Document o f The World Bank

FOR OFFICIAL USE ONLY

Report No: 47175-PH

PROJECT APPRAISAL DOCUMENT

O N A

PROPOSED L O A N

IN THE AMOUNT OF US$405.0 MILLION

TO THE

REPUBLIC OF THE PHILIPPINES

FOR A

SOCIAL WELFARE AND DEVELOPMENT REFORM PROJECT

October 14,2009

Human Development Sector Unit East Asia and Pacific Region

This document has a restricted distribution and may be used by recipients only in the performance o f their official duties. I t s contents may not otherwise be disclosed without World Bank authorization.

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4Ps

ADB

APIS

ARMM

AusAID

B A C

BESRA

BIS CAS CCT CDD

COA

CPAR

CPI CQ cso C Y cvs DA

DBM

DepEd DILG .

DOF D O H

CURRENCY EQUIVALENTS

(Exchange Rate Effective June 1,2009)

US$1 = PhP47 PhP 1 = US$0.02

FISCAL YEAR

Currency Unit = Peso

January 1 - December 31

ABBREVIATIONS AND ACRONYMS

Pantawid Pamilyang Pilipino Program Asian Development Bank

Annual Poverty Indicators Survey

Autonomous Region in Muslim Mindanao Australian Agency for International Development Bids and Awards Committee

Basic Education Sector reform Agenda Baseline indicator system Country Assistance Strategy Conditional Cash Transfer Community Driven Development

Commission on Audit

Country Procurement Assessmenl Report Consumer Price Index Consultant’s qualifications Civ i l Society Organization Calendar year Compliance Verification System Designated Account

Department o f Budget and Management Department o f Education Department o f the Interior and Local Government Department o f Finance Department o f Health

DPO

DSWD

ECDP

eNGAS

EPTS

FIES

FMR

FSP FY GAA GASSG

GFRP

GDP

GNI GOP HAF HSRA IAS IBRD

ICT

ID IDA

IDAP IFR

Development Policy Operation

Department o f Social Welfare and Development Early Childhood Development Project Electronic National Government Accounting System Electronic Procurement Tracking System Family Income and Expenditure Survey Financial Monitoring Report

Food for School Program Fiscal Year General Appropriations Act General Administration and Support Services Group Global Food Crisis Response Program Gross Domestic Product

Gross National Income Government o f the Philippines Household Assessment Form Health Sector Reform Agenda Internal Audit Services International Bank for Reconstruction and Development Information, Communications and Technology Identification International Development Association Integrity Development Action Plan Interim Financial Reports

FOR OFFICIAL USE ONLY

IP

IPPF

IPRA

JICA

KALAHI CIDSS

LFS LBP LCS LGC LGU

M A C MDG MIS MTEP MTPDP

N A C NAPC

N C A N C B NCR

NDHS

NEDA

NFA NGAS

NGO

NHTS-PR

NPMO-4Ps

Indigenous People

Indigenous Peoples Participation Framework Indigenous Peoples’ Rights Act

Japan International Cooperation Agency Kapitbisig Laban Sa Kahirapan Comprehensive and Integrated Delivery o f Social Services Labor Force Survey Land Bank o f the Philippines Least-cost selection Local Government Code Local Government Unit

Municipal Advisory Committee Millennium Development Goals Management Information System Medium Term Expenditure Plan Medium Term Philippines Development Plan National Advisory Committee National Anti-Poverty Commission Notice o f Cash Allotment National Competitive Bidding National Capital Region

National Demographic and Health Survey National Economic and Development Authority National Food Authority New Government Accounting System Non-Governmental Organization

National Household Targeting System for Poverty Reduction National Project Management Office o f 4Ps

NPMO-NHTS

NSCB

N S S H R

NSO

O M PAGCC

PBD PDO PFM PIP PhilGEP S

PhilHealth P M T PPG PS QCBS

RAC I2FP

SAE SBD SEMP

S I L

SOE

sss SWDRP

SWIDB

UNICEF

WHO

National Project Management Office o f NHTS National Statistical Coordination Board National Sector Support for Health Reform National Statistics Office

Operations Manual Philippine Anti-Graft and Corruption Commission Philippine bidding document Project Development Objective Public Financial Management Project Implementation Plan Philippine Government Electronic Procurement System Philippine Health Insurance Proxy Means Test Policy and Programs Group Procurement service Quality and cost based selection

Regional Advisory Committee Request for payment

Small Area Estimates Standard bidding document Social Expenditure Management Project Specific Investment Loan

Statement o f Expenditures

Single source selection Social Welfare and Development Reform Project Social Welfare Institute and Development Bureau United Nations Children’s Fund

World Health Organization .

Vice President: James W. Adams Country Director: Bert Hofman

Sector Manager: Xiaoqing Yu Task Team Leader: Jehan Arulpragasam

This document has a restricted distribution and may be used by recipients only in the performance o f their official duties. I t s contents may not be otherwise disclosed without World Bank authorization.

PHILIPPINES Social Welfare and Development Reform

CONTENTS

Page

A . STRATEGIC CONTEXT AND RATIONALE ........................................................................ 1

1 . Country and sector issues.,, ................................................................................................... 1 2 . Rationale for Bank involvement ........................................................................................... 4

3 . Higher level objectives to which the project contributes ..................................................... 5

B . PROJECT DESCRIPTION ...................................................................................................... 5 1 . Lending instrument. Financing Arrangements and Other Approaches ................................ 5

2 . Project development objective and key indicators ................................................................ 6 3 . Project components ............................................................................................................... 6 4 . Lessons learned and reflected in the project design ............................................................ 13

5 . Alternatives considered and reasons for rejection .............................................................. 14

C . IMPLEMENTATION .............................................................................................................. 14 1 . Partnership arrangements ..................................................................................................... 14

3 . Monitoring and evaluation of outcomeshesults ................................................................... 16 4 . Sustainability ........................................................................................................................ 17

2 . Institutional and implementation arrangements ................................................................... 15

. . .

5 . Potential r isks and possible controversial aspects ............................................................... 18 6 . Loadcredit conditions and covenants .................................................................................. 19

D . APPRAISAL SUMMARY ........................................................................................................ 20 1 . Economic and financial analyses ......................................................................................... 20

2 . Technical .............................................................................................................................. 22

3 . Fiduciary ............................................................................................................................. 22

4 . Social .................................................................................................................................... 24

5 . Environment ......................................................................................................................... 25 6 . Safeguard policies ................................................................................................................ 25

7 . Policy Exceptions and Readiness ......................................................................................... 25

Annex 1: Country and Sector o r Program Background .............................................................. 27

Annex 2: Major Related Projects Financed by the Bank and/or other Agencies ...................... 36

Annex 3: Results Framework and Monitoring ............................................................................. 37

Annex 4: Detailed Project Description .......................................................................................... 44

Annex 5: Project Costs .................................................................................................................... 62

Annex 6: Implementation Arrangements ...................................................................................... 63

Annex 7: Financial Management and Disbursement Arrangements .......................................... 65

Annex 8: Procurement Arrangements ........................................................................................... 83

A . General ............................................................................................................................... 83

B . Assessment o f the agency’s capacity to implement procurement ...................................... 84 C . Procurement Plan ............................................................................................................... 85 D . Frequency o f Procurement Supervision ............................................................................. 85

Annex 9: Economic and Financial Analysis .................................................................................. 88

Annex 10: Safeguard Policy Issues ................................................................................................. 94

Annex 11: Project Preparation and Supervision .......................................................................... 98

Annex 12: Documents in the Project File .................................................................................... 100

Annex 13: Statement of Loans and Credits ................................................................................. 101

Annex 14: Country at a Glance .................................................................................................... 103

Annex 15: Governance and Anti-Corruption Action Plan (GACAP) ...................................... 105

Annex 16: Map Number IBRD 33466R3 ..................................................................................... 116

REPUBLIC OF THE PHILIPPINES

SOCIAL WELFARE AND DEVELOPMENT REFORM

PROJECT APPRAISAL DOCUMENT

EAST ASIA AND PACIFIC

EASHD

Date: October 14,2009 Country Director: Bert Hofman Sector ManagedDirector: Xiaoqing Yu Project ID: PO82144

Lending Instrument: SDecific Investment Loan

Team Leader: Jehan Arulpragasam Sectors: Other social services (1 00%) Themes: Social safety nets (P) Environmental screening category: Not Required

Y

[XI Loan [ ]Credit [ ]Grant [ ]Guarantee [ ]Other:

For Loans/Credits/Others: Total Bank financing (US$m.): 405.00 Proposed terms: IBRD Flexible Loan with a Variable Spread option, and a total maturity of 25

Borrower: Republic o f the Philippines 6/F Department o f Finance Building, Roxas Boulevard Manila, Philippines Tel: (63-2)523-9215/ 523-6051 mteves@dof.gov.ph

Fax: (63-2) 526-8472

Responsible Agency: Department o f Social Welfare and Development DSWD Bldg., Batasan Complex Constitution Hil ls, Quezon City Philippines 1 126 Tel: 9512239 Fax: 9319131 arbala@dswd.gov.ph www.dswd.gov.ph

[ ]Yes [XINO Does the project depart from the CAS in content or other significant respects? Ref: PAD I. C. Does the project require any exceptions from Bank policies? Re$ PADIEG. - Have these been approved by Bank management? I s approval for any policy exception sought from the Board? Does the project include any critical risks rated “substantial” or “high”? Ref: PAD III. E. Does the project meet the Regional criteria for readiness for implementation? Ref: PAD I K G. Project development objective Ref: PAD ILC., Technical Annex 3

[XIYes [ ] N o

[XIYes [ ] N o

The project development objective (PDO) i s to strengthen the effectiveness o f DSWD as a social protection agency to efficiently implement the CCT program (4Ps) and expand an efficient and functional National Household Targeting System o f social protection programs. Project description Re$ PAD II.D., Technical Annex 4 Component 1 : Support to the National Household Targeting System for Poverty Reduction - Support the DSWD in developing and implementing i ts National Household Targeting System for Poverty Reduction (NHTS-PR) which will be used to better target to the poor key social assistance and social protection programs o f DSWD and other government agencies. Component 2: Support to Pantawid Pamilyang Pilipino Program (4Ps) - Support the 4Ps through provision o f health and education grants to poor and eligible households living in the selected municipalities. Component 3: Building Institutional Capacity to Lead in Social Protection -Support the strengthening o f basic institutional capacity o f DSWD to undertake policy analysis and strategic planning and the installation o f a technically sound monitoring and evaluation system. Which safeguard policies are triggered, if any? Re$ PAD IKF. , Technical Annex 10 O.P. 4.10. Indigenous People’s Policy. The team agreed that this policy i s triggered because the project i s likely to deliver direct and indirect benefits to IPS. Direct benefits are likely to be delivered through the conditional cash transfer (CCT) program, which targets poor areas where IPS may be present. IPS are also likely to benefit indirectly from the policy reforms under the project. Significant, non-standard conditions, if any, for: Ref: PAD III.F. Board presentation: None

Covenants applicable to project implementation: (i) For the f i rs t two years o f project implementation, DSWD will carry out spot checks semi- annually, no later than January 3 1 and July 3 1 in each year, commencing July 3 1,20 10, and until July 3 1 , 2012. Thereafter, the spot checks will be carried out in annual basis, no later than July 3 1 in each year, and commencing July 3 1,20 13.

(ii) Payments for the CCT Grants for Health will be made upon the establishment and operationalization o f a compliance verification system linked to payments as set out in the Operation Manual.

(iii) Payment for the CCT Grants for Education Services will be made based on the existing manual monitoring system at the school level until June 30,20 10 or such a later date as the Bank may agree. Thereafter, payments for the Education Grant will be linked to the compliance verification system.

(iv) D S W D to appoint the consultant to conduct the “spot checking” verification o f the cash grant processes by April 30,2010

Financial Management:

(i) D S W D to engage, no later than 6 months o f loan effectiveness, the services o f reputable audit consultants, having qualifications and terms o f reference acceptable to the Bank, to assist in strengthening the internal control system o f DSWD, including i t s internal audit unit.

(ii) DSWD to fill the Operations Audit Division Head position in IAS no later than five months o f loan effectiveness.

(iii) DSWD to establish a dedicated financial management group for the project, including hiring a Financial Management officer and other key Financial Management staff for the project no later than five months o f loan effectiveness.

(iv) DSWD to submit to the Bank no later than 60 days after the end o f each calendar semester an internal audit report for the project.

Mid-Term Review: D S W D to conduct a mid-term review o f SWDRP within 24 months after the effective date.

A. STRATEGIC CONTEXT AND RATIONALE

1. Country and sector issues'

1. After posting strong economic growth for several years, the Philippines i s experiencing an economic slowdown as the country was not spared by the impacts o f global economic crisis. In 2003-2006, GDP grew at an average rate o f 5.4 percent and reached 7.3 percent in 2007, the highest growth in three decades. In 2008, however, GDP growth decelerated to 3.7 percent in 2008 and barely grew in the f i rs t quarter o f 2009 (0.4 percent) as the global economic crisis has affected the domestic industrial activity, particularly the export-oriented manufacturing industries. With a population o f 88.6 mill ion in 2007, per capita income stood at $1,620e2

2. The Philippines has made progress in poverty reduction over the last two decades, although s t i l l not as rapid relative to i t s Asian neighbors. The proportion o f Filipinos living below the national poverty l ine declined from 45 percent in 1991 to 30 percent in 2003. Poverty measured using the international benchmark shows a similar trend. However, between 2003 and 2006, when GDP growth averaged 5.4 percent, poverty incidence increased from 30.0 percent to 32.9 percent during the same period, indicating a low response o f poverty reduction to growth. High rates o f inequality explain some o f the disconnect between the recent experience in growth and poverty reduction. The country's Gini coefficient remains high relative to i t s Asian neighbors and large variation in economic opportunities persists at the sub-national level. Per capita incomes in the poorest regions are only 50-60 percent o f the national average and have the highest incidence o f poverty.

3. Moreover, the Philippines has been lagging in i t s progress toward achieving some key non- income MDG targets. N e t enrolment ratio in primary education did not show any progress from 84.6 percent in 1990 to 84.8 percent in 2007 and only 75.3 percent o f pupils that enter grade 1 make it to grade 6, which are far from the target o f 100 percent. Dropout from elementary school i s higher for children among poor households. Although important progress has been made in reducing infant mortality, the proportion o f 1 -year-old children immunized against measles barely rose from 77.9 percent in 1990 to 8 1.7 percent in 2007. Malnutrition remains a major issue, with only 64 percent o f Filipino children meeting the World Health Organization's (WHO) normal weight-for-age standards. Meanwhile maternal mortality rates remain high at 162 per hundred thousand l ive births in 2006.3

4. Recent data show that the food and fuel price shock in 2008 and the recent global economic crisis, and now the recent typhoon related disaster, have taken their toll on household welfare and the economy as a whole, which has serious implications in reducing employment and incomes o f Filipino households. The unemployment rate increased from 7.4 percent in January 2008 to 7.5 percent in April 2009 while the growth o f remittances from overseas Filipino workers began to slow down, from 13.7 percent growth in 2008 to 2.8 percent from January to May 2009. Moreover a growing number o f Filipinos consider themselves poor, unable to sustain their daily food requirements, and in worse conditions this year compared to 2008 because o f the joint effects o f the

See Annex 1 for a more detailed discussion o f country and sector issues. Per capita GNI was computed using the Atlas method. Updates as o f May 2009, NSCB MDG Watch: Statistics at a glance o f the Philippines' Progress based on the MDG

1

2

3

indicators, http://www.nscb.gov.ph/stats/mdg/mdg-watch.asp 1

food and global economic crises that successively hit the c o ~ n t r y . ~ Such negative developments pose serious threats to the already slow progress in reducing poverty in the Philippines and at the same time highlight the need for policy action to mitigate deepening impacts, especially to poorer households.

5. While poverty remains at one-third o f the population, an even higher proportion o f Filipinos are vulnerable to shocks that throw them into poverty. Shocks that commonly throw Filipino households into poverty are those related to health (e.g., loss o f a family member, especially the head o f the household), employment, natural disasters, c iv i l unrest, and food price^.^ Recent Government estimates show that some 45 percent o f Filipinos are vulnerable to falling into poverty because o f these shockse6 The compounding effects o f the food, fuel, and the global economic crises, have exposed the vulnerability o f Filipinos to shocks, especially among poor households. In fact, estimates show that the combined effects o f the food and fuel inflation in July 2008 may have increased the poverty headcount by 3.9 percentage points, bringing an additional 3.3 mi l l ion households into poverty. Meanwhile, the socio-economic impacts o f the global economic crisis seeped through the decline in remittances, lower demand for labor, and reduction in real wages. As the global demand continued to fall in 2009, labor-intensive industries, such as manufacturing and retail and wholesale trade suffered the biggest contraction, many o f which consist o f a majority o f low-skilled workers who are disproportionately susceptible to j o b cuts. In the absence o f appropriate safety net programs, households have developed coping mechanisms following a shock, but these tend to erode human capital and perpetuate poverty. Families respond to income shocks by increasing working hours, changing eating patterns, receiving transfers f rom relatives and friends, or withdrawing children from schooL7

6. Despite the Government’s recognition o f the high degree o f vulnerability among Filipino households, there remain several pol icy and institutional weaknesses in addressing issues o f social protection in the Philippines. The Government places high priori ty o n the poor and vulnerable groups in i t s Medium-Term Philippine Development Plan (MTPDP) for 2004-2010. However, to date, Government efforts to address lagging poverty and human development outcomes especially among the poorest and most vulnerable households have been compromised by several factors: (i) spending o n social sectors, particularly social assistance programs has generally been low. National government s ending on social protection services was estimated to constitute only 0.4 percent o f GDP in 2007. The budget o f the Department o f Social Welfare and Development (DSWD), which has the primary role in delivering social welfare services, accounted for only 0.32 percent o f the national budget (about 0.05 percent o f GDP) in 2007: (ii) there has been a lack o f pol icy and institutional coordination in the broad area o f social protection, with several Departments undertaking uncoordinated programs that address various aspects o f social protection especially after the devolution o f basic social services to the LGUs in 1992 as part o f the Local Government Code; and (iii) even though numerous social assistance programs are in place, benefits from such

World Bank, “Global Crises and Household Vulnerability in the Philippines: Social Impacts and Policy Responses,”

!

4

forthcoming. ’ World Bank (2001) “Philippines: Poverty Assessment. Volume 1: Main Report.”

Vulnerability to Poverty in the Philippines.” ’ World Bank (2001). Manasan, R. (2006) “Review of Government Programs and Spending Priorities for Social Welfare Protection and

Social Development: Phase I.” and Manasan (2009) “Assessment o f Social Protection Programs in the Philippines” (mimeo).

National Anti-Poverty Commission and National Statistical Coordination Board (September 2005) “Assessment o f

2

programs have been muted due to lack o f a legitimate and functional system to target poorest households. Assessments o f these schemes show high leakage rates to the non-poor and under- coverage o f the poor.’

7. The Government has recently increased its focus on reforming and reinforcing i t s social protection system. In response to the challenges mentioned above, the Government, with World Bank support, has taken some positive steps in addressing the major lapses in i t s social protection policies. Recent economic events have also made the Government redouble its efforts in the area of social protection.

0 A sector reform effort is underway at the DSWD, with technical support from the World Bank, which can put into place the main building blocks for developing a sound social protection program in the Philippines. In developing its reform program, the DSWD has articulated four discrete components to i t s reform. They include: (i) Leading in Social Protection (the development and implementation o f a social protection framework and the development o f a targeting system for the poor); (ii) Faster and Better Service Delivery (improving i t s suite o f programs, including putting into place a new program o f conditional cash transfer for households, while reviewing and refining existing delivery models and improving governance systems); (iii) Smarter Financing (securing more predictable funding for core DSWD functions, more strategic budget allocation, including for resource augmentation o f local government units and other partners); and (iv) Improving Systems for Service Delivery - which would entail improving monitoring and evaluation systems and management information systems, as wel l as enhancing organizational capacity. These reforms are intended to improve DSWD’s effectiveness in delivering social welfare programs and to put into place the building blocks for the development o f a more coherent social protection system.

a The Government recently established an institutional framework for the enhanced delivery o f social protection programs, with a view to reducing fragmentation and overlap, while enhancing coordination. A key step was taken in July 2008 with the creation o f an inter-agency “National Social and Protection Welfare Cluster” to consolidate programs o f various government agencies into a single, national social welfare strategy. Over the longer term, such an inter-agency program would be expected to lead to reallocation o f resources across programs to scale-up more effective social protection programs relative to less effective programs.

0 In February 2008, the Government launched a pi lot Conditional Cash Transfer (CCT) program (Pantawid Pamilyang Pilipino Program, or 4Ps) that focuses on supplementing the income o f the poorest households in selected municipalities while also supporting their human capital development. Program planning for the 4Ps began in 2007, with World Bank technical support, prior to the onset o f the food and fuel price shocks in 2008, with a planned target o f 20,000 household beneficiaries. The program was launched in February 2008 with 6,000 household beneficiaries in four pi lot municipalities and two cities in the Philippines. In response to the crisis which happened in the succeeding months, the government decided to accelerate and augment the program and has rolled it out to about 376,000 beneficia ry households by March 2009 , with intensive and continued technical assistance from the World Bank. In mid-2009, the Government has subsequently announced i t s intention to expand the program to up to one mi l l ion households by

Ibid. 3

the end o f 2009. The DSWD envisions its CCT program becoming the backbone o f i t s social protection framework.

e The Government, furthermore, decided to use the Proxy Means Test (PMT) methodology as the targeting tool to ro l l out a National Household Targeting System for Poverty Reduction (NHTS- PR). The Government would like to have this system result in the generation o f a database of poor households covering the whole country. The development o f a national targeting database is expected to have significant impacts by directing scarce resources to the poorest households. This could both increase the benefits to poorest households by reducing leakage o f existing social protection programs, hence, having a greater impact in reducing poverty incidence and severity, as wel l as allowing for cost efficiencies. It can be used for the targeting o f other national programs intended for poor households, such as the subsidized health insurance for the poor through Philippine Health Insurance Corporation (PhilHealth) and the rice subsidy program through the National Food Authority (NFA).

8. The Government is thus taking concerted steps o n an ambitious agenda o f reform to address the multiplicity o f issues in the social protection sector. It has requested the Bank for i t s assistance to support this agenda through an investment project. The proposed project is aimed at supporting the Government strategically advance its agenda o f reform in social protection.

2. Rationale for Bank involvement

9. In order to support the Government’s social reform program, the proposed project will assist the Government to put in place the building blocks for developing a sound social protection program and strengthening DSWD’s capacity to implement the reform program. The Bank’s support for this agenda is central to its Country Assistance Strategy (CAS). The proposed project forms a corner-stone to the strategic focus o f reducing vulnerabilities, one o f the building blocks o f the new CAS (FY2010-FY2012) aimed at enhancing inclusive growth. The Bank’s intervention in this area i s strategic. The proposed project could potentially leverage major change in how effectively the Government addresses social protection and targets poverty reduction programs in the future. An effective household targeting system and CCT program could serve as primary pillars o f a coherent social protection program for the Philippines in the future which, if successful, could eventually replace multiple and duplicative welfare programs as it has in other countries. Promoting the systematic monitoring and evaluation o f this Department’s main programs will assist the Government toward i t s stated move to empirically based budgeting. Furthermore, the proposed project i s aimed to promote the emergence o f a strong institutional leader in the social protection sector. The Bank has extensive global expertise in the general area o f social protection as wel l as in CCTs which will be a particular focus o f this project. The Philippines can benefit f rom the Bank’s global experience and knowledge. The Government has specifically asked the Bank for i t s assistance in this area, and it should be noted that the Bank has played an instrumental role in providing technical assistance to the design and scale-up o f this Government program over the last two years, in close tandem with project preparation. The World Bank and D S W D have had a close partnership over the years, with D S W D having implemented the Social Expenditure Management Projects (SEMP1 and SEMP2) as well as i t s Early Childhood Development (ECD) project (all rated satisfactory), while also currently implementing KALAHI-CIDSS, a major community driven development (CDD) project funded by the Bank. The World Bank i s the DSWD’s major external partner, and the Department has articulated the value it places in the Bank’s technical and fiduciary

4

expertise in undertaking i ts reform. In a politically charged environment, DSWD sees value in having the Bank’s credibility and backing in developing a social protection program.

3. Higher level objectives to which the project contributes

10. The Government’s MTPDP 2005-2010 has laid out the agenda for poverty reduction, good governance and efficient delivery o f services. The MTPDP recognizes the growing number of vulnerable groups in the country which continuously experience social and economic shocks. Similarly, the Philippines i s lagging compared to other East Asian countries in meeting key social MDG targets. In order to achieve the MDG targets, the Government will have to r ise to the challenges o f improving the delivery o f basic services.

1 1. The proposed project would provide the Bank with the entry-point o f supporting reforms at the DSWD and putting into place the building blocks for a social reform program as well as strengthening the key agency that wi l l implement the reforms. In addition, through i t s support o f the 4Ps, the proposed project would give the Philippines traction toward meeting all six o f the key social MDG targets.

12. The proposed project will be a centerpiece for the new Country Assistance Strategy for the World Bank (FY2010-FY2012), focused on reducing vulnerabilities for inclusive growth. It has close synergies with other Bank operations. I t follows through with the implementation o f a broad social protection agenda laid out in the Bank’s recent Global Food Crisis Response (GFRP) Development Policy Operation. There are, moreover, close synergies with the sector-wide reform agendas in education and in health being supported by our National Program Support for Basic Education (NPSBE) and National Sector Support for Health Reform (NSSHR) projects. These projects and their implementing agencies have committed to and are already responding to supply- side demands in CCT pilot sites. In addition, the Bank’s community driven development project, KALAHI-CIDSS, i s also currently operational in about half o f the CCT sites covered by the project and it i s being scaled-up to include more o f the CCT municipalities. There are synergies to be exploited between the CCT program and community level supply side interventions, as well as exploitation o f social capital already in place in K A L A H I sites.

B. PROJECT DESCRIPTION

1. Lending instrument, Financing Arrangements and Other Approaches

13. The lending instrument chosen for the Bank support i s a Specific Investment Loan (SIL). The S I L i s considered the most appropriate instrument to support this new reform agenda o f the DSWD, including support to establishing and consolidating systems around the new CCT program, expanding the targeting system, supporting monitoring and evaluation, and strengthening institutional capacity to deliver in these areas. Experiences from other countries indicated that a S IL instrument i s more appropriate for projects wherein a major portion o f the loan proceeds will be delivered in cash and can be disbursed easily, provided control mechanisms are in place including targeting mechanisms and spot checks to monitor targeting implementation and to monitor the 4Ps. The S I L provides clarity and stability in adhering to the agreed criteria. Given these various considerations, in particular the heightened requirements in terms o f adherence to the agreed

5

criteria, transparency and downward accountability measures, a S I L instrument has been deemed appropriate for the proposed operation.

14. The Borrower chose the IBRD flexible loan with a variable spread and a total maturity 25 years including a grace period o f 10 years. The choice o f the above terms i s advantageous to the Government due to a much lower spread as compared to the fixed spread.

2. Project development objective and key indicators

15. The project development objective (PDO) i s to strengthen the effectiveness of DSWD as a social protection agency to efficiently implement the CCT program (4Ps) and to expand an efficient and functional National Household Targeting System o f social protection programs. Achievement o f the PDO will be measured in terms o f the following monitoring indicators: (1) share o f all poor households registered in the National Household Targeting System for Poverty Reduction (NHTS- PR);" (2) share o f children 6-14 years old in poor beneficiary households attending school at least 85 percent o f the time; and (3) share o f children 0-5 years old undergoing growth monitoring and check-ups in accordance with Department o f Health (DOH) protocol.

3. Project components

16. The project wi l l finance the following three components: (1) Support to the National Household Targeting System for Poverty Reduction (NHTS-PR); (2) Support to Pantawid Pamilyang Pilipino Program (4Ps); and (3) Building Institutional Capacity to Lead in Social Protection. A full description o f the proposed project i s provided in Annex 4.

Component 1: Support to the National Household Targeting System for Poverty Reduction (NHTS-PR) (US64.5 million - IBRD)

17. The objective o f this component i s to support the DSWD in implementing the NHTS-PR which will be used to better target the poor in key social assistance and social protection programs o f DSWD and other government agencies. The NHTS-PR consists o f a set o f uniform, objective, and transparent criteria to select the poor, thus reducing the overall cost o f targeting and improving coordination, efficiency, and effectiveness o f social programs. This i s fundamental to improving governance and anti-corruption by improving transparency and reducing leakages as indicated in the project's Governance and Anti-Corruption Action Plan (Annex 15). DSWD i s currently creating a standardized national database o f poor households nationwide.

18. This project component will have two subcomponents: (1) Implementation o f the Targeting Mechanism, which will support the implementation o f the standardized targeting mechanism nationwide; and (2) Implementation Support for NHTS-PR, which will include (i) support to National Project Management Office (NPMO-NHTS) for NHTS-PR; (ii) development and implementation o f a Management Information System (MIS) for targeting; and (iii) spot checks for targeting.

lo Based on baseline o f poor households in the latest official household data o f 2006 (4.7 mil l ion poor households total). 6

Subcomponents and activities

1.1. Implementation of Targeting Mechanism (USS54.8 million - IBRD)

19. The objective o f this sub-component i s to support the current implementation of a standardized targeting mechanism nationwide. The rules, procedures, and methodology are defined by DSWD at the central level, following the successful experience o f the targeting mechanism used for the roll-out o f the CCT program to date. The operation is decentralized at the regional level through the regional offices o f DSWD. At the municipal level, there is coordination with LGUs for the logistics o f the collection o f information and for coordination with barangays (villages). The targeting mechanism i s composed o f two main steps: first, a geographical selection o f poor provinces and municipalities based on poverty incidence; and second, a household assessment in areas selected through the estimation o f per capita income using a Proxy Means Test (PMT) methodology. The household assessment follows a rigorous process o f quality control o f the data collected. This subcomponent will finance the household assessment o f about 8.3 mi l l ion households nationwide. It includes costs o f collection, supervision, processing, and estimation o f PMT.

20. The main outcome o f this subcomponent will be to have a homogeneous and transparent mechanism to identify poor households so as to develop a database that can be used by various social protection programs at the national and local level. The NHTS-PR is currently being implemented nationwide. The implementation has been divided in 3 phases, prioritizing poorest provinces and municipalities.

21. This subcomponent will finance household assessments for about 8.3 mi l l ion households, maintenance o f the database, hardware for processing information, the issuing o f identification (ID) cards for poor households, and a survey and benefit incidence analysis to measure targeting outcomes.

1.2. Implementation Support for NHTS-PR (US$9.7 million -IBRD)

I. 2. I . National Project Management OfJice for NHTS-PR

22. There is a National Project Management Office (NPMO-NHTS) within the structure o f DSWD dedicated exclusively to implement the targeting system. Composed o f technical staff o f various disciplines, the NPMO-NHTS performs policy-making functions and ensures the execution o f tasks and activities o f the NHTS-PR. The NPMO-NHTS i s headed by a National Project Director and assisted by a Deputy. The regular operation o f the NHTS-PR is supervised by the National Project Manager. The NPMO-NHTS has a team o f targeting, training, social marketing, finance specialists, statisticians, data analysts, MIS systems engineers. The NPMO-NHTS under a decentralized operation through the regional field offices o f DSWD carries out al l the steps in the implementation o f the targeting system. The specific functions and responsibilities are described in the Operations Manual for NHTS-PR.

I t i s estimated that 8.3 mil l ion household assessments w i l l result in about 4.7 mil l ion households being classified as

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poor in the database.

23. technical assistance, and vehicles to support the implementation o f the NHTS-PR.

This activity will finance staff o f the NPMO-NHTS, training, social marketing, specialized

1.2.2. Development and Implementation of a Management Information System (MIS) for NHTS-PR

24. This activity will support the development o f an MIS for the NHTS-PRY which i s critical for i t s accurate and effective use. The system wil l support a l l steps o f the targeting mechanism, including data collection, quality control procedures, and validation routines, processing, estimation o f the PMT, and selection o f poor households. The main outcome o f the M I S will be to create and maintain a standardized database o f poor households. This activity includes: (i) development o f software to support the data collection process and to manage the database; (ii) licenses for the application developed; (iii) procurement o f hardware, software, servers, and data communications for NPMO-NHTS and local offices (municipalities) in selected areas; and (iii) training o f staff to use the system.

1.2.3. Spot Checks for Targeting

25. This activity will support the assessment o f the implementation o f the targeting mechanism through quantitative and qualitative spot checks, to provide information about the execution o f the different processes in the implementation o f the targeting mechanism. The information will be the basis for analysis and random audit o f the operation o f the targeting mechanism at different levels and among the different institutions involved. The assessments and further analysis will be carried out by an independent institution to add more credibility to the analysis. This assessment will cover the collection process, the processing, the estimation o f PMT, and the sharing and maintenance o f the database. The assessment will cover the NPMO-NHTS, regional f ield offices, and municipalities.

Component 2: Support to Pantawid Pamilyang Pilipino Program (4Ps) (Total: US$444.4 million; IBRD: US$ 337.4 million, GOP: US$ 107.0 million)

26. The objective o f this component i s to support the implementation o f the CCT program - 4Ps in selected poorest provinces and municipalities. The 4Ps is a CCT program aimed at addressing poverty and supporting improved health and education outcomes o f poor children and pregnant women. The 4Ps provides cash grants to poor households subject to their meeting certain conditions in health and education.

27. This component will have two subcomponents: (i) Grants, and (ii) Implementation Support for 4Ps, to support the National Project Management Office (NPMO-~PS), develop a Management Information System for 4Ps, and strengthen Monitoring and Evaluation o f 4Ps.

SubcomDonents and activities

2.1. 4Ps Grants (Total: US$432.1 million; IBRD: US$325.1 million, GOP: US$107.0 million)

28. This subcomponent will finance 75 percent o f the health and education grants o f the 4Ps in selected poorest provinces and municipalities covering the period CY2009-CY2013. The households covered were selected as beneficiaries o f the program, fol lowing a standardized

8

targeting mechanism with rigorous quality control process. The transfers are being paid by DSWD to poor and eligible households living in selected municipalities. l2 Selected households will receive the cash transfers for up to 5 years subject to the eligibility criteria and the compliance with the conditionalities. Following the successful practice o f other CCT programs, the 4Ps includes two kinds of transfers: one related to health and one related to education.

29. Health Grant. Poor households with children 0- 14 years o ld and/or pregnant women will be eligible for a health transfer currently set at PhP 500 (US$1 1) per household per month (for a period o f 12 monthdyear) regardless o f the number o f children 0- 14 years old. The health transfer requires that households fulfill the fol lowing conditionalities: (i) all children 0-5 years old should attend the health center or rural health unit to get the services established by DOH according to their age; (ii) pregnant women must attend the health centers or rural health unit according to DOH protocol; (iii) al l children 6-14 years o ld in primary school should comply with the de-worming protocol at schools; and (iv) for households with children 0 to 14 years old the household grantee (mother) and /or spouse shall attend family development sessions at least once a month.

30. Education Grant. Poor households eligible for the education grant are those living in selected areas with children 6-14 years old. The education transfer is PhP 300 (US$6) per chi ld per month (for a period o f 10 months/year), up to a maximum o f 3 children. Beneficiary households will receive the education transfer for each chi ld between 6-14 years o ld as long as they are enrolled in primary and secondary school and maintain a class attendance rate o f 85 percent every month. The DSWD i s also commencing implementation o f cash grants to 3-5 year olds who regularly attend day care (in cases where the household has less than the cap o f 3 children in elementary s c h ~ o l ) . ' ~

3 1. As the 4Ps CCT program i s being newly rolled out, this project, along with World Bank and other Technical Assistance, i s supporting the phased implementation o f a fully computerized payment verification system14. Phased implementation which i s underway, i s scheduled to lead to full implementation o f verification linked to the payment database by mid 20 10. l5

32. As a transitional measure until June 30, 2010, when full implementation o f verification l inked to the payment database i s expected to be in place, the project will support the beneficiary grants that have been targeted to the poor beneficiaries for education. From the commencement o f the program these grants have been provided to targeted poor beneficiaries; payments have been on the basis o f declared student enrollment at the outset o f the program; and school attendance has been regularly monitored by schools.

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l2 Currently these include 160 municipalities/cities listed in the Project Implementation Plan selected by the Borrower, where such list may be revised from time to time with the prior approval of the Bank.

The Bank project will defer support of this grant until further assessment o f the viability o f this conditionality, while supporting such an assessment. l4 This entails, upon identifying beneficiaries, associating them to schools and clinics, manually recording attendance at schools and clinics, developing and rolling out a computerized MIS system (Component 2.2.2), encoding attendance through the MIS system, and then linking such data to the centralized payment system. See Annex 4 for further description o f this system.

Phased implementation i s scheduled to have manual recording of attendance in place by 43 2009, computerized recording o f such attendance rolled out commencing Q 1 20 10 and full implementation of verification linked to the payment database by end of 4 2 2010.

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2.2. Implementation Support for 4Ps (US$12.3 million, IBRD)

2.2.1. Support to National Project Management Office (NPM0-4Ps)

33. There i s a National Project Management Office (NPMO-4Ps) within the structure o f DSWD to oversee the whole implementation o f the program. As shown in other CCT programs around the world, a key to program success is a strong and efficient NPMO-4Ps which i s capable o f developing and implementing al l key activities o f the program cycle, including registration o f families, verification o f conditionalities, managing payments, organizing assemblies o f grantees, implementing a grievance system, undertaking monitoring and evaluation and developing and using an M I S system that supports al l these operation activities. DSWD has made major advances in setting up a N P M O - ~ P S , assess about households, organize verification, socialization and registration o f households in the program, and process payments through Land Bank to most o f these households. Continued effort i s required to properly set up systems for registration, verification, grievance acceptance and resolution and monitoring, and evaluation activities.

34. The program i s also supporting the establishment o f a Grievance Redress System (GRS), featuring a publicly accessible grievance database, to resolve and track complaints including targeting errors, payment irregularities, fraud and corruption. The GRS will facilitate both resolution o f complaints and, through the database, analysis o f systemic vulnerabilities in project design and implementation. (See Annex 15 o n the GAC Action Plan).

35. This activity will finance consultants at the NPMO-4Ps needed for a speedy and efficient operation, as wel l as training, social marketing, the grievance redress system, specialized technical assistance, and vehicles for regional offices.

2.2.2. Developm ent of a Management Information System (MIS) for 4Ps

36. This activity will support the development o f an MIS that will cover al l the steps in the operation o f the 4Ps. The system will manage different flows o f information at different levels. The system will operate at the NPMO-4Ps level, regional level, and at the municipal level to support the implementation at the lowest possible level. The MIS will have the fol lowing modules: (i) household information; (ii) registration; (iii) verification o f conditionalities; (iv) payments; (v) updates; and (vi) grievance redress system. This activity will finance the hardware and software, network and communication connections as wel l as training needed to run and support the operation o f the program.

2.2.3. Monitoring and Evaluation of 4Ps

37. This activity will support monitoring and evaluation o f 4Ps with a v iew to building D S W D ’ s capacity in these areas as a step towards more evidence-based planning and policy - one o f the objectives o f DSWD’s reform agenda. More specifically, this activity will assist in the design and implementation of (i) a spot check methadology to monitor 4Ps operation that will produce the information required for informed and timely pol icy decisions and adjustments; (ii) a methodologically rigorous impact evaluation o f the 4Ps project on the basis o f which the

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Government and the public would have evidence o f program impact, key for program sustainability; (iii) support to an Independent Monitoring and Advisory Committee; and (iv) the regular monitoring o f the whole project.

2.2.3.1. Spot Checks for 4Ps

38. For the f i rs t two years o f project implementation, semi-annual monitoring will be carried out through a comprehensive spot check system to ensure that the program i s functioning and to trouble-shoot any process problems that may arise. O n the third year o f project implementation, the frequency o f the spot checks will be done on an annual basis. Spot checks will assess al l major steps in the 4Ps process, including: (i) payment; (ii) dissemination, training and orientation; (iii) verification o f compliance; (iv) availability o f supply-side services; and (v) the grievance redress system. The spot checks will assess whether beneficiaries receiving the grants meet the eligibility criteria set out in the Operations Manual, whether beneficiaries are complying with the requirements o f the CCT program, and whether grants were received by eligible beneficiaries. Spot checks will validate the range o f players involved in 4Ps delivery: beneficiaries, schools, health centers, parent leaders, municipal links, and municipal, regional and central offices. The actual implementation o f the spot checks and the preparation o f reports verifying these data against program administrative records will be carried out by an independent, external party chosen on the basis o f i t s credibility and technical capacity. By combining different techniques o f data collection (surveys, focus groups and structured interviews) and analyzing the 4Ps administrative data, this external party i s expected to inform the program administration on how wel l specific operational aspects o f the program are functioning and where adjustments are needed. Beyond its technical merits, spot checks are key to enhancing the governance, transparency, and accountability under this program. (See Annex 15).

2.2.3.2. Evaluation of Project Impact

39. The objective o f this subcomponent i s to address the issue o f whether the 4Ps has a significant statistical impact o n the main project outcomes along the dimensions o f health and education o f children, and poverty reduction. The evaluation will also assess the impact o f increased demand on the supply o f education and health services at the local level and social impacts including women’s empowerment and any socio-economic spin offs f rom the formation o f beneficiary groups. Such an evaluation i s seen to be critical for the longer-term sustainability o f the program. The impact evaluation will have a randomized design and include control and treatment groups, ensuring a methodologically rigorous identification strategy. (See Annex 4 for the proposed design). The project will finance some o f the activities to carry out an impact evaluation o f the 4Ps, in particular those related to the follow-up survey and any complementary qualitative work or structured interviews to be carried out as parallel activities.

2.2.3.3. Monitoring

40. The objective o f this activity is to support monitoring o f the whole project, including preparation o f regular (quarterly and annual) progress reports, mid-term and annual reviews, independent performance tracking by c iv i l society groups and monitoring by internal audit services. Regular monitoring will be complemented by independent oversight on the part o f an Independent Monitoring and Advisory Committee comprising o f eminent members o f c iv i l society.

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Component 3: Building Institutional Capacity to Lead in Social Protection (US$2.1 million - IBRD)

41. This component would support the strengthening o f basic institutional capacity o f DSWD to strengthen i t s leadership role in social protection. I t focuses o n strengthening the capacity o f DSWD to undertake pol icy analysis and strategic planning related to social protection. In addition to supporting overall policy analysis and planning, it wil l contribute to the development of an operational social protection strategy, as wel l as to strengthening the synergies among existing social protection and welfare programs o f the Department, It will also contribute to mainstreaming technically sound monitoring and evaluation protocols for systematic use in evidence-based decision making within the Department. Furthermore, this component supports the implementation o f a social marketing plan for broader engagement among internal and external stakeholders and strengthens knowledge management and learning with a v iew to strengthening partnerships across stakeholders that deliver on the social protection agenda. Finally, it also builds capacity for financial management and internal audit to strengthen internal controls.

Subcomponents and activities

3.1. Policy and Strategy (US$ 0.6 million - IBRD)

42. This subcomponent would assist D S W D to enhance the capacity in policy and strategy formulation which i s among i t s core functions as a leader in social protection. To achieve this objective, the project would support several key areas:

1. Policy Analysis and Research. This subcomponent would strengthen the Department’s capacity for undertaking and using pol icy analysis and research for policy formulation. It will support hands-on trainings, consultations, manual development and other capacity building activities to strengthen the competence o f D S W D to undertake relevant pol icy analysis based on risk assessment, benefit incidence analysis and research. A medium-term policy and research agenda will be developed in consonance with the priority thrusts o f the reform agenda, including emerging concerns related to operationalizing and sustaining the NHTS-PR and ~ P s .

2. Strategic Planning. This sub-component will also support the formulation, dissemination and adoption o f key strategic plans that would define the operational mechanisms for integrated delivery o f social protection programs and services. Specifically, the formulation o f the fol lowing strategic plans will be supported:

a. National Social Protection Operational Framework The project would support DSWD translate i t s indicative social welfare and development framework, which contains the principles and major thrusts for the delivery o f social protection programs, into an operational social protection strategy. The operational framework i s envisioned to further institutionalize and mainstream the targeting and CCT programs.

b. Frameworkfor Integrated Service Delivery. The project would assist the Department to develop an integrated framework that would define the linkages o f its four service delivery models (Le. household-based, community-based, center-based, and disaster

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management) to ensure synergies and to achieve greater impact in the long run. The integrated service delivery framework would also lay the foundation to ensure further convergence with social protection services o f other agencies.

3.2. Implementation Support (US$ 1.0 million - IBRD)

43. This subcomponent would support institutional strengthening o f the Department in three functional areas which are essential for effective implementation to achieve the project development objectives. This entails the strengthening o f (i) social marketing to ensure full transparency and enhance understanding o f social protection strategies and programs among relevant stakeholders; (ii) knowledge management and learning development to build on the experiences from implementation o f 4Ps and the NHTS-PR as well as program assessments and impact evaluations; and (iii) financial management to strengthen capacity in step with the scaling up o f the Department’s implementation o f the programs supported by this project.

3.3. Monitoring and Evaluation (US$ 0. Smillion, IBRD)

44. This sub-component would assist the DSWD to enhance capacity in monitoring and evaluation which will be also among i t s core functions as leader in social protection. Monitoring and evaluation would be intrinsic to program and policy development as it would track performance o f key programs and policies, the results o f which would be used for further program enhancements.

45. The initial activities would involve the review o f existing monitoring systems in various units o f the Department as a basis for the development o f the logical framework design, guidelines and protocols for a broader monitoring system. The regular staff would be assisted and provided on-the-job training by consultants to be hired under the project. Subsequently, actual operations o f the monitoring system would be implemented by the regular staff with mentoring/coaching by the consultant(s). With project support, national and regional staff would also undergo on-the-job training on the use o f the guidelines by undertaking actual program assessments o f at least two major social protection programs.

46. The project would likewise support the development o f the guidelines and operations manual on evaluation which would be led by the Planning and Policy Bureau. The guidelines would draw inputs from a review o f on-going and completed evaluations. The results o f the evaluations would eventually feed into program innovations, policy formulation, standard-setting and other decision-making.

4. Lessons learned and reflected in the project design

47. Lessons learned from previous World Bank operations and from the pre-pilot o f the 4Ps and incorporated in the project design include the following: (i) a two-step poverty targeting process (geographic and household-level) using a PMT methodology and processes to ensure data quality, can reduce errors o f inclusion and exclusion; (ii) CCT programs improve educational attainment and health and education indicators according to various impact evaluation results o f countries such as Mexico, Brazil, Colombia, Nicaragua, among others; (iii) CCT programs require much administrative capacity o f the institution in charge. I t i s important to take into account the implementation capacity o f the key agencies in designing the project; (iv) keep the project design

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simple while concentrating on development objectives, outcomes and implementation with the least complex institutional design and arrangements; (v) definition o f the rules and procedures as well as the responsibilities o f the agents involved in the operational manual are crucial for the success and sustainability o f the program; (vi) extensive training o f the staff at central and local level in all the operational steps o f the program i s a necessary condition for the success o f the program. (vii) design o f an MIS that allows information to flow smoothly i s key to the implementation o f a CCT program; (viii) a rapid assessment, including processes and implementation o f the program i s needed to measure medium term indicators; and ( ix) rigorous impact evaluation i s needed to measure the progress o f the program in the long term and lock in long-term budgetary support from the partner government. Moreover, the project has benefited f iom the extremely valuable experience o f having pre-piloted the program in 2008 in several municipalities in the Philippines with World Bank technical assistance.

5. Alternatives considered and reasons for rejection

48. deciding on the current design.

The team considered and rejected several alternatives for the design o f this operation in

49. With regard to the overall design, the team considered variations in terms o f the breadth and focus o f the components in supporting a broader agenda o f national social welfare development reform underway at DSWD. The team chose to focus on strengthening the effectiveness o f the CCT program, the roll-out o f the national targeting system, along with necessary institutional strengthening as core elements to support. It opted not to support some other elements o f the DSWD reform agenda (including improving regulatory capacity, etc.) in favor o f maintaining strategic focus. In addition, the team also considered but rejected the idea o f supporting the maintenance o f the targeting database only in CCT areas in favor o f engaging more broadly and supporting the roll-out o f the national targeting system beyond CCT areas, given the strategic importance o f this effort.

50. The team also considered a variety o f lending instruments for this project. Whereas an APL approach i s attractive, it was deemed that the medium- to long-term policy agenda in this sector i s subject to political volatility to lock into such a long-term planning horizon. A DPL instrument was considered inappropriate to support the Government implement this new and complex program. In fact, a DPL (the GFRP DPO) has recently been used to reinforce and further the agenda supported by this investment operation. It assisted in furthering necessary policy decisions as well as galvanizing a decision for allocating adequate budgetary resources to support the national targeting effort and the CCT program. However, that operation only high-lighted the need for a follow-up investment loan to ensure that broad policy commitments in this area can actually be achieved through careful implementation and technical expertise. An investment loan can be tailored to provide the needed support. Hence, it was decided that a S I L i s the most appropriate instrument to support this operation.

C. IMPLEMENTATION

1. Partnership arrangements

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5 1. The SWDRP i s envisioned as putting into place the building blocks for operationalizing a broader sectoral reform agenda that will eventually serve as a framework for coordinating the social protection program in the Philippines, including the participation o f various development partners. The evolving social welfare reform agenda has been undertaken under the auspices of the joint donor-government Social Protection Sub-working Group o f the Philippine Development Forum. The Australian Agency for International Development (AusAID) initially provided grant support in the development o f the good governance and anti-corruption aspects o f the 4Ps CCT program and i s currently engaged in a more substantial technical assistance support to the entire program, executed in part by AusAid and in part by the World Bank. AusAid i s also to provide grant-financed technical assistance in the important area o f internal audit capacity building at DSWD. Korea and Japan are also supporting the broad T A agenda through Bank executed grant financing (particularly focusing on monitoring and evaluation efforts). Japan International Cooperation Agency (JICA) and Asian Development Bank (ADB) are supporting this reform agenda through development policy loans that, complementing the World Bank GFRP DPO, reinforce key policy actions related to this agenda. The United Nations Children’s Fund (UNICEF) and the UNFPA have also had discussions with DSWD to support 4Ps in some capacity as well, while other development partners have requested updates on the progress o f this operation with prospects o f aligning their emerging cooperation with some aspects o f the social welfare reform agenda. Partners in the education and health sectors are similarly discussing how assistance to sector program efforts in those can build on synergies with the CCT program.

2. Institutional and implementation arrangements

52. The DSWD will be the executing agency for SWDRP and shall have overall responsibility for accounting for project funds and coordinating activities under the project. In DSWD, the Executive Committee chaired by the Secretary (with all the Undersecretaries and Assistant Secretaries as members) shall have oversight responsibility for SWDRP. The Undersecretary for Policy and Programs Group (PPG) will be the Project Director and overall coordinator o f SWDRP. A designated Undersecretary will be responsible for each o f the components o f the Project. Currently, the Undersecretary for Policy and Programs Group i s responsible for Component 1 on Implementation o f the NHTS-PR and Component 3 on Building Institutional Capacity to Lead in Social Protection while the Undersecretary for General Administration and Support Services Group has been designated as the Program Director for Component 2 on Support to 4Ps.

53. Whi le overall oversight and management o f SWDRP will be mainstreamed and placed with the office o f the Undersecretary for Policy and Program Group, two discrete implementation units wi l l be supported by the project: (i) the NHTS National Project Management Office (NPMO- NHTS) that will be charged with implementing the National Household Targeting System; and (ii) the 4Ps National Project Management Office (NPMO-4Ps) that will be charged with implementing the 4Ps component.

54. A dedicated NPMO-NHTS has been set up to oversee the day-to-day management o f the National Household Targeting System, headed by a Director. The NPMO-NHTS will consist o f technical staff o f DSWD and consultants with support from regional coordinators and provincial supervisors. The NPMO-NHTS consists o f 40-50 people depending on the speed o f project implementation during 2009 and beyond. The specific functions and responsibilities i s detailed in the Operations Manual for NHTS-PR. The DSWD has also organized a National Targeting

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Advisory Group composed o f representatives from the academe, statistical offices, NGOs and private sector to provide advice.

55. A NPMO-4Ps was also established to perform the day-to-day operations o f the 4Ps. The NPMO-4Ps i s headed by a Director and i s composed o f about 60 staff. At the regional level, the DSWD Field Directors assume the overall responsibility for implement ing 4Ps with technical support from the Technical Assistance Division and a dedicated 4Ps focal person. At the municipal level, the Department has hired one Municipal Link for each o f the 4Ps municipalities, while the local government units are also designating or hiring at least one full-time staff who serves as counterpart o f the DSWD municipal link. At the community level, the school principal and midwife have been designated as the education and health focal persons respectively whose primary responsibilities are to oversee and ensure appropriate verification o f compliance to conditionalities.

56. The 4Ps National Advisory Committee (NAC) has been in place since May 2008 to ensure coordination among key government agencies. The N A C i s chaired by the 4Ps Program Director and composed o f representatives from the DSWD, National Anti-Poverty Commission (NAPC), National Economic and Development Authority (NEDA), Department o f the Interior and Local Government (DILG), Department o f Health (DOH), Department o f Education (DepEd) and National Nutrition Council. The Advisory Committee i s replicated in all regions through the Regional Advisory Committee (RAC) which includes the counterpart o f all the member-agencies o f the N A C and provincial representatives. Similarly, the Municipal Advisory Committee (MAC) i s organized in all 4Ps municipalities, with the mayor as chair and with the participation o f relevant municipal-level representatives o f N A C member-agencies. The Advisory Councils at each level also serve as the Grievance Committee to handle public complaints.

57. The DSWD has also organized an Independent Monitoring and Advisory Committee composed o f eminent persons from the academe, non-government organizations, religious sector and private sector who provide strategic advice and have agreed to serve as external monitors o f the 4Ps Program to ensure transparency and social accountability.

58. The implementation o f Component 3 on Building Institutional Capacity to Lead in Social Protection shall be under the direct coordination o f the Undersecretary for PPG with the following DSWD BureausLJnits providing technical management: (i) Planning Service for the policy and strategy sub-component, (ii) Social Welfare Institute and Development Bureau, Social Marketing Services and Internal Audit Services for the institutional strengthening sub-component, and (iii) Planning and Monitoring Unit o f Planning and Policy Bureau for Monitoring and Evaluation sub- component.

3. M o n i t o r i n g and evaluation o f outcomeshesults

59. The monitoring o f outputs and evaluation o f outcomes are vital parts o f the project, not only to measure i ts end results, but also to inform, and if necessary, adjust i t s implementation. DSWD will carry out all monitoring and evaluation for the project. A comprehensive monitoring and evaluation system will be established and will include both internal and external monitoring, as well as impact evaluation.

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60. The information to be used by DSWD project administrators in monitoring project outputs will come from three main sources. First, program administrative records and the M I S systems will produce the information required for informed and timely pol icy decisions and adjustments. Second, spot checks to monitor targeting implementation and the 4Ps program will be undertaken as a source o f information to monitor implementation processes and outputs and as a form o f social audit. Spot checks have been proven to provide valuable operational guidance in similar projects implemented by other countries. D S W D will be responsible for ensuring that these two types o f data to monitor project outputs are gathered and used for pol icy decisions. The actual implementation o f the spot checks and the preparation o f reports verifying these data against program administrative records will be carried out by an independent, external party chosen based on its credibility and technical capacity. Third, some aspects o f monitoring (e.g. targeting effectiveness) will also be based o n data that will be collected by the regular national household surveys, particularly the Family Income and Expenditure Survey (FIES), next to be undertaken in 2009. Translating the findings f rom the analysis o f the data into concrete policy actions and rectifications in the operations o f the 4Ps i s the responsibility o f the project administration and will contribute to the broader objective o f building capacity on evidence-based decision making that i s an important part o f D S W D ’ s reform agenda.

61. The 4Ps will also put into place a methodologically rigorous impact evaluation. The results o f the impact evaluation will provide evidence whether the program has a positive impact or not. The evaluation will be based on an experimental design, with randomly selected treatment and control groups. The objective o f this exercise will be to identify whether the 4Ps had any significant impact o n the main project outcomes, along the fol lowing dimensions: (i) health; (ii) education; and (iii) wel l being.

4. Sustainability

62. There are several factors underlying the sustainability o f the project and i t s results. First, there is strong ownership o f the program by the implementing agency (which considers it a core element o f i t s overall reform agenda), oversight agencies, and the administration. Long-term sustainability o f this nascent program will be contingent on the credibility and quality o f the program and i t s perceived and actual results, pointing to how critical the f i rs t years o f the program, slated for support by the Bank, are to longer-term sustainability. Second, the program i s sustainable from a fiscal standpoint. It has been included in the Department’s medium term expenditure plan and vetted by the Department o f Budget Management. One o f the project’s objectives, better targeting o f social protection programs, would enhance the fiscal sustainability o f more effective programs. Third, the program’s outcomes in terms o f impact on poverty, health, and education outcomes are expected to be sustained from the perspective o f beneficiary families, particularly based on experiences f rom other CCT programs. The human capital gains to beneficiary children and their families are irreversible. Finally, the program has developed a detailed Strategic Communications plan to build public backing for the program and to inform Congress and the Senate on program developments with a view to maintain long-term budgetary support.

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Vo agency has been responsible for iocial protection oversight at the national evel. Fragmentation of delivery of social irotection program across national nstitutions. ,ack of a consistent and accurate poverty argeting system for social protection irograms.

Inter-agency National Social Welfare Program newly created with DSWD as Secretariat. The project w i l l strengthen the capacity o f DSWD and support the development o f a coherent policy framework for social protection.

Project directly addresses this issue by developing a targeting system to be utilized by multiple government agencies in delivering national social protection programs.

Risk Rating

M

M

rechnical Design Vational Household Targeting System ‘or Poverty Reduction (NHTS-PR) rolled )ut too quickly andor uses sub-optimal argeting methods Ither agencies implementing social irotection programs do not use the VHTS-PR database

’roxy Means Test (PMT) system generates high inclusion and exclusion :rrors nadequate supply and access to services

Weak linkage between the national 4Ps Irogram and local level implementation System for verification of compliance not mulemented

M Rol l out i s being implemented in phases. Continued dialogue with the GOP to apply a gradual approach to build capacity and credibility o f the system

Cabinet has articulated the policy direction that NHTS-PR w i l l be used by other agencies. Credibility, quality and timeliness of the availability o f the shared database w i l l be critical

Public validation and certification o f beneficiaries; spot check to review targeting; Grievance Redress System to capture and resolve complaints. Multi-agency committees including DepEd and DOH established at al l levels to manage supply-side issues. MOA between DSWD and participating LGUs; 4Ps Municipal Link assigned by DSWD to LGUs. World Bank providing TA to develop monitoring system and MIS

M

M

M

M

M

jovernment commitment and budgetary ,ustainability.

,ack of cooperation among key national igencies

Government’s medium-term commitment to program captured M in current budget allocation and DSWD’s Medium Term Expenditure Plan (being agreed) with Department o f Budget and Management (DBM).

coordination under National & Regional Advisory Committees. DSWD i s Secretariat o f new National Social Welfare Program.

Joint Memorandum Circular between participating agencies; M

Ielays in cash releases

18

0 DBM i s now implementing the “comprehensive Release o f M Cash” (Notice o f Cash Allocation) that covers 6 months fund requirement o f an agency based on the budget. DSWD has extensive experience in implementing Bank- assisted project and thus fully conversant on the processes and follow up o f the release o f cash from the DBM and Treasury.

CCT cash releases do not reach the complete set o f intended beneficiaries

Third party spot check systems to assess the verification system and actual cash transfer Internal audit services (JAS) o f DSWD shall cover the project in i t s scope o f work and in the f i rst two years work together wi th the independent audit firm that w i l l provide capacity building to IAS. Al l cash transfers to the beneficiaries are coursed through a commercial bank, which are then credited to the beneficiaries' cash account or handed over the counter with the presentation o f the DSWD issued identification card. Any other identified conduit in channeling the funds shall be agreed with the Bank.

Significant capacity-building for the Internal Audit Services to be provided by independent reputable audit consultants to be engaged by DSWD.

Quarterly submission o f Interim Financial Reports which would include financial reports. Semi-annual internal audit review o f the project shall cover the review o f internal controls compliance.

Weak internal audit capacity

Non-compliance with internal controls Separate set o f books o f accounts maintained for the project based on the report ofthe Commission on Audit (COA) in i ts audit o f the regular accounts o f DSWD in prior years

Procurement

md TOR for procurement appraisal

lelay in procurement holds up other Ictivities, including payment Social and Environmental Safeguards

nappropriate or inadequate specifications Review and approval o f SBD and bidding documents by

Preparation o f Procurement Plan on or before project appraisal

Early commencement o f procurement and monitoring using the Electronic Procurement Tracking System

iccess the project 1 developed to mitigate exclusion Reputational and Other I'he Bank i s associated with a program

M

M

M

L

L

iccess the project 1 developed to mitigate exclusion Reputational and Other I'he Bank i s associated with a program :hat i s used for political purposes that Nil1 compromise the accuracy o f the :argeting mechanism 3ovemment regular budget and/or liscretionary funds used to supplement :he size o f the 4Ps, leading to scale up ieyond project areas -- at a rate that iutstrips institutional and fmancial nanagement capacity; and/or in a nanner that does not adhere to project )rotocols. ?he overall r isk is Substantial.

Strict protocols for geographic and household targeting using the PMT. Engagement o f NGOs and third party monitors. Registrations-frozen three months before national elections.

4Ps staff and capacity building w i l l need to be calibrated to program size and coverage

L=Low; M=Moderate; S=Substantial

6. L o a d c r e d i t conditions and covenants

Dated Covenants

S

S

(i) DSWD, no later than 6 months after loan effectiveness, to engage the services o f reputable audit consultants, having qualifications and terms o f reference acceptable to the Bank, to assist in strengthening the internal controls in DSWD, including its internal audit unit.

19

(ii) DSWD to appoint the consultant to conduct the “spot checking” verification o f the cash grant process by April 30,2010.

(iii) DSWD to fill the Operations Audit Division Head position in IAS no later than five months of loan effectiveness.

(iv) DSWD to establish a dedicated financial management group for the project, including hiring the Financial Management officer and other key Financial Management staff for the project no later than five months o f loan effectiveness.

(v) DSWD wi l l conduct a mid-term review o f SWDRP within 24 months after the effective date. (vi) For the f i rst two years o f project implementation, DSWD will carry out spot checks semi-

annually, no later than January 3 1 and July 3 1 in each year, commencing July 3 1, 201 0, and until July 3 1,2012. Thereafter, the spot checks w i l l be carried out in annual basis, no later than July 3 1 in each year, and commencing July 3 1,20 13.

(vii)DSWD to submit to the Bank no later than 60 days after the end o f each calendar semester an internal audit report for the project.

Covenants applicable to project implementation:

(i) Payments for the CCT Grants for Health wi l l be made upon the establishment and operationalization o f a compliance verification system linked to payments as set out in the Operation Manual.

(ii) Payment for the CCT Grants for Education Services w i l l be made based on the existing manual monitoring system at the school level until June 30, 2010 or such a later date as the Bank may agree. Thereafter, payments for the Education Grant will be linked to the compliance verification system.

D. APPRAISAL SUMMARY

1. Economic and financial analyses

63. The Project will have positive impacts on the Government’s effectiveness in addressing social protection and targeting o f poverty reduction programs at present and in the future. By supporting the implementation o f the NHTS-PR and the 4Ps, the Project i s expected to increase the poverty-reducing impacts o f Government poverty reduction programs, allow the Government to better formulate emergency programs to cushion the short-term impacts o f sudden income shocks to the poorest, address long-term poverty issues o f lagging health and education outcomes, and improve the cost-effectiveness o f implementing Government programs.

64. Greater impact of existingprograms in reducingpoverty: The current lack o f a uniform and objective targeting system in the Philippines has resulted in the proliferation o f transfer programs that suffer from high under-coverage and high leakage rates. Improving the targeting o f these programs using the new NHTS-PR would allow more subsidy to be directed to poor households. Improving the targeting o f the Government’s largest subsidy program (NFA rice subsidy), for instance, i s estimated to increase the poor’s benefit from the program by nearly four times and increase the poverty-reducing impact o f the current NFA program by reducing poverty incidence by as much as 6.4 percentage points (Annex 9 Table 9.1).

20

65. Mitigation of the immediate impacts of sudden income shocks to poor households: The 4Ps CCT i s expected to augment incomes o f beneficiary households by about 23 percent, providing them cushion against sudden income shocks such as the food and fuel crises in 2008 and the unfolding global economic crisis in 2009. The 4Ps cash transfers are estimated to reduce the poverty incidence and income gap in beneficiary areas by 6.1 and 7.6 percentage points, respectively (Annex 9 Table 9.2). The establishment o f the NHTS-PR will also allow for better emergency targeting o f poor households through cash transfers in the face o f future income shocks.

66. Improvements in education outcomes: The high cost o f education has been one o f the main deterrents o f school attendance among children in the Philippines. With the CCT, it i s estimated that children’s enrolment rate in 4Ps beneficiary areas could increase by 5 percentage points and their school attainment by an additional year.16 An ex-ante evaluation o f the program using a nationally representative survey also estimated that, if targeted to al l poor households with children aged 6- 15, the 4Ps could reduce the proportion o f poor children not enrolled in school by as much as 6.7 percentage points and increase the proportion o f poor children who study full-time (versus those working part-time) by 4 percentage points (Annex 9).

67. Improvements in health outcomes: Due to data limitations, it i s not possible to perform an ex-ante evaluation o f the 4Ps’ impact on health. Nonetheless, CCT programs with comparable average generosity levels, such as Progresa in Mexico and Familias en Accidn in Colombia, have been shown to reduce the incidence o f severe i l lness and stunting among children and significantly improve both children’s and mothers’ nutritional status. Given the high degree o f income-related inequality in maternal and chi ld health indicators, the 4Ps program i s expected to result in similar positive improvements.

68. Cost-effectiveness of Government programs: In 2008, it is estimated that about PhP60.9 bi l l ion ($1.3 billion) in total have been channeled to subsidizing rice through the untargeted NFA17 rice subsidy program. Leakage o f the Government’s resources to non-poor households would have been reduced by PhP13.1 bi l l ion ($0.3 billion) if the program had been better targeted only to the poor. Shifting to a more accurate targeting system will improve the Government’s ability to ensure that subsidies and transfers actually reach the poorest families in a more cost-effective manner (Annex 9).

69. The successful implementation o f both the NHTS-PR and the 4Ps are seen by Government as the potential back-bone o f a modern social protection system for the Philippines. While the CCT program is nascent, close monitoring and impact evaluation o f the 4Ps i s planned. Authorities are aware that, if successful, the CCT program could potentially replace other subsidy and transfer programs as a flagship social protection and poverty reduction program for the country. By enhancing the capacity within DSWD to efficiently implement the NHTS-PR and 4Ps and systematically monitor and evaluate the Department’s main programs, the project is aimed at promoting the emergence o f a strong institutional leader in the social protection sector.

~~

l6 Simulations based on estimated elasticities to (predicted) income of 0.21 and 1.4 for enrolment and education attainment of children’s 6-14 years old, respectively. Analysis uses data from actual beneficiary areas using the PMT data. (Annex 9 )

The figure includes estimated contracted debts by the NFA. 21

17

70. The Government’s commitment to social protection speaks to the Project’s financial and fiscal sustainability. Aside from increasing budget allocation for social protection programs in 2008 and 2009 by at least twice the level in 2007, the Government also formulated the Medium Term Expenditure Plan (MTEP) 2010-2014 with a view to securing more predictable funding for the implementation o f DSWD’s core functions and multi-year programs such as the 4Ps. The Project finances a share o f l ine items both in DSWD’s approved budget for 2009 and i t s MTEP for 2010- 2014 (Annex 9 Table 9.4). The amounts proposed for loan financing are based on a conservative scenario o f “zero real growth” in the budget o f DSWD and will not require increased financing over the l i f e o f the project. This conservative budgetary assumption and the fact that the project i s couched within the DSWD MTEP should ensure its sustainability at least over the five years for which eligible households are part o f the program.

2. Technical

71. The project i s technically sound. In particular, the introduction o f the two-step targeting process, carrying out a geographical selection o f poor areas followed by the household assessment through a proxy means test as the targeting instrument, i s based on good practice examples from a number o f countries. This methodology has proven to have better targeting outcomes than other targeting mechanisms applied to countries with similar conditions to those o f the Philippines. The design was appropriately customized to local conditions. The M I S and I C T applications have a good balance between functionality and cost. The CCT design likewise relies on best practice f rom other countries where such programs have been implemented for a number o f years. The practical experience in Lat in American countries supports the CCT program approach, in that it has demonstrated how sustainable poverty reduction requires a multi-sectoral approach involving different actors in service delivery. In this context, CCT programs have been found to be an effective demand-side intervention -to build children’s human capital.

3. Fiduciary

Financial Management

72. The Bank’s assessment points to the need for mitigation measures to be undertaken to address outstanding financial management issues. The Bank’s assessment indicates that the financial management systems o f DSWD will meet the financial management requirement stipulated in the Bank’s OP/BP 10.02 subject to implementation o f agreed actions and mitigating measures. Deficiencies in compliance with internal controls involve lack o f up-to-date bank reconciliations statements, inventory accounts not reconciled with physical inventory reports due to property unit’s failure to maintain accurate and complete record o f purchases and issuances, long outstanding unliquidated funds transferred to non-government organizations, local government units, and national government agencies, among others. The accounts o f a number o f regional offices are s t i l l manually maintained. There i s also the absence o f an Internal Audit Services Unit (IAS) fully functioning in accordance with international standards and IAS s t i l l does not have a full- time head and a full staff complement. This weakness in the control environment substantially increases the r isk o f the funds not being used for the intended purpose, unless these risks are effectively mitigated. There i s a great deal o f awareness at the DSWD as this agency has been judged by the Government’s Philippine Anti-Graft and Corruption Commission as the number one

22

anti-corruption champion in government for 2008 based on the Anti-Corruption Scorecard with the special focus on the progress o f DSWD’s action on its Integr i ty Ac t i on Plan (IDAP).”

73. The assessed Financial Management risks o f the project before the mitigating measures i s considered substantial but the residual risk would be moderate when the agreed measures are implemented and have shown the expected impact. The mitigating measures include: (i) implementation o f action plans to address the Commission on Audit findings on noncompliance with internal controls and accounting policies and to complete the ro l l out o f the electronic book- keeping segment o f the eNGAS to the remaining regions in DSWD; (ii) filling the key vacant position in Internal Audit Services unit with qualified staff; (iii) semi-annual internal auditing o f the agency/project and concurrent strengthening o f the IAS’ capacity by independent reputable audit consultants; (iv) implementation o f a grievance monitoring reporting system and conduct o f spot checks for 4Ps by an independent third party; and (v) preparation o f the annual audited project financial statements and unaudited quarterly interim financial reports.

Procurement

74. Procurement for the proposed project would be carried out in accordance with the World Bank’s “Guidelines: Procurement under IBRD Loans and IDA Credits” dated M a y 2004 revised October 2006, and “Guidelines: Selection and Employment o f Consultants by World Bank Borrowers” dated May 2004 revised October 2006, and the provisions stipulated in the Legal Agreement.

75. A procurement capacity assessment o f the implementing agency, carried out prior to appraisal, rated the overall risk o f the procurement process as low. The main risks concern the inappropriate or inadequate specifications and TOR, packaging and planning for the procurement o f the limited but relatively high value M I S goods and survey works. The agency has a Procurement Service (PS) office under the General Administration and Support Services Group, which i s responsible for the procurement undertakings for the central office administered funds. This group had been responsible for the procurement undertakings o f the agency involving local and foreign- assisted projects including the Bank-financed ECDP, SEMP 1 and 2, KALAHI and a number o f grant projects in the past. The procurement chain, including the PS and BAC, is very familiar with the Bank’s procurement guidelines and procedures and i s staffed with competent personnel to implement the proposed procurement arrangement in Annex 8. The D S W D has benefited from the various procurement and implementation experiences, and reforms and capacity buildings initiated and mainstreamed under previous Bank-financed activities. The government has even awarded DSWD-PS the best procurement unit title. The corrective measures which have been agreed to are: (i) finalization o f the most technically sound survey works packaging with the help o f the Bank’s and DSWD’s technical specialists; (ii) the engagement o f MIS goods specifications specialists to provide the most appropriate technology for the design o f the project; (iii) preparation o f the bid documents for M I S goods and RFP for consultants; and (iv) preparation o f the procurement plan for the project on or before the project appraisal. Aside from these specific measures, the regular

’* IDAP i s composed o f specific anti-corruption measures and i s now being implemented by 135 government agencies. An Anti-Corruption Scorecard i s also used as a measurement tool to assess the impact or effectiveness o f the anti- corruption reforms. The scorecard considers the results o f the assessment by the accountable persons and those o f the rank and file employees o f the agency, i t s stakeholders, the clientlcustomers and the results o f local corruption related surveys.

23

features o f the procurement operations in accordance with the law o f the country will be adopted, among which are: the use o f the Philippine Government Electronic Procurement System (PhilGEPs) and the agency’s website in e-advertizing al l bid opportunities, annual updating and publication of procurement plan in the agency’s website, use o f CSO observers in procurement undertakings conducted by BAC, review by the C O A o f the al l procurement and contracting done under the project, use o f timelines (service standards) for efficient procurement operations. Also, DSWD will rely on their Electronic Procurement Tracking System (EPTS), which they have developed and operationalized, to monitor transactions from bid opportunity posting to payment. Further, the project will benefit from the soon-to-be launched procurement info bits in popularized version which will be distributed to various procurement operating units.

Project Implementation Plan (PIP)

76. A draft Project Implementation Plan (PIP) has been prepared, and it includes a description o f implementation and monitoring arrangements, that spells out the sequence o f a l l project activities, a Financial Management Plan, and an overall Procurement Plan.

4. Social

77. The project supports the key reform agenda o f the social welfare and development sector. The demand for reform in this area, as well as a mounting social consensus for the need for action i s apparent in the public debate. Since the project evolved from the development o f the reform agenda for social welfare and development, it builds on the various multi-stakeholder consultations that the DSWD conducted at the national and local levels with participation f rom representatives o f key national implementing agencies; the academe; private sector, non-governmental networks; leagues o f local government units and basic sector organizations. Likewise, the launch o f the CCT program has involved the participation o f multi-stakeholders from various implementing and oversight agencies, complemented by dialogues with experts groups on education, health, poverty reduction, social protection and targeting. The assessment o f the CCT pilot-testing involved the conduct o f f ield consultations with representatives o f the local government units and the grantees in six areas. The demand for action in these areas o f social protection has only increased in past months with the recent food crisis and, more recently, the global economic crisis.

78. The project i s expected to have significant social benefits: (i) The establishment o f a targeting system can lead to improved benefits o f the CCT and other social protection programs to households that are actually poor (by reducing exclusion errors) and augment the resources available to do so (by reducing inclusion errors); and (ii) by supporting the Philippine CCT program, the project will also enhance the incomes and the educational and health outcomes o f poor beneficiary Fi l ipino households in selected areas. The participation o f the grantees shall be ensured during the project implementation through the monthly assemblies and the mobilization, with capacity building, o f mother leaders. The LGUs shall continue to be mobilized through the municipal inter-agency advisory committee which will have a parallel organization at the provincial level. The c iv i l society organizations will be mobilized for spot checking and through the social accountability or grievance redress mechanisms.

79. the project consistent with the results framework.

The monitoring and evaluation system i s designed to track and measure the social impact o f

24

5. Environment

80. The project w i l l not support any physical investments or civil work activities, hence any environmental impacts are not expected. The project i s categorized as an Environment C project.

6. Safeguard policies

81. The project i s likely to deliver direct and indirect benefits to the Indigenous Peoples (IPS) through the conditional cash transfer (CCT) program or 4Ps, which targets poor areas where IPS may be present. In addition, IPS are also likely to benefit indirectly from the policy reforms outlined in the three project components. On these bases, the Bank’s Indigenous Peoples policy (OP4.10) i s deemed triggered by the project. However, since the specific locations o f the project were not yet identified at the beginning o f project preparation, the DSWD issued an Indigenous Peoples Policy Framework (IPPF) as Memorandum Circular No. 01 Series o f 2009, which defines the major policy guidelines to identify and classify the IP groups that will be affected by the Project; analyze potential effects and risks on IPS; ensure full participation o f IP representatives in all aspects o f the Project; and develop strategic adjustments to ensure that the Project responds to specific needs o f IPS (See Annex 10).

82. The DSWD would also coordinate with the National Commission on Indigenous Peoples in implementing the IPPF in compliance with the provisions o f the Indigenous Peoples’ Rights Act (IPRA). The IPPF was prepared by an inter-bureau committee composed o f representatives from the Social Technology Bureau (Coordinator); Program Management Bureau; NPMO-4Ps; Social Welfare Institute and Development Bureau and the Planning and Policy Bureau o f the DSWD.

Safeguard Policies Triggered by the Project Yes N o Environmental Assessment (OP/BP 4.0 1) [I XI Natural Habitats (OPBP 4.04) [I [ XI Pest Management (OP 4.09) [I E XI Physical Cultural Resources (OP/BP 4.1 1) [I [ XI Involuntary Resettlement (OP/BP 4.12) [I [X 1 Indigenous Peoples (OP/BP 4.10) XI [I Forests (OP/BP 4.36) [I [ XI Safety o f Dams (OP/BP 4.37) [I [X 1 Projects in Disputed Areas (OP/BP 7.60) [I [X 1 Projects on International Waterways (OPBP 7.50) [I [ XI

7. Policy Exceptions and Readiness

83. Operations Manuals, and procurement plan have been prepared and reviewed during appraisal.

The Project complies with all applicable Bank policies. The Project Implementation Plan,

25

Annex 1: Country and Sector or Program Background PHILIPPINES: SOCIAL WELFARE AND DEVELOPMENT REFORM

Country Context

1. After posting strong economic growth for several years, the Philippines i s experiencing an economic slowdown as the country was not spared by the impacts o f global economic crisis. In 2003-2006, GDP grew at an average rate o f 5.4 percent and reached 7.3 percent in 2007, the highest growth in three decades. In 2008, however, GDP growth posted 3.7 percent in 2008 and barely grew in the first quarter o f 2009 (0.4 percent) as the global economic crisis has affected the domestic industrial activity, particularly the export-oriented manufacturing industries. Over the last six years, the services sector continued to contribute the most to GDP growth, with an average growth rate o f 6.5 percent, higher than the growth o f industry and agriculture sectors, which grew at 4.7 percent and 3.8 percent, respectively, during that period. Meanwhile, the remittances from overseas Filipino workers continued to boost private consumption, recording the highest contribution to GDP growth at 4.2 percent on average over the same period. With a population o f 88.6 million in 2007, per capita income stood at $1,620. l 9

2. The significant fiscal consolidation and the fiscal reform undertaken by the Philippine government has produced positive results and contributed to the strong economic performance between 2003 and 2007. During this period, the national government deficit was reduced from 4.6 percent to 0.2 percent o f GDP; the national government debt-to-GDP ratio fe l l from 78 percent to about 56 percent; and the non-financial public sector debt dwindled from over 100 percent to 61 percent o f GDP. Moreover, the consolidated public sector position was balanced in mid-2006 and began to record a surplus in 2007. However, gains were not sustained in 2008 due to several factors including the slowing economy, scheduled personal and income tax cuts, and weak internal revenue administration. Spending pressures have been on the rise since 2008 as government increased spending to mitigate the combined impacts o f the food and fuel price shock and the global economic crisis.

3. Before the onset o f the crisis, inflation remained muted and performance o f the external sector had also been strong. Headline inflation rate in 2003-2007 averaged 5.2 percent but it rose to 9.3 percent in 2008 due to the increases in food and fuel prices during the year. Prices began to stabilize in 2009, and in July, inflation rate reached only 0.2 percent. Meanwhile, BOP recorded a surplus equivalent to 6 percent of GDP in 2007, the highest in more than 10 years, supported by high remittance inflows and stronger portfolio and other investment inflows. The global economic crisis, however, resulted in the reduction o f exports o f goods and services, the slowdown in the growth o f remittances inflows, and fall in foreign direct investments. The BOP barely recorded a surplus in 2008 while international reserves grew at only 11 percent, after the latter climbed by almost 50 percent the previous year.

4. Domestic investment has remained low and has showed a declining trend in the share in GDP even before the economic crisis. Investments in fixed capital grew at an average rate o f only 2.6 percent in 2003-2008 and contributed a mere 0.3 percent to GDP growth during this period. Fixed capital investments accounted for only 17.5 percent o f GDP-nearly one-fifth o f the share o f

~~

Per capita GNI was computed using the Atlas method. 19

27

private consumption in 2008. The current level o f private investments i s lower than the 20.1 percent share recorded 5 years ago and even lower than the 22.2 percent share recorded 10 years ago. The declining trend in domestic investments raised concern on how the recent pace o f economic growth can be sustained.

5 . Weak governance has hindered the expansion o f domestic investments. The low level of investments can be attributed to the high incidence o f corruption, weak ru le o f law, and political instability, which seriously affect the appropriability for private investors. Over the past ten years, the Philippines has regressed in key areas o f governance. Gov ernance indicators collected by Kauffman, Kraay, and Mastruzzi in 2008 showed that the Philippines scored negatively in 5 out o f the 6 dimensions o f governance: political stability (-1.41), control o f corruption (-0.75), ru le o f law (-0.49), regulatory quality (-0.05), and voice and accountability (-0.20).20

6. The progress that the Philippines achieved in reducing poverty over the last two decades has been very modest, especially compared to the record o f i t s neighbors in the region, particularly Indonesia, Thailand, Vietnam, and China (Figure Al). The proportion o f Filipinos living below the national poverty l ine declined from 45 percent in 1991 to 30 percent in 2003. Poverty measured using the international benchmark show a similar trend. The proportion o f the population living below $1.25-a-day declined from 34.9 percent in 1985 to 22.6 percent in 2006, or a reduction o f about 2 percent per year over the two decades.

Figure Al . Poverty Reduction in the Philippines versus East Asian Neighbors

100.0

90.0

80.0

60.0

2 50.0

$ 40.0

2 30.0

20.0

10.0

0.0

tural China' . "a

lndo

Thai . . I - . I . . - - - _ . . . _ _ _ _ _ _ _ _ - . - . - .

eariy-2000 2006 (latest) mid-I980 mid-1990

Note: Figures pertain to proportion o f population with income per capita below the new international benchmark o f US$ 1.25 a day in 2005 PPP, except Philippine O f f 1 poverty incidence which i s based on national poverty lines. Sources o f data: World Bank and NCSB.

7. More recently, even as GDP growth averaged 5.4 percent between 2003 and 2006, poverty increased from 30.0 percent to 32.9 percent during the same period, indicating a low response o f poverty reduction to growth. Estimates show that the Philippine's growth elasticity o f poverty i s greater than unity, although this has declined in recent years.21 Between 1985 and 2000 when

*' World Bank's Worldwide Governance Indicators, 1996-2008. 21 See also Ravallion, M. (200 1). 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 o f International Economics, Washington DC.

28

growth averaged 3 percent per year, poverty declined by about 2.2 percent annually. Since 2000, when the country posted about 5 percent growth per year, the pace o f poverty reduction dropped to 0.1 percent per year.

8. High rates o f inequality explain some o f the disconnect between the recent experience in growth and poverty reduction. The country's Gini coefficient remains high relative to i t s Asian neighbors and large variation in economic opportunities persists at the sub-national level. Geographically, the National Capital Region and two adjacent regions (Southern Tagalog and Central Luzon), which account for more than half o f GDP, have per capita incomes above the national average and have seen the fastest decline in poverty headcount. On the other hand, per capita incomes in the poorest regions, mostly in the conflict-affected Mindanao, are only 50-60 percent o f the national average and have the highest incidence o f poverty. In fact, between 2003 and 2006, only 4 o f the 17 administrative regions in the Philippines showed decline in poverty headcount, albeit mildly.

9. Moreover, the Philippines has been lagging in i t s progress toward achieving some key non- income MDG targets. Net enrolment ratio in primary education did not show any progress from 84.6 percent in 1990 to 84.8 percent in 2007 and only 75.3 percent o f pupils that enter grade 1 make it to grade 6, which are far from the target o f 100 percent. Dropout from elementary school i s higher for children among poor households. Although important progress has been made in reducing infant mortality, the proportion o f 1 -year-old children immunized against measles barely rose from 77.9 percent in 1990 to 81.7 percent in 2007. Malnutrition remains a major issue, with only 64 percent o f Filipino children meeting WHO'S normal weight-for-age standards. Meanwhile, maternal mortality rates remain high at 162 per hundred thousand l ive births in 2006.22

10. Recent data show that the food and fuel price shock in 2008 and the recent global economic crisis have taken their toll on household welfare and the economy as a whole, which has serious implications in reducing employment and incomes o f Filipino households. Unemployment rate increased from 7.4 percent in January 2008 to 7.5 percent in April 2009 while the growth o f remittances from overseas Filipino workers began to slow down, from 13.7 percent growth in 2008 to 2.8 percent from January to May 2009. Moreover a growing number o f Filipinos consider themselves poor, unable to sustain their daily food requirements, and in worse conditions this year compared to 2008 because o f the joint effects o f the food and global economic crises that successively hit the country.23 Such negative developments pose serious threats to the already slow progress in reducing poverty in the Philippines and at the same time highlight the need for policy action to mitigate deepening impacts, especially to poorer households.

Sector Context

11. Poverty in the Philippines remains at one-third o f the population and an even higher proportion o f Filipinos are vulnerable to shocks that throw them into poverty. Shocks that commonly throw Filipino households into poverty are those related to health (e.g., loss o f a family member, especially the head o f the household), employment, natural disasters, civil unrest, and food

22 Updates as o f May 2009, NSCB MDG Watch: Statistics at a glance o f the Philippines' Progress based on the MDG indicators, http://www.nscb.gov.ph/stats/mdg/mdg-watch.asp 23 World Bank, "Global Crises and Household Vulnerability in the Philippines: Social Impacts and Policy Responses," forthcoming.

29

prices.24 Recent Government estimates show that some 45 percent o f Filipinos are vulnerable of falling into poverty because o f these shocks.25 An analysis o f panel data over the period 1997 to 1999, which covered the Asian Financial Crisis and the El Nif io phenomenon, showed that a quarter on non-poor households immediately succumbed to the effects o f the crises, and an even greater proportion o f poor households (50 percent) were unable to protect themselves from these shocks26. Good health and education provide security against future risks and keep people out o f chronic poverty. An average household’s spending on human capital (Le., education and health) represents only 7.3 percent o f i t s total spending, while poor households spend less on health and education (3.1 percent) making them more at-risk to future shocks and less equipped to exit poverty.

12. The compounding effects o f the food, fuel, and the global economic crises, have exposed the vulnerability o f Filipinos to shocks, especially among poor households. About 40 percent o f an average Filipino household’s spending goes to food while poor households spend 60 percent, making them more vulnerable to falling into poverty with sudden increases in food prices. Simulations using income and spending patterns o f households in the 2006 FIES show that the combined effects o f the food and fue l inflation in July 2008 may have increased the poverty headcount by 3.9 percentage points, bringing an additional 3.3 mi l l ion households into poverty. Meanwhile, the global economic crisis i s l ikely to create socio-economic impacts through fal l in foreign and domestic remittances, lower demand for labor, and reduction in real wages. By end- 2008, about 10 mi l l ion Filipinos work abroad, equivalent to 28 percent o f the labor force and 11 percent o f the population. As incomes and employment o f overseas workers are at risk, so too are remittances to their families, which account for around 10 percent o f GDP in 2008. As the global demand continued to fal l in 2009, labor-intensive industries, such as manufacturing and retail and wholesale trade suffered the biggest contraction, many o f which consist o f a majority o f low-skilled workers who are disproportionately susceptible to j ob cuts.

13. In the absence o f appropriate safety net programs, households have developed coping mechanisms fol lowing a shock, but these tend to erode human capital and perpetuate poverty. Families respond to income shocks by increasing working hours, changing eating patterns, receiving transfers from relatives and friends, or withdrawing children f rom scho01.~’ At times o f severe economic pressure when adult unemployment i s rising and incomes are falling, chi ld work also provides a way for augmenting household incomes. Indeed, studies have shown that the unemployment and underemployment, such as those triggered by the Asian Financial Crisis, coincided with significant declines in high school enrollment rates2* and increased likelihood o f chi ld labor.29

14. Despite the Government’s recognition o f the high degree o f vulnerability among Filipino households, there remain several pol icy and institutional weaknesses in addressing issues o f social

24 World Bank (200 1) “Philippines: Poverty Assessment. Volume 1 : Main Report.”

Vulnerability to Poverty in the Philippines.” 26 Reyes, C. (2002) “The Poverty Fight: Have We Made an Impact?” 27 World Bank (200 1) 28 Esguerra, J., M. Ogawa, and M. Vodopivec (April 2002) “Options of Public Income Support for the Unemployed in the Philippines,” Employment Policy Primer. 29 Esguerra, E. (2002) “An analysis of the causes and consequences of child labor in the Philippines”. Paper submitted to the International Labour Organization as part of an ILO/International Programme on the Elimination of Child Labour (IPEC) study.

30

National Anti-Poverty Commission and National Statistical Coordination Board (September 2005) “Assessment of 25

protection in the Philippines. The Government places high priority o n the poor and vulnerable groups in i t s Medium-Term Philippine Development Plan (MTPDP) for 2004-20 10. However, to date, Government efforts to address lagging poverty and human development outcomes especially among the poorest and most vulnerable households have been compromised by several factors:

0 First, spending o n social sectors, particularly social assistance programs has generally been low. Total spending o n al l social services at the national level, at 4.9% o f GDP (including education, health, social welfare, housing, other services and transfers to local governments), is significantly less than the regional average and among those countries with similar per capita income. More specifically, developing countries spend about 4 to 6 percent o f GDP on education and 3 percent on health, while the Philippines only spend about 2.5 percent and 0.3 percent in education and health, respectively. This has been compounded by fiscal compression, which contributed to a fal l in real er capita spending on social services by as much as 28 percent between 1997 and 2006. Meanwhile, national government spending on social protection services was estimated to constitute only 0.4 percent o f GDP in 2007.31 The budget o f the Department o f Social Welfare and Development (DSWD), which has the primary role in delivering social welfare services, accounted for only 0.32 percent o f the national budget (about 0.05 percent o f GDP) in 2007.

36)

Second, social protection programs in the Philippines are fragmented and uncoordinated. The current MTPDP (2004-2010) recognizes the growing number o f vulnerable groups in the country who continuously experience social, economic and environmental pressures as natural disasters and economic shocks. Yet, while the National Anti-Poverty Commission (NAPC) i s designated to coordinate anti-poverty efforts, there i s a lack o f pol icy and institutional coordination in the broad area o f social protection, with several Departments undertaking uncoordinated programs that address various aspects o f social protection. For example, important programs include food subsidies through the National Food Authority (NFA), a school feeding program through the Department o f Education, and a subsidization o f poor households through Philippine Health Insurance, as wel l as an assortment o f other subsidy programs that range from fertilizers to drugs to shops and public transport. Meanwhile, the DSWD i s mandated to address the prevalent risks and vulnerabilities facing poorer and vulnerable groups. But it had not played a leadership role in social protection previously, hindered primarily by the lack o f capacity and budget.

Third, service delivery has been difficult because o f ongoing challenges in adapting systems to decentralized service delivery. Service delivery, including in social welfare services, continues to be complicated in the Philippines because systems have not completely been adapted to the decentralization that took place in 1993. With the passage o f the Local Government Code (LGC) in 199 1 , the delivery o f most services was devolved to the local government units. This meant that DOH’S and DSWD’s functions, for instance, were henceforth to be focused on leadership primarily through policy formulation, standard setting, program development, technical assistance, and resource augmentation. Yet, these Departments clearly recognize that

~ ~~

30 Manasan, R. (2007) “Financing the Millennium Development Goals: The Philippines,” PIDS Discussion Paper Series

3 1 Manasan, R. (2006) “Review o f Government Programs and Spending Priorities for Social Welfare Protection and Social Development: Phase I.” and Manasan (2009) “Assessment o f Social Protection Programs in the Philippines” (mimeo).

NO. 2007-06.

31

0

they have not fully adjusted following the devolution o f the functions and there i s a need to consolidate their experiences to date and implement their respective reform agendas.

Fourth, even though numerous programs are in place, benefits from such programs are muted due to lack o f a legitimate and functional system to target poorest households. A variety of programs have been designed to reach poor households in the past, but they have relied on faulty targeting systems which have often been ‘manipulated for political intent. Currently, different targeting schemes are being used for different programs. Assessments o f these schemes show high leakage rates to the non-poor and under-coverage o f the poor.32 For instance, it was estimated that the leakage rate to the non-poor of the Food-for-School Program implemented by DepEd was 62 percent in 2006/200733, mainly as a result o f the program’s bias towards including areas in the National Capital Region (NCR), which has the lowest poverty incidence among al l the regions in the Philippines. Likewise, evidence also shows that the NFA’s rice subsidy program, which comprised about 70 percent o f the Government’s transfer programs in 2007, i s also not well-targeted to the poor. Based on the 2006 FIES, about 40 percent o f NFA rice i s not consumed by poor households. Only 3 1 percent o f the total consumption o f NFA rice goes to the poorest quintile, while the richest 2 quintiles accounted for 16 percent. Part o f the problem has also been the lack o f necessary information to implement these programs as designed. Most programs intend to target assistance to poor families but there i s no household targeting system in place.

Government Reforms and Policy Actions

15. Recently, the Government has shown increased attention to reform and reinforce i t s social protection system. In response to the challenges mentioned above, the Government has taken some positive steps in addressing the major lapses in i t s social protection policies. Recent economic events have also made the Government redouble its efforts in the area o f social protection. Given the recent global economic shocks that hit the country in succession, specifically the food and fuel crises in mid-2008, the Government took decisive actions to immediately mitigate the impact o f these shocks to consumers while also taking steps to put into place an improved social protection system to cushion the poor from such shocks in the future.

A sector reform effort i s underway at the Department o f Social Welfare and Development (DSWD), with technical support from the World Bank, which can put into place the main building blocks for developing a sound social protection program in the Philippines. An entry- point for reforms to address some o f the above sectoral issues i s the decision by D S W D to embark on a reform agenda that would make it more effective in addressing i t s mandate. Recognizing the challenges o f addressing its new role in the context o f decentralization, D S W D commenced the formulation o f a reform agenda in 2006 and approached the World Bank for assistance in designing and supporting the eventual reform program. In developing i t s reform program, the DSWD has articulated four discrete components to its reform. They include: (i) Leading in Social Protection - which would entail the development and implementation o f a social protection framework and the development o f a targeting system for the poor; (ii) Faster

~ _ _ _ _ _ _ ~

32 Ibid

Discussion Paper Series No. 2007-10. Manasan, R. and J. Cuenca. (2007) “Who Benefits from the Food-for-School Program: Lessons in Targeting,” PIDS

32

33

and Better Service Delivery - which would focus o n improving i t s suite o f programs, including putting into place a new program o f conditional cash transfer for households, while reviewing and refining existing delivery models (e.g. a community-based C D D program, a center-based welfare program, a disaster rel ief program), and improving governance systems (such as strengthening regulatory functions); (iii) Smarter Financing - which would entail securing more predictable funding for core DSWD functions, more strategic budget allocation, including for resource augmentation o f LGUs and other partners; and (iv) Improving Systems for Service Delivery - which would entail improving cross-cutting and systemic change, such as improving monitoring and evaluation systems and management information systems as well as enhancing organizational capacity. These reforms are intended to improve DSWD’s effectiveness in delivering social welfare programs and to put into place the building blocks for the development o f a more coherent social protection system.

The Government recently established an institutional framework for the enhanced delivery o f social protection programs, with a view to reducing fragmentation and overlap, while enhancing coordination. Given the multiplicity o f programs that the Government recently undertook to mitigate the impact o f price shocks, it realized an important step towards improving service delivery would be to improve pol icy coordination in social protection. A key step was taken with the creation o f an inter-agency “National Social Welfare and Protection Cluster” to consolidate programs o f various government agencies into a single, national social welfare strategy. A 0 No. 232-A was passed by the President which specifically assigned the operational responsibilities o f the National Social Welfare Program to the Department of Social Welfare and Development. The next steps would entail developing an operational social protection strategy and work-plan and organizing agencies within the cluster. The expected results entail a more rational allocation o f responsibilities and resources, such that resources are allocated to programs t hat best address the actual risks and vulnerabilities o f the Filipino population. Over the longer term, such an inter-agency program would be expected to lead t o ’ reallocation of resources across programs to scale-up more effective social protection programs relative to less effective programs.

The Government increased funds appropriated to the social sector and major social protection programs in the 2008 national budget, as wel l as spending o n household subsidies and transfers over and beyond the allocation in the 2008 budget to mitigate the impact o f the increase in food and other prices. In 2008, appropriated budget for social services in general increased by 5.1 percent in real terms. DOH, in particular, received a 23 percent real increase in budget allocation in 2008, while DepEd’s and DSWD’s budgets were increased by 11.2 and 7 percent, respectively. Regular programs o f the Government such as the Food-for-School Program (FSP) and PhilHealth Indigent Program likewise received increased budget allocation in 2008. In addition, with the spike in food prices during 2008, the Government substantially increased i t s spending on social protection programs with reallocations o f spending during the year. The additional spending went to several programs. Most significant was the increased implici t subsidy through i t s NFA rice subsidy program. Other subsidy and transfer programs ranged from power subsidies to less well-off electricity consumers to cash transfers to the elderly. During the course o f 2008 and 2009, the Government also increased the allocation to CCT program.

33

0 In February 2008, the Government launched a pilot conditional cash transfer program (Pantawid Pamilyang Pilipino Program, or 4Ps) that focuses on supplementing the income o f the poorest households in selected municipalities while also supporting their human capital development. Program planning for the 4Ps began in 2007, with World Bank technical support, prior to the onset o f the food and fuel price shocks in 2008, with a planned target o f 20,000 household beneficiaries. The program was launched in February 2008 with 6,000 household beneficiaries in four pilot municipalities and two cities in the Philippines. In response to the crisis which happened in the succeeding months, the government decided to accelerate and augmented the program and has rolled it out to about 376,000 beneficiary households by the middle o f 2009, with intensive and continued technical assistance from the World Bank. Households who qualify for the program will get an annual transfer o f PhP9,OOO (US$191) to a maximum o f PhP15,OOO (US$319) for 5 years on the condition that their children attend school and visit health clinics for regular check-ups. On average, households will receive an annual cash transfer o f PhP10,630 (US$226), equivalent to about 23 percent o f the total income o f poor households. For beneficiary households, the cash subsidy would provide important mitigation for the increase in food prices. Program beneficiaries o f the 4Ps are selected using a proxy means test (PMT), a tool that identifies poor households based on objective criteria, utilizing multi- dimensional variables to explain poverty, rather than relying on a subjective determination o f poverty which i s prone to distortion. The DSWD envisions i t s CCT program becoming the backbone o f i t s social protection framework.

0 The Government, furthermore, decided to use the Proxy Means Test (PMT) methodology as the targeting tool to rol l out the National Household Targeting System for Poverty Reduction (NHTS-PR). The Government would like to have this system result in the generation o f a database o f poor households covering the whole country. The development o f a national targeting database i s expected to have significant impacts by directing scarce resources to the poorest households. This could both increase the benefits to poorest households by reducing leakage o f existing social protection programs, hence, having a greater impact in reducing poverty incidence and severity, as well as allowing for cost efficiencies. It will also allow for a system ready to target poor households through cash transfers in the case o f future shocks. Moreover, i t can be used for the targeting o f other national programs intended for poor households, such as the subsidized health insurance for the poor through Philippine Health Insurance (PhilHealth) and the rice subsidy program through the National Food Authority (NFA). In fact, the PhilHealth and NFA have already expressed interest to adopting the PMT- based national household targeting system for their programs. Some see the possibility o f improved targeting stemming the large fiscal drain implicit in NFA losses (driven by purchasing rice at international market prices and selling at subsidized prices.) Discussions are underway as to how this targeting database will be made available to all social protection programs. It was deemed critical, nevertheless, to allocate budget for this task in 2009. The Government has decided to prioritize the roll-out o f the targeting system to the 20 poorest provinces and municipalities with a poverty incidence greater than 60 percent.

Reforms in the education and health sectors are also ongoing at the Department o f Education (DepEd) and Department o f Health (DOH). The Basic Education Sector Reform Agenda (BESRA) was formulated in 2005 as the Government’s policy response to gaps in the education sector. The BESRA consists o f a package o f policy reforms that i s aimed at systematically improving the institutional, structural, financial, cultural, physical and informational conditions

34

affecting basic education provision, access and delivery to attain universal primary education and the elimination o f gender disparity at the primary and secondary levels. Guided by the reform thrusts o f the BESRA, the DepEd i s currently implementing an aggressive campaign to improve the quality o f education in the country. The DOH, meanwhile, initiated the Health Sector Reform Agenda (HSRA) in 1999 to respond to the slow and disappointing progress in program implementation as a result o f decentralization.

16. The Government i s thus taking concerted steps o n an ambitious agenda o f reform to address the multiplicity o f issues in the social protection sector. As noted above, discrete but key elements o f the reform agenda include the launch o f a new CCT program and the roll-out o f a National Household Targeting System, among others. The Government has requested the Bank for i t s assistance to support this agenda through an investment project. The proposed project i s aimed at supporting the Government strategically advance its agenda o f reform in social protection.

35

Annex 2: Major Related Projects Financed by the Bank and/or other Agencies

PHILIPPINES: SOCIAL WELFARE AND DEVELOPMENT REFORM

Project (Bank-Financed) Completed Projects

Project (LN 43 0 lo), Closed December 2005

Early Childhood Development

Ratings Outcome Sustainability ID Impact

S L su

Social Expenditure Management Project (LN45350), Closed December 2003

Ongoing Projects

Kapitbisig Laban sa Kahirapan- Comprehensive and Integrated Delivery o f Social Services (KALAHI CIDSS)

S

Latest Supervision (ISR) Ratings

Outcome Sustainability Implementation Development

Progress (IP) Objective (DO) S S

HL

ARMM Social Fund Project Second Women’s Health and Safe Motherhood

Basic Education Project

Reform Proiect

National Program Support for

National Sector Support for Health

su

S S Mu MS

S S

MS S

Second Social Expenditure Management Project (LN 71 1 SO), Closed June 2007

S

36

Annex 3: Results Framework and Monitoring

PHILIPPINES: SOCIAL WELFARE AND DEVELOPMENT REFORM

Results Framework

PDO

To strengthen the effectiveness o f DSWD as a social protection agency to efficiently implement the CCT program (4Ps) and to expand an efficient and functional National Household Targeting System of social protection programs.

Intermediate Outcomes

Component 1

A targeting system to select poor households implemented and functioning efficiently.

Project Outcome Indicators

0 Share o f al l poor households registered in the National Household Targeting System for Poverty Reduction (NHTS-PR).34

0 Share of children 6-14 years o ld in poor beneficiary households attending school at least 85% o f the time. Share o f children 0-5 years old undergoing growth monitoring and check-ups in accordance with DOH Drotocol.

Intermediate Outcome Indicators

0 At least 2 major national programs using the NHTS-PR for selecting their beneficiaries.

0 MIS designed and in operation including integrated data entry application, PMT processing and data management, and sharing capabilities properly functioning.

Share o f poor households registered in the database receiving benefits o f social programs.

Use of Project Outcome Information

0 Yrl-Yr2 - Assess progress in building national database of poor households.

0 YR1-YR5 - Measure the achievement of the POIs and assess effectiveness of targeting system for CCT program.

Use o f Intermediate Outcome Monitoring

0 Assess whether the NHTS-PR i s being used by national agencies to target poor households.

Assess whether the I T infrastructure software and hardware i s being developed to support the NHTS-PR.

Assess whether DSWD i s making progress in the use o f NHTS-PR.

Based on baseline o f poor households in the latest official household data o f 2006 (4.7 mil l ion poor households total).

37

34

Intermediate Outcomes

Component 2

CCT program implemented and functioning efficiently.

Component 3

Key institutional systems on policy formulation, monitoring and impact evaluation and social marketing developed and operationalized

Intermediate Outcome Indicators

MIS developed and functioning to support payments, verification, updates and grievance system.

Share o f beneficiary households receiving 4Ps grants regularly and on time.

Share o f households meeting education conditionalities regularly in accordance with the OM.

Share o f households meeting health conditionalities regularly in accordance with the OM.

Spot checks (for 4Ps) o f schools, clinics, municipal links, and beneficiary households carried out annually.

@Impact evaluation report based on first follow-up survey.

0 Social protection operational framework developed and adopted.

0 Framework for integrated service delivery developed and adopted.

0 Evaluation o f two social protection programs completed and disseminated.

Use of Intermediate Outcome Monitoring

0 Assess the MIS performance

0 Assess pace o f project implementation.

0 Assess that verification system in education and health i s in place and functional.

0 Y2-Y5: Assess progress in program implementation

Results o f the impact evaluation will allow for corrective measures to be undertaken and/or increases buv in among stakeholdes.

0 Policies will provide the analytical basis for sustained implementation o f the targeting system and CCT program beyond 20 13.

Capacity building will ensure efficient implementation o f SWDRP and eventual mainstreaming o f the Project into the whole Social Welfare reform program.

38

ARRANGEMENTS FOR RESULTS MONITORING

Overall Outcome Indicators

1. Overall Outcome Indicators will primarily be monitored using administrative data from the new management information system for the National Targeting System and for the 4Ps. Other social entities using the database of poor households will report the selected beneficiaries to DSWD to keep track o f use o f the database.

Component 1

2. The results indicators for Component 1 (see table above) would be monitored as part o f on- going supervision, relying primarily on the program’s management information system data from the program. DSWD will make semi-annual or annual reports to monitor the indicators.

Component 2

3. The results indicators for Component 2 (see table above) would be monitored as part o f on- going supervision, relying primarily on the program’s management information system data from the program. DSWD will make semi-annual or annual reports to monitor the indicators. The results indicators for Monitoring and Evaluation o f this component, would primarily be monitored using a set o f household surveys. There are two follow up surveys to be taken after 12 months, and after 36 months o f the baseline. The surveys will collect comprehensive data on welfare measures, consumption and income education enrollment and school attendance, growth monitoring of children and health care and anthropometric measures (for malnutrition), among other variables. DSWD will produce semi-annual or annual reports to monitor the indicators.

Component 3

4. prepared by DSWD.

The results indicators for Component 3 will be monitored based on the annual reports

39

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Annex 4: Detailed Project Description

PHILIPPINES: SOCIAL WELFARE AND DEVELOPMENT REFORM

Component 1: Support to the National Household Targeting System for Poverty Reduction (NHTS-PR) (US$64.5 million - IBRD)

Objective

1. The objective o f this component i s to support the DSWD in implementing the National Household Targeting System for Poverty Reduction (NHTS- PR) which will be used by key social assistance and social protection programs o f DSWD and other government agencies to better target the poor. The national targeting system consists o f a set o f uniform, objective and transparent criteria to select the poor for the different programs thus reducing the overall cost o f targeting and improving coordination, efficiency and effectiveness o f social programs. The National Targeting System i s currently being implemented by DSWD in phases, starting from the poorest municipalities nationwide. The main outcome i s the development o f a standardized database o f potential poor beneficiaries to be shared electronically or through other means with social programs including the conditional cash transfer program, Pantawid Pamilyang Pilipino Program (4Ps) and other programs.

2. The implementation o f the National Household Targeting System i s a key component o f the National Social Welfare and Development Reform agenda o f the GOP, as reflected in the commitment for the Development Policy Operation (DPO) project approved by the Board o f the World Bank in December 2008. DSWD has already made considerable in-roads in developing an objective and transparent targeting system as shown by rapid implementation o f such a system in selecting beneficiaries for the conditional cash transfer program (4Ps) to date. This has been undertaken with considerable World Bank techical assistance. DSWD i s implementing the NHTS nationwide and by 2009 i s planning to assess about 8.3 mill ion households. The final outcome wi l l be a database including all the poor households nationwide3’ for the major social programs. This i s a major step forward, as in the past a variety o f targeting instruments have been used by central government agencies and Local Government Units (LGUs) - including s e l f targeting, geographical targeting, community based monitoring systems and unverified means tests. Reasons for the proliferation o f targeting systems have been a lack o f coordination among central government agencies and a lack o f clarity o f responsibilities in this regard with decentralization. International experience has shown that a single national system with uniform and simple criteria can be created in countries as diverse as the Philippines, such as Brazil, Mexico, and Colombia.

3 . The expected outcomes o f this component include (i) the creation o f a uniform and transparent database o f poor households that have been screened through an objective, homogeneous and clear mechanism; and (ii) the improved capacity o f DSWD to share that database with other institutions and social programs and to maintain that database and fully update it every four years.

39 About 4.7 million poor households representing 27 percent o f the total households in the Philippines in 2006.

44

4. This project component will have two subcomponents: (1) Implementation o f the Targeting Mechanism, which will support the implementation o f the standardized targeting mechanism for households covered nationally; and (2) Implementation Support for NHTS-PRY which will include: (i) support the National Project Management Office (NPMO-NHTS), (ii) development and implementation o f a Management Information System (MIS), and (iii) spot checks for targeting.

Subcomponents and activities

1.1 Implementation of Targeting Mechanism (USS54.8 million - IBRD)

5. The objective o f this sub-component is to support the current implementation o f the NHTS- P R as a standardized targeting mechanism in selected areas. The rules, procedures and methodology are defined by D S W D at the central level, following the successful experience o f the targeting mechanism used for the roll-out o f the conditional cash transfer program (Pantawid Pamilyang Pilipino Program - 4Ps) to date. The operation i s decentralized at the regional level through the regional offices o f DSWD. At the municipal level there i s coordination with LGUs for the logistics o f collecting information and coordinating with barangays. The methodology followed and procedures are described in the Operations Manual.

6. The NHTS-PR includes targeting in two steps as follows:

0 The first step involves a selection o f poor provinces based on poverty incidence according to Family Income and Expenditure Survey (FIES 2006), and selection o f municipalities based on poverty incidence according to Small Area Estimates (SAE 2003). Both statistics are produced by National Statistical Coordination Board (NSCB). The second step involves a household assessment through the application o f a Proxy Means Test (PMT) methodology used to predict income o f households o n the basis o f household composition, education, socio-economic characteristics, housing conditions, access to basic services, assets, tenure status, and regional variables. The information for estimating the P M T is gathered in a 2-page questionnaire, the Household Assessment Form (HAF), with relevant variables that predict income o f households. ,The P M T model was estimated using the dataset o f the Family Income and Expenditure Survey (FIES, 2003) combined with the Labor Force Survey (2003). By August 2009, there were about 800,000 poor households registered in the database selected in the poorest provinces and municipalities.

0

7. The information to calculate the PMT i s then to be collected following a number o f data collecting strategies such as survey sweeping (Le., al l residents in a given area are surveyed), on- demand application, or a combination o f the two methods. The methodology to be used depends on the poverty incidence and the u r b d r u r a l classification o f the areas to be surveyed. The information i s collected following strict procedures to guarantee quality and i s closely supervised daily. Once the information i s gathered, it i s encoded online in the data entry application developed by DSWD at the lowest possible level where internet connections are available, either at the regions or at the municipalities. The application includes validation routines to reject inconsistent or wrong information to be verified back in the field. For validated information, a PMT model i s calculated to classify the households according to the level o f poverty based on latest official available provincial poverty thresholds produced by the NSCB. When the l i s t o f poor households has been generated,

45

the results will be validated and then the database can be shared with other agencies. The other institutions can use the database to re-certify or to register new beneficiaries for their programs.

8. This targeting method has been used in other middle income countries such as Mexico, Colombia, Chile, and Costa Rica where reported income i s hard to verify as a large number o f people (over 50 percent o f workers) work in the informal sector and there are few databases available to cross check incomes or assets.

9. The project will support the implementation o f the NHTS-PR financing the assessment o f 8.3 mil l ion households na t i~nw ide .~ ' The implementation i s currently being carried out in three phases. The first phase covers remaining municipalities in the 20 poorest provinces not covered before, to complete enumeration in those provinces. It will also cover munici alities with poverty incidence higher than 60 percent and poverty areas in highly urbanized cities! The second phase will cover municipalities between 50 and 59 percent o f poverty incidence in all provinces apart f rom the 20 poorest provinces and component cities.42 The third phase will cover municipalities below 50 percent o f poverty incidence. The strategy for data collection in the specified areas i s described in the Operations Manual. The operation o f the NHTS-PR i s described in Chart 1 below.

10. This subcomponent will finance household assessments o f 8.3 mil l ion households, maintenance o f the database, hardware for processing information, the issuing o f identification (ID) cards for poor households, and a household survey to conduct a benefit incidence analysis to measure targeting outcomes.

Chart 1. Operation o f the National Household Targeting System for Poverty Reduction

40 It i s estimated that about 8.3 mil l ion household assessments w i l l result in about 4.7 mi l l ion households being classified as poor in the database. 41 Highly Urbanized Cities - Cities wi th a minimum population o f 200,000 inhabitants, as certified by the National Statistics Office, and with the latest annual income o f at least 50 Mi l l ion Pesos based on 1991 constant prices, as certified by the city treasurer. 42 Component Cities - Cities, which do not meet the above requirements, shall be considered component cities o f the province in which they are geographically located. If a component city i s located within the boundaries o f two or more provinces, such a city shall be considered a component o f the province where it used to be a municipality.

46

1. Geographical Selection o f poor

provinces/ municipalities based

2 . Collection of information using

HAF to all households living in selected poor areas

1 Random daily I supervision

3 . Processing of HAF online indata entry

validation routines at because of mistakes /

wrong information need to be sent back to the field for

I

4 , Processing of PMT -U poor households in NPMO to select

5 . Produce a l i s t of poor households to be validated and then it can be shared with

other social agencies

6 , Registration of poor

householdslmembers of poor households as beneficiaries of

social programs

I I

1.2 Implementation Support for NHTS-PR (US$9.7 million, IBRD)

1.2.1. Program Management Office for NHTS-PR

11. There i s a National Project Management Office (NPMO-NHTS) within the structure o f DSWD dedicated exclusively to implement the targeting system. Composed o f technical staff o f various disciplines, the NPMO-NHTS performs policy-making functions and ensures the execution of tasks and activities o f the NHTS-PR. The NPMO-NHTS i s headed by a National Project Director and assisted by a Deputy. The regular operations o f the NHTSPR i s supervised by the National Project Manager. The NPMO-NHTS has a team o f targeting, training, social marketing, finance specialists, statisticians, data analysts, and MIS systems engineers. The NPMO-NHTS, under a decentralized operation through the regional field offices o f DSWD, carries out all the steps in the implementation of the targeting system. The number o f staff and consultants to implement the system are about 40 people during 2009 and beyond. The specific functions and responsibilities are described in the Operations Manual for NHTS-PR.

12. technical assistance, and vehicles to support the implementation o f the NHTS-PR.

This activity will finance staff o f the NPMO-NHTS, training, social marketing, specialized

1.2.2. Development and Implementation of a Management Information System (MIS) for NHTS-PR

13. This activity will support the development and implementation o f an MIS for the NHTS-PR, which i s critical for i t s accurate and effective use. The system will support all steps o f the targeting mechanism including data collection, quality control procedures, validation routines, processing, estimation o f the PMT and selection o f poor households. The main outcome o f the MIS will be to create and maintain a standardized database o f poor households. This activity include: (i) development o f software to support the data collection process and to manage the database; (ii) licenses for the application developed; (iii) procurement o f hardware, software, servers, and data communications for NPMO-NHTS and local offices (municipalities); and (iv) training o f staff to use the system.

47

1.2.3. Spot Checks for Targeting

14. This activity will support the assessment o f the implementation o f the targeting mechanism through quantitative and qualitative spot checks, to provide information about the execution of the different processes in the implementation o f the targeting mechanism. The information will be the basis for analysis and random audit o f the operation o f the targeting mechanism at different levels and among the different institutions involved. The assessments and further analysis will be carried out by an independent institution to add more credibility to the analysis. This assessment will cover the collection process, the processing, the estimation o f PMT, and the sharing and maintenance o f the database. The assessment will cover the NPMO-NHTS, regional field offices, and municipalities.

Component 2: Support to Pantawid Pamilyang Pilipino Program (4Ps) (Total: US$ 444.4 million; IBRD: US$337.4 million, GOP: US$ 107.0 million)

Objective

15. This objective o f this component i s to support the implementation o f the CCT program : 4Ps, in selected poorest provinces and municipalities. The 4Ps i s a CCT program aimed at addressing poverty and supporting improved health and education outcomes o f poor children and pregnant women. The 4Ps provides cash grants to poor households subject to their children aged 0- 14 meeting certain health and education conditions.

16. The conditional cash transfer component constitutes the core element o f the social reform agenda undertaken by DSWD as it seeks to assist poor households with cash transfers to improve their consumption levels while encouraging greater use o f basic and essential public services. Implementing the CCT requires close coordination and active participation from the Departments o f Education and Health to ensure the timely delivery o f quality services, essential for program impact and for households to comply with their conditionalities. The Departments o f Education and Health have participated in the design and preparation o f the CCT program through the National Advisory Committee (NAC). Their active role during implementation and supervision will be equally crucial for the success o f the 4Ps.

17. The expected outcomes o f 4Ps include: for children 0-5 years old, an increase in full immunization rate, and an increase in the number o f children who undergo growth monitoring and check ups; for children 6-14 years old, an increase in net enrollment rate among beneficiary households.

18. The World Bank has supported the D S W D reform agenda and the design and development o f the 4Ps program since 2006. The 4Ps was pi lot tested in 2007 in 3 provinces covering 6 municipalities, 4 rural and 2 urban, benefiting about 6,000 households. The results o f the pi lot test indicated that (i) the targeting system used to select beneficiaries performed well as it produced moderate to l o w levels o f exclusion and inclusion errors; and (ii) that D S W D was capable o f undertaking al l activities o f the operation cycle, according to the operation manual. Households received cash cards f rom the Land Bank o f the Philippines, and they were paid using these cards.

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19. Due to the encouraging effects o f the pre-pilot experience and the need to establish a program that could address immediate needs o f the poor during the recent food price increases while improving health and education outcomes o f children, the GOP decided to accelerate the roll- out o f the 4Ps in early 2008. By March 2009, D S W D was able to assess with standardized targeting mechanism about 750,000 households in the 20 poorest provinces as well as the poorest provinces in other regions; o f which about 43 1,000 households were selected as poor (58 percent) and about 376,000 households were eligible for and registered in the program (87 percent o f poor), that is, poor households according to the P M T and with children 0-14 years o f age. 43 In 2009, the GOP i s increasing the coverage o f the program to cover a total o f one mi l l ion households by the end o f the year.

20. Despite the rapid pace of the expansion, DSWD has been able to ensure that clear and transparent criteria were used to select the provinces, the municipalities to be included within the provinces, and the households to be selected within those municipalities. The ranking o f provinces by poverty incidence using FIES 2006 was used to select the poorest provinces. The poorest municipalities within target provinces were selected using poverty incidence o f Small Area Estimates (SAE, 2000), the latest available data at the time that the selection o f areas was made.44 The household assessment was made using the P M T model to estimate a “score” that indicates the household’s economic welfare.45 The variables to estimate the PMT are gathered in the Household Assessment Form (HAF) which is a 2-page questionnaire with 35 variables including variables about schools and health centers required for the CCT operation. The information i s processed online in the standardized data entry application developed by DSWD. Then the P M T is applied on the data to select poor households. The cut-off points used to define poor are the latest available provincial poverty thresholds published by the NSCB. The final step in targeting o f beneficiaries i s social audit through a community-based validation process o f the identity and eligibility o f beneficiaries.

21. In addition to making significant advances in targeting, D S W D has been able to make regular payments to al l beneficiaries. The Bank provided technical assistance to DSWD throughout this process. Also, the NPMO-4Ps i s currently working on the design o f the MIS for verification o f conditions, the grievance redress system, and updates. These activities along with the required MIS development will pose major challenges for the program for the roll-out o f the verification and grievance redress systems. A monitoring and evaluation system is also being developed and will be phased in as soon as the M I S i s ready to produce project data, budget, and costs. The impact evaluation i s under design and will also be supported under this component o f the project.

43 The implementation was done in 4 batches over a 10 month period. The f i rs t and second batches covered the poorest provinces and the third and fourth batches covered poorest provinces in non-poor regions in order to have regional representation.

In September 2008, the 2003 Intercensal Small Area Poverty Estimates (SAEs, 2003) was released, but at that moment the municipalities were already chosen. SAEs were produced by NSCB in cooperation wi th the World Bank.

The P M T model was estimated with a dataset combining the household survey (FIES) and the Labor Force Survey (LFS). The econometric model uses a multiple linear regression to estimate the household income per capita based on proxy variables such as household composition, education o f household members, socioeconomic and housing conditions, access to basic services, ownership o f assets, tenure status, and regional variables.

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Subcomponents and activities

2.1. 4Ps Grants (Total: US$432.1 million; IBRD: US$325.1 million, GOP: US$107.0 million)

22. This subcomponent will finance 75 percent o f the health and education grants o f the 4Ps in selected poorest provinces and municipalities covering the period CY2009-CY2013. The households covered were selected as beneficiaries o f the program, following a standardized targeting mechanism with a rigorous quality control process. The transfers are being paid b DSWD to poor and eligible households living in the selected poor provinces and municipalities. Selected households will receive the cash transfers for up to 5 years subject to the eligibility criteria and the compliance with the conditionalities. Following the successful practice o f other CCT programs, the 4Ps includes two kinds o f transfers: one related to health and one related to education.

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Heal th Grant. Poor households with children 0-14 years o ld and/or pregnant women will be eligible for a health transfer currently set at PhP 500 (US$1 1) per household per month (for a period o f 12 monthdyear) regardless o f the number o f children 0-14 years old. The health transfer requires that households fulfill the following conditionalities: (i) al l children 0-5 years old should attend a health center or rural health unit to get the services according to their age, as established by the Department o f Health (DOH); (ii) pregnant women must attend a health center or rural health unit according to D O H protocol; (iii) all children 6-14 years o ld should comply with the de-worming protocol in school; and (iv) for households with children 0 to 14 years o ld the household grantee (mother) and/or spouse shall attend family development sessions at least once a month.

23. As in other countries with CCT programs, the health transfer size i s flat regardless the number o f eligible children. This scheme has proven to be effective in promoting good health and nutrition practices within households, improving nutrition status o f infants, and increasing utilization o f health services.

24. Education Grant. Poor households eligible for the education grant are those living in selected areas with children 6 to 14 years old. The education transfer i s PhP 300 (US$6) per month (for a period o f 10 monthdyear), up to a maximum o f 3 children. Beneficiary households will receive the education transfer for each chi ld between 6-14 years o ld so long as they are enrolled in primary and secondary school and maintain a class attendance rate o f 85 percent every month.47 The DSWD is also commencing implementation o f cash grants to 3-5 year olds who regularly attend day care (in cases where the household has less than the cap o f 3 children in elementary

25. Households with both children younger than 5 years o f age and children 6-14 years o ld will receive the two transfers in one payment if conditionalities are met, according to the number and age o f their children. Both transfers will be conditional on compliance with specific conditionalities, which should be met independently. Households will receive each transfer for up to

46 Currently these include 160 municipalities/cities listed in the Project Implementation Plan selected by the Borrower, where such l i s t may be revised from time to time with the prior approval o f the Bank. 47 This translates into no more than 3 days o f unjustified school absence per month. 48 The Bank project w i l l defer support o f this grant until further assessment o f the viability o f this conditionality, while supporting such an assessment.

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five years if they comply with the conditionalities as established in the Operations Manual. Table 4.1 describes the different types o f households and transfers received according to the 4Ps database.

26. As the 4Ps CCT program i s being newly rolled out, this project, along with World Bank and other Technical Assistance, is supporting the phased implementation o f a fully computerized payment verification system4’. Phased implementation which is underway, i s scheduled to lead to full implementation o f verification linked to the payment database by mid 20 1 0.50

27. As a transitional measure until June 30, 2010, when full implementation o f verification linked to the payment database is expected to be in place, the project will support the beneficiary grants that have been targeted to the poor beneficiaries for education. From the commencement o f the program these grants have been provided to targeted poor beneficiaries; payments have been on the basis o f declared student enrollment at the outset o f the program; and school attendance has been regularly monitored by schools.

28. The average transfer per household under 4Ps i s estimated at about 23 percent o f the estimated average annual income o f households (Table 4.1). This proportion is in the range o f those used in other successful CCT programs in the Lat in American region - amounts that have been proven to have a sufficient incentive for families to send their children to school and to regularly attend chi ld growth monitoring sessions, yet sufficiently l o w to avoid distorting labor market decisions. In Mexico (Oportunidades), the transfer i s about 21 percent o f total annual household expenditures; in Colombia (Familias en Accibn), i t represents about 15 percent o f minimum wage; and in Nicaragua (Red de Proteccion Social) i t represents about 17 percent o f total annual household expenditure^.^^ Impact evaluations o f these CCT programs have shown important positive impacts on family investments in children’s human capital. O n the other hand, a very l o w transfer, such as that under the Honduras CCT program (PRAF) representing less than 5 percent o f average per capita consumption, showed relatively less impact on fami l ies’ human capital investments according to the impact e ~ a l u a t i o n . ~ ~

This entails, upon identifying beneficiaries, associating them to schools and clinics, manually recording attendance at 49

schools and clinics, developing and rolling out a computerized MIS system (Component 2.2.2), encoding attendance through the MIS system, and then linking such data to the centralized payment system.

Phased implementation i s scheduled to have manual recording o f attendance in place by 432009, computerized recording o f such attendance rolled out commencing Q 1 20 10 and full implementation o f verification linked to the ’’ IFPRI (2005). Impact Evaluation o f a Conditional Cash Transfer Program. The Nicaraguan Red de Proteccion Social. Maluccio, J. and Flores, R. Research report 141. Washington, D.C. ’* The low size o f the transfer had no significant impact particularly in household consumption. IFPRI (2003) Sexto Informe -Proyecto PRAFIBID Fase II: Impacto Intermedio, Washington, D.C., July.

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ayment database by end o f 4 2 20 10

Table 4.1: Types of eligible households and grants received by 4Ps beneficiaries

Types of Households Share Share (YO) Average annual Health Education Total Total grant as (YO) of total of eligible income annual annual annual % of average households househol& household grant grant grant annual income

PhP” PhP PhP PbP household

HH with only 0-5 years old 20 23 43,148 6,000 6,000 15 HH with 0-5 years old plus 1 child 6-14 12 14 50,260 6,000 3,000 9,000 20 HH w t h 0-5 years plus 2 chldren 6- 14 12 14 52,981 6,000 6,000 12,000 25 HH with 0-5 years old plus 3 or more Ch 6-14 15 17 52,812 6,000 9,000 15,000 32 HH with only 1 child 6-14 years old 10 12 49,3 15 6,000 3,000 9,000 20 HH with only 2 children 6-14 years old 9 10 53,879 6,000 6,000 12,000 25 HH w h only 3 or more children 6-14 years old 8 9 57,490 6,000 9,000 15,000 29 HH with no children 0-14 years old Total 100 100 50,384 10,630 ’* 23” Source Dakatase of4Ps potential beneficiaries as of Nowmter 2008. N d e x ” Avaage estimated incane o f 4 R beneficiary househdds, from the F%lT model. ‘ I h ~ s corerponds closely to the avaage household expenditure o f the a m e haseholdcategoriesfiomthetwopouest deci lsintheFJES 2006.

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i d . Figures r e f a to averages weghted ly share ofeligible households. Computations made at hmseholdlevel

Compliance Verijication System

29. The compliance verification system for health and education will be done based o n quarterly reports o f schools and health centers. The reports will be consolidated at the municipal level first and then the processing will take place at the regional level or municipal level if there i s access to the online system. The reporting o f information will be done every quarter, specifying compliance for each o f the three months. For the education grant, the information to be reported i s the non- attendance at school o f children 6-14 years old. For the health grant, the information to be reported is: (i) the non-attendance at health centers o f children 0-5 years old, according to the DOH protocol for their age; (ii) the non-attendance o f pregnant women for check ups according to DOH protocol; and (iii) the non-compliance with de-worming protocols at primary schools o f children 6-14 years old. The attendance to parenting sessions will be monitored quarterly as well. In the Chart 2 below there is a description o f the flows o f verification o f compliance. A detailed description o f verification flows i s in the Operations Manual o f the 4Ps.

Chart 2.

/ -- I ’

- J

L

, P r o c e s s i n g o f -> P a y m e n t 8 b a % i e d 0 0

c a m p - 111__

Compliance Verification System

D i s t r i b u t i o n o f C V F o r m s

_

M o n t h l y M o n i t o r i n g o f

N o n - C o r n p l i a n c e

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30. The Compliance Verification System (CVS) i s a six-step cyclical process going through al l levels - from the national (NPMO-4Ps), regional (Field Office), and down to the city/municipal level. The CVS involves (i) generation o f Compliance Verification forms (by NPMO-~Ps-MIS), (ii) distribution to the schools/daycare centers and health centerdunits (by Field Offices), (iii) monitoring o f non-compliance o f beneficiaries, (iv) collection o f non-compliance reports, (v) processing o f payments, and (vi) updating o f the database prior to the generation o f the updated CV forms for the next reporting quarter.

31. The 4Ps i s governed by an Administrative Order (16/2008) that outlines the program rationale, legal basis and description, and an Operations Manual that provides more detailed operational protocols. I t i s supplemented by a Joint Memorandum Circular (01/2009) defining the institutional arrangements for the implementation o f the program signed by all participating agencies (Department o f Social Welfare and Development, Department o f Health, Department of Education, Department o f Budget and Management, Department o f Finance, Department o f the Interior and Local Government, National Anti-Poverty Commission, and National Economic and Development Authority). In addition, a Memorandum Circular (09/2007) establishes an inter- agency National Advisory Committee and defines i t s roles and responsibilities. Furthermore, Memoranda o f Agreement are signed with all participating Local Government Units that define their roles and responsibilities under the program.

32. The program exit and sanction rules at the individual and at the local government level are detailed in the Operations Manual, as i s the grievance redress system that will lead to such action. The Operations Manual articulates that LGUs found to be non-compliant with the rules and regulations o f the program, or to be misusing or misrepresenting the program, wi l l f irst be subject to up to two warnings and, if necessary, the provision o f technical assistance from DSWD to help rectify the issue. If non-compliance persists beyond this, the case will be referred to the National Advisory Committee and can result in suspension or termination o f the program in the LGU as articulated in the Memorandum o f Agreement with the LGU.

2.2 Implementation Support for 4Ps (US$12.3 million - IBRD)

2.2.1 Support to National Project Management OfJice (IvPMO-4Ps)

33. There i s a National Project Management Office (NPMO-4Ps) within the structure o f DSWD to oversee the whole implementation o f the program. As shown in other CCT programs around the world, a key to program success i s a strong and efficient NPMO-4Ps which i s capable o f developing and implementing all key activities o f the program cycle, including registration o f families, verification o f conditionalities, managing payments, organizing assemblies o f grantees, implementing a grievance system, undertaking monitoring and evaluation and developing and using an MIS system that supports all these operational activities. DSWD made major advances in setting up a NPMO-4Ps that by March 2009 had been able to assess about 750,000 households, organize verification, socialization and registration o f about 3 76,000 households in the program, and process payments through Land Bank to most o f these households. Yet, much more needs to be done to properly set up systems for registration, verification, grievance acceptance and resolution and

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monitoring and evaluation activities. The need to improve the current management systems i s even greater if further expansions are made to the program.

34. DSWD i s proposing a substantial bolstering of the program unit by including cluster coordinators to be in charge o f big regions or areas, appointing regional program managers and adding staff and consultants going to the lowest possible level so as to link with the municipal l inks . A complete set up o f the unit and the staffing requirements needed with functions and responsibilities are detailed in the Operations Manual.

35. This activity will also support the establishment o f a simple and accessible Grievance Redress System (GRS) to capture, resolve and analyze grievances from beneficiaries and non- beneficiaries about the project. This is important to the overall governance and anti-corruption plan associated with this project. (See Annex 15). Based on global experience it is anticipated that most grievances will concern: (i) inclusion and exclusion errors; (ii) payment; and (iii) supply-side problems. To address these and other grievances, the project will support the following:

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a comprehensive Grievance Redress Manual to guide consistent handling o f complaints, establishment o f a two-person Grievance Redress Unit in the NPMO-4Ps and dedicated grievance redress staff at the regional level, These staff will support Grievance Committees established by D S W D at al l levels o f project implementation, establishment of multiple channels to submit grievances, including through the Municipal Link, direct to 4Ps offices or v ia an SMS hotline, email, letter, fax and drop boxes at the Barangay Level, creation o f a Grievance M I S Database, drawing on Complaints Forms that will be widely distributed in target areas, including to beneficiaries, Parent Leaders, barangay captains, service providers and others, communications programs (brochures, posters, etc) to educate the public o n the existence o f the GRS .

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36. The Grievance Redress Unit in the NPMO-4Ps will work to resolve complaints within a set timeframe stipulated in the Grievance Redress Manual. It will also prepare regular reports for DSWD management on the volume and status o f grievances as a means of identifying systemic vulnerabilities in project implementation or design.

37. This support to the NPMO-4Ps will finance consultants at the NPMO-4Ps needed for a speedy and efficient operation, as wel l as training, social marketing, the grievance redress system, technical assistance and vehicles for regional offices.

2.2.2 Development of a Management Information System (MIS) for 4Ps

38. This activity will support the development o f a management information system that will cover all the steps in the operation of the 4Ps program. The system will manage different flows o f information at different levels. The system will operate at the NPMO-4Ps level, regional level and at the municipal level to support the implementation at the lowest possible level.

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39.

e

e

e

0

e

e

40.

The M I S system should have the following integrated modules:

Module of household information. This module will have information f rom the household assessment form and from information processed about eligible households provided by the targeting MIS, This module should also include an option to produce cross tables or queries with al l the information on the HAF questionnaire. Module for registration. This module will update information at assemblies and will produce l i s ts o f registered beneficiary households. Module for verzjkation. A monitoring system for verifying compliance o f conditionalities, controlling payments to beneficiary households, and generating managerial reports and progress indicators. The DSWD, in coordination with the Departments o f Education and Health, will collect the information to verify that beneficiaries comply with agreed conditionalities. Such verification will be completed before D S W D sends to the Land Bank the database with beneficiaries eligible to receive the transfers. This process must be completed every quarter. The system i s based on the principle o f ongoing reviews, updating beneficiary information and compliance o f conditionalities. This module will (i) create/generate school and health center forms for reporting non-attendance; (ii) generate forms to be sent to municipal l i n k s with a l i s t o f beneficiaries by each barangay; (iii) receive nodattendance reports f rom schools and health centers to update database o f beneficiaries; (iv) produce final lists; and (v) produce reports. Module for payments. This module will control and produce payments to beneficiary households based on reports o f compliance. I t will also produce detailed payment information to be given to mothers.

Module for updates. This module will allow the database to be updated with details o f newborn children, change o f address, change o f school or health center, households moving out o f the barangay, deaths, etc. Module for complaints/grievance redress system. This module will include the process o f verification o f complaints such as generating forms for complaints, updating and processing the information, assigning a tracking number to every complaint, and a person responsible for solving it, and producing reports o f complaint resolution.

This activity will finance the hardware and software, network connections, as well as training needed to run and support the operation o f the program.

2.2.3. Monitoring and Evaluation of 4Ps

41. This activity will support monitoring and evaluation o f 4Ps with a view to building DSWD’s capacity in these areas as a step towards more evidence-based planning and pol icy - one o f the objectives o f DSWD’s reform agenda. More specifically, this activity will assist in the design and implementation o f (i) a spot check methodology to monitor 4Ps operation that will produce the information required for informed and timely policy decisions and adjustments; (ii) a methodologically rigorous impact evaluation on the basis o f which the Government and the public would have evidence o f the program impact, key for program sustainability; (iii) support to an Independent Monitoring and Advisory Committee; and (iv) regular monitoring o f the whole project.

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2.2.3. I Spot Checks for 4Ps

42. The objective o f this activity i s to annually assess the implementation o f the program at different levels and with al l agents involved. The system o f spot checks seeks to ensure that the program is functioning as intended and to trouble-shoot any process problems that arise. The spot checks will assess whether beneficiaries receiving the grants meet the eligibility criteria set out in the Operations Manual, whether beneficiaries are complying with the requirements o f the CCT program, and whether grants were received by eligible beneficiaries. Regular monitoring through spot checks will be undertaken to validate the range o f players involved in the delivery o f the 4Ps program: namely beneficiaries, schools, health centers, parent leaders, municipal l inks, municipal, regional and central offices. The actual implementation o f the spot checks and the preparation o f reports verifying these data against program administrative records wil l be carried out by an independent, external party chosen on the basis o f i t s credibility and technical capacity. By combining different techniques o f data collection (surveys, focus groups and structured interviews) and analyzing the 4Ps administrative data, this external party i s expected to inform the program administration on how wel l specific operational aspects o f the program are functioning and where adjustments are needed. Beyond its technical merits, spot checks are key to enhancing the governance, transparency, and accountability under this program. (See Annex 15).

43. Given the institutional complexity o f the 4Ps and the multiple actors that are involved at different stages, the spot checks for 4Ps will investigate the sequence o f procedures involved in the participation o f an individual in the program. The spot checks system i s based on samples o f municipalities and beneficiaries.

44. For the f i rst two years o f project implementation, semi-annual monitoring will be carried out through a comprehensive spot check system to ensure that the program i s functioning and to trouble-shoot any process problems that may arise. On the third year o f project implementation, the frequency o f the spot checks will be done on an annual basis. Once the 4Ps program i s established, and operating for some period o f time with the verification o f compliance systems in place, the spot checks will explore different features o f the program. Possible areas that could benefit f rom a spot check assessment include:

e

e

e

e

Assessment o f knowledge: how different parties involved understand the program rules and incentive structure; Assessment o f the process o f verifying non-compliance with conditionalities, ensuring that school attendance and the use o f health services are accurately recorded and reported. Assessment o f the process o f updating the database through the reports o f updates from beneficiaries. Assessment o f the payments process including different alternatives used for making payments to beneficiaries. This includes comparing information about beneficiaries’ age and status against payments calculated and paid. The payments made need to be compared with verification o f compliance. Effectiveness o f the system o f grievances and complaints in solving conflicts. Assessment o f service provision: effects o f the increased demand for education and health services on the ability o f providers to respond to it. Assessment of the implementing agency at central, regional and local levels.

e e

e

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2.2.3.2 Evaluation of Project Impact

45. The main objective o f the impact evaluation i s to address the issue o f whether the 4Ps has any significant statistical impact on the main project outcomes along the dimensions o f health and education o f children, and poverty reduction. In particular, the evaluation would quantify whether the 4Ps program had any impacts on the fol lowing outcomes: (i) Health: (a) pregnant women getting adequate medical care during and after their pregnancy and delivery; (b) stunting among children aged 0-5 years; and (c) use o f preventive and immunization health services among children aged 0-5 years. (ii) Education: (a) school attendance, enrollment and attainment; and, (b) chi ld labor. (iii) Other: (a) poverty; (b) food expenditures; and (c) expenditures on nutrient-rich foods.

46. and control groups in order to ensure a methodologically rigorous identification strategy.

The impact evaluation will have an experimental design with randomly selected treatment

47. The sample for the impact evaluation has been selected in two stages. First, among selected provinces,53 municipalities were randomly chosen so as to be representative o f the average poverty level o f those covered by the 4Ps program. Second, within each o f the municipalities selected in the evaluation sample, barangays have been randomly selected into treatment and control groups.

48. While treatment barangays started participating in the program in early 2009, the ro l l out of 4Ps program will be frozen in control barangays until the completion o f the first fol low up survey. The experimental design o f the impact evaluation will allow the researchers to quantify evidence regarding i t s impact and/or guidance for subsequent program’s improvements.

49. The budget allows for two follow-up surveys, one done after 12 or 18 months and the second after 36 months. This proposal assumes a follow-up survey with a sample size o f 8,000 households, where 4,000 households are in the control group and 4,000 households in the treatment groups. The second fol low up survey will be conducted in Jan 2012.

50. In addition, qualitative information on the program impact and a new supply side assessment will be collected. Among other things, the qualitative assessment will seek to identify social impacts o n women’s empowerment, the impact o f increased public demand on the supply o f public services, social and economic spin-offs from the formation o f the beneficiary groups. The facility surveys will serve for verification purposes (of information such as attendance where self-reported household data could be misleading) but also to assess whether there are any pressing issues that emerge due to the increased demand on health and education services.

2.2.3.3. Monitoring

The objective o f this sub-component i s to support monitoring o f the whole project, including preparation o f regular quarterly and annual reviews, independent performance tracking by c iv i l

53 The sample for the impact evaluation has been drawn from the municipalities where the program had not yet been introduced as o f October 2008. From the 11 provinces available, 3 provinces were excluded because o f security factors. From the remaining 8 provinces, 4 provinces were chosen to span al l three macro areas in the country (North, Visayas and Mindanao).

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society groups and monitoring by internal audit services. Regular monitoring will be complemented by independent oversight by an Independent Monitoring and Advisory Committee comprising eminent members o f civil society.

Component 3: Building Institutional Capacity to Lead in Social Protection (US$2.1 million - IBRD)

Objective

51. The NHTS-PR and the 4Ps basically serve as platforms for the pursuit o f the broader sectoral reform agenda that aims to develop the DSWD as a leader o f social protection. Conversely, the sustainability o f the targeting system and 4Ps would be contingent on creating an enabling national policy support for their eventual adoption as core components o f the reform.

52. This component would support the strengthening o f basic institutional capacity o f DSWD to strengthen i t s leadership role in social protection. It focuses on enhancing the Department’s core competence on policy analysis and strategic planning; monitoring and evaluation; social marketing; knowledge management/learning development; and it also builds capacity for financial management and internal audit to strengthen internal controls.

Subcomponent and activities

3.1. Policy and Strategy (US$ 0.6 million - IBRD)

53. The Philippine Government has recently created an inter-agency Social Welfare and Protection Cluster to ensure an integrated implementation o f social welfare policies and programs. The designation o f DSWD as the Cluster’s coordinator for operations provides a good opportunity to assert the Department’s role in formulating more responsive social protection policies and plans. This sub-component would assist DSWD to enhance capacity in policy and strategy formulation. To achieve this objective, the Project would support:

1. Policy Analysis and Research. This subcomponent would strengthen the Department’s capacity for undertaking and using policy analysis and research for policy formulation. It will support hands-on trainings, consultations, manual development and other capacity building activities to strengthen the competence o f DSWD to undertake relevant policy analysis based on risk assessment, benefit incidence analysis and research. A medium-term policy and research agenda will be developed in consonance with the priority thrusts o f the reform agenda, including emerging concerns related to operationalizing and sustaining the NHTS-PR and ~ P s .

2. Strategic Planning. This sub-component will also support the formulation, dissemination and adoption o f key strategic plans that would define the operational mechanisms for integrated delivery o f social protection programs and services. Specifically, the formulation o f the following strategic plans will be supported:

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a. National Social Protection Operational Framework. The DS WD has formulated an indicative social welfare and development framework which contains the principles and major thrusts for the integrated delivery o f social protection programs. The indicative framework, which was also adopted by the Social Welfare and Protection Cluster, needs to be further translated into an operational social protection strategy and guidelines. This component would support DSWD in developing this strategy and guidelines in i t s capacity as Secretariat to the National Social Welfare Program. It i s envisioned that such a strategy would provide the strategic mandate for (i) utilization o f the NHTS-PR for other social protection programs/services; (ii) adoption o f the 4Ps as a core social assistance program; and (iii) strengthening partnership with other national government agencies, local government units and c iv i l society organizations for better targeted and integrated local social protection programs.

b. Frameworkfor Integrated Service Delivery. One o f the reform areas o f the Department focuses on achieving better and faster delivery o f i t s four key service delivery models (i.e., community-based or KALAHI-CIDSS, center-based, household-based or 4Ps, and disaster management). While the Department has made progress in individually developing three key service models (KALAHI-CIDSS Project, the center-based operations, and disaster management), it has only recently initiated the 4Ps or household-based service delivery model. This component would assist the Department to develop an integrative framework that would define the linkages o f the four service delivery models to ensure complementation and achieve greater impact in the long run. The integrated service delivery framework would also lay the foundation to ensure further convergence with social protection services o f other agencies.

54. As a preparatory step in undertaking the pol icy and strategy formulation, the DSWD has reorganized the Research Unit under the Planning and Policy Bureau to coordinate the implementation o f this sub-component. The Project would support the hiring o f consultants who would provide expert guidelines, conduct formal sessions and mentor/coach the staff o f the Research Unit to undertake the actual policy and strategy formulation. Some o f the pol icy analysidresearch would entail out-sourcing o f services. The Project would also finance a multi- stakeholders consultation to draw inputs from internal and external stakeholders as wel l as ensure broad dissemination and adoption o f the policies and strategies developed.

3.2. Implementation Support (US$ 1.0 million - IBRD)

55 , This sub-component would support institutional strengthening o f the Department in three functional areas, which are essential for effective implementation to achieve the project development objectives. This entails the strengthening of (i) social marketing to ensure full transparency and enhance understanding o f social protection strategies and programs among relevant stakeholders; (ii) knowledge management and learning development to build on the experiences from implementation o f 4Ps and the NHTS-PR as well as program assessments and impact evaluations; and (iii) financial management to strengthen capacity in step with the scaling up o f the Department’s implementation o f the programs supported by this project.

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56. . Social marketing activities would be undertaken to ensure full transparency in implementation o f the project and to mobilize public support for policy and program initiatives of the Social Welfare and Development Reform Project (SWDRP). This would support capacity building o f national and regional staff in undertaking social marketing activities and preparing appropriate communication materials (e.g. case studies, video documentation, brochures, etc.). Social marketing activities will be undertaken for three main purposes. Firstly, to ensure information needs o f beneficiaries are met to prevent problems occurring. This includes information o n how beneficiaries are selected, how the payment system operates and how to submit complaints about project implementation and supply-side constraints. I t will also include education programs to mitigate fraud in the payment system and prevent local chief executives from imposing local “taxes” or additional conditionalities on project beneficiaries. Secondly, social marketing activities will ensure transparency and accountability to the public in project implementation. This includes publicizing beneficiary lists and social audit for validation o f target households. The final purpose i s to mobilize public support for policy and program initiatives o f SWDRP. This would include the development o f a sourcebook to enhance capacities o f national and regional staff in undertaking social marketing activities and preparing appropriate communication materials.

57. T o ensure the systematic and timely engagement o f other partners for the social welfare and development reform, the Project would suppor t the setting-up o f knowledge management and learning development networks and modules. The various learning products (e.g. case studies on 4Ps, results o f the impact evaluation, policy advisory notes; operational guidelines) would be developed, packaged and disseminated through learning eventdexchanges, pol icy dialogues and technical seminars. The Social Welfare Institute and Development Bureau (S WIDB) would take the lead in formulating the knowledge management and learning development guidelines. I t i s envisioned that the initial site o f the knowledge management and learning development network would be at the central office.

58. This sub-component would also support the capacity building on financial management, which i s one o f the critical elements for ensuring the Project’s efficiency and social accountability. There i s a need to build the capacities o f the Department’s financial management staff to international standards and to strengthen it in step with the heavy increase in work-load resulting from the implementation o f this large and ambitious program.

3.3. Monitoring and Evaluation (US$0.5 million - IBRD)

59. This sub-component would assist the DSWD enhance capacity in monitoring and evaluation, which will be also among i t s core functions as the leader in social protection. Monitoring and evaluation would be intrinsic to program and policy development as it would track performance o f key programs and policies the results o f which would be used for further program enhancements. W h i l e monitoring systems have been developed for specific programs/projects (e.g. 4Ps and KALAHI-CIDSS), this sub-component would assist in the development o f an integrated or Department-wide monitoring system. The initial activities would involve the review o f existing monitoring systems in various units o f the Department as basis for the development o f the logical framework design, guidelines and protocols for a broader monitoring system.

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60. The initial activities would involve the review o f existing monitoring systems in various units o f the Department as basis for the development o f the logical framework design, guidelines and protocols for a broader monitoring system. The regular staff would be assisted and provided with on-the-job training by consultants to be hired under the Project. The DSWD shall strengthen the Planning and Monitoring Unit o f the Planning and Policy Bureau to coordinate the implementation o f activities on monitoring. Subsequently, actual operations o f the monitoring system would be implemented by the regular staff with mentoring/coaching by the consultant(s). With project support, national and regional staff would also undergo on-the-job training on the use o f the guidelines by undertaking actual program assessments o f at least two major social protection programs

61. The Project would likewise support the development o f the guidelines and operations manual on evaluation which would be led by the Planning and Policy Bureau. The guidelines would draw inputs from a review o f on-going and completed impact evaluation. National and regional staff would also undergo on-the-job training on the use o f the guidelines by undertaking actual evaluation of, at least, two major social protection programs. The results o f the evaluations would eventually feed into program innovations, policy formulation, standard-setting and other decision-making ,

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Annex 5: Project Costs

PHILIPPINES: SOCIAL WELFARE AND DEVELOPMENT REFORM

Financing Plan (US$m): Source BORROWER

Local Foreign Total US $million U S $million U S $million Project Cost By Component

Implementation of the National Household Targeting 56.4 3.6 60.0

Local Foreign Total 107.0 0 107.0

System for Poverty Reduction Pantawid Pamilyang Pilipino Program (4Ps) 439.5 3.9 443.4 Building Institutional Capacity to Lead in Social 1.8 0.1 1.9

Protection

IBRD Total

Total Baseline Cost 497.7 7.6 505.3 Physical Contingencies 0.7 0.8 1.5 Price Contingencies 3.9 0.3 4.2

Total Project Costs' 502.3 8.7 511.0 Interest during construction

Front-end Fee 1 .o 1 .o Total Financing Required 502.3 9.7 512.0

395.3 9.7 405.0 502.3 9.7 512.0

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Annex 6: Implementation Arrangements

PHILIPPINES: SOCIAL WELFARE AND DEVELOPMENT REFORM

1. January 1,2010 to June 30,2014.

Implementation period. The Project will be executed over a period o f about five years, from

2. Proiect coordination and implementation arrangements. The institutional arrangements for project implementation are aligned with the government structure. At the central level, DSWD, DOF, DBM and COA shall be responsible for ensuring that project resources are budgeted for and that project accounts are audited.

3. Proiect Management. The DSWD will be the executing agency for SWRDP and shall have overall responsibility for accounting for project funds and coordinating activities under the project. In DSWD, the Executive Committee chaired by the Secretary (with all the Undersecretaries and Assistant Secretaries as members) shall have oversight responsibility for SWDRP. The Undersecretary for Policy and Programs Group (PPG) will be the Project Director and overall coordinator o f SWDRP. A designated Undersecretary wi l l be responsible for each o f the components o f the Project. Currently, the Undersecretary for Policy and Programs Group i s responsible for Component 1 on Targeting and Component 3 on Building Institutional Capacity while the Undersecretary for General Administration and Support Services Group has been designated as the Program Director for Component 2 on 4Ps.

4. W h i l e overall oversight and management o f SWDRP will be mainstreamed and placed with the office o f the Undersecretary for Policy and Program Group, two discrete implementation units will be supported by the project: (i) the NHTS National Project Management Office (NPMO- NHTS) that will be charged with implementing the National Household Targeting System; and (ii) the 4Ps National Project Management Office (NPMO-4Ps) that will be charged with implementing the 4Ps component.

5. A dedicated National Project Management Office (NPMO-NHTS) has been set up to oversee the day to day management o f the national targeting system, headed by a director. The NPMO-NHTS will consist o f technical staff o f DSWD and consultants with support from regional coordinators and provincial supervisors. The NPMO-NHTS could consist o f 40-50 people depending on the speed o f project implementation during 2009 and beyond. The specific functions and responsibilities wi l l be detailed in the Operation Manual for NHTS-PR. The DSWD has also organized a National Targeting Advisory Group composed o f representatives from the academe, statistical offices, non-government organizations and private sector to provide advice.

6. A dedicated National Project Management Office (NPMO-4Ps) was also established to carry out the day-to-day operations o f the 4Ps. The NPMO-4Ps i s headed by a director and i s composed o f about 40 staff. At the regional level, the DSWD Field Directors assume the overall responsibility for implementing 4Ps with technical support from the Technical Assistance Division and a dedicated 4Ps focal person. At the municipal level, the Department hired one municipal link while the local government uni ts also designated or hired, at least, one full-time staff who serves as counterpart of the DSWD municipal link. At the community level, the school principal and

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midwife have been designated as the education and health focal persons whose primary responsibility i s to ensure verification o f compliance to conditionalities.

7. The DSWD has also organized the Independent Group composed o f eminent persons from the academe, non-government organizations, religious sector and private sector that provides strategic advice and agreed to serve as external monitors o f the Program to ensure transparency and social accountability.

8. The implementation o f Component 3 Building Institutional Capacity to Lead in Social Protection shall be under the direct coordination o f the Undersecretary for PPG with the following DSWD BureausLJnits providing technical management: (i) Planning Service for the policy and strategy sub-component, (ii) Social Welfare Institute and Development Bureau, Social Marketing Services, and Financial Management Services for institutional strengthening subcomponent, and (iii) Planning and Monitoring unit o f Planning and Policy Bureau for Monitoring and Evaluation sub-component.

9. Coordination Mechanism. The 4Ps National Advisory Committee (NAC) was set up in May 2008 to ensure coordination with key government agencies. The N A C i s chaired by the 4Ps Project Director and composed o f representatives from the National Anti-Poverty Commission (NAPC), National Economic and Development Authority (NEDA), Department o f the Interior and Local Government (DILG), Department o f Health (DOH), Department o f Education (DepEd), and National Nutrition Council. The Advisory Committee i s replicated in all regions through the Regional Advisory Committee (RAC) which includes the counterpart o f all the member-agencies o f the N A C and provincial representatives. Similarly, the Municipal Advisory Committee (MAC) was organized in all regions with the mayor as chair and counterpart o f N A C member-agencies.

10. Monitoring and Evaluation o f Outcomes/Results.

Monitoring and Evaluation. M&E procedures and reports are described in Section C.3,

11, Proiect Implementation Plan (PIP). A detailed draft PIP has been prepared by DSWD and will be updated from time to time in agreement with the Bank to guide the execution o f each component and the implementation o f the Project as a whole. The PIP will set forth all operational and procedural steps regarding reviews and approvals o f specific activities, flow o f information, detailed description o f the functions o f Project management and implementing bodies, procurement and financial management arrangements, reporting requirements, and manual amendment procedures.

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Annex 7: Financial Management and Disbursement Arrangements

PHILIPPINES: SOCIAL WELFARE AND DEVELOPMENT REFORM

Executive Summavy

1. Overall conclusion - A financial management assessment review was carried out at the DSWD, the implementing agency, in accordance with the Financial Management Practices in World-Bank-Financed Investment Operations issued by the Financial Management Sector Board on November 3, 2005. The purpose o f the review i s to ensure that there are in place adequate financial management arrangements for the proposed Social Welfare and Development Reform Project ( S W D W or the Project) at D S W D that satisfies the Bank’s OP/BP10.02. Under OP/BP 10.02, the Bank requires the borrower and al l i t s implementing units to maintain financial management arrangements (budgeting, accounting, internal control, funds flow, financial reporting, and auditing arrangements) that are acceptable to the Bank and that will provide reasonable assurance that the proceeds o f the loan are used for the purposes intended.

2. Overall, the financial management system o f DSWD will meet the financial management requirement as stipulated in OP/BP subject to implementation o f agreed actions and mitigating measures. The current weaknesses are as follows: (i) D S W D has st i l l to complete the ro l l out o f the eNGAS, the computerized bookkeeping segment o f the N e w Government Accounting System (NGAS) to the rest o f the regional offices. At present, eNGAS has only been implemented in the central office and in some regional offices. The completion o f the ro l l out o f the eNGAS to al l offices has been interrupted in 2008 because o f certain upgrading to the eNGAS done by COA; (ii) The Commission on Audit (COA) has issued qualified audit reports on DSWD’s 2004 - 2007 financial statements due to the fol lowing issues involving noncompliance with prescribed internal accounting controls and procedures such as the following among others: (a) Non-recording o f donated land, misrecording o f the land value; (b) unliquidated funds transferred to Non-government OrganizationsPeoples Organizations (NGOsPos), Local Government Units (LGUs) and National Government Agencies (NGAs); (c) Existence o f difference between the book and bank balances o f the cash in bank account due to failure o f some regional offices to prepare bank reconciliations; (d) Balances o f some regional offices’ inventory accounts not reconciled with the physical inventory reports due to property unit’s failure to maintain an accurate and complete record o f purchases and issuances; and (e) overstatement o f the balance o f liability accounts due to failure to adjust long outstanding undocumented payables. Based on the COA’s June 30, 2008 audit report on the status of the actions taken by DSWD on prior years’ issues, DSWD already made significant progress in addressing the issues reported by COA. There are st i l l remaining issues that are s t i l l to be completely resolved by the field offices and suggested actions to be approved by COA.

3. The assessed financial management risk o f the Project before the mitigating measures i s considered substantial. The residual risk would be moderate after the proposed mitigating measures described below are implemented and have shown effective impact. The factors supporting this conclusion and the significant observations and related existing and proposed mitigating measures are summarized below.

4. NGAS and eNGAS - The budgetary controls, accounting procedures and internal controls prescribed by C O A under the N e w Government Accounting System (NGAS) are not considered

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adequate because there are certain internal controls that are found only in various C O A memoranda and circulars, and laws and regulations. The Australian Agency for International Development (AusAID) with i t s grant to the Philippine Government i s working with the Department o f Budget and Management (DBM) for the improvement o n the government’s internal controls through the development o f a National Guidelines on Internal Controls (NGIC) manual. COA, in i t s audit o f the agency’s financial statements, reported certain instances o f non-compliance with the internal controls as described above. The bookkeeping segment o f N G A S i s computerized and i s referred to as electronic N G A S (eNGAS). D S W D has s t i l l to ro l l out o f the eNGAS to al l its regional offices, which i s expected to be completed in 2010. Due to the absence o f a functioning computerized accounting system in al l offices, yearly there were always reports by C O A o f subsidiary records not properly maintained and reconciled with the general ledger, cash balances not reconciled with the balances o f depository banks, etc.

5. Internal Controls and Internal Audit - DSWD’s internal audit service (IAS) unit i s assessed to be weak in view o f the limited scope o f coverage and the lack o f adequate training o f the staff to carry out the internal audit function in accordance with international standards. Internal audit function is a key activity to help improve the control environment and facilitate greater reliance on financial management systems. The internal audit function was authorized under the Internal Audit Code and under Administrative Order N o 70 o f April 2003 requiring al l government offices, local government units, and government corporation to organize an IA service in their respective organizations. At present, the effective coverage o f internal audit throughout the national government is minimal. Most o f the internal audit units o f the agencies are understaffed with inadequate sk i l ls and resources to perform i t s mandate. Besides, internal audit methods and focus require major upgrading in l ine with modern practices. Internal control systems remain weak and relatively ineffective, which leaves the system open to leakagedfraud. Technical Assistance funded by the Bank was provided to the Presidential Anti-Graft Commission (PAGC) through IDF Grant to help expedite this process by developing appropriate audit methodologies. A generic audit manual was produced under this grant which will then be customized and used by government agencies.

6. COA’s Reports on DSWD’s 2004 to 2007 financial statements - There were issues reported by C O A in its audit o f D S W D ’ s financial statements such as incomplete maintenance o f subsidiary records o f inventories in field offices and non-reconciliation o f the results o f the physical count, long outstanding accounts payable not supported with complete documents not closed, certain bank accounts not reconciled with the balances reported by depository banks, long outstanding cash advances to NGOs/Pos, LGUs, NGAs, etc. These resulted to C O A issuing qualified opinions on the annual financial statements o f D S W D for 2004 to 2007. Based on the COA’s June 30, 2008 audit report on the status o f the actions taken by DSWD on prior years’ issues, D S W D made significant progress in addressing the issues but there are s t i l l issues that remained to be resolved. DSWD also reported that some o f the actions require approval by COA. There is also the challenge o f h o w to stop the same issues that were supposed to have been resolved from occurring again in the fol lowing year.

7. Nature of the project -The components 1 and 2 o f the project involve targeting o f beneficiaries and transfer o f funds to selected beneficiaries based on a targeting mechanism established under the Project. The following are the r isks identified: (i) Inclusion or exclusion errors exist in the targeting process considering the wide geographical reach and involving very remote

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areas; (ii) The high level o f political interference in some weak local authorities with poor governance structures that may exert undue influence on the targeting process; (iii) The reliability and safety o f the funding channel considering the l imited availability o f the banking system in some remote targeted areas; (iv) The staff-complement in D S W D and other agencies not being able to immediately cope with the processes required if there i s an unreasonable pressure from higher government officials to speed up the implementation o f components 1 and 2; (v) The adequacy of the number o f dedicated staff both in operations and finance to ensure compliance by beneficiaries o f conditionalities and accuracy o f the funds to be transferred; and (vi) Readiness o f the management information system to handle al l the unique processes o f these two components including the grievance monitoring mechanism.

8. Mitigating measures - The mitigating measures that DSWD has undertaken and committed to undertake to reduce the risk described above or minimize if not prevent the issues reported by C O A from occurring in the Project transactions are as follows:

i.Engagement o f independent reputable audit consultants no later than 6 months after loan effectiveness, with qualifications and terms o f reference acceptable to the Bank, which will provide capacity building to IAS o f DSWD, including hands-on training to IAS in the conduct o f semi-annual review o f the project for at least two years, starting with the second semester after the date o f the loan agreement. The f i rst semi-annual audit should include a baseline assessment o f internal controls (both operational and financial) o f DSWD. The engagement shall include the customization o f the Generic Internal Audit Manual and, on the j o b training to the internal audit staff of D S W D from risk mapping, planning to execution and reporting (semi-annual review o f the Project). Starting f rom the third year o f the project, the IAS shall perform the internal audit function o f the Project.

ii.Fil1 the key vacant position in the Internal Audit Services (Operations Audit Head) with qualified staff no later than five months o f loan effectiveness.

iii.Maintenance o f separate books o f accounts for the project and submission o f annual audited project financial statements, which shall include a statement o f financial position, a statement o f financial performance, a statement o f changes in net assetdequity, and a cash flow statement and the notes to the financial statements.

iv.Maintenance o f a Designated Account o f the Project in a commercial bank acceptable to the Bank. A project Peso bank account shall also be opened solely to pay for Peso expenditures under the Project.

v.Unaudited quarterly Interim Financial Reports (IFR) shall be submitted 60 days after the end o f each quarter to the Bank and to C O A to enable C O A to do progressive audit to ensure t imely submission o f audited project financial statements.

vi.Creation o f a Project Management Office staffed with adequate number o f qualified personnel. W h i l e the processing and recording o f the Project transactions will be mainstreamed using the N G A S and eNGAS, additional qualified finance staff have already been hired whose function shall mainly be to review the accuracy and completeness o f the list o f beneficiaries and the

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related grant amounts before funds are deposited into the commercial banks for release to the beneficiaries. A dedicated FM group for the Project shall be established, including the hiring o f a FM officer and key FM staff no later than five months o f loan effectiveness. Additional finance staff shall be hired during project implementation based on a continuous assessment o f the volume o f work brought by the implementation o f the 4Ps. The Assistant Secretary and the Director for Finance shall be responsible for the financial management o f the Project.

vii.A grievance redress system shall be implemented under the project to ensure that any issues are immediately processed and addressed.

viii.An Operations Manual (OM), acceptable to the Bank, shall be adopted under the Project to fully describe the policies and procedures and the various reports to be produced. The O M shall include a section on financial management for the guidance o f a l l concerned un i t s in DSWD and other participating agencies.

ix.DSWD adopted a time-bound plan to complete the ro l l out o f the eNGAS to al l regional offices. This plan shall be submitted to the Bank prior to appraisal completion. Status o f the ro l l out shall form part o f the quarterly IFR.

x.DSWD adopted a time-bound plan to address al l the outstanding issues reported by C O A in its audit report on the 2007 financial statements o f the agency. This time-bound plan that shall be submitted to the Bank before appraisal completion. Status o f the implementation o f the time- bound plan shall form part o f the quarterly IFR.

xi.DSWD shall not later than January 3 1 and July 3 1 in each year, commencing July 3 1, 2010, and until July 31, 2012, and thereafter, not later than July 31 in each year, commencing July 31, 20 13, carry out spot checks under terms o f reference acceptable and with a minimum coverage satisfactory to the Bank, to verify (a) that Beneficiaries receiving grants o f the Project meet the eligibility criteria set out in the Operations Manual o f the Project; and (b) that the Beneficiaries receiving grants under the Project are complying with the requirements o f the CCT Program as set out in the Operations Manual.

9. Funds flow arrangements for the Project - The funds f low from the World Bank to the Bureau o f Treasury’s account at the Bangko Sentral ng Pilipinas (Central Bank o f the Philippines). After approval by the Department o f Budget and Management (DBM), through the issuance o f a Notice o f Cash Allotment (NCA), funds f low to the DSWD’s Designated Account (DA) maintained in an acceptable depository government commercial bank. A project Peso account shall also be opened at DSWD central office to pay for Peso based expenditures. The traditional basis for disbursement (Statement o f Expenditures (SOE) or full documentation) will be used in this project. Regional offices shall submit the SOEs to central office monthly and central office to consolidate a l l SOEs to support the withdrawal applications. For component 2, liquidation o f the advance to the Designated Account shall be immediately based on the amount deposited into a commercial bank for credit to the bank accounts o f the household beneficiaries. Transfer o f funds to the beneficiaries under 4Ps shall be done under following arrangement: D S W D will transfer funds to the Land Bank o f the Philippines (LBP) funds for the beneficiaries. L B P in turn will release the funds to the beneficiaries over the counter upon presentation o f the 4Ps identification card, issued by DSWD, or

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deposit the same to each o f the account o f the 4Ps beneficiaries maintained with L B P for those who have opened a dedicated account with the LBP. Any other conduit in the channeling o f funds to the beneficiaries that will be identified during project implementation shall have prior approval by the Bank.

Coun trv Financial ManaEemen t Issues :

10. Perceived high corruption in the country - The international institutions monitoring corruption have rated the country’s corruption as high. This perception o f the existence o f high corruption in the country puts any investment in a certain degree o f risk.

11. To assist the President in the campaign against graft and corruption, the Presidential Anti- Graft Commission (PAGC) was created. In accordance with PAGC’s mandate to formulate national anti-corruption plans and strategies, PAGC organized an anti-corruption workshop which had as i t s main output the Integrity Development Action Plan (IDAP). IDAP i s composed o f specific anti- corruption measures and i s now being implemented by 135 government agencies, including DSWD. An Anti-Corruption Scorecard i s also used as a measurement tool to assess the impact or effectiveness o f the anti-corruption reforms, with the special focus o n the IDAP. The scorecard validates the ratings o f the I A D P implementing agencies, which were based o n the 5-point rating scale o f the set o f IDAP indicators measuring efficiency. The scorecard considers the results o f the assessment by the accountable persons and those o f the rank and f i l e employees o f the agency, i t s stakeholders, the clientlcustomers and the results o f local corruption related surveys. PAGC monitors the I D A P o f the agencies on a quarterly basis together with the Office o f the Ombudsman, and the Commission on Audit. In 2009, DSWD was adjudged by PAGC as the number one anti- corruption champion based on the anti-corruption scorecard.

12. Weak internal controls/ weak or lack of an internal audit function in government units - One o f the outstanding recommendations in the 2003 Public Expenditure, Procurement and Financial Management Review relevant to the Project is the organization o f the internal auditing function. The establishment o f the internal audit function i s authorized under the Internal Audit Code, and in 2003 President Gloria Macapagal-Arroyo directed al l government to organize internal audit service under Administrative Order No. 70. Only a few government agencies have complied mainly due to budgetary constraints. DBM has issued a circular on April 14, 2008 authorizing al l agencies to establish i t s own Internal Audit Services ahead o f the approval o f the overall rationalization plan o f the agencies. DSWD i s one o f the agencies who had already established an Internal Audit Services unit but as described earlier s t i l l has to fill some vacant positions and also improve i t s capacity to international standards.

13. A PEFA PFM Assessment was carried out in respect o f fiscal years 2003 to 2006. It i s intended to serve as an objective measure for benchmarking countries PFM capacities and facilitate tracking o f improvements in specific areas o f P F M over time. The PEFA report indicates that progress in implementing P F M reforms has been somewhat limited. The PEFA report indicates that progress in implementing P F M reforms has been somewhat limited. Relative to FM some o f the most important problematic areas include (i) Inadequate budget formulation, expenditure prioritization and expenditure control systems; (ii) Absence o f accountability mechanisms that

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fueled large scale corruption and misuse o f public funds within the budget execution process, and (iii) Weak oversight functions.

Category of Risk (Issues/Factors)

14. At present, the effective coverage o f IA throughout the national government i s minimal. Only a few agencies have Internal Audit units and they are understaffed with inadequate sk i l ls and resources to perform their mandate. Besides, internal audit methods and focus require major upgrading in l ine with international standards. Internal control systems remain weak and relatively ineffective, which leaves the system open to leakagedfraud. Technical Assistance funded by the Bank was provided to the Presidential Anti-Graft Commission (PAGC) through IDF Grant to help expedite this process by developing appropriate audit methodologies and a Generic Internal Audit Manual aligned with international standards was produced.

Risk Rating

15. The Australian Agency for International Development (AusAID), with i t s grant to the Philippine Government, worked with the Department o f Budget and Management (DBM) for the improvement on the government’s internal controls including the issuance o f a National Guidelines on Internal Controls manual. This was disseminated to all government agencies for implementation.

Risks Mitigating Measures I n Place or to be Adopted

16. Absence of an integrated financial management systemkomputerized accounting system not implemented by all offices - The bookkeeping segment o f the NGAS i s computerized (eNGAS) but s t i l l under roll out to all government agencies. COA has suspended the roll out o f eNGAS in 2008 because it i s currently preparing a revised version, which i s expected to be available middle o f 2009, as a result o f the country’s full adoption o f the International Public Sector Accounting Standards. As a consequence, DSWD has s t i l l to complete the roll out o f eNGAS to all i t s regional offices in 2009 to 2010. An integrated financial management system i s s t i l l not in place in the country. Progress o f the implementation o f eNGAS in all government units i s highly dependent also on the availability o f funds in the unit’s budget. However, DSWD i s one o f the few national agencies who made significant progress in the adoption o f eNGAS. Hardware equipment required for the ro l l out o f eNGAS to the remaining regional offices was already purchased.

Residual Board or Effectiveness (Y/N?) Risk

M

Risk Analvsis.

17. below. The detailed discussion o f each subject immediately follows hereunder.

A summary o f the financial management assessment risk ratings i s provided in the table

Inherent risk I H Countrv level l H 1. Perceived high corruption in the country

2. Weak internal controls/weak or lack of

Condition of Negotiations,

S 1. Strengthening o f the internal audit functions in government agencies i s currently in progress. Please see detailed discussion under country financial issues above.

2. Part o f the government’s actions to safeguard against corruption i s the passage o f the procurement law and implementing rules and regulations, which are already implemented

N

N

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Category o f Risk (Issues/Factors)

internal audit function in government units

18. Absence o f integrated financial management system

19. High level o f political interference in some local authorities may affect targeting process

1. Weak institutional capacity at DSWD and at the level of local government.

2. Internal audit unit not functioning in accordance with international standards and needs manpower with adequate internal audit experience and background on finance, accounting and engineering.

Risk Rating

S

Risks Mitigating Measures In Place or to be Adopted

by al l units o f government Standard bidding documents were issued for mandatory use and the Generic Procurement Manuals to guide the agencies were approved and rolled out. Both of these documents were harmonized with development partners and the same are now being used for World Bank assisted projects.

3. Use o f Proxy Mean Test and active involvement o f the representatives o f the Departments of Health and the Education from the regional to the provincial/school levels and the community awareness campaign o f the processes addresses the political interference issue together with the other monitoring measures that the project will implement.

4. Supervision and information campaign to inform municipalities and beneficiaries of rights and obligations; Memorandum o f Agreement between DSWD and Municipal governments; monitoring.

1. Heavy emphasis of the project i s on capacity building under every component.

2. 4Ps staffing both operations and F M will need to be augmented based on the progress of the program size (geographic reach and number o f targeted household beneficiaries). Additional F M staffs have been already hired to review each release o f funds to the beneficiaries. A dedicated F M group for the Project, including hiring o f a F M officer and key F M staff, shall be established no later than five months of loan effectiveness. This number o f staff shall be further increased during project implementation based on a continuous assessment of the volume of work especially on the cash grant component.

3. Fil l the key vacant position in IAS (Operations Audit Head) with qualified staff no later than five months o f loan effectiveness.

4. Engagement of independent reputable audit consultants, with qualifications and terms of reference acceptable to the Bank, no later than 6 months after loan effectiveness who will provide the capacity building to the I A staff of DSWD and also hands-on training to IAS by conducting the internal audit review of the project during the two years engagement. The internal audit review on the project shall be conducted semi-annually with copy o f the report sent to the Bank 60 days after end o f each

Residual Risk

S

Condition of Negotiations,

Board or Effectiveness

(Y/N?)

N

N

N

N (Dated Covenant)

N (Dated Covenant)

N ( Dated Covenant)

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Category of Risk (Issues/Factors)

Proiect 1. 4Ps i s a highly visible project and drawing a lot o f negative comments from some sectors in society who associate this to the coming 2010 election.

2. The 4Ps will have a wide geographic reach in the country and to places which are hard to reach by

transportation making monitoring and verification difficult.

any mode o f

3. 4Ps involves a lot of new processes and coordination within DSWD and with other participating agencies such as the Departments of Education and Health, local government units, etc.

Control risk Budget 1. Should there be a requirement of counterpart fund, delays in the approval of the government’s annual budget puts the prompt release of total funds to the 4Ps beneficiaries at risk.

Accounting

Risk Rating

S

S M

S

Risks Mitigating Measures In Place or to be Adopted

calendar semester, starting with the second semester after the date of the loan agreement..

5. The National Guidelines on Internal Controls developed under the AusAID grant will be customized and implemented in all agencies. The General Services Management Unit in all agencies i s tasked in the improvement o f the internal controls and monitoring compliance thereof.

1. Strict protocol shall be adhered to for geographic and household targeting using the PMT.

2. Internal Audit Services shall cover the Project in its scope of work and an independent third party to do spot checking of the entire process from targeting to compliance monitoring and release o f funds shall be engaged for the Project.

3. The project shall set up a grievance monitoring system to enable it to collate and address issues efficiently and effectively.

4. The DSWD has also organized an Independent Group composed o f eminent persons from the academe, non-government organizations, religious sector and private sector who provide strategic advice and have agreed to serve as external monitors of the Program to ensure transparency and social accountability.

5. A Project Implementation Plan and Operations Manual shall be prepared under the Project prior to loan negotiation, which shall also include a financial management section for the guidance of all participating agencieshnits. Draft o f these documents shall be submitted to the Bank prior to loan negotiation.

1. Use of prior year’s budget as basis o f fund release during the period that the government’s approval o f the current year’s budget i s delayed i s allowed by law.

2. DBM will now implement a comprehensive release o f the funds (Notice of Cash Allocation) initially covering 6 months funding of the government agencies.

Residual Risk

M

M L

M

Condition of Negotiations,

Board or Effectiveness

(YiN?)

N

N

N

N

N

N

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Category of Risk (Issues/Factors)

1. Accounting policies & procedures contained in NGAS, government laws and regulations, etc. not fully adhered to by DSWD as reported by COA in its observation and recommendations memorandum.

2. The F M staff to carry out the additional work related to component 2 (cash grant) of the project may not be adequate.

Internal controls 1. COA reported several weak implementations of the internal controls and procedures prescribed in NGAS, for inventories, cash transfers, cash advances, and bank reconciliation.

2. Internal audit unit not fully functioning in accordance with international standards

Fundsflow 1. Loan proceeds take long period before i t i s credited into the

Risk Rating

S

S

Risks Mitigating Measures I n Place or to be Adopted

1. Maintenance of separate books o f accounts for the project shall be required to facilitate the preparation o f financial reports and for the project not to be burden with the outstanding issues reported by COA on the agency’s accounts.

2. DSWD adopted a time-bound plan to address all the outstanding issues reported by COA in its audit report on the 2007 financial statements of the agency. Status of the implementation of the time-bound plan shall form part of the quarterly IFR.

3. DSWD has already hired additional qualified F M staff assigned for the 4Ps, which shall be adjusted during project implementation based on the volume o f work related to the cash grants. A dedicated F M group for the Project, shall be established no later than five months o f loan effectiveness.

1. See discussion under accounting on the action to address the issues o f noncompliance on internal controls reported by COA, which affected the accuracy of reported account balances. The strengthening of the internal audit function shall be able to improve the monitoring o f the compliance on the prescribed internal control policies and procedures in government.

2. The National Guidelines on Internal Controls System developed under the AusAID grant will be customized and implemented in all agencies. The General Services Management Unit in all agencies i s tasked in the improvement of the internal controls and monitoring compliance thereof.

3. The internal audit unit once strengthened and functioning in accordance with international standards can significantly contribute to the strengthening of internal controls at DSWD.

4. With separate books of accounts maintained for the project, the project financial statements will not be burdened by the issues o f non- compliance with internal controls reported by COA in i ts audit o f the agency’s prior years’ financial statements that affected the account balances.

1. The promptness o f the deposit into the Designated Account for the loan proceeds has been discussed with DBM and the DOF.

Residual Risk

M

M

Condition of Negotiations,

Board or Effectiveness

(YiN?)

N

N

N ( Dated covenant)

N

N

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Category o f Risk (Issues/Factors)

Designated Account from the Central Bank of the Philippines. Delays will create risk of not releasing funds to the 4Ps beneficiaries on time.

2. Inadequate release o f counterpart fund, especially for the cash grant, in the event of delays in the approval of the government’s annual budget by Congress.

Financial reporting o Inaccurate financial reports as discussed above due to the non-compliance with certain accounting policies and internal controls and procedures, and also caused by maintaining the accounts manually in some regional offices.

Auditing Some COA auditors may not be familiar with the Bank’s policies and procedures on FM, procurement and disbursement and therefore may not be able to report to the Bank certain non-compliance thereof.

Overall Risk Rating -

Risk Rating

S

M

S

Risks Mitigating Measures I n Place or to be Adopted

2. DSWD’s experience in implementing Bank- assisted projects has already made it familiar with the effect of the government processes. As in the other projects, i t closely follows up the credit of the loan proceeds to the Designated Account from the responsible government agencies.

3. Release of funds based on prior year’s budget i s allowed by law. As the beneficiaries involved are the poor and involved a big number of households, there i s pressure from society for the government to make good the prompt payment o f the cash grant.

1. DSWD adopted a time-bound plan to complete the roll out o f the eNGAS to all regional offices in 2009 -201 0. DSWD has already purchased the required hardware for the roll out of eNGAS to the regional offices. Status o f the roll out shall form part of the quarterly IFR.

2. The project will require unaudited interim financial reports (IFRs) on a quarterly basis. Format of the IFR was agreed before loan negotiation.

The COA auditors will also be invited to attend the brief orientation on FM, procurement and disbursement that the Bank will hold for the DSWD staffs.

Risk Rating: H (High Risk), S (Substantial Risk), M (Modest Risk), N (Negligible or Low Risk)

Residual Risk

M

L

M

Condition of Negotiations,

Board or Effectiveness

(YiN?)

N

Y (loan negotiation)

N

20. Strengths and Weaknesses - The significant strength o f DSWD i s the familiarity o f DSWD officials and staff with the Bank’s policies, procedures and reporting requirements that would facilitate more effective project implementation. Such familiarity was acquired during the implementation o f the Bank-financed projects. In addition, i t has already implemented a project (the KALAHI-CIDSS) that operates in far flung places and has a wide geographic reach. DSWD i s a relatively small agency and therefore coordination o f all units i s easier to handle. There i s a great

74

deal o f awareness at the DSWD and this agency has been adjudged by PAGC as the number one anti-corruption champion in government based on the ratings it got in the Anti-Corruption Scorecard, which is used as a measurement tool to assess the impact or effectiveness o f the anti- corruption reforms, with the special focus on the I D A P

2 1. The significant weaknesses and the corresponding corrective actions are summarized below.

Significant Weaknesses 1. Reputational risk to the Bank due to delays in (a) delivery of government counterpart funds caused by delays in the approval of the government’s annual budget; and (b) the deposit of the loan proceeds to the Designated Account.

2. Non-compliance with internal control procedures required under the NGAS (Details are discussed in Internal Controls) and the internal audit unit not functioning in accordance with international standards.

3. Books of account are st i l l maintained manually in some regional offices that also contribute to the non- compliance with internal controls such as the proper maintenance o f subsidiary records, non-reconciliation of certain accounts, etc. due to the volume o f DSWD’s transactions.

Corrective Action 1. Use of prior year’s budget as basis of fund release during the period that the government’s approval of the current year’s budget i s delayed i s allowed by law. As the beneficiaries o f the cash grant are the very poor and involve a big number o f households, pressure in society will make the government make the prompt payment of the cash grant.

2. DBM will now implement a comprehensive release of the funds (Notice o f Cash Allocation) initially covering 6 months funding o f the government agencies. 1. Maintenance o f separate books of accounts for the project shall be required to facilitate the preparation o f financial reports and for the project not to be burden with the outstanding issues reported by COA on the agency’s accounts.

2. DSWD adopted a time-bound plan to address all the outstanding issues reported by COA in i t s audit report on the 2007 financial statements o f the agency. Status o f the implementation of the time- bound plan shall form part of the quarterly IFR.

3. Fill the key vacant position in IAS (Operations Audit Head) with qualified staff no later than five months of loan effectiveness.

4. Engagement of an independent reputable audit consultants, with qualifications and terms of reference acceptable to the Bank, no later than 6 months o f loan effectiveness who will provide the capacity building to the I A staff of DSWD, including hands-on training to IAS in the conduct of the internal audit review of the projectduring the period o f the engagement. 1. DSWD adopted a time-bound plan to complete the rol l out of the eNGAS to all regional offices in 2009 - 2010. Status of the roll out shall form part of the quarterly IFR.

2. The project will require unaudited interim financial reports (IFRS) on a quarterly basis. Format of the IFR was agreed before loan negotiation.

Financial Management Arrangements for the Project

22. FM organization and staffing - The Assistant Secretary and the Director for Finance shall be mainly responsible for the overall financial management o f the Project. A dedicated FM group for the Project, including the hiring o f a FM officer and key FM staff, shall be established no later than five months o f after loan effectiveness. Additional staff shall hired to handle the review o f the l i s t o f 4Ps beneficiaries and the amounts o f cash grants before funds are transferred to the commercial bank chosen as the funding channel based on the continuous evaluation o f the volume o f work related to the cash grant.

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23. Budgeting - The project will be using the government’s budgeting system. DSWD prepares its budget for locally funded and foreign assisted projects. Preparation instructions (budget calls) are received from the DBM. The project budgets, which are eventually included in the General Appropriation Ac t (GAA), need approval o f the Congress and the President. Budget preparation and discussions start with the lowest level o f the organization in DSWD and consolidating by the DSWD central office. There are reviews and approvals within DSWD and with DBM before these are submitted to the legislative and executive branches o f government for review and signing into law. The GAA then becomes the basis o f the release o f funds (through the use o f the Notice o f Cash Allotment or NCA) to the Agency or Projects. Adequate budget registers are used to control the budget implementation and reporting as required under NGAS. Government agency heads are required to submit accountability and financial reports to the DBM, Commission on Audit, and the Congress in accordance with existing rules and regulations. These reports are designed to monitor the efficiency and effectiveness in the utilization o f budgeted government funds by each agency, and generally to verify the attainment o f goals established in the budget process and the national development plan.

24. Accounting - The books o f accounts o f the project shall be maintained using N G A S and eventually recorded using eNGAS. The project FM team at the central office and the FM assistant(s) at the regional offices, working under the direct supervision o f the accounting head o f the respective offices, shall be responsible for the maintenance o f the books o f accounts, monitoring of the Designated Account (DA), and prepares the Project Financial Reports required by the Bank. They shall also be responsible in the preparation o f withdrawal applications.

25. Internal ControlsDnternal Audit - The project shall fo l low the National Guidelines on Internal Control System, which include the internal controls policies and procedures found in the NGAS, Government Audit and Accounting Manual (GAAM), C O A and DBM memoranda and circulars, other laws and regulations. In addition, the fol lowing requirements shall be implemented for the project:

a.

b.

C.

d.

Maintenance o f separate books o f accounts and submission o f quarterly unaudited interim financial reports (IFR); A Designated Account shall be maintained for the project where al l loan proceeds released from the Bank are credited. Regional offices shall be asked to maintain a project bank account for the loan funds transferred from central office to pay for the expenditures incurred in the regions. The expenditures to be incurred at the regional offices are expected to be not significant as most o f the goods and consultants services will be procured in the central office and the release o f the cash grant to the beneficiaries will be done by the central office through the commercial bank. Monthly bank reconciliation statements shall be required to be submitted by the regions to the central office together with the monthly trial balance. Bank reconciliation statements o f the Designated Account and al l project bank accounts shall be part o f the quarterly IFR. An annual work and financial plan shall be prepared and submitted to the Bank each year, with monthly details and details per office (central and regions) for proper monitoring o f project activities.

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e.

f.

€5 h.

26.

Annual physical count o f fixed assets and inventories o f the project shall be carried out and reconciled with the accounting and property & asset management records. Results o f such reconciliation shall be submitted to the Project Management Office and to the Bank as part of the f i rs t quarter IFR o f each year o f the project l ife. The project shall be covered by an Internal Audit review twice a year, with reports submitted to the Bank 60 days after the end o f each calendar semester, starting with the second semester after the date o f the loan agreement. Grievance monitoring system shall be established for the project. Spot checks under terms o f reference and with a minimum coverage satisfactory to the Bank shall be carried out not later than January 3 1 and July 3 1 in each year, commencing July 3 1 , 20 10, and until July 3 1 , 20 12, and thereafter, not later than July 3 1 in each year, commencing July 31,2013.

External Audit - The external audit arrangements shall be in accordance with the Bank’s policies on audits o f Projects, and based on terms o f reference acceptable to the Bank. COA i s the external auditor o f DSWD’s financial reports. This supreme audit institute i s an independent office which was given the mandate under the Philippine Constitution to audit all accounts pertaining to all government revenues and expenditures and uses o f government resources. The COA’s audit i s substantially in accordance with the international auditing standards prescribed by the International Federation o f Accountants (IFAC). Based on the audited project financial statements o f the Kalahi CIDSS, it was noted that COA’s audit o f the financial statements also included physical inspection o f sub-projects. The physical inspection i s carried out by a technical team (other than the team looking at the financial records) that has engineers as members. Review covers not only the physical construction but also the compliance with the procurement procedures. Discussion shall be arranged with COA to agree on the audit approach it will take on the cash grant component o f the Project.

27. Bank throughout the l i fe o f the project:

Financial Reporting - Under this project DSWD shall submit the following reports to the

a. Unaudited Interim Financial Reports (IFRs) within 60 days after the end o f each calendar quarter, which shall consist o f the: (a) financial reports consisting o f the following: (i) statement o f financial position, (ii) statement o f sources and uses o f funds which should include the current and cumulative data compared with plan (covering both loan proceeds and government counterpart funds), (iii) bank reconciliation statements, (iv) aging schedule o f outstanding funds released to the regional offices, and (v) status o f the implementation o f the time-bound plans for the eNGAS roll out and the resolution o f the COA prior years’ issues; (b) physical progress report; (c) procurement status report; and (d) status o f the implementation o f the roll out o f the eNGAS and the resolution o f the issues reported by COA in the audit o f DSWD’s financial statements for 2007. The physical accomplishment report must be linked to the financial report. In addition, the results o f the reconciliation o f the physical count o f fixed assets and inventories with the accounting and property & asset management records shall be part o f the f i rs t quarter IFR o f each year.

Format o f this IFR was agreed with the Bank before loan negotiation.

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b. Annual audited project financial statements, which shall consist o f a statement o f financial position, a statement o f financial performance, a statement o f changes in net assetdequity, and a cash f low statement and the notes to the financial statements, together with a copy o f the management letter reflecting the auditor’s findings and recommendations, shall be submitted to the Bank no later than 6 months after the end o f each fiscal year. The auditor for this project i s COA. The Audit Certificate to be issued shall be the based on the Bank’s pro forma audit certificate.

Category

1. Goods, training, workshops, consultants’ services, and incremental operating costs for the project

2. Conditional cash transfer

3. Front-end fee

4. Unallocated

28. Funds FlowLDisbursement Arrangements - This Project will be disbursed over a period five year period. The disbursements o f the loan shall be in accordance with the financial plan o f the project for the following categories:

Amount o f the Loan [Expressed in Dollars)

% o f Expenditures to be Financed

81,601,000 100%

320,886,000 75% o f amounts disbursed under each Grant

Amount payable pursuant to the loan agreement

1 ,O 12,500

1.500.500

Allocation of Loan Proceeds

1.

.. 11.

... 111.

iv.

Expenditures paid prior to the date o f the loan signing but after December 1,2008 in respect o f categories 1 and 2 shall be eligible for retroactive financing in the aggregate amount not exceeding $8 1 .O million, except for the CCT Grants for Health. Payments for the CCT Grant for Health will be made upon the establishment and operationalization o f a compliance verification system linked to payments as set out in the Operations Manual. Payments for the CCT Grants for Education Services will be made based on the existing manual monitoring system at the school level until June 30, 2010 or such a later date as the Bank may agree. Thereafter, payments for the Education Grant will be linked to the compliance verification system. N o payments under a CCT Grant will be made to a Beneficiary unless the following criteria have been met: (a) a signed Memorandum o f Agreement between DSWD and the Participating LGU and such Agreement has not been suspended or terminated and such LGU has not been declared to be ineligible; (b) the Beneficiary has been selected in accordance with the eligibility criteria as set out in the Operations Manual; (c) Letter o f Commitment from the Beneficiary and such Letter has not been suspended or terminated; (d) DSWD and the Beneficiaries have complied with the conditions for the provision o f CCT Grants; (e) payments have been made in accordance with a mechanism satisfactory to the Bank; and (0 D S W D has carried out a verification o f compliance in accordance with the

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mechanism and procedures set out in the Operations Manual in a manner satisfactory to the Bank.

Funds Flow

.......................................... &""...

Report of amounts

creditedlwit hdrawn

I I

.............................................................. J DSWD Central ' Office - Designated

Account

.............................................. f

Statement of

L...... Land Bank of the

Philippines (Cash for 4Ps

Over-t he-Counter Withdrawal by Beneficiaries

Credit to Individual Bank

Accounts of Beneficiaries

29. The Project funds are composed o f the loan proceeds and government counterpart fund. The funds from theloan proceeds wi l l f low from the World Bank to the Bureau o f Treasury account at the Central Bank o f the Philippines. After the issuance o f N C A issued by DBM, the funds will be credited to the Designated Account o f the project maintained at D S W D central office. DSWD shall open and maintain a Designated Account (DA) in Dollars, in a commercial bank acceptable to the Bank, with a maximum allocation o f $40.0mi llion. The funds advanced to the DA shall be liquidated through the submission o f Withdrawal Application and Statement o f Expenditures

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(SOEs) and an application for the replenishment o f the DA. Disbursements under the Project shall comply with the Bank policies and procedures on disbursements and financial management as reflected in the Bank’s Disbursements Handbook and Financial Monitoring Report Guidelines. All reimbursements to the DA shall only be for eligible expenditures based on the agreed eligibility/financing percentage in the Loan Agreement and shall have adequate supporting documents. Attachments o f supporting documents to the SOEs for withdrawal applications shall be based o n threshold limits o f SOEs. Funds shall be transferred to the regional offices, which are drawn from the DA and deposited into the regional offices’ project bank accounts based on the estimated project quarterly cash requirement o f the region. The regional offices shall submit to the central office of DSWD monthly SOEs to liquidate the funds transferred.

30. In addition, other disbursement mechanism such as direct payments and special commitments shall also be available for this Project. Maintenance o f project bank accounts at the regional offices i s necessary due to the following reasons: (i) there is a logistical problem in making al l payments f rom the D S W D CO where the Designated Account will be maintained because some contracts or expenditures are entered into or incurred at the regional o f DSWD, and (ii) the Philippine government is unable to provide working capital to the project to pre-finance the Bank’s share o f the expenses.

3 1. Additional internal control measures that shall be implemented by the project to monitor the proper maintenance and usage o f the funds at the regions are as follows: (i) Monthly SOEs shall be submitted to DSWD CO; (ii) Monthly bank reconciliation statements and copy o f the trial balance shall be submitted to the central office; and (iii) The quarterly IFRs submitted by DSWD CO to the Bank will include a copy o f the bank reconciliation statements o f the Designated Account and al l project bank accounts maintained by the regions.

32. The component 2 o f the Project (4Ps cash grant) shall be released from D S W D to the 4Ps beneficiaries by depositing the Funds with the LBP, where the 4Ps beneficiaries are asked to open dedicated bank accounts and ?e issued with 4Ps ID cards and L B P cash cards or are released over the counter by L B P upon presentation o f the 4Ps ID cards. Reports o f cash not deposited to the accounts o f the 4Ps beneficiaries due to various reasons such as misspelled names, unclaimed cash cards, etc. shall be reported to DSWD by LBP. Reports are also submitted to DSWD for any unclaimed cash grant after a period o f time as shall be defined in the Operations Manual. Any other method o f channeling the funds to the APP beneficiaries during project implementation shall be subject to a “No Objection” from the Bank.

Financial Covenants

33. The financial reports that shall be submitted to the Bank are as follows:

a. Unaudited Interim Financial Reports (IFRs) within 60 days after the end of each calendar quarter, which shall consist o f the: (a) financial reports consisting o f the following: (i) statement o f financial position; (ii) statement o f sources and uses o f funds which should include the current and cumulative data compared with plan (covering loan proceeds and government counterpart fund); (iii) bank reconciliation statements, both dollar and al l peso project bank accounts; (iv) aging schedule of outstanding funds released to the regional offices; and (v) status o f the implementation

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o f the time-bound plans for the eNGAS rol l out and the resolution o f the C O A prior years’ issues. (b) physical progress report and (c) procurement status report. The physical accomplishment report must be linked to the financial report. The first quarter IFR o f each year shall also include the report o n the results o f the reconciliation o f the physical count o f fixed assets and inventories against the accounting and property & asset management records.

Format o f this IFR was agreed with the Bank before loan negotiation.

b. Annual audited project financial statements, which shall consist o f a statement o f financial position, a statement o f financial performance, a statement o f changes in net assetdequity, and a cash f low statement together with a copy o f the management letter reflecting the auditor’s findings and recommendations, shall be submitted to the Bank no later than 6 months after the end o f each fiscal year. The auditor for this project i s COA. The Audit Certificate to be issued shall be the based o n the Bank’s pro forma audit certificate.

c. Semi-annual report o f the independent reputable audit consultants and/or the internal audit services unit o f DSWD on the results o f i t s review o f the Project shall be submitted to the Bank within 60 days after the end o f each calendar semester commencing with the second semester after the date o f the loan agreement.

34. Condition for loan nepotiation

a. Final IFR format agreed with the Bank

3 5. Dated covenants

a. Engagement o f independent reputable audit consultants no later than 6 months after loan effectiveness, with qualifications and terms o f reference acceptable to the Bank, which will provide capacity building to IAS, including hands-on training to IAS through the conduct o f semi-annual review o f the project for at least two years, starting with the second semester o f after the date o f the loan agreement. The f i rs t semi-annual audit should include a baseline assessment o f internal controls (both operational and financial) o f DSWD.

b. Engagement o f an independent qualified third party to conduct the regular “spot check” under terms o f reference acceptable to the Bank, by April 30,2010.

c. Establishment o f a dedicated FM group for the Project, including the hiring o f a FM officer and key FM staff, no later than five months after the loan effectiveness.

d. Filling the key position in IAS (Operations Audit Head) no later than five months after loan effectiveness.

Supervision Plan

36. The frequency of the FM supervision will be in l ine with the FM Manual and EAP FM regional guidelines and i s dependent on the FM risk rating o f this project in any given year during

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project implementation. The scope o f the supervision is l e f t to the professional judgment of the FM specialist. I t may cover any of the following, among others: (1) review o f the continuous maintenance o f adequate FM system by DSWD; (2) review o f selected transactions, where deemed necessary and vis i ts to selected cash grant beneficiaries; (3) review and discussion o f the internal audit reports, spot checking reports and grievance monitoring reports, (4) fo l low up o f timeliness o f FM reporting and actions taken on issues raised by external auditors; (5) review o f financials reports o f the project; (4) fo l low o f the status o f the agreed actions; and (6) review o f compliance with the financial covenants. In addition, the FM implementation review should include desk review o f the quarterly IFRs, internal audit reports, and audited financial statements and management letter submitted to the Bank.

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Annex 8: Procurement Arrangements

PHILIPPINES: SOCIAL WELFARE AND DEVELOPMENT REFORM

A. General

1. Procurement for the proposed project would be carried out in accordance with the World Bank’s “Guidelines: Procurement under IBRD Loans and IDA Credits” dated May 2004 revised October 2006, and “Guidelines: Selection and Employment o f Consultants by World Bank Borrowers” dated May 2004 revised October 2006, and the provisions stipulated in the Legal Agreement. While the new Philippine Procurement L a w (RA 9184) is sufficiently in harmony with the Guidelines at the National Competitive Bidding (NCB) level, the Procurement Schedule of the Loan Agreement will include an annex detailing the procedures under the national law that are not acceptable to the Bank. Other than that, N C B procurement will be carried out in accordance with the country’s law. The general description o f various items under different expenditure categories for the f i rs t 18 months are described below and summarized in the attached Procurement Plan. For each contract to be financed by the Loan, the different procurement methods, estimated costs, prior review requirements, and time frame are agreed between the Borrower and the Bank task team in the Procurement Plan. The Procurement Plan will be a rol l ing plan that will be updated at least annually or as required to reflect the actual project implementation needs and improvements in the institutional capacity o f the implementing uni ts.

2. Procurement o f Goods. Goods procured under this project would include ID cards and M I S software and hardware for targeting and monitoring, and information and communication technology (ICT) and office goods for the various implementing units. Bulk o f the MIS/ICT goods consisting o f desktop and notebook computers, printers and accessories, servers and scanners to be distributed to various implementing DSWD units and LGUs will be lumped in one large package for I C B procurement, The procurement for contracts costing US$l,OOO,OOO or more will be done through I C B using the Bank’s standard bidding document (SBD). Contracts estimated to cost US$lOO,OOO up to less than US$l,OOO,OOO will be procured following national competitive bidding (NCB) procedures using the Philippine Bidding Document (PBD) as harmonized with the Bank. Procurement for off-the-shelf goods and small value contracts costing below US$lOO,OOO will be awarded based on shopping procedures, by comparing price quotations obtained from several suppliers, usually at least three, as defined in Para. 3.5 o f the Guidelines. Direct contracting o f highly specialized software which are proprietary and obtainable only from one source may be procured with the Bank’s prior agreement. These are small-value software that are necessary to ensure standardization within the system currently used in the DSWD/project.

3. Selection of Consultants. Consultancy services to provide technical assistance in the design and development o f survey works, targeting mechanism, survey works and analysis o f data gathered, in translating pol icy ideas on social welfare reforms into action plans and to build capacity o f key personnel to implement and manage change in l ine with the reform agenda will be financed under the program. Quality and cost based selection (QCBS) procedures will be followed in the hiring o f consulting f i r m s with contracts estimated to cost the equivalent o f US$200,000 or more. Survey works consultants consisting o f design, implementation and analysis involving large number o f individuals conducting routine data gathering under well-established practices and standards will be selected through Least-Cost Selection (LCS) procedures. Contracts estimated to cost less than

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US$200,000 equivalent may be procured through selection based on consultants’ qualifications (CQ). Single source selection (SSS), with the Bank’s prior agreement, in accordance with the provisions o f the Consultant Guidelines may also be used. Government research and training institutions with exceptional expertise for the assignment may also be tapped under the program. Individual Consultants necessary to support the program, meeting the requirements set forth in Section 5 o f the Consultant Guidelines, will be selected under contracts awarded on the basis o f competition in accordance with the provisions o f the Consultant Guidelines.

4. Trainings and Workshops. Training and workshops, including related expenditures for travel and accommodation, fees and materials, related to capacity building and project implementation and others based on annual training procurement plan wil l be procured in accordance with existing government prescribed procedures and limits which are acceptable to the Bank.

5. Incremental Operating Costs. Activities relating to managing the project, including staff travel and office utilities, and supporting the project operations especially the targeting o f beneficiaries and monitoring o f cash transfer based on annual I O C procurement plan will be provided in accordance with existing government prescribed limits and procedures acceptable to the Bank.

B. Assessment o f the agency’s capacity to implement procurement

6. Procurement activities will be carried out by the Department o f Social Welfare and Development central office. The agency has a Procurement Service (PS) office under the General Administration and Support Services Group, which is responsible for the procurement undertakings for the central office administered funds. This group had been responsible for the procurement undertakings o f the agency involving local and foreign-assisted projects including the Bank- financed ECDP, SEMP 1 and 2, KALAHI and a number o f grant projects in the past.

7. The assessment reviewed the organizational structure for implementing the project and the interaction among the project’s staff responsible for procurement. The assessment took into consideration the more than 10 years experience o f the agency in implementing the various aforementioned projects. The assessment also considered the various studies, including the Country Procurement Assessment Report (CPAR) and the baseline indicator system (BIS) assessment in which an independent consultant determined that the country, in general, was substantially achieving the desirable standards for reliance on i t s public procurement system. The assessment conducted by the Bank’s Procurement Specialist o n October 2008 found DSWD’s previous procurement performance generally satisfactory to highly satisfactory. The procurement chain including the PS and Bids and Awards Committee (BAC) i s very familiar with the Bank’s procurement ‘guidelines and procedures and are staffed with competent personnel to implement the proposed procurement arrangement under the project. The DSWD has benefited from the various procurement and implementation experiences, and reforms and capacity buildings initiated and mainstreamed under previous Bank- financed activities. The government has even awarded DSWD- PS the best procurement unit title.

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8. Issuedrisks concerning the procurement aspects for implementation o f the project have been identified, and these include: 1) inappropriate or inadequate specifications and TOR; 2) packaging and planning for the procurement of the limited but relatively high value MIS goods and survey works. At the moment, the project has decided to carry out the important task targeting (survey works) in-house. This would require procurement o f high-value IT equipment contracts. The corrective measures which have been agreed are: 1) finalization o f the most technically sound survey works packaging with the help o f the Bank’s and DSWD’s technical specialists; 2) the engagement o f MIS goods specifications specialists to provide the most appropriate technology for the design o f the project; 3) preparation o f the bid documents for MIS goods and RFP for consultants; and 4) preparation o f the procurement plan for the project on or before the project appraisal. Aside from these specific measures, the regular features o f the procurement operations in accordance with the law o f the country will be adopted, among which are: the use o f PhilGEPs and the agency’s website in e-advertizing all bid opportunities, updating o f procurement plan on an annual basis and publishing this in the agency’s website, use o f CSO observers in procurement undertakings conducted by BAC, review o f the Commission on Audit o f the all procurement and contracting done under the project, use o f timelines (service standards) for efficient procurement operations. Also, DSWD will rely on their Electronic Procurement Tracking System (EPTS), which they have developed and operationalized, to monitor transactions from bid opportunity posting to payment. Further, the project wi l l benefit from the soon to be launched procurement info bits in popularized version which will be distributed to various procurement operating units.

9. The overall project risk for procurement i s low.

C. Procurement Plan

10. The DSWD developed a Procurement Plan for the f irst 18 months o f project implementation, which provides the basis for the procurement methods. The Borrower and the Project Team both agreed upon this plan on July 10,2009; it i s available at the Procurement Service o f DSWD. I t will also be available through the Project’s database and on the Bank’s external website. The Procurement Plan will be updated in agreement with the Project Team annually or as required to reflect the actual project implementation needs and improvements in institutional capacity.

D. Frequency of Procurement Supervision

1 1. Based on the overall risk assessment, twice a year field supervision missions including post review o f procurement action i s to be implemented in addition to the prior review to be carried out from the Bank’s Manila office. With respect to each contract not subject to prior review, the procedures set forth in paragraph 4 o f Appendix 1 to the Procurement and Consultant Guidelines wi l l apply at an initial ratio o f not less than one (1) in ten (1 0) contracts. This ratio may be adjusted based on the performance o f the agency.

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E. Details o f the Procurement Arrangements Involving International Competition

1 2 3 4 5 6 7 8

Ref. Contract Estimated Procurement P-Q Domestic Review Expected No. (Description) Cost Method Preference by Bank Bid-

(US$ M) (yesho) (Prior / Post) Opening Date

MIS/ICT 4.00 ICB None Yes prior Aug 2009 hardware and software

12. the activities that will be financed under the project.54

This procurement plan, agreed upon by DSWD and the Bank, covers the f i rs t 18 months of

9

Comments

SBD Goods

1 Goods

I Analysis (Survey) I Impact Evaluation 0.69 Qcss Yes May 2010 SRFP

2 Consulting Services

(a) L i s t o f consulting assignment(s) with shortlist o f international f irms;

(b) The f i rs t contract to be awarded following a particular selection method, and subsequent contracts estimated to cost US$200,000 and above per contract and single source selection o f consultants will be subject to prior review by the Bank.

The Procurement Plan was agreed with the Government as part o f the Project Implementation Plan o f July 10,2009.

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This Procurement Plan and the dates therein wi l l be updated during the f rst supervision mission.

(c) Shortlists o f consultants for services estimated to cost less than US$200,000 equivalent per contract may be composed entirely o f national consultants in accordance with the provisions o f paragraph 2.7 o f the Consultant Guideline.

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Annex 9: Economic and Financial Analysis PHILIPPINES: SOCIAL WELFARE AND DEVELOPMENT REFORM

Economic Analysis

1. The project supports the key reform agenda o f the social welfare and development sector to address the challenges in social protection. The project development objective i s to strengthen the effectiveness o f the DSWD as a social protection agency to efficiently implement the new CCT program (~Ps), and expand an efficient and functional National Household Targeting System of social protection programs.

2. The Bank support to these items in the sector reform agenda is expected to improve the poverty-reducing impacts o f Government programs and their cost efficiency. First, developing a national household targeting system that i s based on an objective and uniform set o f criteria will allow for better targeting o f existing programs and make way for a more extensive roll-out o f new programs such as the CCT. I t will also allow for the future emergency targeting o f poor households through cash transfers in the face o f shocks such as the price and fuel shocks that happened in 2008 and the global economic crisis faced by developed and developing countries alike. Second, implementation o f a conditional cash transfer program i s expected to ease the impact o f sudden income shocks to poor households in the short-term through the cash transfer. Lastly, the conditions set out by the program address longer-term poverty issues that relate to lagging human development outcomes, particularly in education and health.

Targeting

3. An efficient targeting system would enhance the Government’s ability to design programs to support poor households. The Philippines currently lacks an objective targeting system that i s used across the country. This has resulted in the proliferation o f transfer programs which tend to have their own household targeting systems. For many o f these programs, both the criteria for geographical and household targeting are not transparent or standardized. As a result, program targeting has been used for political purposes. This has tended to weaken the general credibility o f Government programs aimed at targeting the poor, and assessments o f these programs show high under-coverage o f the poor and high leakage to the non-poor.

4. The Government’s adoption o f a well-designed targeting system will greatly benefit the poor, thereby increasing their poverty-reducing impacts, and improving the cost-efficiency to the Government o f implementing these programs. The project supports the roll-out o f the national household targeting system that can be applied to various subsidy programs o f the Government to more precisely distribute the benefits o f existing and future programs to intended beneficiaries and minimize their leakage.

5. increase the share o f the program benefiting the poor and their cost-effectiveness.

For example, improving the targeting o f two o f the current larger subsidy programs can

6. Improved targeting o f existing programs such as the current NFA rice subsidy program through the new National Household Targeting System for Poverty Reduction (NHTS-PR) will

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improve the poverty reduction impact o f such programs. Based on the latest household survey, only 59 percent o f NFA rice currently goes to the poor. This means that o f the estimated Php32.1 billion implicit subsidy for N F A rice in 200855, poor households only get an annual transfer o f P1,843 ($0.1 l/day) equivalent to 15 percent o f their spending on rice. Using the NHTS-PR would enable moving away from an untargeted assistance to one that specifically targets poor households only, enhancing the poverty-reducing impact o f the program. Assuming the same program budget, improving program targeting using the NHTS-PR would increase the size o f transfer to poor households by nearly four times - from 15 percent o f their spending on rice in the current setup to 56 percent - and reduce poverty incidence and the income gap by 4.7 and 3.1 percentage points, respectively (Table 9. 1y6. Targeting rural poor households only could reduce poverty incidence by as much as 6.4 percentage points and the income gap by 4.2 percentage points.

Baseline Mean Poverty Incidence Income gap Household (POP) (% o f Poverty

Al l HHs 172,730 32.9 percent -30.5 percent (HH) Income Line)

Poverty Severity (% o f Poverty

Line) 4.2 percent

7. The share o f the current Food-for-School Program (FSP) benefiting the poor could also double from 38 to 76 percent if the program uses geographic and household targeting. The FSP has had a high leakage rate to non-poor households, mainly as a result o f i t s bias towards urban areas and cities with low incidence o f poverty, such as the National Capital Region (NCR). Better geographical targeting using available poverty statistics at the municipal level has been estimated to potentially increase the poor’s share o f the program from 38 percent to 76 percent.57 W h i l e it i s not possible to simulate the impact o f further fine-tuning the FSP’s design using a household targeting mechanism due to data limitations, it can only be expected that this will result in an even greater reduction of the inclusion error (of the non-poor), allowing more subsidy to appropriately be made available to poorer households.

Impact of Transfer* Change in HH to Overall Poverty Income** (%) All HHs 1.1 All Poor HHs 10.9 Rural Poor HHs 16.7 Decile 1 HHs 57.1

8. By directing scarce resources only to intended beneficiaries, putting into place an accurate household targeting system will also improve the cost-efficiency o f Government programs. In 2008, about Php60.9 billion ($1.3 billion) in total had been channeled to subsidizing rice through the

Percentage point Change in National - Poverty Incidence Income Gap Poverty Severity

-1.4 -0.8 -0.4 -4.7 -3.1 -1.3 -6.4 -4.2 -1.7 -1.7 -2.8 -0.9

This estimate i s computed based on the difference between the international price o f rice and NFA rice at the height o f the rice crisis in 2008. 56 This estimate assumes complete accuracy o f the PMT, whereas there w i l l be some exclusion errors in practice. 57 Manasan, R. and J. Cuenca, (2007) ‘Who Benefits from the Food-for-School Program: Lessons in Targeting,” PIDS Discussion Paper Series No. 2007-10.

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NFA.58 While th i s may appear an inefficient budget allocation given the program’s high leakage rate, it was one o f the easiest options for the Government to assist the poor, especially at the height o f the rice price shock in 2008. Still, leakage o f the Government’s resources to non-poor households would have been reduced by PhP13.1 bi l l ion ($0.3 billion) if the program had been better targeted only to the poor. Therefore, while in the short te rm the Government had been l imited by a few available but inefficient options to mitigate the impacts o f the food price shock especially to poor households, in the medium term shifting to a more accurate household-based targeting system will improve i t s ability to ensure that subsidies and transfers actually reach the poorest fami l ies in a mare cost-effective manner.

Conditional Cash Transfer Program

9. Key economic benefits o f the 4Ps Conditional Cash Transfer program are to (i) reduce or mitigate income poverty; and (ii) improve longer-term human capital outcomes, specifically in education and health, o f children in poor households. For each beneficiary household, the 4Ps provides a monthly education grant o f PhP300 per chi ld for 10 months up to a maximum o f 3 children conditional on school attendance and a monthly health and nutrition grant o f PhP5OO to those with children 0 to 14 years old or pregnant women conditional o n their compliance to agreed health conditions (as described in detail in Annex 4).

10. Economic analysis shows that, in the 4Ps beneficiary areas, the Conditional Cash Transfer can significantly reduce poverty. According to data from the HAF survey (administered to conduct the PMT),59 87 percent o f households classified as poor were identified as potential beneficiaries o f the 4Ps, suggesting a limited impact o f demographic restrictions o n the exclusion o f poor households f rom the program. Focusing on poor and eligible households, the 4Ps i s expected to increase their total incomes, on average, by 23 percent, and to reduce poverty incidence in targeted areas by 6.1 percentage points (Table 9.2).60 The impact o f the 4Ps o n the poor’s income gap and on the severity o f poverty in beneficiary areas i s also expected to be substantial. In particular, simulations using the 4Ps data show that the cash transfer could reduce the income gap by 7.6 percentage points and poverty severity by about 5 percentage points. Although preliminary and based on predicted income figures, these estimates are consistent with the results o f impact evaluations o f comparable CCT programs in other countries. In Mexico poverty was reduced by 17 percent in Progresa communities61, whereas in Colombia the Familias en Accion program reduced the poverty gap by more than 6 percentage points.62 In addition, ex-ante evaluation o f the 4Ps done recently by the Asian Development Bank (ADB) using a nationally representative household survey

58 Apart from the Php32.1 billion implicit rice subsidy, this figure includes estimated contracted debts by the NFA, repayment o f debt, and al l administrative costs. 59 As o f March 2009, this dataset provides information on about 750,000 households, o f which 41 8,000 were classified as poor using the PMT. This analysis was based on the November 2008 version of the dataset.

demographic composition o f potential beneficiary households and per capita income predicted using the PMT. 61 Hoddinott and Skoufias, (2004) “The impact o f Progresa on Food Consumption” Economic Development and Cultural Change 53(1):37-61

Institute for Fiscal Studies, Econometrica and SEI, (2006) “Evaluacidn del Impact0 del Programa Familias en Acci6n - Subsidios Condicionado de la Rede de Apayo Social.” Bogota: Departamento Nacional de Planeacidn.

Simulations based on the total cash transfer (health plus education component) computed according to the actual 60

62

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shows that the education transfer alone, if targeted to children o f al l poor households nationwide, could reduce national poverty by as much as 8.3 percentage points.63

Income gap (% o f poverty line)

Severity o f poverty (% o f poverty line)

Table 9.2: Impact of 4Ps on poverty in beneficiary areas

39.7 32.1 -7.6

12.5 7.7 -4.9

I Poverty incidence (“? o f population in 4Ps areas) I 63.5 I 57.4 I -6.1 I

11. Economic analysis also shows that, in the 4Ps beneficiary areas, the CCT will increase primary school enrollment and school attainment. O n average, 82.8 percent o f children 6-14 years old among poor households in 4Ps areas are currently attending school, compared to 89.3 percent of their wealthier counterparts (Table 9.3). The 2004 Annual Poverty Indicators Survey data show that demand-side constraints, notably the lack o f personal interest and the high cost o f education, are the main determinants o f non-attendance in school o f children aged 6-14, especially for those in the poorest quintiles. The 4Ps administrative data do not permit simulating the potential impact o f the 4Ps on daily attendance or behavioral responses in terms o f labor supply. However, using predicted income from the PMT to estimate the income elasticity o f school enrollment and attainment of children aged 6-14, i t i s estimated that the 4Ps could increase children’s enrollment rate by 5 percentage points and their school attainment by an additional year.64 The ADB’s ex-ante evaluation o f the 4Ps shows similar impacts o f the program on schooling. If targeted to al l poor households nationwide with children aged 6-15, the study shows that the 4Ps could reduce the proportion o f poor children not enrolled in school by as much as 6.7 percentage points and increase the proportion o f poor children who study full-time (versus those working part-time) by 4 percentage points nationwide. Virtually al l o f the CCT programs which have been evaluated have had positive effects on school enrollment. In Colombia, Familias en Accidn had an impact o f 2.1 percentage points for children aged 8-165; in Nicaragua Red de Protecidn Social increased enrollment for children age 7-13 by 12.8 percentage points66 whereas, in Mexico, Progresa increased enrollment o f 6th graders by 8.7 percentage points.67

12. The program i s also expected to positively impact health outcomes o f children and pregnant mothers in poor households. Due to data limitations, it i s not possible to perform an ex-ante evaluation o f the program’s impact on health. Nonetheless, CCT programs with comparable average generosity levels, such as Progresa in Mexico and Familias en Accidn in Colombia, have been

Son, H. and J. Florentino (2008) “Ex-ante Impact Evaluation o f Conditional Cash Transfer Program on School Attendance and Poverty: The Case o f the Philippines,” ADB Economics Working Paper Series No. 142.

Simulations based on estimated elasticities to (predicted) income o f 0.21 and 1.4 for enrolment and education attainment o f children’s 6- 14 years old, respectively. 65 Atta nasio et al., (2006) “Child Education and Work Choices in the Presence o f a Conditional Cash Transfer Programme in Rural Colombia” IFS working Paper, W06/01,

Maluccio and Flores, (2005) “Impact evaluation o f a conditional cash transfer program: the Nicaraguan Red the Proteci6n Social.” 67 Schultz, (2004) “School Subsidies for the Poor: Evaluating the Mexican Progresa Poverty Program”. Journal o f Development Economics 74(1): 199-250.

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63

64

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shown to significantly improve health outcomes o f eligible children and mothersS6* Mexico saw a significant increase in nutrition monitoring and immunization rates, as well as reduction in the incidence o f severe illness and stunting o f children aged 12-36 months. In Colombia, enrolment of children below 6 years old in growth monitoring increased by 37 percentage points. As earlier studies in the Philippines reveal a substantial degree o f income-related inequality in maternal and chi ld health indicator^,^^ the 4Ps program i s expected to result in similar positive improvements.

Source. o f data: DSWD-4Ps 2008 administrative data.

13. The successful implementation o f both the NHTS-PR and the 4Ps are seen by Government as the potential back-bone o f a modern social protection system for the Philippines. W h i l e this program i s nascent, close monitoring and impact evaluation o f the 4Ps i s planned. Authorities are aware that, if successful, the CCT program could potentially replace other subsidy and transfer programs as a flagship social protection and poverty reduction program for the country. The SWDRP could thus potentially leverage major change in h o w effectively the Government addresses social protection and targeting o f poverty reduction programs in the future. By enhancing the capacity within DSWD to efficiently implement the NHTS-PR and 4Ps and systematically monitor and evaluate the Department’s main programs, the project i s aimed at promoting the emergence o f a strong institutional leader in the social protection sector.

Financial Analysis

14. With an increased focus on poverty reduction in the context o f the recent food, fuel, and financial crises, the Government has increased i t s attention, commitment, and budget to social protection. National government spending on social protection services is estimated to have constituted only 0.2 percent o f GDP in the past years. Over the course o f 2008 and further in 2009, the Government increased its allocation to various social protection programs. In particular, the DSWD’s budget more than doubled in 2009 (from P4.7 bi l l ion in 2008 to P10.4 billion), with the largest increase given to the implementation o f the 4Ps and the NHTS-PR. To further show its commitment, the Government formulated the Medium Term Expenditure Plan (MTEP) 201 0-20 14 which will assist D S W D in securing more predictable funding for the implementation o f DSWD’s core functions and multi-year programs such as the 4Ps.

.

15. The SWDRP finances a share o f the total costs o f budget line items that correspond to each o f the three project components. For 2009, DSWD’s budget allocation already includes l ine items for the 4Ps and NHTS-PR. From 2010 onwards, specific components o f the SWDRP are also consistent with budget items in D S W D ’ s MTEP 2010-2014 (Table 9.4).

World Bank (2009), “Conditional Cash Transfers for Attacking Present and Future Poverty” 68

69 Philippines 2003 National Demographic and Health Survey.

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Table 9.4: Link of Project Components to DSWD’s Medium-Term Budget, FY 2010-2014

Sources: World Bank and DSWD * Total o f DSWD’s Budget for 2009 and projected budget in the MTEP 2010-2014.

16. That the SWDRP f i t s within the Government’s committed Medium-Term Expenditure Plan for the Department o f Social Welfare and Development speaks to the project’s financial and fiscal sustainability. The amounts proposed for loan financing are based o n a conservative scenario o f “zero real growth” in the budget o f DSWD and will not require increased financing over the l i fe o f the project. This conservative budgetary assumption and the fact that the project i s couched within the DSWD MTEP should ensure i t s sustainability at least over the five years for which eligible households are part o f the program.

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Annex 10: Safeguard Policy Issues

PHILIPPINES: SOCIAL WELFARE AND DEVELOPMENT REFORM

1. The Social Welfare and Development Reform Project (SWDRP) i s likely to deliver direct benefits to the indigenous peoples (IPS) through the Pantawid Pamilyang Pilipino Program (4Ps) or indirectly from their possible inclusion in the national targeting system as well as from policy reforms. Related to this, the Department o f Social Welfare and Development issued Memorandum Circular No. 01 Series o f 2009 or the Indigenous Peoples’ Policy Framework or IPPF .

2. The Framework aims to ensure compliance o f the S W D R P to the Philippines Indigenous People’s Rights Act or IPRA (Republic Act No. 8371) as well as to the World Bank Revised Operational Policy on Indigenous Peoples (OP 4.10).

Policy Context

3. Under the IPRA, indigenous people i s defined as a “group o f people or homogenous societies identified by self-ascription and ascription by others who have continuously lived as organized communities on communally bounded and defined territory, and who have, under claims o f ownership since time immemorial, occupied, possessed and utilized such territories, sharing common bonds o f language, customs, traditions and other distinctive cultural traits, or who have, through resistance to political, social and cultural inroads o f colonization, non- indigenous religions and cultures, became historically differentiated from the majority o f the Filipinos”.

4. The IPRA further provides that IPS have the right to an informed and intelligent participation in the formation and implementation o f any projects be it initiated by government or private entities.

5. In parallel, the World Bank Policy on Indigenous People (OP 4.10) provides that all World Bank-assisted projects shall be designed and implemented “in such a way that Indigenous People do not suffer adverse effects during the development process; or when avoidance i s not feasible, minimize, mitigate or compensate for such effects (paragraph 1)”. Moreover, Bank- financed projects are also “designed to ensure that the Indigenous Peoples receive social and economic benefits that are culturally appropriate and gender and inter-generationally inclusive (paragraph 1)”.

Situation of Indigenous People in the Philippines

6. The data from the National Commission on Indigenous Peoples (NCIP) indicated that there are estimated 1 1.8 mill ion indigenous people in the Philippines as o f 1998. Specifically, a significant number o f IP population are found in Mindanao and the Cordillera Administrative Region (CAR).

7. Although there i s a dearth o f information on the specific conditions o f IPS in the Philippines, several studies showed that they are among the poorest segment o f the population

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mainly due to long history o f isolation and marginalization. Historically, the I P communities have resisted assimilation and have been forced to move to isolated and mountainous areas where basic services have been inadequate. Moreover, many I P children and youth are unable to complete basic education. The C A R continues to register one o f the lowest achievement rates in the country. Similarly, some special studies showed that IPS have l o w availment o f public health services mainly due to misconceptions that these run counter to their cultural beliefs and practices.

Indigenous Peoples Participation Strategies

8. In accordance with i t s mission o f providing social protection and promoting rights and welfare o f vulnerable and disadvantaged communities, the D S W D i s committed to ensure the promotion and protection o f the rights o f al l indigenous people in the Philippines towards poverty alleviation and empowerment. Towards this end, the D S W D developed an Indigenous Peoples Policy Framework (IPPF) which serves as a declaration o f policies and standard procedures in developing, funding and implementing programs, projects and services for indigenous people as part o f the social welfare and development reform. While the IPPF i s ini t ial ly developed for the implementation o f the World-Bank assisted Social Welfare and Development Reform Project (SWDRP), the Department intends to use this to guide other future projects

9. While the specific Indigenous Peoples (IP) communities/groups that will be affected by SWDRP have not been identified during the preparation stage, the DSWD ensured that there i s representation o f NCIP and other IP groups during the various consultations. The Department will continue to coordinate with the NCIP and other national as well as local IP groups during the course o f Proj ect implementation, monitoring and evaluation.

10. Identification o f IPS. The Department will ensure that al l o f their database, starting with the National Household Targeting System for Poverty Reduction (NHTS-PR) has been designed to identify the I P households, which would update the country’s database o n IPS. Specific to the Pantawid Pamilyang Pilipino Program (~Ps), data on the ethnic grouping i s captured in the grantee booklets that al low the program to identify the IPS. The DSWD shall undertake periodic consolidation and analysis o f the profile o f the I P in the 4Ps and NHTS-PR as basis for ensuring the responsiveness o f the program to the specific needs o f the IPS.

11. Whenever the target areas o f the SWDRP shall be determined to cover IP groups, the D S W D shall prepare a detailed I P development plan in the context o f the requisites and format o f the Ancestral Domain Sustainable Development and Protection Plan (as provided for in the NCIP procedures).

12. Integrating IP Concerns in Project. There would be a deliberate effort to include the specific responses to I P concerns in the formulation o f objectives; processes/activities that will facilitate their participation in the implementation o f the various Project components and activities; ways in which IPS could contribute/utilize their own resources (human, material and equipment); and their roles in the structuring o f the project organization. Moreover, various analytical studies would be undertaken to ensure that the Project would not have adverse effects

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on IPS. Social acceptability especially o f the IPS to the projects should be determined through actual consultation with them, where results o f impact analysis and environmental study, among others are presented to serve as their basis in deciding on whether or not the project can and should be undertaken. When adverse effects could not be avoided, there would be plans to minimize said effects as well as appropriate compensation for those who will be affected. These should also be clearly presented to IP communities.

13. Appropriate technical assistance/capability building activities would be given to them to enhance their Project participation. An IP friendly systedmechanism o f addressing complaints/grievances and carrying out redress should be established to immediately respond, among others to violation in IP human rights.

14. The 4Ps shall give focused attention on ensuring that all aspects o f the program are culturally-sensitive and responsive. Among others, this will involve consideration of IP concerns in relation to the conditionalities, mobilization o f grantees, system o f cash transfer and establishment o f grievance redress system. Moreover, the National Advisory Committee, composed o f other government Departments has committed to develop and adopt strategic adjustments to allow full participation o f Ips in the Program.

15. Moreover, during the monitoring and evaluation o f the Project, special focus should be given to the outcome/effects/impact o f the project to the IPS in terms o f participation, empowerment and quality o f l ife, among others. Monitoring and evaluation o f policies and programs (including 4Ps) shall include special analysis on IPS the results o f which shall be use for emerging initiatives.

16. Ensuring IP Participation. The participation o f IPS in terms o f decision making, management, sharing o f resources would be one o f the major considerations in the regular monitoring and evaluation. Aside from determining whether the project i s s t i l l relevant to their needs, effective and beneficial. IP participation in these processes should be ensured. The results o f the monitoring and evaluation on IP concerns shall be fed back to the IP groups and NCIP in a form and manner that would ensure informed discussions.

17. At the onset, activities to enhance and utilize the financial, technical and managerial sk i l ls o f the IPS should be planned and implemented to ensure that they have the capability to continue to sustain the project and i t s effects, and provide technical/managerial inputs to the project.

18. Representation o f NCIP and other IP groups in all major Project structure at all levels will be ensured throughout the project implementation. Among others, NCIPI IP groups will be invited as deemed appropriate to the national and local Advisory Committees o f the 4Ps, policy fora and other bodies that will be organized in the course o f the Project implementation.

Monitoring Compliance to IPPF

19. The Department issued i ts IPPF as Memorandum Circular No. 01 Series o f 2009 to ensure i t s full adoption and implementation by all bureaus and staff at all levels. An inter-bureau

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committee composed o f representatives from the Social Technology Bureau, Program Management Bureau, NPMO-~PS, NPMO-NHTS, Social Welfare Institute and Development Bureau and the Planning and Policy Bureau was created to formulate the IPPF and monitor i t s implementation. Reports on the implementation o f IPPF shall be regularly shared with the NCIP for policy and technical advice.

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Annex 11: Project Preparation and Supervision

PHILIPPINES: SOCIAL WELFARE AND DEVELOPMENT REFORM

Planned Actual PCN review 01/22/2008 0 1 /23/200 8 Initial PID to PIC 10/16/2008 Initial ISDS to PIC 10/31/2008 Appraisal 03/23/2009 Negotiations 08/17/2009 Board/RVP approval 11/17/2009 Planned date o f effectiveness 02/3 0/2009 Planned date o f mid-term review 02/01/2012

10/17/2008 10/3 1/2008 06/10/2009 09/24/2009

Planned closing date 06/30/2014

Key institution responsible for preparation o f the project: Department o f Social Welfare and Development (D S WD). Bank staff and consultants who worked on the Droiect included: Name Title Unit

Task Team Leader EASHS Jehan Arulpragasam Maria Loreto Padua Agnes Albert-Loth

Samuel Haile Selassie Preselyn Abella Dominic Reyes Aumentado Josefo Tuyor Yasuhiko Matsuda Lynette Perez Eduardo Banzon Fe Timonera Robert O’Leary Minneh Kane Caridad Araujo Silvia Redaelli Lourdes Anducta Krist ine San Juan-Ante Luisa Fernandez Rashiel Velarde Xavier Gine Matthew Stephens Rosechin Olfindo Rosario Manasan Rowena Martinez

Social Development Specialist Senior Financial Management Specialist Senior Procurement Specialist Financial Management Specialist Procurement Specialist Operations Officer Senior Public Sector Specialist Senior Education Specialist Senior Health Specialist Disbursement Officer Senior Finance Officer Lead Counsel Economist Young Professional Program Assistant Program Assistant Extended Term consultant Extended Term Consultant Economist Project Officer Consultant Consultant Consultant

EASPS EAPFM

EAPPR EAPFM EAPPR EASPS EASPR EASHE EASHH CTRDM CTRFC LEGES EASHS SASEP EACPF EACPF EASHS EASHS DECRG EACPF EASHD EASHE SASDT

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Bank funds expended to date on project preparation: 1. Bank resources: $43 1,837.45 2. Trust funds: PHRD Grant $500,000 3. Total: $93 1,837.45

Estimated approval and supervision costs: 1. Remaining costs to approval: $50,000 2. Estimated annual supervision cost: $100,000

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Annex 12: Documents in the Project Fi le

PHILIPPINES: SOCIAL WELFARE AND DEVELOPMENT REFORM

A. Project Implementation Plan

B. Bank Staff Assessments

Aumentado, Dominic - World Bank o f Manila Procurement Capacity Assessment, October 2008 Abella, Preselyn- Financial Capacity Assessment, October 2008

C. Others

Manasan, Rosario. Review of Government Programs and Spending Priorities for Social Welfare Social Protection and Social Development: Phase I . October 9,2006.

Ahmed, Akhter U., Agnes R. Quisumbing, James Villafuerte, Rena 0. dela Cruz-Dona. Strengthening Social Protection in the Philippines. May 18, 2004.

Suharto, Edi, Djuni Thamrin. Strengthening Social Protection Systems in ASEAN February 2006.

Rawlings, Laura B. A New Approach to Social Assistance: Latin America’s Experience with Conditional Cash Transfer Programs. August 2004.

National Sector Support for Social Welfare and Development Reform Project (NSS-SWDRP). Bi- Monthly Progress Report. February-March 2008.

National Sector Support for Social Welfare and Development Reform Project (NSS-SWDRP). Bi- Monthly Progress Report. April-May 2008.

National Sector Support for Social Welfare and Development Reform Project (NSS-SWDRP). Major Social Risks and Vulnerability in the Philippines: A Preliminary Survey. 2008.

National Sector Support for Social Welfare and Development Reform Project (NSS-SWDRP). Monthly Progress Report. May 3 1,2007.

Templo, Ofelia M., Philip Arnold Tuailo, Jose Ramon Albert. Evaluation of Existing Poverty Databases and Data Generation Activities. August 2006.

National Sector Support for Social Welfare and Development Reform Project (NSS-S WDRP). Mid- Project Assessment and Indicative Planning Workshop. July 4-6,2007.

100

Annex 13: Statement o f Loans and Credits

PHILIPPINES: SOCIAL WELFARE AND DEVELOPMENT REFORM

Difference between expected and actual

disbursements Original Amount in US$ Millions

Project I D FY Pumose IBRD IDA SF GEF

0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

Cancel.

0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

Undisb.

200.00 232.00

10.60 45.00 80.70 91.68

124.99 99.59

Orig.

0.00 0.00 4.36 9.50

10.45 16.16 64.99 -0.31

Frm. Rev'd

0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

P113492 2009 PO79935 2008 P101964 2007 PO96174 2007 PO84967 2007 PO75464 2006 PO94063 2006 PO64925 2006

Philippines GFRP DPO PH- Natl Rds Improv. & Mgt Ph2 Support for Tax administration Reform PH-Nat'l Prog Supt for ENV & NRMP PH Mindanao Rural Dev. Project - Phase 2 PH-NP Support for HNP PH-NP Support for Basic Ed

LOCAL DEV & INV PH-SUPPORT FOR STRATEGIC

PH-MANILA SEWERAGE 3 PH-2ND WOMEN'S HEALTH & SAFE MOTHERHOOD PH LAND ADMINISTRATION AND MANAGEMENT I1 JUDICIAL REFORM SUPPORT PROJECT PH-Rural Power Project PH LAGUNA DE BAY INSTITUTIONAL STRENGTHE PH: Diversified Farm Income & Mkt. Devt PHSecond Agrarian Reform Communities Dev PH - ARMM Social Fund PH KALAHI-CIDSS PROJECT PH-MMURTRIP

200.00 232.00

11.00 50.00 83.75

110.00 200.00 100.00

0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

25.64 3.79

0.00 0.00

PO79661 2005 PO79628 2005

64.00 16.00

0.00 0.00

0.00 0.00

0.00 0.00

0.00 0.00

45.73 14.99

0.00 PO73206 2005 19.00 0.00 0.00 0.00 0.00 14.24 5.20

PO66076 2004 21.90 0.00 0.00 0.00 0.00 11.44 10.97 0.00

PO66397 2004 PO70899 2004

10.00 5.00

0.00 0.00

0.00 0.00

0.00 0.00

0.00

0.00 0.07 3.00

-4.21 2.90

0.00 -0.01

PO75184 2004 60.00 0.00 0.00 0.00 0.00 32.68 22.68 0.00

PO71007 2003 0.00 0.00 0.00 6.57 6.57 4.44 50.00 0.00

PO73488 2003 PO77012 2003 PO57731 2001

33.60 100.00 60.00

0.00 0.00 0.00

0.00 0.00 0.00

0.00 0.00 0.00

0.00 0.00 0.00

3.19 26.64 11.91

3.19 26.64 11.91

0.00 0.00 7.72

Total: 1,426.25 0.00 0.00 0.00 0.00 1,055.02 220.43 12.15

PHILIPPINESPHILIPPINES STATEMENT OF IFC's

Held and Disbursed Portfolio In Millions o f U S Dollars

Com m itted

IFC

Disbursed

IFC FY Approval Company Loan Equity Quasi

2001 AEI 0.86 0.00 0.00 2002 APW Trade 0.00 0.00 0.65

Alaska Milk 0.00 0.62 0.00 2000 Asian Hospital 3.30 0.00 1 .oo

Bahay Financial 0.00 0.16 0.00

Partic. Loan Equity Quasi Partic

0.00 0.86 0.00 0.00 0.00 0.00 0.00 0.00 0.65 0.00 0.00 0.00 0.62 0.00 0.00 0.00 3.30 0.00 1 .oo 0.00 0.00 0.00 0.16 0.00 0.00

101

2005 2002 2005 1998 2002 2005 2001 2005 2004 1998 1989 1993 1992 2004 2000 2001 2003 2004 2000 1993 1993 2001 2005 1992 2000 1998 2000 2003 1995 1994 1994

Balikatan HF Banco de Oro Cepalco Drysdale Food Eastwood

Eastwood Filinvest Filinvest Lan... Globe Telecom H&Q PV 111 H & Q P V - I H&QPV-I1 Holcim Phil

LARES MFI MEP

MNTC MWC MWC Mariwasa Mindanao Power

Mirant Pagbilao PEDF PLGIC Pilipinas Shell PlantersBank

Pryce Gases STRADCOM

SVI Sua1 Power Walden Mgmt

Walden Ventures

0.00 0.00 15.78 4.3 1 13.53 12.50 17.73 43.69 20.00 0.00 0.00 0.00 0.00 22.00 0.00 36.33 29.84 30.00 10.89 0.00 3.00 1.50 0.00

0.00

0.00 13.34 6.85 0.00 18.29 0.00 0.00

1.89 6.03 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.94 0.15 0.08 1.97 2.70 0.11 0.00 0.00

14.96 0.00 2.22 0.00 0.00 0.00 1.56 0.00 0.00 0.00 2.00 0.00 0.03 0.02

34.31 10.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 3.52 0.00 0.00 0.00 1.50 0.00 2.32 1.70 0.00 0.00 0.00 0.00 0.00

0.00 0.00 0.00 1.87 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 5.82 0.00 0.00

23.88 0.00 0.00

0.00 0.00 0.00 4.3 1

13.53 0.00

17.73 21.84

0.00 0.00

0.00 0.00 0.00 0.00 0.00

36.33 29.84 0.00

10.89 0.00 3.00 0.75 0.00 0.00 0.00

13.34 6.85 0.00

18.29 0.00 0.00

1.89 6.03 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.94 0.15 0.08 1.97 0.00 0.11 0.00 0.00

14.96 0.00 2.22 0.00 0.00 0.00 1.56 0.00 0.00 0.00 0.00 0.00 0.03 0.02

32.13 10.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 3.52 0.00 0.00 0.00

1.50 0.00 2.32 1.70 0.00 0.00 0.00 0.00 0.00

0.00 0.00

0.00

1.87 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

0.00 0.00 0.00 5.82 0.00 0.00

23.88 0.00 0.00

Total portfolio: 303.74 35.44 55.00 31.57 180.86 30.74 52.82 31.57

Approvals Pending Commitment

FY Approval Company Loan Eauitv Quasi Partic

2001 PEDF 2002 Eastwood

0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

Total pending commitment: 0.00 0.00 0.00 0.00

102

Annex 14: Country at a Glance PHILIPPINES: SOCIAL WELFARE AND DEVELOPMENT REFORM

POVERTY and SOCIAL East Lower-

As la & mlddle- PhlilDDlnes Pac l f l c i ncome . .

2007

GN I per capita (Atlas method, US$) GNI (Atlas method, US$ billions)

Average annual growth, 2001-07

Laborforce (%) 3.0

M o s t recent est lmate ( l a tes t year avai lable, 2001-07)

Poverty (% o f population belo wnatlonal PO verty line) Urban population (%of totalpopulation) 64 Life expectancy at birth (pars) 71 infant mortality (per 1000 live births) 24 Child malnutrition (%ofchildren under5) 21 Access to an improved water source (%of population) 93 Literacy (%ofpopulation age 159 93 Gross primaryenrollment (%of school-age population) 10

Male 10 Female 0 9

Population, mid-year (millions) 87.9 1620 142.6

' Population (Yd 2.0

KEY ECONOMIC RATIOS and LONG-TERM TRENDS

I987 I997

GDP (US$ billions) 33.2 82.3 Gross capital formationiGDP 7.5 24.8 Exports of goods and services/GDP 26.6 49.0 Gross domestic savingsIGDP 17.9 14.4 Gross national savings/GDP 17.1 8.9

Current account baiance/GDP -13 -5.3 Interest paymentslGDP 4.0 2.1 Total debtlGDP 89.7 616 Total deb! service/exports 36.0 9.3 Present value of debt/GDP Present value of debtlexports

1987-97 1997-07 2006 (average annualgrowth) GDP 3.2 4.5 5.4 GDP percapita 0.8 2.4 3.4 Exports of goods and services 9.5 5.2 112

1914 2.80 4.74

0 8 12

43 71 24 13

67 91 tu I11

0 9

2006

17 6 143

46 4 131

33 2

4 3 30

513 20 0 53 0 910

3,437 1887

6,465

1.1 15

42 69 41 25 88 69 111 It? a 9

2007

144.1 15.0

39.4 a.4

29.5

4.5

2007 2007-11

7.3 6.4 5.3 4.8 5.4 4.9

l e v e i o pment d lamo nd*

Life expectancy

-

Gross primary

enrollment capita

I

Access to improvedwatersource

-Philippines __ Lower-middle-Income group

i c o n o m i c rat ios '

Trade

T

Indebtedness

-Philippines ~ Lower-middle-income group

STRUCTURE o f the ECONOMY

(%of GDP) Agriculture Industry

Services Manufacturing

1987 1997

24.0 8.9 34.4 32.1 24.8 22.3 416 49.0

Household final consumption expenditure 73.7 72.4 General gov't final consumption expenditure 8.4 13.2 Imports of goods and services 26.2 59.3

(average annualgrowth) Agriculture industry

Manufacturing SENICES

1987-97 1997-07

18 3.6 3.3 3.4 3.0 4.0 3.8 5.7

Household final consumption expenditure 3.6 4.6 General gov't final consumption expenditure 4.0 15 Gross capital formation 6.5 10 imports of goods and services 113 3.4

2006

14.2 316 22.9 54.2

77.2 9.7

47.6

2006

3.8 4.5 4.6 6.7

0.4 6.1 2.7 1.9

2007

13.5 313 22.0 55.2

79.6 n o

43.9

2007

3.5 6.0 4.0 9.7

3.1 9.7

8.7 2.5

Growth o f cap i ta l and GDP (%) 20

-20 -0CF -GDP

iGrowth o f expor ts and impor t s (%) 20 7

Note 2007 data are preliminaryestimates This tablewas producedfrom the Development Economics LDB database 'Thediamonds showfourkeyindicators in thecountry(in b0id)compared with its income-groupaverage if dataare missing, thediamondwil

be incomplete

103

B A L A N C E of P A Y M E N T S

(US$ millions) Exports of goods and services Imports of goods and services Resource balance

Net income Net current transfers

k o m p o s i t i o n of 2006 debt (US$ mill.)

A 2,690 G 5,009 8 lS6

1987

8,065 7.861 204

-1,221 573

Current account balance -444

Financing items (net) Changes in net resewes

708 -264

Memo: 1959

Conversion rate (DEC,/oca//US$j 20.6

E X T E R N A L DEBT and RESOURCE FLOWS

(US$ millions) Total debt outstanding and disbursed

Reserves including gold (US$ millions)

1987

29.785 IBRD 3,747 IDA 99

Total debt service IBRD IDA

3,376 494

1

Composition o f net resource flows Official grants 331 Official creditors 734 Private creditors -623 Foreign direct investment (net inflows) 307 Portfolio equity(net inflows) 0

World Bank program Commitments Disbursements Principal repayments Net flows Interest payments Net transfers

342 270 220

51 275

-225

1997

40,36551 50,477 -0 .W

4,681 1044

-4,387

1024 3,363

8.799 29.5

1997

50,706 4,v9

195

4,554 709

3

202 88

3,153 1222 -406

60 305 409 -04 303

-408

20062

,561 59,185 -7.624

-543 0.189

5,022

-1,253 -3,769

22,967 513

20062

60,324 2,690

196

0,681 524

8

0 9 -30

-992 2,345 2,388

4 0 0 2 390

-258 142

-400

007

55,702 62,183 4,482

-1047 14,001

6,473

8 0 -7.283

30,249 46.1

007

2,726 8 5

563 8

395 372 4 0 -38 F 1

-199

ICur ren t accoun t ba lance t o G D P ( 5 6 )

~ A - I B R O E - Bilatetsl 8-IDA D-Othermltilateral F-Privats

G - Wrt-ten I C - I M F

Note:This tabiewas producedfrom the Development Economics LDB database. 9/24/08

104

Annex 15: Governance and Anti-Corruption Action Plan (GACAP)

PHILIPPINES: SOCIAL WELFARE AND DEVELOPMENT REFORM

1. Overview of the Governance and Anti-Corruption Action Plan

Development projects in the Philippines operate in a high-risk environment in terms o f fraud, error and corruption. Lack o f effective sanctions combined with limited public accountability and political interference in budget processes have created an environment that requires robust systems for corruption prevention and redress.

L ike most Conditional Cash Transfer (CCT) programs, S WDRP presents particular implementation challenges from a governance and anti-corruption perspective. I t i s large in scope, with over 376,000 beneficiaries and a high volume o f financial transactions. It i s politically high-profile and engages multiple government actors at the national and sub-national levels. By targeting the poorest o f the poor, project locations are often in remote and inaccessible areas, exacerbating implementation challenges and increasing risk.

SWDRP has three major advantages, however, compared to most development projects in the Philippines. Firstly, there i s only a small amount o f procurement, reducing the prospects o f corruption in a high-risk area. Secondly, funding is channeled directly f rom the government to individual beneficiaries, vitiating the prospect o f direct siphoning o f funds. And finally, SWDRP i s able to draw on significant CCT global experience to strengthen the design o f anti-corruption measures.

The Project will be implemented in accordance with the provisions o f the Anti-Corruption Guidelines This Annex summarizes the Governance and Anti-Corruption Act ion Plan (GACAP) for the project. It draws primarily on a series o f outputs produced under an AusAID-funded Externally Financed Output (EFO) arrangement with the Bank, Good Governance and Anti-Corruption in a Conditional Cash Transfer Program.70 Activities funded under the EFO include technical assistance to design the targeting, compliance monitoring, spot check and M I S systems; a Process Risk Mapping exercise to identify project vulnerabilities; a Strategic Communications Plan; Grievance Redress System; and a department-wide Integrity Development Review. It i s also informed by international practice and f ield experience from the Philippines CCT program, which was launched as a pi lot by the government in October 2007. .

2. MajorRisks

The major vulnerabilities o f SWDRP are a mixture o f technical, governance and political risks, as detailed below:

0

0

interference or political bias in the geographic allocation o f program locations interference or errors in the process o f targeting and registering beneficiaries interference or errors in the process o f monitoring compliance with program conditions interference or errors in the payment process

~

This EFO commenced in May 2008 and has been extended until June 2010. 70

105

0 political interference by local chief executives through the levying o f unofficial “taxes” or the imposition o f additional conditions on beneficiaries; and

0 lack of institutional clarity between different central government agencies

Geographic selection - the integrity o f a CCT program can be undermined if target locations are not based on poverty incidence. The absence o f objective selection criteria would leave the program open to interference by politicians or officials seeking electoral or financial gain through the allocation o f target areas.

Targeting and registration of beneficiaries presents the largest set o f problems. Unintentional survey or enumeration errors could exclude eligible beneficiaries. Beneficiaries could provide false information to bias eligibility decisions. Politicians or government officials could register supporters or exclude opponents for political purposes.

Updating the status of beneficiaries i s also another area o f potential fraud or corruption. When beneficiaries move to non-project areas, an eligible recipient passes away or other status changes occur, there are few incentives for beneficiaries to report such changes in circumstances.

Compliance monitoring is a complex process, demanding significant capacity to collect and manage data. Failure to effectively manage this data can either delay payment or effectively create an unconditional cash transfer program, which would not only undermine project outcomes but be politically untenable in the Philippines context. Compliance monitoring must be made as simple as possible.

The beneficiary payment system is de-linked from government systems or other middlemen, mitigating leakage risks. A number o f vulnerabilities do exist, however. Long distances and cost o f travel to collect payment (for instance, beneficiaries in remote rural communities travelling to a city to access an Automated Teller Machine) can encourage the emergence o f intermediaries who charge a fee to collect payments on behalf o f beneficiaries. This practice opens up the possibility o f siphoning or theft.

Besides fraud, error and corruption, the other major risk to CCT programs from a governance perspective i s the possibility o f supply-side shortages. Conditional Cash Transfer programs generate significant demand-side pressures on schools and health facilities. Additional students and patients require an adequate supply o f teachers, education materials, qualified health personnel, equipment and medications. Insufficient upstream assessment o f supply-side availability or downstream coordination between implementing agencies, social sector line agencies and local government units can severely restrict achievement o f program outcomes.

3. Key Elements of the GACAP

SWDRP’s Governance and Anti-Corruption Action Plan responds to these identified risks with 5 major sets o f activities:

(i) Establishment of inter-agency governance structures from national down to municipal level to coordinate supply-side and compliance monitoring;

106

(ii) Corruption and leakage prevention through a project design that selects beneficiaries based o n objective, poverty-based criteria and channels payments directly to beneficiaries; Robust monitoring and audit systems, including rigorous spot checks, c iv i l society oversight and social audit; Transparency and accountability through a detailed communications plan and grievance redress system; and Sanctions and remedies to back-stop preventive measures, particularly against political abuse o f power.

(iii)

(iv)

(v)

(i) Governance Structure

DSWD is the implementing agency for SWDRP. However, the Department’s reach extends only to the regional level. Furthermore, supply-side requirements and compliance monitoring are the responsibility o f the Departments o f Health and Education. Thus, cooperation with Local Government Units (LGUs) and central l ine agencies is a crucial element o f the GACAP.

These governance challenges are being addressed through the establishment o f inter-agency National, Regional and Municipal Advisory Committees. Starting at the national level, membership o f which includes DSWD, the National Economic and Development Authority (NEDA), the Departments o f Education and Health, the Department o f the Interior and Local Government (DILG) and the National Anti-Poverty Commission (NAPC), the committees are intended to manage supply-side demands and compliance monitoring issues. Responsibilities o f each department are described in a Joint Memorandum Circular, signed by the respective Departmental Secretaries.

Sub-national coordination i s governed by Memoranda o f Understanding that clarify lines o f authority and responsibility between D S W D and participating LGUs.

lii) Prevention o f corruption and leakage

Some degree o f fraud, error and corruption i s inevitable. However, many o f the possible risks can be prevented through the project design.

The main preventive strategy i s the establishment o f an objective, scientific, poverty-based mechanism to select geographic areas and individual household beneficiaries. Geographic selection i s based on the Family Income and Expenditure Survey (FIES) and the Small Area Estimate (SAE) data, the government’s two major poverty data sets. A proxy-means test (PMT) is utilized to identify individual households.

Once generated by the PMT, beneficiary l i s ts are subjected to a second-line o f verification through social audit/community validation before finalization.

Cash payments under S W D R P are made through ATM electronic banking direct to beneficiaries, removing middlemen and reducing opportunities for leakage.

107

(iii) Oversight and monitoring

Preventive measures are underpinned by a strong monitoring framework. The core o f this structure is a bi-annual monitoring spot check. To be executed by an independent third party organization (NGO, university or private firm), the spot check methodology combines quantitative and qualitative assessments to assess the integrity of targeting, compliance monitoring and payment systems. In addition to generating valuable monitoring data, the threat o f a spot check also acts as an incentive for officials to fol low project guidelines.

In any CCT program, the Management Information System (MIS) i s crucial. Compliance monitoring, updates and grievances are handled through the MIS. Significant technical assistance has been provided to the SWDRP Project Management Office for MIS design and implementation.

Civi l society oversight will complement routine monitoring by the Project Management Office and DSWD staff. For this purpose the project will support an Independent Monitoring and Advisory Committee (IMAC), comprising eminent members o f c iv i l society, academics and former senior government officials.

Spot checks and monitoring will be further strengthened by regular process andfinancial audits by the DSWD Internal Audit Service (IAS), the Commission on Audit and independent financial audit teams. The SWDRP project and ongoing parallel technical assistance funded by AusAID will strengthen the IAS and department-wide integrity systems.

Jiv) Transparency & Accountability

Transparency in the project commences with publicity campaigns at community level and targeted briefings to opinion makers and decision-takers (media, business community, c iv i l society, politicians, local chief executives) o n the operation o f the targeting system. This is intended to build understanding o f and support for the objective, poverty-based process and to anticipate and prevent suggestions o f political favoritism in selection.

Beneficiary lists are then posted publicly at the community level for verification and available on request to media and other groups.

The communications strategy also includes activities to educate beneficiaries about their rights under the program, including the prohibition on Mayors and other officials f rom imposing “taxes” or additional conditions.

Each beneficiary, plus local leaders such as the barangay captain, religious leaders, teachers and health officials receive information on the existence o f the grievance redress system and channels for submission o f complaint in case o f fraud, error corruption or supply-side problems.

The project’s frontline accountability measure is a comprehensive Grievance Redress System (GRS). The GRS structure comprises grievance focal points and grievance at the Municipal, Regional and National levels. The GRS will capture and respond to complaints submitted either directly to project staff or through drop boxes, a national SMS hotline and other channels.

108

Most complaints are expected to be received by program Parent Leaders at the community level or Municipal Link Officers hired by DSWD to facilitate project implementation in each municipality. They will be provided with grievance forms and orientation o n the GRS. All complaints received will be entered into a publicly accessible grievance database that will track resolution progress and sanctions applied and aid analysis o f weaknesses in project design and implementation.

Complaints resolution protocols have also been established in the Grievance Redress Manual, including stipulated timelines for the resolution o f complaints ranging from inclusion and exclusion error up to corruption and political abuse o f power.

(v) Sanctions and Remedies

The final element o f the GACAP is a set o f sanctions and remedies that will back-stop the preventive and corrective measures detailed above. Project staff or officials will be prosecuted if evidence exists o f corruption. In al l procurement contracts, evidence o f corruption, collusion, nepotism will result in termination o f the contract in question, possibly with additional penalties imposed, in accordance with Bank and Government regulations.

But the greatest risk to the integrity o f the program i s not technical, but political. Political abuse o f power could take several forms: (i) politicians or officials seeking to expand the program into new areas without following poverty criteria; (ii) registration o f supporters or exclusion o f opponents from the 4Ps beneficiary l ist; or (iii) municipal or barangay officials imposing additional conditions or “taxes” on beneficiaries. Protocols are articulated in the Operations Manual as to the process for addressing such cases.

Local media interest in the program i s both high and at times heavily politicized, thus it i s important to not only mitigate actual political abuse o f power but also the perception o f such abuse. In that regard, the government has undertaken to freeze new registrations three months before the 2010 election to prevent possible perception o f abuse.

As a measure o f last recourse, in cases o f widespread dr systemic abuse of power, entire Municipalities can be excluded from the project or the transfer o f funds suspended or terminated.

109

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MAP SECTION

Iligan

PasigQuezon

GeneralSantos

Lucena

ViracBatangas

BoacMamburao

Romblon

Santa Cruz

Antipolo

BalerPalayan

TarlacIba

MalolosBalanga

Trece Martires

Laoag City

ViganBangued

Tabuk

Ilagan

Cabarroguis

BontocLagawe

BayombongLa Trinidad

Lingayen

Kabugao

Basco

Puerto Princesa

Pili

Sorsogon

Daet

MasbateCatarman

BoronganCatbalogan

Naval

Maasin

Bacolod

Dumaguete Siquijor

Tagbilaran

Mambajao

Surigao

San Jose

Tandag

Tubod

Prosperidad

TagumNabunturan

MatiKidapawan

DigosIsulan

Marawi

Malaybalay

OroquietaDipolog

Ipil

IsabelaCity

Jolo

KaliboRoxas City

San Jose deBuenavista

Jordan

Alabel

PanglimaSugala

Zamboanga Shariff Aguak(Maganoy)

San Fernando

Tuguegarao

BaguioSan Fernando

Legaspi

Tacloban

Cebu

Butuan

DavaoCotabato

Cagayande Oro

Iloilo

Pagadian

Koronadal

Calapan

Calamba

MANILA

1

2

4

6

7

11

14

17

18

19

20

2122

16

23

2425

27

31

39

42 46

47

49

54

75

59

62

65

66

71

73

74

76

81

80

77

78

63

3

5 9

10

8

12

13

15

28

29

30

26

32

33

34

35 36

37

38

40

41

43

44 45

48

50

51

52

53

55

56

58

61

64

68

69

70

60

67

72

57

ZAMBOANGA CITY

ICAR II

III

IV-A

V

IV-B VI VII

VIII

IX X

XIII

XI

XII

ARMM

NCR

MALAYSIA

Celebes Sea

Moro

Sulu Sea

Leyte Gulf

Visayan

Sea

Mindoro Strait

SibuyanSea

Phi l ippine

Sea

Babuyan Channel

Luzon Strai t

Gulf

DavaoGulf

MindanaoSea

BatanIslands

BabuyanIslands

PolilloIslands

LubangIslands

Catanduanes

TicaoSibuyanTablas

Busuanga

SemiraraIslands

CuyoIslands

Culion

Linapacah

Dumaran

Bugsuk

Balabac

Cagayan Sulu

Tawi-Tawi

Sulu

Basilan

Mindanao

CamiguinSiquijor

Negros

Panay

Bohol

Cebu Leyte

SamarMasbate

Marinduque

BuriasMindoro

Palawan

Luzon

Dinagat

Siargao

Sarangani

20ºN

10ºN

5ºN125ºE

120ºE

125ºE

IlocosIlocos NorteIlocos SurLa UnionPangasinan

Cordillera Admin. Reg.AbraApayaoBenguetIfugaoKalingaMountain Province

Cagayan ValleyBatanesCagayanIsabelaNueva VizcayaQuirino

Central LuzonAuroraBataanBulacanNueva EcijaPampangaTarlacZambales

National Capital Reg.

CALABARZONBatangasCaviteLagunaQuezonRizal

MIMAROPAMarinduqueMindoro OccidentalMindoro OrientalPalawan*Romblon

BicolAlbayCamarines NorteCamarines SurCatanduanesMasbateSorsogon

Western VisayasAklanAntiqueCapizGuimarasIloiloNegros Occidental

Central VisayasBoholCebuNegros OrientalSiquijor

Eastern VisayasBiliranEastern SamarLeyteNorthern SamarSamarSouthern Leyte

Zamboanga PeninsulaZamboanga del NorteZamboanga del SurZamboanga SibugayZamboanga City

I1234

CAR56789

10

II1112131415

III16171819202122

NCR

IV-A2324252627

IV-B2829303132

V333435363738

VI394041424344

VII45464748

VIII495051525354

IX555657---

Northern MindanaoBukidnonCamiguinLanao del NorteMisamis OccidentalMisamis Oriental

Davao Reg.Compostela ValleyDavao del NorteDavao del SurDavao Oriental

SOCCSKSARGENNorth CotabatoSaranganiSouth CotabatoSultan Kudarat

CaragaAgusan del NorteAgusan del SurDinagat IslandsSurigao del NorteSurigao del Sur

Autonomous Reg. inMuslim MindanaoBasilanLanao del SurMaguindanao**SuluTawi-Tawi

X5859606162

XI63646566

XII67686970

XIII7172737475

ARMM

7677787980

**Shariff Aguak (Maganoy) andSultan Kudarat serve as co-capitalsof the province.

*Executive Order 429, May 23, 2005,provides for the transfer of Palawanprovince (#31) from Region IV toRegion VI; Administrative Order 129holds EO429 in abeyance until animplementation plan is approvedby the President.

PHILIPPINES

0 50 100

0 50 100 Miles

150 Kilometers

IBRD 33466R4

MAY 2009

PHIL IPPINESSELECTED CITIES

PROVINCE CAPITALS

REGION CAPITALS

NATIONAL CAPITAL

RIVERS

MAIN ROADS

RAILROADS

PROVINCE BOUNDARIES

REGION BOUNDARIES

INTERNATIONAL BOUNDARIES

This map was produced by the Map Design Unit of The World Bank. The boundaries, colors, denominations and any other information shown on this map do not imply, on the part of The World Bank Group, any judgment on the legal status of any territory, o r any endo r s emen t o r a c c e p t a n c e o f s u c h boundaries.