Document of The World Bank

Report No: ICR00001295

IMPLEMENTATION COMPLETION AND RESULTS REPORT (IBRD-7615 and IBRD-7913)

ON A LOAN TO THE

REPUBLIC OF THE PHILIPPINES

FOR A

FOOD CRISIS RESPONSE DEVELOPMENT POLICY OPERATION

UNDER THE GLOBAL FOOD CRISIS RESPONSE PROGRAM IN THE AMOUNT OF US$200 MILLION

AND A

SUPPLEMENTAL SUPPORT FOR POST-TYPHOON RECOVERY

IN THE AMOUNT OF US$250 MILLION

September 29, 2011

Human Development Sector Unit East Asia and the Pacific Region

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

CURRENCY EQUIVALENTS (Exchange Rate Effective as of September 27, 2011) Currency Unit: US $1 = 43.37 PHP (Philippine Peso)

GOVERNMENT FISCAL YEAR

January 1 to December 31

ABBREVIATIONS AND ACRONYMS

AAA Analytic and Advisory Activities ADB Asian Development Bank AusAID Australian Agency for International Development AO Administrative Order CAS Country Assistance Strategy Cat-DDO Catastrophe Deferred Drawdown Option CCT Conditional Cash Transfer DA Department of Agriculture DepEd Department of Education DILG Department of the Interior and Local Government DOF Department of Finance DOH Department of Health DPO Development Policy Operation DSWD Department of Social Welfare and Development EC European Commission FIES Family Income and Expenditure Survey FSP Food-for-School Program FY Fiscal Year GAA General Appropriations Act GAC Governance and Anti-Corruption GDP Gross Domestic Product GFRP Global Food Response Program IREP Indicative Reconstruction and Expenditure Plan ICR Implementation Completion and Results Report MTPDP Medium-Term Philippine Development Plan NAPC National Anti-Poverty Commission NCR National Capital Region NFA National Food Authority NHTS-PR National Household Targeting System for Poverty Reduction NPSTAR National Program of Support for Tax Administration Reform NSCB National Statistical Coordination Board NSO National Statistics Office NSWP National Social Protection and Welfare Program OP Operational Policy PDF Philippine Development Forum PDNA Post-Disaster Needs Assessment

PDO Program Development Objectives PhilHealth Philippine Health Insurance Corporation PhP Philippine Pesos PMT Proxy Means Test RMES Reconstruction Monitoring and Evaluation System SAE Small Area Estimates SDC Social Development Committee SNPRC Special National Public Reconstruction Commission SIL Specific Investment Loan SWDRP Social Welfare and Development Reform Project SY School Year TA Technical Assistance UN United Nations US$ United States dollar

Vice President :James W. Adams (EAPVP)

Country Director : Bert Hofman (EACPF)

Sector Director :Emmanuel Jimenez (EASHD)

Sector Manager :Xiaoqing Yu (EASHS)

Task Team Leader :Jehan Arulpragasam (MDI)

ICR Team Leader :Nazmul Chaudhury (EASHS)

PHILIPPINES Food Crisis Response Development Policy Operation

Under the Global Food Crisis Program and Supplemental Support for Post-Typhoon Recovery

CONTENTS

Data Sheet A. Basic Information B. Key Dates C. Ratings Summary D. Sector and Theme Codes E. Bank Staff F. Results Framework Analysis G. Ratings of Program Performance in ISRs H. Restructuring Main Document 1.  Program Context, Development Objectives, and Design ........................................ 7 1.1 Context at Appraisal...................................................................................................... 7 1.2 Original Program Development Objectives (PDO) and Key Indicators ....................... 4 1.3 Revised PDO and Key Indicators, and Reasons/Justification....................................... 5 1.4 Original Policy Areas Supported by the Program......................................................... 5 1.5 Revised Policy Areas .................................................................................................... 8 1.6 Other significant changes .............................................................................................. 8 

2.  Key Factors Affecting Implementation and Outcomes ........................................... 9 2.1 Program Performance.................................................................................................... 9 2.2 Major Factors Affecting Implementation.................................................................... 14 2.3 Monitoring and Evaluation Design, Implementation and Utilization......................... 15 2.4 Expected Next Phase/Follow-up Operation ................................................................ 16 

3.  Assessment of Outcomes........................................................................................... 16 3.1 Relevance of Objectives, Design and Implementation ............................................... 16 3.2 Achievement of Program Development Objectives.................................................... 17 3.3 Justification of Overall Outcome Rating..................................................................... 18 3.4 Overarching Themes, Other Outcomes and Impacts .................................................. 18 3.5 Summary of Findings of Beneficiary Survey and/or Stakeholder Workshops ........... 21 

4.  Assessment of Risk to Development Outcome........................................................ 21 

5.  Assessment of Bank and Borrower Performance .................................................. 22 5.1 Bank Performance....................................................................................................... 22 5.2 Borrower Performance ................................................................................................ 24 

6.  Lessons Learned ........................................................................................................ 25 

Annexes Annex 1.  Bank Lending and Implementation Support/Supervision Processes........... 26 Annex 2.  Borrower’s ICR and Comments on Draft ICR ............................................ 28 Annex 3.  List of Supporting Documents .................................................................... 32 

Map of the Philippines (IBRD 33466R4) ......................................................................... 33 

Data Sheet

A. Basic Information

Country: Philippines Program Name: Philippines GFRP DPO

Program ID: P113492 P120564

L/C/TF Number(s): IBRD-7615 IBRD-7913

ICR Date: 09/29/2011 ICR Type: Core ICR

Lending Instrument: DPL Borrower: THE REPUBLIC OF THE PHILIPPINES

Original Total Commitment:

US$ 200.0M Disbursed Amount: US$ 450.0M

Revised Amount: US$ 450.0M

Implementing Agencies: Department of Finance (primary liaison); Department of Social Welfare and Development (policy dialogue, implementation, and monitoring and evaluation); Department of Education, National Nutrition Council, Department of Agriculture, National Economic and Development Authority, and Department of Budget Management (policy dialogue)

Cofinanciers and Other External Partners: None

B. Key Dates

Process Date Process Original Date Revised / Actual Date(s)

P113492 - Philippines GFRP DPO Concept Review: 08/28/2008 Effectiveness: 10/14/2008 02/23/2009

Appraisal: 10/15/2008 Restructuring(s): N/A N/A

Approval: 12/10/2008 Mid-term Review: N/A N/A

Closing: 06/30/2009 12/31/2010

P120564 - Food Crisis Response Development Policy Operation Supplemental Financing Concept Review: 08/28/2008 Effectiveness: N/A 08/27/2010

Appraisal: 03/17/2010 Restructuring(s): N/A N/A

Approval: 05/20/2010 Mid-term Review: N/A N/A

Closing: 06/30/2009 12/31/2010

C. Ratings Summary C.1 Performance Rating by ICR Outcomes: Highly Satisfactory

Risk to Development Outcome: Low or Negligible

Bank Performance: Satisfactory

ii

Borrower Performance: Satisfactory

C.2 Detailed Ratings of Bank and Borrower Performance (by ICR) Bank Ratings Borrower Ratings

Quality at Entry: Satisfactory Government: Not Applicable

Quality of Supervision: Satisfactory Implementing Agency/Agencies: Not Applicable

Overall Bank Performance: Satisfactory Overall Borrower

Performance: Satisfactory

C.3 Quality at Entry and Implementation Performance Indicators Implementation

Performance Indicators QAG Assessments (if any) Rating:

Potential Problem Program at any time (Yes/No):

No Quality at Entry (QEA):

None

Problem Program at any time (Yes/No):

No Quality of Supervision (QSA):

None

DO rating before Closing/Inactive status:

D. Sector and Theme Codes Original Actual

P113492 - Philippines GFRP DPO

Sector Code (as % of total Bank financing) Agricultural marketing and trade 11 11

Other social services 89 89

Theme Code (as % of total Bank financing) Global food crisis response 100 100

P120564 - Food Crisis Response Development Policy Operation Supplemental Financing

Sector Code (as % of total Bank financing) Agricultural marketing and trade 10 10

Other social services 90 90

Theme Code (as % of total Bank financing)

Social safety 75 75

Other social 25 25

iii

E. Bank Staff Positions At ICR At Approval

Vice President: James W. Adams James W. Adams

Country Director: Bert Hofman Bert Hofman

Sector Manager: Xiaoqing Yu Xiaoqing Yu

Program Team Leader: Jehan Arulpragasam Jehan Arulpragasam

ICR Team Leader: Nazmul Chaudhury

ICR Primary Author: Rosechin Olfindo

F. Results Framework Analysis Program Development Objectives (from Project Appraisal Document) Food Crisis Response Development Policy Operation (DPO). In the short-term, the goal of the Food Crisis Response DPO was to support the Government bridge the financing gap resulting in part from expanded safety net programs aimed at supporting the poor and vulnerable households cope with the impacts of the high food prices. Over the medium-term, the DPO sought to accelerate dialogue and technical assistance to support the Government’s effort to overhaul the country’s social protection system. Specifically, it had the following five objectives: (i) lowering and stabilization of domestic food price in the short-term; (ii) mitigation of short-term impacts of high food (and fuel) prices on poor households; (iii) improved policy coordination and institutional arrangements for social protection; (iv) improved targeting of poor households; and (v) improved impact, efficiency, and efficacy of social protection programs through a comprehensive conditional cash transfer (CCT) program. Supplemental Support for Post-Typhoon Recovery. The supplemental financing sought to support the Government alleviate the budgetary pressures resulting from increased expenditures and revenue losses induced by the natural disaster. The operation did not support specific policy actions and activities, aiming instead to more generally provide the government with quick disbursing resources to respond to disaster-related needs in a timely manner. At the same time, the operation sought to ensure that the reforms and programs supported by the Food Crisis Response DPO remain on track and are implemented without risk of delay due to insufficient or competing budgetary priorities arising from post-disaster reconstruction. Revised Program Development Objectives (if any, as approved by original approving authority) None

iv

PDO Indicator(s)

Indicator Baseline Value (date specified)

Original Target Values

(from approval documents)

Actual Value Achieved at Completion

or Target Years (date specified)

Decline in the domestic retail price of rice between June and October 2008.

PhP38.37 per kilo in June 2008

<PhP38.37 per kilo PhP33.54 per kilo in October 2008

Mitigating short-term impact of high food (and fuel) prices to households (as measured by increased budget and off-budget allocation in 2008 for social assistance programs).

2.7% of national budget allocated to social assistance programs in 2007

>2.7% of national budget allocated to social assistance programs

5.6% of national budget allocated to social assistance programs in 2008

Improved targeting of the Food for School program (as measured by increased share of FSP budget to the poorest 20 provinces).

46% of program budget goes to the 20 poorest provinces during SY 2007-2008

>46% of program budget goes to the 20 poorest provinces

78% of program budget goes to the 20 poorest provinces (estimate) beginning October 2008

Institutional framework in place for enhanced coordination and delivery of social protection program, leading to reduced fragmentation and overlap.

None as of June 2008 Inter-agency body on social protection created

National Social Protection and Welfare Program created in July 2008. Additionally, SDC Sub-Committee on Social Protection created in October 2009

A standardized database of poor households (identified using proxy means test) established and used for selecting households by at least one national social protection program.

None in 2007 1 Standardized database of poor households established and used by the CCT program in March 2008, by all DSWD social protection programs in September 2008, and by all social protection programs of the government by March 2010.

320,000 poor households receive income support in the form of cash transfer.

20,000 poor households in June 2008

320,000 poor households

333,000 poor households by December 2008 and over one million by December 2010.

v

G. Ratings of Program Performance in ISRs

No. Date ISR Archived DO IP Actual Disbursements

(US$ millions) 1 06/30/2010 Satisfactory Satisfactory 199.50

H. Restructuring (if any) None

vi

vii

Program Context, Development Objectives, and Design 1. Approved on December 10, 2008, the Food Crisis Response Development Policy Operation (henceforth referred to as the DPO) was a stand-alone, single tranche operation that was prepared under the Global Food Crisis Response Program (GFRP) facility. The loan for US$200 million became effective on February 23, 2009 and was fully disbursed on February 25, 2009. The DPO was envisaged to support the Government of the Philippines address the challenges of soaring international food prices that began to affect the domestic consumers in mid-2008. The DPO supported the measures that the Government took to immediately mitigate the short-term impacts of the food crisis on consumers as well as the steps taken to put into place an improved social protection system to cushion the poor from such shocks in the future. Apart from the policy dimensions of the DPO, the operation was also a response to the request of the Government for a quick disbursing budget support to help finance higher-than-budgeted food-crisis-related expenditures. 2. On May 20, 2010, the Bank approved a supplemental support for post-typhoon recovery (henceforth referred to as the Supplemental Financing) to respond to the Government’s request for assistance following the two major typhoons that hit the Philippines in late 2009. The Supplemental Financing was a single-tranche loan for US$250 million under the DPO, became effective on August 27, 2010, and was fully disbursed on September 20, 2010. It sought to provide incremental financing to address revenue losses resulting from the disaster and to finance previously unbudgeted reconstruction expenditure. More importantly, the Supplemental Financing aimed to protect the measures supported by the DPO from any effects of the fiscal shock due to the disaster. In particular, the expansion of social protection programs, including the conditional cash transfer (CCT) program, required sustained financial support to protect the poor households that benefit from these programs.

Context at Appraisal 3. The Food Crisis. In 2008, the international rice prices soared far above what would be expected based on the fundamentals of supply and demand, nearly tripling from December 2007 to April 2008. As the largest rice importer in the world at that time, the Philippines was among the hardest hit countries in the region. The sharp spike in global prices in March to April 2008 was prompted by rice export restrictions in several countries, followed by large purchase tenders by the Government that became worried about depleting stocks, long queues for the country’s staple, and the potential for social unrest. As the world food prices soared, including fuel prices, domestic prices followed. Food prices in the Philippines peaked in July 2008, increasing by 18 percent, while rice prices increased by 57 percent during this period. Inflation increased sharply at 12.5 percent in August 2008, where food accounted for 47 percent of the core inflation and energy accounted for 7 percent. The inflation was particularly high especially if compared to earlier record of 5.3 percent average in 2003-2006 and 2.8 percent in 2007.

2

4. Rice is particularly important for Filipinos. It is a staple food for over 80 percent of the population, contributing as much as 65 percent of the calorie intake. Food, in general, accounts for about 41 percent of total expenditures of an average household while it accounts for about 60 percent for the poorest households, of which a third is consumed on rice. Given the high vulnerability of Filipinos to food price shocks, the sharp increase in the prices of food and fuel was seen to have contributed to the worsening poverty situation in the country. Simulations showed that the combined effects of food and fuel inflation that peaked in July 2008 increased poverty incidence in 2008 by 0.9 percentage points, pushing an additional 900,000 people into poverty.1 In addition, the increase in the minimum wage in June 2008 was below the increase in the consumer price index in the succeeding months thereby reducing the real income of the non-rich. Opinion surveys reported an increase in self-rated poverty from 50 percent in March 2008 to 59 percent in June 2008 and hunger incidence from 15.7 percent to 16.3 percent during the same period. 5. Even before the food crisis, rice consumption in the Philippines was consistently greater than production, and self-reliance based on domestic production has yet to be achieved. While population growth averaged 2.3 percent per year since 1990, rice production grew at 1.9 percent. Rice production has been low in absolute and relative terms—rice yields in 2005 averaged 3.6 tons per hectare while Indonesia and Vietnam achieved yields of 4.5 and 4.8 tons per hectare, respectively. The Philippines also has the smallest area planted with rice compared to its neighbors and, as a whole, arable land endowment per person is substantially lower than countries in mainland Southeast Asia. Moreover, while Cambodia, Vietnam, and Thailand have enormous natural irrigation, the Philippines' water resources are being depleted by the country's inability to protect its watersheds. Another disadvantage is geography—the country is the first landmass along the Pacific typhoon belt and is buffeted by numerous typhoons each year, making rice production difficult and risky. 6. As early as June 2008, the Government had anticipated the increase in expenditures to respond to the food crisis and approached the Bank for financial assistance.2 Two months later, the Bank began the preparation of the DPO, leading up to the loan approval in December 2008. The following were the rationale for Bank involvement during the food crisis. First, the Bank put into place the GFRP to provide quick support to countries that were subjected to the sharp increase in food prices. Through the GFRP, the Bank was well placed to respond quickly to the Government’s request for assistance. Second, the DPO focused on the area of social protection where the Bank has a comparative advantage in providing support given its vast global experience in this area. In particular, the Bank was already providing technical assistance and policy advice to the Department of Social Welfare and Development (DSWD) on this agenda. Third, the objectives pursued by the DPO were consistent with the Bank’s Country Assistance Strategy (CAS) for the Philippines in FY2006-2008 to foster increased social inclusion and better governance. Given the complexity of the reform agenda on food policy and its political

1 The World Bank estimated that during the peak of the food and fuel crises in July 2008 about 3.3 million people immediately succumbed into poverty because of the 18 percent increase in food prices alone. However, food and fuel prices quickly slipped back to their pre-crisis levels towards the end of 2008, in part due to the actions supported by the DPO, which allowed many Filipino families to revert back to their old standard of living. 2 On June 19, 2008, the Government’s Department of Finance (DOF) sent a letter to the World Bank requesting for financial assistance to respond to the food crisis.

3

economy, consensus on long-term reforms would take time to develop. However, the Bank and the Government recognized that the advancement of social protection policies supported by the DPO would facilitate moving on the difficult agenda of food policy reforms and food subsidies. 7. The Disasters. In late 2009, almost a year after the peak of the food crisis, two major typhoons hit the Philippines within a space of two weeks that caused substantial losses and damages in some of the country’s most economically vibrant regions. On September 26, 2009, typhoon Ketsana (local name Ondoy) brought a record high rainfall to Metro Manila and nearby provinces in Central Luzon, causing massive floods, which were the worst in 40 years. The unprecedented amount of rain caused dam reservoirs and rivers to overflow, resulting in massive flood in surrounding areas. A few days later, on October 3, 2009, typhoon Parma (local name Pepeng) hit Northern Luzon. Strong winds and heavy rains caused extensive damages and flooding in predominantly agricultural areas that already had fully saturated soil. The highest cumulative rainfall, exceeding one meter, was experienced along the west coast of Northern Luzon. 8. Immediately following the typhoons, the Government asked the Bank to lead a post-disaster needs assessment (PDNA), to be undertaken jointly with the Asian Development Bank (ADB), United Nation (UN) agencies, and other partners.3 The PDNA estimated that the damages and losses from the typhoons amount to US$4.38 billion, equivalent to 2.7 percent of the country’s GDP. The estimate took into account the large share of Metro Manila (38 percent) in the country’s total GDP, and the impact on agriculture, as Central and Northern Luzon contribute to over half the country’s rice production. In fact, disaster-affected Luzon accounts for 60 percent of GDP. A total of US$942.9 million was required to meet recovery needs and a total of US$3.48 billion was required for the reconstruction efforts over the short- (2009-2010) to medium-term (2011-2012). The impact on the economy was expected to exacerbate the slow pace of expansion in the near term, especially if financing for recovery and reconstruction was delayed or partial. 9. Moreover, the increase in unanticipated budgetary needs arising from the disasters was expected to disrupt the financial support for the social protection programs that were introduced and expanded during the food crisis. In particular, the Government had expanded the CCT program in 2008 to over 330,000 beneficiary households and expanded it even more to 726,000 beneficiary households. Other measures were also undertaken during the food crisis that required sustained financial support such as the improvement in targeting of social protection programs and the establishment of the national database of poor households. Given the amount of spending required for reconstruction, the Government approached the Bank in November 2009 for an additional loan.4 At the Government's request, the Bank responded quickly by re-opening the DPO (it was closed in June 2009) to begin the preparation for the Supplemental Financing, leading up to the loan approval in May 2010.

3 The PDNA provided a comprehensive assessment of the human and economic impacts of the typhoons, as well as recommendations for recovery and reconstructions based on global best practices. 4 On November 3, 2009, DOF sent a letter to the World Bank requesting to re-open the DPO to allow for supplemental financing.

4

10. The following were the rationale for Bank involvement in post-typhoon recovery. First, the Bank support through the Supplemental Financing would allow for the sustained implementation and commitment to the reform program supported by the DPO, which was otherwise proceeding on schedule and in compliance with the agreed policy agenda aimed at furthering reforms in social protection. Second, the Government remained committed to the social protection program supported by the DPO and the Supplemental Financing helped keep the policy agenda financed by the original loan on track. Third, the Supplemental Financing allowed the Government to begin the needed reconstruction without foregoing planned development expenditures. It provided additional financing at reasonable terms and allowed for the Government to release “unprogrammed” budgetary funds to support its reconstruction expenditure program. 11. Table 1 summarizes the key events involving the DPO and the Supplemental Financing.

Table 1. Summary of Key Events

Date Events 2008 March – April

June July August October December

Sharp spike in global prices of rice followed by large purchase tenders by the National Food Authority; Filipinos becoming worried about food crisis DOF sent a letter to the World Bank requesting for financial assistance to respond to the food crisis Domestic food prices increased by 18 percent and rice prices increased by 57 percent Inflation increased by 12.5 percent; World Bank conducted DPO concept review DPO appraisal DPO approval

2009

February June September October November

$200 million DPO loan became effective and fully disbursed DPO was closed (original date) Typhoon Ketsana (Ondoy) hit Philippines Typhoon Parma (Pepeng) hit Philippines World Bank and development partners conducted a Post-Disaster Needs Assessment; DOF sent a letter to the World Bank to re-open the DPO to allow for supplemental financing for disaster-related expenditures

2010

March May August September December

Supplemental Financing appraisal Supplemental Financing approval $250 million Supplemental Financing became effective $250 million loan was fully disbursed DPO (and Supplemental Financing) was closed (revised date)

Original Program Development Objectives (PDO) and Key Indicators 12. In the short-term, the DPO sought to support the Government bridge the financing gap resulting in part from expanded safety net programs aimed at supporting the poor and vulnerable households cope with the impacts of the high food prices. Over the medium-term, the DPO sought to accelerate policy dialogue and technical assistance to support the Government’s effort to overhaul the country’s social protection system. The DPO had the following five objectives: (i) lowering and stabilization of domestic food price in the short-term; (ii) mitigation of short-term impacts of high food (and fuel) prices on poor households; (iii) improved policy

5

coordination and institutional arrangements for social protection; (iv) improved targeting of poor households; and (v) improved impact, efficiency, and efficacy of social protection programs through a comprehensive CCT program. 13. Meanwhile, the Supplemental Financing sought to support the Government alleviate the budgetary pressures resulting from increased expenditures and revenue losses due to the two major typhoons. The operation did not support specific policy actions and activities, aiming instead to generally provide the government with quick disbursing resources to respond to disaster-related needs in a timely manner. At the same time, the operation sought to ensure that the reforms and programs supported by the DPO remain on track and are implemented without risk of delay due to insufficient or competing budgetary priorities arising from post-disaster reconstruction.

Revised PDO and Key Indicators, and Reasons/Justification 14. There was no change in the PDO during implementation.

Original Policy Areas Supported by the Program 15. The food crisis highlighted not only the vulnerability of Filipinos to economic shocks but also the state of social protection system in the country. For several decades, the Government had relied on social protection programs that were widely recognized to be poorly targeted, uncoordinated, and fragmented. However, even before the food crisis, reform in the social protection sector was underway, which contributed to accelerating the Government’s efforts to respond to the crisis. The DPO’s program document described the Government’s program and policy responses during the food crisis, which included short-term measures to mitigate the impacts of the crisis on poor households and the measures to continue the efforts to strengthen its social protection system. Among these measures, the DPO selected nine prior actions. This section describes the context in which these prior actions were selected. 16. The Government temporarily refrained from purchasing rice through international rice auctions and temporarily lifted restriction on private sector imports of rice. Faced with soaring international rice prices that began to erode the purchasing power of domestic consumers, the Government undertook several measures aimed at stabilizing the domestic prices in the short-term. The National Food Authority (NFA), the sole entity authorized to import rice and regulate rice trading, released its stocks especially to the areas that showed the most price increase, and attempted to further build up its inventory mainly by large-scale buying from international rice market. However, the large rice tenders had contributed to the global rice market’s volatility. In addition, relying solely on NFA for rice importation had made the country less able to respond to the dynamics of the international market. Recognizing these issues, the Government resorted to bilateral deals with its neighbors such as Japan, Vietnam, and Thailand to strengthen its rice stocks. It also drew up a temporary mechanism to relax the 40 percent tariff rates on rice and to allocate rice import quotas to the private sector. 17. The Government scaled-up subsidies and transfers to poorer households in response to the food price crisis and increased its spending, over and beyond the originally allocated 2008

6

budget, to the rice subsidy program, nutrition and feeding programs, and other social protection programs aimed at assisting poorer households. Spending on social protection, particularly social assistance programs had been generally low. It was estimated that the national government spending on social assistance programs was 2.7 percent of GDP in 2007.5 Moreover, due in part to the limited Government assistance, Filipinos often rely on family and community ties for assistance in times of crisis, mainly through intra-family and inter-household transfers. Filipinos also cope by reducing their expenditures on food and education during difficult times, which have detrimental effects on human capital particularly on children. Hence, there was a need for a more expanded Government assistance through subsidies and transfer programs to assist the poor and vulnerable households cope with the food crisis. 18. The Cabinet Secretaries of Department of Health (DOH), Department of Education (DepEd), DSWD, Department of the Interior and Local Government (DILG), and Department of Agriculture (DA) approved the Operational Guidelines for the Food-for-School (FSP) Program for the School Year (SY) 2008-2009. The FSP is a conditional in-kind transfer, which provides a kilogram of rice to school children in public elementary schools and DepEd-supervised pre-schools and day-care centers for a specific period of time as long as the child goes to school. The program, however, was estimated to have a high leakage rate (as much as 54 percent) to non-poor households because of its bias towards including areas in Metro Manila.6 As the resumption of classes in public schools for the SY 2008-2009 was in June 2008, which was the peak of the food crisis, there was a need to revise the operational guidelines of the FSP to prioritize the distribution of rice to children in the food-poorest areas. The revised operational guidelines reflected the priority target areas of the FSP, which included the 20 food-poorest provinces, 100 poorest municipalities not included in the 20 selected provinces, and depressed barangays in Metro Manila as identified jointly by DSWD and DILG.7

19. The President issued Administrative Order (AO) No. 232-A on July 28, 2008 establishing the National Social Protection and Welfare Program (NSWP) and assigning coordination responsibilities to DSWD.8 The social protection system in the Philippines was characterized by lack of policy and institutional coordination in the broad area of social protection, with several agencies undertaking uncoordinated programs that address various aspects of social protection. As an initial step towards addressing these challenges, the Government issued an official definition of “social protection” in 2007 with a view to have a common framework in designing and implementing social protection policies and programs.9 The food crisis in 2008, however, called for accelerated efforts to follow-through on this initiative. The lack of coordination in this area had made more difficult the development and implementation of a more coherent and

5 Estimate based on Sicat, J. D. (2011), "Social Protection: Aggregate Budget Allocation, Trends, and Processes", background paper prepared for the World Bank. Social assistance covers social welfare programs (which include tax expenditure subsidy for NFA) and social safety nets. Total national government spending is net of debt servicing. 6 Estimate based on Manasan (2009), "Reforming Social Protection Policy: Responding to the Global Financial Crisis and Beyond", Philippine Institute for Development Studies Discussion Paper Series No. 2009-22. It refers to the FSP (DepEd component) based on the arrangements in SY 2007-2008. 7 The 20 food-poorest provinces are based on ranking in Family Income and Expenditure Program (FIES) 2006 while the 100 poorest municipalities are based on the ranking of Small Area Estimates (SAE) of poverty incidence. 8 AO 232-A amended AO 232 on social welfare reforms, issued by the President on July 8, 2008. 9 Refers to Social Development Committee Resolution No. 1 Series of 2007 adopting a Philippine definition of social protection, approved on February 13, 2007.

7

coordinated social protection response to the crisis. An important step was to improve policy coordination and institutional arrangements by assigning the institutional mandate for this. Such a mandate for coordination of social protection programs was deemed important to better ensure that programs are effectively addressing the risks of shocks such as the food price shock. 20. Issuance of a Department Order adopting a national household targeting system for poverty reduction for DSWD’s social protection programs and services.10 Prior to the food crisis, DSWD was developing a national household targeting system, which is called the National Household Targeting for Poverty Reduction (NHTS-PR). The NHTS-PR uses the proxy means test (PMT) methodology to identify the poor. It was pilot-tested in 2007 in four municipalities and two cities in conjunction with the new CCT program that DSWD was developing. The creation of a national household targeting system was meant to improve the governance, transparency, and credibility of Government programs intended to support poor households. The lack of such a system resulted in the proliferation of transfer programs, which had their own targeting systems. For many of these programs, both the criteria for geographical and household targeting were not transparent or standardized. The importance of having a household targeting system was highlighted at the onset of the food crisis as the Government explored options to help poor. 21. Establishment of a database of over 200,000 poor households covering 83 municipalities.The NHTS-PR was designed to include a database of poor households. The database is created by enumerating all households in a given area and uses the PMT model to identify whether or not a household is poor. The PMT is a widely used method to statistically estimate household income using the PMT model. After the successful pilot-testing at the end of 2007, the food crisis that happened in the succeeding months urged the Government to accelerate the roll-out of the NHTS-PR. The Government was committed to creating a database of poor households in about 140 poorer municipalities and 10 cities by the end of 2008. This was being undertaken on a priority basis to identify poor households for coverage under the new CCT program that the Government intended to launch in these areas. In addition, the Government expressed its desire to expand the database nationwide and result in a database of poor households in the country. 22. Inclusion in the 2009 President’s budget adequate funding for expanding the database to cover at least the 20 poorest provinces in 2009. The growing consensus within the Government on the priority for such a household targeting system and the database of poor households would lead to the allocation of budget in 2009. Since its inception, the budget for NHTS-PR was part of the CCT program under DSWD’s budget. Enumerating the households in the poorest provinces and municipalities, including mobilizing field workers, encoding the information in the database, and ensuring that the database is free from errors and duplicities, would require substantial financial resources. Not only would it require additional manpower, it would also need a reliable management information system to help DSWD create a functional database that could be used to select beneficiaries of social protection programs. 23. Adoption and launch by the Government of a CCT program using the PMT-based national household targeting system. The Government saw the potential of a CCT program as the

10 Refers to DSWD Department Order No. 1 Series of 2008 adopting a household targeting system for poverty reduction for DSWD social protection programs and services, issued on September 30, 2008.

8

back-bone to a medium-term social protection and poverty reduction strategy that would reduce the risk of the current food crisis and future such shocks to households welfare. The CCT program would provide an income supplement to poorest households, which could help protect them from the shock of increased food prices and other household level shocks. Moreover, a CCT program conditions the cash transfer on “co-responsibilities” that ensure households do not sacrifice human capital development of their children due to such shocks. Indeed, an articulated concern at the level of the Cabinet indicated that the food price shocks could result in the falling primary net enrollment rate. 24. Inclusion in the 2009 President’s budget adequate funding for scaling up and sustaining the CCT program for 320,000 households. It was critical that, for the sustainability of the CCT program, there was a dedicated line item for it in the 2009 budget, with adequate funding to cover the program at the scale designated by Government. While the Government’s decision to undertake an initial CCT program at the scale of 320,000 households was welcome, the CCT program was designed to be a multi-year commitment to households. Preparation for this program came through with the supplementation in 2008 of previously approved funds on the basis of a decision to augment this program as a response to the food crisis and the poverty problem. However, its sustainability required an adequate budget allocation for 2009, along with a concomitant increase in the DSWD’s budget ceiling to undertake the program on a multi-year basis.

Revised Policy Areas 25. There was no change in the policy areas during implementation.

Other significant changes 26. The Supplemental Financing was the significant change in the DPO implementation. It was approved by the Bank based on the following justifications: 27. Unanticipated financing need. The Supplemental Financing was consistent with the provisions of Operational Policy (OP) 8.60. The magnitude of the losses and damages caused by the typhoons, including the recovery and reconstruction needs, were expected to have a sizeable impact on the overall financing needs of the Government. The economic impact of the typhoon compounded the effects of global economic crisis that happened in early 2009, which resulted in diminished tax revenues and augmented the fiscal deficit target from 0.4 percent of GDP to 3.9 percent of GDP for 2009. 28. Sustained implementation of and commitment to the DPO. The Government was able to mitigate the impacts of high food prices on vulnerable populations, including as a result of the expansion of safety net programs and measures supported by the DPO. In addition, sustained implementation and commitment to the program was reflected by reforms progressing beyond the envisioned short-term outcomes of the operation, particularly in the area of social protection policy coordination, establishment and use of a targeting system, and roll-out of a CCT program.

9

29. Inability to obtain sufficient funds on reasonable terms or in reasonable time. The Supplemental Financing sought to help the Government address immediate budgetary needs. The Government introduced a fiscal stimulus package in early 2009 to mitigate the effects of the global financial crisis, which increased the budgetary pressures and reduced revenue buoyancy. While other development donors provided grant financing, it remained limited compared to the needs.11 The World Bank also offered to reallocate its existing portfolio for reconstruction needs as well as redirection of its lending pipeline towards this end. 30. More fiscal space for budget reallocation. The Supplemental Financing was the first significant financing package to help the Government address immediate reconstruction needs. As it did not constitute part of the financing plan of the regular 2010 budget, it could be used to access some of the appropriated PhP50 billion in contingent, unallocated budgetary spending in the 2010 budget. These funds can be released against additional, previously "unprogrammed" funding. In so doing, the Supplemental Financing could enable the Government to increase expenditures against priority recovery and reconstruction expenditures. 31. Lower risk and reasonable financing terms compared to commercial financing. Given the large financing needs even before the disasters, the Government’s financing plan also called upon substantial commercial financing of the pre-disaster budget. While the Government was able to tap global bond markets at a time when the appetite for East Asian emerging market bonds was strong from international investors, it was concerned that access to market on reasonable terms could evaporate quickly. The Supplemental Financing supported the Government in its plan to mitigate this risk and diversify its financing sources. Moreover, the Supplemental Financing offered terms that were well below market rates. For debt management purposes, the Government was keen to improve both the maturity structure of public debt and reduce gross financing needs over the short-term. The Supplemental Financing, with its 25 year horizon and 10 year grace period, addressed both of these points. 32. Insufficient time to prepare a free-standing loan. The use of Supplemental Financing option could enable the Bank to deliver quick disbursing budget support in a timely manner to respond to urgent financial needs stemming from the typhoons. While there were other types of financing schemes, including a Catastrophe Deferred Drawdown Option (Cat-DDO), they would likely take significant time to prepare. 33. Apart from the Supplemental Financing as discussed above, there were no other significant changes made under the DPO.

Key Factors Affecting Implementation and Outcomes

Program Performance

11 Development partners offered redirected loan financing from their existing program. ADB, in particular, provided more than US$1 billion in budget support during 2009 to finance the Government’s fiscal stimulus plan.

10

34. Table 2 summarizes the nine prior actions that were selected for the DPO (as discussed in Section 1.4) and the expected short-term outcomes as articulated in the Policy Matrix. By design, the prior actions were taken before the operation was sent to the Board in November 2008, so all of them were fully implemented. The DPO had six short-term outcomes, all of them were successfully achieved, as presented in Section F(a). Moreover, it is noteworthy that the DPO had exceeded beyond the stated short-term outcomes, particularly on the three outcomes related to policy coordination in social protection, targeting, and the CCT program.

Table 2. Prior Actions and Expected Short-term Outcomes

Prior Actions Expected Short-term Outcomes 1. The Government temporarily refrained from purchasing

rice through international rice auctions and temporarily lifted restriction on private sector imports of rice.

Decline in the domestic retail price of rice between June and October 2008.

2. The Government scaled-up subsidies and transfers to poorer households in response to the food price crisis and increased spending, over and beyond the originally allocated 2008 budget, to the rice subsidy program, nutrition and feeding programs, and other social protection programs aimed at assisting poorer households.

Mitigating short-term impact of high food (and fuel) prices to households (as measured by the increased budget and off-budget allocation in 2008 for social assistance programs).

3. Operational Guidelines for FSP for SY 2008-2009 approved by the Cabinet Secretaries of DOH, DepEd, DSWD, DILG, and DA.

FSP targeting primarily vulnerable and poor children (as measured by the increased share of FSP budget to the 20 poorest provinces).

4. The President issued AO 232-A on July 28, 2008, establishing the NSWP and assigning coordination responsibilities to DSWD.

Institutional framework in place for enhanced coordination and delivery of social protection program, leading to reduced fragmentation and overlap.

5. DSWD’s issuance of a Department Order adopting the NHTS-PR for DSWD’s social protection programs and services.

6. Establishment of a database of over 200,000 poor households covering 83 municipalities.

7. Inclusion in the 2009 President’s budget adequate funding for expanding the database to cover at least the 20 poorest provinces in 2009.

A standardized database of poor households (identified using the PMT) established and used for selecting households by at least one national social protection program.

8. Adoption and launch by the Government of a CCT program using a PMT-based national household targeting system.

9. Inclusion in the 2009 President’s budget adequate funding for scaling up and sustaining the CCT program for 320,000 households.

320,000 poor households receive income support in the form of cash transfer.

35. Decline in the domestic retail price of rice between June and October 2008. Domestic retail price of well-milled rice declined by almost 13 percent during this period, from PhP38.37/kilo in June 2008 to PhP33.54/kilo in October 2008.12 Slight deceleration in food inflation was also seen during this period, from 16.5 percent in June 2008 to 15 percent in October 2008 compared to the same months in 2007. Rice prices continued to decline in the succeeding months, reaching PhP32.52/kilo in December 2008, and stabilized in 2009, averaging PhP34.12/kilo. The average retail price of rice in 2009, however, was higher than that in 2008 by

12 Prices are based on data compiled by DA's Bureau of Agricultural Statistics.

11

4 percent, reflecting the step increase in longer-term global rice prices after the food crisis. Nonetheless, food prices, in general, stabilized in the succeeding years. Average food inflation was 5.8 percent in 2009 and 3.1 percent in 2010, which were lower than the 12.9 percent average food inflation in 2008.13

36. Mitigating short-term impact of high food (and fuel) prices to households (as measured by the increased budget and off-budget allocation in 2008 for social assistance programs). The Government spent an estimated amount of PhP58 billion for social assistance programs in 2008, which accounted for 5.6 percent of national government expenditures. This amount was more than double the estimated amount in 2007 of PhP25 billion, which accounted for only 2.7 percent of national government expenditures.14 The NFA rice price subsidy showed the biggest increase (mostly off-budget) in 2008. The Government’s spending on NFA rice subsidy (including tax expenditure subsidy) was estimated to reach PhP39 billion in 2008, which was higher than PhP16 billion recorded in 2007. The Government also significantly increased the budgetary support for its cash and in-kind transfer programs, from PhP1 billion in 2007 to PhP8 billion in 2008. These covered the expansion of the existing programs and the creation of new ones in response to the crisis.15

37. FSP targeting primarily vulnerable and poor children (as measured by the increased share of FSP budget to the 20 poorest provinces). In October 2008, following the Cabinet approval of the revised operational guidelines for the FSP, DepEd issued a Department Memorandum to implement the revised guidelines for SY 2008-2009.16 The memo highlighted the revisions in the operational guidelines, which included the new set of priority areas for the distribution of rice. This covered the pupils in pre-schools and Grades I-III in all public elementary schools in the top 20 food-poorest provinces, top 100 food-poorest municipalities (excluding those that belong to 20 food-poorest provinces), and the depressed barangays in NCR as identified jointly by DILG and DSWD. This change in priority areas was estimated to have increased the share of FSP budget allocated for the 20 poorest provinces from 46 percent to 78 percent.17

38. Institutional framework in place for enhanced coordination and delivery of social protection program, leading to reduced fragmentation and overlap. Upon the creation of the NSWP in July 2008, the inter-agency cluster drafted a social protection framework to serve as a guide in improving the coordination of social protection programs. Since then, the Government has gone beyond achieving this short-term outcome. DSWD took the lead in stocktaking the Government’s social protection programs and the type of risk that these programs sought to address. It was found that several agencies undertake programs that address the same type of risk, indicating overlaps in beneficiaries and geographic areas of implementation. The cluster expanded this initiative and decided to conduct a study to review the existing social protection

13 Figures for food inflation are based on National Statistics Office (NSO) Price Statistics. 14 Estimates based on Sicat, J. D. (2011). See earlier footnote. 15 These estimates include the FSP, DepEd and DSWD’s supplemental feeding program, CCT program, Pantawid Kuryente, and Tulong Para kay Lolo at Lola.16 Refers to DepEd’s Department Memorandum No. 487 Series of 2008 stating the Implementation of the Food-for-School Program for SY 2008-2009, issued on October 20, 2008 17 Estimates based on the reduction in leakage rate of the FSP program from 54 percent to 22 percent, as stated in the Program Document of Supplemental Financing, paragraph 54, page 18.

12

programs with a view to scale up and reallocate resources to the most effective and efficient ones.18

39. The study recommended the following: (i) upscale existing programs that are proven effective; (ii) make the CCT program as the core social protection program; (iii) complement the CCT program with other impact to achieve a greater impact; (iv) merge social protection programs that have overlapping objectives, targeted vulnerable sectors, and covered geographical areas; (v) adopt the NHTS-PR to reduce leakage in identification of beneficiaries; and (vi) institutionalize a unified monitoring and evaluation across all agencies. Subsequently, the President instructed DSWD to form a technical working group to draft a Social Protection Strategy Paper that lays the groundwork for addressing the deficiencies and gaps in implementing social protection programs with a view to come up with a more appropriate, integrated, and coordinated social protection system. 40. In October 2009, the Social Development Committee (SDC)19 created its Sub-Committee on Social Protection to operationalize the strategies identified by the technical working group.20 Chaired by DSWD, the sub-committee is mandated to formulate a five-year social protection plan consistent with the national development objectives and priorities, which would also include the strategies identified in the Social Protection Strategy Paper. Among its other functions, the sub-committee is tasked to recommend to the SDC policies and strategies related to the operationalization of the imperatives of action identified in the plan. The sub-committee also advises the SDC on matters concerning social protection. 41. A standardized database of poor households (identified using the PMT) established and used for selecting households by at least one national social protection program. Following the pilot-testing of the household targeting system between September and December 2007, DSWD further developed the targeting tool in preparation for the scale-up of the CCT program in 2008. With technical support from the World Bank, DSWD developed the NHTS-PR’s management information system, drafted the Operations Manual for the NHTS-PR, and set up the institutional structure within the agency to operationalize the system. In March 2008, the Government decided to scale-up the CCT program in response to the food crisis and used the NHTS-PR’s standardized database to identify the beneficiary households. By this time, the Government already achieved the short-term outcome of the DPO. 42. Several developments have transpired since achieving this outcome. In September 2008, DSWD adopted the NHTS-PR as the main targeting tool for all of its social protection programs, in addition to the CCT program (which was selected as a prior action). The Government also decided to further expand the coverage of the NHTS-PR nationwide and added a dedicated line item in the GAA 2009 with a budget allocation of PhP650 million for the targeting system. Meanwhile, the targeting system garnered more support within the Government. In November

18 Refers to the Review and Strengthening of the National Social Protection and Welfare Program, which was commissioned by the inter-agency cluster to the Development Academy of the Philippines. 19 The SDC is a Cabinet-level inter-agency body that advises the President and the Board of the National Economic and Development Authority on matters concerning social development, including education, manpower, health and nutrition, population and family planning, housing, human settlements, and the delivery of other social services 20 Refers to SDC Resolution No. 2 Series of 2009 approving the creation of a Sub-Committee on Social Protection, adopted on October 29, 2009.

13

2009, the National Statistical Coordination Board (NSCB) issued a resolution recognizing the NHTS-PR as a tool to facilitate the identification of beneficiaries of social protection programs.21 In the following month, DSWD and the Philippine Health Insurance Corporation (PhilHealth) entered into a memorandum of agreement to use the NHTS-PR for the selection of the beneficiaries of PhilHealth’s program for the indigents. 43. In March 2010, the NHTS-PR became the official household targeting system for all the social protection programs in the country. The President issued an Executive Order directing all national government agencies to adopt the NHTS-PR as a mechanism in identifying the household beneficiaries of social protection programs nationwide and to use the database in prioritizing the poor beneficiaries, reflecting the Government’s commitment to improve the targeting of its programs to the poor.22 The Government also increased the budget allocation for the targeting system in 2010 to PhP723 million. During the year, DSWD continued to expand the database that, by December 2010, about 10 million households were surveyed, of which about half were identified as poor. 44. 320,000 poor households receive income support in the form of cash transfer. The Government launched the CCT program in March 2008, following the successful pilot program at the end of 2007 along with the household targeting system. As of ICR preparation, the CCT program is called Pantawid Pamilya.23 The first phase of expansion was conducted between March and December 2008 in 17 regions, 33 provinces, 4 districts, and 170 municipalities and cities. The geographic coverage for this expansion included the poorest municipalities in 20 poorest provinces and poorest provinces in other regions. By the end of 2008, the CCT program already covered about 333,000 beneficiary households, achieving the short-term outcome of the DPO. Since then, the CCT program significantly expanded in coverage and scale. The program had two more phases of expansion until December 2010, covering almost the entire country. By the end of 2010, the CCT program had a total of over one million beneficiary households. This was triple the expected short-term outcome of the DPO. 45. With the expanded coverage, the budget allocation for the CCT program also increased significantly. From the budgetary support of PhP1.3 billion in 2008, it increased to PhP8.3 billion in 2009 and to PhP10 billion in 2010. In the review of social protection programs conducted by the NSWP in 2009, the CCT program was commended as a program that addresses multiple types of risk and employs a well-designed targeting methodology that helps ensure that the program benefits accrue to the poor. In December 2009, the National Anti-Poverty Commission (NAPC) directed all national government agencies, including the government-owned and controlled corporations and government financial institutions, that were

21 Refers to NSCB Resolution No. 18 Series of 2009 recognizing and enjoining support to the NHTS-PR being implemented by DSWD as a tool to identify beneficiaries of social protection programs, approved on November 11, 2009. 22 Refers to Executive Order No. 867 providing for the adoption of the NHTS-PR as the mechanism for identifying poor households who shall be the recipients of social protection programs nationwide, signed on March 9, 2010. 23 During the pilot period, the CCT program was called Ahon Pamilyang Pilipino Program. During the launching in March 2008, the program name was changed to Pantawid Pamilyang Pilipino Program (4Ps) and later changed to Pantawid Pamilya by the Aquino administration.

14

implementing anti-poverty programs to prioritize the beneficiaries of the CCT program for their programs.24

46. Table 3 shows the summary of expected and the actual outcomes.

Table 3. Summary of Expected and Actual Outcomes

Expected Short-term Outcomes

Baseline Values (date specified)

Actual Outcomes (date specified)

Decline in the domestic retail price of rice between June and October 2008.

Domestic retail price of well-milled rice was PhP38.37/kilo in June 2008

Domestic retail price of well-milled rice declined to PhP33.54/kilo in October 2008.

Mitigating short-term impact of high food (and fuel) prices to households (as measured by the increased budget and off-budget allocation in 2008 for social assistance programs).

Social assistance programs accounted for 2.7 percent of national government expenditures in 2007

Social assistance programs accounted for 5.6 percent of national government expenditures in 2008

FSP targeting primarily vulnerable and poor children (as measured by the increased share of FSP budget to the 20 poorest provinces).

46 percent of FSP budget goes to the 20 poorest provinces during SY 2007-2008

78 percent of FSP budget goes to the 20 poorest provinces beginning October 2008

Institutional framework in place for enhanced coordination and delivery of social protection program, leading to reduced fragmentation and overlap.

No institutional framework in place as of June 2008

Inter-agency body on social protection was created in July 2008. Additionally, SDC Sub-Committee on Social Protection was created in October 2009.

A standardized database of poor households (identified using the PMT) established and used for selecting households by at least one national social protection program.

No standardized database of poor households in 2007

Standardized database of poor households established and used by the CCT program in March 2008, by all DSWD social protection programs in September 2008, and by all social protection programs of the government by March 2010.

320,000 poor households receive income support in the form of cash transfer.

20,000 poor households receive income support through CCT program in June 2008

333,000 poor households receive income support through CCT program by December 2008 and expanded to over one million poor households by December 2010.

Major Factors Affecting Implementation 47. Various factors contributed to the success in program implementation. These include the following: 48. Government’s commitment to the agenda. Even before the food crisis, the Government had already recognized the weaknesses in the social protection system in the country and had made positive steps towards improving the policy coordination of social protection programs. At

24 Refers to NAPC Memorandum Circular No. 1 Series of 2009 directing all anti-poverty programs and projects to focus on the one million poor households as beneficiaries, issued on December 23, 2009.

15

the same time, DSWD was embarking on a reform agenda, which included improving the targeting of its programs and putting into place a household-based model of service delivery in the form of the CCT program. Despite competing budgetary needs arising from the crisis, the Government maintained its commitment to sustain its efforts to enhance its social protection system. 49. External shocks that happened shortly after the food crisis. While the food prices peaked in July 2008, there were signs that the global financial crisis that was happening in the developed countries would have an impact on the domestic economic activity. The signs became more apparent in late 2008 when exports contracted. Real GDP slowed down to 0.4 percent in the first quarter of 2009 after posting 2.9 percent in the last quarter of 2008. These events prompted the Government to have a more aggressive stance in protecting the poor and vulnerable households not only from the food crisis but also from the looming global financial crisis. 50. Technically sound programs. The DPO supported the establishment of the NHTS-PR and the implementation of the CCT program. The technical grounding of these two programs is based on international best practice and methods. The national household targeting system, for instance, uses the PMT method in combination with geographic targeting, which is widely recognized to help minimize the inclusion and exclusion errors, thereby enhancing program impact. Meanwhile, the CCT program is known to improve the health and education outcomes in the target areas as indicated by impact evaluation studies of CCT programs in other countries. Moreover, the CCT program is so far the only social protection program in the Philippines in which control and accountability mechanisms are embedded in the core program design. 51. Continued technical support from the Bank team. While the Bank team had been providing technical assistance to DSWD to put in place the targeting system and the CCT even before the DPO preparation, it intensified its support to DSWD during the DPO implementation. Despite the merits of the PMT-based household targeting system and the CCT program, they also present implementation challenges as they are administratively complex by nature. Recognizing these, the Bank team provided continued and hands-on technical assistance to DSWD to assist the agency in successfully rolling out these programs nationwide. 52. Follow-through of related Bank projects. The DPO capitalized on the policy dialogue in the context of the ongoing preparation of a Sector Investment Loan (SIL), namely the Social Welfare and Development Reform Project (SWDRP), while broadening the social protection dialogue beyond DSWD. The SWDRP, which was approved on November 17, 2009, served as an important vehicle that allowed a deepening of reforms and support toward operational implementation while also ensuring a sustained engagement of the reform agenda catalyzed by the DPO.

Monitoring and Evaluation Design, Implementation and Utilization 53. During the preparation of the DPO, the six short-term outcome indicators (presented in Table 2) were selected in agreement with the Government counterparts. However, there was no agreed methodology to conduct monitoring and evaluation of the progress of program implementation. Nonetheless, monitoring and evaluation of the program implementation took

16

place through supervision activities carried out under related projects, such as the SWDRP, the Governance and Anti-Corruption Technical Assistance (GAC TA) Program, and through analytic and advisory activities (AAA) related to social protection.25

Expected Next Phase/Follow-up Operation 54. There are no follow-up operations contemplated under the DPO.

Assessment of Outcomes

Relevance of Objectives, Design and Implementation 55. The objectives pursued by the DPO were fully consistent with the CAS for the Philippines in FY 2006-2008. The CAS Progress Report completed in FY 2008 reaffirmed the two objectives of the CAS as economic growth and social inclusion, and the two levers (which contribute to achieving growth and social inclusion) as fiscal stability and good governance. Meanwhile, poverty reduction was central to the Government’s Medium-Term Philippine Development Plan (MTPDP) for 2004-2010. Through the DPO, the Bank supported the Government’s efforts at reducing poverty, as well as social inclusion and social stability, by supporting measures to alleviate the impact of food price increases on poorer households. Moreover, the measures supported by the operation, particularly with regard to improved and more transparent targeting, aimed to improve the governance in the social protection area. 56. Nearly three years since the DPO preparation, the objectives and the measures that it supported continue to be highly relevant with respect to the Bank’s new CAS as well as the Government’s current development priorities. They are aligned with one of the four strategic objectives of the CAS for FY 2010-2012, namely to reduce vulnerabilities, by expanding and rationalizing the country’s social safety net, and the CAS' cross-cutting theme to promote good governance. The new administration, which began in June 2010 under President Benigno Aquino III, has expressed its commitment to continue the efforts initiated by the previous administration in the area of social protection, including those pursued by the DPO, namely, enhancing the coordination of social protection programs, improving the targeting of the poor, and expanding the CCT program. 57. Moreover, the new administration reiterated its commitment to this end during the Philippine Development Forum (PDF) held on February 26, 2011. The new Secretary of DSWD announced that the agency plans to expand the coverage of the CCT program to cover as many as 2.3 million beneficiary households, or almost 60 percent of the poor households in the country, and expressed its support for the NHTS-PR. The Government also allocated more funds for the CCT program for 2011, which amounted to PhP21 billion, doubling the budget for the program in 2010. With a view to enhance coordination in the delivery of social protection services, the agency is also moving toward convergence of its major programs, which included the CCT program.

25 The GAC TA is financed by the Australian Agency for International Development (AusAID).

17

Achievement of Program Development Objectives

58. The DPO has successfully achieved the five program development objectives as stated in Section 1.2. This section discusses how the operation contributed to the achievement of these objectives. 59. Lowering and stabilization of domestic food prices in the short term. The DPO supported the Government’s decision to temporarily suspend purchasing rice through international rice auctions and to increase temporarily the participation of the private sector in the importation of rice (prior actions). These actions helped eliminate the speculations in the global rice market, lowering down the volatility of international prices. It was estimated that the Philippine tenders contributed to driving the global price of rice from US$385 per metric ton in January 2008 to US$567 in March 2008 and close to US$1,000 per metric ton in April 2008. Moreover, allowing the private sector to import more rice from international market helped ease out the supply pressure that was pushing the domestic rice prices up. However, it should be noted that, in addition to the measures supported by the operation, other factors were at play that contributed to achieving this objective. These included the NFA’s release of its buffer stock to the domestic market to contain domestic prices in time for the low-harvest season, which resulted in the gradual decline of domestic retail prices and even mitigated the seasonal increase in rice prices that was normally associated with the lean season. 60. Mitigation of short-term impacts of high food (and fuel) prices on poor households. The DPO supported the Government’s decision to scale-up the rice subsidy program, nutrition and feeding programs, and other social assistance programs (prior action) with a view to mitigate the short-term impacts on food and fuel crisis on poor households. The CCT program was among the programs that had largest increases in spending, from PhP50 million in 2007 to PhP1.3 billion in 2008. The targeting method employed in the CCT program, particularly in the first phase of expansion that covered the poorest provinces and municipalities, helped ensure that the increased in spending on cash transfers went directly to the poor. Under this objective, the DPO also supported the approval of the revised Operational Guidelines for the FSP for SY 2008-2009 (prior action), which reflected the improved targeting mechanism that prioritizes the most food-poor areas. With the improved targeting mechanism and higher budget for the program, more children from poor households were reached by the program. More discussion on poverty impacts of supported programs is presented in Section 3.4 (a). 61. Improved policy coordination and institutional arrangements for social protection. The DPO supported the establishment of the NSWP and the assignment of its the coordination responsibilities to DSWD (prior action), which became critical to achieving this objective. The creation of the cluster provided an institutional framework to set in motion the agenda to enhance the coordination and delivery of social protection program. It facilitated the review of existing social protection programs, which eventually led to the creation of the dedicated sub-committee under the SDC to formulate a more coherent strategy on social protection. While several studies have previously pointed out the challenges in the social protection system in the country, the initiative undertaken by the Government to make its own assessment allowed for more country ownership of this agenda. As of ICR preparation, improving the policy coordination and

18

institutional arrangements for social protection remains an on-going effort, but the measure supported by the DPO was critical in laying out the groundwork to move forward. 62. Improved targeting of poor households. The three prior actions supported by the DPO contributed to the achievement of this objective: (i) DSWD’s adoption of the national household targeting system to select the beneficiaries of its social protection program; (ii) the establishment of a database of poor households; and (iii) the provision of adequate funding for expanding the database. DSWD’s role in developing the NHTS-PR and the increased funding support from the national government to expand and further develop the household targeting system, including the database, were essential in achieving this objective. Furthermore, the Government’s adoption of the NHTS-PR as the main targeting tool of social protection programs in the country was a significant improvement in the targeting of poor households. For the CCT program alone, the NHTS-PR has so far produced good targeting outcomes. Incidence analysis of the program using the FIES 2009 suggests that about 72 percent of the CCT program’s beneficiary households belong to the poorest 20 percent of the population, where the 52 percent belong to the first bottom decile and the 20 percent belong to the second bottom decile.26

63. Improved impact, efficiency, and efficacy of social protection programs through a comprehensive CCT program. The DPO supported two Government’s actions with a view to achieve this objective: (i) the adoption and launching of the CCT program using the PMT-based national household targeting system; and (ii) the provision of adequate funding for scaling up and sustaining the CCT program for 320,000 households. These two actions led to the successful roll-out of the CCT program, which became one of the largest social protection program in the country to date. As will be discussed in more detail in Section 4(a), ex ante simulation analysis shows that the CCT program can significantly reduce poverty in targeted areas. The cash transfer to beneficiary households was estimated to reduce poverty incidence in these areas by as much as 2.6 percentage points. Moreover, the income gap of beneficiary households is estimated to be reduced by 5.3 percentage points and poverty severity by 4.3 percentage points. These impacts can be further enhanced by the additional benefits from anti-poverty programs, which would prioritize the existing CCT program beneficiaries.27

Justification of Overall Outcome Rating

Rating: Highly Satisfactory

64. Overall, the DPO is rated highly satisfactory. As discussed in detail above, the operation’s development objectives were successfully achieved, all of which remain highly relevant in terms of current development priorities. The objectives, design, implementation, and outcomes of the DPO reflected the Bank’s understanding of the Government’s agenda in short and medium-term as well as the Government’s commitment and capacity to undertake reforms in social protection. This overall rating is also warranted by the progress made in program implementation, which have gone over and beyond the expected short-term outcomes.

Overarching Themes, Other Outcomes and Impacts

26 World Bank staff estimates based on the CCT program’s data as of January 2011. 27 As directed by the NAPC Memo Circular No. 1 Series of 2009. See earlier footnote.

19

(a) Poverty Impacts, Gender Aspects, and Social Development

65. The DPO and the measures it supported, with its focus on social protection and safety nets, had positive impacts in mitigating the poverty and social impacts of the food crisis. During the peak of the crisis, the Government’s policy of protecting the domestic rice market and making more rice stocks available on the domestic market through importation and release of existing buffer stocks helped mitigate the increase in domestic retail prices. It was estimated that the general domestic retail market price of rice was approximately 10 percent below what it would otherwise have been (as proxied by world market prices).28 Analysis would indicate that had this mitigation not taken place and had prices risen by another 10 percent, poverty incidence would have increased nationally by an additional 1 percentage point, or close to an additional 0.9 million people falling into poverty. 66. In addition, negative poverty and social impacts of food price increases were mitigated to the extent that the Government provided subsidized rice to consumers. As noted earlier, with the increase in world prices, the implicit subsidy to consumers who accessed subsidized NFA rice increased dramatically. Most of the subsidized rice was sold at PhP18.25 per kilogram. In contrast, regular-milled rice was at PhP32.30 per kilogram in the second quarter of 2008 and the estimated world price was at PhP36.04 per kilogram. While the targeting of NFA subsidized rice to the poor was not particularly efficient, access to the subsidized rice, while coming at a huge fiscal cost, had positive poverty and social benefits. Even if the total implicit subsidy through NFA had been equally distributed to all households in the country, whether rich or poor, it was estimated that this action itself would have reduced poverty incidence by 1.4 percentage points and the income gap by 0.8 percentage points. 67. Measures to improve geographic targeting of the FSP program focused the benefits of this program to the poor. Better geographical targeting, as was laid out in the new operational guidelines, was estimated to cover as much as 78 percent of the poor, with savings estimated to be PhP465 million of the DepEd’s PhP750 million budget for the FSP in 2007.29 Alternatively, assuming a revenue-neutral scenario, such improved targeting was estimated to improve poor households’ benefit from the program from PhP6 a day to PhP15 a day, or additional 114 days of free NFA rice.30

68. More importantly, putting into place an accurate household targeting system is expected to greatly benefit the poor if it is used to distribute the benefits of social protection programs. For example, as noted above, the current implicit subsidy through NFA would reduce poverty incidence by 1.4 percent and the income gap by 0.8 percent if the subsidy were equally transferred to all households. If, with the existence of a targeting system, the same aggregate

28 World Bank staff estimates based on the cif value of imported Vietnam 25% broken in the second quarter of 2008 and the observed domestic retail price of regular rice during the same period. 29 It was estimated that based on the original targeting rules for the DepEd’s FSP – using the income classification of municipalities and the Food Insecurity and Vulnerability Information Mapping System (FIVIMS) – 62 percent of the municipalities targeted were not the poorest municipalities. If targeting had been based solely on Small Area Estimates of poverty at the municipal level, the program would reach an additional 38% of poor municipalities. 30 Computation based on a total of 596,939 beneficiaries reached by the DepEd’s FSP in 2007.

20

subsidy was targeted and distributed only to rural poor households, poverty incidence could be reduced by as much as 6.4 percent and the income gap by 4.2 percent. Alternatively, the Government could achieve the same poverty reduction impact of its current subsidy program at a substantially lower cost. The Government’s actions to put into place such a system can significantly improve the efficacy and poverty reducing impact of its social assistance programs to deal with such shocks. 69. Ex ante simulation analysis suggested that the CCT program can reduce poverty in the targeted areas significantly. Based on the program's data, it was estimated that 62 percent of the population in municipalities covered in the first and second phases of program expansion live below the poverty line.31 The cash transfer to beneficiary households, which increases their household income, was estimated to reduce poverty incidence in these areas by as much as 2.6 percentage points. Moreover, the cash transfer could reduce the income gap of the beneficiaries by 5.3 percentage points and poverty severity by about 4.3 percentage points. The average increase in per capita income among the beneficiaries is 12 percent. Although based on predicted income figures, these estimates are consistent with the results of impact evaluations of comparable CCT programs in other countries. For instance, poverty was reduced by 17 percent in Progresa communities in Mexico while the Familias en Acción program in Colombia reduced the poverty gap by more than 6 percentage points.32 Furthermore, the CCT program is expected to contribute to women empowerment in the target areas. In addition to the program’s feature of giving the responsibility of managing the cash grants to the mother, the program also helps improve women’s health outcomes through variety of activities such as pre-natal health care as well as their knowledge base through family development sessions.33

(b) Institutional Change/Strengthening 70. The measures supported by the DPO, particularly in the areas of policy coordination in social protection, targeting, and the CCT program contributed to institutional development in social protection sector. The creation of the NSWP, and subsequently the SDC Sub-Committee on Social Protection, laid the foundation for a more coherent and unified strategy to enhance the coordination of social protection programs in the country. Meanwhile, the creation of the household targeting system and the CCT program contributed to the improvement of DSWD’s technical capacity as well as the agency’s implementing capacity to take the lead in social protection. (c) Other Unintended Outcomes and Impacts (positive or negative, if any)

31 World Bank estimates based on analysis of Set 1 and Set 2 beneficiary households, where NHTS-PR surveyed at least 80 percent of the total households. Household cash transfers (health and education grants) were computed according to the actual demographic composition of beneficiary households and per capita income predicted using the PMT. The transfer was adjusted using the compliance rate for education (77 percent) and health (70 percent) based on the data for the first quarter of 2011. 32 Based on estimates by Hoddinott and Skoufias (2004), “The impact of Progresa on Food Consumption,” Economic Development and Cultural Change, 53(1):37-61, for Mexico; and 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, for Colombia. 33 For instance, see Barber, S. and Gertler, P. (2008), "Empowering Women: How Mexico's Conditional Cash Transfer Program Raised Prenatal Care Quality and Birth Weight", Berkeley in the case of Mexico's Oportunidades.

21

71. Other unintended outcomes and impacts were covered in Section 2.1.

Summary of Findings of Beneficiary Survey and/or Stakeholder Workshops 72. Beneficiary surveys and stakeholder workshops were not conducted for this DPO.

Assessment of Risk to Development Outcome

Rating: Negligible to Low

73. As of ICR preparation, there are risks that the development outcomes will not be maintained, although these risks are considered to be negligible to low. These are the following: 74. Future external shocks. The country continues to be a large importer of rice. In 2010, the NFA imported 2.25 million metric tons of rice. Although slightly lower than the importation of rice in 2008 of 2.34 million metric tons, it was higher than the importation in 2009 of 1.58 million metric tons.34 As such, it remains sensitive to the volatility in international rice prices. The country is also prone to natural disasters that are typically large enough to cause major destruction on crops that could affect the domestic supply of rice. However, as a contingency measure to ensure food security, the NFA increased the rice import quota for the private sector to 660,000 metric tons in May 2011, which account for almost a third of the country’s rice imports in 2010. Moreover, the country has strengthened its systems to address disasters with the passage of the Philippine Disaster Risk Reduction and Management Act in May 2010.35

75. Manipulation of the targeting database. The Philippines has a history of using transfer and subsidy programs for political ends. The adoption of the NHTS-PR as the tool to select the beneficiaries of social protection programs in the country was a major step towards improving the targeting of the poor. DSWD is tasked to provide the list of potential beneficiaries to agencies that implement social protection programs. Although it may be the case that the database generates the list of poor households, there is no guarantee that the list will be adopted by the implementing agencies or local government units, which tend to have their own set of target beneficiaries. To mitigate this risk, the Government is working towards creating a unified multi-purpose ID system for the NHTS-PR to strengthen the monitoring of beneficiaries of social protection programs in the country.36

34 Importation in 2010 is based on the NFA Administrator’s speech before the Philippine Rice Congress on February 8, 2011 while the importations in 2009 and 2008 are based on import statistics data from NFA as of August 4, 2010. 35 Refers to RA 10121 strengthening the Philippine disaster risk reduction and management system, providing for the national disaster risk reduction and management framework, and institutionalizing the national disaster risk reduction and management plan, appropriating funds therefore and other purposes, which was approved on May 27, 2010. 36 As directed by Executive Order No. 867. See earlier footnote.

22

Assessment of Bank and Borrower Performance

Bank Performance (a) Bank Performance in Ensuring Quality at Entry

Rating: Satisfactory

76. The Bank performance was satisfactory during the program preparation and appraisal. It responded rapidly to the Government’s request for assistance to mitigate the adverse impacts of the food crisis (11 weeks since the Government approached the Bank for assistance). Barely four months later, the Board approved the DPO. The preparation of the DPO was in time to address the food crisis. During that time, not only was it evident that increases in international food prices had significant impacts on domestic consumers, there were also signs that the global financial crisis would affect the domestic economic activity, increasing the threat to the poor and vulnerable Filipinos. Faced with external shocks that could possibly put an end to years of good economic growth and reverse the gains from its poverty reduction efforts, the Government needed both the financial as well as technical support to cope with the crises. 77. Moreover, the DPO was prepared while the Bank was already providing technical assistance to DSWD to articulate its reform agenda.37 The reform included, among others, the development and implementation of a social protection framework, the development of a targeting system for the poor, and putting into place a CCT program. In 2007, DSWD was able to pilot-test the CCT program as well as the PMT methodology for a household targeting system with technical support from the World Bank. This was being undertaken in parallel with the Government’s efforts to address the major lapses in its social protection policies. The close collaboration between the Bank and DSWD well before the food crisis enabled the Bank to have an understanding of the overall policy direction that the Government wanted to pursue in the area of social protection as well as the capacity to realize the short-term outcomes articulated in the Policy Matrix. 78. The set of objectives embodied in the Policy Matrix was aligned with the Government’s agenda both in the short and the medium term. The set of measures supported by the DPO related to rice policy were grounded on the Bank’s on-going analytical work and policy dialogue on the rice sector. Likewise, those related to social protection and targeting drew on the Bank’s analytical work, policy notes, and consultant studies on the issues of improved targeting, as well as on the Bank’s AAA program on Inclusive Growth that was underway during the DPO preparation. As reflected in the program document of the DPO, the Bank team conducted a thorough poverty impact analysis of the food crisis and the efficiency gains from improved targeting and delivery of social protection services. 79. Likewise, the Bank stood ready to assist the Government after the disasters. The Bank led the preparation of the PDNA, which was the basis for the meeting among the Government,

37 In November 2006, the World Bank made available a grant amounting to US$500,000 to assist DSWD in developing its desired reform agenda.

23

development partners, and the private sector that was convened on December 2, 2009. This meeting resulted in indications by partners of their readiness to support recovery and reconstruction efforts. Following the Government’s request to re-open the DPO to allow for Supplemental Financing in November 2009, the Bank began the loan preparation in December 2009 (6 weeks). Besides the Supplemental Financing, the Bank has also identified up to US$300 million in commitments from existing projects, or projects under preparation, that could be partially reallocated to address disaster-related needs. More importantly, the Bank also provided just-in-time technical assistance to the Special National Public Reconstruction Commission (SNPRC) in spearheading the formulation of the Indicative Reconstruction and Expenditure Plan (IREP) for the country and in developing the Reconstruction Monitoring and Evaluation System (RMES).38

(b) Quality of Supervision

Rating: Satisfactory

80. The quality of the Bank supervision to ensure the achievement of relevant outcomes of the DPO was satisfactory. The supervision activities were carried out through related projects such as the SWDRP, the GAC TA, and the Bank’s subsequent AAA work related to social protection. However, as DSWD was the main Government counterpart for these projects, the progress of DPO implementation was closely supervised to the extent that DSWD was involved. DSWD was co-implementing agency of the FSP, a member of the SDC, and the main implementing agency of the NHTS-PR and the CCT program. Nonetheless, this did not deter the Bank to ensure that the operation remains on track, considering that (i) the four outcomes related to rice prices, Government spending, FSP, and policy coordination, whose progress was indirectly related to DSWD, were already achieved shortly after the DPO’s approval; and (ii) the two outcomes related to targeting and CCT program required more technical support. 81. Through the SWDRP and the GAC TA, the Bank was able to provide intensive and hands-on technical assistance to DSWD in rolling out the CCT program and the targeting system. Given the complexities in setting up the operational systems of the CCT program and targeting system as well as the limited preparation time between the pilot-testing and scale-up, achieving the outcomes related to CCT program and targeting was considered to be the most challenging. The Bank team conducted frequent meetings with DSWD officials and technical staff, including hiring international experts to provide technical guidance to DSWD. While these activities were carried out external to the food crisis operation, they provided the Government the much needed help in achieving the outcomes over and beyond those articulated in the DPO. 82. Meanwhile, as the Supplemental Financing did not support specific policy actions or activities, there was no need of supervision. Nonetheless, the Bank assisted the Government to

38 Refers to Executive Order 838 creating the Special National Public Reconstruction Commission to undertake a study of the causes, costs, and actions to be taken in the wake of typhoons Ondoy, Pepeng, and Frank, to seek aid to fund the reconstruction, and to enter into a partnership with the private sector for the foregoing purposes, which was signed on October 22, 2009. Typhoon Frank hit the country in June 2008. The IREP was a consolidated list of priority programs, activities, and projects to be funded, which was gathered during the workshop with line agencies on February 5, 2010. The RMES was formally established on March 16, 2010 with the passage of Executive Order 870.

24

put in place the RMES, which served as a tracking system to monitor funding, expenditure, and implementation of reconstruction programs and projects. The monitoring system would track funds from all sources—donors, NGOs, private sector, and government. The tracking of on-budget reconstruction expenditures would require the indicative reconstruction expenditure plan as a basis, as well as the “tagging” of government expenditures that go toward activities detailed in the plan (whether they are incremental to the budget or reallocations within the budget).

(c) Justification of Rating for Overall Bank Performance

Rating: Satisfactory

83. Overall, Bank performance was satisfactory during the DPO implementation. The Bank stood ready to assist the Government at the height of the food crisis. It provided not only financial but also technical support to assist the Government mitigate the impacts of the food crisis and, at the same time, helped ensure that the poor and vulnerable households are protected in case such shocks occur in the future. The preparation time between Concept Review Meeting and the Board approval of the DPO was less than four months. Moreover, the Policy Matrix that was prepared for the DPO embodied the objectives that were aligned with the Government's program. The Bank selected outcomes that could be realistically achieved within the program implementation period given the Government's capacity as well as commitment to achieve them. Although there was no formal supervision activities carried under the DPO, these activities were undertaken through other Bank projects whose objectives were related to those of the DPO.

Borrower Performance (a) Government Performance

Rating: Not applicable

84. The Government and the implementing agencies for this DPO are indistinguishable. Hence, only an overall rating is necessary. (b) Implementing Agency or Agencies Performance

Rating: Not applicable

85. Same as in Section 5.2 (a) above. (c) Justification of Rating for Overall Borrower Performance

Rating: Satisfactory

86. Overall, Borrower performance was satisfactory during the DPO implementation. The Government showed ownership and commitment to achieving the development objectives of the

25

operation. Almost five months since the Government approached the Bank to request for financial assistance, it was able to provide the Bank with all supporting documents for the prior actions selected for the DPO, reflecting its readiness for implementation. As discussed in Section 2.1, the program’s performance can be assessed as having surpassed all the six short-term outcomes of the DPO, which can be mainly attributed to the Government’s efforts to further the agenda in social protection. This was evident from the numerous policy directives that were issued by the implementing agencies, including the Office of the President, to push through with the reforms supported by the DPO. Moreover, although the risks to specific reforms supported by the DPO were recognized at the preparation stage, particularly the weak institutional capacity in rolling out the targeting and the CCT program, the Government (through the DSWD) has maintained the policy dialogue with the Bank and requested for technical assistance to assist them in setting up the programs’ operational systems as well as in mitigating the implementation risks associated with the rapid scale-up.

Lessons Learned 87. There are lessons to be learned from the results of the DPO:

• A pre-existing government or country-owned agenda is critical to the effectiveness of the DPO. The effectiveness of the DPO as an emergency operation lies in its ability to catalyze a nascent reform agenda in social protection and further it due to the circumstances and exigencies of the crisis. The DPO benefitted from a pre-existing policy dialogue by the Bank on the social protection agenda, but was useful in broadening this policy dialogue from one about specific agency-wide reforms (at DSWD) to broader cross-sectoral reforms in social protection.

• There are important potential synergies between DPOs and SILs that can be exploited during program implementation. First, the DPO capitalized on the policy dialogue in the context of the ongoing preparation of the SIL, namely the SWDRP, while broadening the social protection dialogue beyond the one implementing agency of the SIL. As mentioned earlier, the SIL served as an important vehicle that allowed a deepening of reforms and support toward operational implementation and also ensuring a sustained engagement of the reform agenda catalyzed by the DPO. Moreover, through the SIL, the Bank was able to ensure that the DPO operation remains on track, particularly on CCT program and targeting, as those were among the main components of the SIL.

• There is potential to leverage reforms in one sector, such as social protection, to achieve reforms in another, such as agricultural reform. While the timing of the emergency operation did not allow reform champions in Government to secure reforms in agricultural marketing and subsidy policy, the DPO helped further the policy dialogue in these areas. In particular, the successful achievement of an improved targeting system and the roll-out of a cash transfer scheme opened up options in the future to replace poorly targeted commodity subsidies, such as that for rice, which distorts domestic agricultural markets, with a more cost effective social safety net scheme.

26

Annex 1. Bank Lending and Implementation Support/Supervision Processes (a) Task Team members

Names Title Unit Responsibility/Specialty

Lending Jehan Arulpragasam Advisor MDI Team Leader Carolina V. Figueroa-Geron Lead Rural Development Specialist EASPS Co-Team LeaderJohn Factora Senior Operations Officer AFCS2 Lynnette Dela Cruz Perez Senior Education Specialist EASHE Eduardo P. Banzon Senior Health Specialist EASHH Iamele P. Rigolini Senior Economist LCRCE Maria Loreto Padua Social Development Specialist EASPS Swati R. Ghosh Adviser PRMVP Karl Kendrick Tiu Chua Country Economist EASPR Matthew James Keir StephensSenior Social Development SpecialistEASPS Annalyn M. Sevilla E T Consultant EACPF Eric Le Borgne Senior Economist EASPR Yasuhiko Matsuda Sr Public Sector Spec. EASPR Fabrizio Bresciani Rural Dev. Economist EASPS Felizardo Jr K. Virtucio Operations Officer EASPS Tomas A. Sta. Maria Financial Management Specialist EAPFM Minneh M. Kane Lead Counsel LEGES Cecilia D. Vales Lead Procurement Specialist EAPPR Cesar Palma Banzon Program Assistant GSDDR Christine M. Richaud Senior Economist OPCCE Thao Le Nguyen Senior Finance Officer CTRFC Steven N. Schonberger Lead Operations Officer EASRE Bert Hofman Country Director EACPF Maryse D. Gautier Manager, Portfolio and Operations EACPF Rahul Raturi Sector Manager EASRE Junko Onishi Monitoring & Evaluation Specialist EASHS Rashiel Besana Velarde Operations Analyst EASHS Kristie May San Juan Ante Program Assistant EACPF A. Juliana Williams Senior Program Assistant EASHD Lilian Loza San Gabriel Team Assistant EACPF Rosechin Olfindo Consultant EASHS Rowena J. Martinez Consultant AFTUW Abigail Barbara Sanglay Consultant EASPR

27

Names Title Unit Responsibility/ Specialty

Supervision Jehan Arulpragasam Adviser MDI Team Leader Agnes Albert-Loth Sr Financial Management

Specialist EAPFM Financial Management

Specialist Cecilia D. Vales Lead Procurement

Specialist EAPPR

Procurement Specialist

Thao Le Nguyen Senior Finance Officer CTRFC Finance Officer

Preselyn Abella Senior Finance Officer CTRDM Financial Management Specialist

Joan Toledo Finance Analyst CTRDM Finance Analyst Sherwin L. Dela Vega E T Temporary CTRDM Finance Assistant Jorge O. Pena Portfolio Officer Loan Accounting Officer Kristine May San Juan Ante Program Assistant EACPF

(b) Staff Time and Cost Staff Time and Cost (Bank Budget Only)

Stage No. of staff weeks US$ Thousands (including

travel and consultant costs)Lending

FY2009 22.94 114.95 FY2010 (for the Supplemental) 12.86 79.39 FY2011 0 0.01

Total: 35.80 194.35 Supervision/ICR

FY2012 0 4.57

Total: 198.92

28

Annex 2. Borrower’s ICR and Comments on Draft ICR Borrower’s ICR

Borrowers’ Implementation Completion Report on the US$200 million Food Crisis Response Development Policy Operation Loan and the

US$250 million Supplemental Support for Post-Typhoon Recovery39

The Global Financial Crisis 1. Liquidity disruptions and increasing debt burden experienced in major economies in mid-2007 followed by steep rise in the prices of rice thereafter had significant adverse impact on the global credit and financial markets as a whole. 2. Losses resulting from subprime mortgage loan delinquencies, bankruptcy and acquisition and restructuring of certain financial institutions in the United States and the debt problems faced by some countries in Europe have prompted regulators to take steps to respond to the unprecedented conditions faced by financial institutions. Globally, stocks of rice have plummeted resulting to price volatility. Rice has been one of the worst hit with prices jumping 50% towards the end of March 2008 and at least doubling since 2004 an Associated Press report stated. 3. While the Philippines experienced slower growth rates during the onset of the global financial crisis, it did not go through a recession unlike many of the major economies in East Asia. Reasons identified for such resilience of the domestic economy include: (i) sound fundamentals in the banking sector; (ii) domestic consumption as the main driver of growth; and (iii) Overseas Filipino Workers’ (OFW) remittances did not contract as expected during the crisis. Nevertheless, despite the avoidance of a recession, it cannot be ignored that the impact of the crisis on the economy and the social sector had been nonetheless severe. 4. In response to such impact, the Government of the Philippines (GOP) launched numerous programs specifically intended to immediately address the impact of the crisis while other programs that already existed were expanded and intensified in terms of area or beneficiary coverage. These programs are contained in the Economic Resiliency Plan (ERP) the GOP introduced in 2009. The Economic Resiliency Plan (ERP) 5. To keep the economy afloat, the government adopted an economic stimulus package called the Economic Resiliency Plan (ERP), a pump-priming program with a total budget of PhP330 billion or an estimated 4% of GDP. The ERP involved not only the frontloading of, but likewise an increase in the spending of the 2009 budget on items that include infrastructure

39 Prepared by DOF’s International Finance Group and submitted to World Bank on August 29, 2011.

29

projects, expansion of social protection programs, tax cuts for less than minimum wage earners, and emergency job creation. 6. The PhP330 billion is allocated as follows: (i) PhP160 for an increased budget for infrastructure, agriculture, social protection, health and education sectors for quick job creation; (ii) PhP20 billion for tax exemptions for low income earners and another PhP20 billion for corporate income taxes; (iii) PhP100 billion for large infrastructure projects of the Departments of Public Works and Highways, Transportation and Communications, Agriculture and Education; and (iv) PhP30 billion for additional social security benefits. 7. The Pantawid Pamilya (2Ps) Program, commonly known as the Conditional Cash Transfer (CCT) Program of the Department of Social Welfare and Development (DSWD) was among the existing programs of the government expanded under the ERP. Launched in 2008, the first set of 330,000 poor households identified through the proxy means test (PMT) benefited from cash grant (PhP6,000 health grant and PhP3,000 education grant yearly) upon full compliance with the program’s conditions. The second set increased the coverage for another 320,000 households in 2009. According to DSWD, coverage has now grown to about 2.3 million household beneficiaries. Typhoons Pepeng and Ondoy in 2009 8. Two major cyclones that hit the country in 2009 further added to the strains of the financial crisis. Typhoon Pepeng (Ketsana) that made landfall in September resulted to severe flooding mostly in the Metro Manila area and displaced about 1.8 million people. After only a week, Typhoon Ondoy (Parma) in October 2009 hit the northern provinces of Luzon, further aggravating the flooding and damage already brought by Pepeng and causing landslides that left roads impassable and increasing the number of displaced residents. According to the National Disaster Coordinating Council (NDCC), these two typhoons resulted in approximately PhP38 billion in damages. While relief resources were immediately mobilized and deployed to the affected areas, and the government implemented additional measures in 2009 and 2010, such as supplemental budget allocation and other additional financings and aid options to mitigate the damage caused by these storms. 9. It was under these circumstances that the Economic Stimulus Fund (ESF) was created by Congress in the 2009 General Appropriations Act. Congress approved a supplemental budget amounting to PhP10.07 billion, mainly to support the reconstruction and rehabilitation efforts needed after the onslaught of the typhoons. It likewise intended to continue funding other on-going projects complementing the ERP such as scholarships, training programs, reintegration programs for displaced OFWs, construction of school buildings, medical assistance to remote areas, food production and DENR support for the protection of forests, marine and watershed areas and recycling of agriculture waste products. Other Programs and Policies during the crisis 10. The government made sure that there were enough safeguards in place to prevent some people from taking advantage of the crisis by raising prices of basic goods and services. The

30

Department of Trade and Industry (DTI) closely and regularly monitored the prices of basic commodities. President Arroyo then imposed price ceiling on basic commodities under the Price Act or Republic Act 7581. Shortly thereafter, the President signed Executive Order 839 instructing all oil companies to keep the prices of all petroleum products temporarily at 15 October 2009 levels. It must be noted though that both Presidential actions were a month later after receiving heavy criticisms from the affected sectors. 11. Related to the government’s continuing effort to limit rice importation and attain rice self-sufficiency by 2013, the government launched in early 2008 a program called FIELDS or the Fertilizer, Infrastructure/Irrigation, Extension/Education, Loans, Drying and other post-harvest facilities and Seeds) program. Under the ERP, PhP44 billion was earmarked to fund FIELDS. DPO Program Performance – Borrower’s Assessment 12. Against the backdrop of the global financial crisis and significant reconstruction funding requirements following the aftermath of Typhoons Pepeng and Ondoy in 2009, the GOP received financial assistance from the World Bank through a US$200 Development Policy Operation (DPO) loan under the Global Food Crisis Response Program (GFRP) facility and a US$250 million Supplemental Financing for post-typhoon recovery efforts. Both financing were released as budgetary support to finance existing and already approved budget items focused on social protection and allowed the release of unprogrammed budgetary funds to support the reconstruction expenditure program. 13. The approval and release of the GFRP in 2009 showed the rapid response of the Bank to our request for assistance to cushion the impact of the food crisis. Immediately thereafter, the Bank was ready to mobilize other development partners in conducting the post disaster needs assessment (PDNA) resulting from the typhoons. The PDNA unlocked another opportunity for the Philippines to tap concessional financing to fund unexpected reconstruction additional and expenditures from the calamities through the Supplemental DPO. 14. It must be highlighted that the Bank’s responsiveness came at a time when the GOP was embarking on a huge economic stimulus package to weather the global financial crisis. Because of this simultaneous occurrence, it can be said that the DPOs complemented the ERP and the ESF in 2009 by providing the source to unlock the “unprogrammed” expenditures brought about by the crisis. Thus, the Borrower’s assessment of the DPOs will be linked to the implementation of the programs contained and supported by the ERP and ESF. 15. The GFRP supported the expansion of the CCT program, scaling up the coverage by 321,000 identified poor households in 2009 as envisioned in the ERP. To date, the program is being implemented nationwide in all 17 regions, 79 provinces, 939 municipalities and 75 cities bringing a total of 2.2 million registered beneficiary households as of 10 July 2011. According to DSWD, they will need more than PhP21 billion in funds to further expand the program in the coming years.

31

16. The DPO was able to provide the funding necessary to address the supply side strategy in increasing food production that include repair and rehabilitation of irrigation facilities, training on inter-cropping, seed subsidies through the FIELDS program. It also supported the delivery of food through farm-to-market roads, barangay food stores and the Food for School Program of the Department of Education. 17. Reducing poverty and inclusive growth remains important in the current administration’s development priorities as reflected in the Philippine Development Plan 2011-2016, supported by the Bank’s Country Assistance Strategy (CAS) for the Philippines for 2010-2012. 18. As the country remains vulnerable to natural catastrophies, immediate access to quick disbursing financing facilities such as the Bank’s Supplemental DPOs will continue to be relevant and an important source of funding for unprogrammed/unanticipated expenditures.

Borrower’s Comments on the Draft ICR40

On page 18, Section 2.3, paragraph 50, it was mentioned that the monitoring and evaluation of the progress of program implementation were done looking at activities under related projects such as the SWDRP. To be consistent, we have likewise used as reference the NEDA Project Monitoring Staff evaluation report as of December 2010 and the SWDRP Implementation Review Mission Report dated October 2010 to come up with the following observations: 1. The CCT Program disbursement under the SWDRP US$405.0 million loan remains low at 15% as of October 2010 due to, among others, lower compliance rate and reduction of the number of households and the average number of children in households. This is despite the significant increase in the budget allocation for the CCT Program in 2009 and 2010.There may be questions on absorptive capacity on the part of DSWD which may require further discussions with the view to facilitate use of the funds being made available under the loan. 2. Another delay on the impact evaluation and 4Ps spot checks due to the slow procurement process and delays in the data collection was reported in October 2010 SWDRP Implementation Review Mission Report. This is crucial as it would be of interest for us to determine even at this early stage, if possible, the project's relevance to the over-all social protection program. However, we note that despite this constraint, the compliance level remains satisfactory as reported at this point.

40 Prepared by DOF’s International Finance Group and submitted to World Bank on July 13, 2011. These comments were based on the draft ICR as of June 30, 2011.

32

Annex 3. List of Supporting Documents • Program Information Document, Food Crisis Response Development Policy Operation

Under the Global Food Crisis Response Program, dated October 7, 2008.

• Program Document, Food Crisis Response Development Policy Operation Under the Global Food Crisis Response Program, dated December 1, 2008.

• Implementation Status Report, Food Crisis Response Development Policy Operation Under the Global Food Crisis Response Program, dated June 30, 2010.

• Program Information Document, Food Crisis Response Development Policy Operation: Supplemental Support for Post-Typhoon Recovery, January 21, 2010.

• Program Document, Food Crisis Response Development Policy Operation: Supplemental Support for Post-Typhoon Recovery, dated April 16, 2010.

• Philippines: Typhoons Ondoy and Pepeng: Post-Disaster Needs Assessment, November 2009.

IliganIligan

PasigPasigQuezon Quezon

GeneralGeneralSantosSantos

LucenaLucena

ViracViracBatangasBatangas

BoacBoacMamburaoMamburao

RomblonRomblon

Santa CruzSanta Cruz

AntipoloAntipolo

BalerBalerPalayan Palayan

TarlacTarlacIbaIba

MalolosMalolosBalangaBalanga

Trece MartiresTrece Martires

Laoag CityLaoag City

ViganViganBanguedBangued

TabukTabuk

IlaganIlagan

CabarroguisCabarroguis

BontocBontocLagaweLagawe

BayombongBayombongLa TrinidadLa Trinidad

LingayenLingayen

KabugaoKabugao

BascoBasco

Puerto PrincesaPuerto Princesa

PiliPili

SorsogonSorsogon

DaetDaet

MasbateMasbateCatarmanCatarman

BoronganBoronganCatbaloganCatbalogan

NavalNaval

MaasinMaasin

BacolodBacolod

DumagueteDumaguete SiquijorSiquijor

TagbilaranTagbilaran

MambajaoMambajao

SurigaoSurigao

San JoseSan Jose

TandagTandag

Tubod Tubod

ProsperidadProsperidad

TagumTagumNabunturanNabunturan

MatiMatiKidapawanKidapawan

DigosDigosIsulanIsulan

Marawi Marawi

MalaybalayMalaybalay

OroquietaOroquietaDipologDipolog

IpilIpil

IsabelaIsabelaCityCity

JoloJolo

KaliboKaliboRoxas CityRoxas City

San Jose deSan Jose deBuenavistaBuenavista

JordanJordan

AlabelAlabel

PanglimaPanglimaSugalaSugala

ZamboangaZamboanga Shariff AguakShariff Aguak(Maganoy)(Maganoy)

San FernandoSan Fernando

TuguegaraoTuguegarao

BaguioBaguioSan FernandoSan Fernando

LegaspiLegaspi

TaclobanTacloban

CebuCebu

ButuanButuan

DavaoDavaoCotabatoCotabato

CagayanCagayande Oro de Oro

IloiloIloilo

PagadianPagadian

KoronadalKoronadal

CalapanCalapan

CalambaCalamba

MANILAMANILA

MALAYSIAMALAYSIA

Iligan

PasigQuezon

GeneralSantos

Lucena

ViracBatangas

BoacMamburao

Romblon

Santa Cruz

Antipolo

BalerPalayan

TarlacIba

MalolosBalanga

Trece Martires

Laoag City

ViganBangued

Tabuk

Ilagan

Cabarroguis

BontocLagawe

BayombongLa Trinidad

Lingayen

Kabugao

Basco

Puerto Princesa

Pili

Sorsogon

Daet

MasbateCatarman

BoronganCatbalogan

Naval

Maasin

Bacolod

Dumaguete Siquijor

Tagbilaran

Mambajao

Surigao

San Jose

Tandag

Tubod

Prosperidad

TagumNabunturan

MatiKidapawan

DigosIsulan

Marawi

Malaybalay

OroquietaDipolog

Ipil

IsabelaCity

Jolo

KaliboRoxas City

San Jose deBuenavista

Jordan

Alabel

PanglimaSugala

Zamboanga Shariff Aguak(Maganoy)

San Fernando

Tuguegarao

BaguioSan Fernando

Legaspi

Tacloban

Cebu

Butuan

DavaoCotabato

Cagayande Oro

Iloilo

Pagadian

Koronadal

Calapan

Calamba

MANILA

1

2

4

6

7

11

14

17

18

19

20

2122

16

23

2425

27

31

39

42 46

47

49

54

75

59

62

65

66

71

73

74

76

80

79

77

78

63

3

5 9

10

8

12

13

15

28

29

30

26

32

33

34

35 36

37

38

40

41

43

44 45

48

50

51

52

53

55

56

58

61

64

68

69

70

60

67

72

57

ZAMBOANGA CITY

ICAR II

III

IV-A

V

IV-B VI VII

VIII

IX X

XIII

XI

XII

ARMM

NCR

MALAYSIA

Celebes Sea

Moro

Sulu Sea

Leyte Gulf

Visayan

Sea

Mindoro Strait

SibuyanSea

Phi l ippine

Sea

Babuyan Channel

Luzon Strai t

Gulf

DavaoGulf

MindanaoSea

BatanIslands

BabuyanIslands

PolilloIslands

LubangIslands

Catanduanes

TicaoSibuyanTablas

Busuanga

SemiraraIslands

CuyoIslands

Culion

Linapacah

Dumaran

Bugsuk

Balabac

Cagayan Sulu

Tawi-Tawi

Sulu

Basilan

Mindanao

CamiguinSiquijor

Negros

Panay

Bohol

Cebu Leyte

SamarMasbate

Marinduque

BuriasMindoro

Palawan

Luzon

Dinagat

Siargao

Sarangani

20ºN

10ºN

5ºN125ºE

120ºE

125ºE

IlocosIlocos NorteIlocos SurLa UnionPangasinan

Cordillera Admin. Reg.AbraApayaoBenguetIfugaoKalingaMountain Province

Cagayan ValleyBatanesCagayanIsabelaNueva VizcayaQuirino

Central LuzonAuroraBataanBulacanNueva EcijaPampangaTarlacZambales

National Capital Reg.

CALABARZONBatangasCaviteLagunaQuezonRizal

MIMAROPAMarinduqueMindoro OccidentalMindoro OrientalPalawan*Romblon

BicolAlbayCamarines NorteCamarines SurCatanduanesMasbateSorsogon

Western VisayasAklanAntiqueCapizGuimarasIloiloNegros Occidental

Central VisayasBoholCebuNegros OrientalSiquijor

Eastern VisayasBiliranEastern SamarLeyteNorthern SamarSamarSouthern Leyte

Zamboanga PeninsulaZamboanga del NorteZamboanga del SurZamboanga SibugayZamboanga City

I1234

CAR56789

10

II1112131415

III16171819202122

NCR

IV-A2324252627

IV-B2829303132

V333435363738

VI394041424344

VII45464748

VIII495051525354

IX555657---

Northern MindanaoBukidnonCamiguinLanao del NorteMisamis OccidentalMisamis Oriental

Davao Reg.Compostela ValleyDavao del NorteDavao del SurDavao Oriental

SOCCSKSARGENNorth CotabatoSaranganiSouth CotabatoSultan Kudarat

CaragaAgusan del NorteAgusan del SurDinagat IslandsSurigao del NorteSurigao del Sur

Autonomous Reg. inMuslim MindanaoBasilanLanao del SurMaguindanao**SuluTawi-Tawi

X5859606162

XI63646566

XII67686970

XIII7172737475

ARMM

7677787980

**Shariff Aguak (Maganoy) andSultan Kudarat serve as co-capitalsof the province.

*Executive Order 429, May 23, 2005,provides for the transfer of Palawanprovince (#31) from Region IV toRegion VI; Administrative Order 129holds EO429 in abeyance until animplementation plan is approvedby the President.

PHILIPPINES

0 50 100

0 50 100 Miles

150 Kilometers

IBRD 33466R4

NOVEMBER 2012

PHIL IPPINESSELECTED CITIES

PROVINCE CAPITALS

REGION CAPITALS

NATIONAL CAPITAL

RIVERS

MAIN ROADS

RAILROADS

PROVINCE BOUNDARIES

REGION BOUNDARIES

INTERNATIONAL BOUNDARIES

This map was produced by the Map Design Unit of The World Bank. The boundaries, colors, denominations and any other information shown on this map do not imply, on the part of The World Bank Group, any judgment on the legal status of any territory, o r any endo r s emen t o r a c c e p t a n c e o f s u c h boundaries.