Learning Curves

OED
July 2008

IncreasingStrategicFocusfor BetterResultsinthePhilippines

ADBsassistanceprogramtothePhilippinesoverthepast5years(20032007)hasbeen successfulinmeetingitsmoreselectiveobjectives,butimprovementsareneeded. Thecontextforthenextcountrystrategyremainsdaunting.ThePhilippinesneedsto (i)continuetoexercisefiscaldisciplineandfurtherexpanditsfiscalspace;(ii)institutegood governancemorewidely;(iii)accelerateinfrastructure,education,andothersocialservice development;(iv)supportexpansionanddiversificationoftheeconomicbase;and(v)make accesstodevelopmentopportunitiesmoreequitable.

Background ThegrowthrecordofthePhilippineshasbeen erraticsinceindependencein1948.Inthe1950s,state policiesencouragedimportsubstitution.The1960ssaw aweakexportpromotionstrategy,whilethe1970s emphasizedgrowththatreliedonforeignsourced funds.Resultsweremixedandthecostswereperiodic balanceofpaymentscrisesandsharpexchangerate devaluationsthat,repeatedly,setbackeconomic progress.However,during20022007,thePhilippines achieved6consecutiveyearsofannualgrossdomestic productabove2%andaveraging5.6%.Drivenlargely byanexpandedservicesectoraswellasrising remittances,growthwasaccompaniedbylowto moderateinflation,lowinterestratessince2001,and unprecedentedcurrentaccountsurplusesthatboosted thebalanceofpaymentsposition. TheAsianDevelopmentBank(ADB)andthe Philippinespartneredin1966.Byend2007,ADBhad approved$9.8billioninpublicsectorloansand $148.8millionintechnicalassistance.Throughits privatesectoroperations,ithadalsoapproved$275 millioninloansand$37millioninequityinvestments. ADBsOperationsEvaluationDepartment completedthefirstCountryAssistanceProgram EvaluationforthePhilippinesin2003.Theevaluation coveredADBsassistanceprogramsince1966,witha focusonthe1980sand1990s,andrateditpartly successful.The2008CountryAssistanceProgram Evaluation 1 assessedtheperformanceofADB
Operations Evaluation Department Asian Development Bank

assistancesince2003asaninputtothenextcountry partnershipstrategy. In2003theADBPhilippinespartnershipwasfaced withthreekeychallenges:(i)anexcessivelybroad countrystrategyandprogramwithweak implementationperformance;(ii)alargefiscaldeficit resultinginlowgovernmentspendingonessential publicgoods;and(iii)aweakinvestmentclimate,and wideregionaldisparitiesresultinginpersistent unemployment,inequality,andpoverty,particularlyin thesouthernandeasternareasofthecountry. SummaryofFindings ThestudyassessedthatinthecourseofADBs operationsfrom2003theprogrambecamestrategically focused,portfolioperformanceimproved,andprogram selectivitywasguidedbycountryspecificconstraints. Achievementswerebroughtaboutby(i)publicfinance managementandreform,(ii)furtherdevelopingcapital marketsandenergysuppliestoenhancetheprivate sectorenablingenvironment,(iii)continuedfocuson developmentofthesouthernPhilippines,(iv)support forregionalcooperationinitiatives,(v)portfolio cleanup,and(vi)timelyuseofprogramlending. Privatesectoroperationsinenergygenerationwere initiated.Afeatureofsupportforfiscal,energyand financialreformswasthedegreetowhichpolitical economyfactorswerealignedintheprogram.ADBs strategicpositioning,institutionalperformance,and contributionstodevelopmentresultswasrated successful.

6 ADB Avenue, Mandaluyong City, 1550 Metro Manila, Philippines Tel +63 2 632 4444; Fax +63 2 636 2444; evaluation@adb.org; www.adb.org/evaluation/

ADBssectorassistancewasdeemedsuccessful, withneedforimprovement.Itsperformancewas foundedon(i)supportformacroeconomicstabilityand fiscalconsolidation,(ii)assistanceforimprovedbudget allocationsandefficiency,(iii)progressonenergysector restructuringandcapitalmarketdevelopmentto supporttheprivatesectorenablingenvironment,(iv) programmaticassistancetohealthandaprojectin educationthatprovidedmodelsandlessonsfor advancingdecentralization,and(v)variedperformance intheinfrastructure,urban,rural,andwatersectors. Thekeyfindingsandlessonsofthestudywerethat (i)selectivitybasedoncountryspecificconstraints, governmentcommitment,stakeholderinvolvement, andamediumtermpolicyreformengagementwasa moreeffectiveapproach,(ii)regionalfocusonthe southernPhilippinespresentssomepositiveresultsbut improvementsareneeded,(iii)contributionsto improvingtheprivatesectorenablingenvironment werelimitedtospecificsectors,(iv)addressinggood governanceandcorruptionhasmovedbeyondproject boundariestoasectorfocus,and(v)supportforlocal servicedeliverywasrelevantandwouldbenefitfrom systematicsupportthroughdecentralization. ThestudyconcludedthatADBsassistanceprogram overthepast5years(20032007)hasbeensuccessfulin meetingmoreselectiveobjectives.However,thelarger contextforthenextcountrystrategycontinuestobe daunting.Povertyishigh.Progresstowardthe MillenniumDevelopmentGoalsisslowandlagging inkeyareas,andgovernmentexpendituresforrelated socialandeconomicservicesarestilllowrelativeto needs.Privatecapitalformationislowcomparedto neighbors.Theexportbaseisnarrowanditsvalue addedlow.Theprivatesectorperceivescontrolof corruption,infrastructure,andeducationasneedsto improvingcompetitiveness.Infrastructureandsocial expenditureincreasesareneeded,financedbya strengthenedrevenueeffort.Expendituresmustbe moreefficientandhavegreaterimpact.Thereforming energysectorhasyettoachievewidercompetitionand lowerelectricityrates.Investmentratesarelowand governanceconcernscontinuetoinfluenceinvestor confidence.Globalfactorssuchasslowinggrowth,a creditsqueeze,highoilandfoodprices,andrising inflationaddtotheseconstraints. Recommendations Thestudyrecommendedthatthenextcountry strategy(i)followthroughonfiscalreformsandfurther
Learning Curves available @ www.adb.org/evaluation/

improvementinsectorbudgetallocationsand institutionalreforms,(ii)extendsystematicsupportfor institutionalstrengtheningandcapacitydevelopment, (iii)bringawideperspectivetoimprovementsinthe privatesectorenablingenvironmentbutafocusedADB response,(iv)explorealternativewaystoaddress infrastructuredevelopment,(v)supportagricultureand ruraldevelopmenttoaddressruralpovertyand efficientandsustainableagriculturalproduction,(vi) continuethefocusonthesouthernPhilippinesand includeotherpoorprovinces,andexpandthelinkage betweenruraldevelopmentandregionalcooperation initiatives,and(vii)combineprogram,programmatic, andinvestmentlending.Thestudysubmittedstrategic recommendationstoADBsManagement: Maintainthestrategicfocusonimprovingnational publicfinancegovernanceandmanagement. Deepensupportforlocalgovernanceand decentralizedservicedeliverytoimprovepublic expenditureefficiencyandgovernance. Continuetosupportprivatesectorenabling environmentimprovements. Focusonpoorprovincestoaddresspoverty reductionandbuildonsynergiesbetweenlocal developmentandregionalcooperationinitiatives,in particulartheBrunei,Indonesia,Malaysia, PhilippinesEastASEAN(AssociationofSoutheast AsianNations)GrowthArea. Enhanceservicestotheclientthroughexpanded policydialogue,furtherharmonizationwith developmentpartners,greateruseofprogrammatic approaches,balancestaffresourceallocation,and clarifythecountryofficerole. Feedback ADBsManagementrespondedtothefindingsand recommendationsofthisstudy.WhentheseLearning Curveswereprepared,theChairsSummaryofthe DevelopmentEffectivenessCommitteeDiscussions wasnotavailablefordisclosuretothepublic.Thestudy wascompletedinJune2008. 1 ADB.2008.CountryAssistanceProgramEvaluationfor thePhilippines:IncreasingStrategicFocusforBetter Results.Manila.Available: http://www.adb.org/Documents/CAPES/PHI/CAP PHI200820/CAPPHI200820.pdf

Team Leader: Richard Bolt; Tel +63 2 632 4116; rbolt@adb.org