World Bank

Public Disclosure Authorized
Document of The World Bank FOR OFFICIAL USE ONLY Report No. 47916-PH
INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT
INTERNATIONAL FINANCE CORPORATION
MULTILATERAL INVESTMENT GUARANTEE AGENCY
COUNTRY ASSISTANCE STRATEGY FOR THE REPUBLIC OF THE PHILIPPINES

FOR THE PERIOD FY 2010-2012
April 2, 2009
Philippines Country Team, World Bank East Asia and Pacific Region International Finance Corporation East Asia and Pacific Department Multilateral Investment Guarantee Agency East Asia and Pacific Department
This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.
The last Country Assistance Strategy (CAS) Report No. 32141-PH was discussed by the Board on May 17, 2005, and the last CAS Progress Report No. 40085-PH was dated June 21, 2007
Vice President Country Director/ Resident Representative Task Team Leader Co-Task Team Leader
World Bank James W. Adams Bert Hofman Lada Strelkova Andrew Parker
IFC Rashad-R. Kaldany Karin Finkelston Jesse Ang Magdi Amin
MIGA Izumi Kobayashi Frank Lysy Conor Healy
CURRENCY EQUIVALENTS Currency unit: Pesos (Php) as of April 2, 2009 US$1 = Php 48.27 FISCAL YEAR January 1 December 31
This Country Assistance Strategy (CAS) was prepared under the guidance of Bert Hofman, IBRD Country Director, and Jesse Ang, IFC Resident Representative, by a team led by Lada Strelkova, Task Team Leader (TTL) and Andrew Parker, co-TTL. The IFC team integral to the development of this CAS was led by Magdi Amin, Principal Strategy Officer. MIGA participation was led by Conor Healy, Risk Management Officer. Nigel Twose provided overall guidance on the joint IFC-IBRD strategy development. The CAS Core Team included: David Llorito, Leonora Gonzales, Lilanie Magdamo, Maribelle Zonaga, Maryse Gautier and Yolanda Azarcon and the following Working Group Leaders: Ben Eijbergen, Carol FigueroaGeron, Eduardo Banzon, Eric Le Borgne, Jehan Arulpragasam, Josefina Esguerra, Karl Kendrick Chua, Kim Henares, Maria Loreto Padua, Mukami Kariuki, Swati Ghosh, and Yasuhiko Matsuda. Core team support was provided by: Cynthia Manalastas, Grace Borja, Maria K. Hermoso, Maria Liberty Cardenas, Ludy Anducta, and Necitas Garcia from IBRD; Andrey Manalo from IFC; and Yoshine Uchimura, and Zafar Ahmed (consultants). The following CAS Working Group members and other colleagues have also made important contributions to this strategy: Agnes Albert-Loth, Cecille Vales, Christopher Pablo, Fabrizio Bresciani, Florian Lazaro, Hamid Alavi, Hiroshi Tsubota, Josefo Tuyor, Felizardo Virtucio, Jr., Iain Shuker, Jonas Bautista, Lynnette Dela Cruz Perez, Mark Woodward, Mario Suardi, Mary Judd, Ma. Bella Tumaliwan-Belizario, Matthew Stephens, Maya Villaluz, Miguel Navarro-Martin, Rashiel Velarde, Rayah Sarah Judy Padilla, Rey Ancheta, Rosechin Olfindo, Salvador Rivera, Sameer Goyal, Sheryll P. Namingit, Simon Gregorio, Maria Theresa Quinones, Timothy Johnston, Ulrich Lachler, Victor Dato, and Zahid Hasnain from IBRD; and Aileen Ruiz, Ali Naqvi, Colin Taylor, Deepa Chakrapani, Euan Marshall, Gerlin Catangui, Julie Bayking, Lulu Baclagon, Matthew Gamser, Patricia Wycoco, Rafael Dominguez, Val Bagatsing, Will Beloe, and William Haworth from IFC. Other members of the Bank-wide Philippines Country Team (including IBRD, IFC and MIGA) have also contributed. Special thanks are extended to the Government of the Philippines counterpart team and World Bank Group development partners for their contributions.
ACRONYMS AND ABBREVIATIONS AAA ADB AIDS ARCDP2 ARMM AusAID BSP BEIS BIR BOC BTr CALABARZON CAS CCT CDD CDS CGAC CIDA CMU CLT COA CPBD CPI CSOs DBM DBPLID DENR DepED DFIMDP DILG DOE DOF DOH DPL DPWH DRM EAP ECSLRP EC FDI FIES FM FSAP JICA GAD GDP GFDRR GFIs GIFMIS GNP GOCC IBRD ICT IEG IFC IMF INT Analytical and Advisory Activities Asian Development Bank Acquired Immune Deficiency Syndrome Agrarian Reform Communities Development Project 2 Autonomous Region in Muslim Mindanao Australian Agency for International Development Bangko Sentral ng Pilipinas (Central Bank of the Philippines) Basic Education Information System Bureau of Internal Revenue Bureau of Customs Bureau of Treasury Cavite, Laguna, Batangas, Rizal and Quezon provinces Country Assistance Strategy Conditional Cash Transfer Community-Driven Development City Development Strategy Country Governance and Anticorruption Canadian International Development Agency Country Management Unit Country Leadership Team Commission on Audit Congressional Planning and Budget Department Consumer Price Index Civil Society Organizations Department of Budget and Management Development Bank of the Philippines/ Local Infrastructure Development Department of Environment and Natural Resources Department of Education Diversified Farm Income and Market Development Project Department of Interior and Local Government Department of Energy Department of Finance Department of Health Development Policy Loan Department of Public Works and Highways Disaster Risk Management East Asia and Pacific Electric Cooperatives System Loss Reduction Project European Commission Foreign Direct Investment Family Income and Expenditure Survey Financial Management Financial Sector Assessment Program Japan International Cooperation Agency Gender and Development Gross Domestic Product Global Facility for Disaster Reduction and Recovery Government Financial Institutions Government Integrated Financial Management Information System Gross National Product Government Owned and Controlled Corporations International Bank for Reconstruction and Development Information and Communication Technology Independent Evaluation Group International Finance Corporation International Monetary Fund Department of Institutional Integrity
FY10-12 Country Assistance Strategy for the Philippines
April 2, 2009
IPs ISRs IRA KALAHI-CIDSS LGC LGUs LISCOP MDFO MDGs MIGA MILF MIMAROPA MRDP2 MMURTRIP MTEF MTF-RDP MTPDP MTPIP MWSS NAPC NCR NEDA NER NG NGO NPS NPL NRIMP2 NSCB NTC ODA-GAD PCN PDF PEFA PEM PFM PGAT PIDP PPP PSP RPP SME SOCCSKSARGEN SSLDIP TA TB TF UN USAID UT VAT WBI WBG WDDP WHO WGI WPA
Indigenous Peoples Implementation Status and Results Reports Internal Revenue Allotment Kapit Bisig Laban sa Kahirapan-Comprehensive and Integrated Delivery of Social Services Local Government Code Local Government Units Laguna De Bay Institutional Strengthening and Community Participation Municipal Development Fund Office Millennium Development Goals Multilateral Investment Guarantee Agency Moro Islamic Liberation Front Mindoro, Marinduque, Romblon, and Palawan provinces Mindanao Rural Development Project 2 Metro Manila Urban Transport Integration Project Medium Term Expenditure Framework Mindanao Trust Fund-Reconstruction and Development Project Medium-Term Philippines Development Plan Medium-Term Philippines Investment Plan Metro Water Sewerage Systems National Anti-Poverty Commission National Capital Region National Economic and Development Authority Net Enrolment Rate National Government Non-Governmental Organization National Program Support Non Performing Loan National Roads Improvement Management Project 2 National Statistical Coordination Board National Telecommunications Commission Official Development Assistance-Gender and Development Project Concept Note Philippines Development Forum Public Expenditure and Financial Accountability Public Expenditure Management Public Financial Management Philippines Governance Advisory Team Participatory Irrigation Development Project Public-Private Partnership Private Sector Participation Rural Power Project Small and Medium Enterprise South Cotabato, Sarangani, North Cotabato, and Sultan Kudarat provinces Support for Strategic Local Development and Investment Project Technical Assistance Tuberculosis Trust Fund United Nations United States Agency for International Development Urban Transport Value Added Tax World Bank Institute World Bank Group Water District Development Project World Health Organization World Governance Indicators Work Program Agreement
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JOINT IBRD/IFC/MIGA COUNTRY ASSISTANCE STRATEGY (CAS) FOR THE REPUBLIC OF THE PHILIPPINES
TABLE OF CONTENTS
EXECUTIVE SUMMARY ............................................................................................ I I. II. INTRODUCTION ................................................................................................ 1 PHILIPPINES CONTEXT AND DEVELOPMENT AGENDA ............................. 1
Social and Political Context ........................................................................................................................... 1 Recent Economic Developments.................................................................................................................... 3 Macroeconomic Prospects .............................................................................................................................. 4 Poverty Profile and Trends ............................................................................................................................. 6 Philippines Development Challenges and Opportunities ............................................................................... 9 Updated 2004-10 Medium-Term Philippines Development Plan (MTPDP) ............................................... 11
III. BANK GROUP ASSISTANCE STRATEGY FOR THE PHILIPPINES .............. 12

A. Lessons Learned from FY06-09 CAS and Stakeholder Feedback ......................................................... 12 Lessons from FY06-09 CAS Completion Report......................................................................................... 12 Findings from Recent IEG Evaluations ........................................................................................................ 12 World Bank FY09 Client Survey and Multistakeholder Consultations ....................................................... 13 Proposed World Bank Group Assistance Strategy ................................................................................. 14 World Bank Group Assistance Strategy Overview ...................................................................................... 14 World Bank Group Program Integration ...................................................................................................... 17 Strategic Objectives and Results Areas ........................................................................................................ 18 - Strategic Objective 1: Stable Macro Economy .......................................................................................... 18 - Strategic Objective 2: Improved Investment Climate ................................................................................ 20 - Strategic Objective 3: Better Public Service Delivery ............................................................................... 22 - Strategic Objective 4: Reduced Vulnerabilities ......................................................................................... 24 Cross-Cutting Theme: Good Governance .................................................................................................... 27 Implementing the FY10-12 Country Assistance Strategy ....................................................................... 29 Operationalizing Governance ....................................................................................................................... 29 Managing the Program ................................................................................................................................. 31 Fostering Stronger Partnerships ................................................................................................................... 34 Mainstreaming Gender ................................................................................................................................. 36
B.
C.
IV.
MANAGING RISKS ......................................................................................... 37
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TEXT TABLES Table 1: Medium-Term Macroeconomic Framework Table 2: Poverty by Urban-Rural Areas and Sector of Employment, 2003 and 2006 Table 3: Estimates of Growth Elasticity of Poverty TEXT BOXES Box 1: Box 2: Box 3: Box 4: Box 5: Box 6:
Key Messages from Multistakeholder Consultations World Bank Groups Response to the Global Economic Crisis One Bank Group: IFC-IBRD Integrated Programs Enhancing Conflict Sensitivity Governance Filters CAS Results Monitoring
TEXT FIGURES Figure 1: Poverty Reduction in the Philippines versus East Asian Neighbors Figure 2: Poverty Incidence versus Magnitude of Poverty, 1985 and 2006
CAS ANNEXES Annex 1: Annex 2: Annex 3: Annex 4: Annex 5: Annex 6: Annex 7: Annex 8: Annex 9: Annex 10: Poverty, Inequality and Progress toward the MDGs Governance Challenges, Opportunities and Risks FY06-08 Country Assistance Strategy Completion Report World Bank FY09 Client Survey and CAS Multistakeholder Consultations FY10-12 Country Assistance Strategy Results Framework Indicative World Bank Group (WBG) Program by Results Area Official Development Assistance (ODA) Programs in the Context of the CAS World Bank Group-Managed Trust Funds in the Philippines Philippines Harmonization Agenda Country Financing Parameters for the Philippines
CAS STANDARD ANNEX TABLES Annex A2: Annex B2: Annex B3: Annex B3 Annex B4 Annex B5: Annex B6: Annex B7: Annex B8: Annex B8: Country At-A-Glance Selected Indicators of Bank Portfolio Performance and Management IFC Investment Operations Program IBRD Indicative Financing Program, FY10-12 IBRD Indicative Program of Analytical and Advisory Activities, FY10-12 Philippines Social Indicators Philippines Key Economic Indicators Philippines Key Exposure Indicators Operations Portfolio (IBRD and Grants) IFC Committed and Disbursed Outstanding Investment Portfolio
MAP OF THE PHILIPPINES (IBRD NO. 33466R3)
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April 2, 2009
EXECUTIVE SUMMARY
i. The Philippines Development Challenges. In recent years, the Philippines economic growth has rebounded on the back of fiscal consolidation, macroeconomic stability and a strong international economic environment. Higher growth has, however, not translated into less poverty: the share of the population below the poverty line is the same as it was a decade ago and has increased between 2003 and 2006. Income inequality remains high, and the country risks missing MDGs on education and maternal health. Weak governance is a recognized constraint to sustained growth and poverty reduction. The countrys main development challenge, therefore, is to achieve more inclusive growth. In the short- and medium-term, the external environment for the Philippines is likely to deteriorate, and the country may face slower growth and renewed fiscal pressures. Furthermore, the elections in 2010, typical of such elections, may slow down decision-making and program implementation. At the same time, an incoming administration can be expected to engage with the World Bank Group on the policies and initiatives it gives priority to. ii. The World Bank Group Strategy. The updated 2004-10 Medium-Term Philippines Development Plan (MTPDP) provides the framework for the Bank Groups CAS for the Philippines. The MTPDP focuses on economic growth and job creation; energy; education and youth opportunity; and anticorruption and good governance. It highlights the need for agriculture sector modernization to raise farmers incomes and to upgrade rural welfare; supports sustained investments in infrastructure; and gives priority to protecting the poor through more employment opportunities, shelter, health insurance, microfinance, low-cost medicines, and cash transfers. Over the CAS period, the World Bank Group will contribute to achieving more inclusive growth by supporting the Philippines to (i) maintain macroeconomic stability and cope with increased macroeconomic uncertainty through a stronger revenue base, improved expenditure efficiency and targeting, and responsive financing; (ii) improve the investment climate through an enabling business environment that promotes competitiveness, productivity and employment, especially for sectors of particular importance to the poor, such as agriculture and fisheries, and developing better models of infrastructure finance and management; (iii) increase access to better public services for the poor by deepening the reform agendas in key public services sectors and expanding basic service delivery directly to the poor; and (iv) reduce vulnerabilities by expanding and rationalizing the countrys social safety net, improving disaster risk management, piloting climate change adaptation measures and expanding climate change mitigation programs. In line with the Banks country governance and anticorruption framework (CGAC), the Bank Group will promote good governance as a cross-cutting theme by supporting more capable and accountable government at the national, local, and agency level to strengthen core governance systems in public financial management, procurement and decentralization.
iii.
The World Bank Group Program. The Bank Group's program focuses on core results areas through engagements at the national, local, and private sector level. The CAS proposes an IBRD lending program in the order of US$700 million-US$1 billion per year, which would reverse the recent trend of negative net transfers and could increase IBRD exposure to the Philippines from US$2.7 billion in FY08 to US$3.9 billion in FY12. The proposed lending plan is indicative as IBRDs capacity to lend can change over time. There is higher degree of certainty for the lending plans for the earlier years of the CAS period. The IFC investment program is expected to be in the order of US$250-300 million per year, while advisory services will be supported by funding of approximately US$3 million per year. The Bank Group will support efforts to counter the effects of the global economic crisis by financing faster-disbursing poverty alleviation programs such as the conditional cash transfers (CCT), the community driven development (CDD) project KALAHI-CIDDS, the national program support (NPS) for health and education, additional financing to ongoing operations, and repeater projects. The Bank has committed to support a possible government program for increasing revenues and fiscal transparency in calendar year 2009. Beyond current commitments for a development policy loan (DPL) with a possible draw-down option to mitigate the impact of the global economic crisis, the Bank will use development policy operations in support of disaster risk
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management and in the context of a strong reform program in government financial management. The World Bank Group will also continue to support increasing local government access to finance through more diversified financial instruments. IBRD investment loans and IFC investment and advice will support the development of new models of financing and management for critical infrastructure. IFCs response to the global crisis will also include access to four financing facilities. The World Bank Group, in collaboration with other development partners, will increasingly emphasize knowledge cooperation and formalize a rolling knowledge program with the Government and in partnerships with consortia of think tanks and universities. A central aim of the program for the CAS period is to provide input into the MTPDP (2011-15) to be approved after the 2010 elections. iv. One Bank Group. The Philippines CAS pilots deeper integration of IBRD and IFC efforts by building on lessons of successful World Bank Group integration, such as a shared assessment and a shared strategy developed jointly by a mixed IBRD and IFC team. IBRD and IFC will pursue joint programs in three areas: infrastructure, agribusiness, and financial sector. MIGA will also continue to offer its guarantee products, ensuring consistency with the overall Bank Group goals. v. Implementing the Program. The World Bank Group will organize its Philippines program and its country team along the lines of the four strategic objectives, one cross-cutting theme, and eleven core results areas. For each of these, the Bank Group will organize, budget for, and monitor an integrated program of AAA, lending, trust funds and partnership activities. The Bank will flexibly adjust resource allocation among results areas depending on progress and emerging opportunities in those areas. IFCs resources will be integrated in the results areas that will be jointly pursued. The Philippines Governance Advisory Team (PGAT) will prioritize activities in governance reforms, and will advise task teams on governance improvements in specific activities, including through use of Governance Filters. The World Bank Group will strengthen existing partnerships with civil society and academe and with other development partners within the overall framework of the Governmentled Philippines Development Forum, which the Bank co-chairs. In delivering the program, the World Bank Group will pay special attention to strengthening the portfolio, improving lending efficiency, furthering the knowledge agenda, and leveraging its resources through strategic partnerships and trust funds. The Bank has identified, and agreed with the Government, a set of early Readiness Filters that will be used to screen projects during the regular programming discussions.
vi.
Managing Risks. There are considerable risks, both internal and external, that may affect the implementation of the Philippines CAS. Political risks stem from the upcoming national elections and associated transitions, which may influence commitment to ongoing and planned programs. The World Bank Group will maintain dialogue with the administration to ensure continuity in its programs and help inform the development agenda of the incoming government. The ongoing global recession and financial turmoil is expected to affect negatively the Philippines, particularly through reduced remittances, exports, and possibly, lower revenues. The World Bank Group, together with the IMF and other partners, will assist the Government to manage fiscal and financial sector risks and external vulnerabilities through policy advice and monitoring of economic and social developments including through support for improved statistics. In case of a sharper-than-expected deterioration in the economy, the World Bank Group stands ready to use IFC crisis facilities, and IBRD financing for quick disbursing budget support within the broad parameters of the CAS lending range. The World Bank Group support will proceed once there is clarity on agendas and commitments, and projects meet the Banks processing filters. Commitment to governance reforms is a major focus of these filters, including at the decentralized level.
Suggested Items for Board Discussion (i) Is the CAS adequately positioned to help the Philippines cope with emerging global uncertainties and likely shocks to economic management and prospects? (ii) Is the proposed indicative program and choice of instruments appropriate, considering the country circumstances and the Bank's comparative advantages? (iii) Is the CAS approach to operationalizing governance sufficiently strong?
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I.
INTRODUCTION
1. The current World Bank Group CAS for the Philippines covers the period up to June 2009. It was discussed by the Banks Board in May 2005 and was originally planned to cover the period FY06-08. The turn-around in the countrys fiscal position in the two years that followed the preparation of the CAS opened a window of opportunity for broader policy reforms for the Philippines. In 2007, the World Bank Group, in agreement with the Philippine Government, decided to extend the CAS to June 2009. The CAS Progress Report prepared in June 2007 reaffirmed the relevance of the CAS theme of Supporting Islands of Good Governance in national government agencies, local governments, and dynamic sectors in the Philippines that demonstrate how improved accountability and service delivery can lead to better economic and social outcomes. The Progress Report also anticipated more Bank lending based on the increased fiscal space and government demand for more Bank assistance. 2. Beyond the institutional requirement, the period of political transition lying ahead, the rapidly deteriorating external economic environment, and the emerging shifts in the Bank Group strategy provide the rationale for moving ahead with a new CAS. Launching a new CAS in the first half of calendar year 2009 will allow the Bank Group one year of implementation before the May 2010 elections, and would provide an opportunity to contribute to the new MTPDP 2011-15,1 the Governments main guide for development policy. A CAS Progress Report in FY2011 would allow the Bank Group to align priorities with those of the incoming government. At the request of Government, the subsequent Bank Group CAS will be synchronized with the new MTPDP. Other development partners have been closely involved in developing the CAS, and some expressed interest in a joint Partnership Strategy beyond 2012. 3. The proposed strategy is grounded in the EAP Regional Strategy and the Bank Groups strategic themes. Many of the Bank Groups current strategic priority agendas are relevant to the Philippines. The countrys middle-income country (MIC) status, yet continuing high rates of poverty and inequality; struggles with the effects of climate change; challenges to bring peace to areas of enduring conflict; and requests for the Bank to bring to bear the best global knowledge all provide clear links to the Banks strategic priorities and the core areas of EAPs strategy, such as MIC agenda, fragile/conflict states, global public goods, and the knowledge agenda.
II. PHILIPPINES CONTEXT AND DEVELOPMENT AGENDA

Social and Political Context 4. The Philippines is an archipelago of 7,107 islands located in Southeast Asia. With a population of about 89 million in 2007, the Philippines is the worlds 12th most populous country. The Philippines is the fastest urbanizing country in East Asia: fueled by in-migration and natural population growth, the urban population has already passed the 50 percent mark and is expected to rise to 75 percent of the countrys population by 2030. The country is divided into three island groups: Luzon, Visayas, and Mindanao. Metro Manila, the capital, is the 11th most populous metropolitan area in the world. A per capita GDP of US$ 1,624 in 2007 ranks the Philippines as a low-middle income country. 5. The Philippines has a strong potential for development in terms of natural and human resources, but overall development outcomes have fallen short of potential. The Philippines is considered to be one of the most biologically rich and diverse countries in the world, with substantial mineral, oil, gas and geothermal potential. Its human resource base is strong, with many leaders in
1
The Philippines National Economic and Development Authority (NEDA) has requested Bank Group inputs into the next MTPDP, which will be completed after the 2010 elections.
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Government, industries, and academe possessing world-class talents. The country has a vibrant private sector and an active civil society, which are both important partners in development. Modern productive sectors such as electronics manufacturing, business processing operations and telecommunications have experienced rapid growth in recent years. The value of the countrys English-speaking work force is reflected in the rapid growth of the business process outsourcing and other services in the country, as well as in the international demand for its labor force and the resulting high level of overseas employment.2 As of December 2007, around 8.7 million Filipinos, about 10 percent of the total population, were permanent residents or temporary residents/workers overseas, with annual remittances reaching US$14.4 billion, or more than 10 percent of the countrys GDP. However, the country has seen a relative decline in its income per capita compared to its neighbors since the 1950s, when it was second only to Japan. Compared to its ASEAN neighbors, the Philippines has exhibited higher unemployment rates and greater income inequality. 6. The next Philippine general elections are scheduled to be held on May 10, 2010. At the national level, the presidency, vice-presidency, half the Senate seats, and all House seats are up for election. In addition, all provinces, cities and municipalities (including 41,995 barangays), will also hold elections. Current President Gloria Macapagal-Arroyo came to power in 2001 after she, as then vice president, replaced then-President Estrada who was forced to leave his post amid popular protests and pending impeachment procedures against him on the grounds of alleged corruption. He was later convicted of plunder, and subsequently pardoned. The current president was elected in 2004 in a victory that has been contested by some parties and civil society coalitions. President Arroyo faced two attempted military coups, several impeachment attempts, and repeated widespread popular protests against her rule, but she retains strong support in the House of Representatives and among a majority of governors and mayors. Several high-profile corruption cases involving political figures remain unresolved. A debate on possible changes in the constitution for several reasons, including a possible second term for a president and a change to a parliamentary system of democracy, is a recurrent theme in Philippine politics. 7. Weak incentives embedded in the countrys political institutions may continue to hamper reforms. The fragmented political structure and politicization of the government bureaucracy is seen as one of the constraints to promote and implement reforms. In recent years, a number of reforms to strengthen the institutional capacity of the state have been launched, often with strong support from civil society. The work of civil society, both in advocacy and in project implementation and monitoring, has contributed to the successful promotion of specific reforms, especially in the fields of procurement, textbook delivery, budget transparency, community infrastructure, etc. 8. Weak governance has long been recognized as a key constraint to sustained growth and poverty reduction in the Philippines. In the MTPDP 2004-10, the Government diagnosed various governance challenges, ranging from the lack of independence, capacity and integrity of government institutions, and regulatory capture, to built-in checks and balances that allegedly tended to slow down policy-making and policy implementation. The Plan attributed the limited effectiveness of the government bureaucracy to the pernicious influence of vested interests and a system of patronage. Recognizing these challenges, the Government embarked on reforms on a number of fronts, including anticorruption efforts and bureaucratic reforms. Similarly, a variety of civil society organizations have engaged in advocating and/or supporting governance reforms of various kinds. At the local level, some commentators have observed the prevalence of patronage politics, with consequent implications for poor provision of public services. At the same time, a growing number of local leaders have
2
Some would argue that the large number of migrant workers is a mixed blessing. On the one hand, their remittances bring in much-needed foreign exchange, but on the other they reflect the incapability of the domestic economy to generate sufficient number of jobs, their remittances keep the real exchange rate high, so export oriented industries develop more slowly, and their absence from home delays the formation of a domestic middle class that in other countries is considered to be instrumental in developing stronger governance.
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demonstrated good governance and effective management. The challenge is how to expand these innovations and scale them up to benefit more people across more local governments. Recent Economic Developments 9. Philippine economic growth during 2000-08 averaged around 5.1 percent. Economic growth picked up gradually from 2002 to 2007 when it peaked at 7.2 percentthe highest growth in three decadesand slowed down to 4.6 percent in 2008 as the twin shocks of the food and fuel crisis and global slowdown took their toll on the economy. Notwithstanding the improved growth performance, the Philippines growth has been noticeably below other developing East Asian countries, which grew at an average of 8.7 percent during 2000-08. With population growth at more than 2 percent per annum in the Philippines, growth in per capita income has also been lower relative to most of its neighbors. 10. Growth during the period was driven by private consumption and the services sector. Demand growth was largely driven by consumer spending, with public sector expenditures more recently providing an extra boost. In recent years, around 70 percent of the growth can be attributed to private consumption, supported in part by growing overseas Filipino workers remittances. The services sector comprises more than half of GDP and employs more than half of the workforce. The contribution of private investment to GDP growth, at around 5 percent during 2004-08 has been relatively weak. During 2004-06, the Government focused on fiscal consolidation and reforms which entailed a cut in public investment expenditures, and the contribution of the public sector to growth was around negative 3.6 percent. Since then the significant progress made in fiscal consolidation, together with hefty privatization receipts, permitted the Government to increase spending. 11. In 2008, growth slowed down to 4.6 percent as higher oil and food prices and the onset of the financial crisis reduced real incomes and slowed the growth of private consumption, investments, and exports. In the first half of 2008, public sector spending lagged, and contracted in real terms. In May, the Government announced that, in response to the increases in oil and food prices, it intended to postpone its balanced budget goal to allow for higher spending on infrastructure, social protection, and subsidies to the poor. Public spending, in particular infrastructure spending, accelerated in the second half and buoyed overall growth. The relatively weak demand has resulted in slower growth of the services sector. Inflation, which had been falling over the past few years and averaged only 2.8 percent in 2007, rose sharply in the first half of 2008, peaking at 12.5 percent in August 2008, but receded almost as quickly to 7 percent in January 2009. However, the inflation faced by the poor, especially the urban poor, is estimated to be about 2 to 3 percentage points higher given the high share of food in their consumption basket (up to 70 percent). Food prices rose sharply through 2008rice prices, in particular, rose by almost 50 percent.3 12. The balance of payments position weakened, following several years of strong performance, but remained in surplus. The higher oil and food prices in 2008 increased the import bill, while the global slowdown began to take its toll on exports. Remittances, however, still remained robust in 2008, keeping the current account in moderate surplus. Direct investment inflows have diminished but remain positive. Portfolio investment was more adversely affected by the financial market turmoil and global risk aversion. Nonetheless, the overall balance of payments remained in surplus in 2008 and enabled the country to continue to accumulate international reserves. 13. As in other emerging markets, the Philippines has seen a decline in stock market and asset prices, higher spreads on its international bonds, and a depreciation of the currency against the US dollar. Following the strong appreciation of the peso in 2007, the currency depreciated by about 15 percent against the US dollar during 2008, despite interventions by the central
3
It is estimated that the food crisis may have pushed up the poverty incidence by 3.2 percentage points and is equivalent to 2.7 million more poor people during the height of the food crisis. Lower inflation since September of last year is likely to have reversed some of this increase.
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bank. Stock market prices have nearly halved since the end of 2007, a decline comparable to that in other East Asian economies. Meanwhile, spreads on international treasury bonds issues increased by around 500 basis points. Nevertheless, the Philippines successfully issued a US $1.5 billion international bond in January 2009, as the first Asian country to return to the international markets after the September 2008 crash, giving off an important signal of confidence in the country and the region. 14. So far the impact of the global financial turmoil on domestic financial markets has been relatively contained. The Philippines direct exposure to distressed credit products appears to be limited. Overall exposure to structured products is estimated at about 2 percent of banking sector assets and a sizable portion have provisions for loss. A key vulnerability to the turmoil in the global financial markets arises from its still relatively high stock of public sector debt. About one-third of Philippines foreign currency denominated debt is held by domestic banks, which makes them vulnerable to global re-pricing of risks and interest rate increases. However, the banks appear to have appropriate cushions to weather the shockswith reported capital adequacy ratios of over 14 percent as of the first half of 2008 and declining non-performing loan ratios. Moreover, recent changes in accounting rules cushion the impact on capital of bank losses on their investments. Nevertheless, bank profits, though positive, have fallen significantly. Macroeconomic Prospects 15. Macroeconomic prospects for 2009 and 2010 have clearly become less favorable than the preceding CAS period. Overall, the economy is in a stronger position than before to weather the uncertainties brought about by the recent turmoil. The fiscal reforms and current account surpluses of the last few years have served to improve investor confidence and boost the level of international reserves. Nevertheless, the Philippines will be affected by the projected slowdown in the global economy and growth is likely to slow considerably given the countrys high degree of trade and capital openness. Weaker domestic demand due to lower real income, rising unemployment and underemployment, slowing remittances, and falling exports of key products such as electronics are expected to limit growth severely in 2009 with only a very gradual recovery in sight in 2010 (see the base-case projections in Table 1). At this stage, risks for further slowdown remain real. 16. Over the medium- to long-term, economic growth is projected to recover to around 5 percent. Its sustainability, however, will depend on further progress in structural reforms. In particular, turning around low investment and productivity are essential for sustaining economic growth. Domestic investment as a share of GDP is expected to fall in 2009 due to tighter global credit and financing conditions, followed by a gradual recovery in response to future improvements in governance and the investment climate. 17. The current account of the Balance of Payments is projected to remain in surplus in the near term. Under the current assumption that the global economy may take up to two years to recover, exports are expected to contract significantly before improving while the import bill would also contract given the high content of electronics parts and falling commodity prices. Slower exports and imports would lead to a lower trade deficit in the near-term followed by an increase in the trade deficit as imports pick up again. Exports of manufactured goods, dominated by highly cyclical electronics, remain vulnerable to global demand conditions. While the growth in remittances is expected to slow significantly, remittances are nonetheless expected to remain relatively strong, because a sizable share of the migrants is employed in sectors (such as health care) that may be less vulnerable to cyclical downturns. This is expected to help keep the current account in surplus. A current account deficit might arise in the long-term however, should export competitiveness lag, commodity prices increase, and growth in remittances declines further. 18. The global uncertainties and risks will continue to pose threats to net investment inflows. Net inflows of direct investments are expected to be minimal this year and next. Over the medium term, attracting significant inflows of FDI will depend on further improvements in the investment
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climate. Consistent with global financial volatility, net portfolio investments are expected to be minimal as well. The net outflow in 2008 could be reversed if the interest rate differential rises in the coming months and if global prospects become less pessimistic. Overall, though, the combined strength of the current, and capital and financial accounts would still contribute to further reserve accumulation in the medium-term. Table 1: Philippines Key Macroeconomic Indicators and Projections (As percentage of GDP, unless indicated otherwise)
2005 2006 2007 ----------Actual---------2008 Est. 2009 2010 2011 2012 2013 -------------------Projected------------------1.9 4.5 14.9 16.9 2.0 -6.9 25.8 32.7 0.1 -1.5 -2.3 2.7 15.0 13.3 17.2 3.9 64.1 42.3 161.3 2.8 4.0 15.1 16.4 1.3 -7.2 25.4 32.5 0.3 -2.0 -2.3 1.6 15.0 13.4 17.3 3.9 63.1 40.3 167.4 4.0 4.0 15.5 16.6 1.1 -7.4 25.1 32.5 0.6 -1.9 -2.2 1.6 15.0 13.6 17.2 3.9 61.7 38.1 177.5 4.5 4.0 15.8 16.7 0.9 -7.6 25.2 32.9 0.8 -1.9 -2.0 1.7 15.2 13.9 17.2 3.8 60.7 36.6 189.3 5.0 4.0 16.1 16.6 0.5 -7.8 25.7 33.4 1.0 -1.8 -1.9 1.8 15.4 14.1 17.3 3.8 59.0 35.1 202.9
Output and Prices 5.0 5.4 7.2 4.6 GDP growth (% ) 7.6 6.2 2.8 9.3 CPI Inflation (ave, % ) 5.9 11.8 8.8 7.6 REER (% , + = apprec.) Savings and Investment 14.6 14.5 15.3 15.3 Gross Domestic Investment 16.6 19.0 19.7 17.7 Gross National Savings Balance of Payments 2.0 4.5 4.4 2.4 Current Account Balance -6.4 Trade Balance -7.9 -5.7 -5.7 28.4 Exp. (merchandise fob) 40.7 39.6 34.2 34.8 Imp. (merchandise cif) 48.6 45.3 40.0 1.7 2.4 -0.4 0.6 Foreign Direct Investment Public Sector Finances -1.9 0.2 0.6 -0.5 Consolidated Pub. Sec. Balance -2.7 -1.1 -0.2 -0.9 National Government balance 2.8 4.1 3.8 2.7 Primary balance 15.0 16.2 17.1 16.0 Total Revenues 13.0 14.3 14.0 14.0 o/w Tax revenues 17.7 17.3 17.3 17.0 Total Expenditures 5.5 5.1 4.0 3.6 Net Interest Debt 85.9 73.9 61.1 63.3 Non-Financial Public Sector Debt 62.4 51.3 45.7 39.9 External Debt 1/ Memorandum item: Nominal GDP (billions of US$) 98.8 117.6 144.1 168.6 Soures: Government of the Philippines and World Bank staff calculations 1/ Based on The World Bank's definition
19. In response to the global economic slowdown, the Government has prepared an economic resiliency plan to stimulate the economy. In February 2009, the Government announced a stimulus package of Php330 billion of which about Php200 billion is estimated to come from a 15 percent increase in national government spending and from previously scheduled tax cuts. This is to be complemented by about Php100 billion in contributions from government financial institutions, social security institutions (SSIs), and private banks to fund additional infrastructure projects. The balance of about Php30 billion is to come from the Social Security System in the form of new and temporary extra benefits to members. The Plan indicates the Governments intention to: (a) front load spending; (b) shift resources from slow to fast-moving projects; and (c) implement/upscale quick-disbursing high impact projects. Implementing agencies are expected to spend 60-80 percent of their calendar year 2009 discretionary budget totalling 1.2 percent of GDP in the first half of 2009. 20. The public sectors fiscal position is expected to remain manageable, but fiscal risks could materialize. For 2009, the Government projects a deficit of about 2.1 percent of GDP. Tax
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collections this year will be more challenging because of several policy measures already taken4 and lower oil prices. In the absence of new measures, tax revenues as a share of GDP are projected to decline well below the ratio achieved in 2008. Under these circumstances, reforms to improve tax administration will be critical for keeping the deficit within sustainable levels. A further source of risk is the gross financing needs of the non-financial public sector, which are large and rising, thereby generating significant rollover risk (18.5 percent of GDP in 2009 and 19.7 percent of GDP in 2010).5 With considerably higher and more volatile interest rates in the domestic and international capital markets, financing such large amounts could become more challenging. 21. The public sector debt-to-GDP ratio is projected to continue to fall over the mediumterm, in spite of the global financial turmoil. Non-financial public sector debt fell from over 100 percent of GDP in 2003 to about 62 percent of GDP in 2008. This ratio is projected to fall further over the coming years, albeit at a markedly slower pace. While the projected pace of decline is sensitive to various macroeconomic parameters, especially GDP growth and the exchange rate, the overall trend of a declining debt burden is broadly robust to various scenarios. Poverty Profile and Trends 22. The Philippines has made significant progress in the fight against poverty over the last two decades. The share of the population living below the national poverty line, which almost reached 50 percent in the mid-1980s, was brought down to less than a third in recent years (Figure 1)6. Poverty measured using the international benchmark shows a similar trend. The proportion of the population living below US$1.25-a-day declined from 34.9 percent in 1985 to 22.6 percent in 2006, or a reduction of about 2 percent per year over the two decades. While significant, these gains are lower than those recorded in some neighboring countries, particularly Indonesia, Thailand, Vietnam, and China. Moreover, the absolute number of the poor based on the $1.25/day poverty line increased from 18.5 million poor people in 1985 to 19.7 million in 2006. Figure 1: Poverty Reduction in the Philippines versus East Asian Neighbors
100.0 90.0 80.0
Poverty Incidence (%)
Rural China
70.0 60.0 50.0 40.0 30.0 20.0 10.0 0.0
Indo Viet
Phi Off'l Thai Phil
mid-1980
mid-1990
early-2000
2006 (latest)
Note: Figures refer to the proportion of the population with income per capita below the new international benchmark of US$1.25 a day in 2005 Purchasing Power Parity, except Philippine official poverty incidence which is based on national poverty lines. Sources: World Bank and NCSB
These included the 5 percentage point reduction in the corporate income tax rate, a full year impact of the personal income tax threshold increase, and tax exemptions arising from personal equity and retirement account. 5 IMF Article IV Consultations 2008. 6 Data used in the analysis reflect the latest government and Bank staff estimates and may differ from Annex A2 and Annex B5, which present data from the DECDG database and other standard sources.
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23. Income poverty hardly fell in recent years. The latest estimates show that between 2003 and 2006 income poverty as measured against the countrys own poverty line increased from 30 percent to 32.9 percent, back to its level in 2000. The incidence of poverty based on alternative measures of the poverty line also show similar increases during that period, consistent with the official statistics. Between 2003 and 2006, the US$1.25-a-day poverty increased from 22 percent to 22.6 percent7, and consumption-based poverty estimates increased from 26 percent to 28.1 percent8. Furthermore, self-rated hunger indicators showed steady increase since 1998 and rose to an all-time high of 19 percent by the end of 20069. 24. Non-income dimensions of poverty and welfare are lagging behind, specifically in health and education. The latest statistics show that the Philippines has made good progress in reducing child mortality, combating tuberculosis and other diseases, improving access to water and sanitation, and protecting the environment, but has done poorly in achieving universal primary education and maternal health (see further analysis of progress in achieving MDGs in Annex 1). 25. Regional poverty rates vary significantly. Although the national poverty rate increased between 2003 and 2006, official estimates of poverty declined in four of the countrys 17 administrative regions. Poverty declined in three regions in Mindanao: Zamboanga from 49.2 percent to 45.3 percent, Caraga from 54 percent to 52.6 percent, and Northern Mindanao from 44 percent to 43.1 percent. Poverty in Western Visayas also declined from 39.2 percent to 38.6 percent. In contrast, poverty headcounts in the other 13 regions increased in 2006 compared to 2003. In particular, poverty in conflict-affected Autonomous Region of Muslim Mindanao (ARMM) swelled by almost 10 percentage points (to 61.8 percent). 26. Poverty remains predominantly a rural phenomenon in the Philippines, but urban poverty is on the rise. In 2006, about three-quarters of the poor resided in rural areas (Table 2). Estimates also show that rural poverty increased (although marginally) between 2003 and 2006 and that poverty among agricultural households is about three times higher than poverty in other sectors. While rural poverty remains more than double that of urban poverty, the share of urban poor to total poverty has been increasing since 2000 due to rapid urbanization and inequitable income distribution. Between 2003 and 2006, the share of the poor population living in the urban areas increased from 23.2 percent to 28.8 percent. With rural-urban migration and rapid population growth, this trend can be expected to continue over time unless rapid urbanization is accompanied by better income distribution. Table 2: Poverty by Urban-Rural Areas and Sector of Employment
Poverty Headcount (%) 2003 2006 Area Urban 14.2 19.3 Rural 45.5 46.2 Sector of Employment of the Household Head Agriculture 53.6 55.5 Industry 23.1 28.8 Services 14.2 18.8 13.1 17.1 Not Employed Total 30.0 32.9 Share to Poverty (%) 2003 2006 23.2 77.0 66.5 11.9 16.3 5.4 100.0 28.8 71.2 59.4 12.7 20.2 7.7 100.0 Share to population (%) 2003 2006 49.1 51.0 37.4 15.5 34.7 12.5 100.0 49.3 50.7 35.3 14.4 35.4 14.9 100.0
Source: World Bank staff estimates based on official poverty lines for 2003 and 2006; FIES 2003 and 2006.
Chen, S. and M. Ravallion (2008). The Developing World is Poorer than We Thought, But No Less Successful in the Fight Against Poverty. 8 Balisacan, A. (2008). "Poverty Reduction: What We Know and Don't?" University of the Philippines Centennial Lecture Series. 9 Social Weather Stations (July 2008). Report on Self-Rated Poverty and Hunger.
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27. High levels of inequality partly explain why growth translated into limited poverty reduction. The countrys Gini coefficient remains high relative to its neighbors in the region (45.8 percent in 2006), and large variation in economic opportunities persist at the sub-national level. Geographically, the National Capital Region and two adjacent regions, which account for more than half of GDP, have above average per capita income and have seen the fastest decline in poverty headcount. In contrast, per capita incomes in the poorest regions (ARMM and Caraga), are only 50-60 percent of the national average. Estimates suggest that the Philippine's growth elasticity of poverty is greater than unity, but has been declining in recent years (Table 3)10. Between 1985 and 2000 when growth averaged 3 percent per year, poverty declined by about 2.2 percent annually. In the period 2000-2006, when the country posted about 5 percent growth per year, the pace of poverty reduction dropped to 0.1 percent per year. Table 3: Estimates of Growth Elasticity of Poverty
Data Besley and Burgess (2003) World Bank (2008)* Years Varies by country (1980-1998) 1990-2000 World -0.73 (0.24) E. Asia -1.06 (0.25) -2.12 (0.42) -2.19 (0.34) CHN -0.60 (0.14) -1.20 (0.14) -1.29 (0.07) INDO -1.12 (0.38) -2.60 (0.74) -1.85 (0.36) PHL -0.70 (0.12) -1.85 (0.21) -1.27 (0.45) THA -1.72 (0.48) -5.15 (0.46) -4.55 (0.81) -2.13 (0.10) -3.04 (0.18) VNM
World Bank 2000-2006 (2008)* * Fujii and Velarde (forthcoming)
28. High population growth may have slowed poverty reduction efforts over the past two decades. While the trend in poverty incidence has generally been downward over the years, the gains in poverty reduction may have been affected by the countrys high population growth, which averaged about 2.2 percent, compared to less than 2 percent in neighboring countries like Indonesia, Vietnam, and Thailand. Rapid population growth puts high demand on education and health services, and on the economys capacity to generate jobs. Recent growth has generated more jobs, but not enough to absorb the increase in the working-age population. Consequently, even though the share of population living in poverty declined from nearly half of the population in 1985 to only one-third in 2006, the absolute number of poor increased from 26.2 million to 27.6 million (Figure 2). Figure 2: Poverty Incidence versus Magnitude of Poverty, 1985 and 2006
60.0
49.3%
40,000
Incidence (%)
26,231
27,617
30,000
40.0
32.9%
20,000
20.0 10,000
1985 2006
Magnitude of poor population Poverty incidence of Population (%)
Note: Figures refer to official poverty estimates that are not directly comparable across time but they give a consistent trend with the $1.25/day poverty estimates. Source: NSCB
10
See also Ravallion, M. (2001). Growth, Inequality, and Poverty: Looking Beyond Averages. World Development, 29: 1803-15; and Cline, W.R. (2004). "Technical Correction" in Trade Policy and Global Poverty, Institute of International Economics, Washington DC.
Magnitude ('000)
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29. It is estimated that 45 percent of Filipinos are vulnerable to poverty11, and that half of poor households became poor because of an income shock12. For example, the sharp increase in food prices between July 2007 and July 2008 is estimated to have increased poverty incidence by 3.6 percentage points, an additional 3 million people. Household spending patterns shed light on their degree of vulnerability to shocks. An average household spends 41 percent on food, making them highly susceptible to falling into poverty with sudden increases in food prices, and only 2.9 percent on health and 4.4 percent on education of its total expenditures. The poor, meanwhile, spend even more on food (60 percent) and less on health (1.4 percent) and education (1.7 percent) making them more atrisk to future shocks and less equipped to exit poverty. Some of the factors that drove the increase in poverty in recent years are further discussed in Annex 1. Philippines Development Challenges and Opportunities 30. The proposed new CAS for the Philippines will be addressing many of the same development challenges that the country has been struggling with for decades. The countrys main achievement over the past years has undoubtedly been the hard-fought improvements in the countrys fiscal position and resulting macroeconomic stability and higher growth rates. Yet, poverty is proving to be relatively insensitive to growth in the Philippines and has even drifted upwards in times when the highest economic growth in three decades was recorded. Indeed, in absolute numbers, the Philippines now has more people in poverty than three decades ago. While public investments have started to increase again, supported by growing fiscal space, private investment continues to be lackluster in an investment climate that many consider as weaker than that of most of its neighbors. And while rising budget allocations to and recent progress in reforms in the social sectors promise better services, for now the Philippines is at risk of missing its targets on basic education and maternal health. Many observers in the Philippines see weak governance as an underlying cause in all of these development challenges, even though some notable progress has been made in this areaprogress, which was on occasion overshadowed by headline grabbing corruption scandals. 31. Ensuring sustainable growth in the Philippines will require addressing the key challenges to progress on critical structural reforms. Recent improvements in macroeconomic management, especially fiscal consolidation, will need to be put on a sustainable and permanent footing by improving tax administration and tax policy on the revenue side, as well as by improving expenditure management and the management of fiscal risks. Underinvestment in infrastructure, and the poor quality and maintenance of services, transport in particular, limit overall competitiveness, increase the cost of doing business, and adversely affect trade-related transactions. Private sector development is further impeded by a constrictive policy and regulatory environment, particularly in areas such as rice trade where policies favor the public sector; inter-island shipping and port services; land administration and management; and access to credit. Strengthening the investment climate, improving the policy and regulatory framework, and creating a more competitive financial sector will provide opportunities for enhancing productivity and ensuring sustainable and broad-based longerterm growth. Given the decentralized nature of the country, much of the reforms (including revisions of local fiscal and revenue authority, and the Local Government Code) and improvements will need to be at the local government level, in particular, in the large and expanding urban areas. 32. While considerable progress has been made in human development outcomes, achieving some of the key Millennium Development Goals (MDGs) remains a major challenge. The country is on track to halving poverty by 2015 (the proportion of the population living below the national poverty line is down to a third), and has made good progress on reaching the MDGs on nutrition, gender equality, reducing infant and child mortality (infant mortality fell to 23 per thousand live births in 2006 from 57 in 1990; under-five mortality in 2006 fell to 31 per thousand live births from 80 in 1990), water supply and sanitation, and combating AIDS and other diseases. However, the
11 12
NAPC and NSCB (2005). "Assessment of Vulnerability to Poverty in the Philippines." Reyes, C. (2002) "The Poverty Fight: Have We Made an Impact?"
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net enrolment rate (NER) for elementary education has been falling, and that for secondary education is stagnating at a low 58-60 percent, whereas completion rates at both levels were declining until 2006. Despite a decline from 209 per hundred thousand live births in 1990 to 162 in 2006, maternal mortality remains high. Achieving the MDGs for primary education and maternal mortality remain major challenges and are increasingly unlikely to be met. The incidence of malnutrition is also an issue. There are significant opportunities to improve the efficiency of increasing budgets in the social sectors, as well as further raising allocations as efficiency and fiscal space improve. 33. There are significant inequalities in the access to basic infrastructure and social services by regions and income groups. Income disparities at the sub-national level translate into significantly lower access to vital infrastructure services such as electricity, water supply, paved roads, and telephone service. Less prosperous regions, mostly in Mindanao, have much lower levels of access. Gaps are also largest in urban areas where many poor households often lack access to services due to their informal status. There are also persistent gaps in educational and health outcomes, as well as access to good quality schools and health services and inputs, between poor and non-poor areas, and between poor and non-poor families. 34. A key feature of the recent Philippiness economic story has been the weak response of poverty reduction to income growth and persistent vulnerability. Official estimates show that nearly half of the population is vulnerable to falling into poverty as a result of shocks, including rising prices. Analyzing and understanding the causes and nature of poverty are critical to responding to the challenge of how the poor can better benefit from growth. Factors for the disconnect between growth and poverty reduction include the impact of cumulative inflation on real incomes of households; the compression of public expenditures, including both infrastructure and social spending, in the face of unsustainable budget deficits in the early years of this decade; the quality of growth which accrued largely to the corporate sector compared to households; and, insufficient job creation for low skilled labor with growth favoring the services sector. Poverty is also driven through the nexus with the environment and climate change, as well as with natural disasters. A poorly coordinated and inaccurate social protection system further reduces the effectiveness of poverty targeting programs. 35. The overarching and cross-cutting challenge of weak governance remains a key constraint to sustainable growth and poverty reduction. The Government recognizes this challenge and there has been considerable progress in strengthening the overall framework for good governance. Governance reforms have encompassed anticorruption drives, bureaucratic reforms, strengthening of public procurement and fiduciary processes, promotion of local government oversight, and the engagement of strong civil society groups, communities, and lawmakers in providing checks and balances. For example, following up on the findings of an INT investigation of the first phase of the National Roads Improvement Program, the Government and the World Bank designed for the second phase of the project a battery of stringent anti-corruption measures and governance mechanisms, such as the use of independent procurement evaluation, tighter procurement controls, building the agencys capacity for internal audit, and independent monitoring by a civil society group. An example of the Governments recent administrative reform efforts is Oplan Kandado (Operations Padlock) launched in January 2009 and aiming to strictly enforce administrative sanctions for noncompliance by taxpayers. However, governance challenges continue to overshadow these achievements. Key challenges include the need to further strengthen public institutions and make them more accountable and transparent; intensify the demand and political impetus for reforms; and, consolidate and expand the engagement of the vibrant civil society. See further analysis in Annex 2. 36. Finally, the conflict-affected areas in Mindanao pose a particular challenge. The decades-long intermittent conflict between government forces and separatist groups have resulted in loss of life and displacement of people, destroyed infrastructure, slowed development, below-average human development, and stagnating economic outcomes far below potential in the affected regions. This potential is somewhat evident in the islands growth centers where there is relatively better economic performance. The World Bank Group, along with many other development partners, has
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been supporting development activities in Mindanao, but the various short-term initiatives need to be better coordinated to result in improved outcomes and more sustainable longer-term development. 37. Addressing the countrys development challenges is likely to become more demanding in the coming CAS period. As for most developing countries, the external environment for the Philippines is deteriorating rapidly and is likely to be less benevolent in the coming years. Although better prepared than in the past, and better prepared than some other middle income countries, the Philippines is likely to face slower growth in the years ahead, and renewed fiscal pressures are already emerging. The country needs to manage these additional pressures in times of political change. The elections scheduled for May 2010 offer risks as well as opportunities: on the one hand, elections in the Philippines traditionally slow down decision making, reform initiatives and program implementation. On the other hand, though, the upcoming elections offer an opportunity for a renewed political mandate for the incoming administration, the potential for new policy directions, and new coalitions for needed reforms. The baseline expectation therefore is that the CAS will operate in a rapidly changing and often challenging political environment. Updated 2004-10 Medium-Term Philippines Development Plan (MTPDP) 38. With a fresh mandate in 2004, the Government outlined the countrys MTPDP for the period 2004-2010 with a macroeconomic framework designed to maintain economic stability. Starting in 2005, the Government implemented crucial reforms to improve tax collection, increase revenues and prudently manage expenditures. Fiscal reforms resulted in stabilized public finances, large prepayments and lesser dependence on external borrowings. Consequently, the budget deficit was contained, in turn resulting in lower interest rates. Record levels of overseas remittances coupled with increasing export earnings led to an improvement in the country's credit outlook. These further attracted foreign investments and boosted the peso's strength. Hence, an economy once struggling to recover after the Asian crisis began to show a turn-around in 2007. However, the momentum receded by mid-2008 in the wake of global shocks: soaring food and fuel prices, and a downturn in the U.S. economy. 39. The MTPDP was updated in 2008 to review past performance, attend to remaining commitments in the Plan, and reformulate policies to address the new challenges. The update was undergoing final review during the CAS preparation time. The updated MTPDP focuses on the areas of: economic growth and job creation; energy; education and youth opportunity; and anticorruption and good governance. It highlights the need for the agriculture sector to become more competitive in view of the liberalized global economy and stresses the need to decentralize development by decongesting Metro Manila through the establishment of new centers of government, business and housing in Luzon, Visayas and Mindanao. It aims for the nation to become more selfreliant in its energy mix, becoming a world leader in renewable energy. It puts new emphasis on science, technology, and innovation, and speaks of boosting the outsourcing industry and establishing regional ICT centers. The MTPDP supports sustained investments in infrastructure, pursuing an urban rail-based mass transport system, and linking the islands via more Roll-on-Roll-off ports. It highlights actions to manage inflation, as well as to address the relatively high rates of unemployment and underemployment. The Plan gives priority to protecting the poor through more shelter, health insurance, microfinance, low-cost medicines, and cash transfers. 40. The overall goals of the MTPDP provide the country framework for the Banks CAS for the Philippines. The CAS will be broadly aligned with the themes under the updated MTPDP, and will serve as early input to the next MTPDP that is to be approved by the incoming government after the 2010 elections. At the Governments request, the Bank will provide input in the preparation of the new plan that is expected to start in the coming year. Given the possibility of a shifting focus with the change of administration after elections, the alignment will be measured in terms of adequate responsiveness to changing client requests, within a selective framework that focuses on areas in which the Bank can best serve the countrys development and poverty reduction goals.
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III. BANK GROUP ASSISTANCE STRATEGY FOR THE PHILIPPINES

A. LESSONS LEARNED FROM FY06-09 CAS AND STAKEHOLDER FEEDBACK Lessons from FY06-09 CAS Completion Report 41. The FY06-09 CAS Completion Report (Annex 3) presents an assessment of the strategy that aimed to achieve fiscal stability, generate economic growth, ensure social inclusion and improve governance. The following lessons have been learned that have implications for the design and implementation of next FY10-12 CAS: The overall strategic direction of the CAS was sound. Sound fiscal management and improved governance will continue to be critical for ensuring sustained economic growth and poverty reduction. The next CAS will need to ensure that the gains made in revenue generation, public expenditure management, and procurement are sustained while pursuing further improvements in governance. Continued focus on implementing the project portfolio will be critical to success during the next CAS. Going forward, the Bank will need to understand better the factors explaining the relationship between the countrys economic performance and lack of poverty reduction, and ensure that Bank-supported operations emphasize the needs of the poor. Continued engagement is a critical element for success, but at the same time the Bank needs to develop criteria for strategic and selective engagement. The Bank has a long history in the Philippines and has been able to develop relationships and trust with many government agencies, which has enhanced the Banks effectiveness. The Bank would need to build on these relationships with counterparts in pursuing results during the next CAS. However, the Bank, jointly with the Government, would need to be strategically selective and develop criteria to determine when the Bank should disengage given the extent of current engagements and Bank resource constraints. Monitoring (and evaluation) of AAA needs to be strengthened. Knowledge transfers are an important part of the Bank engagement with the Philippines. But the Philippine program has not been adequately monitored and the possible impact of its AAA program has not been assessed. There also needs to be a stronger link between the Banks AAA program with that of the priority analytical study needs of the Government. The CAS results framework needs to be strengthened. The FY06-08 CAS results framework has not proven useful in monitoring, managing and evaluating the CAS. The Bank can make the results framework into an effective CAS management, monitoring and evaluation tool by clearly stating the expected CAS outcomes, including specific, measurable, achievable, relevant and time-bound indicators to allow for better monitoring, and making explicit the link between expected CAS outcomes and Bank instruments. Linking CAS monitoring and operational (including AAA) monitoring would facilitate data collection. Closer strategic monitoring of progress towards CAS strategic objectives should facilitate decisions on engagement. These lessons have been reflected in the new results framework. Findings from Recent IEG Evaluations 42. The Independent Evaluation Group (IEG) prepared a country brief for the Philippines in April 2008. IEGs country brief provides the following highlights: The main challenges identified in the Philippines have been the Banks late response to clients demands for more programmatic lending and the lack of synchronization with the
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budget process. Going forward, government officials were optimistic that the new programmatic loans which started in 2006 would allow for appropriate flexibility. Clients appreciated the Banks high-quality knowledge work. At the same time, they lamented the lack of applicability and appreciation of country dynamics. At the project level, a weak regulatory framework for Local Government Unit (LGU) finance and private sector participation has hampered participation of LGUs in Bank projects.
43. Overall Value of the Bank. More specifically, IEGs 2006 Development Results in MiddleIncome Countries (MIC) report indicated that Philippine partners value the Bank for its longstanding relationship and consider the Bank to have an intimate knowledge of the country. Appreciation was universally high for the Philippine Development Forum and the Banks role in it; this relationship helped assure the relevance of the Banks strategy. 44. Operational Challenge. One of the main challenges identified in the MIC report was the Banks late response to clients demands for more programmatic lending. The new National Program Support operations, which were started in 2006, were designed to respond to these challenges and provide the needed flexibility. This type of loan instrument continues to be relevant under the new CAS given continuous feedback on the preference of the Government for programmatic lending. 45. Knowledge Agenda. IEGs evaluation highlighted the clients appreciation for the Banks high-quality knowledge work, particularly its power to bring its international experiences in its advisory work. Bank reports were considered to be of good quality and holding weight in political debates. Still, clients noted that the Banks knowledge work sometimes lacked applicability to the country situation, and insufficiently account for country dynamics. Bank documents were sometimes seen as too ambitious, identifying issues of which the Government was already aware, and timelines/procedures did not take into consideration the culture and traditions of the Philippines. The new CAS emphasizes a flexible knowledge agenda consistent with the main strategic objectives. 46. IFC-IBRD Collaboration. From the IEG evaluation, it was concluded that some clients had not observed much coordination between the Bank and IFC, and government officials expressed that better coordination would be welcome and could lead to enhanced public-private partnerships, particularly in the infrastructure and power sectors. This particular feedback has been one of the driving forces for the stronger IFC-IBRD strategy component of the new CAS. World Bank FY09 Client Survey and Multistakeholder Consultations 47. The FY10-12 World Bank Group CAS was prepared by drawing on various dialogue and feedback mechanisms. Instruments that gave qualitative and quantitative information were also part of the preparation process. In addition to the CAS Completion Report (Annex 3), these included a World Bank Client Survey and a series of formal and informal meetings with participants from different parts of the country, with national and local government officials from oversight and implementing agencies, and with other development partners. (See Annex 4 for more details on the multistakeholder consultations, the World Bank FY09 Client Survey for the Philippines, and the overall CAS preparation process.) 48. The FY09 World Bank Client Survey was conducted in the Philippines in August 2008 with a total of 337 respondents. The results of the survey indicate that the Banks work in the country was valued, and stakeholders were eager for the Bank to be involved in the most critical development challenges that the country faces. In terms of development issues, corruption and poverty were considered the key development priorities in the Philippines. In terms of value of the World Bank to the clients, the results indicated that the Bank was mostly valued for its lending to finance development projects. The survey indicated that the Banks knowledge was less valued in the Philippines than in many other countries surveyed. Similar to the IEG findings, the client survey
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indicated that the Banks greatest weakness was perceived to be its disregard of political realities on the ground and its bureaucratic way of conducting business that is not attuned to country conditions. 49. A series of meetings were held with top government officials and leaders from civil society organizations (CSOs) and private sector, as well as with other development partners, both bilateral and multilateral agencies. Eight CAS Working Groups, (growth/fiscal, investment climate, poverty/social, governance/anticorruption, environment/climate change/disaster risk management, food policy issues/rural development, decentralization, and political issues) also met with partners from government, civil society, and bilateral and multilateral development agencies. The key messages and implications for Bank Group assistance gathered from the consultation workshops are summarized in Box 1. As the goal was to listen to a wide spectrum of voices, these details show some divergent views and opinions of various groups across the country. A detailed feedback report was sent to all the participants and was posted on the Banks Philippines website to inform the public about the messages and recommendations. Box 1: Key Messages from Multistakeholder Consultations
Poverty. The main causes for increasing poverty are: (a) bad governance; (b) the poor quality of education, particularly in rural areas; and (c) lack of livelihood and employment opportunities. Governance. The inadequate performance of public institutions is caused by: (a) the prevalence of corruption at all levels; (b) weak citizen participation in governance; (c) lack of professionalism and inadequate leadership and management capacities of political leaders; and (d) a bloated and inefficient bureaucracy that results in lack of communication and coordination and hampers the delivery of public services. Suggestions for Bank Group involvement. Ideas for priority programs for the new CAS included: (a) basic education, health and other social services at the grassroots level; (b) food sufficiency and security programs that will improve productivity and agricultural market development; (c) capacitybuilding to improve local governance, including programs that improve transparency and accountability in government agencies (e.g., strengthening of civil society participation in oversight roles, prosecution of erring public officials, etc.); (d) electoral reforms to strengthen democratic processes (e.g., voters education); and (e) social protection. Issues that the Bank Group should avoid. Conversely, the World Bank should avoid programs related to: (a) political intervention, including engagement in partisan politics, giving in to political pressure or direct involvement in conflict resolution and the war against terrorism; (b) mining projects that are not supported by communities, and (c) human rights violations, including support for enterprises or industries that encourage human trafficking, sex slavery and those that employ minors. Divergent views on Bank Group involvement. A number of issues surfaced where consultation participants had divergent views on World Bank involvement. While the majority felt that the World Bank should avoid these issues, some participants felt that there were opportunities for Bank involvement in the following: (a) policy making on procurement, taxes and tariffs; (b) family planning programs; (c) cash grants and subsidies; and (d) project identification and prioritization.
B.
PROPOSED WORLD BANK GROUP ASSISTANCE STRATEGY World Bank Group Assistance Strategy Overview
50. Based on the context presented above, the forthcoming CAS proposes to shift emphasis within the existing overarching goal rather than introduce a radically different approach from past CASs. The following key strategic shifts form the basis of the new CAS: i. Intensifying the focus on poverty reduction in light of its importance for the Philippines development agenda, the lack of progress on this front despite higher growth, and the vulnerability of the poor to the impact of the global slowdown. ii. Further operationalizing governance in all Bank-supported activities. Improving governance is considered critical for better development outcomes in the Philippines, and is an area in which government and non-government groups alike consider the Banks experience and contribution of value to the Philippines.
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iii. Including emerging global challenges with particular relevance for the Philippines e.g., mitigation of, and adaptation to, climate change, and reducing the risks associated with increasing intensity and frequency of natural disasters to which the country is already prone. iv. Emphasizing the knowledge agenda, because the Philippines as a middle income country is facing increasingly sophisticated development policy challenges, and because the Bank has in the past shown to be effective in producing relevant knowledge and in convening the development community to achieve results. 51. Over the CAS period, the World Bank Group will contribute to achieving more inclusive growth in the Philippines. It will do so by supporting the Government to: (i) maintain macroeconomic stability and cope with increased macroeconomic uncertainty through a stronger revenue base, improved expenditure efficiency and targeting, and responsive financing; (ii) improve the investment climate through an enabling business environment that promotes competitiveness, productivity and employment, especially for sectors of particular importance to the poor, such as agriculture and fisheries, and developing better models of infrastructure finance and management at national and local level to reduce transaction costs for the poor; (iii) increase access to better public services for the poor by deepening the reform agendas in key public services sectors, and expanding basic service delivery directly to the poor; and (iv) reduce vulnerabilities by expanding and rationalizing the countrys social safety net, improving disaster risk management, piloting climate change adaptation measures and expanding climate change mitigation programs in key sectors. 52. The World Bank Group will promote good governance by supporting more capable and accountable government. To achieve this goal, the Bank Group will pursue an engagement strategy at the national, local, and agency level. It will support cross-cutting as well as agency-specific reforms to strengthen core governance systems in public financial management, procurement, and decentralization. It will make use of certain types of poverty-reduction interventions, such as community-driven development (CDD) and conditional cash transfers (CCT) to increase the demand for better governance and better services. The Bank Group will also facilitate empowerment of the Philippines civil society and academe by promoting more transparency in Bank-supported operations as well as in public finance and public procurement in general. The Bank will use the Philippines own governance systems to assess the capabilities of prospective implementing agencies of Bankfinanced projects, and will carefully consider new engagements with agencies that cannot meet the countrys own standards of good governance. 53. The World Bank Group's program focuses on core results areas through engagements at the national, local, and private sector level. IBRD will aim for a lending program in the order of US$700 million-US$1 billion per year, with lower commitments expected for FY10 due to the May 2010 elections. The proposed lending would reverse the recent trend of negative net transfers and could increase IBRD exposure to the Philippines from US$2.7 billion in FY08 to US$3.9 billion in FY12. The proposed lending plan is indicative as IBRDs capacity to lend can change over time. There is higher degree of certainty for the lending plans for the earlier years of the CAS period. During the CAS period, IFC will support recognized and replicable successes in the country. Success will be measured by the development impact in key selected sectors, jointly or in coordination with IBRD, wherein IFC services would maximize and catalyze impact. In recognition that impact from IFC's engagement is significantly greater when investment and advisory services are properly aligned, the IFC strategy clearly incorporates both. The IFC investment program is expected to be in the order of US$250-300 million per year, while advisory services will be supported by funding of approximately US$3 million per year. MIGA will continue to offer its guarantee products. Annexes 5 and 6 present the CAS results framework and the Bank Group program by results areas. 54. The World Bank Group will support efforts to counter the effects of the global economic crisis (see Box 2).
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Box 2. World Bank Groups Response to the Global Economic Crisis

In terms of financial assistance to the Philippines for addressing the impact of the financial turmoil and the global crisis, the Government has asked the Bank to focus on faster-disbursing assistance in a variety of areas so as to contribute to key programs for alleviating the impact as well as general budget financing. The World Bank Group support will proceed once there is clarity on agendas and commitments, and projects meet the Banks processing filters. Commitment to governance reforms is a major focus of these filters, including at the decentralized level. IBRD expanded support in the short-term includes: - Scaled up support for the Governments new Conditional Cash Transfer (CCT) program. The planned loan amount in support of the CCT program was increased from US$50 million to US$405 million. The objective is to strengthen the effectiveness of the Department of Social Welfare and Development (DSWD) as a social protection agency to efficiently implement the CCT and to improve the national household targeting system for social protection programs in selected areas. - Accelerated disbursement under the National Program Support loans for Health and Education. Through accelerated disbursement and additional financing in these sector-wide operations, the Bank could contribute more financing. - Additional financing for the community-driven development project KALAHI-CIDSS. This program that helps build community infrastructure and income generating investments is an ongoing program for which the Government has requested additional financing. - Continued program of development policy loans (DPL). The 2006 DPL series focused on increased fiscal revenues and fiscal transparency. A DPL2 planned for 2007 was postponed because the Government fell short of its objectives, and the DPL series closed in December 2008. The program could be continued with a $250 million new DPL for calendar year 2009, with a possible additional US$250 million as a deferred drawdown option, supporting the objectives of fiscal revenues and transparency, complemented by measures to improve the Philippines response to the crisis. IFC Crisis Response Initiatives. IFC will aim to address increased risk and liquidity constraints through a series of instruments devised to help countries and firms respond to the global economic crisis. These instruments include Advisory Services to help strengthen insolvency regimes, improve corporate governance and strengthen risk management capacity in banks, and four recently approved or expanded financing facilities: - Bank Recapitalization Fund global equity fund to recapitalize distressed banks - Expanded Trade Finance Program existing IFC program that guarantees the trade-related payment obligations of approved financial institutions in emerging markets - Infrastructure Crisis Facility to bridge the gap in available financing for viable, privately funded infrastructure projects facing financial distress - Global Microfinance Funding Initiative to assist the microfinance sector in terms of filling funding gaps despite sound fundamental and continued strong performance.
MIGA Response. MIGAs ongoing commitment to the country will seek to reassure private sector investors through its political risk insurance product. MIGAs standard products address risks of Transfer Restriction, Expropriation, Breach of Contract and War and Civil Disturbance. In addition, the Small Investment Program (SIP) offers a more streamlined product for smaller scale investments in the country.
55. The global uncertainties as well as the Philippines political environment and transition require the Bank Group to be flexible, and adapt to changing circumstances. The Bank Group will be engaged in a relatively broad set of result areas, but the intensity of engagement will vary depending on the progress made and emerging opportunities for reforms, as well as on the opportunities that the Banks global initiatives offer. Beyond current commitments for a DPL with a possible draw-down option to mitigate the impact of the global economic crisis, the Bank will use development policy operations in support of disaster risk management and in the context of a strong reform program in government financial management. The Bank Group will also continue to support increasing local government access to finance through more diversified financial instruments. IBRD investment loans and guarantees and IFC investment and advice would support the development of new models of financing and management for critical infrastructure, including good practice Public
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Private Partnerships (PPPs). The World Bank Group will adapt its financing share of those PPPs in light of availability of private financing. MIGA guarantees may also offer reassurance for foreign investors, especially those concerned about turbulence in foreign exchange markets. To increase flexibility in a time of global uncertainties, the Bank Group will aim to reduce preparation times and increase the responsiveness in the lending program by better aligning it with the Governments evolving priorities through more frequent lending program discussions and review, and by scaling up successful operations through additional financing and repeater loans, and by using national program support loans as platforms for innovation and reforms. A CAS Progress Report in FY11 will align the Bank Groups program with that of the incoming government. 56. The Bank Group, in partnership with other development partners, will increasingly emphasize knowledge cooperation and formalize a rolling AAA program with the Government. A central aim of the AAA program for the CAS period is to provide inputs into the 2011-16 MTPDP. Implementation of the knowledge agenda will increasingly be done in cooperation with local institutes through programmatic partnerships in key results areas. World Bank Group Program Integration 57. A number of the development challenges facing the Philippines call for solutions that involve both public goods such as improved policies, institutions and incentives, as well as private sector investments. The business case for IBRD-IFC-MIGA collaboration results from the possibility of more effective use of financial and technical resources for the delivery of those public and private goods, and potential innovation through a public/private funding mix. The Philippines CAS pilots deeper integration of IBRD and IFC efforts by building on lessons of successful World Bank Group integration, including a shared assessment and strategy developed jointly by mixed IBRD and IFC teams (see Box 3). Box 3. One Bank Group: IFC-IBRD Integrated Programs
The IFC-IBRD CAS team considered joint programs in several key sectors seen as having significant potential development impact, where a combination of public and private sector actions are needed to realize the potential. The team agreed to pursue joint programs in three sectors: In infrastructure, new ideas in subsectors of joint interest will complement the significant number of ongoing operations. A key priority is the support for the implementation of the current reforms in the electricity sector. IBRD and IFC have also defined specific roles and synergies to more effectively help catalyze private participation in household water service delivery in specific localities, and in the transport sector through the preparation of well-developed transactions and in defining enabling policies and better institutional processes and arrangements for procuring and implementing PPPs within the current legal framework. The overall program has the potential to contribute to significant improvements in the risk allocation and the division of labor between the public and private sectors. In agribusiness, the challenges of low productivity and poor integration into global supply chains limit job creation and income growth for farmers. These challenges will be addressed through a joint IFCIBRD program designed to increase rural and farmer access to credit through expansion of a menu of innovative financing instruments (e.g., partial credit guarantee, index-based weather insurance, etc.), and improve market access in domestic and international markets for agriculture and agribusiness through better quality assurance, more efficient logistics and supply chains for agribusiness development. This planned collaboration will build initially on IFC's current program in the banana sector and expand gradually to other export crops, as well as in IBRDs operational experience in supporting the Governments rural finance agenda and agricultural diversification efforts. In the financial sector, the program will support increased access to financial services; banking sector competitiveness and reach; and financial literacy. The joint framework includes work on financial sector infrastructure including credit, payment and collateral systems, leveling the playing field between government and private financial institutions, and promoting consolidation in the sector. In addition to addressing the cross-cutting issues, specific operations will provide access to finance for LGU initiatives, microenterprises, farmers, fishers, SMEs, housing and energy efficiency projects.
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58.
MIGA will also continue to offer its guarantee products. It will make sure it is operating consistently with the overall Bank Group goals, and coordinating with IBRD and IFC where this is necessary or appropriate. The areas of joint and coordinated work are captured in the integrated results framework (Annex 5) and will be jointly managed and monitored. Strategic Objectives and Results Areas 59. The Bank Group's contribution to addressing the intertwined development challenges of poverty and governance will comprise eleven core results areas through engagements at the national, local, and private sector level. The anticipated outcomes presented below are the result of both ongoing operations and the new ones proposed in this CAS. - Strategic Objective 1: Stable Macro Economy
MTPDP Goal: Maintain economic stability through further fiscal consolidation (improved revenue generation as well as strengthened expenditure management), rationalized national government spending for devolved services, and reduced debt.
Results Area and Outcomes

1.1 Fiscal and financial stability through consolidation and improved macroeconomic risk management Outcome 1: Maintain tax effort through strengthened tax administration and tax policy reform Outcome 2: Improved efficiency and targeting of public expenditures Outcome 3: Improved management of key fiscal and financial sector risks
60. The first CAS objective supports the Governments efforts to encourage growth and maintain macro-stability while coping with increased macroeconomic uncertainty. Although the Philippines may not be as vulnerable to global economic conditions as some neighboring countries, growth prospects are likely to diminish over the short- to medium-term as the current global recession is likely to be deep and protracted and is expected to impact on the Philippines economy with a lag compared to other regional economiesremittances are a key factor in delaying the immediate impact. Given limited fiscal space, a modest and well-targeted fiscal stimulus package will likely be needed, and the government is working on such a plan (the Economic Resiliency Plan). To enable its delivery and without jeopardizing fiscal stability, a significantly enhanced effort to improve tax administration and implement tax policy reforms will be essential for the country to both protect the poor and preserve its hard-gained macro-fiscal stability. 61. Outcome 1: Maintained tax effort through strengthened tax administration and tax policy reform. The fiscal improvement of recent years needs to be placed onto a more permanent footing. The fiscal consolidation that took place since 2002 resulted in substantial improvements in revenue collections from 2004 and 2006. There is still considerable scope for increasing the efficiency of the tax collection system. Estimates suggest that the Government only collects about 60 percent of tax revenues due, because of widespread tax evasion and avoidance. Current global developments warrant a countercyclical fiscal policy stance, and the Governments initial response in part included tax cuts that have set back previous gains in tax collection. The need to protect the most vulnerable members of society from the impact of the global economic crisis, however, argues more in favor of applying countercyclical pressure through an expansion of targeted social spending than by allowing tax revenues to decline. Accordingly, the World Bank Group will focus on supporting government efforts to avoid protracted slippages in the tax revenues to GDP ratiothrough support for both tax administration and policy reformsto allow enough fiscal space for expanding targeted social spending without raising the fiscal deficit to unsustainable levels. This would allow the nonfinancial public sector debt ratio to fall further over the CAS period to a less burdensome level. The eventual aim is to move to a broad-based, low rate, simplified tax structure that minimizes distortions, increases horizontal equity, facilitates tax administration and fosters compliance. The Bank will engage in this area through lending (through the ongoing NPS for tax administration), technical assistance, policy notes, the Philippines Development Report, and quarterly economic reports, which
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would also help raise public awareness of these issues. The Bank could reform and scale up its NPS for tax administration once credible reform plans gain more traction. Complementary to efforts to increasing the tax base and improving tax administration, key official statistics such as the system of national accounts and industry surveys would be improved to support more evidence-based policy making, broaden the tax base, and improve tax revenue forecasting, goal setting, and allocation. 62. Outcome 2: Improved management and greater transparency in public expenditures. On the expenditure side, the Philippine Government has generally been effective in controlling the aggregate level of spending in line with the countrys fiscal capacity. But in a number of priority sectors such as education, health and infrastructure, the levels of spending tend to be insufficient for the country to achieve its own stated policy goals such as the MDGs or rapid infrastructure development. The fiscal turnaround in the past few years has reversed the trend of mandatory expenditure cuts that compress discretionary spending items including capital outlays. Yet capital outlays still remain below 2 percent of GDP, compared to almost 3 percent of GDP a decade ago. In terms of sectoral allocation, the Government has increased the budgets of several priority agencies, including Public Works and Highways, Education, Health, Agriculture, and Social Welfare and Development over the past few years following annual reviews of expenditure programs in the respective sectoral agencies. These allocation decisions generally improved the composition of spending within these agencies, but there still appears to be scope for improving the efficiency of expenditures in general. For example, social safety net programs are still dispersed across agencies and poorly coordinated. The inefficient nature of part of the agriculture budget has repeatedly been pointed out but the realignment of the budget composition has progressed slowly. The public works budget is littered with small, fragmented projects with limited strategic thrust. The Banks technical assistance will focus on improving expenditure allocation through introduction of DBM-led annual budget strategy papers and medium-term expenditure plans for the Departments of Education, Health, and Social Welfare and Development. The Bank will also be supporting the Government in improving the targeting of key social protection spending such as the conditional cash transfer program. The ongoing TA will be supplemented with a programmatic AAA on public expenditure issues in close coordination with relevant government agencies. 63. Outcome 3: Improved management of key fiscal and financial sector risks. The Philippines public sector debt has come down significantly since 2003 when it peaked at over 100 percent of GDP. Recent debt sustainability analyses undertaken by both the IMF and the World Bank find that debt is broadly sustainable, with exchange rates and growth shocks having the most impact on debt dynamics. Nevertheless, at an estimated 62 percent of GDP at end-2008, public debt remains at an elevated level for an emerging market, especially in the current global environment of heightened risk aversion and pullout from emerging markets. The composition also exposes the Government to significant fiscal risks. Key among these are exchange rate shocks as close to 60 percent of public debt is denominated in foreign currency, and rollover and interest rate risks given that a large share of the debt is short term; this results in large and growing gross financing requirements for the public sector (15.7; 18.5; and 19.7 percent of GDP for 2008, 2009, and 2010, respectively). There are also potentially important fiscal risks from contingent liabilities (e.g., PPPs), and GOCCs, and possible macro-financial risks arising from large exposure to government securities and balance sheet mismatches in the financial sector either directly or indirectly thorough their lending to the corporate sector and/or household sectors. The Bank and IFC (through its Advisory Services) can provide expertise and cross-country experience in matters related to fiscal and financial risk assessment and management, crisis response, managing insolvencies, and advice on risk reduction strategies and capital market development. 64. Part or much of this segment of the results area would likely be done in partnership with the IMF (e.g., the financial sector assessment program (FSAP) on which the assessment of macrofinancial vulnerabilities would rest). In the fiscal area, a public statement of fiscal risks could be an important outcome. In the current global environment, the Department of Finance (DOF), the Central Bank of the Philippines (Bangko Sentral ng Pilipinas BSP), and Treasury are likely to be interested
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in better macro-fiscal and macro-financial risk management, and the Bank will engage them through policy notes as well as the FSAP, the Philippines Development Report and the Philippines Development Forum (PDF), and potentially, technical assistance. - Strategic Objective 2: Improved Investment Climate
MTPDP Goals: Encourage the private sector to improve productivity, strengthen trade and investment and attain national investment rates of about 25-28 percent of GDP; continue with the integration of the transport system, and develop and diversify the energy mix; ensure smooth financing for entrepreneurs, including microfinance for underserved areas. Results Areas and Outcomes 2.1 Enabling business environment to promote competitiveness, productivity and employment Outcome 1: Increased and improved delivery of infrastructure Outcome 2: Enhanced regulatory policy frameworks and institutional capacity for investment, service delivery, and trade Outcome 3: Increased investment and employment in rural and urban development 2.2 Financial services Outcome 1: Increased delivery and access to financial services
65. A better investment climate remains a key challenge for the Philippines, and one that is becoming more pertinent as risk aversion increases and availability of investment finance could decline. There is a need to adopt policy reforms and implement programs that would help increase competitiveness and improve governance in order to attract more investment, which would lead to higher productivity and employment. The key constraints to improving the investment climate include, among others, the lack of infrastructure, a weak regulatory framework, and limited access to finance. As the pace of urbanization in the Philippines gains momentum, the Bank Group will expand its focus on the urban dimensions of development. Urban centers, cities in particular, have an increasingly important role to play in improving the investment climate and improving competitiveness. In addition to establishing business friendly environmentsincluding conducive regulatory frameworks and quality infrastructure and servicescities and towns must also become more adept at managing complex and large-scale development programs. Results Area 2.1: Enabling environment for competitiveness, productivity, and employment 66. Outcome 1: Increased and improved delivery of infrastructure. The Bank Group will help deliver more tangible transport results linked to improvements in governance through the ongoing Second National Roads Improvement and Management Program (NRIMP2), and will support expansion of this approach to the management of secondary and rural roads. In urban areas, such as Metro Manila, the Bank will support the integration of the transport infrastructure improvement programs within a broader metropolitan development context and local government planning processes. Investments in road upgrading and maintenance will increase their levels of service to facilitate efficient movement of people, goods and commerce along major corridors. In rural areas, better roads will increase access to basic services, places of employment, and markets for products. In addition, to operationalize the framework for PPPs with better risk-sharing between the public and private sector, the Bank Group will support one model PPP for a national toll road and one for a light rail project. In response to a possible reduction in the availability of private financing due to the current global downturn, the Bank Group could provide risk mitigation products and assistance in preparing financing and implementation packages for public investments. The Bank Group will continue to support the public sector reform process in the sector dialogue under the Philippines Development Forum. Better access to reliable and affordable power will promote investment in SMEs in rural and urban areas. It will also help to reduce the constraints to and the cost of doing business; improve the attractiveness of smaller urban and rural centers as engines of growth; expand coverage of business and service delivery; and, extend services to the underserved poor who reside in remote and isolated areas. The Bank will continue its support for rural electrification and, together with IFC, will explore opportunities for new power investments. A particular emphasis will be placed on supporting
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investments on renewable energy sources such as solar, hydro, geothermal, waste-to-energy and helping develop a program on renewable energy to access carbon credits from the new carbon finance facilities managed by the Bank. To address issues of inadequate connectivity, the Bank Group will also explore innovative applications of ICT to achieve results, especially in rural areas. 67. Outcome 2: Enhanced regulatory policy frameworks and institutional capacity for investment, service delivery, and trade. In sectors where the Bank Group is providing investment financingincluding transport, power, water, and waste managementthe development of more transparent and stable regulatory frameworks will continue to be supported, including the strengthening of regulatory agencies for transport and power, solid waste, water supply and sanitation to balance investor concerns and consumer welfare; support for multi-year infrastructure investment programming, planning and strengthened budgeting at the national and local level including adequate technical capacity and financial resources in line agencies to prepare projects for implementation, for which private firms can bid competitively; development of trade and transport facilitation policies; and, increased private investment in renewable energy technologies. The Bank Group will continue its efforts to support the reform of the institutional and legislative framework through bi-lateral and multilateral engagements such as the infrastructure working group of the PDF. If successful, these reforms could trigger increased financing from the World Bank and other partners (e.g., by creating a common policy for financing of operationally and financially sound water and sanitation providers) leading to significant scaling up of investments in the medium term. IFC will continue to benchmark the Philippines overall investment climate through the Doing Business indicators, particularly in highly urbanized cities, to improve their administrative processes to reduce transaction costs for businesses. IFC will also seek to scale up Advisory Services in key sectors such as water supply, building on success of the Manila Water Company privatization. This will be complemented by MIGAs political risk insurance product which seeks to reassure private investors, and standard products for Transfer Restriction, Expropriation, Breach of Contract and War and Civil Disturbance. In addition, the MIGA Small Investment Program (SIP) offers a more streamlined product for smaller scale investments in the country. 68. Outcome 3: Increased investment and employment in rural and urban development. In rural areas, the Bank Group will focus on both farm and non-farm sources of growth. Efforts to scale up agriculture and agribusiness development through public investment opportunities that promote market-based approaches will be stepped up, including through joint effort of IFC and IBRD. MIGA will continue to offer its guarantee product, and IBRD will also continue to support targeted local infrastructure development programs through the Second Mindanao Rural Development Project, the Second Agrarian Reform Communities Development Project, the LISCOP, the ARMM Social Fund Project and the KALAHI-CIDSS Project, and a proposed Secondary/Local roads project. The Bank Group will intensify its focus on urban development through a broad-based engagement with urban practitioners and decision makers to identify strategic actions. The forum for urban dialogue will also ensure broad consensus, and lay the foundation for a joint Government-Development Partner program of technical assistance, and analytical and advisory services to increase knowledge and shape public policy. The Banks ongoing support to the League of Cities City Development Strategy (CDS) program will be continued and a broader partnership with the Housing and Urban Development Corporation, Department of Interior and Local Government (DILG) and NEDA built with funding support from Cities Alliance and other development partners. IBRD will also continue to support urban investments through the Support for Strategic Local Investment and Development Project (SSLDIP), Metro Manila Urban Transport Project (MMURTRIP) and other new lending windows. IFC will explore a limited number of transactions in mining, an industry with high potential, but with considerable challenges and risks. IFC will seek transactions that can demonstrate the feasibility of environmentally sustainable and socially responsible mining in the Philippines, and can be implemented in full compliance with industry best practice and the IFC's Social and Environmental Performance Standards.
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Results Area 2.2: Financial services 69. Outcome 1: Increased delivery and access to financial services. The investment climate will improve when sources of financing, especially in the countryside and underserved areas, are available and accessible to the private sector, service providers, LGUs, and other entities for various types of investments, ranging from micro-small-medium enterprises to major capital expenditures. In addition to increasing access to financing, refinements and innovations will also be required to better tailor financing instruments to particular segments of the market; allow the entry of new financial service providers; and encourage borrowers to improve their credit worthiness. To address weak capacity and limited access to affordable finance for LGUs, the Bank Group will facilitate access to additional sources of finance, such as commercial banks and sub-sovereign lending. Increased access to grants and concessional financing will be provided, especially for LGUs with low-income and for complex public goods, such as sanitation and solid waste management. In addition, LGUs will be supported in their efforts to increase own-source revenue through better business tax and real property tax collection. Improvements in the overall regulatory framework for credit will also be supported to encourage greater private sector provision of credit, for example, through a single Credit Information Bureau for SME credit and increased coverage of the public credit registry. Access to credit for small farmers will be improved by the development and adoption of guidelines and transparency mechanisms for the publicly-managed farm credit guarantee facility. The Bank Group will promote options for increasing access to finance by private agribusiness. Innovations will include the pilot testing of a long-term credit facility for agriculture/agribusiness and an index (weather) based agricultural insurance system to mitigate weather-related risks. - Strategic Objective 3: Better Public Service Delivery
MTPDP Goals: Improve governance of service delivery to support reforms of social welfare and development; continue to pursue implementation of the health and basic education sector reform agenda to increase access to quality basic education, health services, and water and sanitation by the poor. Results Areas and Outcomes 3.1 Public service delivery in key sectors Outcome 1: Improved access to quality basic education services Outcome 2: Improved access to health services Outcome 3: Increased household access to safe drinking water and sanitation services 3.2 Basic service delivery in poor areas Outcome 1: Scaled-up provision of basic services through a nationwide community-driven development program Outcome 2: Enhanced effectiveness of public service delivery through more coordinated area-based approaches
70. The third CAS objective focuses on improving public service delivery, especially for the poor. Ensuring adequate access to and quality of public services, especially for the poor, remains a major challenge. Improved access to and quality of public services in education, health, and water and sanitation are key to achieving social sector MDGs, some of which are lagging in the Philippines. In poor areas, a multi-sectoral set of basic public services is needed to address poverty in a comprehensive manner. As national and local governments share responsibility for achieving the MDGs, better coordination of activities is essential. Well-targeted and transparent CDD programs that empower the poor to participate in local decision-making are effective instruments to strengthen transparency, coordination and cooperation, and promote social inclusion, leading to improved service delivery and outcomes for the poor. Improved inter-agency coordination and institutional strengthening are also needed to realize greater synergy between anti-poverty initiatives in both rural and urban areas. Further refinement of the overall decentralization framework is also needed to clarify the roles, responsibilities and funding arrangements at each level of government (see also strategic objective 5.3).
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Results Area 3.1: Public services delivery in key sectors 71. Outcome 1: Improved access to quality basic education services. The Bank will continue to support DepEds reform programthe Basic Education Reform Agenda (BESRA)as part of a multi-partner effort, through the National Program Support project. The education reform agenda is based on improving institutional performance linked to attainment of MDGs for education. While accessmeasured by enrolment ratesremains a concern, improving the quality of education services is also a priority given high drop-out and repetition rates, as well as low completion and achievement rates compared to other middle-income countries. To achieve greater equity in access to basic education services and to support quality improvements in public schools nationwide, BESRA also supports school-based management, with corresponding decentralization of resources to local schools. A quality assurance and accountability framework with defined minimum service standards for inputs, outputs and outcomes, and a rigorous monitoring and evaluation mechanism at all DepEd levels are key elements of the reform initiatives undertaken across all public schools. In addition, LGUs role in the delivery of education services will be strengthened by ensuring that local special education funds are properly mobilized to support education needs, that LGUs will lead the processes of education governance in their municipalities/cities, and that schools are well managed. 72. Outcome 2: Improved access to health services. In health, the Bank is supporting the Department of Health (DOH) reform program (FOURMULA 1) through the National Program Support project, which promotes the improvement of health outcomes and the attainment of MDGs for health through increased public investments in health care delivery, specifically investments to support an increased number of facility-based births, and improved immunization rates and treatment rates of tuberculosis, particularly of the poor. It also calls for universal social health insurance coverage and enhanced insurance benefits, and the use of performance-based financing to support local level service delivery and improved performance of public hospitals. It is also strengthening the regulatory capacity to assure access by the poor to quality medicines and other health goods and services. The role of LGUs in ensuring access to health services will be strengthened. At the provincial level, funding for health services is one of the largest expenditure items and plays a significant role in leveraging health services. Incentives for LGU participation in the delivery of quality health services will be strengthened through various mechanisms, including performance-based measures. 73. Outcome 3: Increased household access to safe drinking water and sanitation services. In addition to its support for regulatory reforms in the water supply and sanitation sector (see strategic objective 2), the Bank Group will continue to support the expansion of access through investments: in Metro Manilas water supply and sanitation systems, including output based subsidies to enable poor households to connect; in secondary cities through GFI project sub-projects for expansion of water supply, solid waste and septage and sewerage systems; and in community-level infrastructure through various community-driven development initiatives. In the context of these engagements, the World Bank Group will continue to innovate and develop new instruments for engaging water and sanitation providers (WSPs) including Advisory Services for PPPs, scaling up existing output-based aid programs to include sanitation and reach poor households in other cities, financing small scale private providers of water supply, and scaling up investments in solid waste management facilities. Results Area 3.2: Basic service delivery in poor areas 74. Outcome 1: Scaled-up provision of basic services through a nationwide communitydriven development program. Poor communities typically lack adequate access to a range of basic public services, such as elementary schools, health clinics, day care centers, water supply and sanitation, access roads and bridges, electricity, small scale irrigation, livelihood support and others. To accelerate the delivery of public services to targeted poor communities, the Bank will partner with national government agencies, LGUs, development partners, NGOs and other civil society organizations to support a scaled-up CDD program with nationwide coverage, including a focus on areas and groups with specific characteristics that make service delivery especially challenging, such as disaster-prone areas; conflict-affected communities, especially in Mindanao; environmentally
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fragile areas; rural and urban poor communities, and vulnerable and marginalized groups, such as indigenous peoples. 75. Outcome 2: Enhanced effectiveness of service delivery through more coordinated areabased approaches. The effective delivery of services to the poor is hampered by weak inter-agency and inter-governmental coordination, and a fragmentation of funding sources. Previous efforts to promote convergence across the Governments anti-poverty initiatives relied on top-down direction and have not been sustained. A renewed effort is needed to promote greater synergy between programs designed to benefit the poor within specific geographic areas. Utilizing an area-based focus, the Bank will explore opportunities to enhance the coordination between core anti-poverty initiatives, such as the conditional cash transfer program, community-driven development initiatives, and the reform programs of the education and health sectors, as well as improved inter-governmental coordination, especially between municipalities, provinces, and regions. - Strategic Objective 4: Reduced Vulnerabilities
MTPDP Goal: Reduce poverty and increase welfare, particularly in rural areas; sustainably manage the environment and natural resources; reduce disaster risk and improve recovery management. Results Areas and Outcomes 4.1 Social protection system Outcome 1: National household poverty targeting system in place and used Outcome 2: Conditional Cash Transfer (CCT) program fully operational 4.2 Disaster risk management and climate change Outcome 1: Disaster- and climate change-related risks reduced Outcome 2: Greenhouse gas emissions reduced through expansion of mitigation programs in key sectors and LGUs 4.3 Stability and peace Outcome 1: Enhanced impact and conflict-sensitivity of development programs implemented in communities in Mindanao affected by armed or violent conflict Outcome 2: Scaled-up provision of basic services and livelihood support through community-driven development (CDD) in communities affected by armed or violent conflict
76. The fourth strategic objective supports the Governments efforts to reduce vulnerabilities for a large part of the population. This objective is aligned with the MTPDP goals of reducing poverty and increasing welfare, particularly in the rural areas; managing disaster risks which disproportionately affect the poor and vulnerable; and sustainably managing the environment and natural resources to safeguard livelihoods. Results Area 4.1: Social protection system 77. Outcome 1: National household poverty targeting system in place and used. This outcome addresses the challenge of persistent high poverty incidence in the country by providing the Government as well as the Bank and other development partners with a more systematic and strategic framework for poverty reduction. Currently, existing social assistance programs are not accurately reaching the poorest and most vulnerable households. A strengthened national targeting system would increase access to social assistance for those who are actually poor; and conversely reduce the leakage of budgets allocated for this purpose to non-poor households. As a milestone towards this outcome, and to take advantage of the opening provided by the coming change in administration and the formulation of a new MTPDP, the Bank will assist in ensuring that a strong anti-poverty program framework and policies, for both rural and urban poor, are adopted in the MTPDP. The poverty targeting system will strengthen the coherence, synergy and effectiveness in the design and implementation of poverty reduction policies and measures shared across various government programs (e.g., MTPDP, MTPIP, plans, budgets). It will also help to ensure that planned poverty reduction investments to be financed by the Bank are more coordinated, consistent, properly sequenced, and responsive to national and local development policy contexts.
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78. Outcome 2: Conditional Cash Transfer (CCT) program fully operational. The Government is implementing a CCT program. Under the CAS, the WBG will support the improved design and operation of a well-functioning CCT program. The CCT program will address vulnerabilities by: (i) providing income support and protection to the poor to shocks, including recent food price increases; (ii) helping to reverse deteriorating educational indicators (primary enrolment and drop-out rates) which are likely reactions to households coping with increasing destitution; (iii) helping to improve health outcomes in critical areas, including maternal mortality and childhood morbidity; (iv) improving the governance of social assistance programs in general, by raising the bar as a program that is based on enhanced transparency and accountability; (v) increasing the supply-side responsiveness and accountability (by DepEd, DOH, and LGUs) to address stimulated demand; and, (vi) providing a convergence framework that allows the relevant agencies to work in tandem on the supply and demand side measures in order to get social services to work for the poor. Results Area 4.2: Disaster risk management and climate change 79. Outcome 1: Disaster- and climate change-related risks reduced. The Philippines is extremely vulnerable to natural disasters due to a high incidence of severe weather conditions especially floods, typhoons, and droughtand a large number of earthquakes and active volcanoes. This inherently high disaster risk is likely to be exacerbated by the effects of global climate change. The resultant human and economic costs of disasters are significant, with estimates suggesting 0.5 percent of GDP lost annually due to natural disasters. The country has begun to develop more indepth strategies for disaster risk management and climate change adaptation to address the dimensions of: (i) strengthening preparedness and adaptation at the local level with a focus on improving planning and capacity, knowledge and understanding of measures to reduce disaster risk, including adaptation to climate variability; (ii) reducing vulnerability of farmers to crop risk through support for innovative solutions such as weather risk insurance schemes for assisting small farmers to cope with the economic losses stemming from disasters; and, (iii) improving disaster risk financing strategy at national and local level through support for identification of appropriate instruments and establishment of new financing windows for preparedness, response and recovery. Bank support for these initiatives is through the Global Fund for Disaster Reduction and Recovery (GFDRR) technical assistance to enhance the development of disaster risk management and climate change strategies; new financing instruments, such as a CAT-DDO; and GEF grant-funded activities, including a possible Climate Change Adaptation project, which would integrate climate risk management into national and local development planning in agriculture and natural resource management and would demonstrate costeffective adaptation measures to strengthen the resilience of investments, initially in those sectors. These measures may be expanded to other vulnerable sectors or regions such as in coastal areas, where an integrated coastal zone management approach could contribute to reducing vulnerability to natural disasters and other hazards while promoting sustainable livelihoods and poverty reduction. 80. Outcome 2: Greenhouse gas emissions reduced through expansion of mitigation programs in key sectors and LGUs. While the Philippines is a minor emitter of greenhouse gases, it is committed to continue to pursue cost-effective solutions for reducing emissions. The emergence of new mitigation financing instrumentsparticularly the Carbon Partnership Facility and the Clean Technology Fundopens up the potential for developing broader mitigation programs in areas such as renewable energy, reducing air and water pollution, and solid waste management. Building on the experience and successes of ongoing mitigation projects in the Philippines supported by the Bank, such as geothermal and wind projects and wastewater treatment projects which already commit to an emission reduction of about 2 Mt CO2e, opportunities will be pursued in the power, transport and waste management sectors. In cooperation with other development partners, the World Bank will assist the Philippines in mobilizing existing and future sources of international financing assistance.
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Results Area 4.3: Stability and peace 81. The Philippines continues to be adversely affected by violent and armed conflict in some parts of the country, especially in the Mindanao region. Sustained growth and development for the Mindanao region as a whole cannot take place without giving considerable attention to the development needs of identified conflict-affected areas, which comprise a sizeable portion of the island. However, recent armed conflict during 2008, which resulted in hundreds of thousands of internally displaced persons and destruction of livelihood and property, and weak governance in many parts of the region reduce the effectiveness of development programs. The complexity of the situation in Mindanao requires a flexible approach in designing and supporting development programs. 82. Outcome 1: Enhanced impact and conflict-sensitivity of development programs implemented in communities in Mindanao affected by armed or violent conflict. The goal will be to support, through the Mindanao Trust Fund, rehabilitation of homes for returning Internally Displaced Persons (IDPs) from recent and previous fighting between the Armed Forces of the Philippines and the Moro Islamic Liberation Front. The program will be implemented in joint coordination with LGUs, NGOs and key development stakeholders under a coordinated approach with development partners. The CAS period will see a major push to enhance the conflict sensitivity of Bank operations in conflict-affected areas in Mindanao and elsewhere in the Philippines to support the creation of an environment conducive to peace through more cohesive communities and stronger local governance (see Box 4). Box 4. Enhancing Conflict Sensitivity
Future activities will have enhanced conflict sensitivity defined by one or more of the following characteristics: (i) transparent and equitable distribution of development resources; (ii) broad-based consultations with different parties to the conflict over development needs; (iii) conflict-related needs are met (IDPs, rehabilitation of damaged assets, etc); (iv) strong grievance redress system is in place to capture problems and mitigate the risk of corruption; (v) focus on opportunities to bring conflicting communities together around neutral activities like identifying development needs and joint project execution (if appropriate); and (vi) strengthened local dispute resolution mechanisms. The enhanced conflict sensitivity will be achieved through three primary means: firstly, significant AAA work to generate systematic analysis on conflict typology, incidence and patterns; public expenditure to track development resources; impact evaluation to measure the effectiveness of development operations; and finally, detailed analyses of local conflict dynamics, including communal land and natural resource disputes; secondly, working closely with major development partners, harmonizing community driven development approaches to strengthen communities, enhancing local governance, and creating economic opportunities; and thirdly, adapting operations to conflict conditions, including through activities to encourage inter-communal cooperation and strengthen local dispute resolution mechanisms.
83. Outcome 2: Scaled-up provision of basic services and livelihood support through community-driven development (CDD) in communities affected by armed or violent conflict. The goal will be to scale up provision of basic services, livelihood and peace programs through community driven development including capacity building for LGUs, Peoples Organizations and other local groups. This can be accomplished through additional financing (loan) for ARMM Social Fund and/or an expanded MTF-RDP (grant). The CDD approach will assist in mainstreaming good governance at the local level through improved transparency in budgeting, allocation, and management of public resources and accountability in the effective use of these resources to improve services at the community level. For non-conflict-affected areas, there is a need to work with Regional NEDA and LGUs to identify areas for development and investment. A detailed evaluation of community development approaches utilized by the Bank and key partners in conflict-affected areas will also be undertaken to assess what has and has not been working. Results from this evaluation will be used to harmonize development approaches, based on a strong understanding of effectiveness.
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Cross-Cutting Theme: Good Governance

MTPDP Goals: Strengthen partnerships and accountability among government, civil society, and the private sector; fully operationalize the Government Electronic Procurement System; conduct integrity development reviews in government agencies, and expand and institutionalize lifestyle-checks. Results Areas and Outcomes 5.1 Governance and anticorruption in selected national government agencies Outcome 1: Core business systems, processes and capacities in selected agencies improved 5.2 Procurement and public financial management reforms at national and local levels Outcome 1: The Procurement Law more strictly enforced Outcome 2: Improved management and greater transparency of public finances 5.3 Better local governance through effective decentralization Outcome 1: Deepened and refined decentralization through broad-based reforms Outcome 2: Strengthened LGU performance for more effective service delivery
84. Faced with the considerable governance challenges in the Philippines, the Bank has pursued strengthening public institutions as a key objective in the current CAS 13. While continuing to pursue this objective, the Banks new governance strategy for the Philippines emphasizes systematic efforts to increase transparency, accountability and participation at both national and local levels as a cross-cutting approach in pursuit of each of the results areas described below. This is in line with the Banks country governance and anticorruption framework (CGAC), which emphasizes both government capacity and demand for good governance. The new strategic emphasis takes advantage of the well-known strengths of the Philippine civil society as both advocates of governance reforms and partners in the Governments own good governance initiatives. 85. Strong political commitment backed by a broad consensus is essential for successful governance reforms. The first two years of the CAS period offer an opportunity for building consensus and setting a clear agenda for governance reforms to be pursued by the next administration. During this period, the Bank will engage a broad spectrum of Filipino stakeholders and external development partners to help galvanize drivers of change for governance reform, so that efforts aimed at building a capable and accountable state are more consistent and sustained. The Bank will pilot non-traditional and innovative approaches to promoting and supporting governance reforms, including working with actors outside the Executive branch of the national government. There will be particular emphasis on strengthening the analytical bases for governance reform advocacy by a broad coalition of CSOs. In partnership with other interested partners, the Bank will pursue the establishment of a consortium of CSOs and local academic institutions to carry out rigorous analysis and systematic documentation of political economy and governance-related topics. Results Area 5.1: Governance and anticorruption in selected national government agencies 86. Outcome 1: Core business systems, processes and capacities in selected agencies improved. In the new CAS, specific criteria will be utilized to determine agencies where Banksupported TA for agency-level governance improvements is likely to have greatest impact, including the intrinsic importance of the agencies for the CASs renewed emphasis on direct poverty reduction and governance improvements, as well as reform commitment and fiduciary benchmarking. The Bank will explore ways to use the Governments own mechanisms, such as annual agency audit reports, as a basis for assessing the quality of agencies governance. The Bank will work with a small number of relatively well-performing agencies to ensure governance gains are sustained and their capacities are enhanced further. In addition, a few agencies which occupy important roles in the public sector and yet are known for their governance challenges would also be included as long as there is commitment to a governance reform agenda. Agencies initially prioritized include: (i) the Departments of Education (DepEd), Health (DOH), Social Welfare and Development (DSWD), which are considered to be wellmanaged agencies and each having a relatively coherent sectoral reform framework critical for poverty reduction; the Bank is already providing support to the internal audit units at those departments; (ii)
13
See further analysis of governance challenges, opportunities and risks in Annex 2.
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Department of Public Works and Highways (DPWH) and the Bureau of Internal Revenue (BIR), which are often cited as among the most corruption-prone agencies but have taken steps to put in place governance reforms; and, (iii) the Judiciary, which is responsible for fundamental functions of good governance. Results Area 5.2: Procurement and public financial management reforms at national and local levels 87. Outcome 1: The Procurement Law more strictly enforced. A well-functioning public procurement system is critical to overall government effectiveness. The reform agenda for procurement has been clearly articulated as the complete implementation of the Government Procurement Reform Act (2003). Much has already been achieved in reforming the legislative and regulatory framework; however, important challenges remain in strengthening the institutional framework and management capacity; enhancing the competitiveness of the public procurement market; and, improving the integrity and transparency of the system. In the recently concluded 2008 Country Procurement Assessment Review (CPAR), actions by government agencies and development partners have been well-organized and coordinated resulting in agreed actions to further improve the public procurement system, including the issuance of improved Implementing Rules and Regulations. The Bank will continue its support to the Governments effort at harmonizing the implementing rules and regulations for the procurement law. Significant technical assistance and support from development partners will still be needed to further strengthen implementation and enforcement. The Bank has played an active role in the procurement reform agenda and will continue to do so under the new CAS. The Bank will work to improve the overall quality of procurement through its national and local development projects, by providing support to further strengthen civil society oversight and improve public access to procurement information; expand the e-Government Procurement; roll out a professionalization program for practitioners; improve procurement audit; and, bring down implementation of the procurement law to the sub-national level. 88. Outcome 2: Improved management and greater transparency of public finances. Effective public financial management (PFM) systems form the core of a countrys national public management framework. While a major component of the reform agendas discussed in Results Area 5.1 aims to improve agency-level PFM performance, these reforms are not likely to have a significant impact unless accompanied by broader, government-wide efforts at both the national and local levels to strengthen the overall PFM framework. Government efforts in the area of PFM reform have so far been fragmented and progressed more slowly in some important dimensions, such as improved accountability and transparency in budget execution and financial management. The Philippines would benefit from having a modernized public financial management law that more clearly regulates and disciplines the management of public money. Once a new law is in place, it is expected that subsequent efforts to support full implementation of the new law would be more coherently organized to avoid unnecessary fragmentation of efforts. Another critical ingredient for good PFM is a comprehensive government financial management information system which would allow the Government to track, manage and report on financial transactions in a timely and transparent manner. The absence of such a system is currently a major impediment to budget transparency as well as operational efficiency. The Bank is positioned to support PFM reform depending on demand from relevant government agencies in charge of PFM and work with civil society groups to promote increased budget transparency, such as through formation of a consortium of CSOs to monitor and analyze government expenditures. A major challenge will be to improve inter-agency coordination among key oversight agencies to expand support for the cross-cutting PFM agendas. Results Area 5.3: Better local governance through more effective decentralization 89. Given the countrys decentralized democratic system, effective and accountable local government units (LGUs) provide the foundation for good governance. Despite the emergence of some LGUs as strong champions of good governance since the introduction of the Local Government Code (LGC) in 1991, the overall decentralization framework is not conducive to promoting better
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local governance on a wide scale. Assignments of service delivery responsibilities across different levels of government remain ambiguous for some services, and the internal revenue allotment (IRA) formula acts as a disincentive for increased local revenue effort for many LGUs. In addition, the IRA formula does not take full account of LGUs relative fiscal capacities, service delivery needs or poverty status. The Philippine Development Forum (PDF) Decentralization and Local Government Working Group, which the Department of Interior and Local Government convenes and the Bank coconvenes, is the principal venue for engagement on these discussions and for coordinating actions by both the Government and development partners around a four-point agenda: (i) local government finance; (ii) capacity building; (iii) performance benchmarking; and (iv) policy reforms on devolution. The Banktogether with other development partners active in this areacontributes to the discussions, conducts studies, and aligns its financial and technical assistance to the broad agenda set by the Working Group. 90. Outcome 1: Deepened and refined decentralization through broad-based reforms. There is a general awareness among the stakeholders involved in the decentralization debate that the fundamental policy framework, as embodied in the LGC, needs improvements. Through the PDF Working Group, the Government, assisted by the Bank and the other development partners, has initiated several efforts to reform the LGC; however, progress to date has been slow and incremental. While prospects for a major overhaul of the decentralization framework through revision of the LGC are currently limited, it is important to work toward a technical level consensus on a medium-term reform agenda. Under the proposed CAS, the Bank will engage more frontally in debating pros and cons of the current arrangements and proactively suggest possible options for improving the overall intergovernmental arrangements. The Bank will undertake a programmatic series of analytical activities and advocacy work in support of the PDF Working Group agenda. 91. Outcome 2: Strengthened LGU performance for effective service delivery. The capacity of LGUs to respond effectively to the needs of the poor is often undermined by weak incentives and poor governance. Although the problems of incentives and governance result largely from the patronage-driven nature of local politics and partly from the deficiencies in the design and implementation of the decentralization framework, there is still significant scope for enhancing LGUs incentives for service delivery within the existing decentralization framework. The Bank will support the development of a more explicit strategy for LGU service delivery improvement using a combination of top-down incentivesthrough support for a performance-based grants system that links the availability of additional grants to the attainment of pre-specified performance criteria of good governanceand bottom-up initiativesthrough the scaling up of the KALAHI-CIDSS project into a nationwide program as the primary vehicle for promoting community empowerment, strengthening bottom-up planning and budgeting, and enhancing social accountability. Other tools to be introduced include scorecards and benchmarking systems. In addition, the Bank will seek other opportunities to enhance citizens participation, and involve NGOs in addressing specific governance objectives. C. IMPLEMENTING THE FY10-12 COUNTRY ASSISTANCE STRATEGY Operationalizing Governance 92. A major innovation of the new CAS is to mainstream systematic approaches to addressing governance challenges and operationalize them across the portfolio and at each step of the project cycle. In line with the Banks CGAC framework, the Bank will apply upstream governance/political economy diagnostics to all new operations at the pre-concept stage so that the decision to move forward to the PCN stage would be substantiated. Thus, proper measures to mitigate governance risks are included in the project design and at the same time the project can maximize its impact on governance improvements. All Bank projects will abide by an enhanced standard of information disclosure. All new projects will be designed to contribute to governance improvements
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in ways that are appropriate to the specific context of the sector and the operation but still following a systematic strategic framework. During implementation, the activities will be reviewed to ensure that the governance and anticorruption measures generate the expected results. The review will be conducted on a sample of projects identified from the risk level at entry or on a case-by-case basis if issues arise. Finally, at completion, the Bank will make sure that the completion report will assess the achievements in governance, hence providing basis for the next Bank investments in the sector. 93. The Country Office has strengthened the fiduciary team and created a Philippine Governance Advisory Team (PGAT) to better operationalize governance considerations in project design. The fiduciary team has been expanded with additional staff, leading to a strong international expertise on transactions. PGAT, a multi-disciplinary team led by the Portfolio Manager and composed of Manila-based governance specialists and senior operations staff, will offer advice to the task teams to address project governance risks and opportunities appropriately and systematically. The PGAT, supported by the Bangkok Governance Hub and an additional full-time governance advisor, will prioritize activities in nationwide and sectoral governance reforms, and will advise task teams on governance improvements in specific activities, including through the use of Governance Filters (see Box 5). Box 5: Governance Filters
The Governance Filters will help task teams in charge of developing new activities identify the level of governance risks they should expect to face. The filters will facilitate the decision process for the lending program and will provide the information needed to build a mitigation plan when the project concept has been approved. They will include government data such as the COA audits for the corresponding government agency, and the Integrity Action Plan of the Presidential Anti-Graft Commission (PAGC). In addition, the teams will carry out additional risk analysis, varying in substance according to the level of preparation. At the pre-concept stage, the teams will complement the government criteria with an analysis of the political risk of the potential activity. While a high risk can lead to a decision not to pursue the idea, management may also decide to take a calculated risk, and ask for further analysis in the next stage. At the concept stage, risk assessment can then relate to the project concept. The analysis will assess the capacity versus corruption risk, and provide a mitigation program aimed at reducing the potential sources of corruption. At this stage, management can again make the decision not to pursue project preparation, with still a limited impact on Bank expenses. Finally, the Governance Filters apply at the last stage, the decision review meeting, with the main objective of strengthening the mitigation action plan. The overall process would then ensure a comprehensive analysis of governance risk leading to a well documented decision of management to accept or reject it with limited cost.
94. Recognizing the need to improve performance, the Government has taken steps to address some of the bottlenecks in project implementation. These focus on: (i) reviewing budget execution practices of both the Department of Budget and Management (DBM) and implementing agencies with the view to simplifying the allocation of resources; (ii) ensuring the sustainability of policies, organizational structures and skills from project design, preparation and implementation; (iii) strengthening project implementation capacity of government agencies; and (iv) addressing issues in the financing and implementation of devolved activities by clarifying the roles and implementing mechanisms for MDFO, LGUs and national agencies in LGU subprojects. 95. Another area of Bank support would be in strengthening the Governments monitoring process and systems. The Government recognizes the need to put in place a more systematic monitoring process and review of projects, particularly those in problem status so that early follow-up action will be taken. Also of concern are the budget execution practices of the DBM and implementing agencies. A number of budget-related issues have been raised as one of the main causes of project implementation delays. The Bank may also need to provide technical assistance to improve budget execution not only to the DBM but also to the implementing agencies.
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Managing the Program 96. The World Bank Group will organize its Philippines program and its country team along the lines of the four strategic objectives, one cross-cutting theme, and eleven core results areas. For each of these the Bank will organize, budget for, and monitor an integrated program of lending, AAA, trust funds and partnership activities. Individual products remain the responsibility of sector units, but management of the key results will be done by multi-sectoral teams, coordinated through the Country Leadership Team (CLT). The World Bank Group will flexibly adjust resource allocation among results areas depending on progress and emerging opportunities in those areas. IFCs resources will be integrated in the results areas that will be jointly pursued, notably in infrastructure, agribusiness and financial sector. Consistent with the overall strategy, MIGA will also continue to offer its guarantee products. Box 6. CAS Results Monitoring
Monitoring of the CAS will be carried out by the Country Leadership Team (CLT), with a designated leader responsible for each of the strategic objectives of the CAS. Reporting for the different CAS results will be consolidated at the level of the four CAS strategic objectives and the cross-cutting theme of governance, and will form a central part of the mid-year and year-end reviews of the Work Program Agreements and CAS progress. To support this effort, a quarterly report detailing expenditures and disbursements under each of the activity codes mapped to each of the specific results areas and strategic objectives and a semi-annual qualitative review of progress on each of the five strategic objectives will be prepared. As part of this process, task teams will be asked to provide brief updates on progress achieved on individual activities.
97. In delivering its program, the World Bank Group will pay special attention to strengthening the portfolio, improving lending efficiency, furthering the knowledge agenda, and leveraging its resources through strategic partnerships and trust funds. This will be part of an implementation approach with clear indicators and commitments for bringing down the cost of doing business with the Bank as well as the cost of business for the Bank itself in terms of preparation time and budget. The World Bank Group will actively mobilize other funding sources to support analytical, advisory and supervision work, and will use resources more efficiently through risk-based approaches to fiduciary supervision to achieve enhanced implementation efficiencies. Loan Portfolio and Pipeline Management 98. The IBRDs ongoing portfolio consists of 18 active loans with total loan commitments of US$1.2 billion, of which US$871 million undisbursed, and 78 country specific grant projects with a total value of US$140 million. Nine loans (including one DPL) totaling US$1.05 billion were approved during the period FY06-08. This was higher than the US$450 million - US$900 million anticipated in the CAS and the US$852 million approved lending between FY00-05. The increase was due to Governments improved fiscal position starting in FY06, which allowed adequate budget space to accommodate requirements of new projects. Improved fiscal performance also resulted in the processing of the first Development Policy Loan (DPL1) to the Philippines amounting to US$250 million in FY06. Nine projects exited the portfolio during the same period. The trust fund portfolio has likewise grown and evolved in recent years, with free-standing recipient-executed trust funds accounting for 41 percent of total trust fund commitments as of mid-FY09, representing a marked increase from FY06 when these types of trust funds accounted for only 17 percent of the Philippines trust fund portfolio. 99. Despite the improved lending commitment for the FY06-08 period, portfolio performance reflects a slow start for the majority of projects and overall disbursements lower than expected. Portfolio review findings indicate that similar issues cause delays in both regular and national program support (NPS) operations, as well as trust funds, and adversely affect portfolio performance. In FY08, 16.7 percent of projects by number and 7.8 percent by amount were at risk.
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The Government has been taking steps to address some of these implementation issues through important policy actions and has intervened in some cases in order to secure renewed ownership and support from government agency champions. These interventions have started to exhibit positive results, including the favorable FY08 disbursement ratio (20.1 percent compared to 15.2 percent in FY07), but the portfolio continues to face challenges. None of the projects evaluated by IEG during the last five years was rated unsatisfactory. Both the Bank and the Government recognize the importance of maintaining performance momentum and the need to formulate and institutionalize sustainable measures so that commitment levels will be matched with disbursements and eventually achieve desired results. 100. Efforts will also continue to improve and strengthen partnerships with the Government, the Asian Development Bank (ADB) and the Japan International Cooperation Agency (JICA) aimed at harmonizing and aligning processes between financial institutions and government agencies to further enhance aid effectiveness and reduce transaction costs. Ongoing harmonization work on environmental and social safeguards will be a continuing activity and further harmonization work on government procurement system will be pursued even as the Philippines is being considered as one of the candidates to be a pilot country for the Use of Country Systems in the Bank-Supported Operations Piloting Program. The Bank will sustain coordination with oversight agencies through quarterly meetings and the conduct of joint portfolio reviews and will continue to work with the Government Procurement Policy Board (GPPB) and development partners on procurement reform to improve the governments public procurement system in line with the recommendations of the CPAR. Annex 9 contains further information on the Philippines harmonization agenda. 101. The Bank Group will actively engage with the Government in a dialogue aimed at addressing weak technical capacity of implementing agencies, including measures to improve quality at entry and project implementation. The Government recognizes the need to improve existing monitoring practices, particularly for projects in problem status, so that early follow-up action can be taken. The Bank has offered to provide technical assistance to strengthen institutional capacity and monitoring processes and systems to help improve government fiduciary functions. The Bank has also been providing assistance to improve budget execution practices of both the Department of Budget and Management (DBM) and selected executing agencies. The Bank will also help the Government to identify the main constraints to building and retaining capacity in government agencies, including issues linked to implementation of the government-wide rationalization process. 102. Going forward, the Bank will adopt strong performance criteria for project preparation and portfolio operations building on keen engagement and a strong interest shared with government agencies to improve efficiency and responsiveness. This will require making more strategic choices and agreeing to engage only in areas where the Bank has strong partners and joint/shared commitment to deliver results. The CMU will take an active hand in shaping the pipeline by encouraging teams to pursue additional financing for well-functioning operations and engaging with teams during the pre-identification stage. Opportunities to pursue additional financing for well functioning projects will be actively evaluated with a view to reducing transactions costs, deepening and broadening successful reform efforts and building on tested fiduciary and implementation arrangements. 103. New project ideas will be screened early in the process and preparation resources will be allocated incrementally based on project complexity and demonstrated progress and traction with counterparts. Teams will initially be allocated modest budgets to develop the business case for new and potentially innovative project ideas. These initial assessments will cover the critical issues and progress of ongoing reforms in the sector and the likelihood of success in proposed new reform areas. As part of the WPA process, all project ideas will be subject to an initial CMU and Sector Management Unit (SMU) review before they are cleared and provided with additional resources to move to the pre-identification stage, leading to the PCN preparation phase. The Governance Filters and the PGATs inputs during the PCN review will also guide further preparation work.
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104. The Bank has identified a set of early Readiness Filters, agreed with the Government, which will be used to screen projects during the regular programming discussions. This process will allow both the Government and the Bank to effectively determine ready-to-go projects and decide to postpone or drop those that will not pass the filters. Only project ideas that pass the early Readiness Filters will be listed in the Banks annual program and will receive full preparation budgets. Project preparation activities will subsequently be monitored closely and expected to be completed efficiently and within Bank standards. 105. The Bank has also identified a set of country team objectives for project implementation and supervision. The CMU will continue to monitor progress of ongoing projects and pursue improvements in portfolio management in order to accelerate disbursements. The Bank may also decide to refocus engagement in some problematic sectors depending on country portfolio review results. The Bank will aim to further strengthen implementation and M&E review practices in project supervision and monitoring. Timely ISR reporting for all projects will be strictly imposed and increased supervision budgets will be provided, if necessary, for projects that are considered high risk or in problem status. The practice of integrated fiduciary performance reviews will be continued but using a more risk-based approach, with increased attention to team composition and thematic reviews for high risk projects. The Bank will also pursue a broader post review strategy that will include periodic reviews of country systems and processes, in addition to transactions review processes, in order to better assess agency performance, including governance practices and challenges of implementing agencies. The Bank will also proactively work with INT to address specific project complaints. Knowledge Agenda 106. The Bank will pursue an expanded and re-focused knowledge agenda through close coordination with the Government and by establishing partnerships with (consortia) of thinktanks and universities. This will maximize the developmental impact of its analytical work in the Philippines, taking into account the context of a new administration and plans for a new MTPDP. The knowledge agenda will also involve and build on a network of Knowledge for Development Centers in leading state and private universities. Understanding the underlying causes of poverty and how the poor can better benefit from growth are critical questions for the Philippines. The World Bank, along with other partners, has embarked on a study to further analyze the nature and causes of recent poverty and to assess how growth could result in greater reductions in poverty. 107. The AAA program will be developed around thematic areas that are consistent with the CAS objectives. The AAA program will focus on deepening the Banks knowledge of and engagement in the key strategic areas identified in the CAS without being restrictive. The AAA program would therefore focus on aspects of one or more of the following themes: (i) macro/fiscal stability; (ii) investment climate; (iii) better service delivery for the poor; (iv) reducing vulnerabilities; and (v) governance. 108. A more consultative process to identify and agree on priority AAA activities will be established with government and other stakeholders. The Bank will aim at a more demand-driven AAA program, while acknowledging the difficulty of satisfying multiple sources of demand. A process would be established to capture demand for AAA and respond in a constructive and strategic way, combining efforts with other partners whenever possible. This will address concerns identified in IEG evaluations. Some AAA will also respond to Bank needs to further knowledge in critical areas where policy and operational response would be needed. AAA work focused on innovative ideas and business development would be important to guide the Bank program in the Philippines as well as to ensure the Bank stays relevant and anticipates future demand by government and other stakeholders. The Bank is planning to establish an "Advisory Council" of eminent Filipino intellectuals to provide advice on the Banks AAA work. Such an Advisory Council will be in addition to the broader consultations with government and other stakeholders and may eventually broaden its focus to advise the Bank team on the whole country program.
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109. Monitoring the AAA at all stages will be improved. The Bank will assign dedicated senior staff to ensure that AAA monitoring is carried out more effectively in order to improve implementation and enhance impact. The AAA leader will coordinate the overall AAA portfolio to ensure that the activities undertaken are in line with priorities agreed between the Government and the Bank, and will form a cohesive support structure for the achievement of the strategic objectives of the CAS. Trust Fund Portfolio Management 110. The Country Management Unit manages the trust fund portfolio jointly with the loan portfolio. The country trust fund coordinator monitors trust funds in the pipeline and progress on trust funds under implementation and alerts task teams when action is needed through the monthly management reporting process. Trust funds are also incorporated in other management reports on the overall country program, including the CAS, the Memorandum of Understanding on the annual work program and annual retrospective reports. In addition, the Portfolio and Quality Team conducts periodic reviews of the countrys combined loans and grants portfolio together with implementing and oversight agencies and shares its findings with Japan and the Asian Development Bank (ADB) to identify cross cutting issues and solutions. Annex 8 contains a list of World Bank Group-managed Trust Funds in the Philippines. 111. The Bank team is working toward integrating trust fund planning and management with overall business processes. The Bank will use the WPA process to get an indicative list of lending and non-lending activities planned along with the proposed funding sources for such activities (Bank budget, trust funds, or other) to allow the CMU to assess their strategic fit with the CAS in advance of the formal submission of trust fund proposals. The Bank will work closely with program managers of trust fund programs managed by the networks or at the regional level to ensure that CMU inputs and sign off are secured prior to the approval of trust fund proposals to be implemented in the Philippines. 112. Trust fund proposals are currently put through a rigorous review process during which the Country Leadership Team reviews and prioritizes new proposals to ensure alignment with country priorities and the CAS. In the case of free standing jumbo trust funds involving partners, such as the Mindanao Trust Fund, the task teams pursue a formal due diligence and review process similar to the one applied to regular Bank operations, comprising a concept review, decision meeting and appraisal prior to the execution of legal agreements to formally establish the trust funds. 113. Active involvement of country and regional trust fund coordinators at the conceptual stage has proved effective in anticipating questions or issues, facilitating the approval process, and helping ensure smooth implementation. Further, country management, sector specialists and fiduciary staff conduct training on Bank policies and fiduciary procedures relating to trust funds shortly before, or immediately after grant signing to facilitate start up of grant implementation. The training is customized to the specific needs and circumstances of the agency/ies implementing the grant, making it more effective compared to generic training. Fiduciary and disbursements staff are also available to provide hands on coaching and trouble shooting to implementing agencies. Fostering Stronger Partnerships 114. The Bank has established strong partnerships in the country with Government and other stakeholders, and intends to sustain and further deepen these to help achieve core results under the new CAS. At the policy level, the Bank will continue to draw on its strong convening power in the Philippines through support of the PDF, which is chaired by the Government and co-chaired by the World Bank. The PDF is recognized by the multistakeholder participants as an effective forum for facilitating dialogue on critical policy reforms as well as for providing an overall framework for partnerships not just with the Government but among other PDF players. As the co-chair of the PDF, the Bank will continue to ensure the effectiveness of the PDF process, and will continue to be an
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active co-convener or participant in all of the eight PDF working groups whose thematic areas cut across all the new CAS strategic objectives. 115. At the program level, the World Bank Group continues to be a key player in the Philippines and intends to sustain this position in the next CAS. Official Development Assistance (ODA) in the Philippines as of end calendar year 2008 was at the level of US$9.7 billion. Together, Japan, ADB and the World Bank provide approximately 75 percent of total ODA. Japans share is 43 percent, while the World Bank and ADB have equal shares of 16 percent each. Within the context of the ODA composition in the country, partnerships with other players will continue to be an important element of the strategy. (See Annex 7 on the mapping of development partners programs.) 116. At the operational level, scaling up of existing partnerships with various stakeholders will be a key element of the strategy. The Bank will pursue complementarity of our lending programs with those of ADB and Japan, the two other large ODA contributors in the country, in areas of common interest. Cofinancing with multilateral as well as bilateral agencies will be explored particularly for large program loans. As a specialized member of the United Nations, the Bank will continue to cooperate with the UN country team on addressing the MDGs and other common activities. In portfolio monitoring, the Bank will continue to collaborate with ADB and JICA through the government-led country portfolio review to harmonize and align processes among development partners and government agencies. 117. The operational collaboration with other international and national development partners has been strengthened through the establishment and implementation of jumbo trust funds administered by the Bank in recent years, and will be continued under the new CAS. The Bank Groups close partnership with Australia, whose program in the Philippines has increased significantly in the last two years, is especially significant. A number of externally financed outputs with AusAID financing were activated in FY09, and a new country level programmatic trust fund is expected to be activated soon. The European Commission (EC) is another close partner of the Bank in the Philippines, with two ongoing jumbo trust funds for the health sector, one specifically focused on Mindanao. Under its governance and anticorruption initiatives, the Bank will seek active partnerships with JICA and ADB and with the Government on harmonization of procedures on procurement, and a new set of coordination on financial management activities with the Government. The Bank will also pursue partnerships with CIDA, Spain, and other interested partners on a proposed multidonor trust fund on Decentralization and Local Government. The Bank will continue to implement the first phase of the multidonor trust fund for Mindanao, which includes contributions from Australia, Canada, EC, Sweden, New Zealand, and the United States and which has focused on capacity building in the local post-conflict communities of Mindanao. Annex 8 contains the list of the major World Bank-managed Trust Funds in the Philippines. 118. A network of strong partnerships is critical to delivering not only Bank lending, but the knowledge agenda as well. In partnership with other development partners, the World Bank Group will increasingly emphasize knowledge cooperation and formalize a rolling AAA program with the Government. The country team will also proactively pursue new partnerships and trust funds to mobilize additional resources and expertise for the Philippines country program. 119. The Philippines is known to have an active and vibrant civil society, and the Bank recognizes the potential partnerships this offers. Building on the consultations conducted for this CAS, the Bank will enhance its existing partnerships with CSOs at the project level, as well as on the knowledge agenda, through more informal but regular dialogues with think-tanks and academe on current policy issues. The Bank will strategically use the eleven Knowledge for Development Centers around the country for policy dialogue at the local levels and with the local CSOs. The Bank will continue to support specific themes under the CAS (e.g., inclusive growth) through the Panibagong Paraan program (Development Marketplace) on a bi-annual basis by providing small grants to a broad range of civil society groups, local governments and grassroots organizations. The next Panibagong Paraan may be held in FY10.
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120. Looking ahead, there is scope for closer collaboration and synchronized efforts in several new areas being supported under the CAS, including on global issues such as climate change adaptation and disaster risk management. The Bank Group will continue to expand ongoing partnerships and explore new activities with global programs such as the Public-Private Infrastructure Advisory Facility (PPIAF), Global Environment Facility (GEF), Water and Sanitation Program, Carbon Finance Funds, Monteral Protocol, Cities Alliance, and others. On the global economic crisis, closer collaboration with local and global partners will be needed with the expected higher levels of lending and advisory services, including continued close coordination with the IMF on the assessment of macroeconomic policies and conditions. Mainstreaming Gender 121. The Bank Group will continue to ensure that gender considerations are mainstreamed into operations, consistent with government policy. Development partners are required by the Government to report annually on how they mainstream gender into their programs, and a government report is prepared in conjunction with the Philippines Development Forum, the countrys main aid coordination vehicle. The Banks portfolio in the Philippines is being continuously monitored as part of regular Gender and Development (GAD) assessments by the Government. The Bank Group will continue to support this process through the Gender Focal Person, designated to champion the focus on gender issues in the Banks program and to participate in the Government-led GAD network, and other mechanisms already in place. See further details on gender mainstreaming and harmonization in Annex 9. 122. Going forward, the CAS will support the Philippines in the promotion of gender equality as part of the Governments commitment to the Millennium Declaration. The target of eliminating gender disparity in primary and secondary education, preferably by 2005, and all levels of education not later than 2015, is projected to be reached or even surpassed by the Philippines. Hence, the main challenge for the Philippines is to ensure that the development programs already in place, as well as new ones, will continue to support this positive trend in reaching the specific MDG on gender equality. The 2008 Joint Country Gender Assessment14 also identified the following major GAD challenges/agenda: (i) policy support for alternative social protection mechanisms/services; (ii) increased investment for more inclusive education; (iii) passage of policies and increased services on reproductive health; (iv) coordinated response to address gender-based violence; and (v) sharpening gender lens of disaster management. Specific IBRD projects that will be started or continued under the CAS that respond to the emerging GAD challenges include: The National Program Support for Basic Education involves alternative delivery modes to achieve gender-balanced education. The National Program Support for Health Sector Reform promotes maternal health care that seeks to reduce maternal mortality rate. The Mindanao Trust Fund-Reconstruction and Development Project (MTF-RDP) undertakes various initiatives on gender and peace building work such as implementation of Female Functional Literacy program; engagement of NGOs on GAD in conflict communities through a small-grant facility, and the training of trainers on gender and peace building. These types of activities will continue as the program extends into this CAS period. The Second Mindanao Rural Development Program and Second Agrarian Reform Community Development Project involves economic empowerment of women in agrarian reform communities.
14
Jointly prepared and published by Asian Development Bank, Canadian International Development Agency, European Commission, National Commission on the Role of Filipino Women, United Nations Childrens Fund, United Nations Development Fund for Women, and United Nations Population Fund.
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The Community-Driven Development or KALAHI-CIDSS Project promotes womens empowerment through participation in the planning and decision-making in "barangay" (local district) governance, and developing their capacity to design, implement, and manage development activities that reduce poverty. The Social Welfare and Development Reform Project (Conditional Cash Transfers) will contribute to economic empowerment of women since the expected recipients of the actual cash transfers in the targeted households are the mothers, who are assumed to take a more hands-on approach to the health and education needs of the children.
IV. MANAGING RISKS

123. Political risks. The FY10-12 CAS for the Philippines will be implemented during a period fraught with considerable risks that may undermine its results, or at the least, affect outcomes in an adverse way. Among them, political risks feature very prominently as the CAS will be implemented in a period of elections and government transition that could influence commitment to the ongoing program and continuity, as well as ownership and buy-in for the proposed future program. However, the elections will also put pressure for delivering results, especially in areas such as governance, community development, social protection, infrastructure, and investment climate. Elections could also open up political space for reforms as new leaders with new mandates form their agendas. The CAS will position the Bank Group to best support the preparation of the next MTPDP and to suggest ways for addressing key development challenges that the country faces. 124. Conflict in Mindanao. There is an ongoing risk that development gains made may be eroded by spikes in violent conflict despite a ceasefire. Government agencies may be constrained in implementing a common framework for peace and development in Mindanao. Sufficient resources from the Government may not be forthcoming for scaling up of basic services in Mindanao, especially in conflict-affected areas, which will threaten the sustainability of assistance. Development partners, including the Bank Group, will have to commit to work on stability and peace for the long haul and stay the course as much as possible. While the prevention of spikes in violent conflict and peace negotiations are beyond the bounds of the Bank's program, a number of steps will be taken to mitigate direct risks and support an environment conducive to peace. During the CAS period, the Bank will increase the sophistication of its security and risk analysis, including through the establishment of a conflict monitoring database that will track conflict incidence and typology. The conflict sensitivity of Bank-financed projects will be enhanced by increasing attention on strengthening community cohesion and equity in the distribution of resources in conflict-affected areas. 125. Vulnerability to the external environment, external shocks, and changes in investor sentiment. The Philippines, as all other open developing countries, is being affected by the ongoing global recession and continuing deep financial turmoil. Three key sources of uncertainty are the impact of the global environment on remittances, exports, and the fiscal sector. So far, remittance flows have held up well, reaching about US$16 billion in 2008 (about 10 percent of GDP). The geographical distribution of overseas Filipino workers is relatively well diversified; nonetheless, the US still accounts for 33 percent of total overseas workers and 68 percent of permanent overseas workers, and the slowdown in the US economy will have a negative impact. Exports, on the other hand, contracted by 2.9 percent in 2008 as key electronics exports plummeted by a third. The composition of Philippines exports has changed significantly since the early 1990s, and is now heavily skewed towards machinery and transport equipment, particularly high-tech exports. While the high-tech industry has its own sector dynamics, demand is relatively income elastic and sensitive to global growth conditions. Also, while Chinas rise has provided opportunities for exports in its own market, it has also heightened competitive pressures and cut into the Philippines exports shares. The recent increase in private capital inflows has included sizable portfolio flows which are sensitive to cyclical factors and global downturns. FDI flows, which are less affected by short-term cyclical factors, are still relatively low. Finally, concerns about falling tax effort, large and rising public sector
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gross financing needs for 2009 and 2010,15 and the potential for fiscal risks to materialize in a downturn could trigger a reassessment of the countrys fiscal sustainability and affect overall confidence in the economy. These vulnerabilities underline the need for prudent macroeconomic management, including robust fiscal and financial policies which ensure continued growth, reduce poverty, and protect the vulnerable. In case of a sharper-than-expected deterioration in the economy, the World Bank Group stands ready to use IFC crisis facilities, and IBRD financing for quick disbursing budget support within the broad parameters of the CAS lending range. The CAS would continue to focus on assisting the Government address fiscal and external vulnerabilities through a continuation of its policy advice to the Government on tax policy and administration and on a more timely manner, strengthening the design and implementation of the tax reform project, and constant dialogue with the Government on managing fiscal and financial risks. To improve data collection and reporting, the Bank would engage the Government in a program to improve its statistical reporting systems beginning with improvements in the countrys system of national accounts to adequately measure economic and sectoral performance. 126. Concerns about continued commitment to the reform agenda. There are a number of areas where the proposed CAS engagements are prone to risks emanating from any possible discontinuity or weakening of commitments to the reform agendas, particularly given the upcoming election-related transitions. For example, in the social sectors, it is critical that the reform agendas of national agencies, such as the Departments of Education, Health, and Social Welfare, continue to be articulated, and there is ownership and commitment for implementation. Bank support for implementation will proceed once there is clarity on the agendas and clear signs of commitment, and when projects meet the Banks selection and processing filters. Absence of consensus with the next administration and inadequate capacity to implement may weaken the desirable pro-poor focus of the MTPDP under the social protection framework. These concerns will be addressed by early and constant coordination with the Government through policy dialogue and AAA, as well as through the development of framework operationalization instruments (e.g., revisions of planning /programming/budgeting guidelines). 127. Risks posed by weak implementation capacity at the LGUs. A separate set of risks are associated with the various Bank engagements where most of the implementation activities are at the LGU level with weak capacities. Risks also arise from the often weak institutional framework governing national government management of LGU implementation of programs, and the extent of LGU support and cooperation. The absence of an appropriate incentive and sanction regime raises the risk whether LGUs will buy into the performance monitoring scheme being proposed for social sector service delivery, and the monitoring indicators will need to be vetted properly. The management capacities of CSOs also need addressing. The Bank will mitigate the risks of local-level capture of public resources (including development assistance) by enhancing emphasis on transparency and participation in its lending operations, especially by scaling up these measures in some of the CDD operations, while also investing in development of transparency enhancing measures such as locallevel citizens' scorecards and service delivery impact evaluations. The Bank is providing an IDF for the reform of the Local Government Academy (LGA) aiming at changing its role from service provider to broker of capacity building services that LGUs can access. 128. Possible impediments to implementing disaster risk management mechanisms. The Philippines is particularly vulnerable to frequent and devastating natural disasters, and the proposed ex ante and ex post mitigation and management mechanisms need to be carefully designed and implemented. Earlier efforts to support the reform of risk finance tools and instruments were not fully successful and the Government may still be reluctant to introduce options outlined in the disaster risk finance strategy. The possible inability to effect legislative changes required to modernize DRM
15
Gross public sector financing needs are projected to increase from 15.7 percent of GDP in 2008 to 18.5 percent of GDP in 2009 and 19.7 in 2010.
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systems, lack of LGU buy-in to financing DRM activities, and the unwillingness of the national government to establish financing mechanisms for LGUs, are also to be considered. The Bank will support the Governments efforts to reduce disaster risk, by developing and rolling out a program of capacity development assistance to highly vulnerable LGUs; and developing financing facilities to enable LGUs prepare for and mitigate disaster risk. In addition, the Bank will support the preparation of a disaster risk finance strategy to help the Government put in place appropriate insurance and risk transfer schemes. 129. Risks concerning implementation of governance reforms. The centrality of the CAS support for the Governments governance reform agenda raises some risks. A major source of risk is the concern that the new administration may choose to emphasize a new set of priorities and underinvest in the ongoing reforms. In particular, in the run-up to the elections there might be a shift to lower priority, politically-driven projects within the context of more relaxed fiscal discipline. Publicprivate partnerships have their own governance problems arising from the opportunities for special deals awarded to politically favored clients, and the impact of such negotiations on the preparation of bankable projects. Another high risk area is tax administration reform, where there are signs of capture by various vested interests, and it is uncertain that the new administration will be able to push it much more aggressively. In other governance reform areas, it is possible that key stakeholders will not be able to form a shared view on reform priorities or, worse yet, fragmentation and factionalism may stymie joint actions. Efforts to promote better local governance could be frustrated by clientelist politics at the local level. Demanding good governance in some areas, especially those in conflict areas and areas where powerful clans dominate politics, may be seen by communities as a low-reward high-risk activity. Targeting poverty programs in conflict-affected areas also has its own risks. The proposed engagements under the cross-cutting theme of good governance in the strategy, together with the implementation measures to operationalize governance (e.g., Governance Filters) and the systematic efforts to increase transparency, accountability and participation at both national and local levels, including through fostering partnerships with CSOs, form the core of the mitigation approach to risks concerning implementation of governance reforms.
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ANNEXES
CAS ANNEXES Annex 1: Annex 2: Annex 3: Annex 4: Annex 5: Annex 6: Annex 7: Annex 8: Annex 9: Annex 10: Poverty, Inequality and Progress toward the MDGs Governance Challenges, Opportunities and Risks FY06-08 Country Assistance Strategy Completion Report World Bank FY09 Client Survey and CAS Multistakeholder Consultations FY10-12 Country Assistance Strategy Results Framework Indicative World Bank Group (WBG) Program by Results Area Official Development Assistance (ODA) Programs in the Context of the CAS World Bank Group-Managed Trust Funds in the Philippines Philippines Harmonization Agenda Country Financing Parameters for the Philippines
CAS STANDARD ANNEX TABLES Annex A2: Annex B2: Annex B3: Annex B3 Annex B4 Annex B5: Annex B6: Annex B7: Annex B8: Annex B8: Country At-A-Glance Selected Indicators of Bank Portfolio Performance and Management IFC Investment Operations Program IBRD Indicative Financing Program, FY10-12 IBRD Indicative Program of Analytical and Advisory Activities, FY10-12 Philippines Social Indicators Philippines Key Economic Indicators Philippines Key Exposure Indicators Operations Portfolio (IBRD and Grants) IFC Committed and Disbursed Outstanding Investment Portfolio
MAP OF THE PHILIPPINES (IBRD NO. 33466R3)
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Annex 1 Poverty, Inequality and Progress toward the MDGs

Progress and Challenges in Achieving MDGs 1. The Millennium Development Goals (MDGs) provide an important reference point for achieving the Philippines objectives with regards to human development outcomes. Halfway through the 2015 target of achieving the MDGs, the Philippines has made considerable progress in some goals, particularly in poverty reduction, nutrition, gender equality, reducing infant and child mortality, water supply and sanitation, and combating AIDS and other diseases (see Annex A2). 1 However, in addition to slow progress in reducing income poverty, there has been mixed progress in addressing the non-income dimensions of poverty in the Philippines, particularly as they relate to human development outcomes. More specifically, the Philippines needs to intensify its efforts to achieve lagging key social MDG targets, especially universal access to primary education, maternal mortality, and reproductive health services, and address the uneven progress at the local level. 2. The Philippines remains on-track in halving poverty by 2015, but must step up efforts to preserve the gains it achieved in the past two decades. The incidence of poverty and the poverty gap ratio have been reduced significantly over the years. From about half of the population two decades ago, the proportion of the population living below the national poverty line has now gone down to a third. At this rate, the Philippines may well be on its way to achieving its target of reducing national poverty to 22.7 percent of the population by 2015. However, the recent increase in poverty would require a more progressive approach from the Government to preserve the gains it realized in the past two decades and to maintain, if not accelerate, the pace of reducing poverty moving forward. 3. Clear gains have been made in reducing infant and child mortality, as well as mortality from tuberculosis and other diseases. Infant and under-five mortality rates have also declined considerably. From 80 deaths per thousand live births in 1990, under-five mortality in 2006 fell to 31. Infant mortality was also reduced from 57 per thousand live births in 1990 to 23 in 2006. Improvements in the immunization program of the Government, however, are needed to hasten the pace of progress in increasing the proportion of 1-year old children protected against measles. Prevalence rates of tuberculosis (TB) and other diseases have also remained within target. While TB remains a major public health concern, being the sixth leading cause of death in 20032, the prevalence of TB was nearly halved since 1990. Through the Governments re-energized National TB Control Program, case detection and cure rates for TB increased to 63 percent and 82 percent in 2006 from 53 percent and 73 percent in 2001, respectively. Similarly, prevalence of malaria declined to a quarter of its level in 1990 and deaths controlled to three persons for every million from 15 in 1990. The prevalence of human immunodeficiency virus and acquired immune deficiency syndrome (HIV and AIDS) based on recorded cases has been kept below 1 percent of the population3. 4. Access to safe drinking water and sanitation has also improved. Based on the latest Annual Poverty Indicators Survey (2004), access to safe drinking water increased to 80.2 percent from 73 percent in 1990, while the incidence of using sealed water and closed pit toilet facilities increased to 86.2 percent from 67.6 percent in 1990. However, at the current pace of development the Philippines is unlikely to meet the MDG targets for water supply.
1
Data used in the analysis reflect the latest government and Bank staff estimates and may differ from Annex A2 and Annex B5 which present data from the DECDG database and other standard sources. 2 Source: Department of Health (http://www.doh.gov.ph/kp/statistics/leading_mortality) 3 Source: National Economic and Development Authority- United Nations Development Programme, (2007) Philippines Midterm Progress Report on the Millennium Development Goals 2007.
Poverty, Inequality, and Progress toward the MDGs
Philippines FY10-12 CAS - Annex 1 Page 2 of 6
5. Meanwhile, efforts to meet the MDGs are challenged by poor performance in key education and health targets: In education, net enrolment rate (NER) at the elementary level has been declining since 2002 and moving farther away from meeting the MDG target. At the secondary level, NER barely improved between 2006 and 2007 and remained low at 58-60 percent in the last five years. Completion rates in both elementary and secondary levels have also been on the decline since 2002 until a reversal in 2006, but still remains low and far from achieving the target of 81 percent by 2015. The quality of education has also been deteriorating. Overall achievement rate for the elementary level has remained low at 59.9 percent in 2006 while it remained stagnant at 45 percent at the secondary level. In health, maternal health is considered to be the goal least likely to be achieved by the Philippines by 2015. Despite the decline from 209 per hundred thousand live births in 1990 to 162 per hundred thousand in 2006, maternal mortality remains higher than in neighboring countries4. Latest health surveys revealed that while 88 percent of mothers received prenatal check-ups, only 66 percent received postnatal care and only a few obtained complete care. The low incidence of contraceptive usage and the resulting high population growth also contribute to the low likelihood of meeting the MDG target on maternal health. As of 2006, only half of married women of reproductive age use contraceptives and practice family planning while the unmet need for family planning was at 15.7 percent, reflecting the need to scale up efforts to provide universal access to reproductive health education and information. Meanwhile, immunization rates are not close to universal, improving only marginally in the last two decades. Malnutrition also remains a major issue, especially among school children. In 2006, malnutrition incidence was at 21 percent of children in public elementary schools.
6. Across the various regions, human development outcomes vary significantly. Most of the lagging regions are in Mindanao while those which have been progressing are in Luzon. Consistently on-track in almost all the regions were targets on poverty, infant and child mortality rates, access to safe drinking water, and sanitation. Meanwhile, consistently off-track were indicators of primary participation and survival, maternal mortality, and contraceptive prevalence. This is reflected by wide geographical disparities in the availability of good schools. Latest data on teacher distribution across schools and regions show the difficulty of attracting good teachers to schools that serve poor, backward areas and schools that have few resources. Meanwhile, latest surveys on health showed that while more than 85 percent of births in NCR and Central Luzon were attended by a skilled health professional, less than 30 percent of births were similarly attended in the ARMM and MIMAROPA regions. There is a need for investing further in service delivery in lagging or poorer regions. Reaching the poor requires geographic targeting of supply-side interventions in areas where the poor live. 7. The key challenge is to improve the efficiency in the use of the increasing budgets for education and health, and other social sectors. Between 2004 and 2008, the real budget of the Department of Education increased by 6 percent and that of the Department of Health by 18 percent (CPBD 2007). Nevertheless, government spending in basic education and health remains way below that of other developing countries5. In education, interventions addressing declining net enrolment rates, high dropout and low completion rates, and poor transition rates between the two levels of education, need to be prioritized. In health, budget allocations need to be prioritized for investing in
4
For instance, Thailand is at 110 per 100,000 live births while Malaysia is at 62, China at 45, and Vietnam at 150 (Source: www.unicef.org). 5 Developing countries spend about 4 to 6 percent of GDP on education and 3 percent on health, while the Philippines only spends about 2.5 percent of GDP and 0.3 percent on education and health, respectively.
health facilities and professionals who will attend to mothers during delivery. The emphasis on governance and public expenditure reforms is the right one. An important challenge will be to find effective ways of devolving further responsibility to local governments who share the responsibility for health and education outcomes with the national government. 8. To the extent that the poor find it hard to afford schooling and health care, targeted demand-side interventions to increase the ability of the poor to access health and education will also be key. On this front, several demand-side transfer programs have already been initiated by the Government, including the Food-for-School Program and the PhilHealth Indigent Program aimed at subsidizing health insurance of poor households. The operationalization and effectiveness of these programs, however, have been compromised by a lack of a good targeting mechanism. Indeed, improved targeting of the poor is critical to the efficiency of using public funds for poverty reduction and attainment of key MDGs. The conditional cash transfer (CCT) program (Pantawid Pamilyang Pilipino Program or 4Ps) that is currently being designed by the Government with several attractive dimensions, including adopting a targeting system of poor households based on a proxy means test that can also be used by other programs, shows promise. 9. The attainment of the MDG outcomes depends critically on the ability of the central government to work in close coordination with local government units and communities. Ongoing reform agendas in key national agencies need to focus on interventions that also integrate community-driven development (CDD) tools and involve communities in their design. Indeed, targeted demand side interventions, including CDD tools and increased access to information, will increase the ability of poor households to demand and access health care and education services and will trigger improved delivery of public services to the poor. The availability of a functional information system that can provide timely and accurate data on the performance of LGUs and of national agencies is similarly important, as is building up local capacities. Inequality in Access to Basic Services 10. Large inequalities in access to basic infrastructure services persist. Wide income disparities at the sub-national level reflect the uneven access to vital infrastructure and human capabilities. Least prosperous regions, mostly areas in Mindanao, have the least access to infrastructure and basic services while areas where economic activity is concentrated and poverty rates are lower have better access to such services (Table 1). As of 2006, 30 percent of those living in the Mindanao regions remain without access to electricity compared to 11.2 percent among regions in Luzon. Yet even within Luzon, large variations in access to electricity exist. More recent data also show that even within areas covered by electrical cooperatives in the country, about one-third of households remain without access6. Same is true for access to water, communication facilities, and good roads. 11. Educational gaps between poor and non-poor areas and between poor and non-poor families likewise persist, in terms of childrens access to schools of good quality and other inputs, as well as in terms of outcomes7. Visits to schools in poor areas reveal basic supply shortages. In poor, overcrowded urban areas, pupil-teacher ratios are as high as 1:80 in many NCR schools8, and school shifts are too short (three to four class shifts in highly urbanized areas such as in NCR, Cebu and CALABARZON). In poor rural areas, many students sit in classrooms without the rudiments of instruction, including a teacher who has mastered the curriculum. In health, the latest National Demographic and Health Survey showed that while more than 85 percent of births in National Capital
6 7
National Electrification Administration. World Bank Philippines Education Policy Notes 2004. 8 DepEd, BEIS 2006.
Region (NCR) and Central Luzon were attended by a skilled health professional, less than 30 percent of births were similarly attended in the ARMM and MIMAROPA regions.
Table 1. Access to Basic Services, 2006

Region / Island Group Region XIII NCR Region XIV CAR Region I - Ilocos Region Region II - Cagayan Valley Region III Central Luzon Region IVA CALABARZON Region IVB MIMAROPA Region V- Bicol Region VI - Western Visayas Region VII Central Visayas Region VIII Eastern Visayas Region IX Zamboanga Peninsula Region X - Northern Mindanao Region XI Davao Region XII - SOCCSKSARGEN Region XV ARMM Region XVI Caraga Luzon Luzon (excluding NCR) NCR Visayas Mindanao Proportion (%) of the Population without Access to Electricity Water Source 2.3 10.9 21.2 23.3 9.7 6.8 19.1 16.4 5.5 4.2 7.7 14.5 38.0 19.9 27.9 26.9 23.1 21.5 26.2 34.1 23.8 24.2 30.8 50.1 20.3 11.2 13.9 2.3 23.2 30.3 33.6 27.3 19.3 34.5 18.1 19.9 19.5 64.9 16.9 13.0 13.6 10.9 27.8 28.0 19.4 Proportion of Concrete & Telephone Asphalted Density* Roads (%) 100.0 31.1 35.7 5.5 90.0 3.8 69.5 1.4 87.2 4.5 85.8 10.2 46.1 10.2 72.2 2.3 75.6 85.7 81.3 68.6 69.5 62.9 62.4 46.3 71.5 69.4 100.0 80.3 62.2 71.5 6.3 7.4 3.7 1.1 3.8 7.9 2.1 5.4 1.0 11.7 5.6 31.1 6.1 3.6 8.3
Total 18.0 * Number of telephone lines installed per 100 persons. Sources: 2006 FIES; NTC; DPWH
Weak Response of Poverty Reduction to Growth and Increased Vulnerabilities 12. The weak response of poverty reduction to growth and increased vulnerabilities are key challenges that the Philippines faces. Government estimates reveal that 45 percent of all Filipinos are vulnerable to falling into poverty due to shocks, particularly those related to financial crises, health, unemployment, natural disasters, civil unrest, and prices that are likely to throw vulnerable households into poverty, and increase the severity of poverty among those already in poverty. For example, it is estimated that the 18 percent increase in prices of all food items by July 2007 may have increased poverty by 3.6 percentage points, equivalent to about 3 million people. 13. Understanding the underlying causes of poverty and how the poor can better benefit from growth are critical questions for the Philippines. The World Bank, along with other partners, has embarked on a study to further analyze the nature and causes of recent poverty and to assess how growth could result in greater reductions in poverty. While more careful analysis is required, there are several apparent factors that drove the increase in poverty in recent years.
First, the increase in the poverty headcount in 2006 has been partly caused by a fall in real income of households. While nominal income rose by 17.5 percent between 2003 and 2006, cumulative inflation in the period was higher at 21.1 percent. In particular, cumulative food inflation of 19.3 percent was more than double the cumulative food inflation of 9.5 percent in 2000-2003. These translated into falling average real income for all deciles. Average real family income declined by 3.7 percent between 2003 and 2006, while average family expenditures declined by 2.4 percent. Efforts aimed at increasing incomes and opportunities for the poor, while maintaining a stable macroeconomic environment, will be key to poverty reduction. Second, the fiscal crisis would also have contributed to higher poverty between 2003 and 2006. The Government had an unsustainable budget deficit by 2002 and consolidated public sector debt exceeded 100 percent of GDP the following year9. As revenues had been falling in real terms since 1997, the Government had no recourse but to compress spending. At the same time, the share of interest payment increased from 4.2 percent of GDP in 2000 to 5 percent between 2003 and 2006. Consequently, both capital and social spending fell significantly. The enhanced delivery of social services to the poor, both through increased spending in sectors that are important to the poor as well as improved accountability and service delivery by the public sector, will also be critical to reducing poverty in the context of the current fiscal situation. Third, there are also indications that the quality of growth has not favored poverty reduction. While growth averaged 5.4 percent between the conduct of the FIES in 2003 and 2006, GDP by factor shares of institutions shows that growth accrued largely to the corporate sector which grew by 27.7 percent on average over the three years (in nominal terms). In contrast, the household sector grew by only 3.6 percent on average over these years. Consequently, the share of the corporate sector to GDP increased from 43 percent to 55 percent, while households share to total GDP fell from 47 percent to 37 percent. Fourth, the pattern of growth creates insufficient jobs for the low-skilled labor the poor are relying on. Sector GDP growth, and consequently employment growth, was largest in services, especially in financial services and business processing services, for which the poors education levels often fall short. Agriculture has been growing at 4 percent in recent years, but without creating many additional jobs, as labor is not the constraining factor in that sector. Growth in manufacturing industry and employment, often a pathway out of poverty for lowskilled labor in other countries, remained modest in the Philippines because of constraints in the investment climate.
14. Most poor households in the Philippines are also susceptible to shocks driven by climate change and natural disasters. Many of the poor live in naturally hazard-prone areas and are largely dependent on natural resources for their livelihoods. Being an archipelagic country with a tropical climate, the Philippines is highly vulnerable to the adverse impacts of climate change, including increases in the frequency and intensity of floods, droughts, typhoons; alteration of agricultural and coastal marine ecosystem output and productivity; reduction of water availability and quality; and increases in the incidence of climate-sensitive infectious diseases. The progression of climate change has accelerated the susceptibility of the country to natural disasters and underscores the need to start adapting to this phenomenon. 15. The effectiveness of social protection and poverty reduction efforts is severely compromised by the lack of an accurate and legitimate system to target poor households. There is also a lack of policy and institutional coordination and capacity in the broad area of social
9
Source: Department of Finance (http://www.dof.gov.ph/stat/OPSD%202000-2005.pdf)
protection, as well as disaster management. Different targeting schemes are being used for different programs and have relied on faulty targeting systems which resulted in high leakage rates to the nonpoor and under-coverage of the poor. Conflicting provisions of various laws and their implementing rules and regulations and the overlapping mandates of agencies have hampered the effectiveness of government action in these areas. This has been compounded by the lack of clarity in the mandates and responsibilities, or actual functions, of national versus local government in the provision of services related to reducing risks, including those of social protection and disaster risk management, as well as poverty reduction in general. Challenges in Conflict-Affected Areas in Mindanao 16. In Mindanao, the intermittent conflict between government forces and separatist groups has been ongoing for more than three decades. It has resulted in the destruction of infrastructure, population displacements, deferred development, and lack of trust among people at the local level and between these and government authorities. There is a consensus among Filipino policymakers and the public that political instability and/or absence of peace in parts of Mindanao are major impediments for the island to attain its full development potential. 17. Mindanao has two faces: the growth centers and the lagging areas in conflict-affected communities. The former exhibit relatively healthy economic performance, and by doing so, have become the islands centers of manufacturing, trade and commerce. However, they are far from their potential of high growth. On the other hand, the latter demonstrate an underdeveloped and stagnating economy caused largely by the persistent conflict and neglect that have made them lagging areas. Most of the conflict-affected areas, as listed by the Government of the Philippines and the Moro Islamic Liberation Front (MILF) Peace Negotiating Panels, are also located in the poorest regions in Mindanao. These regions are: the Autonomous Region in Muslim Mindanao (ARMM), Western Mindanao, and Central Mindanao. The ARMM and Western Mindanao have the highest percentage of poor among their respective population, with about 70 percent and a little under 50 percent respectively; Central Mindanao has over 40 percent. 18. The Autonomous Region in Muslim Mindanao (ARMM) has the poorest human development outcomes among the 16 regions in the Philippines. Poverty incidence is twice that of the nation as a whole. Life expectancies for men and women are more than 10 years below the national rates. Infant and maternal mortality are 30 percent and 80 percent higher than the national rates. And net primary and secondary enrolment rates are 14 and 33 percentage points lower than the national rates.10 19. Many development partners are operating in Mindanao such as USAID, AusAID, CIDA, JICA, ADB, EU, and the World Bank Group. Most of them are engaged in implementing small and community-based infrastructure, social development and livelihood projects. Although such projects are valuable in rebuilding trust and confidence among community members, and within and among communities, the positive gains of such engagement need to be translated into sustainable livelihood activities that will provide employment and decent incomes to residents of conflict-affected and poor communities. The short-term initiatives need to be linked to medium and long-term plans in order to achieve sustained growth and development of Mindanao in general and of the conflictaffected areas in particular.
10
Human Development for Peace and Prosperity in the Autonomous Region in Muslim Mindanao, World Bank, November 2003.
Annex 2 Governance Challenges, Opportunities and Risks

The Governance Challenge 1. The Government has recognized the governance challenges as obstacles to development and in its MTPDP (2004-2010) diagnosed various dimensions of poor governance. The Plan candidly assessed the governance situations at the beginning of the current presidential term, covering a range of topics from corruption as a threat to development, the government institutions lack of capacities and integrity as well as their capture by vested interests, and even certain aspects of the constitutional structure which were seen to hamper efficient and coherent decision-making and coordinated policy implementation (Box 1). Box 1: Governance Assessments in the MTPDP 2004-2010
On corruption (Chapter 21): Graft and corruption are increasingly viewed as threats to the sustained growth and development of the country. Corruption distorts access to services for the poor, results in governments poor performance and, consequently, low public confidence in government. The culture of corruption in the country breeds the vicious cycles of poverty and underdevelopment. On the need for bureaucratic reform (Chapter 22): The independence, capacities and integrity of government institutions are not enough to provide quality and efficient public services. Regulatory capture works as powerful brakes on various government initiatives, eroding their effectiveness and sustainability. The bureaucracy is largely perceived to be beholden to vested interests which interfere in the bureaucracys functioning, rendering it unable to perform its functions and undertake its programs unhampered. The entrenched system of patronage and payback in the political landscape is the source of such particularistic interests. The institutional design, systems and processes of government pose a challenge on the quality of public goods and services. A number of factors impinge on this quality; these are: (a) redundant, duplicating and overlapping programs/activities, (b) diffused resources to nonessential undertakings, (c) uncoordinated policy and program implementation, (d) poor sector management, (e) proliferation of special task bodies or interagency committees, (f) ineffective performance management system, and (g) highly politicized bureaucracy. Despite previous efforts to trim the bureaucracy, the Government is still weighed down by unclear delineation and overlapping of functions. This results in high transaction costs internalized by government, business, nongovernment organizations and the general public as a result of poor coordination in policy and program implementation, weak sector management and wastage of resources. The perception of a bloated bureaucracy lies not only in the distribution of government employees in terms of national vis--vis the local government units (LGUs), but also its maintenance cost. Neighboring Asian countries have higher government personnel ratios, but they deploy greater number of civil servants to local areas and frontline services. The other issue is more of efficiency and cost.
On the countrys constitutional structure and its effects on governance (Chapter 25): The countrys political institutions have become less effective to address problems under the present presidential setup. The separation of powers and checks and balances between the Executive and Legislative branches often result in delays in legislation and policymaking. The Executive has to resort to compromise and concession to pass the annual appropriations bill and the other major initiatives. But even when good legislation is passed, it may suffer from execution problems because of the lack of legislative support to impose or raise taxes that are needed for its implementation. National policymaking has come to depend on the lowest-common-denominator of agreement among Executive and Legislative branches of the
Philippines Governance Challenges and Risks
Government. The national government remains highly centralized, slow and unresponsive to the needs of the people in the rural areas and cultural communities. Although local governments are supposed to enjoy local autonomy under the 1987 Constitution and the Local Government Code, they are in fact controlled in many ways by the national government on which many of them have become habitually dependent for guidance and resources. This inhibits local initiative and resourcefulness to effect progress and development within their territories and communities.
Source: Medium-Term Philippine Development Plan 2004-2010 (2004)
2. The importance of addressing the governance challenges as noted in the MTPDP was echoed in the CAS consultations and in the Banks 2008 Global Poll 1 . In the Global Poll, the Philippines is the only country in East Asia where improving governance was identified as the most important means to generate faster growth. It is also the only country in the region where improving governance was mentioned as one of the top two priorities for poverty reduction. Similar messages were received in the series of consultations on the CAS formulation and the FY09 Client Survey (see Annex 4). Government Responses 3. The MTPDP included corresponding reform goals, strategies and action plans. For anticorruption, the Governments priorities included turning the BIR and the BOC, two agencies with the highest perceived levels of corruption according to local polls, as showcases in the fight against graft and corruption, conducting comprehensive corruption risk assessments (Integrity Development Reviews) in government agencies to devise agency-specific anticorruption action plans, and strengthening the investigative capacity of the Office of the Ombudsman, modeling it after Hong Kongs Independent Commission Against Corruption (ICAC). To improve the incentives and the capabilities of the government bureaucracy to perform its functions effectively, the Plan aimed to rationalize functions and organizations of government agencies, professionalize the public service through pay reforms and introduction of performance management systems, and institutionalize meritbased promotion as a means to ensure the bureaucracys independence from political influence. Finally, the Plan proposed constitutional changes and called for legislating ways to enforce the constitutional prohibition of dynasties (i.e., clans and families which dominate local politics in given geographic areas), which are widely seen as a source of corruption and clientelism. 4. Following this ambitious agenda, the Government launched a number of reforms. While some programs are yet to yield notable results, others have achieved partial results to date, such as the government-launched innovative anticorruption program called the Revenue Integrity Protection Service (RIPS) which intends to control corruption in the revenue agencies and the conduct of Integrity Development Reviews in 17 national government agencies. In January 2009, the Government launched Oplan Kandado (Operation Padlock) which aims to strictly enforce administrative sanctions for non-compliance by taxpayers. As reported by Government, this program has started yielding good feedback and promising outcomes in terms of compelling taxpayers to abide by the rules, thereby generating revenue. 5. To enhance performance of the bureaucracy, the Government initiated a governmentwide agency rationalization program in 2003. This is a long-term reform program, and to date,
1
The 2008 World Bank Global Poll was carried out in 42 countries, covering 2,611 opinion leaders from government, media, academe, private sector and NGO/CSOs. For the Philippines, 60 phone interviews and 16 web interviews formed the basis for the data collected.
relatively few national government agencies have actually completed the exercise. Thus its effects on improving agency performance have yet to be assessed and firmly established. The planned civil service pay reform requires new legislation. Several bills for this purpose have been filed but this has not yet resulted in a new Salary Standardization Law. 6. While not explicitly highlighted in the MTPDP, reform of the public financial management became one of the priorities throughout the Plan period. Efforts have tended to focus on improving the policy base of budgeting and development of organizational performance indicators framework (OPIF), which has now been officially adopted in the national budget process. In terms of the MTEF, the Government envisions this to be fully institutionalized within the CAS period. In contrast, reforms to enhance budget transparency and improve efficiency and accountability in budget execution have lagged behind. The Commission on Audit (COA) developed an electronic accounting system (eNGAS) and had started installing them in government agencies some years ago, but the roll-out had not been completed in all agencies for various reasons before the COA recently announced its suspension due to a policy change. Follow-through on COA audits and the mandated internal audit units in ministries are constrained by limited capacity and personnel. 7. In sum, despite the reforms launched on a variety of fronts, some of which require longer-term implementation, desired improvements in governance and public sector performance have not yet come about. The MTPDP agenda of enhancing government institutions independence, integrity and capacity remains as relevant today as in 2004, and so does the need to continue to address systemic causes of corruption as well as appropriate responses to specific cases of graft. 8. Given the obstacles to reforms, a strategy for governance reforms needs to go beyond a simple call for institutional development and capacity building. It is necessary that reform efforts be guided by sober assessments of the obstacles to reforms as well as judicious identification of windows of opportunities. Opportunities for Governance Reforms 9. Despite the obstacles to reforms as demonstrated in the difficulties a number of the attempted reforms have faced in the recent past, there are positive developments that can provide opportunities for incremental governance reforms in the country. Procurement reform is arguably the most coherent and sustained governance reform in the Philippines in the last decade. The reform agenda is clearly articulated and broadly understood and shared among key government agencies, civil society groups, and external development partners. Because a serious procurement reform addresses one of the most abused sources of rent seeking, the challenge of fully implementing the core elements of the reform cannot be under-estimated. Against the odds, however, much has been accomplished already. The 2003 Procurement Reform Law is widely considered a sound legal framework which unified procurement-related provisions hitherto covered under various uncoordinated legal instruments. The Law includes various provisions intended to increase transparency in government procurement processes, using both civil society oversight and increased disclosure of procurement information through the electronic procurement system. Equally important is the Laws role in clarifying and organizing pending reform actions to be implemented by various government agencies, with support from CSOs and external development partners. The Bank has played a central role in articulating the reform agenda and tracking its progress through periodic country procurement assessments conducted in a participatory manner. Although the Philippines procurement system is not yet perfect and procurement-related corruption continues to be uncovered, these are considerable achievements by any international standard. In the Philippine context, having coherent reform legislation passed can be a challenge on its own. However, the case of the
procurement reform suggests that once such a law is in place it could galvanize reform momentum and channel energy and resources in pursuit of clear objectives commonly shared among key stakeholders. In this CAS, the Banks governance strategy partly relies on this insight and pursues broad-based policy dialogue to promote major legislative reforms in a few key areas: public financial management and decentralization, as detailed below. 10. Decentralization creates challenges, but also provides additional opportunities for improving governance. Some of the most promising governance innovations have emerged in local government units (LGUs) at the provincial, city, and municipal levels. Despite having to deal with often entrenched patronage politics, endemic corruption and poor public service delivery, there are a growing number of Governors and Mayors who, as local reform champions, have demonstrated leadership and commitment to governance reform and have been successful in improving development outcomes. Success stories come from a wide variety of LGUs and include provinces such as Bohol, which has implemented a comprehensive development planning system; cities such as Naga City, which has supported transparent and participatory governance, and Marikina City, which has promoted managerial innovations (see Box 2); and poverty-stricken municipalities such as Talaignod near Davao, Mulanay in southern Quezon, Asipulo in the Cordillera region, Mondragon in Northern Samar, Balangiga in Eastern Samar, Pinabacdao in Samar, Juban in Sorsogon and many others that have promoted greater citizens participation in governance. Key instruments of Bank support have included the City Development Strategy process, LGU support projects, and community-driven development programs. Box 2: Managerial Innovation in Marikina City
Marikina City has been a leader in governance reforms and a role model for LGUs. Its latest innovation was the creation of a central warehouse with bar coding system and wide area network (WAN) designed with the experience of the best private warehouses as well as leading hardware enterprises in the country. The objective was to enable quick inventory as well as proper and quick release of supplies and materials online to all its 45 departments each of which had originally been conducting procurement separately. The computerized system has enabled strategic positioning and priority purchase of fast moving items and allows management to inspect the inventory of supplies, while also complying with the procurement law. It has reduced the number of staff involved in supplies management from 135 to 34 and provides a better safeguard against pilferage through closer monitoring of materials and even the retrieval of excess materials from completed projects. Hence, wastage has been reduced or even eliminated and significant savings realized.
11. Civil society continues to play a critical role in promoting good governance. The Philippines most well-known governance endowment is its vibrant civil society organizations. CSO activism has not only kept problems of governance and corruption high in public awareness but has also contributed constructively to strengthening some of the Governments own reform initiatives. This has resulted in some of the best-publicized successes in curbing corruption and increasing government accountability such as the mobilization of the Boy Scouts in monitoring delivery of textbooks. CSOs are also active in partnering with reform-minded LGUs, providing training to LGU officials and serving as a zealous watchdog of public affairs in specific regions or localities. The freedom of the press and a free media in the Philippines also have a positive impact on accountability. 12. Replication of promising governance initiatives needs to step up. A challenge facing both CSO activism and local governance innovations is to find a way to replicate and scale up proven or promising individual initiatives so that their positive effects can transcend sectoral and geographic boundaries. While local governments such as Marikina and Naga have been sought after as beacons of good governance and developed programs for training and transferring knowledge and experience to other LGUs, the high degree of geographic and social fragmentation limits the effective reach of replication of good practice to a handful of LGUs. The various leagues of LGUs are playing an
important role in sharing successful experiences but more needs to be done to spread good practice to a greater number of LGUs. Relevance of the Proposed Bank Governance Strategy 13. While continuing to pursue the objective of strengthening government institutions, the Banks new governance strategy for the Philippines emphasizes systematic efforts to increase transparency, accountability and participation at both national and local levels as a crosscutting approach. Taking account of the obstacles and opportunities discussed above, the new strategic emphasis takes advantage of the well-known strengths of the Philippine civil society as both advocates of governance reforms and partners in the Governments own good governance initiatives. The challenge is considerable, but the perceived relevance of Bank assistance in improving governance is high. Both local stakeholders and the Global Poll respondents expect the Bank to address governance issues as a key constraint to development in the Philippines (Table 1). Table 1: Relevance through WBG work
What do you think the two main objectives of the WBG should be in your country? TOP 12 LISTED
East Asia/ Pacific 52 25 23 20 12 11 10 8 6 5 4 3 China 63 18 43 13 6 11 3 8 6 13 2 3 Indonesia 42 39 9 14 14 12 7 9 2 9 4 Lao 29 36 9 10 35 14 12 5 3 3 Philippines 68 27 5 15 7 8 37 2 13 5 Vietnam 37 12 15 58 12 10 10 12 10 6 2
Poverty Reduction Growth/Strengthening Economy Environmental Infrastructure Development Improving Education Agriculture and Rural Development Improving Governance and Government Private Sector Development Reducing corruption Strengthening Civil Society Job/Employment/Labor Health
Source: World Bank Global Poll (see footnote 1)
14. Although these perceptions are encouraging, these are obviously not sufficient for successful governance reforms. What is essential is strong political commitment backed by a broad consensus on reforms without which reforms will likely remain incremental. The first two years of the CAS period offer an opportunity for building consensus and proposing a clear agenda for governance reforms to be pursued by the next administration. During this period, the Bank will engage a broad spectrum of Filipino stakeholders and external development partners to help galvanize drivers of change for governance reform so that efforts aimed at building a capable and accountable state are more consistent and sustained. The Bank will pilot nontraditional and innovative approaches to promoting and supporting governance reforms, including working with actors outside the Executive branch of the national government.
Political Context and Risks Concerning Implementation of Governance Reforms 15. The new CAS will be implemented through a critical period of political transition, as the next Philippine general elections are scheduled to be held on May 10, 2010. All of the elected offices at both the national and the local levels, except half of the Senate, are up for elections. 2 Box 3: The Constitutional Design of the Philippine Political System
The 1987 Constitution, approved after the removal of President Ferdinand Marcos in 1986, restored the Presidential system with separation of powers among the Executive, the Legislature and the Judiciary. The directly elected President is the chief executive with extensive regulatory, administrative and budgetary powers. The country's inter-governmental arrangement was defined subsequently in the 1991 Local Government Code (LGC) which decentralized considerable powers and administrative responsibilities to the Local Government Units (LGUs), which consist of 81 provinces, some 1500 municipalities, 118 cities, and almost 42,000 Barangays or villages,, the lowest political unit of the country. To be elected President requires a plurality among the candidates in a one-round nationwide election. Presidents are elected for one six-year term only; the vice president is elected separately from the president, not as part of an election ticket. Legislation requires the approval of Congress, which consists of a 24-member Senate whose members are elected at large for a six-year term, and a 238-member House whose members are elected for a three-year term, the vast majority in US-style single-member district voting system and a small minority on the basis of a party-list voting system. At the local level, provincial, city or municipal chief executives, as well as provincial, city and town councils are also up for elections. Political parties play a minor role in developing political platforms and hardly impose party discipline, while list hopping from one party to the next is common among members of Congress and legislative initiatives often rely on ad-hoc coalitions of individual members of congress rather than on party alliances. The Presidents considerable powers in implementing the budget are often instrumental in forging such coalitions. Provincial governors, city/municipal mayors and barangay captains are directly elected and are overseen by elected local councils. Many LGUs belong to provincial, municipal, and city leagues, which are member organizations recognized and institutionalized under the local government code. Central government has deconcentrated limited executive powers to the Regions, which consist of a number of provinces, and to the Super Regions, consisting of a collection of Regions. In many local jurisdictions, politics has for decades been dominated by a few families, thus increasing the risk of elite capture.
16. The inherent uncertainty in the electoral process and the tendency for national debates to be politicized and the Government to slow down are some of the risks inherent in an electoral period. In addition, an important source of risk is the concern that the new administration may choose to emphasize a new set of priorities and under-invest in the ongoing reforms, such as in tax administration reform and in other sectors such as transport and agriculture, where there have been recent incidences of corruption scandals. 17. The Bank as well as other international development partners can best promote governance reforms in an environment with strong political support and consensus on reforms. Although the Banks strategy is not to shy away from difficult sectors if these are of strategic importance to the CAS objectives, the application of the Governance Filters will reduce the Banks exposure to high-risk sectors where development outcomes are unlikely to be achieved because of the prevailing governance environment. In such sectors, the Bank will continue to engage in dialogue through analytical work (e.g., sector political economy analysis) and support for reform advocacy by
2
Specifically, these elected offices are the presidency, vice-presidency, half the Senate seats, and all House seats at the national level and all the provincial governors, city/municipal mayors and barangay (village) captains offices as well as provincial, city, municipal and barangay legislatures.
civil society and private sector actors in the country. In other sectors (e.g., social sectors) where there is strong support for reforms, the Banks approach is to pursue governance improvements within a framework of sector-wide reform agendas with multidonor involvement, as already practiced in health (with EU), education (with AusAID), and social safety net (with AusAID). 18. In other governance reform areas, it is possible that key stakeholders will not be able to form a shared view on reform priorities. To mitigate these risks, the CAS proposes to invest in multistakeholder engagements on priority governance reform issues with the intent of contributing to formation of a solid reform consensus, similar to what the Philippines has been able to establish in the area of procurement reform with the Banks continued analytical input. Here, again, selectivity is key and hence Bank efforts at reform consensus-building will focus particularly on public financial management reform and budget transparency as well as local governance and decentralization, given the Banks technical expertise and comparative advantage in these areas. The Bank will mitigate the risks of clientelism and local-level capture of public resources (including development assistance) by enhancing emphasis on transparency and participation in its lending operations, especially by scaling up these measures in some of the CDD operations, while also investing in development of transparency enhancing measures such as local-level citizens scorecards and service delivery impact evaluations.
Annex 3 PHILIPPINES: Country Assistance Strategy FY2006-2009 Completion Report

Date of CAS: May 17, 2005 (Report No. 32141-PH) Date of Progress Report: June 21, 2007 (Report No. 40085-PH) Period Covered by the CAS Completion Report: July 2005 to December 2008 CAS Completion Report prepared by: Yoshine Uchimura, Consultant, EACPQ Yolanda Azarcon, Operations Officer, EACPF Lilanie Magdamo, Operations Officer, EACPF under the guidance of: Lada Strelkova, Country Program Coordinator, EACPQ Maryse Gautier, Portfolio and Operations Manager, EACPF with inputs from members of the Philippines Country Team
A. Introduction 1. This report assesses the effectiveness of the Banks assistance program to the Philippines for FY06-09 and draws lessons learned for incorporation into the new Country Assistance Strategy (CAS). The report is based on the Banks CAS for the Philippines (Report No. 32141-PH, discussed by the Board on May 17, 2005), and the CAS Progress Report (Report No. 40085-PH, June 21, 2007) which expanded the Bank program and extended the CAS to endFY09. B. Philippines Development Objectives 2. The Banks 2006 CAS saw the Philippines as a country not living up to its potential. The country was endowed with mineral, oil, gas and geothermal potential. Government, business and academe benefited from world class talent. The Philippines had experienced growth in GDP of over 4 percent per annum in real terms since 2001. But this growth was driven largely by consumption, supported by overseas remittances, which raised questions over its sustainability. Investment remained low, reflecting investor concerns over perceived corruption, inadequate infrastructure, uncertainty and inconsistency in the application of regulations, and the overall cost of doing business in the Philippines. Total factor productivity and per capita GDP growth lagged behind other East Asian countries. Over one quarter of the population remained poor and inequality remained high. 3. The Governments weak fiscal position was seen as a key constraint. Public debt and interest payments had been increasing since the mid-1990s. In 2003, non-financial public sector debt reached 101 percent of GDP and the debt of the national government was nearly five times its revenue. By 2004, national government interest obligations had reached 37 percent of revenue and accounted for nearly 30 percent of expenditure. Tax revenue continued to fall from 17 percent of GDP in 1997 to 12 percent in 2004, contributing to the problem. A continuation of these trends was expected to squeeze further government expenditures on infrastructure and social services and adversely impact investor confidence and private investment. Start-up and implementation of Bank investment projects were also constrained by a lack of budget and counterpart funding.
FY06-09 CAS Completion Report
Philippines FY10-12 CAS Annex 3 Page 2 of 33
4. Poor governance was another constraint. The Philippines compared poorly to other East Asian countries in corruption, rule of law, government effectiveness and political stability1. There was a perception that public institutions were captured by special interests and did not necessarily work effectively for the common good. This created a vicious cycle of weak public services, lack of trust in the Government, and an unwillingness to provide adequate resources to it. Poor governance limited the effectiveness of public institutions. 5. The Medium Term Philippines Development Plan (MTPDP) 2004-2010 laid out the Governments goals, strategies and action plans for the CAS 2 . The plan corresponded to President Gloria Macapagal-Arroyos term in office and reflected her priorities - livelihood (employment generation), education, fiscal strength, decentralized development, and national harmony3. The plan consisted of five parts: Economic Growth and Job Creation; Energy; Social Justice and Basic Needs; Education and Youth; and Anticorruption and Good Governance. Addressing the fiscal problem was seen as essential in sustaining and accelerating economic growth. Addressing infrastructure deficiencies, power sector reforms, improving knowledge, tackling corruption and simplifying business procedures were expected to promote investment and exports which would drive economic growth. This in turn was expected to create around 10 million jobs and reduce poverty to 18 percent by 2010. The plan was comprehensive and did not reflect clear priorities which were supported by the budget, limiting its effectiveness. C. The Bank Country Assistance Strategy 6. The FY06-08 CAS aimed to support the MTPDP and focused on four strategic areas: economic growth, social inclusion, fiscal stability, and improved governance. It had the following objectives4: Achieving fiscal stability to generate resources aimed at spurring growth and raising investments in the social and infrastructure sectors; Generating economic growth to accelerate job creation and poverty alleviation; Ensuring social inclusion and the improved delivery of basic services; and Improving governance.
7. Fiscal stability and improved governance were considered to be two levers which would promote economic growth and social inclusion. Economic growth would create jobs and income generation opportunities which would contribute to poverty reduction (although there was a concern that high income inequality would lessen the effect of growth on the poor). More social inclusion would empower the poor and enable them to participate in the opportunities afforded by economic growth, supported by public spending targeted to the poor. Fiscal reforms were essential
1 2
Based on the WBI Governance Indicators for 2004. The National Economic and Development Authority, Medium Term Philippines Development Plan 20042010, 2004. The plan was quite comprehensive and covered 277 pages. 3 The MTPDP was based on the Presidents 10 point agenda which laid out 10 outcomes that she wanted to achieve during her term. 4 The FY06-08 CAS had two objectives (economic growth and social inclusion) and two levers (fiscal stability and governance), in that fiscal stability and good governance contribute to economic growth and social inclusion. The CAS Progress Report restated these as four strategic objective statements. These are presented in this Completion Report.
for growth and for building-up of effective social spending that reaches the poor. Governance improvements were needed to deliver core services to all citizens, especially the poor. 8. The CAS adopted a back to basics approach, focusing on the ability of agencies to deliver services on the ground and make real implementation progress, rather than on sophisticated reform design. The strategy required the Bank to be more selective in its approach, but opportunistic in specific engagements5. It focused on Islands of Good Governance national agencies, local governments, or economic sectors for which the basic governance arrangements are sufficiently sound to provide a reasonable chance of success. Bank engagement would be as follows: At the national level, the Bank would focus on working through and improving in-country systems and processes, with more Bank operations focused on agency core mandates, functions, and service delivery improvements within the budget. The Bank would also focus on making decentralization more operational, representing a critical link to the local government agenda. At the local level, there would be an integrated cross-sectoral focus on local governments as the direct client. Developing a performance framework and capacity building program for local governments that is consistent across local governments would be central to this effort. Linking financing and capacity building to a clear performance framework in a practical way would also facilitate good governance at the local level. At the private sector level, there would be greater coordination between the Bank and IFC to promote private investments by strengthening regulatory agencies, reducing the cost of doing business, improving financial intermediation, and financing investments for publicprivate partnerships projects as well as investments in sectors with high growth potential.
9. The CAS anticipated a lower level of lending, compared to past CASs, and the continuation of a robust non-lending program. The base case program for FY06-08 was expected to range from US$450-900 million, lower than the US$1.1-1.3 billion in previous CASs. The level of Bank commitments would be determined by the progress on fiscal reforms, especially a reduction in the consolidated public sector deficit (CPSD) and improved tax effort, going up to US$1.8 billion under the high case6. The Bank would continue knowledge transfers through its economic and sector work and non-lending technical assistance program, mobilization of trust funds, and the network of Knowledge Development Centers. Greater emphasis would be given to just-in-time knowledge transfers to respond to immediate client needs. 10. The Government strengthened its fiscal position by 2006 and the Bank scaled up lending and extended the CAS to end FY09. The Government reduced the CPSD, turning it into a surplus of 0.1 percent of GDP in 2006. The bulk of the adjustment was due to enhanced tax revenues, with the tax-to-GDP ratio increasing from 13 percent in 2005 to 14 percent in 2006. Reflecting the improved situation, the Region issued a CAS Progress Report which confirmed the continued relevance of the strategy and approaches taken, extended the CAS by one year to endFY09, and proposed a new base case of US$1.7 billion for FY08-09. The larger program was based on increased fiscal space, the need for more public investment, and strong demand for Bank
5 6
Selectivity under the CAS would be functional and not sectoral. The triggers for the high case were (a) a CPSD reduction of 2 percent of GDP relative to 2004, (b) compatible with a CPSD reduction of 3 percent during 2005-07, (c) with a significant portion of the adjustment due to increase in the ratio of tax revenue to GDP.
support. The CAS Progress Report was distributed to the Board on a lapse-of-time basis 7 on August 2, 2007. 11. A results framework was developed, but design weaknesses limited its usefulness. The CAS identified 12 outcomes: one outcome corresponding to each of the four objectives (governance, fiscal stability, growth and social inclusion) by one of three platforms (national, local and private sector development). These country outcomes were presented in a 4x3 matrix (Table 13 in the CAS) which is replicated in Table 1 of this report. The results framework did not, however, include baselines or targets with which to measure progress against CAS outcomes. Therefore, it was not possible to determine what changes the Bank expected to achieve during the CAS period. The results framework did include Milestones which reflected the expected outcomes of the Bank Group assistance. But the milestones were generally framed as outcomes or objectives without baselines or targets which again made it difficult to assess whether they had been met. The CAS included a separate annex table (Annex B-10) mapping Bank interventions (lending and non-lending) by goal and platform. 12. The country team tried to use and refine the results framework by defining baselines and targets during annual portfolio reviews. The weaknesses in the design of the results framework made the task of monitoring and evaluating the CAS unwieldy. While the periodic monitoring of CAS milestones was useful in confirming the overall consistency and direction of progress and in increasing country team ownership of CAS results, it did not allow calibration of Bank Group interventions to meet pre-agreed targets. Many of these milestones were subsequently updated and/or formally revised in the CAS Progress Report to reflect evolution in the Bank program. D. Relevance of the Bank Program 13. Aligning the CAS with government priorities and maintaining the relevance of the Bank program is a dynamic (not static) process. The CAS was aligned with the MTPDP, both plans acknowledging the importance of addressing the need to tackle the fiscal situation. A consultative process, the Philippine Development Forum (PDF), proved to be effective in aligning government and Bank priorities and maintaining (and enhancing) the relevance of the Bank country program. In 2005, the Government and the Bank started the PDF by widening the Consultative Group meetings to include civil society, private sector, legislators and other stakeholders. In order to make the PDF into a continuous dialogue rather than an annual event, working groups (cochaired by the Government and a development partner) were set up to follow up on issues and agreements during the last meeting8. The PDF has proven effective in building consensus and aligning development partners around key challenges. Interviewing government counterparts, IEG found that there was almost universally positive appreciation of the PDF9 and the Banks convener role. The IEG report noted that one senior government official considered the forum to maintain a good concentration on strategy and implementation rather than the pledging and positioning of donors.
7
In the absence of a request by Executive Directors to schedule a CAS Progress Report for discussions, the minutes of a subsequent Board meeting record that Executive Directors noted the report. 8 Working groups are set up in seven thematic areas: MDGs and social progress; growth and investment climate; economic and fiscal reforms; governance and anti-corruption; decentralization and local government; Mindanao; and infrastructure. 9 The Independent Evaluation Group, Philippines Client Perspectives on Elements of Bank Support: Working Paper for Development Results in Middle-Income Countries: An Evaluation of the World Banks Support, 2007
E. CAS Outcomes 14. This section assesses the progress made towards the CAS objectives and the results achieved by the Bank. The Philippines has made significant progress in addressing the fiscal situation, turning the consolidated public sector deficit into a surplus in 2006 and achieving an economic growth rate of over 5 percent in 2006 and 2007. On the other hand, poverty increased between 2003 and 2006 despite the strong economic performance, raising concerns both in the country and the Bank. Progress is being made on government procurement reform and strengthening budgeting, but corruption continues to be a major concern and investment has continued to decline. There are growing concerns that the tax revenue increases will not be sustained. The Bank not only implemented its program of lending and Analytical and Advisory Activities (AAA), but also played a key convener role around the PDF and mobilized grants to supplement its lending and AAA program. 15. Overall, Bank program outcomes are considered to be moderately satisfactory. This is based on the assessment of each of the four CAS objectives. The results for fiscal stability is rated satisfactory (bordering on highly satisfactory), economic growth satisfactory (but bordering on moderately satisfactory), and ensuring social inclusion and governance moderately satisfactory. The CAS objective assessments were based, in turn, on assessments of the individual CAS outcomes under each platform (national, local and private). The assessments for each CAS outcome are discussed below and the summary results are presented in Table 1. A more detailed results summary by outcome is presented in Appendix 1. Bank performance is assessed in the following section. The poor design of the results framework (noted above), however, made the assessment of the CAS outcomes more difficult. Table 1: Summary of CAS Assessment by Goal
National Platform
Governance Improving governance Moderately Satisfactory Moderately Satisfactory: Progress is being made in improving budgeting (MTEF, etc.) and procurement. Bank operations supporting department level efforts to improve budgeting and procurement. However, there are concerns over the pace of implementation. Systems and processes for allocating and executing budgetary resources are more transparent and efficient.
Local Platform
Systems and processes of local governments for planning, budgeting, and delivering services and investments are transparent and efficient. Moderately Satisfactory: Bank projects are providing training and capacity development in planning, budgeting, and service delivery, through formal training and technical assistance provided through project planning and implementation. But it is not clear if this will lead to system improvements outside of the projects. Expanded local revenue base and increased revenues from local sources in at least 20 local governments. Satisfactory: Local revenues have increased in local
Private Platform
Improve governance of corporate sector and infrastructure regulatory agencies.
Satisfactory: The Bank continues to support Metro Manila Water Supply and Sanitation System Regulatory Office to oversee water and sanitation concession in Metro Manila and the Energy Regulatory Commission to oversee the power sector.
Fiscal Stability Achieving fiscal stability to generate resources aimed at
Improved public revenue mobilization, public expenditure management, and management of state-owned enterprises. Satisfactory: The turn-around in the fiscal situation has been
Reduced fiscal burden through financial strengthening of government corporations and financial institutions. Satisfactory: Improvement in the financial position of
National Platform
spurring growth and raising investments in social and infrastructure sectors Satisfactory impressive. The Bank and its development partners have been making the case for revenue reform. Improving tax effort was part of DPL1. The Bank is assisting the Bureau of Internal Revenue to improve tax collections through the NPS on Tax Administration, an IDF grant, and policy notes. In addition, the Bank has been supporting government efforts to privatize the power sector, with a positive impact on government finances. However, the slow down in tax revenue increases in 2007 is a concern. Competitiveness of the economy improved by increasing investment, upgrading infrastructure, and adopting reforms aimed at improving productivity of firms. Moderately Satisfactory: Bank infrastructure projects are improving major road networks and, with IFC, promoting rural electrification. Efforts to modernize support to agriculture and improve agricultural productivity have not progressed as planned. Bank reports have raised the need to promote investment and address governance and other constraints to improving the investment climate, but private investment continues to lag. Improved performance of national institutions and increased access for the poor and disadvantaged to basic services.
Local Platform
governments participating in Bank supported local revenue training and undertaking revenue enhancement programs. Furthermore, the Bank is assisting the Government to develop a performance based grant system for local government, linked to improved revenue performance.
Private Platform
Government Owned and Controlled Corporations have contributed to the improvement in the Governments fiscal situation. IFC has played an important role by furthering power sector privatization and facilitating the sale of non-performing assets owned by the National Home Mortgage Corporation and other government entities.
Growth Generating economic growth to accelerate job creating and poverty alleviation Satisfactory
Productivity increased through local provision of infrastructure and services.
Catalyze private investment in key sectors including infrastructure.
Satisfactory: Bank projects continue to provide local governments with access to financing for local investments. Preliminary assessments indicate that these investments are having a positive impact on local communities
Satisfactory: The Bank and IFC support the Governments efforts to increase private provision of infrastructure. Both the Bank and IFC provide funding for private provision of water and sanitation in Metro Manila. IFC has made several investments in private provision of electricity. The Bank continues to pursue additional public-private operations in power, water, and transport. Increased access to financing of micro-enterprises, cooperatives, and small & medium enterprises (SMEs) and increased private delivery of basic social services. Moderately Satisfactory: The Banks Rural Finance III project (closed) provided rural micro-enterprises and SMEs with access to credit. SME operations are shifting to IFC.
Social Inclusion Ensuring social inclusion and the improved delivery of basic services Moderately Satisfactory
Greater voice and improved access for the poor and disadvantaged in the planning and delivery of education, health and other basic services at the local level. Satisfactory: The Bank is promoting greater community involvement, especially to the poor in disadvantaged groups, in local decision making through several of its community based projects.
Satisfactory: Bank operations continue to support sector reforms in education, health, and social welfare development. Bank provided opportunities to pilot agency reforms (e.g., school based management, procurement) through its projects and transferred knowledge (e.g., conditional cash transfers).
Improving Governance 16. The Government has been taking steps to improve governance. A key development has been the strengthening of the procurement process. The Government Procurement Reform Act (2003) created a single legal framework for procurement and streamlined and modernized procurement. The Act resulted in the harmonization of national procurement procedures between government and its three main development partners, the World Bank, the Asian Development Bank (ADB) and the Japan Bank for International Cooperation (JBIC). It created an e-procurement system which was deemed to increase transparency. The Government also addressed the concern over the fragmentation of rules and regulations by preparing a unique set of rules for all procurement activities covered by the Act. Similarly, the Government has taken steps to improve budgeting by piloting of a results-oriented Organizational Performance Indicator Framework, introducing Medium Term Expenditure Frameworks (MTEFs), and linking government priorities and resources through the Budget Strategy Paper. 17. But challenges remain. Civil service reform, another area identified for improvement, remains stalled. While the frameworks for procurement and budget improvements are in place, corruption continues to be an issue: the Philippines ranked 112 out of 125 in a list of countries where irregular payments are required for public contracts according to the Global Competitiveness Report 2006-07 and the Banks 2008 CPAR noted that by one estimate possibly 20 percent to 30 percent of each contract goes to leakages. The challenge is to ensure implementation of the procurement and budgetary reforms throughout the Government. However, there are concerns over slippages, such as the delay in making public budget utilization data (see below). 18. The Bank has supported the Governments efforts to improve governance. The Bank has contributed to the budget reforms by providing analysis through its analytical and advisory activities (AAA) and by using the PDF as a forum to discuss key public expenditure and governance issues. Bank operations are supporting agency efforts to internalize and implement many of the changes. At the national level, the Departments of Education (DepEd), Health (DoH), two agencies with Bank National Program Support (NPS) operations, and the Department of Social Welfare and Development (DSWD), have adopted MTEFs. The Bank has provided grants to the Government Policy and Procurement Board, the Office of the Ombudsman, and the Presidential Anti-Graft Commission to strengthen their capacity to oversee procurement and fight corruption (see Box 1). Finally, governance improvement is a key objective of the Banks program of Development Policy Loans (DPLs). Increasing the number of postings under the Governments eprocurement system was a prior condition for the first loan (DPL1, FY07). However, lack of progress on disclosing budget execution information is one of the reasons, which delayed the second DPL (DPL2). 19. Individual Bank projects strengthen agency capacity in budgeting, procurement and/or financial management, both at the national and local levels. At the national level, the Second Social Expenditure Management Project (SEMP2, completed in FY07) focused on strengthening fiduciary and procurement systems in DepEd, DoH and DSWD and demonstrated the benefits of competitive bidding10 . The Second National Roads Improvement and Management Project (NRIMP2) includes an Integrity Strengthening Action Plan for the Department of Public Works and Highways (see Box 1). At the local level, officials from 979 local government units (LGUs) have been trained in planning, finance, construction supervision and other municipal management areas under the Local Government Finance and Development Project (LGFDPLogofind). The Banks community-driven development projects have engaged communities in the
10
ICB under the project resulted in improved quality and cost savings.
planning and implementation of local investment and service delivery. It is not clear, however, whether all these individual project level efforts would be sustainable and would lead to systemwide improvements at the local level. The Bank is addressing these concerns by working through the PDF to refine the local government performance framework and assisting the Department of Interior and Local Government to review local government training through an IDF grant.
Box 1: Fighting Corruption in the Philippines
The Bank has been assisting government agencies to enhance their capacities to oversee procurement and tackle corruption through various grants to procurement and anticorruption agencies. The Bank provided the Government Policy and Procurement Board (GPPB) with two consecutive grants which helped GPPB develop and pilot test generic procurement manuals (which were harmonized with the Asian Development Bank, the Japan Bank for International Cooperation, and the Bank), institute a national procurement training program through state universities and colleges, and prepare and pilot test Agency Procurement Performance Indicators. GPPB is currently developing further training and certification programs for public procurement professionals. The Office of the Ombudsman received an ASEM grant with which the Office conducted field investigation training and developed an electronic data bank for the Statements of Assets and Liabilities and Net Worth and an electronic case tracking system for use by the Office of the Special Prosecutor. The Bank also provided IDF grants to the Bureau of Internal Revenue to strengthen its revenue administration capacity and reduce opportunities for graft and to the Presidential AntiGraft Commission to strengthen agency internal audit units for effective procurement monitoring and enforcement. At the project level, the Bank is conducting due diligence in procurement and financial management, tackling corruption when it arises, and working with agencies to improve their controls and procedures. For example, the Bank rejected road contracts in 2003, 2004, and 2006 due to signs of bid rigging under the First National Roads Improvement and Management Project (NRIMP1). These cases were referred to the Banks Department of Institutional Integrity which found that a cartel of contractors had engaged in corrupt and collusive practices in all three rounds of bidding. The findings were disclosed to the Government in November 2007 for possible follow-up under Philippines law. This also led to tightening of procedures within the Department of Public Works and Highways and in the follow-up project, NRIMP2. The Department adopted an Integrity Strengthening Action Plan which is supported by a range of measures incorporated into the Bank project, such as the use of an independent procurement evaluator, independent oversight by a coalition of citizens and road user groups (Road Watch), strengthening of procurement and financial controls, and business process improvements to reduce opportunities for interference.
20. The Bank is strengthening the oversight functions of the regulatory agencies in the power sector and in Metro Manila water and sanitation. The Government has been pursuing the privatization of power, and water and sanitation since the 1990s, changing the role of government from service delivery to policy and oversight. Strengthening the regulatory agencies is critical to increasing private investment in infrastructure. The Electricity and Power Reform Act (2001) provided the framework for restructuring the power sector. The Bank has been supporting the implementation of the Act, most recently in assisting the Energy Regulatory Commission to develop rules and regulations for a concession agreement for power transmission. Similarly, the Government divided the provision of water supply and sanitation in Metro Manila into two concessions in the late 1990s with technical assistance from IFC. The Bank has since been assisting the Metro Manila Water Supply and Sanitation System Regulatory Office carry out the rebasing of the tariffs through the Third Manila Sewerage Project and is extending financing to one of the concessionaires through one of its projects.
Achieving Fiscal Stability to Generate Resources Aimed at Spurring Growth and Raising Investments in the Social and Infrastructure Sectors 21. The Philippines has experienced a turn-around in its fiscal position. The consolidated public sector balance went from a deficit of 4.8 percent of GDP in 2004 to a surplus of 0.2 percent in 2006 and an estimated surplus of 1.4 percent for the first three quarters of 2007 (Figure 1). Increase in tax revenues was a major factor behind this turn-around. The Government implemented various measures to improve tax revenues between 2004-2006, such as the passage of the reformed value-added tax law which removed exemptions and increased the tax rate by 2 percent effective in 2006; increase in the corporate tax rate; and, the enactment of a Sin Tax law which raised excise taxes on cigarettes, tobacco, and alcohol. Tax revenues increased from 12.4 percent of GDP in 2004 to 14.3 percent in 2006 (Figure 2). Improvements in the financial position of public corporations and revenues from privatization in the power sector also contributed to the improvement in the Governments fiscal position. There is a concern, however, that the tax effort is stalling with tax revenues as a percentage of GDP in 2007 dipping slightly below the level reached in 2006. Figure 1
Public sector financial position, % of GDP 2% 1% 0% -1% -2% -3% -4% -5% -6% 2001 2002 2003 2004 2005 2006 2007
*CPSD for J-Sep07. Source of basic data: Bureau of the Treasury, NSCB
Figure 2
Tax revenues, % of GDP 16% 14% 12% 10% 8% 6% 4% 2% 0% 2001 2002 2003 2004 2005 2006 2007
Source of basic data: Bureau of the Treasury, NSCB 2007 target Tax effort
National government Consolidated public sector*
22. The Bank and IFC have supported the Governments efforts to improve revenue generation, both at the national and local government levels, and reduce the fiscal burden of public corporations through increased cost recovery and privatization. Bank economic reports have been making the case for fiscal improvements: fiscal reform was discussed in detail in the 2005, 2007, and 2008 economic reports11 which served as inputs into the PDF. The PDF acted as a forum to raise awareness and develop a consensus for tax increases. The Bank, together with Filipino academics and development partners, helped develop and sustain the momentum for fiscal reform. Operationally, the Bank supported the Bureau of Internal Revenue to improve collections through the NPS on Tax Administration Reform (FY07), an IDF grant, and short policy notes. Improving tax effort was one of the objectives of DPL1. However, there are concerns. Implementation of the NPS on tax reform is not progressing as originally anticipated and the stalling of the tax effort in 2007 is one of the factors behind the Banks decision to delay DPL212.
11
Report No. 32055-PH, Philippines: From Short-Term Growth to Sustained Development, 2005; Report No. 39226-PH, Philippines Invigorating Growth, Enhancing Its Impact, 2007; Accelerating Inclusive Growth and Deepening Fiscal Stability, 2008. 12 Tax revenue on track to increase by 0.5 percent of GDP in 2007 over 2006 is one of the triggers for DPL2. This was not met.
23. At the local government level, the Bank is working with local government units (LGUs) to improve their ability to raise revenues. A total of 535 LGUs have participated in training on real property tax and the local revenue code under the LGFDP-Logofind. These LGUs increased their local revenues by Php 8.7 billion or by 114 percent between 2000 (the baseline) and 2007, although it is not possible to establish how much the training contributed to this increase. In addition, participating LGUs improved revenues by investing in bus terminals and markets and by implementing business and real property tax enhancement programs. The Bank is also assisting the Government to develop performance based grants to improve local government revenue mobilization by providing information on performance based grant systems and their possible application to the Philippines through an IDF grant13, and developing a project designed around performance based grants to LGUs. 24. The Bank and IFC are furthering privatization of the power sector which contributes to improvements in the Governments fiscal position. Improving the financial viability of the power sector is one of the objectives of the Banks DPLs14. As mentioned above, the Bank is supporting the Government on a concession agreement for power transmission. IFC has increased private participation in the National Power Corporations Small Power Utility Groups (SPUGs) which service off-grid areas (mainly rural and isolated communities), took an equity stake in the Philippines National Oil Company Energy Development Corporations (PNOC-EDC) initial public offering, and financed the privatization of two power generating facilities. In addition, IFC helped reduce the Governments fiscal burden through the sales of non-performing assets held by the National Home Mortgage Corporation and the National Development Corporation and government equity investments in listed and non-listed companies. Generating Economic Growth to Accelerate Job Creation and Poverty Alleviation 25. The Philippines continues to experience high economic growth, but declining investments raise concerns over its sustainability. GDP grew at over 5 percent in 2006 and 2007, driven by demand which in turn was fueled in part by overseas worker remittances (Figure 3). Economic growth, however, has not led to significant employment generation or poverty reduction: unemployment remained around 8 percent and poverty increased (see Social Inclusion below). Investment also continued to decline (Figure 4). The 2008 economic report15 noted that the recent growth was facilitated by an uptake of spare capacity, but that this capacity was mostly exhausted, requiring higher investment to sustain economic growth. The 2006 CAS had questioned the sustainability of consumption-driven growth and raised the lackluster investment climate as an issue; the challenge of increasing private investment remains. 26. The Bank Group is assisting the Government to address the infrastructure needed to promote growth. The CAS identified lack of infrastructure as a serious constraint to investment and economic growth. At the national level, the Bank and IFC are supporting government efforts to improve the national highway network, address the transportation needs of Metro Manila, and strengthen power supply, including rural electrification.
13 14
TF056331, Developing Governance Performance Frameworks for Local Government. Increase in tariffs and the publication of the guidelines for the universal charge for stranded costs and stranded debt were recognized as prior actions for DPL1. 15 Accelerating Inclusive Growth and Deepening Fiscal Stability, 2008
Figure 3
Contribution to real GDP growth 15% 10% 5% 0% -5% -10% 2001 2002
C G I X-M GDP
Figure 4
Fixed capital formation, % of GDP
25% 20% 15% 10% 5% 0% 2001
Public construction Private investments*
2003
2004
2005
2006
2007
2002
2003
2004
2005
2006
2007
Source of basic data: NSCB
* Fixed capital formation less public construction. Source of basic data:
27. In transport, NRIMP1 (completed FY07), upgraded 382 km of national roads, conducted preventive maintenance on 721 km of national roads, piloted performance based maintenance contracts on another 254 km, helped to establish a Road Board and Road Fund, and carried out business process improvements in the Department of Public Works and Highways. The follow up project (NRIMP2) was approved in FY08 with a noteworthy approach to improving governance and reducing corruption in the implementing agency (see Box 1). The Metro Manila Urban Transportation Project improved access to the Marikina Valley and made intersection improvements along major thoroughfares. In addition, the Bank and IFC are exploring support for the expansion of the Light Rail Transit System in Metro Manila. 28. In the power sector, the Bank Group is furthering the Governments privatization of the sector. IFC has invested in the privatization of two power generation plants. Both the Bank and IFC are promoting rural electrification by financing and strengthening rural Electrical Cooperatives, promoting off-grid systems (e.g., solar power), and furthering sector reforms through the Rural Power Development Program, GEF grants, and IFC investments and advisory services. 29. At the local level, the Bank is providing LGUs with access to financing for infrastructure and service improvements through financial intermediaries and geographic or sectoral projects. As of June 2008, 462 LGUs have obtained financing through the Municipal Development Fund and 653,141 households have gained access to basic infrastructure and services through the LGFDPLogofind. LGUs are also funding rural roads and bridges, small-scale irrigation, rural water and other infrastructure and facilities under the Second Agrarian Reform Communities Development Project (ARCDP2) and the Second Mindanao Rural Development Project (MRDP2, approved FY07). These rural investments are seen to have a positive effect - Agrarian Reform Communities that have participated in ARCDP2 for at least three years have reported a 21 percent increase in real income due to, among others, rural infrastructure. 30. The overall effect of Bank support is difficult to determine. Improving infrastructure is still seen as a major challenge. The 2008 economic report noted that the Philippines fares poorly in many infrastructure indicators in the Global Competitiveness Index and that the quality of transport infrastructure was a particularly serious concern. 31. Bank efforts to improve the investment climate and the productivity of firms have been less successful. The Bank has been emphasizing the need to address corruption and reduce
the cost of doing business through its economic reports. The Government passed an Anti-Red Tape Law in 2007 and is taking steps to improve the productivity of local businesses, but it is not clear whether the Bank had any influence. The Bank is supporting the Department of Agriculture to strengthen its marketing and regulatory functions in order to promote new products, diversify production, and encourage private investment in agriculture under the Diversified Farm Income and Market Development Project. Progress of reforms and the project have been much slower than originally anticipated. Ensuring Social Inclusion and the Improved Delivery of Basic Services 32. Despite high economic growth, poverty increased between 2003 and 2006. While the Philippine economy grew at an average of 5 percent per annum since 2000, the poverty incidence increased from 30 percent in 2003 to 32.9 percent in 2006 or the level in 2000 (33 percent). In 2006, 27.6 million Filipinos lived below the poverty level, more than ever before. Some possible reasons for the drop are a fall in real incomes of households, economic growth which favored the corporate sector, and low government social spending caused by the fiscal crisis. 33. The Bank works with national government agencies and LGUs to improve access to basic services for the poor and social protection. The poor rely more on the Government for education, health and basic services since they cannot afford to obtain them from private providers. The Bank has been working with DoH, DepEd and DSWD, piloting school based management under the Third Elementary Education Project (closed FY06) and procurement and financial management reforms under SEMP2 (closed FY07). These projects contributed to improvements in test scores in project schools; improvements in textbook to pupil ratio in math, science and other key subjects; improvement in TB cure rates; and reduction in the incidence of measles. Both projects laid the foundations for sector-wide approaches: the NPS for Basic Education (FY06) furthers school based management and improves teacher competency and the NPS for Health (FY06) aims to increase the enrolment of indigent people in national health insurance and improve health service delivery. The proposed support to government on the conditional cash transfer (CCT) should also provide substantial benefit to the poorest, and, more broadly, reform the poverty reduction program. 34. At the local level, the Bank is promoting greater community empowerment through participation, accountability, and transparency in local decision making, especially of the poor and disadvantaged groups. Using a community-driven development (CDD) approach, where communities identify priorities and manage sub-project implementation, the KALAHICIDSS Project has financed more than 4,200 small scale investments in infrastructure and other facilities in 184 of the poorest municipalities. LGUs provide technical support and counterpart funding with responsibility for operation and maintenance being shared between communities and LGUs. Two projects, the Autonomous Region in Muslim Mindanao (ARMM) Social Fund and MRDP2, focus on Mindanao, one of the poorer regions which is experiencing conflict. In addition, the Bank has helped to establish and get off the ground a multi-donor Mindanao Trust Fund. 35. The Bank also anticipated increasing access to financing for micro- and small and medium enterprises (SMEs). The Third Rural Finance Project (closed FY08) made 546 subloans to SMEs, creating around 17,000 jobs, and around 115,000 subloans to micro-enterprises. However, no new initiatives were started during the CAS period. IFC has concluded advisory agreements with private financial institutions on SME support in 2008.
F. Bank Performance 36. The Banks performance during the CAS period is rated Satisfactory. The Bank has been able to deliver a program in line with the country needs. Improvement in the fiscal situation allowed the Bank to expand its lending, committing US$1.3 billion, including a DPL and several NPS operations. The Bank reacted to the typhoon damage in Bicol region with a power restoration project and to the food crisis with a development policy operation under the Global Food Crisis Response Program. The Bank has been delivering knowledge products through AAA and trust funded activities which have been appreciated by the client, but it is not possible to assess their effect. Project implementation has not always been smooth in the Philippines, but the Bank is proactively managing its portfolio, both lending and trust funds, with the Government. Non-lending 37. The Bank plays an important role in the transfer of knowledge to the Philippines. The Banks ability to bring knowledge on international experiences, especially in carrying out complex reforms, is valued by government counterparts 16 . In addition, the Bank was able to provide multi-sectoral analysis, provide consistent policy advice, and maintain continuity during times of frequent changes in government, i.e., to act as an important policy anchor in the view of a senior government official17. 38. The Banks non-lending program has evolved from a number of formal studies to a mix of formal economic and sector work, smaller just-in-time policy notes and studies, training and technical assistance. The Banks economic reports provided background for the PDF discussions. In addition, the Banks involvement in the various PDF working groups has also provided opportunities to transfer knowledge to government counterparts and other stakeholders. Many of the non-lending activities have been funded by both Bank executed and recipient executed trust funds. The FY06-08 CAS saw the AAA program evolving over the CAS period, as the Bank adjusted to evolving client priorities and opportunities, and did not provide a definitive list of new AAA tasks. The major AAA outputs are listed in Appendix 2. 39. Trust funds have been critical in the Banks support to the Philippines by providing technical assistance to build the Governments capacity and to support sector-specific and cross-sectoral initiatives. The Philippines country team supported the Governments efforts to pursue trust fund opportunities from other donors in order to complement Bank operations and to help address areas that the Government has not been inclined to borrow for. Strategic partnerships between the Government, concerned donors and the Bank, have built on and further reinforced coordinated policy dialogue on sector issues and reform agendas, especially in education and health and in extending support to the conflict affected areas of Mindanao. Besides providing support to lending operations, trust funds have allowed the Government and the country team to undertake a range of strategically positioned analytical, advisory and capacity building activities and have served as effective vehicles for strengthening country systems and advancing harmonization initiatives. 40. The Banks monitoring and evaluation of the effect of its AAA program has not kept pace with the changes. Approximately one-quarter of the Banks budget was spent on AAA
16
In interviews with IEG, a senior government official said The Bank is more than just money . . . [It is] an independent source of advice and another said I personally valued the advice more than the money. From IEG, Philippines Client Perspectives on Elements of Bank Support: Working Paper for Development Results in Middle Income Countries An Evaluation of the World Banks Support, 2007 17 IEG, ibid.
during the CAS period. Feedback from government officials indicates that the Banks work is appreciated. However, it is difficult to get a good overview of the AAA program or assess the effect it may have had on the Government and other audiences. Compared to the project portfolio and the trust fund program, the monitoring and evaluation of AAA activities is less structured. At present, the Bank is not able to answer the questions: What worked, what did not, and why? Going forward, the Bank will need to strengthen the management of its AAA program. 41. Finally, knowledge transfer is not limited only to AAA. The Banks external country website features not only economic reports and some sector reports, but also reports produced by the Networks and DEC on the Philippines. The Bank is also making development information more accessible to the population through Knowledge Development Centers (KDCs) which are established in partnership with academic institutions throughout the Philippines. The 11th Center was established in Iloilo City in September 2008 in partnership with the Philippines Central University. Lending 42. Bank lending over FY06 through the second quarter of FY09 was US$1,250 million, higher than the US$450 - US$900 million anticipated in the CAS and the US$852 million committed between FY00-05. The improvement in the Governments fiscal situation allowed the Bank to increase the amount of lending and deliver DPL1 in FY06. The Bank increased the base case to US$1.7 billion and extended the CAS period by one year to end-FY09 in 2007. Actual deliveries in FY08, however, were below expectations because of insufficient progress in reforms or due to availability of alternative financing. The DPL series closed in December 2008 without completing DPL2. A new DPL might be considered in calendar 2009 in response to the financial crisis. The Bank was able to respond swiftly to rehabilitate power after a typhoon devastated the Bicol region in 2006 (Bicol Power Restoration). The Bank quickly developed a Food Crisis Response Development Policy Operation (US$200 million) under the Banks Global Food Crisis Response Program in 2008. Planned and actual lending is listed in Appendix 3. 43. At the national level, the Bank has been responsive to government demand, shifting its focus from investment lending to national program support or sector wide approach (SWAp) operations and, most recently, to additional financing. NPS operations were approved in basic education, health, tax administration, and environment and natural resource management in FY06 and FY07 18 . These operations aim to strengthen the agencys institutional capacity by supporting critical policy and institutional reforms and by using government procedures for fund releases. One project, the NPS on Participatory Irrigation, originally scheduled for FY06, has been delayed due to lack of progress on rationalizing staffing within the implementing agency, a critical step for improved efficiency. The NPS operations have gotten off to a slower start than anticipated, in part, because of the need to set up the internal procedures and policy issuances to support the institutional reforms and system level changes supported by the projects. While there are concerns over uneven support from high level management in the implementing agencies, the NPS approach enjoys strong support from the core government oversight agencies 19 who have introduced a number of innovations in budget processes in response to analysis and agreements reached in workshops organized in 2007 and 2008 to improve the performance of NPS projects. The sector reform agendas supported by these NPS operations have also served as good platforms for forging strategic partnerships and mobilizing additional resources (see Partnerships below). In the last year
18
While not designated a NPS operation, NRIMP2 follows a similar approach, focusing on institutional capacity development and reform. 19 The Department of Finance, the Department of Budget and Management, and the National Economic Development Agency.
of the CAS, the Bank is increasing the number of additional financing projects, bringing a quick answer to a demand for supplemental resources in successful sectors. Portfolio 44. The Bank has been proactively managing its project and trust fund portfolio with the Government. The Bank conducts regular, annual implementation reviews of both its project and trust fund portfolios with the core government oversight agencies. These reviews include not only implementation, but also outputs and expected outcomes and the likelihood of projects achieving their stated development outcomes. In FY08, the Government carried out a country portfolio review, including major development partners such as ADB and JBIC as well as the Bank, to better understand implementation issues and identify areas needing further attention. As mentioned above, a separate review of the NPS operations was conducted in FY08 to address the slower than anticipated start-up of these projects. In FY09, the portfolio review focused on activities financed at the local level, e.g., involving LGUs and CDD approach. 45. The Banks project portfolio during the CAS period is mixed. From FY06 to FY08, a total of 12 new projects, including GEF projects but excluding DPL1, with a total commitment of US$856.8 million entered the portfolio and nine projects, including two GEF projects, for a total of US$601 million exited the portfolio. As of end FY08, the Banks on-going portfolio stood at 24 active projects, with a net loan commitment of US$1.4 billion. The disbursement ratio has ranged from 15.2 percent (FY07) to 21.1 percent (FY06)20 which is within the historical range of the Philippines 12 percent to 23 percent. The share of problem projects has increased from 13 percent in FY06 to 16.7 percent in FY08. Portfolio indicators are presented in Appendix 4. It is not unusual for projects in the Philippines to encounter problems some time during their implementation. Of the nine Bank projects closed between FY06-08, three have rated as a problem for development outcome sometime during their life time. All three projects were rated satisfactory or moderately satisfactory for development outcome in the Implementation Completion Report21. CAS Monitoring 46. The Bank has been proactively monitoring the CAS, however the results framework has not necessarily proven to be an effective management tool. The data in the results matrix were updated annually to identify priorities for the remainder of the CAS period and some milestones were formally revised in the CAS Progress Report. The design of the results framework, however, has made it less effective as a strategic management and learning tool. Updating the data has not necessarily been easy because they do not correspond directly to project level indicators. As discussed under CAS outcomes above, the lack of baselines and clear targets had made it difficult to assess whether progress is being made relative to original expectations. Nonetheless, the CAS results framework has been used in making broad decisions on country team priorities and resource allocations, but not necessarily in calibrating the teams response in specific sectors or outcome areas.
20
In FY08, disbursement was 20.1%. The Independent Evaluation Group (IEG) rated five of the seven closed projects. The Outcome Rating for one project, the Water District Development Project, was downgraded from Satisfactory in the Implementation Completion Report to Moderately Unsatisfactory. This project, however, was not rated as a problem during implementation.
21
G. Partnerships 47. The Bank strategy has emphasized partnerships: working closely with the Government, development partners, and civil society, leveraging the Banks presence in the Philippines. The PDF has been an effective mechanism in engaging the various government, donor and civil society partners and in developing a coordinated approach. The Bank has actively engaged development partners and consulted widely with local stakeholders and civil society in the preparation of its CASs. At the operational level, the Bank has worked closely with other development partners active in that area: e.g., the Bank is coordinating with ADB in power sector reform and the NPS operations in education and health are part of a coordinated effort to support the Governments basic education and health reform agendas. 48. The Bank and its development partners are using their resources more effectively through partnerships supported by trust funds. As a middle income country, the Philippines has not been a major recipient of donor financing, increasing the importance of coordination and the effective use of limited resources. Recipient executed jumbo trust funds have emerged as a significant new business line for the Bank during the CAS period, helping to achieve major benefits across a number of sectors as well as in advancing harmonization among development partners. Mindanao Trust Fund for Reconstruction and Development (MTF-RDP): The MTFRDP was established in 2006, following a joint needs assessment in 200522. Close to US$9 million has been mobilized including a grant from the Banks Development Grant Facility. The MTF-RDP provides a single channel for donors, making it easier for smaller donors to contribute, and a single interface with the development community for trust fund recipients. It has helped establish better accountability mechanisms to manage the flow of funds and information in a post-conflict setting. MTF-RDP is supporting stabilization, training and capacity building in the Bangsamoro Development Agency, conflict-affected communities, and municipal governments in Mindanao. European Commission Trust Fund for Health Sector Reform: The trust fund, amounting to 13.45 million Euros, supports the implementation of the health reform strategy at the provincial level and capacity building for DoH at the national level, complementing the Banks National Program Support for Health Reform Project. Both initiatives form part of DoHs broader health reform program. The Trust Fund Supporting Philippines Basic Education Reforms (SPHERE): The trust fund provides US$35 million equivalent to DepEd to support its basic education sector reforms. SPHERE is administered by the Bank and complements the National Program Support in Basic Education Project.
49. The Bank has been harmonizing its procedures around government regulations together with ADB and JBIC. The Government and its largest development partners (ADB, JBIC and the Bank) agreed to align their national procurement rules and regulations with the Governments new procurement system following the passage of the Government Procurement Reform Act in 2003. As a result, the agencies agreed on a common set of: implementing rules and regulations; bidding documents for works, goods and consulting services; procurement manuals; training for procurement staff; and procurement reporting and monitoring.
22
The joint needs assessment was financed by Australia, Canada, New Zealand, UN, ADB and the EC.
50. Success of harmonization in procurement has led to similar efforts in financial management and safeguards. The Government developed a new government accounting system in 2002 to simplify financial accounting and to ensure consistent application of accounting principles across government agencies. Financial reporting for Bank projects utilizes the new government accounting principles, with some adjustments, for financial reporting. The ADB, JBIC and the Bank are exploring ways to harmonize financial management and reporting with the Commission on Audit. The Bank conducted a diagnostic review, together with the Government and other stakeholders, of the countrys safeguard systems on environmental assessment, indigenous peoples, and involuntary resettlement. The objectives of the reviews were to recommend measures to strengthen local capacity for undertaking safeguards work and to identify areas where local processes, practices and policies could be harmonized with that of global good practice. The assessments of environmental safeguards and indigenous peoples were completed in 2007 and involuntary resettlement in 2008. The reviews identified areas for improvement and some of the key recommendations have been adopted through the issuance of administrative orders by the relevant agencies or will be implemented under proposed Bank operations23. Based on the partial success achieved, the Bank has identified the Philippines as a pilot country to complete harmonization on environment and indigenous people standards and to extend the harmonization of procurement to International Competitive Bidding. Work has already started in both cases. 51. An active civil society is one of the Philippines key assets in promoting better and more accountable governance. In addition to engaging with development partners, the Bank took several steps to expand its engagements with civil society organizations (CSOs) during the 2006 CAS period. 52. First, the Bank helped create additional space for dialogue with CSOs. At the local level, the Bank organized dialogue sessions held in KDCs around specific development topics, such as empowering marginalized communities in implementing procurement reform, peace and development in conflict-affected areas, disaster risk-management, anticorruption initiatives, as well as consultations for the Banks new CAS. These sessions were well attended by local government officials, businessmen, non-governmental organizations, and citizens. At a national level, the PDF encouraged CSO participation, both at the plenary and the working group level, providing CSOs a venue to give their perspectives on a national stage. The Panibagong Paraan (local Development Marketplace) provided selected CSOs with resources for their projects. The 2008 Panibagong Paraan, Building Partnerships for Effective Local Governance, not only provided grants to CSOs, but also organized discussions around topics which CSOs identified as relevant to governance issues, such as assessing the impact of political dynasties, transparency and accountability in local governance, youth involvement in governance, and cutting the red tape at the local level. 53. Second, the role of the CSOs in Bank operation was expanded. The Bank engaged the CSOs in improving the reach and quality of its operations and in results monitoring. For example, DepEd has a nationwide partnership with CSOs among the youth, including the Boy Scouts and Girl Scouts, in monitoring procurement of key educational inputs such as textbooks. In the
23
The results of the review indicated that the legal bases, policy and institutional frameworks of the countrys safeguard systems for environmental assessment and indigenous peoples are strong and sound, but suffer from weak implementation due to capacity and financial constraints and overly bureaucratic procedures and processes. The countrys involuntary resettlement system has huge gaps with global principles and good practices. The Bank is providing support to the Government on environmental assessment through the NPS for the Environment and Natural Resource Management and on indigenous peoples through grant-funded technical assistance to the National Commission on Indigenous Peoples.
NRIMP2 design, Road Watch/Bantay Lansangan will play an active role in monitoring the progress of the project, improve transparency and accountability. In the MTF-RDP, international NGOs are working with the Bank to implement capacity building initiatives and pilot projects aimed at stabilizing, training and building the capacity of the Bangsamoro Development Agency, conflict-affected communities and municipal governments. The KALAHI-CIDSS project empowers local communities to participate in the selection, design, implementation, and monitoring of projects that respond to their priority needs. Aside from improving community infrastructure, in drawing on the enthusiasm and commitment of community volunteers, KALAHICIDSS has also helped to put in place more transparent and accountable systems of governance in communities where it is active and has enhanced local capacities in planning, procurement, financial management, and operation and maintenance. 54. Finally, the Bank is forging strategic partnerships to scale up better governance. Working with selected network-based CSOs using different grant mechanisms, such as the Japan Social Development Fund and Development Grant Facility, the Bank is supporting the expansion of capacity development initiatives for improved governance. A partnership with the Philippines Council for NGO Certification is helping to expand the institutionalization of better governance practices in NGOs through a globally-recognized system of certification. The Affiliated Network on Social AccountabilityEast Asia and Pacifica regional DGF-supported program based in the Philippinesis designed to support and advance demand-side governance initiatives drawing on the experience of well-established regional NGOs, delivering capacity building initiatives and technical assistance for both CSOs and governments across the region. Through partnerships with urban poor communities, local NGOs and city governments in five sites nationwide, the Bank has been able to support the provision of infrastructure and the upgrading and renewal of slum communities. H. Conclusions and Lessons Going Forward 55. The results under the 2006 CAS are mixed. The Bank has been able to make progress in assisting the Government to address the fiscal deficit and make progress on procurement and budget formulation. Bank knowledge transfers (including those provided through trust funded technical assistance) and convening role, working through the PDF, are seen to have played a role. The Bank and IFC have been supporting power sector privatization that has contributed to the reduction in the public sector deficit and improvements in service delivery. Bank projects continue to finance needed infrastructure and services, oftentimes engaging local communities and aligning delivery closer to the residents needs. The Bank is now moving to NPS operations that align Bank support directly with the agencys core agenda. However, poverty in the country not only continues to be a concern, but worsened between 2003 and 2006. There is concern that the improvements in tax revenues will not be sustained. Implementation of Bank projects continue to be a concern with actual disbursements lagging significantly behind appraisal estimates. Some NPSs have not resulted in faster disbursements as expected. As discussed in the sections above, on balance, CAS outcomes are considered to be moderately satisfactory and Bank performance satisfactory. 56. The following lessons have been learned from the experience to date under the 2006 CAS. These have implications for the design and implementation of the next FY2010-12 CAS. Overall strategic direction of the CAS is sound. Sound fiscal management and improved governance will continue to be critical for ensuring sustained economic growth and poverty reduction. The next CAS will need to maintain the gains made in revenue generation, public expenditure management, and procurement while pursuing further
improvements in governance. Continued focus on implementing the project portfolio will be critical to success during the next CAS: the NPSs in education and health can result in improved educational outcomes in basic education and improved access to health care for the poor; NRIMP can improve management of the national highway system; various Bank LGU projects can increase local residents access to infrastructure and basic services in line with their perceived needs. Going forward, the Bank will need to get a better understanding of the link (or lack thereof) between the countrys economic performance and lack of poverty reduction and ensure that its operations emphasize the needs of the poor. Continued engagement is a critical element for success. The Bank has a long history in the Philippines and has been able to develop relationships and trust with government counterpart agencies. The Bank has been engaging in a continuous dialogue with the Government on many of the challenges facing the Philippines and the basis for results under the 2006 CAS has been laid during previous CAS periods. For example, the Bank has been emphasizing the need to address the fiscal deficit through revenue generation and not just through reductions in expenditure. The Banks CPARs, the latest prepared in 2008, have pointed out issues with the Governments system. The Banks Social Expenditure Management Projects demonstrated the benefits of competitive bidding in terms of quality improvement and cost savings at the agency level. The Bank would need to build on and continue to develop relationships at both the national and local government levels in pursuing results during the next CAS. But the Bank needs to develop criteria for disengagement. While continued engagement is necessary, it is also important to develop criteria to determine when the Bank should disengage. The Bank is working with close to 20 national departments and GOCCs and a larger number of LGUs through its operations. Given Bank resource constraints, the Bank will need to be selective. There may be many reasons for disengagement. It could be because there is limited support for and progress on the objectives that the Bank may be pursuing with the agency. Alternatively, operations may be proceeding smoothly and the relationship may have matured to the point that continued Bank engagement may no longer be necessary (i.e., generate insufficient benefit for both parties). In some cases, it may be important to continue working with an agency although progress may be limited. The decision to engage or disengage will need to be made on the possible impact to the Banks strategy. Strengthen monitoring (and evaluation) of AAA. Knowledge transfers are an important part of the Bank engagement with the Philippines. It is also an area where it is possible for the country team to make direct impact during the CAS period project results achieved during FY10-12 would most likely come from projects already underway or in advanced stages of preparation and projects developed during the next CAS period would most likely start generating results beyond FY12. The Philippine program has not been adequately monitoring nor assessing the possible impact of its AAA program. The move from larger reports to smaller and targeted notes makes monitoring and evaluation more difficult. But given the importance of knowledge transfers to the Banks effectiveness, it is important that the country program strengthen its management of AAA. Strengthen the CAS results framework. The current results framework has not proven useful in monitoring, managing and evaluating the CAS. As mentioned above, the lack of baselines and targets made it difficult to assess whether the Bank was making progress
towards its stated objectives and country outcomes. Another issue was that the underlying development logic (link between Bank instruments, outputs and CAS outcomes) was not necessarily clear. The Bank can make the results framework into an effective CAS management, monitoring and evaluation tool by: (a) clearly stating the expected CAS outcomes; (b) including specific, measurable, achievable, relevant and time-bound (SMART) indicators to allow for better monitoring; and (c) making explicit the link between expected CAS outcomes and Bank instruments (i.e., making clear the development logic underlying the CAS). Linking CAS monitoring with project, trust fund and AAA monitoring would facilitate data collection. Closer strategic monitoring of progress towards CAS objectives should facilitate decisions on the appropriate level of engagement.
APPENDICES: 1. FY06-09 CAS Results Summary 2. Analytical and Advisory Activities, FY06-08 3. Philippines Lending Program, FY06-09 4. Selected Indicators of Bank Portfolio Performance and Management
Appendix 1: FY06-09 CAS Results Summary

CAS Outcome: Systems and processes for allocating and executing budgetary resources are more transparent and efficient (Governance: National Platform) Status at CAS Design The Government had been reforming the budget process - strengthening the links between policy, planning and budgeting; increasing transparency; and placing a greater emphasis on results. The Organizational Performance Indicator Framework was introduced in 2005 and results-based planning and monitoring piloted in 13 departments. The Government was improving procurement and addressing corruption. The Government Procurement Reform Act (2003) created a single legal framework for procurement and streamlined and modernized the procurement process. The Government instituted lifestyle checks for public servants which led to the dismissal of several senior bureaucrats. However, there were concerns over capacity building, transparency and dispute resolution, and monitoring of procurement. The Government initiated a program to rationalize the bureaucracy. It issued Executive Order 366 in 2003 on procedures and benefit packages for staff rationalization, developed implementing rules, and initiated agency restructuring plans. Bank Contribution & Lessons Learned The Bank contributed to government budget reforms by providing analysis through its economic reports (as background documents to the PDF) and using the PDF as a forum to discuss key public expenditure and governance issues with the Government, development partners and other stakeholders. The Bank plays an important role in operationalizing budget reforms at the agency level where it was supporting the implementation or preparation of National Program Support operations (DepEd, DoH, DENR, DSWD) or providing agency-wide support (DPWH). The Bank provided the Government Policy and Procurement Board (GPPB) with two consecutive grants (TF053254, closed FY07, and TF057655, ongoing) which helped GPPB develop and pilot test generic procurement manuals (which were harmonized with ADB, JBIC and the Bank), institute a national procurement training program through state universities and colleges, and prepare and pilot test Agency Procurement Performance Indicators. GPPB is currently developing further training and certification programs for public procurement professionals. The Office of the Ombudsman received an ASEM grant (TF054210, closed FY07) with which the Office conducted field investigation training and developed a data bank for the Statements of Assets and Liabilities and Net Worth and a case tracking system for use by the Office of the Special Prosecutor. The Bank also provided an IDF grant (TF055185, ongoing) to the Presidential Anti-Graft Commission to strengthen agency internal audit units for effective procurement monitoring and enforcement. Current Status The Government is proceeding with budget reforms, introducing MTEFs with the 2007 budget (linking policies, plans and budgets) and the Budget Strategy Paper and forward estimates with the 2008 budget (clarifying the Governments priorities and resources prior to the preparation of budget). The Government continues to strengthen procurement and address corruption. The Banks recent Country Procurement Assessment Report (2008) noted that the public procurement system has become more efficient, many loopholes have been closed, and the promotion of e-procurement (the Philippine Government Electronic Procurement System) improved transparency and efficiency. While progress is being made, challenges remain. The most recent economic report (2008) noted that not all agencies are implementing MTEFs, progress on rationalizing the bureaucracy has been very slow, and corruption continues to be an issue: e.g., the Philippines ranked 112 out of 125 in a list of countries where irregular payments are required for public contracts according to the Global Competitiveness Report 2006-2007

CAS Outcome: System and process of Local Government Units (LGUs) for planning, budgeting, delivering services, and investments are transparent and efficient (Governance: Local Platform) Status at CAS Design LGUs include 78 provinces, 68 cities and over 1,500 municipalities whose resources and capabilities vary significantly. Generally, planning was weak (especially in environmental protection) and budget formulation and execution were largely non-transparent. The PDF included a working group on Decentralization and Local Government (co-chaired by DILG and the Bank) which addressed local government finance, capacity building, benchmarking and harmonization. The Local Government Performance Management System (LGPMS) was developed and rolled out in 2006. Bank Contribution & Lessons Learned: Various Bank operations including trust funds have supported LGUs efforts to strengthen planning, budgeting and the delivery of services. The LGFDP-Logofind trained officials from 979 LGUs in planning, finance, construction supervision and other management areas as of March 2008. LISCOP resulted in 57 LGUs in 24 micro-watersheds adopting multistakeholder micro-watershed planning as part of municipal development planning. SSLDIP (approved FY06) includes funding for participating LGU capacity building in construction supervision and management of municipal enterprises and services. MRDP1 demonstrated the success of community engagement in natural planning and management which has been scaled up under MRDP2. Bank financed-projects also help strengthen procurement and financial management in participating LGUs. The Bank has also assisted 61 cities develop city strategies using participatory approaches through the Cities Alliance Program with many investments being funded by the Bank or other sources. While capacity is being developed under various Bank projects, it is not clear whether this is having a wider impact i.e., sustainable capacity development in LGUs as a group. The Bank has provided an IDF grant to DILGs Local Government Academy to review and strengthen their role in local capacity building. CAS Outcome: Improved governance of corporate sector and infrastructure regulatory agencies (Governance: Private Sector Platform) Status at CAS Design The Philippines had been pursuing a policy of privatization in infrastructure since the 1990s. Water supply and sanitation in Metro Manila had been provided by two private concessions since 1997. The Electricity Power Industry Reform Act (2001) provided a framework for restructuring the power sector - creating the National Transmission Corporation (Transco) to assume the transmission assets and functions of the National Power Corporation (NPC); creating the Power Assets and Liabilities Management Corporation (PSALM) to own Transco and other NPC assets and assume NPCs liabilities; and replacing the Energy Regulatory Board with the Energy Current Status The Government continues to pursue its policy of private provision of infrastructure. One of the water and sanitation concessions (Manila Water Company Inc.) is considered to be a major success. A major development in the power sector was the creation of a wholesale electricity spot market in Luzon in 2006 (this was one of the prior actions for DPL1). The Government is proceeding with a concession for Transcos transmission function. Current Status Various projects are developing local government capacity. The PDF working group contributed to improvements in planning, budgeting and management in local governments: e.g., the national government agencies with oversight functions over local governments harmonized their procedures for planning, investment programming, revenue administration and budgeting, eliminating overlapping and conflicting guidance and reducing the administrative burden on the LGUs. The working group is also supporting efforts to improve data quality and operationalize the LGPMS. Over 80 percent of the LGUs use the LGPMS.

Regulatory Commission (ERC). The Government is transitioning from a provision to an oversight role. Strengthening the regulatory agencies was seen as a priority. Bank Contribution & Lessons Learned: The Bank has been assisting the Government strengthen its regulatory functions. The Bank is supporting Metro Manila Water Supply and Sanitation System Regulatory Office through the Third Metro Manila Sewerage Project, most recently in rebasing tariffs for 2008. The Bank is assisting ERC develop the regulations for the Transco concession through a PHRD grant for a partial risk guarantee. In terms of corporate governance, the Bank has conducted a ROSC on Accounting Standards and training on corporate governance, but the effect of these interventions is not well understood. CAS Outcome: Improve public revenue mobilization, public expenditure management and management of state owned enterprises (Fiscal Stability: National Platform) Status at CAS Design Unsustainable growth in the public sector deficit due primarily to declining tax collection was seen as a major constraint to development. Nonfinancial public sector debt exceeded 101 percent of GDP in 2003. The increase in debt was driven by public sector deficits due primarily to declining tax collection and rising power sector losses through 2004. The CAS identified the lack of political will for reform and the pace of change as risks and noted that failure to rein in fiscal deficits would create greater economic vulnerabilities and reduce further expenditure contraction. Current Status The Philippines has experienced a turn-around in its fiscal position. The consolidated public sector balance went from a deficit of 4.8 percent of GDP in 2004 to a surplus of 0.2 percent in 2006 and an estimated surplus of 1.4 percent in 2007. Increase in tax revenues was a major factor behind this turnaround. The Government implemented various measures to improve tax revenues between 20042006, such as the passage of the reformed value-added tax law which removed exemptions and increased the tax rate by 2 percent effective in 2006, an increase in the corporate tax rate, and the enactment of a Sin Tax law which raised excise taxes on cigarettes, tobacco and alcohol. Tax revenues increased from 12.4 percent of GDP in 2004 to 14.3 percent in 2006. Improvements in the fiscal position of public corporations and revenues from privatization in the power sector contributed to the improvement in the Governments fiscal position. There is a concern, however, that the tax effort is stalling with tax revenues as a percentage of GDP in 2007 dipping slightly below the level reached in 2007.
Bank Contribution & Lessons Learned: The Bank emphasized the importance of increasing tax revenues (and not just cutting expenditures) in addressing the deficit. The Bank consistently conveyed this message through its economic reports, policy notes, and other outreach. The Bank helped develop and sustain momentum for fiscal reforms together with local academics, opinion leaders and development partners. Improving the tax effort was one of the objectives of DPL1. The Bank also approved a National Program Support (NPS) for Tax Administration Reform Project in FY07 to strengthen the Bureau of Internal Revenue (BIR) and is assisting the BIR improve tax administration through an IDF grant and policy notes on increasing excise tax rates and tax administration. Implementation of the NPS, however, is progressing slower than anticipated.

CAS Outcome: Expanded local revenue base and increased revenues from local resources in at least 20 LGUs (Fiscal Stability: Local Platform) Status at CAS Design LGUs depend heavily on transfers from national government and have limited incentives to raise own revenues. Current Status Overall, LGUs continue to depend on national government transfers. But there is diversity among LGUs. Cities and larger municipalities in more developed locations (especially in Metro Manila) have more opportunities to and raise more local revenues. Poorer (4th and 5th class) municipalities with limited economic bases will continue to rely on national government revenue sharing for their revenues.
Bank Contribution & Lessons Learned: Bank-supported projects include measures to improve local revenue generation. LGFDP-Logofind financed improvements in real property tax administration and training on implementing local revenue codes and increasing local revenues. Five hundred-thirty five LGUs have participated in the training to date. These LGUs increased their local revenues by Php 8.7 billion or by 114 percent and increased the share of local source revenue from 24 percent to 26 percent between 2000 and 2007, although it is not possible to differentiate the impact of the training from other influences. In addition, LGUs participating in the project increased revenues through investments in bus terminals and markets and through implementation of business and real property tax enhancement programs. The Bank is also piloting performance based grants to improve local government revenue mobilization. . An IDF grant provided the Government with information on performance based grant systems and their possible application to the Philippines. The Bank is currently developing a Local Government Support for Performance Project which is expected to provide, among others, a performance based supplement to the Internal Revenue Allotment (revenue sharing). CAS Outcome: Reduced fiscal burden through financial strengthening of government corporation and financial institutions (Fiscal Stability: Private Sector Platform) Status at CAS Design Deficits in Government Owned and Controlled Corporations (GOCCs) were another contributing factor to the public sector deficit. Deficits in the National Power Corporation (NPC) were of special concern. NPC deficits increased from 0.2 percent of GDP in 2001 to 1.1 percent in 2003 and an estimated 1.8 percent in 2004, as power tariffs were allowed to erode. The Government had initiated power tariff increases starting in 2004, but its impact was not fully known at the time of CAS development. Bank Contribution & Lessons Learned: Improving the financial viability of the power sector is one of the objectives the Banks DPLs. This increase in tariffs and the publication of the guidelines for the universal charge for stranded costs and stranded debt were recognized as prior actions for DPL1. As mentioned above, the Bank is supporting further privatization of the power sector through the Transco concession. IFC made several contributions to the reduction in the Governments fiscal burden. IFC has supported the Current Status The GOCCs financial position improved. The GOCCs faced a deficit of 1.9 percent of GDP in 2004, but eliminated it in 2006 and are estimated to have a surplus in 2007. A 30 percent increase in generation tariffs in 2004-05 and the resulting reduction in NPCs deficit was a key factor.

privatization of power sector by (a) advising the Government on the privatization of NPCs Small Power Utility Groups (SPUGs) which service off-grid areas (mainly rural and isolated communities); (b) taking an equity stake in the Philippines National Oil Company Energy Development Corporations (PNOC-EDC) initial public offering; and (c) financing part of the privatization on the Masinloc coal-fired power plant and the Magat hydo-electric power plant. IFCs SPUG projects have reduced subsidies from NPC. PNOCEDC was eventually fully privatized in 2007. In addition, IFC has reduced the Governments fiscal burden through the sales of non-performing assets held by the National Home Mortgage Corporation and the National Development Corporation and government equity investments in listed and non-listed companies. The Bank provided technical assistance through an ASEM grant (TF053181, closed FY06) to the Central Bank to improve consolidated supervision in the market risk area and establish an IT examination unit. The Bank also provided ASEM grants (TF052298- Bank executed, closed FY07 and TF052349 Recipient executed, closed FY06) supporting the Governments pension reforms. CAS Outcome: Competitiveness of the economy improved by increasing investment, upgrading infrastructure, and adopting reforms aimed at improving productivity of firms (Growth: National Platform) Status at CAS Design Current Status The Philippines had been enjoying rising The Philippines continues to experience high economic growth, which averaged 4-5 percent in economic growth. GDP grew at over 5 percent in 2002-03 and accelerated to 6.1 percent (the fastest 2006 and 2007, driven by demand which in turn was pace in 15 years). The Philippines was fueled in part by overseas worker remittances. benefitting from the economic restructuring since Economic growth, however, has not led to significant the late 1980s which helped the country better employment generation or poverty reduction: integrate with regional and global trade and unemployment remained around 8 percent and investment, and a favorable external environment. poverty increased. However, the question remained on the sustainability of higher growth because it was Investment also continued to decline, raising concerns driven by consumption, supported by remittances. over the sustainability of growth. The 2008 Concerns were raised about the low level of economic report noted that the recent growth was domestic and foreign investment compared to facilitated by an uptake of spare capacity, but that this other East Asian countries. Lackluster investment capacity was mostly exhausted, requiring higher was seen as the result of a fragile fiscal and debt investment to sustain economic growth. position, perceived corruption, infrastructure weaknesses, concerns over law and order, and a The report also noted that weak infrastructure was still sluggish financial system. seen as one of the important constraints to doing business in the Philippines and that substantial additional expenditures are required to bring the quality of infrastructure up to acceptable standards. Bank Contribution & Lessons Learned: Bank-supported projects have assisted the Government meet key transportation infrastructure needs and strengthen the management of the road network. NRIMP1 (closed FY07): (a) updated 382 km of national roads; (b) conducted preventive maintenance on 721 km of national roads; (c) piloted performance based maintenance contracts on another 254 km; (d) helped establish the Road Board and Road Fund; and (e) made business process improvements in DPWH. The follow up project, NRIMP2, was approved in FY08. The Bank-financed Metro Manila Urban Transportation Project improved access to the Marikina Valley and improved several intersection improvements on major thoroughfares. The Bank is now focusing on larger private financing of transportation infrastructure in Metro Manila and the surrounding areas together with IFC the Light Rail Transit System Line 1 extension and the CALA highway. The Bank group is supporting the Governments efforts to improve rural electrification by financing and strengthening rural Electrical Cooperatives, promoting off-grid systems (e.g., solar power), and furthering

sector reforms through the Rural Power Development Program, GEF grants and IFC investments and advisory services. Progress to date has been mixed. Through advisory services, IFC has been able to bring in private generation in a number of SPUGs which are responsible for power in remote areas. The Bankfinanced Rural Electrification Project has provided access to finance for Electrical Cooperatives through the Development Bank of the Philippines, with all of participating cooperatives having a debt-service coverage ratio of at least one. All the funds are committed and 1,265 new customers have received electricity as of March 2008. A program to pilot the use of investment management contracts in Electrical Cooperatives with a partial guarantee is yet to get off the ground. In agriculture, the Diversified Farm Income and Market Development Project supports the transformation of Department of Agriculture into a service and market-oriented agency. However, progress on reforms and implementation of the project has been slow. The project enjoys strong support from the Department of Finance, Budget and Management and other core agencies. Finally, the Bank has been making the case for the need for private investment and for strengthening the investment climate through its AAA work, but it is difficult to assess whether it has had an impact. CAS Outcome: Productivity increased through local provision of infrastructure and services (Growth: Local Platform) Status at CAS Design Current Status Despite increase in LGU spending, wide While data does not exist to allow an analysis of disparities persist in coverage, quality, and service provision across LGUs, disparities most likely availability of public services delivered by LGUs. continue to persist between LGUs given their differences in resources and capabilities. Projects supported by the Bank and other development partners are most likely having an impact in their participating LGUs. Bank Contribution & Lessons Learned: Bank funds are on-lent to LGUs through intermediaries for infrastructure and service improvements: LGFDP-Logofind through the Municipal Development Fund (MDFO) and SSLDIP through the Land Bank of the Philippines. As of June 2008, 462 LGUs have obtained financing through the MDFO and an additional 653,141 households have gained access to basic infrastructure and services through LGPSLogofind. As of July 2008, 27 projects are ongoing and another 40 are in the pipeline under SSLDIP. The Bank is also providing financing to the LGUs for water and sanitation improvements through the Development Bank of the Philippines (DBP) under the LGU-UWSSP2. Under the project, water supply and sanitation improvements have been made or are ongoing in 12 LGUs, seven of which are being carried out as lease and management contracts, increasing private sector involvement in cities outside of Metro Manila. A consumer assessment study carried out in 2008 found that 87 percent of respondents expressed satisfaction with water services (compared to a target of 80 percent), 16 percent of households without sanitation showed improvement (compared to a target of 10 percent) and 46 percent of households were considered poor based on their self-reported income and provincial poverty thresholds. In addition, LGUs receive financing for rural roads and other local investments as participants in Bankfinanced sectoral projects. ARCDP2 provides financing for rural roads and bridges, small scale irrigation, potable water systems and facilities in agrarian reform communities. MRDP2 provides financing for rural roads, communal irrigation and rural water systems in participating LGUs. As of October 2007, agrarian reform communities that have participated in ARCDP2 for at least three years have reported a 21 percent increase in real income due to, among others, rural infrastructure improvements.

CAS Outcome: Catalyze private investment in key sectors including infrastructure (Growth: Private Sector Platform) Status at CAS Design As mentioned above, a fragile fiscal and debt position, perceived corruption, infrastructure weaknesses, concerns over law and order, and a sluggish financial system were seen as constraining investment. Private provision of infrastructure was taking place in the power and in water and sanitation in Metro Manila. Bank Contribution & Lessons Learned: The Metro Manila Sewerage Projects financed by the Bank have supported the private provision of water and sanitation in Metro Manila. The Third Manila Sewage Project provides financing through the Land Bank of the Philippines to the Manila Water Company Inc., one of the two concessionaires, for sewage and septic management. In addition, the Bank has been promoting private management of water systems in cities outside of Metro Manila through the LGU-UWSP2. IFC is active in private provision of infrastructure. IFC has invested in hydro-power generation in Magat and power-generation in Masinloc and provided technical assistance to rural electrical cooperatives in support of the Governments power sector privatization. IFC has invested in MWCI to help it develop new water sources, expand its water and sanitation services, and improve and maintain its network. IFC is also advising the Light Rail Transit Authority (LRTA) on the extension of the LRT1 Line. This project is designed as a public-private partnership with the Bank expected to provide financing for the public part. The Bank is supporting the preparation of additional operations to further private participation in infrastructure. The Bank is exploring the possibility of supporting the expansion of the LRT1 line and the Cavite-Laguna (Cala) North-South Highway in transport. Another effort, the MWSS Water Supply Distribution System Project with the second concessionaire, Maynilad Water Service Inc., was dropped from the Banks pipeline because of availability of alternative sources of funding. It is not clear whether the ongoing efforts in energy and transport will result in Bank operations, but the Bank has been providing important knowledge to the Government in overseeing and managing private participation in infrastructure as part of preparation. CAS Outcome: Improved performance of national institutions and increased access for the poor and disadvantaged groups to basic services (Social Inclusion: National Platform) Status at CAS Design Lack of social inclusion was a serious obstacle to development. Inequality remained high: the richest 5 percent of the households accounted for nearly one third of the national income while the poorest 20 percent accounted for only 6 percent. The poor were often not able to access quality public services, implying that they were likely to benefit less from national programs and subsidies, although they were more likely to rely on government services since they could not afford private alternatives (e.g., education, health care). The poor also suffered worse social outcomes. Compared to the richest 20 percent, the poorest 20 percent of households had: (a) higher infant Current Status Despite high economic growth, poverty increased between 2003 and 2006. While the Philippine economy grew at an average of 5 percent per annum since 2000, the poverty incidence increased from 30 percent in 2003 to 32.9 percent in 2006 or the level in 2000 (33 percent). In 2006, 27.6 million Filipinos lived below the poverty level, more than ever before. Some of possible reasons for the drop are a fall in real incomes of households, economic growth which favored the corporate sector, and low government social spending caused by the fiscal crisis. The 2008 economic report noted that overall investment in developing the human capital of Filipinos through investments in health, education and Current Status Low levels of investment continue to be a concern. Progress is being made in individual infrastructure projects involving the private sector.

and under-five mortality rates, 2.3 and 2.7 times higher respectively; (b) 28 percent lower enrolment rates; and (c) 9 percent lower female literacy rates (ages 15-49). Bank Contribution & Lessons Learned: The Bank worked with national government agencies to improve access to basic social services for the poor, building on the experience gained in previous projects. The Third Elementary Education Project (closed FY06) pilot tested innovative approaches such as school-based management. Under TEEP, test scores and completion rates improved between 2003-05 at rates higher than non-project schools. SEMP2 (closed FY07) provided key inputs in education and health, supported community based services in the poorest barangays, and enhanced performance and governance in three social sector departments (DepEd, DOH and DSWD). The project contributed to: (a) an improvement in the textbook to pupil ratio for math, science, English and Filipino from 1:2.5 in 2003 to 1:1.32 for elementary and 1:1.35 for high schools in 2007; (b) improvement in the TB cure rate from 73 percent in 2003 to 82 percent in 2006; and (c) a reduction in measles from 7,194 cases in 2003 to 173 cases in 2006. It also demonstrated the effectiveness of procurement reforms - ICB resulted not only in an improvement in quality but also a reduction in cost of 46 percent. Both projects laid the foundations for sector wide approaches - NPS operations in Basic Education (approved FY06) and in Health (approved FY06). Both operations support sector reform and efficiency improvements in DepEd and DOH respectively: i.e., school based management, teacher competency standards and reduction in disparities between schools for education; and increased enrolment of indigent people in the National Health Insurance Program, health services delivery (supply side) improvements and stronger regulations. Start up of both projects is taking longer than planned so no results are available as yet. CAS Outcome: Greater voice and improved access for the poor and disadvantaged in planning and delivery of education, health, and other basic services at the local level (Social Inclusion: Local Platform) Status at CAS Design In addition to disparities between the rich and poor (outlined above), disparities exists between different parts of the countries. For example, poverty incidence in 2003 was 61 percent in the Autonomous Region in Muslim Mindanao (ARMM) and 49 percent in Western Mindanao compared to a national average of 26 percent. Life expectancy in ARMM was 10 years lower in 2000. Poor service delivery was seen as leading to lack of engagement in government by the poor, which in turn resulted in poorer services. Bank Contribution & Lessons Learned: The Bank has been engaging local communities directly in the delivery of local services and infrastructure, targeted to the poor. Several Bank-financed projects take a participatory approach where local communities identify their priorities, with support from project and local government staff, and select project investments from a menu of options (generally including roads, water systems, school buildings, and other facilities). These could be part of a national program, e.g., promoting better natural resource management (CBRMP) or land reform (ARCDP2), or these could be community-driven operations, e.g., Current Status The 2008 economic report noted that there continues to be a pressing need to target human capital interventions to the poorest households. It noted continued disparities in education and health service levels between developed and poor regions in the Philippines. social protection is low, despite recent increases in spending in the social sectors.

Kalahi-CIDSS, ARMM Social Fund, MRDP2, and the Mindanao Trust Fund. The Kalahi-CIDSS is a national program targeted to the poorest provinces and municipalities. The ARMM Social Fund, MRDP2 and the Mindanao Trust Fund target Mindanao. These community oriented projects have had positive impact on beneficiaries. Sixty-five percent of participating households in CBRMP experienced an increase in income (compared to a project target of 25 percent). Participating households in ARCDP2 are estimated to have experienced a 21 percent increase in real income three years after joining the project. An economic analysis of Kalahi-CIDSS investments at mid-term estimated economic rates of return of 22 percent for rural (farm to market) roads and 65 percent for small water supply investments. CAS Outcome: Increased access to financing of micro-enterprises, cooperatives, and small and medium enterprises and increased private service delivery of basic social services (Social Inclusion: Private Sector Platform) Status at CAS Design Current Status The poor were seen as not benefiting from The Philippines continues to experience high economic growth. While economic growth economic growth. Economic growth, however, has increased employment in the formal sector, a not led to significant employment generation: heavy pool of under-employed labor and newunemployment remained around 8 percent. entrants kept the unemployment rate around 11 percent. Bank Contribution & Lessons Learned: The Bank provided credit to rural micro-, small and medium enterprises (SMEs) through Rural Finance 3 (closed FY08). A total of 546 subloans were made to rural enterprises through the Land Bank of the Philippines for a total investment of Php 11.1 million, creating close to 17,000 jobs. Another 114,902 micro-loans for US$15 million were made to rural micro-enterprises through the Peoples Credit and Finance Corporation. IFC is playing a role in small scale private sector development and the private sector provision to social services. In 2008, IFC signed advisory agreements with a mid-tier commercial bank and the largest microfinance institution in the Philippines, both of which are interested in greater involvement with SMEs, under IFCs SME Banking program. IFC is advocating for increased private investment in Mindanao and is providing advisory services to the banana export industry in southeastern Mindanao with the overall objective of improving the take home pay of banana farmers. In terms of social services, IFC has invested in Asia Hospital, serving Metro Manila, southern Cavite, Laguna, and Batangas.
Appendix 2: Major Analytical and Advisory Activities, FY06-08

Economic and Sector Work a/ Planned Actual
FY2006 FY2007 Philippines Analytical Work on Poverty Environmental Monitor Local Government Finance and Development Accounts and Audit Corporate Governance Investment Climate Philippines Political Economy of Reform Public Expenditure Review Public Expenditure Tracking - Education Accounts and Audit Corporate Governance
Non-Lending Technical Assistance

Social Inclusion Mindanao Program Partners for Development Forum Meeting Infrastructure Needs Youth Development
FY2008 Development Policy Update Political Economy of Reform Country Procurement Assessment Country Environment Assessment
Agriculture Public Expenditure Review Environmental Monitor Development Policy Review (Invigorating Growth, Enhancing Its Impact ) Investment Climate Development Policy Update 2007 Country Procurement Assessment
Meeting Infrastructure Needs (Power) Gender and Conflict in Mindanao Health Policy Dialogue Social Protection Country Systems Mainstreaming and Social Safeguards PEM Reform Support OECD Procurement Assessment Report Law & Regulation for Bankruptcy Procedures
Note
a/ The CAS considered the AAA program evolving over time and did not provide a schedule of ESW. The planned deliveries and actuals are based on the annual Memorandums of Agreement between the Country Management Unit and the Region.
Appendix 3: Philippines Lending Program FY06-09

Planned Project
FY2006 NPS for Basic Education NPS for Health NPS for Public Expenditure Rationalization NPS for Participatory Irrigation Local Govt. Support for Cities Development NPS for National Roads 2 (NRIMP2) NPS for the Environment & Nat. Resources Mgmt NPS for Mindanao Rural Development 2 (MRDP2) Local Govt. Support for Municipal Finance PSD Support for MWSS Financial Rehabilitation NPS for Social Protection (currently CCT) Local Govt. Support for LGUs through Performance Grants Local Govt. Support for Regional Water Supply PSD Support for Rural Power 2 PSD Support for Logistics/Infrastructure National Roads Improvement & Management 2 PSD Support/PPP Transport (LRT1) MWSS Water Distribution System Rehabilitation Participatory Irrigation Development APL1 Bicol Power Restoration Development Policy Loan 2 Local Govt. Support for LGUs Through Performance Grants PSD Support for CALA NorthSouth National Road Judicial Reform Support 2 Support for Regional and Local Water Supply National Sector Support for Social Welfare & Development Reform (currently CCT)
US$ M
100 40 80 30 35 285 200 30 75 50 100 455 50 50 50 40 75 265 232 260 125 50 13 Tbd (680) 100 140 40 50 50
Actual Project
NPS for Basic Education NPS for Health Support for Strategic Local Dev. & Investment
SUS$ M
200 110 100
FY2007
NPS for Tax Administration NPS for the Environment & Nat. Resources Mgmt Mindanao Rural Development 2 Development Policy Loan 1
410 11 50 84 250
FY2008 (Original)
National Roads Improvement and Management 2 Bicol Power Restoration
395 232 13
FY2008 (Updated)
FY2009
Food Crisis Response Development Policy Op.
245 200
Appendix 3: Philippines Lending Program FY06-09

Planned Project
PSD Support for Rural Power 2 Support for Transco Concession NPS for Integrated Financial Mgmt. & Accounting Development Policy Loan 3
Note: NPS = National Program Support PSD = Private Sector Development Actuals for FY09 as of February 2009
US$ M
100 63 Tbd Tbd (543)
Actual Project
SUS$ M
200
Appendix 4: Selected Indicators of Bank Portfolio Performance and Management **
FY06 Number of Projects under Implementation Total Net Commitment 23 US$1.44 bn
FY07 23 US$1.41
FY08 24 US$1.43 bn
Portfolio Status Projects at Risk a/ Commitments at Risk Of which Actual Problem Projects
3 13.0% US$94.6 m 6.6% 3 13.0% 0
3 13.0% US$84.0 m 6.6% 3 13.0% 0
4 16.7% US$107.0 m 7.8% 4 16.7% 2
Projects in problem status for one year or more Performance Indicators SPN Resources per project (US$000) Disbursement Amount Disbursement Ratio b/ Overdue Audit Reports
65 US$138.8 m 21.1% 0
63 US$137.2 m 15.2% 0
76 US$188.3 m 20.1% 0
a/ Projects rated U or HU on development objectives (DO) and/or implementation progress (IP). b/ Ratio of disbursements during the year to the undisbursed balance of the Banks portfolio at the beginning of the year: Investment projects only. ** All indicators are for projects active in the portfolio, with the exception of the Disbursement Ratio which includes all active project and project which existed during the FY.
Annex 4 World Bank FY09 Client Survey and CAS Multistakeholder Consultations
World Bank FY09 Client Survey for the Philippines 1. Background. A Client Survey was conducted in August 2008, which was timed to provide some initial client perceptions prior to the face-to-face stakeholder consultations on the CAS. The survey was designed to assist the World Bank in gaining a better understanding of how stakeholders in the Philippines perceive the Bank, as well as use data to inform the CAS formulation process that the country team was about to embark on. The survey asked about: overall attitudes toward the Bank; the importance of specific areas of the Banks work and the Banks effectiveness in those areas; the respondents level of agreement with the way the World Bank does business; general issues facing the Philippines; and the Banks communication and outreach efforts in the Philippines. 2. Process. Approximately 1,500 stakeholders of the World Bank in the Philippines were invited, through mailed questionnaires, to provide their opinions on the Banks assistance to the country. Participants in the survey were drawn from among national government officials or staff, local government officials or staff, members of Congress or staff, government-owned corporations or financial institutions, agencies implementing Bank-supported projects, bilateral and multilateral development agencies, private sector organizations or businesses, civil society organizations, the media, and members of academe or research institutes. A total of 337 stakeholders participated in the client survey (22 percent response rate), mostly from the Government. This response rate is a little higher than the standard response rate in the Philippines for mailed questionnaires, according to the local expert firm which handled the logistics for the survey. The analysis of the results was conducted by the World Bank team in headquarters which supports the client surveys globally. 3. Results. The FY09 Client Survey results in the Philippines indicated that, overall: the Bank was very well regarded in the Philippines; the Banks work in the country was valued; and that stakeholders were eager for the Bank to be involved in the most critical development challenges facing the country. The Bank was very well regarded in most areas including: relevance, results, and alignment with stakeholders development priorities; work on poverty; and in its collaboration with other development partners. Stakeholders were quite positive about the Banks work specifically in poverty. The Bank was considered responsive and collaborative with other donors. 4. Areas of Focus. In terms of areas of focus, the Client Survey indicated that corruption and poverty were considered the key development priorities in the Philippines; a plurality of stakeholders believed the Bank should focus primarily on corruption, followed by poverty. Stakeholders clearly recognized the connection between corruption and poverty; when asked what would contribute most to poverty reduction, corruption and jobs emerge at the top of the list. The results of the Philippines Client Survey demonstrated a clear interest in Bank involvement in supporting efforts to reduce corruption in the country, not only in terms of its overall support, but also, according to the data, in its knowledge and research. 5. Value to the Clients. In terms of value of the World Bank to the clients, the results indicate that the Bank is mostly valued for its lending to finance development projects. The Banks knowledge is less valued in the Philippines than in many other countries surveyed. The Banks greatest weakness is perceived to be its disregard of political realities on the ground and its bureaucratic way of conducting business that is not attuned to country conditions.
FY09 Client Survey/CAS Multistakeholder Consultations
6.
Responses to key questions in the FY09 Client Survey:

Which two areas do you think would be most valuable for the Bank to focus its research efforts on in the next few years in the Philippines?
Percentage of Respondents
0% 5% 10% 15% 20% 25% 30%
Where would it be most productive for WB to focus most of its resources?

(N=327)
(N=324) 0% 5% 10% 15% 20% 25%
Reducing corruption Reducing poverty Increasing employment Government effectiveness/ governance Improving basic infrastructure Providing quality education to children Modernizing agriculture Economic growth Improving delivery of health services Improving effectiveness of LGUs Reducing population growth Food security Improving environmental quality/ protecting natural resources Improving investment/business climate Strengthening public finances Improve effectiveness of law & justice system
12% 9% 8% 8% 8% 7% 7% 19% 19% 16% 16% 23%
27%
Anti-corruption Poverty Education Governance Environmental sustainability/natural resources management Rural development Labor markets/job creation Enhanced business environment for private sector development Improving equality of opportunity Public sector performance Public expenditure Urban/metropolitan development Agri-business Energy
7% 6% 6% 5% 5% 4% 4% 3% 10% 10% 9% 9% 19% 16% 15%
24% 23% 21%
6% 5% 3%
Social protection Health Water and sanitation Monitoring and evaluation
Climate change 2% Implementing land reform 2% Reducing crime/violence 1%
Other 2% Financial markets 2% Transport 2%
What are the first and second greatest values brought by the WB to the Philippines?
0% 10% 20% (N=319) 30% 40% 50% 60% 70%
Which of the following are the Banks two greatest weaknesses in its work in the Philippines?
(N=288) 0% 10% 20% 30% 40% 50%
Providing loans to finance development projects
50%
12%
62%
Imposing technocratic solutions without regard to political realities
48%
What are the first and second greatest

Technical support
10% 24%
34
Too bureaucratic in its operational policies and procedures
34%
Ability to mobilize resources for development work
16%
18%
Analyses/ recommendations not attuned to country conditions and culture
25%
34%
Not exploring alternative policy options
10% 17%
27% What are the first and second greatest

Too influenced by the US
The Bank's 3% knowledge
11%
Providing loans to promote policy reforms
24%
19%
14%
Imposing solutions which aren't practical
18%
Convener/facilitator
6%
8%
14%
Too small a player relative to the Philippines' economy
14%
Ability to build implementation capacity
1% 8%
9%
Staff too inaccessible
10%
2% 3%
Donor coordination
5%
Is arrogant in its approach
9%
Second greatest value
Greatest value brought to the Philippines by the Bank
CAS Multistakeholder Consultations

7. Background. The multistakeholder consultations were the main instrument for early consultations about the key challenges and possible CAS themes. Building on the experience in the past CAS period and on its regular outreach and dialogue activities, the Bank Group, together with the Knowledge for Development Centers (KDCs, which are partnerships between the World Bank and leading state and private universities), organized multistakeholder consultation workshops across the country in September and October 2008. These workshops involved national and local governments, civil society, the business community/private sector, academe, labor groups, and other development partners. 8. Process. Four consultations were co-organized with the Ateneo de Naga KDC for the consultation in the Bicol Region; Central Philippine University KDC in Iloilo City for Central and Eastern Visayas; University of Southeastern Philippines KDC in Davao City for Mindanao; and Asian Institute of Management KDC in Makati City for Metro Manila and neighboring areas in Luzon. Participating in the consultations were 288 representatives, of which 42 percent was from government, 36 percent from civil society, 16 percent from academe, 3 percent from the private sector; and 3 percent from development partners. These representatives were chosen from the Banks wide network of contacts and partners at the national, regional, and local levels. 9. The consultations provided a venue for a meaningful exchange of views with government and various stakeholders on the critical development challenges as well as policy options and programs that would address these challenges. They also helped increase governments and stakeholders understanding of the Banks work in the Philippines. Four questions were tackled in small group discussions, using a format called Knowledge Caf. These questions referred to the causes of worsening poverty; causes of the inadequate performance of public institutions in delivering public services to citizens; priority programs that should be included in the new CAS; and issues that the Bank should not be involved in. A consultant organization facilitated the workshop, and key staff from the World Bank participated in the discussions. 10. Results. The issue of governance surfaced throughout all the four consultations. In the discussion of poverty, three causes were identified: bad governance, poor quality of education, and lack of livelihood and employment opportunities. In the discussion of the failure to deliver public services, governance-related causes were again identified, specifically corruption, weak citizen participation, weak leadership, and a bloated and inefficient bureaucracy. A wide range of solutions were recommended, including electoral reforms, strengthening local governments, streamlining the bureaucracy, decentralization, and increased investment in human capital. The priority areas recommended for the new CAS were along the same theme of governance: electoral reforms, transparency, and improving local governance. Also identified as priority areas were education, health, and social protection. The Bank, the participants said, should not engage in any form of political intervention and should not be involved in mining. 11. The following is a summary of the key messages from the four regional multi-stakeholder consultations for the new CAS:
A.
Causes of Worsening Poverty and Recommended Solutions: Solutions Continue education for electoral reforms (educate voters, communities) and promote strong political parties Strengthen regulatory agencies (COA, CSC, etc) Reform the justice system to make government officials accountable and impose corresponding punishment on corrupt officials Institute a well-defined transparency and accountability program within the Government and all its agencies Set up an institute for leadership to train and educate, mentor and coach government leaders Promote vigilance in the community; set up community watch Make the national budget transparent and open to public scrutiny. If possible, this should be accessible on-line Increase investments in human capital, particularly for health and education Provide scholarships for formal and vocational training Improve the educational system and facilities (including training of teachers) Lessen political intervention, particularly in hiring teachers Provide incentives to students to increase their participation rate, such as the Food for School Program Improve statistical systems as planning and development tools for more responsive programs Implement microfinance projects with social insurance and capacity building for micro enterprises Develop livelihood opportunities in the rural areas to stop rural people from migrating to urban areas Encourage big companies to practice corporate social responsibility Pursue asset reforms (i.e., Agrarian Reform, Fisheries Program, Certificate for Ancestral Domains, etc) Promote micro & SMEs to generate employment
Causes Bad governance, including: (a) the dysfunctional system of governance in BLGU, LGU, national governments; and (b) corruption at all levels of government
Poor quality of education, particularly in the rural areas, results in high illiteracy rate, weak political voice, unemployment, and continuing poverty
Lack of livelihood and employment opportunities
B.
Causes of the Inadequate Performance of Public Institutions and Recommended Solutions: Solutions Ensure transparency and disclosure of public budgets, programs/projects and disbursement through posting of information, publication or on-line disclosure on the internet Strengthen the current judicial system Strengthen peoples participation and involvement in the identification and prosecution of corrupt officials Ensure the active participation of business and private sector in anticorruption campaigns Strengthen the auditing system Institutionalize close monitoring and regular evaluation of programs and projects Cut red tape Increase corruption penalties Implement lifestyle checks and use results as basis for funding Discourage solicitations from government personalities and institutions Strengthen local development councils and local special bodies Professionalize elective leaders Upgrade qualification standards for elective officials Focus support on lower-level government units and communities Government should engage the private sector and civil society in identifying priorities that truly address development needs of the community Provide continuous capacity building for NGOs and POs Conduct values education and capacity building activities for government officials and workers Implement rewards-based performance system Develop an integrated and institutionalized Performance Management System for government, e.g., public disclosure or report card system for national government agencies and LGUs (there are existing practices but should be done in all institutions) Advocate for electoral reforms to make the appointment process transparent and based on merit and performance, Advocate for civil service reforms, e.g., to improve compensation package for public servants
Causes The prevalence of corruption at all levels, which results in the high cost of doing business. This is due to the lack of transparency in transactions and lack of community vigilance
Lack of or weak citizen participation in all aspects of local governance
Lack of professionalism and inadequate leadership and management capacities of political leaders and public servants
Causes A bloated and inefficient bureaucracy that results in the lack of communication and coordination and hampers the delivery of public services
Solutions Streamline the bureaucracy both in offices and processes Further decentralize the governmental system in order to give rise to a more local government system Shorten time in processing government transactions and lessen minimum requirements Upgrade computer systems and maximize ICT infrastructure Professionalize the bureaucracy by ensuring competitive salaries for civil servants Better implement rationalization policy
C.
Proposed Priority Programs for the New World Bank CAS: Basic education, health and other social services at the grassroots level. Food sufficiency and security programs that will improve farm gate prices of the produce of farmers and promote collaboration between the government and private sector. Capacity-building to improve local governance (e.g., institutionalization of social accountability mechanisms, replication and/or scaling up of and replication of best practices in local governance). Programs that improve transparency and accountability in government agencies (e.g., strengthening of civil society participation in oversight roles, prosecution of erring public officials, etc.). Electoral reforms to strengthen democratic processes (e.g., voters education).1 Social protection (e.g., poverty maps and improved targeting mechanisms and conditional cash transfers through municipal LGUs).2
D.
Issues that the World Bank Should Avoid: Political intervention, whether engagement in partisan politics, giving in to political pressure or direct involvement in conflict resolution and the war against terrorism. Mining. Large-scale mining is against sustainable development. Responsible mining is still a vague concept. In one consultation, however, a workshop group qualified its opposition as follows: mining projects that are not supported by communities. Policy of government on the importation of goods. The rice importation program of government (DA) is a failure. At the same time, technologies developed in the Philippines have been copied by foreigners and Filipinos have ended up as consumers of goods produced by these technologies. Human rights violations. The World Bank should not support or fund enterprises or industries that encourage human trafficking, sex slavery and those that employ minors. Use of foreign consultants. The World Bank should minimize the use of foreign consultants and maximize the use of local experts.
While electoral reforms was suggested as a priority program for World Bank support, this recommendation must be viewed against the concern of some participants that the World Bank should avoid engagement in partisan politics (see succeeding section on Issues that the World Bank Should Avoid). 2 There were no objections to World Bank support for social protection in general. However, some participants expressed disagreement with CCT programs (see Section E: Issues Where There Were Divergent Views on World Bank Involvement).
E.
Issues Where There Were Divergent Views on World Bank Involvement: Participants had divergent views on World Bank involvement in several issues. While many felt that the World Bank should avoid these issues, some participants felt that there was opportunity for World Bank involvement: Policy making on bidding, procurement, taxes, tariff. While the majority felt that the World Bank should not be involved in policy-making, one participant disagreed that the Bank should refrain from engaging in issues such as taxation since, for example, the value-added tax, or VAT, has reaped many benefits. Microfinance assistance with NGAs, LGUs. One participant commented that one workshop group had recommended World Bank support for microfinance, while another group had recommended against World Bank support. Another participant clarified that there is no conflict because the other group had said that World Bank should not support microfinance implemented by the Government. Partisan politics in 2010. Many felt that partisan involvement in the 2010 elections would erode the credibility of the World Bank. However, a participant commented that the World Bank could contribute to electoral reforms through: (a) policy reforms (e.g., putting in place a nomination process); (b) examining the comparative advantages of a two-party vs. multi-party system; and (c) leveling the playing field, e.g., supporting qualified candidates who do not have the resources to run. Indigenous peoples. A participant sought clarification on why the World Bank should avoid issues related to IPs. Another participant responded that it is all right for the World Bank to help IPs as long as the cultural heritage of the latter is preserved. Family planning programs. There was divergence in participants views whenever this issue was brought up in the regional consultations. In Bicol, a participant commented (during the open forum) that one workshop group had objected to the Reproductive Health Bill, while another group had identified it as a solution to the problem. In the NCR consultation, while population control was identified as an issue that the World Bank should avoid, two measures were proposed for World Bank support to address the population issue: (a) pass laws on population control; and (b) include population education in World Bank projects. Cash grants and subsidies. Sustained social security measures must be put in place instead. If conditional cash transfer (CCT) programs are to be implemented, these should be implemented by municipal LGUs (who are closer to the ground) than provincial LGUs. Project identification and prioritization. A participant clarified that, as an operating procedure, all projects approved by World Bank are proposed by national government and therefore, are assumed to be for the betterment of the nation. However, the World Bank should look into these projects and make sure that these are what the people really need.
12. A detailed feedback report was sent to all the participants of the multistakeholder consultations and was posted on the Banks Philippines website to inform the public about the messages and recommendations. A second round of meetings was held with top government officials and leaders from civil society organizations (CSOs) and private sector, as well as with other development partners, both bilateral and multilateral agencies in January 2009. The meetings provided a venue for the Bank to present the issues it heard from the nationwide consultations and Bank management, and for the groups to give insights on key policy directions. The groups identified the need to factor in the economic and political climate on the magnitude, distribution, timing, and prioritization of lending and non-lending programs in the country. There is also an expressed interest in developing valid and reliable systems for collecting and analyzing data as the basis for development intervention as well as instituting a monitoring and evaluation system for development projects. The
groups indicated that critical to M&E system is the institutionalization of disclosure of information in the public sector. CAS Formulation and Consultation Process 13. The CAS process was launched internally through a retreat of the Country Leadership Team in April 2008. The discussions on the CAS then went through various stages of brainstorming, debating, working group discussions, government and external consultations, and internal reviews. Organizationally, a CAS leadership team and core team served as the nucleus for the work which, at many points, involved the entire country team. 14. Following is a summary of major events that took place throughout the almost year-long CAS formulation and consultation process, including the major highlights of each activity. In addition to the list below, a CAS team meeting was held on a bi-weekly basis during the period June 2008 to April 2009. It should also be noted that many other external consultations happened through bilateral meetings with development partners and other stakeholders, as well as internal consultations through virtual meetings not captured in the table below. Main CAS Preparation Steps
April 1, 2008 - Country Leadership Team (CLT) Retreat: Resource persons from academe provided outside perspectives on governance and poverty. June 2, 2008 - CAS Team Retreat: Selected development partners and resource persons, including a government representative, attended part of the retreat. June 4, 2008 - CAS Session at the Country Team Staff Retreat, Aklan June 20, 2008 - First Meeting with Representatives of the Oversight Agencies Department of Finance (DOF), National Economic and Development Authority (NEDA), and Department of Budget and Management (DBM) July 8, 2008 - CAS Debate Revolutionaries vs Tweakies (with participation of CAS team members in Manila and DC via videocon)
Highlights
Discussed: - Meeting the governance challenge - Getting the poverty agenda in focus - Toward leaner and better operations Reviewed: Accomplishments, gaps and opportunities in the various sectors Discussed: Composition of the CAS team, structure of the working groups, and the CAS workplan /timeline Held a simulation with the country team of the CAS external consultation process Exchanged views with Government on the proposed CAS objectives, and the processing timetable for the CAS formulation and consultation
August 13, 2008 - Review of CAS Completion Report (with participation of CAS team members in Manila and DC via videocon) August 14, 2008 - CAS Workshop on Working Groups Reports
Debated two possible approaches to the CAS: - Revolutionaries: A radical shift toward poverty agenda and AAA, applying governance and poverty filters - Tweakies: Stronger focus on direct poverty reduction and slight adjustments in the current conceptual framework Discussed the first draft CASCR, including initial results assessments Discussed outputs from each of the initial CAS working groups. Defined new working groups according to five strategic objectives: Stable Macro Economy; Improved Investment Climate, Better Public Service Delivery, Reduced Vulnerabilities, and Good Governance Briefed the Government oversight agencies on the progress to date and initial thinking on the strategy
August 21, 2008 - Second Meeting with Representatives of the Oversight Agencies
Main CAS Preparation Steps

September 17-18, 2008 - Consultations with Heads of Agencies
Highlights
Held focused discussions on the Bank Groups initial thinking on the CAS, and implementing agency heads suggestions on the strategy
Multistakeholder CAS Consultations: - September 24, 2008 Davao Consultation - September 26, 2008 Iloilo Consultation - September 29, 2008 Naga Consultation - October 3, 2008 Manila Consultation October 14, 2008 - Philippines Day in Washington, D.C. (DOF Sec. Margarito Teves delivered opening remarks) November 3-6, 2008 - Presentations by the CAS Working Groups to the Country Director November 26, 2008 - CAS Consultation with Business/Private Sector Representatives December 8-9, 2008 - IFC-IBRD Strategy Meeting, Manila (with participation of CAS team members in Manila and DC via videocon) December 11, 2008 - Upstream Review (Regional Operations Committee) January 26, 2009 - Third Meeting with Representatives of the Oversight Agencies on the draft CAS and CAS Completion Report January 26, 2009 - Meeting with Development Partners January 29, 2009 - Philippines CAS Team Workhop, Manila January 30, 2009 - Meeting with Civil Society Organizations (CSOs) February 24, 2009 - CAS Programming Discussions with the Oversight Agencies
(See details in earlier section of the Annex)
Discussed the emerging framework of the CAS with the full country team and other HQ-based colleagues Each CAS working group presented to the CD the results of working group discussions to date
Focused discussion to obtain private sector views on the CAS Undertook a SWOT analysis, identified sectors for possible joint programs, and discussed shared vision and results for the country program Received overall guidance from management on moving forward with the current directions of the CAS Updated DOF and NEDA on the emerging CAS, and heard from DOF and NEDA on their comments on the draft CAS document (Written comments from NEDA followed) Updated development partners on the emerging CAS, and solicited their inputs to the strategy and particularly to Annex 7 of the strategy Focused on the identification and prioritization of the operations under the CAS lending and non-lending programs Updated selected CSO partners on the emerging CAS, and solicited their views Discussed with government oversight agencies (including Office of the President and BSP) the revised CAS draft, and agreed on its flexibility and on indicative lending and nonlending programs under the CAS Received additional guidance, and overall support from management to proceed with CAS processing for Board discussion Discussed with the government counterparts the changes in the CAS that were made in response to government comments, as well as additional refinements in the document Discussed with NEDA latest changes to the CAS document, and agreed on the next steps, including a press release
March 9, 2009 - Final CAS Review (Regional Operations Committee) March 16, 2009 - Working-level meeting with Representatives of Oversight Agencies March 19, 2009 - Wrap-Up Meeting with NEDA on the CAS March 19, 2009 - Submission of CAS for final internal clearances
Philippines FY10-12 CAS Results Framework

Inclusive Growth
Improved income opportunities and enhanced abilities of households and communities, especially of the poor, to participate in markets through strengthened human capital, reduced vulnerability to shocks and increased economic empowerment
Strategic Objective 1: Stable Macro Economy

1.1 Fiscal and financial stability through consolidation and improved macroeconomic risk management
Strategic Objective 2: Improved Investment Climate

2.1 Enabling business environment to promote competitiveness, productivity and employment Outcome 1: Increased and improved delivery of infrastructure Outcome 2: Enhanced regulatory policy frameworks and institutional capacity for investment, service delivery, and trade Outcome 3: Increased investment and employment in rural and urban development 2.2 Financial services Outcome 1: Increased delivery and access to financial services
Strategic Objective 3: Better Public Service Delivery

3.1 Public service delivery in key sectors Outcome 1: Improved access to quality basic education services Outcome 2: Improved access to health services Outcome 3: Increased household access to safe drinking water and sanitation services 3.2 Basic service delivery in poor areas Outcome 1: Scaled-up provision of basic services through a nationwide communitydriven development program Outcome 2: Enhanced effectiveness of public service delivery through more coordinated area-based approaches
Strategic Objective 4: Reduced Vulnerabilities

4.1 Social protection system Outcome 1: National household poverty targeting system in place and used Outcome 2: Conditional Cash Transfer (CCT) program fully operational 4.2 Disaster risk management and climate change Outcome 1: Disaster- and climate change-related risks reduced Outcome 2: Greenhouse gas emissions reduced through expansion of mitigation programs in key sectors and LGUs 4.3 Stability and peace Outcome 1: Enhanced impact and conflictsensitivity of development programs implemented in communities in Mindanao affected by armed or violent conflict Outcome 2: Scaled up provision of basic services and livelihood support through CDD in communities affected by armed or violent conflict
Outcome 1: Maintained tax effort through strengthened tax administration and tax policy reform Outcome 2: Improved efficiency and targeting of public expenditures Outcome 3: Improved management of key fiscal and financial sector risks
Cross-Cutting Theme: G o o d G o v e r n a n c e
5.1 Governance and anticorruption in selected national government agencies Outcome 1: Core business systems, processes and capacities in selected agencies improved 5.2 Procurement and public financial management reforms at national and local levels Outcome 1: The Procurement Law more strictly enforced Outcome 2: Improved management and greater transparency in public finances 5.3 Better local governance through more effective decentralization Outcome 1: Deepened and refined decentralization through broad-based reforms Outcome 2: Strengthened LGU performance for more effective service delivery
Engagements: National and Local Level Private Sector
PHILIPPINES: FY10-12 CAS Results Framework

End-FY12 CAS Results Areas and Outcomes Indicative Milestones World Bank Group Program
Overall CAS Theme: Inclusive Growth

Improved income opportunities and enhanced abilities of households and communities, especially of the poor, to participate in markets through strengthened human capital, reduced vulnerability to shocks, and increased economic empowerment
CAS Objective 1: Stable Macro Economy

MTPDP Goals: Maintain economic stability through further fiscal consolidation (improved revenue generation as well as strengthened expenditure management), rationalized national government spending for devolved services, and reduced debt. Issues and Obstacles: Despite recent progress, external and public debt levels are still high Recent fiscal improvements need to be placed on a more sustainable basis through increased tax revenues and improved expenditure management Vulnerability to external shocks, fiscal, and macro financial risks Underdeveloped financial MIS limits ability to track and report data in timely manner as basis for policy
1.1 Fiscal and financial stability through consolidation and improved macroeconomic risk management Outcome 1: Maintained tax effort through strengthened tax administration and tax policy reform1 Indicator 1: Tax/GDP Baseline: 13.3% (2009, est.) Target: 13.9% (2012) Indicator 2: Nonfinancial public sector debt/GDP Baseline: 62.4% (2008) Target: 57.7% (2012) Outcome 2: Improved efficiency and targeting of public expenditures Indicator: Forward Estimates (FE) and Paper on Budget Strategy (PBS) as input for annual budget formulation Baseline: Not being used Target: Fully used (2012) Fiscal incentives and tobacco excise tax rationalization laws passed Tax ratio in 2010 is as high as or greater than in 2009 Strengthened Large Taxpayer Service Department of Budget Management (DBM) ready to prepare Forward Estimates (FE) and Paper on Budget Strategy (PBS) on their own Ongoing Financing: National Program Support (NPS) for Tax Administration Reform (NPSTAR) TF Strengthening of Revenue Administration and Collection Efficiency (Institutional Development Fund - IDF) TF Policy-Based Budgeting Medium-Term Framework (IDF) Indicative Financing: Development Policy Loan (DPL) Development Policy Loan Deferred Drawdown Option (DPL DDO) Indicative AAA/Others: Philippines Development Reports Quarterly Economic Updates Programmatic AAA on Public Expenditure Issues Development of the Philippines Statistical Development Plan (including grant to improve quality and usefulness of Philippine household surveys) IFC Advisory Services (AS) on crisis/insolvency management
Outcome 3: Improved management of key fiscal and financial sector risks Fiscal risk statement established and published Indicator 1: Regulatory requirements (for capital adequacy (2010) ratio, liquidity, non-performing loan provisioning) Baseline: Being met (2008) Target: Continue to be met (2009-2012) Indicator 2: Commercial banks distressed asset ratio Baseline: 12.5% (9/2008) Target: Below baseline (2012)
1
Tax policy measures approved earlier and the ongoing economic slowdown are expected to push the tax/GDP ratio to 13.3% in 2009, so that subsequent reform measures to reverse this trend are projected to generate a gain of 0.6% of GDP through 2012 relative to the 2009 baseline outcome.
End-FY12 CAS Results Areas and Outcomes
Indicative Milestones
World Bank Group Program
CAS Objective 2: Improved Investment Climate

MTPDP Goals: Encourage the private sector to strengthen trade and investment and attain national investment rates of about 25-28 percent of GDP; continue with the integration of the transport system, and develop and diversify the energy mix; ensure smooth financing for entrepreneurs, including microfinance for underserved areas. Issues and Obstacles: Spending on quality infrastructure (for both maintenance of existing assets and new capacity) is inadequate to meet current and future requirements and ensure greater access to rural areas Investment climate constrained by nontransparent and unstable regulatory framework Lack of coherent, socially acceptable and environmentally sustainable policy frameworks and strategies consistent with international best practices constrain investment climate for growth areas
A sustainable financing and maintenance regime developed for rural and secondary roads Outcome 1: Increased and improved delivery of Urban transport management plan developed and infrastructure ready for implementation in Metro Manila and for Indicator 1: National Road System (NRS) paved length in one major secondary city in Visayas or Mindanao fair condition or better Share of annual road program of Department of Baseline: To be determined during project formulation Public Works and Highways (DPWH) evaluated by Target: 75% (2012) technical and economic criteria increased to 80% Indicator 2: New customers in rural areas with access to Urban strategy developed that provides a minigrid or Renewable Energy Technology (RET) under the framework for integrated infrastructure investment Rural Power Project within the context of overall urban development Baseline: 4,750 (end-2008) Increased power capacity of 20 MW through Target: 20,000 additional (2012) RETs (Renewable Energy Technology) providing Indicator 3: Number of projects and total MW privatized services to minigrids (IFC involvement) Increased power generation of about 775-1,375 Baseline: 3 plants privatized totaling 1,135 MW (2009) MW by 3-4 IFC-supported power plants Target: 3-4 plants privatized, generating 1,135-1,500 MW Achieved financial viability of 85% of supported (2011) Electrical Cooperatives (EC) Indicator 4: Levels of system loss for Mindanao Electrical Continued power sector privatizations involving Cooperatives (ECs) which are target of IFC Rural Small Power Utilization Group (SPUG) with a Electrification Project special focus on renewable power generation Baseline: 11.9% (2008) Target: 9.9% (2010) Indicator 5: Long-run IFC average Development Outcome Increased private sector investments in electricity generation and distribution, including geo-thermal Tracking System (DOTS) success rate for all mature power Enhanced awareness among Small and Medium projects Enterprises (SMEs), national and local governments, Baseline: 60% (2008) Target: 65% (2012) manufacturers and developers about energy efficiency Six Electrical Cooperatives (ECs) assisted with 2.1 Enabling business environment to promote competitiveness, productivity, and employment Ongoing Financing: Second Agrarian Reform Communities Development Project (ARCDP2) Diversified Farm Income and Market Development Project (DFIMD) Land Administration and Management Project 2 (LAMP2) Metro Manila Urban Transport Integration Project (MMURTRIP) National Roads Improvement and Management Project 2 (NRIMP2) Rural Power Project (RPP) Mindanao Rural Development Project Phase 2 (MRDP2) IFC SN Aboitiz Power (SNAP) IFC Aboitiz Power Benguet, Ambuklao-Birga Hydro Plant (SNAPB) IFC Masinloc Power IFC Cagayan de Oro Power & Light Company (CEPALCO) IFC Philippines National Oil Company Energy Development Corporation (PNOC-EDC, PNOC-EDC2, geothermal) IFC Eastwood (cyber-park) IFC South Luzon Tollway Corporation (SLTC) TF Rural Power Project (Global Environment Facility Full Size Project - GEF FSP) TF Electric Cooperative System Loss Reduction Project (Global Environment Facility Full Size project - GEF FSP) TF National Roads Improvement and Management Program (NRIMP2) Enhanced Supervision (EAP Infrastructure for Growth TF - EAIIG)
capital expansion and structuring power supply aggregation agreements Extractive Industries Transparency Initiative (EITI) adopted

TF Lead Transaction Adviser for Cala Toll Road Supervision Budget (Public Private Infrastructure Advisory Facility PPIAF) TF Public Private Participation in Transport Infrastructure (Policy and Human Resources Development PHRD) TF Agribusiness Value Chain, Logistics, and Infrastructure Study (EAP Infrastructure for Growth TF - EAIIG) TF Public Private Partnership (PPP) Support to Enhance the Capacity of the Toll Regulatory Board to be an Effective Regulator of Toll Facilities (EAP Infrastructure for Growth TF EAIIG) TF Philippines Electrification: Best Practices in Subtransmission Development (EAP Infrastructure for Growth TF - EAIIG) TF IFC Private Sector Participation Project in Provision of Power Supply to Rural Nongrid Areas (Norway and USA) TF IFC Philippines Olongapo Power (Spain Technical Assistance Trust Fund TATF) TF IFC Doing Business Plus (USA) TF IFC Private Enterprise Partnership (PEP) (CIDA, AusAID, IFC) Indicative Financing: Light Rail Transit 1 South Extension Public Private Partnership (LRT-PPP) Tollway Public Private Partnership (Cavite-Laguna) Urban Transport (Metro Manila and other cities) Secondary/Local Roads Rural Power Adaptable Program Loan 2 (APL 2) Agriculture and Agribusiness Support Mindanao Development Urban Renewal (Metro Manila Cities) Sub-National Water Public Private Partnership (with IFC) Participatory Irrigation Development Project (PIDP) IFC projects in power (generation, transmission, distribution, rural power), renewable energy (solar, hydro, geothermal), energy sector privatizations, supply-chain linkages in agribusiness (e.g., bananas), financial services, banking Indicative AAA/Others : Trade Facilitation/ Transport/ Logistics
Outcome 2: Enhanced regulatory policy frameworks and institutional capacity for investment, service delivery, and trade Indicator 1: PPP/BOTs (Public Private Partnership/ Build Operate Transfer) in (i) national infrastructure; (ii) local infrastructure Baseline: None (2008) Target: (i) 1-2; (ii) 5-10 (2012) Indicator 2: Commercial banks providing loans to Electrical Cooperatives (EC) Baseline: None (2008) Target: 4 (2012) Indicator 3: Private investment in Electrical Cooperatives (ECs) and Renewable Energy Technology (RET) Baseline: 0 (2008) Target: US$20m (2012) Indicator 4: Number of clustered subtransmission facilities for supply to Electrical Cooperatives (ECs) Baseline: 0 (2008) Target: 4 (2012)
Policy framework (including greater transparency) for structuring, financing, and implementing Public Private Partnership (PPP) projects in infrastructure strengthened, adopted, and introduced 1-2 Public Private Partnership (PPP) pilot/ demonstration projects with IFC support launched Regulatory capacity improved in 1-2 regulatory agencies in infrastructure Multiyear infrastructure investment programming, planning and budgeting strengthened through 1-2 line agencies in cooperation with National Economic and Development Authority (NEDA) and Department of Budget Management (DBM) and at the local level with Department of Interior and Local Government (DILG) and Local Government Unit (LGU) Leagues Increased capacity and budgets for project development in line agencies, particularly for BuildOwn-Transfer (BOT) projects on a solicited basis Trade and transport facilitation policy developed and adopted Agri infrastructure logistics bottlenecks for high value crops identified in Mindanao Logistics/ supply chain management improvement program developed and adopted Introduced regulatory reforms to increase competition and efficiency in agri logistics (e.g., inter-island shipping, ports services) Adopted strategic policy reform road map for the liberalization of rice import regime to increase private sector participation Rural development strategy framework developed and adopted Strategic urban directions outlined and inputs provided to next Medium-Term Philippines
Outcome 3: Increased investment and employment in rural and urban development Indicator 1: Total household incomes of target beneficiaries in WBG-assisted projects Baseline: (i) MRDP: To be determined during project formulation; (ii) ARCDP2: Php 67,086 Target: (i) 20% increase in average household incomes of beneficiary communities over baseline and 10% increase over control group in MRDP; (ii) 20% increase three years after ARC (Agrarian Reforms Community) joins ARCDP2 Indicator 2: Business assets of target households Baseline: Php 33,640 (ARCDP2) Target: 10% increase in real value three years after household joins ARCDP2 (2012) Indicator 3: Agricultural productivity

Baseline: ARCDP2: 100% cropping intensity in target irrigated areas; 3.76 metric tons per hectare (MT/ha) for rice; 2.34 MT/ha for corn; 1.92 MT/ha for coconuts Target: 140% increase in cropping intensity and 15% increase in yields three years after joining ARCDP2 (2012)
Development Plan (MTPDP) and National Urban Development and Housing Framework (NUDHF)

Investment Climate for the Poor (with IFC) Energy Sector Reform Public Private Partnership (PPP) Regulatory and Policy Support (IFC and Public Private Infrastructure Advisory Facility -PPIAF) Environmental Safeguards (including Environmental Assessments) Agricultural Productivity Growth Urban Strategy (including resettlement issues) IFC Advisory Services (financial services, SME banking, sustainable energy finance, energy efficiency, energy sector privatizations, structuring power concessions, Mindanao banana value chain, Business Enabling Environment (BEE), Doing Business, sub-national Doing Business, other sectors and areas) Continue to offer MIGAs guarantee products (including Streamlined Small Investment Program for smaller scale projects)
Ongoing Financing: Support for Strategic Local Development and Investment Outcome 1: Increased delivery and access to financial Enhanced effective single credit information Project (SSLDIP) services bureau established IFC Banco de Oro (BDO, banking), Bank of the Philippines Indicator 1: Public and private credit bureau coverage of Increased share of funding requirements of Micro Islands - BPI, Metrobank, East West Bank, Rizal Commercial adult population and Small and Medium Enterprise (MSME) Banking Corporation, Security Bank Baseline: 5.4% (2008) Target: 30% (2012) obtained through formal banking institutions (from a IFC Paramount Life and General Holding Corporation Indicator 2: Number of new small-holder farmers receiving baseline of about 11-21%) (PLGHC) credit from partner banks due to WBG-supported projects Developed and adopted guidelines and TF Credit Rating for Selected Cities (Public Private and volume of credit transparency mechanisms for government farm Infrastructure Advisory Facility- Sub-National Technical Baseline: To be determined based on actual projects credit guarantee facility Assistance PPIAF SNTA) Target: To be determined; at least 2 IFC-supported Successful pilot testing of a First Loss Guarantee TF Small Water Utilities Financing (Public Private projects/investments envisaged (2012) Facility for agriculture/ agribusiness Infrastructure Advisory Facility- Sub-National Technical Indicator 3: Number/volume of MSME (Micro and Small Weather-based (index) agricultural insurance Assistance PPIAF SNTA) and Medium Enterprise) loans from WBG supported banks system pilot-tested in at least one region TF IFC Asian Commercial Bank Strengthening Financial Baseline: 0 Target: 10% increase per year Institutions in East Asia ((Japan Technical Assistance Trust Fund Enhanced access to housing finance products Indicator 4: Volume of new housing finance loans TATF) Mortgage toolkit for financial institutions Baseline: US$6.4m (2005) Target: US$12.5m (2012) introduced Indicator 5: Volume of lending by Government Finance Indicative Financing: Enhanced access to risk mitigation and insurance Institutions (GFI) to 2nd to 4th class LGUs Sub-National Finance (SSLDIP2, or Development Bank of services, especially for housing finance Baseline: To be determined during project formulation the Philippines DBP3 - Regional Infrastructure for Growth) Risk-sharing facilities to support sustainable Target: 30% increase (2012) Sub-Sovereign Financing Facility (with IFC) energy investments and Small and Medium Indicator 6: Participation of Private Financial Institutions 2.2 Financial services

(PFIs) in financing sub-national projects (number of loans) Baseline: To be determined during project formulation Target: 5 additional (2012)
Enterprise (SME) finance promoted Improved access to grants and concessional financing to meet needs of low income Local Government Units (LGUs) and poor communities Increased reliance on own source revenue through better business tax and real property tax collections

IFC projects with banks supporting MSME access to credit IFC projects with major Philippine universal banks (consolidation, capital raising, liquidity and risk sharing facilities) IFC projects in housing finance, recovery of bad assets, mortgage restructuring, provision of insurance IFC investments in direct support of top tier Local Government Units (LGU) Indicative AAA/Others : Financing Innovation Facility (with IFC, including First Loss Facility for agriculture/ agribusiness, and Remittances for Development) IFC Advisory Services (financial services, SME banking, Business Enabling Environment BEE, central bank, sustainable energy finance, other sectors and areas)
CAS Objective 3: Better Public Service Delivery

MTPDP Goals: Improve governance of service delivery to support reforms of social welfare and development; continue to pursue implementation of the health and basic education sector reform agenda to increase access to quality basic education, health services, and water and sanitation by the poor. Issues and Obstacles: The country is having difficulty in attaining several of the MDGs: prevalence of underweight children; primary enrolment ratio (which has declined); underfive, infant, and maternal mortality rates. However, there have been gains in combating TB and malaria Improved efficiency is needed in the use of increasing budgetary allocations for social sector programs There are significant disparities among geographical and population groups: social indicators are particularly worse in ARMM
3.1 Public service delivery in key sectors Outcome 1: Improved access to quality basic education services Indicator 1: Net primary enrolment rate Baseline: 85 (2008) Target: 90 (2011) Indicator 2: Primary completion rate Baseline: 73 (2008) Target: 77 (2011) Indicator 3: Net secondary enrolment rate Baseline: 62 (2008) Target: 70 (2011) Indicator 4: Secondary completion rate Baseline: 75.4 (2008) Target: 76 (2011) Outcome 2: Improved access to health services Minimum standards for inputs, outputs, and outcomes developed and monitored School Based Management (SBM) rolled out with shift of resources to schools Ongoing Financing: National Program Support (NPS) for Basic Education National Program Support (NPS) for Health Sector Second Womens Health and Safe Motherhood Project (WHSMP) Manila Third Sewerage Project (MTSP3) IFC Manila Water Company (MWC) IFC Asian Hospital TF Manila Third Sewerage Project (Global Environment Facility Full Size Project - GEF FSP) TF Support to Philippine Basic Education Reforms (AusAID) TF for Health Sector Reform (European Community EC) TF Local Government Support for Regional Water Supply Project (Policy and Human Resources Development PHRD)

Indicator 1: Children (age 1) immunized with DPT3 (Diphtheria- Pertussis- Tetanus Third Dose) (i) nationally; (ii) poorest quintile Baseline: (i) 77% (2007); (ii) To be determined by findings of 2008 National Demographic Health Survey Target: (i) 90% (2012); (ii) 90% (2013) Indicator 2: Share of facility deliveries (i) nationally; (ii) poorest quintile of women Baseline: (i) 39% (2007); (ii) To be determined by findings of 2008 National Demographic Health Survey Target: (i) 80% (2012); (ii) 80% (2013) Indicator 3: Enrolment coverage of the National Health Insurance Program (i) total population; (ii) indigent population Baseline: (i) 76% (2008); (ii) 55% (2008) Target: (i) 85% (2012); (ii) 100% (2012) Outcome 3: Increased household access to safe drinking water and sanitation services Indicator 1: Share of poor households in project areas with access to safe drinking water services (MDG)/ connected to network services Baseline: To be determined as part of project formulation Target: 80% (2012) Indicator 2: Share of poor households in project areas with access to communal or public sanitation facilities (MDG) Baseline: To be determined as part of project formulation Target: 80% (2012) Indicator 3: Number of LGUs closing open dumpsites and opening sanitary landfills (MDG) Baseline: <1% of LGUs Target: 20 LGUs (2012) 3.2 Basic service delivery in poor areas Outcome 1: Scaled-up provision of basic services through a nationwide community driven development program Indicator: Number of poor municipalities supported by national Community Driven Development (CDD) program Baseline: 184 Target: 500 (2012) Outcome 2: Enhanced effectiveness of public service delivery through more coordinated area-based
Performance-based financing and monitoring system developed and piloted (i) in at least 16 provinces, with particular focus on improving maternal, child, and reproductive health; (ii) for at least 12 public hospitals

TF Concessional Financing Facility for Water and Sanitation Service Providers (EAP Infrastructure for Growth TF - EAIIG) TF Metro Iloilo Water District Options Study (Public Private Infrastructure Advisory Facility PPIAF) TF Program for Sustainable Sanitation Philippines Component (Water and Sanitation Program WSP) TF IFC Private Sector Participation in the Water Sector in the Philippines (France, USA, IFC Technical Assistance Trust Funds TATF) Indicative Financing: National Program Support (NPS) for Education National Program Support (NPS) for Health Grant: Output-Based Aid (OBA) Facility for Urban Services IFC investments in water supply
Establishment of a common financing approach for the water sector agreed with other multilateral and bilateral financing institutions
Indicative AAA/Others: Programmatic AAA for Education Programmatic AAA for Health Programmatic AAA for Water Supply and Sanitation Support (including Best Management Practices in Water Pollution Control) IFC Advisory Services
Increased proportion of poor households with access to basic social services
Increased proportion of budgets in targeted Local Government Units (LGUs) allocated to poorer areas
Ongoing Financing: Kapit Bisig Laban sa Kahirapan - Comprehensive and Integrated Delivery of Social Services (KALAHI-CIDDS) TF Implementation Philippines KALAHI-CIDSS (Policy and Human Resources Development PHRD) TF Urban Partnership for Sustainable Upliftment, Renewal, Governance, and Empowerment UPSURGE (Japan Social Development Fund JSDF)

approaches Indicator: Number of poorer provinces with enhanced mechanism to coordinate inter-agency anti-poverty programs Baseline: 0 Target: 3 (2012)
Agreements reached to improve inter-agency and inter-governmental coordination and specifying the nature of coordination Provincial compact executed to improve interagency coordination

Indicative Financing: National Program Support (NPS) for CDD (Community Driven Development) Indicative AAA/Others: Indigenous Peoples and Vulnerable Groups Philippines Population Report Synergies for Service Delivery (Conditional Cash Transfer CCT, Community Driven Development CDD, National Program Support- NPS)
CAS Objective 4: Reduced Vulnerabilities

MTPDP Goals: Reduce poverty and increase welfare, particularly in rural areas; sustainably manage the environment and natural resources; reduce disaster risk and improve recovery management. Issues and Obstacles: Low response of poverty reduction to growth; poverty is estimated to be increasing and inequality remains relatively high Effectiveness of social protection and poverty reduction efforts is compromised by lack of an efficient system to target the poor and by weak coordination and capacity 45% of population are vulnerable to falling into poverty due to shocks Most poor households live in natural hazard-prone areas and are susceptible to climate change and disaster shocks
4.1 Social protection system Outcome 1: National household poverty targeting system in place and used Indicator 1: Share of poor households registered in the targeting system Baseline: 9% (2008) Target: 33% (2012) Indicator 2: Number of national programs that are using the targeting system for selecting their beneficiaries Baseline: 1 (2008) Target: 2 (2012) Outcome 2: Conditional Cash Transfer (CCT) program fully operational Indicator 1: Share of 4Ps (Pantawid Pamilyang Pilipino Program CCT program) grants that go to beneficiaries belonging to the two poorest quintiles Baseline: 0 (2008) Target: 70% (2012) Indicator 2: Share of the 4Ps (Pantawid Pamilyang Pilipino Program CCT program) grants transferred to the Ongoing Financing: IFC Balikatan Housing Finance Management Information System (MIS) designed IFC Bahay Financial (mortgage finance) and in operation including integrated data entry IFC Filinvest Land (real estate middle income housing) application, Proxy Means Testing (PMT) processing TF Philippines Country Study (Diagnostic Facility for Shared and data management, and sharing capabilities Growth DFSG) properly functioning Indicative Financing: Social Welfare and Development Reform (SWDR) Conditional Cash Transfers (CCT) Management Information System (MIS) developed and functioning to support payments, verification, updates, and grievance system Spot checks for 4Ps (Pantawid Pamilyang Pilipino Program CCT program) of schools, clinics, municipal links, and beneficiary households carried out annually Indicative AAA/Others: Programmatic AAA for Social Protection and Poverty Reduction IFC Advisory Services World Bank Institute (WBI) partnerships

beneficiaries that are based on conditionalities met for health (0-14 years old and/or pregnant women) and education (6-14 years old) Baseline: 60% (2008) Target: 80% (2012) 4.2 Disaster risk management and climate change Outcome 1: Disaster- and climate change-related risks reduced Indicator 1: Share of vulnerable Local Government Units (LGUs) that integrate Disaster Risk Reduction (DRR) and/or Climate Change Adaptation (CCA) into their local plans and budgets Baseline: To be determined by ongoing Global Facility for Disaster Reduction and Recovery (GFDRR) work Target: 60% increase (2012) Indicator 2: Volume of investments in Disaster Risk Reduction and/or Climate Change Adaptation measures in participating Local Government Units (LGUs) Baseline: To be determined by ongoing Global Facility for Disaster Reduction and Recovery (GFDRR) work Target: 40% increase (2012) Indicator 3: Number of WBG projects that incorporate Disaster Risk Reduction, Climate Change Adaptation, and/or contingent components Baseline: 5 projects (2008) Target: 50% increase (2012)
Outcome 2: Greenhouse gas emissions reduced through expansion of mitigation programs in key sectors and LGUs Indicator: Volume of Bank-assisted Emission Reductions Purchase Agreements (ERPAs) Baseline: 2 Mt CO2e committed in WBG-assisted ERPAs (2/2009) Target: At least double the volume of new ERPAs (2012)
Ongoing Financing: National Program Support (NPS) for Environment and Government has adopted a new risk financing Natural Resource Management Project (ENRMP) strategy and mechanism Laguna De Bay Institutional Strengthening and Community Enhanced access to risk financing instruments Participation (LISCOP) High risk Local Government Units (LGUs) have IFC Philippines National Oil Company -Energy Development functioning disaster coordinating councils Corporation (PNOC -EDC) (geothermal) Medium Term Philippines Development Plan TF NPS ENRMP (Global Environment Facility GEF) (MTPDP, 2010) and high risk Local Government TF Ozone Depletion Substance (ODS) Phase Out Investment Units (LGUs) incorporate Disaster Risk Reduction Project (Ozone Trust Fund - OTF) (DRR) issues into programs and investment projects TF Country Environmental Analysis Climate Change Adaptation framework, strategy, TF Clean Development Mechanism TA for Philippines plan, and program for agriculture and natural TF Preparation of Climate Change Adaptation Phase I Project resources developed and adopted (Global Environment Facility) Climate proofing strategies and measures TF Supporting Local Government Capacity to Manage identified and piloted in the following WBGNatural Disasters (Global Facility for Disaster Reduction and assisted projects: Mindanao Rural Development Recovery - GFDRR) Project 2, Participatory Irrigation Development TF Climate Change in Coastal Areas (Norwegian Trust Fund Project, National Program Support (NPS) for for Private Sector and Infrastructure NTFPSI) Environment and Natural Resource Management TF Laguna De Bay Institutional Strengthening and Project Community Participation Project (Dutch cofinancing) Critical sectors and Local Government Units TF National CFC (chlorofluorocarbon) Phase Out Plan (LGUs) in the most vulnerable areas accorded (Sweden) priority TF Grant for Preparation of Integrated Persistent Organic Weather-based (index) agricultural insurance Pollutants Management (Dioxin and Furans, PCB and system pilot-tested in at least one region Contaminated Sites) Project (Global Environment Facility GEF) Carbon finance program on waste management in TF Disaster Risk Management Project Mindanao developed and approved TF IFC Philippines Asian Conservation Company Emission Reductions Purchase Agreements (ERPAs) signed for new carbon finance operations Indicative Financing:
Water Quality Management Disaster Risk Management (DRM) Financing (including Catastrophe Deferred Drawdown Option (CAT DDO)) IFC projects in renewable energy (e.g., geothermal, hydro, solar), power (including in Mindanao) TF Chillers Energy Efficiency (Global Environment Facility -

GEF, Carbon Fund - CF) TF Climate Change Scale-up in Coastal Areas (Global Environment Facility - GEF) TF Climate Change Mitigation Program through Waste Management and Renewable Energy (Global Environment Facility - GEF, Carbon Fund - CF) TF Groundwater (Global Environment Facility - GEF) TF Philippines Climate Change Adaptation (Global Environment Facility - GEF) TF Integrated Persistent Organic Pollutants Management Indicative AAA/Others: Programmatic AAA for Disaster Risk Management (DRM), including Climate Change Issues IFC Advisory Services World Bank Institute (WBI) partnerships
4.3 Stability and peace
Ongoing Financing: Mindanao Rural Development Project Phase 2 (MRDP2) Outcome 1: Enhanced impact and conflict-sensitivity of Community programs using Community Driven Autonomous Region in Muslim Mindanao (ARMM) Social development programs implemented in communities in Development (CDD) approach implemented in more Fund Project Mindanao affected by armed or violent conflict conflict-affected municipalities TF Mindanao Regional Development in Conflict-Affected Indicator 1: Number of IDP (Internally Displaced Persons) Project preparation (whether through grants Areas families from recent conflict with homes rebuilt and/or loans) are based on close coordination and TF Mindanao Reconstruction and Development Program Baseline: 15,392 recent IDP (Internally Displaced Person) planning with government and development partners TF Preparation of Mindanao Rural Development Project families (reported in National Disaster Coordinating Council, Phase II Coastal and Marine Ecosystem Conservation 12/2008) with estimated 3,000 families with homes destroyed Component (Global Environmental Facility GEF) Target: At least 20% of families of the latter group with TF Rural Infrastructure Component of the Mindanao Rural assistance provided for reconstruction of structures and Development Program Phase II (EAP Infrastructure for Growth rehabilitation of basic services (2012) TF - EAIIG) Indicator 2: Development and use of simple and user friendly conflict sensitivity tool for assessment of more Indicative Financing: programs in Mindanao Fund for Peace and Development Baseline: 1 PCIA (Peace and Conflict Impact IFC projects in power generation in Mindanao including Assessment) tool for community sub-projects support to Electrical Cooperatives for capital expansion Target: 1 Conflict sensitivity tool developed for Local Government Unit (LGU) programs in areas of armed and Indicative AAA/Others: violent conflict in Mindanao (2012) Encouraging more resilient communities in conflict- affected areas (State and Peace-building Fund - SPF) Outcome 2: Scaled-up provision of basic services and Improved transparency in budgeting, allocation, IFC Advisory Services (e.g., rural electrification, power livelihood support through community driven and management of public resources and supply aggregation agreements, banana value chain) development (CDD) in communities affected by armed or accountability

violent conflict Indicator: Number of conflict- affected communities having one or more CDD sub-projects Baseline: 53 Target: 100 (2012)
Scaled-up provision of community infrastructure including power generation capacity and increased efficiency in distribution
Cross-Cutting Theme: Good Governance

MTPDP Goals: Strengthen partnerships and accountability among government, civil society, and the private sector; fully operationalize the Government Electronic Procurement System; conduct integrity development reviews in government agencies, and expand and institutionalize lifestyle-checks. Issues and Obstacles: Public perceptions of government sincerity to reduce corruption remain negative Weak government institutions and lack of real progress in efforts to improve their performance and accountability Weak political impetus for reforms While CSOs are active in demanding transparency and better governance, their efforts tend to be fragmented Investment climate is constrained by lack of trust that institutions have functional self-regulatory mechanisms, that transparency and disclosure principles are respected and governance mechanisms are effective
Ongoing Financing: Judicial Reform Support Project (JRSP) TF Strengthening of Monitoring and Evaluation Capacities in Agriculture (Institutional Development Fund - IDF) TF Strengthening the Institutional Effectiveness of the National Commission of Indigenous Peoples (IDF) Indicative Financing: Judicial Reform 2
5.1 Governance and anticorruption in selected national government agencies Outcome 1: Core business systems, processes, and capacities in selected agencies improved Indicator: Number of national government agencies with a functioning internal audit unit out of 22 national agencies Baseline: 12 or 56% (2008) Target: 18 or 82% (2012) Agency-specific indicators developed to monitor one or more of the following governance areas: Public Expenditures and Financial Accountability (PEFA), internal and external audit functions; operational efficiency
Indicative AAA/Others: TA for Agency Institutional Strengthening Programmatic AAA on Sector Governance Assessments (for various sectors/ SOs - Strategic Objectives) IFC Advisory Services (e.g., Doing Business, sub-national Doing Business, Business Enabling Environment - BEE, regulatory simplification, Corporate Social Responsibility) Ongoing Financing: 5.2 Procurement and public financial management reforms at national and local levels TF Professionalization of Public Procurement Practitioners and Functions Project (Institutional Development Fund - IDF) Outcome 1: The Procurement Law more strictly enforced Government procurement system assessed as part TF Strengthening the Capacity of the Procurement Service in Indicator: Procurement operations and public procurement of country systems pilot Implementing the Philippine Government Electronic market (Country Procurement Assessment Report - CPAR Procurement System (Institutional Development Fund - IDF) scores)

Baseline: 16/30 points or 53% (2007) Target: 24/30 points or 80% (2012) Outcome 2: Improved management and greater transparency in public finances Indicator: Public Expenditures and Financial Accountability (PEFA) scores (i) Predictability and Control in Budget Execution; (ii) Accounting, Recording and Reporting Baseline: (i) 4 out of 9 indicators rated as D+ (ii) all 4 indicators rated as D/D+ Target: (i) 3 out of 9 rated as D+ (ii) 3 out of 4 rated as D/D+ (2012)

TF Support Creation of Accounting Oversight Board (Financial Sector Reform and Strengthening Initiative - FIRST) TF Strengthening the Capacity and Effectiveness of the Commission on Audit (Institutional Development Fund - IDF) Indicative Financing: Government Integrated Financial Management Information System (GIFMIS) Indicative AAA/Others: Support for Procurement Reforms (including update of Country Procurement Assessment Report CPAR, and study of Approved Budget for Contract (ABC) effectiveness) Public Finance Management (Government Integrated Financial Management Information System GIFMIS; Department of Budget Management DBM; Bureau of Treasury BTr; Budget Watch) Ongoing Financing: TF Strengthening the Capacity of the Local Government Academy to Coordinate and Oversee Local Government Training and Capacity Building Project (Institutional Development Fund - IDF) TF Non-Governmental Organization (NGO) Sector Efficiency and Accountability to Strengthen Service Delivery to the Poor (Japan Social Development Fund - JSDF) Indicative Financing: Local Government Unit Performance Grants/ Capacity Building for Local Government Indicative AAA/Others: Programmatic AAA on Decentralization (e.g., revenue mobilization)
New omnibus Public Financial Management (PFM) law in place, or, a coherent PFM reform strategy adopted Coherent Public Expenditure Management (PEM) reform agenda developed with functioning Financial Management Information System (FMIS) (2011) Comprehensive Public Expenditure Management (PEM) reform strategy with draft organic budget law and Government Finance Management Information System (GFMIS) action plan in place Improved PEFA (Public Expenditure and Financial Accountability) scores related to budget formulation and execution
5.3 Better local governance through more effective decentralization Outcome 1: Deepened and refined decentralization through broad-based reforms Indicator: Consensus built around revisions to key legislation affecting decentralization Baseline: No comprehensive review of decentralization laws Target: Philippines Development Forum (PDF) adopts legislative reform agenda (2012) Outcome 2: Strengthened LGU performance for more effective service delivery Indicator: Number of Local Government Units (LGUs) participating in performance-based programs Baseline: To be determined during project formulation Target: Participating LGUs meeting at least 50% of performance targets (2012) Developed a simplified local governance indicator set to better monitor Bank-supported interventions designed to improve TAP (Transparency, Accountability, and Participation) Citizens scorecards used to monitor public satisfaction on Local Government Unit (LGU) service delivery Performance-based financing and monitoring system developed and piloted in Local Government Units (LGUs)
IFC Advisory Services (e.g., Doing Business, sub-national Doing Business)
Note: Support through multidonor trust funds and global funds such as GEF, PPIAF, Carbon Finance Funds, Cities Alliance, Water and Sanitation Program, and others is not all necessarily reflected in the matrix.
Annex 6 Indicative World Bank Group (WBG) Program by Results Areas

Strategic Objective 1: Stable Macro Economy
MTPDP Goals: Maintain economic stability through further fiscal consolidation (improved revenue generation as well as strengthened expenditure management), rationalized national government spending for devolved services, and reduced debt. CAS Results Areas and Outcomes 1.1 Fiscal and financial stability through consolidation and improved macroeconomic risk management Outcome 1: Maintain tax effort through strengthened tax administration and tax policy reform Outcome 2: Improved efficiency and targeting of public expenditures Outcome 3: Improved management of key fiscal and financial sector risks Indicative Financing and AAA /Other Ongoing Financing: (See Annex 5: Results Framework) Indicative Financing: Development Policy Loan (DPL) Development Policy Loan Deferred Drawdown Option (DPL DDO) Indicative AAA/Others: Philippines Development Reports Quarterly Economic Updates Programmatic AAA on Public Expenditure Issues Development of the Philippines Statistical Development Plan (including grant to improve quality and usefulness of Philippine household surveys) IFC Advisory Services (AS) on crisis/insolvency management
1.1 Fiscal and financial stability through consolidation and improved macroeconomic risk management Indicative financing: The World Bank Group will support the objective of maintaining macroeconomic stability with a combination of instruments including rapid-disbursing financing, diagnostic AAA, economic monitoring, focused TA, and policy advice. The close collaboration with other international financial institutions, in particular the IMF, will continue, and the Philippines Development Forum (PDF) will be used as a platform for dialogue in addition to regular policy discussions. The Bank will use development policy operations in support of a strong reform program in government financial management. Along with the ongoing National Program Support (NPS) for Tax Administration Reform, these operations can provide quick-disbursing financing. Indicative AAA/Others: The regular economic monitoring reports and updates, as well as the annual flagship reports (which in the coming years could focus on topics such as the political economy of reforms and competition policy, governance, and medium-term development issues) will be supplemented by programmatic AAA on public expenditure management. It will be essential to provide support (with the IMF) to the Government to assess and manage fiscal risks including debt. The IFC may also provide advisory services to clients on crisis response and management of insolvencies. Grants and trust funds will be provided to strengthen the statistical capacity in the country (e.g., in areas such as the drawing up of a statistical development plan; the quality, timeliness, and usefulness of household surveys; industrial surveys to improve the tax base; and national accounts). The Bank will generate selected briefing notes for the new administration which should ultimately lead to action-oriented policy briefs for the government on a range of topics covering all key results areas under the strategic objectives of the CAS. The task would follow an intensive engagement approach which would entail encouraging public and policy debates on issues prior to the election, and put forward the Banks policy recommendations in an appropriate manner. It would also link up with work on the next MediumTerm Philippines Development Plan (MTPDP).
Indicative World Bank Group Program by Results Areas
Strategic Objective 2: Improved Investment Climate

MTPDP Goals: Encourage the private sector to strengthen trade and investment and attain national investment rates of about 25-28 percent of GDP; continue with the integration of the transport system, and develop and diversify the energy mix; ensure smooth financing for entrepreneurs, including microfinance for underserved areas. CAS Results Areas 2.1 Enabling business environment to promote competitiveness, productivity, and employment Outcome 1: Increased and improved delivery of infrastructure Outcome 2: Enhanced regulatory policy frameworks and institutional capacity for investment, service delivery, and trade Outcome 3: Increased investment and employment in rural and urban development 2.2 Financial services Outcome 1: Increased delivery and access to financial services Indicative Financing and AAA/Other Ongoing Financing: (See Annex 5: Results Framework) Indicative Financing: Light Rail Transit 1 South Extension Public Private Partnership (LRT-PPP) Tollway Public Private Partnership (Cavite-Laguna) Urban Transport (Metro Manila and other cities) Secondary/Local Roads Rural Power Adaptable Program Loan 2 (APL 2) Agriculture and Agribusiness Support Mindanao Development Urban Renewal (Metro Manila Cities) Sub-National Water - Public Private Partnership (with IFC) Participatory Irrigation Development Project (PIDP) Sub-National Finance (SSLDIP2, or Development Bank of the Philippines 3 (DBP3) - Regional Infrastructure for Growth) Sub-Sovereign Financing Facility (with IFC) IFC projects in power (generation, transmission, distribution, rural power), renewable energy (solar, hydro, geothermal), energy sector privatizations, supply-chain linkages in agribusiness (e.g., bananas), financial services, banking IFC projects with banks supporting MSME (Micro and Small and Medium Enterprise) access to credit IFC projects with major Philippine universal banks (consolidation, capital raising, liquidity and risk sharing facilities) IFC projects in housing finance, recovery of bad assets, mortgage restructuring, provision of insurance IFC investments in direct support of top tier Local Government Units (LGU) Indicative AAA/Others: Trade Facilitation/Transport/Logistics Investment Climate for the Poor (with IFC) Energy Sector Reform Public Private Partnership (PPP) Regulatory and Policy Support (IFC and Public Private Infrastructure Advisory Facility - PPIAF) Environmental Safeguards (including Environmental Assessments) Agricultural Productivity Growth Urban Strategy (including resettlement issues) Financing Innovation Facility (with IFC, including First Loss Facility for agriculture/agribusiness, and Remittances for Development) IFC Advisory Services (financial services, Small and Medium Enterprise SME banking, central bank, sustainable energy finance, energy efficiency, energy sector privatizations, structuring power concessions, Mindanao banana value chain, Business Enabling Environment (BEE), Doing Business, subnational Doing Business, other sectors and areas) Continue to offer MIGAs guarantee products (including Streamlined Small Investment Program for smaller scale projects)
2.1 Enabling business environment to promote competitiveness, productivity, and employment Indicative financing: The outcomes in this result area are being supported by instruments in the ongoing WBG portfolio and will be further strengthened and deepened, as well as selectively broadened during the coming CAS period. Several current projects support CAS objectives in the agricultural sector, infrastructure (transport and power, including in the rural areas), and rural development. IFC is also involved in infrastructure, particularly in energy and in transport. Going forward, envisaged transport projects under the CAS include Light Rail Transit 1 (South Extension) with Public-Private Partnership (PPP); Metro Manila/and other cities transport integration as a follow-up to MMUTRIP; and Cavite-Laguna tollway in a growing urban community as a model PPP. In the energy sector, Rural Power APL2 will support implementation of the Electric Power Industry Reforms and Renewable Energy Act. IFC participation will have a particular focus on renewable energy development including geothermal, and stress privatization of power generation. WBG-financed projects will also focus on urban development and renewal (e.g., Metro Manila Cities); and, water supply at sub-national levels (with IFC). Rural and area development objectives will be supported through: the Mindanao Development Project; support for agriculture and agribusiness (e.g., projects to improve market access, product quality, access to technical support services); and participatory development of irrigation. IFC will work with clients to support supplychain linkages in agribusiness (e.g., bananas). Indicative AAA/Others: Planned AAA will emphasize assessments of the investment climate and policies for greater private sector participation in investment, growth, and employment generation, particularly in underserved regions, poorer populations, and subsectors with high potential for development (including agriculture and agribusiness). The findings of an ongoing study on infrastructure constraints to the development of the nonfarm sector will underpin activities. The WBG will support the development and strengthening of the policy frameworks for trade facilitation, transport and logistics, energy efficiency, PPP regulations, legal and institutional settings, agrarian reform, agricultural productivity, urban strategy, and power sector reforms. A proposed TA will pilot the use of country systems for environmental safeguards (including EA, physical cultural resources, natural habitats, and pest management) to institute good governance. These activities are expected to be supplemented by grant funds and TF resources (e.g., PHRD grants, GEF) for project development and cofinancing, as well as for studies and TAs. IFCs Advisory Services will complement Bank efforts and fill gaps. MIGAs services and guarantees will continue to be on offer. 2.2 Increased delivery and access to financial services Indicative financing: Outcomes in this results area will be supported by IBRD lending through a subnational finance project and a sub-sovereign financing facility in collaboration with IFC during the later years of the CAS. These may include, among other components, increased provision of credit to creditworthy LGUs and the local private sector for the development of key infrastructure and services. IFC has ongoing collaborations in the banking sector, and going forward, IFC envisages the promotion of risk sharing facilities to support sustainable energy investments; MSME finance; the provision of mortgage toolkits to financial institutions; enabling increased housing finance for middle-income families; and contributions to private bank financing of credit-worthy LGUs. Indicative AAA/Others: Studies and TAs will explore a Financing Innovation Facility jointly with IFC (including components for a First Loss Facility for agriculture and agribusiness, and Remittances for Development), and the implications of sub-national financing. IFC Advisory Services will emphasize strengthening of the financial sector, SME banking, financing for sustainable and renewable energy projects, and improving the business environment. A weather-based (index) agricultural insurance system will be pilot-tested in at least one region.
Strategic Objective 3: Better Public Service Delivery

MTPDP Goals: Improve governance of service delivery to support reforms of social welfare and development; continue to pursue implementation of the health and basic education sector reform agenda to increase access to quality basic education, health services, and water and sanitation by the poor. CAS Results Areas 3.1 Public service delivery in key sectors Outcome 1: Improved access to quality basic education services Outcome 2: Improved access to health services Outcome 3: Increased household access to safe drinking water and sanitation services 3.2 Basic service delivery in poor areas Outcome 1: Scaled-up provision of basic services through a nationwide community-driven development program Outcome 2: Enhanced effectiveness of public service delivery through more coordinated area-based approaches Indicative Financing and AAA/Other Ongoing Financing: (See Annex 5: Results Framework) Indicative Financing: National Program Support (NPS) for Education National Program Support (NPS) for Health National Program Support (NPS) for CDD (Community Driven Development) Grant: Output-Based Aid (OBA) Facility for Urban Services IFC investments in water supply Indicative AAA/Others: Programmatic AAA for Education Programmatic AAA for Health Programmatic AAA for Water Supply and Sanitation Support (including Best Management Practices in Water Pollution Control) Indigenous Peoples and Vulnerable Groups Philippines Population Report Synergies for Service Delivery (Conditional Cash Transfer CCT, Community Driven Development CDD, National Program Support- NPS) IFC Advisory Services
3.1 Public service delivery in key sectors Indicative financing: Future IBRD financing in support of these outcomes will emphasize the National Program Support (NPS) instrument for both health and education. NPS for Education will increase access to quality basic education services and support the Basic Education Reform Agenda; and NPS for Health will finance budget items of the Department of Health in implementing the health sector reform agenda. An innovative Output-Based Aid (OBA) Facility for Urban Services is proposed in FY10 to support the extension of water and sanitation service coverage through a connection charge subsidy for the poor. Current WBG support in this results area includes the ongoing education and health NPSs, the Second Womens Health Project, and the Manila Third Sewerage Project (with supplemental GEF funding). Bankmanaged trust funds support sector objectives and projects as well as studies and technical assistance (e.g., AusAID support to Philippines Basic Education Reforms; European Commission TF for Health Sector Reform; a PHRD grant for Local Government Support for the Regional Water Supply Project, and a PPIAF grant for the Metro Iloilo Water District Options Study). IFC is a partner of the Manila Water Company and the Asian Hospital. Indicative AAA/Others: Programmatic AAA for both health and education are planned in the coming years (moving away from multiple small activities to a comprehensive AAA program to help in designing the proposed NPSs), as well as a study of best management practices in water pollution control. IFC will contribute to a water sector strategy note. Advisory Services and TA will emphasize strengthening the capacity for undertaking PPPs in the water and sanitation subsectors. 3.2 Basic service delivery in poor areas Indicative financing: The key IBRD lending instrument will be the NPS for CDD (Community Driven Development) which will finance the scaling up of the existing KALAHI-CIDSS as a core approach to
poverty reduction through increased access to basic public goods and services in targeted poor communities. The operation will increase basic services to the poor such as community infrastructure, water supply and sanitation, education and health services, and community electrification; enhance community empowerment to engage LGUs in meeting basic needs; and, strengthen participation and accountability consistent with the Local Government Code. Other donors and partners, including NGOs and civil society organizations, will also be supporting the CDD operation. Indicative AAA/Others: The implementation of the current KALAHI-CIDSS is supported by two JSDF grants on strengthening the capacity of NGOs and community procurement, and a PHRD grant. Urban CDD activities are supported through the Urban Partnership for Sustainable Upliftment, Renewal, Governance and Empowerment (UPSURGE) funded by a JSDF grant. AAA tasks are planned to study issues relating to indigenous people, population growth, and the interactions and coordination among key poverty reduction interventions such as CDD, CCT, NPS, and sector reform programs. Strategic Objective 4: Reduced Vulnerabilities
MTPDP Goal: Reduce poverty and increase welfare, particularly in rural areas; sustainably manage the environment and natural resources; reduce disaster risk and improve recovery management. CAS Results Areas and Outcomes 4.1 Social protection system Outcome 1: National household poverty targeting system in place and used Outcome 2: Conditional Cash Transfer (CCT) program fully operational 4.2 Disaster risk management and climate change Outcome 1: Disaster- and climate change-related risks reduced Outcome 2: Greenhouse gas emissions reduced through expansion of mitigation programs in key sectors and LGUs 4.3 Stability and peace Outcome 1: Enhanced impact and conflictsensitivity of development programs implemented in communities in Mindanao affected by armed or violent conflict Outcome 2: Scaled-up provision of basic services and livelihood support through community-driven development (CDD) in communities affected by armed or violent conflict Indicative Financing and AAA/Other Ongoing Financing: (See Annex 5: Results Framework) Indicative Financing: Social Welfare and Development Reform (SWDR) - Conditional Cash Transfers (CCT) Water Quality Management Disaster Risk Management (DRM) Financing (including Catastrophe Deferred Drawdown Option (CAT DDO) Fund for Peace and Development TF Chillers Energy Efficiency (Global Environment Facility GEF, Carbon Fund) TF Climate Change Scale-up in Coastal Areas (Global Environment Facility - GEF) TF Climate Change Mitigation Program through Waste Management and Renewable Energy (Global Environment Facility GEF, Carbon Fund) TF Groundwater (Global Environment Facility - GEF) TF Philippines Climate Change Adaptation (Global Environment Facility - GEF) TF Integrated Persistent Organic Pollutants Management IFC projects in renewable energy (e.g., geothermal, hydro, solar), power (including in Mindanao) IFC projects in power generation in Mindanao including support to Electrical Cooperatives for capital expansion Indicative AAA/Others: Programmatic AAA for Social Protection and Poverty Reduction Programmatic AAA for Disaster Risk Management (DRM), including Climate Change issues Encouraging More Resilient Communities in Conflict- Affected Areas (State and Peace-building Fund - SPF) IFC Advisory Services (e.g., rural electrification, power supply aggregation agreements, banana value chain) World Bank Institute (WBI) partnerships
4.1 Social protection system Indicative financing: WBG will financially support the outcomes in this result area with a loan for the Governments Social Welfare and Development Reform (SWDR) - Conditional Cash Transfers (CCT) program. The CCT will provide income support to the poor and protection from shocks, address deteriorating education and health indicators for the poor, and work on both the supply and demand sides of social services for the poor. Indicative AAA/Others: Non-lending support for the SWDR program will be provided through TA to the Government in strengthening the design and implementation of the CCT program and the roll-out of the National Household Targeting System for Poverty Reduction. The TA will assist in the proper operational implementation of these programs and support the intensive inter-agency policy dialogue that would be required for success. Programmatic AAA for social protection and poverty reduction would undertake key pieces of new knowledge generation to advise the Government on policies and actions, conduct continued core poverty diagnostics, and provide a roadmap for the development of poverty monitoring systems and statistics. This is particularly critical given the context of the unfolding global economic crisis. IFC is currently partnering with several real estate and mortgage finance institutions that provide middle-income housing. Future involvement will also be through support to credit financing agencies that cater to underserved clients. 4.2 Disaster risk management and climate change Indicative financing: The CAS proposes increased IBRD financing for disaster risk management (DRM) including a disaster risk reduction Catastrophe Deferred Drawdown Option (CAT-DDO) operation in FY11 and related TAs. The CAT-DDO would provide immediate liquidity for post-disaster reconstruction to allow for rapid recovery and encourage mitigation investments. A drawdown option for LGUs that demonstrate commitment to implementing a DRM plan would be created. Support for disaster mitigation activities, such as flood protection infrastructure, slope stabilization, and retrofitting of schools and hospitals in hazard-prone areas, could also be provided. The Global Facility for Disaster Reduction and Recovery (GFDRR) is funding a TA program to support LGUs to enhance their capacity to manage natural disasters and similar support is expected to continue. Bank-managed trust fund resources are expected to address issues relating to land use-based climate change adaptation measures and assist the Philippines (along with other countries in EAP) to formulate strategies and programs to mitigate greenhouse gas (GhG) emissions from current land use practices (the major source of GhG in developing countries). Global public funds, GEF, and bilateral trust funds are also expected to continue the funding of selected high priority DRM and climate change mitigation/adaptation activities as at present. Activities under consideration include improving energy efficiency of chillers to reduce carbon emissions, addressing climate change concerns for coastal areas and climate change impacts through waste management, groundwater management, and integrated management of Persistent Organic Pollutants (POPs). Indicative AAA/Others: AAA tasks will support the WBG financing program with studies related to both disaster risk management and climate change issues. IFC Advisory Services will also be relevant in topics such as electrification and Renewable Energy Technologies (RET). An innovative weather-based (index) agricultural insurance system will be pilot-tested. The World Bank Institute (WBI) has considerable expertise and cross-country experience in these areas, and the partnership with the Philippines will be strengthened. 4.3 Stability and peace Indicative financing: Currently, WBG resources to conflict-affected areas are being provided through several channels such as the Mindanao Rural Development Project Phase 2 (MRDP2), the Autonomous
Region in Muslim Mindanao (ARMM) Social Fund Project, and a Multi-Donor Trust Fund (MDTF) for Mindanao Reconstruction and Development Program. Going forward, a Fund for Peace and Development is envisaged in the outer years of the CAS. The fund would reduce gaps in development assistance, improve basic services and livelihoods in vulnerable areas, achieve convergence in the implementation of various assistance approaches, and strengthen the pivotal role of LGUs as the focal point for peace and development assistance in their municipalities. A Mindanao Development Project could also be pursued to further strengthen infrastructure and basic services. It is expected that some IFC operations would include activities (such as in the energy sector) in the area. Indicative AAA/Others: A key piece of AAA will focus on the topic of encouraging more resilient communities in conflict-affected areas in the Philippines to enhance the understanding of local conflict dynamics and typologies, develop a more harmonized and conflict-sensitive framework for CDD approaches in line with those at use by the Bank and others, and strengthen LGU capacity for development planning and project execution with improved governance in targeted conflict-affected areas. GEF and various TF resources are expected to continue their support for preparatory work and various project components or stand-alone activities. Cross-Cutting Theme: Good Governance
MTPDP Goals: Strengthen partnerships and accountability among government, civil society, and the private sector; fully operationalize the Government Electronic Procurement System; conduct integrity development reviews in government agencies, and expand and institutionalize lifestyle-checks. CAS Results Areas 5.1 Governance and anticorruption in selected national government agencies Outcome 1: Core business systems, processes and capacities in selected agencies improved 5.2 Procurement and public financial management reforms at national and local levels Outcome 1: The Procurement Law more strictly enforced Outcome 2: Improved management and greater transparency in public finances 5.3 Better local governance through effective decentralization Outcome 1: Deepened and refined decentralization through broad-based reforms Outcome 2: Strengthened LGU performance for more effective service delivery Indicative Financing and AAA/Other Ongoing Financing: (See Annex 5: Results Framework) Indicative Financing: Judicial Reform 2 Government Integrated Financial Management Information System (GIFMIS) Local Government Unit Performance Grants/ Capacity Building for Local Government Indicative AAA/Others: TA for Agency Institutional Strengthening Programmatic AAA on Sector Governance Assessments (for various sectors/ SOs - Strategic Objectives) Support for Procurement Reforms (including update of Country Procurement Assessment Report CPAR, and study of Approved Budget for Contract (ABC) effectiveness) Public Finance Management (Government Integrated Financial Management Information System GIFMIS; Department of Budget Management DBM; Bureau of Treasury BTr; Budget Watch) Programmatic AAA on Decentralization (e.g., revenue mobilization) IFC Advisory Services (e.g., Doing Business, sub-national Doing Business, Business Enabling Environment - BEE, regulatory simplification, Corporate Social Responsibility
5.1 Governance and anticorruption in selected national government agencies Indicative financing: A World Bank-financed Judicial Reform Support Project (JRSP) has been under implementation since 2004. Under the CAS, a second JRSP operation is proposed for FY12. A proposed grant-funded TA for Agency Institutional Strengthening would support selected agencies to develop
coherent institutional development and anti-corruption plans, and provide technical support for their implementation. The focus will be on strengthening the agencies core PFM and procurement functions, but could also include broader institutional development needs on a case-by-case basis. The TA would complement ongoing or planned lending operations (such as the NPSs in the social sectors) to reinforce Bank support for strengthening governance systems. Indicative AAA/Others: Selected institutional strengthening efforts would be pursued through the use of TFs (including IDFs) as at present, and IFC would also address the issue of reducing corruption through dialogue related to its transactions. A programmatic AAA is planned for Sector Governance Assessments for some selected sectors. 5.2 Procurement and public financial management reforms at national and local levels Indicative financing: The WBG has an active dialogue and engagement on procurement issues related to the implementation of the Bank-financed and managed portfolio of operations. To support the PFM outcomes under this results area, the WBG will finance a Government Integrated Financial Management Information System (GIFMIS) Project in FY11 focusing on integrating core FMIS for the Department of Budget Management (DBM), Bureau of Treasury (BTr), line agencies, and possibly the Commission on Audit (COA). The Bank will continue to support the implementation of the Governments procurement reforms and procurement systems (including e-procurement). Indicative AAA/Others: The ongoing programmatic AAA on PFM Reform Support would continue with the details and outputs to be determined during annual concept and progress reviews. Future subjects could include government-wide and specific PFM issues, PEFA updates, agency-PEFAs, agency budget management reviews, topical PFM workshops, and PFM policy notes. IDFs currently support the Professionalization of Public Procurement Practitioners, the implementation of the Governments eprocurement system, and capacity building of COA; similar and other TF-funded activities will continue during the CAS period. Follow-up support for the implementation of the main recommendations of the Report on Observance of Standards and Codes (ROSC) accounting and auditing will continue. 5.3 Better local governance through effective decentralization Indicative financing: LGU performance grants and capacity building for local government will spearhead WBG efforts to support better governance through decentralization in addition to various sub-national and local level components in other Bank engagements. The activity would build core competencies of the LGUs in financial management, procurement, planning, and administrative functions by linking incentives to the achievements of pre-identified performance targets. A secondary objective would be to target poorer provinces to help them bridge the growing gaps within LGU groupings. Indicative AAA/Others: A series of reports on various aspects of decentralization in the Philippines and its effectiveness under the current design of intergovernmental arrangements will be undertaken within a programmatic AAA. Programmatic AAA will also be undertaken on sector governance assessments . Analytical work will underpin the development of a country action plan for demand for good governance. Local government capacity strengthening will be supported through a TA focusing on support to LGUs for implementing difficult investments, (e.g., PPP), complex projects, and institutional reforms. Trust funds, including IDFs, currently support various LGU capacity strengthening activities, governance performance frameworks, and CSO/NGO effectiveness, and such support will continue.
Note: Support through multidonor trust funds and global funds such as GEF, PPIAF, Carbon Finance Funds, Cities Alliance, Water and Sanitation Program, Private Enterprise Partnership (IFC), and others is not necessarily all reflected in this annex.
Annex 7 Official Development Assistance (ODA) Programs in the Context of the CAS
1. This Annex provides an overview of major official development assistance (ODA) activities in the Philippines, organized according to the four strategic objectives and one cross-cutting theme of the CAS. The mapping was based on records of ODA programs from the National Economic and Development Authority (NEDA), as well as updates from the ODA agencies. The purpose of this Annex is to present an overview of the broad distribution of ODA activities along the CAS objectives and results areas to help indicate areas where there is potential for further Bank engagements, as well as where the role of the Bank Group needs to be delineated against that of other ODA partners. 2. Based on NEDA figures as of December 2008, Japan provides the largest portion of ODA to the Philippines, accounting for approximately 43 percent of the total ODA net commitments of around US$9.7 billion. The Bank ranks second (tied with the Asian Development Bank) with a 16 percent share. Together, Japan, ADB and the World Bank Group provide an estimated 75 percent of all ODA to the Philippines. China, which is ranked fourth, accounts for 11 percent of the total ODA. The remaining 14 percent is comprised of ODA from other agencies, mostly bilateral organizations which provide grants to the national government, local governments, communities, and/or to NGOs under their respective programs/strategies. 3. It should be noted that the mapping presented in this Annex may not capture activities of development partners which have smaller programs in the Philippines. In addition, many development partners participate in the policy dialogue under the Philippines Development Forum (PDF), which may not be captured in specific programs or projects reflected in the matrix (see Attachment 1). Thus, it should be stressed that this write-up is not necessarily a comprehensive picture of all the development partners active in the Philippines, nor of the areas of involvement of the development partners. Strategic Objective 1: Stable Macroeconomy 4. The ADB, Australia, Japan, Sweden and the USA are the major development partners with strategies/thrusts that directly support macroeconomic stability through technical cooperation, grants, project loans, and/or policy-based program loans that relate to tax revenues, tax administration, tax policies, finance and public expenditure management, and management of fiscal and financial sector risks. ADB-financed Development Policy Support Programs (DPSP) and TA projects support policy reforms related to, among others, revenue administration, macroeconomic management, and public expenditure issues. Japan, through its Japan International Cooperation Agency (JICA), has recently committed to co-finance the ADB-financed DPSP. JICA also supports customs administration reforms at the Bureau of Customs. USA supports tax and customs administration reform, revenue forecasting, and budget oversight management. Sweden has a small grants program in support of tax policy and tax-related statistics work with the Bureau of Internal Revenue (BIR) which is coordinated under the same framework as the Bank-financed National Program Support for Tax Administration Reform. Australia has supported various relevant work under its Partnership for Economic Governance Reforms program, and has assisted the BIR in putting together the results framework for the Tax Administration Reform project, as well as provided capacity-building for the BIR. In addition, Australia has partnered with the World Bank Group on joint analytical work related to public expenditure management, an area with strong potential for continuing partnerships. The IMF is also involved in this strategic objective through its ongoing annual Article IV consultations, and it is
ODA Programs in the Context of the CAS
expected that the World Bank Group will coordinate with the IMF on financial sector assessments as well as on the policy advice and TA that the IMF provides to the Government on tax administration reforms and other related matters. Aside from partnerships on specific operations, the World Bank Group coordinates at the policy level with all the active players in this area through its co-chair role in the PDF Working Group on Fiscal and Economic Reforms. Strategic Objective 2: Improved Investment Climate 5. Given the broad coverage of the CAS results area of Enabling Business Environment to Promote Competitiveness, Productivity and Employment, this area has the biggest confluence of ODA programs. The programs which support this results area include those of ADB, Australia, China, France, Korea, Japan, and the UK which support relatively large infrastructure projects such as national roads/highways, railways, airports, fish ports, rural roads, bridges, irrigation, water supply and sanitation projects, power and rural electrification, including power sector reforms through a program loan by ADB. Additional bilateral support for infrastructure is coursed through global programs administered by the Bank, such as the Public-Private Infrastructure Advisory Facility which is a multi-donor technical assistance facility aimed at helping developing countries improve the quality of their infrastructure through private sector involvement, and (specifically for the water sector) the Water and Sanitation Program. The EC and Canada have trade facilitation and other trade-related assistance that support the countrys overall investment climate and competitiveness. Other partners, such as the USA and the UN, support activities that indirectly address productivity, livelihood, and competitiveness through various entry points such as support for agricultural productivity, youth employability, sustainable livelihoods, community enterprises, and other interventions mostly at the grassroots level. Canada and Australia have provided support to the World Bank Group through the IFCs Private Enterprise Partnership facility for small and medium enterprises (SMEs). The World Bank Group, including through, as well as jointly with IFC programs, seeks to increase private sector investments in infrastructure through actual investment operations, promotion of public-private partnerships, and support to SMEs and micro-enterprise growth. 6. On Financial Services, ADB is assisting in financial market regulation and intermediation through a program loan, as well as capacity building for housing micro-finance, while Spain and USA are supporting micro-enterprise development through various types of projects. Germany is supporting various credit lines to private financial institutions for the SME sector, as well as onlending through government financial institutions to local governments for local infrastructure needs. . All these related programs to improve the investment climate are being coordinated at the policy level through the PDF working groups on Growth and Investment Climate and on Infrastructure, which are co-chaired by the World Bank Group and by Japan respectively. Strategic Objective 3: Better Public Service Delivery 7. ADB, Australia, Canada, EC, Germany, Japan, Korea, New Zealand, Spain, UN, and the USA all have programs that focus on Public Service Delivery in Key Sectors specifically related to health, education, water and sanitation services. The ADB, Australia, EC, Germany and the USA have substantial programs in the health sector. The ADB, aside from technical assistance, is funding a health project which was recently restructured to support the same health sector reform agenda supported by the World Bank Group under the National Program Support for the Health Sector Reform Agenda. Australias investment in health is focused on maternal and child health, reproductive health and malaria prevention, delivered through partnerships with UN agencies. The EC is funding two ongoing trust funds administered by the World Bank Group to support implementation of health sector reforms in selected provinces, one specifically for Mindanao provinces. In the basic education sector, Australia is providing support to the Philippine Basic Education Reforms through a
jumbo trust fund administered by the World Bank Group as well as through projects to improve the quality of access to basic education in Mindanao and the Visayas, including specifically for Muslim education and disadvantaged groups. USAs assistance in education is aimed at increasing access to quality basic education for children. For both the health and education sectors, the World Bank Group is financing budget support-type operations within the framework of the Governments reform agendas for the sector. The other development partners mentioned above support a variety of interventions (loans, grants, analytical and advisory activities, and technical assistance/cooperation) to support access to basic services at the national and local government levels, and at the community levels. 8. In terms of the results area of Basic Service Delivery in Poor Areas, almost all partners are involved: ADB, Australia, Canada, the Czech Republic, EC, France, Germany, Japan, Spain, UN, and the USA. The programs include various forms of assistance targeted at poor communities/municipalities/cities/provinces/regions, including agrarian reform communities. Many of the programs/activities are directly related to addressing the MDGs, particularly on health, education and poverty levels. Programs in health and education (as well as social protection) are coordinated at the policy level through the PDF Working Group on MDGs and Social Progress, of which the Bank is an active member. The Banks major engagement in this results area is through support to the nationwide community-driven development project (KALAHI) which provides opportunities for closer partnerships in targeted communities, as well as in enhancing effectiveness of public service delivery through more coordinated area-based approaches. Strategic Objective 4: Reduced Vulnerabilities 9. The results area of Social Protection System is one where there are no other major ODA programs in place that directly address social protection systems, although Australia, EC, Germany, New Zealand, Spain, UN, and USA have various activities that support increased and more equitable access to basic social services by the poor and the vulnerable, as well as programs specifically targeted to vulnerable groups such as children, women, the poor, and indigenous peoples. In particular, the EC is supporting the Philippines Health Insurance Corporation to increase financial protection of the poor. In terms of analytical work, the ADB has an ongoing technical assistance for the assessment of poverty reduction which would be an important analytical tool for designing and targeting social protection systems. The Governments Conditional Cash Transfer (CCT) program is envisioned to serve as the framework for all ODA support to social protection. The upcoming World Banksupported Social Welfare and Development Reform Project is expected to be the major ODA program in the social protection area. In partnership with the Bank, Australia is providing technical assistance to strengthen the design of the CCT pilots targeting and other related operational mechanisms. 10. Relatively fewer partners have specific programs/thrusts relating to Disaster Risk Management -- Australia, Japan, EC, Spain, and the USA. Such projects include Australias support for geo-hazard mapping and building disaster risk management capacity in the Philippines; in addition, Australia is also supporting the Banks Global Fund for Disaster Risk Reduction. On the more general area of climate change and environment, ADB, Australia, Germany, Korea, Spain and the UN support specific programs that help address these issues including environmental programs, water resources or river basin management, and programs that address sustainable development and management of natural resources at the national, local and community levels. The EC is considering providing some support to climate change adaptation, and depending on the specific focus, this could be a potential area for partnership with the World Bank Group. The Netherlands is co-financing the Bank-supported Laguna de Bay institutional strengthening project. Various bilateral organizations are supporting climate change initiatives through multi-donor global programs such as the Global Environment Facility, the Global Climate Change Fund, and the Carbon Finance Funds
administered by the Bank and for which specific activities in the Philippines are ongoing and planned. The PDF Working Group on Sustainable Rural Development, of which the Bank is a member, facilitates the policy coordination for ODA-supported environmental programs/projects. 11. On Stability and Peace, Australia, Canada, EC, Germany, Japan, New Zealand, Spain, Sweden, UN and the USA have active programs that support the peace and development of Mindanao, as well as other interventions related to conflict-affected areas through community-driven development. Some of the support is provided through the multi-donor Mindanao Trust Fund administered by the World Bank Group (with contributions from Australia, Canada, EC, New Zealand, Sweden and the US), as well as through the development partners own programs. Assistance may be in the form of targeted programs for specific areas in Mindanao and/or for specific sectors in Mindanao. The range of programs include almost all types of interventions -- from large to small-scale infrastructure, from national government- to LGU- or community-based assistance, from sector-specific operations (e.g., health, education) to cross-sectoral operations, from livelihood to institution-building activities, and from post-conflict to peace and development interventions. The Bank plays an active role in coordinating ODA for Mindanao in partnership with the Government and other ODA partners as co-chair of the PDF Working Group on Mindanao, as well as through chairmanship of the steering committee for the Mindanao Trust Fund. Cross Cutting Theme: Good Governance 12. Under the cross-cutting theme of Good Governance, many development partners are involved but spread out across the three results areas. Under Governance and Anticorruption in Selected Agencies, ADB, Australia, Canada, Germany, Japan, Korea, and the USA are providing assistance to specific agencies. The ADB has a large Justice Sector Reform program loan, while Canada and the USA are providing support for other related interventions (mediation, alternative dispute resolution, legal education reform, etc.). Since a strong civil service has a positive impact on good governance, Japans support through JICA to the BIR in human resource development aspects and Koreas program for capacity building in policy development and public administration covering various agencies are mapped under the governance agenda. Australia is providing parallel support to the World Bank-supported Land Administration Project which has a strong governance aspect, and is supporting enhanced supervision of the World Bank-financed roads project. In addition, Australia is providing support for the design and pilot test of governance and anticorruption measures relating to the upcoming World Bank-supported Social Welfare and Development Reform Project, which would be a major program for which the anticorruption component would be key to success. Coordination of ODA programs/projects at the policy level is undertaken through the PDF Working Group on Governance and Anticorruption, of which the Bank is an active member. 13. On Procurement and Public Financial Management Reforms, ADB, Canada EC and Korea have limited, but strategic, involvement in the area. Canada will be supporting an ICT component of the Government Procurement Policy Board (GPPB) operations, while Australia and the EC are actively supporting PFM reforms through various grants. ADB has ongoing technical assistance to strengthen the Governments electronic procurement system, and a separate technical assistance to support the harmonization agenda which is primarily focused in this results area. Many other partners participate more actively in the policy dialogue through the sub-group on procurement co-chaired by the Bank under the PDF Governance and Anti-Corruption Working Group. 14. The results area of Better Local Governance Through More Effective Decentralization is another area where multiple partners are engaged, and the forms of engagement include technical assistance for local planning and expenditure management, local government financing, and budget reforms at the provincial and municipal levels. Active development partners here include ADB,
Australia, Austria, Canada, EC, Germany, Japan, New Zealand, Spain, UN and the USA. ADB has a program loan and technical assistance for local government financing, and budget reforms. Canada continues its long term assistance through its local governance support program currently in the Autonomous Region of Muslim Mindanao and for local economic development. Also, Canada and Spain are planning to provide funding for a Dialogue Fund, to be administered by the World Bank Group, to support the decentralization and local government agenda. The World Bank Group plays a key role in coordinating the dialogue on decentralization through its co-chairmanship of the PDF Working Group on Local Government and Decentralization. 15. The following matrix indicates the presence of ODA partners in each strategic objective and results area of the CAS. Overall, it will be noted that there are some results areas where there is a proliferation of ODA activities while in others there may be only a few. This could be due to the large financing requirements in one sector relative to others, as well as the availability of government financing and/or private sector assistance in some areas compared to others. Because of the varying degrees of detail available for each organizations programs (some have general strategic thrusts while others include details up to the activity level), the mapping does not differentiate on the levels of involvement of the various development partners, but should be able to give a snapshot of the presence of ODA in each strategic objective and results area.
Attachment 1: PHILIPPINES : PROGRAMS OF OTHER DEVELOPMENT PARTNERS (Mapped into the CAS Strategic Objectives and Results Areas) Overall Objective: Inclusive Growth Strategic Objective 1: Stable Macro Economy Fiscal and financial stability through consolidation and improved macroeconomic risk management Strategic Objective 2: Improved Investment Climate Enabling business environment to promote competitiveness, productivity and employment Financial services Strategic Objective 3: Better Public Service Delivery Public service delivery in key sectors Basic service delivery in poor areas Strategic Objective 4: Reduced Vulnerabilities Cross Cutting Theme: Good Governance Procurement and public financial management reforms at national and local levels Better local governance through more effective decentralization
x x x x x x x x x x x x x x x x x x
Stability and peace
ADB Australia Austria Canada China Czech Republic European Comm. France Germany IMF Japan Korea New Zealand Netherlands Spain Sweden UK UN Agencies
x x
x x x x x x
x x
x x x x
x x
x x
x x
x x x
x x x x x
x x x x
x x
x x x x x x x x
x x x x x
x x x x x x x
x x x x
x x USA x x x x x x x x Note: For some countries, the matrix may not reflect support provided through global programs such as the Public-Private Infrastructure Advisory Facility, Global Environment Facility, Water and Sanitation Program, Carbon Finance Funds, Cities Alliance Program, and others. Also, some entries are based on the development partners strategic areas in the Philippines and not necessarily on specific programs.
Governance and anticorruption in selected agencies

x x x x x x
Disaster risk management and climate change
Social protection system
Annex 8 World Bank Group-Managed Trust Funds in the Philippines

TF Number Trust Fund Closing FY US$ 000s BE/RE1
Strategic Objective 1: Stable Macro Economy 1.1 Fiscal and financial stability through consolidation and improved macroeconomic risk management TF056828 IDF - Strengthening of Revenue Administration and Collection FY10 250 Efficiency TF092308 IDF - Policy-Based Budgeting Medium-Term Framework FY12 300 Strategic Objective 2: Improved Investment Climate 2.1 Enabling business environment to promote competitiveness, productivity, and employment TF093078 EAIIG - National Roads Improvement and Management Program FY09 75 (NRIMP2) - Enhanced Supervision TF093078 EAIIG - PPP Support to Enhance the Capacity of the Toll FY10 200 Regulatory Board to be an Effective Regulator of Toll Facilities TF093318 PPIAF - Philippines: Lead Transaction Adviser for Cala Toll Road FY10 90 Supervision Budget TF057138 PHRD - Philippines - Public Private Participation in Transport FY10 1,000 Infrastructure TF092525 EAIIG - Philippines Agribusiness Value Chain, Logistics and FY10 300 Infrastructure Study TF052188 GEF FSP - Philippines: Rural Power Project FY10 9,000 TF093636 EAIIG - Philippines Electrification: Best Practices in FY10 90 Subtransmission Development TF053361/ GEF FSP - Philippines: Electric Cooperative System Loss Reduction FY12 12,877 TF053360 Project TF053607 IFC/Norway - Private Sector Participation Project in Provision of FY09 275 Power Supply to Rural Nongrid Areas TF053613 IFC/USA - Private Sector Participation Project in Provision of Power FY09 15 Supply to Rural Nongrid Areas TF092038 IFC/Spain TATF - Philippines Olongapo Power FY10 60 TF090729 IFC/USA - Doing Business Plus FY09 10 TF055841 IFC/CIDA/AusAID Private Enterprise Partnersip (PEP) FY10 10,000 Philippines 2.2 Financial services TF090611 PPIAF-SNTA - Credit Rating for Selected Cities FY09 390 TF090611 PPIAF-SNTA - Small Water Utilities Financing FY09 69 TF054893 IFC/Japan TATF Asian Commercial Bank Strengthening FY09 40 Financial Institutions in East Asia Strategic Objective 3: Better Public Service Delivery 3.1 Public service delivery in key sectors TF091695 AusAid TF for Support to Philippine Basic Education Reforms FY11 36,482 TF090182 EC TF for Health Sector Reform FY11 9,319 TF057794 PHRD - Local Government Support for Regional Water Supply FY09 1,000 Project TF093730 EAIIG - Concessional Financing Facility for Water and Sanitation FY09 185 Service Providers TF092713 PPIAF - Philippines: Metro Iloilo Water District Options Study FY10 245 TF055264 IFC/France TATF - Private Sector Participation in the Water Sector FY09 43 in the Philippines TF055295 IFC/USA TATF - Private Sector Participation in the Water Sector in FY09 12 the Philippines TF057488 WSP - Program for Sustainable Sanitation Philippines Component FY11 1,566 TF057296 GEF FSP - Manila Third Sewerage Project FY13 5,000
RE RE
BE BE BE RE BE RE BE RE BE BE BE BE BE
BE BE BE
RE RE RE BE BE BE BE BE RE
BE: Bank Group (including IFC) Executed; RE: Recipient Executed
World Bank-Managed Trust Funds in the Philippines
Philippines FY10-12 CAS - Annex 8 Page 2 of 2 Closing FY FY09 FY12 US$ 000s 199 2,090 BE/RE1
TF Number
Trust Fund
3.2 Basic service delivery in poor areas TF056975 PHRD - Implementation- Philippines: KALAHI-CIDSS TF058161/ JSDF - Urban Partnership for Sustainable Upliftment, Renewal, TF058154 Governance and Empowerment (UPSURGE)
RE BE/RE
Strategic Objective 4: Reduced Vulnerabilities 4.1 Social protection system TF092347 DFSG - Philippines Country Study FY10 4.2 Disaster risk management system and climate change TF091357 Philippines: Country Environmental Analysis FY09 TF055016 Clean Development Mechanism TA for Philippines FY10 TF090241 GEF PDF B - Philippines: Preparation of Climate Change FY09 Adaptation Phase I Project TF091752 GFDRR - Philippines: Supporting Local Government Capacity to FY09 Manage Natural Disasters TF092836 NTFPSI- Climate Change in Coastal Areas FY12 TF052826 Dutch Cofinancing - Laguna De Bay Institutional Strengthening and FY10 Community Participation Project TF021931 OTF - Philippines ODS Phase Out Investment Project FY10 TF056617 Swedish Contribution to the Philippine National CFC Phase Out FY10 Plan TF092354 GEF PPG - Philippines: Grant for Preparation of Integrated FY10 Persistent Organic Pollutants Management (Dioxins and Furans, PCB and Contaminated Sites) Project TF092603 Philippines Disaster Risk Management Project FY10 TF054138 IFC Philippines Asian Conservation Company FY11 4.3 Stability and peace TF091787 Mindanao Regional Development in Conflict-Affected Areas FY09 Various TFs Mindanao Reconstruction and Development Program FY14 TF091669 GEF PPG - Philippines: Grant for Preparation of Mindanao Rural FY09 Development Project Phase II - Coastal and Marine Ecosystem Conservation Component TF092858 EAIIG - Rural Infrastructure Component of the Mindanao Rural FY10 Development Program Phase 2 Cross-Cutting Theme: Good Governance 5.1 Governance and anti-corruption in selected national government agencies TF056626 IDF - Philippines: Strengthening of Monitoring and Evaluation FY09 (M&E) Capacities in Agriculture TF090551 IDF - Strengthening the Institutional Effectiveness of the National FY10 Commission of Indigenous Peoples 5.2 Procurement and public financial management reforms at national and local levels TF057655 IDF - Philippines: Professionalization of Public Procurement FY10 Practitioners and Functions Project TF092211 IDF - Strengthening the Capacity of the Procurement Service in FY12 Implementing the Philippine Government Electronic Procurement System TF091036 FIRST - TA to Support Creation of Accounting Oversight Board FY10 TF092158 IDF - Strengthening the Capacity and Effectiveness of the FY12 Commission on Audit 5.3 Better local governance through effective decentralization TF092492 IDF - Philippines: Strengthening the Capacity of the Local FY12 Government Academy to Coordinate and Oversee Local Government Training and Capacity Building Project TF056159 JSDF - Philippines: NGO Sector Efficiency and Accountability to FY10 Strengthen Service Delivery to the Poor
50 78 406 283 1,000 330 5,000 30,000 291 240
BE BE BE RE BE/RE BE RE RE RE RE
75 1,600 300 4,540 135
BE BE BE RE
150
BE
300 170
RE RE
300 300
RE RE
245 300
BE RE
260
RE
361
RE
Annex 9 Philippines Harmonization Agenda

Procurement Reform 1. Procurement reform continues to be pursued by its champions in the Government since the passage of the Government Procurement Reform Act in January 2003. The commitment to sustaining progress in the pursuit of reform has been clearly demonstrated since the passage of the Procurement Law, and has benefited from the Banks continuing technical assistance and financial support. 2. The Government Procurement Policy Board (GPPB) has developed as an active, efficient and effective procurement policy oversight body. The GPPB has so far issued more than 70 rules that clarify and interpret provisions of the Procurement Law to aid implementation at the agency and local government levels. The Bank supported the creation of the GPPB and its early years of operation through a US$300,000 IDF grant that closed in 2005. 3. The Government has standardized and harmonized with ADB, JBIC and WBG procurement documents and forms, which are now being used in all ODA assisted projects. The Procurement Law requires the development of standardized procurement documents and forms. Moreover, the country is a signatory to the 2003 Paris Declaration for Aid Effectiveness that calls for harmonization and alignment to achieve better aid effectiveness, and has also endorsed the Accra Agenda for Action to further strengthen development effectiveness. The Government harmonized with the three development partners successively the Philippine Bidding Documents in August 2005 and the Generic Procurement Manuals in July 2007. With only a few differences with international procurement practice, as recorded in the 2007 CPAR, the countrys public procurement system can now be described as substantially aligned with international standards. In supporting the attainment of these initiatives, the Bank has provided Technical Assistance to the GPPB through an ASEM grant of US$796,000 that closed in 2007. 4. Efforts by the Government to improve transparency in procurement biddings include the operationalization of the central E-Government Procurement (e-GP) portal and participation of civil society observers in the bidding process. The Government operates a central e-GP portal, the Philippine Government Electronic Procurement System (PhilGEPS), for all procurement biddings. The World Bank and Asian Development Bank carried out an assessment of its acceptability for MDB-funded procurement in November 2006, leading to an agreement to modify five areas of the system to suit MDB Procurement Guidelines. The five changes were substantially completed. Six implementing agencies have conducted a pilot harmonization program of e-GP system application. The PhilGEPS provides, under its Phase 1, a centralized web portal for publication of notices, registration of suppliers, issuing procurement documents, and publication of contract awards. The Bank approved an IDF grant of about US$300,000 in 2008 to develop Phases 2 to 5 which will expand the capacity of the system to virtual store, e-payment, echarging of fees, and e-bidding. The law requires every bidding process to be observed by civil society representatives. While there is a challenge in sustaining this requirement of the law, there are CSOs that are committed. A JSDF was recently approved with a funding of about US$1 million to find ways of strengthening GPPB and the Transparency Accountability Network (TAN) towards providing appropriate incentives to the CSO observers in local and community procurement. 5. The GPPB, having a vital role in monitoring implementation of the procurement law, has also initiated moves to strengthen procurement monitoring and evaluation which significantly improve transparency in procurement activities. GPPB monitors procurement performance of
Philippines Harmonization Agenda
government agencies through three channels: (a) Online Monitoring and Evaluation System a selfmonitoring tool for agencies online at www.gppb.com to find out their level of compliance with the law; (b) Agency Compliance and Performance Indicator System, a set of indicators based on the OECD-DAC Baseline Indicator System, which assess the performance of an agency compared with a set of internationally accepted good procurement practices; and (c) e-procurement system, through PhilGEPS. In promoting transparency, PhilGEPS now posts procurement notices by more than 50 percent of all the agencies and local government units (excluding barangays or the lowest unit of government). More than 15 percent of them have started posting the award notices as well, including 90 percent of the GPPB member agencies. Most recently, the Transparency Accountability Network (TAN) developed a monitoring system that would encourage each agency to maintain good records management systems such that documents evidencing the procurement process will be available for scrutiny by the civil society members. The project is financed by a portion of the recently completed IDF grant on Strengthening Internal Audit Units. 6. Recognizing the importance of effectively enforcing the intent of the Procurement Law, the Bank and the Government supported programs to strengthen the procurement audit systems. The Banks IDF of US$300,000 which closed in June 2008, supported the Strengthening of Internal Audit Units toward Effective Procurement Monitoring and Enforcement. It was executed by the Presidential Anti-Graft Commission under the Office of the President. The IDF funded activities that produced: a mapping of the quality of existing internal audit units, a generic internal audit manual (GIAM), a certification study for government internal auditors, and a procurement record monitoring system from the perspective of CSO observers. The GIAM has been accepted by the Bank as substantially meeting international standards for the practice of internal auditing. Moreover, the Bank in its July 2008 letter informed the Government that the GIAM will be prescribed to agencies implementing Bank-assisted projects as part of project financial management arrangements, and as an anticorruption measure. A new IDF grant for the strengthening of Commission on Audit (COA) intends to provide financial resources for the development of a Procurement Audit Guide for COA auditors to provide guidance on audits appropriate for the new public procurement system. The grant is being executed by COA. 7. The Bank supported a capacity building program for marginalized communities and local government units to improve their know-how in correctly applying the Procurement Law in their bidding processes. The Procurement Law covers all units of government including local government units and communities or barangays. While officials and staff of national agencies have easy access to training, procurement practitioners in the LGUs and barangays have difficulty in availing good procurement training. Moreover, they have found it difficult to apply the Procurement Law correctly. To address this issue, and as agreed in the 2007 CPAR, a capacity building project involving marginalized communities and LGUs will be supported by the Bank. A JSDF grant of about US$1 million was recently approved to support the activities of the project. 8. Good fiduciary practices have now been increasingly linked with governance and anticorruption measures and have found their way to a number of strategies applied in various Bank-financed projects. Innovative anticorruption measures were included in the National Road Improvement Management Project (NRIMP) including the use of an independent procurement evaluator, civil society observers in bidding and contract implementation called the Road Watch, and the strengthening of internal audits. A Generic Internal Audit Manual with focus on procurement audit programs was completed in June 2008 and is now being used in the Departments of Public Works and Highways, Education, and Social Services. Project Appraisal Documents (PADs) include an annex on how to address the issue of governance and anticorruption and a governance and anticorruption team in the World Bank Office has been established. In the Department of Education, the Bank-financed Third Elementary Education and the National Program Support for Elementary Education have used CSOs as observers in the bidding process. Moreover, CSOs such as the G-Watch, Boys and Girls Scouts,
NAMFREL, and others, have participated in the Textbook Count ensuring that the books are delivered to schools. 9. The Government, together with the WBG, ADB, and JBIC, has raised the bar in achieving harmonization, standardization, simplification and alignment of procurement rules and procedures through the recent move of revising the existing Implementing Rules and Regulations (IRR) of Republic Act (RA) 9184 with the view of having only one IRR instead of the previous two IRRs. In 2003 when the IRR of the law was first crafted, there were major differences between the legislative framers of the law and the development partners funding foreign assisted projects, such as the ADB, JBIC and WBG. The IRR, which is supposed to cover all types of procurement regardless of funding source, ended up as an IRR-A covering only domestically funded projects, with foreign assisted project procurement to be covered by an IRR-B, which has not yet been formulated. From 2003 to 2008, procurement reform made significant progress towards greater standardization, simplification, harmonization, and alignment. In the April 2008 Philippine Development Forum, the Government and the development partners agreed to formulate the IRR-B for foreign-funded projects. The preparation of IRR-B promoted greater harmonization, simplification of rules, rendering the IRR-A obsolete and therefore needing major revisions. As such, the GPPB decided to consolidate the two sets of IRRs for foreign and locally funded projects into a single IRR which it intends to adopt formally during the next PDF meeting in April 2009. 10. To ensure that the civil service has the capacity to deliver under the new public procurement system, the law mandated the professionalization of the procurement function. The GPPB, through the support of an ongoing IDF grant of US$300,000, has contracted the Asian Institute of Management to develop the modules for a certification program for procurement practitioners. These modular training programs are expected to be offered by accredited learning institutions leading to certification as procurement professionals. The parameters of the certification program have been agreed with the Civil Service Commission and discussions are underway on the establishment of objective qualification standards for procurement positions in government. Once these standards have been established and adopted by the Civil Service Commission, only certified procurement practitioners will be eligible for government procurement positions. 11. The Bank has nominated the Philippines as a candidate in the Piloting Program on the Use of Country System given the Governments proven commitment to procurement reform and the demonstrated successes achieved so far. With proven government commitment to reform, and demonstrated successes in harmonization and alignment, substantial use of country systems has been accepted by development partners in the procurement arrangements of projects financed by them. Only a few differences with international procurement practice were recorded in the 2007 CPAR. The country has also scored well in the OECD-DAC Baseline Indicator System. Thus, the countrys public procurement system can be described as substantially aligned with international standards for the use of National Competitive Bidding method. The Bank, in December 2008, nominated the Philippines as a candidate for the Piloting Program on the Use of Country System (UCS). The UCS intends to cover the procedures for International Competitive Bidding. Financial Management and Public Expenditure Management 12. Recent changes in Bank policies have enabled the Bank to place greater reliance on countries financial management systems, including budgeting, financial reporting, and external auditing. The Bank has issued guidelines that strongly encourage the use of country systems in the public financial management (PFM) area when circumstances permit. Indeed, the default position in Bank-financed operations is to use existing PFM institutional frameworks unless the country context
requires the use of special-purpose implementing entities or particular capacity-strengthening measures. The Banks reliance on country systems in the Philippines has been focused on financial management. 13. The Banks own Public Expenditure and Financial Accountability (PEFA) assessment report (2008) provides a comprehensive diagnostic overview of the full PFM cycle and other key dimensions. The PEFA report identifies the following areas of relative strengths in the Philippines PFM system: (i) a reasonably comprehensive budget (i.e., limited extra-budgetary operations or unreported government operations); (ii) an incipient effort to introduce a medium-term expenditure framework into the annual budget process; (iii) a strengthened procurement legal framework and a credible program of reform implementation; and (iv) comprehensive annual audit practices, although legislative oversight and follow-up of audit findings are weak. 14. There is, however, room for improvement, and in recent years, the Government has been implementing several reform programs to strengthen various aspects of PFM. Aspects of the PFM covered in these efforts range from budget formulation (e.g., introduction of a medium-term expenditure framework as part of the annual budget process) to accounting (e.g., adoption of the New Government Accounting System, or NGAS) and auditing (e.g., use of a risk-based approach to audit selection). A dialogue has been initiated with the authorities to strengthen financial reporting requirements and effective oversight function (external and internal auditing). Other areas still require attention. One in particular relates to an integrated financial management and information system (IFMIS). To improve on the somewhat piecemeal approach to PFM reforms, the Bank and several development partners active in this area are offering support to the Government to develop a comprehensive medium-term PFM reform strategy, based on the PEFA findings and other diagnostic inputs. 15. PEFA assessments and other PFM diagnostics have revealed the need for strengthening the Commission on Audit (COA). The Bank is providing technical assistance to support COA in its efforts in reviewing and modernizing audit approaches to improve the effectiveness and efficiency of COA in the audit of government revenues and expenditures through the development and adoption of a results-based integrated audit methodology that will focus on the outputs and outcome of public expenditures, using a risk-based audit approach. 16. In 2006, the Bank, through the Accounting and Auditing Report on the Observance of Standards and Codes (ROSC), reviewed the Philippines private sector accounting and auditing practices with an emphasis on compliance with international standards and codes. An action plan to improve corporate financial reporting practices in the Philippines was developed and adopted by the key players in the Philippines corporate financial reporting architecture. The Bank, through the Financial Sector Reform and Strengthening Initiative (FIRST), is providing technical assistance toward organizing preparatory activities that will build institutional capacity and strengthen the corporate accounting and auditing practices of the Philippines. The activities supported are expected to lead to the development of a regulatory framework of accounting and auditing in line with international good practices. These improvements will contribute to financial and private sector development in the Philippines and are fully consistent with the Philippines current initiatives on accelerating private-sector led-growth. 17. The Bank will also address fiduciary risk through a multi-year program of fiduciary analytical work aimed at strengthening the policy dialogue in financial management and procurement (particularly at the sub-national level) and raising general awareness. This program will consist of (i) a national level CFAA update; (ii) a sub-national level financial management and procurement ESW; and (iii) policy notes on specific areas of interest to the Government. These analytical products will be conducted in close coordination with all relevant sectors. The main emphasis of the CFAA update will be the assessment of the control environment, aid management, and the budget process. Specific analytic work to provide a more systematic assessment of financial management risks at the sub-
national level is planned for FY 2009/2010. This will aim to design relevant indicators and measure fiduciary performance at the sub-national level. The Bank will conduct the sub-national ESW jointly with the Government and other development partners. Safeguards 18. The Bank has been conducting regular Safeguards Fora for Bank-assisted projects with implementing agencies, safeguard oversight agencies as well as other stakeholders. These fora aim to present and share good practice examples, identify and address common and systemic issues and develop a network of safeguards practitioners with the ultimate objective of developing capacity, and improving outcomes and sustainability. Through these fora, safeguards instruments, e.g., use of frameworks and guidelines, and processes for community driven development (CDD)-types of projects across the Bank portfolio have been harmonized. Increased project compliance on safeguard processes and requirements during implementation is also noted. 19. Following the issuance of Operational Policy 4.00 in 2005 on the piloting of the use of borrower systems for environmental and social safeguards, the Bank, in partnership with the Government and ADB, and in consultation with other bilaterals and stakeholders, conducted a diagnostic review of the countrys safeguard systems on environmental assessment (EA), indigenous peoples (IP), and involuntary resettlement (IR). The objectives of the review are to assess the strengths and weaknesses of the country systems vis--vis global principles and good practice in order to recommend measures to strengthen local capacity for implementing safeguards work and to identify areas where local policies, processes and practices could be harmonized with those of global principles and good practice. The review for EA and IP was completed in 2007 and for IR in 2008. 20. The results of the reviews indicated that the legal bases, policies, and institutional frameworks of the countrys EA and IP safeguard systems are strong and sound, but suffer from weak implementation due to capacity and financial constraints and overly bureaucratic procedures and processes. The countrys IR system, on one hand, has huge gaps with global principles and good practice. The Government has responded to some of the key recommendations through the issuance of administrative orders by the relevant agencies and through existing projects, for example, the NPSENRMP for EA, and the grant-funded TA for the National Commission on Indigenous Peoples for the IP. The Bank also continues to support the Governments efforts to adopt more uniform policies and practices for involuntary resettlement through its support and participation in the Governments Technical Working Group on Involuntary Resettlement. Gender 21. The National Economic and Development Authority (NEDA) and the National Commission on the Role of Filipino Women (NCRFW) have adopted the Harmonized Gender and Development Guidelines for Project Development, Implementation, Monitoring and Evaluation which was prepared in partnership with the ODA-GAD Network. The ODA-GAD Network, composed of more than 15 development partners, considers the Guidelines as a vital contribution to the process of gender mainstreaming. It provides for the integration of the GAD perspective in development planning processes and at various stages of the project cycle. 22. The Guidelines have been used by the NEDA and NCRFW to regularly assess the genderresponsiveness of all official development assistance (ODA) projects. The World Bank report of March 2008 showed that of 19 projects financed by the World Bank in the Philippines, 84 percent have been rated as either gender-responsive or gender-sensitive on both the project design and implementation aspects, with the remaining 16 percent rated as with promising GAD prospects. None of the projects
has been rated as gender-blind. Consequently, the GAD aspects of World Bank-supported projects, using the NEDA-NCRFW Guidelines, will be monitored as part of the supervision missions and safeguards fora. Mutual Accountability and Managing for Results 23. The Philippine Development Forum (PDF) has served as an effective mechanism for facilitating substantive policy dialogue on the countrys development agenda. The PDF has evolved from the Consultative Group to broaden representation at the annual meetings to include representatives from civil society, academe, private sector and the legislature. 24. Aside from the annual PDF event, working group meetings are held around thematic areas - MDGs and social progress; growth and investment climate; economic and fiscal reforms; governance and anticorruption; decentralization and local government; sustainable rural development; and Mindanao throughout the year to follow through on issues and agreements reached and facilitate consultations across a broad range of stakeholders. Each working group is convened by the head of the relevant government agency and a development partner as co-convenor. Key initiatives and achievements of the Working Group on Decentralization and Local Government, which is one of the active PDF Working Groups, are discussed in the section below. 25. NEDA has been leading the conduct of joint ODA portfolio reviews among government implementing and oversight agencies and the Philippines major development partners ADB, JBIC and the Bank. It prepares an annual report to the legislature on the performance of the ODA portfolio. Local Governments and Decentralization 26. The establishment of the Working Group on Decentralization and Local Government under the Philippine Development Forum has led to better harmonization of development partners efforts. The Working Group is convened by the Department of Interior and Local Government and coconvened by the WBG and has membership from various international development agencies and government agencies. The working group has a website, which provides a good sense of the kind of activities that have been undertaken to harmonize activities/approaches, etc. The Working Group is currently addressing the issue of establishment of a multi-donor trust fund to support its activities. 27. The Working Group focuses on four themes: local government finance (accelerating revenue mobilization and improving LGU access to financing, and better expenditure management), capacity building (improving delivery of training to LGUs, national oversight agencies and other agencies), performance benchmarking (improving the integrity and credibility of monitoring systems), and policy reforms on devolution. Key achievements include improved information sharing between the BIR and the LGUs through Executive Order 646: Accessibility of Information on Taxpayers between the Bureau of Internal Revenue and the Local Government Units for Tax Collection Purposes signed by the President in August 2007; integrating the financial monitoring indicators with a broader performance monitoring system; identifying measures to improve the integrity and quality of data collection at the LGU level; and enhancing the capacity of the DILG and the DOF-BLGF to maintain the performance systems. 28. Most recently, the Working Group supported an effort by the four oversight agencies to harmonize local planning, budgeting, and revenue mobilization manuals; and jointly disseminate, train and brief local governments on the harmonized system. Efforts are currently focused on streamlining and synchronizing duplications and contradictions in training programs for local governments offered by various agencies and supported by international development agencies.
Annex 10 Country Financing Parameters for the Philippines

(January, 2005) The country financing parameters for the Philippines below have been approved by the Regional Vice President, East Asia and Pacific Region.
Item Cost sharing Limit on the proportion of individual project costs that the Bank may finance.
Parameter Up to 100 percent
Remarks / Explanation The Banks overall financing share is not expected to change significantly in aggregate level, with expected increase in sector-wide assistance (in which the Banks financing share is typically low). Projects implemented by local governments will likely include some counterpart funding. For projects implemented by government-owned corporations, evidence of ownership and commitment would be assessed, taking account of budget and planning processes and project cost sharing. One hundred percent Bank financing could be provided for some projects and activities with strong evidence of ownership and commitment.
Recurrent cost financing Any limits that would apply to the overall amount of recurrent expenditures that the Bank may finance.
No country limit, but strong emphasis on arrangements to ensure sustainability
Integration of Bank financing in the budget process ensures that increased recurrent cost financing would not jeopardize overall debt and fiscal sustainability. The Bank will continue to monitor the overall fiscal situation and its implications for recurrent cost financing. At the project level, recurrent cost financing could be considered if consistent with project objectives, provided there is strong demonstration of arrangements to ensure sustainability after Bank financing ceases.
Country Financing Parameters
Item Local cost financing Are the requirements for Bank financing of local expenditures met, namely that: (i) financing requirements for the countrys development program would exceed the public sectors own resources (e.g., from taxation and other revenues) and expected domestic borrowing; and (ii) the financing of foreign expenditures alone would not enable the Bank to assist in the financing of individual projects.
Parameter Yes
Remarks / Explanation The two requirements for Bank local cost financing are met. Therefore the Bank may finance local costs in the proportions needed in individual projects.
Taxes and duties Are there any taxes and duties that the Bank would not finance?
None
Taxes and duties are considered reasonable. At the project level, the Bank would consider whether taxes and duties constitute an excessively high share of projects costs. The Bank would monitor local taxes for possible distortions and that these maintain consistent acceptable practices.
Country At-A-Glance
Annex A2 Page 1 of 3
Note: Data used in the main text and annexes may differ as they also draw on latest government and Bank staff estimates.
Country At-A-Glance
Country At-A-Glance
Annex B2 Page 1 of 1
Philippines Selected Indicators* of Bank Portfolio Performance and Management As of March 17, 2009
Indicator Portfolio Assessment Number of Projects Under Implementation a Average Implementation Period (years) b Percent of Problem Projects by Number a, c Percent of Problem Projects by Amount a, c Percent of Projects at Risk by Number a, d Percent of Projects at Risk by Amount a, d Disbursement Ratio (%) e Portfolio Management CPPR during the year (yes/no) Supervision Resources (total US$) Average Supervision (US$/project) FY06 23 4.3 13.0 6.6 13.0 6.6 21.1 yes 1,498 65 FY07 23 4.0 13.0 6.6 13.0 6.6 15.2 yes 1,569 63 FY08 24 4.3 16.7 7.8 16.7 7.8 20.1 yes 1,681 76 FY09 23 4.9 23.8 9.2 28.6 13.6 10.0
Memorandum Item Proj Eval by OED by Number Proj Eval by OED by Amt (US$ millions) % of OED Projects Rated U or HU by Number % of OED Projects Rated U or HU by Amount
Since FY80 140 8,922.8 28.1 29.3
Last Five FYs 10 617.7 0.0 0.0
a. As shown in the Annual Report on Portfolio Performance (except for current FY). Includes GEF-funded projects. b. Average age of projects in the Bank's country portfolio. c. Percent of projects rated U or HU on development objectives (DO) and/or implementation progress (IP). d. As defined under the Portfolio Improvement Program. e. Ratio of disbursements during the year to the undisbursed balance of the Bank's portfolio at the beginning of the year: Investment projects only. * All indicators are for projects active in the Portfolio, with the exception of Disbursement Ratio, which includes all active projects as well as projects which exited during the fiscal year.
Philippines IFC Investment Operations Program
2006 Commitments (US$m) Gross Net**
2007
2008
2009*
0.69 0.69
130.18 130.18
564.32 564.32
183.50 183.50
Net Commitments by Sector (%) Utilities Transportation and Warehousing Finance & Insurance Health Care Total
0.00 0.00 100.00 0.00 100
61.46 38.54 0.00 0.00 100
67.34 0.00 27.17 5.49 100
100.00 0.00 0.00 0.00 100
Net Commitments by Investment Instrument (%) Equity 23.92 38.41 Loan 76.08 61.59 Quasi loan 100.00 100 Total
3.92 66.63 29.45 100
91.83 8.17 100
* As of March 31, 2009 ** IFC's Own Account only
Philippines IBRD Indicative Financing Program, FY10-12 (US$ million)

Product Title 2010 Strategic Objective 1: Stable Macro Economy RA 1.1: Fiscal and financial stability through consolidation and improved macroeconomic risk management Development Policy Loan (DPL) Development Policy Loan (DPL) Deferred Drawdown Option (DDO) TOTAL FOR SO 1 Strategic Objective 2: Improved Investment Climate RA 2.1: Enabling business environment to promote competitiveness, productivity and employment Light Rail Transit 1 South Extension Public-Private Partnership (LRT-PPP) Tollway-PPP (Cavite-Laguna) Urban Transport (Metro Manila and other cities) Secondary/Local Roads Rural Power Adaptable Program Loan 2 (APL 2) Agriculture and Agribusiness Support Mindanao Development Urban Renewal (Metro Manila Cities) Sub-National Water Public-Private Partnership (with IFC) Participatory Irrigation Development Project (PIDP) FY09 [$70m] RA 2.2: Financial services Sub-National Finance (SSLDIP2 or DBP3-Regional Infrastructure for Growth) Sub-Sovereign Financing Facility (with IFC) TOTAL FOR SO 2 Strategic Objective 3: Better Public Service Delivery RA 3.1: Public service delivery in key sectors National Program Support for Education National Program Support for Health RA 3.2: Basic service delivery in poor areas National Program Support for CDD TOTAL FOR SO 3 Strategic Objective 4: Reduced Vulnerabilities RA 4.1: Social protection system Social Welfare and Development Reform (SWDR) - Conditional Cash Transfers (CCT) FY09 [$405m] RA 4.2: Disaster risk management and climate change Water Quality Management Disaster Risk Management (DRM) Financing [including Catastrophe Deferred Drawdown Option (CAT DDO)] RA 4.3: Stability and peace Fund for Peace and Development TOTAL FOR SO 4 Strategic Objective 5: Good Governance RA 5.1: Governance and anticorruption in selected agencies Judicial Reform 2 RA 5.2: Procurement and public financial management reforms at national and local levels Government Integrated Financial Management Information System (GIFMIS) RA 5.3: Better local governance through more effective decentralization Local Government Unit Performance Grants/Capacity Building for Local Government TOTAL FOR SO 5 TOTAL FOR LENDING Fiscal Year 2011 2012
250 [250] 250 -500
x x
260 x x x x x x x x
x 260 x x
x x x x
x x
x x
x 50 50 560 810
x 700 1,000
x 800 1,100
Philippines IBRD Indicative Financing Program, FY10-12
NOTES: 1. Additional Financing (AF) operations are not included in the table, but it should be noted that the following are planned for FY09/FY10: 2. Rural Power Project (US$40m), supporting RA 2.1 Agrarian Reform Communities Development Project (US$10m), supporting RA 2.2 Judicial Reform Support Project (US$20m), supporting RA 5.1 KALAHI Project (US$70m), supporting RA 3.2
There are six large trust funds (over US$5m each) currently planned for FY10 under the Global Environment Facility (GEF) which all support RA 4.2, and a grant-funded Output-Based Aid for Urban Services supporting RA 3.2. All of these trust-funded activities would be monitored as part of the portfolio.
Philippines Indicative Analytical and Advisory Activities Program, FY10-12 *

Product Title 2010 Strategic Objective 1: Stable Macro Economy RA 1.1: Fiscal and financial stability through consolidation and improved macroeconomic risk management Philippines Development Report Quarterly Economic Update Programmatic AAA on Public Expenditure Issues Development of the Philippine Statistical Development Plan (including grant to improve quality and usefulness of Philippine household surveys) IFC Advisory Services on crisis/insolvency management Strategic Objective 2: Improved Investment Climate RA 2.1: Enabling business environment to promote competitiveness, productivity and employment Trade Facilitation/Transport/Logistics Investment Climate for the Poor (with IFC) AAA on Energy Sector Reform TA on PPP Regulatory and Policy Support (IFC and PPIAF) AAA on Environmental Safeguards (including Environmental Assessments) Agricultural Productivity Growth Urban Strategy (including resettlement issues) RA 2.2: Financial services Financing Innovation Facility (with IFC) Strategic Objective 3: Better Public Service Delivery RA 3.1: Public service delivery in key sectors Programmatic AAA for Health Programmatic AAA for Education Programmatic AAA for Water Supply and Sanitation Support (including Water Pollution Control) RA 3.2: Basic service delivery in poor areas AAA on Indigenous Peoples and Vulnerable Groups Philippines Population Report Synergies for Service Delivery (CCT, CDD, NPS) Strategic Objective 4: Reduced Vulnerabilities RA 4.1: Social protection system Programmatic AAA for Social Protection and Poverty Reduction RA 4.2: Disaster risk management and climate change Programmatic AAA for Disaster Risk Management (DRM), including Climate Change Issues RA 4.3: Stability and peace Encouraging More Resilient Communities in Conflict-Affected Areas (SPF) Strategic Objective 5: Good Governance RA 5.1: Governance and anticorruption in selected agencies TA for Agency Institutional Strengthening Programmatic AAA on Sector Governance Assessments (for various sectors/SOs) RA 5.2: Procurement and public financial management reforms at national and local levels Support for Procurement Reforms (including update of CPAR and study of ABC effectiveness) PFM AAA (GIFMIS, DBM, BTr, Budget Watch) RA 5.3: Better local governance through more effective decentralization Programmatic AAA on Decentralization (e.g., revenue mobilization) Cross-Cutting AAA: Briefing Notes for the Incoming Administration Innovation Notes
* For a list of major recent AAA products, please see Annex 3, Appendix 2.
Fiscal Year 2011 2012
x x x x
x x x x
x x x
x x x x x x x x x x
x x x
x x x
x x x
x x x
x x x
x x x
x x x
x x
x x x x x x x
Note: Data used in the main text and annexes may differ as they also draw on latest government and Bank staff estimates.
Philippines Key Economic Indicators

Indicator 2004 National accounts (as % of GDP) Gross domestic producta 100.0 Agriculture 15.1 Industry 31.7 Services 53.2 Total Consumption 86.9 Gross domestic fixed investment 16.1 Government investment 2.6 Private investment 13.5 Exports (GNFS)b 49.3 Imports (GNFS) 57.9 Gross domestic savings 13.1 Gross national savingsc 18.6 Memorandum items Gross domestic product (US$ million at current prices) GNI per capita (US$, Atlas method) Actual 2005 2006 2007 2008 2009 Projected 2010 2011 2012
100.0 14.3 31.9 53.8 89.6 14.4 2.3 12.1 45.4 54.6 10.4 16.6
100.0 14.1 31.7 54.2 86.2 14.0 2.2 11.8 45.1 50.7 13.8 19.0
100.0 14.1 31.7 54.2 84.3 14.8 2.6 12.2 40.1 45.0 15.7 19.7
100.0 14.7 31.6 53.7 84.9 14.8 2.6 12.2 34.2 40.1 15.1 17.7
100.0 14.8 31.9 53.3 84.3 14.7 2.7 12.0 31.7 38.5 15.7 16.9
100.0 14.8 31.7 53.5 84.4 14.9 2.7 12.2 31.5 38.6 15.6 16.4
100.0 14.5 31.3 54.2 84.3 15.3 2.7 12.6 31.4 38.8 15.7 16.6
100.0 14.2 31.1 54.7 84.4 15.6 2.8 12.8 31.6 39.4 15.6 16.7
86,930
98,824
117,566
144,062
168,580
161,289
167,365
177,541
189,311
1,180
1,270
1,390
1,620
1,670
1,780
1,840
1,860
1,950
Real annual growth rates (%, calculated from 85 prices) Gross domestic product at market prices 6.4 5.0 5.4 Gross Domestic Income 4.8 3.0 3.5
7.2 3.4
4.6 -2.6
1.9 3.8
2.8 3.5
4.0 4.9
4.5 5.2
Real annual per capita growth rates (%, calculated from 85 prices) Gross domestic product at market prices 4.2 2.8 3.3 5.2 Total Consumption -0.3 4.5 -2.8 -1.7 Private Consumption -0.3 4.8 -3.6 -2.4 Balance of Payments (US$ millions) 42,837 44,788 Exports (GNFS)b Merchandise FOB Imports (GNFS)
b
2.1 1.1 0.5
0.2 2.1 2.6
1.2 1.8 1.7
2.4 3.1 3.2
2.9 3.7 3.8
52,970 46,526 59,565 53,258 (6,595) 13,197 5,297 2,818 (2,621) (17) (2,604)
57,769 49,321 64,928 57,557 (7,159) 13,977 6,351 (514) 2,664 266 2,398
57,690 47,891 67,526 58,681 (9,836) 15,891 4,111 1,000 1,022 799 223
51,159 41,617 62,148 52,813 (10,989) 15,573 3,190 100 1,062 913 149
52,713 42,443 64,655 54,426 (11,942) 15,885 2,203 500 (978) 443 (1,421)
55,668 44,562 68,847 57,692 (13,179) 16,679 1,869 1,000 54 113 (59)
59,836 47,770 74,610 62,196 (14,774) 18,013 1,701 1,500 1,647 333 1,313
38,794 50,298 44,478 (7,461) 9,160 1,626 109 (562) (522) (40)
40,263 53,901 48,036 (9,113) 11,391 1,984 1,665 (488) (643) 155
Merchandise FOB Resource balance Net current transfers Current account balance Net private foreign direct investment Long-term loans (net) Official Private
Philippines Key Economic Indicators
Annex B6 Page 2 of 2 Actual 2005 2006 (751) (2,410) (1,725) (3,769) Projected 2010 (1,551) (174)
Indicator Other capital (net, incl. errors & ommissions) Change in reservesd
2004 (1,453) 280
2007 75 (8,576)
2008 (2,796) (3,337)
2009 (4,005) (347)
2011 (2,412) (512)
2012 (4,324) (524)
Memorandum items Resource balance (% of GDP) -8.6 Real annual growth rates (YR85 prices) Merchandise exports .. (FOB) Primary .. Manufactures .. Merchandise imports .. (CIF)
-9.2
-5.6
-5.0
-5.8
-6.8
-7.1
-7.4
-7.8
.. .. .. ..
.. .. .. ..
.. .. .. ..
.. .. .. ..
.. .. .. ..
.. .. .. ..
.. .. .. ..
.. .. .. ..
Public finance (as % of GDP at market prices)e Current revenues 14.5 14.9 Current expenditures 15.5 15.3 Current account surplus (+) or deficit (-) -1.0 -0.3 Capital expenditure 2.8 2.4 Foreign financing 1.7 1.7 Monetary indicators M2/GDP Growth of M2 (%) Private sector credit growth / total credit growth (%) Price indices (YR85 =100) Merchandise export price index Merchandise import price index Merchandise terms of trade index Real exchange rate (US$/LCU)f Consumer price index (% change) GDP deflator (% change)
16.1 15.0
15.7 14.5
16.0 14.3
15.0 14.5
15.0 14.5
15.0 14.4
15.2 14.4
1.2 2.3 2.0
1.3 2.8 0.8
1.7 2.6 0.8
0.5 2.7 1.3
0.5 2.8 0.5
0.6 2.8 0.0
0.8 2.8 0.6
38.6 9.4 55.0
37.7 9.0 31.5
41.5 21.9 64.6
41.6 10.5 47.8
40.0 8.5 78.2
40.0 6.5 2.7
40.8 9.1 30.5
41.7 10.4 40.4
42.6 11.0 49.1
.. .. ..
.. .. ..
.. .. ..
.. .. ..
.. .. ..
.. .. ..
.. .. ..
.. .. ..
.. .. ..
86.2 6.0 6.1
92.3 7.6 6.5
102.5 6.2 5.1
112.3 2.8 2.8
118.5 9.3 7.8
.. 4.5 4.5
.. 4.0 4.0
.. 4.0 4.0
.. 4.0 4.0
a. b. c. d. e. f.
GDP at market prices. GNFS denotes goods and nonfactor services. Includes net unrequited transfers excluding official capital grants. Includes use of IMF resources. Consolidated central government. LCU denotes local currency units. An increase in US$/LCU denotes appreciation.
Philippines Key Exposure Indicators

Actual Indicator (by calendar year) Total debt outstanding and disbursed (TDO) (US$m)
a
Estimated 2007 65,845 2008 67,327 2009 68,240 2010 67,412
Projected 2011 67,566 2012 69,363
2004 60,968
2005 61,658
2006 60,282
Net disbursements (US$m)a
315
123
(1,406)
2,818
1,522
912
(828)
154
1,797
Total debt service (TDS) (US$m)

a
11,478
9,962
13,699
10,480
10,084
10,078
12,345
11,264
10,008
Debt & debt service indicators (%) TDO/XGSb TDO/GDP TDS/XGS Concessional/TDO 110.5 70.1 20.8 23.5 103.8 62.4 16.8 20.4 86.4 51.3 19.6 20.7 86.0 45.7 13.7 20.0 86.3 39.9 12.9 18.1 95.7 42.3 14.1 18.7 92.3 40.3 16.9 19.3 88.0 38.1 14.7 19.4 84.3 36.6 12.2 19.2
IBRD exposure indicators (%) IBRD DS/public DS Preferred creditor DS/public DS (%)
c
6.7 18.6
8.2 20.3
5.9 16.7
10.4 17.7
13.9 25.1
10.3 19.9
7.5 16.3
7.0 16.9
9.2 23.1
IBRD DS/XGS IBRD TDO (US$m) IDA TDO (US$m)d

d
0.9 3,317 2.7 214
0.8 2,885 2.4 197
0.8 2,690 2.3 196
0.7 2,726 2.5 195
0.8 2,633 2.6 188
0.8 3,042 2.6 181
0.7 3,315 2.5 174
0.6 3,826 2.7 167
0.5 4,251 2.9 158
Share of IBRD portfolio (%)
IFC (US$m) Loans Equity and quasi-equity /c 281 153 342 119 286 121 271 140 578 319 613 384 750 464 908 539 1,077 619
MIGA MIGA guarantees (US$m) 112 92 68 5 0 0 .. .. ..
a. Includes public and publicly guaranteed debt, private nonguaranteed, use of IMF credits and net short-term capital. b. "XGS" denotes exports of goods and services, including workers' remittances. c. Preferred creditors are defined as IBRD, IDA, the regional multilateral development banks, the IMF, and the Bank for International Settlements. d. Includes present value of guarantees. e. Includes equity and quasi-equity types of both loan and equity instruments.
Philippines Operations Portfolio (IBRD and Grants) As of 03/17/2009

Closed Projects 165 IBRD/IDA (US$m) Total Disbursed (Active) 395.35 Of which has been repaid 0.00 Total Disbursed (Closed) 9,740.62 Of which has been repaid 8,634.92 Total Disbursed (Active + Closed) 10,135.97 Of which has been repaid 8,634.92 Total Undisbursed (Active) 840.25 Total Undisbursed (Closed) 15.40 Total Undisbursed (Active + Closed) 855.66 Active Projects Last PSR Supervision Rating Project ID Project Name
Development
Original Amount in US$ Millions Fiscal Year 2007 2001 2004 2004 2004 2008 2003 2004 2005 2007 2006 2005 2006 2006 2005 2007 2003 1995 2003 2004 2007 2007 2004 IBRD 11.00 60.00 10.00 9.00 12.00 232.00 50.00 60.00 19.00 83.75 100.00 16.00 200.00 110.00 64.00 5.00 100.00 30.00 33.60 5.00 50.00 7.00 21.90 1,226.25
IDA
Objectives MS MS S S U S S MU MU S MS MS S S S S MS MS S S S S S
Implementation Progress
Grant
Cancel.
Undisb. 10.59 11.90 0.07 4.56 6.40 232.00 5.34 32.29 13.31 79.21 99.34 14.85 122.12 91.68 44.81 4.08 20.96 9.28 2.74 2.95 45.00 6.66 11.10 871.23
Difference between Expected and Actual Disbursements a/ Frm Orig. Rev'd 5.37 11.90 -4.21 1.56 6.15 5.34 24.79 5.21 12.71 -0.33 4.21 77.12 22.03 28.59 1.07 20.96 9.28 2.74 2.90 13.00 2.66 10.81 263.87 -10.14 11.90
Strategic Objective 1: Stable Macro Economy P101964 National Program Support (NPS) for Tax Administration Reform Strategic Objective 2: Improved Investment Climate P057731 Metro Manila Urban Transport Integration Project (MMURTRIP) P066397 Rural Power Project (RPP) P072096 GEF-Rural Power Project (RPP) P066532 GEF-Electric Cooperative System Loss Reduction Project P079935 National Roads Improvement Management Project 2 (NRIMP2) P071007 Second Agrarian Reform Communities Development (ARCDP2) P075184 Diversified Farm Income & Market Development (DFIMD) P073206 Land Administration and Management Project II (LAMP2) P084967 Mindanao Rural Development Project - Phase 2 (MRDP2) P064925 Support for Strategic Local Development and Investment Project (SSLDIP) Strategic Objective 3: Better Public Service Delivery P079628 Second Womens Health and Safe Motherhood Project (WHSMP) P094063 National Program Support (NPS) for Basic Education P075464 National Program Support (NPS) for Health Sector P079661 Manila Third Sewerage Project 3 (MTSP3) P089082 GEF- Supplemental Project to the MTSP3 P077012 Kapit Bisig Laban sa Kahirapan-Comprehensive and Integrated Delivery of Social Services (KALAHI-CIDSS) Project Strategic Objective 4: Reduced Vulnerability P004406 Ozone Depleting Substances (ODS) Investment Project P073488 Autonomous Region in Muslim Mindanao (ARMM) Social Fund P070899 Laguna De Bay Institutional Strengthening & Community Participation (LISCOP) P096174 NPS for Environment & Natural Resources Management Project (ENRMP) P091147 GEF- NPS for ENRMP Cross-cutting Theme: Good Governance P066076 Judicial Reform Support Project (JRSP) Overall Result
MU MS S S U S S MU MU S MS MU MS MS S S MS MS S MS MS MS S
3.72
0.37
63.00
5.85
a/
Intended disbursements to date minus actual disbursements to date as projected at appraisal.
Philippines IFC: Committed and Disbursed Outstanding Investment Portfolio As of 02/28/2009 (In US$ Millions)
Committed Disbursed Outstanding
FY Approval 1989/93 1993/01 1994 1993/94/95 1995 1995/98 1999 1999/00 2000 2001 2001/02/08 2002 2002/05 2002/03/08 2003/04/07 2005/06 2005 2005 2005 2006 2007/09 2007 2008 2008 2009
Company Hambrecht and Quist Philippine Ventures (H&Q PV) I Pilipinas Shell Hambrecht and Quist Philippine Ventures (H&Q PV) II Mindanao Power Walden Management Walden Ventures Hambrecht and Quist Philippine Ventures (H&Q PV) III Pryce Gases Mariwasa Plantersbank Asian Hospital Avalon Professional Web (APW) Trade Eastwood Banco de Oro (BDO) Manila Water Company Inc. (MWC) Balikatan Housing Finance (HF) Cagayan de Oro Power and Light Company (CEPALCO) Filinvest Land Paramount Life and General Holding Corporation (PLGHC) Bahay Financial Philippine National Oil Company-Energy Development Corporation (PNOC-EDC) South Luzon Tollway Corporation (SLTC) Masinloc Power SN Aboitiz Power, Inc (SNAP) SN Aboitiz Power, Inc. Benguet (SNAPB)
Loan 0 0 0 0 0 0 0 9.30 7.38 0 26.22 0 7.38 0 58.27 0 16.91 46.82 0 0 85.31 52.02 232.00 98.00 85.00
Equity 0.08 1.56 0.05 2.22 0.02 0.01 0.76 0 0 0.11 0 0 0 14.10 13.72 1.89 0 0 1.50 0.16 29.76 0 22.13 0 0
**Quasi Equity 0 0 0 0 0 0 0 3.39 0 0 1.00 0.28 0 140.45 0 38.71 0 0 0 0 0 0 13.77 0 15.00
*GT/R M 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
Participant 0 0 0 0 0 0 0 3.08 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
Loan 0 0 0 0 0 0 0 9.30 7.38 0 20.97 0 7.38 0 58.27 0 0 46.82 0 0 85.31 0 206.00 98.00 67.91
Equity 0.08 1.56 0.05 2.22 0.02 0.01 0.76 0 0 0.11 0 0 0 14.10 13.72 1.89 0 0 1.50 0.16 29.76 0 22.13 0 0
**Quasi Equity 0 0 0 0 0 0 0 3.39 0 0 1.00 0.28 0 83.23 0 36.59 0 0 0 0 0 0 13.77 0 15.00
*GT/RM 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
Participant 0 0 0 0 0 0 0 3.08 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
Total Portfolio: * Denotes Guarantee and Risk Management Products. ** Quasi Equity includes both loan and equity types.
724.61
88.07
212.60
3.08
607.34
88.07
153.26
3.08
MAP SECTION

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INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT

INTERNATIONAL FINANCE CORPORATION

MULTILATERAL INVESTMENT GUARANTEE AGENCY

Public Disclosure Authorized

COUNTRY ASSISTANCE STRATEGY FOR THE REPUBLIC OF THE PHILIPPINES

Public Disclosure Authorized

IFC Rashad-R. Kaldany Karin Finkelston Jesse Ang Magdi Amin

MIGA Izumi Kobayashi Frank Lysy Conor Healy

FY10-12 Country Assistance Strategy for the Philippines

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

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

FY10-12 Country Assistance Strategy for the Philippines

MAP OF THE PHILIPPINES (IBRD NO. 33466R3)

FY10-12 Country Assistance Strategy for the Philippines

FY10-12 Country Assistance Strategy for the Philippines

FY10-12 Country Assistance Strategy for the Philippines

II. PHILIPPINES CONTEXT AND DEVELOPMENT AGENDA

FY10-12 Country Assistance Strategy for the Philippines

FY10-12 Country Assistance Strategy for the Philippines

FY10-12 Country Assistance Strategy for the Philippines

FY10-12 Country Assistance Strategy for the Philippines

FY10-12 Country Assistance Strategy for the Philippines

70.0 60.0 50.0 40.0 30.0 20.0 10.0 0.0

Phi Off'l Thai Phil

FY10-12 Country Assistance Strategy for the Philippines

FY10-12 Country Assistance Strategy for the Philippines

World Bank 2000-2006 (2008)* * Fujii and Velarde (forthcoming)

Magnitude of poor population Poverty incidence of Population (%)

FY10-12 Country Assistance Strategy for the Philippines

FY10-12 Country Assistance Strategy for the Philippines

FY10-12 Country Assistance Strategy for the Philippines

FY10-12 Country Assistance Strategy for the Philippines

III. BANK GROUP ASSISTANCE STRATEGY FOR THE PHILIPPINES

FY10-12 Country Assistance Strategy for the Philippines

FY10-12 Country Assistance Strategy for the Philippines

FY10-12 Country Assistance Strategy for the Philippines

FY10-12 Country Assistance Strategy for the Philippines

Box 2. World Bank Groups Response to the Global Economic Crisis

FY10-12 Country Assistance Strategy for the Philippines

FY10-12 Country Assistance Strategy for the Philippines

Results Area and Outcomes

FY10-12 Country Assistance Strategy for the Philippines

FY10-12 Country Assistance Strategy for the Philippines

FY10-12 Country Assistance Strategy for the Philippines

FY10-12 Country Assistance Strategy for the Philippines

FY10-12 Country Assistance Strategy for the Philippines

FY10-12 Country Assistance Strategy for the Philippines

FY10-12 Country Assistance Strategy for the Philippines

FY10-12 Country Assistance Strategy for the Philippines

FY10-12 Country Assistance Strategy for the Philippines

Cross-Cutting Theme: Good Governance

See further analysis of governance challenges, opportunities and risks in Annex 2.

FY10-12 Country Assistance Strategy for the Philippines

FY10-12 Country Assistance Strategy for the Philippines

FY10-12 Country Assistance Strategy for the Philippines

FY10-12 Country Assistance Strategy for the Philippines

FY10-12 Country Assistance Strategy for the Philippines

FY10-12 Country Assistance Strategy for the Philippines

FY10-12 Country Assistance Strategy for the Philippines

FY10-12 Country Assistance Strategy for the Philippines

FY10-12 Country Assistance Strategy for the Philippines

FY10-12 Country Assistance Strategy for the Philippines