments. IBRD investment loans and IFC investment and

advice will support the development of new models of financing and management for critical

infrastructure. IFC’s response to the global crisis will also include access to four financing facilities.

The World Bank Group, in collaboration with other development partners, will increasingly emphasize

knowledge cooperation and formalize a rolling knowledge program with the Government and in

partnerships with consortia of think tanks and universities. A central aim of the program for the CAS

period is to provide input into the MTPDP (2011-15) to be approved after the 2010 elections.

iv. One Bank Group. The Philippines CAS pilots deeper integration of IBRD and IFC efforts by

building on lessons of successful World Bank Group integration, such as a shared assessment and a

shared strategy developed jointly by a mixed IBRD and IFC team. IBRD and IFC will pursue joint

programs in three areas: infrastructure, agribusiness, and financial sector. MIGA will also continue to

offer its guarantee products, ensuring consistency with the overall Bank Group goals.

v. Implementing the Program. The World Bank Group will organize its Philippines program

and its country team along the lines of the four strategic objectives, one cross-cutting theme, and

eleven core results areas. For each of these, the Bank Group will organize, budget for, and monitor an

integrated program of AAA, lending, trust funds and partnership activities. The Bank will flexibly

adjust resource allocation among results areas depending on progress and emerging opportunities in

those areas. IFC’s resources will be integrated in the results areas that will be jointly pursued. The

Philippines Governance Advisory Team (PGAT) will prioritize activities in governance reforms, and

will advise task teams on governance improvements in specific activities, including through use of

―Governance Filters‖. The World Bank Group will strengthen existing partnerships with civil society

and academe and with other development partners within the overall framework of the Government-

led Philippines Development Forum, which the Bank co-chairs. In delivering the program, the World

Bank Group will pay special attention to strengthening the portfolio, improving lending efficiency,

furthering the knowledge agenda, and leveraging its resources through strategic partnerships and trust

funds. The Bank has identified, and agreed with the Government, a set of early ―Readiness Filters‖

that will be used to screen projects during the regular programming discussions.

vi. Managing Risks. There are considerable risks, both internal and external, that may affect

the implementation of the Philippines CAS. Political risks stem from the upcoming national elections

and associated transitions, which may influence commitment to ongoing and planned programs. The

World Bank Group will maintain dialogue with the administration to ensure continuity in its programs

and help inform the development agenda of the incoming government. The ongoing global recession

and financial turmoil is expected to affect negatively the Philippines, particularly through reduced

remittances, exports, and possibly, lower revenues. The World Bank Group, together with the IMF

and other partners, will assist the Government to manage fiscal and financial sector risks and external

vulnerabilities through policy advice and monitoring of economic and social developments including

through support for improved statistics. In case of a sharper-than-expected deterioration in the

economy, the World Bank Group stands ready to use IFC crisis facilities, and IBRD financing for

quick disbursing budget support within the broad parameters of the CAS lending range. The World

Bank Group support will proceed once there is clarity on agendas and commitments, and projects meet

the Bank’s processing filters. Commitment to governance reforms is a major focus of these filters,

including at the decentralized level.

Suggested Items for Board Discussion

(i) Is the CAS adequately positioned to help the Philippines cope with emerging global

uncertainties and likely shocks to economic management and prospects?

(ii) Is the proposed indicative program and choice of instruments appropriate, considering the

country circumstances and the Bank's comparative advantages?

(iii) Is the CAS approach to operationalizing governance sufficiently strong?


1

I. INTRODUCTION

1. The current World Bank Group CAS for the Philippines covers the period up to June

2009. It was discussed by the Bank’s Board in May 2005 and was originally planned to cover the

period FY06-08. The turn-around in the country’s fiscal position in the two years that followed the

preparation of the CAS opened a window of opportunity for broader policy reforms for the

Philippines. In 2007, the World Bank Group, in agreement with the Philippine Government, decided

to extend the CAS to June 2009. The CAS Progress Report prepared in June 2007 reaffirmed the

relevance of the CAS theme of Supporting Islands of Good Governance in national government

agencies, local governments, and dynamic sectors in the Philippines that demonstrate how improved

accountability and service delivery can lead to better economic and social outcomes. The Progress

Report also anticipated more Bank lending based on the increased fiscal space and government

demand for more Bank assistance.

2. Beyond the institutional requirement, the period of political transition lying ahead, the

rapidly deteriorating external economic environment, and the emerging shifts in the Bank

Group strategy provide the rationale for moving ahead with a new CAS. Launching a new CAS

in the first half of calendar year 2009 will allow the Bank Group one year of implementation before

the May 2010 elections, and would provide an opportunity to contribute to the new MTPDP 2011-15,1

the Government’s main guide for development policy. A CAS Progress Report in FY2011 would

allow the Bank Group to align priorities with those of the incoming government. At the request of

Government, the subsequent Bank Group CAS will be synchronized with the new MTPDP. Other

development partners have been closely involved in developing the CAS, and some expressed interest

in a joint Partnership Strategy beyond 2012.

3. The proposed strategy is grounded in the EAP Regional Strategy and the Bank Group’s

strategic themes. Many of the Bank Group’s current strategic priority agendas are relevant to the

Philippines. The country’s middle-income country (MIC) status, yet continuing high rates of poverty

and inequality; struggles with the effects of climate change; challenges to bring peace to areas of

enduring conflict; and requests for the Bank to bring to bear the best global knowledge all provide

clear links to the Bank’s strategic priorities and the core areas of EAP’s strategy, such as MIC agenda,

fragile/conflict states, global public goods, and the knowledge agenda.

II. PHILIPPINES CONTEXT AND DEVELOPMENT AGENDA

Social and Political Context

4. The Philippines is an archipelago of 7,107 islands located in Southeast Asia. With a

population of about 89 million in 2007, the Philippines is the world’s 12th most populous country. The

Philippines is the fastest urbanizing country in East Asia: fueled by in-migration and natural

population growth, the urban population has already passed the 50 percent mark and is expected to rise

to 75 percent of the country’s population by 2030. The country is divided into three island groups:

Luzon, Visayas, and Mindanao. Metro Manila, the capital, is the 11th most populous metropolitan area

in the world. A per capita GDP of US$ 1,624 in 2007 ranks the Philippines as a low-middle income

country.

5. The Philippines has a strong potential for development in terms of natural and human

resources, but overall development outcomes have fallen short of potential. The Philippines is

considered to be one of the most biologically rich and diverse countries in the world, with substantial

mineral, oil, gas and geothermal potential. Its human resource base is strong, with many leaders in

1 The Philippines National Economic and Development Authority (NEDA) has requested Bank Group inputs

into the next MTPDP, which will be completed after the 2010 elections.


2

Government, industries, and academe possessing world-class talents. The country has a vibrant

private sector and an active civil society, which are both important partners in development. Modern

productive sectors such as electronics manufacturing, business processing operations and

telecommunications have experienced rapid growth in recent years. The value of the country’s

English-speaking work force is reflected in the rapid growth of the business process outsourcing and

other services in the country, as well as in the international demand for its labor force and the resulting

high level of overseas employment.2 As of December 2007, around 8.7 million Filipinos, about 10

percent of the total population, were permanent residents or temporary residents/workers overseas,

with annual remittances reaching US$14.4 billion, or more than 10 percent of the country’s GDP.

However, the country has seen a relative decline in its income per capita compared to its neighbors

since the 1950s, when it was second only to Japan. Compared to its ASEAN neighbors, the

Philippines has exhibited higher unemployment rates and greater income inequality.

6. The next Philippine general elections are scheduled to be held on May 10, 2010. At the

national level, the presidency, vice-presidency, half the Senate seats, and all House seats are up for

election. In addition, all provinces, cities and municipalities (including 41,995 barangays), will also

hold elections. Current President Gloria Macapagal-Arroyo came to power in 2001 after she, as then

vice president, replaced then-President Estrada who was forced to leave his post amid popular protests

and pending impeachment procedures against him on the grounds of alleged corruption. He was later

convicted of plunder, and subsequently pardoned. The current president was elected in 2004 in a

victory that has been contested by some parties and civil society coalitions. President Arroyo faced

two attempted military coups, several impeachment attempts, and repeated widespread popular

protests against her rule, but she retains strong support in the House of Representatives and among a

majority of governors and mayors. Several high-profile corruption cases involving political figures

remain unresolved. A debate on possible changes in the constitution for several reasons, including a

possible second term for a president and a change to a parliamentary system of democracy, is a

recurrent theme in Philippine politics.

7. Weak incentives embedded in the country’s political institutions may continue to

hamper reforms. The fragmented political structure and politicization of the government

bureaucracy is seen as one of the constraints to promote and implement reforms. In recent years, a

number of reforms to strengthen the institutional capacity of the state have been launched, often with

strong support from civil society. The work of civil society, both in advocacy and in project

implementation and monitoring, has contributed to the successful promotion of specific reforms,

especially in the fields of procurement, textbook delivery, budget transparency, community

infrastructure, etc.

8. Weak governance has long been recognized as a key constraint to sustained growth and

poverty reduction in the Philippines. In the MTPDP 2004-10, the Government diagnosed various

governance challenges, ranging from the lack of independence, capacity and integrity of government

institutions, and regulatory capture, to built-in checks and balances that allegedly tended to slow down

policy-making and policy implementation. The Plan attributed the limited effectiveness of the

government bureaucracy to the pernicious influence of vested interests and a system of patronage.

Recognizing these challenges, the Government embarked on reforms on a number of fronts, including

anticorruption efforts and bureaucratic reforms. Similarly, a variety of civil society organizations have

engaged in advocating and/or supporting governance reforms of various kinds. At the local level,

some commentators have observed the prevalence of patronage politics, with consequent implications

for poor provision of public services. At the same time, a growing number of local leaders have

2 Some would argue that the large number of migrant workers is a mixed blessing. On the one hand, their

remittances bring in much-needed foreign exchange, but on the other they reflect the incapability of the domestic

economy to generate sufficient number of jobs, their remittances keep the real exchange rate high, so export

oriented industries develop more slowly, and their absence from home delays the formation of a domestic middle

class that in other countries is considered to be instrumental in developing stronger governance.


3

demonstrated good governance and effective management. The challenge is how to expand these

innovations and scale them up to benefit more people across more local governments.

Recent Economic Developments

9. Philippine economic growth during 2000-08 averaged around 5.1 percent. Economic

growth picked up gradually from 2002 to 2007 when it peaked at 7.2 percent—the highest growth in

three decades—and slowed down to 4.6 percent in 2008 as the twin shocks of the food and fuel crisis

and global slowdown took their toll on the economy. Notwithstanding the improved growth

performance, the Philippines growth has been noticeably below other developing East Asian countries,

which grew at an average of 8.7 percent during 2000-08. With population growth at more than 2

percent per annum in the Philippines, growth in per capita income has also been lower relative to most

of its neighbors.

10. Growth during the period was driven by private consumption and the services sector.

Demand growth was largely driven by consumer spending, with public sector expenditures more

recently providing an extra boost. In recent years, around 70 percent of the growth can be attributed to

private consumption, supported in part by growing overseas Filipino workers’ remittances. The

services sector comprises more than half of GDP and employs more than half of the workforce. The

contribution of private investment to GDP growth, at around 5 percent during 2004-08 has been

relatively weak. During 2004-06, the Government focused on fiscal consolidation and reforms which

entailed a cut in public investment expenditures, and the contribution of the public sector to growth

was around negative 3.6 percent. Since then the significant progress made in fiscal consolidation,

together with hefty privatization receipts, permitted the Government to increase spending.

11. In 2008, growth slowed down to 4.6 percent as higher oil and food prices and the onset of

the financial crisis reduced real incomes and slowed the growth of private consumption,

investments, and exports. In the first half of 2008, public sector spending lagged, and contracted in

real terms. In May, the Government announced that, in response to the increases in oil and food

prices, it intended to postpone its balanced budget goal to allow for higher spending on infrastructure,

social protection, and subsidies to the poor. Public spending, in particular infrastructure spending,

accelerated in the second half and buoyed overall growth. The relatively weak demand has resulted in

slower growth of the services sector. Inflation, which had been falling over the past few years and

averaged only 2.8 percent in 2007, rose sharply in the first half of 2008, peaking at 12.5 percent in

August 2008, but receded almost as quickly to 7 percent in January 2009. However, the inflation

faced by the poor, especially the urban poor, is estimated to be about 2 to 3 percentage points higher

given the high share of food in their consumption basket (up to 70 percent). Food prices rose sharply

through 2008—rice prices, in particular, rose by almost 50 percent.3

12. The balance of payments position weakened, following several years of strong

performance, but remained in surplus. The higher oil and food prices in 2008 increased the import

bill, while the global slowdown began to take its toll on exports. Remittances, however, still remained

robust in 2008, keeping the current account in moderate surplus. Direct investment inflows have

diminished but remain positive. Portfolio investment was more adversely affected by the financial

market turmoil and global risk aversion. Nonetheless, the overall balance of payments remained in

surplus in 2008 and enabled the country to continue to accumulate international reserves.

13. As in other emerging markets, the Philippines has seen a decline in stock market and

asset prices, higher spreads on its international bonds, and a depreciation of the currency

against the US dollar. Following the strong appreciation of the peso in 2007, the currency

depreciated by about 15 percent against the US dollar during 2008, despite interventions by the central

3 It is estimated that the food crisis may have pushed up the poverty incidence by 3.2 percentage points and is

equivalent to 2.7 million more poor people during the height of the food crisis. Lower inflation since September

of last year is likely to have reversed some of this increase.


4

bank. Stock market prices have nearly halved since the end of 2007, a decline comparable to that in

other East Asian economies. Meanwhile, spreads on international treasury bonds issues increased by

around 500 basis points. Nevertheless, the Philippines successfully issued a US $1.5 billion

international bond in January 2009, as the first Asian country to return to the international markets

after the September 2008 crash, giving off an important signal of confidence in the country and the

region.

14. So far the impact of the global financial turmoil on domestic financial markets has been

relatively contained. The Philippines’ direct exposure to distressed credit products appears to be

limited. Overall exposure to structured products is estimated at about 2 percent of banking sector

assets and a sizable portion have provisions for loss. A key vulnerability to the turmoil in the global

financial markets arises from its still relatively high stock of public sector debt. About one-third of

Philippines foreign currency denominated debt is held by domestic banks, which makes them

vulnerable to global re-pricing of risks and interest rate increases. However, the banks appear to have

appropriate cushions to weather the shocks—with reported capital adequacy ratios of over 14 percent

as of the first half of 2008 and declining non-performing loan ratios. Moreover, recent changes in

accounting rules cushion the impact on capital of bank losses on their investments. Nevertheless, bank

profits, though positive, have fallen significantly.

Macroeconomic Prospects

15. Macroeconomic prospects for 2009 and 2010 have clearly become less favorable than the

preceding CAS period. Overall, the economy is in a stronger position than before to weather the

uncertainties brought about by the recent turmoil. The fiscal reforms and current account surpluses of

the last few years have served to improve investor confidence and boost the level of international

reserves. Nevertheless, the Philippines will be affected by the projected slowdown in the global

economy and growth is likely to slow considerably given the country’s high degree of trade and

capital openness. Weaker domestic demand due to lower real income, rising unemployment and

underemployment, slowing remittances, and falling exports of key products such as electronics are

expected to limit growth severely in 2009 with only a very gradual recovery in sight in 2010 (see the

base-case projections in Table 1). At this stage, risks for further slowdown remain real.

16. Over the medium- to long-term, economic growth is projected to recover to around 5

percent. Its sustainability, however, will depend on further progress in structural reforms. In

particular, turning around low investment and productivity are essential for sustaining economic

growth. Domestic investment as a share of GDP is expected to fall in 2009 due to tighter global credit

and financing conditions, followed by a gradual recovery in response to future improvements in

governance and the investment climate.

17. The current account of the Balance of Payments is projected to remain in surplus in the

near term. Under the current assumption that the global economy may take up to two years to

recover, exports are expected to contract significantly before improving while the import bill would

also contract given the high content of electronics parts and falling commodity prices. Slower exports

and imports would lead to a lower trade deficit in the near-term followed by an increase in the trade

deficit as imports pick up again. Exports of manufactured goods, dominated by highly cyclical

electronics, remain vulnerable to global demand conditions. While the growth in remittances is

expected to slow significantly, remittances are nonetheless expected to remain relatively strong,

because a sizable share of the migrants is employed in sectors (such as health care) that may be less

vulnerable to cyclical downturns. This is expected to help keep the current account in surplus. A

current account deficit might arise in the long-term however, should export competitiveness lag,

commodity prices increase, and growth in remittances declines further.

18. The global uncertainties and risks will continue to pose threats to net investment inflows. Net inflows of direct investments are expected to be minimal this year and next. Over the medium

term, attracting significant inflows of FDI will depend on further improvements in the investment


5

climate. Consistent with global financial volatility, net portfolio investments are expected to be

minimal as well. The net outflow in 2008 could be reversed if the interest rate differential rises in the

coming months and if global prospects become less pessimistic. Overall, though, the combined

strength of the current, and capital and financial accounts would still contribute to further reserve

accumulation in the medium-term.

Table 1: Philippines – Key Macroeconomic Indicators and Projections

(As percentage of GDP, unless indicated otherwise)

2005 2006 2007 2008 2009 2010 2011 2012 2013

Est.

Output and Prices

GDP growth (% Δ) 5.0 5.4 7.2 4.6 1.9 2.8 4.0 4.5 5.0

CPI Inflation (ave, % Δ) 7.6 6.2 2.8 9.3 4.5 4.0 4.0 4.0 4.0

REER (% Δ, + = apprec.) 5.9 11.8 8.8 7.6 … … … … …

Savings and Investment

Gross Domestic Investment 14.6 14.5 15.3 15.3 14.9 15.1 15.5 15.8 16.1

Gross National Savings 16.6 19.0 19.7 17.7 16.9 16.4 16.6 16.7 16.6

Balance of Payments

Current Account Balance 2.0 4.5 4.4 2.4 2.0 1.3 1.1 0.9 0.5

Trade Balance -7.9 -5.7 -5.7 -6.4 -6.9 -7.2 -7.4 -7.6 -7.8

Exp. (merchandise fob) 40.7 39.6 34.2 28.4 25.8 25.4 25.1 25.2 25.7

Imp. (merchandise cif) 48.6 45.3 40.0 34.8 32.7 32.5 32.5 32.9 33.4

Foreign Direct Investment 1.7 2.4 -0.4 0.6 0.1 0.3 0.6 0.8 1.0

Public Sector Finances

Consolidated Pub. Sec. Balance -1.9 0.2 0.6 -0.5 -1.5 -2.0 -1.9 -1.9 -1.8

National Government balance -2.7 -1.1 -0.2 -0.9 -2.3 -2.3 -2.2 -2.0 -1.9

Primary balance 2.8 4.1 3.8 2.7 2.7 1.6 1.6 1.7 1.8

Total Revenues 15.0 16.2 17.1 16.0 15.0 15.0 15.0 15.2 15.4

o/w Tax revenues 13.0 14.3 14.0 14.0 13.3 13.4 13.6 13.9 14.1

Total Expenditures 17.7 17.3 17.3 17.0 17.2 17.3 17.2 17.2 17.3

Net Interest 5.5 5.1 4.0 3.6 3.9 3.9 3.9 3.8 3.8

Debt

Non-Financial Public Sector Debt 85.9 73.9 61.1 63.3 64.1 63.1 61.7 60.7 59.0

External Debt 1/ 62.4 51.3 45.7 39.9 42.3 40.3 38.1 36.6 35.1

Memorandum item:

Nominal GDP (billions of US$) 98.8 117.6 144.1 168.6 161.3 167.4 177.5 189.3 202.9

Soures: Government of the Philippines and World Bank staff calculations

1/ Based on The World Bank's definition

----------Actual---------- -------------------Projected-------------------

19. In response to the global economic slowdown, the Government has prepared an

economic resiliency plan to stimulate the economy. In February 2009, the Government announced

a stimulus package of Php330 billion of which about Php200 billion is estimated to come from a 15

percent increase in national government spending and from previously scheduled tax cuts. This is to be

complemented by about Php100 billion in contributions from government financial institutions, social

security institutions (SSIs), and private banks to fund additional infrastructure projects. The balance of

about Php30 billion is to come from the Social Security System in the form of new and temporary

extra benefits to members. The Plan indicates the Government’s intention to: (a) front load spending;

(b) shift resources from slow to fast-moving projects; and (c) implement/upscale quick-disbursing high

impact projects. Implementing agencies are expected to spend 60-80 percent of their calendar year

2009 discretionary budget totalling 1.2 percent of GDP in the first half of 2009.

20. The public sector’s fiscal position is expected to remain manageable, but fiscal risks

could materialize. For 2009, the Government projects a deficit of about 2.1 percent of GDP. Tax


6

collections this year will be more challenging because of several policy measures already taken4 and

lower oil prices. In the absence of new measures, tax revenues as a share of GDP are projected to

decline well below the ratio achieved in 2008. Under these circumstances, reforms to improve tax

administration will be critical for keeping the deficit within sustainable levels. A further source of risk

is the gross financing needs of the non-financial public sector, which are large and rising, thereby

generating significant rollover risk (18.5 percent of GDP in 2009 and 19.7 percent of GDP in 2010).5

With considerably higher and more volatile interest rates in the domestic and international capital

markets, financing such large amounts could become more challenging.

21. The public sector debt-to-GDP ratio is projected to continue to fall over the medium-

term, in spite of the global financial turmoil. Non-financial public sector debt fell from over 100

percent of GDP in 2003 to about 62 percent of GDP in 2008. This ratio is projected to fall further over

the coming years, albeit at a markedly slower pace. While the projected pace of decline is sensitive to

various macroeconomic parameters, especially GDP growth and the exchange rate, the overall trend of

a declining debt burden is broadly robust to various scenarios.

Poverty Profile and Trends

22. The Philippines has made significant progress in the fight against poverty over the last

two decades. The share of the population living below the national poverty line, which almost reached

50 percent in the mid-1980s, was brought down to less than a third in recent years (Figure 1)6. Poverty

measured using the international benchmark shows a similar trend. The proportion of the population

living below US$1.25-a-day declined from 34.9 percent in 1985 to 22.6 percent in 2006, or a reduction

of about 2 percent per year over the two decades. While significant, these gains are lower than those

recorded in some neighboring countries, particularly Indonesia, Thailand, Vietnam, and China.

Moreover, the absolute number of the poor based on the $1.25/day poverty line increased from 18.5

million poor people in 1985 to 19.7 million in 2006.

Figure 1: Poverty Reduction in the Philippines versus East Asian Neighbors

Phil

Phi Off'l

Indo

Rural China

Viet

Thai

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

90.0

100.0

mid-1980 mid-1990 early-2000 2006 (latest)

Povert

y I

ncid

ence (

%)

Note: Figures refer to the proportion of the population with income per capita below the new

international benchmark of US$1.25 a day in 2005 Purchasing Power Parity, except Philippine official

poverty incidence which is based on national poverty lines.

Sources: World Bank and NCSB

4 These included the 5 percentage point reduction in the corporate income tax rate, a full year impact of the

personal income tax threshold increase, and tax exemptions arising from personal equity and retirement account. 5 IMF Article IV Consultations 2008.

6 Data used in the analysis reflect the latest government and Bank staff estimates and may differ from Annex A2

and Annex B5, which present data from the DECDG database and other standard sources.


7

23. Income poverty hardly fell in recent years. The latest estimates show that between 2003

and 2006 income poverty as measured against the country’s own poverty line increased from 30

percent to 32.9 percent, back to its level in 2000. The incidence of poverty based on alternative

measures of the poverty line also show similar increases during that period, consistent with the official

statistics. Between 2003 and 2006, the US$1.25-a-day poverty increased from 22 percent to 22.6

percent7, and consumption-based poverty estimates increased from 26 percent to 28.1 percent

8.

Furthermore, self-rated hunger indicators showed steady increase since 1998 and rose to an all-time

high of 19 percent by the end of 20069.

24. Non-income dimensions of poverty and welfare are lagging behind, specifically in health

and education. The latest statistics show that the Philippines has made good progress in reducing

child mortality, combating tuberculosis and other diseases, improving access to water and sanitation,

and protecting the environment, but has done poorly in achieving universal primary education and

maternal health (see further analysis of progress in achieving MDGs in Annex 1).

25. Regional poverty rates vary significantly. Although the national poverty rate increased

between 2003 and 2006, official estimates of poverty declined in four of the country’s 17

administrative regions. Poverty declined in three regions in Mindanao: Zamboanga from 49.2 percent

to 45.3 percent, Caraga from 54 percent to 52.6 percent, and Northern Mindanao from 44 percent to

43.1 percent. Poverty in Western Visayas also declined from 39.2 percent to 38.6 percent. In contrast,

poverty headcounts in the other 13 regions increased in 2006 compared to 2003. In particular, poverty

in conflict-affected Autonomous Region of Muslim Mindanao (ARMM) swelled by almost 10

percentage points (to 61.8 percent).

26. Poverty remains predominantly a rural phenomenon in the Philippines, but urban

poverty is on the rise. In 2006, about three-quarters of the poor resided in rural areas (Table 2).

Estimates also show that rural poverty increased (although marginally) between 2003 and 2006 and

that poverty among agricultural households is about three times higher than poverty in other sectors.

While rural poverty remains more than double that of urban poverty, the share of urban poor to total

poverty has been increasing since 2000 due to rapid urbanization and inequitable income distribution.

Between 2003 and 2006, the share of the poor population living in the urban areas increased from 23.2

percent to 28.8 percent. With rural-urban migration and rapid population growth, this trend can be

expected to continue over time unless rapid urbanization is accompanied by better income distribution.

Table 2: Poverty by Urban-Rural Areas and Sector of Employment

Poverty Headcount (%) Share to Poverty (%) Share to population (%)

2003 2006 2003 2006 2003 2006

Area

Urban 14.2 19.3 23.2 28.8 49.1 49.3

Rural 45.5 46.2 77.0 71.2 51.0 50.7

Sector of Employment of the Household Head

Agriculture 53.6 55.5 66.5 59.4 37.4 35.3

Industry 23.1 28.8 11.9 12.7 15.5 14.4

Services 14.2 18.8 16.3 20.2 34.7 35.4

Not Employed 13.1 17.1 5.4 7.7 12.5 14.9

Total 30.0 32.9 100.0 100.0 100.0 100.0 Source: World Bank staff estimates based on official poverty lines for 2003 and 2006; FIES 2003 and 2006.

7 Chen, S. and M. Ravallion (2008). ―The Developing World is Poorer than We Thought, But No Less

Successful in the Fight Against Poverty.‖ 8 Balisacan, A. (2008). "Poverty Reduction: What We Know and Don't?" University of the Philippines

Centennial Lecture Series. 9 Social Weather Stations (July 2008). Report on Self-Rated Poverty and Hunger.


8

27. High levels of inequality partly explain why growth translated into limited poverty

reduction. The country’s Gini coefficient remains high relative to its neighbors in the region (45.8

percent in 2006), and large variation in economic opportunities persist at the sub-national level.

Geographically, the National Capital Region and two adjacent regions, which account for more than

half of GDP, have above average per capita income and have seen the fastest decline in poverty

headcount. In contrast, per capita incomes in the poorest regions (ARMM and Caraga), are only 50-60

percent of the national average. Estimates suggest that the Philippine's growth elasticity of poverty is

greater than unity, but has been declining in recent years (Table 3)10

. Between 1985 and 2000 when

growth averaged 3 percent per year, poverty declined by about 2.2 percent annually. In the period

2000-2006, when the country posted about 5 percent growth per year, the pace of poverty reduction

dropped to 0.1 percent per year.

Table 3: Estimates of Growth Elasticity of Poverty

Data Years World E. Asia CHN INDO PHL THA VNM

Besley and

Burgess (2003)

Varies by country

(1980-1998)

-0.73

(0.24)

-1.06

(0.25)

-0.60

(0.14)

-1.12

(0.38) -0.70

(0.12)

-1.72

(0.48)

World Bank

(2008)*

1990-2000

-2.12

(0.42)

-1.20

(0.14)

-2.60

(0.74) -1.85

(0.21)

-5.15

(0.46)

-2.13

(0.10)

World Bank

(2008)*

2000-2006

-2.19

(0.34)

-1.29

(0.07)

-1.85

(0.36) -1.27

(0.45)

-4.55

(0.81)

-3.04

(0.18)

* Fujii and Velarde (forthcoming)

28. High population growth may have slowed poverty reduction efforts over the past two

decades. While the trend in poverty incidence has generally been downward over the years, the gains

in poverty reduction may have been affected by the country’s high population growth, which averaged

about 2.2 percent, compared to less than 2 percent in neighboring countries like Indonesia, Vietnam,

and Thailand. Rapid population growth puts high demand on education and health services, and on

the economy’s capacity to generate jobs. Recent growth has generated more jobs, but not enough to

absorb the increase in the working-age population. Consequently, even though the share of population

living in poverty declined from nearly half of the population in 1985 to only one-third in 2006, the

absolute number of poor increased from 26.2 million to 27.6 million (Figure 2).

Figure 2: Poverty Incidence versus Magnitude of Poverty, 1985 and 2006

27,61726,231

32.9%

49.3%

-

20.0

40.0

60.0

1985 2006

Inci

den

ce (%

)

-

10,000

20,000

30,000

40,000

Mag

nitu

de

('000

)

Magnitude of poor population

Poverty incidence of Population (%)

Note: Figures refer to official poverty estimates that are not directly comparable across time

but they give a consistent trend with the $1.25/day poverty estimates.

Source: NSCB

10

See also Ravallion, M. (2001). ―Growth, Inequality, and Poverty: Looking Beyond Averages.‖ World

Development, 29: 1803-15; and Cline, W.R. (2004). "Technical Correction" in Trade Policy and Global Poverty,

Institute of International Economics, Washington DC.


9

29. It is estimated that 45 percent of Filipinos are vulnerable to poverty11

, and that half of

poor households became poor because of an income shock12

. For example, the sharp increase in

food prices between July 2007 and July 2008 is estimated to have increased poverty incidence by 3.6

percentage points, an additional 3 million people. Household spending patterns shed light on their

degree of vulnerability to shocks. An average household spends 41 percent on food, making them

highly susceptible to falling into poverty with sudden increases in food prices, and only 2.9 percent on

health and 4.4 percent on education of its total expenditures. The poor, meanwhile, spend even more

on food (60 percent) and less on health (1.4 percent) and education (1.7 percent) making them more at-

risk to future shocks and less equipped to exit poverty. Some of the factors that drove the increase in

poverty in recent years are further discussed in Annex 1.

Philippines Development Challenges and Opportunities

30. The proposed new CAS for the Philippines will be addressing many of the same

development challenges that the country has been struggling with for decades. The country’s

main achievement over the past years has undoubtedly been the hard-fought improvements in the

country’s fiscal position and resulting macroeconomic stability and higher growth rates. Yet, poverty

is proving to be relatively insensitive to growth in the Philippines and has even drifted upwards in

times when the highest economic growth in three decades was recorded. Indeed, in absolute numbers,

the Philippines now has more people in poverty than three decades ago. While public investments

have started to increase again, supported by growing fiscal space, private investment continues to be

lackluster in an investment climate that many consider as weaker than that of most of its neighbors.

And while rising budget allocations to and recent progress in reforms in the social sectors promise

better services, for now the Philippines is at risk of missing its targets on basic education and maternal

health. Many observers in the Philippines see weak governance as an underlying cause in all of these

development challenges, even though some notable progress has been made in this area—progress,

which was on occasion overshadowed by headline grabbing corruption scandals.

31. Ensuring sustainable growth in the Philippines will require addressing the key

challenges to progress on critical structural reforms. Recent improvements in macroeconomic

management, especially fiscal consolidation, will need to be put on a sustainable and permanent

footing by improving tax administration and tax policy on the revenue side, as well as by improving

expenditure management and the management of fiscal risks. Underinvestment in infrastructure, and

the poor quality and maintenance of services, transport in particular, limit overall competitiveness,

increase the cost of doing business, and adversely affect trade-related transactions. Private sector

development is further impeded by a constrictive policy and regulatory environment, particularly in

areas such as rice trade where policies favor the public sector; inter-island shipping and port services;

land administration and management; and access to credit. Strengthening the investment climate,

improving the policy and regulatory framework, and creating a more competitive financial sector will

provide opportunities for enhancing productivity and ensuring sustainable and broad-based longer-

term growth. Given the decentralized nature of the country, much of the reforms (including revisions

of local fiscal and revenue authority, and the Local Government Code) and improvements will need to

be at the local government level, in particular, in the large and expanding urban areas.

32. While considerable progress has been made in human development outcomes, achieving

some of the key Millennium Development Goals (MDGs) remains a major challenge. The

country is on track to halving poverty by 2015 (the proportion of the population living below the

national poverty line is down to a third), and has made good progress on reaching the MDGs on

nutrition, gender equality, reducing infant and child mortality (infant mortality fell to 23 per thousand

live births in 2006 from 57 in 1990; under-five mortality in 2006 fell to 31 per thousand live births

from 80 in 1990), water supply and sanitation, and combating AIDS and other diseases. However, the

11

NAPC and NSCB (2005). "Assessment of Vulnerability to Poverty in the Philippines." 12

Reyes, C. (2002) "The Poverty Fight: Have We Made an Impact?"


10

net enrolment rate (NER) for elementary education has been falling, and that for secondary education

is stagnating at a low 58-60 percent, whereas completion rates at both levels were declining until 2006.

Despite a decline from 209 per hundred thousand live births in 1990 to 162 in 2006, maternal

mortality remains high. Achieving the MDGs for primary education and maternal mortality remain

major challenges and are increasingly unlikely to be met. The incidence of malnutrition is also an

issue. There are significant opportunities to improve the efficiency of increasing budgets in the social

sectors, as well as further raising allocations as efficiency and fiscal space improve.

33. There are significant inequalities in the access to basic infrastructure and social services

by regions and income groups. Income disparities at the sub-national level translate into

significantly lower access to vital infrastructure services such as electricity, water supply, paved roads,

and telephone service. Less prosperous regions, mostly in Mindanao, have much lower levels of

access. Gaps are also largest in urban areas where many poor households often lack access to services

due to their informal status. There are also persistent gaps in educational and health outcomes, as well

as access to good quality schools and health services and inputs, between poor and non-poor areas, and

between poor and non-poor families.

34. A key feature of the recent Philippines’s economic story has been the weak response of

poverty reduction to income growth and persistent vulnerability. Official estimates show that

nearly half of the population is vulnerable to falling into poverty as a result of shocks, including rising

prices. Analyzing and understanding the causes and nature of poverty are critical to responding to the

challenge of how the poor can better benefit from growth. Factors for the disconnect between growth

and poverty reduction include the impact of cumulative inflation on real incomes of households; the

compression of public expenditures, including both infrastructure and social spending, in the face of

unsustainable budget deficits in the early years of this decade; the quality of growth which accrued

largely to the corporate sector compared to households; and, insufficient job creation for low skilled

labor with growth favoring the services sector. Poverty is also driven through the nexus with the

environment and climate change, as well as with natural disasters. A poorly coordinated and

inaccurate social protection system further reduces the effectiveness of poverty targeting programs.

35. The overarching and cross-cutting challenge of weak governance remains a key

constraint to sustainable growth and poverty reduction. The Government recognizes this

challenge and there has been considerable progress in strengthening the overall framework for good

governance. Governance reforms have encompassed anticorruption drives, bureaucratic reforms,

strengthening of public procurement and fiduciary processes, promotion of local government

oversight, and the engagement of strong civil society groups, communities, and lawmakers in

providing checks and balances. For example, following up on the findings of an INT investigation of

the first phase of the National Roads Improvement Program, the Government and the World Bank

designed for the second phase of the project a battery of stringent anti-corruption measures and

governance mechanisms, such as the use of independent procurement evaluation, tighter procurement

controls, building the agency’s capacity for internal audit, and independent monitoring by a civil

society group. An example of the Government’s recent administrative reform efforts is Oplan

Kandado (Operations Padlock) launched in January 2009 and aiming to strictly enforce administrative

sanctions for noncompliance by taxpayers. However, governance challenges continue to overshadow

these achievements. Key challenges include the need to further strengthen public institutions and make

them more accountable and transparent; intensify the demand and political impetus for reforms; and,

consolidate and expand the engagement of the vibrant civil society. See further analysis in Annex 2.

36. Finally, the conflict-affected areas in Mindanao pose a particular challenge. The

decades-long intermittent conflict between government forces and separatist groups have resulted in

loss of life and displacement of people, destroyed infrastructure, slowed development, below-average

human development, and stagnating economic outcomes far below potential in the affected regions.

This potential is somewhat evident in the island’s growth centers where there is relatively better

economic performance. The World Bank Group, along with many other development partners, has


11

been supporting development activities in Mindanao, but the various short-term initiatives need to be

better coordinated to result in improved outcomes and more sustainable longer-term development.

37. Addressing the country’s development challenges is likely to become more demanding in

the coming CAS period. As for most developing countries, the external environment for the

Philippines is deteriorating rapidly and is likely to be less benevolent in the coming years. Although

better prepared than in the past, and better prepared than some other middle income countries, the

Philippines is likely to face slower growth in the years ahead, and renewed fiscal pressures are already

emerging. The country needs to manage these additional pressures in times of political change. The

elections scheduled for May 2010 offer risks as well as opportunities: on the one hand, elections in the

Philippines traditionally slow down decision making, reform initiatives and program implementation.

On the other hand, though, the upcoming elections offer an opportunity for a renewed political

mandate for the incoming administration, the potential for new policy directions, and new coalitions

for needed reforms. The baseline expectation therefore is that the CAS will operate in a rapidly

changing and often challenging political environment.

Updated 2004-10 Medium-Term Philippines Development Plan (MTPDP)

38. With a fresh mandate in 2004, the Government outlined the country’s MTPDP for the

period 2004-2010 with a macroeconomic framework designed to maintain economic stability. Starting in 2005, the Government implemented crucial reforms to improve tax collection, increase

revenues and prudently manage expenditures. Fiscal reforms resulted in stabilized public finances,

large prepayments and lesser dependence on external borrowings. Consequently, the budget deficit

was contained, in turn resulting in lower interest rates. Record levels of overseas remittances coupled

with increasing export earnings led to an improvement in the country's credit outlook. These further

attracted foreign investments and boosted the peso's strength. Hence, an economy once struggling to

recover after the Asian crisis began to show a turn-around in 2007. However, the momentum receded

by mid-2008 in the wake of global shocks: soaring food and fuel prices, and a downturn in the U.S.

economy.

39. The MTPDP was updated in 2008 to review past performance, attend to remaining

commitments in the Plan, and reformulate policies to address the new challenges. The update

was undergoing final review during the CAS preparation time. The updated MTPDP focuses on the

areas of: economic growth and job creation; energy; education and youth opportunity; and

anticorruption and good governance. It highlights the need for the agriculture sector to become more

competitive in view of the liberalized global economy and stresses the need to decentralize

development by decongesting Metro Manila through the establishment of new centers of government,

business and housing in Luzon, Visayas and Mindanao. It aims for the nation to become more self-

reliant in its energy mix, becoming a world leader in renewable energy. It puts new emphasis on

science, technology, and innovation, and speaks of boosting the outsourcing industry and establishing

regional ICT centers. The MTPDP supports sustained investments in infrastructure, pursuing an urban

rail-based mass transport system, and linking the islands via more Roll-on-Roll-off ports. It highlights

actions to manage inflation, as well as to address the relatively high rates of unemployment and

underemployment. The Plan gives priority to protecting the poor through more shelter, health

insurance, microfinance, low-cost medicines, and cash transfers.

40. The overall goals of the MTPDP provide the country framework for the Bank’s CAS for

the Philippines. The CAS will be broadly aligned with the themes under the updated MTPDP, and

will serve as early input to the next MTPDP that is to be approved by the incoming government after

the 2010 elections. At the Government’s request, the Bank will provide input in the preparation of the

new plan that is expected to start in the coming year. Given the possibility of a shifting focus with the

change of administration after elections, the alignment will be measured in terms of adequate

responsiveness to changing client requests, within a selective framework that focuses on areas in

which the Bank can best serve the country’s development and poverty reduction goals.


12

III. BANK GROUP ASSISTANCE STRATEGY FOR THE PHILIPPINES

A. LESSONS LEARNED FROM FY06-09 CAS AND STAKEHOLDER FEEDBACK

Lessons from FY06-09 CAS Completion Report

41. The FY06-09 CAS Completion Report (Annex 3) presents an assessment of the strategy

that aimed to achieve fiscal stability, generate economic growth, ensure social inclusion and

improve governance. The following lessons have been learned that have implications for the design

and implementation of next FY10-12 CAS:

The overall strategic direction of the CAS was sound. Sound fiscal management and

improved governance will continue to be critical for ensuring sustained economic growth and

poverty reduction. The next CAS will need to ensure that the gains made in revenue

generation, public expenditure management, and procurement are sustained while pursuing

further improvements in governance. Continued focus on implementing the project portfolio

will be critical to success during the next CAS. Going forward, the Bank will need to

understand better the factors explaining the relationship between the country’s economic

performance and lack of poverty reduction, and ensure that Bank-supported operations

emphasize the needs of the poor.

Continued engagement is a critical element for success, but at the same time the Bank

needs to develop criteria for strategic and selective engagement. The Bank has a long

history in the Philippines and has been able to develop relationships and trust with many

government agencies, which has enhanced the Bank’s effectiveness. The Bank would need to

build on these relationships with counterparts in pursuing results during the next CAS.

However, the Bank, jointly with the Government, would need to be strategically selective and

develop criteria to determine when the Bank should disengage given the extent of current

engagements and Bank resource constraints.

Monitoring (and evaluation) of AAA needs to be strengthened. Knowledge transfers are

an important part of the Bank engagement with the Philippines. But the Philippine program

has not been adequately monitored and the possible impact of its AAA program has not been

assessed. There also needs to be a stronger link between the Bank’s AAA program with that

of the priority analytical study needs of the Government.

The CAS results framework needs to be strengthened. The FY06-08 CAS results

framework has not proven useful in monitoring, managing and evaluating the CAS. The Bank

can make the results framework into an effective CAS management, monitoring and

evaluation tool by clearly stating the expected CAS outcomes, including specific, measurable,

achievable, relevant and time-bound indicators to allow for better monitoring, and making

explicit the link between expected CAS outcomes and Bank instruments. Linking CAS

monitoring and operational (including AAA) monitoring would facilitate data collection.

Closer strategic monitoring of progress towards CAS strategic objectives should facilitate

decisions on engagement. These lessons have been reflected in the new results framework.

Findings from Recent IEG Evaluations

42. The Independent Evaluation Group (IEG) prepared a country brief for the Philippines

in April 2008. IEG’s country brief provides the following highlights:

The main challenges identified in the Philippines have been the Bank’s late response to

clients’ demands for more programmatic lending and the lack of synchronization with the


13

budget process. Going forward, government officials were optimistic that the new

programmatic loans which started in 2006 would allow for appropriate flexibility.

Clients appreciated the Bank’s high-quality knowledge work. At the same time, they lamented

the lack of applicability and appreciation of country dynamics.

At the project level, a weak regulatory framework for Local Government Unit (LGU) finance

and private sector participation has hampered participation of LGUs in Bank projects.

43. Overall Value of the Bank. More specifically, IEGs’ 2006 Development Results in Middle-

Income Countries (MIC) report indicated that Philippine partners value the Bank for its longstanding

relationship and consider the Bank to have an intimate knowledge of the country. Appreciation was

universally high for the Philippine Development Forum and the Bank’s role in it; this relationship

helped assure the relevance of the Bank’s strategy.

44. Operational Challenge. One of the main challenges identified in the MIC report was the

Bank’s late response to clients’ demands for more programmatic lending. The new National Program

Support operations, which were started in 2006, were designed to respond to these challenges and

provide the needed flexibility. This type of loan instrument continues to be relevant under the new

CAS given continuous feedback on the preference of the Government for programmatic lending.

45. Knowledge Agenda. IEG’s evaluation highlighted the clients’ appreciation for the Bank’s

high-quality knowledge work, particularly its power to bring its international experiences in its

advisory work. Bank reports were considered to be of good quality and holding weight in political

debates. Still, clients noted that the Bank’s knowledge work sometimes lacked applicability to the

country situation, and insufficiently account for country dynamics. Bank documents were sometimes

seen as too ambitious, identifying issues of which the Government was already aware, and

timelines/procedures did not take into consideration the culture and traditions of the Philippines. The

new CAS emphasizes a flexible knowledge agenda consistent with the main strategic objectives.

46. IFC-IBRD Collaboration. From the IEG evaluation, it was concluded that some clients had

not observed much coordination between the Bank and IFC, and government officials expressed that

better coordination would be welcome and could lead to enhanced public-private partnerships,

particularly in the infrastructure and power sectors. This particular feedback has been one of the

driving forces for the stronger IFC-IBRD strategy component of the new CAS.

World Bank FY09 Client Survey and Multistakeholder Consultations

47. The FY10-12 World Bank Group CAS was prepared by drawing on various dialogue

and feedback mechanisms. Instruments that gave qualitative and quantitative information were also

part of the preparation process. In addition to the CAS Completion Report (Annex 3), these included a

World Bank Client Survey and a series of formal and informal meetings with participants from

different parts of the country, with national and local government officials from oversight and

implementing agencies, and with other development partners. (See Annex 4 for more details on the

multistakeholder consultations, the World Bank FY09 Client Survey for the Philippines, and the

overall CAS preparation process.)

48. The FY09 World Bank Client Survey was conducted in the Philippines in August 2008

with a total of 337 respondents. The results of the survey indicate that the Bank’s work in the

country was valued, and stakeholders were eager for the Bank to be involved in the most critical

development challenges that the country faces. In terms of development issues, corruption and poverty

were considered the key development priorities in the Philippines. In terms of value of the World

Bank to the clients, the results indicated that the Bank was mostly valued for its lending to finance

development projects. The survey indicated that the Bank’s knowledge was less valued in the

Philippines than in many other countries surveyed. Similar to the IEG findings, the client survey


14

indicated that the Bank’s greatest weakness was perceived to be its disregard of political realities on

the ground and its bureaucratic way of conducting business that is not attuned to country conditions.

49. A series of meetings were held with top government officials and leaders from civil

society organizations (CSOs) and private sector, as well as with other development partners,

both bilateral and multilateral agencies. Eight CAS Working Groups, (growth/fiscal, investment

climate, poverty/social, governance/anticorruption, environment/climate change/disaster risk

management, food policy issues/rural development, decentralization, and political issues) also met

with partners from government, civil society, and bilateral and multilateral development agencies.

The key messages and implications for Bank Group assistance gathered from the consultation

workshops are summarized in Box 1. As the goal was to listen to a wide spectrum of voices, these

details show some divergent views and opinions of various groups across the country. A detailed

feedback report was sent to all the participants and was posted on the Bank’s Philippines website to

inform the public about the messages and recommendations.

Box 1: Key Messages from Multistakeholder Consultations

Poverty. The main causes for increasing poverty are: (a) bad governance; (b) the poor quality of

education, particularly in rural areas; and (c) lack of livelihood and employment opportunities.

Governance. The inadequate performance of public institutions is caused by: (a) the prevalence of

corruption at all levels; (b) weak citizen participation in governance; (c) lack of professionalism and

inadequate leadership and management capacities of political leaders; and (d) a bloated and inefficient

bureaucracy that results in lack of communication and coordination and hampers the delivery of public

services.

Suggestions for Bank Group involvement. Ideas for priority programs for the new CAS included: (a)

basic education, health and other social services at the grassroots level; (b) food sufficiency and

security programs that will improve productivity and agricultural market development; (c) capacity-

building to improve local governance, including programs that improve transparency and accountability

in government agencies (e.g., strengthening of civil society participation in oversight roles, prosecution

of erring public officials, etc.); (d) electoral reforms to strengthen democratic processes (e.g., voters’

education); and (e) social protection.

Issues that the Bank Group should avoid. Conversely, the World Bank should avoid programs

related to: (a) political intervention, including engagement in partisan politics, giving in to political

pressure or direct involvement in conflict resolution and the war against terrorism; (b) mining projects

that are not supported by communities, and (c) human rights violations, including support for

enterprises or industries that encourage human trafficking, sex slavery and those that employ minors.

Divergent views on Bank Group involvement. A number of issues surfaced where consultation

participants had divergent views on World Bank involvement. While the majority felt that the World

Bank should avoid these issues, some participants felt that there were opportunities for Bank

involvement in the following: (a) policy making on procurement, taxes and tariffs; (b) family planning

programs; (c) cash grants and subsidies; and (d) project identification and prioritization.

B. PROPOSED WORLD BANK GROUP ASSISTANCE STRATEGY

World Bank Group Assistance Strategy Overview

50. Based on the context presented above, the forthcoming CAS proposes to shift emphasis

within the existing overarching goal rather than introduce a radically different approach from

past CASs. The following key strategic shifts form the basis of the new CAS:

i. Intensifying the focus on poverty reduction in light of its importance for the Philippines

development agenda, the lack of progress on this front despite higher growth, and the

vulnerability of the poor to the impact of the global slowdown.

ii. Further operationalizing governance in all Bank-supported activities. Improving

governance is considered critical for better development outcomes in the Philippines, and

is an area in which government and non-government groups alike consider the Bank’s

experience and contribution of value to the Philippines.


15

iii. Including emerging global challenges with particular relevance for the Philippines e.g.,

mitigation of, and adaptation to, climate change, and reducing the risks associated with

increasing intensity and frequency of natural disasters to which the country is already

prone.

iv. Emphasizing the knowledge agenda, because the Philippines as a middle income country

is facing increasingly sophisticated development policy challenges, and because the Bank

has in the past shown to be effective in producing relevant knowledge and in convening

the development community to achieve results.

51. Over the CAS period, the World Bank Group will contribute to achieving more inclusive

growth in the Philippines. It will do so by supporting the Government to: (i) maintain macro-

economic stability and cope with increased macroeconomic uncertainty through a stronger revenue

base, improved expenditure efficiency and targeting, and responsive financing; (ii) improve the

investment climate through an enabling business environment that promotes competitiveness,

productivity and employment, especially for sectors of particular importance to the poor, such as

agriculture and fisheries, and developing better models of infrastructure finance and management at

national and local level to reduce transaction costs for the poor; (iii) increase access to better public

services for the poor by deepening the reform agendas in key public services sectors, and expanding

basic service delivery directly to the poor; and (iv) reduce vulnerabilities by expanding and

rationalizing the country’s social safety net, improving disaster risk management, piloting climate

change adaptation measures and expanding climate change mitigation programs in key sectors.

52. The World Bank Group will promote good governance by supporting more capable and

accountable government. To achieve this goal, the Bank Group will pursue an engagement strategy

at the national, local, and agency level. It will support cross-cutting as well as agency-specific reforms

to strengthen core governance systems in public financial management, procurement, and

decentralization. It will make use of certain types of poverty-reduction interventions, such as

community-driven development (CDD) and conditional cash transfers (CCT) to increase the demand

for better governance and better services. The Bank Group will also facilitate empowerment of the

Philippines’ civil society and academe by promoting more transparency in Bank-supported operations

as well as in public finance and public procurement in general. The Bank will use the Philippines’

own governance systems to assess the capabilities of prospective implementing agencies of Bank-

financed projects, and will carefully consider new engagements with agencies that cannot meet the

country’s own standards of good governance.

53. The World Bank Group's program focuses on core results areas through engagements at

the national, local, and private sector level. IBRD will aim for a lending program in the order of

US$700 million-US$1 billion per year, with lower commitments expected for FY10 due to the May

2010 elections. The proposed lending would reverse the recent trend of negative net transfers and

could increase IBRD exposure to the Philippines from US$2.7 billion in FY08 to US$3.9 billion in

FY12. The proposed lending plan is indicative as IBRD’s capacity to lend can change over time.

There is higher degree of certainty for the lending plans for the earlier years of the CAS period.

During the CAS period, IFC will support recognized and replicable successes in the country. Success

will be measured by the development impact in key selected sectors, jointly or in coordination with

IBRD, wherein IFC services would maximize and catalyze impact. In recognition that impact from

IFC's engagement is significantly greater when investment and advisory services are properly aligned,

the IFC strategy clearly incorporates both. The IFC investment program is expected to be in the order

of US$250-300 million per year, while advisory services will be supported by funding of

approximately US$3 million per year. MIGA will continue to offer its guarantee products. Annexes 5

and 6 present the CAS results framework and the Bank Group program by results areas.

54. The World Bank Group will support efforts to counter the effects of the global economic

crisis (see Box 2).


16

Box 2. World Bank Group’s Response to the Global Economic Crisis

In terms of financial assistance to the Philippines for addressing the impact of the financial turmoil and the

global crisis, the Government has asked the Bank to focus on faster-disbursing assistance in a variety of areas

so as to contribute to key programs for alleviating the impact as well as general budget financing. The World

Bank Group support will proceed once there is clarity on agendas and commitments, and projects meet the

Bank’s processing filters. Commitment to governance reforms is a major focus of these filters, including at

the decentralized level.

IBRD expanded support in the short-term includes:

- Scaled up support for the Government’s new Conditional Cash Transfer (CCT) program. The

planned loan amount in support of the CCT program was increased from US$50 million to US$405

million. The objective is to strengthen the effectiveness of the Department of Social Welfare and

Development (DSWD) as a social protection agency to efficiently implement the CCT and to

improve the national household targeting system for social protection programs in selected areas.

- Accelerated disbursement under the National Program Support loans for Health and

Education. Through accelerated disbursement and additional financing in these sector-wide

operations, the Bank could contribute more financing.

- Additional financing for the community-driven development project KALAHI-CIDSS. This

program that helps build community infrastructure and income generating investments is an ongoing

program for which the Government has requested additional financing.

- Continued program of development policy loans (DPL). The 2006 DPL series focused on

increased fiscal revenues and fiscal transparency. A DPL2 planned for 2007 was postponed because

the Government fell short of its objectives, and the DPL series closed in December 2008. The

program could be continued with a $250 million new DPL for calendar year 2009, with a possible

additional US$250 million as a deferred drawdown option, supporting the objectives of fiscal

revenues and transparency, complemented by measures to improve the Philippines’ response to the

crisis.

IFC Crisis Response Initiatives. IFC will aim to address increased risk and liquidity constraints

through a series of instruments devised to help countries and firms respond to the global economic crisis.

These instruments include Advisory Services to help strengthen insolvency regimes, improve corporate

governance and strengthen risk management capacity in banks, and four recently approved or expanded

financing facilities:

- Bank Recapitalization Fund – global equity fund to recapitalize distressed banks

- Expanded Trade Finance Program – existing IFC program that guarantees the trade-related

payment obligations of approved financial institutions in emerging markets

- Infrastructure Crisis Facility – to bridge the gap in available financing for viable, privately funded

infrastructure projects facing financial distress

- Global Microfinance Funding Initiative – to assist the microfinance sector in terms of filling

funding gaps despite sound fundamental and continued strong performance.

MIGA Response. MIGA’s ongoing commitment to the country will seek to reassure private sector

investors through its political risk insurance product. MIGA’s standard products address risks of Transfer

Restriction, Expropriation, Breach of Contract and War and Civil Disturbance. In addition, the Small

Investment Program (SIP) offers a more streamlined product for smaller scale investments in the country.

55. The global uncertainties as well as the Philippines’ political environment and transition

require the Bank Group to be flexible, and adapt to changing circumstances. The Bank Group

will be engaged in a relatively broad set of result areas, but the intensity of engagement will vary

depending on the progress made and emerging opportunities for reforms, as well as on the

opportunities that the Bank’s global initiatives offer. Beyond current commitments for a DPL with a

possible draw-down option to mitigate the impact of the global economic crisis, the Bank will use

development policy operations in support of disaster risk management and in the context of a strong

reform program in government financial management. The Bank Group will also continue to support

increasing local government access to finance through more diversified financial instruments. IBRD

investment loans and guarantees and IFC investment and advice would support the development of

new models of financing and management for critical infrastructure, including good practice Public


17

Private Partnerships (PPPs). The World Bank Group will adapt its financing share of those PPPs in

light of availability of private financing. MIGA guarantees may also offer reassurance for foreign

investors, especially those concerned about turbulence in foreign exchange markets. To increase

flexibility in a time of global uncertainties, the Bank Group will aim to reduce preparation times and

increase the responsiveness in the lending program by better aligning it with the Government’s

evolving priorities through more frequent lending program discussions and review, and by scaling up

successful operations through additional financing and repeater loans, and by using national program

support loans as platforms for innovation and reforms. A CAS Progress Report in FY11 will align the

Bank Group’s program with that of the incoming government.

56. The Bank Group, in partnership with other development partners, will increasingly

emphasize knowledge cooperation and formalize a rolling AAA program with the Government. A central aim of the AAA program for the CAS period is to provide inputs into the 2011-16 MTPDP.

Implementation of the knowledge agenda will increasingly be done in cooperation with local institutes

through programmatic partnerships in key results areas.

World Bank Group Program Integration

57. A number of the development challenges facing the Philippines call for solutions that

involve both “public goods” such as improved policies, institutions and incentives, as well as

private sector investments. The business case for IBRD-IFC-MIGA collaboration results from the

possibility of more effective use of financial and technical resources for the delivery of those public

and private goods, and potential innovation through a public/private funding mix. The Philippines

CAS pilots deeper integration of IBRD and IFC efforts by building on lessons of successful World

Bank Group integration, including a shared assessment and strategy developed jointly by mixed IBRD

and IFC teams (see Box 3).

Box 3. One Bank Group: IFC-IBRD Integrated Programs

The IFC-IBRD CAS team considered joint programs in several key sectors seen as having significant potential

development impact, where a combination of public and private sector actions are needed to realize the

potential. The team agreed to pursue joint programs in three sectors:

In infrastructure, new ideas in subsectors of joint interest will complement the significant number of

ongoing operations. A key priority is the support for the implementation of the current reforms in the

electricity sector. IBRD and IFC have also defined specific roles and synergies to more effectively help

catalyze private participation in household water service delivery in specific localities, and in the transport

sector through the preparation of well-developed transactions and in defining enabling policies and better

institutional processes and arrangements for procuring and implementing PPPs within the current legal

framework. The overall program has the potential to contribute to significant improvements in the risk

allocation and the division of labor between the public and private sectors.

In agribusiness, the challenges of low productivity and poor integration into global supply chains limit

job creation and income growth for farmers. These challenges will be addressed through a joint IFC-

IBRD program designed to increase rural and farmer access to credit through expansion of a menu of

innovative financing instruments (e.g., partial credit guarantee, index-based weather insurance, etc.), and

improve market access in domestic and international markets for agriculture and agribusiness through

better quality assurance, more efficient logistics and supply chains for agribusiness development. This

planned collaboration will build initially on IFC's current program in the banana sector and expand

gradually to other export crops, as well as in IBRD’s operational experience in supporting the

Government’s rural finance agenda and agricultural diversification efforts.

In the financial sector, the program will support increased access to financial services; banking sector

competitiveness and reach; and financial literacy. The joint framework includes work on financial sector

infrastructure including credit, payment and collateral systems, leveling the playing field between

government and private financial institutions, and promoting consolidation in the sector. In addition to

addressing the cross-cutting issues, specific operations will provide access to finance for LGU initiatives,

microenterprises, farmers, fishers, SMEs, housing and energy efficiency projects.


18

58. MIGA will also continue to offer its guarantee products. It will make sure it is operating

consistently with the overall Bank Group goals, and coordinating with IBRD and IFC where this is

necessary or appropriate. The areas of joint and coordinated work are captured in the integrated

results framework (Annex 5) and will be jointly managed and monitored.

Strategic Objectives and Results Areas

59. The Bank Group's contribution to addressing the intertwined development challenges of

poverty and governance will comprise eleven core results areas through engagements at the national,

local, and private sector level. The anticipated outcomes presented below are the result of both

ongoing operations and the new ones proposed in this CAS.

- Strategic Objective 1: Stable Macro Economy

MTPDP Goal: Maintain economic stability through further fiscal consolidation (improved revenue

generation as well as strengthened expenditure management), rationalized national government spending for

devolved services, and reduced debt.

Results Area and Outcomes

1.1 Fiscal and financial stability through consolidation and improved macroeconomic risk

management

Outcome 1: Maintain tax effort through strengthened tax administration and tax policy reform

Outcome 2: Improved efficiency and targeting of public expenditures

Outcome 3: Improved management of key fiscal and financial sector risks

60. The first CAS objective supports the Government’s efforts to encourage growth and

maintain macro-stability while coping with increased macroeconomic uncertainty. Although the

Philippines may not be as vulnerable to global economic conditions as some neighboring countries,

growth prospects are likely to diminish over the short- to medium-term as the current global recession

is likely to be deep and protracted and is expected to impact on the Philippines’ economy with a lag

compared to other regional economies—remittances are a key factor in delaying the immediate

impact. Given limited fiscal space, a modest and well-targeted fiscal stimulus package will likely be

needed, and the government is working on such a plan (the Economic Resiliency Plan). To enable its

delivery and without jeopardizing fiscal stability, a significantly enhanced effort to improve tax

administration and implement tax policy reforms will be essential for the country to both protect the

poor and preserve its hard-gained macro-fiscal stability.

61. Outcome 1: Maintained tax effort through strengthened tax administration and tax

policy reform. The fiscal improvement of recent years needs to be placed onto a more permanent

footing. The fiscal consolidation that took place since 2002 resulted in substantial improvements in

revenue collections from 2004 and 2006. There is still considerable scope for increasing the efficiency

of the tax collection system. Estimates suggest that the Government only collects about 60 percent of

tax revenues due, because of widespread tax evasion and avoidance. Current global developments

warrant a countercyclical fiscal policy stance, and the Government’s initial response in part included

tax cuts that have set back previous gains in tax collection. The need to protect the most vulnerable

members of society from the impact of the global economic crisis, however, argues more in favor of

applying countercyclical pressure through an expansion of targeted social spending than by allowing

tax revenues to decline. Accordingly, the World Bank Group will focus on supporting government

efforts to avoid protracted slippages in the tax revenues to GDP ratio—through support for both tax

administration and policy reforms—to allow enough fiscal space for expanding targeted social

spending without raising the fiscal deficit to unsustainable levels. This would allow the non-

financial public sector debt ratio to fall further over the CAS period to a less burdensome level. The

eventual aim is to move to a broad-based, low rate, simplified tax structure that minimizes distortions,

increases horizontal equity, facilitates tax administration and fosters compliance. The Bank will

engage in this area through lending (through the ongoing NPS for tax administration), technical

assistance, policy notes, the Philippines Development Report, and quarterly economic reports, which


19

would also help raise public awareness of these issues. The Bank could reform and scale up its NPS

for tax administration once credible reform plans gain more traction. Complementary to efforts to

increasing the tax base and improving tax administration, key official statistics such as the system of

national accounts and industry surveys would be improved to support more evidence-based policy

making, broaden the tax base, and improve tax revenue forecasting, goal setting, and allocation.

62. Outcome 2: Improved management and greater transparency in public expenditures.

On the expenditure side, the Philippine Government has generally been effective in controlling the

aggregate level of spending in line with the country’s fiscal capacity. But in a number of priority

sectors such as education, health and infrastructure, the levels of spending tend to be insufficient for

the country to achieve its own stated policy goals such as the MDGs or rapid infrastructure

development. The fiscal turnaround in the past few years has reversed the trend of mandatory

expenditure cuts that compress discretionary spending items including capital outlays. Yet capital

outlays still remain below 2 percent of GDP, compared to almost 3 percent of GDP a decade ago. In

terms of sectoral allocation, the Government has increased the budgets of several priority agencies,

including Public Works and Highways, Education, Health, Agriculture, and Social Welfare and

Development over the past few years following annual reviews of expenditure programs in the

respective sectoral agencies. These allocation decisions generally improved the composition of

spending within these agencies, but there still appears to be scope for improving the efficiency of

expenditures in general. For example, social safety net programs are still dispersed across agencies

and poorly coordinated. The inefficient nature of part of the agriculture budget has repeatedly been

pointed out but the realignment of the budget composition has progressed slowly. The public works

budget is littered with small, fragmented projects with limited strategic thrust. The Bank’s technical

assistance will focus on improving expenditure allocation through introduction of DBM-led annual

budget strategy papers and medium-term expenditure plans for the Departments of Education, Health,

and Social Welfare and Development. The Bank will also be supporting the Government in improving

the targeting of key social protection spending such as the conditional cash transfer program. The

ongoing TA will be supplemented with a programmatic AAA on public expenditure issues in close

coordination with relevant government agencies.

63. Outcome 3: Improved management of key fiscal and financial sector risks. The

Philippines’ public sector debt has come down significantly since 2003 when it peaked at over 100

percent of GDP. Recent debt sustainability analyses undertaken by both the IMF and the World Bank

find that debt is broadly sustainable, with exchange rates and growth shocks having the most impact

on debt dynamics. Nevertheless, at an estimated 62 percent of GDP at end-2008, public debt remains

at an elevated level for an emerging market, especially in the current global environment of heightened

risk aversion and pullout from emerging markets. The composition also exposes the Government to

significant fiscal risks. Key among these are exchange rate shocks as close to 60 percent of public

debt is denominated in foreign currency, and rollover and interest rate risks given that a large share of

the debt is short term; this results in large and growing gross financing requirements for the public

sector (15.7; 18.5; and 19.7 percent of GDP for 2008, 2009, and 2010, respectively). There are also

potentially important fiscal risks from contingent liabilities (e.g., PPPs), and GOCCs, and possible

macro-financial risks arising from large exposure to government securities and balance sheet

mismatches in the financial sector either directly or indirectly thorough their lending to the corporate

sector and/or household sectors. The Bank and IFC (through its Advisory Services) can provide

expertise and cross-country experience in matters related to fiscal and financial risk assessment and

management, crisis response, managing insolvencies, and advice on risk reduction strategies and

capital market development.

64. Part or much of this segment of the results area would likely be done in partnership with

the IMF (e.g., the financial sector assessment program (FSAP) on which the assessment of macro-

financial vulnerabilities would rest). In the fiscal area, a public statement of fiscal risks could be an

important outcome. In the current global environment, the Department of Finance (DOF), the Central

Bank of the Philippines (Bangko Sentral ng Pilipinas – BSP), and Treasury are likely to be interested


20

in better macro-fiscal and macro-financial risk management, and the Bank will engage them through

policy notes as well as the FSAP, the Philippines Development Report and the Philippines

Development Forum (PDF), and potentially, technical assistance.

- Strategic Objective 2: Improved Investment Climate

MTPDP Goals: Encourage the private sector to improve productivity, strengthen trade and investment and

attain national investment rates of about 25-28 percent of GDP; continue with the integration of the transport

system, and develop and diversify the energy mix; ensure smooth financing for entrepreneurs, including

microfinance for underserved areas.

Results Areas and Outcomes

2.1 Enabling business environment to promote competitiveness, productivity and employment

Outcome 1: Increased and improved delivery of infrastructure

Outcome 2: Enhanced regulatory policy frameworks and institutional capacity for investment, service

delivery, and trade

Outcome 3: Increased investment and employment in rural and urban development

2.2 Financial services

Outcome 1: Increased delivery and access to financial services

65. A better investment climate remains a key challenge for the Philippines, and one that is

becoming more pertinent as risk aversion increases and availability of investment finance could

decline. There is a need to adopt policy reforms and implement programs that would help increase

competitiveness and improve governance in order to attract more investment, which would lead to

higher productivity and employment. The key constraints to improving the investment climate

include, among others, the lack of infrastructure, a weak regulatory framework, and limited access to

finance. As the pace of urbanization in the Philippines gains momentum, the Bank Group will expand

its focus on the urban dimensions of development. Urban centers, cities in particular, have an

increasingly important role to play in improving the investment climate and improving

competitiveness. In addition to establishing business friendly environments—including conducive

regulatory frameworks and quality infrastructure and services—cities and towns must also become

more adept at managing complex and large-scale development programs.

Results Area 2.1: Enabling environment for competitiveness, productivity, and employment

66. Outcome 1: Increased and improved delivery of infrastructure. The Bank Group will help

deliver more tangible transport results linked to improvements in governance through the ongoing

Second National Roads Improvement and Management Program (NRIMP2), and will support

expansion of this approach to the management of secondary and rural roads. In urban areas, such as

Metro Manila, the Bank will support the integration of the transport infrastructure improvement

programs within a broader metropolitan development context and local government planning

processes. Investments in road upgrading and maintenance will increase their levels of service to

facilitate efficient movement of people, goods and commerce along major corridors. In rural areas,

better roads will increase access to basic services, places of employment, and markets for products. In

addition, to operationalize the framework for PPPs with better risk-sharing between the public and

private sector, the Bank Group will support one model PPP for a national toll road and one for a light

rail project. In response to a possible reduction in the availability of private financing due to the

current global downturn, the Bank Group could provide risk mitigation products and assistance in

preparing financing and implementation packages for public investments. The Bank Group will

continue to support the public sector reform process in the sector dialogue under the Philippines

Development Forum. Better access to reliable and affordable power will promote investment in SMEs

in rural and urban areas. It will also help to reduce the constraints to and the cost of doing business;

improve the attractiveness of smaller urban and rural centers as engines of growth; expand coverage of

business and service delivery; and, extend services to the underserved poor who reside in remote and

isolated areas. The Bank will continue its support for rural electrification and, together with IFC, will

explore opportunities for new power investments. A particular emphasis will be placed on supporting


21

investments on renewable energy sources such as solar, hydro, geothermal, waste-to-energy and

helping develop a program on renewable energy to access carbon credits from the new carbon finance

facilities managed by the Bank. To address issues of inadequate connectivity, the Bank Group will

also explore innovative applications of ICT to achieve results, especially in rural areas.

67. Outcome 2: Enhanced regulatory policy frameworks and institutional capacity for

investment, service delivery, and trade. In sectors where the Bank Group is providing investment

financing—including transport, power, water, and waste management—the development of more

transparent and stable regulatory frameworks will continue to be supported, including the

strengthening of regulatory agencies for transport and power, solid waste, water supply and sanitation

to balance investor concerns and consumer welfare; support for multi-year infrastructure investment

programming, planning and strengthened budgeting at the national and local level including adequate

technical capacity and financial resources in line agencies to prepare projects for implementation, for

which private firms can bid competitively; development of trade and transport facilitation policies;

and, increased private investment in renewable energy technologies. The Bank Group will continue its

efforts to support the reform of the institutional and legislative framework through bi-lateral and multi-

lateral engagements such as the infrastructure working group of the PDF. If successful, these reforms

could trigger increased financing from the World Bank and other partners (e.g., by creating a common

policy for financing of operationally and financially sound water and sanitation providers) leading to

significant scaling up of investments in the medium term. IFC will continue to benchmark the

Philippines’ overall investment climate through the Doing Business indicators, particularly in highly

urbanized cities, to improve their administrative processes to reduce transaction costs for businesses.

IFC will also seek to scale up Advisory Services in key sectors such as water supply, building on

success of the Manila Water Company privatization. This will be complemented by MIGA’s political

risk insurance product which seeks to reassure private investors, and standard products for Transfer

Restriction, Expropriation, Breach of Contract and War and Civil Disturbance. In addition, the MIGA

Small Investment Program (SIP) offers a more streamlined product for smaller scale investments in

the country.

68. Outcome 3: Increased investment and employment in rural and urban development. In

rural areas, the Bank Group will focus on both farm and non-farm sources of growth. Efforts to scale

up agriculture and agribusiness development through public investment opportunities that promote

market-based approaches will be stepped up, including through joint effort of IFC and IBRD. MIGA

will continue to offer its guarantee product, and IBRD will also continue to support targeted local

infrastructure development programs through the Second Mindanao Rural Development Project, the

Second Agrarian Reform Communities Development Project, the LISCOP, the ARMM Social Fund

Project and the KALAHI-CIDSS Project, and a proposed Secondary/Local roads project. The Bank

Group will intensify its focus on urban development through a broad-based engagement with urban

practitioners and decision makers to identify strategic actions. The forum for urban dialogue will also

ensure broad consensus, and lay the foundation for a joint Government-Development Partner program

of technical assistance, and analytical and advisory services to increase knowledge and shape public

policy. The Bank’s ongoing support to the League of Cities’ ―City Development Strategy‖ (CDS)

program will be continued and a broader partnership with the Housing and Urban Development

Corporation, Department of Interior and Local Government (DILG) and NEDA built with funding

support from Cities Alliance and other development partners. IBRD will also continue to support

urban investments through the Support for Strategic Local Investment and Development Project

(SSLDIP), Metro Manila Urban Transport Project (MMURTRIP) and other new lending windows.

IFC will explore a limited number of transactions in mining, an industry with high potential, but with

considerable challenges and risks. IFC will seek transactions that can demonstrate the feasibility of

environmentally sustainable and socially responsible mining in the Philippines, and can be

implemented in full compliance with industry best practice and the IFC's Social and Environmental

Performance Standards.


22

Results Area 2.2: Financial services

69. Outcome 1: Increased delivery and access to financial services. The investment climate

will improve when sources of financing, especially in the countryside and underserved areas, are

available and accessible to the private sector, service providers, LGUs, and other entities for various

types of investments, ranging from micro-small-medium enterprises to major capital expenditures. In

addition to increasing access to financing, refinements and innovations will also be required to better

tailor financing instruments to particular segments of the market; allow the entry of new financial

service providers; and encourage borrowers to improve their credit worthiness. To address weak

capacity and limited access to affordable finance for LGUs, the Bank Group will facilitate access to

additional sources of finance, such as commercial banks and sub-sovereign lending. Increased access

to grants and concessional financing will be provided, especially for LGUs with low-income and for

complex public goods, such as sanitation and solid waste management. In addition, LGUs will be

supported in their efforts to increase own-source revenue through better business tax and real property

tax collection. Improvements in the overall regulatory framework for credit will also be supported to

encourage greater private sector provision of credit, for example, through a single Credit Information

Bureau for SME credit and increased coverage of the public credit registry. Access to credit for small

farmers will be improved by the development and adoption of guidelines and transparency

mechanisms for the publicly-managed farm credit guarantee facility. The Bank Group will promote

options for increasing access to finance by private agribusiness. Innovations will include the pilot

testing of a long-term credit facility for agriculture/agribusiness and an index (weather) based

agricultural insurance system to mitigate weather-related risks.

- Strategic Objective 3: Better Public Service Delivery

MTPDP Goals: Improve governance of service delivery to support reforms of social welfare and

development; continue to pursue implementation of the health and basic education sector reform agenda to

increase access to quality basic education, health services, and water and sanitation by the poor.


3.1 Public service delivery in key sectors

Outcome 1: Improved access to quality basic education services

Outcome 2: Improved access to health services

Outcome 3: Increased household access to safe drinking water and sanitation services

3.2 Basic service delivery in poor areas

Outcome 1: Scaled-up provision of basic services through a nationwide community-driven development

program

Outcome 2: Enhanced effectiveness of public service delivery through more coordinated area-based

approaches

70. The third CAS objective focuses on improving public service delivery, especially for the

poor. Ensuring adequate access to and quality of public services, especially for the poor, remains a

major challenge. Improved access to and quality of public services in education, health, and water and

sanitation are key to achieving social sector MDGs, some of which are lagging in the Philippines. In

poor areas, a multi-sectoral set of basic public services is needed to address poverty in a

comprehensive manner. As national and local governments share responsibility for achieving the

MDGs, better coordination of activities is essential. Well-targeted and transparent CDD programs that

empower the poor to participate in local decision-making are effective instruments to strengthen

transparency, coordination and cooperation, and promote social inclusion, leading to improved service

delivery and outcomes for the poor. Improved inter-agency coordination and institutional

strengthening are also needed to realize greater synergy between anti-poverty initiatives in both rural

and urban areas. Further refinement of the overall decentralization framework is also needed to clarify

the roles, responsibilities and funding arrangements at each level of government (see also strategic

objective 5.3).


23

Results Area 3.1: Public services delivery in key sectors

71. Outcome 1: Improved access to quality basic education services. The Bank will continue

to support DepEd’s reform program—the Basic Education Reform Agenda (BESRA)—as part of a

multi-partner effort, through the National Program Support project. The education reform agenda is

based on improving institutional performance linked to attainment of MDGs for education. While

access—measured by enrolment rates—remains a concern, improving the quality of education services

is also a priority given high drop-out and repetition rates, as well as low completion and achievement

rates compared to other middle-income countries. To achieve greater equity in access to basic

education services and to support quality improvements in public schools nationwide, BESRA also

supports school-based management, with corresponding decentralization of resources to local schools.

A quality assurance and accountability framework with defined minimum service standards for inputs,

outputs and outcomes, and a rigorous monitoring and evaluation mechanism at all DepEd levels are

key elements of the reform initiatives undertaken across all public schools. In addition, LGUs’ role in

the delivery of education services will be strengthened by ensuring that local special education funds

are properly mobilized to support education needs, that LGUs will lead the processes of education

governance in their municipalities/cities, and that schools are well managed.

72. Outcome 2: Improved access to health services. In health, the Bank is supporting the

Department of Health (DOH) reform program (FOURMULA 1) through the National Program

Support project, which promotes the improvement of health outcomes and the attainment of MDGs for

health through increased public investments in health care delivery, specifically investments to support

an increased number of facility-based births, and improved immunization rates and treatment rates of

tuberculosis, particularly of the poor. It also calls for universal social health insurance coverage and

enhanced insurance benefits, and the use of performance-based financing to support local level service

delivery and improved performance of public hospitals. It is also strengthening the regulatory

capacity to assure access by the poor to quality medicines and other health goods and services. The

role of LGUs in ensuring access to health services will be strengthened. At the provincial level,

funding for health services is one of the largest expenditure items and plays a significant role in

leveraging health services. Incentives for LGU participation in the delivery of quality health services

will be strengthened through various mechanisms, including performance-based measures.

73. Outcome 3: Increased household access to safe drinking water and sanitation services.

In addition to its support for regulatory reforms in the water supply and sanitation sector (see strategic

objective 2), the Bank Group will continue to support the expansion of access through investments: in

Metro Manila’s water supply and sanitation systems, including output based subsidies to enable poor

households to connect; in secondary cities through GFI project sub-projects for expansion of water

supply, solid waste and septage and sewerage systems; and in community-level infrastructure through

various community-driven development initiatives. In the context of these engagements, the World

Bank Group will continue to innovate and develop new instruments for engaging water and sanitation

providers (WSPs) including Advisory Services for PPPs, scaling up existing output-based aid

programs to include sanitation and reach poor households in other cities, financing small scale private

providers of water supply, and scaling up investments in solid waste management facilities.

Results Area 3.2: Basic service delivery in poor areas

74. Outcome 1: Scaled-up provision of basic services through a nationwide community-

driven development program. Poor communities typically lack adequate access to a range of basic

public services, such as elementary schools, health clinics, day care centers, water supply and

sanitation, access roads and bridges, electricity, small scale irrigation, livelihood support and others.

To accelerate the delivery of public services to targeted poor communities, the Bank will partner with

national government agencies, LGUs, development partners, NGOs and other civil society

organizations to support a scaled-up CDD program with nationwide coverage, including a focus on

areas and groups with specific characteristics that make service delivery especially challenging, such

as disaster-prone areas; conflict-affected communities, especially in Mindanao; environmentally


24

fragile areas; rural and urban poor communities, and vulnerable and marginalized groups, such as

indigenous peoples.

75. Outcome 2: Enhanced effectiveness of service delivery through more coordinated area-

based approaches. The effective delivery of services to the poor is hampered by weak inter-agency

and inter-governmental coordination, and a fragmentation of funding sources. Previous efforts to

promote ―convergence‖ across the Government’s anti-poverty initiatives relied on top-down direction

and have not been sustained. A renewed effort is needed to promote greater synergy between

programs designed to benefit the poor within specific geographic areas. Utilizing an area-based focus,

the Bank will explore opportunities to enhance the coordination between core anti-poverty initiatives,

such as the conditional cash transfer program, community-driven development initiatives, and the

reform programs of the education and health sectors, as well as improved inter-governmental

coordination, especially between municipalities, provinces, and regions.

- Strategic Objective 4: Reduced Vulnerabilities

MTPDP Goal: Reduce poverty and increase welfare, particularly in rural areas; sustainably manage the

environment and natural resources; reduce disaster risk and improve recovery management.


4.1 Social protection system

Outcome 1: National household poverty targeting system in place and used

Outcome 2: Conditional Cash Transfer (CCT) program fully operational

4.2 Disaster risk management and climate change

Outcome 1: Disaster- and climate change-related risks reduced

Outcome 2: Greenhouse gas emissions reduced through expansion of mitigation programs in key sectors

and LGUs

4.3 Stability and peace

Outcome 1: Enhanced impact and conflict-sensitivity of development programs implemented in

communities in Mindanao affected by armed or violent conflict

Outcome 2: Scaled-up provision of basic services and livelihood support through community-driven

development (CDD) in communities affected by armed or violent conflict

76. The fourth strategic objective supports the Government’s efforts to reduce

vulnerabilities for a large part of the population. This objective is aligned with the MTPDP goals

of reducing poverty and increasing welfare, particularly in the rural areas; managing disaster risks

which disproportionately affect the poor and vulnerable; and sustainably managing the environment

and natural resources to safeguard livelihoods.

Results Area 4.1: Social protection system

77. Outcome 1: National household poverty targeting system in place and used. This

outcome addresses the challenge of persistent high poverty incidence in the country by providing the

Government as well as the Bank and other development partners with a more systematic and strategic

framework for poverty reduction. Currently, existing social assistance programs are not accurately

reaching the poorest and most vulnerable households. A strengthened national targeting system would

increase access to social assistance for those who are actually poor; and conversely reduce the leakage

of budgets allocated for this purpose to non-poor households. As a milestone towards this outcome,

and to take advantage of the opening provided by the coming change in administration and the

formulation of a new MTPDP, the Bank will assist in ensuring that a strong anti-poverty program

framework and policies, for both rural and urban poor, are adopted in the MTPDP. The poverty

targeting system will strengthen the coherence, synergy and effectiveness in the design and

implementation of poverty reduction policies and measures shared across various government

programs (e.g., MTPDP, MTPIP, plans, budgets). It will also help to ensure that planned poverty

reduction investments to be financed by the Bank are more coordinated, consistent, properly

sequenced, and responsive to national and local development policy contexts.


25

78. Outcome 2: Conditional Cash Transfer (CCT) program fully operational. The

Government is implementing a CCT program. Under the CAS, the WBG will support the improved

design and operation of a well-functioning CCT program. The CCT program will address

vulnerabilities by: (i) providing income support and protection to the poor to shocks, including recent

food price increases; (ii) helping to reverse deteriorating educational indicators (primary enrolment

and drop-out rates) which are likely reactions to households coping with increasing destitution; (iii)

helping to improve health outcomes in critical areas, including maternal mortality and childhood

morbidity; (iv) improving the governance of social assistance programs in general, by raising the bar

as a program that is based on enhanced transparency and accountability; (v) increasing the supply-side

responsiveness and accountability (by DepEd, DOH, and LGUs) to address stimulated demand; and,

(vi) providing a ―convergence framework‖ that allows the relevant agencies to work in tandem on the

supply and demand side measures in order to get social services to work for the poor.

Results Area 4.2: Disaster risk management and climate change

79. Outcome 1: Disaster- and climate change-related risks reduced. The Philippines is

extremely vulnerable to natural disasters due to a high incidence of severe weather conditions—

especially floods, typhoons, and drought—and a large number of earthquakes and active volcanoes.

This inherently high disaster risk is likely to be exacerbated by the effects of global climate change.

The resultant human and economic costs of disasters are significant, with estimates suggesting 0.5

percent of GDP lost annually due to natural disasters. The country has begun to develop more in-

depth strategies for disaster risk management and climate change adaptation to address the dimensions

of: (i) strengthening preparedness and adaptation at the local level with a focus on improving planning

and capacity, knowledge and understanding of measures to reduce disaster risk, including adaptation

to climate variability; (ii) reducing vulnerability of farmers to crop risk through support for innovative

solutions such as weather risk insurance schemes for assisting small farmers to cope with the

economic losses stemming from disasters; and, (iii) improving disaster risk financing strategy at

national and local level through support for identification of appropriate instruments and establishment

of new financing windows for preparedness, response and recovery. Bank support for these initiatives

is through the Global Fund for Disaster Reduction and Recovery (GFDRR) technical assistance to

enhance the development of disaster risk management and climate change strategies; new financing

instruments, such as a CAT-DDO; and GEF grant-funded activities, including a possible Climate

Change Adaptation project, which would integrate climate risk management into national and local

development planning in agriculture and natural resource management and would demonstrate cost-

effective adaptation measures to strengthen the resilience of investments, initially in those sectors.

These measures may be expanded to other vulnerable sectors or regions such as in coastal areas, where

an integrated coastal zone management approach could contribute to reducing vulnerability to natural

disasters and other hazards while promoting sustainable livelihoods and poverty reduction.

80. Outcome 2: Greenhouse gas emissions reduced through expansion of mitigation

programs in key sectors and LGUs. While the Philippines is a minor emitter of greenhouse gases, it

is committed to continue to pursue cost-effective solutions for reducing emissions. The emergence of

new mitigation financing instruments—particularly the Carbon Partnership Facility and the Clean

Technology Fund—opens up the potential for developing broader mitigation programs in areas such as

renewable energy, reducing air and water pollution, and solid waste management. Building on the

experience and successes of ongoing mitigation projects in the Philippines supported by the Bank,

such as geothermal and wind projects and wastewater treatment projects which already commit to an

emission reduction of about 2 Mt CO2e, opportunities will be pursued in the power, transport and

waste management sectors. In cooperation with other development partners, the World Bank will

assist the Philippines in mobilizing existing and future sources of international financing assistance.


26

Results Area 4.3: Stability and peace

81. The Philippines continues to be adversely affected by violent and armed conflict in some

parts of the country, especially in the Mindanao region. Sustained growth and development for the

Mindanao region as a whole cannot take place without giving considerable attention to the

development needs of identified conflict-affected areas, which comprise a sizeable portion of the

island. However, recent armed conflict during 2008, which resulted in hundreds of thousands of

internally displaced persons and destruction of livelihood and property, and weak governance in many

parts of the region reduce the effectiveness of development programs. The complexity of the situation

in Mindanao requires a flexible approach in designing and supporting development programs.

82. Outcome 1: Enhanced impact and conflict-sensitivity of development programs

implemented in communities in Mindanao affected by armed or violent conflict. The goal will be

to support, through the Mindanao Trust Fund, rehabilitation of homes for returning Internally

Displaced Persons (IDPs) from recent and previous fighting between the Armed Forces of the

Philippines and the Moro Islamic Liberation Front. The program will be implemented in joint

coordination with LGUs, NGOs and key development stakeholders under a coordinated approach with

development partners. The CAS period will see a major push to enhance the conflict sensitivity of

Bank operations in conflict-affected areas in Mindanao and elsewhere in the Philippines to support the

creation of an environment conducive to peace through more cohesive communities and stronger local

governance (see Box 4).

Box 4. Enhancing Conflict Sensitivity

Future activities will have enhanced conflict sensitivity defined by one or more of the following

characteristics: (i) transparent and equitable distribution of development resources; (ii) broad-based

consultations with different parties to the conflict over development needs; (iii) conflict-related needs are met

(IDPs, rehabilitation of damaged assets, etc); (iv) strong grievance redress system is in place to capture

problems and mitigate the risk of corruption; (v) focus on opportunities to bring conflicting communities

together around neutral activities like identifying development needs and joint project execution (if

appropriate); and (vi) strengthened local dispute resolution mechanisms.

The enhanced conflict sensitivity will be achieved through three primary means: firstly, significant AAA

work to generate systematic analysis on conflict typology, incidence and patterns; public expenditure to track

development resources; impact evaluation to measure the effectiveness of development operations; and finally,

detailed analyses of local conflict dynamics, including communal land and natural resource disputes; secondly,

working closely with major development partners, harmonizing community driven development approaches to

strengthen communities, enhancing local governance, and creating economic opportunities; and thirdly,

adapting operations to conflict conditions, including through activities to encourage inter-communal

cooperation and strengthen local dispute resolution mechanisms.

83. Outcome 2: Scaled-up provision of basic services and livelihood support through

community-driven development (CDD) in communities affected by armed or violent conflict.

The goal will be to scale up provision of basic services, livelihood and peace programs through

community driven development including capacity building for LGUs, People’s Organizations and

other local groups. This can be accomplished through additional financing (loan) for ARMM Social

Fund and/or an expanded MTF-RDP (grant). The CDD approach will assist in mainstreaming good

governance at the local level through improved transparency in budgeting, allocation, and

management of public resources and accountability in the effective use of these resources to improve

services at the community level. For non-conflict-affected areas, there is a need to work with

Regional NEDA and LGUs to identify areas for development and investment. A detailed evaluation

of community development approaches utilized by the Bank and key partners in conflict-affected areas

will also be undertaken to assess what has and has not been working. Results from this evaluation will

be used to harmonize development approaches, based on a strong understanding of effectiveness.


27

Cross-Cutting Theme: Good Governance

MTPDP Goals: Strengthen partnerships and accountability among government, civil society, and the private

sector; fully operationalize the Government Electronic Procurement System; conduct integrity development

reviews in government agencies, and expand and institutionalize lifestyle-checks.


5.1 Governance and anticorruption in selected national government agencies

Outcome 1: Core business systems, processes and capacities in selected agencies improved

5.2 Procurement and public financial management reforms at national and local levels

Outcome 1: The Procurement Law more strictly enforced

Outcome 2: Improved management and greater transparency of public finances

5.3 Better local governance through effective decentralization

Outcome 1: Deepened and refined decentralization through broad-based reforms

Outcome 2: Strengthened LGU performance for more effective service delivery

84. Faced with the considerable governance challenges in the Philippines, the Bank has

pursued strengthening public institutions as a key objective in the current CAS13

. While

continuing to pursue this objective, the Bank’s new governance strategy for the Philippines

emphasizes systematic efforts to increase transparency, accountability and participation at both

national and local levels as a cross-cutting approach in pursuit of each of the results areas described

below. This is in line with the Bank’s country governance and anticorruption framework (CGAC),

which emphasizes both government capacity and demand for good governance. The new strategic

emphasis takes advantage of the well-known strengths of the Philippine civil society as both advocates

of governance reforms and partners in the Government’s own good governance initiatives.

85. Strong political commitment backed by a broad consensus is essential for successful

governance reforms. The first two years of the CAS period offer an opportunity for building

consensus and setting a clear agenda for governance reforms to be pursued by the next administration.

During this period, the Bank will engage a broad spectrum of Filipino stakeholders and external

development partners to help galvanize drivers of change for governance reform, so that efforts aimed

at building a capable and accountable state are more consistent and sustained. The Bank will pilot

non-traditional and innovative approaches to promoting and supporting governance reforms, including

working with actors outside the Executive branch of the national government. There will be particular

emphasis on strengthening the analytical bases for governance reform advocacy by a broad coalition

of CSOs. In partnership with other interested partners, the Bank will pursue the establishment of a

consortium of CSOs and local academic institutions to carry out rigorous analysis and systematic

documentation of political economy and governance-related topics.

Results Area 5.1: Governance and anticorruption in selected national government agencies

86. Outcome 1: Core business systems, processes and capacities in selected agencies

improved. In the new CAS, specific criteria will be utilized to determine agencies where Bank-

supported TA for agency-level governance improvements is likely to have greatest impact, including

the intrinsic importance of the agencies for the CAS’s renewed emphasis on direct poverty reduction

and governance improvements, as well as reform commitment and fiduciary benchmarking. The Bank

will explore ways to use the Government’s own mechanisms, such as annual agency audit reports, as a

basis for assessing the quality of agencies’ governance. The Bank will work with a small number of

relatively well-performing agencies to ensure governance gains are sustained and their capacities are

enhanced further. In addition, a few agencies which occupy important roles in the public sector and yet

are known for their governance challenges would also be included as long as there is commitment to a

governance reform agenda. Agencies initially prioritized include: (i) the Departments of Education

(DepEd), Health (DOH), Social Welfare and Development (DSWD), which are considered to be well-

managed agencies and each having a relatively coherent sectoral reform framework critical for poverty

reduction; the Bank is already providing support to the internal audit units at those departments; (ii)

13

See further analysis of governance challenges, opportunities and risks in Annex 2.


28

Department of Public Works and Highways (DPWH) and the Bureau of Internal Revenue (BIR),

which are often cited as among the most corruption-prone agencies but have taken steps to put in place

governance reforms; and, (iii) the Judiciary, which is responsible for fundamental functions of good

governance.

Results Area 5.2: Procurement and public financial management reforms at national and local

levels

87. Outcome 1: The Procurement Law more strictly enforced. A well-functioning public

procurement system is critical to overall government effectiveness. The reform agenda for

procurement has been clearly articulated as the complete implementation of the Government

Procurement Reform Act (2003). Much has already been achieved in reforming the legislative and

regulatory framework; however, important challenges remain in strengthening the institutional

framework and management capacity; enhancing the competitiveness of the public procurement

market; and, improving the integrity and transparency of the system. In the recently concluded 2008

Country Procurement Assessment Review (CPAR), actions by government agencies and development

partners have been well-organized and coordinated resulting in agreed actions to further improve the

public procurement system, including the issuance of improved Implementing Rules and Regulations.

The Bank will continue its support to the Government’s effort at harmonizing the implementing rules

and regulations for the procurement law. Significant technical assistance and support from

development partners will still be needed to further strengthen implementation and enforcement. The

Bank has played an active role in the procurement reform agenda and will continue to do so under the

new CAS. The Bank will work to improve the overall quality of procurement through its national and

local development projects, by providing support to further strengthen civil society oversight and

improve public access to procurement information; expand the e-Government Procurement; roll out a

professionalization program for practitioners; improve procurement audit; and, bring down

implementation of the procurement law to the sub-national level.

88. Outcome 2: Improved management and greater transparency of public finances.

Effective public financial management (PFM) systems form the core of a country’s national public

management framework. While a major component of the reform agendas discussed in Results Area

5.1 aims to improve agency-level PFM performance, these reforms are not likely to have a significant

impact unless accompanied by broader, government-wide efforts at both the national and local levels

to strengthen the overall PFM framework. Government efforts in the area of PFM reform have so far

been fragmented and progressed more slowly in some important dimensions, such as improved

accountability and transparency in budget execution and financial management. The Philippines

would benefit from having a modernized public financial management law that more clearly regulates

and disciplines the management of public money. Once a new law is in place, it is expected that

subsequent efforts to support full implementation of the new law would be more coherently organized

to avoid unnecessary fragmentation of efforts. Another critical ingredient for good PFM is a

comprehensive government financial management information system which would allow the

Government to track, manage and report on financial transactions in a timely and transparent manner.

The absence of such a system is currently a major impediment to budget transparency as well as

operational efficiency. The Bank is positioned to support PFM reform depending on demand from

relevant government agencies in charge of PFM and work with civil society groups to promote

increased budget transparency, such as through formation of a consortium of CSOs to monitor and

analyze government expenditures. A major challenge will be to improve inter-agency coordination

among key oversight agencies to expand support for the cross-cutting PFM agendas.

Results Area 5.3: Better local governance through more effective decentralization

89. Given the country’s decentralized democratic system, effective and accountable local

government units (LGUs) provide the foundation for good governance. Despite the emergence of

some LGUs as strong champions of good governance since the introduction of the Local Government

Code (LGC) in 1991, the overall decentralization framework is not conducive to promoting better


29

local governance on a wide scale. Assignments of service delivery responsibilities across different

levels of government remain ambiguous for some services, and the internal revenue allotment (IRA)

formula acts as a disincentive for increased local revenue effort for many LGUs. In addition, the IRA

formula does not take full account of LGUs’ relative fiscal capacities, service delivery needs or

poverty status. The Philippine Development Forum (PDF) Decentralization and Local Government

Working Group, which the Department of Interior and Local Government convenes and the Bank co-

convenes, is the principal venue for engagement on these discussions and for coordinating actions by

both the Government and development partners around a four-point agenda: (i) local government

finance; (ii) capacity building; (iii) performance benchmarking; and (iv) policy reforms on devolution.

The Bank—together with other development partners active in this area—contributes to the

discussions, conducts studies, and aligns its financial and technical assistance to the broad agenda set

by the Working Group.

90. Outcome 1: Deepened and refined decentralization through broad-based reforms. There

is a general awareness among the stakeholders involved in the decentralization debate that the

fundamental policy framework, as embodied in the LGC, needs improvements. Through the PDF

Working Group, the Government, assisted by the Bank and the other development partners, has

initiated several efforts to reform the LGC; however, progress to date has been slow and incremental.

While prospects for a major overhaul of the decentralization framework through revision of the LGC

are currently limited, it is important to work toward a technical level consensus on a medium-term

reform agenda. Under the proposed CAS, the Bank will engage more frontally in debating pros and

cons of the current arrangements and proactively suggest possible options for improving the overall

intergovernmental arrangements. The Bank will undertake a programmatic series of analytical

activities and advocacy work in support of the PDF Working Group agenda.

91. Outcome 2: Strengthened LGU performance for effective service delivery. The capacity

of LGUs to respond effectively to the needs of the poor is often undermined by weak incentives and

poor governance. Although the problems of incentives and governance result largely from the

patronage-driven nature of local politics and partly from the deficiencies in the design and

implementation of the decentralization framework, there is still significant scope for enhancing LGUs’

incentives for service delivery within the existing decentralization framework. The Bank will support

the development of a more explicit strategy for LGU service delivery improvement using a

combination of top-down incentives—through support for a performance-based grants system that

links the availability of additional grants to the attainment of pre-specified performance criteria of

good governance—and bottom-up initiatives—through the scaling up of the KALAHI-CIDSS project

into a nationwide program as the primary vehicle for promoting community empowerment,

strengthening bottom-up planning and budgeting, and enhancing social accountability. Other tools to

be introduced include scorecards and benchmarking systems. In addition, the Bank will seek other

opportunities to enhance citizens’ participation, and involve NGOs in addressing specific governance

objectives.

C. IMPLEMENTING THE FY10-12 COUNTRY ASSISTANCE STRATEGY

Operationalizing Governance

92. A major innovation of the new CAS is to mainstream systematic approaches to

addressing governance challenges and operationalize them across the portfolio and at each step

of the project cycle. In line with the Bank’s CGAC framework, the Bank will apply upstream

governance/political economy diagnostics to all new operations at the pre-concept stage so that the

decision to move forward to the PCN stage would be substantiated. Thus, proper measures to mitigate

governance risks are included in the project design and at the same time the project can maximize its

impact on governance improvements. All Bank projects will abide by an enhanced standard of

information disclosure. All new projects will be designed to contribute to governance improvements


30

in ways that are appropriate to the specific context of the sector and the operation but still following a

systematic strategic framework. During implementation, the activities will be reviewed to ensure that

the governance and anticorruption measures generate the expected results. The review will be

conducted on a sample of projects identified from the risk level at entry or on a case-by-case basis if

issues arise. Finally, at completion, the Bank will make sure that the completion report will assess the

achievements in governance, hence providing basis for the next Bank investments in the sector.

93. The Country Office has strengthened the fiduciary team and created a Philippine

Governance Advisory Team (PGAT) to better operationalize governance considerations in

project design. The fiduciary team has been expanded with additional staff, leading to a strong

international expertise on transactions. PGAT, a multi-disciplinary team led by the Portfolio Manager

and composed of Manila-based governance specialists and senior operations staff, will offer advice to

the task teams to address project governance risks and opportunities appropriately and systematically.

The PGAT, supported by the Bangkok Governance Hub and an additional full-time governance

advisor, will prioritize activities in nationwide and sectoral governance reforms, and will advise task

teams on governance improvements in specific activities, including through the use of ―Governance

Filters‖ (see Box 5).

Box 5: Governance Filters

The Governance Filters will help task teams in charge of developing new activities identify the level of

governance risks they should expect to face. The filters will facilitate the decision process for the lending

program and will provide the information needed to build a mitigation plan when the project concept has been

approved. They will include government data such as the COA audits for the corresponding government

agency, and the Integrity Action Plan of the Presidential Anti-Graft Commission (PAGC). In addition, the

teams will carry out additional risk analysis, varying in substance according to the level of preparation. At the

pre-concept stage, the teams will complement the government criteria with an analysis of the political risk of

the potential activity. While a high risk can lead to a decision not to pursue the idea, management may also

decide to take a calculated risk, and ask for further analysis in the next stage. At the concept stage, risk

assessment can then relate to the project concept. The analysis will assess the capacity versus corruption risk,

and provide a mitigation program aimed at reducing the potential sources of corruption. At this stage,

management can again make the decision not to pursue project preparation, with still a limited impact on Bank

expenses. Finally, the Governance Filters apply at the last stage, the decision review meeting, with the main

objective of strengthening the mitigation action plan. The overall process would then ensure a comprehensive

analysis of governance risk leading to a well documented decision of management to accept or reject it with

limited cost.

94. Recognizing the need to improve performance, the Government has taken steps to

address some of the bottlenecks in project implementation. These focus on: (i) reviewing budget

execution practices of both the Department of Budget and Management (DBM) and implementing

agencies with the view to simplifying the allocation of resources; (ii) ensuring the sustainability of

policies, organizational structures and skills from project design, preparation and implementation; (iii)

strengthening project implementation capacity of government agencies; and (iv) addressing issues in

the financing and implementation of devolved activities by clarifying the roles and implementing

mechanisms for MDFO, LGUs and national agencies in LGU subprojects.

95. Another area of Bank support would be in strengthening the Government’s monitoring

process and systems. The Government recognizes the need to put in place a more systematic

monitoring process and review of projects, particularly those in problem status so that early follow-up

action will be taken. Also of concern are the budget execution practices of the DBM and

implementing agencies. A number of budget-related issues have been raised as one of the main causes

of project implementation delays. The Bank may also need to provide technical assistance to improve

budget execution not only to the DBM but also to the implementing agencies.


31

Managing the Program

96. The World Bank Group will organize its Philippines program and its country team

along the lines of the four strategic objectives, one cross-cutting theme, and eleven core results

areas. For each of these the Bank will organize, budget for, and monitor an integrated program of

lending, AAA, trust funds and partnership activities. Individual products remain the responsibility of

sector units, but management of the key results will be done by multi-sectoral teams, coordinated

through the Country Leadership Team (CLT). The World Bank Group will flexibly adjust resource

allocation among results areas depending on progress and emerging opportunities in those areas.

IFC’s resources will be integrated in the results areas that will be jointly pursued, notably in

infrastructure, agribusiness and financial sector. Consistent with the overall strategy, MIGA will also

continue to offer its guarantee products.

Box 6. CAS Results Monitoring

Monitoring of the CAS will be carried out by the Country Leadership Team (CLT), with a designated

leader responsible for each of the strategic objectives of the CAS. Reporting for the different CAS results

will be consolidated at the level of the four CAS strategic objectives and the cross-cutting theme of

governance, and will form a central part of the mid-year and year-end reviews of the Work Program

Agreements and CAS progress. To support this effort, a quarterly report detailing expenditures and

disbursements under each of the activity codes mapped to each of the specific results areas and strategic

objectives and a semi-annual qualitative review of progress on each of the five strategic objectives will be

prepared. As part of this process, task teams will be asked to provide brief updates on progress achieved on

individual activities.

97. In delivering its program, the World Bank Group will pay special attention to

strengthening the portfolio, improving lending efficiency, furthering the knowledge agenda, and

leveraging its resources through strategic partnerships and trust funds. This will be part of an

implementation approach with clear indicators and commitments for bringing down the cost of doing

business with the Bank as well as the cost of business for the Bank itself in terms of preparation time

and budget. The World Bank Group will actively mobilize other funding sources to support

analytical, advisory and supervision work, and will use resources more efficiently through risk-based

approaches to fiduciary supervision to achieve enhanced implementation efficiencies.

Loan Portfolio and Pipeline Management

98. The IBRD’s ongoing portfolio consists of 18 active loans with total loan commitments of

US$1.2 billion, of which US$871 million undisbursed, and 78 country specific grant projects with

a total value of US$140 million. Nine loans (including one DPL) totaling US$1.05 billion were

approved during the period FY06-08. This was higher than the US$450 million - US$900 million

anticipated in the CAS and the US$852 million approved lending between FY00-05. The increase was

due to Government’s improved fiscal position starting in FY06, which allowed adequate budget space

to accommodate requirements of new projects. Improved fiscal performance also resulted in the

processing of the first Development Policy Loan (DPL1) to the Philippines amounting to US$250

million in FY06. Nine projects exited the portfolio during the same period. The trust fund portfolio

has likewise grown and evolved in recent years, with free-standing recipient-executed trust funds

accounting for 41 percent of total trust fund commitments as of mid-FY09, representing a marked

increase from FY06 when these types of trust funds accounted for only 17 percent of the Philippines

trust fund portfolio.

99. Despite the improved lending commitment for the FY06-08 period, portfolio

performance reflects a slow start for the majority of projects and overall disbursements lower

than expected. Portfolio review findings indicate that similar issues cause delays in both regular and

national program support (NPS) operations, as well as trust funds, and adversely affect portfolio

performance. In FY08, 16.7 percent of projects by number and 7.8 percent by amount were at risk.


32

The Government has been taking steps to address some of these implementation issues through

important policy actions and has intervened in some cases in order to secure renewed ownership and

support from government agency champions. These interventions have started to exhibit positive

results, including the favorable FY08 disbursement ratio (20.1 percent compared to 15.2 percent in

FY07), but the portfolio continues to face challenges. None of the projects evaluated by IEG during

the last five years was rated unsatisfactory. Both the Bank and the Government recognize the

importance of maintaining performance momentum and the need to formulate and institutionalize

sustainable measures so that commitment levels will be matched with disbursements and eventually

achieve desired results.

100. Efforts will also continue to improve and strengthen partnerships with the Government,

the Asian Development Bank (ADB) and the Japan International Cooperation Agency (JICA) aimed at harmonizing and aligning processes between financial institutions and government agencies

to further enhance aid effectiveness and reduce transaction costs. Ongoing harmonization work on

environmental and social safeguards will be a continuing activity and further harmonization work on

government procurement system will be pursued even as the Philippines is being considered as one of

the candidates to be a pilot country for the ―Use of Country Systems‖ in the Bank-Supported

Operations Piloting Program. The Bank will sustain coordination with oversight agencies through

quarterly meetings and the conduct of joint portfolio reviews and will continue to work with the

Government Procurement Policy Board (GPPB) and development partners on procurement reform to

improve the government’s public procurement system in line with the recommendations of the CPAR.

Annex 9 contains further information on the Philippines harmonization agenda.

101. The Bank Group will actively engage with the Government in a dialogue aimed at

addressing weak technical capacity of implementing agencies, including measures to improve

quality at entry and project implementation. The Government recognizes the need to improve

existing monitoring practices, particularly for projects in problem status, so that early follow-up action

can be taken. The Bank has offered to provide technical assistance to strengthen institutional capacity

and monitoring processes and systems to help improve government fiduciary functions. The Bank has

also been providing assistance to improve budget execution practices of both the Department of

Budget and Management (DBM) and selected executing agencies. The Bank will also help the

Government to identify the main constraints to building and retaining capacity in government

agencies, including issues linked to implementation of the government-wide rationalization process.

102. Going forward, the Bank will adopt strong performance criteria for project preparation

and portfolio operations building on keen engagement and a strong interest shared with

government agencies to improve efficiency and responsiveness. This will require making more

strategic choices and agreeing to engage only in areas where the Bank has strong partners and

joint/shared commitment to deliver results. The CMU will take an active hand in shaping the pipeline

by encouraging teams to pursue additional financing for well-functioning operations and engaging

with teams during the pre-identification stage. Opportunities to pursue additional financing for well

functioning projects will be actively evaluated with a view to reducing transactions costs, deepening

and broadening successful reform efforts and building on tested fiduciary and implementation

arrangements.

103. New project ideas will be screened early in the process and preparation resources will be

allocated incrementally based on project complexity and demonstrated progress and traction

with counterparts. Teams will initially be allocated modest budgets to develop the business case for

new and potentially innovative project ideas. These initial assessments will cover the critical issues

and progress of ongoing reforms in the sector and the likelihood of success in proposed new reform

areas. As part of the WPA process, all project ideas will be subject to an initial CMU and Sector

Management Unit (SMU) review before they are cleared and provided with additional resources to

move to the pre-identification stage, leading to the PCN preparation phase. The Governance Filters

and the PGAT’s inputs during the PCN review will also guide further preparation work.


33

104. The Bank has identified a set of early “Readiness Filters”, agreed with the Government,

which will be used to screen projects during the regular programming discussions. This process

will allow both the Government and the Bank to effectively determine ―ready-to-go‖ projects and

decide to postpone or drop those that will not pass the filters. Only project ideas that pass the early

Readiness Filters will be listed in the Bank’s annual program and will receive full preparation budgets.

Project preparation activities will subsequently be monitored closely and expected to be completed

efficiently and within Bank standards.

105. The Bank has also identified a set of country team objectives for project implementation

and supervision. The CMU will continue to monitor progress of ongoing projects and pursue

improvements in portfolio management in order to accelerate disbursements. The Bank may also

decide to refocus engagement in some problematic sectors depending on country portfolio review

results. The Bank will aim to further strengthen implementation and M&E review practices in project

supervision and monitoring. Timely ISR reporting for all projects will be strictly imposed and

increased supervision budgets will be provided, if necessary, for projects that are considered high risk

or in problem status. The practice of integrated fiduciary performance reviews will be continued but

using a more risk-based approach, with increased attention to team composition and thematic reviews

for high risk projects. The Bank will also pursue a broader post review strategy that will include

periodic reviews of country systems and processes, in addition to transactions review processes, in

order to better assess agency performance, including governance practices and challenges of

implementing agencies. The Bank will also proactively work with INT to address specific project

complaints.

Knowledge Agenda

106. The Bank will pursue an expanded and re-focused knowledge agenda through close

coordination with the Government and by establishing partnerships with (consortia) of think-

tanks and universities. This will maximize the developmental impact of its analytical work in the

Philippines, taking into account the context of a new administration and plans for a new MTPDP. The

knowledge agenda will also involve and build on a network of Knowledge for Development Centers in

leading state and private universities. Understanding the underlying causes of poverty and how the

poor can better benefit from growth are critical questions for the Philippines. The World Bank, along

with other partners, has embarked on a study to further analyze the nature and causes of recent poverty

and to assess how growth could result in greater reductions in poverty.

107. The AAA program will be developed around thematic areas that are consistent with the

CAS objectives. The AAA program will focus on deepening the Bank’s knowledge of and

engagement in the key strategic areas identified in the CAS without being restrictive. The AAA

program would therefore focus on aspects of one or more of the following themes: (i) macro/fiscal

stability; (ii) investment climate; (iii) better service delivery for the poor; (iv) reducing vulnerabilities;

and (v) governance.

108. A more consultative process to identify and agree on priority AAA activities will be

established with government and other stakeholders. The Bank will aim at a more demand-driven

AAA program, while acknowledging the difficulty of satisfying multiple sources of demand. A

process would be established to capture demand for AAA and respond in a constructive and strategic

way, combining efforts with other partners whenever possible. This will address concerns identified

in IEG evaluations. Some AAA will also respond to Bank needs to further knowledge in critical areas

where policy and operational response would be needed. AAA work focused on innovative ideas and

business development would be important to guide the Bank program in the Philippines as well as to

ensure the Bank stays relevant and anticipates future demand by government and other stakeholders.

The Bank is planning to establish an "Advisory Council" of eminent Filipino intellectuals to provide

advice on the Bank’s AAA work. Such an Advisory Council will be in addition to the broader

consultations with government and other stakeholders and may eventually broaden its focus to advise

the Bank team on the whole country program.


34

109. Monitoring the AAA at all stages will be improved. The Bank will assign dedicated senior

staff to ensure that AAA monitoring is carried out more effectively in order to improve

implementation and enhance impact. The AAA leader will coordinate the overall AAA portfolio to

ensure that the activities undertaken are in line with priorities agreed between the Government and the

Bank, and will form a cohesive support structure for the achievement of the strategic objectives of the

CAS.

Trust Fund Portfolio Management

110. The Country Management Unit manages the trust fund portfolio jointly with the loan

portfolio. The country trust fund coordinator monitors trust funds in the pipeline and progress on trust

funds under implementation and alerts task teams when action is needed through the monthly

management reporting process. Trust funds are also incorporated in other management reports on the

overall country program, including the CAS, the Memorandum of Understanding on the annual work

program and annual retrospective reports. In addition, the Portfolio and Quality Team conducts

periodic reviews of the country’s combined loans and grants portfolio together with implementing and

oversight agencies and shares its findings with Japan and the Asian Development Bank (ADB) to

identify cross cutting issues and solutions. Annex 8 contains a list of World Bank Group-managed

Trust Funds in the Philippines.

111. The Bank team is working toward integrating trust fund planning and management with

overall business processes. The Bank will use the WPA process to get an indicative list of lending

and non-lending activities planned along with the proposed funding sources for such activities (Bank

budget, trust funds, or other) to allow the CMU to assess their strategic fit with the CAS in advance of

the formal submission of trust fund proposals. The Bank will work closely with program managers of

trust fund programs managed by the networks or at the regional level to ensure that CMU inputs and

sign off are secured prior to the approval of trust fund proposals to be implemented in the Philippines.

112. Trust fund proposals are currently put through a rigorous review process during which

the Country Leadership Team reviews and prioritizes new proposals to ensure alignment with

country priorities and the CAS. In the case of free standing jumbo trust funds involving partners,

such as the Mindanao Trust Fund, the task teams pursue a formal due diligence and review process

similar to the one applied to regular Bank operations, comprising a concept review, decision meeting

and appraisal prior to the execution of legal agreements to formally establish the trust funds.

113. Active involvement of country and regional trust fund coordinators at the conceptual

stage has proved effective in anticipating questions or issues, facilitating the approval process,

and helping ensure smooth implementation. Further, country management, sector specialists and

fiduciary staff conduct training on Bank policies and fiduciary procedures relating to trust funds

shortly before, or immediately after grant signing to facilitate start up of grant implementation. The

training is customized to the specific needs and circumstances of the agency/ies implementing the

grant, making it more effective compared to generic training. Fiduciary and disbursements staff are

also available to provide hands on coaching and trouble shooting to implementing agencies.

Fostering Stronger Partnerships

114. The Bank has established strong partnerships in the country with Government and other

stakeholders, and intends to sustain and further deepen these to help achieve core results under

the new CAS. At the policy level, the Bank will continue to draw on its strong convening power in

the Philippines through support of the PDF, which is chaired by the Government and co-chaired by the

World Bank. The PDF is recognized by the multistakeholder participants as an effective forum for

facilitating dialogue on critical policy reforms as well as for providing an overall framework for

partnerships not just with the Government but among other PDF players. As the co-chair of the PDF,

the Bank will continue to ensure the effectiveness of the PDF process, and will continue to be an


35

active co-convener or participant in all of the eight PDF working groups whose thematic areas cut

across all the new CAS strategic objectives.

115. At the program level, the World Bank Group continues to be a key player in the

Philippines and intends to sustain this position in the next CAS. Official Development Assistance

(ODA) in the Philippines as of end calendar year 2008 was at the level of US$9.7 billion. Together,

Japan, ADB and the World Bank provide approximately 75 percent of total ODA. Japan’s share is 43

percent, while the World Bank and ADB have equal shares of 16 percent each. Within the context of

the ODA composition in the country, partnerships with other players will continue to be an important

element of the strategy. (See Annex 7 on the mapping of development partners’ programs.)

116. At the operational level, scaling up of existing partnerships with various stakeholders

will be a key element of the strategy. The Bank will pursue complementarity of our lending

programs with those of ADB and Japan, the two other large ODA contributors in the country, in areas

of common interest. Cofinancing with multilateral as well as bilateral agencies will be explored

particularly for large program loans. As a specialized member of the United Nations, the Bank will

continue to cooperate with the UN country team on addressing the MDGs and other common

activities. In portfolio monitoring, the Bank will continue to collaborate with ADB and JICA through

the government-led country portfolio review to harmonize and align processes among development

partners and government agencies.

117. The operational collaboration with other international and national development

partners has been strengthened through the establishment and implementation of jumbo trust

funds administered by the Bank in recent years, and will be continued under the new CAS. The

Bank Group’s close partnership with Australia, whose program in the Philippines has increased

significantly in the last two years, is especially significant. A number of externally financed outputs

with AusAID financing were activated in FY09, and a new country level programmatic trust fund is

expected to be activated soon. The European Commission (EC) is another close partner of the Bank in

the Philippines, with two ongoing jumbo trust funds for the health sector, one specifically focused on

Mindanao. Under its governance and anticorruption initiatives, the Bank will seek active partnerships

with JICA and ADB and with the Government on harmonization of procedures on procurement, and a

new set of coordination on financial management activities with the Government. The Bank will also

pursue partnerships with CIDA, Spain, and other interested partners on a proposed multidonor trust

fund on Decentralization and Local Government. The Bank will continue to implement the first phase

of the multidonor trust fund for Mindanao, which includes contributions from Australia, Canada, EC,

Sweden, New Zealand, and the United States and which has focused on capacity building in the local

post-conflict communities of Mindanao. Annex 8 contains the list of the major World Bank-managed

Trust Funds in the Philippines.

118. A network of strong partnerships is critical to delivering not only Bank lending, but the

knowledge agenda as well. In partnership with other development partners, the World Bank Group

will increasingly emphasize knowledge cooperation and formalize a rolling AAA program with the

Government. The country team will also proactively pursue new partnerships and trust funds to

mobilize additional resources and expertise for the Philippines country program.

119. The Philippines is known to have an active and vibrant civil society, and the Bank

recognizes the potential partnerships this offers. Building on the consultations conducted for this

CAS, the Bank will enhance its existing partnerships with CSOs at the project level, as well as on the

knowledge agenda, through more informal but regular dialogues with think-tanks and academe on

current policy issues. The Bank will strategically use the eleven Knowledge for Development Centers

around the country for policy dialogue at the local levels and with the local CSOs. The Bank will

continue to support specific themes under the CAS (e.g., inclusive growth) through the Panibagong

Paraan program (Development Marketplace) on a bi-annual basis by providing small grants to a broad

range of civil society groups, local governments and grassroots organizations. The next Panibagong

Paraan may be held in FY10.


36

120. Looking ahead, there is scope for closer collaboration and synchronized efforts in several

new areas being supported under the CAS, including on global issues such as climate change

adaptation and disaster risk management. The Bank Group will continue to expand ongoing

partnerships and explore new activities with global programs such as the Public-Private Infrastructure

Advisory Facility (PPIAF), Global Environment Facility (GEF), Water and Sanitation Program,

Carbon Finance Funds, Monteral Protocol, Cities Alliance, and others. On the global economic crisis,

closer collaboration with local and global partners will be needed with the expected higher levels of

lending and advisory services, including continued close coordination with the IMF on the assessment

of macroeconomic policies and conditions.

Mainstreaming Gender

121. The Bank Group will continue to ensure that gender considerations are mainstreamed

into operations, consistent with government policy. Development partners are required by the

Government to report annually on how they mainstream gender into their programs, and a government

report is prepared in conjunction with the Philippines Development Forum, the country’s main aid

coordination vehicle. The Bank’s portfolio in the Philippines is being continuously monitored as part

of regular Gender and Development (GAD) assessments by the Government. The Bank Group will

continue to support this process through the Gender Focal Person, designated to champion the focus

on gender issues in the Bank’s program and to participate in the Government-led GAD network, and

other mechanisms already in place. See further details on gender mainstreaming and harmonization in

Annex 9.

122. Going forward, the CAS will support the Philippines in the promotion of gender equality

as part of the Government’s commitment to the Millennium Declaration. The target of

eliminating gender disparity in primary and secondary education, preferably by 2005, and all levels of

education not later than 2015, is projected to be reached or even surpassed by the Philippines. Hence,

the main challenge for the Philippines is to ensure that the development programs already in place, as

well as new ones, will continue to support this positive trend in reaching the specific MDG on gender

equality. The 2008 Joint Country Gender Assessment14

also identified the following major GAD

challenges/agenda: (i) policy support for alternative social protection mechanisms/services; (ii)

increased investment for more inclusive education; (iii) passage of policies and increased services on

reproductive health; (iv) coordinated response to address gender-based violence; and (v) sharpening

gender lens of disaster management. Specific IBRD projects that will be started or continued under

the CAS that respond to the emerging GAD challenges include:

The National Program Support for Basic Education involves alternative delivery

modes to achieve gender-balanced education.

The National Program Support for Health Sector Reform promotes maternal health

care that seeks to reduce maternal mortality rate.

The Mindanao Trust Fund-Reconstruction and Development Project (MTF-RDP)

undertakes various initiatives on gender and peace building work such as implementation

of Female Functional Literacy program; engagement of NGOs on GAD in conflict

communities through a small-grant facility, and the training of trainers on gender and

peace building. These types of activities will continue as the program extends into this

CAS period.

The Second Mindanao Rural Development Program and Second Agrarian Reform

Community Development Project involves economic empowerment of women in

agrarian reform communities.

14

Jointly prepared and published by Asian Development Bank, Canadian International Development Agency,

European Commission, National Commission on the Role of Filipino Women, United Nations Children’s Fund,

United Nations Development Fund for Women, and United Nations Population Fund.


37

The Community-Driven Development or KALAHI-CIDSS Project promotes women’s

empowerment through participation in the planning and decision-making in "barangay"

(local district) governance, and developing their capacity to design, implement, and

manage development activities that reduce poverty.

The Social Welfare and Development Reform Project (Conditional Cash Transfers)

will contribute to economic empowerment of women since the expected recipients of the

actual cash transfers in the targeted households are the mothers, who are assumed to take a

more hands-on approach to the health and education needs of the children.

IV. MANAGING RISKS

123. Political risks. The FY10-12 CAS for the Philippines will be implemented during a period

fraught with considerable risks that may undermine its results, or at the least, affect outcomes in an

adverse way. Among them, political risks feature very prominently as the CAS will be implemented

in a period of elections and government transition that could influence commitment to the ongoing

program and continuity, as well as ownership and buy-in for the proposed future program. However,

the elections will also put pressure for delivering results, especially in areas such as governance,

community development, social protection, infrastructure, and investment climate. Elections could

also open up political space for reforms as new leaders with new mandates form their agendas. The

CAS will position the Bank Group to best support the preparation of the next MTPDP and to suggest

ways for addressing key development challenges that the country faces.

124. Conflict in Mindanao. There is an ongoing risk that development gains made may be eroded

by spikes in violent conflict despite a ceasefire. Government agencies may be constrained in

implementing a common framework for peace and development in Mindanao. Sufficient resources

from the Government may not be forthcoming for scaling up of basic services in Mindanao, especially

in conflict-affected areas, which will threaten the sustainability of assistance. Development partners,

including the Bank Group, will have to commit to work on stability and peace for the long haul and

stay the course as much as possible. While the prevention of spikes in violent conflict and peace

negotiations are beyond the bounds of the Bank's program, a number of steps will be taken to mitigate

direct risks and support an environment conducive to peace. During the CAS period, the Bank will

increase the sophistication of its security and risk analysis, including through the establishment of a

conflict monitoring database that will track conflict incidence and typology. The conflict sensitivity of

Bank-financed projects will be enhanced by increasing attention on strengthening community

cohesion and equity in the distribution of resources in conflict-affected areas.

125. Vulnerability to the external environment, external shocks, and changes in investor

sentiment. The Philippines, as all other open developing countries, is being affected by the ongoing

global recession and continuing deep financial turmoil. Three key sources of uncertainty are the

impact of the global environment on remittances, exports, and the fiscal sector. So far, remittance

flows have held up well, reaching about US$16 billion in 2008 (about 10 percent of GDP). The

geographical distribution of overseas Filipino workers is relatively well diversified; nonetheless, the

US still accounts for 33 percent of total overseas workers and 68 percent of permanent overseas

workers, and the slowdown in the US economy will have a negative impact. Exports, on the other

hand, contracted by 2.9 percent in 2008 as key electronics exports plummeted by a third. The

composition of Philippines’ exports has changed significantly since the early 1990s, and is now

heavily skewed towards machinery and transport equipment, particularly high-tech exports. While the

high-tech industry has its own sector dynamics, demand is relatively income elastic and sensitive to

global growth conditions. Also, while China’s rise has provided opportunities for exports in its own

market, it has also heightened competitive pressures and cut into the Philippines’ exports shares. The

recent increase in private capital inflows has included sizable portfolio flows which are sensitive to

cyclical factors and global downturns. FDI flows, which are less affected by short-term cyclical

factors, are still relatively low. Finally, concerns about falling tax effort, large and rising public sector


38

gross financing needs for 2009 and 2010,15

and the potential for fiscal risks to materialize in a

downturn could trigger a reassessment of the country’s fiscal sustainability and affect overall

confidence in the economy. These vulnerabilities underline the need for prudent macroeconomic

management, including robust fiscal and financial policies which ensure continued growth, reduce

poverty, and protect the vulnerable. In case of a sharper-than-expected deterioration in the economy,

the World Bank Group stands ready to use IFC crisis facilities, and IBRD financing for quick

disbursing budget support within the broad parameters of the CAS lending range. The CAS would

continue to focus on assisting the Government address fiscal and external vulnerabilities through a

continuation of its policy advice to the Government on tax policy and administration and on a more

timely manner, strengthening the design and implementation of the tax reform project, and constant

dialogue with the Government on managing fiscal and financial risks. To improve data collection and

reporting, the Bank would engage the Government in a program to improve its statistical reporting

systems beginning with improvements in the country’s system of national accounts to adequately

measure economic and sectoral performance.

126. Concerns about continued commitment to the reform agenda. There are a number of

areas where the proposed CAS engagements are prone to risks emanating from any possible

discontinuity or weakening of commitments to the reform agendas, particularly given the upcoming

election-related transitions. For example, in the social sectors, it is critical that the reform agendas of

national agencies, such as the Departments of Education, Health, and Social Welfare, continue to be

articulated, and there is ownership and commitment for implementation. Bank support for

implementation will proceed once there is clarity on the agendas and clear signs of commitment, and

when projects meet the Bank’s selection and processing filters. Absence of consensus with the next

administration and inadequate capacity to implement may weaken the desirable pro-poor focus of the

MTPDP under the social protection framework. These concerns will be addressed by early and

constant coordination with the Government through policy dialogue and AAA, as well as through the

development of framework operationalization instruments (e.g., revisions of planning

/programming/budgeting guidelines).

127. Risks posed by weak implementation capacity at the LGUs. A separate set of risks are

associated with the various Bank engagements where most of the implementation activities are at the

LGU level with weak capacities. Risks also arise from the often weak institutional framework

governing national government management of LGU implementation of programs, and the extent of

LGU support and cooperation. The absence of an appropriate incentive and sanction regime raises the

risk whether LGUs will buy into the performance monitoring scheme being proposed for social sector

service delivery, and the monitoring indicators will need to be vetted properly. The management

capacities of CSOs also need addressing. The Bank will mitigate the risks of local-level capture of

public resources (including development assistance) by enhancing emphasis on transparency and

participation in its lending operations, especially by scaling up these measures in some of the CDD

operations, while also investing in development of transparency enhancing measures such as local-

level citizens' scorecards and service delivery impact evaluations. The Bank is providing an IDF for

the reform of the Local Government Academy (LGA) aiming at changing its role from service

provider to broker of capacity building services that LGUs can access.

128. Possible impediments to implementing disaster risk management mechanisms. The

Philippines is particularly vulnerable to frequent and devastating natural disasters, and the proposed ex

ante and ex post mitigation and management mechanisms need to be carefully designed and

implemented. Earlier efforts to support the reform of risk finance tools and instruments were not fully

successful and the Government may still be reluctant to introduce options outlined in the disaster risk

finance strategy. The possible inability to effect legislative changes required to modernize DRM

15

Gross public sector financing needs are projected to increase from 15.7 percent of GDP in 2008 to 18.5

percent of GDP in 2009 and 19.7 in 2010.


39

systems, lack of LGU buy-in to financing DRM activities, and the unwillingness of the national

government to establish financing mechanisms for LGUs, are also to be considered. The Bank will

support the Government’s efforts to reduce disaster risk, by developing and rolling out a program of

capacity development assistance to highly vulnerable LGUs; and developing financing facilities to

enable LGUs prepare for and mitigate disaster risk. In addition, the Bank will support the preparation

of a disaster risk finance strategy to help the Government put in place appropriate insurance and risk

transfer schemes.

129. Risks concerning implementation of governance reforms. The centrality of the CAS

support for the Government’s governance reform agenda raises some risks. A major source of risk is

the concern that the new administration may choose to emphasize a new set of priorities and under-

invest in the ongoing reforms. In particular, in the run-up to the elections there might be a shift to

lower priority, politically-driven projects within the context of more relaxed fiscal discipline. Public-

private partnerships have their own governance problems arising from the opportunities for special

deals awarded to politically favored clients, and the impact of such negotiations on the preparation of

bankable projects. Another high risk area is tax administration reform, where there are signs of

capture by various vested interests, and it is uncertain that the new administration will be able to push

it much more aggressively. In other governance reform areas, it is possible that key stakeholders will

not be able to form a shared view on reform priorities or, worse yet, fragmentation and factionalism

may stymie joint actions. Efforts to promote better local governance could be frustrated by clientelist

politics at the local level. Demanding good governance in some areas, especially those in conflict

areas and areas where powerful clans dominate politics, may be seen by communities as a low-reward

high-risk activity. Targeting poverty programs in conflict-affected areas also has its own risks. The

proposed engagements under the cross-cutting theme of good governance in the strategy, together with

the implementation measures to operationalize governance (e.g., ―Governance Filters‖) and the

systematic efforts to increase transparency, accountability and participation at both national and local

levels, including through fostering partnerships with CSOs, form the core of the mitigation approach

to risks concerning implementation of governance reforms.


40

ANNEXES

CAS ANNEXES

Annex 1: Poverty, Inequality and Progress toward the MDGs

Annex 2: Governance Challenges, Opportunities and Risks

Annex 3: FY06-08 Country Assistance Strategy Completion Report

Annex 4: World Bank FY09 Client Survey and CAS Multistakeholder Consultations

Annex 5: FY10-12 Country Assistance Strategy Results Framework

Annex 6: Indicative World Bank Group (WBG) Program by Results Area

Annex 7: Official Development Assistance (ODA) Programs in the Context of the CAS

Annex 8: World Bank Group-Managed Trust Funds in the Philippines

Annex 9: Philippines Harmonization Agenda

Annex 10: Country Financing Parameters for the Philippines

CAS STANDARD ANNEX TABLES

Annex A2: Country At-A-Glance

Annex B2: Selected Indicators of Bank Portfolio Performance and Management

Annex B3: IFC Investment Operations Program

Annex B3 IBRD Indicative Financing Program, FY10-12

Annex B4 IBRD Indicative Program of Analytical and Advisory Activities, FY10-12

Annex B5: Philippines – Social Indicators

Annex B6: Philippines – Key Economic Indicators

Annex B7: Philippines – Key Exposure Indicators

Annex B8: Operations Portfolio (IBRD and Grants)

Annex B8: IFC Committed and Disbursed Outstanding Investment Portfolio

MAP OF THE PHILIPPINES (IBRD NO. 33466R3)

Annex 1

Poverty, Inequality and Progress toward the MDGs

Progress and Challenges in Achieving MDGs

1. The Millennium Development Goals (MDGs) provide an important reference point for

achieving the Philippines’ objectives with regards to human development outcomes. Halfway

through the 2015 target of achieving the MDGs, the Philippines has made considerable progress in

some goals, particularly in poverty reduction, nutrition, gender equality, reducing infant and child

mortality, water supply and sanitation, and combating AIDS and other diseases (see Annex A2). 1

However, in addition to slow progress in reducing income poverty, there has been mixed progress in

addressing the non-income dimensions of poverty in the Philippines, particularly as they relate to

human development outcomes. More specifically, the Philippines needs to intensify its efforts to

achieve lagging key social MDG targets, especially universal access to primary education, maternal

mortality, and reproductive health services, and address the uneven progress at the local level.

2. The Philippines remains on-track in halving poverty by 2015, but must step up efforts to

preserve the gains it achieved in the past two decades. The incidence of poverty and the poverty

gap ratio have been reduced significantly over the years. From about half of the population two

decades ago, the proportion of the population living below the national poverty line has now gone

down to a third. At this rate, the Philippines may well be on its way to achieving its target of reducing

national poverty to 22.7 percent of the population by 2015. However, the recent increase in poverty

would require a more progressive approach from the Government to preserve the gains it realized in

the past two decades and to maintain, if not accelerate, the pace of reducing poverty moving forward.

3. Clear gains have been made in reducing infant and child mortality, as well as mortality

from tuberculosis and other diseases. Infant and under-five mortality rates have also declined

considerably. From 80 deaths per thousand live births in 1990, under-five mortality in 2006 fell to 31.

Infant mortality was also reduced from 57 per thousand live births in 1990 to 23 in 2006.

Improvements in the immunization program of the Government, however, are needed to hasten the

pace of progress in increasing the proportion of 1-year old children protected against measles.

Prevalence rates of tuberculosis (TB) and other diseases have also remained within target. While TB

remains a major public health concern, being the sixth leading cause of death in 20032, the prevalence

of TB was nearly halved since 1990. Through the Government’s re-energized National TB Control

Program, case detection and cure rates for TB increased to 63 percent and 82 percent in 2006 from 53

percent and 73 percent in 2001, respectively. Similarly, prevalence of malaria declined to a quarter of

its level in 1990 and deaths controlled to three persons for every million from 15 in 1990. The

prevalence of human immunodeficiency virus and acquired immune deficiency syndrome (HIV and

AIDS) based on recorded cases has been kept below 1 percent of the population3.

4. Access to safe drinking water and sanitation has also improved. Based on the latest

Annual Poverty Indicators Survey (2004), access to safe drinking water increased to 80.2 percent from

73 percent in 1990, while the incidence of using sealed water and closed pit toilet facilities increased

to 86.2 percent from 67.6 percent in 1990. However, at the current pace of development the

Philippines is unlikely to meet the MDG targets for water supply.

1 Data used in the analysis reflect the latest government and Bank staff estimates and may differ from Annex A2

and Annex B5 which present data from the DECDG database and other standard sources. 2 Source: Department of Health (http://www.doh.gov.ph/kp/statistics/leading_mortality)

3 Source: National Economic and Development Authority- United Nations Development Programme, (2007)

“Philippines Midterm Progress Report on the Millennium Development Goals 2007.”

Poverty, Inequality, and Progress toward the MDGs Philippines FY10-12 CAS - Annex 1

Page 2 of 6

5. Meanwhile, efforts to meet the MDGs are challenged by poor performance in key

education and health targets:

In education, net enrolment rate (NER) at the elementary level has been declining since 2002

and moving farther away from meeting the MDG target. At the secondary level, NER barely

improved between 2006 and 2007 and remained low at 58-60 percent in the last five years.

Completion rates in both elementary and secondary levels have also been on the decline since

2002 until a reversal in 2006, but still remains low and far from achieving the target of 81

percent by 2015. The quality of education has also been deteriorating. Overall achievement

rate for the elementary level has remained low at 59.9 percent in 2006 while it remained

stagnant at 45 percent at the secondary level.

In health, maternal health is considered to be the goal least likely to be achieved by the

Philippines by 2015. Despite the decline from 209 per hundred thousand live births in 1990 to

162 per hundred thousand in 2006, maternal mortality remains higher than in neighboring

countries4. Latest health surveys revealed that while 88 percent of mothers received prenatal

check-ups, only 66 percent received postnatal care and only a few obtained complete care.

The low incidence of contraceptive usage and the resulting high population growth also

contribute to the low likelihood of meeting the MDG target on maternal health. As of 2006,

only half of married women of reproductive age use contraceptives and practice family

planning while the unmet need for family planning was at 15.7 percent, reflecting the need to

scale up efforts to provide universal access to reproductive health education and information.

Meanwhile, immunization rates are not close to universal, improving only marginally in the

last two decades. Malnutrition also remains a major issue, especially among school children.

In 2006, malnutrition incidence was at 21 percent of children in public elementary schools.

6. Across the various regions, human development outcomes vary significantly. Most of the

lagging regions are in Mindanao while those which have been progressing are in Luzon. Consistently

on-track in almost all the regions were targets on poverty, infant and child mortality rates, access to

safe drinking water, and sanitation. Meanwhile, consistently off-track were indicators of primary

participation and survival, maternal mortality, and contraceptive prevalence. This is reflected by wide

geographical disparities in the availability of good schools. Latest data on teacher distribution across

schools and regions show the difficulty of attracting good teachers to schools that serve poor,

backward areas and schools that have few resources. Meanwhile, latest surveys on health showed that

while more than 85 percent of births in NCR and Central Luzon were attended by a skilled health

professional, less than 30 percent of births were similarly attended in the ARMM and MIMAROPA

regions. There is a need for investing further in service delivery in lagging or poorer regions.

Reaching the poor requires geographic targeting of supply-side interventions in areas where the poor

live.

7. The key challenge is to improve the efficiency in the use of the increasing budgets for

education and health, and other social sectors. Between 2004 and 2008, the real budget of the

Department of Education increased by 6 percent and that of the Department of Health by 18 percent

(CPBD 2007). Nevertheless, government spending in basic education and health remains way below

that of other developing countries5. In education, interventions addressing declining net enrolment

rates, high dropout and low completion rates, and poor transition rates between the two levels of

education, need to be prioritized. In health, budget allocations need to be prioritized for investing in

4 For instance, Thailand is at 110 per 100,000 live births while Malaysia is at 62, China at 45, and Vietnam at

150 (Source: www.unicef.org). 5 Developing countries spend about 4 to 6 percent of GDP on education and 3 percent on health, while the

Philippines only spends about 2.5 percent of GDP and 0.3 percent on education and health, respectively.


Page 3 of 6

health facilities and professionals who will attend to mothers during delivery. The emphasis on

governance and public expenditure reforms is the right one. An important challenge will be to find

effective ways of devolving further responsibility to local governments who share the responsibility

for health and education outcomes with the national government.

8. To the extent that the poor find it hard to afford schooling and health care, targeted

demand-side interventions to increase the ability of the poor to access health and education will

also be key. On this front, several demand-side transfer programs have already been initiated by the

Government, including the Food-for-School Program and the PhilHealth Indigent Program aimed at

subsidizing health insurance of poor households. The operationalization and effectiveness of these

programs, however, have been compromised by a lack of a good targeting mechanism. Indeed,

improved targeting of the poor is critical to the efficiency of using public funds for poverty reduction

and attainment of key MDGs. The conditional cash transfer (CCT) program (Pantawid Pamilyang

Pilipino Program or 4Ps) that is currently being designed by the Government with several attractive

dimensions, including adopting a targeting system of poor households based on a proxy means test

that can also be used by other programs, shows promise.

9. The attainment of the MDG outcomes depends critically on the ability of the central

government to work in close coordination with local government units and communities.

Ongoing reform agendas in key national agencies need to focus on interventions that also integrate

community-driven development (CDD) tools and involve communities in their design. Indeed,

targeted demand side interventions, including CDD tools and increased access to information, will

increase the ability of poor households to demand and access health care and education services and

will trigger improved delivery of public services to the poor. The availability of a functional

information system that can provide timely and accurate data on the performance of LGUs and of

national agencies is similarly important, as is building up local capacities.

Inequality in Access to Basic Services

10. Large inequalities in access to basic infrastructure services persist. Wide income

disparities at the sub-national level reflect the uneven access to vital infrastructure and human

capabilities. Least prosperous regions, mostly areas in Mindanao, have the least access to

infrastructure and basic services while areas where economic activity is concentrated and poverty rates

are lower have better access to such services (Table 1). As of 2006, 30 percent of those living in the

Mindanao regions remain without access to electricity compared to 11.2 percent among regions in

Luzon. Yet even within Luzon, large variations in access to electricity exist. More recent data also

show that even within areas covered by electrical cooperatives in the country, about one-third of

households remain without access6. Same is true for access to water, communication facilities, and

good roads.

11. Educational gaps between poor and non-poor areas and between poor and non-poor

families likewise persist, in terms of children’s access to schools of good quality and other inputs,

as well as in terms of outcomes7. Visits to schools in poor areas reveal basic supply shortages. In

poor, overcrowded urban areas, pupil-teacher ratios are as high as 1:80 in many NCR schools8, and

school shifts are too short (three to four class shifts in highly urbanized areas such as in NCR, Cebu

and CALABARZON). In poor rural areas, many students sit in classrooms without the rudiments of

instruction, including a teacher who has mastered the curriculum. In health, the latest National

Demographic and Health Survey showed that while more than 85 percent of births in National Capital

6 National Electrification Administration.

7 World Bank Philippines Education Policy Notes 2004.

8 DepEd, BEIS 2006.


Page 4 of 6

Region (NCR) and Central Luzon were attended by a skilled health professional, less than 30 percent

of births were similarly attended in the ARMM and MIMAROPA regions.

Table 1. Access to Basic Services, 2006

Region /

Island Group

Proportion (%) of the

Population

without Access to

Proportion of

Concrete &

Asphalted

Telephone

Density*

Electricity Water Source Roads (%)

Region XIII – NCR 2.3 10.9 100.0 31.1

Region XIV – CAR 21.2 23.3 35.7 5.5

Region I - Ilocos Region 9.7 6.8 90.0 3.8

Region II - Cagayan Valley 19.1 16.4 69.5 1.4

Region III – Central Luzon 5.5 4.2 87.2 4.5

Region IVA – CALABARZON 7.7 14.5 85.8 10.2

Region IVB – MIMAROPA 38.0 19.9 46.1 10.2

Region V- Bicol 27.9 26.9 72.2 2.3

Region VI - Western Visayas 23.1 33.6 75.6 6.3

Region VII – Central Visayas 21.5 27.3 85.7 7.4

Region VIII – Eastern Visayas 26.2 19.3 81.3 3.7

Region IX – Zamboanga Peninsula 34.1 34.5 68.6 1.1

Region X - Northern Mindanao 23.8 18.1 69.5 3.8

Region XI – Davao 24.2 19.9 62.9 7.9

Region XII - SOCCSKSARGEN 30.8 19.5 62.4 2.1

Region XV – ARMM 50.1 64.9 46.3 5.4

Region XVI – Caraga 20.3 16.9 - 1.0

Luzon 11.2 13.0 71.5 11.7

Luzon (excluding NCR) 13.9 13.6 69.4 5.6

NCR 2.3 10.9 100.0 31.1

Visayas 23.2 27.8 80.3 6.1

Mindanao 30.3 28.0 62.2 3.6

Total 18.0 19.4 71.5 8.3 * Number of telephone lines installed per 100 persons.

Sources: 2006 FIES; NTC; DPWH

Weak Response of Poverty Reduction to Growth and Increased Vulnerabilities

12. The weak response of poverty reduction to growth and increased vulnerabilities are key

challenges that the Philippines faces. Government estimates reveal that 45 percent of all Filipinos

are vulnerable to falling into poverty due to shocks, particularly those related to financial crises,

health, unemployment, natural disasters, civil unrest, and prices that are likely to throw vulnerable

households into poverty, and increase the severity of poverty among those already in poverty. For

example, it is estimated that the 18 percent increase in prices of all food items by July 2007 may have

increased poverty by 3.6 percentage points, equivalent to about 3 million people.

13. Understanding the underlying causes of poverty and how the poor can better benefit

from growth are critical questions for the Philippines. The World Bank, along with other partners,

has embarked on a study to further analyze the nature and causes of recent poverty and to assess how

growth could result in greater reductions in poverty. While more careful analysis is required, there are

several apparent factors that drove the increase in poverty in recent years.


Page 5 of 6

First, the increase in the poverty headcount in 2006 has been partly caused by a fall in real

income of households. While nominal income rose by 17.5 percent between 2003 and 2006,

cumulative inflation in the period was higher at 21.1 percent. In particular, cumulative food

inflation of 19.3 percent was more than double the cumulative food inflation of 9.5 percent in

2000-2003. These translated into falling average real income for all deciles. Average real

family income declined by 3.7 percent between 2003 and 2006, while average family

expenditures declined by 2.4 percent. Efforts aimed at increasing incomes and opportunities

for the poor, while maintaining a stable macroeconomic environment, will be key to poverty

reduction.

Second, the fiscal crisis would also have contributed to higher poverty between 2003 and

2006. The Government had an unsustainable budget deficit by 2002 and consolidated public

sector debt exceeded 100 percent of GDP the following year9. As revenues had been falling in

real terms since 1997, the Government had no recourse but to compress spending. At the

same time, the share of interest payment increased from 4.2 percent of GDP in 2000 to 5

percent between 2003 and 2006. Consequently, both capital and social spending fell

significantly. The enhanced delivery of social services to the poor, both through increased

spending in sectors that are important to the poor as well as improved accountability and

service delivery by the public sector, will also be critical to reducing poverty in the context of

the current fiscal situation.

Third, there are also indications that the quality of growth has not favored poverty

reduction. While growth averaged 5.4 percent between the conduct of the FIES in 2003 and

2006, GDP by factor shares of institutions shows that growth accrued largely to the corporate

sector which grew by 27.7 percent on average over the three years (in nominal terms). In

contrast, the household sector grew by only 3.6 percent on average over these years.

Consequently, the share of the corporate sector to GDP increased from 43 percent to 55

percent, while households’ share to total GDP fell from 47 percent to 37 percent.

Fourth, the pattern of growth creates insufficient jobs for the low-skilled labor the poor are

relying on. Sector GDP growth, and consequently employment growth, was largest in

services, especially in financial services and business processing services, for which the poor’s

education levels often fall short. Agriculture has been growing at 4 percent in recent years,

but without creating many additional jobs, as labor is not the constraining factor in that sector.

Growth in manufacturing industry and employment, often a pathway out of poverty for low-

skilled labor in other countries, remained modest in the Philippines because of constraints in

the investment climate.

14. Most poor households in the Philippines are also susceptible to shocks driven by climate

change and natural disasters. Many of the poor live in naturally hazard-prone areas and are largely

dependent on natural resources for their livelihoods. Being an archipelagic country with a tropical

climate, the Philippines is highly vulnerable to the adverse impacts of climate change, including

increases in the frequency and intensity of floods, droughts, typhoons; alteration of agricultural and

coastal marine ecosystem output and productivity; reduction of water availability and quality; and

increases in the incidence of climate-sensitive infectious diseases. The progression of climate change

has accelerated the susceptibility of the country to natural disasters and underscores the need to start

adapting to this phenomenon.

15. The effectiveness of social protection and poverty reduction efforts is severely

compromised by the lack of an accurate and legitimate system to target poor households. There

is also a lack of policy and institutional coordination and capacity in the broad area of social

9 Source: Department of Finance (http://www.dof.gov.ph/stat/OPSD%202000-2005.pdf)


Page 6 of 6

protection, as well as disaster management. Different targeting schemes are being used for different

programs and have relied on faulty targeting systems which resulted in high leakage rates to the non-

poor and under-coverage of the poor. Conflicting provisions of various laws and their implementing

rules and regulations and the overlapping mandates of agencies have hampered the effectiveness of

government action in these areas. This has been compounded by the lack of clarity in the mandates

and responsibilities, or actual functions, of national versus local government in the provision of

services related to reducing risks, including those of social protection and disaster risk management, as

well as poverty reduction in general.

Challenges in Conflict-Affected Areas in Mindanao

16. In Mindanao, the intermittent conflict between government forces and separatist groups

has been ongoing for more than three decades. It has resulted in the destruction of infrastructure,

population displacements, deferred development, and lack of trust among people at the local level and

between these and government authorities. There is a consensus among Filipino policymakers and the

public that political instability and/or absence of peace in parts of Mindanao are major impediments

for the island to attain its full development potential.

17. Mindanao has two faces: the growth centers and the lagging areas in conflict-affected

communities. The former exhibit relatively healthy economic performance, and by doing so, have

become the island’s centers of manufacturing, trade and commerce. However, they are far from their

potential of high growth. On the other hand, the latter demonstrate an underdeveloped and stagnating

economy caused largely by the persistent conflict and neglect that have made them lagging areas.

Most of the conflict-affected areas, as listed by the Government of the Philippines and the Moro

Islamic Liberation Front (MILF) Peace Negotiating Panels, are also located in the poorest regions in

Mindanao. These regions are: the Autonomous Region in Muslim Mindanao (ARMM), Western

Mindanao, and Central Mindanao. The ARMM and Western Mindanao have the highest percentage of

poor among their respective population, with about 70 percent and a little under 50 percent

respectively; Central Mindanao has over 40 percent.

18. The Autonomous Region in Muslim Mindanao (ARMM) has the poorest human

development outcomes among the 16 regions in the Philippines. Poverty incidence is twice that of

the nation as a whole. Life expectancies for men and women are more than 10 years below the

national rates. Infant and maternal mortality are 30 percent and 80 percent higher than the national

rates. And net primary and secondary enrolment rates are 14 and 33 percentage points lower than the

national rates.10

19. Many development partners are operating in Mindanao such as USAID, AusAID, CIDA,

JICA, ADB, EU, and the World Bank Group. Most of them are engaged in implementing small

and community-based infrastructure, social development and livelihood projects. Although such

projects are valuable in rebuilding trust and confidence among community members, and within and

among communities, the positive gains of such engagement need to be translated into sustainable

livelihood activities that will provide employment and decent incomes to residents of conflict-affected

and poor communities. The short-term initiatives need to be linked to medium and long-term plans in

order to achieve sustained growth and development of Mindanao in general and of the conflict-

affected areas in particular.

10

Human Development for Peace and Prosperity in the Autonomous Region in Muslim Mindanao, World Bank,

November 2003.

Annex 2

Governance Challenges, Opportunities and Risks

The Governance Challenge

1. The Government has recognized the governance challenges as obstacles to development and in its MTPDP (2004-2010) diagnosed various dimensions of poor governance. The Plan candidly assessed the governance situations at the beginning of the current presidential term, covering a range of topics from corruption as a threat to development, the government institutions’ lack of capacities and integrity as well as their capture by vested interests, and even certain aspects of the constitutional structure which were seen to hamper efficient and coherent decision-making and coordinated policy implementation (Box 1).

Box 1: Governance Assessments in the MTPDP 2004-2010

On corruption (Chapter 21): Graft and corruption are increasingly viewed as threats to the sustained growth and development of the country. Corruption distorts access to services for the poor, results in government’s poor performance and, consequently, low public confidence in government. The culture of corruption in the country breeds the vicious cycles of poverty and underdevelopment.

On the need for bureaucratic reform (Chapter 22):

• The independence, capacities and integrity of government institutions are not enough to provide quality and efficient public services. Regulatory capture works as powerful brakes on various government initiatives, eroding their effectiveness and sustainability. The bureaucracy is largely perceived to be beholden to vested interests which interfere in the bureaucracy’s functioning, rendering it unable to perform its functions and undertake its programs unhampered. The entrenched system of patronage and payback in the political landscape is the source of such particularistic interests.

• The institutional design, systems and processes of government pose a challenge on the quality of public goods and services. A number of factors impinge on this quality; these are: (a) redundant, duplicating and overlapping programs/activities, (b) diffused resources to nonessential undertakings, (c) uncoordinated policy and program implementation, (d) poor sector management, (e) proliferation of special task bodies or interagency committees, (f) ineffective performance management system, and (g) highly politicized bureaucracy.

• Despite previous efforts to trim the bureaucracy, the Government is still weighed down by unclear delineation and overlapping of functions. This results in high transaction costs internalized by government, business, nongovernment organizations and the general public as a result of poor coordination in policy and program implementation, weak sector management and wastage of resources.

• The perception of a “bloated” bureaucracy lies not only in the distribution of government employees in terms of national vis-à-vis the local government units (LGUs), but also its maintenance cost. Neighboring Asian countries have higher government personnel ratios, but they deploy greater number of civil servants to local areas and frontline services. The other issue is more of efficiency and cost.

On the country’s constitutional structure and its effects on governance (Chapter 25):

• The country’s political institutions have become less effective to address problems under the present presidential setup. The separation of powers and checks and balances between the Executive and Legislative branches often result in delays in legislation and policymaking. The Executive has to resort to compromise and concession to pass the annual appropriations bill and the other major initiatives. But even when good legislation is passed, it may suffer from execution problems because of the lack of legislative support to impose or raise taxes that are needed for its implementation. National policymaking has come to depend on the lowest-common-denominator of agreement among Executive and Legislative branches of the

Philippines Governance Challenges and Risks Philippines FY10-12 CAS - Annex 2 Page 2 of 7

Government.

• The national government remains highly centralized, slow and unresponsive to the needs of the people in the rural areas and cultural communities. Although local governments are supposed to enjoy local autonomy under the 1987 Constitution and the Local Government Code, they are in fact controlled in many ways by the national government on which many of them have become habitually dependent for guidance and resources. This inhibits local initiative and resourcefulness to effect progress and development within their territories and communities.

Source: Medium-Term Philippine Development Plan 2004-2010 (2004)

2. The importance of addressing the governance challenges as noted in the MTPDP was echoed in the CAS consultations and in the Bank’s 2008 Global Poll1. In the Global Poll, the Philippines is the only country in East Asia where “improving governance” was identified as the most important means to generate faster growth. It is also the only country in the region where “improving governance” was mentioned as one of the top two priorities for poverty reduction. Similar messages were received in the series of consultations on the CAS formulation and the FY09 Client Survey (see Annex 4). Government Responses

3. The MTPDP included corresponding reform goals, strategies and action plans. For anticorruption, the Government’s priorities included turning the BIR and the BOC, two agencies with the highest perceived levels of corruption according to local polls, as “showcases in the fight against graft and corruption”, conducting comprehensive corruption risk assessments (Integrity Development Reviews) in government agencies to devise agency-specific anticorruption action plans, and strengthening the investigative capacity of the Office of the Ombudsman, modeling it after Hong Kong’s Independent Commission Against Corruption (ICAC). To improve the incentives and the capabilities of the government bureaucracy to perform its functions effectively, the Plan aimed to rationalize functions and organizations of government agencies, professionalize the public service through pay reforms and introduction of performance management systems, and institutionalize merit-based promotion as a means to ensure the bureaucracy’s independence from political influence. Finally, the Plan proposed constitutional changes and called for legislating ways to enforce the constitutional prohibition of “dynasties” (i.e., clans and families which dominate local politics in given geographic areas), which are widely seen as a source of corruption and clientelism.

4. Following this ambitious agenda, the Government launched a number of reforms. While some programs are yet to yield notable results, others have achieved partial results to date, such as the government-launched innovative anticorruption program called the Revenue Integrity Protection Service (RIPS) which intends to control corruption in the revenue agencies and the conduct of Integrity Development Reviews in 17 national government agencies. In January 2009, the Government launched Oplan Kandado (Operation Padlock) which aims to strictly enforce administrative sanctions for non-compliance by taxpayers. As reported by Government, this program has started yielding good feedback and promising outcomes in terms of compelling taxpayers to abide by the rules, thereby generating revenue.

5. To enhance performance of the bureaucracy, the Government initiated a government-wide agency rationalization program in 2003. This is a long-term reform program, and to date,

1 The 2008 World Bank Global Poll was carried out in 42 countries, covering 2,611 “opinion leaders” from government, media, academe, private sector and NGO/CSOs. For the Philippines, 60 phone interviews and 16 web interviews formed the basis for the data collected.


relatively few national government agencies have actually completed the exercise. Thus its effects on improving agency performance have yet to be assessed and firmly established. The planned civil service pay reform requires new legislation. Several bills for this purpose have been filed but this has not yet resulted in a new Salary Standardization Law.

6. While not explicitly highlighted in the MTPDP, reform of the public financial management became one of the priorities throughout the Plan period. Efforts have tended to focus on improving the policy base of budgeting and development of organizational performance indicators framework (OPIF), which has now been officially adopted in the national budget process. In terms of the MTEF, the Government envisions this to be fully institutionalized within the CAS period. In contrast, reforms to enhance budget transparency and improve efficiency and accountability in budget execution have lagged behind. The Commission on Audit (COA) developed an electronic accounting system (eNGAS) and had started installing them in government agencies some years ago, but the roll-out had not been completed in all agencies for various reasons before the COA recently announced its suspension due to a policy change. Follow-through on COA audits and the mandated internal audit units in ministries are constrained by limited capacity and personnel.

7. In sum, despite the reforms launched on a variety of fronts, some of which require longer-term implementation, desired improvements in governance and public sector performance have not yet come about. The MTPDP agenda of enhancing government institutions’ independence, integrity and capacity remains as relevant today as in 2004, and so does the need to continue to address systemic causes of corruption as well as appropriate responses to specific cases of graft.

8. Given the obstacles to reforms, a strategy for governance reforms needs to go beyond a simple call for institutional development and capacity building. It is necessary that reform efforts be guided by sober assessments of the obstacles to reforms as well as judicious identification of windows of opportunities.

Opportunities for Governance Reforms

9. Despite the obstacles to reforms as demonstrated in the difficulties a number of the attempted reforms have faced in the recent past, there are positive developments that can provide opportunities for incremental governance reforms in the country. Procurement reform is arguably the most coherent and sustained governance reform in the Philippines in the last decade. The reform agenda is clearly articulated and broadly understood and shared among key government agencies, civil society groups, and external development partners. Because a serious procurement reform addresses one of the most abused sources of rent seeking, the challenge of fully implementing the core elements of the reform cannot be under-estimated. Against the odds, however, much has been accomplished already. The 2003 Procurement Reform Law is widely considered a sound legal framework which unified procurement-related provisions hitherto covered under various uncoordinated legal instruments. The Law includes various provisions intended to increase transparency in government procurement processes, using both civil society oversight and increased disclosure of procurement information through the electronic procurement system. Equally important is the Law’s role in clarifying and organizing pending reform actions to be implemented by various government agencies, with support from CSOs and external development partners. The Bank has played a central role in articulating the reform agenda and tracking its progress through periodic country procurement assessments conducted in a participatory manner. Although the Philippines’ procurement system is not yet perfect and procurement-related corruption continues to be uncovered, these are considerable achievements by any international standard. In the Philippine context, having coherent reform legislation passed can be a challenge on its own. However, the case of the


procurement reform suggests that once such a law is in place it could galvanize reform momentum and channel energy and resources in pursuit of clear objectives commonly shared among key stakeholders. In this CAS, the Bank’s governance strategy partly relies on this insight and pursues broad-based policy dialogue to promote major legislative reforms in a few key areas: public financial management and decentralization, as detailed below.

10. Decentralization creates challenges, but also provides additional opportunities for improving governance. Some of the most promising governance innovations have emerged in local government units (LGUs) at the provincial, city, and municipal levels. Despite having to deal with often entrenched patronage politics, endemic corruption and poor public service delivery, there are a growing number of Governors and Mayors who, as local reform champions, have demonstrated leadership and commitment to governance reform and have been successful in improving development outcomes. Success stories come from a wide variety of LGUs and include provinces such as Bohol, which has implemented a comprehensive development planning system; cities such as Naga City, which has supported transparent and participatory governance, and Marikina City, which has promoted managerial innovations (see Box 2); and poverty-stricken municipalities such as Talaignod near Davao, Mulanay in southern Quezon, Asipulo in the Cordillera region, Mondragon in Northern Samar, Balangiga in Eastern Samar, Pinabacdao in Samar, Juban in Sorsogon and many others that have promoted greater citizen’s participation in governance. Key instruments of Bank support have included the City Development Strategy process, LGU support projects, and community-driven development programs.

Box 2: Managerial Innovation in Marikina City

Marikina City has been a leader in governance reforms and a role model for LGUs. Its latest innovation was the creation of a central warehouse with bar coding system and wide area network (WAN) designed with the experience of the best private warehouses as well as leading hardware enterprises in the country. The objective was to enable quick inventory as well as proper and quick release of supplies and materials online to all its 45 departments – each of which had originally been conducting procurement separately. The computerized system has enabled strategic positioning and priority purchase of fast moving items and allows management to inspect the inventory of supplies, while also complying with the procurement law. It has reduced the number of staff involved in supplies management from 135 to 34 and provides a better safeguard against pilferage through closer monitoring of materials and even the retrieval of excess materials from completed projects. Hence, wastage has been reduced or even eliminated and significant savings realized.

11. Civil society continues to play a critical role in promoting good governance. The Philippines’ most well-known governance “endowment” is its vibrant civil society organizations. CSO activism has not only kept problems of governance and corruption high in public awareness but has also contributed constructively to strengthening some of the Government’s own reform initiatives. This has resulted in some of the best-publicized successes in curbing corruption and increasing government accountability such as the mobilization of the Boy Scouts in monitoring delivery of textbooks. CSOs are also active in partnering with reform-minded LGUs, providing training to LGU officials and serving as a zealous watchdog of public affairs in specific regions or localities. The freedom of the press and a free media in the Philippines also have a positive impact on accountability.

12. Replication of promising governance initiatives needs to step up. A challenge facing both CSO activism and local governance innovations is to find a way to replicate and scale up proven or promising individual initiatives so that their positive effects can transcend sectoral and geographic boundaries. While local governments such as Marikina and Naga have been sought after as beacons of good governance and developed programs for training and transferring knowledge and experience to other LGUs, the high degree of geographic and social fragmentation limits the effective reach of replication of good practice to a handful of LGUs. The various leagues of LGUs are playing an


important role in sharing successful experiences but more needs to be done to spread good practice to a greater number of LGUs.

Relevance of the Proposed Bank Governance Strategy

13. While continuing to pursue the objective of strengthening government institutions, the Bank’s new governance strategy for the Philippines emphasizes systematic efforts to increase transparency, accountability and participation at both national and local levels as a cross-cutting approach. Taking account of the obstacles and opportunities discussed above, the new strategic emphasis takes advantage of the well-known strengths of the Philippine civil society as both advocates of governance reforms and partners in the Government’s own good governance initiatives. The challenge is considerable, but the perceived relevance of Bank assistance in improving governance is high. Both local stakeholders and the Global Poll respondents expect the Bank to address governance issues as a key constraint to development in the Philippines (Table 1).

Table 1: Relevance through WBG work

What do you think the two main objectives of the WBG should be in your country? TOP 12 LISTED

East Asia/

PacificChina Indonesia Lao Philippines Vietnam

Poverty Reduction 52 63 42 29 68 37 Growth/Strengthening Economy 25 18 39 36 27 12

Environmental 23 43 9 9 5 15 Infrastructure Development 20 13 14 10 15 58 Improving Education 12 6 14 35 7 12 Agriculture and Rural Development 11 11 12 14 8 10

Improving Governance and Government 10 3 7 - 37 10

Private Sector Development 8 8 9 12 2 12

Reducing corruption 6 6 2 5 13 10

Strengthening Civil Society 5 13 9 - - -

Job/Employment/Labor 4 2 4 3 - 6

Health 3 3 - 3 5 2

Source: World Bank Global Poll (see footnote 1)

14. Although these perceptions are encouraging, these are obviously not sufficient for successful governance reforms. What is essential is strong political commitment backed by a broad consensus on reforms without which reforms will likely remain incremental. The first two years of the CAS period offer an opportunity for building consensus and proposing a clear agenda for governance reforms to be pursued by the next administration. During this period, the Bank will engage a broad spectrum of Filipino stakeholders and external development partners to help galvanize drivers of change for governance reform so that efforts aimed at building a capable and accountable state are more consistent and sustained. The Bank will pilot nontraditional and innovative approaches to promoting and supporting governance reforms, including working with actors outside the Executive branch of the national government.


Political Context and Risks Concerning Implementation of Governance Reforms

15. The new CAS will be implemented through a critical period of political transition, as the next Philippine general elections are scheduled to be held on May 10, 2010. All of the elected offices at both the national and the local levels, except half of the Senate, are up for elections.2

Box 3: The Constitutional Design of the Philippine Political System

The 1987 Constitution, approved after the removal of President Ferdinand Marcos in 1986, restored the Presidential system with separation of powers among the Executive, the Legislature and the Judiciary. The directly elected President is the chief executive with extensive regulatory, administrative and budgetary powers. The country's inter-governmental arrangement was defined subsequently in the 1991 Local Government Code (LGC) which decentralized considerable powers and administrative responsibilities to the Local Government Units (LGUs), which consist of 81 provinces, some 1500 municipalities, 118 cities, and almost 42,000 Barangays or villages,, the lowest political unit of the country.

To be elected President requires a plurality among the candidates in a one-round nationwide election. Presidents are elected for one six-year term only; the vice president is elected separately from the president, not as part of an election ticket. Legislation requires the approval of Congress, which consists of a 24-member Senate whose members are elected at large for a six-year term, and a 238-member House whose members are elected for a three-year term, the vast majority in US-style single-member district voting system and a small minority on the basis of a party-list voting system. At the local level, provincial, city or municipal chief executives, as well as provincial, city and town councils are also up for elections. Political parties play a minor role in developing political platforms and hardly impose party discipline, while “list hopping” from one party to the next is common among members of Congress and legislative initiatives often rely on ad-hoc coalitions of individual members of congress rather than on party alliances. The President’s considerable powers in implementing the budget are often instrumental in forging such coalitions.

Provincial governors, city/municipal mayors and barangay captains are directly elected and are overseen by elected local councils. Many LGUs belong to provincial, municipal, and city leagues, which are member organizations recognized and institutionalized under the local government code. Central government has deconcentrated limited executive powers to the Regions, which consist of a number of provinces, and to the Super Regions, consisting of a collection of Regions. In many local jurisdictions, politics has for decades been dominated by a few families, thus increasing the risk of elite capture.

16. The inherent uncertainty in the electoral process and the tendency for national debates to be politicized and the Government to slow down are some of the risks inherent in an electoral period. In addition, an important source of risk is the concern that the new administration may choose to emphasize a new set of priorities and under-invest in the ongoing reforms, such as in tax administration reform and in other sectors such as transport and agriculture, where there have been recent incidences of corruption scandals.

17. The Bank as well as other international development partners can best promote governance reforms in an environment with strong political support and consensus on reforms. Although the Bank’s strategy is not to shy away from difficult sectors if these are of strategic importance to the CAS objectives, the application of the Governance Filters will reduce the Bank’s exposure to high-risk sectors where development outcomes are unlikely to be achieved because of the prevailing governance environment. In such sectors, the Bank will continue to engage in dialogue through analytical work (e.g., sector political economy analysis) and support for reform advocacy by

2 Specifically, these elected offices are the presidency, vice-presidency, half the Senate seats, and all House seats at the national level and all the provincial governors’, city/municipal mayors’ and barangay (village) captains’ offices as well as provincial, city, municipal and barangay legislatures.


civil society and private sector actors in the country. In other sectors (e.g., social sectors) where there is strong support for reforms, the Bank’s approach is to pursue governance improvements within a framework of sector-wide reform agendas with multidonor involvement, as already practiced in health (with EU), education (with AusAID), and social safety net (with AusAID).

18. In other governance reform areas, it is possible that key stakeholders will not be able to form a shared view on reform priorities. To mitigate these risks, the CAS proposes to invest in multistakeholder engagements on priority governance reform issues with the intent of contributing to formation of a solid reform consensus, similar to what the Philippines has been able to establish in the area of procurement reform with the Bank’s continued analytical input. Here, again, selectivity is key and hence Bank efforts at reform consensus-building will focus particularly on public financial management reform and budget transparency as well as local governance and decentralization, given the Bank’s technical expertise and comparative advantage in these areas. The Bank will mitigate the risks of clientelism and local-level capture of public resources (including development assistance) by enhancing emphasis on transparency and participation in its lending operations, especially by scaling up these measures in some of the CDD operations, while also investing in development of transparency enhancing measures such as local-level citizens’ scorecards and service delivery impact evaluations.

Annex 3

PHILIPPINES: Country Assistance Strategy FY2006-2009

Completion Report

Date of CAS: May 17, 2005 (Report No. 32141-PH)

Date of Progress Report: June 21, 2007 (Report No. 40085-PH)

Period Covered by the CAS Completion Report: July 2005 to December 2008

CAS Completion Report prepared by:

Yoshine Uchimura, Consultant, EACPQ

Yolanda Azarcon, Operations Officer, EACPF

Lilanie Magdamo, Operations Officer, EACPF

under the guidance of: Lada Strelkova, Country Program Coordinator, EACPQ

Maryse Gautier, Portfolio and Operations Manager, EACPF

with inputs from members of the Philippines Country Team

A. Introduction

1. This report assesses the effectiveness of the Bank’s assistance program to the

Philippines for FY06-09 and draws lessons learned for incorporation into the new Country

Assistance Strategy (CAS). The report is based on the Bank’s CAS for the Philippines (Report

No. 32141-PH, discussed by the Board on May 17, 2005), and the CAS Progress Report (Report

No. 40085-PH, June 21, 2007) which expanded the Bank program and extended the CAS to end-

FY09.

B. Philippine’s Development Objectives

2. The Bank’s 2006 CAS saw the Philippines as a country not living up to its potential. The country was endowed with mineral, oil, gas and geothermal potential. Government, business

and academe benefited from world class talent. The Philippines had experienced growth in GDP of

over 4 percent per annum in real terms since 2001. But this growth was driven largely by

consumption, supported by overseas remittances, which raised questions over its sustainability.

Investment remained low, reflecting investor concerns over perceived corruption, inadequate

infrastructure, uncertainty and inconsistency in the application of regulations, and the overall cost

of doing business in the Philippines. Total factor productivity and per capita GDP growth lagged

behind other East Asian countries. Over one quarter of the population remained poor and

inequality remained high.

3. The Government’s weak fiscal position was seen as a key constraint. Public debt and

interest payments had been increasing since the mid-1990s. In 2003, non-financial public sector

debt reached 101 percent of GDP and the debt of the national government was nearly five times its

revenue. By 2004, national government interest obligations had reached 37 percent of revenue and

accounted for nearly 30 percent of expenditure. Tax revenue continued to fall from 17 percent of

GDP in 1997 to 12 percent in 2004, contributing to the problem. A continuation of these trends

was expected to squeeze further government expenditures on infrastructure and social services and

adversely impact investor confidence and private investment. Start-up and implementation of Bank

investment projects were also constrained by a lack of budget and counterpart funding.

FY06-09 CAS Completion Report Philippines FY10-12 CAS – Annex 3

Page 2 of 33

4. Poor governance was another constraint. The Philippines compared poorly to other East

Asian countries in corruption, rule of law, government effectiveness and political stability1. There

was a perception that public institutions were captured by special interests and did not necessarily

work effectively for the common good. This created a vicious cycle of weak public services, lack

of trust in the Government, and an unwillingness to provide adequate resources to it. Poor

governance limited the effectiveness of public institutions.

5. The Medium Term Philippines Development Plan (MTPDP) 2004-2010 laid out the

Government’s goals, strategies and action plans for the CAS2. The plan corresponded to

President Gloria Macapagal-Arroyo’s term in office and reflected her priorities - livelihood

(employment generation), education, fiscal strength, decentralized development, and national

harmony3. The plan consisted of five parts: Economic Growth and Job Creation; Energy; Social

Justice and Basic Needs; Education and Youth; and Anticorruption and Good Governance.

Addressing the fiscal problem was seen as essential in sustaining and accelerating economic

growth. Addressing infrastructure deficiencies, power sector reforms, improving knowledge,

tackling corruption and simplifying business procedures were expected to promote investment and

exports which would drive economic growth. This in turn was expected to create around 10

million jobs and reduce poverty to 18 percent by 2010. The plan was comprehensive and did not

reflect clear priorities which were supported by the budget, limiting its effectiveness.

C. The Bank Country Assistance Strategy

6. The FY06-08 CAS aimed to support the MTPDP and focused on four strategic areas:

economic growth, social inclusion, fiscal stability, and improved governance. It had the

following objectives4:

Achieving fiscal stability to generate resources aimed at spurring growth and raising

investments in the social and infrastructure sectors;

Generating economic growth to accelerate job creation and poverty alleviation;

Ensuring social inclusion and the improved delivery of basic services; and

Improving governance.

7. Fiscal stability and improved governance were considered to be two levers which would

promote economic growth and social inclusion. Economic growth would create jobs and income

generation opportunities which would contribute to poverty reduction (although there was a

concern that high income inequality would lessen the effect of growth on the poor). More social

inclusion would empower the poor and enable them to participate in the opportunities afforded by

economic growth, supported by public spending targeted to the poor. Fiscal reforms were essential

1 Based on the WBI Governance Indicators for 2004.

2 The National Economic and Development Authority, Medium Term Philippines Development Plan 2004-

2010, 2004. The plan was quite comprehensive and covered 277 pages. 3 The MTPDP was based on the President’s 10 point agenda which laid out 10 outcomes that she wanted to

achieve during her term. 4 The FY06-08 CAS had two objectives (economic growth and social inclusion) and two levers (fiscal

stability and governance), in that fiscal stability and good governance contribute to economic growth and

social inclusion. The CAS Progress Report restated these as four strategic objective statements. These are

presented in this Completion Report.


Page 3 of 33

for growth and for building-up of effective social spending that reaches the poor. Governance

improvements were needed to deliver core services to all citizens, especially the poor.

8. The CAS adopted a “back to basics” approach, focusing on the ability of agencies to

deliver services on the ground and make real implementation progress, rather than on

sophisticated reform design. The strategy required the Bank to be more selective in its approach,

but opportunistic in specific engagements5. It focused on ―Islands of Good Governance‖ – national

agencies, local governments, or economic sectors for which the basic governance arrangements are

sufficiently sound to provide a reasonable chance of success. Bank engagement would be as

follows:

At the national level, the Bank would focus on working through and improving in-country

systems and processes, with more Bank operations focused on agency core mandates,

functions, and service delivery improvements within the budget. The Bank would also

focus on making decentralization more operational, representing a critical link to the local

government agenda.

At the local level, there would be an integrated cross-sectoral focus on local governments

as the direct client. Developing a performance framework and capacity building program

for local governments that is consistent across local governments would be central to this

effort. Linking financing and capacity building to a clear performance framework in a

practical way would also facilitate good governance at the local level.

At the private sector level, there would be greater coordination between the Bank and IFC

to promote private investments by strengthening regulatory agencies, reducing the cost of

doing business, improving financial intermediation, and financing investments for public-

private partnerships projects as well as investments in sectors with high growth potential.

9. The CAS anticipated a lower level of lending, compared to past CASs, and the

continuation of a robust non-lending program. The base case program for FY06-08 was

expected to range from US$450-900 million, lower than the US$1.1-1.3 billion in previous CASs.

The level of Bank commitments would be determined by the progress on fiscal reforms, especially

a reduction in the consolidated public sector deficit (CPSD) and improved tax effort, going up to

US$1.8 billion under the high case6. The Bank would continue knowledge transfers through its

economic and sector work and non-lending technical assistance program, mobilization of trust

funds, and the network of Knowledge Development Centers. Greater emphasis would be given to

―just-in-time‖ knowledge transfers to respond to immediate client needs.

10. The Government strengthened its fiscal position by 2006 and the Bank scaled up

lending and extended the CAS to end FY09. The Government reduced the CPSD, turning it into

a surplus of 0.1 percent of GDP in 2006. The bulk of the adjustment was due to enhanced tax

revenues, with the tax-to-GDP ratio increasing from 13 percent in 2005 to 14 percent in 2006.

Reflecting the improved situation, the Region issued a CAS Progress Report which confirmed the

continued relevance of the strategy and approaches taken, extended the CAS by one year to end-

FY09, and proposed a new base case of US$1.7 billion for FY08-09. The larger program was

based on increased fiscal space, the need for more public investment, and strong demand for Bank

5 Selectivity under the CAS would be functional and not sectoral.

6 The triggers for the high case were (a) a CPSD reduction of 2 percent of GDP relative to 2004, (b)

compatible with a CPSD reduction of 3 percent during 2005-07, (c) with a significant portion of the

adjustment due to increase in the ratio of tax revenue to GDP.


Page 4 of 33

support. The CAS Progress Report was distributed to the Board on a lapse-of-time basis7 on

August 2, 2007.

11. A results framework was developed, but design weaknesses limited its usefulness. The

CAS identified 12 outcomes: one outcome corresponding to each of the four objectives

(governance, fiscal stability, growth and social inclusion) by one of three platforms (national, local

and private sector development). These country outcomes were presented in a 4x3 matrix (Table

13 in the CAS) which is replicated in Table 1 of this report. The results framework did not,

however, include baselines or targets with which to measure progress against CAS outcomes.

Therefore, it was not possible to determine what changes the Bank expected to achieve during the

CAS period. The results framework did include ―Milestones‖ which reflected the expected

outcomes of the Bank Group assistance. But the milestones were generally framed as outcomes or

objectives without baselines or targets which again made it difficult to assess whether they had

been met. The CAS included a separate annex table (Annex B-10) mapping Bank interventions

(lending and non-lending) by goal and platform.

12. The country team tried to use and refine the results framework by defining baselines

and targets during annual portfolio reviews. The weaknesses in the design of the results

framework made the task of monitoring and evaluating the CAS unwieldy. While the periodic

monitoring of CAS milestones was useful in confirming the overall consistency and direction of

progress and in increasing country team ownership of CAS results, it did not allow calibration of

Bank Group interventions to meet pre-agreed targets. Many of these milestones were subsequently

updated and/or formally revised in the CAS Progress Report to reflect evolution in the Bank

program.

D. Relevance of the Bank Program

13. Aligning the CAS with government priorities and maintaining the relevance of the

Bank program is a dynamic (not static) process. The CAS was aligned with the MTPDP, both

plans acknowledging the importance of addressing the need to tackle the fiscal situation. A

consultative process, the Philippine Development Forum (PDF), proved to be effective in aligning

government and Bank priorities and maintaining (and enhancing) the relevance of the Bank country

program. In 2005, the Government and the Bank started the PDF by widening the Consultative

Group meetings to include civil society, private sector, legislators and other stakeholders. In order

to make the PDF into a continuous dialogue rather than an annual event, working groups (co-

chaired by the Government and a development partner) were set up to follow up on issues and

agreements during the last meeting8. The PDF has proven effective in building consensus and

aligning development partners around key challenges. Interviewing government counterparts, IEG

found that there was almost universally positive appreciation of the PDF9 and the Bank’s convener

role. The IEG report noted that one senior government official considered the forum to maintain ―a

good concentration on strategy and implementation rather than the pledging and positioning of

donors.‖

7 In the absence of a request by Executive Directors to schedule a CAS Progress Report for discussions, the

minutes of a subsequent Board meeting record that Executive Directors noted the report. 8 Working groups are set up in seven thematic areas: MDGs and social progress; growth and investment

climate; economic and fiscal reforms; governance and anti-corruption; decentralization and local

government; Mindanao; and infrastructure. 9 The Independent Evaluation Group, Philippines Client Perspectives on Elements of Bank Support: Working

Paper for Development Results in Middle-Income Countries: An Evaluation of the World Bank’s Support,

2007


Page 5 of 33

E. CAS Outcomes

14. This section assesses the progress made towards the CAS objectives and the results

achieved by the Bank. The Philippines has made significant progress in addressing the fiscal

situation, turning the consolidated public sector deficit into a surplus in 2006 and achieving an

economic growth rate of over 5 percent in 2006 and 2007. On the other hand, poverty increased

between 2003 and 2006 despite the strong economic performance, raising concerns both in the

country and the Bank. Progress is being made on government procurement reform and

strengthening budgeting, but corruption continues to be a major concern and investment has

continued to decline. There are growing concerns that the tax revenue increases will not be

sustained. The Bank not only implemented its program of lending and Analytical and Advisory

Activities (AAA), but also played a key convener role around the PDF and mobilized grants to

supplement its lending and AAA program.

15. Overall, Bank program outcomes are considered to be “moderately satisfactory”.

This is based on the assessment of each of the four CAS objectives. The results for fiscal stability

is rated ―satisfactory‖ (bordering on ―highly satisfactory‖), economic growth ―satisfactory‖ (but

bordering on ―moderately satisfactory‖), and ensuring social inclusion and governance ―moderately

satisfactory‖. The CAS objective assessments were based, in turn, on assessments of the individual

CAS outcomes under each platform (national, local and private). The assessments for each CAS

outcome are discussed below and the summary results are presented in Table 1. A more detailed

results summary by outcome is presented in Appendix 1. Bank performance is assessed in the

following section. The poor design of the results framework (noted above), however, made the

assessment of the CAS outcomes more difficult.

Table 1: Summary of CAS Assessment by Goal

National Platform Local Platform Private Platform

Governance

Improving

governance

Moderately

Satisfactory

Systems and processes for

allocating and executing

budgetary resources are more

transparent and efficient.

Moderately Satisfactory:

Progress is being made in

improving budgeting (MTEF,

etc.) and procurement. Bank

operations supporting

department level efforts to

improve budgeting and

procurement. However, there

are concerns over the pace of

implementation.

Systems and processes of

local governments for

planning, budgeting, and

delivering services and

investments are transparent

and efficient.

Moderately Satisfactory:

Bank projects are providing

training and capacity

development in planning,

budgeting, and service

delivery, through formal

training and technical

assistance provided through

project planning and

implementation. But it is not

clear if this will lead to system

improvements outside of the

projects.

Improve governance of

corporate sector and

infrastructure regulatory

agencies.

Satisfactory: The Bank

continues to support Metro

Manila Water Supply and

Sanitation System Regulatory

Office to oversee water and

sanitation concession in

Metro Manila and the Energy

Regulatory Commission to

oversee the power sector.

Fiscal Stability

Achieving

fiscal stability

to generate

resources

aimed at

Improved public revenue

mobilization, public expenditure

management, and management

of state-owned enterprises.

Satisfactory: The turn-around

in the fiscal situation has been

Expanded local revenue base

and increased revenues from

local sources in at least 20

local governments.

Satisfactory: Local revenues

have increased in local

Reduced fiscal burden through

financial strengthening of

government corporations and

financial institutions.

Satisfactory: Improvement in

the financial position of


Page 6 of 33

National Platform Local Platform Private Platform

spurring

growth and

raising

investments in

social and

infrastructure

sectors

Satisfactory

impressive. The Bank and its

development partners have been

making the case for revenue

reform. Improving tax effort was

part of DPL1. The Bank is

assisting the Bureau of Internal

Revenue to improve tax

collections through the NPS on

Tax Administration, an IDF

grant, and policy notes. In

addition, the Bank has been

supporting government efforts to

privatize the power sector, with

a positive impact on government

finances. However, the slow

down in tax revenue increases in

2007 is a concern.

governments participating in

Bank supported local revenue

training and undertaking

revenue enhancement

programs. Furthermore, the

Bank is assisting the

Government to develop a

performance based grant

system for local government,

linked to improved revenue

performance.

Government Owned and

Controlled Corporations have

contributed to the improve-

ment in the Government’s

fiscal situation. IFC has

played an important role by

furthering power sector

privatization and facilitating

the sale of non-performing

assets owned by the National

Home Mortgage Corporation

and other government entities.

Growth

Generating

economic

growth to

accelerate job

creating and

poverty

alleviation

Satisfactory

Competitiveness of the economy

improved by increasing

investment, upgrading

infrastructure, and adopting

reforms aimed at improving

productivity of firms.

Moderately Satisfactory: Bank

infrastructure projects are

improving major road networks

and, with IFC, promoting rural

electrification. Efforts to

modernize support to agriculture

and improve agricultural

productivity have not progressed

as planned. Bank reports have

raised the need to promote

investment and address

governance and other

constraints to improving the

investment climate, but private

investment continues to lag.

Productivity increased through

local provision of

infrastructure and services.

Satisfactory: Bank projects

continue to provide local

governments with access to

financing for local

investments. Preliminary

assessments indicate that

these investments are having a

positive impact on local

communities

Catalyze private investment in

key sectors including

infrastructure.

Satisfactory: The Bank and

IFC support the Government’s

efforts to increase private

provision of infrastructure.

Both the Bank and IFC

provide funding for private

provision of water and

sanitation in Metro Manila.

IFC has made several

investments in private

provision of electricity. The

Bank continues to pursue

additional public-private

operations in power, water,

and transport.

Social

Inclusion

Ensuring social

inclusion and

the improved

delivery of

basic services

Moderately

Satisfactory

Improved performance of

national institutions and

increased access for the poor and

disadvantaged to basic services.

Satisfactory: Bank operations

continue to support sector

reforms in education, health, and

social welfare development.

Bank provided opportunities to

pilot agency reforms (e.g.,

school based management,

procurement) through its

projects and transferred

knowledge (e.g., conditional

cash transfers).

Greater voice and improved

access for the poor and

disadvantaged in the planning

and delivery of education,

health and other basic services

at the local level.

Satisfactory: The Bank is

promoting greater community

involvement, especially to the

poor in disadvantaged groups,

in local decision making

through several of its

community based projects.

Increased access to financing

of micro-enterprises,

cooperatives, and small &

medium enterprises (SMEs)

and increased private delivery

of basic social services.

Moderately Satisfactory: The Bank’s Rural Finance III

project (closed) provided

rural micro-enterprises and

SMEs with access to credit.

SME operations are shifting to

IFC.


Page 7 of 33

Improving Governance

16. The Government has been taking steps to improve governance. A key development

has been the strengthening of the procurement process. The Government Procurement Reform Act

(2003) created a single legal framework for procurement and streamlined and modernized

procurement. The Act resulted in the harmonization of national procurement procedures between

government and its three main development partners, the World Bank, the Asian Development

Bank (ADB) and the Japan Bank for International Cooperation (JBIC). It created an e-procurement

system which was deemed to increase transparency. The Government also addressed the concern

over the fragmentation of rules and regulations by preparing a unique set of rules for all

procurement activities covered by the Act. Similarly, the Government has taken steps to improve

budgeting by piloting of a results-oriented Organizational Performance Indicator Framework,

introducing Medium Term Expenditure Frameworks (MTEFs), and linking government priorities

and resources through the Budget Strategy Paper.

17. But challenges remain. Civil service reform, another area identified for improvement,

remains stalled. While the frameworks for procurement and budget improvements are in place,

corruption continues to be an issue: the Philippines ranked 112 out of 125 in a list of countries

where irregular payments are required for public contracts according to the Global Competitiveness

Report 2006-07 and the Bank’s 2008 CPAR noted that by one estimate possibly 20 percent to 30

percent of each contract goes to leakages. The challenge is to ensure implementation of the

procurement and budgetary reforms throughout the Government. However, there are concerns

over slippages, such as the delay in making public budget utilization data (see below).

18. The Bank has supported the Government’s efforts to improve governance. The Bank

has contributed to the budget reforms by providing analysis through its analytical and advisory

activities (AAA) and by using the PDF as a forum to discuss key public expenditure and

governance issues. Bank operations are supporting agency efforts to internalize and implement

many of the changes. At the national level, the Departments of Education (DepEd), Health (DoH),

two agencies with Bank National Program Support (NPS) operations, and the Department of Social

Welfare and Development (DSWD), have adopted MTEFs. The Bank has provided grants to the

Government Policy and Procurement Board, the Office of the Ombudsman, and the Presidential

Anti-Graft Commission to strengthen their capacity to oversee procurement and fight corruption

(see Box 1). Finally, governance improvement is a key objective of the Bank’s program of

Development Policy Loans (DPLs). Increasing the number of postings under the Government’s e-

procurement system was a prior condition for the first loan (DPL1, FY07). However, lack of

progress on disclosing budget execution information is one of the reasons, which delayed the

second DPL (DPL2).

19. Individual Bank projects strengthen agency capacity in budgeting, procurement

and/or financial management, both at the national and local levels. At the national level, the

Second Social Expenditure Management Project (SEMP2, completed in FY07) focused on

strengthening fiduciary and procurement systems in DepEd, DoH and DSWD and demonstrated the

benefits of competitive bidding10

. The Second National Roads Improvement and Management

Project (NRIMP2) includes an Integrity Strengthening Action Plan for the Department of Public

Works and Highways (see Box 1). At the local level, officials from 979 local government units

(LGUs) have been trained in planning, finance, construction supervision and other municipal

management areas under the Local Government Finance and Development Project (LGFDP-

Logofind). The Bank’s community-driven development projects have engaged communities in the

10

ICB under the project resulted in improved quality and cost savings.


Page 8 of 33

planning and implementation of local investment and service delivery. It is not clear, however,

whether all these individual project level efforts would be sustainable and would lead to system-

wide improvements at the local level. The Bank is addressing these concerns by working through

the PDF to refine the local government performance framework and assisting the Department of

Interior and Local Government to review local government training through an IDF grant.

Box 1: Fighting Corruption in the Philippines The Bank has been assisting government agencies to enhance their capacities to oversee procurement

and tackle corruption through various grants to procurement and anticorruption agencies. The Bank

provided the Government Policy and Procurement Board (GPPB) with two consecutive grants which helped

GPPB develop and pilot test generic procurement manuals (which were harmonized with the Asian

Development Bank, the Japan Bank for International Cooperation, and the Bank), institute a national

procurement training program through state universities and colleges, and prepare and pilot test Agency

Procurement Performance Indicators. GPPB is currently developing further training and certification

programs for public procurement professionals. The Office of the Ombudsman received an ASEM grant

with which the Office conducted field investigation training and developed an electronic data bank for the

Statements of Assets and Liabilities and Net Worth and an electronic case tracking system for use by the

Office of the Special Prosecutor. The Bank also provided IDF grants to the Bureau of Internal Revenue to

strengthen its revenue administration capacity and reduce opportunities for graft and to the Presidential Anti-

Graft Commission to strengthen agency internal audit units for effective procurement monitoring and

enforcement.

At the project level, the Bank is conducting due diligence in procurement and financial management,

tackling corruption when it arises, and working with agencies to improve their controls and

procedures. For example, the Bank rejected road contracts in 2003, 2004, and 2006 due to signs of bid

rigging under the First National Roads Improvement and Management Project (NRIMP1). These cases were

referred to the Bank’s Department of Institutional Integrity which found that a cartel of contractors had

engaged in corrupt and collusive practices in all three rounds of bidding. The findings were disclosed to the

Government in November 2007 for possible follow-up under Philippines law. This also led to tightening of

procedures within the Department of Public Works and Highways and in the follow-up project, NRIMP2.

The Department adopted an Integrity Strengthening Action Plan which is supported by a range of measures

incorporated into the Bank project, such as the use of an independent procurement evaluator, independent

oversight by a coalition of citizens and road user groups (―Road Watch‖), strengthening of procurement and

financial controls, and business process improvements to reduce opportunities for interference.

20. The Bank is strengthening the oversight functions of the regulatory agencies in the

power sector and in Metro Manila water and sanitation. The Government has been pursuing

the privatization of power, and water and sanitation since the 1990s, changing the role of

government from service delivery to policy and oversight. Strengthening the regulatory agencies is

critical to increasing private investment in infrastructure. The Electricity and Power Reform Act

(2001) provided the framework for restructuring the power sector. The Bank has been supporting

the implementation of the Act, most recently in assisting the Energy Regulatory Commission to

develop rules and regulations for a concession agreement for power transmission. Similarly, the

Government divided the provision of water supply and sanitation in Metro Manila into two

concessions in the late 1990s with technical assistance from IFC. The Bank has since been

assisting the Metro Manila Water Supply and Sanitation System Regulatory Office carry out the

rebasing of the tariffs through the Third Manila Sewerage Project and is extending financing to one

of the concessionaires through one of its projects.


Page 9 of 33

Achieving Fiscal Stability to Generate Resources Aimed at Spurring Growth and Raising

Investments in the Social and Infrastructure Sectors

21. The Philippines has experienced a turn-around in its fiscal position. The consolidated

public sector balance went from a deficit of 4.8 percent of GDP in 2004 to a surplus of 0.2 percent

in 2006 and an estimated surplus of 1.4 percent for the first three quarters of 2007 (Figure 1).

Increase in tax revenues was a major factor behind this turn-around. The Government

implemented various measures to improve tax revenues between 2004-2006, such as the passage of

the reformed value-added tax law which removed exemptions and increased the tax rate by 2

percent effective in 2006; increase in the corporate tax rate; and, the enactment of a ―Sin Tax‖ law

which raised excise taxes on cigarettes, tobacco, and alcohol. Tax revenues increased from 12.4

percent of GDP in 2004 to 14.3 percent in 2006 (Figure 2). Improvements in the financial position

of public corporations and revenues from privatization in the power sector also contributed to the

improvement in the Government’s fiscal position. There is a concern, however, that the tax effort

is stalling with tax revenues as a percentage of GDP in 2007 dipping slightly below the level

reached in 2006.

Figure 1 Figure 2

Public sector financial position, % of GDP

-6%

-5%

-4%

-3%

-2%

-1%

0%

1%

2%

2001 2002 2003 2004 2005 2006 2007

National government

Consolidated public sector*

*CPSD for J-Sep07. Source of basic data: Bureau of the Treasury, NSCB

Tax revenues, % of GDP

0%

2%

4%

6%

8%

10%

12%

14%

16%

2001 2002 2003 2004 2005 2006 2007

2007 target

Tax effort

Source of basic data: Bureau of the Treasury, NSCB

22. The Bank and IFC have supported the Government’s efforts to improve revenue

generation, both at the national and local government levels, and reduce the fiscal burden of

public corporations through increased cost recovery and privatization. Bank economic reports

have been making the case for fiscal improvements: fiscal reform was discussed in detail in the

2005, 2007, and 2008 economic reports11

which served as inputs into the PDF. The PDF acted as a

forum to raise awareness and develop a consensus for tax increases. The Bank, together with

Filipino academics and development partners, helped develop and sustain the momentum for fiscal

reform. Operationally, the Bank supported the Bureau of Internal Revenue to improve collections

through the NPS on Tax Administration Reform (FY07), an IDF grant, and short policy notes.

Improving tax effort was one of the objectives of DPL1. However, there are concerns.

Implementation of the NPS on tax reform is not progressing as originally anticipated and the

stalling of the tax effort in 2007 is one of the factors behind the Bank’s decision to delay DPL212

.

11

Report No. 32055-PH, Philippines: From Short-Term Growth to Sustained Development, 2005; Report No.

39226-PH, Philippines Invigorating Growth, Enhancing Its Impact, 2007; Accelerating Inclusive Growth and

Deepening Fiscal Stability, 2008. 12

―Tax revenue on track to increase by 0.5 percent of GDP in 2007 over 2006‖ is one of the triggers for

DPL2. This was not met.


Page 10 of 33

23. At the local government level, the Bank is working with local government units

(LGUs) to improve their ability to raise revenues. A total of 535 LGUs have participated in

training on real property tax and the local revenue code under the LGFDP-Logofind. These LGUs

increased their local revenues by Php 8.7 billion or by 114 percent between 2000 (the baseline) and

2007, although it is not possible to establish how much the training contributed to this increase. In

addition, participating LGUs improved revenues by investing in bus terminals and markets and by

implementing business and real property tax enhancement programs. The Bank is also assisting the

Government to develop performance based grants to improve local government revenue

mobilization by providing information on performance based grant systems and their possible

application to the Philippines through an IDF grant13

, and developing a project designed around

performance based grants to LGUs.

24. The Bank and IFC are furthering privatization of the power sector which contributes

to improvements in the Government’s fiscal position. Improving the financial viability of the

power sector is one of the objectives of the Bank’s DPLs14

. As mentioned above, the Bank is

supporting the Government on a concession agreement for power transmission. IFC has increased

private participation in the National Power Corporation’s Small Power Utility Groups (SPUGs)

which service off-grid areas (mainly rural and isolated communities), took an equity stake in the

Philippines National Oil Company Energy Development Corporation’s (PNOC-EDC) initial public

offering, and financed the privatization of two power generating facilities. In addition, IFC helped

reduce the Government’s fiscal burden through the sales of non-performing assets held by the

National Home Mortgage Corporation and the National Development Corporation and government

equity investments in listed and non-listed companies.

Generating Economic Growth to Accelerate Job Creation and Poverty Alleviation

25. The Philippines continues to experience high economic growth, but declining

investments raise concerns over its sustainability. GDP grew at over 5 percent in 2006 and 2007,

driven by demand which in turn was fueled in part by overseas worker remittances (Figure 3).

Economic growth, however, has not led to significant employment generation or poverty reduction:

unemployment remained around 8 percent and poverty increased (see ―Social Inclusion‖ below).

Investment also continued to decline (Figure 4). The 2008 economic report15

noted that the recent

growth was facilitated by an uptake of spare capacity, but that this capacity was mostly exhausted,

requiring higher investment to sustain economic growth. The 2006 CAS had questioned the

sustainability of consumption-driven growth and raised the lackluster investment climate as an

issue; the challenge of increasing private investment remains.

26. The Bank Group is assisting the Government to address the infrastructure needed to

promote growth. The CAS identified lack of infrastructure as a serious constraint to investment

and economic growth. At the national level, the Bank and IFC are supporting government efforts

to improve the national highway network, address the transportation needs of Metro Manila, and

strengthen power supply, including rural electrification.

13

TF056331, ―Developing Governance Performance Frameworks for Local Government.‖ 14

Increase in tariffs and the publication of the guidelines for the universal charge for stranded costs and

stranded debt were recognized as prior actions for DPL1. 15

Accelerating Inclusive Growth and Deepening Fiscal Stability, 2008


Page 11 of 33

Figure 3 Figure 4

Contribution to real GDP growth

-10%

-5%

0%

5%

10%

15%

2001 2002 2003 2004 2005 2006 2007

C G I X-M GDP

Source of basic data: NSCB

Fixed capital formation, % of GDP

0%

5%

10%

15%

20%

25%

2001 2002 2003 2004 2005 2006 2007

Public construction

Private investments*

* Fixed capital formation less public construction. Source of basic data:

27. In transport, NRIMP1 (completed FY07), upgraded 382 km of national roads, conducted

preventive maintenance on 721 km of national roads, piloted performance based maintenance

contracts on another 254 km, helped to establish a Road Board and Road Fund, and carried out

business process improvements in the Department of Public Works and Highways. The follow up

project (NRIMP2) was approved in FY08 with a noteworthy approach to improving governance

and reducing corruption in the implementing agency (see Box 1). The Metro Manila Urban

Transportation Project improved access to the Marikina Valley and made intersection

improvements along major thoroughfares. In addition, the Bank and IFC are exploring support for

the expansion of the Light Rail Transit System in Metro Manila.

28. In the power sector, the Bank Group is furthering the Government’s privatization of the

sector. IFC has invested in the privatization of two power generation plants. Both the Bank and

IFC are promoting rural electrification by financing and strengthening rural Electrical Cooperatives,

promoting off-grid systems (e.g., solar power), and furthering sector reforms through the Rural

Power Development Program, GEF grants, and IFC investments and advisory services.

29. At the local level, the Bank is providing LGUs with access to financing for infrastructure

and service improvements through financial intermediaries and geographic or sectoral projects. As

of June 2008, 462 LGUs have obtained financing through the Municipal Development Fund and

653,141 households have gained access to basic infrastructure and services through the LGFDP-

Logofind. LGUs are also funding rural roads and bridges, small-scale irrigation, rural water and

other infrastructure and facilities under the Second Agrarian Reform Communities Development

Project (ARCDP2) and the Second Mindanao Rural Development Project (MRDP2, approved

FY07). These rural investments are seen to have a positive effect - Agrarian Reform Communities

that have participated in ARCDP2 for at least three years have reported a 21 percent increase in

real income due to, among others, rural infrastructure.

30. The overall effect of Bank support is difficult to determine. Improving infrastructure is

still seen as a major challenge. The 2008 economic report noted that the Philippines fares poorly in

many infrastructure indicators in the Global Competitiveness Index and that the quality of transport

infrastructure was a particularly serious concern.

31. Bank efforts to improve the investment climate and the productivity of firms have

been less successful. The Bank has been emphasizing the need to address corruption and reduce


Page 12 of 33

the cost of doing business through its economic reports. The Government passed an Anti-Red Tape

Law in 2007 and is taking steps to improve the productivity of local businesses, but it is not clear

whether the Bank had any influence. The Bank is supporting the Department of Agriculture to

strengthen its marketing and regulatory functions in order to promote new products, diversify

production, and encourage private investment in agriculture under the Diversified Farm Income

and Market Development Project. Progress of reforms and the project have been much slower than

originally anticipated.

Ensuring Social Inclusion and the Improved Delivery of Basic Services

32. Despite high economic growth, poverty increased between 2003 and 2006. While the

Philippine economy grew at an average of 5 percent per annum since 2000, the poverty incidence

increased from 30 percent in 2003 to 32.9 percent in 2006 or the level in 2000 (33 percent). In

2006, 27.6 million Filipinos lived below the poverty level, more than ever before. Some possible

reasons for the drop are a fall in real incomes of households, economic growth which favored the

corporate sector, and low government social spending caused by the fiscal crisis.

33. The Bank works with national government agencies and LGUs to improve access to

basic services for the poor and social protection. The poor rely more on the Government for

education, health and basic services since they cannot afford to obtain them from private providers.

The Bank has been working with DoH, DepEd and DSWD, piloting school based management

under the Third Elementary Education Project (closed FY06) and procurement and financial

management reforms under SEMP2 (closed FY07). These projects contributed to improvements in

test scores in project schools; improvements in textbook to pupil ratio in math, science and other

key subjects; improvement in TB cure rates; and reduction in the incidence of measles. Both

projects laid the foundations for sector-wide approaches: the NPS for Basic Education (FY06)

furthers school based management and improves teacher competency and the NPS for Health

(FY06) aims to increase the enrolment of indigent people in national health insurance and improve

health service delivery. The proposed support to government on the conditional cash transfer

(CCT) should also provide substantial benefit to the poorest, and, more broadly, reform the poverty

reduction program.

34. At the local level, the Bank is promoting greater community empowerment through

participation, accountability, and transparency in local decision making, especially of the

poor and disadvantaged groups. Using a community-driven development (CDD) approach,

where communities identify priorities and manage sub-project implementation, the KALAHI-

CIDSS Project has financed more than 4,200 small scale investments in infrastructure and other

facilities in 184 of the poorest municipalities. LGUs provide technical support and counterpart

funding with responsibility for operation and maintenance being shared between communities and

LGUs. Two projects, the Autonomous Region in Muslim Mindanao (ARMM) Social Fund and

MRDP2, focus on Mindanao, one of the poorer regions which is experiencing conflict. In addition,

the Bank has helped to establish and get off the ground a multi-donor Mindanao Trust Fund.

35. The Bank also anticipated increasing access to financing for micro- and small and

medium enterprises (SMEs). The Third Rural Finance Project (closed FY08) made 546 subloans

to SMEs, creating around 17,000 jobs, and around 115,000 subloans to micro-enterprises.

However, no new initiatives were started during the CAS period. IFC has concluded advisory

agreements with private financial institutions on SME support in 2008.


Page 13 of 33

F. Bank Performance

36. The Bank’s performance during the CAS period is rated “Satisfactory”. The Bank

has been able to deliver a program in line with the country needs. Improvement in the fiscal

situation allowed the Bank to expand its lending, committing US$1.3 billion, including a DPL and

several NPS operations. The Bank reacted to the typhoon damage in Bicol region with a power

restoration project and to the food crisis with a development policy operation under the Global

Food Crisis Response Program. The Bank has been delivering knowledge products through AAA

and trust funded activities which have been appreciated by the client, but it is not possible to assess

their effect. Project implementation has not always been smooth in the Philippines, but the Bank is

proactively managing its portfolio, both lending and trust funds, with the Government.

Non-lending

37. The Bank plays an important role in the transfer of knowledge to the Philippines. The Bank’s ability to bring knowledge on international experiences, especially in carrying out

complex reforms, is valued by government counterparts16

. In addition, the Bank was able to

provide multi-sectoral analysis, provide consistent policy advice, and maintain continuity during

times of frequent changes in government, i.e., to act as ―an important policy anchor‖ in the view of

a senior government official17

.

38. The Bank’s non-lending program has evolved from a number of formal studies to a

mix of formal economic and sector work, smaller “just-in-time” policy notes and studies,

training and technical assistance. The Bank’s economic reports provided background for the

PDF discussions. In addition, the Bank’s involvement in the various PDF working groups has also

provided opportunities to transfer knowledge to government counterparts and other stakeholders.

Many of the non-lending activities have been funded by both Bank executed and recipient executed

trust funds. The FY06-08 CAS saw the AAA program evolving over the CAS period, as the Bank

adjusted to evolving client priorities and opportunities, and did not provide a definitive list of new

AAA tasks. The major AAA outputs are listed in Appendix 2.

39. Trust funds have been critical in the Bank’s support to the Philippines by providing

technical assistance to build the Government’s capacity and to support sector-specific and

cross-sectoral initiatives. The Philippines country team supported the Government’s efforts to

pursue trust fund opportunities from other donors in order to complement Bank operations and to

help address areas that the Government has not been inclined to borrow for. Strategic partnerships

between the Government, concerned donors and the Bank, have built on and further reinforced

coordinated policy dialogue on sector issues and reform agendas, especially in education and health

and in extending support to the conflict affected areas of Mindanao. Besides providing support to

lending operations, trust funds have allowed the Government and the country team to undertake a

range of strategically positioned analytical, advisory and capacity building activities and have

served as effective vehicles for strengthening country systems and advancing harmonization

initiatives.

40. The Bank’s monitoring and evaluation of the effect of its AAA program has not kept

pace with the changes. Approximately one-quarter of the Bank’s budget was spent on AAA

16

In interviews with IEG, a senior government official said ―The Bank is more than just money . . . [It is] an

independent source of advice‖ and another said ―I personally valued the advice more than the money.‖ From

IEG, Philippines Client Perspectives on Elements of Bank Support: Working Paper for Development Results

in Middle Income Countries An Evaluation of the World Bank’s Support, 2007 17

IEG, ibid.


Page 14 of 33

during the CAS period. Feedback from government officials indicates that the Bank’s work is

appreciated. However, it is difficult to get a good overview of the AAA program or assess the

effect it may have had on the Government and other audiences. Compared to the project portfolio

and the trust fund program, the monitoring and evaluation of AAA activities is less structured. At

present, the Bank is not able to answer the questions: ―What worked, what did not, and why?‖

Going forward, the Bank will need to strengthen the management of its AAA program.

41. Finally, knowledge transfer is not limited only to AAA. The Bank’s external country

website features not only economic reports and some sector reports, but also reports produced by

the Networks and DEC on the Philippines. The Bank is also making development information

more accessible to the population through Knowledge Development Centers (KDCs) which are

established in partnership with academic institutions throughout the Philippines. The 11th Center

was established in Iloilo City in September 2008 in partnership with the Philippines Central

University.

Lending

42. Bank lending over FY06 through the second quarter of FY09 was US$1,250 million,

higher than the US$450 - US$900 million anticipated in the CAS and the US$852 million

committed between FY00-05. The improvement in the Government’s fiscal situation allowed the

Bank to increase the amount of lending and deliver DPL1 in FY06. The Bank increased the base

case to US$1.7 billion and extended the CAS period by one year to end-FY09 in 2007. Actual

deliveries in FY08, however, were below expectations because of insufficient progress in reforms

or due to availability of alternative financing. The DPL series closed in December 2008 without

completing DPL2. A new DPL might be considered in calendar 2009 in response to the financial

crisis. The Bank was able to respond swiftly to rehabilitate power after a typhoon devastated the

Bicol region in 2006 (Bicol Power Restoration). The Bank quickly developed a Food Crisis

Response Development Policy Operation (US$200 million) under the Bank’s Global Food Crisis

Response Program in 2008. Planned and actual lending is listed in Appendix 3.

43. At the national level, the Bank has been responsive to government demand, shifting

its focus from investment lending to national program support or sector wide approach

(SWAp) operations and, most recently, to additional financing. NPS operations were approved

in basic education, health, tax administration, and environment and natural resource management in

FY06 and FY0718

. These operations aim to strengthen the agency’s institutional capacity by

supporting critical policy and institutional reforms and by using government procedures for fund

releases. One project, the NPS on Participatory Irrigation, originally scheduled for FY06, has been

delayed due to lack of progress on rationalizing staffing within the implementing agency, a critical

step for improved efficiency. The NPS operations have gotten off to a slower start than anticipated,

in part, because of the need to set up the internal procedures and policy issuances to support the

institutional reforms and system level changes supported by the projects. While there are concerns

over uneven support from high level management in the implementing agencies, the NPS approach

enjoys strong support from the core government oversight agencies19

who have introduced a

number of innovations in budget processes in response to analysis and agreements reached in

workshops organized in 2007 and 2008 to improve the performance of NPS projects. The sector

reform agendas supported by these NPS operations have also served as good platforms for forging

strategic partnerships and mobilizing additional resources (see Partnerships below). In the last year

18

While not designated a NPS operation, NRIMP2 follows a similar approach, focusing on institutional

capacity development and reform. 19

The Department of Finance, the Department of Budget and Management, and the National Economic

Development Agency.


Page 15 of 33

of the CAS, the Bank is increasing the number of additional financing projects, bringing a quick

answer to a demand for supplemental resources in successful sectors.

Portfolio

44. The Bank has been proactively managing its project and trust fund portfolio with the

Government. The Bank conducts regular, annual implementation reviews of both its project and

trust fund portfolios with the core government oversight agencies. These reviews include not only

implementation, but also outputs and expected outcomes and the likelihood of projects achieving

their stated development outcomes. In FY08, the Government carried out a country portfolio

review, including major development partners such as ADB and JBIC as well as the Bank, to better

understand implementation issues and identify areas needing further attention. As mentioned

above, a separate review of the NPS operations was conducted in FY08 to address the slower than

anticipated start-up of these projects. In FY09, the portfolio review focused on activities financed

at the local level, e.g., involving LGUs and CDD approach.

45. The Bank’s project portfolio during the CAS period is mixed. From FY06 to FY08, a

total of 12 new projects, including GEF projects but excluding DPL1, with a total commitment of

US$856.8 million entered the portfolio and nine projects, including two GEF projects, for a total of

US$601 million exited the portfolio. As of end FY08, the Bank’s on-going portfolio stood at 24

active projects, with a net loan commitment of US$1.4 billion. The disbursement ratio has ranged

from 15.2 percent (FY07) to 21.1 percent (FY06)20

which is within the historical range of the

Philippines 12 percent to 23 percent. The share of problem projects has increased from 13 percent

in FY06 to 16.7 percent in FY08. Portfolio indicators are presented in Appendix 4. It is not

unusual for projects in the Philippines to encounter problems some time during their

implementation. Of the nine Bank projects closed between FY06-08, three have rated as a problem

for development outcome sometime during their life time. All three projects were rated

satisfactory or moderately satisfactory for development outcome in the Implementation Completion

Report21

.

CAS Monitoring

46. The Bank has been proactively monitoring the CAS, however the results framework

has not necessarily proven to be an effective management tool. The data in the results matrix

were updated annually to identify priorities for the remainder of the CAS period and some

milestones were formally revised in the CAS Progress Report. The design of the results framework,

however, has made it less effective as a strategic management and learning tool. Updating the data

has not necessarily been easy because they do not correspond directly to project level indicators.

As discussed under CAS outcomes above, the lack of baselines and clear targets had made it

difficult to assess whether progress is being made relative to original expectations. Nonetheless,

the CAS results framework has been used in making broad decisions on country team priorities and

resource allocations, but not necessarily in calibrating the team’s response in specific sectors or

outcome areas.

20

In FY08, disbursement was 20.1%. 21

The Independent Evaluation Group (IEG) rated five of the seven closed projects. The Outcome Rating for

one project, the Water District Development Project, was downgraded from Satisfactory in the

Implementation Completion Report to Moderately Unsatisfactory. This project, however, was not rated as a

problem during implementation.


Page 16 of 33

G. Partnerships

47. The Bank strategy has emphasized partnerships: working closely with the

Government, development partners, and civil society, leveraging the Bank’s presence in the

Philippines. The PDF has been an effective mechanism in engaging the various government,

donor and civil society partners and in developing a coordinated approach. The Bank has actively

engaged development partners and consulted widely with local stakeholders and civil society in the

preparation of its CASs. At the operational level, the Bank has worked closely with other

development partners active in that area: e.g., the Bank is coordinating with ADB in power sector

reform and the NPS operations in education and health are part of a coordinated effort to support

the Government’s basic education and health reform agendas.

48. The Bank and its development partners are using their resources more effectively

through partnerships supported by trust funds. As a middle income country, the Philippines

has not been a major recipient of donor financing, increasing the importance of coordination and

the effective use of limited resources. Recipient executed jumbo trust funds have emerged as a

significant new business line for the Bank during the CAS period, helping to achieve major

benefits across a number of sectors as well as in advancing harmonization among development

partners.

Mindanao Trust Fund for Reconstruction and Development (MTF-RDP): The MTF-

RDP was established in 2006, following a joint needs assessment in 200522

. Close to US$9

million has been mobilized including a grant from the Bank’s Development Grant Facility.

The MTF-RDP provides a single channel for donors, making it easier for smaller donors to

contribute, and a single interface with the development community for trust fund recipients.

It has helped establish better accountability mechanisms to manage the flow of funds and

information in a post-conflict setting. MTF-RDP is supporting stabilization, training and

capacity building in the Bangsamoro Development Agency, conflict-affected communities,

and municipal governments in Mindanao.

European Commission Trust Fund for Health Sector Reform: The trust fund,

amounting to 13.45 million Euros, supports the implementation of the health reform

strategy at the provincial level and capacity building for DoH at the national level,

complementing the Bank’s National Program Support for Health Reform Project. Both

initiatives form part of DoH’s broader health reform program.

The Trust Fund Supporting Philippines Basic Education Reforms (SPHERE): The trust

fund provides US$35 million equivalent to DepEd to support its basic education sector

reforms. SPHERE is administered by the Bank and complements the National Program

Support in Basic Education Project.

49. The Bank has been harmonizing its procedures around government regulations

together with ADB and JBIC. The Government and its largest development partners (ADB,

JBIC and the Bank) agreed to align their national procurement rules and regulations with the

Government’s new procurement system following the passage of the Government Procurement

Reform Act in 2003. As a result, the agencies agreed on a common set of: implementing rules and

regulations; bidding documents for works, goods and consulting services; procurement manuals;

training for procurement staff; and procurement reporting and monitoring.

22

The joint needs assessment was financed by Australia, Canada, New Zealand, UN, ADB and the EC.


Page 17 of 33

50. Success of harmonization in procurement has led to similar efforts in financial

management and safeguards. The Government developed a new government accounting system

in 2002 to simplify financial accounting and to ensure consistent application of accounting

principles across government agencies. Financial reporting for Bank projects utilizes the new

government accounting principles, with some adjustments, for financial reporting. The ADB,

JBIC and the Bank are exploring ways to harmonize financial management and reporting with the

Commission on Audit. The Bank conducted a diagnostic review, together with the Government

and other stakeholders, of the country’s safeguard systems on environmental assessment,

indigenous peoples, and involuntary resettlement. The objectives of the reviews were to

recommend measures to strengthen local capacity for undertaking safeguards work and to identify

areas where local processes, practices and policies could be harmonized with that of global good

practice. The assessments of environmental safeguards and indigenous peoples were completed in

2007 and involuntary resettlement in 2008. The reviews identified areas for improvement and

some of the key recommendations have been adopted through the issuance of administrative orders

by the relevant agencies or will be implemented under proposed Bank operations23

. Based on the

partial success achieved, the Bank has identified the Philippines as a pilot country to complete

harmonization on environment and indigenous people standards and to extend the harmonization of

procurement to International Competitive Bidding. Work has already started in both cases.

51. An active civil society is one of the Philippines’ key assets in promoting better and

more accountable governance. In addition to engaging with development partners, the Bank took

several steps to expand its engagements with civil society organizations (CSOs) during the 2006

CAS period.

52. First, the Bank helped create additional space for dialogue with CSOs. At the local

level, the Bank organized dialogue sessions held in KDCs around specific development topics,

such as empowering marginalized communities in implementing procurement reform, peace and

development in conflict-affected areas, disaster risk-management, anticorruption initiatives, as well

as consultations for the Bank’s new CAS. These sessions were well attended by local government

officials, businessmen, non-governmental organizations, and citizens. At a national level, the PDF

encouraged CSO participation, both at the plenary and the working group level, providing CSOs a

venue to give their perspectives on a national stage. The Panibagong Paraan (local Development

Marketplace) provided selected CSOs with resources for their projects. The 2008 Panibagong

Paraan, ―Building Partnerships for Effective Local Governance,‖ not only provided grants to

CSOs, but also organized discussions around topics which CSOs identified as relevant to

governance issues, such as assessing the impact of political dynasties, transparency and

accountability in local governance, youth involvement in governance, and cutting the ―red tape‖ at

the local level.

53. Second, the role of the CSOs in Bank operation was expanded. The Bank engaged the

CSOs in improving the reach and quality of its operations and in results monitoring. For example,

DepEd has a nationwide partnership with CSOs among the youth, including the Boy Scouts and

Girl Scouts, in monitoring procurement of key educational inputs such as textbooks. In the

23

The results of the review indicated that the legal bases, policy and institutional frameworks of the country’s

safeguard systems for environmental assessment and indigenous peoples are strong and sound, but suffer

from weak implementation due to capacity and financial constraints and overly bureaucratic procedures and

processes. The country’s involuntary resettlement system has huge gaps with global principles and good

practices. The Bank is providing support to the Government on environmental assessment through the NPS

for the Environment and Natural Resource Management and on indigenous peoples through grant-funded

technical assistance to the National Commission on Indigenous Peoples.


Page 18 of 33

NRIMP2 design, ―Road Watch‖/―Bantay Lansangan‖ will play an active role in monitoring the

progress of the project, improve transparency and accountability. In the MTF-RDP, international

NGOs are working with the Bank to implement capacity building initiatives and pilot projects

aimed at stabilizing, training and building the capacity of the Bangsamoro Development Agency,

conflict-affected communities and municipal governments. The KALAHI-CIDSS project

empowers local communities to participate in the selection, design, implementation, and

monitoring of projects that respond to their priority needs. Aside from improving community

infrastructure, in drawing on the enthusiasm and commitment of community volunteers, KALAHI-

CIDSS has also helped to put in place more transparent and accountable systems of governance in

communities where it is active and has enhanced local capacities in planning, procurement,

financial management, and operation and maintenance.

54. Finally, the Bank is forging strategic partnerships to scale up better governance.

Working with selected network-based CSOs using different grant mechanisms, such as the Japan

Social Development Fund and Development Grant Facility, the Bank is supporting the expansion

of capacity development initiatives for improved governance. A partnership with the Philippines

Council for NGO Certification is helping to expand the institutionalization of better governance

practices in NGOs through a globally-recognized system of certification. The Affiliated Network

on Social Accountability–East Asia and Pacific—a regional DGF-supported program based in the

Philippines—is designed to support and advance demand-side governance initiatives drawing on

the experience of well-established regional NGOs, delivering capacity building initiatives and

technical assistance for both CSOs and governments across the region. Through partnerships with

urban poor communities, local NGOs and city governments in five sites nationwide, the Bank has

been able to support the provision of infrastructure and the upgrading and renewal of slum

communities.

H. Conclusions and Lessons Going Forward

55. The results under the 2006 CAS are mixed. The Bank has been able to make progress in

assisting the Government to address the fiscal deficit and make progress on procurement and

budget formulation. Bank knowledge transfers (including those provided through trust funded

technical assistance) and convening role, working through the PDF, are seen to have played a role.

The Bank and IFC have been supporting power sector privatization that has contributed to the

reduction in the public sector deficit and improvements in service delivery. Bank projects continue

to finance needed infrastructure and services, oftentimes engaging local communities and aligning

delivery closer to the residents’ needs. The Bank is now moving to NPS operations that align Bank

support directly with the agency’s core agenda. However, poverty in the country not only

continues to be a concern, but worsened between 2003 and 2006. There is concern that the

improvements in tax revenues will not be sustained. Implementation of Bank projects continue to

be a concern with actual disbursements lagging significantly behind appraisal estimates. Some

NPSs have not resulted in faster disbursements as expected. As discussed in the sections above, on

balance, CAS outcomes are considered to be ―moderately satisfactory‖ and Bank performance

―satisfactory‖.

56. The following lessons have been learned from the experience to date under the 2006

CAS. These have implications for the design and implementation of the next FY2010-12 CAS.

Overall strategic direction of the CAS is sound. Sound fiscal management and

improved governance will continue to be critical for ensuring sustained economic growth

and poverty reduction. The next CAS will need to maintain the gains made in revenue

generation, public expenditure management, and procurement while pursuing further


Page 19 of 33

improvements in governance. Continued focus on implementing the project portfolio will

be critical to success during the next CAS: the NPSs in education and health can result in

improved educational outcomes in basic education and improved access to health care for

the poor; NRIMP can improve management of the national highway system; various Bank

LGU projects can increase local residents’ access to infrastructure and basic services in

line with their perceived needs. Going forward, the Bank will need to get a better

understanding of the link (or lack thereof) between the country’s economic performance

and lack of poverty reduction and ensure that its operations emphasize the needs of the

poor.

Continued engagement is a critical element for success. The Bank has a long history in

the Philippines and has been able to develop relationships and trust with government

counterpart agencies. The Bank has been engaging in a continuous dialogue with the

Government on many of the challenges facing the Philippines and the basis for results

under the 2006 CAS has been laid during previous CAS periods. For example, the Bank

has been emphasizing the need to address the fiscal deficit through revenue generation and

not just through reductions in expenditure. The Bank’s CPARs, the latest prepared in 2008,

have pointed out issues with the Government’s system. The Bank’s Social Expenditure

Management Projects demonstrated the benefits of competitive bidding in terms of quality

improvement and cost savings at the agency level. The Bank would need to build on and

continue to develop relationships at both the national and local government levels in

pursuing results during the next CAS.

But the Bank needs to develop criteria for disengagement. While continued

engagement is necessary, it is also important to develop criteria to determine when the

Bank should disengage. The Bank is working with close to 20 national departments and

GOCCs and a larger number of LGUs through its operations. Given Bank resource

constraints, the Bank will need to be selective. There may be many reasons for

disengagement. It could be because there is limited support for and progress on the

objectives that the Bank may be pursuing with the agency. Alternatively, operations may

be proceeding smoothly and the relationship may have matured to the point that continued

Bank engagement may no longer be necessary (i.e., generate insufficient benefit for both

parties). In some cases, it may be important to continue working with an agency although

progress may be limited. The decision to engage or disengage will need to be made on the

possible impact to the Bank’s strategy.

Strengthen monitoring (and evaluation) of AAA. Knowledge transfers are an important

part of the Bank engagement with the Philippines. It is also an area where it is possible for

the country team to make direct impact during the CAS period – project results achieved

during FY10-12 would most likely come from projects already underway or in advanced

stages of preparation and projects developed during the next CAS period would most likely

start generating results beyond FY12. The Philippine program has not been adequately

monitoring nor assessing the possible impact of its AAA program. The move from larger

reports to smaller and targeted notes makes monitoring and evaluation more difficult. But

given the importance of knowledge transfers to the Bank’s effectiveness, it is important

that the country program strengthen its management of AAA.

Strengthen the CAS results framework. The current results framework has not proven

useful in monitoring, managing and evaluating the CAS. As mentioned above, the lack of

baselines and targets made it difficult to assess whether the Bank was making progress


Page 20 of 33

towards its stated objectives and country outcomes. Another issue was that the underlying

―development logic‖ (link between Bank instruments, outputs and CAS outcomes) was not

necessarily clear. The Bank can make the results framework into an effective CAS

management, monitoring and evaluation tool by: (a) clearly stating the expected CAS

outcomes; (b) including specific, measurable, achievable, relevant and time-bound

(SMART) indicators to allow for better monitoring; and (c) making explicit the link

between expected CAS outcomes and Bank instruments (i.e., making clear the

development logic underlying the CAS). Linking CAS monitoring with project, trust fund

and AAA monitoring would facilitate data collection. Closer strategic monitoring of

progress towards CAS objectives should facilitate decisions on the appropriate level of

engagement.

APPENDICES:

1. FY06-09 CAS Results Summary

2. Analytical and Advisory Activities, FY06-08

3. Philippines Lending Program, FY06-09

4. Selected Indicators of Bank Portfolio Performance and Management


Page 21 of 33

Appendix 1: FY06-09 CAS Results Summary

CAS Outcome: Systems and processes for allocating and executing budgetary resources are more

transparent and efficient (Governance: National Platform)

Status at CAS Design Current Status

The Government had been reforming the budget

process - strengthening the links between policy,

planning and budgeting; increasing transparency;

and placing a greater emphasis on results. The

Organizational Performance Indicator Framework

was introduced in 2005 and results-based

planning and monitoring piloted in 13

departments.

The Government was improving procurement and

addressing corruption. The Government

Procurement Reform Act (2003) created a single

legal framework for procurement and streamlined

and modernized the procurement process. The

Government instituted ―lifestyle checks‖ for

public servants which led to the dismissal of

several senior bureaucrats. However, there were

concerns over capacity building, transparency and

dispute resolution, and monitoring of

procurement.

The Government initiated a program to rationalize

the bureaucracy. It issued Executive Order 366 in

2003 on procedures and benefit packages for staff

rationalization, developed implementing rules,

and initiated agency restructuring plans.

The Government is proceeding with budget reforms,

introducing MTEFs with the 2007 budget (linking

policies, plans and budgets) and the Budget Strategy

Paper and forward estimates with the 2008 budget

(clarifying the Government’s priorities and resources

prior to the preparation of budget).

The Government continues to strengthen procurement

and address corruption. The Bank’s recent Country

Procurement Assessment Report (2008) noted that the

public procurement system has become more efficient,

many loopholes have been closed, and the promotion

of e-procurement (the Philippine Government

Electronic Procurement System) improved

transparency and efficiency.

While progress is being made, challenges remain.

The most recent economic report (2008) noted that not

all agencies are implementing MTEFs, progress on

rationalizing the bureaucracy has been very slow, and

corruption continues to be an issue: e.g., the

Philippines ranked 112 out of 125 in a list of countries

where irregular payments are required for public

contracts according to the Global Competitiveness

Report 2006-2007

Bank Contribution & Lessons Learned

The Bank contributed to government budget reforms by providing analysis through its economic reports (as

background documents to the PDF) and using the PDF as a forum to discuss key public expenditure and

governance issues with the Government, development partners and other stakeholders.

The Bank plays an important role in operationalizing budget reforms at the agency level where it was

supporting the implementation or preparation of National Program Support operations (DepEd, DoH,

DENR, DSWD) or providing agency-wide support (DPWH).

The Bank provided the Government Policy and Procurement Board (GPPB) with two consecutive grants

(TF053254, closed FY07, and TF057655, ongoing) which helped GPPB develop and pilot test generic

procurement manuals (which were harmonized with ADB, JBIC and the Bank), institute a national

procurement training program through state universities and colleges, and prepare and pilot test Agency

Procurement Performance Indicators. GPPB is currently developing further training and certification

programs for public procurement professionals. The Office of the Ombudsman received an ASEM grant

(TF054210, closed FY07) with which the Office conducted field investigation training and developed a

data bank for the Statements of Assets and Liabilities and Net Worth and a case tracking system for use by

the Office of the Special Prosecutor. The Bank also provided an IDF grant (TF055185, ongoing) to the

Presidential Anti-Graft Commission to strengthen agency internal audit units for effective procurement

monitoring and enforcement.


Page 22 of 33


CAS Outcome: System and process of Local Government Units (LGUs) for planning, budgeting,

delivering services, and investments are transparent and efficient (Governance: Local Platform)


LGUs include 78 provinces, 68 cities and over

1,500 municipalities whose resources and

capabilities vary significantly. Generally,

planning was weak (especially in environmental

protection) and budget formulation and execution

were largely non-transparent. The PDF included

a working group on Decentralization and Local

Government (co-chaired by DILG and the Bank)

which addressed local government finance,

capacity building, benchmarking and

harmonization. The Local Government

Performance Management System (LGPMS) was

developed and rolled out in 2006.

Various projects are developing local government

capacity. The PDF working group contributed to

improvements in planning, budgeting and

management in local governments: e.g., the national

government agencies with oversight functions over

local governments harmonized their procedures for

planning, investment programming, revenue

administration and budgeting, eliminating overlapping

and conflicting guidance and reducing the

administrative burden on the LGUs. The working

group is also supporting efforts to improve data

quality and operationalize the LGPMS. Over 80

percent of the LGUs use the LGPMS.

Bank Contribution & Lessons Learned:

Various Bank operations including trust funds have supported LGUs’ efforts to strengthen planning,

budgeting and the delivery of services. The LGFDP-Logofind trained officials from 979 LGUs in planning,

finance, construction supervision and other management areas as of March 2008. LISCOP resulted in 57

LGUs in 24 micro-watersheds adopting multistakeholder micro-watershed planning as part of municipal

development planning. SSLDIP (approved FY06) includes funding for participating LGU capacity building

in construction supervision and management of municipal enterprises and services. MRDP1 demonstrated

the success of community engagement in natural planning and management which has been scaled up

under MRDP2. Bank financed-projects also help strengthen procurement and financial management in

participating LGUs. The Bank has also assisted 61 cities develop city strategies using participatory

approaches through the Cities Alliance Program with many investments being funded by the Bank or other

sources. While capacity is being developed under various Bank projects, it is not clear whether this is

having a wider impact – i.e., sustainable capacity development in LGUs as a group.

The Bank has provided an IDF grant to DILG’s Local Government Academy to review and strengthen their

role in local capacity building.

CAS Outcome: Improved governance of corporate sector and infrastructure regulatory agencies

(Governance: Private Sector Platform)


The Philippines had been pursuing a policy of

privatization in infrastructure since the 1990s.

Water supply and sanitation in Metro Manila had

been provided by two private concessions since

1997. The Electricity Power Industry Reform Act

(2001) provided a framework for restructuring the

power sector - creating the National Transmission

Corporation (Transco) to assume the transmission

assets and functions of the National Power

Corporation (NPC); creating the Power Assets

and Liabilities Management Corporation

(PSALM) to own Transco and other NPC assets

and assume NPC’s liabilities; and replacing the

Energy Regulatory Board with the Energy

The Government continues to pursue its policy of

private provision of infrastructure. One of the water

and sanitation concessions (Manila Water Company

Inc.) is considered to be a major success. A major

development in the power sector was the creation of a

wholesale electricity spot market in Luzon in 2006

(this was one of the prior actions for DPL1). The

Government is proceeding with a concession for

Transco’s transmission function.


Page 23 of 33


Regulatory Commission (ERC). The Government

is transitioning from a provision to an oversight

role. Strengthening the regulatory agencies was

seen as a priority.


The Bank has been assisting the Government strengthen its regulatory functions. The Bank is supporting

Metro Manila Water Supply and Sanitation System Regulatory Office through the Third Metro Manila

Sewerage Project, most recently in rebasing tariffs for 2008.

The Bank is assisting ERC develop the regulations for the Transco concession through a PHRD grant for a

partial risk guarantee.

In terms of corporate governance, the Bank has conducted a ROSC on Accounting Standards and training

on corporate governance, but the effect of these interventions is not well understood.

CAS Outcome: Improve public revenue mobilization, public expenditure management and management of

state owned enterprises (Fiscal Stability: National Platform)


Unsustainable growth in the public sector deficit

due primarily to declining tax collection was seen

as a major constraint to development. Non-

financial public sector debt exceeded 101 percent

of GDP in 2003. The increase in debt was driven

by public sector deficits due primarily to

declining tax collection and rising power sector

losses through 2004. The CAS identified the lack

of political will for reform and the pace of change

as risks and noted that ―failure to rein in fiscal

deficits would create greater economic

vulnerabilities and reduce further expenditure

contraction‖.

The Philippines has experienced a turn-around in its

fiscal position. The consolidated public sector

balance went from a deficit of 4.8 percent of GDP in

2004 to a surplus of 0.2 percent in 2006 and an

estimated surplus of 1.4 percent in 2007. Increase in

tax revenues was a major factor behind this turn-

around. The Government implemented various

measures to improve tax revenues between 2004-

2006, such as the passage of the reformed value-added

tax law which removed exemptions and increased the

tax rate by 2 percent effective in 2006, an increase in

the corporate tax rate, and the enactment of a ―Sin

Tax‖ law which raised excise taxes on cigarettes,

tobacco and alcohol. Tax revenues increased from

12.4 percent of GDP in 2004 to 14.3 percent in 2006.

Improvements in the fiscal position of public

corporations and revenues from privatization in the

power sector contributed to the improvement in the

Government’s fiscal position. There is a concern,

however, that the tax effort is stalling with tax

revenues as a percentage of GDP in 2007 dipping

slightly below the level reached in 2007.


The Bank emphasized the importance of increasing tax revenues (and not just cutting expenditures) in

addressing the deficit. The Bank consistently conveyed this message through its economic reports, policy

notes, and other outreach. The Bank helped develop and sustain momentum for fiscal reforms together

with local academics, opinion leaders and development partners. Improving the tax effort was one of the

objectives of DPL1. The Bank also approved a National Program Support (NPS) for Tax Administration

Reform Project in FY07 to strengthen the Bureau of Internal Revenue (BIR) and is assisting the BIR

improve tax administration through an IDF grant and policy notes on increasing excise tax rates and tax

administration. Implementation of the NPS, however, is progressing slower than anticipated.


Page 24 of 33


CAS Outcome: Expanded local revenue base and increased revenues from local resources in at least 20

LGUs (Fiscal Stability: Local Platform)


LGUs depend heavily on transfers from national

government and have limited incentives to raise

own revenues.

Overall, LGUs continue to depend on national

government transfers. But there is diversity among

LGUs. Cities and larger municipalities in more

developed locations (especially in Metro Manila) have

more opportunities to and raise more local revenues.

Poorer (4th

and 5th

class) municipalities with limited

economic bases will continue to rely on national

government revenue sharing for their revenues.


Bank-supported projects include measures to improve local revenue generation. LGFDP-Logofind

financed improvements in real property tax administration and training on implementing local revenue codes and increasing local revenues. Five hundred-thirty five LGUs have participated in the training to

date. These LGUs increased their local revenues by Php 8.7 billion or by 114 percent and increased the

share of local source revenue from 24 percent to 26 percent between 2000 and 2007, although it is not

possible to differentiate the impact of the training from other influences. In addition, LGUs participating in

the project increased revenues through investments in bus terminals and markets and through

implementation of business and real property tax enhancement programs.

The Bank is also piloting performance based grants to improve local government revenue mobilization. .

An IDF grant provided the Government with information on performance based grant systems and their

possible application to the Philippines. The Bank is currently developing a Local Government Support for

Performance Project which is expected to provide, among others, a performance based supplement to the

Internal Revenue Allotment (revenue sharing).

CAS Outcome: Reduced fiscal burden through financial strengthening of government corporation and

financial institutions (Fiscal Stability: Private Sector Platform)


Deficits in Government Owned and Controlled

Corporations (GOCCs) were another contributing

factor to the public sector deficit. Deficits in the

National Power Corporation (NPC) were of

special concern. NPC deficits increased from 0.2

percent of GDP in 2001 to 1.1 percent in 2003

and an estimated 1.8 percent in 2004, as power

tariffs were allowed to erode. The Government

had initiated power tariff increases starting in

2004, but its impact was not fully known at the

time of CAS development.

The GOCCs’ financial position improved. The

GOCCs faced a deficit of 1.9 percent of GDP in 2004,

but eliminated it in 2006 and are estimated to have a

surplus in 2007. A 30 percent increase in generation

tariffs in 2004-05 and the resulting reduction in NPC’s

deficit was a key factor.


Improving the financial viability of the power sector is one of the objectives the Bank’s DPLs. This

increase in tariffs and the publication of the guidelines for the universal charge for stranded costs and

stranded debt were recognized as prior actions for DPL1. As mentioned above, the Bank is supporting

further privatization of the power sector through the Transco concession.

IFC made several contributions to the reduction in the Government’s fiscal burden. IFC has supported the


Page 25 of 33


privatization of power sector by (a) advising the Government on the privatization of NPC’s Small Power

Utility Groups (SPUGs) which service off-grid areas (mainly rural and isolated communities); (b) taking an

equity stake in the Philippines National Oil Company Energy Development Corporation’s (PNOC-EDC)

initial public offering; and (c) financing part of the privatization on the Masinloc coal-fired power plant and

the Magat hydo-electric power plant. IFC’s SPUG projects have reduced subsidies from NPC. PNOC-

EDC was eventually fully privatized in 2007. In addition, IFC has reduced the Government’s fiscal burden

through the sales of non-performing assets held by the National Home Mortgage Corporation and the

National Development Corporation and government equity investments in listed and non-listed companies.

The Bank provided technical assistance through an ASEM grant (TF053181, closed FY06) to the Central

Bank to improve consolidated supervision in the market risk area and establish an IT examination unit.

The Bank also provided ASEM grants (TF052298- Bank executed, closed FY07 and TF052349 – Recipient

executed, closed FY06) supporting the Government’s pension reforms.

CAS Outcome: Competitiveness of the economy improved by increasing investment, upgrading

infrastructure, and adopting reforms aimed at improving productivity of firms (Growth: National

Platform)


The Philippines had been enjoying rising

economic growth, which averaged 4-5 percent in

2002-03 and accelerated to 6.1 percent (the fastest

pace in 15 years). The Philippines was

benefitting from the economic restructuring since

the late 1980s which helped the country better

integrate with regional and global trade and

investment, and a favorable external environment.

However, the question remained on the

sustainability of higher growth because it was

driven by consumption, supported by remittances.

Concerns were raised about the low level of

domestic and foreign investment compared to

other East Asian countries. Lackluster investment

was seen as the result of a fragile fiscal and debt

position, perceived corruption, infrastructure

weaknesses, concerns over law and order, and a

sluggish financial system.

The Philippines continues to experience high

economic growth. GDP grew at over 5 percent in

2006 and 2007, driven by demand which in turn was

fueled in part by overseas worker remittances.

Economic growth, however, has not led to significant

employment generation or poverty reduction:

unemployment remained around 8 percent and

poverty increased.

Investment also continued to decline, raising concerns

over the sustainability of growth. The 2008

economic report noted that the recent growth was

facilitated by an uptake of spare capacity, but that this

capacity was mostly exhausted, requiring higher

investment to sustain economic growth.

The report also noted that weak infrastructure was still

seen as one of the important constraints to doing

business in the Philippines and that substantial

additional expenditures are required to bring the

quality of infrastructure up to acceptable standards.


Bank-supported projects have assisted the Government meet key transportation infrastructure needs and

strengthen the management of the road network. NRIMP1 (closed FY07): (a) updated 382 km of national

roads; (b) conducted preventive maintenance on 721 km of national roads; (c) piloted performance based

maintenance contracts on another 254 km; (d) helped establish the Road Board and Road Fund; and (e)

made business process improvements in DPWH. The follow up project, NRIMP2, was approved in FY08.

The Bank-financed Metro Manila Urban Transportation Project improved access to the Marikina Valley

and improved several intersection improvements on major thoroughfares. The Bank is now focusing on

larger private financing of transportation infrastructure in Metro Manila and the surrounding areas together

with IFC – the Light Rail Transit System Line 1 extension and the CALA highway.

The Bank group is supporting the Government’s efforts to improve rural electrification by financing and

strengthening rural Electrical Cooperatives, promoting off-grid systems (e.g., solar power), and furthering


Page 26 of 33


sector reforms through the Rural Power Development Program, GEF grants and IFC investments and

advisory services. Progress to date has been mixed. Through advisory services, IFC has been able to bring

in private generation in a number of SPUGs which are responsible for power in remote areas. The Bank-

financed Rural Electrification Project has provided access to finance for Electrical Cooperatives through

the Development Bank of the Philippines, with all of participating cooperatives having a debt-service

coverage ratio of at least one. All the funds are committed and 1,265 new customers have received

electricity as of March 2008. A program to pilot the use of investment management contracts in Electrical

Cooperatives with a partial guarantee is yet to get off the ground.

In agriculture, the Diversified Farm Income and Market Development Project supports the transformation

of Department of Agriculture into a service and market-oriented agency. However, progress on reforms

and implementation of the project has been slow. The project enjoys strong support from the Department

of Finance, Budget and Management and other core agencies.

Finally, the Bank has been making the case for the need for private investment and for ―strengthening the

investment climate‖ through its AAA work, but it is difficult to assess whether it has had an impact.

CAS Outcome: Productivity increased through local provision of infrastructure and services (Growth:

Local Platform)


Despite increase in LGU spending, wide

disparities persist in coverage, quality, and

availability of public services delivered by LGUs.

While data does not exist to allow an analysis of

service provision across LGUs, disparities most likely

continue to persist between LGUs given their

differences in resources and capabilities. Projects

supported by the Bank and other development partners

are most likely having an impact in their participating

LGUs.


Bank funds are on-lent to LGUs through intermediaries for infrastructure and service improvements:

LGFDP-Logofind through the Municipal Development Fund (MDFO) and SSLDIP through the Land Bank

of the Philippines. As of June 2008, 462 LGUs have obtained financing through the MDFO and an

additional 653,141 households have gained access to basic infrastructure and services through LGPS-

Logofind. As of July 2008, 27 projects are ongoing and another 40 are in the pipeline under SSLDIP.

The Bank is also providing financing to the LGUs for water and sanitation improvements through the

Development Bank of the Philippines (DBP) under the LGU-UWSSP2. Under the project, water supply

and sanitation improvements have been made or are ongoing in 12 LGUs, seven of which are being carried

out as lease and management contracts, increasing private sector involvement in cities outside of Metro

Manila. A consumer assessment study carried out in 2008 found that 87 percent of respondents expressed

satisfaction with water services (compared to a target of 80 percent), 16 percent of households without

sanitation showed improvement (compared to a target of 10 percent) and 46 percent of households were

considered poor based on their self-reported income and provincial poverty thresholds.

In addition, LGUs receive financing for rural roads and other local investments as participants in Bank-

financed sectoral projects. ARCDP2 provides financing for rural roads and bridges, small scale irrigation,

potable water systems and facilities in agrarian reform communities. MRDP2 provides financing for rural

roads, communal irrigation and rural water systems in participating LGUs. As of October 2007, agrarian

reform communities that have participated in ARCDP2 for at least three years have reported a 21 percent

increase in real income due to, among others, rural infrastructure improvements.


Page 27 of 33


CAS Outcome: Catalyze private investment in key sectors including infrastructure (Growth: Private

Sector Platform)


As mentioned above, a fragile fiscal and debt

position, perceived corruption, infrastructure

weaknesses, concerns over law and order, and a

sluggish financial system were seen as

constraining investment. Private provision of

infrastructure was taking place in the power and

in water and sanitation in Metro Manila.

Low levels of investment continue to be a concern.

Progress is being made in individual infrastructure

projects involving the private sector.


The Metro Manila Sewerage Projects financed by the Bank have supported the private provision of water

and sanitation in Metro Manila. The Third Manila Sewage Project provides financing through the Land

Bank of the Philippines to the Manila Water Company Inc., one of the two concessionaires, for sewage and

septic management. In addition, the Bank has been promoting private management of water systems in

cities outside of Metro Manila through the LGU-UWSP2.

IFC is active in private provision of infrastructure. IFC has invested in hydro-power generation in Magat

and power-generation in Masinloc and provided technical assistance to rural electrical cooperatives in

support of the Government’s power sector privatization. IFC has invested in MWCI to help it develop new

water sources, expand its water and sanitation services, and improve and maintain its network. IFC is also

advising the Light Rail Transit Authority (LRTA) on the extension of the LRT1 Line. This project is

designed as a public-private partnership with the Bank expected to provide financing for the public part.

The Bank is supporting the preparation of additional operations to further private participation in

infrastructure. The Bank is exploring the possibility of supporting the expansion of the LRT1 line and the

Cavite-Laguna (Cala) North-South Highway in transport. Another effort, the MWSS Water Supply

Distribution System Project with the second concessionaire, Maynilad Water Service Inc., was dropped

from the Bank’s pipeline because of availability of alternative sources of funding. It is not clear whether

the ongoing efforts in energy and transport will result in Bank operations, but the Bank has been providing

important knowledge to the Government in overseeing and managing private participation in infrastructure

as part of preparation.

CAS Outcome: Improved performance of national institutions and increased access for the poor and

disadvantaged groups to basic services (Social Inclusion: National Platform)


Lack of social inclusion was a serious obstacle to

development. Inequality remained high: the

richest 5 percent of the households accounted for

nearly one third of the national income while the

poorest 20 percent accounted for only 6 percent.

The poor were often not able to access quality

public services, implying that they were likely to

benefit less from national programs and subsidies,

although they were more likely to rely on

government services since they could not afford

private alternatives (e.g., education, health care).

The poor also suffered worse social outcomes.

Compared to the richest 20 percent, the poorest

20 percent of households had: (a) higher infant

Despite high economic growth, poverty increased

between 2003 and 2006. While the Philippine

economy grew at an average of 5 percent per annum

since 2000, the poverty incidence increased from 30

percent in 2003 to 32.9 percent in 2006 or the level in

2000 (33 percent). In 2006, 27.6 million Filipinos

lived below the poverty level, more than ever before.

Some of possible reasons for the drop are a fall in real

incomes of households, economic growth which

favored the corporate sector, and low government

social spending caused by the fiscal crisis.

The 2008 economic report noted that overall

investment in developing the human capital of

Filipinos through investments in health, education and


Page 28 of 33


and under-five mortality rates, 2.3 and 2.7 times

higher respectively; (b) 28 percent lower

enrolment rates; and (c) 9 percent lower female

literacy rates (ages 15-49).

social protection is low, despite recent increases in

spending in the social sectors.


The Bank worked with national government agencies to improve access to basic social services for the

poor, building on the experience gained in previous projects. The Third Elementary Education Project

(closed FY06) pilot tested innovative approaches such as school-based management. Under TEEP, test

scores and completion rates improved between 2003-05 at rates higher than non-project schools. SEMP2

(closed FY07) provided key inputs in education and health, supported community based services in the

poorest barangays, and enhanced performance and governance in three social sector departments (DepEd,

DOH and DSWD). The project contributed to: (a) an improvement in the textbook to pupil ratio for math,

science, English and Filipino from 1:2.5 in 2003 to 1:1.32 for elementary and 1:1.35 for high schools in

2007; (b) improvement in the TB cure rate from 73 percent in 2003 to 82 percent in 2006; and (c) a

reduction in measles from 7,194 cases in 2003 to 173 cases in 2006. It also demonstrated the effectiveness

of procurement reforms - ICB resulted not only in an improvement in quality but also a reduction in cost of

46 percent.

Both projects laid the foundations for sector wide approaches - NPS operations in Basic Education

(approved FY06) and in Health (approved FY06). Both operations support sector reform and efficiency

improvements in DepEd and DOH respectively: i.e., school based management, teacher competency

standards and reduction in disparities between schools for education; and increased enrolment of indigent

people in the National Health Insurance Program, health services delivery (supply side) improvements and

stronger regulations. Start up of both projects is taking longer than planned so no results are available as

yet.

CAS Outcome: Greater voice and improved access for the poor and disadvantaged in planning and

delivery of education, health, and other basic services at the local level (Social Inclusion: Local Platform)


In addition to disparities between the rich and

poor (outlined above), disparities exists between

different parts of the countries. For example,

poverty incidence in 2003 was 61 percent in the

Autonomous Region in Muslim Mindanao

(ARMM) and 49 percent in Western Mindanao

compared to a national average of 26 percent.

Life expectancy in ARMM was 10 years lower in

2000.

Poor service delivery was seen as leading to lack

of engagement in government by the poor, which

in turn resulted in poorer services.

The 2008 economic report noted that there continues

to be a pressing need to target human capital

interventions to the poorest households. It noted

continued disparities in education and health service

levels between developed and poor regions in the

Philippines.


The Bank has been engaging local communities directly in the delivery of local services and infrastructure,

targeted to the poor. Several Bank-financed projects take a participatory approach where local

communities identify their priorities, with support from project and local government staff, and select

project investments from a menu of options (generally including roads, water systems, school buildings,

and other facilities). These could be part of a national program, e.g., promoting better natural resource

management (CBRMP) or land reform (ARCDP2), or these could be community-driven operations, e.g.,


Page 29 of 33


Kalahi-CIDSS, ARMM Social Fund, MRDP2, and the Mindanao Trust Fund. The Kalahi-CIDSS is a

national program targeted to the poorest provinces and municipalities. The ARMM Social Fund, MRDP2

and the Mindanao Trust Fund target Mindanao.

These community oriented projects have had positive impact on beneficiaries. Sixty-five percent of

participating households in CBRMP experienced an increase in income (compared to a project target of 25

percent). Participating households in ARCDP2 are estimated to have experienced a 21 percent increase in

real income three years after joining the project. An economic analysis of Kalahi-CIDSS investments at

mid-term estimated economic rates of return of 22 percent for rural (farm to market) roads and 65 percent

for small water supply investments.

CAS Outcome: Increased access to financing of micro-enterprises, cooperatives, and small and medium

enterprises and increased private service delivery of basic social services (Social Inclusion: Private Sector

Platform)


The poor were seen as not benefiting from

economic growth. While economic growth

increased employment in the formal sector, a

heavy pool of under-employed labor and new-

entrants kept the unemployment rate around 11

percent.

The Philippines continues to experience high

economic growth. Economic growth, however, has

not led to significant employment generation:

unemployment remained around 8 percent.


The Bank provided credit to rural micro-, small and medium enterprises (SMEs) through Rural Finance 3

(closed FY08). A total of 546 subloans were made to rural enterprises through the Land Bank of the

Philippines for a total investment of Php 11.1 million, creating close to 17,000 jobs. Another 114,902

micro-loans for US$15 million were made to rural micro-enterprises through the People’s Credit and

Finance Corporation.

IFC is playing a role in small scale private sector development and the private sector provision to social

services. In 2008, IFC signed advisory agreements with a mid-tier commercial bank and the largest micro-

finance institution in the Philippines, both of which are interested in greater involvement with SMEs, under

IFC’s SME Banking program. IFC is advocating for increased private investment in Mindanao and is

providing advisory services to the banana export industry in southeastern Mindanao with the overall

objective of improving the take home pay of banana farmers. In terms of social services, IFC has invested

in Asia Hospital, serving Metro Manila, southern Cavite, Laguna, and Batangas.


Page 30 of 33

Appendix 2: Major Analytical and Advisory Activities, FY06-08

Economic and Sector Work a/ Non-Lending

Technical Assistance Planned Actual FY2006 Philippines Analytical

Work on Poverty

Environmental Monitor

Local Government

Finance and Development

Accounts and Audit

Corporate Governance

Investment Climate

Accounts and Audit

Corporate Governance

Social Inclusion

Mindanao Program

Partners for

Development Forum

Meeting Infrastructure

Needs

Youth Development

FY2007 Philippines Political

Economy of Reform

Public Expenditure

Review

Public Expenditure

Tracking - Education

Agriculture Public

Expenditure Review

Environmental Monitor

Development Policy

Review (Invigorating

Growth, Enhancing Its

Impact )

Investment Climate

Meeting Infrastructure

Needs (Power)

Gender and Conflict in

Mindanao

Health Policy Dialogue

Social Protection

Country Systems

Mainstreaming and

Social Safeguards

FY2008 Development Policy

Update

Political Economy of

Reform

Country Procurement

Assessment

Country Environment

Assessment

Development Policy

Update 2007

Country Procurement

Assessment

PEM Reform Support

OECD Procurement

Assessment Report

Law & Regulation for

Bankruptcy Procedures

Note a/ The CAS considered the AAA program evolving over time and did not provide a schedule of ESW. The

planned deliveries and actuals are based on the annual Memorandums of Agreement between the Country

Management Unit and the Region.


Page 31 of 33

Appendix 3: Philippines Lending Program FY06-09

Planned Actual

Project US$ M Project SUS$ M

FY2006 NPS for Basic Education 100 NPS for Basic Education 200

NPS for Health 40 NPS for Health 110

NPS for Public Expenditure

Rationalization

80 Support for Strategic Local

Dev. & Investment

100

NPS for Participatory Irrigation 30

Local Govt. Support for Cities

Development

35

285 410

FY2007 NPS for National Roads 2

(NRIMP2)

200 NPS for Tax Administration 11

NPS for the Environment & Nat.

Resources Mgmt

30 NPS for the Environment &

Nat. Resources Mgmt

50

NPS for Mindanao Rural

Development 2 (MRDP2)

75 Mindanao Rural

Development 2

84

Local Govt. Support for Municipal

Finance

50 Development Policy Loan 1 250

PSD Support for MWSS Financial

Rehabilitation

100

455 395

FY2008 NPS for Social Protection

(currently CCT)

50 National Roads Improvement

and Management 2

232

(Original) Local Govt. Support for LGUs

through Performance Grants

50 Bicol Power Restoration 13

Local Govt. Support for Regional

Water Supply

50

PSD Support for Rural Power 2 40

PSD Support for

Logistics/Infrastructure

75

265

FY2008 National Roads Improvement &

Management 2

232

(Updated) PSD Support/PPP Transport

(LRT1)

260

MWSS Water Distribution System

Rehabilitation

125

Participatory Irrigation

Development APL1

50

Bicol Power Restoration 13

Development Policy Loan 2 Tbd

(680) 245

FY2009 Local Govt. Support for LGUs

Through Performance Grants

100 Food Crisis Response

Development Policy Op.

200

PSD Support for CALA North-

South National Road

140

Judicial Reform Support 2 40

Support for Regional and Local

Water Supply

50

National Sector Support for Social

Welfare & Development Reform

(currently CCT)

50


Page 32 of 33

Appendix 3: Philippines Lending Program FY06-09

Planned Actual

Project US$ M Project SUS$ M

PSD Support for Rural Power 2 100

Support for Transco Concession 63

NPS for Integrated Financial

Mgmt. & Accounting

Tbd

Development Policy Loan 3 Tbd

(543) 200

Note: NPS = National Program Support

PSD = Private Sector Development

Actuals for FY09 as of February 2009


Page 33 of 33

Appendix 4: Selected Indicators of Bank Portfolio Performance and Management **

FY06 FY07 FY08

Number of Projects under Implementation

23 23 24

Total Net Commitment

US$1.44 bn US$1.41 US$1.43 bn

Portfolio Status

Projects at Risk a/ 3 3 4

13.0% 13.0% 16.7%

Commitments at Risk US$94.6 m US$84.0 m US$107.0 m

6.6% 6.6% 7.8%

Of which Actual Problem Projects 3 3 4

13.0% 13.0% 16.7%

Projects in problem status for one year or more 0 0 2

Performance Indicators

SPN Resources per project (US$000) 65 63 76

Disbursement Amount US$138.8 m US$137.2 m US$188.3 m

Disbursement Ratio b/ 21.1% 15.2% 20.1%

Overdue Audit Reports 0 0 0

a/ Projects rated U or HU on development objectives (DO) and/or implementation progress (IP).

b/ Ratio of disbursements during the year to the undisbursed balance of the Bank’s portfolio at the

beginning of the year: Investment projects only.

** All indicators are for projects active in the portfolio, with the exception of the Disbursement Ratio which

includes all active project and project which existed during the FY.

Annex 4

World Bank FY09 Client Survey

and CAS Multistakeholder Consultations

World Bank FY09 Client Survey for the Philippines

1. Background. A Client Survey was conducted in August 2008, which was timed to provide

some initial client perceptions prior to the face-to-face stakeholder consultations on the CAS. The

survey was designed to assist the World Bank in gaining a better understanding of how stakeholders in

the Philippines perceive the Bank, as well as use data to inform the CAS formulation process that the

country team was about to embark on. The survey asked about: overall attitudes toward the Bank; the

importance of specific areas of the Bank’s work and the Bank’s effectiveness in those areas; the

respondents’ level of agreement with the way the World Bank does business; general issues facing the

Philippines; and the Bank’s communication and outreach efforts in the Philippines.

2. Process. Approximately 1,500 stakeholders of the World Bank in the Philippines were

invited, through mailed questionnaires, to provide their opinions on the Bank’s assistance to the

country. Participants in the survey were drawn from among national government officials or staff,

local government officials or staff, members of Congress or staff, government-owned corporations or

financial institutions, agencies implementing Bank-supported projects, bilateral and multilateral

development agencies, private sector organizations or businesses, civil society organizations, the

media, and members of academe or research institutes. A total of 337 stakeholders participated in the

client survey (22 percent response rate), mostly from the Government. This response rate is a little

higher than the standard response rate in the Philippines for mailed questionnaires, according to the

local expert firm which handled the logistics for the survey. The analysis of the results was conducted

by the World Bank team in headquarters which supports the client surveys globally.

3. Results. The FY09 Client Survey results in the Philippines indicated that, overall: the Bank

was very well regarded in the Philippines; the Bank’s work in the country was valued; and that

stakeholders were eager for the Bank to be involved in the most critical development challenges facing

the country. The Bank was very well regarded in most areas including: relevance, results, and

alignment with stakeholders’ development priorities; work on poverty; and in its collaboration with

other development partners. Stakeholders were quite positive about the Bank’s work specifically in

poverty. The Bank was considered responsive and collaborative with other donors.

4. Areas of Focus. In terms of areas of focus, the Client Survey indicated that corruption and

poverty were considered the key development priorities in the Philippines; a plurality of stakeholders

believed the Bank should focus primarily on corruption, followed by poverty. Stakeholders clearly

recognized the connection between corruption and poverty; when asked what would contribute most to

poverty reduction, corruption and jobs emerge at the top of the list. The results of the Philippines

Client Survey demonstrated a clear interest in Bank involvement in supporting efforts to reduce

corruption in the country, not only in terms of its overall support, but also, according to the data, in its

knowledge and research.

5. Value to the Clients. In terms of value of the World Bank to the clients, the results indicate

that the Bank is mostly valued for its lending to finance development projects. The Bank’s knowledge

is less valued in the Philippines than in many other countries surveyed. The Bank’s greatest weakness

is perceived to be its disregard of political realities on the ground and its bureaucratic way of

conducting business that is not attuned to country conditions.

FY09 Client Survey/CAS Multistakeholder Consultations Philippines FY10-12 CAS - Annex 4

Page 2 of 9

6. Responses to key questions in the FY09 Client Survey:

“What are the first and second greatest

“What are the first and second greatest

“Where would it be most productive for WB to focus most of its resources?”

27%

23%

19%

1%

2%

2%

3%

5%

6%

7%

19%

16%

7%

8%

8%

8%

16%

12%

9%

0% 5% 10% 15% 20% 25% 30%

Reducing corruption

Reducing poverty

Increasing employment

Government effectiveness/ governance

Improving basic infrastructure

Providing quality education to children

Modernizing agriculture

Economic growth

Improving delivery of health services

Improving effectiveness of LGUs

Reducing population growth

Food security

Improving environmental quality/ protecting

natural resources

Improving investment/business climate

Strengthening public finances

Improve effectiveness of law & justice

system

Climate change

Implementing land reform

Reducing crime/violence

Percentage of Respondents

(N=327)

“Which two areas do you think would be most valuable for the Bank to focus its research efforts on in the next few years in the Philippines?”

24%

23%

21%

2%

2%

2%

3%

4%

4%

5%

5%

6%

19%

16%

6%

7%

9%

9%

15%

10%

10%

0% 5% 10% 15% 20% 25%

Anti-corruption

Poverty

Education

Governance

Environmental sustainability/natural

resources management

Rural development

Labor markets/job creation

Enhanced business environment for private

sector development

Improving equality of opportunity

Public sector performance

Public expenditure

Urban/metropolitan development

Agri-business

Energy

Social protection

Health

Water and sanitation

Monitoring and evaluation

Other

Financial markets

Transport


(N=324)

“What are the first and second greatest values brought by the WB to the Philippines?”

50%

10%

12%

18%

17%

2%

1%

6%

3%

10%

16%

3%

8%

8%

11%

24%

0% 10% 20% 30% 40% 50% 60% 70%

Providing loans to

finance development

projects

Technical support

Ability to mobilize

resources for

development work

Providing loans to

promote policy

reforms

The Bank's

knowledge

Convener/facilitator

Ability to build

implementation

capacity

Donor coordination


(N=319)

Greatest value brought to the Philippines by the Bank Second greatest value

62%

34%

34

27%

14%

9%

5%

14%

“Which of the following are the Bank’s two greatest weaknesses in its work in the Philippines?”

48%

34%

25%

24%

19%

9%

18%

14%

10%

0% 10% 20% 30% 40% 50%

Imposing technocratic solutions without

regard to political realities

Too bureaucratic in its operational policies

and procedures

Analyses/ recommendations not attuned to

country conditions and culture

Not exploring alternative policy options

Too influenced by the US

Imposing solutions which aren't practical

Too small a player relative to the

Philippines' economy

Staff too inaccessible

Is arrogant in its approach


(N=288)


Page 3 of 9

CAS Multistakeholder Consultations

7. Background. The multistakeholder consultations were the main instrument for early

consultations about the key challenges and possible CAS themes. Building on the experience in the

past CAS period and on its regular outreach and dialogue activities, the Bank Group, together with the

Knowledge for Development Centers (KDCs, which are partnerships between the World Bank and

leading state and private universities), organized multistakeholder consultation workshops across the

country in September and October 2008. These workshops involved national and local governments,

civil society, the business community/private sector, academe, labor groups, and other development

partners.

8. Process. Four consultations were co-organized with the Ateneo de Naga KDC for the

consultation in the Bicol Region; Central Philippine University KDC in Iloilo City for Central and

Eastern Visayas; University of Southeastern Philippines KDC in Davao City for Mindanao; and Asian

Institute of Management KDC in Makati City for Metro Manila and neighboring areas in Luzon.

Participating in the consultations were 288 representatives, of which 42 percent was from government,

36 percent from civil society, 16 percent from academe, 3 percent from the private sector; and 3

percent from development partners. These representatives were chosen from the Bank’s wide network

of contacts and partners at the national, regional, and local levels.

9. The consultations provided a venue for a meaningful exchange of views with government and

various stakeholders on the critical development challenges as well as policy options and programs

that would address these challenges. They also helped increase government’s and stakeholders’

understanding of the Bank’s work in the Philippines. Four questions were tackled in small group

discussions, using a format called Knowledge Café. These questions referred to the causes of

worsening poverty; causes of the inadequate performance of public institutions in delivering public

services to citizens; priority programs that should be included in the new CAS; and issues that the

Bank should not be involved in. A consultant organization facilitated the workshop, and key staff from

the World Bank participated in the discussions.

10. Results. The issue of governance surfaced throughout all the four consultations. In the

discussion of poverty, three causes were identified: bad governance, poor quality of education, and

lack of livelihood and employment opportunities. In the discussion of the failure to deliver public

services, governance-related causes were again identified, specifically corruption, weak citizen

participation, weak leadership, and a bloated and inefficient bureaucracy. A wide range of solutions

were recommended, including electoral reforms, strengthening local governments, streamlining the

bureaucracy, decentralization, and increased investment in human capital. The priority areas

recommended for the new CAS were along the same theme of governance: electoral reforms,

transparency, and improving local governance. Also identified as priority areas were education, health,

and social protection. The Bank, the participants said, should not engage in any form of political

intervention and should not be involved in mining.

11. The following is a summary of the key messages from the four regional multi-stakeholder

consultations for the new CAS:


Page 4 of 9

A. Causes of Worsening Poverty and Recommended Solutions:

Causes Solutions

Bad governance, including: (a) the

dysfunctional system of governance in

BLGU, LGU, national governments; and (b)

corruption at all levels of government

Continue education for electoral reforms (educate

voters, communities) and promote strong political

parties

Strengthen regulatory agencies (COA, CSC, etc)

Reform the justice system to make government

officials accountable and impose corresponding

punishment on corrupt officials

Institute a well-defined transparency and

accountability program within the Government and

all its agencies

Set up an institute for leadership to train and

educate, mentor and coach government leaders

Promote vigilance in the community; set up

“community watch”

Make the national budget transparent and open to

public scrutiny. If possible, this should be accessible

on-line

Poor quality of education, particularly in the

rural areas, results in high illiteracy rate,

weak political voice, unemployment, and

continuing poverty

Increase investments in human capital, particularly

for health and education

Provide scholarships for formal and vocational

training

Improve the educational system and facilities

(including training of teachers)

Lessen political intervention, particularly in hiring

teachers

Provide incentives to students to increase their

participation rate, such as the “Food for School

Program”

Improve statistical systems as planning and

development tools for more responsive programs

Lack of livelihood and employment

opportunities

Implement microfinance projects with social

insurance and capacity building for micro enterprises

Develop livelihood opportunities in the rural

areas to stop rural people from migrating to urban

areas

Encourage big companies to practice corporate

social responsibility

Pursue asset reforms (i.e., Agrarian Reform,

Fisheries Program, Certificate for Ancestral Domains,

etc)

Promote micro & SMEs to generate employment


Page 5 of 9

B. Causes of the Inadequate Performance of Public Institutions and Recommended

Solutions:

Causes Solutions

The prevalence of corruption at all levels,

which results in the high cost of doing

business. This is due to the lack of

transparency in transactions and lack of

community vigilance

Ensure transparency and disclosure of public

budgets, programs/projects and disbursement through

posting of information, publication or on-line

disclosure on the internet

Strengthen the current judicial system

Strengthen people’s participation and

involvement in the identification and prosecution of

corrupt officials

Ensure the active participation of business and

private sector in anticorruption campaigns

Strengthen the auditing system

Institutionalize close monitoring and regular

evaluation of programs and projects

Cut red tape

Increase corruption penalties

Implement lifestyle checks and use results as

basis for funding

Discourage solicitations from government

personalities and institutions

Lack of or weak citizen participation in all

aspects of local governance

Strengthen local development councils and local

special bodies

Professionalize elective leaders

Upgrade qualification standards for elective

officials

Focus support on lower-level government units

and communities

Government should engage the private sector and

civil society in identifying priorities that truly address

development needs of the community

Provide continuous capacity building for NGOs

and POs

Lack of professionalism and inadequate

leadership and management capacities of

political leaders and public servants

Conduct values education and capacity building

activities for government officials and workers

Implement rewards-based performance system

Develop an integrated and institutionalized

Performance Management System for government,

e.g., public disclosure or report card system for

national government agencies and LGUs (there are

existing practices but should be done in all

institutions)

Advocate for electoral reforms to make the

appointment process transparent and based on merit

and performance,

Advocate for civil service reforms, e.g., to

improve compensation package for public servants


Page 6 of 9

Causes Solutions

A bloated and inefficient bureaucracy that

results in the lack of communication and

coordination and hampers the delivery of

public services

Streamline the bureaucracy – both in offices and

processes

Further decentralize the governmental system in

order to give rise to a more local government system

Shorten time in processing government

transactions and lessen minimum requirements

Upgrade computer systems and maximize ICT

infrastructure

Professionalize the bureaucracy by ensuring

competitive salaries for civil servants

Better implement “rationalization policy”

C. Proposed Priority Programs for the New World Bank CAS:

Basic education, health and other social services at the grassroots level.

Food sufficiency and security programs that will improve farm gate prices of the produce

of farmers and promote collaboration between the government and private sector.

Capacity-building to improve local governance (e.g., institutionalization of social

accountability mechanisms, replication and/or scaling up of and replication of best

practices in local governance).

Programs that improve transparency and accountability in government agencies (e.g.,

strengthening of civil society participation in oversight roles, prosecution of erring public

officials, etc.).

Electoral reforms to strengthen democratic processes (e.g., voters’ education).1

Social protection (e.g., poverty maps and improved targeting mechanisms and conditional

cash transfers through municipal LGUs).2

D. Issues that the World Bank Should Avoid:

Political intervention, whether engagement in partisan politics, giving in to political

pressure or direct involvement in conflict resolution and the war against terrorism.

Mining. Large-scale mining is against sustainable development. “Responsible mining” is

still a vague concept. In one consultation, however, a workshop group qualified its

opposition as follows: “mining projects that are not supported by communities.”

Policy of government on the importation of goods. The rice importation program of

government (DA) is a failure. At the same time, technologies developed in the Philippines

have been copied by foreigners and Filipinos have ended up as consumers of goods

produced by these technologies.

Human rights violations. The World Bank should not support or fund enterprises or

industries that encourage human trafficking, sex slavery and those that employ minors.

Use of foreign consultants. The World Bank should minimize the use of foreign

consultants and maximize the use of local experts.

1 While electoral reforms was suggested as a priority program for World Bank support, this recommendation

must be viewed against the concern of some participants that the World Bank should avoid engagement in

partisan politics (see succeeding section on Issues that the World Bank Should Avoid). 2 There were no objections to World Bank support for social protection in general. However, some participants

expressed disagreement with CCT programs (see Section E: Issues Where There Were Divergent Views on

World Bank Involvement).


Page 7 of 9

E. Issues Where There Were Divergent Views on World Bank Involvement:

Participants had divergent views on World Bank involvement in several issues. While many

felt that the World Bank should avoid these issues, some participants felt that there was

opportunity for World Bank involvement:

Policy making on bidding, procurement, taxes, tariff. While the majority felt that the

World Bank should not be involved in policy-making, one participant disagreed that the

Bank should refrain from engaging in issues such as taxation since, for example, the

value-added tax, or VAT, has reaped many benefits.

Microfinance assistance with NGAs, LGUs. One participant commented that one

workshop group had recommended World Bank support for microfinance, while another

group had recommended against World Bank support. Another participant clarified that

there is no conflict because the other group had said that World Bank should not support

microfinance implemented by the Government.

Partisan politics in 2010. Many felt that partisan involvement in the 2010 elections

would erode the credibility of the World Bank. However, a participant commented that the

World Bank could contribute to electoral reforms through: (a) policy reforms (e.g., putting

in place a nomination process); (b) examining the comparative advantages of a two-party

vs. multi-party system; and (c) leveling the playing field, e.g., supporting qualified

candidates who do not have the resources to run.

Indigenous peoples. A participant sought clarification on why the World Bank should

avoid issues related to IPs. Another participant responded that it is all right for the World

Bank to help IPs as long as the cultural heritage of the latter is preserved.

Family planning programs. There was divergence in participants’ views whenever this

issue was brought up in the regional consultations. In Bicol, a participant commented

(during the open forum) that one workshop group had objected to the Reproductive Health

Bill, while another group had identified it as a solution to the problem. In the NCR

consultation, while population control was identified as an issue that the World Bank

should avoid, two measures were proposed for World Bank support to address the

population issue: (a) pass laws on population control; and (b) include population education

in World Bank projects.

Cash grants and subsidies. Sustained social security measures must be put in place

instead. If conditional cash transfer (CCT) programs are to be implemented, these should

be implemented by municipal LGUs (who are closer to the ground) than provincial LGUs.

Project identification and prioritization. A participant clarified that, as an operating

procedure, all projects approved by World Bank are proposed by national government and

therefore, are assumed to be for the betterment of the nation. However, the World Bank

should look into these projects and make sure that these are what the people really need.

12. A detailed feedback report was sent to all the participants of the multistakeholder

consultations and was posted on the Bank’s Philippines website to inform the public about the

messages and recommendations. A second round of meetings was held with top government officials

and leaders from civil society organizations (CSOs) and private sector, as well as with other

development partners, both bilateral and multilateral agencies in January 2009. The meetings

provided a venue for the Bank to present the issues it heard from the nationwide consultations and

Bank management, and for the groups to give insights on key policy directions. The groups identified

the need to factor in the economic and political climate on the magnitude, distribution, timing, and

prioritization of lending and non-lending programs in the country. There is also an expressed interest

in developing valid and reliable systems for collecting and analyzing data as the basis for development

intervention as well as instituting a monitoring and evaluation system for development projects. The


Page 8 of 9

groups indicated that critical to M&E system is the institutionalization of disclosure of information in

the public sector.

CAS Formulation and Consultation Process

13. The CAS process was launched internally through a retreat of the Country Leadership Team in

April 2008. The discussions on the CAS then went through various stages of brainstorming, debating,

working group discussions, government and external consultations, and internal reviews.

Organizationally, a CAS leadership team and core team served as the nucleus for the work which, at

many points, involved the entire country team.

14. Following is a summary of major events that took place throughout the almost year-long CAS

formulation and consultation process, including the major highlights of each activity. In addition to

the list below, a CAS team meeting was held on a bi-weekly basis during the period June 2008 to

April 2009. It should also be noted that many other external consultations happened through bilateral

meetings with development partners and other stakeholders, as well as internal consultations through

virtual meetings not captured in the table below.

Main CAS Preparation Steps Highlights

April 1, 2008 - Country Leadership Team

(CLT) Retreat: Resource persons from

academe provided outside perspectives on

governance and poverty.

- Discussed:

- - Meeting the governance challenge

- Getting the poverty agenda in focus

- - Toward leaner and better operations

June 2, 2008 - CAS Team Retreat: Selected

development partners and resource persons,

including a government representative, attended

part of the retreat.

Reviewed: Accomplishments, gaps and opportunities in the

various sectors

Discussed: Composition of the CAS team, structure of the

working groups, and the CAS workplan /timeline

June 4, 2008 - CAS Session at the Country

Team Staff Retreat, Aklan

Held a simulation with the country team of the CAS external

consultation process

June 20, 2008 - First Meeting with

Representatives of the Oversight Agencies -

Department of Finance (DOF), National

Economic and Development Authority

(NEDA), and Department of Budget and

Management (DBM)

Exchanged views with Government on the proposed CAS

objectives, and the processing timetable for the CAS

formulation and consultation

July 8, 2008 - CAS Debate “Revolutionaries”

vs “Tweakies” (with participation of CAS

team members in Manila and DC via videocon)

Debated two possible approaches to the CAS:

- “Revolutionaries”: A radical shift toward poverty agenda

and AAA, applying governance and poverty filters

- “Tweakies”: Stronger focus on direct poverty reduction and

slight adjustments in the current conceptual framework

August 13, 2008 - Review of CAS Completion

Report (with participation of CAS team

members in Manila and DC via videocon)

Discussed the first draft CASCR, including initial results

assessments

August 14, 2008 - CAS Workshop on

Working Groups Reports

Discussed outputs from each of the initial CAS working

groups. Defined new working groups according to five

strategic objectives: Stable Macro Economy; Improved

Investment Climate, Better Public Service Delivery, Reduced

Vulnerabilities, and Good Governance

August 21, 2008 - Second Meeting with

Representatives of the Oversight Agencies

Briefed the Government oversight agencies on the progress to

date and initial thinking on the strategy


Page 9 of 9

Main CAS Preparation Steps Highlights

September 17-18, 2008 - Consultations with

Heads of Agencies

Held focused discussions on the Bank Group’s initial thinking

on the CAS, and implementing agency heads’ suggestions on

the strategy

Multistakeholder CAS Consultations:

- September 24, 2008 Davao Consultation

- September 26, 2008 Iloilo Consultation

- September 29, 2008 Naga Consultation

- October 3, 2008 Manila Consultation

(See details in earlier section of the Annex)

October 14, 2008 - Philippines Day in

Washington, D.C. (DOF Sec. Margarito Teves

delivered opening remarks)

Discussed the emerging framework of the CAS with the full

country team and other HQ-based colleagues

November 3-6, 2008 - Presentations by the

CAS Working Groups to the Country

Director

Each CAS working group presented to the CD the results of

working group discussions to date

November 26, 2008 - CAS Consultation with

Business/Private Sector Representatives

Focused discussion to obtain private sector views on the CAS

December 8-9, 2008 - IFC-IBRD Strategy

Meeting, Manila (with participation of CAS

team members in Manila and DC via videocon)

Undertook a SWOT analysis, identified sectors for possible

joint programs, and discussed shared vision and results for the

country program

December 11, 2008 - Upstream Review

(Regional Operations Committee)

Received overall guidance from management on moving

forward with the current directions of the CAS

January 26, 2009 - Third Meeting with

Representatives of the Oversight Agencies on

the draft CAS and CAS Completion Report

Updated DOF and NEDA on the emerging CAS, and heard

from DOF and NEDA on their comments on the draft CAS

document (Written comments from NEDA followed)

January 26, 2009 - Meeting with Development

Partners

Updated development partners on the emerging CAS, and

solicited their inputs to the strategy and particularly to Annex

7 of the strategy

January 29, 2009 - Philippines CAS Team

Workhop, Manila

Focused on the identification and prioritization of the

operations under the CAS lending and non-lending programs

January 30, 2009 - Meeting with Civil Society

Organizations (CSOs)

Updated selected CSO partners on the emerging CAS, and

solicited their views

February 24, 2009 - CAS Programming

Discussions with the Oversight Agencies

Discussed with government oversight agencies (including

Office of the President and BSP) the revised CAS draft, and

agreed on its flexibility and on indicative lending and non-

lending programs under the CAS

March 9, 2009 - Final CAS Review (Regional

Operations Committee)

Received additional guidance, and overall support from

management to proceed with CAS processing for Board

discussion

March 16, 2009 - Working-level meeting with

Representatives of Oversight Agencies

Discussed with the government counterparts the changes in

the CAS that were made in response to government

comments, as well as additional refinements in the document

March 19, 2009 - Wrap-Up Meeting with

NEDA on the CAS

Discussed with NEDA latest changes to the CAS document,

and agreed on the next steps, including a press release

March 19, 2009 - Submission of CAS for final

internal clearances

Philippines FY10-12 CAS – Annex 5 Page 1 of 12

Philippines FY10-12 CAS Results Framework

1.1 Fiscal and financial stability through consolidation and improved macroeconomic risk management • Outcome 1: Maintained tax effort through strengthened tax administration and tax policy reform • Outcome 2: Improved efficiency and targeting of public expenditures • Outcome 3: Improved management of key fiscal and financial sector risks

5.1 Governance and anticorruption in selected national government agencies Outcome 1: Core business systems, processes and capacities in selected agencies improved

5.2 Procurement and public financial management reforms at national and local levels Outcome 1: The Procurement Law more strictly enforced Outcome 2: Improved management and greater transparency in public finances

5.3 Better local governance through more effective decentralization Outcome 1: Deepened and refined decentralization through broad-based reforms Outcome 2: Strengthened LGU performance for more effective service delivery

Engagements: National and Local Level

Private Sector

Strategic Objective 3: Better Public Service Delivery

Strategic Objective 2: Improved Investment Climate

Strategic Objective 1: Stable Macro Economy

Strategic Objective 4: Reduced Vulnerabilities

Inclusive Growth

2.1 Enabling business environment to promote competitiveness, productivity and employment • Outcome 1: Increased and improved delivery of infrastructure • Outcome 2: Enhanced regulatory policy frameworks and institutional capacity for investment, service delivery, and trade • Outcome 3: Increased investment and employment in rural and urban development 2.2 Financial services • Outcome 1: Increased delivery and access to financial services

3.1 Public service delivery in key sectors • Outcome 1: Improved access to quality basic education services • Outcome 2: Improved access to health services • Outcome 3: Increased household access to safe drinking water and sanitation services 3.2 Basic service delivery in poor areas • Outcome 1: Scaled-up provision of basic services through a nationwide community-driven development program • Outcome 2: Enhanced effectiveness of public service delivery through more coordinated area-based approaches

4.1 Social protection system • Outcome 1: National household poverty targeting system in place and used • Outcome 2: Conditional Cash Transfer (CCT) program fully operational 4.2 Disaster risk management and climate change • Outcome 1: Disaster- and climate change-related risks reduced • Outcome 2: Greenhouse gas emissions reduced through expansion of mitigation programs in key sectors and LGUs 4.3 Stability and peace • Outcome 1: Enhanced impact and conflict-sensitivity of development programs implemented in communities in Mindanao affected by armed or violent conflict • Outcome 2: Scaled up provision of basic services and livelihood support through CDD in communities affected by armed or violent conflict

Cross-Cutting Theme: G o o d G o v e r n a n c e

Improved income opportunities and enhanced abilities of households and communities, especially of the poor, to participate in markets through strengthened human capital, reduced vulnerability to shocks and increased economic empowerment

Philippines FY10-12 CAS Results Framework Philippines FY10-12 CAS - Annex 5 Page 2 of 12

PHILIPPINES: FY10-12 CAS Results Framework

End-FY12 CAS Results Areas and Outcomes Indicative Milestones World Bank Group Program

Overall CAS Theme: Inclusive Growth Improved income opportunities and enhanced abilities of households and communities, especially of the poor, to participate in markets

through strengthened human capital, reduced vulnerability to shocks, and increased economic empowerment

CAS Objective 1: Stable Macro Economy MTPDP Goals: Maintain economic stability through further fiscal consolidation (improved revenue generation as well as strengthened expenditure management), rationalized national government spending for devolved services, and reduced debt. Issues and Obstacles:

Despite recent progress, external and public debt levels are still high Recent fiscal improvements need to be placed on a more sustainable basis through increased tax revenues and improved expenditure management Vulnerability to external shocks, fiscal, and macro financial risks Underdeveloped financial MIS limits ability to track and report data in timely manner as basis for policy

1.1 Fiscal and financial stability through consolidation and improved macroeconomic risk management

Outcome 1: Maintained tax effort through strengthened tax administration and tax policy reform1 Indicator 1: Tax/GDP Baseline: 13.3% (2009, est.) Target: 13.9% (2012) Indicator 2: Nonfinancial public sector debt/GDP Baseline: 62.4% (2008) Target: 57.7% (2012)

Outcome 2: Improved efficiency and targeting of public expenditures Indicator: Forward Estimates (FE) and Paper on Budget Strategy (PBS) as input for annual budget formulation Baseline: Not being used Target: Fully used (2012)

Outcome 3: Improved management of key fiscal and financial sector risks Indicator 1: Regulatory requirements (for capital adequacy ratio, liquidity, non-performing loan provisioning) Baseline: Being met (2008) Target: Continue to be met (2009-2012) Indicator 2: Commercial banks’ distressed asset ratio Baseline: 12.5% (9/2008) Target: Below baseline (2012)

Fiscal incentives and tobacco excise tax rationalization laws passed Tax ratio in 2010 is as high as or greater than in 2009 Strengthened Large Taxpayer Service Department of Budget Management (DBM) ready to prepare Forward Estimates (FE) and Paper on Budget Strategy (PBS) on their own Fiscal risk statement established and published (2010)

Ongoing Financing: National Program Support (NPS) for Tax Administration Reform (NPSTAR) TF Strengthening of Revenue Administration and Collection Efficiency (Institutional Development Fund - IDF) TF Policy-Based Budgeting Medium-Term Framework (IDF) Indicative Financing: Development Policy Loan (DPL) Development Policy Loan – Deferred Drawdown Option (DPL DDO) Indicative AAA/Others: Philippines Development Reports Quarterly Economic Updates Programmatic AAA on Public Expenditure Issues Development of the Philippines Statistical Development Plan (including grant to improve quality and usefulness of Philippine household surveys) IFC Advisory Services (AS) on crisis/insolvency management

1 Tax policy measures approved earlier and the ongoing economic slowdown are expected to push the tax/GDP ratio to 13.3% in 2009, so that subsequent reform measures to reverse this trend are projected to generate a gain of 0.6% of GDP through 2012 relative to the 2009 baseline outcome.


End-FY12 CAS Results Areas and Outcomes Indicative Milestones World Bank Group Program

CAS Objective 2: Improved Investment Climate MTPDP Goals: Encourage the private sector to strengthen trade and investment and attain national investment rates of about 25-28 percent of GDP; continue with the integration of the transport system, and develop and diversify the energy mix; ensure smooth financing for entrepreneurs, including microfinance for underserved areas. Issues and Obstacles:

Spending on quality infrastructure (for both maintenance of existing assets and new capacity) is inadequate to meet current and future requirements and ensure greater access to rural areas

Investment climate constrained by nontransparent and unstable regulatory framework Lack of coherent, socially acceptable and environmentally sustainable policy frameworks and strategies consistent with international best practices

constrain investment climate for growth areas 2.1 Enabling business environment to promote competitiveness, productivity, and employment Outcome 1: Increased and improved delivery of infrastructure Indicator 1: National Road System (NRS) paved length in fair condition or better Baseline: To be determined during project formulation Target: 75% (2012) Indicator 2: New customers in rural areas with access to minigrid or Renewable Energy Technology (RET) under the Rural Power Project Baseline: 4,750 (end-2008) Target: 20,000 additional (2012) Indicator 3: Number of projects and total MW privatized (IFC involvement) Baseline: 3 plants privatized totaling 1,135 MW (2009) Target: 3-4 plants privatized, generating 1,135-1,500 MW (2011) Indicator 4: Levels of system loss for Mindanao Electrical Cooperatives (ECs) which are target of IFC Rural Electrification Project Baseline: 11.9% (2008) Target: 9.9% (2010) Indicator 5: Long-run IFC average Development Outcome Tracking System (DOTS) success rate for all mature power projects Baseline: 60% (2008) Target: 65% (2012)

A sustainable financing and maintenance regime developed for rural and secondary roads Urban transport management plan developed and ready for implementation in Metro Manila and for one major secondary city in Visayas or Mindanao Share of annual road program of Department of Public Works and Highways (DPWH) evaluated by technical and economic criteria increased to 80% Urban strategy developed that provides a framework for integrated infrastructure investment within the context of overall urban development Increased power capacity of 20 MW through RETs (Renewable Energy Technology) providing services to minigrids Increased power generation of about 775-1,375 MW by 3-4 IFC-supported power plants Achieved financial viability of 85% of supported Electrical Cooperatives (EC) Continued power sector privatizations involving Small Power Utilization Group (SPUG) with a special focus on renewable power generation Increased private sector investments in electricity generation and distribution, including geo-thermal Enhanced awareness among Small and Medium Enterprises (SMEs), national and local governments, manufacturers and developers about energy efficiency Six Electrical Cooperatives (ECs) assisted with

Ongoing Financing: Second Agrarian Reform Communities Development Project (ARCDP2) Diversified Farm Income and Market Development Project (DFIMD) Land Administration and Management Project 2 (LAMP2) Metro Manila Urban Transport Integration Project (MMURTRIP) National Roads Improvement and Management Project 2 (NRIMP2) Rural Power Project (RPP) Mindanao Rural Development Project – Phase 2 (MRDP2) IFC SN Aboitiz Power (SNAP) IFC Aboitiz Power Benguet, Ambuklao-Birga Hydro Plant (SNAPB) IFC Masinloc Power IFC Cagayan de Oro Power & Light Company (CEPALCO) IFC Philippines National Oil Company – Energy Development Corporation (PNOC-EDC, PNOC-EDC2, geothermal) IFC Eastwood (cyber-park) IFC South Luzon Tollway Corporation (SLTC) TF Rural Power Project (Global Environment Facility – Full Size Project - GEF FSP) TF Electric Cooperative System Loss Reduction Project (Global Environment Facility – Full Size project - GEF FSP) TF National Roads Improvement and Management Program (NRIMP2) – Enhanced Supervision (EAP Infrastructure for Growth TF - EAIIG)


End-FY12 CAS Results Areas and Outcomes Indicative Milestones World Bank Group Program Outcome 2: Enhanced regulatory policy frameworks and institutional capacity for investment, service delivery, and trade Indicator 1: PPP/BOTs (Public Private Partnership/ Build Operate Transfer) in (i) national infrastructure; (ii) local infrastructure Baseline: None (2008) Target: (i) 1-2; (ii) 5-10 (2012) Indicator 2: Commercial banks providing loans to Electrical Cooperatives (EC) Baseline: None (2008) Target: 4 (2012) Indicator 3: Private investment in Electrical Cooperatives (ECs) and Renewable Energy Technology (RET) Baseline: 0 (2008) Target: US$20m (2012) Indicator 4: Number of clustered subtransmission facilities for supply to Electrical Cooperatives (ECs) Baseline: 0 (2008) Target: 4 (2012) Outcome 3: Increased investment and employment in rural and urban development Indicator 1: Total household incomes of target beneficiaries in WBG-assisted projects Baseline: (i) MRDP: To be determined during project formulation; (ii) ARCDP2: Php 67,086 Target: (i) 20% increase in average household incomes of beneficiary communities over baseline and 10% increase over control group in MRDP; (ii) 20% increase three years after ARC (Agrarian Reforms Community) joins ARCDP2 Indicator 2: Business assets of target households Baseline: Php 33,640 (ARCDP2) Target: 10% increase in real value three years after household joins ARCDP2 (2012) Indicator 3: Agricultural productivity

capital expansion and structuring power supply aggregation agreements Extractive Industries Transparency Initiative (EITI) adopted Policy framework (including greater transparency) for structuring, financing, and implementing Public Private Partnership (PPP) projects in infrastructure strengthened, adopted, and introduced 1-2 Public Private Partnership (PPP) pilot/ demonstration projects with IFC support launched Regulatory capacity improved in 1-2 regulatory agencies in infrastructure Multiyear infrastructure investment programming, planning and budgeting strengthened through 1-2 line agencies in cooperation with National Economic and Development Authority (NEDA) and Department of Budget Management (DBM) and at the local level with Department of Interior and Local Government (DILG) and Local Government Unit (LGU) Leagues Increased capacity and budgets for project development in line agencies, particularly for Build-Own-Transfer (BOT) projects on a solicited basis Trade and transport facilitation policy developed and adopted Agri infrastructure logistics bottlenecks for high value crops identified in Mindanao Logistics/ supply chain management improvement program developed and adopted Introduced regulatory reforms to increase competition and efficiency in agri logistics (e.g., inter-island shipping, ports services) Adopted strategic policy reform road map for the liberalization of rice import regime to increase private sector participation Rural development strategy framework developed and adopted Strategic urban directions outlined and inputs provided to next Medium-Term Philippines

TF Lead Transaction Adviser for Cala Toll Road – Supervision Budget (Public Private Infrastructure Advisory Facility – PPIAF) TF Public Private Participation in Transport Infrastructure (Policy and Human Resources Development – PHRD) TF Agribusiness Value Chain, Logistics, and Infrastructure Study (EAP Infrastructure for Growth TF - EAIIG) TF Public Private Partnership (PPP) Support to Enhance the Capacity of the Toll Regulatory Board to be an Effective Regulator of Toll Facilities (EAP Infrastructure for Growth TF - EAIIG) TF Philippines Electrification: Best Practices in Subtransmission Development (EAP Infrastructure for Growth TF - EAIIG) TF IFC Private Sector Participation Project in Provision of Power Supply to Rural Nongrid Areas (Norway and USA) TF IFC Philippines Olongapo Power (Spain Technical Assistance Trust Fund – TATF) TF IFC ‘Doing Business’ Plus (USA) TF IFC Private Enterprise Partnership (PEP) (CIDA, AusAID, IFC) Indicative Financing: Light Rail Transit 1 South Extension Public Private Partnership (LRT-PPP) Tollway – Public Private Partnership (Cavite-Laguna) Urban Transport (Metro Manila and other cities) Secondary/Local Roads Rural Power Adaptable Program Loan 2 (APL 2) Agriculture and Agribusiness Support Mindanao Development Urban Renewal (Metro Manila Cities) Sub-National Water Public Private Partnership (with IFC) Participatory Irrigation Development Project (PIDP) IFC projects in power (generation, transmission, distribution, rural power), renewable energy (solar, hydro, geothermal), energy sector privatizations, supply-chain linkages in agribusiness (e.g., bananas), financial services, banking

Indicative AAA/Others : Trade Facilitation/ Transport/ Logistics


End-FY12 CAS Results Areas and Outcomes Indicative Milestones World Bank Group Program Baseline: ARCDP2: 100% cropping intensity in target irrigated areas; 3.76 metric tons per hectare (MT/ha) for rice; 2.34 MT/ha for corn; 1.92 MT/ha for coconuts Target: 140% increase in cropping intensity and 15% increase in yields three years after joining ARCDP2 (2012)

Development Plan (MTPDP) and National Urban Development and Housing Framework (NUDHF)

Investment Climate for the Poor (with IFC) Energy Sector Reform Public Private Partnership (PPP) Regulatory and Policy Support (IFC and Public Private Infrastructure Advisory Facility -PPIAF) Environmental Safeguards (including Environmental Assessments) Agricultural Productivity Growth Urban Strategy (including resettlement issues) IFC Advisory Services (financial services, SME banking, sustainable energy finance, energy efficiency, energy sector privatizations, structuring power concessions, Mindanao banana value chain, Business Enabling Environment (BEE), ‘Doing Business’, sub-national ‘Doing Business’, other sectors and areas) Continue to offer MIGA’s guarantee products (including Streamlined Small Investment Program for smaller scale projects)

2.2 Financial services Outcome 1: Increased delivery and access to financial services Indicator 1: Public and private credit bureau coverage of adult population Baseline: 5.4% (2008) Target: 30% (2012) Indicator 2: Number of new small-holder farmers receiving credit from partner banks due to WBG-supported projects and volume of credit Baseline: To be determined based on actual projects Target: To be determined; at least 2 IFC-supported projects/investments envisaged (2012) Indicator 3: Number/volume of MSME (Micro and Small and Medium Enterprise) loans from WBG supported banks Baseline: 0 Target: 10% increase per year Indicator 4: Volume of new housing finance loans Baseline: US$6.4m (2005) Target: US$12.5m (2012) Indicator 5: Volume of lending by Government Finance Institutions (GFI) to 2nd to 4th class LGUs Baseline: To be determined during project formulation Target: 30% increase (2012) Indicator 6: Participation of Private Financial Institutions

Enhanced effective single credit information bureau established Increased share of funding requirements of Micro and Small and Medium Enterprise (MSME) obtained through formal banking institutions (from a baseline of about 11-21%) Developed and adopted guidelines and transparency mechanisms for government farm credit guarantee facility Successful pilot testing of a First Loss Guarantee Facility for agriculture/ agribusiness Weather-based (index) agricultural insurance system pilot-tested in at least one region Enhanced access to housing finance products Mortgage toolkit for financial institutions introduced Enhanced access to risk mitigation and insurance services, especially for housing finance Risk-sharing facilities to support sustainable energy investments and Small and Medium

Ongoing Financing: Support for Strategic Local Development and Investment Project (SSLDIP) IFC Banco de Oro (BDO, banking), Bank of the Philippines Islands - BPI, Metrobank, East West Bank, Rizal Commercial Banking Corporation, Security Bank IFC Paramount Life and General Holding Corporation (PLGHC) TF Credit Rating for Selected Cities (Public Private Infrastructure Advisory Facility- Sub-National Technical Assistance – PPIAF SNTA) TF Small Water Utilities Financing (Public Private Infrastructure Advisory Facility- Sub-National Technical Assistance – PPIAF SNTA) TF IFC Asian Commercial Bank – Strengthening Financial Institutions in East Asia ((Japan Technical Assistance Trust Fund – TATF) Indicative Financing: Sub-National Finance (SSLDIP2, or Development Bank of the Philippines DBP3 - Regional Infrastructure for Growth) Sub-Sovereign Financing Facility (with IFC)


End-FY12 CAS Results Areas and Outcomes Indicative Milestones World Bank Group Program (PFIs) in financing sub-national projects (number of loans) Baseline: To be determined during project formulation Target: 5 additional (2012)

Enterprise (SME) finance promoted Improved access to grants and concessional financing to meet needs of low income Local Government Units (LGUs) and poor communities Increased reliance on own source revenue through better business tax and real property tax collections

IFC projects with banks supporting MSME access to credit IFC projects with major Philippine universal banks (consolidation, capital raising, liquidity and risk sharing facilities) IFC projects in housing finance, recovery of bad assets, mortgage restructuring, provision of insurance IFC investments in direct support of top tier Local Government Units (LGU) Indicative AAA/Others : Financing Innovation Facility (with IFC, including First Loss Facility for agriculture/ agribusiness, and Remittances for Development) IFC Advisory Services (financial services, SME banking, Business Enabling Environment – BEE, central bank, sustainable energy finance, other sectors and areas)

CAS Objective 3: Better Public Service Delivery MTPDP Goals: Improve governance of service delivery to support reforms of social welfare and development; continue to pursue implementation of the health and basic education sector reform agenda to increase access to quality basic education, health services, and water and sanitation by the poor. Issues and Obstacles:

The country is having difficulty in attaining several of the MDGs: prevalence of underweight children; primary enrolment ratio (which has declined); under-five, infant, and maternal mortality rates. However, there have been gains in combating TB and malaria

Improved efficiency is needed in the use of increasing budgetary allocations for social sector programs There are significant disparities among geographical and population groups: social indicators are particularly worse in ARMM

3.1 Public service delivery in key sectors Outcome 1: Improved access to quality basic education services Indicator 1: Net primary enrolment rate Baseline: 85 (2008) Target: 90 (2011) Indicator 2: Primary completion rate Baseline: 73 (2008) Target: 77 (2011) Indicator 3: Net secondary enrolment rate Baseline: 62 (2008) Target: 70 (2011) Indicator 4: Secondary completion rate Baseline: 75.4 (2008) Target: 76 (2011) Outcome 2: Improved access to health services

Minimum standards for inputs, outputs, and outcomes developed and monitored School Based Management (SBM) rolled out with shift of resources to schools

Ongoing Financing: National Program Support (NPS) for Basic Education National Program Support (NPS) for Health Sector Second Women’s Health and Safe Motherhood Project (WHSMP) Manila Third Sewerage Project (MTSP3) IFC Manila Water Company (MWC) IFC Asian Hospital TF Manila Third Sewerage Project (Global Environment Facility – Full Size Project - GEF FSP) TF Support to Philippine Basic Education Reforms (AusAID) TF for Health Sector Reform (European Community – EC) TF Local Government Support for Regional Water Supply Project (Policy and Human Resources Development – PHRD)


End-FY12 CAS Results Areas and Outcomes Indicative Milestones World Bank Group Program Indicator 1: Children (age 1) immunized with DPT3 (Diphtheria- Pertussis- Tetanus Third Dose) (i) nationally; (ii) poorest quintile Baseline: (i) 77% (2007); (ii) To be determined by findings of 2008 National Demographic Health Survey Target: (i) 90% (2012); (ii) 90% (2013) Indicator 2: Share of facility deliveries (i) nationally; (ii) poorest quintile of women Baseline: (i) 39% (2007); (ii) To be determined by findings of 2008 National Demographic Health Survey Target: (i) 80% (2012); (ii) 80% (2013) Indicator 3: Enrolment coverage of the National Health Insurance Program (i) total population; (ii) indigent population Baseline: (i) 76% (2008); (ii) 55% (2008) Target: (i) 85% (2012); (ii) 100% (2012) Outcome 3: Increased household access to safe drinking water and sanitation services Indicator 1: Share of poor households in project areas with access to safe drinking water services (MDG)/ connected to network services Baseline: To be determined as part of project formulation Target: 80% (2012) Indicator 2: Share of poor households in project areas with access to communal or public sanitation facilities (MDG) Baseline: To be determined as part of project formulation Target: 80% (2012) Indicator 3: Number of LGUs closing open dumpsites and opening sanitary landfills (MDG) Baseline: <1% of LGUs Target: 20 LGUs (2012)

Performance-based financing and monitoring system developed and piloted (i) in at least 16 provinces, with particular focus on improving maternal, child, and reproductive health; (ii) for at least 12 public hospitals Establishment of a common financing approach for the water sector agreed with other multilateral and bilateral financing institutions

TF Concessional Financing Facility for Water and Sanitation Service Providers (EAP Infrastructure for Growth TF - EAIIG) TF Metro Iloilo Water District Options Study (Public Private Infrastructure Advisory Facility – PPIAF) TF Program for Sustainable Sanitation – Philippines Component (Water and Sanitation Program – WSP) TF IFC Private Sector Participation in the Water Sector in the Philippines (France, USA, IFC Technical Assistance Trust Funds – TATF) Indicative Financing: National Program Support (NPS) for Education National Program Support (NPS) for Health Grant: Output-Based Aid (OBA) Facility for Urban Services IFC investments in water supply Indicative AAA/Others: Programmatic AAA for Education Programmatic AAA for Health Programmatic AAA for Water Supply and Sanitation Support (including Best Management Practices in Water Pollution Control) IFC Advisory Services

3.2 Basic service delivery in poor areas Outcome 1: Scaled-up provision of basic services through a nationwide community driven development program Indicator: Number of poor municipalities supported by national Community Driven Development (CDD) program Baseline: 184 Target: 500 (2012) Outcome 2: Enhanced effectiveness of public service delivery through more coordinated area-based

Increased proportion of poor households with access to basic social services Increased proportion of budgets in targeted Local Government Units (LGUs) allocated to poorer areas

Ongoing Financing: Kapit Bisig Laban sa Kahirapan - Comprehensive and Integrated Delivery of Social Services (KALAHI-CIDDS) TF Implementation – Philippines KALAHI-CIDSS (Policy and Human Resources Development – PHRD) TF Urban Partnership for Sustainable Upliftment, Renewal, Governance, and Empowerment – UPSURGE (Japan Social Development Fund – JSDF)


End-FY12 CAS Results Areas and Outcomes Indicative Milestones World Bank Group Program approaches Indicator: Number of poorer provinces with enhanced mechanism to coordinate inter-agency anti-poverty programs Baseline: 0 Target: 3 (2012)

Agreements reached to improve inter-agency and inter-governmental coordination and specifying the nature of coordination Provincial compact executed to improve inter-agency coordination

Indicative Financing: National Program Support (NPS) for CDD (Community Driven Development) Indicative AAA/Others: Indigenous Peoples and Vulnerable Groups Philippines Population Report Synergies for Service Delivery (Conditional Cash Transfer – CCT, Community Driven Development – CDD, National Program Support- NPS)

CAS Objective 4: Reduced Vulnerabilities MTPDP Goals: Reduce poverty and increase welfare, particularly in rural areas; sustainably manage the environment and natural resources; reduce disaster risk and improve recovery management. Issues and Obstacles:

Low response of poverty reduction to growth; poverty is estimated to be increasing and inequality remains relatively high Effectiveness of social protection and poverty reduction efforts is compromised by lack of an efficient system to target the poor and by weak coordination

and capacity 45% of population are vulnerable to falling into poverty due to shocks Most poor households live in natural hazard-prone areas and are susceptible to climate change and disaster shocks

4.1 Social protection system Outcome 1: National household poverty targeting system in place and used Indicator 1: Share of poor households registered in the targeting system Baseline: 9% (2008) Target: 33% (2012) Indicator 2: Number of national programs that are using the targeting system for selecting their beneficiaries Baseline: 1 (2008) Target: 2 (2012) Outcome 2: Conditional Cash Transfer (CCT) program fully operational Indicator 1: Share of 4Ps (Pantawid Pamilyang Pilipino Program – CCT program) grants that go to beneficiaries belonging to the two poorest quintiles Baseline: 0 (2008) Target: 70% (2012) Indicator 2: Share of the 4Ps (Pantawid Pamilyang Pilipino Program – CCT program) grants transferred to the

Management Information System (MIS) designed and in operation including integrated data entry application, Proxy Means Testing (PMT) processing and data management, and sharing capabilities properly functioning Management Information System (MIS) developed and functioning to support payments, verification, updates, and grievance system Spot checks for 4Ps (Pantawid Pamilyang Pilipino Program – CCT program) of schools, clinics, municipal links, and beneficiary households carried out annually

Ongoing Financing: IFC Balikatan Housing Finance IFC Bahay Financial (mortgage finance) IFC Filinvest Land (real estate – middle income housing) TF Philippines Country Study (Diagnostic Facility for Shared Growth – DFSG) Indicative Financing: Social Welfare and Development Reform (SWDR) - Conditional Cash Transfers (CCT) Indicative AAA/Others: Programmatic AAA for Social Protection and Poverty Reduction IFC Advisory Services World Bank Institute (WBI) partnerships


End-FY12 CAS Results Areas and Outcomes Indicative Milestones World Bank Group Program beneficiaries that are based on conditionalities met for health (0-14 years old and/or pregnant women) and education (6-14 years old) Baseline: 60% (2008) Target: 80% (2012)4.2 Disaster risk management and climate change Outcome 1: Disaster- and climate change-related risks reduced Indicator 1: Share of vulnerable Local Government Units (LGUs) that integrate Disaster Risk Reduction (DRR) and/or Climate Change Adaptation (CCA) into their local plans and budgets Baseline: To be determined by ongoing Global Facility for Disaster Reduction and Recovery (GFDRR) work Target: 60% increase (2012) Indicator 2: Volume of investments in Disaster Risk Reduction and/or Climate Change Adaptation measures in participating Local Government Units (LGUs) Baseline: To be determined by ongoing Global Facility for Disaster Reduction and Recovery (GFDRR) work Target: 40% increase (2012) Indicator 3: Number of WBG projects that incorporate Disaster Risk Reduction, Climate Change Adaptation, and/or contingent components Baseline: 5 projects (2008) Target: 50% increase (2012) Outcome 2: Greenhouse gas emissions reduced through expansion of mitigation programs in key sectors and LGUs Indicator: Volume of Bank-assisted Emission Reductions Purchase Agreements (ERPAs) Baseline: 2 Mt CO2e committed in WBG-assisted ERPAs (2/2009) Target: At least double the volume of new ERPAs (2012)

Government has adopted a new risk financing strategy and mechanism Enhanced access to risk financing instruments High risk Local Government Units (LGUs) have functioning disaster coordinating councils Medium Term Philippines Development Plan (MTPDP, 2010) and high risk Local Government Units (LGUs) incorporate Disaster Risk Reduction (DRR) issues into programs and investment projects Climate Change Adaptation framework, strategy, plan, and program for agriculture and natural resources developed and adopted Climate proofing strategies and measures identified and piloted in the following WBG-assisted projects: Mindanao Rural Development Project 2, Participatory Irrigation Development Project, National Program Support (NPS) for Environment and Natural Resource Management Project Critical sectors and Local Government Units (LGUs) in the most vulnerable areas accorded priority Weather-based (index) agricultural insurance system pilot-tested in at least one region Carbon finance program on waste management in Mindanao developed and approved Emission Reductions Purchase Agreements (ERPAs) signed for new carbon finance operations

Ongoing Financing: National Program Support (NPS) for Environment and Natural Resource Management Project (ENRMP) Laguna De Bay Institutional Strengthening and Community Participation (LISCOP) IFC Philippines National Oil Company -Energy Development Corporation (PNOC -EDC) (geothermal) TF NPS ENRMP (Global Environment Facility – GEF) TF Ozone Depletion Substance (ODS) Phase Out Investment Project (Ozone Trust Fund - OTF) TF Country Environmental Analysis TF Clean Development Mechanism TA for Philippines TF Preparation of Climate Change Adaptation Phase I Project (Global Environment Facility) TF Supporting Local Government Capacity to Manage Natural Disasters (Global Facility for Disaster Reduction and Recovery - GFDRR) TF Climate Change in Coastal Areas (Norwegian Trust Fund for Private Sector and Infrastructure – NTFPSI) TF Laguna De Bay Institutional Strengthening and Community Participation Project (Dutch cofinancing) TF National CFC (chlorofluorocarbon) Phase Out Plan (Sweden) TF Grant for Preparation of Integrated Persistent Organic Pollutants Management (Dioxin and Furans, PCB and Contaminated Sites) Project (Global Environment Facility - GEF) TF Disaster Risk Management Project TF IFC Philippines Asian Conservation Company Indicative Financing: Water Quality Management Disaster Risk Management (DRM) Financing (including Catastrophe Deferred Drawdown Option (CAT DDO)) IFC projects in renewable energy (e.g., geothermal, hydro, solar), power (including in Mindanao) TF Chillers Energy Efficiency (Global Environment Facility -


End-FY12 CAS Results Areas and Outcomes Indicative Milestones World Bank Group Program GEF, Carbon Fund - CF) TF Climate Change Scale-up in Coastal Areas (Global Environment Facility - GEF) TF Climate Change Mitigation Program through Waste Management and Renewable Energy (Global Environment Facility - GEF, Carbon Fund - CF) TF Groundwater (Global Environment Facility - GEF) TF Philippines Climate Change Adaptation (Global Environment Facility - GEF) TF Integrated Persistent Organic Pollutants Management Indicative AAA/Others: Programmatic AAA for Disaster Risk Management (DRM), including Climate Change Issues IFC Advisory Services World Bank Institute (WBI) partnerships

4.3 Stability and peace Outcome 1: Enhanced impact and conflict-sensitivity of development programs implemented in communities in Mindanao affected by armed or violent conflict Indicator 1: Number of IDP (Internally Displaced Persons) families from recent conflict with homes rebuilt Baseline: 15,392 recent IDP (Internally Displaced Person) families (reported in National Disaster Coordinating Council, 12/2008) with estimated 3,000 families with homes destroyed Target: At least 20% of families of the latter group with assistance provided for reconstruction of structures and rehabilitation of basic services (2012) Indicator 2: Development and use of simple and user friendly conflict sensitivity tool for assessment of more programs in Mindanao Baseline: 1 PCIA (Peace and Conflict Impact Assessment) tool for community sub-projects Target: 1 Conflict sensitivity tool developed for Local Government Unit (LGU) programs in areas of armed and violent conflict in Mindanao (2012) Outcome 2: Scaled-up provision of basic services and livelihood support through community driven development (CDD) in communities affected by armed or

Community programs using Community Driven Development (CDD) approach implemented in more conflict-affected municipalities Project preparation (whether through grants and/or loans) are based on close coordination and planning with government and development partners Improved transparency in budgeting, allocation, and management of public resources and accountability

Ongoing Financing: Mindanao Rural Development Project – Phase 2 (MRDP2) Autonomous Region in Muslim Mindanao (ARMM) Social Fund Project TF Mindanao Regional Development in Conflict-Affected Areas TF Mindanao Reconstruction and Development Program TF Preparation of Mindanao Rural Development Project Phase II – Coastal and Marine Ecosystem Conservation Component (Global Environmental Facility – GEF) TF Rural Infrastructure Component of the Mindanao Rural Development Program Phase II (EAP Infrastructure for Growth TF - EAIIG) Indicative Financing: Fund for Peace and Development IFC projects in power generation in Mindanao including support to Electrical Cooperatives for capital expansion Indicative AAA/Others: Encouraging more resilient communities in conflict- affected areas (State and Peace-building Fund - SPF) IFC Advisory Services (e.g., rural electrification, power supply aggregation agreements, banana value chain)


End-FY12 CAS Results Areas and Outcomes Indicative Milestones World Bank Group Program violent conflict Indicator: Number of conflict- affected communities having one or more CDD sub-projects Baseline: 53 Target: 100 (2012)

Scaled-up provision of community infrastructure including power generation capacity and increased efficiency in distribution

Cross-Cutting Theme: Good Governance MTPDP Goals: Strengthen partnerships and accountability among government, civil society, and the private sector; fully operationalize the Government Electronic Procurement System; conduct integrity development reviews in government agencies, and expand and institutionalize lifestyle-checks. Issues and Obstacles:

Public perceptions of government sincerity to reduce corruption remain negative Weak government institutions and lack of real progress in efforts to improve their performance and accountability Weak political impetus for reforms While CSOs are active in demanding transparency and better governance, their efforts tend to be fragmented Investment climate is constrained by lack of trust that institutions have functional self-regulatory mechanisms, that transparency and disclosure principles

are respected and governance mechanisms are effective 5.1 Governance and anticorruption in selected national government agencies Outcome 1: Core business systems, processes, and capacities in selected agencies improved Indicator: Number of national government agencies with a functioning internal audit unit out of 22 national agencies Baseline: 12 or 56% (2008) Target: 18 or 82% (2012)

Agency-specific indicators developed to monitor one or more of the following governance areas: Public Expenditures and Financial Accountability (PEFA), internal and external audit functions; operational efficiency

Ongoing Financing: Judicial Reform Support Project (JRSP) TF Strengthening of Monitoring and Evaluation Capacities in Agriculture (Institutional Development Fund - IDF) TF Strengthening the Institutional Effectiveness of the National Commission of Indigenous Peoples (IDF) Indicative Financing: Judicial Reform 2 Indicative AAA/Others: TA for Agency Institutional Strengthening Programmatic AAA on Sector Governance Assessments (for various sectors/ SOs - Strategic Objectives) IFC Advisory Services (e.g., ‘Doing Business’, sub-national ‘Doing Business’, Business Enabling Environment - BEE, regulatory simplification, Corporate Social Responsibility)

5.2 Procurement and public financial management reforms at national and local levels Outcome 1: The Procurement Law more strictly enforced Indicator: Procurement operations and public procurement market (Country Procurement Assessment Report - CPAR scores)

Government procurement system assessed as part of country systems pilot

Ongoing Financing: TF Professionalization of Public Procurement Practitioners and Functions Project (Institutional Development Fund - IDF) TF Strengthening the Capacity of the Procurement Service in Implementing the Philippine Government Electronic Procurement System (Institutional Development Fund - IDF)


End-FY12 CAS Results Areas and Outcomes Indicative Milestones World Bank Group Program Baseline: 16/30 points or 53% (2007) Target: 24/30 points or 80% (2012) Outcome 2: Improved management and greater transparency in public finances Indicator: Public Expenditures and Financial Accountability (PEFA) scores (i) Predictability and Control in Budget Execution; (ii) Accounting, Recording and Reporting Baseline: (i) 4 out of 9 indicators rated as D+ (ii) all 4 indicators rated as D/D+ Target: (i) 3 out of 9 rated as D+ (ii) 3 out of 4 rated as D/D+ (2012)

New omnibus Public Financial Management (PFM) law in place, or, a coherent PFM reform strategy adopted Coherent Public Expenditure Management (PEM) reform agenda developed with functioning Financial Management Information System (FMIS) (2011) Comprehensive Public Expenditure Management (PEM) reform strategy with draft organic budget law and Government Finance Management Information System (GFMIS) action plan in place Improved PEFA (Public Expenditure and Financial Accountability) scores related to budget formulation and execution

TF Support Creation of Accounting Oversight Board (Financial Sector Reform and Strengthening Initiative - FIRST) TF Strengthening the Capacity and Effectiveness of the Commission on Audit (Institutional Development Fund - IDF) Indicative Financing: Government Integrated Financial Management Information System (GIFMIS) Indicative AAA/Others: Support for Procurement Reforms (including update of Country Procurement Assessment Report – CPAR, and study of Approved Budget for Contract (ABC) effectiveness) Public Finance Management (Government Integrated Financial Management Information System –GIFMIS; Department of Budget Management – DBM; Bureau of Treasury – BTr; Budget Watch)

5.3 Better local governance through more effective decentralization Outcome 1: Deepened and refined decentralization through broad-based reforms Indicator: Consensus built around revisions to key legislation affecting decentralization Baseline: No comprehensive review of decentralization laws Target: Philippines Development Forum (PDF) adopts legislative reform agenda (2012) Outcome 2: Strengthened LGU performance for more effective service delivery Indicator: Number of Local Government Units (LGUs) participating in performance-based programs Baseline: To be determined during project formulation Target: Participating LGUs meeting at least 50% of performance targets (2012)

Developed a simplified local governance indicator set to better monitor Bank-supported interventions designed to improve TAP (Transparency, Accountability, and Participation) Citizen’s scorecards used to monitor public satisfaction on Local Government Unit (LGU) service delivery Performance-based financing and monitoring system developed and piloted in Local Government Units (LGUs)

Ongoing Financing: TF Strengthening the Capacity of the Local Government Academy to Coordinate and Oversee Local Government Training and Capacity Building Project (Institutional Development Fund - IDF) TF Non-Governmental Organization (NGO) Sector Efficiency and Accountability to Strengthen Service Delivery to the Poor (Japan Social Development Fund - JSDF) Indicative Financing: Local Government Unit Performance Grants/ Capacity Building for Local Government Indicative AAA/Others: Programmatic AAA on Decentralization (e.g., revenue mobilization) IFC Advisory Services (e.g., ‘Doing Business’, sub-national ‘Doing Business’)

Note: Support through multidonor trust funds and global funds such as GEF, PPIAF, Carbon Finance Funds, Cities Alliance, Water and Sanitation Program, and others is not all necessarily reflected in the matrix.

Annex 6

Indicative World Bank Group (WBG) Program by Results Areas


MTPDP Goals: Maintain economic stability through further fiscal consolidation (improved revenue generation as well as

strengthened expenditure management), rationalized national government spending for devolved services, and reduced debt.

CAS Results Areas and Outcomes Indicative Financing and AAA /Other

1.1 Fiscal and financial stability through

consolidation and improved

macroeconomic risk management

Outcome 1: Maintain tax effort through

strengthened tax administration and tax

policy reform

Outcome 2: Improved efficiency and

targeting of public expenditures

Outcome 3: Improved management of

key fiscal and financial sector risks

Ongoing Financing: (See Annex 5: Results Framework)

Indicative Financing:

Development Policy Loan (DPL)

Development Policy Loan – Deferred Drawdown Option (DPL DDO)

Indicative AAA/Others:

Philippines Development Reports

Quarterly Economic Updates

Programmatic AAA on Public Expenditure Issues

Development of the Philippines Statistical Development Plan (including

grant to improve quality and usefulness of Philippine household surveys)

IFC Advisory Services (AS) on crisis/insolvency management

1.1 Fiscal and financial stability through consolidation and improved macroeconomic risk

management

Indicative financing: The World Bank Group will support the objective of maintaining macroeconomic

stability with a combination of instruments including rapid-disbursing financing, diagnostic AAA, economic

monitoring, focused TA, and policy advice. The close collaboration with other international financial

institutions, in particular the IMF, will continue, and the Philippines Development Forum (PDF) will be

used as a platform for dialogue in addition to regular policy discussions. The Bank will use development

policy operations in support of a strong reform program in government financial management. Along with

the ongoing National Program Support (NPS) for Tax Administration Reform, these operations can provide

quick-disbursing financing.

Indicative AAA/Others: The regular economic monitoring reports and updates, as well as the annual

flagship reports (which in the coming years could focus on topics such as the political economy of reforms

and competition policy, governance, and medium-term development issues) will be supplemented by

programmatic AAA on public expenditure management. It will be essential to provide support (with the

IMF) to the Government to assess and manage fiscal risks including debt. The IFC may also provide

advisory services to clients on crisis response and management of insolvencies. Grants and trust funds will

be provided to strengthen the statistical capacity in the country (e.g., in areas such as the drawing up of a

statistical development plan; the quality, timeliness, and usefulness of household surveys; industrial surveys

to improve the tax base; and national accounts).

The Bank will generate selected briefing notes for the new administration which should ultimately lead to

action-oriented policy briefs for the government on a range of topics covering all key results areas under the

strategic objectives of the CAS. The task would follow an intensive engagement approach which would

entail encouraging public and policy debates on issues prior to the election, and put forward the Bank’s

policy recommendations in an appropriate manner. It would also link up with work on the next Medium-

Term Philippines Development Plan (MTPDP).

Indicative World Bank Group Program by Results Areas Philippines FY10-12 CAS - Annex 6

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MTPDP Goals: Encourage the private sector to strengthen trade and investment and attain national investment rates of about

25-28 percent of GDP; continue with the integration of the transport system, and develop and diversify the energy mix; ensure

smooth financing for entrepreneurs, including microfinance for underserved areas.

CAS Results Areas Indicative Financing and AAA/Other

2.1 Enabling business environment to

promote competitiveness, productivity,

and employment

Outcome 1: Increased and improved

delivery of infrastructure

Outcome 2: Enhanced regulatory policy

frameworks and institutional capacity for

investment, service delivery, and trade

Outcome 3: Increased investment and

employment in rural and urban

development


Outcome 1: Increased delivery and

access to financial services



Light Rail Transit 1 South Extension Public Private Partnership (LRT-PPP)

Tollway – Public Private Partnership (Cavite-Laguna)

Urban Transport (Metro Manila and other cities)

Secondary/Local Roads

Rural Power Adaptable Program Loan 2 (APL 2)

Agriculture and Agribusiness Support

Mindanao Development

Urban Renewal (Metro Manila Cities)

Sub-National Water - Public Private Partnership (with IFC)

Participatory Irrigation Development Project (PIDP)

Sub-National Finance (SSLDIP2, or Development Bank of the Philippines 3

(DBP3) - Regional Infrastructure for Growth)

Sub-Sovereign Financing Facility (with IFC)

IFC projects in power (generation, transmission, distribution, rural power),

renewable energy (solar, hydro, geothermal), energy sector privatizations,

supply-chain linkages in agribusiness (e.g., bananas), financial services,

banking

IFC projects with banks supporting MSME (Micro and Small and Medium

Enterprise) access to credit

IFC projects with major Philippine universal banks (consolidation, capital

raising, liquidity and risk sharing facilities)

IFC projects in housing finance, recovery of bad assets, mortgage

restructuring, provision of insurance

IFC investments in direct support of top tier Local Government Units (LGU)


Trade Facilitation/Transport/Logistics

Investment Climate for the Poor (with IFC)

Energy Sector Reform

Public Private Partnership (PPP) Regulatory and Policy Support (IFC and

Public Private Infrastructure Advisory Facility - PPIAF)

Environmental Safeguards (including Environmental Assessments)

Agricultural Productivity Growth

Urban Strategy (including resettlement issues)

Financing Innovation Facility (with IFC, including First Loss Facility for

agriculture/agribusiness, and Remittances for Development)

IFC Advisory Services (financial services, Small and Medium Enterprise -

SME banking, central bank, sustainable energy finance, energy efficiency,

energy sector privatizations, structuring power concessions, Mindanao banana

value chain, Business Enabling Environment (BEE), ‘Doing Business’, sub-

national ‘Doing Business’, other sectors and areas)

Continue to offer MIGA’s guarantee products (including Streamlined Small

Investment Program for smaller scale projects)


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2.1 Enabling business environment to promote competitiveness, productivity, and employment

Indicative financing: The outcomes in this result area are being supported by instruments in the ongoing

WBG portfolio and will be further strengthened and deepened, as well as selectively broadened during the

coming CAS period. Several current projects support CAS objectives in the agricultural sector,

infrastructure (transport and power, including in the rural areas), and rural development. IFC is also

involved in infrastructure, particularly in energy and in transport. Going forward, envisaged transport

projects under the CAS include Light Rail Transit 1 (South Extension) with Public-Private Partnership

(PPP); Metro Manila/and other cities transport integration as a follow-up to MMUTRIP; and Cavite-Laguna

tollway in a growing urban community as a model PPP. In the energy sector, Rural Power APL2 will

support implementation of the Electric Power Industry Reforms and Renewable Energy Act. IFC

participation will have a particular focus on renewable energy development including geothermal, and stress

privatization of power generation. WBG-financed projects will also focus on urban development and

renewal (e.g., Metro Manila Cities); and, water supply at sub-national levels (with IFC). Rural and area

development objectives will be supported through: the Mindanao Development Project; support for

agriculture and agribusiness (e.g., projects to improve market access, product quality, access to technical

support services); and participatory development of irrigation. IFC will work with clients to support supply-

chain linkages in agribusiness (e.g., bananas).

Indicative AAA/Others: Planned AAA will emphasize assessments of the investment climate and policies

for greater private sector participation in investment, growth, and employment generation, particularly in

underserved regions, poorer populations, and subsectors with high potential for development (including

agriculture and agribusiness). The findings of an ongoing study on infrastructure constraints to the

development of the nonfarm sector will underpin activities. The WBG will support the development and

strengthening of the policy frameworks for trade facilitation, transport and logistics, energy efficiency, PPP

regulations, legal and institutional settings, agrarian reform, agricultural productivity, urban strategy, and

power sector reforms. A proposed TA will pilot the use of country systems for environmental safeguards

(including EA, physical cultural resources, natural habitats, and pest management) to institute good

governance. These activities are expected to be supplemented by grant funds and TF resources (e.g., PHRD

grants, GEF) for project development and cofinancing, as well as for studies and TAs. IFC’s Advisory

Services will complement Bank efforts and fill gaps. MIGA’s services and guarantees will continue to be

on offer.

2.2 Increased delivery and access to financial services

Indicative financing: Outcomes in this results area will be supported by IBRD lending through a sub-

national finance project and a sub-sovereign financing facility in collaboration with IFC during the later

years of the CAS. These may include, among other components, increased provision of credit to

creditworthy LGUs and the local private sector for the development of key infrastructure and services. IFC

has ongoing collaborations in the banking sector, and going forward, IFC envisages the promotion of risk

sharing facilities to support sustainable energy investments; MSME finance; the provision of mortgage

toolkits to financial institutions; enabling increased housing finance for middle-income families; and

contributions to private bank financing of credit-worthy LGUs.

Indicative AAA/Others: Studies and TAs will explore a Financing Innovation Facility jointly with IFC

(including components for a First Loss Facility for agriculture and agribusiness, and Remittances for

Development), and the implications of sub-national financing. IFC Advisory Services will emphasize

strengthening of the financial sector, SME banking, financing for sustainable and renewable energy projects,

and improving the business environment. A weather-based (index) agricultural insurance system will be

pilot-tested in at least one region.


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MTPDP Goals: Improve governance of service delivery to support reforms of social welfare and development; continue to

pursue implementation of the health and basic education sector reform agenda to increase access to quality basic education,

health services, and water and sanitation by the poor.



Outcome 1: Improved access to quality

basic education services

Outcome 2: Improved access to health

services

Outcome 3: Increased household access

to safe drinking water and sanitation

services


Outcome 1: Scaled-up provision of basic

services through a nationwide

community-driven development program

Outcome 2: Enhanced effectiveness of

public service delivery through more

coordinated area-based approaches



National Program Support (NPS) for Education

National Program Support (NPS) for Health

National Program Support (NPS) for CDD (Community Driven

Development)

Grant: Output-Based Aid (OBA) Facility for Urban Services

IFC investments in water supply


Programmatic AAA for Education

Programmatic AAA for Health

Programmatic AAA for Water Supply and Sanitation Support (including

Best Management Practices in Water Pollution Control)

Indigenous Peoples and Vulnerable Groups

Philippines Population Report

Synergies for Service Delivery (Conditional Cash Transfer – CCT,

Community Driven Development – CDD, National Program Support- NPS)

IFC Advisory Services


Indicative financing: Future IBRD financing in support of these outcomes will emphasize the National

Program Support (NPS) instrument for both health and education. NPS for Education will increase access

to quality basic education services and support the Basic Education Reform Agenda; and NPS for Health

will finance budget items of the Department of Health in implementing the health sector reform agenda. An

innovative Output-Based Aid (OBA) Facility for Urban Services is proposed in FY10 to support the

extension of water and sanitation service coverage through a connection charge subsidy for the poor.

Current WBG support in this results area includes the ongoing education and health NPSs, the Second

Women’s Health Project, and the Manila Third Sewerage Project (with supplemental GEF funding). Bank-

managed trust funds support sector objectives and projects as well as studies and technical assistance (e.g.,

AusAID support to Philippines Basic Education Reforms; European Commission TF for Health Sector

Reform; a PHRD grant for Local Government Support for the Regional Water Supply Project, and a PPIAF

grant for the Metro Iloilo Water District Options Study). IFC is a partner of the Manila Water Company and

the Asian Hospital.

Indicative AAA/Others: Programmatic AAA for both health and education are planned in the coming years

(moving away from multiple small activities to a comprehensive AAA program to help in designing the

proposed NPSs), as well as a study of best management practices in water pollution control. IFC will

contribute to a water sector strategy note. Advisory Services and TA will emphasize strengthening the

capacity for undertaking PPPs in the water and sanitation subsectors.


Indicative financing: The key IBRD lending instrument will be the NPS for CDD (Community Driven

Development) which will finance the scaling up of the existing KALAHI-CIDSS as a core approach to


Page 5 of 8

poverty reduction through increased access to basic public goods and services in targeted poor communities.

The operation will increase basic services to the poor such as community infrastructure, water supply and

sanitation, education and health services, and community electrification; enhance community empowerment

to engage LGUs in meeting basic needs; and, strengthen participation and accountability consistent with the

Local Government Code. Other donors and partners, including NGOs and civil society organizations, will

also be supporting the CDD operation.

Indicative AAA/Others: The implementation of the current KALAHI-CIDSS is supported by two JSDF

grants on strengthening the capacity of NGOs and community procurement, and a PHRD grant. Urban CDD

activities are supported through the Urban Partnership for Sustainable Upliftment, Renewal, Governance and

Empowerment (UPSURGE) funded by a JSDF grant. AAA tasks are planned to study issues relating to

indigenous people, population growth, and the interactions and coordination among key poverty reduction

interventions such as CDD, CCT, NPS, and sector reform programs.


MTPDP Goal: Reduce poverty and increase welfare, particularly in rural areas; sustainably manage the environment and

natural resources; reduce disaster risk and improve recovery management.

CAS Results Areas and Outcomes Indicative Financing and AAA/Other


Outcome 1: National household poverty targeting

system in place and used

Outcome 2: Conditional Cash Transfer (CCT)

program fully operational


Outcome 1: Disaster- and climate change-related

risks reduced

Outcome 2: Greenhouse gas emissions reduced

through expansion of mitigation programs in key

sectors and LGUs


Outcome 1: Enhanced impact and conflict-

sensitivity of development programs implemented

in communities in Mindanao affected by armed or

violent conflict

Outcome 2: Scaled-up provision of basic services

and livelihood support through community-driven

development (CDD) in communities affected by

armed or violent conflict



Social Welfare and Development Reform (SWDR) - Conditional

Cash Transfers (CCT)

Water Quality Management

Disaster Risk Management (DRM) Financing (including

Catastrophe Deferred Drawdown Option (CAT DDO)

Fund for Peace and Development

TF Chillers Energy Efficiency (Global Environment Facility -

GEF, Carbon Fund)

TF Climate Change Scale-up in Coastal Areas (Global

Environment Facility - GEF)

TF Climate Change Mitigation Program through Waste

Management and Renewable Energy (Global Environment Facility -

GEF, Carbon Fund)

TF Groundwater (Global Environment Facility - GEF)

TF Philippines Climate Change Adaptation (Global Environment

Facility - GEF)

TF Integrated Persistent Organic Pollutants Management

IFC projects in renewable energy (e.g., geothermal, hydro, solar),

power (including in Mindanao)

IFC projects in power generation in Mindanao including support to

Electrical Cooperatives for capital expansion


Programmatic AAA for Social Protection and Poverty Reduction

Programmatic AAA for Disaster Risk Management (DRM),

including Climate Change issues

Encouraging More Resilient Communities in Conflict- Affected

Areas (State and Peace-building Fund - SPF)

IFC Advisory Services (e.g., rural electrification, power supply

aggregation agreements, banana value chain)

World Bank Institute (WBI) partnerships


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Indicative financing: WBG will financially support the outcomes in this result area with a loan for the

Government’s Social Welfare and Development Reform (SWDR) - Conditional Cash Transfers (CCT)

program. The CCT will provide income support to the poor and protection from shocks, address

deteriorating education and health indicators for the poor, and work on both the supply and demand sides of

social services for the poor.

Indicative AAA/Others: Non-lending support for the SWDR program will be provided through TA to the

Government in strengthening the design and implementation of the CCT program and the roll-out of the

National Household Targeting System for Poverty Reduction. The TA will assist in the proper operational

implementation of these programs and support the intensive inter-agency policy dialogue that would be

required for success. Programmatic AAA for social protection and poverty reduction would undertake key

pieces of new knowledge generation to advise the Government on policies and actions, conduct continued

core poverty diagnostics, and provide a roadmap for the development of poverty monitoring systems and

statistics. This is particularly critical given the context of the unfolding global economic crisis. IFC is

currently partnering with several real estate and mortgage finance institutions that provide middle-income

housing. Future involvement will also be through support to credit financing agencies that cater to

underserved clients.


Indicative financing: The CAS proposes increased IBRD financing for disaster risk management (DRM)

including a disaster risk reduction Catastrophe Deferred Drawdown Option (CAT-DDO) operation in FY11

and related TAs. The CAT-DDO would provide immediate liquidity for post-disaster reconstruction to

allow for rapid recovery and encourage mitigation investments. A drawdown option for LGUs that

demonstrate commitment to implementing a DRM plan would be created. Support for disaster mitigation

activities, such as flood protection infrastructure, slope stabilization, and retrofitting of schools and hospitals

in hazard-prone areas, could also be provided. The Global Facility for Disaster Reduction and Recovery

(GFDRR) is funding a TA program to support LGUs to enhance their capacity to manage natural disasters

and similar support is expected to continue. Bank-managed trust fund resources are expected to address

issues relating to land use-based climate change adaptation measures and assist the Philippines (along with

other countries in EAP) to formulate strategies and programs to mitigate greenhouse gas (GhG) emissions

from current land use practices (the major source of GhG in developing countries). Global public funds,

GEF, and bilateral trust funds are also expected to continue the funding of selected high priority DRM and

climate change mitigation/adaptation activities as at present. Activities under consideration include

improving energy efficiency of chillers to reduce carbon emissions, addressing climate change concerns for

coastal areas and climate change impacts through waste management, groundwater management, and

integrated management of Persistent Organic Pollutants (POPs).

Indicative AAA/Others: AAA tasks will support the WBG financing program with studies related to both

disaster risk management and climate change issues. IFC Advisory Services will also be relevant in topics

such as electrification and Renewable Energy Technologies (RET). An innovative weather-based (index)

agricultural insurance system will be pilot-tested. The World Bank Institute (WBI) has considerable

expertise and cross-country experience in these areas, and the partnership with the Philippines will be

strengthened.


Indicative financing: Currently, WBG resources to conflict-affected areas are being provided through

several channels such as the Mindanao Rural Development Project Phase 2 (MRDP2), the Autonomous


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Region in Muslim Mindanao (ARMM) Social Fund Project, and a Multi-Donor Trust Fund (MDTF) for

Mindanao Reconstruction and Development Program. Going forward, a Fund for Peace and Development

is envisaged in the outer years of the CAS. The fund would reduce gaps in development assistance, improve

basic services and livelihoods in vulnerable areas, achieve convergence in the implementation of various

assistance approaches, and strengthen the pivotal role of LGUs as the focal point for peace and development

assistance in their municipalities. A Mindanao Development Project could also be pursued to further

strengthen infrastructure and basic services. It is expected that some IFC operations would include activities

(such as in the energy sector) in the area.

Indicative AAA/Others: A key piece of AAA will focus on the topic of encouraging more resilient

communities in conflict-affected areas in the Philippines to enhance the understanding of local conflict

dynamics and typologies, develop a more harmonized and conflict-sensitive framework for CDD

approaches in line with those at use by the Bank and others, and strengthen LGU capacity for development

planning and project execution with improved governance in targeted conflict-affected areas. GEF and

various TF resources are expected to continue their support for preparatory work and various project

components or stand-alone activities.


MTPDP Goals: Strengthen partnerships and accountability among government, civil society, and the private sector; fully

operationalize the Government Electronic Procurement System; conduct integrity development reviews in government

agencies, and expand and institutionalize lifestyle-checks.


5.1 Governance and anticorruption in

selected national government agencies

Outcome 1: Core business systems,

processes and capacities in selected

agencies improved

5.2 Procurement and public financial

management reforms at national and local

levels

Outcome 1: The Procurement Law more

strictly enforced

Outcome 2: Improved management and

greater transparency in public finances

5.3 Better local governance through

effective decentralization

Outcome 1: Deepened and refined

decentralization through broad-based

reforms

Outcome 2: Strengthened LGU

performance for more effective service

delivery



Judicial Reform 2

Government Integrated Financial Management Information System

(GIFMIS)

Local Government Unit Performance Grants/ Capacity Building for Local

Government


TA for Agency Institutional Strengthening

Programmatic AAA on Sector Governance Assessments (for various sectors/

SOs - Strategic Objectives)

Support for Procurement Reforms (including update of Country Procurement

Assessment Report – CPAR, and study of Approved Budget for Contract

(ABC) effectiveness)

Public Finance Management (Government Integrated Financial Management

Information System –GIFMIS; Department of Budget Management – DBM;

Bureau of Treasury – BTr; Budget Watch)

Programmatic AAA on Decentralization (e.g., revenue mobilization)

IFC Advisory Services (e.g., ‘Doing Business’, sub-national ‘Doing

Business’, Business Enabling Environment - BEE, regulatory simplification,

Corporate Social Responsibility

5.1 Governance and anticorruption in selected national government agencies

Indicative financing: A World Bank-financed Judicial Reform Support Project (JRSP) has been under

implementation since 2004. Under the CAS, a second JRSP operation is proposed for FY12. A proposed

grant-funded TA for Agency Institutional Strengthening would support selected agencies to develop


Page 8 of 8

coherent institutional development and anti-corruption plans, and provide technical support for their

implementation. The focus will be on strengthening the agencies’ core PFM and procurement functions, but

could also include broader institutional development needs on a case-by-case basis. The TA would

complement ongoing or planned lending operations (such as the NPSs in the social sectors) to reinforce

Bank support for strengthening governance systems.

Indicative AAA/Others: Selected institutional strengthening efforts would be pursued through the use of

TFs (including IDFs) as at present, and IFC would also address the issue of reducing corruption through

dialogue related to its transactions. A programmatic AAA is planned for Sector Governance Assessments for

some selected sectors.


Indicative financing: The WBG has an active dialogue and engagement on procurement issues related to

the implementation of the Bank-financed and managed portfolio of operations. To support the PFM

outcomes under this results area, the WBG will finance a Government Integrated Financial Management

Information System (GIFMIS) Project in FY11 focusing on integrating core FMIS for the Department of

Budget Management (DBM), Bureau of Treasury (BTr), line agencies, and possibly the Commission on

Audit (COA). The Bank will continue to support the implementation of the Government’s procurement

reforms and procurement systems (including e-procurement).

Indicative AAA/Others: The ongoing programmatic AAA on PFM Reform Support would continue with

the details and outputs to be determined during annual concept and progress reviews. Future subjects could

include government-wide and specific PFM issues, PEFA updates, agency-PEFAs, agency budget

management reviews, topical PFM workshops, and PFM policy notes. IDFs currently support the

Professionalization of Public Procurement Practitioners, the implementation of the Government’s e-

procurement system, and capacity building of COA; similar and other TF-funded activities will continue

during the CAS period. Follow-up support for the implementation of the main recommendations of the

Report on Observance of Standards and Codes (ROSC) accounting and auditing will continue.


Indicative financing: LGU performance grants and capacity building for local government will spearhead

WBG efforts to support better governance through decentralization in addition to various sub-national and

local level components in other Bank engagements. The activity would build core competencies of the

LGUs in financial management, procurement, planning, and administrative functions by linking incentives

to the achievements of pre-identified performance targets. A secondary objective would be to target poorer

provinces to help them bridge the growing gaps within LGU groupings.

Indicative AAA/Others: A series of reports on various aspects of decentralization in the Philippines and its

effectiveness under the current design of intergovernmental arrangements will be undertaken within a

programmatic AAA. Programmatic AAA will also be undertaken on sector governance assessments .

Analytical work will underpin the development of a country action plan for demand for good governance.

Local government capacity strengthening will be supported through a TA focusing on support to LGUs for

implementing difficult investments, (e.g., PPP), complex projects, and institutional reforms. Trust funds,

including IDFs, currently support various LGU capacity strengthening activities, governance performance

frameworks, and CSO/NGO effectiveness, and such support will continue.

Note: Support through multidonor trust funds and global funds such as GEF, PPIAF, Carbon Finance Funds, Cities Alliance, Water

and Sanitation Program, Private Enterprise Partnership (IFC), and others is not necessarily all reflected in this annex.

Annex 7

Official Development Assistance (ODA) Programs in the Context of the CAS

1. This Annex provides an overview of major official development assistance (ODA) activities in the Philippines, organized according to the four strategic objectives and one cross-cutting theme of the CAS. The mapping was based on records of ODA programs from the National Economic and Development Authority (NEDA), as well as updates from the ODA agencies. The purpose of this Annex is to present an overview of the broad distribution of ODA activities along the CAS objectives and results areas to help indicate areas where there is potential for further Bank engagements, as well as where the role of the Bank Group needs to be delineated against that of other ODA partners.

2. Based on NEDA figures as of December 2008, Japan provides the largest portion of ODA to the Philippines, accounting for approximately 43 percent of the total ODA net commitments of around US$9.7 billion. The Bank ranks second (tied with the Asian Development Bank) with a 16 percent share. Together, Japan, ADB and the World Bank Group provide an estimated 75 percent of all ODA to the Philippines. China, which is ranked fourth, accounts for 11 percent of the total ODA. The remaining 14 percent is comprised of ODA from other agencies, mostly bilateral organizations which provide grants to the national government, local governments, communities, and/or to NGOs under their respective programs/strategies.

3. It should be noted that the mapping presented in this Annex may not capture activities of development partners which have smaller programs in the Philippines. In addition, many development partners participate in the policy dialogue under the Philippines Development Forum (PDF), which may not be captured in specific programs or projects reflected in the matrix (see Attachment 1). Thus, it should be stressed that this write-up is not necessarily a comprehensive picture of all the development partners active in the Philippines, nor of the areas of involvement of the development partners.

Strategic Objective 1: Stable Macroeconomy

4. The ADB, Australia, Japan, Sweden and the USA are the major development partners with strategies/thrusts that directly support macroeconomic stability through technical cooperation, grants, project loans, and/or policy-based program loans that relate to tax revenues, tax administration, tax policies, finance and public expenditure management, and management of fiscal and financial sector risks. ADB-financed Development Policy Support Programs (DPSP) and TA projects support policy reforms related to, among others, revenue administration, macroeconomic management, and public expenditure issues. Japan, through its Japan International Cooperation Agency (JICA), has recently committed to co-finance the ADB-financed DPSP. JICA also supports customs administration reforms at the Bureau of Customs. USA supports tax and customs administration reform, revenue forecasting, and budget oversight management. Sweden has a small grants program in support of tax policy and tax-related statistics work with the Bureau of Internal Revenue (BIR) which is coordinated under the same framework as the Bank-financed National Program Support for Tax Administration Reform. Australia has supported various relevant work under its Partnership for Economic Governance Reforms program, and has assisted the BIR in putting together the results framework for the Tax Administration Reform project, as well as provided capacity-building for the BIR. In addition, Australia has partnered with the World Bank Group on joint analytical work related to public expenditure management, an area with strong potential for continuing partnerships. The IMF is also involved in this strategic objective through its ongoing annual Article IV consultations, and it is

ODA Programs in the Context of the CAS Philippines FY10-12 CAS - Annex 7 Page 2 of 6

expected that the World Bank Group will coordinate with the IMF on financial sector assessments as well as on the policy advice and TA that the IMF provides to the Government on tax administration reforms and other related matters. Aside from partnerships on specific operations, the World Bank Group coordinates at the policy level with all the active players in this area through its co-chair role in the PDF Working Group on Fiscal and Economic Reforms.


5. Given the broad coverage of the CAS results area of Enabling Business Environment to Promote Competitiveness, Productivity and Employment, this area has the biggest confluence of ODA programs. The programs which support this results area include those of ADB, Australia, China, France, Korea, Japan, and the UK which support relatively large infrastructure projects such as national roads/highways, railways, airports, fish ports, rural roads, bridges, irrigation, water supply and sanitation projects, power and rural electrification, including power sector reforms through a program loan by ADB. Additional bilateral support for infrastructure is coursed through global programs administered by the Bank, such as the Public-Private Infrastructure Advisory Facility which is a multi-donor technical assistance facility aimed at helping developing countries improve the quality of their infrastructure through private sector involvement, and (specifically for the water sector) the Water and Sanitation Program. The EC and Canada have trade facilitation and other trade-related assistance that support the country’s overall investment climate and competitiveness. Other partners, such as the USA and the UN, support activities that indirectly address productivity, livelihood, and competitiveness through various entry points such as support for agricultural productivity, youth employability, sustainable livelihoods, community enterprises, and other interventions mostly at the grassroots level. Canada and Australia have provided support to the World Bank Group through the IFC’s Private Enterprise Partnership facility for small and medium enterprises (SMEs). The World Bank Group, including through, as well as jointly with IFC programs, seeks to increase private sector investments in infrastructure through actual investment operations, promotion of public-private partnerships, and support to SMEs and micro-enterprise growth.

6. On Financial Services, ADB is assisting in financial market regulation and intermediation through a program loan, as well as capacity building for housing micro-finance, while Spain and USA are supporting micro-enterprise development through various types of projects. Germany is supporting various credit lines to private financial institutions for the SME sector, as well as on-lending through government financial institutions to local governments for local infrastructure needs. . All these related programs to improve the investment climate are being coordinated at the policy level through the PDF working groups on Growth and Investment Climate and on Infrastructure, which are co-chaired by the World Bank Group and by Japan respectively.


7. ADB, Australia, Canada, EC, Germany, Japan, Korea, New Zealand, Spain, UN, and the USA all have programs that focus on Public Service Delivery in Key Sectors specifically related to health, education, water and sanitation services. The ADB, Australia, EC, Germany and the USA have substantial programs in the health sector. The ADB, aside from technical assistance, is funding a health project which was recently restructured to support the same health sector reform agenda supported by the World Bank Group under the National Program Support for the Health Sector Reform Agenda. Australia’s investment in health is focused on maternal and child health, reproductive health and malaria prevention, delivered through partnerships with UN agencies. The EC is funding two ongoing trust funds administered by the World Bank Group to support implementation of health sector reforms in selected provinces, one specifically for Mindanao provinces. In the basic education sector, Australia is providing support to the Philippine Basic Education Reforms through a


jumbo trust fund administered by the World Bank Group as well as through projects to improve the quality of access to basic education in Mindanao and the Visayas, including specifically for Muslim education and disadvantaged groups. USA’s assistance in education is aimed at increasing access to quality basic education for children. For both the health and education sectors, the World Bank Group is financing budget support-type operations within the framework of the Government’s reform agendas for the sector. The other development partners mentioned above support a variety of interventions (loans, grants, analytical and advisory activities, and technical assistance/cooperation) to support access to basic services at the national and local government levels, and at the community levels.

8. In terms of the results area of Basic Service Delivery in Poor Areas, almost all partners are involved: ADB, Australia, Canada, the Czech Republic, EC, France, Germany, Japan, Spain, UN, and the USA. The programs include various forms of assistance targeted at poor communities/municipalities/cities/provinces/regions, including agrarian reform communities. Many of the programs/activities are directly related to addressing the MDGs, particularly on health, education and poverty levels. Programs in health and education (as well as social protection) are coordinated at the policy level through the PDF Working Group on MDGs and Social Progress, of which the Bank is an active member. The Banks’ major engagement in this results area is through support to the nationwide community-driven development project (KALAHI) which provides opportunities for closer partnerships in targeted communities, as well as in enhancing effectiveness of public service delivery through more coordinated area-based approaches.


9. The results area of Social Protection System is one where there are no other major ODA programs in place that directly address social protection systems, although Australia, EC, Germany, New Zealand, Spain, UN, and USA have various activities that support increased and more equitable access to basic social services by the poor and the vulnerable, as well as programs specifically targeted to vulnerable groups such as children, women, the poor, and indigenous peoples. In particular, the EC is supporting the Philippines Health Insurance Corporation to increase financial protection of the poor. In terms of analytical work, the ADB has an ongoing technical assistance for the assessment of poverty reduction which would be an important analytical tool for designing and targeting social protection systems. The Government’s Conditional Cash Transfer (CCT) program is envisioned to serve as the framework for all ODA support to social protection. The upcoming World Bank-supported Social Welfare and Development Reform Project is expected to be the major ODA program in the social protection area. In partnership with the Bank, Australia is providing technical assistance to strengthen the design of the CCT pilot’s targeting and other related operational mechanisms.

10. Relatively fewer partners have specific programs/thrusts relating to Disaster Risk Management -- Australia, Japan, EC, Spain, and the USA. Such projects include Australia’s support for geo-hazard mapping and building disaster risk management capacity in the Philippines; in addition, Australia is also supporting the Bank’s Global Fund for Disaster Risk Reduction. On the more general area of climate change and environment, ADB, Australia, Germany, Korea, Spain and the UN support specific programs that help address these issues including environmental programs, water resources or river basin management, and programs that address sustainable development and management of natural resources at the national, local and community levels. The EC is considering providing some support to climate change adaptation, and depending on the specific focus, this could be a potential area for partnership with the World Bank Group. The Netherlands is co-financing the Bank-supported Laguna de Bay institutional strengthening project. Various bilateral organizations are supporting climate change initiatives through multi-donor global programs such as the Global Environment Facility, the Global Climate Change Fund, and the Carbon Finance Funds


administered by the Bank and for which specific activities in the Philippines are ongoing and planned. The PDF Working Group on Sustainable Rural Development, of which the Bank is a member, facilitates the policy coordination for ODA-supported environmental programs/projects.

11. On Stability and Peace, Australia, Canada, EC, Germany, Japan, New Zealand, Spain, Sweden, UN and the USA have active programs that support the peace and development of Mindanao, as well as other interventions related to conflict-affected areas through community-driven development. Some of the support is provided through the multi-donor Mindanao Trust Fund administered by the World Bank Group (with contributions from Australia, Canada, EC, New Zealand, Sweden and the US), as well as through the development partners’ own programs. Assistance may be in the form of targeted programs for specific areas in Mindanao and/or for specific sectors in Mindanao. The range of programs include almost all types of interventions -- from large to small-scale infrastructure, from national government- to LGU- or community-based assistance, from sector-specific operations (e.g., health, education) to cross-sectoral operations, from livelihood to institution-building activities, and from post-conflict to peace and development interventions. The Bank plays an active role in coordinating ODA for Mindanao in partnership with the Government and other ODA partners as co-chair of the PDF Working Group on Mindanao, as well as through chairmanship of the steering committee for the Mindanao Trust Fund.

Cross Cutting Theme: Good Governance

12. Under the cross-cutting theme of Good Governance, many development partners are involved but spread out across the three results areas. Under Governance and Anticorruption in Selected Agencies, ADB, Australia, Canada, Germany, Japan, Korea, and the USA are providing assistance to specific agencies. The ADB has a large Justice Sector Reform program loan, while Canada and the USA are providing support for other related interventions (mediation, alternative dispute resolution, legal education reform, etc.). Since a strong civil service has a positive impact on good governance, Japan’s support through JICA to the BIR in human resource development aspects and Korea’s program for capacity building in policy development and public administration covering various agencies are mapped under the governance agenda. Australia is providing parallel support to the World Bank-supported Land Administration Project which has a strong governance aspect, and is supporting enhanced supervision of the World Bank-financed roads project. In addition, Australia is providing support for the design and pilot test of governance and anticorruption measures relating to the upcoming World Bank-supported Social Welfare and Development Reform Project, which would be a major program for which the anticorruption component would be key to success. Coordination of ODA programs/projects at the policy level is undertaken through the PDF Working Group on Governance and Anticorruption, of which the Bank is an active member.

13. On Procurement and Public Financial Management Reforms, ADB, Canada EC and Korea have limited, but strategic, involvement in the area. Canada will be supporting an ICT component of the Government Procurement Policy Board (GPPB) operations, while Australia and the EC are actively supporting PFM reforms through various grants. ADB has ongoing technical assistance to strengthen the Government’s electronic procurement system, and a separate technical assistance to support the harmonization agenda which is primarily focused in this results area. Many other partners participate more actively in the policy dialogue through the sub-group on procurement co-chaired by the Bank under the PDF Governance and Anti-Corruption Working Group.

14. The results area of Better Local Governance Through More Effective Decentralization is another area where multiple partners are engaged, and the forms of engagement include technical assistance for local planning and expenditure management, local government financing, and budget reforms at the provincial and municipal levels. Active development partners here include ADB,


Australia, Austria, Canada, EC, Germany, Japan, New Zealand, Spain, UN and the USA. ADB has a program loan and technical assistance for local government financing, and budget reforms. Canada continues its long term assistance through its local governance support program currently in the Autonomous Region of Muslim Mindanao and for local economic development. Also, Canada and Spain are planning to provide funding for a Dialogue Fund, to be administered by the World Bank Group, to support the decentralization and local government agenda. The World Bank Group plays a key role in coordinating the dialogue on decentralization through its co-chairmanship of the PDF Working Group on Local Government and Decentralization.

15. The following matrix indicates the presence of ODA partners in each strategic objective and results area of the CAS. Overall, it will be noted that there are some results areas where there is a proliferation of ODA activities while in others there may be only a few. This could be due to the large financing requirements in one sector relative to others, as well as the availability of government financing and/or private sector assistance in some areas compared to others. Because of the varying degrees of detail available for each organization’s programs (some have general strategic thrusts while others include details up to the activity level), the mapping does not differentiate on the levels of involvement of the various development partners, but should be able to give a snapshot of the presence of ODA in each strategic objective and results area.


Attachment 1: PHILIPPINES : PROGRAMS OF OTHER DEVELOPMENT PARTNERS

(Mapped into the CAS Strategic Objectives and Results Areas)

Overall Objective: Inclusive Growth

Strategic Objective 1: Stable Macro

Economy

Strategic Objective 2: Improved Investment

Climate

Strategic Objective 3: Better Public Service

Delivery


Cross Cutting Theme: Good Governance

Fisc

al a

nd fi

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stab

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ugh

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e co

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oduc

tivity

and

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y in

key

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ors

Bas

ic se

rvic

e de

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poo

r are

as

Soci

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Dis

aste

r ris

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anag

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imat

e ch

ange

Stab

ility

and

pea

ce

Gov

erna

nce

and

antic

orru

ptio

n in

se

lect

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ies

Proc

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ent a

nd

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nanc

ial

man

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B

ette

r loc

al

gove

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ore

effe

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e de

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raliz

atio

n

ADB x x x x x x x x x x Australia x x x x x x x x x x Austria x x

Canada x x x x x x x

China x

Czech Republic x x

European Comm. x x x x x x x x x

France x x

Germany x x x x x x x x

IMF x

Japan x x x x x x x x x x

Korea x x x x x x

New Zealand x x x x

Netherlands x

Spain x x x x x x x

Sweden x x

UK x

UN Agencies x x x x x x x x x

USA x x x x x x x x x x Note: For some countries, the matrix may not reflect support provided through global programs such as the Public-Private Infrastructure Advisory Facility, Global Environment Facility, Water and Sanitation Program, Carbon Finance Funds, Cities Alliance Program, and others. Also, some entries are based on the development partners’ strategic areas in the Philippines and not necessarily on specific programs.

Annex 8

World Bank Group-Managed Trust Funds in the Philippines

TF Number Trust Fund Closing

FY

US$

000s

BE/RE1


1.1 Fiscal and financial stability through consolidation and improved macroeconomic risk management

TF056828 IDF - Strengthening of Revenue Administration and Collection

Efficiency

FY10 250 RE

TF092308 IDF - Policy-Based Budgeting Medium-Term Framework FY12 300 RE


2.1 Enabling business environment to promote competitiveness, productivity, and employment

TF093078 EAIIG - National Roads Improvement and Management Program

(NRIMP2) - Enhanced Supervision

FY09 75 BE

TF093078 EAIIG - PPP Support to Enhance the Capacity of the Toll

Regulatory Board to be an Effective Regulator of Toll Facilities

FY10 200 BE

TF093318 PPIAF - Philippines: Lead Transaction Adviser for Cala Toll Road –

Supervision Budget

FY10 90 BE

TF057138 PHRD - Philippines - Public Private Participation in Transport

Infrastructure

FY10 1,000 RE

TF092525 EAIIG - Philippines Agribusiness Value Chain, Logistics and

Infrastructure Study

FY10 300 BE

TF052188 GEF FSP - Philippines: Rural Power Project FY10 9,000 RE

TF093636 EAIIG - Philippines Electrification: Best Practices in

Subtransmission Development

FY10 90 BE

TF053361/

TF053360

TF053607

TF053613

TF092038

TF090729

TF055841

GEF FSP - Philippines: Electric Cooperative System Loss Reduction

Project

IFC/Norway - Private Sector Participation Project in Provision of

Power Supply to Rural Nongrid Areas

IFC/USA - Private Sector Participation Project in Provision of Power

Supply to Rural Nongrid Areas

IFC/Spain TATF - Philippines Olongapo Power

IFC/USA - ‘Doing Business’ Plus

IFC/CIDA/AusAID – Private Enterprise Partnersip (PEP) -

Philippines

FY12

FY09

FY09

FY10

FY09

FY10

12,877

275

15

60

10

10,000

RE

BE

BE

BE

BE

BE


TF090611 PPIAF-SNTA - Credit Rating for Selected Cities FY09 390 BE

TF090611

TF054893

PPIAF-SNTA - Small Water Utilities Financing

IFC/Japan TATF – Asian Commercial Bank – Strengthening

Financial Institutions in East Asia

FY09

FY09

69

40

BE

BE



TF091695 AusAid TF for Support to Philippine Basic Education Reforms FY11 36,482 RE

TF090182 EC TF for Health Sector Reform FY11 9,319 RE

TF057794 PHRD - Local Government Support for Regional Water Supply

Project

FY09 1,000 RE

TF093730 EAIIG - Concessional Financing Facility for Water and Sanitation

Service Providers

FY09 185 BE

TF092713 PPIAF - Philippines: Metro Iloilo Water District Options Study FY10 245 BE

TF055264

TF055295

IFC/France TATF - Private Sector Participation in the Water Sector

in the Philippines

IFC/USA TATF - Private Sector Participation in the Water Sector in

the Philippines

FY09

FY09

43

12

BE

BE

TF057488 WSP - Program for Sustainable Sanitation – Philippines Component FY11 1,566 BE

TF057296 GEF FSP - Manila Third Sewerage Project

FY13 5,000 RE

1 BE: Bank Group (including IFC) Executed; RE: Recipient Executed

World Bank-Managed Trust Funds in the Philippines Philippines FY10-12 CAS - Annex 8

Page 2 of 2

TF Number Trust Fund Closing

FY

US$

000s

BE/RE1


TF056975 PHRD - Implementation- Philippines: KALAHI-CIDSS FY09 199 RE

TF058161/

TF058154

JSDF - Urban Partnership for Sustainable Upliftment, Renewal,

Governance and Empowerment (UPSURGE)

FY12 2,090 BE/RE



TF092347 DFSG - Philippines Country Study FY10 50 BE

4.2 Disaster risk management system and climate change

TF091357 Philippines: Country Environmental Analysis FY09 78 BE

TF055016 Clean Development Mechanism TA for Philippines FY10 406 BE

TF090241 GEF PDF B - Philippines: Preparation of Climate Change

Adaptation Phase I Project

FY09 283 RE

TF091752 GFDRR - Philippines: Supporting Local Government Capacity to

Manage Natural Disasters

FY09 1,000 BE/RE

TF092836 NTFPSI- Climate Change in Coastal Areas FY12 330 BE

TF052826 Dutch Cofinancing - Laguna De Bay Institutional Strengthening and

Community Participation Project

FY10 5,000 RE

TF021931 OTF - Philippines ODS Phase Out Investment Project FY10 30,000 RE

TF056617 Swedish Contribution to the Philippine National CFC Phase Out

Plan

FY10 291 RE

TF092354 GEF PPG - Philippines: Grant for Preparation of Integrated

Persistent Organic Pollutants Management (Dioxins and Furans,

PCB and Contaminated Sites) Project

FY10 240 RE

TF092603

TF054138

Philippines Disaster Risk Management Project

IFC Philippines Asian Conservation Company

FY10

FY11

75

1,600

BE

BE


TF091787 Mindanao Regional Development in Conflict-Affected Areas FY09 300 BE

Various TFs Mindanao Reconstruction and Development Program FY14 4,540

TF091669 GEF PPG - Philippines: Grant for Preparation of Mindanao Rural

Development Project Phase II - Coastal and Marine Ecosystem

Conservation Component

FY09 135 RE

TF092858 EAIIG - Rural Infrastructure Component of the Mindanao Rural

Development Program Phase 2

FY10 150 BE


5.1 Governance and anti-corruption in selected national government agencies

TF056626 IDF - Philippines: Strengthening of Monitoring and Evaluation

(M&E) Capacities in Agriculture

FY09 300 RE

TF090551 IDF - Strengthening the Institutional Effectiveness of the National

Commission of Indigenous Peoples

FY10 170 RE


TF057655 IDF - Philippines: Professionalization of Public Procurement

Practitioners and Functions Project

FY10 300 RE

TF092211 IDF - Strengthening the Capacity of the Procurement Service in

Implementing the Philippine Government Electronic Procurement

System

FY12 300 RE

TF091036 FIRST - TA to Support Creation of Accounting Oversight Board FY10 245 BE

TF092158 IDF - Strengthening the Capacity and Effectiveness of the

Commission on Audit

FY12 300 RE


TF092492 IDF - Philippines: Strengthening the Capacity of the Local

Government Academy to Coordinate and Oversee Local Government

Training and Capacity Building Project

FY12 260 RE

TF056159 JSDF - Philippines: NGO Sector Efficiency and Accountability to

Strengthen Service Delivery to the Poor

FY10 361 RE

Annex 9

Philippines Harmonization Agenda

Procurement Reform

1. Procurement reform continues to be pursued by its champions in the Government since the

passage of the Government Procurement Reform Act in January 2003. The commitment to

sustaining progress in the pursuit of reform has been clearly demonstrated since the passage of the

Procurement Law, and has benefited from the Bank’s continuing technical assistance and financial

support.

2. The Government Procurement Policy Board (GPPB) has developed as an active, efficient

and effective procurement policy oversight body. The GPPB has so far issued more than 70 rules that

clarify and interpret provisions of the Procurement Law to aid implementation at the agency and local

government levels. The Bank supported the creation of the GPPB and its early years of operation through

a US$300,000 IDF grant that closed in 2005.

3. The Government has standardized and harmonized with ADB, JBIC and WBG

procurement documents and forms, which are now being used in all ODA assisted projects. The

Procurement Law requires the development of standardized procurement documents and forms.

Moreover, the country is a signatory to the 2003 Paris Declaration for Aid Effectiveness that calls for

harmonization and alignment to achieve better aid effectiveness, and has also endorsed the Accra Agenda

for Action to further strengthen development effectiveness. The Government harmonized with the three

development partners successively the Philippine Bidding Documents in August 2005 and the Generic

Procurement Manuals in July 2007. With only a few differences with international procurement practice,

as recorded in the 2007 CPAR, the country’s public procurement system can now be described as

substantially aligned with international standards. In supporting the attainment of these initiatives, the

Bank has provided Technical Assistance to the GPPB through an ASEM grant of US$796,000 that closed

in 2007.

4. Efforts by the Government to improve transparency in procurement biddings include the

operationalization of the central E-Government Procurement (e-GP) portal and participation of

civil society observers in the bidding process. The Government operates a central e-GP portal, the

Philippine Government Electronic Procurement System (PhilGEPS), for all procurement biddings. The

World Bank and Asian Development Bank carried out an assessment of its acceptability for MDB-funded

procurement in November 2006, leading to an agreement to modify five areas of the system to suit MDB

Procurement Guidelines. The five changes were substantially completed. Six implementing agencies have

conducted a pilot harmonization program of e-GP system application. The PhilGEPS provides, under its

Phase 1, a centralized web portal for publication of notices, registration of suppliers, issuing procurement

documents, and publication of contract awards. The Bank approved an IDF grant of about US$300,000 in

2008 to develop Phases 2 to 5 which will expand the capacity of the system to virtual store, e-payment, e-

charging of fees, and e-bidding. The law requires every bidding process to be observed by civil society

representatives. While there is a challenge in sustaining this requirement of the law, there are CSOs that

are committed. A JSDF was recently approved with a funding of about US$1 million to find ways of

strengthening GPPB and the Transparency Accountability Network (TAN) towards providing appropriate

incentives to the CSO observers in local and community procurement.

5. The GPPB, having a vital role in monitoring implementation of the procurement law, has

also initiated moves to strengthen procurement monitoring and evaluation which significantly

improve transparency in procurement activities. GPPB monitors procurement performance of

Philippines Harmonization Agenda Philippines FY10-12 CAS - Annex 9

Page 2 of 6

government agencies through three channels: (a) Online Monitoring and Evaluation System – a self-

monitoring tool for agencies online at www.gppb.com to find out their level of compliance with the law;

(b) Agency Compliance and Performance Indicator System, a set of indicators based on the OECD-DAC

Baseline Indicator System, which assess the performance of an agency compared with a set of

internationally accepted good procurement practices; and (c) e-procurement system, through PhilGEPS.

In promoting transparency, PhilGEPS now posts procurement notices by more than 50 percent of all the

agencies and local government units (excluding barangays or the lowest unit of government). More than

15 percent of them have started posting the award notices as well, including 90 percent of the GPPB

member agencies. Most recently, the Transparency Accountability Network (TAN) developed a

monitoring system that would encourage each agency to maintain good records management systems

such that documents evidencing the procurement process will be available for scrutiny by the civil society

members. The project is financed by a portion of the recently completed IDF grant on Strengthening

Internal Audit Units.

6. Recognizing the importance of effectively enforcing the intent of the Procurement Law, the

Bank and the Government supported programs to strengthen the procurement audit systems. The

Bank’s IDF of US$300,000 which closed in June 2008, supported the “Strengthening of Internal Audit

Units toward Effective Procurement Monitoring and Enforcement”. It was executed by the Presidential

Anti-Graft Commission under the Office of the President. The IDF funded activities that produced: a

mapping of the quality of existing internal audit units, a generic internal audit manual (GIAM), a

certification study for government internal auditors, and a procurement record monitoring system from

the perspective of CSO observers. The GIAM has been accepted by the Bank as substantially meeting

international standards for the practice of internal auditing. Moreover, the Bank in its July 2008 letter

informed the Government that the GIAM will be prescribed to agencies implementing Bank-assisted

projects as part of project financial management arrangements, and as an anticorruption measure. A new

IDF grant for the strengthening of Commission on Audit (COA) intends to provide financial resources for

the development of a Procurement Audit Guide for COA auditors to provide guidance on audits

appropriate for the new public procurement system. The grant is being executed by COA.

7. The Bank supported a capacity building program for marginalized communities and local

government units to improve their know-how in correctly applying the Procurement Law in their

bidding processes. The Procurement Law covers all units of government including local government

units and communities or barangays. While officials and staff of national agencies have easy access to

training, procurement practitioners in the LGUs and barangays have difficulty in availing good

procurement training. Moreover, they have found it difficult to apply the Procurement Law correctly. To

address this issue, and as agreed in the 2007 CPAR, a capacity building project involving marginalized

communities and LGUs will be supported by the Bank. A JSDF grant of about US$1 million was

recently approved to support the activities of the project.

8. Good fiduciary practices have now been increasingly linked with governance and

anticorruption measures and have found their way to a number of strategies applied in various

Bank-financed projects. Innovative anticorruption measures were included in the National Road

Improvement Management Project (NRIMP) including the use of an independent procurement evaluator,

civil society observers in bidding and contract implementation called the Road Watch, and the

strengthening of internal audits. A Generic Internal Audit Manual with focus on procurement audit

programs was completed in June 2008 and is now being used in the Departments of Public Works and

Highways, Education, and Social Services. Project Appraisal Documents (PADs) include an annex on

how to address the issue of governance and anticorruption and a governance and anticorruption team in

the World Bank Office has been established. In the Department of Education, the Bank-financed Third

Elementary Education and the National Program Support for Elementary Education have used CSOs as

observers in the bidding process. Moreover, CSOs such as the G-Watch, Boys’ and Girls’ Scouts,

http://www.gppb.com/


Page 3 of 6

NAMFREL, and others, have participated in the Textbook Count ensuring that the books are delivered to

schools.

9. The Government, together with the WBG, ADB, and JBIC, has raised the bar in achieving

harmonization, standardization, simplification and alignment of procurement rules and procedures

through the recent move of revising the existing Implementing Rules and Regulations (IRR) of

Republic Act (RA) 9184 with the view of having only one IRR instead of the previous two IRRs. In

2003 when the IRR of the law was first crafted, there were major differences between the legislative

framers of the law and the development partners funding foreign assisted projects, such as the ADB, JBIC

and WBG. The IRR, which is supposed to cover all types of procurement regardless of funding source,

ended up as an IRR-A covering only domestically funded projects, with foreign assisted project

procurement to be covered by an IRR-B, which has not yet been formulated. From 2003 to 2008,

procurement reform made significant progress towards greater standardization, simplification,

harmonization, and alignment. In the April 2008 Philippine Development Forum, the Government and

the development partners agreed to formulate the IRR-B for foreign-funded projects. The preparation of

IRR-B promoted greater harmonization, simplification of rules, rendering the IRR-A obsolete and

therefore needing major revisions. As such, the GPPB decided to consolidate the two sets of IRRs for

foreign and locally funded projects into a single IRR which it intends to adopt formally during the next

PDF meeting in April 2009.

10. To ensure that the civil service has the capacity to deliver under the new public

procurement system, the law mandated the professionalization of the procurement function. The

GPPB, through the support of an ongoing IDF grant of US$300,000, has contracted the Asian Institute of

Management to develop the modules for a certification program for procurement practitioners. These

modular training programs are expected to be offered by accredited learning institutions leading to

certification as procurement professionals. The parameters of the certification program have been agreed

with the Civil Service Commission and discussions are underway on the establishment of objective

qualification standards for procurement positions in government. Once these standards have been

established and adopted by the Civil Service Commission, only certified procurement practitioners will be

eligible for government procurement positions.

11. The Bank has nominated the Philippines as a candidate in the Piloting Program on the Use

of Country System given the Government’s proven commitment to procurement reform and the

demonstrated successes achieved so far. With proven government commitment to reform, and

demonstrated successes in harmonization and alignment, substantial use of country systems has been

accepted by development partners in the procurement arrangements of projects financed by them. Only a

few differences with international procurement practice were recorded in the 2007 CPAR. The country

has also scored well in the OECD-DAC Baseline Indicator System. Thus, the country’s public

procurement system can be described as substantially aligned with international standards for the use of

National Competitive Bidding method. The Bank, in December 2008, nominated the Philippines as a

candidate for the Piloting Program on the Use of Country System (UCS). The UCS intends to cover the

procedures for International Competitive Bidding.

Financial Management and Public Expenditure Management

12. Recent changes in Bank policies have enabled the Bank to place greater reliance on

countries’ financial management systems, including budgeting, financial reporting, and external

auditing. The Bank has issued guidelines that strongly encourage the use of country systems in the

public financial management (PFM) area when circumstances permit. Indeed, the default position in

Bank-financed operations is to use existing PFM institutional frameworks unless the country context


Page 4 of 6

requires the use of special-purpose implementing entities or particular capacity-strengthening measures.

The Bank’s reliance on country systems in the Philippines has been focused on financial management.

13. The Bank’s own Public Expenditure and Financial Accountability (PEFA) assessment

report (2008) provides a comprehensive diagnostic overview of the full PFM cycle and other key

dimensions. The PEFA report identifies the following areas of relative strengths in the Philippines’ PFM

system: (i) a reasonably comprehensive budget (i.e., limited extra-budgetary operations or unreported

government operations); (ii) an incipient effort to introduce a medium-term expenditure framework into

the annual budget process; (iii) a strengthened procurement legal framework and a credible program of

reform implementation; and (iv) comprehensive annual audit practices, although legislative oversight and

follow-up of audit findings are weak.

14. There is, however, room for improvement, and in recent years, the Government has been

implementing several reform programs to strengthen various aspects of PFM. Aspects of the PFM

covered in these efforts range from budget formulation (e.g., introduction of a medium-term expenditure

framework as part of the annual budget process) to accounting (e.g., adoption of the New Government

Accounting System, or NGAS) and auditing (e.g., use of a risk-based approach to audit selection). A

dialogue has been initiated with the authorities to strengthen financial reporting requirements and

effective oversight function (external and internal auditing). Other areas still require attention. One in

particular relates to an integrated financial management and information system (IFMIS). To improve on

the somewhat piecemeal approach to PFM reforms, the Bank and several development partners active in

this area are offering support to the Government to develop a comprehensive medium-term PFM reform

strategy, based on the PEFA findings and other diagnostic inputs.

15. PEFA assessments and other PFM diagnostics have revealed the need for strengthening the

Commission on Audit (COA). The Bank is providing technical assistance to support COA in its efforts

in reviewing and modernizing audit approaches to improve the effectiveness and efficiency of COA in the

audit of government revenues and expenditures through the development and adoption of a results-based

integrated audit methodology that will focus on the outputs and outcome of public expenditures, using a

risk-based audit approach.

16. In 2006, the Bank, through the Accounting and Auditing Report on the Observance of

Standards and Codes (ROSC), reviewed the Philippines’ private sector accounting and auditing

practices with an emphasis on compliance with international standards and codes. An action plan to

improve corporate financial reporting practices in the Philippines was developed and adopted by the key

players in the Philippines corporate financial reporting architecture. The Bank, through the Financial

Sector Reform and Strengthening Initiative (FIRST), is providing technical assistance toward organizing

preparatory activities that will build institutional capacity and strengthen the corporate accounting and

auditing practices of the Philippines. The activities supported are expected to lead to the development of

a regulatory framework of accounting and auditing in line with international good practices. These

improvements will contribute to financial and private sector development in the Philippines and are fully

consistent with the Philippines’ current initiatives on accelerating private-sector led-growth.

17. The Bank will also address fiduciary risk through a multi-year program of fiduciary

analytical work aimed at strengthening the policy dialogue in financial management and

procurement (particularly at the sub-national level) and raising general awareness. This program

will consist of (i) a national level CFAA update; (ii) a sub-national level financial management and

procurement ESW; and (iii) policy notes on specific areas of interest to the Government. These analytical

products will be conducted in close coordination with all relevant sectors. The main emphasis of the

CFAA update will be the assessment of the control environment, aid management, and the budget process.

Specific analytic work to provide a more systematic assessment of financial management risks at the sub-


Page 5 of 6

national level is planned for FY 2009/2010. This will aim to design relevant indicators and measure

fiduciary performance at the sub-national level. The Bank will conduct the sub-national ESW jointly with

the Government and other development partners.

Safeguards

18. The Bank has been conducting regular Safeguards Fora for Bank-assisted projects with

implementing agencies, safeguard oversight agencies as well as other stakeholders. These fora aim

to present and share good practice examples, identify and address common and systemic issues and

develop a network of safeguards practitioners with the ultimate objective of developing capacity, and

improving outcomes and sustainability. Through these fora, safeguards instruments, e.g., use of

frameworks and guidelines, and processes for community driven development (CDD)-types of projects

across the Bank portfolio have been harmonized. Increased project compliance on safeguard processes

and requirements during implementation is also noted.

19. Following the issuance of Operational Policy 4.00 in 2005 on the piloting of the use of

borrower systems for environmental and social safeguards, the Bank, in partnership with the

Government and ADB, and in consultation with other bilaterals and stakeholders, conducted a diagnostic

review of the country’s safeguard systems on environmental assessment (EA), indigenous peoples (IP),

and involuntary resettlement (IR). The objectives of the review are to assess the strengths and weaknesses

of the country systems vis-à-vis global principles and good practice in order to recommend measures to

strengthen local capacity for implementing safeguards work and to identify areas where local policies,

processes and practices could be harmonized with those of global principles and good practice. The

review for EA and IP was completed in 2007 and for IR in 2008.

20. The results of the reviews indicated that the legal bases, policies, and institutional

frameworks of the country’s EA and IP safeguard systems are strong and sound, but suffer from

weak implementation due to capacity and financial constraints and overly bureaucratic procedures

and processes. The country’s IR system, on one hand, has huge gaps with global principles and good

practice. The Government has responded to some of the key recommendations through the issuance of

administrative orders by the relevant agencies and through existing projects, for example, the NPS-

ENRMP for EA, and the grant-funded TA for the National Commission on Indigenous Peoples for the IP.

The Bank also continues to support the Government’s efforts to adopt more uniform policies and

practices for involuntary resettlement through its support and participation in the Government’s Technical

Working Group on Involuntary Resettlement.

Gender

21. The National Economic and Development Authority (NEDA) and the National Commission

on the Role of Filipino Women (NCRFW) have adopted the Harmonized Gender and Development

Guidelines for Project Development, Implementation, Monitoring and Evaluation which was prepared

in partnership with the ODA-GAD Network. The ODA-GAD Network, composed of more than 15

development partners, considers the Guidelines as a vital contribution to the process of gender

mainstreaming. It provides for the integration of the GAD perspective in development planning processes

and at various stages of the project cycle.

22. The Guidelines have been used by the NEDA and NCRFW to regularly assess the gender-

responsiveness of all official development assistance (ODA) projects. The World Bank report of

March 2008 showed that of 19 projects financed by the World Bank in the Philippines, 84 percent have

been rated as either gender-responsive or gender-sensitive on both the project design and implementation

aspects, with the remaining 16 percent rated as “with promising GAD prospects”. None of the projects


Page 6 of 6

has been rated as gender-blind. Consequently, the GAD aspects of World Bank-supported projects, using

the NEDA-NCRFW Guidelines, will be monitored as part of the supervision missions and safeguards fora.

Mutual Accountability and Managing for Results

23. The Philippine Development Forum (PDF) has served as an effective mechanism for

facilitating substantive policy dialogue on the country’s development agenda. The PDF has evolved

from the Consultative Group to broaden representation at the annual meetings to include representatives

from civil society, academe, private sector and the legislature.

24. Aside from the annual PDF event, working group meetings are held around thematic areas - MDGs and social progress; growth and investment climate; economic and fiscal reforms; governance

and anticorruption; decentralization and local government; sustainable rural development; and Mindanao

– throughout the year to follow through on issues and agreements reached and facilitate consultations

across a broad range of stakeholders. Each working group is convened by the head of the relevant

government agency and a development partner as co-convenor. Key initiatives and achievements of the

Working Group on Decentralization and Local Government, which is one of the active PDF Working

Groups, are discussed in the section below.

25. NEDA has been leading the conduct of joint ODA portfolio reviews among government

implementing and oversight agencies and the Philippines’ major development partners – ADB, JBIC and

the Bank. It prepares an annual report to the legislature on the performance of the ODA portfolio.

Local Governments and Decentralization

26. The establishment of the Working Group on Decentralization and Local Government under

the Philippine Development Forum has led to better harmonization of development partners’

efforts. The Working Group is convened by the Department of Interior and Local Government and co-

convened by the WBG and has membership from various international development agencies and

government agencies. The working group has a website, which provides a good sense of the kind of

activities that have been undertaken to harmonize activities/approaches, etc. The Working Group is

currently addressing the issue of establishment of a multi-donor trust fund to support its activities.

27. The Working Group focuses on four themes: local government finance (accelerating revenue

mobilization and improving LGU access to financing, and better expenditure management), capacity

building (improving delivery of training to LGUs, national oversight agencies and other agencies),

performance benchmarking (improving the integrity and credibility of monitoring systems), and policy

reforms on devolution. Key achievements include improved information sharing between the BIR and

the LGUs through Executive Order 646: Accessibility of Information on Taxpayers between the Bureau

of Internal Revenue and the Local Government Units for Tax Collection Purposes signed by the President

in August 2007; integrating the financial monitoring indicators with a broader performance monitoring

system; identifying measures to improve the integrity and quality of data collection at the LGU level; and

enhancing the capacity of the DILG and the DOF-BLGF to maintain the performance systems.

28. Most recently, the Working Group supported an effort by the four oversight agencies to

harmonize local planning, budgeting, and revenue mobilization manuals; and jointly disseminate,

train and brief local governments on the harmonized system. Efforts are currently focused on

streamlining and synchronizing duplications and contradictions in training programs for local

governments offered by various agencies and supported by international development agencies.

Annex 10

Country Financing Parameters for the Philippines (January, 2005)

The country financing parameters for the Philippines below have been approved by the Regional

Vice President, East Asia and Pacific Region.

Item Parameter Remarks / Explanation

Cost sharing Limit on the proportion

of individual project costs that the

Bank may finance.

Up to

100 percent

The Bank’s overall financing share is

not expected to change significantly in

aggregate level, with expected increase

in sector-wide assistance (in which the

Bank’s financing share is typically

low). Projects implemented by local

governments will likely include some

counterpart funding. For projects

implemented by government-owned

corporations, evidence of ownership

and commitment would be assessed,

taking account of budget and planning

processes and project cost sharing. One

hundred percent Bank financing could

be provided for some projects and

activities with strong evidence of

ownership and commitment.

Recurrent cost financing Any limits

that would apply to the overall amount

of recurrent expenditures that the Bank

may finance.

No country

limit, but

strong

emphasis on

arrangements

to ensure

sustainability

Integration of Bank financing in the

budget process ensures that increased

recurrent cost financing would not

jeopardize overall debt and fiscal

sustainability. The Bank will continue

to monitor the overall fiscal situation

and its implications for recurrent cost

financing. At the project level,

recurrent cost financing could be

considered if consistent with project

objectives, provided there is strong

demonstration of arrangements to

ensure sustainability after Bank

financing ceases.

Country Financing Parameters Philippines FY10-12 CAS - Annex 10

Page 2 of 2

Item Parameter Remarks / Explanation

Local cost financing Are the

requirements for Bank financing of

local expenditures met, namely that: (i)

financing requirements for the

country’s development program would

exceed the public sector’s own

resources (e.g., from taxation and other

revenues) and expected domestic

borrowing; and (ii) the financing of

foreign expenditures alone would not

enable the Bank to assist in the

financing of individual projects.

Yes The two requirements for Bank local

cost financing are met. Therefore the

Bank may finance local costs in the

proportions needed in individual

projects.

Taxes and duties Are there any taxes

and duties that the Bank would not

finance?

None Taxes and duties are considered

reasonable. At the project level, the

Bank would consider whether taxes and

duties constitute an excessively high

share of projects costs. The Bank

would monitor local taxes for possible

distortions and that these maintain

consistent acceptable practices.

Country At-A-Glance Annex A2

Page 1 of 3

Note: Data used in the main text and annexes may differ as they also draw on latest government and Bank staff estimates.


Page 2 of 3


Page 3 of 3

Annex B2

Page 1 of 1

Philippines

Selected Indicators* of Bank Portfolio Performance and Management

As of March 17, 2009

Indicator FY06 FY07 FY08 FY09

Portfolio Assessment

Number of Projects Under Implementation a 23 23 24 23

Average Implementation Period (years) b 4.3 4.0 4.3 4.9

Percent of Problem Projects by Number a, c 13.0 13.0 16.7 23.8

Percent of Problem Projects by Amount a, c 6.6 6.6 7.8 9.2

Percent of Projects at Risk by Number a, d 13.0 13.0 16.7 28.6

Percent of Projects at Risk by Amount a, d 6.6 6.6 7.8 13.6

Disbursement Ratio (%) e 21.1 15.2 20.1 10.0

Portfolio Management

CPPR during the year (yes/no) yes yes yes

Supervision Resources (total US$) 1,498 1,569 1,681

Average Supervision (US$/project) 65 63 76

Memorandum Item

Since

FY80

Last Five

FYs

Proj Eval by OED by Number 140 10

Proj Eval by OED by Amt (US$ millions) 8,922.8 617.7

% of OED Projects Rated U or HU by Number 28.1 0.0

% of OED Projects Rated U or HU by Amount 29.3 0.0

a. As shown in the Annual Report on Portfolio Performance (except for current FY). Includes

GEF-funded projects.

b. Average age of projects in the Bank's country portfolio.

c. Percent of projects rated U or HU on development objectives (DO) and/or implementation

progress (IP).

d. As defined under the Portfolio Improvement Program.

e. Ratio of disbursements during the year to the undisbursed balance of the Bank's portfolio at

the beginning of the year: Investment projects only.

* All indicators are for projects active in the Portfolio, with the exception of Disbursement

Ratio, which includes all active projects as well as projects which exited during the fiscal

year.

Annex B3

Page 1 of 1

Philippines

IFC Investment Operations Program

2006 2007 2008 2009*

Commitments (US$m)

Gross 0.69 130.18 564.32 183.50

Net** 0.69 130.18 564.32 183.50

Net Commitments by Sector (%)

Utilities 0.00 61.46 67.34 100.00

Transportation and

Warehousing 0.00 38.54 0.00 0.00

Finance & Insurance 100.00 0.00 27.17 0.00

Health Care 0.00 0.00 5.49 0.00

Total 100 100 100 100

Net Commitments by Investment Instrument (%)

Equity 23.92 38.41 3.92

Loan 76.08 61.59 66.63 91.83

Quasi loan 29.45 8.17

Total 100.00 100 100 100

* As of March 31, 2009

** IFC's Own Account only

Annex B3

Page 1 of 2

Philippines

IBRD Indicative Financing Program, FY10-12

(US$ million)

Product Title Fiscal Year

2010 2011 2012


RA 1.1: Fiscal and financial stability through consolidation and improved


Development Policy Loan (DPL) 250

Development Policy Loan (DPL) – Deferred Drawdown Option (DDO) [250] x

TOTAL FOR SO 1 250 -500 x


RA 2.1: Enabling business environment to promote competitiveness,

productivity and employment

Light Rail Transit 1 South Extension Public-Private Partnership (LRT-PPP) 260

Tollway-PPP (Cavite-Laguna) x

Urban Transport (Metro Manila and other cities) x

Secondary/Local Roads x

Rural Power Adaptable Program Loan 2 (APL 2) x

Agriculture and Agribusiness Support x

Mindanao Development x

Urban Renewal (Metro Manila Cities) x

Sub-National Water Public-Private Partnership (with IFC) x

Participatory Irrigation Development Project (PIDP) – FY09 [$70m]

RA 2.2: Financial services

Sub-National Finance (SSLDIP2 or DBP3-Regional Infrastructure for Growth) x

Sub-Sovereign Financing Facility (with IFC)

TOTAL FOR SO 2 260 x x


RA 3.1: Public service delivery in key sectors

National Program Support for Education x

National Program Support for Health x

RA 3.2: Basic service delivery in poor areas

National Program Support for CDD x

TOTAL FOR SO 3 x x


RA 4.1: Social protection system

Social Welfare and Development Reform (SWDR) - Conditional Cash Transfers (CCT)

– FY09 [$405m]

RA 4.2: Disaster risk management and climate change

Water Quality Management x

Disaster Risk Management (DRM) Financing [including Catastrophe Deferred

Drawdown Option (CAT DDO)]

x

RA 4.3: Stability and peace

Fund for Peace and Development x

TOTAL FOR SO 4 x

Strategic Objective 5: Good Governance

RA 5.1: Governance and anticorruption in selected agencies

Judicial Reform 2 x

RA 5.2: Procurement and public financial management reforms at national and

local levels

Government Integrated Financial Management Information System (GIFMIS) x

RA 5.3: Better local governance through more effective decentralization

Local Government Unit Performance Grants/Capacity Building for Local Government 50

TOTAL FOR SO 5 50 x x

TOTAL FOR LENDING 560 -

810

700 –

1,000

800 –

1,100

Philippines IBRD Indicative Financing Program, FY10-12 Annex B3

Page 2 of 2

NOTES:

1. Additional Financing (AF) operations are not included in the table, but it should be noted that the following

are planned for FY09/FY10:

Rural Power Project (US$40m), supporting RA 2.1

Agrarian Reform Communities Development Project (US$10m), supporting RA 2.2

Judicial Reform Support Project (US$20m), supporting RA 5.1

KALAHI Project (US$70m), supporting RA 3.2

2. There are six large trust funds (over US$5m each) currently planned for FY10 under the Global Environment

Facility (GEF) which all support RA 4.2, and a grant-funded Output-Based Aid for Urban Services

supporting RA 3.2. All of these trust-funded activities would be monitored as part of the portfolio.

Annex B4

Page 1 of 1

Philippines

Indicative Analytical and Advisory Activities Program, FY10-12 *

Product Title Fiscal Year

2010 2011 2012


RA 1.1: Fiscal and financial stability through consolidation and improved


Philippines Development Report x x x

Quarterly Economic Update x x x

Programmatic AAA on Public Expenditure Issues x x x

Development of the Philippine Statistical Development Plan (including grant to improve

quality and usefulness of Philippine household surveys)

x x

IFC Advisory Services on crisis/insolvency management


RA 2.1: Enabling business environment to promote competitiveness, productivity and

employment

Trade Facilitation/Transport/Logistics x

Investment Climate for the Poor (with IFC) x

AAA on Energy Sector Reform x

TA on PPP Regulatory and Policy Support (IFC and PPIAF) x x x

AAA on Environmental Safeguards (including Environmental Assessments) x

Agricultural Productivity Growth x

Urban Strategy (including resettlement issues) x

RA 2.2: Financial services

Financing Innovation Facility (with IFC) x


RA 3.1: Public service delivery in key sectors

Programmatic AAA for Health x x x

Programmatic AAA for Education x x x

Programmatic AAA for Water Supply and Sanitation Support (including Water Pollution

Control)

x x x

RA 3.2: Basic service delivery in poor areas

AAA on Indigenous Peoples and Vulnerable Groups x

Philippines Population Report x

Synergies for Service Delivery (CCT, CDD, NPS) x


RA 4.1: Social protection system

Programmatic AAA for Social Protection and Poverty Reduction x x x

RA 4.2: Disaster risk management and climate change

Programmatic AAA for Disaster Risk Management (DRM), including Climate Change Issues x x x

RA 4.3: Stability and peace

Encouraging More Resilient Communities in Conflict-Affected Areas (SPF) x x x

Strategic Objective 5: Good Governance

RA 5.1: Governance and anticorruption in selected agencies

TA for Agency Institutional Strengthening x

Programmatic AAA on Sector Governance Assessments (for various sectors/SOs) x x x

RA 5.2: Procurement and public financial management reforms at national and local

levels

Support for Procurement Reforms (including update of CPAR and study of ABC effectiveness) x

PFM AAA (GIFMIS, DBM, BTr, Budget Watch) x

RA 5.3: Better local governance through more effective decentralization

Programmatic AAA on Decentralization (e.g., revenue mobilization) x x x

Cross-Cutting AAA:

Briefing Notes for the Incoming Administration x

Innovation Notes x x x

* For a list of major recent AAA products, please see Annex 3, Appendix 2.

Annex B5

Page 1 of 1

Note: Data used in the main text and annexes may differ as they also draw on latest government and Bank staff estimates.

Annex B6

Page 1 of 2

Philippines – Key Economic Indicators

Actual Projected

Indicator 2004 2005 2006 2007 2008 2009 2010 2011 2012

National accounts (as % of GDP)

Gross domestic

producta 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0

Agriculture 15.1 14.3 14.1 14.1 14.7 14.8 14.8 14.5 14.2

Industry 31.7 31.9 31.7 31.7 31.6 31.9 31.7 31.3 31.1

Services 53.2 53.8 54.2 54.2 53.7 53.3 53.5 54.2 54.7

Total Consumption 86.9 89.6 86.2 84.3 84.9 84.3 84.4 84.3 84.4

Gross domestic fixed

investment 16.1 14.4 14.0 14.8 14.8 14.7 14.9 15.3 15.6

Government

investment 2.6 2.3 2.2 2.6 2.6 2.7 2.7 2.7 2.8

Private investment 13.5 12.1 11.8 12.2 12.2 12.0 12.2 12.6 12.8

Exports (GNFS)b 49.3 45.4 45.1 40.1 34.2 31.7 31.5 31.4 31.6

Imports (GNFS) 57.9 54.6 50.7 45.0 40.1 38.5 38.6 38.8 39.4

Gross domestic

savings 13.1 10.4 13.8 15.7 15.1 15.7 15.6 15.7 15.6

Gross national

savingsc 18.6 16.6 19.0 19.7 17.7 16.9 16.4 16.6 16.7

Memorandum items

Gross domestic

product

86,930 98,824 117,566 144,062 168,580 161,289 167,365 177,541 189,311

(US$ million at

current prices)

GNI per capita (US$,

Atlas method) 1,180 1,270 1,390 1,620 1,670 1,780 1,840 1,860 1,950

Real annual growth rates (%, calculated from 85 prices)

Gross domestic

product at market

prices 6.4 5.0 5.4 7.2 4.6 1.9 2.8 4.0 4.5

Gross Domestic

Income 4.8 3.0 3.5 3.4 -2.6 3.8 3.5 4.9 5.2

Real annual per capita growth rates (%, calculated from 85 prices)

Gross domestic

product at market

prices 4.2 2.8 3.3 5.2 2.1 0.2 1.2 2.4 2.9

Total Consumption -0.3 4.5 -2.8 -1.7 1.1 2.1 1.8 3.1 3.7

Private Consumption -0.3 4.8 -3.6 -2.4 0.5 2.6 1.7 3.2 3.8

Balance of Payments (US$ millions)

Exports (GNFS)b 42,837 44,788 52,970 57,769 57,690 51,159 52,713 55,668 59,836

Merchandise FOB 38,794 40,263 46,526 49,321 47,891 41,617 42,443 44,562 47,770

Imports (GNFS)b 50,298 53,901 59,565 64,928 67,526 62,148 64,655 68,847 74,610

Merchandise FOB 44,478 48,036 53,258 57,557 58,681 52,813 54,426 57,692 62,196

Resource balance (7,461) (9,113) (6,595) (7,159) (9,836) (10,989) (11,942) (13,179) (14,774)

Net current transfers 9,160 11,391 13,197 13,977 15,891 15,573 15,885 16,679 18,013

Current account

balance

1,626 1,984 5,297 6,351 4,111 3,190 2,203 1,869 1,701

Net private foreign

direct investment 109 1,665 2,818 (514) 1,000 100 500 1,000 1,500

Long-term loans (net) (562) (488) (2,621) 2,664 1,022 1,062 (978) 54 1,647

Official (522) (643) (17) 266 799 913 443 113 333

Private (40) 155 (2,604) 2,398 223 149 (1,421) (59) 1,313

Philippines – Key Economic Indicators Annex B6

Page 2 of 2

Actual Projected

Indicator 2004 2005 2006 2007 2008 2009 2010 2011 2012

Other capital (net,

incl. errors &

ommissions) (1,453) (751) (1,725) 75 (2,796) (4,005) (1,551) (2,412) (4,324)

Change in reservesd 280 (2,410) (3,769) (8,576) (3,337) (347) (174) (512) (524)

Memorandum items

Resource balance (%

of GDP) -8.6 -9.2 -5.6 -5.0 -5.8 -6.8 -7.1 -7.4 -7.8

Real annual growth rates (YR85

prices)

Merchandise exports

(FOB)

.. .. .. .. .. .. .. .. ..

Primary .. .. .. .. .. .. .. .. ..

Manufactures .. .. .. .. .. .. .. .. ..

Merchandise imports

(CIF)

.. .. .. .. .. .. .. .. ..

Public finance (as % of GDP at market prices)e

Current revenues 14.5 14.9 16.1 15.7 16.0 15.0 15.0 15.0 15.2

Current expenditures 15.5 15.3 15.0 14.5 14.3 14.5 14.5 14.4 14.4

Current account

surplus (+) or deficit

(-) -1.0 -0.3 1.2 1.3 1.7 0.5 0.5 0.6 0.8

Capital expenditure 2.8 2.4 2.3 2.8 2.6 2.7 2.8 2.8 2.8

Foreign financing 1.7 1.7 2.0 0.8 0.8 1.3 0.5 0.0 0.6

Monetary indicators

M2/GDP 38.6 37.7 41.5 41.6 40.0 40.0 40.8 41.7 42.6

Growth of M2 (%) 9.4 9.0 21.9 10.5 8.5 6.5 9.1 10.4 11.0

Private sector credit

growth / 55.0 31.5 64.6 47.8 78.2 2.7 30.5 40.4 49.1

total credit growth

(%)

Price indices (YR85

=100)

Merchandise export

price index

.. .. .. .. .. .. .. .. ..

Merchandise import

price index

.. .. .. .. .. .. .. .. ..

Merchandise terms of

trade index

.. .. .. .. .. .. .. .. ..

Real exchange rate

(US$/LCU)f 86.2 92.3 102.5 112.3

118.5

..

..

..

..

Consumer price

index (% change) 6.0 7.6 6.2 2.8 9.3 4.5 4.0 4.0 4.0

GDP deflator (%

change) 6.1 6.5 5.1 2.8 7.8 4.5 4.0 4.0 4.0

a. GDP at market prices.

b. “GNFS” denotes “goods and nonfactor services”.

c. Includes net unrequited transfers excluding official capital grants.

d. Includes use of IMF resources.

e. Consolidated central government.

f. “LCU” denotes “local currency units.” An increase in US$/LCU denotes appreciation.

Annex B7

Page 1 of 1

Philippines – Key Exposure Indicators

Actual Estimated Projected

Indicator (by calendar year) 2004 2005 2006 2007 2008 2009 2010 2011 2012

Total debt outstanding and 60,968 61,658 60,282 65,845 67,327 68,240 67,412 67,566 69,363

disbursed (TDO) (US$m)a

Net disbursements (US$m)a 315 123 (1,406) 2,818 1,522 912 (828) 154 1,797

Total debt service (TDS) 11,478 9,962 13,699 10,480 10,084 10,078 12,345 11,264 10,008

(US$m)a

Debt & debt service indicators (%)

TDO/XGSb 110.5 103.8 86.4 86.0 86.3 95.7 92.3 88.0 84.3

TDO/GDP 70.1 62.4 51.3 45.7 39.9 42.3 40.3 38.1 36.6

TDS/XGS 20.8 16.8 19.6 13.7 12.9 14.1 16.9 14.7 12.2

Concessional/TDO 23.5 20.4 20.7 20.0 18.1 18.7 19.3 19.4 19.2

IBRD exposure indicators (%)

IBRD DS/public DS 6.7 8.2 5.9 10.4 13.9 10.3 7.5 7.0 9.2

Preferred creditor DS/public 18.6 20.3 16.7 17.7 25.1 19.9 16.3 16.9 23.1

DS (%)c

IBRD DS/XGS 0.9 0.8 0.8 0.7 0.8 0.8 0.7 0.6 0.5

IBRD TDO (US$m)d 3,317 2,885 2,690 2,726 2,633 3,042 3,315 3,826 4,251

Share of IBRD portfolio (%) 2.7 2.4 2.3 2.5 2.6 2.6 2.5 2.7 2.9

IDA TDO (US$m)d 214 197 196 195 188 181 174 167 158

IFC (US$m)

Loans 281 342 286 271 578 613 750 908 1,077

Equity and quasi-equity /c 153 119 121 140 319 384 464 539 619

MIGA

MIGA guarantees (US$m) 112 92 68 5 0 0 .. .. ..

a. Includes public and publicly guaranteed debt, private nonguaranteed, use of IMF credits and net short-term capital.

b. "XGS" denotes exports of goods and services, including workers' remittances.

c. Preferred creditors are defined as IBRD, IDA, the regional multilateral development banks, the IMF, and the Bank

for International Settlements.

d. Includes present value of guarantees.

e. Includes equity and quasi-equity types of both loan and equity instruments.

Annex B8

Page 1 of 1

Philippines

Operations Portfolio (IBRD and Grants)

As of 03/17/2009

a/ Intended disbursements to date minus actual disbursements to date as projected at appraisal.

Closed Projects 165 IBRD/IDA (US$m) Total Disbursed (Active) 395.35

Of which has been repaid 0.00

Total Disbursed (Closed) 9,740.62 Of which has been repaid 8,634.92

Total Disbursed (Active + Closed) 10,135.97

Of which has been repaid 8,634.92 Total Undisbursed (Active) 840.25

Total Undisbursed (Closed) 15.40

Total Undisbursed (Active + Closed) 855.66

Active Projects

Difference between

Expected and Actual Last PSR

Supervision Rating Original Amount in US$ Millions Disbursements a/

Project

ID Project Name

Development

Objectives Implementation

Progress

Fiscal

Year IBRD IDA Grant Cancel. Undisb. Orig.

Frm

Rev'd


P101964 National Program Support (NPS) for Tax Administration Reform MS MU 2007 11.00 10.59 5.37


P057731 Metro Manila Urban Transport Integration Project (MMURTRIP) MS MS 2001 60.00 11.90 11.90 11.90

P066397 Rural Power Project (RPP) S S 2004 10.00 0.07 -4.21

P072096 GEF-Rural Power Project (RPP) S S 2004 9.00 4.56 1.56 P066532 GEF-Electric Cooperative System Loss Reduction Project U U 2004 12.00 6.40 6.15

P079935 National Roads Improvement Management Project 2 (NRIMP2) S S 2008 232.00 232.00

P071007 Second Agrarian Reform Communities Development (ARCDP2) S S 2003 50.00 5.34 5.34 3.72 P075184 Diversified Farm Income & Market Development (DFIMD) MU MU 2004 60.00 32.29 24.79

P073206 Land Administration and Management Project II (LAMP2) MU MU 2005 19.00 13.31 5.21

P084967 Mindanao Rural Development Project - Phase 2 (MRDP2) S S 2007 83.75 79.21 12.71 P064925 Support for Strategic Local Development and Investment Project (SSLDIP) MS MS 2006 100.00 99.34 -0.33


P079628 Second Women’s Health and Safe Motherhood Project (WHSMP) MS MU 2005 16.00 14.85 4.21

P094063 National Program Support (NPS) for Basic Education S MS 2006 200.00 122.12 77.12 P075464 National Program Support (NPS) for Health Sector S MS 2006 110.00 91.68 22.03

P079661 Manila Third Sewerage Project 3 (MTSP3) S S 2005 64.00 44.81 28.59

P089082 GEF- Supplemental Project to the MTSP3 S S 2007 5.00 4.08 1.07 P077012

Kapit Bisig Laban sa Kahirapan-Comprehensive and Integrated Delivery of

Social Services (KALAHI-CIDSS) Project MS MS 2003 100.00 20.96 20.96

Strategic Objective 4: Reduced Vulnerability

P004406 Ozone Depleting Substances (ODS) Investment Project MS MS 1995 30.00 9.28 9.28 -10.14 P073488 Autonomous Region in Muslim Mindanao (ARMM) Social Fund S S 2003 33.60 2.74 2.74

P070899

Laguna De Bay Institutional Strengthening & Community Participation

(LISCOP) S MS 2004 5.00 2.95 2.90 0.37 P096174 NPS for Environment & Natural Resources Management Project (ENRMP) S MS 2007 50.00 45.00 13.00

P091147 GEF- NPS for ENRMP S MS 2007 7.00 6.66 2.66

Cross-cutting Theme: Good Governance

P066076 Judicial Reform Support Project (JRSP) S S 2004 21.90 11.10 10.81

Overall Result 1,226.25 63.00 871.23 263.87 5.85

Annex B8

Page 1 of 1

Philippines

IFC: Committed and Disbursed Outstanding Investment Portfolio

As of 02/28/2009

(In US$ Millions)

Committed Disbursed Outstanding

FY

Approval Company Loan Equity

**Quasi

Equity

*GT/R

M Participant Loan Equity

**Quasi

Equity *GT/RM Participant

1989/93 Hambrecht and Quist Philippine Ventures (H&Q PV) I 0 0.08 0 0 0 0 0.08 0 0 0

1993/01 Pilipinas Shell 0 1.56 0 0 0 0 1.56 0 0 0

1994 Hambrecht and Quist Philippine Ventures (H&Q PV) II 0 0.05 0 0 0 0 0.05 0 0 0 1993/94/95 Mindanao Power 0 2.22 0 0 0 0 2.22 0 0 0

1995 Walden Management 0 0.02 0 0 0 0 0.02 0 0 0

1995/98 Walden Ventures 0 0.01 0 0 0 0 0.01 0 0 0 1999 Hambrecht and Quist Philippine Ventures (H&Q PV) III 0 0.76 0 0 0 0 0.76 0 0 0

1999/00 Pryce Gases 9.30 0 3.39 0 3.08 9.30 0 3.39 0 3.08

2000 Mariwasa 7.38 0 0 0 0 7.38 0 0 0 0 2001 Plantersbank 0 0.11 0 0 0 0 0.11 0 0 0

2001/02/08 Asian Hospital 26.22 0 1.00 0 0 20.97 0 1.00 0 0

2002 Avalon Professional Web (APW) Trade 0 0 0.28 0 0 0 0 0.28 0 0 2002/05 Eastwood 7.38 0 0 0 0 7.38 0 0 0 0

2002/03/08 Banco de Oro (BDO) 0 14.10 140.45 0 0 0 14.10 83.23 0 0

2003/04/07 Manila Water Company Inc. (MWC) 58.27 13.72 0 0 0 58.27 13.72 0 0 0 2005/06 Balikatan Housing Finance (HF) 0 1.89 38.71 0 0 0 1.89 36.59 0 0

2005 Cagayan de Oro Power and Light Company (CEPALCO) 16.91 0 0 0 0 0 0 0 0 0

2005 Filinvest Land 46.82 0 0 0 0 46.82 0 0 0 0 2005 Paramount Life and General Holding Corporation (PLGHC) 0 1.50 0 0 0 0 1.50 0 0 0

2006 Bahay Financial 0 0.16 0 0 0 0 0.16 0 0 0 2007/09 Philippine National Oil Company-Energy Development

Corporation (PNOC-EDC)

85.31 29.76 0 0 0 85.31 29.76 0 0 0

2007 South Luzon Tollway Corporation (SLTC) 52.02 0 0 0 0 0 0 0 0 0 2008 Masinloc Power 232.00 22.13 13.77 0 0 206.00 22.13 13.77 0 0

2008 SN Aboitiz Power, Inc (SNAP) 98.00 0 0 0 0 98.00 0 0 0 0

2009 SN Aboitiz Power, Inc. Benguet (SNAPB) 85.00 0 15.00 0 0 67.91 0 15.00 0 0

Total Portfolio:

724.61

88.07

212.60

0

3.08

607.34

88.07

153.26

0

3.08

* Denotes Guarantee and Risk Management Products. ** Quasi Equity includes both loan and equity types.

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