Document ofThe World Bank

Report No: 17176-PH

PROJECT APPRAISAL DOCUMENT

ONA

PROPOSED LOAN

IN THE AMOUNT OF US$19 MILLION

TO THE REPUBLIC

OF THE PHILIPPINES

FOR AN

EARLY CILDHOOD DEVELOPMENT PROJECT

February 27, 1998

Health, Nutrition and Population Sector UnitEast Asia and Pacific Regional Office

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CURRENCY EQUIVALENTS

(Exchange Rate Effective February, 1998)

Currency Unit = Philippine Pesos (P)US$1.00 = () 36

FISCAL YEAR

January 1 -December 31

ABBREVIATIONS AND ACRONYMS

ADB Asian Development Bank GDP Gross Domestic ProductAGDB Authorized Government Depository Bank GNP Gross National ProductARI Acute Respiratory Infections KAP Knowledge, Attitude and Practice (Surveys)ARMM Autonomous Region of Muslim Mindanao LGU Local Government UnitBHW Barangay Health Worker MDF Municipal Development FundBLGF Bureau of Local Govermment Finance, DOF MIS Management Information SystemBNS Barangay Nutritional Scholar MOA Memorandum of AgreementCAS Country Assistance Strategy NCB National Competitive BiddingCARI Control of Acute Respiratory infections NEDA National Economic and Development AuthorityCBA Cost Benefit Analysis NG National GovernmentCBRM Community-Based Resource Management NGO Non-Govemmental OrganizationCDD Control of Diarrheal Disease NNC National. Nutrition CouncilCEA Cost Effectiveness Analysis NPV Net Present ValueCDW Child Development Worker OLS Ordinary Least SquaresCOA Commission on Audit ORT Oral Rehiydration TherapyCWC Council for the Welfare of Children PBAC Prequalilication Bids and Awards CommitteeDCM Day Care Mother PEM Protein-Energy MalnutritionDCW Day Care Worker PES Parent Effectiveness ServiceDECS Department of Education, Culture and Sports PHDP Philippines Health Development ProjectDILG Department of Interior and Local Government PHRD Population and Human Resources DevelopmentDOF Department of Finance PIA Philippines Information AgencyDOH Department of Health PMO Project Management OfficeDSWD Department of Social Welfare and Development PPTA Project Preparation Technical AssistanceECD Early Childhood Development RHM Rural Health MidwifeEPI Expanded Program of Immunization SA Special AccountERR Economic Rate of Return SOE Statement of ExpendituresESW Economic and Sector Work SWO Social Welfare OfficerFISFAP Financial Information System for Foreign TEEP Third Elementary Education Project

Assisted Projects ULHNP Urban Health and Nutrition ProjectICB International Competitive Bidding UNICEF United Nations Children's FundIDF Institutional Development Fund USAID US Agency for International DevelopmentIEC Information, Education and Communication WDR World Development ReportIP Indigenous Peoples WHO World Health OrganizationIRA Internal Revenue Allotment WHSMP Women's Health and Safe Motherhood ProjectIMCI Integrated Management of Child Illness

Vice President: Jean-Michel SeverinoCountry Manager/Director: Vinay BbargavaSector Manager/Director: Maureen LawTask Team Leader/Task Manager: Althea Hill

PhilippinesEarly Childhood Development Project

TABLE OF CONTENTSPage

A. Project Development Objective .............................................................. 2

1. Project development objective and key performance indicators ....................................2

B. Strategic Context .............................................................. 3

1. Sector-related CAS goal supported by the project .......................................................32. Main sector issues and Government strategy ..............................................................33. Sector issues to be addressed by the project and strategic choices ................................3

C. Project Description Summary .............. ................................................. 61. Project components .............................................................. 62. Key policy and institutional reforms supported by the project ................ .....................83. Benefits and target population .................... .......................................... 94. Institutional and implementation arrangements ......................................................... 10

D. Project Rationale ............................................................. 11

1. Project alternatives considered and reasons for rejection ............................. 1..............I 12. Major related projects financed by the Bank and/or other development agencies ........ 143. Lessons learned and reflected in proposed project design ........................... ............... 154. Indications of borrower commitment and ownership ................................................. 165. Value added of Bank support in this project ....................................................... 17

E. Summary Project Analyses ............................................................. 17

1. Economic assessment ............................................................. 172. Financial assessment ............................................................. 183. Technical assessment ............................................................. 184. Institutional assessment ............................................................. 195. Social assessment ............................................................. 206. Environmental assessment ............................................................. 217. Participatory approach ............................................................. 21

F. Sustainability and Risks ............................................................. 22

1. Sustainability ....................................................... 223. Possible controversial aspects ....................................................... 24

G. Main Loan Conditions ....................... 24

1. Effectiveness conditions ................ 242. Other agreements ................. 24

H. Readiness for Implementation ...................... 28

I. Compliance with Bank Policies ....................... 28

Annexes

Annex 1. Project Design Sunmmay .29Annex 2. Detailed Project Description .36Annex 3. Estimated Project Costs .42Annex 4. Economic Analysis ........... 44

Bibliography to Annex 4, Cost-Benefit Analysis .................................... 62Annex 5 Financial Summary .............................. .,64Annex 6 Procurement and Disbursement Arrangements .65

Table A Project Costs by Procurement Arrangements .69Table Al Consultant Selection Arrangements .70Table B Thresholds for Procurement Methods and Prior R,eview .71Table C Allocation of Loan Proceeds .72

Annex 7 Project Processing Budget and Schedule .73Annex 8 Documents in Project File .74Annex 9 Statement of Loans and Credits .................... ,, 76Annex 10 Country at a Glance .78

Maps

Map 1 IBRD 29245: Regions and Provinces Covered Under The ProjectMap 2 IBRD 29418: Location of indigenous Peoples Groups

PhilippinesEarly Childhood Development Project

Project Appraisal Document

East Asia and Pacific Regional OfficeHealth, Nutrition & Population Sector Unit

Date: 02/27/98 Task Team Leader/Task Manager: Althea HillCoumtry Manager/Director: Vinay Bhargava Sector Manager/Director: Maureen LawProject ID: PH-PE-4566 Sector: Pop. Health & Nutrition Program Objective Category: PA, PVLending Instrument: SIL Program of Targeted [X] Yes [ I No

Intervention:

Project Financing Data [X1 Loan [ Credit [ Guarantee [ Other[Specify]

For Loans/Credits/Others:

Amount (US$m/SDRm): US$19 millionProposed terms: [ Multicurrency [xl Single currency, specify

Grace period: 5 years [ Standard [] Fixed [xI LIBOR-basedVariable

Years to maturity: 20 yearsCommitment fee: .75%

Service charge: N.A.

Financing plan (US$m): Total Project Cost = US$58.8Source Local Foreign Total

Government 18.1 0.0 18.1IBRD 11.9 7.1 19.0ADB 14.3 7.4 21.7

Total 44.3 14.5 58.8

BolTower: Republic of the PhilippinesResponsible agency: Department of Social Welfare and Development

Estimated disbursements (Bank FYlUS$m): 1998 1999 2000 2001 2002 2003 2004Annual 2.0 3.0 4.0 5.0 3.0 2.0

Cumulative 2.0 5.0 9.0 14.0 17.0 19.0

Project implementation period: 1998-2004; Expected effectiveness date: May, 1998; Expected closing date: 12/31/2004

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A: Project Development Objective

1. Project development objective and key performance indicators (see Annex 1):

The overall aim of the 10-Year National Early Childhood Development (ECD) Program is to contributeto the attainment of human development goals by providing services that ensure survival and promote thephysical and mental development of Filipino children, particularly those who are most vulnerable anddisadvantaged. A corollary goal is to establish an effective partnership between national and localgovernments in the provision of ECD services. The ECD project provides technical and financial resourcesfor the first 6 years of the program's operation in three Regions (lRegions VI, VII and XII) and has thesame objectives. Achievement of the program/project's overall objective would be measured throughregional reductions in childhood mortality and malnutrition, plus regional improvements in school readinessand the coverage and performance of ECD services. Achievemenet of the corollary objective would bemeasured through the percentage of targeted municipalities in the three Regions who implement ECDinvestment packages, and an increase in levels of municipal spending on ECD services in the three Regions.Since the targeted municipalities are poor, the percentage implementing ECD packages would also measuresuccess in reaching the most vulnerable and disadvantaged children.

Key Performance Indicators(Note: Baseline values of Key Indicators will be verified at Baseline Survey and Target Values

re-assessed/determined)Region-Wide Indicators Targeted LGU Indicators(for each project Region separately and an average for (for municipalities/cities in the three projectall three weighted by baseline numbers of poor Regions)children in each Region)

1. Reduction by 30% of the under-five mortality rate 7. Increase to 75% in proportion of total childrenfrom the baseline value (currently estimated at over aged three to five in targeted municipalities35 per thousand). attending day-care centers (currently estimated

at under 60%).2. Reduction by 40 % in the proportion of children

under six with Grade 2 or 3 wasting from the 8. Establishment of functioning PEM programsbaseline value (currently estimated at around 30 %). in 50% of municipalities/cities by 2003.

3. Reduction by 30% in the proportion of childrenunder six with anemia from the baseline value 9. Establishment of active CDWs in 50% of(currently estimated at around 50% among infants). municipalities/cities by 2003.

4. Increase to 90% in proportion of children aged 12-18 months fully immunized from the baseline value 10. Implementation of ECD sub-projects in 90% of(currently estimated at under 85%/6). targeted municipalities by 2003.

5. Improvement in a combined index of childdevelopment (motor and cognitive skills) amongchildren under six (indicator to be developed inbaseline study).

6. Increase in completion rate for Grade 1 to 70%of Grade 1 entrants from the baseline value(currently estimated at 5 8%).

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Bt: Strategic Context

1. Sector-related Country Assistance Strategy (CAS) goal supported by the project (see Annex 1).

CAS document number: 15362 Date of latest CAS discussion: February 15, 1996Date of latest CAS progress report: March 24, 1998

According to the Philippines Country Assistance Strategy (CAS), discussed by the Executive Directorson February 15, 1996, the Bank Group's ultimate objective in the Philippines is to promote sustainableclevelopment and help achieve a more rapid reduction in poverty. Five specific objectives are laid out inthe CAS, namely to: (1) support Government in converting the current economic recovery into sustainedgrowth, vital for poverty reduction; (2) strengthen public sector capacity to implement policies andprograms; (3) strengthen infrastructure to enable growth; (4) assist in the design and implementation ofrnore effective and efficient mechanisms for poverty alleviation while upgrading the quality of socialservices available to the poor; (5) support sustainable management of natural resources and protect theenvironment.

As part of the strategy to achieve objective (4), the CAS supports financing of an Early ChildhoodDevelopment Project, in collaboration with the Asian Development Bank. This project would alsocontribute to objective (2). It would follow up on the published ECD sector study produced by the Bankand the Asian Development Bank (ADB), "Improving Early Childhood Development: An IntegratedProgram for the Philippines", which outlines a proposed national ECD strategy and investment programto strengthen the country's current child health, nutrition and pre-school programs. The project alsoresponds to the November 1995 poverty sector report, "Philippines: A Strategy to Fight Poverty ", whichrestates the vital contribution of human capital development and poverty reduction to high andsustainable economic growth. The poverty sector report recommends increased Government investmentin health services, supplementary feeding programs and primar, education (for which pre-schooling is apreparation) in order to improve their quality and access by the poor. Fifteen provinces are identified inthe report as the poorest in the country, and hence as needing priority attention; they are Bohol, Cebu,Davao del Sur, Iloilo, Leyte, Masbate, Negros Occidental, Pangasinan, Zamboanga del Norte,Zamboanga del Sur, Cagayan, Negros Oriental, South Cotobato, and two of the four provincesconstituting the National Capital Region. The latter two are already covered as regards health andnutrition services under the Urban Health and Nutrition Project. Five of the remaining thirteen areincluded in the ten target provinces for ECD investment under the project.

2. Main sector issues and Government strategy and 3. Sector issues to be addressed by the project andstrategic choices:

Nature of the Problem in ECD in Philippines: Investment in human capital and the breaking of thecycle of poverty must begin at the start of life. The effects of childhood disease and even moderatemalnutrition on childhood mortality rates are already well-known. Massive research evidence is nowaccumulating that the health status, physical nutrition, and psychosocial and mental "nutrition" of veryyoung children--even in the womb--exert profound and often irreversible effects on their subsequentphysical and mental development (see "Improving Early Childhood Development: An IntegratedProgram for the Philippines" and "Early Child Development: Investing in the Future ", a general Banksector study of ECD). Among the most recent examples are the linking of chronic diseases such ascoronary heart disease and diabetes to fetal under-nutrition, and the discovery that cognitive stimulationin early childhood is crucial to the development of brain hard-wiring for key intellectual abilities such asreading, mathematics and language-learning.

Yet progress in the Philippines in all these areas has lagged behind that of neighbors and comparators,despite an excellent early start, and is worse than it should be given the country's per capita income. For

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example, Thailand and Philippines had similar infant mortality rates in the 1960s, yet Thailand's currentrate is only about half as high. China's current under-five mortality rate is lower han current infant(under-one) mortality m Philippines, despite China's much lower per capita income. Today, half ofFilipino infants are anemic, as are one-quarter of young children and forty percent of pregnant and lactatingwomen. Other micro-nutrient deficiencies are also common. Around 30 percent of children under age 6are moderately or severely malnourished by the International Referenice Standard, a higher proportion thanin many poorer countries such as Egypt, Kenya, Tanzanma and Zimbabwe; most of the malnutrition ismoderate rather than severe, but still sufficient to stunt children permanently and damage their health andcognitive development. Moreover malnutrition rates, though declining, have fallen more slowly than ineither other East Asian or the much poorer South Asian countries. The Philippines also perforns worsethan all its middle-income neighbors both in primary school completion, at a current rate of 68 percent ofprimary school entrants graduating, and in school test results.

This relatively poor progress in child welfare is due largely to the economic stagnation and under-investment in social welfare programs of the Marcos period, combined with an unchanging and highlyinequitable distribution of income and wealth that still is among the worst in low and middle-income Asia.Little was done during that period to establish adequate national child health services, or to implement theintensive community-based nutrition programs which could compensate for limited incomes throughnutrition monitoring, education and well-designed and targeted supplementation. The prevalence and depthof poverty in the Philippines are now declining through accelerated economic growth, but social indicatorsstill vary dramatically across the country according to poverty levels, indicating that national developmentcontinues to be dragged down by the situation of the poor. The early stages of Devolution furtheraccentuated the disadvantages of the poorest parts of the country through the failure of the InternalRevenue Allocation system to target greater resources to LGUs with higher levels of poverty. Action isneeded to redress the stagnation of the past 20 years and the unequal distribution of current revenues,through investment in programs targeted towards the poorest LGUs and poorest families.

Much can be done even for poor and disadvantaged children in all areas of ECD, and the returns to suchinvestment are high (see "Improving Early Childhood Development: An Integrated Program for thePhilippines" and the World Development Report [WDR] 1993). Child health programs, using basic low-cost and cost-effective interventions such as immunization, oral rehydlration therapy (ORT), diagnosis andcorrect treatment of acute respiratory infections (ARI), and micro-nutrient supplementation, candramatically cut childhood death rates and promote physical growth. Nutrition programs withsupplements for malnourished children can substantially reduce malnutrition rates and are highly cost-effective; the estimated cost-benefit ratio for the Philippines of imprcved child protein-energy nutrition interms of health expenditure savings and adult productivity gains is four US dollars gained per one USdollar spent. Good-quality pre-schooling (early education) programs for disadvantaged children, as wellas nutritional supplements for the malnourished, have been shown around the world to have long-lastingand highly cost-effective effects on school retention rates, intellectual ability and performance and longtermn earnings and welfare; there is even evidence of such effects lasting into the second generation. Anevaluation of a US integrated ECD program for inner-city disadvantaged children estimated a long-termcost-benefit ratio of seven US dollars saved per one US dollar spent. All the above programs areaffordable for a country of Philippine's level of per capita GDP. The World Development Report, 1993puts the total cost of a package of primary health and nutrition interventions for the entire population atUS$22 per capita in a middle-income country, or 0.3 percent of Philippines' 1991 Gross National Product(GNP). The 1995 ECD sector study estimates total needed spending on ECD programs in Philippines atUS$11 per pre-schooler, or about 0.002 percent of Philippines' 1991 GrNP.

Current Programs in ECD: Another important factor in deciding on strategies for future investment anddevelopment in these sectors is that Govermment-financed child health, nutrition and early educationprograms are already well-established in the Philippines and enjoy extremely strong political support.

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Child health programs, run by the DOH along standard lines, took off in the late 1980s; the immunizationprogram achieved 90 percent full immunization coverage by 1993, and the Control of Diarrheal Disease(CDD), Control of Acute Respiratory Infections (CARI) and micro-nutrient programs have expandedrapidly and with some early success. Congress and the media closely monitor the performance of EPI inparticular, using it as a touchstone of the performance of DOH. Like all primary health care interventions,these services are provided free of charge. Nutrition programs include a variety of community-levelinterventions managed by the National Nutrition Council, the Department of Social Development andWVVelfare (DSWD) and DOH. They all involve supplementary feeding which has relied mainly on suppliesof bulgur wheat and green peas from the US PL480 scheme, plus (in DOH's case) growth monitoring andnutrition education. They have always attracted strong support from local governments and elected officialsand are often well publicized. Again, these services are provided free of charge. Food subsidy and home-garden programs also exist. There are two major Early Education programs, both run by DSWD. Thefirst is a network of so-called "Daycare" Centers, which provide two or three hours of early education aday for children aged 4-6 years. This network covers 43 percent of barangays (villages) but lacks vitalsupplies and adequately trained staff and is thought to be of low quality. The program was established byCongress under an Act which mandates the establishment of at least one center in every barangay andcontinues to be politically popular and visible. The second is a Parent Effectiveness Service (PES) whichtrains parents in appropriate parenting skills but has achieved only low coverage and uncertain quality toclate. The community is expected to top up the allowance paid the day-care center worker, but usuallycontributes very little. For true day care for children of working mothers, there is virtually nothingfunctioning but the private sector, including a few employer factory-based schemes.

Of these programs, the child health program has been relatively successful and still has much potential thatcould be realized. The others have all achieved some degree of success, though they still require furtherd3evelopment. However all suffer from chronic underfunding in terms of inadequate equipment, numbers offield-level staff and other operating expenses. This is worsening under the effects of devolution, sinceLGUs, though generally highly supportive in terms of rhetoric and political commitment, generally do notumderstand the importance of adequate financing for these programs or accord them high budgetarypriority. Although precise data are hard to find, because management information systems are deterioratingthrough lack of LGU commitment and capacity to finance their maintenance, signs of adverse trends arealready appearing. For example, immunization rates are said to be falling, food supplementation programsare being halted following the withdrawal by USAID of PL480 supplies, and LGUs are defaulting onfunding for vital field health staff who were, or are to be, hired under cost-sharing arrangements in Bankhealth projects. Upgrading and fine-tuning of these child health, nutrition and early education programs,with heavy targeting of poor and disadvantaged children, appears the best and most cost-effective strategyfor putting the Philippines back on track in terms of early child welfare indicators and subsequenteducational performance. On the basis of these considerations, plus the established and strong politicalsupport for most of the current ECD programns, Government has adopted the overall approach of buildingon and strengthening existing programs.

An outline investment program incorporating this approach was put forward in the ECD sector study,which was prepared by the Bank and the Asian Development Bank at Government request and in fullconsultation with the concerned agencies. A multi-agency ECD Steering Committee was set up byGovernment to develop a 10-year national ECD Program (1996-2005) to strengthen ECD programs, led byDOH, with representation from DSWD, DECS, NEDA and the Council for the Welfare of Children. ThisCommittee prepared an initial conceptual proposal for a national ECD investment program on the basis ofthe sector report's outline. The proposal was approved in May, 1996 by the Cabinet and thereby becamean official Government program. The proposed project would support this national investment program.

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C: Project Description Summary

1. Project components (see Annex 2 for a detailed description and Annex 3 for a detailed costbreakdown):

The ECD project essentially finances implementation of the ECD Ten-Year National Investment Programin three regions for its first six years, or from 1998 through 2004. The project is structured into threecomponents as follows:

~M

0 W~~~~~~~~~~~~~~~~~~l 1i ALg flinn

1. ECD Service Physical 34.9 59.2 10.0 55.2Delivery

a. Program Support for Physical 4.6 25.2Provincial LGUs

b. Financing Facility for Physical 5.4 30.0MunicipalCity LGUECD Sub-Projects

2. Support to LGU Institution- 12.3 20.9 5.4 24.4Sub-Proiects Building

a. Communications Institution- 1.3 7.2Support Building

b. Planning, Targeting Institution- 3.7 15.2& MIS Support Building

c. Training Support Institution- 0.4 2.0Building

d. Institutional Institution- -- ---Development Building

3. Research and Policy 3.6 6.6 1.7 9.6Development

a. Pilot Testing of Policy 0.2 1.2Project Interventions

b. Program Innovation Policy --- ---and PolicyDevelopment

c. Benefit Monitoring Policy 1.5 8.4and Evaluation

Taxes and Duties 1.7 2.9 --- ---Contingencies 6.2 10.5 1.9 10.8

TOTALPROJECT 58.8 100.0 19.0 100.0

Page 7

Sub-Component 1.A: Program Support for Provincial LGUs. This sub-component consists of fivepackages, comprising support to all provinces in the three project Regions for five programs, namely theExpanded Program of Immunization (EPI), the Integrated Management of Child Illness (IMCI) Program,the Micronutrient Malnutrition Prevention and Control Program, the Parent Effectiveness Service (PES)Program, and the Grade 1 Early Child Experience/Early Child Development (ECE/ECD) Program.

The Expanded Program of Immunization package will supply crucial needed additional inputs to the EPIprogram, including replacement cold-chain equipment, training of cold-chain technicians in cold-chainmranagement, maintenance and repair, training of primary health care staff in basic EPI skills, andreproduction of EPI IEC materials and monitoring charts. This package would be managed by theDepartment of Health (DOH).

The Integrated Management of Child Illness package will support the initiation in the Philippines of theWorld Health Organization (WHO)-supported IMCI program, which aims to improve the diagnosis,management and treatment of common childhood conditions such as pneumonia, diarrheal disease, dengue,malaria, tuberculosis, anemia and malnutrition. The package will provide in-service IMCI training fordoctors, nurses and midwives, support the integration of IMCI into the curricula of medical, nursing andmidwifery schools, and supply delivery and diet kits to improve case-management of conditions affectingthe new-born. It would be managed by DOH.

I'he Micronutrient Malnutrition Prevention and Control package will prevent, manage and control majormicronutrient deficiencies (in iron, iodine and vitamin A) in the Philippines through a mix of directsupplementation, food fortification and deworming of children. The overall strategy is to phase out directsupplementation, except for special high-risk groups such as pregnant women, over the life of the project,and correspondingly promote comprehensive industry-financed fortification of staple foodstuffs (salt,sugar, flour, rice, oil), backed by regular deworming. The project would support interim supplies of ironsupplements (the current gap in DOH's micronutrient supplementation program) on a declining basis,weighing scales for infants to identify low-birthweight babies requiring iron supplements, dewormingtablets, and the costs of institutional development and social marketing to promote comprehensive foodfortification. The package would be managed by DOH.

The Parent Effectiveness Service package will upgrade the current PES program through introduction of aMother and Child book, which provides a permanent record of child growth and development from birth tosixth birthday, and reproduction and distribution of an updated version of a parent's manual on early childclevelopment developed for an earlier project. The package would be managed by DSWD in coordinationwith DECS, who will incorporate it into its Teacher-Child-Parent program, and DOH Provincial HealthOffices, who will incorporate it into its health education program.

The Grade 1 ECE/ECD package, which aims to improve the child-readiness of elementary schools throughRegion-wide introduction of an already pilot-tested enriched Grade 1 cumculum that contains an 8-week"Early Child Experiences"(ECE) module incorporating more innovative and participatory approaches, willsupport training of teachers in the new curriculum and the reproduction and distribution of training andteaching materials. The project would also provide complementary health and nutrition inputs through ironsupplementation and deworming of Grade 1 entrants (see Micronutrient package above). The packagewould be managed by the Department of Education, Culture and Sport (DECS).

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Sub-Component 1.B: Financing Facility for Municipal/City Local Government Unit (LGU) ECDSub-Projects. This financing facility, which will operate through the Municipal Development Fund(MDF) will provide matching financing, on a flexible cost-sharing basis geared to LGU income levels butwith full funding by LGUs of major recurrent costs, for LGUs who wish to invest in upgrading of theirECD services. LGUs would, with technical support from the project, submit proposals for three-yearinvestment packages for appraisal, and implement them once approved. The facility would cover threeRegions, namely Regions VI, VII and XII, containing a majority of the country's poorest children. Itwould be open to all LGUs in the three regions, but more than 80 percent of the funds available would bereserved for the 10 provinces and 169 cities and municipalities withi the greatest number of needy and at-risk children; these LGUs would be targeted for active recruitment. A region from Mindanao was includedas a contribution to Government's new development initiative there. Some new and innovative elements ofthe investment packages, such as the new protein-energy malnutrition (PEM) control program, would alsobe pilot-tested in five selected LGUs during the first year of the preject under Component 3 (Research &Development). The generic cost-sharing formula is shown below:

LGU Income Class % Grant % Equity1st Class 40 602nd & 3rd Class 60 404th to 6th Class 80 20

This sub-component would be managed by the Department of Social Welfare and Development (DSWD).

Component 2: Support to Service Delivery

This component would provide support to LGUs in implementing theiir investment packages in the areas ofcommunications (advocacy, information, education, communication, for LGU executives, opinion leadersand decision makers, ECD providers and parents), planning, tarlgeting and management informationsystems (MIS), training and human resource development, and institutional development. Support wouldbe provided at the central, regional, provincial and municipal levels. There would be four sub-components,covering respectively communications, planning/targeting and MIS, training, and strengthening and supportof the management capacity of LGUs, the project management structure, and the Council for the Welfareof Children (CWC), which is expected to become the apex agency for the national ECD program in thelonger term. This sub-component would be managed by DSWD, in coordination with a mix of agenciesand Non-Government Organizations (NGOs), as appropriate.

Component 3: Research and Development (R&D)

This component would finance R&D activities needed to support effective ECD program/projectimplementation, including initial piloting of new field-level technical interventions proposed under theproject. There would be three sub-components, the first covering piloting of project interventions, thesecond consisting of unprogrammed financing for research and testing of new and innovative approaches toECD services, and the third covering monitoring and evaluation of the effectiveness and impact of theproject, including baseline and end-project evaluation surveys. This component would be managed byDSWD in coordination with CWC, and a mix of agencies as appropriate.

2. Key policy and institutional reforms supported by the project:

The project will support initial implementation in three key Regions of the new Ten-Year National ECDDevelopment Program, and hence key policy and institutional development and reform in existing ECDpolicies, programs and services. As a part of the Program, it also supports strengthening of LGU capacity

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to manage and implement ECD programs and services, and hence contributes to the long-term developmentof the post-Devolution structure and performance of social sector programs and services.

3. Benefits and target population:

Tlhe ECD program and project would correct past Govenment under-spending in human resourcedevelopment and poverty alleviation by inproving ECD program design, targeting and performance, and bystrengthening institutional capacity in this sector at central and local government level. These upgradedECD programs would lower childhood mortality rates and burden of disease, and improve the nutrition andcognitive development of children in the Philippines. These outcomes would in turn improve schoolretention rates and performance and the health and productivity of adults. They would thereby contributeto the building of human capital and reduction of poverty in the Philippines, which together are currentconstraints on the country's potential fbr sustained long-term economic growth and development.

The central-level policy-relevant portion of the project (primarily Component 3, but with spill-over fromComponent 2 and sub-component L.A) would provide general benefits, through improved ECD policies andservice design, for the health, nutrition, cognitive development and primary education of approximately 10to 11 million pre-school children annually, vith gains concentrated among the approximately 3 to 4 millionchildren living below the poverty level. The Region-wide portion of the project (primarily sub-component1.A) would directly benefit the healt, nutntion, cognitive development and primary education ofapproximately 2 million pre-school children annually, through key additional inputs to region-wide ECDprograms. The LGU sub-projects supported under sub-component 1.B, which are targeted to poor andneedy municipalities and families, are expected to provide upgraded ECD services, and hence directbenefits in the above areas, for a minimum of 1.3 million pre-school children over the life of the project.

Program and Project Scope: The ECD programn approved by Cabinet is national in scope. This projectfinances its initial implementation in three Regions, of which two (VI and VII) contain the largest numbersof disadvantaged children in the coumtry and the third (XII) is located in the disadvantaged island ofMindanao. Some program and project interventions, such as immunization or promotion of industry-basedfood fortification, must by their very niature be designed to cover the whole community in the three Regionsand the entire country respectively. -lowever the program and the project both feature heavy targeting ofpoor and disadvantaged families and children. A high degree of self-targeting is expected given the natureof the programs themselves, but two types of direct targeting will also be employed in the project. The firstis geographical, through selection of poorer provinces, municipalities or barangays for priority financing.The second is targeting of poor families within each geographic area, which will forn part of LGU sub-project planning and implementation. In addition, some interventions such as nutrition supplementation ortreatment of diarrhea and respiratory infections would automatically target only children screened as inneed of the intervention. Ten provinces are targeted for ECD investment, namely Antique, Bohol, Capiz,Cebu, Guimaras, Iloilo, Lanao del Norte, Negros Occidental, Negros Oriental and North Cotobato. Five ofthese are included in the list of those identified as the fifteen poorest in the country by the poverty sectorreport "A Strategy to Fight Poverty" (see Block 2, Section 5). Eight are included in the 30 provincestargeted for upgrading of elemnentary education under the Third Elementary Education Project (TEEP) (seeBlock 2, section 10), of which six fall under the 11 provinces added to the basic list of Social ReformAgenda provinces for TEEP coverage because of their intense poverty. See Section 8 (Analysis ofAlternatives) for further details of the targeting process.

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4. Institutional and implementation arrangements:

Implementation period: 1998-2003

Executing agencies: The project has primarily been designed and prepared, and will be implemented, bythree agencies, namely the Departments of Health (DOH), Social Welfare and Development (DSWD), andEducation, Culture and Sports (DECS). DOH was in charge of preparation from late 1994 through end-1996, but then handed over to DSWD. DSWD was named by the National Economic and DevelopmentAuthority (NEDA) as the lead agency for implementation and will be responsible for overall projectmanagement.

Project coordination: The project will be implemented by DSWD, DOH and DECS under the overallleadership of DSWD. Following the usual pattem of project management in the Govenmment ofPhilippines, a national project management office (PMO) will be set up within DSWD, located in theOffice of the Secretary. It wil be headed by a Project Director who would be an Undersecretary inDSWD. Day-to-day management will be the responsibility of a full-time Project Coordinator, also aDSWD official. There will be four operating units within the PMO, covering respectively: managementservices (including procurement and disbursement/flows of funds); technical services; financialmanagement services (overseeing the financing facility for LGIJ sub-projects); and research anddevelopment, which wil coordinate with CWC on the management of component 3. Staff will be a mix ofcontractual staff and long-term consultants. DOH and DECS will each organize an internal projectcoordination unit at national level for the sub-components for which they have management responsibility,and designate a senior member of their regular staff as agency coordinator. These agency coordinatorswill liaise with the Project Coordinator in the PMO. Regional agency coordinators will likewise bedesignated in the project regions. A manual of operations is being finalized for the LGU financing facility,entitled "LGU Financing Facility Manual of Operations". Funds for this facility would flow to LGUsthrough the Municipal Development Fund.

A regional PMO will be set up at the DSWD regional office in each of the three Regions (VI, VII and XII),on similar lines to the central PMO but with smaller staff complements. The Assistant Regional Directorwill serve as Project Coordinator. A regional ECD team, headed by the DSWD Regional Director, will beestablished, which will be responsible for initial advocacy and negotiations with provincial governors toform an ECD partnership. Each Governor will, at his own cost, set up a small Provincial ProjectManagement Office, and designate a Provincial ECD Action Officer to head it. A provincial ECD teamwill be established, which will: assist in advocacy and dissemination of information on ECD and theproject; solicit targeted municipalities and cities to make use of the LGU financing facility and undertakeECD sub-projects; initiate and supervise the municipal/city sub-project planning process; coordinate aconsolidated provincial ECD plan incorporating all municipal/city ECD sub-projects and plans; and assistin administering part of the technical support packages, such as training and IEC, under contract to theregional PMO. Normal provincial-level ECD referral services and techmcal supervision of municipal ECDproviders will continue to be provided by the province out of their regular budgets.

Each LGU whose proposed sub-project is approved will sign a Sub-project Assistance Agreement with thenational PMO. The Sub-project Assistance Agreement will specify the responsibilities and inputs of theBorrower and of the LGU under the project, with the municipality/city undertaking to implement the sub-project as approved, and receiving the appropriate financial and technical support to do so. The mayor willdesignate a municipal ECD Action Officer and ECD team who will plan and coordinate sub-projectimplementation.

Project oversight (policy guidance, etc.): At central level, the multi-agency ECD Steering Committeewill provide oversight and guidance to the project. Under the project, CWC will be strengthened to act as

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apex agency for the national ECD program in the longer terrn, as well as a resource andinformation/communication center for ECD programming and a partner with the PMO in management ofComponent 3. At regional level, each of the three project Regions will create a regional ECD team.headed by the DSWD regional director and including the regional directors of DOH, DECS, the NationalNutrition Council (NNC), the Philippines Information Agency (PIA), NEDA, DILG and NGOrepresentatives. This regional team will guide the Regional PMO and monitor program and projectimplementation. There will be similar provincial and municipal ECD teams.

Accounting, financial reporting and auditing arrangements: Project expenditures will be recorded usingthe accounting procedures titled Financial Information System for Foreign Assisted Projects (FISFAP),promulgated by the Commission on Audit (COA). At the end of each calendar year, the Central ProjectManagement Office (CPMO) will consolidate all accounts pertaining to the project, including thosesubmitted by DSWD, DOH, DECS and MDF (representing the LGUs), and then prepare and submit to theCOA Auditor consolidated Project Accounts. COA will render an opinion on the consolidated ProjectAccounts. The Special Accounts and Statements of Expenditures (SOE) of each implementing agency willbe audited by the COA according to Government procedures which are acceptable to the Bank. COA willalso render a separate opinion on the operation of the Special Accounts and SOEs. The financialmanagement of the project by the implementing agencies will be periodically reviewed by the central PMOas described in Annex 6. All audit reports will be submitted to the Bank within the six months followingthe end of each calendar year.

Monitoring and evaluation arrangements: Evaluation of the project will be carried out primarily througha set of baseline and end-project surveys. This will include a general population-based sample survey ofECD status and services in the three Regions, special nutrition surveys integrated into the NationalNutrition Surveys planned for 1998 and 2003, special surveys of ECD-related knowledge, attitudes andpractice, and special provincial-level surveys of ethnic groups. Key project indicators are given onlyindicative baseline and target values in the Project Appraisal Document and the Project ImplementationProgram, since data for many of the current values are not up-to-date. The primary function of thebaseline survey will therefore be to establish up-to-date values for the key project indicators, on whichbasis the target end-project values will be confirmed or modified as appropriate. At project mid-point, amid-term survey could repeat portions of the baseline survey if any significant change in indicators isconsidered likely. The end-project survey will repeat the baseline survey in full, to determine achievementin meeting target values of the key indicators. Service statistics from the implementing agencies will beused where possible to supplement the results of the surveys and to track progress between surveys. Inaddition, there will be annual hemoglobin and community-based micronutrient monitoring surveys, as wellas regular community-based monitoring of interventions for ethnic minorities.

Progress in implementation of the project will be monitored through the program/project MIS. This willinclude: tracking of expenditure and disbursement; contract monitoring to track delivery of contractoroutputs; commodities procurement tracking; and monitoring of implementation progress through trackingof consumption of inputs plus a sentinel site reporting system.

D: Project Rationale

1. Project alternatives considered and reasons for rejection:

Choice of Technology

The project will provide early childhood education through home-based programs for children aged 0-3,center-based day care for children aged 3-5, and an 8-week Grade 1 curriculum for 6 year old children.Health and nutrition inputs for children aged 0-6 (supplementary foods, nicronutrient supplements, growthmonitoring, immunization, developmental screening, etc.) will be provided by the project in conjunction

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with early childhood education and by referral to primary health care providers. Specifically, the projectwill provide:

(i) children books, learning/manipulative materials, play materials, developmental screening materials,growth charts, weighing scales, parent reference materials, developmental assessment kits,nutrition inputs, and training for new child development workers and day care mothers for home-based ECD services for 0-3 year old children;

(ii) construction of new day care centers, upgrading and renovation of existing day care centers,equipment, child books, leamning/manipulative materials, play materials, developmental screeningmaterials, growth charts, weighing scales, parent reference materials, developmental assessmentkits, and training for new and existing day care workers for ihe expansion of the existing publiclyprovided day care program for 3-5 year old children;

(iii) teacher materials including pre-school handbooks, readiness test booklets, child books, story tellingmanuals, songs, games, poems, audio tapes, student materials including sets of blocks andmanipulative toys for an 8-week Grade I curriculum, and training of Grade 1 teachers;

(iv) mother and child books, manuals for parents of newborns, children books, learning/manipulativematerials, play materials, developmental screening materials, growth charts, weighing scales,parent reference materials, and developmental assessment kits, health inputs, and training for newand existing rural health midwives; and

(v) mother and child books, manuals for parents of newborns, ancd other parent education materials forparents of children enrolled in day care programs and parents of 0-3 year old children inneighborhood-based parent-child development groups formed by home-based child developmentworkers and day care mothers.

Choice of Number of Years of Early Education. The project will provide health, nutrition and earlyeducation inputs from birth through an 8-week curriculum in Grade I for 6 year old children. Thisrationale for this choice is based on evidence from neuroscience research that the optimum development andfunctioning of the human brain from gestation, at birth and onwards depends largely on the quality of careand interaction that an infant and young child receives from prinmay caregivers. Moreover, there issubstantial evidence that programs designed to improve the psychosocial development of children in thefirst six years of life and that integrate health and nutrition components with early education cansignificantly affect children's development and their readiness for school. These improvements make achild more likely to attend school, less likely to repeat or drop out and a better performer in school.

Choice of Inputs to Improve School Readiness. Readiness for schoo] is defined in terms of the child'sactivity level (health and nutritional status affecting attendance, attention and concentration), socialcompetencies and psychological preparedness (which affect the ability tD cope with different learningenvironments), and cognitive abilities, including early literacy, mathematics and thinking skills. Readinessalso is reflected in the expectations the family holds for the child which relate also to the support they areready to provide. The project inputs have been selected to take advantage of the synergistic relationshipbetween health, nutrition, and early education that can positively influence school readiness. For example,in order to sustain the gains from short-term food supplementation and growth monitoring, education forchildren and parents is required so that the feeding and health practices will be reinforced and internalized.The integration of parent education and nutritional inputs is required for the adoption of practices thatimprove a child's psychosocial well-being, nutritional status, health, growth and overall well-being. Thisintegration of project inputs will lead to improved school readiness.

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Choice of Home-Based and Center-Based ECD Services. The choice of a home-based early educationprogram for 0-3 year old children is based on the recognition of the large gap in service provision forunder-three's, and that center-based programs for 0-3 year olds are not culturally appropriate or viable inthe Filipino culture either in urban or rural areas. The absence of a civil works requirement for the home-based approach also contributes to the cost-effectiveness of the project. The project's early educationinputs for 3-5 year olds builds on the existing public day care center-based system. Health and nutritioninputs will be administered through the home-based program, the day care center-basedprogram, and through the existing facility-based rural health unit system by health care providers.

Choice of Public Versus Private Finiancing

Child Health Care Services. Child health care services in the Philippines, including micronutrient andfood supplementation, food fortification initiatives, support for national EPI, CARI, and CDD programs,largely has been provided by the public sector. The commercial private sector does not deliver the low-costpreventive, promotive, and selective basic curative types of interventions that are required. The public childhealth programs provide preventive goods and services (e.g. polio immunization) and cost-effective curativeservices (e.g. cotrimoxazole for early treatment of CARI) for many contagious diseases. These are mixedpublic/private health goods that yield both private benefits to the individual and public benefits to thecommunity at large. Without some level of government subsidy, these goods would be consumed at levelsbelow the social optimum. In addition, demand for such services by the poor is weak, due to lack ofinformation and the low priority generally accorded to preventive services. Potential private sector profitsfrom these goods and services are low compared to those from other types of medical treatment, and poorfamilies in remote communities lack access to good quality private providers. NGOs which provide childhealth services only cover a very small fraction of the national need. The most effective approaches toprovision of subsidies for these types of goods worldwide in child health (WDR, 1993) have been publiclyfunded programs that at the minimum provide coverage for poor and remote populations, incorporate NGOpartners to the extent possible, and regulate private providers to conform to national protocols.

Child Nutrition. For basic child malnutrition interventions (screening and monitoring child growth,educating families in correct feeding practices, providing low-cost specially-tailored nutritionalsupplements where necessary), the commercial private sector is very small in the Philippines. Thedevelopment constraints are similar to those faced by child health. They include low demand, since all butthe severest malnutrition is not visible on a day-to-day basis, lack of information of correct nutrition iswidespread among poor families, and low profit levels for labor-intensive interventions targeted heavily tothe very poor and remote areas. NGO coverage is again small-scale and spotty. Experience around theworld indicates that effective child malnutrition approaches must be designed around community-basedworkers and interventions. They are either financed and managed by Government, with NGO involvementwhere possible, or are initiated, designed, monitored and subsidized by Government departments, withNGO assistance, and implemented through community mobilization for self-help activities.

Early Education. The financing of early education and day care for children of working mothers appearsto be bimodal in the Philippines. For families with higher incomes, there is a well-established privatemarket for both of these types of services, at least in urban areas, though it is little regulated and ofunknown quality. Public provision of these services for higher income families is difficult to justify. Forthe poor and for many rural communities, however, the situation is analogous to those for child health andmalnutrition programs. The private sector in rural communities for early education services is notdeveloped and is unlikely to emerge in the foreseeable future, due to low profit potential, unattractivesettings, and weak demand caused by ignorance of early education benefits and the low priority given bypoor families to pay with no immediate retum. Day care services for children with working mothers areprovided either through informal family or neighbor arrangements, or through low cost but very low-quality

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commercial arrangements. Again, NGOs provide only limited coverage in both cases. Experience aroundthe world indicates that Government involvement is needed to develop good-quality early education servicesto the poor and disadvantaged. This can be done either through direct public provision (with NGOinvolvement where possible) or through initiation, monitoring and subsidization of conununity-levelschemes. There is little experience with publicly provided day care for children of working mothers in thedeveloping world, but publicly managed and funded schemes are unlikely to be effective or sustainable inthe Philippines. Some subsidy and mobilization of the private sector (including employers) and NGOs maybe the most promising approach.

2. Major related projectsfinanced by the Bank and/or other development agencies (completed, ongoingand planned:

Sector issue Project Latest Supervision (Form 590)Ratings

(Bank-financed projects only)_mplementation Development

Bank-Financed Progress (IP) Objective (DO)

Primary Education Sector

Effective 1981, a sector loan with a policy Sector Program for Closed Closedand program reform agenda. Elementary

Education Project(Ln. 2030-PH)

Effective, 1991, a loan with budget support Second Elementary Closed Closedoperation with some investment in Education Projectinfiastructure and no project management (Ln. 3244-PH)unit.

Effective July, 1997, a standard investment Third Elementary S Sproject which will 1) strengthen the primary Education Projecteducation system in 26 poor provinces (Ln. 4108-PH)through a bottom-up stakeholder-basedsystem of planning and 2) strengthen DECSto manage this process at national andregional levels.

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Sector issue Project Latest Supervision (Form 590)Ratings

(Bakfnne projects only)

Implementation DevelopmentProgress (IP) Objective (DO)

Health Sector

Effective 1990, closed end-1997; supports Philippines Health Closed Closedstrengthening of national malaria, TB and Development Projectschistosomiasis control programs, plus (PHDP) Ln. 3099-PHinstitutional strengthening of DOH, policy-linked research and a fund for community-'level health-related micro-projects. It hasbeen rated as satisfactory throughout itslifetime.

Effective 1994; supports strengthening of Urban Health and U Uprimary health and nutrition programs for Nutrition Projecturban slum populations, plus related (UHNP) Cr. 2506-PHinstitutional development of DOH and]LGUs, policy research, and a fund for slumcommunity micro-projects. It currently israted unsatisfactory for the second time inits life, and a remedial plan is beingimplemented, to be followed up by a Mid-ternm Review.

Effective 1995, supports strengthening of Women's Health and S Siwomen's health care services (including Safe Motherhoodirst-level referral for complicated Project (WHSMP)pregnancies and deliveries, reproductive Ln. 3852-PHlhealth care and cervical cancer screening),related institutional development of DOIH,policy research, and a fund for relatedcommunity micro-projects. It was ratedsatisfactory in its last 590.

IP/DO Ratings: HS (Highly Satisfactory), S (Satisfactory), U (Unsatisfactory), HU (HighlyUnsatisfactory)

3. Lessons learned and reflected in the project design:

The health projects were all designed before significant post-devolution experience had accumulated, andeducation has only recently been partially devolved. Only UHNP is currently being implemented throughLGUs. Thus experience relevant to the reality of post-devolution is still scanty and incomplete. The roleand capabilities of the LGUs is nonetheless emerging as a major issue that must be successfully addressedfor any future projects in devolved sectors, with special attention to LGU willingness and capacity to fullyfand essential field-level staff. Donor coordination, particularly with the ADB, became another importantissue during the appraisal of WHSMP, compounded by last-minute divergences in lending terms betweenthe two Banks. Joint Bank/ADB negotiations were not held as originally planned, European Community

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negotiations were delayed, and the project was fragmented among thre many donors involved. The lessonlearned was that extremely close and good-faith partnership and collaboration must be achieved if theproject design is to maintain its integrity.

Other lessons to date from the health and primary education projects are mixed. Though there wereproblems with flows of funds, procurement and disbursement procedures in the earlier stages, the olderprojects in both sectors ultimately fulfilled their physical objectives, disbursed fully in the end, and werealmost always rated satisfactory to highly satisfactory. Slow start-ups were (and are) the rule, but theolder projects succeeded in catching up on most fronts. The piroblems encountered in day-to-dayimplementation were almost all related to inadequate arrangements for project management and insufficientattention to the details of implementation, particularly in the early stages of the projects. On the healthside, where project objectives were relatively straightforward and no major policy reforms attempted,objectives appear to have been satisfactorily met. On the education side, where policy goals wereambitious and far-reaching, little policy and program reform was actually achieved. However the picturehas changed recently with respect to the health projects UHNP and WHSMP. UHNP is reaching its mid-point substantially and increasingly behind schedule, due largely to major problems with DOH procurementprocedures and to unstable and unsatisfactory management. No progress has yet been made towardsmeeting project objectives. WHSMP is now in its third year of implementation and has also slipped behindschedule, again due largely to procurement problems. It would thus appear that DOH's ability toimplement has declined over time. To meet the concerns over procurement under UHNP, project-financedprocurement is to be contracted out to a private-sector agency.

To summarize, DOH and DECS have proved to be capable of implementing projects in these areas, butthey have required attentive supervision to ensure that sufficient time and energy is devoted to projectmanagement. Ambitious policy and program reforms have not proved to be achievable. Recent experiencewith DOH also indicates a growing weakness in implementation, particularly in procurement where analternative approach to DOH procedures is to be tried out. It is unfortunately too early for soundjudgments on the sustainability of project inputs and outcomes, but the:re are worrying signs that the LGUshave lacked the necessary institutional capacity and commitment to maintain the strengthened programs(see below). Overall lessons for future projects are that: 1) projects should be structured to build upon andstrengthen existing programs and interventions, with realistically-scaled degrees of change and reform; 2)project management systems must be carefully designed to maxinize attention to day-to-dayimplementation needs, with particular attention to possible alternative systems for procurement; 3) LGUsmust be strengthened and fully integrated into project design and implementation arrangements; and 4)project design should aim to make LGU support of key field-level staff mandatory from the start of theproject.

4. Indications of borrower commitment and ownership:

As mentioned above, the Government of Philippines already supports an array of programs designed topromote the physical and mental development of pre-school children. All are endorsed and closelymonitored by Congress, which initiated some of them and is currently considering a bill to promoteuniversal access to pre-school. The Council for the Welfare of Children, an attached agency of DSWD,whose mandate is to oversee programs, policies and issues concerning children, may soon be transformedinto a Commission attached to the President's Office. There is therefore unquestioned broad-based supportfor ECD programs within the Government and political institutions of Philippines at the national level,demonstrated most recently by the approval by Cabinet of the 10.-Year National ECD DevelopmentProgram. Commitment has also been shown through the consistent support and inputs of the agenciesinvolved in program and project development, particularly DSWD which is now the lead agency for projectpreparation. Two Population and Human Resources Development (PE1RD) Grants were requested for usein project preparation, of which the first was fully utilized and the second expected to be so. DSWD wasand is a strong advocate for the project within Cabinet and with central agencies such as NEDA and the

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Department of Finance, and includecl funds in its 1997 budget for early pilot implementation and pre-project activities. All three line agencies included counterpart and project funds in their 1998 budgets.

'The drawback to ECD commitment at LGU level to date has been the limited financial capacity of poorerLGUs and their uncertain commitment to social service funding. The design of LGU involvement in theproject, with demand-driven sub-projects backed by intensive advocacy and IEC activities aimed atmotivating LGUs to take up such sub-projects, is intended to address this issue. Feedback fromconsultations with LGUs during project preparation on participation in the project itself, including fieldtests of the computer-based planning tool, was very positive. Consultations were held with officials fromtargeted LGUs, and all demonstrated a very high level of willingness to participate in the project, withsigned endorsements of the project by govemors, city and municipal mayors, vice-mayors, provincial boardmembers, and city and municipal council members. Several mayors expressed serious interest inundertaking sub-projects and participated in drawing up initial outlines and budgets for proposals; sixmunicipal/city councils passed resolutions to authorize sub-projects. Five such resolutions must be passedas a condition of effectiveness.

5. Value added of Bank support in this project:

An ECD project would build on and supplement existing Bank-financed projects which support healthprograms in the areas of disease control, urban slum health services and reproductive health and maternalcare, as well as primary education. Like them, it would target the poor, both through geographic areaselection and because poor families are the major beneficiaries and heaviest users of state-financed publicand primary health programs and the public primary education system. Bank , as well as ADB,involvement is needed because of the large scale of the additional ECD investment required. The nationalECD programn would require investments estimated at more than P 780 million annually over the nextdecade; and the project is designed to contribute about 45% annually over the next six years to financingthese expenditures. Government would be unable to finance the additional investments wholly out ofdomestic sources, and no bilateral donor grants have been identified for this project. UNICEF may be ableto provide some funds, but has not yet finalized the next Five-Year Country Program due to start in 1999,and hence cannot currently make firm commitments. In any case, its likely contribution would not amountto more than a few US$ million. The Bank, with the ADB, is uniquely well placed to assist Government inmobilizing available grant financing under an umbrella ECD project because of the prior partnership ofboth Banks with Government in the ECD sector report, and in the health and education sectors.

E: Summary Project Analysis (l)etailed assessments are in the project file, see Annex 8)

1. Economic Assessment (see Annex 4forfull discussion):

Health and Nutrition:In 1994, the Profiles project developed a nutrition simulation model based on results found in theinternational literature and modified for the conditions in the Philippines, to examine the relationshipsbetween the nutritional status of young children and lower death and disease rates, lower healthexpenditures, lower rates of mental retardation, higher labor productivity in agriculture, and increasedfuture eamings. More recently, during project preparation, traditional cost-effectiveness analysis (CEA)and cost-benefit analysis (CBA) of project inputs were used to build on the Profiles earlier work. Theresults of these studies indicate the delivery of health, nutrition and early education inputs from this projectwill be highly cost-effective, and combine in ways that strengthen the links between child health, educationand economic returns. Investing in the health and education of children increases a country's overallstandard of living by building human resources that generate higher economic returns, reduce social costs,and increase the efficiency of other investments. For health and nutrition interventions, the net presentvalue of wage gains for children benefited by the project will increase from Pesos 9 billion to Pesos 30billion.

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Early Education:Early childhood development interventions improve school attendlance and performance, increasingchildren's prospects for higher productivity and future income. Additionally, these interventions will reducethe likelihood that children will become burdens on public health and social service budgets. Mothers alsoare helped by project investments. For early education, even on conservative assumptions, the ERR of theproject interventions are estimated at a minimum of 15 percent, which iis the threshold usually applied in thePhilippines to infiastructure interventions such as roads and irrigation systems.

2. Financial Assessment (see Annex 4forfull discussion):

National Agencies:An analysis of the fiscal impact and sustainability of the project's investments at the national agency levelshows them to be easily sustainable from expected future national agency budgets. Because of theoverwhelming proportion of investment costs and minimal end-of-project recurrent costs for nationalagency project sub-components, recurrent costs for national level agencies beyond the life of the project areminimal. Total annual end of project recurrent costs for the national agencies amount to R2.6 million peryear, or less than one one-hundredth of one percent (.01 percent) of the national agencies' combined annualrecurrent budgets in 2003 (about P82 billion). The executing agency, DSWD, has the largest share ofnational agency recurrent project costs (1.4 million, or 25 percent of the total) and the smallest recurrentbudget (P1,777 million), yet recurrent end-of-project costs represent less than one-tenth of one percent (.08percent) of its annual recurrent budget.

Municipalities and Cities:A study of the affordability of the LGU sub-projects was carried out at project preparation. The analysis isbased on a sample of 94 municipalities, and examines the capacity of LGU discretionary resources tofinance the ECD interventions. The results of the study suggest the project is affordable and sustainablefor LGUs, particularly because the project implementation schedule has been adjusted to begin phasing inLGU sub-projects in year 2 (1999) of the project, thus avoiding the possibility of LGU budget deficits inyear 1 (1998) of the project. All LGUs will begin their sub-projects in 1999 or later, and the timing allowsthem to allocate an expected IRA increase to finance project costs. Progressive matching grants from thenational government to LGUs that cover initial investment costs and decrease the financial burden to thelowest income LGUs also improve project affordability. In addition, the burden of recurrent costs percapita for LGUs is relatively small, about one-half of one percent, when compared to annual LGU incomeper capita.

3. Technical Assessment:

The technical interventions in child health, nutrition and early education that are to be piloted, upgraded orsustained under the project are almost all standard programs that have been tried and tested worldwide andproved successful in a wide variety of settings. Most, including the existing child health programs, the DayCare Center program and the existing set of field-level providers, are already well established in thePhilippines and have achieved some degree of success; deficiencies are generally attributable to lack ofadequate funding rather than technical shortcomings. All also are minimum-cost interventions usingprimary-level staff, community-based workers and basic facilities and equipment

The major technical uncertainties are attached to two interventions to be respectively launched andsubstantially upgraded under the project, namely the PEM and PES programs. No successful national PEMprogram has yet been developed in Philippines, despite extensive experience with a wide array of numeroussmall-scale and fragmented malnutrition programs. However the national program to be introduced underthe project has been designed on the basis of successful experience with similar programs in south India,Central and South America and southeast Asia. It also builds on the existing national Operation Timbang

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child-weighing program, and has taken into account the lessons of the country's past experience withsmaller malnutrition interventions. There are therefore solid grounds for expecting the new nationalprogram to succeed. By contrast, programs for parent and community-based psychosocial stimnulation ofvery young children are so far rare and only weakly understood worldwide; hence any intervention in thisarea is necessarily new, innovative and experimental in nature. However the existing PES program, thoughlimited, has recently been favorably evaluated and provides a good basis for further development. Torninimize risks still further, and extract maximum value from the project's investment in them whatevertheir ultimate degree of success, both programs in their respective new and upgraded states will be pilotedauid evaluated in five pilot LGUs during the first year of the project, before being implemented on a largerscale. In addition, the upgraded PES program will be evaluated as part of a collaborative research effort tobe conducted by a team from the World Bank's Development Economics & Chief Economist Department,involving a longitudinal study of early education in three countries, including Philippines. Both programsare again minimum-cost interventions that utilize field-level staff, community-based workers and the mostbasic of facilities and equipment.

4. Institutional Assessment:

a. Executing agencies: DOH and DECS have long experience with Bank projects and adequate staffstrength both at central and regional level to manage and implement their portions of the project.Past project experience indicates that both are capable of effective implementation, but recentexperience with DOH is not encouraging as regards procurement and project management. DSWD,on the other hand, is thinly staffed at both central or regional level and has not previouslyimplemented a Bank project. However DSWD's capacity to manage and implement will bestrengthened at both central and regional level by the project, under Component 2 (d) (see Annex 2),as will the capacity of CWC to provide policy guidance and oversight. The extremely limitedinstitutional capacity of LGUs to manage and implement is a well known constraint on projecteffectiveness. However under Devolution they must bear primary responsibility for ECD servicedelivery and the issue is simply how to strengthen them to do so. This is the secondary projectobjective and sub-components 1 (b), 2 (b), and 2 (d) of the project (see Annex 2) are designed toprovide the needed inputs.

b. Project management: In this complex multi-sector, multi-agency and multi-layer project, the structureof project management must effectively balance the competing demands of efficiency in projectmanagement and implementation on the one hand, and strong teamwork and integration with theregular line agencies and LGU sectoral structures on the other hand. Given recent experience in thehealth portfolio, the efficiency of procurement is another particular concern. DSWD's lack ofexperience with Bank-supported projects and limited staffing must also be taken fully into account.

The proposed management structure represents an effort to achieve this balance. To meet efficiencyconcerns, there will be strong project management offices (PMOs) at central and regional level,staffed by contractual personnel and long-term consultants. Contracting-out will be used extensivelyfor procurement, the management and implementation of communications and much of R&D, andthe implementation of training. All contracting-out will be managed in turn from the central andregional PMOs. To meet teamwork and integration concerns, the provincial PMOs will be staffedand financed by the provincial governments. Strong links with regular line agencies are built into thecentral and regional project managernent structures, through the multi-agency committees, ECDteams and taskforces, and the DOH and DECS project coordination units and agency coordinators,who will coordinate with the PMOs in implementation. ECD teams will be formed from existingsectoral officers at provincial and municipal level to manage, implement and monitor sub-projects.

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A similar blend is planned for the financing facility for LGU sub-projects. The facility itself will bemanaged by the Central project management Office (CPMO) with the assistance of MDF which willbe responsible for the financial appraisal, monitoring and auditing of sub-projects. However theprovincial ECD teams will be responsible for recruitment of municipalities and cities and forproviding mayors with technical assistance in proposal planning and preparation, using the speciallydesigned computer planning software. The provincial ECD teams; also pre-appraise all sub-projectsbefore they are forwarded to the Regional Project Management Offices (RPMOs) for approval.Technical supervision of sub-project implementation will be the responsibility of the provincial ECDteams and the RPMOs. Sub-project Assistance Agreements between the concerned LGU and theBorrower, through the central PMO, will formalize the execution and management of the sub-project.

This structure is complex and, like all post-Devolution project planning, still experimental in manyrespects. However many of its building blocks, such as PMOs, Sub-project Assistance Agreements,and the concept of regional and provincial teams, are familiar to the implementing agencies and havefunctioned adequately in the past. It is therefore expected to be workable. Since the three regions tobe covered under the project will serve as pilots for the LGU financing facility concept, themanagement system for the Fund and its adjunct support packages will be reviewed periodically byDOF and the Bank for efficiency in the light of accumulated experilence, and modified as necessary.

5. Social Assessment:

The project would fall under the Program of Targeted Interventions, being targeted to poor families,communities and provinces. While women are not directly targeted as beneficiaries under the project, theheaith, nutrition and education benefits expected to accrue to their children would undoubtedly beconsidered by mothers as major gains in their welfare and quality of life. Nation-wide it is estimated thatabout 18 percent of the population of the Philippines belongs to indigenous population (IP) groups made upof seven broad ethnic groupings containing overall more than 60 separate ethnicities (see Map 2: "Locationof Indigenous Peoples Groups" ). Both the broad groupings and individual groups of widely vazyingorigins and cultures, with no single group or broad grouping predominating overall. Of the three Regionswhere LGU sub-projects are to be carried out, IP groups make up less than five percent of the population inregions VI and VII, and all belong to the Negrito broad grouping. In Region XII, however, IP groups makeup 60 percent of the population, belonging mainly to the Minganao broad grouping but with an admixtureof the "Muslim Groups" broad grouping.

The special needs of indigenous peoples as regards ECD were studied in a preliminary nation-wide surveyand in the participative consultation process described below in Section 7. The results confirmed thepreviously-established picture of wide heterogeneity of cultures and ECD status and special needs across IPgroups and broad groupings, making it impossible to formulate any single detailed strategy for ensuringthat project interventions (either program-wide or at the level of LGU sub-projects) reduce ECD-relateddisadvantages among IP communities relative to their non-IP neighboxs. As a broad generalization, IPgroups, because they tend to be poor, remote and marginalized, tend to have below-average ECD indicatorsand access to good-quality ECD services. Less important but still of significance for intervention design,the cultures of some IP communities also have special beliefs or customs requiring some tailoring of ECDservice design and IEC activities to ensure their maximum effectiveness and uptake. The broad principlesof the project's strategy are to improve access to and quality of ECD services to IP communities, includingwhere necessary new or customized approaches to service delivery. These do not require any change in thecontent of the ECD programs which will be strengthened at regional level under the project. However thespecific measures to be taken under LGU sub-projects to improve ECI) service access and to customizeservice design will need to be tailored at field-level to the special circumstances of each group if they are tobe successful in improving ECD status and reducing IP disadvantages.

Page 21

The approach adopted under the project will be based on municipality/city-level IP plans and province-levelIP strategies for ECD. All LGU sub-proposals will be obliged to include IP plans for any IP groupspresent in the LGU, on the basis of an initial survey and consultation with such groups. To strengthen overtime the capabilities of LGUs to prepare IP plans, the special circumstances and needs of all IP groups inRegions VI, VII and XII will be ascertained province-by-province no later than December 31, 1998through special initial surveys and consultations. Province-specific participative IP strategies will then beprepared by March 31, 1999, including sub-strategies for each IP group separately. Each LGU sub-projectproposal submitted after these sub-strategies are developed will be obliged to reflect in its IP plan the sub-strategies for all IP groups represented in that LGU; satisfactory provisions for sub-strategy measures willbe checked at sub-project appraisal and required for sub-project approval. The implementation of IP plansunder the LGU sub-projects will be monitored through community-level participatory action research. Toassess the overall impact of project interventions, the provincial-level baseline survey of all IP groups willbe repeated at the end of the project. Full treatment of provisions for LGU sub-projects will be included inthe LGU Financing Facility Manual of Operations.

More generally speaking, the overall consultation and beneficiary consultation process carried out duringproject preparation revealed few potential social-cultural constraints to acceptance and uptake ofstrengthened ECD services. There was a commonly-found ignorance among communities and families ofthe importance of intensive psychosocial stimulation of very young children, and of the signs andconsequences of mild to moderate malnutrition in young children, but these issues will be addressed by theIEC sub-component 2 (a) of the project.

Land for the construction of new daycare centers or health centers under LGU sub-projects will beprovided by the barangay concerned. The need for additional land, not yet owned by the barangays, wouldbe small. The following two principles adopted by the project will govem the process of obtaining land: (i)no land will be obtained whose use would require involuntary resettlement, and (ii) only land whose ownersare willing to part with it voluntarily will be obtained, either as a donation or on the basis of a negotiatedprice. LGU proposals will mandatorily contain a description of the location and current use of any sitedesignated for new construction, and, where appropriate, provision for any payment for loss of assets orloss of livelihood entailed. A certificate for each site will be attached to the sub-project proposal to besubmitted for review and appraisal, providing evidence that (a) the land has been donated or an agreedprice for the land or for deprivation of occupancy or use is to be paid, and (b) no involuntary resettlement isrequired. Full treatment of these provisions has been included in the LGU Financing Facility Manual ofOperations.

6. Environmental assessment: Environmental Category [] A []B [X] C

The project would not have any significant environmental effects.

7. Participatory approach:

At the time of identification, plans were made for a participatory process of consultation designed to feedinto program/project preparation. The process included three phases of consultation with beneficiaries,communities and LGUs. A grant from the Bank's Participation Fund was used to finance a successful pilotof the first phase, which was an assessment of beneficiary, community and LGU views and attitudes onECD status and needs. The first phase itself was carried out during the first half of 1995 under PHRDGrant funding, and detailed reports were produced and used by the program/project preparation teams.The second phase, consisting of consultation with the same parties on the initial program/project proposal,was carried out during 1997 among indigenous peoples and LGU executives (governors and mayors) underfunding from the second PHRD grant, and is planned shortly for mainstream communities under fundingfrom ADB. A third phase, consisting of consultation with the same parties to present and promote the finalproject and begin the process of participation in its implementation, is scheduled for the pre-implementation

Page 22

and early implementation period. A system to maximize subsequent participation during implementationwill be designed on the basis of the results and findings of the third phase.

F: Sustainability and Risks

1. Sustainability:

The stakeholders in the ECD project include the national line agencies (DSWD, DOH, DECS) and theLGUs who implement sub-projects. All have compelling motives to sustain project investments andprograms. DSWD will benefit through substantial strengthening of the agency and extension of itsprograms and activities. The project will provide critical strengthening of key DOH programs for childhealth, which are highly visible and closely monitored by Congress and thie media. DECS will benefitthrough investment in additional pre-school inputs, which have been one of their major policy concerns andpriorities. An analysis of the fiscal impact of the project's investments at regional and provincial levelshows them to be eminently sustainable from expected future agency budgets (see Section D.2). These arealso expected to be institutionally sustainable given the strengthening of institutional capacity providedunder Component 2 of the project. Likewise, an analysis of the fiscal impact on LGUs of the strengthenedECD programs shows them to be affordable after completion of the initial investment portion of the sub-projects (see Section D.2 ). Institutional sustainability of the national ECD program and strengthenedprovincial and LGU-level programs will be addressed through the inputs provided under Component 2 ofthe project. On the demand-side, the consultations held during project preparation with officials fromtargeted LGUs clearly demonstrated a very high level of interest in participating in the project and invest inimproving ECD programs.

Page 23

2. Critical Risks (reflecting assumptions in the fourth column of Annex 1):

Risk Risk Risk Minimization MeasureRating

A. Early Education interventions may fail to MR (i) Design and implementation of new or innovative elements in early education programsdeliver expected results regarding improved (particularly the PES program) will be piloted and evaluated under Component 3 early in projectcognitive development and school-readiness. (evaluations of existing programs have indicated impact, though limited by current deficiencies which

would be remedied by the project inputs). (ii) International experience and best practices have beenand will continue to be heavily utilized for design and implementation of such interventions, includingthrough a collaborative research effort with DEC, involving a longitudinal survey of the impact ofearly education in three countries.

B. New national PEM program may fail to MR As for Early Education, (i) this new program will be piloted and evaluated early in the project underproduce expected impact on child malnutrition Component 3, and (ii) both international and extensive previous smaller-scale country experience and(reduction in stunting and wasting). best practices have been and will be utilized in program design and implementation.C. There may be changes in DSWD, DOH, LR Stable motivation for commitment within each agency has been maximized as far as possible inDECS, leading to weakened commitnent and project design as follows: (i) ECD services and packages supported by project have been selected asineffective implementation. being core interventions given high priority by DSWD, DOH and DECS. (ii) Responsibilities for

implementation of components and sub-components have been allocated among line agencies in linewith agency ownership and stake in programs covered. (iii) Strong links between central, regionaland provincial agency structures and the corresponding project management structures have beenincorporated in project management arrangements.

D. There may unexpectedly prove to be lack of MR (i) Intensive and long-term strategies for promoting appreciation of and demand for ECD programs amongstrong consistent demand, commitment and/or both LGUs and beneficiaries (who are voters) have been incorporated in both the preparation processimplementation capacity at LGU level for ECD (through the three-phase consultations exercises) and project design (Component 2). (ii) The LGU fund isprograms, leading to lack of uptake of designed around: (a) a participative planning process for sub-projects with core ECD program prioritiessub/projects from LGU fund and/or effective but maximum flexibility to cover local conditions and needs; (b) a flexible cost-sharing structure that takesimplementation. into account both the experience of previous health projects with LGUs and their financial status, and also

provides an initial test of demand and commitment; (c) direct contracting with LGUs through Sub-projectAssistance Agreements; and (d) heavy technical assistance and support to strengthen LGUs in both thesub-project design and planning stage, and during and after implementation (Component 2). (iii) Demandfor sub-projects was directly verified during project preparation through statements of general interest,preparation of several sub-project proposals and six municipal/city council resolutions to authorize sub-projects; five such resolutions are required as a condition of effectiveness.

Overall Risk Rating SRisk Rating - H (High Risk), S (Substantial Risk), M (Modest Risk), N (Negligible or Low Risk)

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3. Possible Controversial Aspects:

None

G: Main Loan Conditions

L. Effectiveness Conditions:

1. The Borrower shall have established: (i) the Project Steering Committee; (ii) the national ProjectManagement Office within DSWD and designated the national Project Director and the national ProjectCoordinator thereof, and (iii) in each Project Region, the regional Project Management Office within theRegional DSWD Office and designated the regional Project Coordinator thereof;

2. DSWD and DOF shall have executed a memorandum of agreement to establish the LGU FinancingFacility under MDF, satisfactory to the Bank;

3. DSWD shall have adopted and put into effect an LGU Financing Facility Manual of Operationssatisfactory to the Bank;

4. The municipal or city councils of at least five LGUs shall have passed resolutions satisfactory tothe Bank, to authorize the respective LGUs to undertake sub-projects; and

5. The ADB Loan Agreement shall have been executed and delivered and all conditions precedent toits effectiveness or to the right of the Borrower to make withdrawals thereunder except only theeffectiveness of the Loan Agreement, have been fulfilled.

H. Other Agreements

The Borrower shall:

6. (a) prepare, on the basis of guidelines acceptable to the Bank and furnish to the Bank not laterthan six months after the closing date of the project or such later date as may be agreed for this purposebetween the Borrower and the Bank, a plan designed for the continued achievement of the projectobjectives; and (b) afford the Bank a reasonable opportunity to exchamge views with the Borrower on thesaid plan.

7. consult with the Bank in respect of any proposal to modify its 10-Year National Early ChildhoodDevelopment Program.

8. (a) maintain a financial management system, including records and accounts, and prepare financialstatements in a format acceptable to the Bank, adequate to reflect the operations, resources andexpenditures for and in connection with the carrying out of the Project;

(b): (i) have these records and accounts, including those for the Special Accounts for each fiscalyear, audited, in accordance with auditing principles acceptable to the Bank, consistently applied, byindependent auditors acceptable to the Bank; (ii) furnish to the Bank as soon as available, but in any casenot later than six months after the end of each such year, (A) certified copies of the financial statementsreferred to in section (a) of this paragraph for such year as so audited, and (B) an opinion of such financialstatements, records and accounts and a report of such audit by said auditors, of such scope and in suchdetail as the Bank shall have reasonably requested; and (iii) furnish to the Bank such other information

Page 25

concerning said records and accounts and the audit thereof as the Bank may from time to time reasonablyrequest;

(c) for all expenditures with respect to which withdrawals from the Loan Account were made onthe basis of statements of expenditure: (i) maintain or cause to be maintained, in accordance with section(a) of this paragraph, records and accounts reflecting such expenditures; (ii) retain, until at least one yearafter the Bank has received the audit report for the fiscal year in which the last withdrawal from the LoanAccount was made, all records (contracts, orders, invoices, bills, receipts and other documents) evidencingsuch expenditures; (iii) enable the Bank's representatives to examine such records; and (iv) ensure thatsuch records and accounts are included in the annual audit referred to in section (b) of this paragraph andthat the report of such audit contains a separate opinion by said auditors as to whether the statements ofexpenditure submitted during such fiscal year, together with the procedures and internal controls involvedin their preparation, can be relied upon to support the related withdrawals.

9i. (a) maintain an inter-agency Steering Committee, chaired by the Secretary or a duly authorizedrepresentative of DSWD, with a composition to be agreed to with the Bank, to provide overall guidance inthe implementation of the project; and ensure that the Steering Committee shall meet at least once everycalendar quarter to review the progress of the project;

(b) in each of the project Regions, by no later than July 31, 1998 establish and, thereafter,maintain a Regional Early Childhood Development Team to be headed by the DSWD Regional Director,vith a composition acceptable to the Bank and with functions, responsibilities and resources satisfactory to

the Bank, to provide guidance to the regional PMO and monitor the implementation of the 10-YearNational Early Childhood Development Program and the project in the Region;

(c) cause each Province within the project Regions to establish by no later han August 31, 1998and, thereafter, maintain a Provincial Early Childhood Development Team with functions, responsibilitiesand resources satisfactory to the Bank, to provide guidance and assistance to the provincial PMO in theinplementation of the project within such Province;

(d) maintain a national Project Management Office within DSWD, with fimctions, responsibilitiesand resources satisfactory to the Bank, managed and staffed by personnel in adequate number and withqualifications and experience acceptable to the Bank, to coordinate, supervise and monitor theinplementation of the project;

(e) by no later than August 31, 1998, appoint, in addition to the national Project Director andnational Project Coordinator, key staff acceptable to the Bank;

(f) in each project Region, maintain a regional Project Management Office within the RegionalDSWD Office, with functions, responsibilities and resources satisfactory to the Bank, managed and staffedby personnel in adequate number and with qualifications and experience acceptable to the Bank, tocoordinate, supervise and monitor the implementation of the project within such project Region;

(g) by no later than August 31, 1998, appoint, in addition to the Regional Project Coordinator, keystaff acceptable to the Bank;

(h) cause each Province in the project Regions to: (i) establish by no later than August 31, 1998and, thereafter, maintain a provincial Project Management Office, to be headed by a provincial EarlyChildhood Development Action Officer; (ii) provide such provincial PMO with functions, responsibilitiesand resources acceptable to the Bank, staffed with qualified personnel in adequate number to enable it tocoordinate and monitor the implementation of the project within such Province.

10. (a) carry out sub-component Lb of the project by establisiiing, through MDF, an LGU FinancingFacility to make available to LGUs a portion of the proceeds of the Loan as grants to finance eligible sub-projects, under terms and conditions acceptable to the Bank;

(b) administer the LGU Financing Facility in accordance with principles and procedures set forthin an LGU Financing Facility Manual of Operations satisfactory to the Bank, which shall set forth, interalia: (i) the criteria and process for the selection of LGUs eligible for financing under sub-component L .b of

Page 26

the project; (ii) the procedures and criteria for the review, appraisal and approval of sub-projects; (iii) thepolicy, guidelines and general procedures to ensure the participation of indigenous peoples in the design andimplementation of sub-projects, and the implementation of the specific early childhood development plansfor indigenous peoples developed by LGUs, when applicable; (iv) the cost-sharing arrangements betweenthe Borrower and the respective LGUs; and (v) the procedures for monitoring and reporting of activitiesunder the LGU Sub-projects;

(c) furnish to the Bank for its prior concurrence any proposed revision to the LGU FinancingFacility Manual of Operations.

11. in respect of each sub-project:(a) through the national PMO, enter into a Sub-project Assistance Agreement with the eligible

LGU, satisfactory to the Bank, which shall specify the obligations of the LGU in accordance with the LGUFinancing Facility Manual of Operations, including but not limited to its obligations to: (i) implement itsrespective sub-project under Sub-component 1 .b of the project; (ii) imLplement the indigenous peoples earlychildhood development strategy developed by the respective provincial PMO through its respective sub-project; (iii) provide, promptly as needed funds, facilities, services and other resources required for itsrespective sub-project; and (iv) upon completion of its respective sub-project, allocate adequate resourcesto ensure the continuing imnplementation of the objectives of the sub-project;

(b) not make available the proceeds of the Loan for financing such sub-project until the aboveSub-project Assistance Agreement has been entered into with the eligible LGU.

12. exercise its rights under each such Sub-project Assistance Agreement in such manner as to protectthe interests of the Borrower and the Bank and to accomplish the purposes of the Loan and, except as theBank may agree, shall not assign, amend, abrogate or waive such agreement or any provision thereof.

13. (a) prepare and, by November 30 of each year starting in 1998, furnish an annual micronutrientsupplementation program to the Bank for its review and comments; and

(b) thereafter, carry out the annual program through DOH, taking into consideration the Bank'sview thereon.

14. ensure that no weaning foods be used as food supplements in dhe PEM control program under Sub-component l.b of the project unless such foods have been submitted to the Bureau of Foods and Drugs ofDOH for quality-assuramce testing and been certified as meeting the applicable Govememnt standards.

15. prior to approving an investment project for financing as sub-project, require that the LGUproposing the project develop, if applicable, an indigenous peoples plan in accordance with the policy,principles and general procedures set forth in the LGU Financing Facility Manual of Operations; andthereafter, ensure that upon its approval, the sub-project shall be imnplemented in accordance with suchplan.

16. (a) through each provincial PMO, by no later than Decenmber 31, 1998, carry out a baselinesurvey of all major groups of indigenous peoples within the province, under terms of reference acceptableto the Bank;

(b) ensure that the baseline survey collect quantitative data on the status, knowledge, attitudes,practices and special needs of each such group in respect of early child development, its access to earlychild development services, service utilization, receptivity to the project and willingness to participate in it;

(c) ensure that each provincial PMO hold consultations with each such group;(d) by no later than March 31, 1999, on the basis of the baseline survey findings, and in

accordance with the policy and procedures set forth in the LGU Financing Facility Manual of Operations,through the Provincial Early Childhood Development Team and the provincial PMO, develop a provincial

Page 27

indigenous peoples early childhood development strategy acceptable to the Bank which will incorporatedistinct strategies for each major group of indigenous peoples within the Province, as may be necessary;

(e) thereafter, ensure that the baseline survey findings and provincial indigenous peoples earlychildhood development strategy are applied by the LGUs in their development of indigenous peoples plans.

17. (a) by September 30, 1998, formulate a training program for Sub-component 2.c of the project inaccordance with terms of reference acceptable to the Bank, and furnish such training program to the Bankfor its review and comments;

(b) thereafter, carry out the program taking into consideration the Bank's view on the matter.

18. by no later than September 30, 1998, put into effect its Financial Information System for Foreign-Assisted Projects.

19. by no later than July 31, 1998:(a) under terms of reference acceptable to the Bank: (i) complete the design for the National

Nutrition Survey to be carried out in 1998; and (ii) formulate the evaluation protocol for the pilot programsfor PEM control and for parent effectiveness services under Sub-component L.a of the project; and

(b) provide the design and the evaluation protocol to the Bank for its review and comment and,thereafter, put them into effect in carrying out the National Nutrition Survey and in evaluating Sub-component l.a of the project, taking into account the Bank's view thereon.

20. (a) carry out the studies and surveys under Component 3 of the project in accordance with termsof reference acceptable to the Bank; and

(b) provide the Bank for its review and comments the results and recommendations of such studiesand surveys.

21. in respect of Sub-Component 3.a of the Project:(a) closely monitor the piloting of new early child development interventions and service delivery

systems; and(b) by December 31, 1999, prepare under tenns of reference acceptable to the Bank and provide

to the Bank for its review and comment an evaluation of each such pilot intervention.

22. (a) by December 31, 1998, carry out a baseline survey in respect of early childhood developmentand the quality and level of related services in the project Regions, under terms of reference acceptable tothe Bank;

(b) by June 30, 1999, review with the Bank the findings of the survey with the view to, as the casemay be, confinn the key perfornance indicators, baseline values and targets acceptable to the Bank or tomodify such indicators, baseline values and targets in a manner satisfactory to the Bank; and

(c) by June 30, 2004, carry out a repeat survey under terns of reference acceptable to the Bankfor the purpose of evaluating the achievements and impact of the project.

23. (a) maintain policies and procedures adequate to enable it to monitor and evaluate on an ongoingbasis, in accordance with indicators and targets acceptable to the Bank, the carrying out of the Project andthe achievement of its objectives;

(b) prepare, under terms of reference satisfactory to the Bank, and furnish to the Bank on or aboutJuly 31 and January 31 of each year, commencing in July 1998, a report integrating the results of the abovemonitoring and evaluation activities, on the progress achieved in the carrying out of the project during theperiod preceding the date of each such report and setting out the measures recommended to ensure theefficient carrying out of the project and the achievement of its objectives during the period following suchdates;

Page 28

(c) on or about September 30, 2000, carry out a mid-term review under terms of referenceacceptable to the Bank, of the progress achieved in the carrying-out of the project during the periodpreceding such date and setting out measures recommended to ensure the efficient carrying-out of theproject and the achievement of its objectives during the period following such date; and

(d) review with the Bank, within one month following the date of each such report, or such laterdate as the Bank shall request, each of the above reports, and, thereafter, take all measures required toensure the efficient completion of the Project and the achievement of its objectives, based on theconclusions and reco_mendations of such report and the Bank's views on the matter.

H. Readiness for Implementation

The Project Implementation Plan was appraised and found to be realistic and of satisfactory quality.

The LGU Financing Facility Manual of Operations, which was substantially complete but requiring finalediting, was appraised and found to be of satisfactory quality.

The following items are lacking or not completed and are discussed under loan conditions (Section G):LGU Sub-project Operational Manual: plan for evaluation of PES and PEM Programs: design of baselinenutrition surveys; provincial baseline surveys and strategies for indigenous peoples groups; baseline andfinal evaluation survey.

L Compliance with Bank Policies[xl This project complies with all applicable Bank policies.

Task Team Leader/lask Manager: Althea Hill

Sector Manager/Director: Maureen Law

Country Manager/Director: Vinay Bhargava

Annex 1Page I

PHILIPPINESEarly Childhood Development Project

Project Design Summary I

Project Broad Project Key Indicator (regionalDevelopment Approaches level for Regions 6,7 and

Objectives 12, separately and Target Source W/ or W/o Controlsweighted average)

1. To contribute to the 1. Upgrade central Under 5 mortality rate Reduce by 30% from Baseline and final with controls (matchedattainment of human ECD programs in baseline value surveys provinces from otherdevelopment goals by project regions regions)providing services that through region-wideensure survival and additional critical Combined index of child Combined index of child Baseline study with controlspromote the physical inputs in: development (motor and development (motor and developing this (matched provincesand mental develop- cognitive) cognitive) indicator and from other regions)ment of Filipinochildren, particularlythose who are most * Expanded Proportion of children 90% of children in that Baseline and final with controls (matchedvulnerable and most Program of aged 12 to 18 months age group surveys, EPI service provinces from otherdisadvantaged. Immunization fully immunized statistics for mnidterm regions)

year* Integrated

Management ofChild Illness

* Micronutrients/ Proportion of children Reduce by 30% from Baseline and final with controls forFood fortification under 6 with anemia baseline value surveys (annual baseline and final

haemoglobin survey surveys (matchedfor m-idtermn year) provinces from other

________________________ _____________________ ~~~~~~ ~~ ~~regions)

Annex 1Page 2

Project Broad Project Key Indicator (regionalDevelopment Approaches level for Regions 6,7 and

Objectives 12, separately and Target Source W/ or W/o Controlsweighted average)

* Parent Combined index of child Targeted improvement to Baseline study with controls (matchedEffectiveness development (motor and be determined during developing this provinces from otherService cognitive) baseline study developing indicator and repeat regions)

this indicator final survey

* Grade I Completion rate for 70% of children entering DECS statistics for with controls (matchedCurriculum Grade I Grade I baseline, final and provinces from otherEnrichment years regions)

2. Provide financingfacility for LGU sub-projects to upgradeECD services,including newfeatures:

0* upgraded PES Combined index of child Targeted improvement to Baseline study with controls (matched

program development (motor and be determined during developing this provinces trom othercognitive) baseline study developing indicator and repeat regions)

this indicator final survey

* new PEM Proportion of children Decrease by 40% from NNS 1998 and 2003 with controls (matchedprogram with grade 2 and 3 wasting baseline value surveys; growth provinces from other

monitoring service regions)statistics for midtermyear

new CDW worker to Proportion of 50% of municipalities/ Project MIS and without controlsmanage these two municipalities/ cities with cities special final surveyabove programs active CDWs

Atnriex 1Page 3

Project Broad Project Key Indicator (regionalDevelopment Approaches level for Regions 6,7 and

Objectives 12, separately and Target Source W/ or W/o Controlsweighted average)

2. To establish an 1. Provide financing Proportion of targeted 90% of Project MIS without controlseffective partnership facility for LGU ECD municipalities/cities who rnunicipalities/citiesbetween national and sub-projects, as have implemented ECDlocal governments in above. subprojectsthe provision of ECDservices 2. Provide support to Proportion of children 75% of children in that DSWD statistics for with controls (matched

LGUs in designing aged 3 to 5 in targeted age-group baseline, midtern and provinces from otherand implementing municipalities attending final years, plus regions)sub-projects in the daycare centers baseline and finalareas of: surveys OQ

* IEC Proportion of 50% of Project MIS and without controls F-* Planning, municipalities/cities with in unicipalities/cities special final survey

Targeting and active CDWsMIS

* Training Proportion of 50% of targeted Project MIS and without controls* Management municipalities/cities with municipalities/cities special final survey

functioning PEMpro- ns in 2003

Page 32

Annex 1Page 4

Project Design Summary II

Narrative Summary Key Performance Indicators Monmitoring and Critical Assumptions(Note: Baseline Values of Key Suipervision and RisksIndiicators WflU Be Verified at

BaseUne Survey and Target ValuesRe-Assessed/Determined) I

CAS Objective (CAS Objective to BankMission)

Assumption

To assist in the design and Indicators of the breadth and Methodology and Poverty alleviation inimplementation of more depth of poverty similar to those instruments for poverty Philippines will requireeffective and efficient used in "A Strategy to Fight measurement and sustained broad economicmechanisms for poverty Poverty: Philippines". monitoring as laid out in growth and developmentalleviation while upgrading Annex A to "A Strategy as a basis for specificthe quality of social services to fight Poverty: anti-povertyavailable to the poor Philippines". interventions.

Project Development (DevelopmentObjectives Objectives to CAS

Objective)

Risks

To contribute to the Reduction in the under-five Baseline, end-project Attainment of humanattainment of human mortality rate surveys development goals, indevelopment goals by part through improvedproviding services that Reduction in the prevalence of early child develop-ment,ensure survival and wasting and stunting Baseline, mid-term, end- and effective central/localpromote the physical and project surveys partnership in ECDmental development of Reduction in the prevalence of service delivery, may notFilipino children, micro-nutrient deficiencies (iron, Baseline, mid-term, end- alleviate povertyparticularly those who are iodine, vitamin A) project surveys significantly unlessmost vulnerable and most accompanied by overalldisadvantaged. economic growth and

development

Effective central/localTo establish an effective Percent of targeted municipalities Project records partnership in ECDpartnership between who have implemented ECD service delivery may notnational and local investment packages result in upgraded qualitygovernments in the of social services unlessprovision of ECD services. Increase in the spending of accompanied by adequate

municipalities on ECD services. Baseline, nmid-term, end- IRA allocations to poorproject studies LGUs

Baseline and targeted values should be shown, with the latter divided into values expected at mid-term, end of projectand full impact.

Page 33Annex 1

Page 5

Project Outputs Outputs to Devip.Objectives)

Risks

Improved Child Health Improvement in the percentage of Baseline, mid-term, end- Changes in DOH leadingPrograms in the three fully immunized children in the project surveys plus EPI to weakened commitmentproject regions three project regions program statistics and ineffective

implementation

Improved micronutrient Decrease in the proportion of Nutrition baseline and Changes in DOH leadingstatus of children in the children with deficiencies in iron, end-project surveys to weakened commitmentthree project regions iodine and vitamin A and ineffective

implementation

Imprcved access to foods Proportion of foods purchased by Annual community Changes in the economyfortified with iron, iodine, families which are fortified monitoring surveys in or food industry reducingvitamin A LGUs with sub-projects industry's current interest

in food fortification as aselling point and socialcontribution

Establishment of improved Reduced drop-out rates from DECS program statistics Changes in DECS leadingGrade 1 curriculum in three Grade I to weakened commitmentproject regions and ineffective

implementation

Improved ECD Services in Percent of targeted municipalities Project records Changes in the economyat least 69 municipalities in who have implemented ECD or Govermment leading toat least 10 provinces, investment packages reduced IRA and otherincluding the PEM and revenues for LGUsupgraded PES programs

Reduction in rates of stunting and Program statistics plus Changes in economy orwasting baseline and end-project Government policies

nutrition surveys leading to increased levelsof poverty and lower

Percent of municipalities with a Project records plus end- educational levelsfunctioning PEM program project nutrition survey

Percent of municipalities with an Project records plus end- Failure of new PEMactive CDW worker project survey program to produce

expected impact on childmalnutrition

Increase in the percentage of Program statistics plus Changes in DSWDmunicipalities with a functioning project records leading to weakenedday care center of acceptable commitment andquality ineffective

implementation

Page 34Annex 1

Page 6

Improvement in School Readiness Baseline and end-project Failure of upgraded PESsurveys plus DEC program to producelongitudinal survey expected impact on child

cognitive developmentand school readiness

Failure of day care centerinterventions to deliverexpected results regardingcognitive improvementand school readiness

Project Components US$ millions (Components toOutputs)

1. Service Delivery 34.9 Risks

a. Program Support 9.5 Program Statistics from Changes in DOH,for Provincial LGUs DOH, DS'WD and DECS DSWD or DECS

Project M;IS leading to weakened

commitment andineffectiveimplementation.

b. LGU Support Fund 25.4 Project MIS Unanticipated changes inbeneficiary attitudesleading to lack of demandor uptake of strengthenedservices

2. Support to Service 12.3Delivery

a. IEC Support 1.3 ProJect MIS Unanticipated changes inbeneficiary attitudesleading to resistance toIEC activities

b. Planning Support 3.7 Project MIS

c. Training and 3.5 Project MISHuman Develop-ment Support

d. Management 3.8 Project MISSupport

Page 35Annex 1

Page 7

3. Research and 3.6Development

a. Pilots of Project 0.2 Project MISInterventions

b. New and Innovative 1.9 Project MISApproaches

c. Monitoring and 1.5 Project MISEvaluation of Project

Page 36

Annex 2

PHILIPPINESEarly Childhood Development Project

Detailed Project Description

Introduction

The project focuses on the upgrading and extension of ECD services. The overall approach, forreasons of political acceptability, simplicity and ease of implementation, and minimization ofcosts and implementation risks, is to build upon existing ECD programs and experience in thePhilippines. This means upgrading and extending well-established programs of adequate design,such as the Child Survival, Day-Care Center and Parent Effectiveness programs; usingexperience from programs that have not worked or lasted to design, test, evaluate and establish animproved program, such as the new national PEM program; and trying out new programs onlywhere no established program exists, such as the Day-Care Mother program. The progress of allnew or substantially upgraded programs or interventions, such as PEM, PES, Day Care Mothers,food fortification, iron supplementation and IMCI, will be reviewed at the end of the first year ofproject implementation.

The Package of ECD Services

ECD services which are or will be provided in the three project regions under the ECD programand project include:

Child Survival Programs: These provide basic preventive health care to young children. Themost important are: the Expanded Program of Immunization (EPI) which immunizes againsttetanus, tuberculosis, typhoid, diphtheria, polio, measles and sometimes other diseases; theControl of Acute Respiratory Infections (CARI) program, vhich screens for and treatspneumonia with antibiotics; the Control of Diarrheal Diseases (CDD) program, which promotesand provides oral rehydration therapy as a palliative treatment for diarrhea; and the micronutrientinitiative which provides iron, iodine and vitamin A supplements to mothers and children. Tothese existing staple programs, implemented worldwide, is to be added the IntegratedManagement of Childhood Illness initiative, which seeks to integrate and improve the treatmentof sick children. The core provider of these programs is the Rural Health Midwife (RHM),assisted by volunteer Barangay Health Workers (BHWs). The implementing agency for childhealth programs is DOH (Matemal and Child Health Service).

Protein-Energy Malnutrition (PEM) Program: This new programr, which was preceded by manysmaller-scale programs, will screen all children aged 6 months to two years for faltering growthor established wasting or stunting, provide food supplements for a limited period (as a nutritioussnack food) to children in need, and educate families on correct child feeding practices. The coreprovider will be the new Child Development Worker (CDW), in partnership with the RHM (whodoes some infant and child growth monitoring) and the BHWs; the CDWs will be recruited fromthe existing limited cadre of Barangay Nutrition Scholars (BNSs) if present, and if not, fromBHWs or other outreach workers or community members. The program will be piloted in thefirst year of the project in five sub-projects and evaluated at the end of a year. The implementingagency for nutrition programs is DOH (Nutrition Service).

Food Fortification Program: This new initiative is expected gradually to take over coverage ofmost of the country's micronutrient supplement needs and eventually to be almost entirely

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financed by the food industry. It would work with the industry to develop fortification of suitablemass-produced staple foodstuffs with iron, iodine and vitamin A, and support limited transitioncosts including information, education and communication activities. The implementing agencyis DOH (Nutrition Service).

Day-Care Center Program: This national program, instituted by Congress, mandates by law theestablishment of at least one Day-Care Center (actually a pre-school) in every barangay. OneDay-Care center is supposed to serve 60 children aged three to five years through two daily half-day classes of 30 children each. The centers are run by Day-Care Workers (DCWs), one per 60children. Not more than half the country's barangays currently yet have a Day-Care Center. Theimplementing agency is DSWD.,

Parent Effectiveness Service (PES): This national program provides training and promotion forparents in how to provide effective psychosocial stimulation for their young children and henceenhance their cognitive development. The core providers are DCWs and Social Welfare Officers(SWOs) but the spread of the program is still extremely limited. Under the project it will beextended and upgraded with a focus on children aged zero to two years, and the core providerwill be the CDW. The program will be piloted in the first year of the project in five sub-projectsand evaluated at the end of a year.

Day-Care Mothers (DCMs): This new and experimental program will provide day care foryoung children of working mothers, with some psychosocial stimulation input included. Thecore providers will be trained community mothers, assisted by the CDW.

Improved Grade 1 Curriculum including Pre-School Elements: This new national curriculumwill focus on an eight-week pre-school module at the start of first grade, as a part of the first-grade standard curriculum. It is intended to compensate for the lack of pre-schooling amongmost school entrants. The providers will be first-grade teachers.

Outline of the Project

Component 1: ECD Service Delivery (base cost US$34.9 million)

Sub-Component 1.A: Program Support for Provincial LGUs. This sub-component consists offive packages , comprising support to all provinces in the three project Regions for fiveprograms, namely the Expanded Program of Immunization (EPI), the Integrated Management ofChild Illness (IMCI) Program, the Micronutrient Malnutrition Prevention and Control Program,the Parent Effectiveness Service (PES) Program, and the Grade 1 Early Child Experience/EarlyChild Development (ECE/ECD) Program.

The Expanded Program of Immunization package will supply crucial needed additional inputs tothe EPI program in all the provinces of the three project regions, including replacement cold-chain equipment, training of cold-chain technicians in cold-chain management, maintenance andrepair, and training of primary health care staff in basic EPI skills. The project will finance thecost of: freezers, refrigerators, icepack freezers, voltage regulators, cold boxes, icepacks andthermometers for provincial, municipal and city health offices, and refrigerators, transport boxes,vaccine carriers, icepacks, thermometers and voltage regulators for rural health units:maintenance and repair costs for the above equipment during the life of the project; and trainingcourses in basic EPI skills for newly-appointed and selected in-service RHMs. This packagewould be managed by the DOH Maternal and Child Health service.

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The Integrated Management of Child Illness package will support the initiation in the Philippinesof the World Health Organization (WHO)-supported IMCI program, which aims to improve thediagnosis, management and treatment of common childhood conditions such as pneumonia,diarrheal disease, dengue, malaria, tuberculosis, anemia and malnutrition. The package willprovide in-service IMCI training for doctors, nurses and midwives, support the integration ofIMCI into the curricula of medical, nursing and midwifery schools, and supply delivery and dietkits to improve case-management of conditions affecting the new-born. The project will financethe cost of: IMCI training planning workshops in the project regions and provinces; training ofIMCI trainers; IMCI training equipment and materials; workshops to plan, develop and evaluatepre-service IMCI training for medical, nursing and midwifery schools; in-service IMCI trainingcourses for doctors, nurses, RHMs at city health centers, rural health units and barangay healthstations; follow-up and supervision of trained health providers by IMCI trainers; incrementalIMCI-related equipment for health units (e.g., pediatric cuffs for sphygmamometers, nebulizersand pneumatic otoscopes); and IMCI orientation seminars for first-level referral hospital staff.The package would be managed by the DOH Maternal and Child Health Service).

The Micronutrient Malnutrition Prevention and Control package will prevent, manage andcontrol major micronutrient deficiencies (in iron, iodine and vitamin A) in the Philippinesthrough a mix of direct supplementation, food fortification and deworming of children. Theoverall strategy is to phase out direct supplementation, except for special high-risk groups such aspregnant women, over the life of the project, and correspondingly promote comprehensiveindustry-financed fortification of staple foodstuffs (salt, sugar, flour, rice, oil), backed by regulardeworming. The package would support a program of interim iron supplementation (the currentgap in DOH's micronutrient supplementation program) on a declining basis, deworming, andpromotion of industry-financed fortification of staple foodstuffs with major micronutrients. Theprovision of supplements of iodine, vitamin A and current small amounts of iron out of regularDOH budgets would continue in parallel. All supplementation would be gradually phased outduring the life of the project, with declines planned annually according to monitoring data onmatching expansion in coverage of needs through food fortification. The project would financethe costs of: iron supplements for pregnant and lactating mothers., low-birthweight infants and all6-month-old infants; weighing scales for infants to identify low..birthweight babies; dewormingtablets for children aged 2-6 years; materials and activities for advocacy and promotion amongfood producing companies of the fortification of salt, sugar, oil, rice and flour with iodine,vitamin A and iron; and materials and activities for social marketing to promote consumeracceptance and preference of fortified foods. The package would be managed by DOH(Nutrition Service).

The Parent Effectiveness Service package will upgrade the current PES program throughintroduction of a Mother and Child book, which provides a permanent record of child growth anddevelopment from birth to sixth birthday, and reproduction and distribution of an epdated versionof a parent's manual on early child development developed for an earlier project. Furtherupgrading of the PES will be carried out in the context of LGU sub-projects, where the new cadreof Child Development Workers will be trained as the key PES provider and will be responsiblefor community-based parent education and a psychosocial stimulation program for children aged0-3 years. The project will finance the costs of: design, production, printing and distribution ofthe Mother and Child Book; and reproduction and distribution of parent's manual on early childdevelopment. The package would be managed by DSWD in coordination with DECS, who willincorporate it into its Teacher-Child-Parent program, and DOH lProvincial Health Offices, whowill incorporate it into its health education program.

The Grade I ECE/ECD package will improve the child-readiness of elementary schools through

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Region-wide introduction of an already pilot-tested enriched Grade I curriculum that contains an8-week "Early Child Experiences"(ECE) module incorporating more innovative and participatoryapproaches, as well as complementary health and nutrition inputs to first-graders consisting ofiron supplementation and deworming. The project will finance the costs of: refinement andfinalization of the 8-week module and the modified Grade 1 curriculum containing it: design,production, printing and distribution of teaching materials related to the 8-wveek module and thenew Grade I curriculum; training of trainers for the new curriculum; in-service training ofteachers in the new curriculum; the reproduction and distribution of training and teachingmaterials; iron supplements for Grade I entrants; and deworming tablets for Grade I entrants.The package would be managed by the Department of Education, Culture and Sport (DECS).

Sub-Component l3.B: Financing Facility for Municipal/City Local Government Unit (LGU)ECD Sub-Projects. This financing facility, which will operate through the MunicipalDevelopment Fund (MDF), will provide matching financing, on a flexible cost-sharing basisgeared to LGU income levels but with full funding by LGUs of major recurrent costs, for LGUswho wish to invest in upgrading of their ECD services. LGUs would, with technical supportfrom the project, submit proposals for three-year investment packages for appraisal, andimplement them once approved. The fund would cover three Regions, namely Regions VI, VIIand XII, containing a majority of the country's poorest children. It would be open to all LGUs inthe three regions, but over 80 percent of the funds available would be reserved for the 10provinces and 169 cities and municipalities with the greatest number of needy and at-riskchildren; these LGUs would be targeted for active recruitment. A region from Mindanao wasincluded as a contribution to Government's new development initiative there. Some new andinnovative elements of the investment packages, such as the new protein-energy malnutrition(PEM) control program, would also be pilot-tested in five selected LGUs during the first year ofthe project under Component 3 (Research & Development). The generic cost-sharing formula isshown below:

LGU Income Class % Grant % Equity1st Class 40 60 l

2nd & 3rd Class 60 404th to 6th Class 80 20

Standardization and quality of proposals for sub-projects would be achieved through use ofspecially-designed computer-based planning software which is designed, with accompanyingtechnical assistance from specially trained members of the provincial ECD team, to help mayorsand their planning teams in formulating their ECD investment packages. This planning tool isbased upon a standard complete set of ECD services, including workers, facilities, equipment andsupplies, together with a set of standard ECD key indicators which are assembled in advance foreach municipality or city. The mayor and municipal/city planning team employs the user-friendly software to identify current performance on ECD indicators and current gaps in ECDservices, then chooses from among the available ECD packages an affordable and appropriateinvestment package for that municipality/city. The software also includes a template forimmediate preparation of the proposal document itself, and would be further used duringimplementation for monitoring of progress in the sub-project.

The core of the investment packages would be supplementation or upgrading of barangay-levelECD service providers to form an integrated ECD team, including rural health midwives(RHMs), day-care workers (DCWs), day-care moms (DCMs), barangay health workers (BHWs)and child development workers (CDWs). Facilities, equipment and drugs and needed suppliessuch as drugs, food supplements, teaching materials and IEC materials would also be provided to

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achieve specified service norms. The team would provide a set of integrated ECD services,comprising child health services (including micronutrent supplementation), a program to controlprotein-energy calorie malnutrition , parent effectiveness services to promote psychosocialstimulation for children under 3, Day-Care Center early education, and day-care for children ofworking mothers.

This sub-component would be managed by the Department of Social Welfare and Development(DSWD).

Component 2: Support to Service Delivery (base cost US$12.3 million)

This component would provide support to LGUs in implementing their investment packages inthe areas of communications (advocacy, information, education, communication, for LGUexecutives, opinion leaders and decision makers, ECD providers and parents), planning,targeting and management information systems (MIS), training and human resourcedevelopment, and institutional development. Support would be provided at the central, regional,provincial and municipal levels. There would be four sub-components, covering respectivelycommunications, planning/targeting and MIS, training, and strengthening and support of themanagement capacity of LGUs, the project management structure, and the Council for theWelfare of Children (CWC), which is expected to become the apex agency for the national ECDprogram in the longer term. This sub-component would be managed by DSWD, in coordinationwith a mix of agencies, and NGOs, as appropriate.

There would be four sub-components, as follows:

Sub-Component 2.A: Support to Communications. This sub-component would support:advocacy for increased LGU investment in ECD services, aimed at LGU leaders and LGU andnational agency officials; the promotion of correct delivery of ECD services, aimed at providers,their supervisors and community leaders; and general IEC to promote optimum ECD-relatedbehavior, aimed at mothers, caregivers, and those who influence them. The project wouldfinance the costs of: development of IEC strategies, plans,. messages and campaigns;development, production and distribution of IEC materials; conduct of IEC campaigns andactivities; and monitoring and evaluation of JEC materials and activities.

Sub-Component 2.B: Support to Planning, Targeting and MIS. This sub-component wouldsupport the planning, targeting, and monitoring and evaluation of LGU ECD investmentpackages. The project would finance the costs of: developing, fielding and modifying asnecessary the computer-based planning tool to be used for investment package design andmonitoring and evaluation (M&E); strengthening of planning and targeting capacity throughtraining, technical assistance and upgrading of equipment and facilities; and strengthening of MISsystems through system improvement and redesign as needed and provision of technicalassistance, equipment and upgrading of facilities.

Sub-Component 2.C: Support to Training. This sub-component would support training in thenew integrated ECD system, services and workloads for: field-level ECD service providers; theirsupervisors; members of ECD planning, monitoring and coordination teams; trainers and trainersof trainers; and ECD program and project management staff. The project would finance the costsof: development of competency standards for trainees; development of courses and curricula,including teaching and reference materials; conduct of training needs assessments for primarycare providers and their supervisors; identification and contracting of a pool of trainers of trainersand training network in project regions and provinces; establishment of a national ECD training

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accreditation system; and the training of the above categories of trainees.

Sub-Component 2.D: Support to Institutional Development. This sub-component wouldsupport the development of capacity to manage and operate effective ECD services at all levelsof Government, as well as of the capacity of communities and families to participate in theplanning and implementation of ECD services on a sustained basis. The project would financethe costs of: the upgrading of CDC to function effectively as the apex agency for ECD policy andprogram coordination and oversight, including technical assistance, training, equipment, andfacilities upgrading if needed; and the establishment and operation of the ECD program andproject management structure at all levels, including technical assistance, training, facilitiesupgrading if needed, equipment, salaries of contractual personnel, and operating costs.

Component 3: Research and Development (R&D) (base cost US$3.6 million)

This component would finance R&D activities needed to support effective ECD program/projectimplementation, including initial piloting of new field-level technical interventions proposedunder the project. There would be three sub-components, the first covering piloting of projectinterventions, the second consisting of unprogrammed financing for research and testing of newand innovative approaches to ECD services, and the third covering monitoring and evaluation ofthe effectiveness and impact of the project, including baseline and end-project evaluationsurveys. This component would be managed by DSWD in coordination with CWC, and a mix ofagencies as appropriate. There would be three sub-components, as follows:

Sub-Component 3.A: Pilot-testing of Project Interventions. This sub-component wouldfinance the pilot testing of the new interventions and service delivery systems. Major pilots tobe carried out early in the project would be of the new PEM program, the upgraded PESprogram, and the new, improved ECD service delivery package itself. These pilots would becarried out over a three-year period, beginning in the first year of the project, in 5 "laboratory"LGUs selected for commitment to ECD, willingness to participate in experimental studies,managerial capacity, and commitment to sustaining successful models after the pilot is over.

Sub-Component 3.B: Program Innovation and Policy Development. This sub-componentwould provide financing for research and testing of innovative approaches to the design,technical content and provision of ECD services. Topics would include technological studies ondouble fortification with iron and vitamin A, loan schemes for small salt producers to iodize,distance education approaches to ECD training, best practices in preschool education,experimentation with alternative ECD delivery systems in remote indigenous peoples'communities, home-based alternatives to the day-care system of preschool, etc., as well as otherresearch interests that may emerge during the project.

Sub-Component 3.C: Project Monitoring and Evaluation. This sub-component would supportstudies and surveys to measure the effectiveness and impact of the project. It would includebaseline surveys at national and regional level: matching end-of-project evaluative surveys; alimited mid-term survey if considered useful; KAP surveys; special nutrition baseline and end-project surveys incorporated into the 1998 and 2003 National Nutrition Surveys; annualhaemoglobin surveys; annual community-based food fortification monitoring surveys; specialbaseline and end-project consultative surveys in indigenous peoples' communities; and acollaborative longitudinal study with DEC to assess the impact of early education interventions.

This component would be managed by DSWD in coordination with CWC, and implemented by amix of agencies as appropriate.

Page 42

Annex 3

PHILIPPINESEarly Childhood Development Project

Estimated Project Costs

Project Component Local Foreign Total-----------------------US $ million--------------------

1. ECD Service Delivery

a. Program Support for Provincial LGUs 7.0 2.5 9.5b. Financing Facility for Municipal/City LGU ECD 18.1 7.3 25.4

Sub-Projects

Subtotal 34.9

2. Support to LGU Sub-Projects

a. Communications Support 1.3 0.0 1.3b. Planning, Targeting & MIS Support 1.5 2.2 3.7c. Training Support 3.1 0.4 3.5d. Institutional Development 3.4 0.4 3.8

Subtotal 12.3

3. Research and Development

a. Pilot Testing of Project Interventions 0.1 0.1 0.2b. Program Innovation and Policy Development 1.7 0.2 1.9c. Benefit Monitoring and Evaluation 1.2 0.4 1.6

Subtotal 3.6

Taxes and Duties 1.7 0.0 1.7Contingencies 5.3 0.9 6.2

Total Project Cost 44.3 14.5 58.8

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Project Financing Plan

Project Component Total Project Bank ADB GovtNati. LGUs

----------------------------------US $ million ------------ -------------------------

1. ECD Service Deliverya. Program Support for Provincial LGUs 9.5 4.6 4.9b. Financing Facility for Municipal/City 25.4 5.4 8.7 5.7 5.6

LGU ECD Sub-Projects

;Subtotal 34.9 10.0 13.6 5.7 5.6

2. Support to LGU Sub-Projects

a. Communications Support 1.3 1.3b. Planning, Targeting & MIS Support 3.7 3.7c. Training Support 3.5 0.4 3.1d. Institutional Development 3.8 3.8

Subtotal 12.3 5.4 3.8 3.1

3. Research and Development

a. Pilot Testing of Project Interventions 0.2 0.2b. Program Innovation and Policy 1.9 1.9

Developmentc. Benefit Monitoring and Evaluation 15 1.5

Subtotal 3.6 1.7 1.9

Taxes and Duties 1.7 1.7Contingencies 6.2 1.9 2.4 1.2 0.7

Total Project Cost 58.8 19.0 21.7 11.7 6.4

Page 44

Annex 4

PHILIPPINESEarly Childhood Development Project

Economic Analysis

A. FISCAL IMPACT/COST RECOVERY

Unit Costs With and Without the Project

The large majority of inputs for project subcomponents funded through the national departments areinvestment rather than recurrent costs. Future capital costs are insignificant. At the national agency level,annual recurrent costs at the end of the project are for materials, supplies, operations, and maintenance ofequipment supplied to the 13 provinces in the three regions, amounting toP-2.6 million per year (Table 2).These costs fall under various subcomponents including Child Survival (cold chain repair andmaintenance), Micronutrients and Food Fortification (iron supplements, food fortification IEC materials),Communications (materials and supplies, repair and maintenance of equipment), Planning, Targeting, andMIS (software upgrades, repair and maintenance of equipment, communications), and InstitutionalDevelopment (supplies, communications).

At the local government level, end-of-project recurrent costs consist of food supplements and caregiverincentives, and are estimated at P-78.6 million spread over the participating LGUs, or less than 7.5 pesosper capita. The amount of annual recurrent costs will vary by LGU according to the level and type ofservices provided, which largely will be determined by population size and the discretion of theautonomous LGUs.

Table 2. Annual End of Project Recurrenit Costs

Cost Component Level of Government Annual Recurrent Cost in 2003 (P millions)

Material and Supplies NG 0.8Operations and Maintenance NG 1.8

Food Supplements LGUs 34.6Caregiver Incentives LGUs 44

Total Annual Costs NG & LGUs 81.2

Pricing Policy With and Without the Project

Project support that will strengthen programs in all of the provinces in the three regions, particularly childsurvival programs (EPI, CDD, ARI) and early education (8 week early education curriculum in Grade 1)will be provided with public financing with no cost recovery or user fees to offset the costs of governmentprovision. Historically, it has long been recognized in the Philippines that there are large public benefitsassociated with the consumption of these mixed public/private goods. ;Because of the large public benefits

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obtained from the control of contagious diseases and early education, the project does not propose to alterthis policy with cost recovery schemes.

Project components funded through LGU sub-projects include the provision of food supplements, day careservices and parent effectiveness services (PES). Food supplements will be provided at the local level toseverely malnourished children in targeted poor rural areas of the Philippines. Equity criteria for provisionof food and nourishment should override any consideration of cost recovery for the provision of thesegoods which are essential for basic survival.

Day care services and PES likely are mixed public/private goods, but public benefits are not well proven.As near private goods, cost recovery may be economically justified in combination with some level ofpublic subsidy. There is little, if any, documentation on cost recovery or fees for day care services in theP'hilippines.1 An important equity issue for day care that needs to be addressed is whether poor workingrnothers should be expected to pay. Based on cost recovery experiences for day care, the project willdevelop and test pilot schemes in conjunction with project LGUs.

IPES is an existing program designed to train parents to provide appropriate child stimulation, and theproject will support training of CDWs to provide the training to parents. Although PES training is aprivate good, the program is still a new experimental program. Once the technical issues for providingPES are resolved and adequate IEC promotes the benefits of the training, pilot testing of fees for theiraining can be developed for cost recovery. Like day care fees, however, the decision to implement anycost recovery scheme will remain the prerogative of each autonomous LGU.

Can the Government Afford it?

Can the national government (NG) line departments and the LGUs afford the annual recurrent projectcosts in a sustained manner beyond the life of the project? The question needs to be addressed at the twolevels of government involved in the project because the NG agencies have distinctly different activitiesthan the autonomous LGUs and, therefore, different post-project financial responsibilities forsustainability.

Can the national departments afford it? The NG stakeholders in the ECD project include DSWD,DOH, and DECS. All have compelling motivation to sustain project investments and programs. DSWDwill benefit through substantial strengthening of the department and extension of its programs andactivities. The project will provide critical strengthening of key DOH national programs for child survival,micronutrients and food fortification, which are highly visible and closely monitored by Congress and themedia. DECS will benefit through investment in additional pre-school inputs, which has been a majorpolicy concern and priority.

An analysis of the fiscal impact and sustainability of the project's investments at the national agency levelshows them to be easily sustainable from expected future national department budgets (Table 3). Becauseof the overwhelming proportion of investment costs and minimal end-of-project recurrent costs for NGproject components, recurrent costs for national level departments beyond the life of the project areminimal.

Total annual end of project recurrent costs for the national departnents amount tol22.6 million per year, orless than one one-hundredth of one percent (.01 percent) of the national departments' combined annual

I A study of cost recovery schemes for ECD activities funded by UNICEF to describe the cost recovery experiences in thePhilippines for day care was not yet available at the time of this report.

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recurrent budgets in 2003 (about -82 billion). The executing agency, DSWD, has the largest share of NGrecurrent project costs (R 1.4 million, or 25 percent of the total) and the smallest recurrent budget ( 1,777million), yet recurrent end-of-project costs represent less than one-tenth of one percent (.08 percent) of itsannual recurrent budget. The national level components also are expected to be institutionally sustainablegiven the strengthening of management capacity included in Component 2 of the project.

Table 3. Annual End of Project Recurrent Costs by NG Agency

National Annual End-of-Project | Annual Recurrent | Percent ofGovernment Recurrent Cost, 2003 Budget, 2003 (P Recurrent

Agency (P millions) million<, Budget

DSWD 1.4 1,777 0.08%DOH 0.7 10,851 0.01%DECS 0.5 70,213 0.01%

Total 2.6 812,841 82843.6

Can the LGUs afford it? A study of the affordability of the LGU sub-projects was carried out at projectpreparation.1 The analysis is based on a sample of 94 municipalities, and examines the capacity of LGUdiscretionary resources to finance the ECD interventions. There are three sources of income for LGUs:,namely, local source revenue, the internal revenue allotment (IRA) from the national government, andother receipts. The elasticity of local source revenue (the ratio of growth rate of local source revenue to thegrowth rate of GNP) in 1994 is projected to increase by 0.05 due to changes in tax rates and changes inreal property values. This elasticity is used to forecast local source revenue based on the Bank'sprojections of the nominal GNP growth rate. The projected elasticity of local source revenue is calibratedto fall in the range of 0.85 to 1.10. It is implicitly assumed that the LGU tax base is growing at the samerate as aggregate GNP. Projections of the IRA for each LGU are based on projected levels of theaggregate IRA and the government's IRA distribution model. Estimates of aggregate IRA are based onprojected BIR revenues from the Bank's Medium Term Projections. Other receipts are assumed to grow atthe same rate as nominal GNP after adjustments are made for extraordinary receipts like loan proceeds andproceeds from sales of capital assets.

LGU expenditure levels. Projected LGU expenditures in 1995-2005 are estimated to grow at the samerate as total LGU revenue. Total LGU expenditures in 1995 is calibrated such that overall LGU fiscalposition would not be smaller than zero or larger than 10 percent of its total revenue, however. Thus, ifany LGU posted a fiscal deficit in 1994, its 1995 total expenditure is calibrated to equal its 1995 totalrevenue (i.e., the LGU's fiscal position is assumed to be balanced in 1995). Total expenditure in otheryears is projected in the same manner as before. Similarly, if an LGU registered a surplus in 1994 whichis larger than 10 percent of total income, its 1995 total expenditure is set at a level which made the 1995surplus to equal 10 percent of 1995 total income. The implicit assumption here is that LGUs spend(obligate) whatever resources are available in any year after providing for a reasonable/comfortable levelof reserve. That is, the aggregate level of expenditures each LGU is largely driven by the amount ofreceipts/revenues it generates. From time to time, certain LGUs will register larger than normal surplus inanticipation of large expenditure items in the next year. Alternatively, some LGUs will post deficits.Unlike the national government, LGUs which do incur deficits take corrective measures very quickly sothat their deficits do not persist, because there is a legal mandate which does not allow LGUs to incurdeficits.

1 Manason and Alano (1997).

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Projected social sector expenditures in 1995-2005 are estimated assuming the sector expenditure sharesprevailing in 1994 are maintained in future years. "Normal" expenditure levels in 1998-2000 are estimatedassuming that the 1997 projected expenditure levels derived above will be maintained in real per capita terns.That is, normal expenditures represent the amount LGUs will spend on specified items if they were to sustaintheir 1997 expenditure levels in real per capita terms (i.e., 1997 expenditure levels were adjusted for inflationand population growth). National average inflation rate projections are used, but population growth rates arespecific to the LGUs under study. Because 1997 is the last year before the start of the ECD project, theanalysis implicitly assumes that local executives will not deviate from the expenditure patterns previouslycommitted.

LGU discretionary income. The amount of discretionary resources are estimated as the difference betweenactual/projected LGU expenditure and "normal" expenditure level. "Total discretionary resources" is theamount of funds that LGUs have at their disposal (the maximum after making provisions for existing servicelevels overall) for ECD interventions assuming that the LGUs are willing to undertake inter-sectoral budgetrestructuring (i.e., re-allocate a bigger portion of their total discretionary resources to ECD). "Social servicediscretionary resource" represents the amount of additional resources that LGUs are willing to spend onsocial services in the aggregate after providing for prevailing service levels in 1997. In principle, this amountwvill be available for ECD if the LGU is willing to undertake intra-sectoral budget restructuring (i.e., spend alarger portion of their social service discretionary resources on ECD). "Basic social service discretionaryresource" indicates the amount that LGUs would have at their disposal for ECD interventions assuming thattihey undertake very limited budget restructuring.

LGU affordability results. The analysis compared the LGU discretionary resource levels with the costsof the LGU ECD sub-projects. The costs of the LGU sub-projects in this analysis initially are defined astotal costs, i.e., all investment and recurrent costs are included. The results indicate that all LGUs in thesample except one would have sufficient resources to allocate to ECD activities while maintaining theirpresent service levels (93 LGUs have a surplus in total discretionary resources even after deducting ECDfinancing requirements

Although the number of LGUs with budget deficits increases as one moves down the hierarchy towardsincreasingly focused discretionary resources, the deficits are predicted only during the first year. When LGUsare classified by income class, the number of LGUs with first year deficits is sensitive to the phasing of LGUparticipation. For LGUs that begin participating in year 1 of the project, the number of LGUs with first yeardeficits is largest among the poorer income classes. For LGUs that are phased into the program beyond 1998,however, no budget deficits are predicted even for LGUs in the low income class. This result largely is dueto a sharp increase in BIR collections in 1996 which will cause a similar increase in IRA transfers to LGUsthree years later (1999), providing LGUs with what amounts to windfall discretionary resources in that year.

The appearance of first year deficits, particularly among the low income municipalities, suggests first-year4'sunk" investment costs are beyond the financial affordability of many LGUs. The project will adopt acost-sharing scheme between the national government and the LGUs where the NG will provide matchinggrants to LGUs, to enhance affordability and promote equity. A cost-sharing scheme that takes account ofthe LGU fiscal capacity and its ECD service gaps will be instituted and designed so that investment costsare financed largely through grants, and recurrent costs are financed through combination of LGU loansand equity contributions. Financing of LGU sub-projects will be for a period of 3 years, after which LGUsare expected to shoulder the full recurrent operating cost of maintaining the services. The cost-sharingscheme will be administered through the Municipal Development Fund

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(MDF). If preferred, LGUs will be allowed to finance their portion of project costs entirely through equitycontributions in lieu of loans through the MDF. The LGU cost-sharing scheme is presented in Table 4.

Table 4. LGU Cost-Sharing S,cheme

WU income class Percent urant Percent Loan Percent Lquity

1 st Class 40 30 30

2nd - 3rd Class 60 20 20

4th - 6th Class 80 10 10

If the national government assumes the investment costs the affoirdability of the project for LGUs issignificantly increased. First year deficits are observed only among low income municipalities which arephased into the project in 1998 and only when the financing source consists of discretionary resourcesfocused on basic social services. Using a progressive cost sharing scheme, where the NG share increasesas LGU income decreases, no budget deficits are predicted.

The results of the study suggest the project is affordable and sustainable for LGUs, particularly becausethe project implementation schedule has been adjusted begin phasing in LGU sub-projects in year 2 (1999)of the project, thus avoiding the possibility of LGU budget deficits in year 1 (1998) of the project. AllLGUs will begin their sub-projects in 1999 or later, and the timing allows them to allocate an expectedIRA increase to finance project costs. Progressive matching grants from the national government to LGUsthat cover initial investment costs and decrease the financial burden to the lowest income LGUs alsoimproves project affordability. In addition, the burden of recurrent costs per capita for LGUs is relativelysmall, about one-half of one percent, when compared to annual LGU income per capita (Table 5).

Are the LGUs Willing to Pay?

Because the LGUs appear to have the necessary discretionary income for the project only is an indicationof ability to pay, not willingness to pay project costs, however. Ample discretionary income is a necessary,but not a sufficient condition of LGU participation and sustainability. Simple affordability only implies theability to dedicate discretionary income to this project in lieu of any other incremental services, not defacto evidence of willingness to participate in the project. The LGUs are autonomous governmental unitsand ultimately must be convinced of the merits of the project, their obligation according to the localgovernment code to provide these services in the decentralized system, and the NG benefits that they willreceive from participation in the project. In this regard, NG matching grants and project support thatprovides social marketing, IEC, MIS, planning, and institutional development provide additionalincentives for LGU participation.

To give an indication of how municipalities allocate additional revenue to competing demands formunicipal services, social sector expenditure patterns were examined and an analysis of the marginalpropensity to spend (MPS) on social sector services was conducted for a sample of 163 municipalitiesdrawn from Regions 5, 6, 7, 10, 11 and 12.

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Table 5. Annual End-of-Project LGU Income and Recurrent Cost per Capita,,I

Average AnnualAverage Annual End-of- End-of-Project

Project Income per Recurrent Cost Per Percent ofLGUs by Income Class Capita (Pesos)b Capita (Pesos) Annual Income

2nd - 3rd Income Class 1230 7.5 0.61%4th - 6th Income Class 1230 7.5 0.62%

Overall 1209 7.5 0.62%

a/ based on a sample of 163 municipalities in 1997 pesosb/ Source: Manasan and Alano, 1997

Figures 1-4 illustrate the relationship between municipal revenue per capita and expenditures per capitafcir i) all social sector services (Figure 1); ii) health, education, and population (Figure 2); iii) basiceducation (Figure 3); and iv) social welfare services (Figure 4). Municipal expenditures and revenues areconverted to per capita terms to control for differences in population across the 163 municipalities. Thescatter-plots of these relationships suggests there is a positive relationship between municipal revenue percapita and each of the social sector expenditure categories. That is, municipalities with higher per capitarevenue spend more per capita on social sector services than municipalities with lower per capita revenue.This suggests that municipalities will spend more per capita for social sector services as real revenuesincrease in the future. This hypotheses is tested by an estimation of the marginal propensity to spend forsocial services.

Marginal propensity to spend for social sector services. An estimation of the marginal propensity tospend (MPS) is based on OLS regressions of 1997 municipal social sector expenditure per capita onmunicipal revenue per capita. Per capita expenditures and revenue were used in the regressions to controlfor municipal population size. Separate regressions were used for four expenditure categories: i) all socialsector services expenditures; ii) health, nutrition, and population expenditures; iii) basic educationexpenditures; and iv) social welfare expenditures. Municipal revenue per capita was used as theindependent variable in each regression. The results of the regressions are shown in Table 6.

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Figure 1. Municipal Social Sector Expenditure per Capita and Rewvenue per Capita,Philippines 1997

450

40.

QM30

CL,-300 l l

.250m

,1CO i! 00

o 150 1

0 200 400 600 Boo IODO 1200 1400 1600 1800 2000niidpal FL-venue per capita

Table 6: OLS Regression Results for Marginal Propensity to Spend for Municipal Social Sector Services

Dependent Variables - Expenditures|llp er Capita (nesos) b Constant Coefficient t-statistic R-sauare

IAll Social Sector Services l -19.99 | 0.23 |27.29 r0.82 |

lHealth, Nutrition and Population | -11.57 l 0.14 l21.98 l 0.75 l|Basic Education | -17.24 l 0.07 l10.96 l 0.68 lIScial Welfare Services 8.82 0.02 7.49 I 0.43

a/ Based on a sample of 163 municipalities from Regions 5, 6, 7, 10, 11, 12b/ The independent variable in each regression is municipal revenue per capita

The regression results indicate that the MPS for all social sector services is 0.23, health, nutrition, andpopulation is 0.14, basic education is 0.07, and social welfare services is .02. The results suggest thatwhen municipalities receive additional revenue that is not earrnarked fc,r specific municipal services, then23 percent will be spent on social sector services. In other words, 23 centavos of every additional peso ofrevenue will be spent on social sector services. Of this amount, 14 centavos will be spent on health,nutrition, and population services; 7 centavos will be spent on basic education services; and 2 centavoswill be spent on social welfare services.

Taken together with the affordability analysis, the MPS results indicate a strong argument can be madethat the project LGUs will sustain the ECD program by committing the necessary resources to cover

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recurrent costs beyond the life of the project. Not only is the project affordable, that is, LGUs will haveavailable the 6.5 pesos per capita necessary to sustain the project, but it also appears that LGUs are willingto commit these pesos to the social sector.

Other indications of LGU willingness to pay for social sector services. There are two other argumentswhich suggest there is sufficient LGU willingness to pay project costs and sustain project activitiesbeyond the three-year LGU sub-project time period. First, participation in the project is not restricted to an"all or nothing" proposition. LGUs will be given a menu of ECD activities and costs from which tochoose with, perhaps, some minimum level of services required. Each LGU will determine whether toparticipate and, if so, the type and level of services and expenditures in line with their ability andwillingness to pay. In this sense, all LGUs that participate presumably will choose a level of expendituresthat is both affordable and sustainable. A list of alternative LGUs have been identified to replace LGUswhich choose not to participate in the project. Alternative LGUs will be tapped until the project quota ofLGUs is filled. Second, consultations held in May 1997 with officials from the ECD targeted LGUs clearlydemonstrated a very high level of willingness to participate in the project, and resulted in signedendorsements of the project by governors, city and municipal mayors, vice mayors, provincial boardmembers, and city and municipal council members. In addition, institutional sustainability of the LGUsulb-project will be addressed through the inputs included under Component 2 of the project.

B. COST-EFFECTIVENESS AND COST-BENEFIT ANALYSIS

In 1994, the Profiles project developed a nutrition simulation model based on results found in theinternational literature and modified for the conditions in the Philippines, to examine the relationshipsbetween the nutritional status of young children and lower death and disease rates, lower healthexpenditures, lower rates of mental retardation, higher labor productivity in agriculture, and increasedfuture earnings. 1

More recently, during project preparation, traditional cost-effectiveness analysis (CEA) and cost-benefitanalysis (CBA) of project inputs were used to build on the Profiles earlier work. The results of thesestudies indicate the delivery of health, nutrition and early education inputs from this project will be highlycost-effective, and combine in ways that strengthen the links between child health, education andeconomic returns. Investing in the health and education of children increases a country's overall standardof living by building human resources that generate higher economic returns, reduce social costs, andincrease the efficiency of other investments. Early childhood development interventions improve schoolattendance and performance, increasing children's prospects for higher productivity and future income.Additionally, these interventions will reduce the likelihood that children will become burdens on publichealth and social service budgets. Mothers also are helped by project investments.

Health and Nutrition

IProfiles-Philippines nutrition status simulations. Six sets of relationships were simulated by theProfiles-Philippines model in 1994. The effects of: i) reduction in PEM on infant and child deaths; ii)reduction in PEM on infant and child morbidity; iii) reduction in iodine deficiency on the number ofmentally deficient children born; iv) reduction in anemia on agricultural productivity; v) reduction ofiiodine deficiency on malnutrition-induced mortality and stunting and future earnings; and vi) reduction inimalnutrition-induced acute respiratory infections, diarrhea, and blindness on infant and child morbidityand government health expenditures were each examined. The annual benefits of improved nutrition in

The Profiles project was carried out by the Academy for Educational Development. See Heaver and Hunt (1995) fordetails of the model and the assumptions made for the Philippines.

Page 52 Annex 4Page 9 of 18

peso and dollar terms on agricultural productivity, increased earnings and savings in health expendituresfrom the model simulations for 1999 summarized in Table 7 are substantial.

Table 7. Profiles - Philippines Estimates of Annual Earnings and Savings fromImprovements in Nutrition, Philippines 1999

Pesos (mllions) (mi iions

Earnings from increased agricultural productivity dueto a 50 percent reduction in anemia 1340 48

Future earnings from decreased mortality and stuntingdue to a 50 percent decrease in iodine deficiency 8400-1900 300-700

Savings in health expenditures from a 50 percentdecrease in malnutrition-related diarrhea, blindness,and acutre respiratory infections 168-672 6-16

Source: Heaver and Hunt (1995)

Cost-effectiveness analysis. Using CEA, the economic worthiness of the project's health and nutritioninvestments to increase coverage for child survival (EPI, CDD, ARI) and micronutrient supplementationwas examined during project preparation.1 The integrated project approach for providing these inputs atthe point of delivery leads to significant efficiency gains in the cost per disease prevented. Using DisabilityAdjusted Life Years (DALYs) as the measure of the burden of disease that can be prevented by theproject's health and nutrition inputs, the results indicate the project vwill correctly invest in the programswhich have the largest burden of disease and the lowest cost per DALY saved when compared toalternatives such as malaria and schistosomiasis control. In addition, the selected integrated health andnutrition investments are shown to be more cost-effective than the current health and nutrition investmentprofile that essentially relies on vertical and semi-vertical delivery systems.

Current health care and nutrition compared to the integrated ECD package of these services. Integration ofthese services improves the coverage of the service package because any contact between serviceproviders and the mother-baby can be used as an opportunity to provide the maximum number of services,saving time to the beneficiary. Such contacts may occur at the day care center, health center and in thehome through outreach activities. In other words, the increase in the number and location of providing anintegrated service to the mother and child positively affects the child's growth and development.Additionally, by locating the delivery places close-by, as in a central shopping area, beneficiaries will savetime. A mother looking for a diarrhea treatment could also get nutritional counsel, micronutrients andother services allowing the beneficiaries to save time and transportation costs. Additionally, ECDinterventions have synergistic qualities, for example, the rate of recovery from measles is enhanced byVitamin A supplementation, and achieving the full benefits in terms of physical and intellectual growth ofother interventions may depend on concomitant nutritional improvement and enhanced psycho-socialstimulation. 2

Cost of health and nutrition components. Table 8 presents comparisons of coverage and costs perparticipant for project interventions. Coverage levels in 1994 are compared to target coverage for 2005,and cost per participant are given for WDR 1993 for international comparisons, the current system, and

Vargas (1996).2 World Bank, 1996. PIN FLASH Issue 111,

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under the project. The costs of the project interventions are in line with average costs for other developingcountries. PEM is well below current costs because of new innovations in the program including bettertargeting and provision of weaning foods for infants.

Measure of effectiveness for health and nutrition investments. Project benefits are expressed inDALYs, the measure used in the 1993 World Development Report: Investing in Health, and represents oneyear of good health.1 The years of life gained by the health and nutrition interventions provide referencepoints for the project's effectiveness. The magnitude of the problem addressed by the interventions can beexpressed as the burden of diseases and years of life lost. Estimates of the burden of diseases in thePhilippines that can be prevented by the project health and nutrition components are from the Profilesmodel and are shown in Table 9.

C'ost-effectiveness results for health and nutrition investments. The cost of saving one year of life, byhealth and nutrition intervention, are presented in Table 10. Cost per DALY from the 1993 WDR arepresented as international reference points. Costs per DALY and wage gains under the current system arecompared to the cost of saving one year of life per project intervention. The cost per year of life saved iscalculated by dividing the number of years of life that can be saved by the project into the incrementalcosts of the project (i.e., the cost of the project inputs minus the costs under the current system). TheDALYs are converted into the potential years of life saved by multiplying the incremental coverage (targetcoverage minus the current coverage) and then adjusting by program effectiveness.

Table 8. Health and Nutrition Coverage and Cost per Participant

Cost per Cost per Cost per1994 2005 Target Participant, Participant, Participant,Coverage Coverage 1993 WDR Current ECD Project

Intervention (percent) (percent) (US$1993) (US$1994) (US$ 1996)

Health CareARI & CDD 50 80 9 1 3EPI 77 100 14 11 13

NutritionVitamin A 72 80 0.25 0.03 0.04Iodine 19 80 0.5 0.01 0.13Iron 5 80 2 0.13 0.14PEM 14 80 2-25 24 2.68

Source: Vargas

A number of papers have calculated the DALYs (or related measures) gained by health interventions. See, for example,Shepard et al. (1985), Stansfield and Shepard (1993), Jamison et al. (1993), and Bobadilla et al. (1994).

Annex 4Page 54 Page 11 of 18

Table 9. Health and Nutrition DALYs

L)ALYS (years ot lite lost due toProject Intervention mortality and morbidity)

Health CareARI & CDD 420,000

EPI 271,000

NutritionVitamin A 32,000Iodine 285,000Iron 206,000PEM 383,000

Source: Vargas (1996)

Table 10. Cost-effectiveness and Future Returns of Health and Nutrition Interventions

Cost per Cost per Cost per WageDALY, 1993 DALY, DALY, ECD Gains, Wage Gains,WDR Current Project Current ECD Project

Intervention (US$1993) (US$ 1994) (US$1993) (P millions) (P millions)

Health CareARI & CDD 30-50 35 83 3,090 1,956EPI 12-17 97 119 3,755 1,186

Nutrition 20Vitamin A 9-3 15 7.89 28 3Iodine 18-37 3.24 10 1,027 4,382Iron 13 9 64 7 185PEM 24-63 N/A 2-25 1,128 22,587

Source: Vargas

The results indicate that large gains can be made through the provision of a limlited set of project health and nutritioninterventions. Relatively modest costs per participant will provide large returns in the future. The wage gains fromhealth and nutrition are for children who are saved by the interventions. The net present value of wage gains underthe current system are about P29 billion, and with the project increase to about P30 billion.

Early Childhood Education

While it is recognized in the Philippines that basic education is a basic need, the 1987 Constitution andsubsequent pieces of legislation implicitly define basic education as covering only elementary and highschool, the two levels for which the national government assumes responsibility. Early childhoodeducation (ECE) is considered the choice of the family. Public day care centers are by law supposed to beprovided in every barangay by LGUs, and the expansion of the day care centers has been steadily on theincrease but not fast enough to respond to the need, especially in poor rural LGUs.

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The effect of early (pre-school) childhood education. On a population basis, the aggregate gains fromthe pre-school components of the project will depend on the number of children who receive pre-schooleducation from the project, the transition probability from pre-school to Grade 1, and the transitionprobabilities to higher grades. That is, the greater the number of children who benefit from receiving pre-school education from the project, the greater the number who will enter Grade 1, and the greater thenumber who will proceed to higher grades. In the Philippines, however, Grade I enrollment is virtuallyuniversal and, for the purposes of the analysis, Grade I enrollment is assumed for all children. Thep.roblem being addressed by the project, and where anticipated benefits will occur, is in the transitionprobabilities from Grade I to higher grades.

Previous studies in the Philippines indicate strong evidence that participation in pre-school programsreduces the probability that the child will drop out of elementary school, and children form the pooresthouseholds and the children of farmers are most likely to drop out. Pre-school education reduces thedisparity in drop-out behavior across wealth groups.l In addition, it is clear that integrated interventionsof health, nutrition and early education significantly increase attendance rates and improve academicachievement. There also is clear evidence that improved academic and productivity outcomes resultingfiom early interventions is greatest for children aged three to six, the target group for the project's earlyeducation inputs. Increased attendance rates and academic achievement lead to future productivity gainsfor the child, and can be measured by increased future earnings from: i) the gains from averting childdeath; ii) the gain from avoiding permanent disability; and iii) the gain from increasing child readiness forschool that result in lower dropout rates. This approach essentially would integrate the costs of health,nutrition and early education inputs and links them with a common measure of future productivitymeasured in terms of increased future earnings. The studies conducted during project preparationseparately calculated wage gains from health, nutrition, and early education inputs and concluded thatlarge gains in future wages would be obtained from all of these investments, and largest for earlyeducation inputs.

During the 1970s to the mid-1980s, for every 100 children entering grade 1, 66 finished grade 6, and 41finished high school. More recently, the cohort survival rate has not improved by much. In 1995-96, only67.5 students finished elementary school and 47.5 finished high school for every 100 grade I entrants.2

IThe major hurdle in attendance rates appears to be between grade I to grade 2. Only about 86 percent ofgrade I entrants move on to grade 2 the following year. From grade 2 onwards, however, transition ratesare in the order of 90 percent or higher. The effect of an increase in the grade I to grade 2 transition rateto 95 percent would increase the elementary school completion rate by 7 percent (to 73 percent), and thehigh school completion rate by 4 percent.3

ECE Costs. Costs of ECE project inputs and assumptions for the economic life of assets are shown inTable 11. The estimated annual cost per beneficiary by ECE project component, with annualizedinvestment inputs at different discount rates are given in Table 12. In 1996, the cost of direct schooling inthe Philippines was P-2,764 per student per year for elementary school, and P-2,742 per student per year forhigh school.4 The annual cost per child for the DCW is of the same order of magnitude as for elementaryaLnd high school. The relatively lower cost of the CDW is due to the absence of civil works, as the CDW isnot center-based and only will conduct home visits.

Mingat and Tan (1995).2 DECS (1997).

Alonzo (1989).DECS (1997).

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Table 11. ECE Project Costs by Type Caregiver

Cost Item CDW DCW Asset Life

Investment CostNew Construction 0 200,000 10Upgrading 0 50,000 10Equipment 3,900 22,725 5Furniture 0 51,500 5Supplies 11,293 11,042 3Seed Money, Food Coop 5,000 0Training 20,000 20,000 5

Total Investment Cost 40,193 355,267

Recurrent CostCaregiver Incentives (incl travel) 16,000 45,500Supplies 26,131 1,300

Total Recurrent Cost

BeneficiariesNumber per caregiver 50 40Age Group 2mos < 3 yrs 3yrs - 5 yrs

Source: Alonzo and Bautista (1997).

Table 12. ECE Annual Costs per Child, by Discount RateCDW DCW

Discount Rate(percent) (annual pesos per beneficiary) (annual pesos per beneficiary)

10 1,076 2,542

12 1,087 2,610

15 1,104 2,759

Source: Alonzo and Bautista (1997)

ECE benefits. The economic benefits from the project's early education program consist of: i) benefitsfrom increased schooling; ii) savings of mother's time; and iii) benefits from enhanced child ability. Themeasurement of benefits form increased schooling involves calculation of the increase in educationsurvival probabilities, measurement of the value of additional schooling, and the net return to additionalschooling after adjustment for direct costs and foregone productivity and earnings while in school.

The measurement of project benefits takes into account the fact that the target beneficiaries of the projectare economically and socially disadvantaged segments of the Philippine population whose educationalperformance is likely to be below the average because of a combination of poor pre-natal to post-natalconditions, coupled with disadvantaged early childhood circumstances. Without the project, beneficiarieswould have only a 65 percent chance of moving from grade 1 to grade 2, and 80 percent chance of moving

Page 57 Annex 4Page ~~~~~~~~~ ~Page14 ofi18

from grade 2 to grade 3, and an 85 percent chance of moving from grade 3 to grade 4, with the transitionprobabilities normalizing thereafter. With the ECE project components that include the CDW and DCWinputs, the likelihood of the child completing elementary school is expected to increase to 69 percent, andincrease the odds of completing high school to 43 percent (Table 13). A prior study based on 1988 cross-section data confirmed the positive effects of preschool education on school participation in thePhilippines, with beneficiaries found to be much less likely to drop out after grade 1.

Table 13. Cohort Survival Rates With and Without the Project

Without Project With ProjectYear Year to Year From Grade 1 Year to Year From Grade 1

Grade 1 1.000 1.000 1.000 1.000Grade 2 0.650 0.65 0.900 0.900Grade 3 0.800 0.520 0.900 0.810Grade 4 0.850 0.442 0.950 0.770Grade 5 0.950 0.420 0.950 0.731Grade 6 0.950 0.399 0.950 0.694High Schooll 0.850 0.339 0.850 0.590HighSchool2 0.900 0.305 0.900 0.531High School 3 0.900 0.275 0.900 0.478High School 4 0.900 0.247 0.900 0.430College 0.600 0.148 0.600 0.258

Returns to schooling. The value of the additional schooling is estimated using estimated earningsfunctions from a recent study which used data on individual workers from the 1988 NSO labor forcesurvey.2 The results were used to construct age-education-earnings streams for males and females.Internal rates of return are calculated after adjusting for direct and indirect costs of schooling. Indirectcosts are defined as foregone earnings or productivity from home or non-market work. These indirectcosts are assumed to be only 25 percent of the predicted contributions if the person was not in school.This reflects part-time wage rates for work at home or in the market, and reflects higher unemploymentrates in young age groups. The estimated social rates of return to schooling in the Philippines, and earlierestimates for comparisons, are shown in Table 14.3

Mingat and Tan (1995).2 Alonzo, Horton and Nayar (1996).3 These estimates are social (economic) rates of return as they include all costs including subsidies from the govemment.

Page 58 Annex 4

Table 14. Internal Rates of Return to Schooling

Elementary Schoolversus some, or no, High Schiool versus College versuselementary school elementary school high school

(percent) (percent) (percent)

Social Rates of Return - 1996Men 16.1 19.3 20.0Women 21.9 17.6 16.2

Rates of Return - 1998a/Private 18.2 13.8 14.0Social 11.9 12.9 13.3

a/ Tan and Paqueo (1988)

Source: Alonzo and Bautista

The 1997 social rates of return indicate the payoff to completing elementary school is higher for womenthan for men, while the reverse is true for completion of high school and college. The rates are higher thatthe 15 percent "hurdle" rate (social opportunity cost of capital) the Philippine government uses to evaluate"hard" economic projects.

Value of mother's time. The age-earnings profiles also are used to predict earnings streams at differentage and education levels for the value of mother's time released with the project for more productiveactivities at home or in the market. Earnings (or productivity for non-market work) of the participatingmothers are estimated as the educational attainment, weighted average for women in the age group 22-31for those with infants in the first year of the project, women in age giroup 23-32 for those with 2 year-oldsat the start of the project, and so on up to age group 27-36. Women who have completed college areexcluded from the estimation. It is assumed that these women woulld have the willingness and ability topay for private preschool. Table 15 gives the estimated values of mother's time for different age groupsand education levels.

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Table 15. Value of Mother's Time by Age and Education(Annual Pesos in 1996)

Mother's Age Group lDistribution

Education (percent) 22-31 23-32 24-33 25-34 26-35 27-36

ElementarySome 14.1 12216 12479 12731 12970 13196 13408Complete 24 14787 15105 15410 15700 15973 16230

Hligh SchoolSome 14.1 21407 21868 22309 22729 23125 23497Complete 28.4 23377 23880 24362 24820 25252 25658

CollegeSome 19.4 34874 35625 36343 37026 37672 38278

WVeighted Average I _ _ 216981 221651 22612 23037 23439 23816

Source: Alonzo and Bautista (1997)

Enhanced child ability. Quality early childhood education is expected to raise the ability of the child.There is growing evidence that much of a person's ability is determined in the early years, even beforeformal schooling begins. For the Philippines, Tan and Mingat (1996) note positive effects of earlyeducation on scholastic achievement, although ability is not measured directly. Much more difficult todocument is the effect of enhanced ability on earnings and productivity. Selowsky (1981), in a study ofearly child development in Chile, isolates the effects of early childhood interventions on the increase inearnings for a given level of schooling from the benefits accruing to additional schooling. The resultssuggest investment in an early childhood intervention program is justified if a change of one standarddeviation in the level of child ability costs 37 to 50 percent of the annual earnings of an illiterate Chileanworker. In the absence of empirical evidence for the Philippines relating preschool human capitalinvestments to increased ability and increased earnings, project benefits are assumed to be 10 percent ofthe present value of lifetime earnings.

ECE cost-benefit results. Table 16 presents the projected flows of costs and benefits per child for theproject's CDW and DCW components. This costs and benefits are computed using a 15 percent discountfactor, and a savings in mother's time of 25 percent of predicted earnings. Child participation beginsshortly after birth, as the CDW makes home visits and interacts with the parents and the child. The annualcost associated with the CDW services is relatively low because there is no building construction orupgrading. The child moves on to the more expensive center-based DCW care after three years of thehome-based CDW program.

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Table 16. Projected ECE Cost and Benefit Flows(annual pesos per child)

Age Group Female MaleValue of Value of Value of Value of

Direct Additional Mothees Direct Additional Mother'sCost Schooling Time Total Cost Schooling Time Total

0-1 (1,044) (1044) (1044) (1 ,044

1-2 (1,044) (1044) (1044) (1,0442-3 (1,044) (1044) (1044) (1,0443-4 (2759) 5759 3,000 (2,759) 5,759 3,0004-5 (2.759) 5860 3,100 (2,759) 5,860 3,1005-6 (2,759) 155 5954 3,349 (2,759) 1,412 5,954 4,6076-77-88-99-1010-1111-12 1748 1,748 925 92512-1313-1414-1515-16 4896 4,896 1,243 1,243

NPV (6,639) 917 8780 3,058 (6,639) 916 8,780 3,058

Source: Alonzo and Bautista (1997)

The economic value of enhanced survival probabilities in the formal schooling system (Value ofAdditional Schooling), the values represent the incremental NPVs of moving to a higher level of school.For example, the P155 for age 5-6 for females is the NPV, discounted at 15 percent and calculated forchildren aged 5-6, of the expected gains of finishing elementary school versus stopping before completion,after deducting the direct cost of schooling and foregone producitivity or earnings. The discountedincremental net cash flow accruing to the investment in additional schooling is multiplied by the increasedprobability of survival with project ECE inputs. For high school versus elementary school, the NPV iscalculated at elementary school completion, age 11-12. The NPVs are all positive, indicating the internalrates of return are higher than the 15 percent discount rate.

No savings of mother's time is realized in the first three years, as the CDW moves from house to house,and the child mainly is still under the mother's care. The mothers are, in fact, expected to participate inthe project's parent education program, which is a subcomponent of the CDW package which integratesthe parent-child development programs. When the child moves to the center-based DCW phase, thebenefit value of the mother's time is realized. For example, the valueP5,759 for mother's time at age 3-4is the product of the value of the mother's time at age 24-33 and the 25 percent deflation factor.

The NPVs at the bottom of the table appear to be relatively low, because they are computed at the child'sage 0-1. They are positive, however, and very similar for females and males. The gender differences arein the expected returns to additional schooling. The IRR for elementary school completion is higheramong males, while the opposite is true for high school and college. The results also indicate that most ofthe measured benefits are from savings in mother's time, not from the value of the expected increase inearnings form additional schooling.

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Table 17 summarizes the results of the NPV calculations at different discount rates, where savings inrnother's time is imTputed at 25 percent average earnings. Included in the benefits is an estimate ofincreased productivity over the lifetime of the child from increased ability from the ECE project inputs(calculated at 10 percent of lifetime earnings). The results indicate the ability factor is higher for malesthan for females, as males have a higher income base to which the 10 percent mark-up applies. At higherdiscount rates, the share of the ability factor rises relative to that of the schooling factor.

The quantification of costs and benefits of the project's ECE investments suggests that, even withconservative assumptions, the interventions pass the 15 percent rate of return test usually applied in theP'hilippines to "hard" economic development projects like roads and irrigation. That is, the ECEinterventions are shown to be welfare improving. This the case even though some benefits from ECEwhich have not been quantified. These include the increase in benefits from the synergistic integrationwith project health and nutrition inputs discussed in the previous section. Other non-quantified benefitsinclude expected decreases in child abuse and delinquency. The project includes CDW interaction withparents which is expected to reduce the incidence of child abuse. The expected increase in schoolparticipation will help decrease the number of out-of-school youth and the attendant social problems withchildren who either choose to drop-out or are dropped-out of the system.

Table 17. ECE Cost - Benefit Results (annual pesos per child)

Female MaleDiscount Rates Discount Rates

Costs and Benefits 10 12 15 10 12 15

Direct Cost (7,424) (7072) (6,663) (7,424) (7,072) (6,663)

Value of AdditionalSchooling 6,363 3,112 917 6,587 3,179 916

Value of Mother'sTime 10,933 10,002 8,780 10,933 10,002 8,780

Value of IncreasedAbility 4,127 2,327 990 6,092 3,462 1,522

Net Present ValueTo Society 1,400 8,368 4,023 16,187 9,570 4,555To Individuals 20,682 14,733 10,020 22,869 15,935 10,552

Source: Alonzo and Bautista (1997)

Page 62

BIBLIOGRAPHYto Annex 4: Cost-Benefit Analysis

Alonzo, R. P., 1989. Providing Basic Education for AlZ: Some Policy Perspectives. Submitted to theUnited Nations Children's Fund (UNICEF), Manila.

Alonzo, R. P., Horton, S. and R. Nayar, 1996. Women in the Labor Market in the Philippines. Chapter 7in Women and Industrialization in Asia, edited by S. Horton, London, Routledge.

Alonzo, R. P., and Feny de los Angeles-Baustista, 1997. Meeting the Basic Learning Needs of YoungFilipino Children: A Study on Public Investments in Early Childhood Education. Reportsubmitted to UNICEF-Philippines and the PPT National ECD Project.

Bobadilla, J. L., Cowley, P., Musgrove, P., and H. Saxenian, 1994. The Essential Package of HealthServices in Developing Countries, Background Papers I, The World Bank.

Department of Education, Culture, and Sports (DEC S), 1997. Facts and Figures on PhilippineEducation.

Department of Social Welfare and Development, 1997. Proposed Early Child Development Project.Submitted for ICC Technical Review. Quezon City, Philippines.

Heaver, Richard A. and Joseph M. Hunt, 1995. Improving Early Childhood Development: An IntegratedProgram for the Philippines. The World Bank, Washington, DC.

Jamison, D. T., Mosley, W. H., Measham, A. R. and Bobadilla, J. L. eds, 1993. Disease ControlPriorities for Developing Countries, New York: Oxford University Press for The World Bank.

Lally, J. R. , Mangione, P. L. and Honig, A. S., 1988. The Syracuse University Family DevelopmentResearch Program: Long-Range Impact of an Early Intervention with Low-Income Children andTheir Families. In D. R. Powell (ed.) Parent Education in Early Childhood Intervention:Emerging Directions in Theory, Research and Practice. Norwood, N.J.: Ablex.

Manason, R. G. and B. Alano, 1997. Affordability Analysis: Early Child Development Study, InitialResults. Report submitted to PPT for the ECD Project.

Manason, R. G. and B. Alano, 1997. Analysts of the Fiscal Impact and Affordability of the ProposedEarly Childhood Development Project. Report submitted to PPT for the ECD Project.

Mingat, A. and J-P. Tan, 1995. Do Preschool Programs Improve Elementary School Outcomes?Evidence from the Philippines. The World Bank.

Myers, Robert G., 1992. Early Childhood Development Programs in Latin America: Toward Definitionof an Investment Strategy. Human Resources Division of Latin America and the CaribbeanTechnical Department. The World Bank.

Shepard, D. S., Sanoh, L. ; and E. Coffi , E., 1996. Cost-Effectiveness of the Expanded Programme onImmunization in the Ivory Coast: A Preliminary Assessment. Social Science and Medicine,22(3) 369-377.

Page 63

.Selowsky, Marcelo, 1981. Nutrition, Health and Education: The Economic Significance ofComplementarities atEarlyAge. Journal of Development Economics, Vol.9, pp. 331-346.

Stansfield, S. and D. S. Shepard, 1993. Acute Respiratory Infections, in Disease Control Programs forDeveloping Countries, Jamison et al., eds, New York: Oxford University Press for The WorldBank, pp. 67-90.

Tan, J-P. and V. Paqueo, 1988. The Econonic Returns to Education in the Philippines, Washingtoni,D.C.: Asia Technical Department, The World Bank.

van der Gaag, Jacques and J-P. Tan, 1997. The Benefits of Early Childhood Development Programs: AnEcononmic Analysis. Draft.

Vargas, Veronica, 1996: Cost-Effectiveness Study, Integrated Early Childhood Development FinalReport, PPTA-PHI, Appendix 1.

World Bank, 1993. The World Development Report. Investing in Health. Oxford University Press forThe World Bank. New York.

World Bank, 1995 East Asia and the Pacific. Guidelines for Economic Analysis in Project. East Asiaand Pacific Region.

World Bank, 1995. Philippines. Public Expenditure Managementfor Sustained and Equitable Growth.Country Operations Division, Country Department 1, East Asia and Pacific Region.

World Bank, 1996. PHN FLASH, Issue 11.

World Bank, 1996. Philippines: A Strategy to Fight Poverty. Country Operations Division, CountryDepartment 1, East Asia and Pacific Region.

World Bank, 1997. Project Appraisal Document on a Proposed Loan in the Amount of US$25 MillionEquivalent to the Republic of the Philippines for an Early Childhood Development Project.Health, Nutrition and Population Sector Unit, East Asia and Pacific Region.

Page 64

Annex 5

PHILIPPINES

Early Childhood Development Project

Financial Summary

Years Ending June 30(US$ Million, 1997 Base Year)

Implementation Period Operational Period1999 2000 2001 2002 2003 2004

Project CostsInvestment Costs 6.1 10.3 12.2 14 7.7 5.6Recurrent Costs 0.3 2.5 4.7 7.8 5.3 3.6Total 6.4 12.8 16.9 21.8 13 9.2

Financial Sources (% of total project costs)IBRD (31.25% of project costs) 2.5 4.5 5.5 6.5 3.5 2.5

39.3% 35.3% 32.5% 29.8% 27.0% 27.1%

ADB-OCR/ADF (37.50% ofproject costs) 3.0 5.0 6.5 7.5 5.0 3.047.2% 39.2% 38.5% 34.4% 38.6% 32.5%

Local Governments (11% of project costs) 0.0 0.9 1.8 3.1 1.8 1.10.0% 6.9% 10.9% 14.11% 14.3% 12.4%

National Govemment (20.25% of project costs 0.9 2.4 3.1 4.7 2.6 2.613.50% 18.70% 18.10% 21.80% 20.20% 28.00%

Total 6.4 12.8 18.9 21.8 13.0 9.2

Page 65

Annex 6

PHILIPPINESEarly Childhood Development Project

Procurement and Disbursement Arrangements

]Procurement

1. Procurement Procedures: Procurement of all goods and works funded under the Bank Loan willbe carried out in accordance with Bank procurement guidelines ("Guidelines for Procurement underIIBRD Loans and IDA Credits" of January 1995 revised in January and August of 1996, and in September1997; and "Guidelines for Selection and Employment of Consultants by World Bank Borrowers" ofJanuary 1997, revised in September 1997). The procurement of goods, works and consultancy servicesfunded in parallel by the Asian Development Bank (ADB) will be carried out under proceduressatisfactory to ADB. Table A shows the Procurement Methods while Table B presents the prior reviewthresholds.

2. Civil Works, equipment, vehicles, materials and supplies as well as drugs and medicines will bebulked to the extent possible and procured, as follows:

(a) individual contracts for the purchase of goods estimated to exceed US$200,000 equivalent,up to an aggregate of US$5.7 million equivalent, will be procured by InternationalCompetitive Bidding (ICB) using the Bank's appropriate Standard Bidding Documents.Under ICB, domestic manufacturers would be eligible for a margin of preference in bidsevaluation in accordance with Appendix 2 to the Procurement Guidelines. Due to thevolume and size of construction contracts, no civil works contracts are expected to beprocured under ICB;

(b) individual civil works contract estimated to exceed US$50,000 equivalent, but limited tocontracts not exceeding US$150,000, up to an aggregate amount not exceeding US$ 1.1million and individual contracts for the purchase of goods with an estimated value betweenUS$200,000 and US$50,000 equivalent, up to an aggregate amount not exceeding US$3.0million will be procured under National Competitive Bidding using procedures acceptableto the Bank. A procurement side letter will be issued by the Government detailing theprocedures under local rules which are not acceptable to the Bank;

(c) individual civil works and goods contracts estimated to cost less than US$50,000equivalent, up to an aggregate of US$300,000, for works and US$2.6 million for goods,will be procured through simplified procurement procedures similar to national shopping;these apply government procedures by comparing at least three price quotations fromqualified contractors and suppliers. If the local government unit has constructioncapability, force account may be resorted to for contracts below US$50,000, up to anaggregate amount not exceeding US$200,000 equivalent.

3. Procurement Management: An assessment of the existing capacity of the three implementingagencies revealed that:

Page 66 Annex6Page 2 of 8

(i) DSWD has never implemented a project of the magnitude of ECD. For 1996, the agencyhad procured a total amount of about $600,000 almcist two-thirds of which are small valuecontracts less than Peso 100,000 which were done through canvass or shopping. The restof the procurement was done through public bidding or direct purchase. There are twentyfour staff actually doing procurement work, all applying government rules and regulations.DSWD has thus no capacity to implement procurernent procedures under the project andwould need intensive hands-on training in doing procurement using Bank Guidelines. Toaccomplish procurement at the early stage (first 2 years) of project implementation, aprocurement agent will be hired to implement procurement. A counterpart procurementteam will be established under the PMO Managernent Support Unit which will be theunderstudy of the procurement consultant. The procurement agent will directly assist thePMO in ICB procurement and will oversee and provide support to the regional andprovincial ECD teams which will handle field procurement;

(ii) DOH has begun the process of addressing existing bottlenecks in procurement for ongoingBank projects. At this stage, still the problem of lengthy procurement processing andapproval procedures within the Department exists. Until this problem is addressed, theprocurement agent hired by DSWD PMO will assist the DOH in implementing itscomponent of the project until such time that the Bank determined that DOH has thecapacity to efficiently procure. The agent will work with the procurement team which willbe set up with DOH as understudy;

(iii) DECS's central procurement system is experienced in implementing procurement for largeprojects of several lending institutions. It has the capacity to implement the procurementarrangement for their component following Bank rules. A procurement team will be set upin DECS, under management by a separate PMO. This team will implement thecomponent supporting the strengthening of ECE in Grade 1 plus integrated ECD servicesfor the 6 years old will likewise establish its own project team to handle procurementactivities.

Each regional PMO shall establish its own procurement team to handle field procurement. As mandatedby law, a Prequalification, Bids and Awards Committee (PBAC) in each government unit shall beestablished, with at least the third highest ranking member of the office, LGU, or agency acting asChairman. Technical support for field procurement shall be provided by the central PMO. Theprocurement leadtime as specified in Administrative Order No. 129 shall be observed.

4. Consultancy Contracts: Contracts amounting to US$ 6.6 Million will be funded by the Bank.These contracts shall cover special studies and surveys, social marketing, training, workshops, monitoringand evaluation. They shall be awarded in accordance with Guidelines for the selection and employmentof consultants by World Bank Borrowers published in January, 1997. The Borrower shall use thestandard contracts for complex, time-based assignments or lump sum amounts. The quality cost basedselection shall also be used for selection of firmns as provided in Section II of the guidelines whileindividual consultants shall be selected using the procedures set forlh in Section V of the guidelines. Allconsulting assignments above US$200,000 must be advertised for expression of interest.

5. Bank Review: Contracts for goods estimated at US $1 Million or more, and consultancy servicescontracts in excess of US$100,000 for firms and US$50,000 for individuals will be subject to priorreview. With respect to all consultant services contracts, irrespective of value, prior review will berequired for (a) terms of reference; (b) single source contracts; (c) contract amendments raising the valueto above US$100,000 or US$50,000 for individuals. No civil works contracts are expected to reach the

Page 67 Annex 6Page 3 of 8

prior review threshold of US$5 Million. However, for each year of project implementation, the first twoNCB contracts for works and the first two contracts for goods will be subjected to prior review by theBank. All contracts which are not pre-reviewed will be post-reviewed by the Bank. These post reviewswill cover an estimated 25 percent of total contracts. The percentage of total contract values that will becovered by the Bank's prior review will be 80 percent. The project implementor will use the appropriatestandard bidding documents for goods for procurement using ICB procedures. For procurementfollowing NCB procedures, the first bidding documents for goods and works will be reviewed by theBank.

Disbursements

1. The allocation of loan proceeds for disbursement purposes is presented in Table C. Alldisbursements will be channeled through the Municipal Development Fund (MDF).

2. Use of Statements of Expenditures (SOEs): Disbursements will be made on the basis of SOEsfor actual expenditures against (a) contracts of less than US$5 million equivalent for civil works, (b)contracts of less than US $1 million equivalent for goods, and (c) consultancy contracts of less than US$100,000 equivalent for firms and US $ 50,000 for individuals. Supporting documentation for theseexpenditures would be retained by DSWD, DOH, DECS and regional PMOs, made available to theBank's supervision mission and regularly audited by the auditors acceptable to the Bank. For purposes ofpayment, each agency will submit the SOEs to the Municipal Development Fund (MDF).

3. Special Accounts (SA): To facilitate loan disbursements, the MDF will open and maintain aseparate special deposit account, in a commercial bank specifically authorized for this purpose by theBangko Sentral ng Pilipinas, on terms and conditions satisfactory to the Bank, including appropriateprotection against set-off, seizure and attachment. The SA, which would cover the Bank's share ofeligible expenditures in all disbursement categories, would have an authorized allocation amounting toUS$1.5 million, based on 4 months estimated expenditures to be withdrawn from the Loan Account anddeposited in the SA. Applications to replenish the Special Account, supported by appropriatedocumentation, would be submitted regularly (preferably monthly, but not less than quarterly) or whenthe amounts withdrawn equal 50 percent of the initial deposit. The SA shall be audited annually by theauditors acceptable to the Bank.

4. Advances from MDF to DSWD and its regional offices, DOH, DECS and LGUs: To facilitateproject implementation in a devolved environment, the three implementing central agencies, the DSWDRegion VI office and about 25-30 LGUs may request for a 90-day cash advance facility from MDF.Prior to granting this facility, MDF, together with the Bank's Financial Management Specialist, willassess the financial management capacity of the unit. If the assessment result confirms that there isfinancial management capacity, the unit would be provided with the 90-day cash advance facility. Eachunit will open two separate accounts, a World Bank project account (WBPA) in the authorizedGovernment depository bank (AGDB) local branch and the other an account for GOP counterpartfunding, called the Government Project Account (GPA). The concerned unit will submit its 90-day cashrequirements to the central PMO in DSWD, together with its work and financial plan. The PMO willreview the request amd will recommend to MDF to release the 90-day cash requirement. Upon receipt ofsuch recommendation from the PMO and the result of the financial management assessment, MDF willtransfer the 90-day cash advance to the unit's WBPA. Monthly replenishment of such cash advancesshall be required from each unit. The PMO will monitor and control transfer of cash advances to itsregional offices, in the submission of satisfactory proof of incurred eligible expenditures for purposes ofmonthly replenishment.

Page 68 Annex 6Page 4 of 8

Accounting, Financial Reporting And Auditing Arrangements

1. Project expenditures will be separately recorded and reported by each implementing agencyunder the new system developed by the Commission on Audit and its consultant, Earnst and Young,Philippines, which was funded by the Bank's IDF. The system, called Financial Information System forForeign Assisted Project (FISFAP), is currently being piloted in five on-going projects. By next year, theobjective is to use it in all new projects. Its features are: (a) application of commercial method ofaccounting; (b) use of perpetual inventory method; (c) an improved chart of account and coding system;(d) clear recording and reporting of accounting data from the local government units to the leadimplementing agencies; and (e) generation of accurate and timely financial reports that are needed byagency management, oversight agencies and funding institutions. The system will run in a financialaccounting software which has the capability of customization or programming modification to suit theneeds of the project.

2. Project disbursements to lAs are routed through the Municipal Development Fund (MDF) as sub-loans and/or grants. The accounting policies and procedures of the MDF are governed by DBM andCOA circular No. 2-97 of March 21, 1997. The circular describes the accounting policies andprocedures, the Chart of Accounts and accounting entries. MDF produces separate financial reports foreach project accounting for sub-loan and/or grant disbursements. The accounting staff of MDF is headedby a Chief Accountant and include some 20 staff who accounting graduates. The accounting,disbursement and record keeping functions are segregated and independent of each other. MDF relies onstatements of expenditure submitted by lAs to release funds. MDF does not have sufficient staff toreview the financial management arrangements of the lAs but relies on COA verification and approval ofSOEs.

3. In order to ensure sound financial management of sub-project lAs, it was agreed that FinancialManagement Units will be established at the Central Project Management Office (CPMO) and atRegional offices. The FMUs shall be staffed with qualified and experienced financial analysts andfinancial management specialists who shall be responsible for financial appraisal of sub-projects andproject implementing agencies. FMU staff will prepare action plans to implement the FISFAP systemand assist lAs in implementation. The staff will also review periodically the financial managementarrangements of sub-projects and the effectiveness of internal control procedures. FMU staff of CPMOwill take overall responsibility for quality control of the work of Regional FMUs.

4. All lAs are required to prepare standard financial management reports quarterly and submit toCPMO FMU. These reports will be in a format acceptable to the Bank and will be used for monitoring ofproject progress by the CPMO and MDF. CPMO FMU will be responsible for consolidation of the IAfinancial management reports and the consolidated reports will be submitted to the Bank quarterly. Inaddition, CPMO will be responsible for preparing annual consolidated project financial statements basedon the financial statements prepared by lAs. FMU will require that the IA financial statements areaudited by COA and render and opinion thereon.

5. MDF and CPMO will be responsible for submission of the consolidated project financialstatements for the audit by COA. COA will perform an audit of the project financial statements andrender an opinion. A separate audit of the operations of special Accotnt and the withdrawal ofexpenditures through statement of expenditure will also be carried out by COA who will provide aseparate opinion thereon.

Page 69 Annex 6Page 5 of 8

Table A: Project Costs by Procurement Arrangements(in US$ million equivalent)

Total CostExpenditure Category Procurement Method (including

contingencies)ICB NCB Other N.B.F

1. Works1.1 0.3 1.6 3.0

(1.1) (0.3) (1.4)

2. Goods4.2 2.2 2.0 11.9 20.3

(4.2) (2.1) (1.9) (8.2)

3. Services 8.3 26.1 34.4(8.3) (8.3)

4. Miscellaneous (IEC)0.6 0.5 1.1

(0.6) (0.5) (I. 1)

Total 4.2 3.9 11.1 39.6 58.8Total______________________ (4.2) (3.8) (I 1.0) (19.0)

Note: N.B.F. = Not Bank-financed.Figures in parenthesis are the amounts to be financed by the Bank loan/IDA creditFigures include contingencies. Other procurement methods include shopping and forceaccounts.

Page 70 Annex 6Page 6 of 8

Table Al: Consultant Selection Arrangements

(in US$million equivalent)

Selection Method Total CostConsultant Services (including

Expenditure Category contingencies)QCBS QBS SFB LCS CQ Other N.B.F.

A. Firms (7.4) (7.4)

B. Individuals (.9) (.9)

Total (7.4) (.9) (8.3)

Note: QCBS = Quality- and Cost-Based SelectionQBS = Quality-based SelectionSFB Selection under a Fixed BudgetLCS = Least-Cost SelectionCQ = Selection Based on Consultants' QualificationsOther = Selection of individual consultants (per Section V of Consultants Guidelines),

Commercial Practices, etc.

N.B.F. = Not Bank-financed.Figures in parenthesis are the amounts to be financed by the Bank loan.

Page 71Annex 6

Page 7 of 8

Table B: Thresholds for Procurement Methods and Prior Review

Expenditure Contract Value Procurement Contracts Subject toCategory (Threshold) Method Prior Review

1. Works1.4 NCB/Shopping/Force First two contract each

Account year

2. Goods8.2 ICB/NCB/Shopping Above US$1million and

first two contracts eachyear

3. Services8.3 QCB/Individual selection Above USS100,000 firms

and US$50,000 forindividuals

4. Miscellaneous (IEC)1.1

Total19.0

Page 72 Annex 6Page 8 of 8

Table C: Allocation of Loan Proceeds

Expenditure Category Amount in US'$million Financing Percentage

Civil Works 1.4 80%

Goods 8.2 100% of foreignexpenditures, 100% of

ex-factory cost and80% of other itemsprocured locally

Consultancy Services 8.3 100%

IEC 1.1 100%

Total 19.0

Page 73

Annex 7

PHILIPPINESEarly Childhood Development Project

Project Processing Budget and Schedule

A. Project Budget (US$000) Planned Actual(At final PCD stage)

473 633

B. Project Schedule Planned Actual(At final PCD stage)

lime taken to prepare the project (months) 30 46First Bank mission (identification) 3/_/1994 3/_/1994Appraisal mission departure 9/_/1996 1/_/1998Negotiations 12/ /1996 2/ /1998Planned Date of Effectiveness 6/ /1997 5/_/1998

Prepared by: DOH, DSWD, DECS

Preparation assistance: 2 PHRD Grants; PPTA Grant from ADB, financing of studies and staff time fromUNICEF, Manila.

Bank staff who worked on the project included:

Althea Hill, Richard Heaver, Claude Salem, Stanley Scheyer, Nicholas Prescott, Laura Shrestha, CeciliaVales, Jayshree Balachander, Hoi-Chan Nguyen, Gbangi Kimboko, Juliana Williams, Wijaya Wickrema,Walter Schwermer.

Consultants who worked on the project included (in alphabetical order):

Hernando Abaya, Bing Alano, Maricon Alfiller, Ruperto Alonso, Bansi Lal Amla, Carmen Arevalo, Fenyde los Angeles Bautista, Henry Briones, John Cameron, Rosendo Capul, Maria Asuncion Chin, RodrigoCisneros, Sonny Boy Espique, Bruce Geisert, Marilyn Gorra, Rowena Guanzon, Richard Heaver, PradeepKakkar, John Kevany, Alicia Lustre, Joyce Lyons, Chat Manasan, Kerida Scott-McDonald, Keith McInnes,Robert Myers, Rosario Pascua, Antonio Pio, Emma Porio, Rachel Racelis, Alexis Reyes, Mary St. John,Brad Schwartz, Ramon Tuazon, Niko van Oudenhoeven, Edith Villanueva, Raymond Villanueva, FredWood.

Page 74

Annex 8

PHILIPPINESEarly Childhood Development Project

Documents in the Project File*

A. Project Implementation Plan

B. Bank Staff Assessments

1. "Improving Early Childhood Development: An Integrated Program for the Philippines"(A collaborative report by the World Bank and Asian Development Bank): R. Heaverand J. Hunt; Directions in Development series: World Bank, 1995

2. "Early Child Development: Investing in the Future". Maiy Eming Young; Directions inDevelopment series: World Bank, 1996.

3. "Enriching Lives: Overcoming Vitamin and Mineral Malnutrition in DevelopingCountries". Development in Practice series: World Bank., 1994.

4. "A Strategy to Fight Poverty: Philippines". World Bank, Country Operations Division,Country Department I, East Asia and Pacific Region; March, 1996.

C. Other

Studies done during preparation

I . Eufracio Abaya: Developing Strategies for Ensuring Access of Philippines andIndigenous Peoples to Early Child Development Programs.

2. Bansi Amla: Supplementary Food for the Philippines PEM Control Program:Recommended Formulation, Production and Distribution

3. Ruporto Alonso and Bansi Amla: Production and Distribution of Complementary Foodfor the ECD Program: A Study of Options, Managerial Feasibility and Cost ffectiveness.

4. Carmen Arevalo-Correa: Early Child Development Project: Funding Mechanisms forLGU Subproject Proposals.

5. Henry Briones: Proposed Nutrition Component for the ECD Project

6. Ma. Asuncion Chin: Community and Local Government Consultations on the ECDProgram

7 Bruce Geisert: The Management Information System Comnponent of the ECD Project

8. Ellyn Gorra: The Philippines Early Child Development Program

Annex 8Page 75 Page 2 of 2

9. Rosario Manasan and Bienvenido Alano: Analysis of the Fiscal Impact andAffordability of the Proposed ECD Project.

10. Kerida Scott-McDonald: Targeting and Monitoring Strategies for the PhilippinesECD Program

11. Emma Porio: Developing a Methodology for Community Consultations.

12. Alexis Reyes: Conceptual Framework for Psychosocial Development andDevelopmental Screening for 0-6 Years Old

13. Alexis Reyes: Design of a Referral System for Children with Disabilities and System forTargeting High Risk Children and Families.

14. Mary St. John and Sonny Boy Espique: Designing an ECD Decision Support Tool.

15. J. Brad Schwartz: Republic of the Philippines: Early Child Development Project;Economic Analysis". September 30, 1997.

16. Raymond Villanueva: Improving the Functionality, Interactivity and User-Friendlinessof the Prototype ECD Planning Software.

*Including electronic files.

Page 76

Annex 9

STATUS OF BANK GROULP OPERATIONS IN ]?HILIPPINES(As of December 31, 1997)(in Millions of US Dollars)

Amount in US$ million (lesscancellations)

Loan/Credit FY Borrower Purpose Bank IDA Undisbursed Closing Date

Credits7 Credit(s) closed 171.18

23920 1992 GOP SECOND VOCATIONAL TR 36 12.18 12/31/9825060 1993 GOP URBHEALTH&NUTRITI 70 55.88 12131/00

Total Number ofCredits = 2 106 68.06

Loans169 Loans(s) closed 6,714.64 111.37

32040 1990 ROP COCONUT FARMS DEVT. 120.95 41.11 6/30/9832610 1991 ROP COMMUNAL IRRIG. II 46.2 20.27 12/31/9833600 1991 ROP ENV. &NAT. RES. MGT 158 20.77 12/31/9834300 1992 ROP HIGHWAY MANAGEMENT 150 73.32 6/30/9934550 1992 ROP MUNICIPALDEVIII 68 39.34 6130/9934390 1992 ROP RURAL ELECTRIFICATION 91.3 40.11 4/30/9834350 1992 ROP ENGINEERING & SCIENCE 61 9.08 6/30/9836070 1993 ROP RRIG OPER SUPP I 51.3 26.61 6/30/9936030 1993 ROP TAX COMPUTERIZATION 63 30.59 6/30/9937000 1994 NPC & PNOC LEYTE CEBU GEOTHERMAL 147 23.49 6/30/9837460 1994 ROP LEYTE LUZON GEOTHERMAL 113 28.59 6/30/9937020 1994 NPC & PNOC LEYTE CEBU GEOTHERMAL 64 15.21 6/30/9837470 1994 ROP LEYTE LUZON GEOTHERMAL 114 67.03 6/30/9937450 1994 ROP SUBIC BAYFREEPORT 40 4.75 6/30/9938520 1995 ROP WOMENS BEALTH & SAFE 18 17.49 12/31/0139400 1996 LandBank RURAL FINANCEI[ 50 15.83 6/30/0239960 1996 ROP TRANS GRID REINFORCE 100 72.48 12/31/0040190 1996 ROP MNLA2ND SEWERAGE 57 57 12131/0139970 1996 ROP TRANS GRID REINFORCE 150 112.51 12/31/0039390 1996 LandBank RURALFINANCEII 50 22.06 12/15/9839380 1996 LandBank RURAL FINANCE II 50 25.93 6/30/0241080 1997 ROP THIRD ELEMEDUCATION 113.4 113.4 6/3010441090 1997 ROP AGRARIANREFORMCOMM 50 48 12131/0341110 1997 ROP SECOND SUBIC BAY 60 60 1213110041100 1997 ROP WATER RESOURCES DEV. 58 56.9 12131/0242270 1998 ROP WATER DISTRICT DEV. 2.3 2.3 6/30/0342280 1998 ROP WATER DISTRICT DEV. 54.5 54.5 6/30/03

Total Number of Loans 27 2,100.95 1,098.67

Total*** .8,815.58 277.18of which repaid 3,411.18 14.3Total held by Bank & IDA 5,404.40 262.87Amount sold 31.35of which repaid 31.35Total Undisbursed 1,278.10

Page 77Annex 9Page 2 of 2

PhilippinesSTATEMENT OF IFC's Committed and Disbursed Portfolio

As of 3 1-Dec-97(In US Dollar Millions)

Committed DisbursedIFC IIFC

FY Approval Company Loan Equity Quasi Partic Loan Equity Quasi Partic1967/88 MERALCO 10.75 0.00 0.00 0.00 10.75 0.00 0.00 0.001970/86/88/89 PLDT 23.16 0.00 0.00 14.89 23.16 0.00 0.00 14.891974/79 Maria Cristina 0.00 .44 0.00 0.00 0.00 .44 0.00 0.001979/90 General Milling 0.00 1.73 0.00 0.00 0.00 1.73 0.00 0.001980/82/89/90/94/95 AACT 25.00 2.73 0.00 0.00 21.50 2.73 0.00 0.001989 H&QPV-I 0.00 1.00 0.00 0.00 0.00 1.00 0.00 0.001989 Navotas 0.00 .95 0.00 0.00 0.00 .95 0.00 0.001990 Avantex Mill 5.63 1.98 0.00 0.00 5.63 1.98 0.00 0.001991 Best Chemnicals 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.001992 Bacnotan 5.60 5.63 0.00 4.00 5.60 5.63 0.00 4.001992 Pilipinas Shell 0.00 0.00 11.63 0.00 0.00 0.00 11.63 0.001993 H&QPV-H 0.00 2.50 0.00 0.00 0.00 2.40 0.00 0.001993 Pagbilao 57.00 10.00 0.00 10.20 57.00 10.00 0.00 10.201993/94 Mindanao Power 0.00 4.50 0.00 0.00 0.00 4.26 0.00 0.001994 Walden Mgmt 0.00 .05 0.00 0.00 0.00 .05 0.00 0.001994 Walden Ventures 0.00 3.75 0.00 0.00 0.00 1.88 0.00 0.001995 Sual Power 30.00 0.00 0.00 196.00 5.90 0.00 0.00 71.201996 All Asia Growth 0.00 4.00 0.00 0.00 0.00 4.00 0.00 0.001996 All Asia Manager 0.00 .04 0.00 0.00 0.00 .04 0.00 0.001996 All Asia Venture 0.00 .01 0.00 0.00 0.00 .01 0.00 0.001997 Far East Bank 25.00 0.00 0.00 50.00 17.99 0.00 0.00 35.98

Total Portfolio: 182.14 39.31 11.63 275.09 147.53 37.10 11.63 136.27

Approvals Pending Comnmitment

Loan Eguity Quasi Partic

1997 BATAAN P/E 30.00 0.00 10.00 163.001997 MAGSAYSAYLINES 8.00 3.00 0.00 26.501967 MANILA ELECTRIC 0.00 0.00 0.00 .361997 PT&T 30.00 5.00 0.00 30.001995 SUAL THERMAL 0.00 17.50 0.00 0.00

PWR

Total Pending Commitment: 68.00 25.50 10.00 219.86

Page 78 Annex 10

ANNEX-10 Page 1 of,2

Philippines at a glance 2123198

Lower-POVERTY and SOCIAL East middle-

Philippines Asia income Development diamond-

Population mid-1996 (millions) 70.0 1,726 1,125GNP per capita 1996 (US$) 1,190 890 1,750 Life expectancyGNP 1996 (billions US$) 83.3 1,542 1,967

Average annual growth, 1990-96

Population (%/6) 2.2 13 1.4 GNF GrossLabor force (%/6) 2.7 1.3 1.8 per pnrmar,

Most recent estimate (latest year available since 1989) capita / enrollment

Poverty: headcount index (% of populalion) 54Urban population (54 of total population) 54 31 56Life expectancy at birth (years) 66 68 67Infant mortality (per 1,000 live births) 39 40 41 Access to safe waterChild malnutribon (%56 of children under 5) 30Access to safe water (% of population) 84 77Illiteracy (% of population age 15+) 5 17 |Gross primary enrollment (% ofschool-age population) 111 117 104 -. Philippines

Male 120 1o5 Lower-middle-income groupFemale 116 101

KEY ECONOMIC RATIOS and LONG-TERM TRENDS

1976 1985 1995 1996 8rjEconomic ratios

GDP (bilrions US$) 15.0 30.7 74.2 83.8Gross domestic investmentlGDP 30.9 15.3 22.2 24.7Exports of goods and services/GDP 21.0 24.0 36.4 43.6 1 Openness of economyGross domestic savings/GDP 24.8 17.4 .

Gross national savings/GDP 26.6 15.9 17.8 20.0 |

Current account balance/GDP -6.2 -0.1 -4.4 -4.7Interest payments/GDP 0.8 3.1 2.6 Savings InvestmentTotai debt/GDP 27.8 88.6 53.2 49.2Total debtservicelexpots 14.4 31.6 16.5 14.7Present value of debtVGDP Present value of debttexports - Indebtedness

1975-5 1986-96 1995 1996 1997-05(average annual growth) -- PhilippinesGDP 3.0 3.2 4.8 5.5 5. GNP per capita 0.3 1.5 2.5 44 3.5 -Lower-middle-income grupExports of goods and services 7.6 8.7 12.0 23.9 10.5

STRUCTURE of the ECONOMY

1975 1985 1995 1996(% of GDP) Growtv8 rates of output and investment 1%)Agriculture 30.3 24.6 21.6 21.4 20 -Industry 34.6 35.1 32.1 31.7 1 \uN

Manufacturing 25.7 25.2 23.0 22.6 IServices 35.0 40.4 46.3 46.9 -o i2 93 94 95 96

.15-

Private consumpton 64.5 75.0 74.2 73.9 s -20

General govemment consumption 10.7 7.6 11.4 11.7 1 GDI - DPImportsof goods and services 27.1 21.9 44.2 53.9

1975-85 1986-96 1995 1996 1(average annual growth) 1 Growth rates of exports and imports I%)Agriculture 2.2 1.7 0.8 3.0 25 TIndustry 2.6 3.3 7.0 6.3 20

Manufacturing 1.8 3.2 6.8 5.6 1iServices 3.8 3.8 5.0 6.5 '

Private consumption 3.3 4.1 8.5 5.3 5General govemment consumption 0.4 4.6 5.4 5.2 °Gross domestic investment -0.4 6.9 3.0 15.6 . 92 93 94 95 96Importsofgoodsandservices 3.9 12.3 16.0 21.1 Expons Impo,tGross national product 2.7 3.8 5.0 6.9 -

Note: 1996 data are preliminary estmates.

The diamonds show four key indicators in the country (in bold) compared with its income-group average. If data are missing, the diamond willbe incomplete.

Page 79 Annex 10

Page 2 of 2Philippines

PRICES and GOVERNMENT FINANCE1975 1986 199 1996 Inflation

Domestc prices(% change) 20 -

Consumer prices 6.8 23.1 8.1 8.4 15Implicit GDP deflator 9.3 17.6 7.5 8.9 10

Government finance(% of GDP) 0

Current revenue .. 12.1 18.5 19.5 91 52 93 94 9f 96

Current budiget balance 2.4 2.5 3.1 - GDP def. --- OCPIOverall surplus/deficit .. .. -1.4 -0.4

TRADE1975 1985 1996 1996 Exportandimportlevels(mill.US$)

(millions US$)Total expoits (fob) .. 4,629 17,447 20,543 3,9000 _

Coconut oil .. 347 826 571 30,000

Sugar 185 74 139 25,0r0Manufactures .. 2,539 13,868 17,106 20000

Total impoits (cif) 5,111 26,391 31,885 15,000l

Fooedaneeg 256 1,204 1,578 10000 o .-

Capital goods .. 769 8,029 10,472 0Food .. 256 1,204 1,578 10.000~~~~~~~~~~~~~~~~~~~~~s 91 9 9m4 5 9

Export price index (1987=100) .. 81 124 124 s 9 92 92 94 95 95

Import price index (1987=100) .. 63 124 126 zExports [iImportsTerms of trade (1987=100) .. 127 100 99

BALANCE of PAYMENTS1976 1985 1995 1996 C

(millions US$) Current account balance to GDP ratio (%)Exports of goods and services 3,000 6,864 21,978 28,566 0 _- -

Imports of goods and services 4,116 5,961 33,314 42,254 90 91 92 93 94 95 9 IResource balance -1,116 903 -11,336 -13,688 -|

Net incomie -126 -1,317 7,157 9,185 - -

Net current transfers 318 379 882 589 3

Current account balance, 4 -before official capital transfers -923 -35 -3,297 -3,914

Financing items (net) 912 867 3,928 8,021 ;Changes in net reserves 11 -832 -631 -4,107 --

Memo: I

Reserves including gold (mill. US$) 1,458 1,098 7,762 11,745Conversion rate (local/US$) 7,2 18.6 25.7 26.2

EXTERNAL DEBT and RESOURCE FLOWS1975 1985 1995 1996

(millions USS) Composition of total debt, 1996 (mill. USS)Total debt outstanding and disbursed 4,171 26,839 39,445 41,214

IBRD 238 2,421 5,002 4,666 G 4666 AIDA 17 84 183 193 7969 193 c

Total debt service 457 2,534 5,337 5,778 405IBRD 26 285 790 766 DIDA 0 1 3 3 , 3079

Composition of net resource flowsOfficial grants 72 139 276 .. /Official creditors 185 381 -648 .. EPrivate creditors 348 776 1,166 .. F 12085Foreign direct investment 98 12 1,478 1,600 12817Portfolio equity 0 0 1,961 1,333

World Bank programCommi:ments 114 104 168 528 A-IBRD E-BilateralDisbursements 94 276 402 457 B - IDA 0 -Other mulUlateral F -PrivatePrincipal repayments 12 110 415 426 C-IMF G-Short-termNet llov,s 82 166 -13 31

Interest payments 14 176 378 343Net transfers 68 -10 -391 -312

Development Economics 2123/98

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