PROGRAM INFORMATION DOCUMENT (PID)
CONCEPT STAGE
Report No.: 97913
Operation Name
Region
Country
Sector (tentative)
Operation ID
Lending instrument
Borrower
Implementing agency
Date PID prepared
Estimated date of appraisal
Estimated date of board
approval
Concept review decision
Fourth Philippine Development Policy Loan for more
Inclusive Growth
East Asia and the Pacific
Philippines
General public administration sector (60 percent); Rural and
Inter-Urban Roads and Highways (10 percent);Health
(10%);General education sector (10 percent);General
agriculture, fishing and forestry sector (10 percent)
P155141
Development Policy Lending
Government of the Philippines
DOF, DBM, DPWH, DOT, DA, DTI, DSWD, DOH/PhilHealth,
DepEd
May 28, 2015
June 19, 2015
August 17, 2015
Following the corporate review, the decision was taken to
proceed with the preparation of the operation.
Other decision {Optional}
I.
Key development issues and rationale for Bank involvement
The Aquino Administration took office with a strong focus on governance. This was first
expressed in the president’s Social Contract with the Filipino people during the electoral
campaign. The Social Contract highlights better governance as a necessary condition to achieving
inclusive growth. Right from the start, the Aquino Administration embarked on a number of high
profile anti-corruption programs. The government’s economic program highlighted the challenge
of tackling the country’s longstanding economic underperformance, scaling up public
investments in ways that empowered the poor and the private sector, and above all striving to
create adequate opportunities for jobs and livelihoods at home.
Macroeconomic performance has been excellent, while high growth rates have recently begun
to become more inclusive. Starting 2013, economic growth translated into significantly stronger
job creation and faster poverty reduction. For instance, between January 2014 and 2015, more
than a million jobs were created as the unemployment rate fell to 6.6 percent, significantly lower
than the seven to eight percent recorded in the previous decade. The official poverty incidence
declined by three percentage points (ppt) between 2012 and 2013. The 2013 Annual Poverty
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Indicators Survey suggests that the real income of the bottom 20 percent grew much faster than
the rest of the population through substantial growth of domestic cash transfers, confirming that
the government’s conditional cash transfer program is well targeted and reaching the poor.
Moreover, underemployment among the poor significantly decreased in the same period.
However, in 2014, preliminary data showed an increase in poverty incidence by 0.9 ppt, which
was partly attributed to the effects of Typhoon Yolanda. Nevertheless, this data point does not
substantially change the more inclusive trend of economic growth recorded in recent years.
Improved disaster risk management is one of the reform areas supported by the proposed
operation. In recent years, Typhoons Ondoy (Ketsana), Pepeng (Parma), Sendong (Washi), and
Pablo (Bopha) have claimed over 3,000 lives, affected more than 10 million people, and caused
economic damage and losses amounting to approximately PHP 256 billion (USD 5.8 billion).
Typhoon Yolanda (Haiyan) in 2013 is considered to be the deadliest in Philippine history claiming
more than 6,000 lives, while injuring around 30,000 people. Yolanda cost the economy around
PHP 367 billion (USD 8.6 billion) in damages (3.1 percent of GDP) and is estimated to have
hampered economic growth by about 0.9 percentage points in 2013, and another 0.3 percentage
points in 2014.
This proposed operation builds on the reforms achieved by the previous DPL series. The first
operation with the current administration was approved in 2011 (DPL I) to support the
government’s good governance agenda and reforms to continue to strengthen macroeconomic
stability. DPL II in 2013 focused on deepening governance reforms and improving social service
delivery, primarily through larger budget allocation and better targeting. In November 2013,
Typhoon Yolanda struck the Philippines. The Bank provided supplemental financing under DPL II
to address the unanticipated 2014 financing gap due to the immense damage and casualty
caused by the typhoon which risked jeopardizing the government’s reform program. Finally, in
2014, as the Philippines recovered from Yolanda, DPL III was provided to help the government
strengthen implementation of reforms to support inclusive growth.
The macroeconomic policy framework is adequate and suitable for the purposes of this
operation. The Philippines continues to exhibit strong macroeconomic fundamentals
characterized by robust economic growth, low and stable inflation, healthy current account
surplus, and a falling debt burden. Globally this strong performance was recognized by all three
major credit rating agencies with sovereign credit rating upgrades to two notches above
investment grade and by a record USD 6 billion in foreign direct investment in 2014 (the highest
in decades). Backed by solid macroeconomic trends, the country now has room to focus on the
structural reforms which will sustain growth, create jobs, and reduce poverty.
II.
Proposed objective
This program proposes a single tranche stand-alone development policy loan (DPL IV) with
embedded catastrophe transaction to the Republic of the Philippines for USD 300 million. Its
objective is to sustain the momentum of the inclusive growth agenda of the Aquino
Administration by i) strengthening public investment delivery, ii) improving the investment
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climate by reducing the cost of doing business, iii) developing the human capital of the poor, iv)
strengthening fiscal transparency and good governance, v) enhancing fiscal management
through improved revenue mobilization, and vi) improving financial inclusion and resilience to
natural disaster. As this operation builds on and deepens the reforms supported in the previous
DPL series, it adopts its five pillars, while adding the sixth pillar that supports policy reforms to
increase the country’s resilience to natural disasters and complements the catastrophe
transaction. The proposed operation also incorporates lessons learned from the previous DPL
series in advancing the implementation of institutional reforms and seizing reform opportunities.
III.
Preliminary description
The prior actions of the proposed operation were selected to deepen reforms supported in the
previous DPL series and to help institutionalize them past the current administration. The
proposed operation builds on a comprehensive set of analytical underpinnings ranging from
technical assistance projects, economic and sector work, capacity building programs, as well as
lending operations.
Pillar I. Public investment delivery strengthened
Prior action 1. This prior action builds on the DPL III prior action on farm-to-market roads (FMRs)
by clarifying the roles and responsibilities of four national government agencies (i.e., DA, DBM,
DPWH, and DILG) with respect to the prioritization of FMRs through a memorandum of
agreement (MOA) scheduled to be signed in June 2015. The MOA prioritizes the construction and
maintenance of all FMR projects, both foreign-assisted and locally-funded, and implemented by
DA and other agencies such as DAR, DILG, and LGUs.
Prior action 2. This prior action deepens the initiation of geo-tagging and disclosure supported
under DPL III by institutionalizing this practice beginning in 2015 to support bottom-up feedback
from intended beneficiaries. Moreover, by using open government outlets, the prior action also
allows overlaying of the DA regular FMR program with both the Philippine Rural Development
Project (PRDP) FMR program and the Tourism Road Infrastructure Program (TRIP) to determine
how various road programs are inter-connected.
Pillar II. Investment climate improved by reducing the cost of doing business
Prior action 3 extends DPL III reforms in reducing the cost of doing business for sole proprietors
to corporations. It involves the signing of four landmark memoranda of agreement among nine
national government agencies and one local government, to streamline the steps in starting a
corporate business. If implemented fully, the number of days needed to start a business is
expected to fall from 34 to 8 and the number of steps from 16 to 6.
Prior action 4 complements the previous prior action by reducing business start-up cost at the
local level. Since July 1, 2014, 10 cities (mostly secondary and tertiary cities) passed executive
orders codifying reforms in simplifying their respective business permit licensing system. The
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reforms are expected to reduce the number of steps in registering a business to as few as two
steps and time needed to as quick as 35 minutes.
Pillar III. Human capital of the poor developed
Prior action 5. Under this prior action, the government undertakes the first update of the national
household targeting system for poverty reduction (NHTS-PR – Listahanan) covering about 15.3
million households by preparing for and launching the registration survey nationwide. To target
the poor accurately, Listahanan needs to be updated periodically. Current regulations stipulate
that the update is to be done every four years. The update was initially planned for 2014 but was
postponed to 2015 as the government needed to focus resources on mitigating the impact of
Typhoon Yolanda. DSWD has undertaken major preparatory steps for the Listahanan update.
Prior action 6. The action is supporting efforts to achieve universal health coverage (UHC) which
will allow everyone, irrespective of their ability-to-pay to get the health services they need
without suffering undue financial hardship. Achieving UHC depends both on demand-side
measures to remove financial barriers to accessing health care and supply-side investments to
ensure the availability of quality care. This prior action addresses the first challenge by expanding
PhilHealth primary care benefits to include services and medicines to address the prevention and
early treatment of the bulk of the health conditions accounting for a substantial burden of
disease in the country, including non-communicable diseases.
Pillar IV. Fiscal transparency and good governance strengthened
Prior action 7. Building on the launch of an open data portal that DPL III supported, this prior
action supports further openness and publication of data utilizing the OpenBUB platform. This is
expected to help ensure that all regional offices of national government agencies (NGAs) update
and publicly disclose the quarterly status of projects funded through the Bottom-up Budgeting
(BUB) Program to help strengthen accountability across all government levels.
Prior action 8. While the guidelines for electronic bidding (e-Bidding) were approved by the
Government Procurement Policy Board in July 2013, its effectiveness and implementation only
started in late 2014, with two pilot agencies, the Procurement Service for goods and the
Department of Public Works and Highways (DPWH) for works. The Procurement Service has
completed the procurement of four contracts using the e-Bidding guidelines and the functionality
of PhilGEPS. The DPWH will test the system in at least one contract by mid June 2015. Once pilottesting is completed by the Procurement Service and DPWH, the e-Bidding functionality will be
implemented nationwide.
Pillar V. Fiscal management enhanced through improved revenue mobilization
Prior action 9. This prior action builds on the sin tax reform that DPL III supported by helping to
ensure that potential revenue leakages from the illicit sales of cigarettes are mitigated through
the introduction by BIR of an internal revenue stamp with multi-layered security features that
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covers up to 80 percent of stock.1 This security feature is needed to ensure that higher excise tax
rates from the sin tax reform do not lead to more smuggling.
Prior action 10 supports the government’s move to expand the scope of taxpayers who are
mandated to file income tax returns electronically and use the e-forms to improve tax
administration. This reform is a step towards BIR’s goal of 100 percent electronic filing for all
taxpayers to capture data more efficiently, provide accurate statistics, improve filing efficiency,
increase filing channels to taxpayers, and maximize the use of new technologies.
Pillar VI. Financial inclusion and resilience to natural disasters enhanced
Prior action 11. Adoption of the National Strategy for Financial Inclusion (NSFI) provides an
organizing framework for implementing a number of reforms required to expand access to basic
financial services. It seeks to provide an enabling environment for market-based solutions that
would lead to broader access to responsive and responsible financial products and services by
all, particularly the unserved and underserved markets such as the low-income and marginalized
households, MSMEs, and the youth. Improving access to basic financial services for these
segments of the population would directly contribute to the achievement of the Bank’s twin goals
by facilitating access to finance and greater economic opportunities for bottom 40 percent and
reduce vulnerability of the poor to income shocks.
Prior action 12. The launch of the Credit Support Fund, is one of the actions set out in the Financial
Protection Strategy of the government. The Department of Finance developed a comprehensive
Disaster Risk Financing and Insurance Strategy which sets out to increase the resilience of the
country across three levels: i) national government, ii) local governments, and iii) the poor and
vulnerable households, and MSMEs. An associated action plan sets out next steps to implement
the strategy. The embedded catastrophe transaction implemented through this operation is also
a priority action identified in the strategy for the national level. This prior action, like the one
before, supports the government’s actions to protect the poor and vulnerable from the effects
of natural disasters and to increase financial inclusion.
The embedded catastrophe (CAT) risk transaction offers a financing innovation to provide
immediate budget support liquidity to the government in the case of a parametrically and ex
ante defined severe natural disaster. The main rationale is to allow the government to transfer
to the private markets the risk of disasters that are rare but have severe impact. This is in
accordance with the government’s National Disaster Risk Financing and Insurance Strategy,
which relies on an optimal layering of catastrophe risk, including the establishment of reserve
funds, contingent credit, and financial instruments such as reinsurance and catastrophe bonds.
As part of increasing the post-disaster financing capacity of the government, the Bank would
provide a separate USD 500 million catastrophe deferred drawdown option contingent loan
(CAT DDO II) in addition to the proposed DPL IV with embedded catastrophe transaction. The
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Initially, this is not 100 percent as the old stock will not be getting the new stamps.
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two operations complement each other. The CAT transaction is a risk transfer instrument with a
hard trigger (based on modeled loss) that will provide protection against rare but severe events.
The CAT DDO, on the other hand, is a risk retention instrument with a soft trigger. The CAT DDO
can be triggered by a less severe natural disaster upon the declaration of a state of emergency
by the president. Both operations, while processed separately, complement each other by
significantly augmenting the financing options available to the government in the immediate
aftermath of disasters of different frequency and severity.
IV.
Poverty and social impacts, and environmental aspects
Poverty and social impacts
The operations’ prior actions were selected to enhance long-term welfare of the poor and
bottom 40 percent of the population through better job opportunities and enhanced income
protection. Three of the prior actions have direct poverty and social impact: farm-to-market
roads, social protection, and the sin tax reform. First, better transparency and targeting of farmto-market roads is expected to provide better economic opportunities to the bottom 40 percent
and the extreme poor as three out of four poor people in the Philippines live in rural areas.
Meanwhile, the prior action related to the update of the National Household Targeting System
for Poverty Reduction aims to ensure that the database of poor and vulnerable Filipino
households is accurate and up-to-date. Finally, the sin tax reform prior action benefitted from a
poverty and social impact assessment (PSIA) analysis both in the design and implementation
phase.
Environmental aspects
The DPL supports disaster risk management (DRM) which entails addressing institutional
barriers and improving access to finance. DRM and climate change are now mainstreamed into
the planning and budgeting processes at the national and local levels. The country systems on
environmental and social safeguards are also improved to adequately manage the anticipated
environmental and social effects in the execution of actual projects, including those due to
climate variability and extremes and other natural disasters. The Cabinet Cluster on Climate
Change Adaptation and Mitigation has put forward its Risk Resiliency Program as a convergence
platform among agencies. The government has also established a system to identify climate
change expenditures, enabling policymakers to take stock of the national climate change
response and assess the institutional readiness for scaling up climate change financing.
Alongside, reforms are being undertaken by government to reduce the impacts of disasters to
communities and infrastructure by taking a comprehensive multi-hazard approach needed for
effective prevention, response, and recovery.
V.
Tentative financing
The IBRD loan, in an amount equivalent to USD 300 million, will be disbursed in one tranche upon
effectiveness. The interest payment for the loan will include a spread over IBRD’s lending rate,
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which will be used to finance a catastrophic risk transaction on the international market. This
transaction will provide the country with immediate budget support liquidity in the event of a
parametrically-defined severe disaster (typhoon or earthquake). If such an event occurs,
contingent payouts of up to USD 300 million will be made available to the Philippines.
VI.
Contact points
World Bank
Contact: Karl Kendrick Chua
Title: Senior Country Economist
Tel: 5776+2529
Fax: 632 + 465-2505
Email: kchua@worldbank.org
Location: Manila, Philippines (IBRD)
Contact: Saeeda Sabah Rashid
Title: Senior Public Sector Specialist
Tel: 5776+2663
Fax: 632 + 465-2505
Email: srashid@worldbank.org
Location: Manila, Philippines (IBRD)
Borrower
Borrower: The Republic of the Philippines through the Department of Finance
Contact Person: Stella Laureano
Title: Director, International Finance Group
Tel: 523-9223
Email: slaureano@dof.gov.ph
VII.
For more information contact:
The InfoShop
The World Bank
1818 H Street, NW
Washington, D.C. 20433
Telephone: (202) 458-4500
Fax: (202) 522-1500
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