Philippines Discussion Notes


Developing a comprehensive system of social protection is a policy priority



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Developing a comprehensive system of social protection is a policy priority. Analysts typically distinguish between four broad types of risks: (i) life cycle risks, which include hunger and malnutrition, illness, injury, disability, old age, and death; (ii) economic risks, which refer to the source of livelihood, low income, unemployment, underemployment, economic crisis or transition, and high prices of basic goods; (iii) social risks from exclusion or marginalization, lack of social investment, loss of family care, homelessness, and manmade disasters; and (iv) environmental risks which pertain to natural calamities (DAP, 2009).27 Addressing these different types of risks requires a range of instruments that include, among other, the pension system, unemployment insurance, disaster early warning systems and social assistance programs. While all are important, this discussion note focuses mainly on social assistance programs, as these are most directly identified with poverty reduction.


Key Challenges

Figure 2: Estimated Program Costs in 2009 (P billion)*

and Leakage Rates**
* Program costs are estimates from various government agencies except for (a) – estimated by World Bank staff based on the budget for NFA operations and implicit cost incurred from setting a floor price of NFA rice given international and local rice prices. Program cost for (e) refers to 2008. ** Leakage rates for (a) and (c) are World Bank staff estimates, estimate for (b) is based on anecdotal evidence, (d) from Manasan and Cuenca (2007), and (e) from Manasan (2009).
The Philippine social protection system is characterized by a series of fragmented and uncoordinated programs, with over 60 social protection programs identified as of July 2009. Social protection programs are integrated into various sectors and are being implemented by over 20 government agencies. These agencies undertake as few as one to as many as 15 social protection programs, solely or in partnership with other government agencies. The multiplicity of programs and the numerous government agencies involved often result in poor coordination of social protection programs, redundancy in providing service, or overlapping and double-counting of program beneficiaries (DAP, 2009).


  1. The effectiveness of many social protection programs in the Philippines is compromised by poorly designed targeting systems resulting in high leakage rates, low program impact and wasted resources. A number of social protection programs, particularly those that comprise the largest portion of government spending, are characterized by high leakage rates (the proportion of program benefits that “leak” to the non-poor).



Figure 3: Simulated Impacts of NFA Rice Price Subsidy on Intended Beneficiaries (%)
Source: World Bank staff estimates based on 2006 FIES and implicit subsidy for NFA rice at the height of the rice crisis in 2008.
The universal consumer rice price subsidy administered by the National Food Authority (NFA), estimated to account for around 76 percent of government spending for social protection in 2008 (Manasan, 2009), by design, also benefits the non-poor. It is estimated that 41 percent of the total NFA rice goes to non-poor households (Figure 2).28 The NFA rice price subsidy could have had larger impact on poverty reduction during the food crisis if the rice had been targeted only to poor households. With the same program budget but with better targeting, the NFA rice price subsidy could have reduced poverty incidence by 4.7 percentage points, income gap by 3.1 percentage points, and poverty severity by 1.3 percentage points (Figure 3).


  • The Philippine Health Insurance Corporation’s (PhilHealth) National Health Insurance Program (NHIP), also suffers from high leakage rate of around 50 percent.29 The ad hoc scheme of beneficiary identification employed by social welfare officers resulted in the NHIP Indigent Program enrolling larger number of households than the recorded poverty incidence.




  • Cash transfer programs introduced during the food and fuel crisis in 2008 also suffered from inefficiencies of poor targeting. The Pantawid Kuryente, a one-time cash transfer for lifeline power consumers had an estimated leakage rate of 72 percent.30




  • The Food-for-School Program (FSP), a conditional commodity-based transfer to mitigate hunger among poor families and improve school attendance, has an estimated leakage rate of 62 percent. The targeting mechanism employed for the FSP indicate higher leakage rates than if FSP simply targeted the poorest municipalities (Manasan and Cuenca, 2007).


Recent reforms


  1. Recognizing the need to improve the impact, efficiency, and efficacy of social protection programs, the government launched the conditional cash transfer program in January 2008, following the encouraging results from the pilot-test initiated in 2007. The Pantawid Pamilyang Pilipino Program (4Ps) provides cash transfer to eligible households provided they comply with certain conditions.31 As such, it aims to alleviate the immediate needs of the poor (short term poverty alleviation) and to break the intergenerational poverty cycle through investments in human capital. Moreover, 4Ps helps to fulfill the country’s commitment to meet the MDGs to eradicate extreme poverty and hunger, achieve universal primary education, promote gender equality, reduce child mortality, and improve maternal health (DSWD, 2009). From the initial coverage of 20,000 households and a budgetary support of P50 million, the government significantly expanded the program to cover 376,000 households and provided P1.3 billion to the program in response to the food and fuel crisis and the global economic crisis in 2008. In 2009, the government decided to scale up 4Ps further to support one million households covering around 20 percent of the country’s poor and increased the budget to P15 billion.




  1. In addition to a systematic and objective targeting system, 4Ps has a built-in management information systems to monitor implementation, address complaints and grievances, and monitor beneficiary compliance with program conditionalities. The Grievance Redress System (GRS) features a publicly accessible grievance database to resolve and track complaints including targeting errors, payment irregularities, fraud, and corruption. A system to verify the compliance of the conditionalities of the program has also been put in place and linked to disbursements of cash transfers to beneficiaries. The 4Ps’ management information systems ensure that there is an accountability mechanism on the part of the government as well as the beneficiaries.



Figure 4: Simulated Impacts of 4Ps

in Beneficiary Areas (%)
*as % of population in 4Ps areas; ** as % of poverty line

Source: World Bank staff estimates.


Early estimates show that the 4Ps can have a substantial impact on poverty. With the cash grants 4Ps is expected to increase the total income of the poor and eligible households by 23 percent on average and reduce poverty incidence in targeted areas by 6.1 percentage points (Figure 4).32 The impact of the 4Ps on the income gap of the poor and on the severity of poverty in target areas is also expected to be substantial. In particular, estimates show that the cash transfer could reduce the income gap by 7.6 percentage points and poverty severity by about 5 percentage points. Although preliminary and based on predicted income figures, these estimates are consistent with the results of impact evaluations of comparable CCT programs in other countries. In Mexico, poverty was reduced by 17 percent in Progresa communities, whereas in Colombia the Familias en Acción program reduced the poverty gap by more than 6 percentage points (Hoddinott & Skoufias, 2004; SEI, 2006). In addition, ex-ante evaluation of the 4Ps using a nationally representative household survey shows that the education grants alone, if targeted to children of all poor households nationwide, could reduce national poverty by as much as 8.3 percentage points (Son & Florentino, 2008). These economic as well as non-income benefits of 4Ps such as on key health and education indicators will be evaluated applying multiple, carefully designed evaluation methods.


  1. DSWD has recently developed the National Household Targeting System for Poverty Reduction (NHTS-PR) to provide a set of uniform, objective, and transparent criteria for identifying the poor. In the past, a variety of targeting instruments have been applied by central government agencies and local government units (LGUs), including self-targeting, geographical targeting, community-based monitoring systems, and unverified means tests. The proliferation of targeting systems can be attributed to the lack of coordination among central government agencies and a lack of clarity of responsibilities in this regard with decentralization. In contrast, the NHTS-PR, applies a standardized and objective proxy means test methodology to create a national database of poor households. Significant headway had been made in creating such a database by end-2009. The NHTS-PR is designed to be used to better target the poor in key social assistance and social protection programs, thus reducing the overall cost of targeting and improving coordination, efficiency, and effectiveness of social programs. The Pantawid Pamilyang Pilipino Program (4Ps) is the first social protection program in the Philippines to benefit from this newly established targeting methodology, and anecdotal evidence indicates a significantly lower inclusion error rates (i.e., inclusion of the non-poor). The PhilHealth Indigent program also expressed a commitment to using the NHTS-PR to improve its targeting.



  1. Where the Philippines Could Be: Policy Options



Table 2: Summary of Policy Areas and Actions

Policy Area 1: Accelerating Social Protection Policy Reform

Action 1.1 Develop a more operational social protection strategy

Action 1.2 Thoroughly assess and consolidate existing social protection programs

Action 1.3 Identify the agencies in charge of advancing the social protection agenda

Policy Area 2: Improved Targeting of Social Protection Programs

Action 2.1 Adopt the NHTS-PR as the single national poverty targeting system

Action 2.2 Make the targeting database available to the local government units (LGUs).

Action 2.3 Continue to ensure the accuracy of the NHTS-PR database.

Policy Area 3: Improved Operational Efficiency and Gradual Coverage Expansion of CCT/4Ps

Action 3.1 Further strengthen the operations of the CCT/4Ps.

Action 3.2 Gradually expand the CCT/4Ps over the next six years

Policy Area 4: Providing Adequate Financing for Social Protection Services

Action 4.1 Consolidate less efficient programs and transfer fiscal savings to the CCT/4Ps

Action 4.2 Gradually expand the overall budget for social protection.


Policy Area 1: Accelerating Social Protection Policy Reform
Action 1.1 Develop a more operational social protection strategy


  1. The government has recently adopted a Social Protection Framework that inventories and classifies major programs. Further work is required to develop a social protection strategy that can be operationalized to address the main risks and vulnerabilities facing Filipinos.


Action 1.2 Thoroughly assess and consolidate existing social protection programs


  1. A first step in developing a social protection strategy is to carry out a comprehensive analysis of the risks and vulnerabilities faced by Filipinos and matching these risks against existing program coverage, considering the full range of programs. It is important to understand where there are gaps in coverage as well as where there may be overlaps when it comes to different risk groups (e.g., the poor, unemployed, disabled, elderly, orphans, etc.) A more thorough assessment of existing programs vis-à-vis the current risks and needs is likely to reveal the need for specific types of well-designed programs to complement the CCT program that focuses on a specific population (poor households with children). As part of a more comprehensive social protection strategy, the Philippines may need to explore options for better deploying social assistance programs (such as emergency public works programs or emergency cash transfer programs to address vulnerabilities arising from sudden shocks) or social insurance programs (such as unemployment insurance for job loss). It may also need to focus on specific vulnerable populations (such as the elderly) and build on synergies and convergence among existing sound programs. At the same time, it may be important to consolidate existing programs that are overlapping or cost-ineffective. Further analysis leading to an overall operational social protection strategy will thus be critical in taking this agenda forward.


Action 1.3 Identify the agencies in charge of advancing the social protection agenda


  1. An important positive step taken to move the social protection agenda forward was the establishment of the Social Protection Sub-Committee (SPSC) under the Social Development Committee (SDC) of the National Economic and Development Authority (NEDA) chaired by DSWD.33 It is now important to reinforce the mandate of the SPSC to oversee the mainstreaming of the social protection program and identify the agencies in charge of implementing specific social protection programs.


Policy Area 2: Improved Targeting of Social Protection Programs
Action 2.1 Utilize the NHTS-PR as the single national poverty targeting system


  1. Consolidating and refining the National Household Targeting System for Poverty Reduction (NHTS-PR) and ensuring its use for targeting poor households nation-wide would significantly improve the effectiveness of spending in pro-poor programs. Toward this end, it is important that all the key social protection programs, such as the PhilHealth Indigent Program, base their targeting mechanisms on the NHTS-PR.


Action 2.2 Make the targeting database available to the local government units (LGUs)


  1. It is important that this database gets used widely by different agencies in the national government, as well as by local governments to improve the targeting of their programs, particularly insofar as the latter may be expected to play an increasing role in poverty reduction efforts. To encourage the national agencies and LGUs to adopt this system, it will be necessary to develop appropriate database sharing protocols.


Action 2.3 Continue to ensure the accuracy of the NHTS-PR database


  1. As more agencies and LGUs base their targeting decisions on the NHTS-PR database, it will be critical that the database be of the utmost accuracy. This will require completing the national coverage of the poverty database and investing in its regular updating and maintenance.


Policy Area 3: Improved Operational Efficiency and Gradual Coverage Expansion of 4Ps
Action 3.1 Further strengthen the operations of the CCT/4Ps


  1. The critical issue for the continued successful implementation of the CCT program is to strengthen implementation capacity of the program. The rapid roll-out of the program in the past couple of years has put a lot of strain on existing institutions and manpower, while delaying computerization of some systems. A top imperative for success of the program will thus be to continue to strengthen the program delivery institutions, including the DSWD central and regional teams as well as municipal level implementation structures.


Action 3.2 Gradually expand the CCT/4Ps over the next six years


  1. Insofar as the ongoing and prospective program performance impact evaluations (see paragraph 9) show that the CCT/4Ps program is living up to its expectations, the Authorities should consider a gradual expansion of 4Ps beyond the current coverage to reach all poor households nation-wide by 2015.


Policy Area 4: Providing Adequate Financing for Social Protection Services
Action 4.1: Consolidate less efficient programs and transfer fiscal savings to the CCT/4Ps

Figure 5: Cost of Transferring PhP1

to Beneficiaries, 2008 (Pesos)
* Based on consumption of NFA rice reported by the poor in 2006 FIES.

** Based on data covering the first 376,000 batch of beneficiaries with a total budget of P5 billion (P3.2 billion for cash transfer and P1.8 billion for administrative costs).



Source: World Bank (2009c)

Directing additional social protection resources through the conditional cash transfer program can enhance social protection of the poor both because of the CCT’s improved targeting and low cost of delivery of benefits. International experience indicates that cash transfers are the most direct type of intervention designed to support the poor. Once the administrative infrastructure is in place, the cost of operating cash transfer programs is relatively small and far less than the cost of providing assistance in kind (Grosh, et al, 2008). On the other hand, subsidized sales distort marketing and production incentives as it creates a parallel infrastructure that crowds out private trade or preempts its development. Moreover, the costs required to administer price stabilization programs are high as they involve large operations and their budgets are hard to control with the fluctuations in the international price (Grosh, et al, 2008). Estimates show that it costs NFA PhP3 to PhP8.6 for every peso-equivalent made available to the poor through the rice subsidy program in 2008, which is about 12 times the cost of transferring PhP1 through the 4Ps (World Bank, 2009c); Figure 5. The same estimates suggest that reallocating NFA’s fiscal support to 4Ps will allow the government to cover 100 percent of the 4.7 million poor households (while only reaching 25 percent with NFA Rice Price Subsidy), with each of these poor households annually receiving PhP10,630, seven times the monetary amount received via the NFA rice price subsidy equivalent to PhP1,599 per year per household. In addition, this reallocation of NFA’s fiscal support to 4Ps to cover 1 million poor households is expected to generate savings of PhP11.5 billion for the government. Furthermore, over and above the rice subsidy, the DSWD/DepED Food-for-School Program requires an additional cost of PhP20 per kilo for hauling and handling the NFA rice to the schools (Manasan, 2009).
Action 4.2 Gradually expand the overall budget for social protection

Figure 6: Estimates of Government Spending

on Social Protection (% of GDP)
Sources: Besley, et al, (2003) for all countries except Philippines, which is estimated from Manasan (2009).
While the first order of business is to improve targeting of social protection programs and channeling spending on less effective programs to more the effective programs, the government could also contemplate gradually increasing funding to social protection. Social protection programs in the Philippines are inadequately funded especially if compared to other developing countries. An estimate of government spending on social protection shows that it accounted for 0.4 percent of GDP in 2007, growing to 1.1 percent of GDP in 2008 to respond to the food and fuel crisis. However, the operational costs of the NFA rice price subsidy program alone is estimated to have absorbed 50 percent and 73 percent of this government spending on social protection in 2007 and 2008, respectively (Manasan, 2009). For a relatively stable year such as 2007 (non-crisis year), government spending on social protection at 0.4 percent of GDP is relatively low compared to other developing countries. Selected Southeast Asian countries are estimated to spend about 0.5 to 1.2 percent of GDP while Latin American Countries and South Asian countries are estimated to spend 2.9 percent and 1.5 percent of their GDP, respectively on social protection programs (Besley, et al, 2003); Figure 6.34 Another study shows that the mean spending for safety nets alone for 87 developing and transition countries is 1.9 percent of GDP (Weigand & Grosh, 2008). It would not be unreasonable to see a sustained increase in spending on social protection at a level close to 1.5 percent of GDP per annum in the Philippines over the next six years35.


References
Asian Development Bank (2007), “Philippines: Critical Development Constraints,” Country Diagnostics Studies, ADB, Manila.
Balisacan, A. (2007), “Why Does Poverty Persist in the Philippines? Facts, Fancies, and Policies”, SEARCA Agriculture & Development Discussion Paper Series 2007-1 (March).
Besley, T., Burgess, R. and Rasul, I. (2003), “Benchmarking Government Provision of Social Safety Nets,” Social Safety Net Primer Series (May).
Development Academy of the Philippines (2009), “Review and Strengthening of the National Social Protection and Welfare Program,” draft report as of 21 August 2009.
Department of Social Welfare and Development (2009), “Pantawid Pamilyang Pilipino Program”, http://pantawid.dswd.gov.ph/index.php/home
Department of Finance, Asian Development Bank, Australian Government Aid Program (AusAID), European Union, United Nations, and World Bank, (2009), Typhoons Ondoy and Pepeng: Post Disaster Needs Assessment.
Grosh, M., del Ninno, C., Tesliuc, E. and Ouerghi, A. (2008), For Protection and Promotion: The Design and Implementation of Effective Safety Nets, World Bank, Washington, DC.
Hoddinott and Skoufias, (2004), “The impact of Progresa on Food Consumption”, Economic Development and Cultural Change 53(1):37-61.

Institute for Fiscal Studies, Econometrica and SEI, (2006) “Evaluación del Impacto del Programa Familias en Acción – Subsidios Condicionado de la Rede de Apayo Social.” Bogota: Departamento Nacional de Planeación.


Manasan, R. and Cuenca, J. (2007), “Who Benefits from the Food-for-School Program and Tindahan Natin Program: Lessons in Targeting”, PIDS Discussion Paper Series No. 2007-10.
Manasan, R. (2009), “Assessment of Social Protection Programs in the Philippines”, World Bank background paper.
National Anti-Poverty Commission and National Statistical Coordination Board (2006), Assessment of Vulnerability to Poverty in the Philippines, Quezon City.
National Statistical Coordination Board (2008), “2006 Philippine Poverty Statistics”, http://www.nscb.gov.ph/poverty/2006_05mar08/default.asp
National Statistics Office (2006), Family Income and Expenditures Survey, public use file.
Son, H. and J. Florentino (2008) “Ex-ante Impact Evaluation of Conditional Cash Transfer Program on School Attendance and Poverty: The Case of the Philippines,” ADB Economics Working Paper No. 142.
Weigand, C. and Grosh, M. (2008), “Levels and Patterns of Safety Net Spending in Developing and Transition Countries”, Social Protection Discussion Paper No. 0817.
World Bank and National Disaster Coordinating Council (2004), “Natural Disaster Risk Management in the Philippines: Enhancing Poverty Alleviation Through Disaster Reduction”, http://siteresources.worldbank.org/INTEAPREGTOPENVIRONMENT/Resources/PH_Disaster_Risk_Mgmt.pdf
World Bank (2001), Philippines Poverty Assessment. Washington, DC.
World Bank (2009a), “Philippines: Fostering More Inclusive Growth”, forthcoming.
World Bank (2009b), “Crisis Monitoring Survey”, datafile.
World Bank (2009c), “Philippines Quarterly Economic Update – November 2009”, forthcoming.


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