Public Disclosure Authorized
Document of
The World Bank
:F1
3
FOR OFFICIAL USE ONLYFO
Public Disclosure Authorized
Report No. P-3817-PH
REPORT AND RECOMMENDATION
OF THE
PRESIDENT OF THE
INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT
Public Disclosure Authorized
TO THE
EXECUTIVE DIRECTORS
ON A
PROPOSED LOAN
IN THE AMOUNT EQUIVALENT TO US $40.0 MILLION
TO THE
REPUBLIC OF THE PHILIPPINES
FOR A
Public Disclosure Authorized
MUNICIPAL DEVELOPMENT PROJECT
May 15, 1984
This document has a restricted distribution and may be used by recipients only in the performance of
their official duties. Its contents may not otherwise be disclosed without World Bank authorization.
CURRENCY EQUIVALENTS
Currency Unit
=
US$1
=
Pesos 1
=
Peso (P)
P 14.0
US$ 0.0714
ABBREVIATIONSAND ACRONYMS
COA
CPO
-
Commission on Audit
Central Project Office
LWUA
-
Local Water Utilities Administration
MDF
-
Municipal Development Fund
MHS
-
Ministry of Human Settlements
MLG
MOF
-
Ministry of Local Government
Ministry of Finance
MPWH
NEDA
OBM
Sangguniang
-
Ministry of Public Works and Highways
National Economic and Development Authority
Office of Budget and Management
Panglunsod
-
Local Elected Council
FISCAL YEAR
January 1 - December 31
FOR OFFICIALUSE ONLY
PHILIPPINES
MUNICIPAL DEVELOPMENT PROJECT
Loan and Project Summary
Borrower:
Republic of the Philippines
Beneficiaries:
Municipalities and cities in the Philippines
Amount:
$40.0 million equivalent (including the capitalized frontend fee)
Terms:
20 years, including 5 years of grace, at the standard
variable interest rate.
Onlending Terms:
The equivalent of $28.2 million of the loan proceeds would
be relent by the Government through the Municipal
Development Fund (MDF) to the project cities, at 14% for
20 years, including 5 years grace. These terms would be
reviewed annually and any adjustments would be applicable
only to the new cities applying for subloans from the
MDF. The loan balance (excluding the capitilized front-end
fee of $0.1 million) would be provided to various
Government agencies as budgetary allocations. The
Government will absorb all the standard financial charges
and fees on the entire Bank loan in addition to the
interest rate variations and the foreign exchange risk.
Project
Description:
The proposed project would assist local governments in
providing infrastructure and municipal services to a
growing urban population by: (a) establishing a revolving
fund, the MDF, to provide local governments with direct
access to long-term development finance; (b) establishing a
national-level technical intermediary to assist local
governments identify investment priorities, evaluate
project proposals for financing through the MDF and act as
a liaison with national and external funding agencies; and
(c) strengthening the local technical and financial
capacity for project implementation and service management
through a training program and organizational and fiscal
reforms. The project includes financing for: (i) basic
infrastructure including improvements for sanitation,
drainage, slum areas, solid wastes management, roads,
traffic management and bus terminals, and construction and
upgrading of markets and slaughterhouses; (ii) infrastructure maintenance operations; (iii) nation-wide tax mapping;
(iv) training program; and (v) technical assistance for
project implementation and structural reform studies.
This document has a restricted distribution and may be used by recipients only in the performance of |
their official duties. Its contents may not otherwise be disclosed without World Bank authorization.
-
ii
-
The project'smain risks are related to timely availability
of central governmentcounterpart funds, fiscal weaknesses
at the city level, and staffingand management in the
technicalintermediary. The Government'scommitmentto the
project and the flexibility in the project to reduce
investmentprograms in individualcities in line with
financial constraints,provision of technicalassistance,
commitmentto fiscal reform by the local governmentsand
sanctions to be applied to nonperformingcities by the
Ministry of Finance are, however, expected to minimize
these risks.
iii
-
-
Estimated Cost:
Foreign
Total
Local
-------$ million-------…
(a)
(b)
(c)
(d)
(e)
Urban infrastructure
Maintenance
Tax Mapping
Training
Technical Assistance
19.7
1.4
1.4
1.4
1.6
12.8
3.2
2.1
2.0
2.4
32.5
4.6
3.5
3.4
4.0
Base cost
25.5
22.5
48.0
Physical contingencies
Price contingencies
1.0
10.0
0.8
8.9
1.8
18.9
Total Project Cost /a
36.5
32.2
68.7
Front-end fee on Bank loan
-
0.1
0.1
36.5
32.3
68.8
7.7
23.1
5.7
32.3
-
40.0
23.1
5.7
36.5
32.3
68.8
Total Financing Required
Financing Plan:
Bank loan
Government
Project cities
Total
Estimated
Disbursements
Bank FY
Annual
Cumulative
Rate of Return:
1985
1986
1987
1988
1989
1990
1991
4.2
4.2
5.2
9.4
6.8
16.2
8.0
24.2
8.4
32.6
6.0
38.6
1.4
40.0
18-24% weighted ERR for the six project cites
appraised./b
Staff Appraisal
Report:
No. 5027-PH, dated May 10, 1984
Map:
IBRD-17775
/a
Includes taxes and duties amounting to $2.0 million.
75; All project components would have an ERR above the opportunity cost of
capital except those with a significant health factor where a slightly
lower ERR would be acceptable.
REPORT AND RECOMMENDATION
OF THE PRESIDENT
OF THE INTERNATIONAL BANK FOR
RECONSTRUCTIONAND DEVELOPMENT
TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN
TO THE REPUBLIC OF THE PHILIPPINES
FOR A MUNICIPAL DEVELOPMENT PROJECT
1.
I submit the following report and recommendation on a proposed loan
to the Republic of the Philippines for the equivalent of $40.0 million, including the capitalized front-end fee of $0.1 million, to help finance a muncipal
development project. The loan would be repaid over 20 years, including five
years of grace, at the standard variable interest rate. The equivalent of
$28.2 million of the loan proceeds would be relent by the Government through
the Municipal Development Fund (MDF) to the project cities, at 14% for
20 years, including five years of grace. These terms would be reviewed
annually and any adjustments would be applicable only to the new cities
applying for subloans from the MDF. The loan balance (excluding the capitalized front-end fee of $0.1 million) would be provided to various Government
agencies as budgetary allocations. The Government will absorb all the
standard financial charges and fees on the entire Bank loan as well as the
interest rate variations and the foreign exchange risk.
PART
I -
THE ECONOMY
1
2.
An economic report, entitled "The Philippines: Selected Issues for
the 1983-1987 Plan Period" (No. 3861-PH) was distributed to the Executive
Directors under Sec. M82-542, dated June 16, 1982. A special report, "Aspects
of Poverty in the Philippines: A Review and Assessment" (No. 2984-PH), was
distributed to the Executive Directors on December 1, 1980 under Sec. M80-919.
Country data are given in Annex 1.
Performance in the 1970s
3.
During the 1970s, the Philippines followed a much more dynamic,
growth-oriented development strategy than in earlier decades. The growth rate
of GDP rose from 5.1% in the 1960s to 6.2% in the 1970s, a rate well above
that of lower middle-income oil importers (5.4%) but lower than that of comparable Asian countries. Expansion of the agricultural sector was rapid at
about 4.5% p.a. during the decade. Manufacturing industry, growing at the
same rate as GNP, did not play a leading role in the Philippines' economic
development. Although manufactured exports grew dramatically, the greater
part of the sector remained oriented to the domestic market and was affected
by severe inefficiencies.
1/
This section is substantially the same as that contained in the
President's Report for the Fifth Highway Project which was distributed to
the Executive Directors on April 30, 1984.
-2-
4.
Although economic performance was relatively good in the 1970s,
structural weaknesses in the economy held it back below its full potential.
GDP growth was achieved at a high investment cost the incremental
capital/output ratio (ICOR) was about 35% higher than those of comparable
Asian countries. Although inherently capital-intensive infrastructure investments explain part of the higlh ICOR, inefficiency of industrial investment was
the more important cause. Inappropriate trade, industrial, financial, and
exchange rate policies designed to foster import substitution, provided high
protection for domestic manufacturers, and led to investments in activities in
which the Philippines did not have a clear comparative advantage. External
borrowing and imports expanded rapidly while traditi.onalexports and domestic
resource mobilization lagged. This resulted in a chronic shortage of foreign
exchange and increasing external debt.
5.
Despite satisfactory aggregate growth during the 1970s, the incidence of poverty remained around 40%, income distribution continued to be
skewed, and regional disparities remained pronounced. The incidence of
poverty reached 60-70% in the least developed regions. Large numbers of
people, especially in the rural areas, still suffer from malnutrition and
lack safe water, basic education, and health facilities. An increasingly
unfavorable man/land ratio, the resulting expansion of cultivation into
marginal lands, limited employment opportunities in the industrial sector, and
the sharp deterioration in the external terms of trade put downward pressure
on real incomes. Although the Government instituted several programs to
improve directly living conditions of the poor, most of these were implemented
on any significant scale only during the last few years and will require
several years to achieve a marked impact.
6Growth of productive employment, particularly in the industrial
sector, has lagged behind the rapid expansion of the labor force, and considerable underemployment exists. During the 1970s the agriculture and service
sectors had to absorb an excessively high proportion of new entrants to the
labor force. Manufacturing employment stagnated in the first half of the
decade, and picked up only slightly thereafter as labor-intensive export production grew. Overseas employment, especially in the Middle East, increased
rapidly, providing a temporary income opportunity.
7.
Population growth in the Philippines was reduced from 3% in the
1960s to 2.5% in the early 1980s. There are indications, however, that it may
have levelled off prematurely at that level. Thus, rapid population growth
continues to strain available land resources, aggravate already serious
employment and poverty problems, and burden the public budget with a high
growth in demand for basic public services. The Philippines has a family
planning program which expanded rapidly during the 1970s, however, participation in the program is still low by East Asian standards.
Structural Problems and Adjustment
8.
The structural weaknesses of the Philippine economy have become more
apparent in recent years as unfavorable world economic conditions have exacerbated the balance of payments, debt, and resource mobilization problems. In
the late 1970s, the country's terms of trade deteriorated sharply due to oil
- 3 -
price increases, accelerated international inflation, and depressed prices for
major export commodities. The continued heavy reliance on export earnings
from a few primary products (coconuts, sugar, copper, and timber) kept the
Philippines extremely vulnerable to international commodity price fluctuations, while continued high dependence on imported oil further aggravated the
balance of p-,ments problem.
9.
Excessive protection and an artificially low cost of capital led to
low efficiency of investment and stagnant employment in industries producing
for the domestic market. The industrial sector remained a net burden on the
balance of payments; although manufactured exports grew rapidly, their net
foreign exchange earnings were limited due to a high import content. Export
promotion measures induced rapid growth in nontraditional manufactured
exports, e.g., garments, electronics and handicrafts, from $50 million in 1970
to $2.4 billion in 1982. However, export expansion was concentrated on a few
items, and backward linkages were limited by high cost and low quality of
domestic inputs. As part of an adjustment program supported by SAL lending,
the Government has initiated major policy reforms designed to move towards an
industrial structure utilizing more effectively the country's comparative
advantage with respect to labor cost and raw material availability and which
is internationally competitive. The program includes a major tariff reform, a
liberalization of import controls, a realignment of industrial incentives and
improved export incentives. The implementation of the program has been good,
despite the international recession, which has hampered the adjustment process
in the manufacturing sector and slowed down the growth rate from around 4% in
1980-81 to an estimated 1% in 1982-83.
10.
Financial Sector. Although well developed, the Philippine financial
sector has not performed adequately in raising private sector savings and providing investment financing. Among the main reasons have been the level and
structure of interest rates which were not geared to mobilize sufficient savings and encourage longer maturities; their low level contributed to rela
tively inefficient and capital-intensive investment. Further, the Central
Bank's rediscounting scheme frequently resulted in encouraging over investment
in some sectors while others were relatively neglected. In 1981, the Government introduced far-reaching financial policy changes. The banking system was
given greater flexibility, interest rates were deregulated, and the Central
Bank was given a stronger position in its role as "lender-of--last-resort",all
of which produced positive real interest rates (for the first time since 1978)
and a significant increase in domestic savings. Government-owned lending
institutions have made less progress as a result of insufficient autonomy in
the selection of their portfolios plus a depressed domestic economy, loan
collection rates continue to be very low and substantial government budgetary
support is required. Rehabilitation of several government-owned institutions
is necessary to reduce strains on the budget and to continue important
development banking operations.
11.
Agriculture and Rural Development. While the performance of the
agricultural sector was satisfactory during the 1970s, some policy problems
still remain unresolved. The Philippines, once a major importer of rice,
eliminated rice deficits in the late 1970s and expanded fish and meat production. There is, however, a need for further diversification and promotion of
-4-
commercial crops to improve the balance of payments position either through
expansion of agricultural exports or through efficient import substitution.
Trade policies in the Philippines have discriminated against agriculture.
Pricing and exchange rate policies have also had a negative impact on incomes
in the agricultural sector. The institutional framework for agricultural
policy formulation and implementation suffers from serious fragmentation.
Overall, there is a need to deal directly with the problem of the rural poor,
particularly farmers engaged in rainfed agriculture, coconut growers,
municipal fishermen, and landless sugar workers. Increasingly, investment
programs will have to be directed towards rainfed agriculture and include
innovative approaches to reaching smallholder farmers.
12.
Energy. Since the 1973-74 oil price increase, the Philippines has
made a considerable effort to reduce its dependence on imported oil. Through
a combination of pricing, taxation, and conservation measures, the government
exerted downward pressure on commercial energy consumption. Steps to increase
and diversify domestic energy supply i.e., the development of hydroelectric,
geothermal, nuclear and coal based power sources, have contributed to reducing
import dependence. Limited domestic petroleum production also began in
1979. However, due to the long gestation period of energy projects, domestic
energy production still constituted only 32% of total commercial energy supply
in 1982. In response to the second oil crisis, the Government included in its
adjustment program policy measures for the energy sector which aim at further
reducing the country's dependence on oil imports through improving the efficiency of energy use and increasing the share of domestic sources to nearly
50% of commercial energy supply by 1987. Pricing policy will continue to
support conservation and revenue objectives.
13.
Public Sector Resource Management. The management of public sector
resources has been a chronic problem in the Philippines, which has been further aggravated by the current recession. The fiscal stress generated by the
growing imbalance between public investment and public sector resource
mobilization has manifested itself in a number of ways. Government current
expenditures (exclusive of interest payments) have been reduced to only 9% of
GNP, as compared to an average of 14% of GNP in middle-income developing
countries. Implementation of projects has been stretched over longer periods
of time than is economically efficient. The overall public sector deficit has
become excessively high and has threatened the stability of the economy,
particularly in 1981-1982. A rapidly rising level of public investment and an
unsatisfactory financial performance of public corporations contributed
towards increasing the fiscal deficit despite a reduction of recurrent expenditures. In 1982 the public sector deficit, which traditionally had been
relatively small, increased to 5.7% of GNP.
14.
As a short-term response, the Government is now implementing a fiscal austerity program designed to reduce the national budgetary deficit to
manageable levels. The Government has reduced equity contributions and
investment programs and enacted revenue measures which will improve the current imbalance. However, to improve the medium-term outlook for public
finances, structural problems of the system need to be addressed.
- 5-
The Current Economic Situation
15.
The economic situation of the Philippines has deteriorated seriously in the last three years. The global recession, with low commodity prices,
high interest rates on external borrowing, and an increasingly unfavorable
trading climate has stifled economic growth, slowed down export arowth,
depressed domestic demand and private investment activity and aggravated the
fiscal and balance of payments problems. Real GDP growth fell to 3.8% in 1981
to an estimated 2.9% in 1982 and is estimated to have been only about 1% in
1983.
16.
During 1979-82, the terms of trade deteriorated, through a combination of higher import prices, particularly for petroleum, and declining or
stable prices for many primary exports, such as sugar, copper and copra
products. Since 1981, the volume of exports has leveled off, reflecting the
stagnation in the world's economy and a serious drought which reduced agricultural exports. Despite the severe external situation, the Government launched
a major increase in its investment program in 1979, designed to make up for
deficiencies in domestic infrastructure, expand industry, and reduce the
dependence on imported petroleum. As a result the public sector investment
program rose from less than 6% of GNP in 1979 to 9% by 1982. At the same
time, public sector resource mobilization declined, producing a large and
growing government budgetary deficit. This deficit was covered in large part
by foreign borrowings; in 1982, foreign borrowing financed 70% of the Government's deficit and over 50% of the deficit of the public corporations.
17.
The impact of all these factors has been a growing balance of
payments deficit and an increasingly difficult debt service burden. The
current account deficit rose from $2.1 billion in 1980, to $3.4 billion in
1982 (8% of GDP) and $2.7 billion in 1983. The total debt service ratio,
including interest on short-term debt, increased from 21% in 1980 to 38% in
1982. During 1983, with growing economic problems, a mounting debt burden and
major debt problems in other developing countries, foreign banks began reducing their exposure in the Philippines. The Government increasingly was forced
to resort to increased short-term borrowings to finance the balance of payments gap, which further exacerbated the debt service problem. While the
terms of trade improved in 1983 a severe drought reduced agricultural exports,
and overall export earnings fell. By the middle of 1983 it became clear that
the Government would not be able to meet the target under the IMF Standby of
reducing the overall deficit in the balance of payments from $1.2 billion to
$600 million. In fact, for the first three quarters of the year, the overall
deficit had already reached $1.3 billion. The situation was further exacerbated by political disruptions, a flight of capital out of the country, and a
cessation of short-term lines of credit from the commercial banks. In October
1983, the Government announced a 90-day moratorium on debt repayments, a
further 21% devaluation of the peso, and new controls over the allocation of
foreign exchange for imports. Substantial reductions were made in the investment program, and some new tax measures were announced. As a result of these
austerity measures, the national government deficit was reduced to 1.7% of GNP
in 1983, compared with 4.2% in the previous year. However, because of the
poor performance of the public corporations, the overall public sector deficit
remained large at 4.5% of GNP (compared to 5.7% in 1982).
-A -
Discussions with the IMF on a new standby agreement began i.nJune
as were discussions with the commercial banks on a debt rescheduling.
The agreement with the IMF has been delayed by problems involving the accuracy
of some of the basic data, and a sudden increase in the money supply during
the last quarter of the year, which threatened to undercut the agreed targets. The rapid growth of the money supply reflected Government attempts to
provide assistance to several commercial banks which were facing financial
difficulties because of depressed economic conditions. As a result, money
supply increased 32% between September and December of 1983, and the consumer
price index increased by 15%. Negotiations with the IMF are continuing, and
it is expected that once a new program is finalized it will be followed by
debt reschedulings with the official and private creditors. In the meantime,
private creditors have agreed to addi.tionalextensions of the debt moratorium.
18.
1983,
Medium-Term Prospects
19.
The medium-term outlook for the Philippines remains difficult. Even
with a successful completion of the IMF Standby Agreement and debt rescheduling, there will be a need to make further cuts in government spending and
to reduce imports. Except for those new i.nflowslikely to come as part of the
debt rescheduling exercise, the country is faced with little or no access to
fresh private capital flows. As a consequence, the current account balance
will need to be reduced from $2.7 billion in 1983 to $1.5 billion in 1984.
Even if export volume growth of 6% can be attained, it will be necessary to
reduce the real level of imports by 18%. To meet the fiscal targets agreed
with the IMF, the Government will have to either increase taxes or reduce
government spending, or some combination of both. The overall result of
constrained imports and government spending will be deflationary, resulting
probably in negative growth in output during 1984, and increased unemployment. The unemployment problem is already severe, as several plants requiring
substantial amounts of imported materials, such as automobile assembly, have
had to close. Increased unemployment will make the problem of a sustained
recovery more difficult.
for several
years
to be sustained
20.
A period
of low growth is likely
after 1984 as well, particularly as the impact of current reductions in the
investment program begin to be felt. The length of thi.speriod of slow
growth, stabilization be felt, and adjustment can be shortened somewhat if the
Government can take the necessary measures to accelerate exports, increase
public and private savings, and use investment resources as efficiently as
possible. The present crisis has increased the Government's awareness of the
severity of the problems and increased it's willingness to adopt the policies
necessary to correct the situati.on. In the longer term, the combination of
increased external assistance and Government actions should permit a
resumption of growth close to the historical average of 6-7%. The country
remains creditworthy, therefore, for new Bank borrowing on conventional
terms. Local cost financing for some projects continues to be justified
particularly in the aftermath of the current recession when the country faces
an exceptionally tight resource position.
- 7 -
PART II - WORLD BANK OPERATIONS 2/
21.
As of March 31, 1984 the Philippines had received 93 Bank loans (of
which two wer- on Third Window terms) amounting to $3,906.0 million and six
IDA credits amounting to $122.2 million. IFC investments totalled $159.8 million. The share of the Bank Group in total debt disbursed and outstanding,
excluding short-term debt, is currently about 14%, and its share in total debt
service is about 13%. These ratios are expected to be about 19% and 16%,
respectively, by 1988.3/ Annex II contains a summary of IDA credits, Bank
loans, and IFC investments as of March 31, 1984.
22.
Bank Group lending to the Philippines expanded from an average of
about $90 million per year in FY71-75 to an average of $459 million in
FY79-83. Although the Bank has financed projects in virtually all sectors of
the economy, particular emphasis has been given to agriculture, which has
accounted for almost one-third of total Bank/IDA lending. Lending for
industry, transportation, power, and social sectors followed in declining
order of size.
23.
In agriculture, lending initially focussed on expanding the irrigation system, credit programs, and other services to support rice production.
More recently, efforts have been made to diversify agricultural production
through loans for tree-crops, livestock, fisheries, and integrated rural
development projects. Agriculture and rural development will continue to
account for the largest share of lending, with emphasis on food production,
poverty alleviation, policy reform and institutional building.
24.
In the industrial and financial sectors, lending has supported
policy reforms under the Government's structural adjustment program.
Structural adjustment lending in 1980 and 1983 ($502.3 million, total) has
supported a series of reforms of the tariff structure, the system of industrial incentives, energy pricing, and other important measures. An Industrial
Finance Loan sought to bring about improvements in financial sector policies
and introduced a new institutional concept to broaden the reach of Bank
lending by channelling loans through an "apex" unit in the Central Bank. In
addition, the Bank has continued to provide financial support and technical
assistance to small and medium industries.
25.
In the energy sector, sector work and the structural adjustment program initiated under SAL II provide the basis for future lending operations.
While previous Bank lending focussed on the power subsector, the Bank now
2/
This Section is substantially the same as that contained in the
President's Report for the Fifth Highway Project which was distributed to
the Executive Directors on April 30, 1984.
3/
These projections are subject to revision following a debt rescheduling
which is anticipated to take place later this year.
- 8 -
seeks to support a broader range of activities; in addition to recent energy
exploration loans, the Bank plans to continue assisting the accelerated
developmentof geothermaland coal, power generationand transmission,energy
conservation,and rural electrification.
26.
By and large implementationof Bank-financedprojects in the
Philippineshas been satisfactory. Disbursements,however, have been slower
than anticipated,particularlyin the last three years. The disbursement
ratio (amount disbursedduring the fiscal year as compared to the total undisbursed at the beginning of the fiscal year) declined from 18.7% in FY79 to
14.2% in FY83 41 The East Asia Regional average was 20.0% and the Bank-wide
average was 20.8% in FY83;5 / the comparableratios for Tha;and and Morocco
were 16.9% and 13.7% respectivelyin the same fiscal year.- Implementation
problems increasedin the last few years, reflectingin part problems caused
by inflation,tight budget constraints,and changes in the scope of the Bank's
lending operations (a substantial increasein the number of projects,new
areas of lending, emphasis on institution-building,
and efforts to reach specific target groups and deprived regions). In recognitionof growing implementation problems, the Government and the Bank have instituteda process of
joint Country ImplementationReviews. Five reviews have been held since May
1980 and will be continued on a regular basis. A Special Action Program (SAP)
for the Philippineswas designed to assist the Government in implementinghigh
priority projectswhich have been affected by the current shortage of counterpart funds. Under the Bank's SAP, selected projectshave benefittedfrom
increasedcost sharing and disbursementratios, the establishmentof special
accounts and in some cases, supplementaryfinancing. These actions have
facilitatedproject implementationand resultedin substantialimprovementsin
disbursementperformance.
27.
This will be the fifth loan, including two supplementalloans, to
the Philippinesto be presented to the ExecutiveDirectors this fiscal year.
An export development project and an agriculturesector inputs loan have been
appraised and are scheduled for Board presentationin the coming months.
PART III - THE URBAN SECTOR
UrbanizationTrends
28.
The Philippines is one of the rapidly urbanizingcountries in East
Asia. From 1960 to 1980 the urban populationmore than doubled to reach
4/
Excludes disbursementsunder the first and Second StructuralAdjustment
Loan. If included, the ratio increases to 21.6%.
5/
Regional and Bank-wide figures also exclude disbursementsunder SALs.
6/
Thailandand Morocco are useful as comparatorsas they have similar per
capita income levels and Bank Group lending programs. Figures also
exclude SALs.
- 9-
15.3 million or about 31% of the total population. If the current demographic
trends continue, almost half of population growth within the next 20 years
will take place in the nation's cities. By the year 2,000, Metro Manila is
projected to grow to over 13 million people and by its sheer size will continue to dominate the urban sector. However, medium sized regional cities are
growing rapidly, some witlhgrowth rate of over 10%, and will comnrise an
increasing portion of the urban population. These cities, most with population between 10,000 and 100,000, function as market, service and transportation centers to their hinterlands and are often provincial capitals with
government and education facilities. Around 32% of the urban population have
incomes below the absolute poverty threshold, estimated at P 3,431 ($245) per
capita in 1983. While the poor comprise a significant portion of the population in all urban areas, including Metro-Manila, urban poverty is especially
pronounced in the Visayas, northeastern Luzon and eastern Mindanao.
29.
The Government has invested in major inter-urban infrastructure,
such as roads, sea and airports, which have spurred economic development in
the regional centers, but investments in infrastructure and services within
the cities have lagged mainly due to lack of funds. In many towns and cities
only half the population has access to safe water supplies, and only a quarter
to sanitary toilets. Lack of adequate drainage systems is so extensive that
severe flooding occurs regularly in most cities causing economic disruption,
accelerating the deterioration of infrastructure and compounding the problems
of poor sanitation. Systems for solid wastes management are either nonexistent or seriously deficient in coverage. Even public service facilities which
do exist are inefficiently managed and poorly maintained, particularly public
markets and slaughterhouses. These regional cities appear to be good candidates as the generators of economic growth if their basic services could be
improved to levels adequate to attract and retain industry, trade and a more
skilled population.
Sector Organization
30.
The government structure in the Philippines is centralized with
national government selectively delegating power to lower levels - provinces,
cities, municipalities and barangays (neighborhoods). At the local government
level, provinces historically have not been strong political or administrative
entities and most local administrations have come from the 1,484 municipalities into which the provinces are fully subdivided. All areas in the
Philippines are incorporated and municipalities contain both urban and rural
areas. There are, in addition, 60 chartered cities which are more highly
urbanized than municipalities, though also containing rural areas. The local
governments (both cities and municipalities) are headed by Mayors who are
elected officials (except in Metro-Manila) and who are responsible to locally
elected councils (Sangguniang Panglunsod). All local governments have
authority to set (within a prescribed ceiling) and collect charges and taxes,
prepare budgets, hire staff and invest in and manage local services and
enterprises. While all local government officials report to the Mayor, the
Treasurer and the Assessor are appointed and directed by the Ministry of
Finance (MOF). Local governments employ city engineers to implement their
locally financed programs, although in many larger cities and municipalities
the Ministry of Public Works and Highways (MPWH) also has its engineers
-
10
-
located at the local level to implement infrastructurefinanced from the MPWH
budget. In addition to the construction,operation and maintenance of local
roads, bridges, drainage and solid wastes systems,local governmentsare
responsiblefor the provision of education and health facilities for which
they receive some central governmentfinance. Economic enterprisesrun by
local governmentsinclude public markets and slaughterhouseswith fees and
rents being charged to lessees. Water supply is administeredby autonomous
local Water Districtswhich charge user fees to cover operation and maintenance costs and debt service. Local governmentshire and pay for their own
staff except for teachers'salaries which are paid by the central government's
allocationfor education.
31.
In the central government,the Ministry of Local Government (MLG) is
concernedwith the jurisdictionsand changes in status of local governments
and their political relationswith the nationalgovernment. The MOF, through
its Bureau of Local Government Finance, oversees the distributionof central
governmentsupport grants, and the financialmanagementand revenue operations
of local governments. The Office of Budget and Management (OBM) reviews local
budgets to ensure they are in accordancewith statutory requirements,while
the Commissionon Audit (COA) is responsiblefor auditing the financial
records of local governments. The Ministry of Human Settlements(MHS) is
responsiblefor reviewing the land use plans preparedby local governments.
Loan funds are available from the Local Water Utilities Administration(LWUA)
to finance projectsrequested by the autonomousWater Districts set up at the
local level. The MPWH prepares and executes the larger urban road, drainage
and flood control projects which are designatedas 'national'infrastructure. Finally,local governmentsalso prepare capital investmentplans for
review by the National Economic and DevelopmentAuthority (NEDA), and these
plans are now beginning to be incorporatedinto the Regional Development
InvestmentPrograms.
Local GovernmentFinance
32.
Although local governmentsare expected to provide a variety of
urban services, their finances are generally weak and inadequate. During
1978-82, local governmentexpendituresincreasedat 15% p.a. while inflation
averaged 14% and populationgrowth 3.6% implying a decrease in expenditures
per capita in real terms. Recurrent costs account for around 90% of these
expenditures,so that capital investments,especiallymajor works, were deferred as funds were used to meet day to day needs. Furthermore,local government's reliance on central governmentgrants increased from 32% of expenditures in 1978 to 40% in 1982. However, it is unlikely that local governments
would in the future receive the same degree of central governmentsupport,
given severe domestic resource constraints. The Government recognizesthat
local governmentswould in future have to generate considerablymore resources
if they are to provide adequate services to their growing populations.
33.
There is considerablepotential to increase revenues from local tax
and non-tax sources. Property and business taxes togetherwith fees and
charges on markets and slaughterhousesconstitutethe principal local revenue
base, and have potential forsubstantialincreases. Gross sales for business
tax purposes are under-reportedand collectionis weak while fees and rents on
-
11
-
municipal markets and slaughterhouses are well below the economic rent.
Property tax records in most of the cities have not been systematically
updated so that many properties are not properly drawn, classified and
assessed nor their current owner identified. Maintenance of records, filing
and other administrative tasks for the most part are done manually. MOF has
embarked upon a national program to increase city revenues by updating tax
records through tax mapping and modernization of records management and
administrative procedures. Where fiscal cadasters have been completed and
computerized accounts established, as in several cities in Metro Manila,
revenues have increased by around 50%. The Bank is supporting MOF's efforts
through technical assistance for improving records management under the
Regional Cities Development Project (Loan 2257-PH) and financing for tax
mapping under the proposed project.
Bank Sector Lending Strategy, Rationale for Bank Involvement and Past
Experience
34.
Since 1976 the Bank has assisted Government to develop policies and
programs in the sector emphasizing low-cost solutions, with a focus on the
urban poor. To date, nine projects have been approved for a total of $451
million. In Metro Manila the chief focus has been to upgrade unserved areas,
and expand the supply of serviced land. More recently, the emphasis has
broadened to include provision of economic infrastructure and services in
regional cities. Within the sector, Bank investments have been concentrated
in the following areas: (i) providing shelter to low income households both
through upgrading slum areas and building new sites and services;
(ii) improving the supply and distribution of city-wide water systems to
affordable standards with full cost recovery to enable the water enterprises
to become financially viable, and providing low-cost human waste and wastewater disposal systems to unserved areas; and (iii) improving municipal
infrastructure to strengthen the economic potential and performance of key
regional cities.
35.
In addition to financing these basic service programs, the Bank has
emphasized the need for institutional and management improvements in four key
areas: (i) strengthening metropolitan management in Metro-Manila through the
development of intersectoral planning and capital budgeting and efficient
financial management; (ii) establishing intermediaries for urban development;
(iii) building the capabilities of local governments to implement and manage
basic service programs, strengthen local enterprises, and improve collection
and management of local revenues; and (iv) emphasizing coordination among
central agencies especially on the area of shelter policy, budgeting, finance
and regional development policy.
Experience to date of the projects under implementation has shown
36.
that, while start-up has been slow, they have generally achieved both physical
and institutional objectives, and are providing a sound basis upon which to
expand the Government's urban program. Favorable features of the shelter
portion of the first three projects to date include: (a) positive beneficiary
response to the programs and (b) the willingness of families to invest large
sums in upgrading their dwellings (especially after tenure is assured). The
provision of secondary and tertiary infrastructure to provide basic urban
- 12 services to the urban poor in Metro Manila under the third urban project is
off to a good start. While there is a clear demand for these programs, actual
implementationand disbursementshave been slow. The principal difficulties
with the urban projects to date have been: (a) slow start-up,mainly due to
land acquisitionproblems; (b) less than satisfactorycontractorperformance
and constructionsupervisionby implementingagencies on some componentsin
the first two projects,resulting in cost overruns and delayed completion;and
(c) lagging collectionsfrom shelter beneficiariesdue to uncompletedworks
and absence of appropriatemechanisms and enforcement.
37.
Future Bank lending in the sector will continue to build on the
basic approachdeveloped under the first four urban projects to provide basic
urban services and shelter at affordablecosts. However, greater emphasis
will be placed on improving urban management, institutionbuilding, increased
resourcemobilization,and on supportingcost recovery measures. The development of national level intermediariesto channel funds and technical
assistanceto local governments for planning,managementand finance would
need to be pursued. It is also recognizedthat design and implementationof
local service projectsby central agencies had often proved slow and led to
lack of interestat the local level. In accordancewith the government
strategy for decentralization,an increased proportionof lending would be
devoted to assisting cities and regions outside of Metro Manila. The proposed
project addresses the difficultiesexperiencedunder ongoing urban projects
through measures aimed at strengtheningthe management and staffing of the
project cities and supporting the establishmentof a central intermediaryfor
municipal development.
IV. THE PROJECT
Genesis and Objectives
38.
From 1980, the Government and the Bank have been discussingthe need
to expand urban servicesamong various cities outside of Metro Manila. It was
recognizedthat design and implementationof local service projects by central
agencieshad often proved slow and led to inertia at the local level, and that
there was a need to make local governmentsmore responsiblefor planning,
financingand implementingtheir local services. Experiencein earlier urban
projectshad defined the range of serviceswhich were broadly needed and it
was felt that by using simple low-costdesign standards,most local governments were capable of implementingtheir own infrastructureprojects. A
Central Project Office (CPO) under MPWR was organized in 1981 to mobilize and
assist local governmentsas they prepared their developmentproposals,and
subsequentlyto evaluate their programs and prepare an initial package for
Bank assistance. The CPO arranged several workshops for a broad range of
central and local officials. At these workshops local needs and priorities
were discussedand the project concepts evolved. Local officialswere all
eager for an opportunityto expand their operationsand were willing to take
active steps to raise local revenues if financingcould be made available. It
was clear that a competitiveenvironment for funds and technicaladvice was
needed to avoid complacencyarising from a mechanistic selection process
independentof local commitmentand that clear criteriawere needed for local
-
13 -
officials to formulate their development programs. This process resulted in a
programmatic approach to the municipal development embodied in the proposed
project.
39.
The CPO identified a pool of 160 cities with populations over 10,000
for participation in the project. Of these, some 15 cities werr selected to
receive initial assistance based on an agreed criteria of their regional
economic functions, existing environmental and infrastructure deficiencies,
poverty, and most importantly, willingness to undertake necessary measures to
strengthen financial and implementation capacity. Feasibility studies for
these cities were carried out with consultant assistance during the period
June 1982 to July 1983. The CPO and the Bank jointly appraised in August 1983
a first tranche of six cities, representing over 50% of the physical works.
Other cities would be included in the project after appraisal by the CPO. The
Bank will review the CPO appraisal reports and the related draft legal
documents prior to their approval for inclusion in the project (Section 2.03
of the draft Loan Agreement). A Staff Appraisal Report, No. 5027-PH is being
distributed separately. Supplementary data is provided in Annex III.
Negotiations were held in Washington from April 17 to 18. The Government
delegation was led by H. E. Benjamin Romualdez, Philippine Ambassador to the
United States.
40.
The main objective of the Government's municipal development
program, of which this project is a part, is to assist the local governments
in providing infrastructure and improved municipal services to a growing urban
population by: (a) assisting local governments in expanding and upgrading
urban infrastructure; (b) establishing mechanisms for local government access
to long-term financial resources; (c) strengthening local government capabilities in financial and project management; and (d) improving local government
fiscal
performance.
Program Structure and Organization
41.
The main elements of the project are the CPO and the Municipal
Development Fund (MDF), a loan account administered by y7 e MOF.7/ The CPO
assists local government to prepare project components,- appraises the local
7/
Alternative institutional arrangements considered were: (a) establishment
of a new financial institution; and (b) utilizing an existing development
bank as a conduit. However, these alternative were not deemed appropriate. The government was rightly reluctant at this time to establish a
new seperate institution. Moreover a development bank could not provide
the close coordination required among central government ministries which
are involved in implementation in the cities and to which the cities have
legal responsibilities for reporting.
8/
Individual investments in a city, such as markets, roads, etc., will be
referred to as "project component." "Subproject" will be used to
describe a group of components in an individual city to be financed
through the proposed Bank supported project.
t
- 14 governments' investment proposals and monitors implementation under the
guidance of a Steering Committee composed of ministerial-level representatives
from MLG (chairman), MOF, MPWH, OBM and NEDA. Subprojects approved by the
Steering Committee would be eligible for financing from the MDF, and from
grant funds through the MPWH. Once a subproject has been approved by the
Steering Committee, a Subproject Agreement would be signed between the city
and the Steering Committee outlining the obligations of the city, MPWH, CPO
and other implementing agencies, and a Subloan Agreement signed between the
city and the MOF outlining both parties' obligations with respect to the MDF
loan. Draft model Subloan and Subproject Agreements were reviewed during
negotiations. The signing of final agreements satisfactory to the Bank, for
at least four cities, is a condition of effectiveness (Section 5.01 (c) of the
draft Loan Agreement).
42.
Implementation will be divided into two parts: national components
and local components. Those areas, such as trunk roads and major drainage,
which have traditionally been the responsibility of the central government
would be implemented by the MPWH with central government budget funds, while
the remaining areas which have been the responsibility of the local governments would be implemented by the cities with their own funds and the MDF
loans. At the city level, project components are proposed to the CPO by the
Mayor and Sangguniang Panglunsod who would also establish a local Advisory
Committe of key council members prior to project implementation. The Mayor
designates a Local Project Officer, who is responsible for developing feasible
investment proposals for consideration by the Mayor and Advisory Committee,
and controlling the general management of the subproject. The City Engineer
is responsible for physical implementation. The city's capacity to implement
and subsequently maintain its investments is one of the criteria used in
determining the size of subloans from the MDF.
43.
The city eligibility and appraisal criteria were reviewed and agreed
during appraisal and are as follows:
(a)
city eligibility: population above 10,000; serving a regional
economic function; significant environmental and infrastructure
deficiencies; high incidence of poverty; and most importantly
willingness to take necessary measures to increase revenues and
rationalize expenditures; and
(b)
appraisal criteria: (i) program content - consistency with
program's emphasis on basic needs of the urban poor, improving
economic efficiency and low cost alternatives; technical and
administrative feasibility; and economic rates of return; and (ii)
program scale - city contribution to local component costs and share
in total city program; and city ability to service debt.
These criteria were confirmed during negotiations (Section 2.03 of the draft
Loan Agreement). The financial and economic criteria are further discussed in
paras. 55 and 56 below.
- 15 -
*
44.
The CPO and Steering Committee are already in place and have been responsible for project preparation to date. However, as the cities currently under
preparation move into implementation and new cities enter the program, the CPO
will require an estimated 26 professional staff in addition to the 19 in place at
appraisal. Currently the CPO is divided into technical, city liason and training
staff who rep-rt directly to the Director. However, its workload will expand in
the future to include supervision of implementation and monitoring of approved
subloans, assistance to new cities entering the program, implementation of the
training programs, programming and budgetting, and liaison with the MDF. This
expansion of activities will require CPO to evolve into: (i) four area
divisions, each dealing with a portfolio of cities; (ii) a program staff to
monitor progress, prepare budgets, and order MDF fund releases; (iii) a financial
evaluation section to evaluate cities' financial performance and advise MDF on
sanctions in the case of nonperformance; (iv) a training division; and (v) an
internal administration division. It was agreed that CPO would be adequately
staffed and funded (Section 3.06 (a) of the draft Loan Agreement) and
confirmation was obtained at negotiations on a schedule for the revised
organizational structure and staffing. The MDF was established in the
Treasury Bureau, MOF, by Presidential Decree in March 1984. The MDF's role
would be limited to administering subloans. The MDF was considered best
located in the MOF which is responsible for policy and review of local
government finances and appointment of local financial officers. The
financial evaluation and monitoring will be carried out by financial staff
(seconded from MOF) within CPO as part of overall subproject appraisal and
supervision. Draft implementing guidelines for the MDF were reviewed during
negotiations and signing of a Memorandum of Agreement among MLG, MOF, OBM,
MPWH and NEDA on operating procedures of the MDF is a condition of
effectiveness (Section 5.01(b) of draft Loan Agreement).
Project Components
45.
The proposed project would be implemented over six years from July
1984 to June 1990 and would consist of basic infrastructure improvements in
approximately 15 cities. Infrastructure to be financed would include:
(i) provision of secondary and tertiary drainage systems and rehabilitation of
primary drainage systems together with shoreline protection and other flood
control measures; (ii) provision of communal sanitation facilities;
(iii) solid wastes management; (iv) area improvements for squatter and slum
communities; (v) construction and rehabilitation of markets and
slaughterhouses; (vi) construction and rehabilitation of road systems and
traffic engineering measures to improve traffic flows particularly in the
central business districts; and (vii) construction of bus terminals to further
relieve congestion and improve inter-city passenger transport. While water
supply forms an important part of each city's development program, it would be
largely financed through LWUA which is responsible for the development of
water facilities in cities and municipalities outside Metro Manila. LWUA is
the beneficiary of two Bank loans. The composition of subprojects and level
of investment would vary from city to city. Given the importance of
maintenance, the project would upgrade maintenance depots by providing
vehicles and equipment for solid wastes management, septic tank emptying and
road and drain maintenance.
-
16 -
46.
The proposed project would also assist the central government in upgrading the technical and administrative capability of local governments and
strengthening their revenue base through a tax mapping program, training and
technical assistance. The proposed project would expand MOF's ongoing
national program to enhance local government revenues through provision of
equipment and financing for updating cadasters, property appraisal, improved
records management and better collection. Training programs designed to equip
local officials and technical staff with skills and techniques in the
operational aspects of their respective jobs would be carried out by the
CPO. These programs would focus on: (i) municipal finance and revenue
administration; (ii) municipal enterprise management; (iii) planning and
budgeting, project development and contract management; and (iv) municipal
engineering maintenance. The project would also include consultant advisory
services totalling 516 man-months (200 foreign and 316 local) to assist: (i)
the CPO and MOF in overall program management, project monitoring, implementation and appraisal of subsequent phases; (ii) the MOF and OBM to review the
local government grants system, and local financial management and budgeting
procedures; and (iii) the MLG to study training needs.
Project Costs and Financing
47.
The total project cost, including contingencies and taxes and duties
is estimated at US$68.7 million. The foreign exchange component is about 47%
of project cost or about $32.2 million. Taxes and duties are estimated at
$2.0 million. Cost estimates for the six cities appraised by the Bank are
based on preliminary engineering designs and on final engineering designs for
the components which are to be implemented in 1984 and 1985. Final engineering designs for the components scheduled for implementation later in each
city, will be completed in 1985. The project requires only modest amounts of
land acquisition which is already underway in the initial six cities. For the
remaining cities which are expected to comprise subsequent tranches, the costs
were estimated based on target investment levels and preliminary engineering
completed to date. The costs for tax mapping at P 62 per parcel and 180,000
parcels per year are based on the costs incurred to date under the on-going
MOF program. Physical contingencies of 10% have been allowed on civil works
in the six appraised cities. Price contingencies are included at 20% for
1984, 12% for 1985, 10% for 1986 and 7% thereafter on local costs, and at 3.5%
in 1984, 8% in 1985, 9% for 1986-88,
7.5% for 1989, and 6% for 1990 on foreign
costs. Base costs are expressed in April 1984 prices.
48.
The proposed Bank loan of $40.0 million would finance the total
foreign exchange requirements ($32.3 million) including the front-end fee
($0.1 million) and about 21% of local costs ($7.7 million). The Bank loan
would be made to the Government of the Philippines (GOP) for a period of
20 years including five years grace at the standard variable interest rates.
Part ($11.8 million) of the loan proceeds would be retained by central government for financing tax mapping, training, technical assistance and the capitalized front-end fee. The remaining balance ($28.2 million) would be passed on
to the MDF as initial capital to provide subloans for subprojects to be implemented by local governments up to a maximum of 90% of local subproject costs,
at 14% interest over 20 years, including five years grace. The lending rate
was derived on the basis of the cities' financial ability and the Bank's
-
*
17
-
interest rate with a margin to reflect the front-end fee, commitment charge
and foreign exchange risk, and is in keeping with the emerging government
policy for the cities to bear increasing financial responsibility for their
programs. In contrast, in the past investments of the type included in the
project were to a large extent financed from central government grants. The
proposed interest rate is projected to be positive in real terms :indwould be
reviewed annually in light of the changing economic and financial environment
and adjusted for future subloans. A major feature of the proposed project is
that the payments of interest and repayments of principal by the cities to the
MDF would be relent to other cities allowing the MDF funds to revolve. Therefore, the Government would be responsible for payment of all financial charges
and repayment of the entire Bank loan including funds passed onto the cities
through the MDF. These arrangements were confirmed during negotiations
(Section 2.03 of the draft Loan Agreement).
Local funds would be provided: (a) by Central Government to finance
49.
national infrastructure components ($22.8 million) to be implemented by MPWH,
and for part of tax mapping and training activities ($0.3 million) through the
MOF and CPO; and (b) by local government ($5.7 million) for local components
and training. This financing plan reflects Government's proposal that the
Bank loan be used primarily to finance the MDF together with the tax mapping,
and training and technical assistance components. This arrangement is
expected to facilitate the provision of local funds since MPWH's contribution
can be consolidated into a single account in MPWH's National Infrastructure
Fund. On this basis no disbursement would be made out of the Bank loan
against national infrastructure components. To provide adequate
synchronization of the national and local components, the scope, location,
phasing and financial requirements of components will be clearly outlined in
the Subproject Agreement between each city and the Steering Committee which
includes a representative of MPWH, the ministry responsible for implementing
the national components.
Procurement and Disbursement
50.
below:
.
Procurement arrangements for the project are summarized in the table
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18 -
Type of Procurement
Project
Civil works
Vehicles and Equipment
Tax mapping
ICB
LCB
-
47.6
(21.8)
1.1
(0.8)
5.6
(5.6)
-
-
Training
-
-
_
Technical assistance
Total
Note:
-
-
_
-
Other
…----- $ million
2.0
(1.0)
0.5
(0.4)
2.6
(2.4)
3.4
(3.1)
4.8
(4.8)
Total
N.A.
Cost
-----------------
1.1
-
-
50.7
(22.8)
7.2
(6.8)
2.6
(2.4)
3.4
(3.1)
4.8
(4.8)
68.7
(39.9)
Figures in parentheses are the respective amounts to be financed by the
Bank loan. Land acquisition ($1.1 million) was included under N.A.
For civil works, over 100 separate components would be spread around 15 cities
over a four- to five-year period and would represent many small contracts, the
largest of which is estimated at $0.9 million. Past experience has indicated
that foreign firms have not been interested in bidding for these types of
works because of the scattered project sites, the large number of contracts of
short duration, and competition from the relatively well-established local
contracting industry. These works (totalling about $47.6 million) will be
procured from prequalified contractors through LCB procedures acceptable to
the Bank which would allow participation by foreign contractors. The only
exceptions will be rehabilitation of markets and minor traffic engineering
improvements (about $2 million and each costing less than $50,000) which would
be undertaken by force account because of the need to work around existing
operations. Equipment and vehicles for maintenance and solid wastes
management totalling about $5.6 million would be procured through ICB in
accordance with Bank guidelines on behalf of the cities and MOF by the CPO
grouping them into suitable packages of $200,000 or more. A margin equal to
15% of the cif bid price of imported goods, or the actual customs duties and
taxes, whichever is less, will be allowed for domestic manufacturers.
Contracts of less than $200,000 for maintenance tools and small miscellaneous
equipment for training and tax mapping (about $1.1 million) would be purchased
through LCB procedures. For equipment of less than $50,000 per contract,
prudent shopping up to $0.5 million would be permitted. Consultants' services
for tax mapping, training and technical assistance would be obtained in
accordance with Bank guidelines.
-
19
-
51.
Bank funds would be disbursed against civil works and equipment contracts on project components implemented by local governments and financed
from the MDF and against tax mapping, training and technical assistance
carried out by the central government. Disbu ements would be made against:
(a) 100% for subloans funded through the MDF;- (b) for equipment for tax
mapping and training - 100% of foreign expenditures (CIF) if directly imported; 100% of ex-factory costs if locally manufactured; and 65% if locally
procured; (c) for consultants' services - 100% of foreign and local costs; and
(d) 90% of expenditures for training and tax mapping based on contracts with
implementing institutions or agencies for training and with cities for tax
mapping. Disbursement requests under (a) and (d) above would be supported by
certified statements of expenditures. A special account of $3 million of the
Bank funds would be established as a condition of effectiveness to expedite
disbursements (Section 5.01(a) of the draft Loan Agreement). The projected
disbursements generally follow the historical disbursement profile for the
sector in the country. Disbursements are projected over six and a half years
from July 1984 - December 1990 with a proposed closing date on June 30, 1991.
6s
Accounts, Audits and Program Reporting
52.
Each project city will be responsible for maintaining detailed subproject accounts for both local and national components. The CPO will maintain accounts for the equipment procured on behalf of the cities, and accounts
for the training, and technical assistance for which it is responsible. The
MOF will account for the tax mapping and technical assistance for which it is
responsible, and the MLG for the training study. The CPO will consolidate all
accounts annually in a single project account. The project accounts in the
CPO, the cities and all other existing agencies will be audited annually by
independent auditors acceptable to the Bank (Section 4.02 of the draft Loan
Agreement). A separate opinion would also be given by the independent
auditors confirming that funds withdrawn under statements of expenditures have
been used for the purposes intended (Section 4.02(c) of the draft Loan
Agreement).
53.
The Subproject and Subloan Agreements will include implementation
schedules and steps to be taken by the cities including fiscal reform as well
as construction, and will form the basis for progress monitoring. The cities
will submit quarterly reports to the CPO which will consolidate quarterly
progress reports to the Bank. The CPO will also prepare a yearly report which
analyzes and evaluates the whole project.
Local Finances and Cost Recovery
t
54.
The project would result in a significant increase in the cities'
investment programs while increases in central government grants are expected
to drop significantly compared to previous years. To generate the necessary
local funds and meet future debt service requirements, the project cities
would need to: (i) ensure cost recovery on revenue generating components; and
9/
MDF will finance up to a maximum of 90% of local project costs.
- 20 -
(ii) increase local revenue and reduce unnecessaryexpendituresthrough
improved administrationand maintenance. Rents and fees for markets and
slaughterhousesand bus terminalswould be set to at least cover recurrent
costs of operation and maintenance and debt service requirements. With regard
to area improvementworks, investmentswould be recovered through charges
levied on beneficiarycommunities. For solid wastes management, each project
city currently levies a fee on commercialand industrialestablishmentsas
part of the annual business licensing process. The cost of residentialsolid
wastes service would be collected from cross subsidies from commercialand
industrialcharges and from general revenues since it would be administratively inefficientto levy small direct charges on beneficiaries. For sanitation services,which would consist principallyof septic tank cleanoutupon
request of the user, a service charge would be applied. Roads and drainage
works would be financed from general tax revenues. Cost recovery performance
for each city would be monitored closely by CPO (para. 44).
55.
Considerablepotential exists to implement sufficientincreases in
local taxes and charges, togetherwith savings in operation and staff costs,
to support a significantincrease in local investmentprograms. To obtain an
MDF loan, a city would have to contributea Inimum of 10% of local component
costs and maintain a debt service coverageof 1.2. Most cities would need
to undertakemeasures to increaselocal revenues, including completionof tax
mapping and up-dating propertyassessment, improvedrecords managementand
enforcement. Furthermore,improvementsin operationsand maintenance through
the project are expected to result in savings in expenditures. Improvements
in financial performanceof project cities would depend largely on administrative performanceby respectivecities' Treasury and Assessmentstaff. In each
city, task forces would be established to set revenue targets and monitor performance in rationalizingbusiness classifications,improving records management, collectingdelinquent taxes, and, as a cost control measure, reviewing
staffing needs overall. The revenue reforms would be part of the MOF's
national program to strengthenlocal government finances (para. 33). The CPO
would review city finances and propose revenue enhancementand cost saving
measures during appraisal. Each Subloan Agreementwould contain agreementson
specific steps to be taken; in cases of non-compliance,measures would be
taken such as suspensionfurther disbursementof loan funds or even reduction
in governmenttransfers.
Justificationand Benefits
56.
The principal benefits of the proposed project are the positiveeconomic, social and health impacts on the project cities and an improvedpolicy
and financial environmentfor municipal development. City efficiencywould be
improved through reduction in property damage and improvementson traffic circulation through flood control,drainage, roads, traffic managementand bus
terminal investments,and from the maintenance program. The above activities
and the improvementto the markets and slaughterhouseswill enable the cities
10/ Annual revenues minus operating and maintenance expendituresdivided by
debt service liabilitiesto all creditors.
- 21 -
to strengthen their economic role in their regions. Health and social benefits would result primarily from the sanitation, area improvement, solid
wastes, drainage and water supply components. Finally, the establishment of
the CPO, MDF and the training programs would introduce a more rational planning and investment process, stimulate local revenue generatio. and cost control measures and provide a source of long-term financing for local governments. The economic rate of return (ERR) would be used as a criterion for
component selection except for those components where benefits are primarily
health related and difficult to quantify or for minor works of costs below a
pre-determined cut-off point. Those components with an ERR below the
opportunity cost of capital (currently about 13%) would be rejected, except
those with a significant health factor and ERR above 10%, which may be
accepted. For the six cities appraised by the Bank, the weighted average ERR
for the city program as a whole ranged from 18% to 24%. The project is expected to have a substantial positive impact on the urban poor, since most of the
components addressing environmental problems are in the depressed areas where
the poor live. In the cities already appraised, the urban poor comprise 35%
to 60% of the population and approximately $16 million or 51% of the investments would benefit the poverty group.
Environmental Aspects
57.
The project is expected to have a substantial positive environmental
impact. The municipal infrastructure and enterprise components, especially
flood control and solid wastes management, are designed specifically to
improve environmental conditions and reduce disease risks in the project
cities.
Risks
58.
The principal risks of the project lie in: (a) the ability of
central government to maintain its local share of the project in a period of
national economic and financial constraints; (b) the capability of the local
governments to provide local funds during implementation continue to service
their debt; and (c) the capability of the CPO to manage the expanding
program. With respect to the first risk, the Government has accorded this
project a high priority and MPWH would commit itself to a schedule of disbursements from its budget for those cities where the programs have been
established. However, if these disbursements could not be maintained, the
program could still continue, either at a reduced scale by omitting some of
the national infrastructure investments in the cities, or by extending the
period of implementation. This would not necessarily jeopardize the economic
justification since a city's program typically would consist of several
discreet components where a postponement of implementation in one would not
delay completion of others. The second risk would be minimized by requiring
the local governments to formulate a financial plan, agreed with the Steering
Committee, which would demonstrate improvements in revenues before a subloan
is made from the MDF and establish task forces chaired by the Mayor on fiscal
and administrative performance which will be supervised by the CPO and the
MOF. In addition, these plans form part of MOF's national program to
strengthen local government finances and the MOF would apply financial
sanctions against defaulting project cities through cessation of disbursements
-
22 -
on their subloan and attachmentof central governmentgrants. With regard to
the third risk, the CPO has performedwell over the past two years in
preparing the project, but substantial strengtheningat middle management
levels is required. The proposed improvementsin internal organizationand
hiring of key professionalstaff and consultantsserviceswould help to
minimize this risk; most of the required staff has been recruited and the
internalorganizationalset-up has been arranged.
PART V - LEGAL INSTRUMENTSAND AUTHORITY
59.
The draft Loan Agreement between the Republic of the Philippines and
the Bank and the Report of the Committee provided for in Article III, Section 4(iii) of the Articles of Agreement are being distributed to the Executive Directors separately. Special conditionsof the project are listed in
Section III of Annex III. Additional conditionsof effectivenessinclude the
signing of a satisfactoryMemorandum of Agreement among the MOF, MLG, OBM,
MPWH and NEDA to establish the policies and proceduresfor the MDF, the
signing of Subprojectand Subloan Agreements satisfactoryto the Bank, for at
least four project cities, and the establishmentof a Special Account in the
Central Bank of the Philippines (Section5.01 of the draft Loan Agreement).
60.
I am satisfied that the proposed loan would comply with the Articles
of Agreement of the Bank.
PART VI - RECOMMENDATION
61.
I recommend that the Executive Directors approve the proposed loan.
A. W. Clausen
President
Attachments
May 15, 1984
Washington,D.C.
-23
-
TA B L E
PHILIPPINES
PHILIPPINES
1b
1960-
1970-
ANNEX I
Page 1 of 5
3A
- SOCIAL INDICATORS DATA SHEET
REFERENCE GROUPS (WEIGHTED AVERAGES) la
(MOST RECENT ESTIMATE) /b
MIDDLE INCOME
MIDDLE INCOME
ASIA & PACIFIC
LAT. AMERICA & CARIB
MOST
RECENT A
ESTIMATE-
ARgA (THOUSANDSQ. KN)
TOTAL
AGRICULTURAL
300.0
98.8
300.0
104.0
300.0
109.2
GNP PER CAPITA (US$)
160.0
260.0
790.0
1028.6
2088.2
ENEMRYCONSUMPrIONPER CAPITA
(KILOGRAMS OF COAL EQUIVALENT)
159.0
333.0
380.0
792.8
1407.6
27394.0
30.3
36848.0
32.9
49558.0
36.7
32.9
65.9
260.7
1696.5
35.6
93.2
OPbULATION
AND VITAL STATISTICS
POPULATION,MID-YEAR (THOUSANDS)
URBAN POPULATION (T OF TOTAL)
POPULATION PROJECTIONS
POPULATION IN YEAR 2000 (MILL)
STATIONARY POPULATION (MILL)
YEAR STATIONARY POP. REACHED
76.4
137.2
2105
POPULATION DENSITY
PER SQ. EM.
PER SQ. KM. AGRI. LAND
91.3
277.3
122.8
354.3
161.0
442.3
44.6
52.4
3.0
45.5
51.6
2.9
43.6
53.3
3.1
39.4
57.2
3.3
40.1
55.8
4.1
3.0
4.1
3.0
3.8
2.7
3.7
2.3
3.9
2.3
3.7
46.7
14.6
3.4
44.0
9.8
3.1
33.9
7.3
2.3
31.3
9.6
2.0
31.5
8.1
2.0
..
..
191.7
2.0
375.0
48.0
46.6
FOOD AND NUTRITION
INDEX OF FOOD PROD. PER CAPITA
(1969-71-100)
102.0
101.0
124.0
125.2
113.0
PER CAPITA SUPPLY OF
CALORIES (% OF REQUIREMENTS)
PROTEINS (GRAMS PER DAY)
OF WHICH ANIMAL AND PULSE
99.0
46.0
17.0
99.0
48.0
19.0
116.0
53.0
21.0/c
114.2
57.9
14.1
111.3
67.9
34.1
CHILD (AGES 1-4)
13.8
7.9
4.3
7.6
5.3
52.8
105.8
59.0
75.0
63.2
53.0
60.2
68.1
64.6
62.6
ACCESS TO SAFE WATER (%POP)
TOTAL
URBAN
RURAL
..
..
..
36.0
43.0/d
66.0/d
37.1
54.8
64.8
77.8
33.07F
2
44.3
ACCESS TO EXCRETA DISPOSAL
(% OF POPULATION)
TOTAL
URBAN
RURAL
..
..
..
57.0
56.0/d
41.4
47.5
33.4
54.6
69.8
29.8
6940.0
..
9100.0
5390.0
7771.9
2462.6
1776.0
1012.2
1210.0
540.0
..
820.0
390.0
..
..
1047.2
651.1
2591.9
477.0
667.5
1921.6
..
30.0
..
27.0
27.2
POPULATION AGE STRUCTURE (X)
0-14 YRS
15-64 YRS
65 AND ABOVE
POPULATION GROWTHRATE (x)
TOTAL
URBAN
CRUDE BIRTH RATE (PER THOUS)
CRUDE DEATH RATE (PER THOUS)
GROSS REPRODUCTION RATE
FAMILY PLANNING
ACCEPTORS, ANNUAL(THOUS)
USERS (% OF MARRIED WOMEN)
DEATH RATE
HEALTH
LIFE EXPECT. AT BIRTH (YEARS)
INFANT MORT. RATE (PER THOUS)
POPULATION PER PHYSICIAN
POP. PER NURSING PERSON
POP. PER HOSPITAL BED
TOTAL
URBAN
RURAL
ADMISSIONS PER HOSPITAL BED
HOUSING
AVERAGE SIZE OP HOUSEHOLD
TOTAL
URBAN
RURAL
- - -
-
- _- _--
- -
-
- -
- -
-
- -
- -
- _- - -
_- _- - -
-
--
16.5
- -
-
560.0/e
..
..
22.7
59.9
6.7
..
..
- -
7970.0
6000.0
2.3
2.1
2. 4
..
..
- --
44.07o
5.9
6.2
5.8
..
..
ACCESS TO ELECT. (% OF DWELLINGS)
TOTAL
URBAN
RURAL
76.o07
..
..
5.8
AVERAGE NO. OF PERSONS/ROOM
TOTAL
URBAN
RURAL
_- -
..
..
- -
- -
_- _- -
_- _- _- -_ _-_-__
- - -
36.0
82.6
10.0
- -
_- _-__
- - - _-_-_-_- - - -
- -
--
_-_-_-_
_-_-_-_
_-_-_-
-_-_-_-
-_-_-_
ANNEXI
-: 24 -
-
T A B L e
PHILIPPINES
PHILIPPINES
1 9 6 0/
EDUCATION
ADJUSTED ENROLLMENTRATIOS
PRIMARY:
TOTAL
MALE
FEMALE
SECONDARY: TOTAL
MALE
FEMALE
1 9 7 0/b
95.0
98.0
93.0
108.0
115.0
113.0
26.0
28.0
25.0
46.0
52.0
49.0
Page
3A
- SOCIAL INDICATORS DATA SHEET
REFERENCE GROUPS (WEIGHTED AVERAGES) /a
MOST
(MOST RECENT ESTIMATE) /b
RECENT
MIDDLE INCOME
MIDDLE INCOME
ESTIMATEL/
ASIA 6 PACIFIC
LAT. AMERICA & CARIB
110.0
111.0
108.0
101.2
106.0
97.5
105.0
106.3
103.6
63.0
58.0
68.0
44.9
50.0
44.6
40.0
38.6
41.2
33.9/c
18.5
34.0
VOCATIONAL (Z OF SECONDARY)
14.3
PUPIL-TEACHER RATIO
PRIMARY
SECONDARY
36.0
27.011
29.0
33.0
30.0
34.0
32.7
23.4
30.7
16.7
ADULT LITERACY RATE (X)
71.9
82.6
75.0
72.9
79.5
3.2
21.9
1.4
7.6
40.7
10.9
10.2/e
43.5
20.7
9.7
113.7
50.1
45.6
228.2
108.3
17.7
0.6/h
13.6
20.7
7.4/d
54.0
3.4
64.1
2.9
CONSUMPTION
PASSENGER CARS/THOUSANDPOP
RADIO RECEIVERS/THOUSAND POP
TV RECEIVERS/THOUSAND POP
NEWSPAPER ("DAILY GENERAL
INTEREST") CIRCULATION
PER THOUSANDPOPULATION
CINEMA ANNUALATTENDANCE/CAPITA
LABOR FORCE
TOTAL LABOR FORCE (THOUS)
FEMALE (PERCENT)
AGRICULTURE (PERCENT)
INDUSTRY (PERCENT)
8.9/f
..
10915.0
34.2
61.0
15.0
13477.0
33.1
53.0
16.0
17667.0
32.3
46.0
17.0
33.6
50.9
19.2
24.8
31.3
23.9
39.8
52.1
27.4
36.6
48.6
24.4
35.6
47.8
23.2
38.6
50.7
26.6
31.3
49.8
14.8
1.2
1.3
1.3
1.1
1.4
30.1
56.3
4.2
12.0
25.1
54.0
5.2
14.2
..
..
PARTICIPATION RATE (PERCENT)
TOTAL
MALE
FEMALE
ECONOMICDEPENDENCYRATIO
INCOCEDISTRIBUTION
PERCENT OF PRIVATE INCOME
RECEIVED BY
HIGHEST 5Z OF HOUSEHOLDS
HIGHEST 20% OF HOUSEHOLDS
LOWEST 20% OF HOUSEHOLDS
LOWEST 40% OF HOUSEHOLDS
POVERTY TARGET GROUPS
ESTIMATED ABSOLUTE POVERTY INCOME
LEVEL (US$ PER CAPITA)
URBAN
RURAL
..
..
..
,,
22.2
48.0
6.4
15.5
..
..
260.0
195.0
194.5
155.0
289.8
184.5
519.8
372.1
ESTIMATED RELATIVE POVERTY INCOME
LEVEL (US$ PER CAPITA)
URBAN
RURAL
..
..
..
''
266.0
200.0
178.0
164.8
ESTIMATED POP. BELOW ABSOLUTE
POVERTY INCOME LEVEL (5)
URBAN
RURAL
..
..
..
..
32.0
41.0
24.4
41.1
NOT AVAILABLE
NOT APPLICABLE
N O T E S
/a
The group
indicators
/b
Unless
otherwise
noted,
"Data for 1960" refer
to any year between
1971; and data
for "Most Recent Estimate"
between
1979 and 1981.
/c
1977;
/d
averages
depends
1975;
for each indicator
on availability
of
/e 1978;
/f
1972;
/g
are population-weighted
data and is not uniform.
1962;
/h
2 of 5
arithmetic
means.
1959 and
1961;
Coverege
"Data
for
of
countries
1970"
between
among the
1969 and
1958.
May 1983
ANNEX
Page 3 of 5
- 25 DEFINITlIONh
Hares_
the
Alh-tcgh
demobrIeodece
dataer
ofnglae,
td
tabjcsroetcp
cocet
gr
dr-o
ic
AREA (thb...a.dtqA
Teal-Toat -rslhIT_acea,scat
fe197
dih
trct,ad
th
rec1.ter
PeoetraI
most
OP SOCIAL I NDICAORtS
aotorsa
,hl
n.Jor
-e-etin
ara?ehr
tertetcr'-etcatcfeae
I--
-,d
jadgd
ct
II
focer
lolpto.
ce.ge..erally
....
ict
~
otat
-opacdat
to
lee
diff-r-rs
TitdI
Itc
As -orth
gttldlaoa
.-
and reliabe,
ft
bete--
otem
i,e
atdp fflddl
ctr
eacket
aed
"ltha goree
etrsI190
to lie
f--d;
t1
also
be totd
tha
say
-ty
~I-
tesht" hlcm thsebcese
-.
Icot be ltt-
1960.
fetttfr,
haeccatb
per IPfty-tcl
a.sqalfte
tattled
-etotliy
.agcolo--yltecal
cmde-cotIoeelblisoIatot
PePolatiore
p,putae
sho
aetil
re.
Popolat-c
ooca
dlsIded
by
cho.a..i..lyted
atri
....
rci
e
t.e.es
5
I97l~~
ItOh aed
data.
~~~V,~~~~
(ci
Id
80 d-.
leaealeaeeae
- sp
ysoeotrrlo
a
crd
sthd
csloiaed
erto
19N
PER
0
y
1970, aed 1900
1960
paco
teap.e.o
orooslaoatgaodbdn-
S
of
hoy
l-co
Prele-t
neas
o
codtanl
I
fr
frtiItyf
ntlie
tedcgl
perad
I-ti-pe
heta11t tent
9f
fpetaniceiag
P-ytrsl
l.po1oIlct;
9
,
,papo_tioce
foe
lod
190t
1980-,
OO-
far
196-00
of
y coma'
1teht-ct1960l
od
ls
te
Al toce
-.
lOG
atm
espr
ategyeaiatato
to
.........
-fflleoebrqaIdesre
-
oeqareaetu
altooaacn:
te
a
oallbt
CO
-ll
Pros
detlee
Wnsldata
ff
adtri
oHEArL
Liacl,tacc-le
deco
gO,
aIl
ao
oe
dectnSr-
lf
ae
p....er
pol_boero (tIn,
dd
196165
abe;
9
o popollefrLfanhs
, acdearal
o
1-
taHcedah
y
hasacaltrtaacdcao-aatot00
aol
dic_ea
stellar
seeroP.,ttyoI
o
to doapta_cde-hoe
.
ie
tpcetg
l-cGt-cay1ct-edldo
hy
ffoo
ache1ap.....
rhh-
oIfyas.-
peccant
rd'to
choi.oti
i_ca
ryce-ne
dteo0a
g;c
ar
tI_
are
catl- nal
-h
tslccitoe
gac
AlobI
opeah
toeped
cdr-TtattaeeacetdI
rppt-da
dd
pi
to
feed,
inbrelII
cesPadoi
po
e-et,
Oyat
cr
,19 911 and
oyhaao
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eret
I
ds,I
popattesabsh-ehff
.Itldttetosr
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ro
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t
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abatbe)-tcie
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acdpoI..,
p11.
II
eec-fen-d
5
reqo
5
rer-
r
Is net
1doble
n
oetfIfonIel(h
ROPoSryIco
oiheoalby
eeletodjutaesontgtrrosofaI
becta -lee
hec
pra
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df
e
ne
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oftcoaatca-cfohdl
at
taeh
us tea
al,edfeaelbo.ecs
rae
otlalee,a
ht
cebsdc
t'
-1
b
tl-d-raf
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starena
force.
19oas0 1970ohae
at P
reree
,rithetl
date..eseil
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eoctsgae
-c-iae
Eol---e
arcar
f-eorlb
f
e
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e
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-dato
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eIt
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1907b
..ed
petil
t9El
.tthe
tdaeely-
atilh
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c
of.d toe
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neasbGa
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etc -I or.
eei
oo-k-ii
otooctcboprs
no
caote;oids
,l
i~Ir hapersti_
ot
bted -peCpit--ceroa
feoeiryeohnaarel
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gatrftctgag-e
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adfi
1
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fte, slama
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retoF-ta
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pereoca
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poecePoehtsOtVEg
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o
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idtdethepleo
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e
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ltto
tetg
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_IsItIt.g.tnpeeday
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sy
tas tetdrd~
e
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r
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feteh
of _ectuclh
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all narr;rdocncc
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acfa bi
cc-h
,a- d-,Pal
trdnlocaecrrahso8Cneiit
of
deti-s
of-- doaghteresos..
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of
fododaa.
egr
yrcd
dtlltgateetlih
cprlai
cooIi-hesalib
tot
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_190 -il.
de97oe
camber
ocde
toIl.
f
dcY
getOCoT
pop its
o
hdl-hh
aa
destha per
ato
the
-1c
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,-obe
Ar
r..tloi. It'h"
.ti.gs
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.......ep
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totAl,
c
co
ostto
I
aet"0-l"rdyeat
ad
t.
ore teoloe
Bed - ftloen
...
(-Iyart,
acctgt
- eco
e
hp
- Pet.a
popela9ta;
1900,
an 9600,
lO
Bieprhdetce
Oa_the-deecg-
Y,til
da
date.
1900-00
Grad f.... )ct
lyod tbocada65dl
yea poar
to;
tO
9G
Grdehat-th
tt-lper thoaaIt
Great
per t,0or
dot.
-ana.
d15
htroIae(etc)-Itdn
illkbtf-age
aertretfessacoafs
Mield-a-epnetyP_
1960, 197,
pear; yapotattoc
ottl
otfal.i.e.t
ore cyi-these-dnfopoetoyJ-e.otttrac
e ther
Ioaoin-IIs
f-lyecgreatb-d--
-d pe_tlato
ttod.Oartcct.eerlhsias
thehetm
a 0..
.. h.P
-et77octa.ped.parts
raI
taddt
hylicIbadyamdlo
hfhofrf-psrtatnedtc
ct90edtersteAos.0badrI
etal feettltty
Thel yearly
polthee
19,
-ed tO
n
1
et
tnllp
rIc
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a oce
1060,
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optl
Sp.oote
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dittoed
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rheIs_qdltosh.dat
ternl .ty.
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fet
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1970, atd
19b0,
rdttesor
the i rn
ptatotng
paroettoete
Ibo hIontpItteonlg
pohioIcl oPocJ.al-cyaotecctl
trytyred
hhatlcaecy
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tt
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adrote)
:i1~~~~~~~~orac
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onrotfopolea
an"ItI
I to;ecIll
ae_,d brct,
eer
e
efettatteed hospital andA
ehh iha;
ooobte
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I
reetblse7t
pea-e_d
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hochltatn_ on
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ar
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ecloe
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Pooolet
es .;
doe
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(thoaattdsl
Po?0lATI0N
orectnapinfclee
ac
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d E_, A"..
~ ~ ~ ~ ~
, cr0IT 901 data Fty
b..c.fttftlbciCOIO-foo
7cceegyIiledltoa
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pr...paylItl-
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lcactor
booe
ots
ola
do
erg
sdebadfeehe
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(herhe-e en
owl
Rrea.e.,
~
arar
f-rta
tCaooe
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ra
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e
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ot-tpanec
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oa
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r
-
2f -
ANNEX;
Page 4 of
- ECONOMIC
PHILIPPINES
Amount
(million US$ at
current prices)
1983
Indtcator
NATIONAL ACCOUNTS
Gross domestic product
Agriculture
Industry
Services
34,266
7,388
12,364
14,514
Consumption
Gross investment
Exports of GNFS
Imports of GNFS
Gross national
savings
1979
5.9
5.3.
6.7
5.5
Annual
Actual
1980
1981
5
INDICATORS
growth
1982
rates (%) (constant price)
Est.
Projected
1983
1984
l985
l986
l987
1988
4.9
5.0
3.5
6.3
3.8
3.6
4.7
3.0
3.0
3.1
2.4
3.5
1.0
-2.1
0.7
3.5
-2.2
2.0
-5.0
-2.0
0.8
2.0
-2.0
2.5
2.2
3.0
1.0
2.7
3.5
3.5
3.5
3.5
4.5
3.5
4.5
5.0
-4.7
-16.0
4.9
-24.0
-0.3
1.1
5.1
0.2
0.6
4.2
6.0
1.5
0.7
9.1
6.3
2.1
2.5
7.6
6.7
2.6
-
-
-
-
26,959
9,151
6,650
8,882
4.8
7.4
7.4
10.3
4.8
1.0
16.0
3.7
4.0
2.3
1.6
-.9
3.5
-2.9
-2.6
3.5
2.6
-4.4
1.7
-2.0
7,400
7.7
3.4
3.1
-6.5
-3.1
249.4
7.4
98.9
81.6
121.2
286.9
7.5
100.0
100.0
100.0
317.3
7.9
99.4
112.7
88.2
343.5
8.5
87.9
101.6
86.5
380.4
11.1
92.0
95.0
97.0
-
PRICES
GDP deflator (1972
= 100)
Exchange rate (US$1 =
)
Export price index (1980 = 100)
Import price index (1980 = 100)
Terms of trade index (1980 = 100)
1960
Gross domestic
Agriculture
Industry
Services
product
Share of GDP at market prices (X1
(at current prices) /a
1970
1975
1980
1985
1990
1960-70
103
105
98
113
114
99
123
125
98
134
136
99
Average annual increase (X)
(constant prices)
1970-75
1975-80
1980-85
1985-90
100.0
28.1
25.8
46.1
100.0
27.8
29.6
42.6
100.0
29.0
33.5
37.5
100.0
23.2
36.9
39.9
100.0
24.3
36.1
39.6
100.0
22.0
38.9
39.1
5.1
4.3
6.0
5.2
6.1
4.3
8.6
5.4
5.9
4.8
7.6
5.7
1.3
2.3
0.7
2.7
4.0
3.5
4.5
4.0
Consumption
Gross
investment
Exports of GNFS
Imports of GNFS
85.3
16.3
10.8
10.6
79.2
21.5
19.4
19.7
75.8
31.0
18.5
25.3
73.8
30.5
20.1
26.4
79.0
21.0
23.0
21.0
76.0
22.0
25.0
22.0
4.8
8.2
5.8
6.8
5.5
11.5
3.2
6.8
5.2
6.5
10.0
8.0
1.0
-3.2
4.7
-1.7
1.9
6.5
6.7
2.4
Gross national
16.2
20.5
25.3
22.1
18.0
19.0
7.4
9.7
5.8
-
-
savings
PUBLIC FINANCE
Current revenue
Current expenditures
Surplus (+) or deficit
Capital expenditure
Foreign financing
(-)
1960
1970
9.8
9.6
0.2
2.3
-
9.5
10.9
-1.4
1.9
0.1
As % of GDP
1975
1980
15.0
13.2
1.8
3.2
0.3
1983
13.1
9.3
3.7
5.2
1.5
OTHER INDICATORS
Annual GNP growth rate (x)
Annual GNP per capita growth rate (x)
Annual energy consumption growth rate (B)
ICOR
Marginal savings rate
Import elasticity
Projected years
at constant
Labor force in 1983
Millions
Agriculture
Industry
Services
Unemployed
12.1
9.6
2.5
4.5
2.0
1960-70
/a
98
99
101
}
Total Labor Force
1970-75
1975-80
1980-85
9.8
9 3
(X)
48.8
46.2
}
I
I
1.0
5.0
20.1
100.0
1985-90
5.1
2.0
7.4
6.1
2.7
6.2
5.9
3.2
4.2
1.3
-1.1
0.7
4.0
1.7
4.0
3.7
0.29
1.33
4.3
0.33
1.12
5.2
0.26
1.20
23.8
0.35
-1.3
7.1
0.62
0.6
prices.
East Asia and Pacific Region
March 1984
-
27
-
ANNEX
I
Page 5 of
-
PHILIPPINES
BALANCE OF PAYMENT'
AND EXTERNAL
CAPITAL ASD
S pages
DEBT
($ million, at carrent prices)
Actual
Est.
Projected
1979
1980
1981
1982
1983
1984
1985
Exports of goods and services
of which: exports of goods
6,177
4,602
7,863
5,788
8,624
5,722
7,837
5,021
8,072
5,005
8,280
5,510
8,891
6,097
10,101
7,059
11,572
8,212
13,336
9,565
Imports of goods and services
8,108
10,348
11,389
11,683
11,170
10,310 10,490
11,535
12,658
13,922
6,142
7,727
7,946
7,667
7,469
6,919
7,738
8,709
Summary of
Balance of
Of which:
1987
1988
Payments
imports of
goods
Transfers (net)
Current Account Balance
Direct investment (net)
MLT loans (net)
Official-sourceloans (net)
Private-sourceloans (net)
Other capital (net) /a
Overall Balance /b
International
1986
reserves
(end-year)/c
Reserves as months of imports
355
434
472
498
399
-1,576
-2,051
-2,293
-3,348
-2,699
99
45
407
292
4
1,091
449
642
1,032
375
657
1,382
691
691
1,721
434
1,287
1,427
1,177
250
-193
593
-56
146
-1,196
-579
-381
-560
-1,189
-2,464
2,423
3,155
2,707
2,543
3.6
3.7
2.9
2.6
2,134
185
113
3
69
1,887
168
107
2
59
2,136
212
198
7
7
2,693
176
159
8
9
1,949
152
210
81
1,506
1,719
8
229
83
1,399
1,924
58
441
119
1,306
2,518
66
251
125
2,076
7,204
8,415
2,286
4,918
3,645
2,730
5,685
4,086
3,355
6,793
4,546
3,971
8,174
3,999
1,480
488
1,013
568
1,560
806
2,048
1,076
24.0
1.9
18.1
26.1
14.4
5,990
490
6,236
450
480
500
550
-1,540 -1,149
-954
-586
-36
903
1.0
External Capital and Debt
Gross disbursements
Concessional Loans
Bilateral
IDA
Other multilateral
NonconcessionalLoans
Official export credits
IBRD
Other multilateral
Private sources
External Debt
Debt outstanding
and disbursed
Official-source
Private-source
Undisbursed debt /d
Debt Service
Total service payments /e
Of which: interest
Payments as X of exports of goods
and services /e
10,148
12,145
Average interest rate on new loans
Official-source
Private-source
Average maturity
r
5.5
10.5
7.4
14.3
7,7
15.5
23.4
11.1
20.2
10.1
20.9
10.0
of new loans
Official-source
Private-source
9.0
/a Nonmonetary short-term capital, monetization of gold, allocation of SDRs, and errors and omissions.
/b Equals change in net international reserves, plus arrears.
/c Gross reserves of the Central Bank ("Internationalreserves," IFS).
7T Public and publicly guaranteed only.
/e Includes prepaymentsof $401 million in 1978, $492 million in 1979 and $92 million in 1980.
Note: Since the Philippines is in the process of rescheduling its debt, it is not possible to project capital inflow figures
in detail.
East Asia and Pacific Region
March 1984
-
2H -
ANNEX It
Page 1 of 2
THE STATUS OF BANK GROUP OPERATIONS IN THE PHILIPPINES
A.
,in or
credi:
iwuber
FY
Borrower
STATEAENTUF BANK LOANS AND IDA CREDITS /a
As of March 31, 1984
Amount (less cancellations)
Bank
IDA
Undisbursed
Purpose
Thirty-nineloans and three credits fully disbursed
1,192.02
uC80-PH
1975 Rep. of the Philippines
Tarlac Irrigation
17.00
i.O2-PH
1975
Rural Development
25.00
1227-PH
1976
Chico Irrigation
50.00
i272-T-PH 1976
Manila Urban
10.00
1282-PH
1976
Manila Urban
22.00
1353-PH
1977
Third Highways
95.00
.367-PH
1977
Jalaur Irrigation
15.00
1374-PH
1977
Fourth Education
25.00
1399-PH
1977 Central Bank of the Phil. Fourth Rural Credit
36.50
1414-PH
1977 Rep. of the Philippines
Nat. Irrig. Systems Improvement
50.00
1421-PH
1977
"
Rural Dev. Land Settlement II
15.00
1460-PH
1978 National Power Corp.
Seventh Power
58.00
1506-PH
1978 Rep. of the Philippines
Smallholder Tree Farming
8.00
1514-PH
1978 Philippine National Bank PDCP V
30.00
1526-PH
1978 Rep. of the Philippines
Nat. Irrig. Systems Improvement II
65.00
790-PH
1978
Rural Infrastructure
1555-PH
1978 Philippine National Bank PISO
15.00
1567-PH
1978 Rep. of the Philippines
Magat II
150.00
1572-PH
1978
Industrial Investment III
80.00
1615-PH
1979
Manila Water Supply II
88.00
1626-PH
1979
National Extension
35.00
1639-PH
1979
Magat River Multipurpose
21.00
1646-PH
1979
Small Farmer Dev. (Land Bank)
16.50
1647-PH
1979
Second Urban Development
32.00
1661-PH
1979
Highways IV
100.00
1710-PH
1979
Water Supply II
16.00
920-PH
1979
Water Supply II
923-PH
1979
Population II
1772-PH
1980
Samar Island Rural Development
27.00
1786-PH
1980
"
Fisheries Training (Educ. VI)
38.00/c
1809-PH
1980
Medium-Scale Irrigation
71.00
1814-PH
1980
Manila Sewerage & Sanitation
63.00
1815-PH
1980
Rainfed Agric. Dev. (Iloilo)
12.00
1821-PH
1980
Third Urban
72.00
1855-PH
1980
Third Ports
67.00
L860-PH
1980
Rural Roads Improvement
62.00
1890-PH
1981
Watershed Management
38.00
1894-PH
1981
Third Livestock & Fisheries
45.00
1903-PH
1981
StructuralAdjustment
200.00
1984-PH
1981 Central Bank of the Phil. Industrial Finance (Apex)
150.00
2030-PH
1981 Rep. of the Philippines
Elementary Educ. Sector Loan
100.00
2040-PH
1982
Agric. Support Services
45.00
2067-PH
1982
Urban Engineering
8.00
2127-PH
1982
Textile Sector Restructure
157.40
2156-PH
1982
National Fisheries Development
22.40
2169-PH
1982
SMI III
132.00
2173-PH
1982
Communal Irrigation
71.10
2181-PH
1982 National Power Corp.
Coal Exploration
17.00
2200-PH
1983 Rep. of the Philippines
Education VIII
24.40
2201-PH
1983 Philippines Nat. Oil Co.
Petroleum Exploration Promotion
13.50
2202-PH
1983
Petroleum Exploration Promotion
24.00
2203-PH
1983
Geothermal Exploration
36.00
2206-PH
1983 Rep. of the Philippines
Water Supply and Sanitation
35.50
2257-PH
1983
Regional Cities Development
67.00
2360-PH/b 1984
Central Visayas Regional Development
25.60
1282-1/b
1984
Manila Urban Development Supplement
10.50
1639-17W
1984
Magat River Multipurpose Supplement
5.10
Total
of which has been repaid
(Bank and third parties)
Total now outstanding
Amount sold
Of which has been repaid
(third parties)
Total now held by Bank and IDA
(prior to exchange rate adjustments)
Total undisbursed
32.22
28.00
-
22.00
40.00
-
3,906.01
122.22
382.75
3,523.26
0.39
121.83
0.01
0.09
4.90
0.36
0.8()
18.75
0.58
2.32
0.06
21.95
2.81
11.44
4.46
0.75
35.42
13.84
0.01
5.87
11.56
34.89
21.47
1.06
3.94
7.28
47.84
16.00
11.88
31.20
18.83
29.08
55.83
38.27
7.48
42.79
40.26
39.24
25.10
25.63
0.85
137.21
94.56
44.30
2.74
114.17
22.07
120.72
62.64
14.83
21.69
9.72
20.71
31.33
29.01
66.47
25.60
10.50
5.10
1,468.27
31.94
25.98
5.96
3,517.30
1,411.35
121.83
56.92
1,468.27
/a The status of the projects listed in Part A is described in a separate report on all Bank/IDA-financedprojects
in execution, which is updated twice yearly and circulated to the Executive Directors on April 30 and
October 31.
/b Not yet effective.
/c Includes $7.6 million NORAD funds.
ANNEX II
Page 2 of 2
- 29 -
B.
Fiscal
year
1963 & 1973
1967
1967
1970
1970 & 1972
1970
1971 & 1977
1972
1973
1974
1974/1979
1974
1975
1976/1980
1977
1977
1978
1979
1980
1980
1980
1981
1981
1981
1982
STATEMENT OF IFC INVESTMENTS
As of March 31, 1984
Company
Loan
Equity
15.0
8.0
3.7
0.8
6.2
15.0
1.9
1.5
1.6
1.2
7.0
2.6
2.3
3.5
2.1
4.0
10.0
-
4.4
4.0
0.8
0.4
2.2
2.1
0.3
0.6
0.2
1.2
1.1
0.2
0.3
19.4
8.0
4.0
4.5
1.2
2.2
8.3
15.0
2.2
1.5
2.2
1.2
7.0
2.8
3.5
3.5
2.1
5.1
10.2
0.3
4.5
18.5
16.0
11.0
0.6
5.0
-
4.5
19.1
5.0
16.0
11.0
136.4
23.4
159.8
Less sold, acquired by others,
repaid or cancelled
86.1
14.5
100.6
Total Commitments Now Held by IFC
50.3
8.9
59.2
Total Undisbursed
17.62
0.02
17.64
Private Dev. Corp. of the Philippines
Manila Electric Company
Meralco Securities Corporation
Philippine Long Distance Telephone Co.
Mariwasa Manufacturing, Inc.
Paper Industries Corp. of the Phil.
Philippine Petroleum Corporation
Marinduque Mining and Industrial Corp.
Victorias Chemical Corporation
Filipinas Synthetic Fiber Corporation
Maria Christina Chemical Industries, Inc.
Republic Flour Mills Corporation
Philippine Polyamide Industrial Corp.
Philagro Edible Oils, Inc.
Acoje Mining Company, Inc.
Sarmiento Industries, Inc.
Cebu Shipyard and Engineering Works, Inc.
General Milling Corporation
PISO Leasing Corporation
Ventures in Industry and Business
Enterprises, Inc.
Consolidated Industrial Gases, Inc.
Loans to Seven Corp. for SMSE
Philippine Assoc. Smelting & Refining Corp.
Davao Union Cement Corp.
NDC-Guthrie Plantations
Total Gross Commitments
Total
- 30 ANNEX III
PHILIPPINES
MUNICIPAL DEVELOPMENT PROJECT
Supplementary Data Sheet
Section I:
Timetable of Key Events
(a)
Time taken to prepare the project: three years. Preparation has
taken a longer period due to the novelty of the approach and the
large number of cities involved.
(b)
Agency which prepared the project: the Central Project Office under
the Ministry of Public Works and Highways.
(c)
Date of first presentation to Bank and date of departure of first
mission: May 1982 and February 20, 1983, respectively.
(d)
Departure of Appraisal Mission:
(e)
Date of completion of negotiations:
(f)
Planned date of effectiveness:
Section II:
August 18, 1983.
April 18, 1984
September 1984
Special Bank Implementation Actions
None.
Section III:
Special Conditions
(a)
the Government would submit Subproject and Subloan Agreements concluded between the cities and the authorized representative of the
Steering Committee, and the cities and MOF respectively
(para. 41);
(b)
strengthening of organization and staffing of CPO (para. 44); and
(c)
Bank loan proceeds would be passed on to MDF to revolve and provide
needed capital for cities enrolling in the program (para. 48).
j7 Z
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