Philippines Discussion Notes



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i.Report No. 55655 - PH


Philippines Discussion Notes
Challenges and Options for 2010 and Beyond


ii.June 2011

iii.

Philippines Country Team, World Bank

East Asia and Pacific Region
The International Finance Corporation
East Asia and Pacific Department


Document of the World Bank
This document has a restricted distribution and may be used by recipients only in the performance of their official duties.


REPUBLIC OF THE PHILIPPINES

FISCAL YEAR

January 1 – December 31




CURRENCY EQUIVALENTS
(Exchange Rate Effective June 9, 2011)
Currency Unit = Philippine Peso (PhP)

PhP1.00 = US$0.023

US$1.00 = Error: Reference source not found PhP43.28






World Bank

IFC

Vice President

James W. Adams

Rashad-R. Kaldany

Karin Finkelston



Country Director/
Resident Representative

Bert Hofman

Jesse Ang

Task Team Leaders


Lada Strelkova

Ulrich Lachler

Mark Woodward

Jehan Arulpragasam



Magdi Amin



This report was prepared under the guidance of Bert Hofman, IBRD Country Director, and Jesse Ang, IFC Resident Representative, by a team led by: Lada Strelkova, Ulrich Lachler, Mark Woodward, and Jehan Arulpragasam. Daniella Gressani and Carlos Felipe Jaramillo served as peer reviewers.

The following World Bank Group staff have made important contributions to the Philippines Discussion Notes: Ajay Tandon, Alan Townsend, Amitabha Mukherjee, Andrew Parker, Anne Sevilla, Baher El-Hifnawi, Ben Gericke, Carol Figueroa-Geron, Catherine Vidar, Christopher Ancheta, Christopher Pablo, David Llorito, Dennis Streveler, Douglas Forno, Eduardo Banzon, Eric Le Borgne, Fabrizio Bresciani, Felizardo Virtucio, Fermin Adriano, George Shieber, Gerardo Parco, Gerlin May U. Catangui, Iain Shuker, Jan Bojo, Josefo Tuyor, Junko Onishi, Karl Kendrick Chua, Lawrence Tang, Leonora Gonzales, Loraine Hawkins, Luisa Patricia Fernandez Delgado, Lynnette Dela Cruz Perez, Maribelle Zonaga, Maryse Gautier, Matthew Stephens, Maya Villaluz, Natasha Beschorner, Nora Moreno, Oscar Picazo, Patrick Labaste, Rajesh Pandey, Ramesh Siva, Rashiel Velarde, Roberto Rosadia, Rosa Alonso I. Terme, Rosechin Olfindo, Rozanno Rufino, Sarbani Chakraborty, Sheryll Namingit, Soonhwa Yi, Sudipto Sarkar, Victor Dato, Victor Dumas, Victor Vergara, Xiaoyan Liang, Yasuhiko Matsuda, and Zoe Elena Trohanis. Core team support was provided by: Maria Liberty Cardenas and Necitas Garcia; and Zafar Ahmed and Jayasankar Shivakumar (consultants).



Special thanks are extended to the Australian Agency for International Development (AusAID) for supporting the preparation of this report, and to Andrew Cumpston and Ken Vine of AusAID for their contribution to individual discussion notes.

ACRONYMS AND ABBREVIATIONS



ABA-ROLI

American Bar Association’s Rule of Law Initiative

ACEF

Agriculture Competitiveness Enhancement Fund

AFMA

Agriculture and Fishery Modernization Act

APIS

Annual Poverty Indicator Survey

APJR

Action Program for Judicial Reform

ARMM

Autonomous Region in Muslim Mindanao

BAS

Bureau of Agricultural Statistics

BEAM

Basic Education Assistance for Mindanao

BESF

Budget of Expenditures and Sources of Financing

BIR

Bureau of Internal Revenue

BFAD

Bureau of Food and Drugs

BFAR

Bureau of Fisheries and Aquatic Resources

BJE

Bangsamoro Juridical Entity

BLES

Bureau of Labor and Employment Statistics

BOC

Bureau of Customs

BOD

Burden of Disease

BOT

Build-Operate-Transfer

BPAP

Business Processing Association of the Philippines

BPO

Business Process Outsourcing

BSP

Bangko Sentral ng Pilipinas

CAAP

Civil Aviation Authority of the Philippines

CAG

Corporate Affairs Group

CAM

Court Annexed mediation

CAMIS

Court Administration Management Information System

CARP

Comprehensive Agricultural Reform Program

CBA

Cost-benefit analysis

CBFM

Community-Based Forest Management

CIT

Corporate income tax

CC

Climate Change

CCL

Committee on Computerization and Library

CCT

Conditional Cash Transfer

CDD

Community-driven development

CDM

Clean Development Mechanism

CDS

City Development Strategies

CER

Certified emission reduction

CHED

Commission on Higher Education

CICT

Commission on ICT

CIIP

Comprehensive and Integrated Infrastructure Program

CIPHs

City Investment Plans for Health

CLUPs

Comprehensive land use plans

CMIS

Case Management Information System

CO2

Carbon dioxide

COA

Commission on Audit

CoST

Construction Sector Transparency

CPF

Carbon Partnership Facility

CSC

Civil Service Commission

CTF

Clean Technology Fund

CVOs

Civilian Volunteer Organizations

DA

Department of Agriculture

DAP

Development Academy of the Philippines

DAR

Department of Agrarian Reform

DBM

Department of Budget Management

DENR

Department of Environment and Natural Resources

DepED

Department of Education

DICT

Department ICT

DILG

Department of Interior and Local Government

DMIA

Diosdado Macapagal International Airport

DOE

Department of Energy

DOF

Department of Finance

DOH

Department of Health

DOJ

Department of Justice

DOLE

Department of Labor and Employment

DOST

Department of Science and Technology

DOTC

Department of Transportation and Communications

DPWH

Department of Public Works and Highways

DRRM

Disaster Risk Reduction and Management

DSWD

Department of Social Welfare and Development

EAP

East Asia and Pacific

EC

Electric Cooperative

e-CFM

Enhanced Case Flow management

ECPC

Electronic Commerce Promotion Council

EFA

Education-for-All

EISP

Enterprise Information Systems Plan

EITI

Extractive Industries Transparency Initiative

e-JOW

Enhanced Justice on Wheels

EMOC

Emergency and Obstetric Care

ENR

Environment and Natural Resources

EPIRA

Electric Power Industry Restructuring Act

ERC

Electricity Regulatory Commission

ERR

Economic rate of return

ESC

Education Service Contracting

FAAP

Federation of Accrediting Agencies of the Philippines

FAC

Family Access Cards

FDA

Food and Drug Administration

FIES

Family Income and Expenditure Surveys

FLEMMS

Functional Literacy, Education and Mass Media Survey

FMBO

Financial Management and Budget Office

FOI

Freedom of Information

FSP

Food-for-School Program

FPA

Final Peace Agreement

FRI

Financial Rehabilitation and Insolvency

FSI

Floor-surface-index

FSP

Food-for-School Program

GAA

General Appropriations Act

GCI

Global Competitiveness Index

GDP

Gross Domestic Product

GEF

Global Environment Facility

GER

Gross enrolment rate

GFDRR

Global Facility for Disaster Reduction and Recovery

GFMIS

Government financial management information system

GHGs

Greenhouse gases

GISP

Government Information Systems Plan

GNP

Gross National Product

GOCCs

Government-Owned and Controlled Corporations

GRS

Grievance Redress System

HEI

Higher education institutes

HDI

Human Development Index

HRH

Human Resources for Health

HSRA

Health Sector Reform Agenda

HUDCC

Housing and Urban Development Coordinating Council

IBP

Integrated Bar of the Philippines

ICC

Interagency Coordination Committee

ICOR

Incremental Capital-Output Ratio

ICG

International Contact Group

ICT

Information and Communications Technology

IDPs

Internally displaced persons

IFC

International Finance Corporation

ILO

International Labour Organization

IMF

International Monetary Fund

IMR

Infant Mortality Rate

IMT

International Monitoring Team

IP

Indigenous people

IPPUC

Institute of Research and Urban Planning of Curitiba

IRA

Individual Retirement Arrangement

IRA

Internal Revenue Allotment

IRR

Implementing rules and regulations

IRRI

International Rice Research Institute

ISCED

International Standard Classification of Education

ISPs

Internet Service Providers

ITES

IT-enabled services

ITU

Internet User

JCMS

Judiciary Case Management System

JRI

Judicial Reform index

JURIS

Justice Reform Initiatives Support

KALAHI-CIDSS

Kapitbisig Laban sa Kahirapan – Comprehensive and Integrated Delivery of Social Services

KDP

Kecamatan Development Program

KFR

Kidnap-for-ransom

LDF

Local Development Fund

LFS

Labor Force Survey

LGC

Local Government Code

LGU

Local Government Unit

LPI

Logistics Performance Index

LRT

Light Rail Transport

LRTA

Light Rail Transport Authority

LSMS

Living Standard Measurement Survey

LTS

Large taxpayers’ service

LTFRB

Land Transportation and Franchise Regulatory Board

LUCs

Local Universities and Colleges

LWUA

Local Water Utilities Administration

MA-TTRI

Market Access Tariff Trade Restrictiveness Index

MDGs

Millennium Development Goals

MERALCO

Manila Electric Company

MeTCs

Metropolitan Trial Courts

MFIs

Microfinance Institutions

MILF

Moro Islamic Liberation Front

MISO

Management Systems Information Office

MMR

Maternal Mortality Rate

MNLF

Moro National Liberation Front

MOA-AD

Memorandum of Agreement on Ancestral Domain

MOOE

Maintenance and other Operating Expenses

MPAs

Marine protected areas

MuTCs

Municipal Trial Courts

MVUC

Motor Vehicle User’s Charge

MRT

Mass Rail Transit

MRDP

MISO Re-engineering and Development Plan

MSAs

Major Statistical Agencies

MSME

Micro small and medium-sized enterprises

MTEF

Medium-Term Expenditure Framework

MTPDP

Medium Term Philippine Development Plan

MT

Metric Tons

MWCI

Manila Water Company, Inc.

MWSS

Metropolitan Waterworks and Sewerage System

NAIA3

Ninoy Aquino International Airport Terminal 3

NAPC

National Anti-Poverty Commission

NAT

National Achievement Test

NCC

National Computer Centre

NCD

Non-Communicable Diseases

NCR

National Capital Region

NCBTS

National Competency-Based Teacher Standards

NDCC

National Disaster Coordinating Council

NDHS

National Demographic and Health Survey

NEA

National Electrification Administration

NEDA

National Economic and Development Authority

NER

Net Enrollment Rate

NESTS

National Environmentally Sustainable Transport Strategy

NFA

National Food Authority

NGAs

National Government Agencies

NGICS

National Guidelines on Internal Control Systems

NGO

Non-governmental organizations

NGPC

National Grid Company of the Philippines

NHIP

National Health Insurance Program

NHTS-PR

National Household Target System for Poverty Reduction

NITC

National Information Technology Council

NTS

National Tax Services

NPC

National Power Company

NPC-SPUG

National Power Company Small Power Utilities Group

NPL

Non-Performing Loans

NSCB

National Statistical Coordination Board

NSO

National Statistics Office

NSSHRP

National Sector Support for Health Reform Project

NTC

National Telecommunications Commission

NWRD

National Water Regulatory Board

OECD

Organization for Economic Co-operation and Development

OFW

Overseas workers

OJTs

On-the-job trainings

OMB

Office of the Ombudsman

OOP

Out-of-pocket payments

OPIF

Organizational Performance Indicator Framework

OPRCs

Output and performance-based road contracts

4Ps

Pantawid Pamilyang Pilipino Program

PAGC

Presidential Anti-Graft Commission

PAMBs

Protected Area Management Boards

PCIC

Philippine Crop Insurance Corporation

PDAF

Priority Development Assistance Fund

PDP

Philippine Development Plan

PEFA

Public Expenditure and Financial Accountability

PEP

Philippine Environmental Policy

PER

Public Expenditure Review

PESFA

Private Education Student Financial Assistance

PETS

Public Expenditure Tracking Surveys

PDNA

Post-Disaster Needs Assessment

PFM

Public Financial Management

PhilHealth

Philippine Health Insurance Corporation’s

PHILJA

Philippines Judicial Academy

PHIC

Philippines Health insurance Corporation

PIPH

Provincial Investment Plans for Health

PIT

Personal Income tax

PLDT

Philippine Long Distance Telephone Company

PMCO

Philippines Mediation Centre office

PMT

Proxy-Means Testing

PPA

Philippine Ports Authority

PPP

Public-Private Partnerships

PSALM

Power Sector Asset and Liability Management

PSDP

Philippine Statistical Development Program

PSNA

Philippine System of National Accounts

PSS

Philippine Statistical System

QAAF

Quality Assurance and Accountability Framework

RALS

Rice Allocation Ledgers

RCA

Revealed Comparative Advantage

RCAO

Regional Court Administration Office

R&D

Research and Development

RDE

Research, Development and Extension

RHUs

Rural Health Units

RORO

Roll-on-roll-off

RTCs

Regional Trial Courts

SAE

Small Area Estimates

SALN

Statements of Assets, Liabilities and Net Worth

SAOBs

Statements of Allotments and Obligations Balances

SBM

School-Based Management

SBMA

Subic Bay Metropolitan Authority

SCC

Small Claims Courts

SCM

Subsidies and Countervailing Measures

SC-MISO

Supreme Court’s Management Information System

SDC

Social Development Committee

SDDS

Special Data Dissemination System

SEC

Securities and Exchange Commission

SEP

Self-employed professionals

SGCs

School Governing Councils

SHI

Social Health Insurance

SIJ

Strengthening the Integrity of Judiciary

SMEs

Small and Medium-sized Enterprises

SNAP

Strategic National Action Plan

SNITS

Simplified Net Income Taxation Scheme

SP

Sponsored Program

SPFs

Special Purpose Funds

SPSC

Social Protection Sub-Committee

SRTC

Statistical Research and Training Center

SUCs

State Universities and Colleges

SWS

Social Weather Station

SZOPAD

Special Zones for Peace and Development

Tariff-TRI

Tariff Trade Restrictiveness Index

TEEP

Third Elementary Education Project

TESDA

Technical Education and Skills Development Authority

Telof

Telecommunications Office

TDRs

Transferable Development Rights

TFR

Total Fertility Rate

TIMMS

Trends in International Math and Science Study

TRB

Toll Regulatory Board

TRO

Temporary Restraining Order

UMID

Unified Multipurpose Identification

UNESCO

United Nations Educational, Scientific and Cultural Organization

UNFCCC

United Nations Framework Convention on Climate Change

UPP

Urban Poverty Program

VAT

Value-added Tax

WESM

Wholesale Electricity Spot Market

WHSMP

Women’s Health and Safe Motherhood Project

WMO

World Meteorological Organization

WTO

World Trade Organization











Philippines Discussion Notes

Challenges and Options for 2010 and Beyond

Table of Contents





DN No.

OVERVIEW…………………………………………………………………..….…..

i

Economic Growth ...…………………..……………………………………….....

DN 1

Poverty ……………………………………………………………………………

DN 2







I. STABLE MACRO ECONOMY




Tax Policy and Administration …………………………………………….…….

DN 3

Public Spending ……………..……………………………………..…………....

DN 4

Fiscal Risk ……………………………………………………………………….

DN 5







II. IMPROVED INVESTMENT CLIMATE




Competitiveness …………………………………………………………..……..

DN 6

Energy ……………………………………………………………………………

DN 7

Transport …………………………………………………………………………

DN 8

Information and Communications Technology …………………………..….….

DN 9

Agribusiness …………..…………………………………….…………………..

DN 10







III. BETTER PUBLIC SERVICE DELIVERY




Health …………………………………………………….……………………..

DN 11

Basic Education …..…………………........…………….………………………

DN 12

Higher Education ………………………....………………….…………………

DN 13

Water and Sanitation ……………………………………………………..……..

DN 14

Urbanization ...…………………………………..………………………………

DN 15

Community-Driven Development. ……………………………………………..

DN 16







IV. REDUCED VULNERABILITIES




Social Protection …………………………………………………………………

DN 17

Disaster Risk Management ………………………………………………………

DN 18

Climate Change …………………………………………………………….……

DN 19

Environment ……………………………………………………………………..

DN 20

Peace and Development ……………………………………..…………………...

DN 21







V. GOOD GOVERNANCE




Governance ………………………………………………………………………

DN 22

Public Financial Management …………………………………………………...

DN 23

Decentralization ………………………………………………….………………

DN 24

Statistics …………………………………….……………………………………

DN 25

Justice Reform …………..………………………………………………………

DN 26


Philippines Discussion Notes

Challenges and Options for 2010 and Beyond

overview

INTRODUCTION


  1. With the global economy on the way to recovery from the financial crisis, the Asian economies appear poised to bounce back strongly. For most people in the Philippines, however, a return to the status quo ante would offer little consolation. That is because when economic growth accelerated during 2002-08, poverty did not decline as hoped. With a third of the population currently below the poverty line, and high and rising inequality in incomes, the country’s main development challenge is to achieve growth that is much more widely shared—to make growth work for the poor.




  1. The new administration that assumed office on June 30, 2010 faces significant opportunities as well as considerable challenges: an opportunity for new policy directions and new coalitions to push the development agenda forward with renewed vigor, but a need to overcome the inertial forces that slow down decision making and program implementation during a transition. These Discussion Notes have been prepared to help inform policy discussions in the period leading up to and following the 2010 elections. Their aim is to support the creating of a shared focus among government, civil society, business groups, and development partners on the key elements of a long-term development strategy focused on inclusive growth. Deliberately selective in their coverage, the Notes offer sectoral and thematic analyses to identify key challenges, and recommend a prioritized set of actions for consideration by the new government. The actions are consistent with the long-term strategy envisaged in the Notes and can in most cases be implemented immediately, building on successes. The analysis draws on extensive international experience and worldwide best practices, as well as past experience with what works well in the Philippines and what does not.




  1. The vision underlying the Notes is one of inclusive growth, characterized by improved income opportunities and enhanced abilities of households and communities, especially the poor, to participate in markets through strengthened human capital, reduced vulnerability to shocks, and increased economic empowerment. While there are difficult choices to be made, the proposed actions could evoke strong support from key stakeholders, particularly from beneficiaries and front-line implementing agencies, as well as from development partners.


KEY MESSAGES


  1. For the Philippines, the main building blocks for achieving more inclusive growth are continued macroeconomic stability, an improved investment climate, better public services for the poor, and stronger protection against income shocks. An overarching challenge in the pursuit of development in the Philippines is to achieve better governance. The quality of governance is a recognized constraint on sustained growth and poverty reduction, and its improvement is a development goal aspired to by Filipinos in its own right.




  • To maintain macroeconomic stability and cope with increased macroeconomic uncertainty, special attention is needed to:

  • Strengthen the fiscal revenue base,

  • Improve public expenditure efficiency and targeting, and

  • Develop institutions for better fiscal risk management.




  • To improve the investment climate it will be important to create an enabling business environment by:

  • Promoting competitiveness,

  • Developing better models of infrastructure finance and management, particularly in energy, transport, and information and communications technology (ICT) in unserved and under-served areas of the country, and

  • Enhancing productivity and employment, especially in sectors of particular importance to the poor, such as agriculture.




  • To increase the poor’s access to better public services it is important to:

  • Deepen the reform agendas in key public services sectors such as basic education, health, and early childhood development, and

  • Expand delivery of basic services such as water and sanitation, and urban services.




  • To reduce vulnerabilities, actions are needed to:

  • Expand and rationalize the country’s social safety net,

  • Engage in pro-active disaster risk reduction and management actions, and

  • Mainstream climate-change adaptation measures in policies, plans and programs and expand climate-change mitigation programs in key sectors where emissions are on the rise.




  • Good governance requires more capable and accountable government institutions at the national, local, and agency levels. To develop such institutions requires actions to:

  • Strengthen core governance systems in public financial management,

  • Mitigate binding constraints that weaken LGU performance, including addressing weak systems for LGU accountability, addressing hyper-fragmentation among LGUs, and improving LGUs’ resource bases, and

  • Improve statistics and strengthen capacity of statistical agencies.


PRIORITY POLICY ACTIONS


  1. The 2006 household survey showed that though economic performance had improved since 2000, poverty reduction had not. Various factors explain the persistence of poverty, including slow economic growth and high inequality. Even though per capita GDP has been rising since 2000, real household incomes have been declining and considerable circumstantial evidence shows that income distribution has deteriorated, partly because of an unequal sectoral and regional distribution of growth, and partly because of barriers to factor mobility across sectors and regions.




  1. To reduce poverty, faster economic growth is essential. Recent diagnostic studies point to three key constraints on growth in the Philippines: (i) a vulnerable fiscal situation, due largely to weaknesses in tax collection, (ii) inadequate infrastructure, particularly in transport and energy, and (iii) a weak investment climate, largely because of governance concerns. Reforms in these areas have been pending for a long time and it is difficult to envisage a sustained resumption of growth without major improvements in all three.




  1. Eliminating these constraints is essential for restoring growth, but may not be enough for accelerating poverty reduction. Policymakers also need to be concerned about the distributional consequences of growth and ensure that it is sufficiently broad-based. This requires the removal of policy biases against low-skill labor employment and of barriers to factor mobility across regions and sectors. Such actions are needed to encourage the fastest growing sectors in the economy (such as manufacturing) to absorb more low-skilled labor (the poor’s main asset) and to encourage the most labor intensive sectors (such as agriculture) to grow faster and, thereby, generate more employment opportunities. These actions also are needed to allow workers to migrate from the slowest growing regions and sectors to the faster growing ones, thus maximizing their income earning opportunities. At the same time, actions are needed to upgrade workers’ human capital, enabling their participation in more productive activities.


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